STARZ ENTERTAINMENT CORP /CN/ 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Overview Combining the STARZ premium global subscription platform with world-class motion picture and television studio operations, Lions Gate Entertainment Corp. (the “Company,” “Lionsgate,” "Lions Gate," “we,” “us” or “our”) brings a unique and varied portfolio of entertainment to consumers around the world. Its film, television, subscription and location-based entertainment businesses are backed by a 17,000-title library and the largest collection of film and television franchises in the independent media space. A digital age company driven by its entrepreneurial culture and commitment to innovation, the Lionsgate brand is synonymous with bold, original, relatable entertainment for the audiences it serves worldwide. We classify our operations through three reporting segments: Motion Picture, Television Production, and Media Networks (see further discussion below). Impact of COVID-19 The impacts associated with the ongoing COVID-19 global pandemic and measures to prevent its spread, and the resulting economic uncertainty, continue to affect our business in a number of ways. We continue to experience delays in theatrical distribution of our films, both domestically and internationally, as well as delays in the production of film and television content (resulting in continued changes in future release dates for some titles and series). While we have begun (and have, in certain instances, completed) production on a number of films and television series, and theaters have begun to reopen in certain locations with reduced capacity, we are not able to accurately predict when theaters will re-open at scale, at what level consumers will return to movie theaters, when film production will fully resume, whether productions that have resumed will be paused again, the impact of incremental costs required to adhere to new health and safety protocols, or if and when certain of our content will be released. The full extent of impacts related to the COVID-19 global pandemic on our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict. See Part I, Item 1A. “Risk Factors” found in our Annual Report on Form 10-K filed with the SEC on May 27, 2020, as updated by the risk factors found under Part II, Item 1A. "Risk Factors" herein. Conversely, television and streaming consumption around the globe continues to increase, as well as home entertainment demand. STARZ continues to achieve an increase in viewership of its content across all platforms as well as an increase in subscribers to its OTT services, both domestically and internationally. However, it is too early to say whether this increase is indicative of future results and whether growth may slow as governmental and other restrictions are relaxed, and as a result of the current and possible longer term negative economic impact of the pandemic. We continue, however, to adapt to these new circumstances. For instance, we have changed the release strategies of several of our theatrical films by releasing solely and/or earlier on streaming platforms, initially releasing in the premium video-on-demand ("Premium VOD") market, or by licensing directly to streaming platforms. We have also begun and completed post-production of a number of our television series and continue the development of film properties and television series. In connection with the disruptions associated with the COVID-19 global pandemic and measures to prevent its spread and mitigate its effects both domestically and internationally, and the related economic disruption, including the worldwide closure of most theaters, international travel restrictions and the pausing of motion picture and television productions, during the three and nine months ended December 31, 2020 we have incurred $14.8 million and $54.3 million, respectively, in incremental costs which were expensed in the period. These costs include $8.6 million and $36.6 million, respectively, reflected in direct operating expense, which include incremental costs associated with the pausing and restarting of productions including certain cast and crew, idle facilities and equipment costs, and in the nine months ended December 31, 2020 include film impairment due to changes in performance expectations resulting from circumstances associated with the COVID-19 global pandemic. In addition, these costs include $5.4 million and $16.1 million, respectively, reflected in distribution and marketing expense, which primarily consists of contractual marketing spends for film releases and events that have been canceled or delayed and will provide no economic benefit, and $0.8 million and $1.6 million in restructuring and other costs primarily due to transitioning the Company to a remote-work environment and other incremental costs associated with the COVID-19 global pandemic during these periods. We expect to incur additional incremental costs in future periods. We are in the process of seeking insurance recovery for some of these costs, which cannot be estimated at this time, and therefore no material amounts of insurance proceeds have been recorded in our consolidated financial statements. See further discussion in the Results of Operations section below. The economic impact of the COVID-19 global pandemic and resulting societal changes will depend on numerous evolving factors that cannot be predicted with certainty. There are a number of ways in which these uncertainties resulting from the 45 Table of Contents COVID-19 global pandemic have impacted our current results of operations and could continue to impact our future results of operations. These impacts include the incremental costs and losses discussed in the previous paragraph, lower revenues from the closure of movie theaters and postponement of theatrical releases, partially offset by lower theatrical production and marketing costs; increased expenses associated with new health and safety protocols on motion picture and television productions; changes in the timing of revenues for motion pictures and television productions associated with delays in production and delivery or release; and while STARZ has experienced an increase in viewership of its content, future growth could be impacted by the timing of when productions will fully resume, and whether productions that have resumed will be paused again. We expect that the ultimate impact of these disruptions, including the extent of any adverse impact on our business, results of operations and financial condition, will depend on, among other things, the duration and spread of the pandemic, the impact of governmental regulations that have been, and may continue to be, imposed in response to the pandemic, the effectiveness of actions taken to contain or mitigate the outbreak (including the availability, effectiveness and/or public acceptance of any U.S. Food and Drug Administration ("FDA")-approved COVID-19 vaccines), and global economic conditions related to the COVID-19 global pandemic. All of these impacts could place limitations on our ability to execute on our business plan and materially and adversely affect our business, financial condition and results of operations. We have implemented policies, procedures and protocols to address the situation and expect to continue to adjust our current policies and procedures as more information and guidance become available. In addition, recent resurgences of COVID-19 in certain parts of the world, including the United States and parts of Europe, and the discovery of new variants of the virus, have resulted in the re-imposition of certain restrictions and may lead to more restrictions being implemented again to reduce the spread of COVID-19. These measures could result in further interruptions to our operations. Due to the evolving and uncertain nature of this situation, we are not able to estimate the full extent of the impact on our operating results, cash flows and financial position, particularly over the near to medium term. 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 nine months ended December 31, 2020 and 2019. 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 (including 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. 46 Table of Contents • Television. Television revenues are derived from the licensing to domestic markets (linear pay, basic cable, free television and 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 we earn 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 through our over-the-top ("OTT") service, U.S. multichannel video programming distributors (“MVPDs”) including cable operators, satellite television providers and telecommunications companies (collectively, “Distributors”) pursuant to affiliation agreements, and on a direct-to-consumer basis through our Starz App. • STARZPLAY International. STARZPLAY International revenues are primarily derived from OTT distribution of the Company's STARZ branded premium subscription video services internationally. • Other Streaming Services. Other Streaming Services revenues are derived primarily from our majority owned premium Spanish language streaming services business, Pantaya, which includes subscriber based streaming revenue and other distribution revenue. 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 47 Table of Contents 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. In addition, the evolving and uncertain nature of the COVID-19 global pandemic could materially impact our estimates, particularly those that require consideration of forecasted financial information, in the near to medium term. 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 27, 2020. Accounting for Films and Television Programs and Licensed Program Rights Investment in Films and Television Programs: General. We capitalize costs of production and acquisition, including financing costs and production overhead, to investment in films and television programs, a portion of which are monetized individually (i.e., through domestic theatrical, home entertainment, television, international or other ancillary-market distribution), and a portion of which are monetized as part of a film group (i.e., primarily content internally produced by our Television Production segment for our Media Networks segment). Recording Cost. Costs of acquiring and producing films and television programs and of acquired libraries are capitalized when incurred. For films and television programs produced by the Company, capitalized costs include all direct production and financing costs, capitalized interest and production overhead. For acquired films and television programs, capitalized costs consist of minimum guarantee payments to acquire the distribution rights. Amortization. Costs of acquiring and producing films and television programs and of acquired libraries that are monetized individually are amortized using the individual-film-forecast method, whereby these costs are amortized and participations and residuals costs are accrued in the proportion that current year’s revenue bears to management’s estimate of ultimate revenue at the beginning of the current year expected to be recognized from the exploitation, exhibition or sale of the films or television programs. For investment in films and television programs monetized as a group, see further discussion below under Licensed Program Rights for a description of recording cost and amortization of costs monetized as a group. Ultimate Revenue. 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 titles included in acquired libraries, ultimate revenue includes estimates over a period not to exceed twenty years following 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 (see below). 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 48 Table of Contents expense within direct operating expenses in our consolidated statements of operations. See further discussion below under Impairment Assessment for Investment in Films and Television Programs and Licensed Program Rights . Licensed Program Rights: General. Licensed program rights include content licensed from third parties that is monetized as part of a film group for distribution on Media Networks distribution platforms. Licensed content is comprised of films or series that have been previously produced by third parties and the Company retains specified airing rights over a contractual term. Program licenses typically have fixed terms and require payments during the term of the license. Recording Cost. The cost of licensed content is capitalized when the cost is known or reasonably determinable, the license period for programs has commenced, the program materials have been accepted by the Company in accordance with the license agreements, and the programs are available for the first showing. Licensed programming rights may include rights to more than one exploitation window under the Company's 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. Certain license agreements may include additional ancillary rights in addition to the pay television rights. 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.) based on the estimated relative fair values of these markets. Our estimates of fair value for the pay television and ancillary markets and windows of exploitation involve uncertainty and management judgment. 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. Amortization. The cost of program rights for films and television programs (including original series) exhibited by the Media Networks segment are generally amortized on an accelerated or straight-line basis based on the anticipated number of exhibitions or expected and historical viewership patterns or the license period on a title-by-title or episode-by-episode basis. The number of exhibitions is estimated based on the number of exhibitions allowed in the agreement (if specified) and the expected usage of the content. Participations and residuals are expensed in line with the amortization of production costs. Changes in management’s estimate of the anticipated exhibitions and viewership patterns of films and original series on our networks could result in the earlier recognition of our programming costs than anticipated. Conversely, scheduled exhibitions and expected viewership patterns 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. Impairment Assessment for Investment in Films and Television Programs and Licensed Program Rights: General. A film group or individual film or television program is evaluated for impairment when an event or change in circumstances indicates that the fair value of an individual film or film group is less than its unamortized cost. A film group represents the unit of account for impairment testing for a film or license agreement for program material when the film or license agreement is expected to be predominantly monetized with other films and/or license agreements instead of being predominantly monetized on its own. 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. Content Monetized Individually. For content that is predominantly monetized individually (primarily investment in film and television programs related to the Motion Picture and Television Production segments), whenever events or changes in circumstances indicate that the fair value of the individual film may be less than its unamortized costs, the unamortized costs of the individual film are compared to the estimated fair value of the individual film. The fair value is determined based on a discounted cash flow analysis of the cash flows directly attributable to the title. To the extent the unamortized costs exceed the fair value, an impairment charge is recorded for the excess. Content Monetized as a Group. For content that is predominantly monetized as a group (primarily licensed program rights in the Media Networks segment and internally produced programming, as discussed above), whenever events or changes in circumstances indicate that the fair value of the film group may be less than its unamortized costs, the aggregate unamortized costs of the group are compared to the present value of the discounted cash flows of the group using the lowest level for which identifiable cash flows are independent of other produced and licensed content. The Company's film groups are generally aligned along the Company's networks and digital content offerings domestically (i.e., Starz Networks and Other Streaming Services) and by territory or groups of territories internationally, wherein content assets are shared across the various territories and therefore, the territory or group of territories is the film group. If the unamortized costs exceed the present value of discounted cash flows, an impairment charge is recorded for the excess and allocated to individual titles based on the relative carrying value of each title in the group. 49 Table of Contents Valuation Assumptions. The discounted cash flow analysis includes cash flows estimates of ultimate revenue and costs as well as a discount rate (a Level 3 fair value measurement, see Note 7 to our unaudited condensed consolidated financial statements). The discount rate utilized in the discounted cash flow analysis is based on the weighted average cost of capital of the Company plus a risk premium representing the risk associated with producing a particular film or television program or film group. The fair value of any film costs associated with a film or television program that management plans to abandon is zero. 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 management’s future revenue estimates. 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 from our majority owned premium Spanish language streaming services business, Pantaya, which includes subscriber based streaming revenue and other distribution revenue. 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, and payments to distributors for which Starz receives no discrete benefit are recorded as a reduction of revenue. Goodwill and Indefinite-Lived Intangibles. At December 31, 2020, 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 50 Table of Contents 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 December 31, 2020, were Motion Picture (goodwill of $394 million), Media Networks (goodwill of $2.04 billion), and 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. In performing a quantitative assessment of goodwill, we determine the fair value of our reporting units by using a combination of discounted cash flow ("DCF") analyses and market-based valuation methodologies. The models rely 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 are based on our internal forecasts of future performance as well as historical trends. The market-based valuation method utilizes EBITDA multiples from guideline public companies operating in similar industries and a control premium. The results of these valuation methodologies are weighted as to their relative importance and a single fair value is determined. The fair value of our reporting units is reconciled to the market value of our equity, determined based on the average prices of our common shares just prior to the period end. 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 or interim goodwill impairment tests will prove to be an accurate prediction of the future. Goodwill Impairment Assessment: For our annual goodwill impairment test for fiscal 2020, due to the decline in the market price of our common shares in the fourth quarter ended March 31, 2020, which was significantly impacted by the economic uncertainty and market volatility resulting from the COVID-19 global pandemic, we updated our quantitative impairment assessment for all of our reporting units as of March 31, 2020. 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 11.5% to 15%, which considered the risk of achieving the projected cash flows, including the risk applicable to the reporting unit, industry and market as a whole. Based on our annual quantitative impairment assessment for fiscal 2020, we determined that two of our reporting units (Television and Media Networks) were at risk for impairment. 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, perpetual nominal growth rate and annual revenue growth rates. For our Television business reporting unit, we determined that an increase in the discount rate of up to 3.3% would not have impacted the test results, assuming no changes to other factors. For our Media Networks reporting unit, we determined that an increase in the discount rate of up to 0.7% or a reduction of the perpetual nominal growth rate of up to 1.33% would not have impacted the test results, assuming no changes to other factors. We also performed a sensitivity analysis on annual revenue growth. We determined that a decrease in annual revenue growth by 0.5% for our Television business reporting unit and 0.3% for our Media Networks reporting unit, and holding film cost spend and amortization the same and maintaining other expenses at the same percentage of revenue, the results would have triggered an impairment. During the three and nine months ended December 31, 2020, there were no events or circumstances that have changed that would have resulted in changes to the underlying key assumptions and judgments used in our goodwill impairment test, or that would indicate that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value. 51 Table of Contents Management will continue to monitor all of its reporting units for changes in the business environment that could impact the recoverability of goodwill 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 the duration of the COVID-19 global pandemic, its impact on the global economy and the creation and consumption of our content, and the timing of when remaining production can resume and remaining theaters can re-open; 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. Indefinite-Lived Intangibles Other Than Goodwill Impairment Assessment: For fiscal 2020, we performed a qualitative impairment assessment of our indefinite-lived trade names. 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 including the uncertainty around the COVID-19 global pandemic, and the resulting uncertain long-term economic impact on discount rates and growth rates, as well as the impact from tax law changes inclusive of the reduction of the federal tax rate since the acquisition of Starz. During the three and nine months ended December 31, 2020, there were no events or circumstances that have changed that would have resulted in changes to the underlying key assumptions and judgments used in our impairment assessment of our indefinite-lived trade names, or that would indicate that it is more-likely-than-not that the fair value of our indefinite-lived trade names is less than its carrying value. Finite-Lived Intangible Assets. At December 31, 2020, the carrying value of our finite-lived intangible assets was approximately $1.36 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 $1.35 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 the quarter ended June 30, 2019, we amortized the Starz Traditional Affiliate customer relationships 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. 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, beginning in the quarter ended September 30, 2019, 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. During the fiscal year ended March 31, 2020, due to industry factors discussed in the preceding paragraph and the economic uncertainty from the COVID-19 global pandemic, we performed an impairment analysis of our amortizable intangible assets. The impairment analysis 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. Based on our impairment analysis, the estimated undiscounted cash flows exceeded the carrying amount of the assets and therefore no impairment charge was required. 52 Table of Contents During the three and nine months ended December 31, 2020, there were no events or circumstances that have changed that would indicate that the carrying amount of our finite-lived intangible assets may not be recoverable. 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. 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 $0.6 million and $1.6 million on our total revenue in the three and nine months ended December 31, 2020, respectively (2019 - $1.1 million and $2.7 million, respectively). 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 March 31, 2020, we had a valuation allowance of $435.8 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 three and nine months ended December 31, 2019, we calculate the income tax benefit (provision) using the cut-off method. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law, and has resulted in significant changes to the U.S. federal corporate tax law. Additionally, several state jurisdictions have enacted legislation to comply with federal changes and some foreign jurisdictions have enacted similar tax incentive legislation. The 53 Table of Contents impact of the CARES Act to our current and deferred income tax expense as of December 31, 2020 was immaterial, however we are continuing to analyze the impact of these tax law changes to future periods. 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), the mix of our pre-tax income (loss) generated across the various jurisdictions in which we operate, any changes in tax laws and regulations in those jurisdictions, changes in uncertain tax positions, further interpretation and legislative guidance regarding the new CARES Act, changes in valuation allowances against our deferred tax assets, tax planning strategies available to us and other discrete items. 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. As of December 31, 2020, our investments included investments in equity method investees of $30.4 million, and other investments of $2.1 million. 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 December 31, 2020 Compared to Three Months Ended December 31, 2019 Consolidated Results of Operations The following table sets forth our consolidated results of operations for the three months ended December 31, 2020 and 2019: 54 Table of Contents Three Months Ended December 31, Increase (Decrease) 2020 2019 Amount Percent (Amounts in millions) Revenues Motion Picture $ 250.3 $ 473.9 $ (223.6) (47.2) % Television Production 228.2 189.4 38.8 20.5 % Media Networks 406.2 382.4 23.8 6.2 % Intersegment eliminations (48.3) (47.2) (1.1) 2.3 % Total revenues 836.4 998.5 (162.1) (16.2) % Expenses: Direct operating 459.3 594.6 (135.3) (22.8) % Distribution and marketing 176.2 279.1 (102.9) (36.9) % General and administration 115.6 108.7 6.9 6.3 % Depreciation and amortization 45.8 51.9 (6.1) (11.8) % Restructuring and other 2.4 3.7 (1.3) (35.1) % Total expenses 799.3 1,038.0 (238.7) (23.0) % Operating income (loss) 37.1 (39.5) 76.6 (193.9) % Interest expense (45.0) (48.7) 3.7 (7.6) % Interest and other income 0.5 2.0 (1.5) (75.0) % Other expense (2.1) (3.6) 1.5 (41.7) % Loss on extinguishment of debt — (1.4) 1.4 (100.0) % Equity interests loss (0.7) (4.6) 3.9 (84.8) % Loss before income taxes (10.2) (95.8) 85.6 nm Income tax provision (7.0) (2.0) (5.0) 250.0 % Net loss (17.2) (97.8) 80.6 nm Less: Net loss attributable to noncontrolling interest 3.3 6.6 (3.3) (50.0) % Net loss attributable to Lions Gate Entertainment Corp. shareholders $ (13.9) $ (91.2) $ 77.3 nm _______________________ nm - Percentage not meaningful. 55 Table of Contents Revenues. Consolidated revenues decreased in the three months ended December 31, 2020 primarily due to a decrease in Motion Picture revenues, which were negatively impacted by the COVID-19 global pandemic, partially offset by increased Television Production and Media Networks revenues. With theaters mostly closed during the quarter due to circumstances associated with the COVID-19 global pandemic, Motion Picture revenue decreased primarily due to lower theatrical and international revenue. The decrease was also, to a lesser extent, due to lower home entertainment packaged media revenue due to fewer home entertainment releases in the quarter, and lower television revenue. Television Production revenue increased due to higher home entertainment revenue and, to a lesser extent, increased international revenue. These increases were partially offset by lower domestic television revenue due to significant revenue in the prior year's quarter from House of Payne . The increase in Media Networks revenue was due to increased revenue across STARZPLAY International, Starz Networks and Other Streaming Services. See further discussion in the Segment Results of Operations section below. Direct Operating Expenses. Direct operating expenses by segment were as follows for the three months ended December 31, 2020 and 2019: Three Months Ended December 31, 2020 2019 Increase (Decrease) Amount % of Segment Revenues Amount % of Segment Revenues Amount Percent (Amounts in millions) Direct operating expenses Motion Picture $ 136.6 54.6 % $ 222.9 47.0 % $ (86.3) (38.7) % Television Production 182.6 80.0 178.3 94.1 4.3 2.4 % Media Networks 175.2 43.1 162.8 42.6 12.4 7.6 % COVID-19 related charges 8.6 nm — nm 8.6 n/a Other 0.6 nm 79.8 nm (79.2) (99.2) % Intersegment eliminations (44.3) nm (49.2) nm 4.9 (10.0) % $ 459.3 54.9 % $ 594.6 59.5% $ (135.3) (22.8) % _______________________ nm - Percentage not meaningful. Direct operating expenses decreased in the three months ended December 31, 2020, primarily due to lower Motion Picture revenue and lower other direct operating expense related to certain programming and content charges in the prior year's quarter (as further described below). These decreases were partially offset by an increase from Media Networks and COVID-19 related charges (as further described below). The increase in Media Networks direct operating expense was due to increases at Starz Networks from higher programming amortization in the current year's quarter, partially offset by lower direct operating expense at STARZPLAY International. In addition, intersegment eliminations decreased slightly in the quarter, primarily due to lower Television Production revenue and direct operating costs associated with licenses of original series to Starz Networks and STARZPLAY International, both in the Media Networks segment. See further discussion in the Segment Results of Operations section below. COVID-19 Related Charges. In connection with the disruptions associated with the COVID-19 global pandemic and measures to prevent its spread and mitigate its effects both domestically and internationally, and the related economic disruption, during the three months ended December 31, 2020 we incurred $8.6 million in incremental costs which were expensed in the period which are included in consolidated direct operating expense and are excluded from segment direct operating expense. These costs include incremental costs associated with the pausing and restarting of productions including certain cast and crew, idle facilities and equipment costs resulting from circumstances associated with the COVID-19 global pandemic. We expect to incur additional incremental costs in future periods. We are in the process of seeking insurance recovery for some of these costs, which cannot be estimated at this time, and therefore no material amounts of insurance proceeds have been recorded in our consolidated financial statements. 56 Table of Contents Other. During the three months ended December 31, 2019, in connection with management changes, we implemented changes to our programming and broadcasting strategy including programming acquired or produced under prior management. As a result, we recorded certain programming and content charges of $74.0 million in the prior year's quarter, which are excluded from segment operating results, but included in direct operating expense in the unaudited condensed consolidated statement of operations and reflected in the "other" line item above. In addition, "other" direct operating expenses in the table above includes 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 December 31, 2020 and 2019: Three Months Ended December 31, Increase (Decrease) 2020 2019 Amount Percent (Amounts in millions) Distribution and marketing expenses Motion Picture $ 37.5 $ 177.0 $ (139.5) (78.8) % Television Production 6.6 6.7 (0.1) (1.5) % Media Networks 126.5 95.2 31.3 32.9 % COVID-19 related charges 5.4 — 5.4 n/a Other 0.2 0.2 — — % $ 176.2 $ 279.1 $ (102.9) (36.9) % U.S. theatrical P&A and Premium VOD expense included in Motion Picture distribution and marketing expense $ 7.4 $ 120.9 $ (113.5) (93.9) % Distribution and marketing expenses decreased in the three months ended December 31, 2020, primarily due to a decrease in Motion Picture theatrical P&A, partially offset by increased Media Networks distribution and marketing expense. The decrease in Motion Picture theatrical P&A was primarily impacted by the COVID-19 global pandemic and associated closure of theaters. The increase in Media Networks distribution and marketing expense was driven by increases at Starz Networks, and STARZPLAY International. See further discussion in the Segment Results of Operations section below. In connection with the disruptions associated with the COVID-19 global pandemic and measures to prevent its spread and mitigate its effects both domestically and internationally, and the related economic disruption, during the three months ended December 31, 2020 we incurred $5.4 million in costs primarily related to contractual marketing spends for film releases and events that have been canceled or delayed and thus will provide no economic benefit. These charges are excluded from segment operating results. We expect to incur additional incremental costs in future periods. General and Administrative Expenses. General and administrative expenses by segment were as follows for the three months ended December 31, 2020 and 2019: 57 Table of Contents Three Months Ended December 31, Increase (Decrease) 2020 % of Revenues 2019 % of Revenues Amount Percent (Amounts in millions) General and administrative expenses Motion Picture $ 26.2 $ 25.0 $ 1.2 4.8 % Television Production 9.5 10.1 (0.6) (5.9) % Media Networks 22.8 22.3 0.5 2.2 % Corporate 23.4 23.4 — — % 81.9 9.8% 80.8 8.1% 1.1 1.4 % Share-based compensation expense 19.3 16.3 3.0 18.4 % Purchase accounting and related adjustments 14.4 11.6 2.8 24.1 % Total general and administrative expenses $ 115.6 13.8% $ 108.7 10.9% $ 6.9 6.3 % General and administrative expenses increased in the three months ended December 31, 2020, resulting from increases in Motion Picture and Media Networks general and administrative expenses and increases in share-based compensation expense and purchase accounting and related adjustments, partially offset by decreased Television Production general and administrative expenses. See further discussion in the Segment Results of Operations section below. Corporate general and administrative expenses were comparable to the prior year's quarter. The increase in share-based compensation expense included in general and administrative expense in the three months ended December 31, 2020, as compared to the three months ended December 31, 2019 is primarily due to an increase in the number of share-based payment awards incurring expense in the current quarter as compared to the prior year's quarter. The following table reconciles this amount to total share-based compensation expense: Three Months Ended December 31, 2020 2019 (Amounts in millions) Share-based compensation expense by expense category General and administrative expense $ 19.3 $ 16.3 Direct operating expense 0.5 0.7 Distribution and marketing expense 0.2 0.2 Total share-based compensation expense $ 20.0 $ 17.2 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. Purchase accounting and related adjustments increased $2.8 million, or 24.1%, primarily due to the expense associated with the earned distributions related to 3 Arts Entertainment. Depreciation and Amortization Expense. Depreciation and amortization of $45.8 million in the three months ended December 31, 2020 decreased $6.1 million, from $51.9 million in the three months ended December 31, 2019. Restructuring and Other. Restructuring and other decreased $1.3 million in the three months ended December 31, 2020 as compared to the three months ended December 31, 2019, 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 December 31, 2020 and 2019 (see Note 13 to our unaudited condensed consolidated financial statements): 58 Table of Contents Three Months Ended December 31, Increase (Decrease) 2020 2019 Amount Percent (Amounts in millions) Restructuring and other: Severance (1) $ 0.9 $ 1.8 $ (0.9) (50.0) % COVID-19 related charges (2) 0.8 — 0.8 n/a Transaction and related costs (3) 0.7 1.9 (1.2) (63.2) % $ 2.4 $ 3.7 $ (1.3) (35.1) % _______________________ (1) Severance costs in the three months ended December 31, 2020 and 2019 were primarily related to restructuring activities in connection with recent acquisitions, and other cost-saving initiatives. (2) During the three months ended December 31, 2020, the Company has incurred certain costs primarily related to transitioning the Company to a remote-work environment and other incremental costs associated with the COVID-19 global pandemic. (3) Transaction and related costs in the three months ended December 31, 2020 and 2019 reflect transaction, integration and legal costs associated with certain strategic transactions, restructuring activities and legal matters. Interest Expense. Interest expense of $45.0 million for the three months ended December 31, 2020 decreased $3.7 million, from $48.7 million in the three months ended December 31, 2019, due to lower interest expense on the term loans partially offset by an increase in amortization of debt financing costs and other non-cash interest. The decrease in interest expense on the term loans is primarily due to reductions of the outstanding principal amounts from required and voluntary principal payments since the prior year's quarter ended December 31, 2019, and the lower LIBOR rate in the current quarter. The increase in amortization of debt financing costs and other non-cash interest is due to the amortization of unrealized losses in accumulated other comprehensive loss related to de-designated interest rate swaps which are being amortized to interest expense (see Note 16 to our unaudited condensed consolidated financial statements). The following table sets forth the components of interest expense for the three months ended December 31, 2020 and 2019: Three Months Ended December 31, 2020 2019 (Amounts in millions) Interest Expense Cash Based: Revolving credit facilities $ 1.2 $ 1.9 Term loans 9.2 18.2 5.875% Senior Notes 7.7 7.7 6.375% Senior Notes 8.9 8.9 Other (1) 5.9 8.3 32.9 45.0 Amortization of debt financing costs and other non-cash interest (2) 12.1 3.7 Total interest expense $ 45.0 $ 48.7 _______________________ (1) Amounts include payments associated with the Company's interest rate swaps (see Note 16 to our unaudited condensed consolidated financial statements). (2) Amounts include the amortization of unrealized losses in accumulated other comprehensive loss related to de-designated interest rate swaps which are being amortized to interest expense (see Note 16 to our unaudited condensed consolidated financial statements). Other Expense. Other expense of $2.1 million for the three months ended December 31, 2020 compared to other expense of $3.6 million for the three months ended December 31, 2019, and represented the loss recorded related to our monetization of accounts receivable programs (see Note 17 to our unaudited condensed consolidated financial statements). 59 Table of Contents Loss on Extinguishment of Debt. Loss on extinguishment of debt for the three months ended December 31, 2019 was $1.4 million related to early repayments of $101.9 million in principal outstanding on the Term Loan B, with no comparable loss in the three months ended December 31, 2020. See Note 4 to our unaudited condensed consolidated financial statements. Equity Interests Loss. Equity interests loss of $0.7 million in the three months ended December 31, 2020 compared to equity interests loss of $4.6 million in the three months ended December 31, 2019. Income Tax Provision. We had an income tax provision of $7.0 million in the three months ended December 31, 2020, compared to an income tax provision of $2.0 million in the three months ended December 31, 2019. 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 and foreign withholding taxes. Our income tax provision for the three months ended December 31, 2020 was also impacted by the change in uncertain tax benefits due to the expiration of statutory limitations and additional settlements with tax authorities. Net Loss Attributable to Lions Gate Entertainment Corp. Shareholders. Net loss attributable to our shareholders for the three months ended December 31, 2020 was $13.9 million, or basic and diluted net loss per common share of $0.06 on 220.8 million weighted average common shares outstanding. This compares to net loss attributable to our shareholders for the three months ended December 31, 2019 of $91.2 million, or basic and diluted net loss per common share of $0.42 on 218.0 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, certain programming and content charges as a result of changes in management and associated programming and content strategy, and, when applicable, certain charges related to the COVID-19 global pandemic, and purchase accounting and related adjustments. 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 14 to the unaudited condensed consolidated financial statements. 60 Table of Contents Motion Picture The table below sets forth Motion Picture gross contribution and segment profit for the three months ended December 31, 2020 and 2019: Three Months Ended December 31, Increase (Decrease) 2020 2019 Amount Percent (Amounts in millions) Motion Picture Segment: Revenue $ 250.3 $ 473.9 $ (223.6) (47.2) % Expenses: Direct operating expense 136.6 222.9 (86.3) (38.7) % Distribution & marketing expense 37.5 177.0 (139.5) (78.8) % Gross contribution 76.2 74.0 2.2 3.0 % General and administrative expenses 26.2 25.0 1.2 4.8 % Segment profit $ 50.0 $ 49.0 $ 1.0 2.0 % U.S. theatrical P&A and Premium VOD expense included in distribution and marketing expense $ 7.4 $ 120.9 $ (113.5) (93.9) % Direct operating expense as a percentage of revenue 54.6 % 47.0 % Gross contribution as a percentage of revenue 30.4 % 15.6 % Revenue. The table below sets forth Motion Picture revenue by media and product category for the three months ended December 31, 2020 and 2019: Three Months Ended December 31, 2020 2019 Total Increase (Decrease) Feature Film (1) Other Film (2) Total Feature Film (1) Other Film (2) Total (Amounts in millions) Motion Picture Revenue Theatrical $ 1.5 $ 0.3 $ 1.8 $ 101.0 $ 8.0 $ 109.0 $ (107.2) Home Entertainment Digital Media 63.1 60.0 123.1 69.6 45.9 115.5 7.6 Packaged Media 17.1 19.3 36.4 42.4 33.0 75.4 (39.0) Total Home Entertainment 80.2 79.3 159.5 112.0 78.9 190.9 (31.4) Television 28.2 8.0 36.2 60.9 13.6 74.5 (38.3) International 27.8 20.2 48.0 68.4 27.7 96.1 (48.1) Other 3.1 1.7 4.8 2.1 1.3 3.4 1.4 $ 140.8 $ 109.5 $ 250.3 $ 344.4 $ 129.5 $ 473.9 $ (223.6) ____________________ (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. With theaters mostly closed during the quarter due to circumstances associated with the COVID-19 global pandemic, theatrical revenue decreased $107.2 million, or 98.3%, in the three months ended December 31, 2020 as compared to the three months ended December 31, 2019. The prior year's quarter included significant revenue from Knives Out and Midway . 61 Table of Contents Home entertainment revenue decreased $31.4 million, or 16.4%, in the three months ended December 31, 2020, as compared to the three months ended December 31, 2019, primarily due to a decrease of $39.0 million in packaged media revenues from our fiscal 2021 theatrical slate in our Feature Film category and decreases in our Other Film category. Digital media revenues this quarter includes revenues from the initial release on a streaming platform of Run, and to a lesser extent, revenue from the Premium VOD release of Antebellum, both of which represented a change in initial release strategy from theatrical release due to circumstances associated with the COVID-19 global pandemic. In addition, the prior year's quarter included significant revenue from Angel Has Fallen, Rambo: Last Blood, and John Wick: Chapter 3 - Parabellum. Television revenue decreased $38.3 million, or 51.4%, in the three months ended December 31, 2020, as compared to the three months ended December 31, 2019, due to fewer television windows opening (and revenue recognized) than in the prior year's quarter. International revenue decreased $48.1 million, or 50.1%, in the three months ended December 31, 2020, as compared to the three months ended December 31, 2019 due to lower revenue from our fiscal 2021 theatrical slate in the current quarter, which had no new significant theatrical releases due to circumstances associated with the COVID-19 global pandemic, as compared to the revenue generated from our fiscal 2020 theatrical slate in the prior year's quarter, which included significant revenue from Knives Out and John Wick: Chapter 3 - Parabellum. We expect that Motion Picture segment revenues will decrease in fiscal 2021 as compared to fiscal 2020 due to delays in domestic and international theatrical distribution and production as a result of the closure of theaters and paused productions throughout the U.S., Canada, and worldwide due to circumstances associated with the COVID-19 global pandemic. The extent of the impact on Motion Picture segment revenues, will depend on, among other things, the duration and spread of the pandemic, the impact of governmental regulations that have been, and may continue to be, imposed in response to the pandemic, the effectiveness of actions taken to contain or mitigate the outbreak, global economic conditions, the ability for theaters to re-open at a scale to attract motion pictures and the rate of consumers' return to the theater. Direct Operating Expense. The decrease in direct operating expenses is due to a decrease in Motion Picture revenues. The increase 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 quarter as compared to the prior year's quarter. The prior year's quarter included significant revenue from Knives Out, John Wick: Chapter 3 - Parabellum, Angel Has Fallen and Rambo: Last Blood , and the current quarter had fewer theatrical releases and lower revenues from our fiscal 2021 theatrical slate due to circumstances associated with the COVID-19 global pandemic. Investment in film write-downs included in Motion Picture segment direct operating expense for the quarter were $13.7 million in the three months ended December 31, 2020, as compared to $37.2 million in the three months ended December 31, 2019. Distribution and Marketing Expense. The decrease in distribution and marketing expense in the three months ended December 31, 2020 is due to lower theatrical P&A expense associated with the closure of theaters during the quarter due to circumstances associated with the COVID-19 global pandemic. Theatrical P&A and Premium VOD expense in the current quarter includes expense associated with the theatrical and Premium VOD release of Fatale. In the three months ended December 31, 2020, approximately $1.7 million of P&A and Premium VOD expense was incurred in advance for films to be released in subsequent quarters. In the three months ended December 31, 2019, approximately $7.0 million of P&A was incurred in advance for films to be released in subsequent quarters, such as Barb and Star Go To Vista Del Mar and I Still Believe . Gross Contribution. While Motion Picture revenue declined during the quarter as discussed above, gross contribution of the Motion Picture segment for the three months ended December 31, 2020 increased 3.0% as compared to the three months ended December 31, 2019, due to lower distribution and marketing expense as a percentage of Motion Picture revenue. 62 Table of Contents General and Administrative Expense. General and administrative expenses of the Motion Picture segment increased $1.2 million, or 4.8%, primarily due to an increase in incentive compensation partially offset by decreases in salaries and related expenses, rent, facility and travel and related expenses. Television Production The table below sets forth Television Production gross contribution and segment profit for the three months ended December 31, 2020 and 2019: Three Months Ended December 31, Increase (Decrease) 2020 2019 Amount Percent (Amounts in millions) Television Production Segment: Revenue $ 228.2 $ 189.4 $ 38.8 20.5 % Expenses: Direct operating expense 182.6 178.3 4.3 2.4 % Distribution & marketing expense 6.6 6.7 (0.1) (1.5) % Gross contribution 39.0 4.4 34.6 nm General and administrative expenses 9.5 10.1 (0.6) (5.9) % Segment profit $ 29.5 $ (5.7) $ 35.2 nm Direct operating expense as a percentage of revenue 80.0 % 94.1 % Gross contribution as a percentage of revenue 17.1 % 2.3 % ________________________ nm - Percentage not meaningful. Revenue. The table below sets forth Television Production revenue and changes in revenue by media for the three months ended December 31, 2020 and 2019: Three Months Ended December 31, Increase (Decrease) 2020 2019 Amount Percent (Amounts in millions) Television Production Revenue Television $ 119.7 $ 144.2 $ (24.5) (17.0) % International 26.0 17.4 8.6 49.4 % Home Entertainment Digital 58.0 10.0 48.0 nm Packaged Media 3.1 0.6 2.5 nm Total Home Entertainment 61.1 10.6 50.5 nm Other 21.4 17.2 4.2 24.4 % $ 228.2 $ 189.4 $ 38.8 20.5 % ________________________ nm - Percentage not meaningful. 63 Table of Contents The primary component of Television Production revenue is domestic television revenue. Domestic television revenue decreased in the three months ended December 31, 2020 as compared to the three months ended December 31, 2019, primarily due to significant revenue in the prior year's quarter from House of Payne . International revenue in the three months ended December 31, 2020 increased $8.6 million, or 49.4%, primarily due to increased intersegment revenues from STARZPLAY International from the licensing of Starz original series. Home entertainment revenue in the three months ended December 31, 2020 increased $50.5 million due to significant digital media revenue in the current quarter for Power Season 6 and Mad Men Seasons 1 to 7. Other revenue includes revenue from 3 Arts Entertainment, which increased in the three months ended December 31, 2020 as compared to the three months ended December 31, 2019 driven by new producer fees and back-end participations as production activity increased in the quarter. Revenue from 3 Arts Entertainment was negatively impacted in prior quarters as a result of the COVID-19 global pandemic related disruptions. The extent of the future impact on other revenue of the COVID-19 global pandemic is uncertain and will depend on film and television productions and releases returning to and remaining at pre COVID-19 levels. We expect that Television Production segment revenues will decrease in fiscal 2021 as compared to fiscal 2020 due to delays in domestic and international distribution and production as a result of paused productions throughout the U.S., Canada, and worldwide due to circumstances associated with the COVID-19 global pandemic. The extent of the impact of the COVID-19 global pandemic related disruptions on Television Production revenues, will depend on, among other things, the duration and spread of the pandemic, the impact of governmental regulations that have been, and may continue to be, imposed in response to the pandemic, the effectiveness of actions taken to contain or mitigate the outbreak, and global economic conditions related to the COVID-19 global pandemic. Direct Operating Expense. Direct operating expense of the Television Production segment in the three months ended December 31, 2020 increased $4.3 million, or 2.4%. Direct operating expenses as a percentage of television production revenue decreased primarily due to the mix of titles generating revenue in the current quarter as compared to the prior year's quarter. In particular, the current quarter included significant revenue from higher margin television series, such as Mad Men , as compared to the prior year's quarter which included newer television programs, which typically result in higher amortization expenses in relation to revenues initially. Gross Contribution. Gross contribution of the Television Production segment for the three months ended December 31, 2020 increased as compared to the three months ended December 31, 2019, due to increased television production revenue and lower direct operating expenses as a percentage of television production revenue. General and Administrative Expense. General and administrative expenses of the Television Production segment decreased $0.6 million, or 5.9%, primarily due to decreases in rent, facility and travel and related costs. Media Networks The table below sets forth Media Networks gross contribution and segment profit for the three months ended December 31, 2020 and 2019. Three Months Ended December 31, Increase (Decrease) 2020 2019 Amount Percent (Amounts in millions) Media Networks Segment: Revenue $ 406.2 $ 382.4 $ 23.8 6.2 % Expenses: Direct operating expense 175.2 162.8 12.4 7.6 % Distribution & marketing expense 126.5 95.2 31.3 32.9 % Gross contribution 104.5 124.4 (19.9) (16.0) % General and administrative expenses 22.8 22.3 0.5 2.2 % Segment profit $ 81.7 $ 102.1 $ (20.4) (20.0) % Direct operating expense as a percentage of revenue 43.1 % 42.6 % Gross contribution as a percentage of revenue 25.7 % 32.5 % 64 Table of Contents The following table sets forth the Media Networks segment profit by product line: Three Months Ended Three Months Ended December 31, 2020 December 31, 2019 Starz Networks STARZPLAY International Other Streaming Services Total Media Networks Starz Networks STARZPLAY International Other Streaming Services Total Media Networks (Amounts in millions) Media Networks Segment: Revenue $ 375.3 $ 17.7 $ 13.2 $ 406.2 $ 367.6 $ 6.1 $ 8.7 $ 382.4 Expenses: Direct operating expense 148.3 23.8 3.1 175.2 128.4 32.6 1.8 162.8 Distribution & marketing expense 90.5 25.4 10.6 126.5 70.5 9.5 15.2 95.2 Gross contribution 136.5 (31.5) (0.5) 104.5 168.7 (36.0) (8.3) 124.4 General and administrative expenses 15.7 4.6 2.5 22.8 17.1 3.7 1.5 22.3 Segment profit $ 120.8 $ (36.1) $ (3.0) $ 81.7 $ 151.6 $ (39.7) $ (9.8) $ 102.1 Subscriber Data. The number of period-end service subscribers is a key metric to evaluate a non-ad supported subscription video service as a growing or decreasing subscriber base is a key indicator of the health of the overall business. Service subscribers may impact revenue differently depending on specific distribution agreements we have with our distributors which may include fixed fees, rates per basic video household or a rate per STARZ subscriber. The table below sets forth, for the periods presented, subscriptions to our Media Networks and STARZPLAY Arabia services. The pro forma subscriber data as of December 31, 2019 reflects the number of subscribers as of December 31, 2019, adjusted to remove the estimated number of subscribers to MVPD video packages or MVPD bundles that include the Starz service for distributors who dropped or removed Starz from these highly distributed MVPD video packages or MVPD bundles. This is a key metric to show prior period subscribers on a comparable basis to December 31, 2020 quarter-end subscribers. An MVPD video package is an offering by our distributors to its customers of multiple distinct video networks or services for a single recurring price where there is no distinction of price on any one specific network. An MVPD bundle is an offering by our distributors to its customers of two or more distinct MVPD services, such as video, internet and phone, sold on a subscription basis to a consumer or subscriber for a single price, and may include additional premium channels, like STARZ, to promote the bundle offering. 65 Table of Contents Pro Forma December 31, December 31, December 31, 2020 2019 2019 (Amounts in millions) Domestic Subscribers STARZ 21.0 23.5 17.3 Other Streaming Services (1) 0.9 0.6 0.6 21.9 24.1 17.9 International Subscribers STARZPLAY International 4.3 2.7 2.7 STARZPLAY Arabia (2) 1.8 1.7 1.7 6.1 4.4 4.4 Total Domestic and International Subscribers 28.0 28.5 22.3 Subscribers by Platform: Linear Subscribers 13.4 19.9 13.7 OTT Subscribers (3) 14.6 8.6 8.6 Total Global Subscribers 28.0 28.5 22.3 ___________________ (1) Represents subscribers of our premium Spanish-language streaming service, Pantaya, which was launched in the quarter ended September 30, 2017. (2) Represents subscribers of STARZPLAY Arabia, a non-consolidated equity method investee. (3) OTT subscribers includes subscribers of STARZPLAY Arabia, as presented above. Revenue. The increase in Media Networks' revenue was driven by increased STARZPLAY International revenue of $11.6 million, increased Starz Networks revenue of $7.7 million and increased revenue from Other Streaming Services of $4.5 million. STARZPLAY International revenue increased as a result of subscriber and revenue growth in the international territories previously launched, and additional territories launched since December 31, 2019. Starz Networks' revenue increased as a result of higher OTT revenue resulting from increased subscriptions, which was partially offset by declines in revenue from traditional linear services. As a result of events related to the COVID-19 global pandemic, television and streaming consumption around the globe continues to increase, as well as home entertainment demand. STARZ continues to achieve an increase in viewership of its content across all platforms as well as an increase in subscribers to its OTT services, both domestically and internationally. This increase in subscribers is dependent upon future economic conditions, our ability to deliver original content and may vary due to changes in consumer viewing and subscription patterns. However, it is too early to say whether this increase is indicative of future results and whether growth may slow as governmental and other restrictions are relaxed, and as a result of the current and possible longer term negative economic impact of the pandemic. 66 Table of Contents During the three months ended December 31, 2020 and 2019, the following original series premiered on STARZ: Three Months Ended December 31, 2020* Three Months Ended December 31, 2019 Seduced: Inside the NXIVM Cult Dublin Murders The Spanish Princess Season 2 Leavenworth * In addition, while Power Book II: Ghost premiered in the three months ended September 30, 2020, the series returned with a mid-season premiere in December 2020. Direct Operating and Distribution and Marketing Expenses . Direct operating and distribution and marketing expenses primarily represent programming cost amortization and advertising and marketing costs, respectively. The level of programming 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 and first-run output theatrical movies 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 continues to expand. The increase in Media Networks direct operating expenses is due to higher direct operating expenses at Starz Networks, partially offset by lower direct operating expense at STARZPLAY International in the three months ended December 31, 2020. The increase in Starz Networks direct operating expense was primarily due to higher programming amortization related to our Starz Originals, and to a lesser extent, a benefit in the prior year's quarter of $4.6 million associated with the modification of a content licensing arrangement, net of amortization for related changes in content availability and air dates. Direct operating expenses at STARZPLAY International decreased as a result of write downs of programming cost in the three months ended December 31, 2019 and prior quarters, which reduced the cost being amortized in the current quarter, partially offset by the continued expansion of STARZPLAY International. The increase in Media Networks distribution and marketing expense is due to an increase at Starz Networks, and STARZPLAY International. Starz Networks' distribution and marketing expense increased due to increased marketing spend to drive subscriber growth on the STARZ app and for Starz Original series during the three months ended December 31, 2020 as compared to the three months ended December 31, 2019. Distribution and marketing expense for STARZPLAY International increased due to an increase in advertising and marketing costs in order to drive subscriber growth in the international territories previously launched, and additional territories launched since December 31, 2019. Gross Contribution. The decrease in gross contribution of the Media Networks segment compared to the prior year's quarter was due to a decrease at Starz Networks due to increased direct operating expenses and distribution and marketing expenses as discussed above, which was partially offset by lower negative contributions from STARZPLAY International and Other Streaming Services. General and Administrative Expense. General and administrative expenses of the Media Networks segment in the three months ended December 31, 2020 increased slightly from the prior year's quarter, driven by slightly increased general and administrative expenses for STARZPLAY International and Other Streaming Services, partially offset by a slight decrease in Starz Networks. Nine Months Ended December 31, 2020 Compared to Nine Months Ended December 31, 2019 Consolidated Results of Operations The following table sets forth our consolidated results of operations for the nine months ended December 31, 2020 and 2019: 67 Table of Contents Nine Months Ended December 31, Increase (Decrease) 2020 2019 Amount Percent (Amounts in millions) Revenues Motion Picture $ 788.6 $ 1,277.6 $ (489.0) (38.3) % Television Production 621.0 743.2 (122.2) (16.4) % Media Networks 1,161.7 1,128.8 32.9 2.9 % Intersegment eliminations (176.3) (203.9) 27.6 (13.5) % Total revenues 2,395.0 2,945.7 (550.7) (18.7) % Expenses: Direct operating 1,249.0 1,662.0 (413.0) (24.8) % Distribution and marketing 484.6 791.7 (307.1) (38.8) % General and administration 343.3 317.3 26.0 8.2 % Depreciation and amortization 142.9 143.0 (0.1) (0.1) % Restructuring and other 18.9 16.8 2.1 12.5 % Total expenses 2,238.7 2,930.8 (692.1) (23.6) % Operating income 156.3 14.9 141.4 949.0 % Interest expense (135.2) (145.7) 10.5 (7.2) % Interest and other income 2.2 7.0 (4.8) (68.6) % Other expense (4.5) (9.7) 5.2 (53.6) % Loss on extinguishment of debt — (1.4) 1.4 (100.0) % Gain (loss) on investments 0.3 (0.3) 0.6 nm Equity interests loss (5.1) (15.7) 10.6 (67.5) % Income (loss) before income taxes 14.0 (150.9) 164.9 (109.3) % Income tax provision (6.7) (6.5) (0.2) 3.1 % Net income (loss) 7.3 (157.4) 164.7 (104.6) % Less: Net loss attributable to noncontrolling interest 11.5 14.0 (2.5) (17.9) % Net income (loss) attributable to Lions Gate Entertainment Corp. shareholders $ 18.8 $ (143.4) $ 162.2 (113.1) % _______________________ nm - Percentage not meaningful. 68 Table of Contents Revenues. Consolidated revenues decreased in the nine months ended December 31, 2020, primarily due to decreases in Motion Picture and Television Production revenues, which were negatively impacted by the COVID-19 global pandemic, partially offset by increased Media Networks revenues and lower intersegment eliminations associated with lower Television Production revenues (a substantial portion of intersegment eliminations relates to Television Production revenue) for licenses of original series to Starz Networks and STARZPLAY International, both in the Media Networks segment. With theaters mostly closed during the period due to circumstances associated with the COVID-19 global pandemic, Motion Picture revenue decreased primarily due to lower theatrical and international revenue, and to a lesser extent, lower home entertainment packaged media revenue due to fewer home entertainment releases in the period, lower television and other revenue. Television Production revenue decreased due to lower domestic television revenue with fewer television episodes delivered, largely because of the pausing of productions associated with the COVID-19 global pandemic, and to a lesser extent, due to lower other revenue. These decreases were partially offset by an increase in home entertainment revenue and international revenue. The increase in Media Networks revenue was due to increased revenue across STARZPLAY International and Other Streaming Services, partially offset by decreased revenue at Starz Networks. See further discussion in the Segment Results of Operations section below. Direct Operating Expenses. Direct operating expenses by segment were as follows for the nine months ended December 31, 2020 and 2019: Nine Months Ended December 31, 2020 2019 Increase (Decrease) Amount % of Segment Revenues Amount % of Segment Revenues Amount Percent (Amounts in millions) Direct operating expenses Motion Picture $ 373.0 47.3 % $ 625.1 48.9 % $ (252.1) (40.3) % Television Production 494.3 79.6 660.9 88.9 (166.6) (25.2) % Media Networks 504.6 43.4 499.8 44.3 4.8 1.0 % COVID-19 related charges 36.6 nm — nm 36.6 n/a Other 2.5 nm 82.7 nm (80.2) (97.0) % Intersegment eliminations (162.0) nm (206.5) nm 44.5 (21.5) % $ 1,249.0 52.2 % $ 1,662.0 56.4 % $ (413.0) (24.8) % _______________________ nm - Percentage not meaningful. Direct operating expenses decreased in the nine months ended December 31, 2020 primarily due to lower Motion Picture and Television Production revenue and lower other direct operating expense related to certain programming and content charges in the prior year's period (as further described below). These decreases were partially offset by an increase from Media Networks and COVID-19 related charges (as further described below). The decrease in Television Production direct operating expense was partially offset by the decrease in intersegment eliminations, which primarily relate to Television Production direct operating costs associated with licenses of original series to Starz Networks and STARZPLAY International, both in the Media Networks segment. The increase from Media Networks was due to a benefit at Starz Networks in the prior year's period of $41.3 million associated with the modification of a content licensing arrangement, net of amortization for related changes in content availability and air dates, which was partially offset by lower programming amortization at STARZPLAY International. See further discussion in the Segment Results of Operations section below. COVID-19 Related Charges. In connection with the disruptions associated with the COVID-19 global pandemic and measures to prevent its spread and mitigate its effects both domestically and internationally, and the related economic disruption, during the nine months ended December 31, 2020 we incurred $36.6 million in incremental costs which were expensed in the period which are included in consolidated direct operating expense and are excluded from segment direct operating expense. These costs include incremental costs associated with film impairment due to changes in performance expectations, the pausing and restarting of productions including certain cast and crew, idle facilities and equipment costs 69 Table of Contents resulting from circumstances associated with the COVID-19 global pandemic. We expect to incur additional incremental costs in future periods. We are in the process of seeking insurance recovery for some of these costs, which cannot be estimated at this time, and therefore no material amounts of insurance proceeds have been recorded in our consolidated financial statements. Other. During the nine months ended December 31, 2019, in connection with management changes, we implemented changes to our programming and broadcasting strategy including programming acquired or produced under prior management. As a result, we recorded certain programming and content charges of $74.0 million in the prior year's period, which are excluded from segment operating results, but included in direct operating expense in the unaudited condensed consolidated statement of operations and reflected in the "other" line item above. In addition, "other" direct operating expenses in the table above includes 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 nine months ended December 31, 2020 and 2019: Nine Months Ended December 31, Increase (Decrease) 2020 2019 Amount Percent (Amounts in millions) Distribution and marketing expenses Motion Picture $ 101.7 $ 468.8 $ (367.1) (78.3) % Television Production 20.9 23.5 (2.6) (11.1) % Media Networks 345.5 299.0 46.5 15.6 % COVID-19 related charges 16.1 — 16.1 n/a Other 0.4 0.4 — — % $ 484.6 $ 791.7 $ (307.1) (38.8) % U.S. theatrical P&A and Premium VOD expense included in Motion Picture distribution and marketing expense (1) $ 24.9 $ 318.0 $ (293.1) (92.2) % ______________________ (1) Amounts in the nine months ended December 31, 2020 include $17.5 million from the quarter ended September 30, 2020 not previously included in the prior disclosure of solely U.S. theatrical P&A (none from the quarter ended June 30, 2020). Distribution and marketing expenses decreased in the nine months ended December 31, 2020, primarily due to a decrease in Motion Picture theatrical P&A, partially offset by increased Media Networks distribution and marketing expense and COVID-19 related charges (as further described below). The decrease in Motion Picture theatrical P&A was primarily impacted by the COVID-19 global pandemic and associated closure of theaters. The increase in Media Networks distribution and marketing expense was driven by increases at STARZPLAY International. See further discussion in the Segment Results of Operations section below. In connection with the disruptions associated with the COVID-19 global pandemic and measures to prevent its spread and mitigate its effects both domestically and internationally, and the related economic disruption, during the nine months ended December 31, 2020 we incurred $16.1 million in costs primarily related to contractual marketing spends for film releases and events that have been canceled or delayed and thus will provide no economic benefit. These charges are excluded from segment operating results. We expect to incur additional incremental costs in future periods. General and Administrative Expenses. General and administrative expenses by segment were as follows for the nine months ended December 31, 2020 and 2019: 70 Table of Contents Nine Months Ended December 31, Increase (Decrease) 2020 % of Revenues 2019 % of Revenues Amount Percent (Amounts in millions) General and administrative expenses Motion Picture $ 79.8 $ 76.1 $ 3.7 4.9 % Television Production 31.5 26.9 4.6 17.1 % Media Networks 65.3 62.7 2.6 4.1 % Corporate 76.9 73.0 3.9 5.3 % 253.5 10.6% 238.7 8.1% 14.8 6.2 % Share-based compensation expense 55.2 39.5 15.7 39.7 % Purchase accounting and related adjustments 34.6 39.1 (4.5) (11.5) % Total general and administrative expenses $ 343.3 14.3% $ 317.3 10.8% $ 26.0 8.2 % General and administrative expenses increased in the nine months ended December 31, 2020, resulting from increases in Corporate, Motion Picture, Media Networks and Television Production general and administrative expenses and an increase in share-based compensation expense, partially offset by decreased purchase accounting and related adjustments. See further discussion in the Segment Results of Operations section below. Corporate general and administrative expenses increased $3.9 million, or 5.3%, primarily due to an increase in incentive based compensation partially offset by a decrease in professional fees. The increase in share-based compensation expense included in general and administrative expense in the nine months ended December 31, 2020, as compared to the nine months ended December 31, 2019 is primarily due to an increase in the number of share-based payment awards incurring expense in the current period as compared to the prior year's period. Additionally, the increase in share-based compensation expense is due to higher 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. The following table reconciles this amount to total share-based compensation expense: Nine Months Ended December 31, 2020 2019 (Amounts in millions) Share-based compensation expense by expense category General and administrative expense $ 55.2 $ 39.5 Restructuring and other (1) 2.8 0.3 Direct operating expense 1.5 1.1 Distribution and marketing expense 0.5 0.4 Total share-based compensation expense $ 60.0 $ 41.3 _______________________ (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. Purchase accounting and related adjustments decreased $4.5 million, or 11.5%, primarily due to the expense associated with the earned distributions related to 3 Arts Entertainment. Depreciation and Amortization Expense. Depreciation and amortization of $142.9 million for the nine months ended December 31, 2020 decreased $0.1 million, from $143.0 million in the nine months ended December 31, 2019. 71 Table of Contents Restructuring and Other. Restructuring and other increased $2.1 million in the nine months ended December 31, 2020 as compared to the nine months ended December 31, 2019, 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 nine months ended December 31, 2020 and 2019 (see Note 13 to our unaudited condensed consolidated financial statements): Nine Months Ended December 31, Increase (Decrease) 2020 2019 Amount Percent (Amounts in millions) Restructuring and other: Severance (1) Cash $ 11.6 $ 7.7 $ 3.9 50.6 % Accelerated vesting on equity awards (see Note 11 to our unaudited condensed consolidated financial statements) 2.8 0.3 2.5 nm Total severance costs 14.4 8.0 6.4 80.0 % COVID-19 related charges (2) 1.6 — 1.6 n/a Transaction and related costs (3) 2.9 8.8 (5.9) (67.0) % $ 18.9 $ 16.8 $ 2.1 12.5 % _______________________ nm - Percentage not meaningful. (1) Severance costs in the nine months ended December 31, 2020 and 2019 were primarily related to restructuring activities in connection with cost-saving initiatives and recent acquisitions. (2) During the nine months ended December 31, 2020, the Company has incurred certain costs including costs primarily related to transitioning the Company to a remote-work environment and other incremental costs associated with the COVID-19 global pandemic. (3) Transaction and related costs in the nine months ended December 31, 2020 and 2019 reflect transaction, integration and legal costs associated with certain strategic transactions, restructuring activities and legal matters. Interest Expense. Interest expense of $135.2 million in the nine months ended December 31, 2020 decreased $10.5 million from the nine months ended December 31, 2019, due to lower interest expense on the term loans partially offset by an increase in amortization of debt financing costs and other non-cash interest. The decrease in interest expense on the term loans is primarily due to reductions of the outstanding principal amounts from required and voluntary principal payments since the prior year's period ended December 31, 2019, and the lower LIBOR rate in the current period. The increase in amortization of debt financing costs and other non-cash interest is due to the amortization of unrealized losses in accumulated other comprehensive loss related to de-designated interest rate swaps which are being amortized to interest expense (see Note 16 to our unaudited condensed consolidated financial statements). The following table sets forth the components of interest expense for the nine months ended December 31, 2020 and 2019: 72 Table of Contents Nine Months Ended December 31, 2020 2019 (Amounts in millions) Interest Expense Cash Based: Revolving credit facility $ 3.2 $ 5.2 Term loans 29.2 59.9 5.875% Senior Notes 22.8 22.9 6.375% Senior Notes 26.1 26.2 Other (1) 23.3 20.3 104.6 134.5 Amortization of debt financing costs and other non-cash interest (2) 30.6 11.2 Total interest expense $ 135.2 $ 145.7 ______________________ (1) Amounts include payments associated with the Company's interest rate swaps (see Note 16 to our unaudited condensed consolidated financial statements). (2) Amounts include the amortization of unrealized losses in accumulated other comprehensive loss related to de-designated interest rate swaps which are being amortized to interest expense (see Note 16 to our unaudited condensed consolidated financial statements). Other Expense. Other expense of $4.5 million for the nine months ended December 31, 2020 compared to other expense of $9.7 million for the nine months ended December 31, 2019, and represented the loss recorded related to our monetization of accounts receivable programs (see Note 17 to our unaudited condensed consolidated financial statements). Loss on Extinguishment of Debt. Loss on extinguishment of debt for the nine months ended December 31, 2019 was $1.4 million related to early repayments of $101.9 million in principal outstanding on the Term Loan B, with no comparable loss in the nine months ended December 31, 2020. See Note 4 to our unaudited condensed consolidated financial statements. Gain (Loss) on Investments. Gain on investments of $0.3 million for the nine months ended December 31, 2020 represented a gain on sale of equity securities without readily determinable fair values and unrealized gains on equity securities, offset by impairments of equity method investments and equity securities without readily determinable fair values that were written down to their estimated fair value. This compared to loss on investments of $0.3 million for the nine months ended December 31, 2019 which represented unrealized losses on equity securities. Equity Interests Loss. Equity interests loss of $5.1 million in the nine months ended December 31, 2020 compared to equity interests loss of $15.7 million in the nine months ended December 31, 2019 due to lower losses from our equity method investees. Income Tax Provision. We had an income tax provision of $6.7 million in the nine months ended December 31, 2020, compared to an income tax provision of $6.5 million in the nine months ended December 31, 2019. 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 and foreign withholding taxes. Our income tax provision for the nine months ended December 31, 2020 was also impacted by the change in uncertain tax benefits due to the expiration of statutory limitations and additional settlements with tax authorities. Net Income (Loss) Attributable to Lions Gate Entertainment Corp. Shareholders. Net income attributable to our shareholders for the nine months ended December 31, 2020 was $18.8 million, or basic net income per common share of $0.09 on 220.3 million weighted average common shares outstanding and diluted net income per common share of $0.09 on 221.4 million weighted average common shares outstanding. This compares to net loss attributable to our shareholders for the nine months ended December 31, 2019 of $143.4 million, or basic and diluted net loss per common share of $0.66 on 217.2 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 73 Table of Contents 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, certain programming and content charges as a result of changes in management and associated programming and content strategy, and, when applicable, certain charges related to the COVID-19 global pandemic, and purchase accounting and related adjustments. 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 14 to the unaudited condensed consolidated financial statements. Motion Picture The table below sets forth Motion Picture gross contribution and segment profit for the nine months ended December 31, 2020 and 2019: Nine Months Ended December 31, Increase (Decrease) 2020 2019 Amount Percent (Amounts in millions) Motion Picture Segment: Revenue $ 788.6 $ 1,277.6 $ (489.0) (38.3) % Expenses: Direct operating expense 373.0 625.1 (252.1) (40.3) % Distribution & marketing expense 101.7 468.8 (367.1) (78.3) % Gross contribution 313.9 183.7 130.2 70.9 % General and administrative expenses 79.8 76.1 3.7 4.9 % Segment profit $ 234.1 $ 107.6 $ 126.5 117.6 % U.S. theatrical P&A and Premium VOD expense included in distribution and marketing expense (1) $ 24.9 $ 318.0 $ (293.1) (92.2) % Direct operating expense as a percentage of revenue 47.3 % 48.9 % Gross contribution as a percentage of revenue 39.8 % 14.4 % ______________________ (1) Amounts in the nine months ended December 31, 2020 include $17.5 million from the quarter ended September 30, 2020 not previously included in the prior disclosure of solely U.S. theatrical P&A (none from the quarter ended June 30, 2020). Revenue. The table below sets forth Motion Picture revenue by media and product category for the nine months ended December 31, 2020 and 2019: 74 Table of Contents Nine Months Ended December 31, 2020 2019 Total Increase (Decrease) Feature Film (1) Other Film (2) Total Feature Film (1) Other Film (2) Total (Amounts in millions) Motion Picture Revenue Theatrical $ 1.5 $ 0.6 $ 2.1 $ 289.2 $ 27.3 $ 316.5 $ (314.4) Home Entertainment Digital Media 193.9 173.1 367.0 188.0 124.1 312.1 54.9 Packaged Media 55.7 54.1 109.8 114.2 82.8 197.0 (87.2) Total Home Entertainment 249.6 227.2 476.8 302.2 206.9 509.1 (32.3) Television 121.7 32.2 153.9 138.4 39.3 177.7 (23.8) International 86.6 59.4 146.0 193.4 63.2 256.6 (110.6) Other 5.8 4.0 9.8 15.8 1.9 17.7 (7.9) $ 465.2 $ 323.4 $ 788.6 $ 939.0 $ 338.6 $ 1,277.6 $ (489.0) ____________________ (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. With theaters mostly closed during the period due to circumstances associated with the COVID-19 global pandemic, theatrical revenue decreased $314.4 million, or 99.3%, in the nine months ended December 31, 2020 as compared to the nine months ended December 31, 2019. The prior year's period included significant revenue from John Wick: Chapter 3 - Parabellum, Knives Out, Scary Stories to Tell in the Dark, Angel Has Fallen, Midway and Rambo: Last Blood. Home entertainment revenue decreased $32.3 million, or 6.3%, in the nine months ended December 31, 2020, as compared to the nine months ended December 31, 2019, due to a decrease of $87.2 million in packaged media revenues as a result of fewer home entertainment releases from our fiscal 2021 theatrical slate in our Feature Film category due to circumstances associated with the COVID-19 global pandemic, and decreases in our Other Films category. The decrease in packaged media revenues was partially offset by increased digital media revenues of $54.9 million, which included increases in our Other Films category from The Secret: Dare to Dream and Force of Nature. Digital media revenue also increased in our Feature Film category from the initial release on a streaming platform of Run, and the Premium VOD release of Antebellum, and from our fiscal 2020 theatrical slate ( I Still Believe and Knives Out), as compared to the prior year's period which included significant digital media revenue from John Wick: Chapter 3 - Parabellum. Television revenue decreased $23.8 million, or 13.4%, in the nine months ended December 31, 2020, as compared to the nine months ended December 31, 2019 due to fewer television windows opening (and revenue recognized) than in the prior year's period. International revenue decreased $110.6 million, or 43.1%, in the nine months ended December 31, 2020, as compared to the nine months ended December 31, 2019 due to lower revenue from our fiscal 2021 theatrical slate in the current period, which had no new significant theatrical releases due to circumstances associated with the COVID-19 global pandemic, as compared to the revenue generated from our fiscal 2020 theatrical slate in the prior year's period, which included significant international revenue from John Wick: Chapter 3 - Parabellum. We expect that Motion Picture segment revenues will decrease in fiscal 2021 as compared to fiscal 2020 due to delays in domestic and international theatrical distribution and production as a result of the closure of theaters and paused productions throughout the U.S., Canada, and worldwide due to circumstances associated with the COVID-19 global pandemic. The extent of the impact on Motion Picture segment revenues, will depend on, among other things, the duration and spread of the pandemic, the impact of governmental regulations that have been, and may continue to be, imposed in response to the pandemic, the effectiveness of actions taken to contain or mitigate the outbreak, global economic conditions, the ability for theaters to re-open at a scale to attract motion pictures and the rate of consumers' return to the theater. 75 Table of Contents Direct Operating Expense. The decrease in direct operating expenses is due to a decrease in Motion Picture revenues. The 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. In particular, the decrease was impacted by the lower amortization rate of the fiscal 2020 and prior theatrical slate titles generating revenue in the current period as compared to the prior year's period. Investment in film write-downs included in Motion Picture segment direct operating expense for the period were $14.6 million in the nine months ended December 31, 2020, as compared to $38.8 million in the nine months ended December 31, 2019. Distribution and Marketing Expense. The decrease in distribution and marketing expense in the nine months ended December 31, 2020 is due to lower theatrical P&A expense associated with the closure of theaters during the period due to circumstances associated with the COVID-19 global pandemic. Theatrical P&A and Premium VOD expense in the current period includes expense associated with the Premium VOD release of Antebellum and the theatrical and Premium VOD release of Fatale. In the nine months ended December 31, 2020, approximately $3.6 million of P&A and Premium VOD expense was incurred in advance for films to be released in subsequent quarters. In the nine months ended December 31, 2019, approximately $11.4 million of P&A was incurred in advance for films to be released in subsequent quarters, such as I Still Believe, Barb and Star Go to Vista Del Mar, and Antebellum . Gross Contribution. While Motion Picture revenue declined during the period as discussed above, gross contribution of the Motion Picture segment for the nine months ended December 31, 2020 increased 70.9% as compared to the nine months ended December 31, 2019 due to lower 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 nine months ended December 31, 2020 increased $3.7 million, or 4.9%, primarily due to an increase in incentive based compensation partially offset by decreases in rent, facility and travel and related costs. Television Production The table below sets forth Television Production gross contribution and segment profit for the nine months ended December 31, 2020 and 2019: Nine Months Ended December 31, Increase (Decrease) 2020 2019 Amount Percent (Amounts in millions) Television Production Segment: Revenue $ 621.0 $ 743.2 $ (122.2) (16.4) % Expenses: Direct operating expense 494.3 660.9 (166.6) (25.2) % Distribution & marketing expense 20.9 23.5 (2.6) (11.1) % Gross contribution 105.8 58.8 47.0 79.9 % General and administrative expenses 31.5 26.9 4.6 17.1 % Segment profit $ 74.3 $ 31.9 $ 42.4 132.9 % Direct operating expense as a percentage of revenue 79.6 % 88.9 % Gross contribution as a percentage of revenue 17.0 % 7.9 % 76 Table of Contents Revenue. The table below sets forth Television Production revenue and changes in revenue by media for the nine months ended December 31, 2020 and 2019: Nine Months Ended December 31, Increase (Decrease) 2020 2019 Amount Percent Television Production (Amounts in millions) Television $ 332.3 $ 526.4 $ (194.1) (36.9) % International 120.4 113.3 7.1 6.3 % Home Entertainment Digital 119.8 47.6 72.2 151.7 % Packaged Media 4.9 2.2 2.7 122.7 % Total Home Entertainment 124.7 49.8 74.9 150.4 % Other 43.6 53.7 (10.1) (18.8) % $ 621.0 $ 743.2 $ (122.2) (16.4) % The primary component of Television Production revenue is domestic television revenue. Domestic television revenue decreased in the nine months ended December 31, 2020, as compared to the nine months ended December 31, 2019, due to fewer television episodes delivered, decreased intersegment revenues from the licensing of Starz original series, and decreased revenue from reality television series, all of which were negatively impacted by disruptions associated with the COVID-19 global pandemic and the associated pausing of productions which resulted in the delay of television episodes delivered in the current period. In addition, the prior year's period included significant revenue from House of Payne . International revenue in the nine months ended December 31, 2020 increased $7.1 million, or 6.3% as compared to the nine months ended December 31, 2019 due to increased intersegment revenues from STARZPLAY International from the licensing of Starz original series. Home entertainment revenue in the nine months ended December 31, 2020 increased $74.9 million driven by digital media revenue in the current period for Mad Men Seasons 1 - 7 and Power Season 6, partially offset by digital media revenue in the prior year's period for Power Season 5. Other revenue decreased in the nine months ended December 31, 2020 as compared to the nine months ended December 31, 2019. Revenue of 3 Arts Entertainment was negatively impacted in the nine months ended December 31, 2020 as a result of the COVID-19 global pandemic related disruptions. The extent of the future impact on other revenue of the COVID-19 global pandemic is uncertain and will depend on film and television productions and releases returning to and remaining at pre COVID-19 levels. We expect that Television Production segment revenues will decrease in fiscal 2021 as compared to fiscal 2020 due to delays in domestic and international distribution and production as a result of paused productions throughout the U.S., Canada, and worldwide due to circumstances associated with the COVID-19 global pandemic. The extent of the impact of the COVID-19 global pandemic related disruptions on Television Production revenues, will depend on, among other things, the duration and spread of the pandemic, the impact of governmental regulations that have been, and may continue to be, imposed in response to the pandemic, the effectiveness of actions taken to contain or mitigate the outbreak, and global economic conditions related to the COVID-19 global pandemic. Direct Operating Expense. Direct operating expense of the Television Production segment in the nine months ended December 31, 2020 decreased $166.6 million, or 25.2% due to the decrease in Television Production revenues. Direct operating expenses as a percentage of television production revenue decreased primarily due to the mix of titles generating revenue in the current period as compared to the prior year's period, and in particular, due to the COVID-19 global pandemic related disruptions, the current period included fewer deliveries of newer shows in which direct operating expense is typically higher as a percentage of revenue. 77 Table of Contents Gross Contribution. Gross contribution of the Television Production segment for the nine months ended December 31, 2020 increased as compared to the nine months ended December 31, 2019, due to lower direct operating expenses as a percentage of television production revenue, partially offset by lower television production revenue. General and Administrative Expense. General and administrative expenses of the Television Production segment increased $4.6 million, or 17.1%, primarily due to increases in incentive compensation and salaries and related expenses partially offset by decreases in travel and related expenses. Media Networks The table below sets forth Media Networks gross contribution and segment profit for the nine months ended December 31, 2020 and 2019: Nine Months Ended December 31, Increase (Decrease) 2020 2019 Amount Percent (Amounts in millions) Media Networks Segment: Revenue $ 1,161.7 $ 1,128.8 $ 32.9 2.9 % Expenses: Direct operating expense 504.6 499.8 4.8 1.0 % Distribution & marketing expense 345.5 299.0 46.5 15.6 % Gross contribution 311.6 330.0 (18.4) (5.6) % General and administrative expenses 65.3 62.7 2.6 4.1 % Segment profit $ 246.3 $ 267.3 $ (21.0) (7.9) % Direct operating expense as a percentage of revenue 43.4 % 44.3 % Gross contribution as a percentage of revenue 26.8 % 29.2 % The following table sets forth the Media Networks segment profit by product line: Nine Months Ended Nine Months Ended December 31, 2020 December 31, 2019 Starz Networks STARZPLAY International Other Streaming Services Total Media Networks Starz Networks STARZPLAY International Other Streaming Services Total Media Networks (Amounts in millions) Media Networks Segment: Revenue $ 1,081.8 $ 41.9 $ 38.0 $ 1,161.7 $ 1,092.4 $ 13.6 $ 22.8 $ 1,128.8 Expenses: Direct operating expense 438.3 58.3 8.0 504.6 400.8 95.1 3.9 499.8 Distribution & marketing expense 256.5 59.5 29.5 345.5 248.5 21.5 29.0 299.0 Gross contribution 387.0 (75.9) 0.5 311.6 443.1 (103.0) (10.1) 330.0 General and administrative expenses 47.5 12.6 5.2 65.3 47.5 10.6 4.6 62.7 Segment profit $ 339.5 $ (88.5) $ (4.7) $ 246.3 $ 395.6 $ (113.6) $ (14.7) $ 267.3 78 Table of Contents Revenue. The increase in Media Networks' revenue was driven by higher STARZPLAY International revenue of $28.3 million, and increased Other Streaming Services revenue of $15.2 million due to subscriber growth, which was partially offset by decreased Starz Networks' revenue of $10.6 million. STARZPLAY International revenue increased as a result of subscriber and revenue growth in the international territories previously launched, and additional territories launched since December 31, 2019. Starz Networks' revenue decreased as a result of declines in revenue from traditional linear services, which was partially offset by higher OTT revenue resulting from increased subscriptions. As a result of events related to the COVID-19 global pandemic, television and streaming consumption around the globe continues to increase, as well as home entertainment demand. STARZ continues to achieve an increase in viewership of its content across all platforms as well as an increase in subscribers to its OTT services, both domestically and internationally. This increase in subscribers is dependent upon future economic conditions, our ability to deliver original content and may vary due to changes in consumer viewing and subscription patterns. However, it is too early to say whether this increase is indicative of future results and whether growth may slow as governmental and other restrictions are relaxed, and as a result of the current and possible longer term negative economic impact of the pandemic. During the nine months ended December 31, 2020 and 2019, the following original series premiered on STARZ: Nine Months Ended December 31, 2020 Nine Months Ended December 31, 2019 First Quarter: First Quarter: Vida Season 3 The Spanish Princess Hightown Season 1 Vida Season 2 The Rook Season 1 Second Quarter: Second Quarter: P-Valley Season 1 Sweetbitter Season 2 Power Book II: Ghost Power Season 6 Power Confidential Season 1 Third Quarter:* Third Quarter: Seduced: Inside the NXIVM Cult Dublin Murders The Spanish Princess Season 2 Leavenworth * In addition, while Power Book II: Ghost premiered in the second quarter ended September 30, 2020, the series returned with a mid-season premiere in the third quarter in December 2020. Direct Operating and Distribution and Marketing Expenses . Direct operating and distribution and marketing expenses primarily represent programming cost amortization and advertising and marketing costs, respectively. The level of programming 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 and first-run output theatrical movies 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 continues to expand. The increase in Media Networks direct operating expenses is due to increases at Starz Networks and, to a lesser extent, Other Streaming Services, partially offset by lower direct operating expenses at STARZPLAY International in the nine months ended December 31, 2020. The increase in Starz Networks direct operating expense was primarily due to a benefit in the prior year's period of $41.3 million associated with the modification of a content licensing arrangement, net of amortization for related changes in content availability and air dates, and higher programming amortization related to theatrical releases under our programming output agreement, partially offset by lower programming amortization and development expense related to our Starz Originals due to fewer series premieres. Direct operating expenses at STARZPLAY International decreased as a result of write downs of programming cost in the nine months ended December 31, 2019 and prior periods, which reduced the cost being amortized in the current period, partially offset by the continued expansion of STARZPLAY International. The increase in Media Networks distribution and marketing expense is due to an increase at STARZPLAY International. Distribution and marketing expense for STARZPLAY International increased due to an increase in advertising and marketing costs in order to drive subscriber growth in the international territories previously launched, and additional territories launched since December 31, 2019. 79 Table of Contents Gross Contribution. The decrease in gross contribution compared to the nine months ended December 31, 2019 was due to a decrease at Starz Networks primarily due to the benefit in direct operating expense in the prior year's period as discussed above, partially offset by lower negative contributions from STARZPLAY International and Other Streaming Services. General and Administrative Expense. General and administrative expenses of the Media Networks segment in the nine months ended December 31, 2020 increased slightly from the prior year's period, driven by increased general and administrative expenses for STARZPLAY International. 80 Table of Contents 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. As of December 31, 2020, we had cash and cash equivalents of $551.5 million. Our debt at December 31, 2020 primarily consisted of a $1.5 billion five-year revolving credit facility (with no amounts outstanding at December 31, 2020) due March 2023 (the "Revolving Credit Facility"), a five-year term loan A facility due March 2023 (the "Term Loan A"), a seven-year term loan B facility due March 2025 (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"). In January 2021, certain subsidiaries of the Company (the “Borrowers”) entered into a senior secured revolving credit facility with the lenders from time to time party thereto and MUFG Union Bank, N.A., as administrative agent, based on the Company’s tax credit receivables (the “Facility”). The maximum principal amount of the Facility is $120.0 million, subject to availability under the borrowing base, which is based on specified percentages of amounts payable to the Borrowers by governmental authorities pursuant to the tax incentive laws of certain eligible jurisdictions that arise from the production or exploitation of motion pictures and television programming in such jurisdiction. Maximum capacity under the Facility may be increased to $200.0 million through the exercise by the Borrowers of an uncommitted accordion feature through which existing and new lenders may, at their option, agree to provide additional financing. Borrowings under the Facility shall bear interest at a rate equal to, at the Borrowers’ option, LIBOR plus 1.50% per annum or the base rate plus 0.50% per annum. The proceeds of the Facility shall be used to pay transaction fees, costs and interest associated with the Facility and the transactions contemplated thereby, and for repayment of debt and other general corporate purposes. The Facility is expected to mature on January 27, 2025. See Note 18 - Subsequent Events to our unaudited condensed consolidated financial statements. 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 $191.5 million as of December 31, 2020 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. The 3 Arts Entertainment noncontrolling interest holders have a right to put the noncontrolling interest of 3 Arts Entertainment, at fair value, exercisable at five years after the acquisition date of May 29, 2018, for a 60 day period. Beginning 30 days after the expiration of the exercise period for the put rights held by the noncontrolling interest holders, the Company has a right to call the noncontrolling interest of 3 Arts Entertainment, at fair value, for a 60 day period. The Pilgrim Media Group noncontrolling interest holder has a right to put and the Company has a right to call a portion of the noncontrolling interest, equal to 17.5% of Pilgrim Media Group, at fair value, until February 19, 2021, as amended. In addition, the noncontrolling interest holder has a right to put and the Company has a right to call the remaining amount of noncontrolling interest at fair value, subject to a cap, exercisable at seven years after the acquisition date of November 12, 2015. 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. In the short-term, while a portion of our revenue has been reduced as a result of disruptions associated with the COVID-19 global pandemic, our cash requirements for productions and marketing spends have also been reduced. In some areas, we have experienced increases in revenue and viewership of our content. We expect that the ultimate impact of these disruptions, including the extent of any adverse impact on our business, results of operations and financial condition, will depend on, among other things, the duration and spread of the pandemic, the impact of governmental regulations that have been, and may continue to be, imposed in response to the pandemic, the effectiveness of actions taken to contain or mitigate the outbreak, and global 81 Table of Contents economic conditions. As a result, we cannot predict the outcome of the full extent of the disruptions associated with the COVID-19 global pandemic on our operating results, cash flows and financial position. However, we currently believe that cash flow from operations, cash on hand, revolving credit facility availability, the monetization of trade accounts receivable, tax-efficient financing, the availability of our senior secured revolving credit facility based on our tax credit receivables, 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 method or other investment funding requirements, and 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, the monetization of trade accounts receivable, and our senior secured revolving credit facility based on our tax credit receivables. 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. Our ability to obtain any additional financing will depend on, among other things, our business plans, operating performance and the condition of the capital markets at the time we seek financing. Additionally, circumstances related to the COVID-19 global pandemic has caused disruption in the capital markets, which could make financing more difficult and/or expensive, and we may not be able to obtain such financing. 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 December 31, 2020, 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 December 31, 2020, 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 $288.1 million of our common shares have been purchased under the plan, leaving approximately $179.9 million of authorized potential repurchases. The remaining $179.9 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. During the three months ended December 31, 2020, the Company did not repurchase any common shares. During the nine months ended December 31, 2020, the Company repurchased 0.2 million of its Class A voting shares for an aggregate cost of $1.0 million, with an average repurchase price per share of $5.75. 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 December 31, 2020, 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 accumulated deficit or net income, and therefore the Company's net income of $7.3 million and accumulated deficit of $18.8 million were deemed free of restrictions from paying dividends at December 31, 2020. 82 Table of Contents Discussion of Operating, Investing, Financing Cash Flows Cash and cash equivalents increased by $227.4 million for the nine months ended December 31, 2020 and increased by $10.1 million for the nine months ended December 31, 2019, 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 nine months ended December 31, 2020 and 2019 were as follows: Nine Months Ended December 31, 2020 2019 Net Change (Amounts in millions) Operating income $ 156.3 $ 14.9 $ 141.4 Depreciation and amortization 142.9 143.0 (0.1) Amortization of films and television programs and program rights 853.6 1,306.0 (452.4) Non-cash share-based compensation 60.1 41.4 18.7 Cash interest (104.7) (134.5) 29.8 Current income tax provision (6.7) (5.7) (1.0) Other non-cash charges included in operating activities 49.5 43.4 6.1 Cash flows from operations before changes in operating assets and liabilities 1,151.0 1,408.5 (257.5) Changes in operating assets and liabilities: Accounts receivable, net and other assets 133.6 271.0 (137.4) Investment in films and television programs and program rights (984.7) (1,136.1) 151.4 Accounts payable and accrued liabilities (7.7) (33.8) 26.1 Other changes in operating assets and liabilities (132.9) (75.2) (57.7) Changes in operating assets and liabilities (991.7) (974.1) (17.6) Net Cash Flows Provided By Operating Activities $ 159.3 $ 434.4 $ (275.1) Cash flows provided by operating activities for the nine months ended December 31, 2020 were $159.3 million compared to cash flows provided by operating activities of $434.4 million for the nine months ended December 31, 2019. The decrease in cash provided by operating activities for the nine months ended December 31, 2020 as compared to the nine months ended December 31, 2019 is due to lower cash flows from operations before changes in operating assets and liabilities, and to a lesser extent, greater cash used from changes in operating assets and liabilities as shown above. The greater use of cash from changes in operating assets and liabilities was driven by lower decreases in accounts receivable, net and other assets, and greater use of cash from changes in other operating assets and liabilities driven by decreases in film obligations, as reflected above. These decreases were partially offset by lower cash used for investment in films and television programs and program rights as reflected above, and the receipt of $64.3 million from the Internal Revenue Service related to the Company's net operating loss carryback claim which is subject to review and included in other liabilities until the review is completed. In addition, cash flows provided by operating activities for the nine months ended December 31, 2020 included a net benefit of approximately $7.0 million from the monetization of accounts receivables programs, as compared to a benefit of $280.9 million for the nine months ended December 31, 2019 (see Note 17 to our unaudited condensed consolidated financial statements). Investing Activities. Cash flows used in investing activities for the nine months ended December 31, 2020 and 2019 were as follows: 83 Table of Contents Nine Months Ended December 31, 2020 2019 (Amounts in millions) Proceeds from the sale of other investments $ 5.1 $ — Investment in equity method investees and other (0.2) (14.8) Capital expenditures (25.8) (24.0) Net Cash Flows Used In Investing Activities $ (20.9) $ (38.8) Cash used in investing activities of $20.9 million for the nine months ended December 31, 2020 compared to cash used in investing activities of $38.8 million for the nine months ended December 31, 2019, as reflected above. Financing Activities. Cash flows used in financing activities for the nine months ended December 31, 2020 and 2019 were as follows: Nine Months Ended December 31, 2020 2019 (Amounts in millions) Debt - borrowings $ 160.0 $ 597.1 Debt - repayments (210.9) (738.6) Net borrowings (repayments) of debt (50.9) (141.5) Production loans - borrowings 219.2 54.0 Production loans - repayments (51.9) (290.9) Net proceeds from (repayments of) production loans 167.3 (236.9) Repurchase of common shares (2.2) — Other financing activities (25.2) (7.1) Net Cash Flows Provided By (Used In) Financing Activities $ 89.0 $ (385.5) Cash flows provided by financing activities of $89.0 million for the nine months ended December 31, 2020 compared to cash flows used in financing activities of $385.5 million for the nine months ended December 31, 2019. Cash flows provided by financing activities for the nine months ended December 31, 2020 primarily reflects net production loan borrowings of $167.3 million as production activity increased in the quarter, and net debt repayments of $50.9 million representing required repayments on our term loans. In addition, other financing activities in the nine months ended December 31, 2020 includes $15.4 million for interest rate swap settlement payments due to an other-than-insignificant financing element on a portion of our interest rate swaps (see Note 16 to our unaudited condensed consolidated financial statements). Cash flows used in financing activities for the nine months ended December 31, 2019 primarily reflects net production loan repayments of $236.9 million and net debt repayments of $141.5 million, which consisted of early repayments of $101.9 million in principal outstanding on the Term Loan B and required repayments on our term loans. Debt See Note 4 to our unaudited condensed consolidated financial statements for a discussion of our debt. Production Loans See Note 6 to our unaudited condensed consolidated financial statements for a discussion of our production loans. 84 Table of Contents Table of Debt and Contractual Commitments The following table sets forth our future annual repayment of debt, and our contractual commitments as of December 31, 2020: Three Months Ending March 31, Year Ending March 31, 2021 2022 2023 2024 2025 Thereafter Total (Amounts in millions) Future annual repayment of debt recorded as of December 31, 2020 (on-balance sheet arrangements) Revolving credit facility $ — $ — $ — $ — $ — $ — $ — Term Loan A 13.1 75.0 585.0 — — — 673.1 Term Loan B 3.2 12.5 12.5 12.5 915.1 — 955.8 5.875% Senior Notes — — — — 518.7 — 518.7 6.375% Senior Notes — — — 545.6 — — 545.6 Film obligations and production loans (1) 18.4 301.6 78.8 119.7 4.6 2.1 525.2 Operating lease obligations 13.5 40.9 37.5 25.3 15.0 49.4 181.6 Finance lease obligations 0.4 — — — — — 0.4 48.6 430.0 713.8 703.1 1,453.4 51.5 3,400.4 Contractual commitments by expected repayment date (off-balance sheet arrangements) Film obligation and production loan commitments (2) 124.4 500.1 58.1 155.9 36.8 31.8 907.1 Interest payments (3) 34.3 136.3 134.0 115.5 72.1 — 492.2 Other contractual obligations 66.8 90.4 54.8 15.2 8.4 49.0 284.6 225.5 726.8 246.9 286.6 117.3 80.8 1,683.9 Total future repayment of debt and other commitments under contractual obligations (4) $ 274.1 $ 1,156.8 $ 960.7 $ 989.7 $ 1,570.7 $ 132.3 $ 5,084.3 ___________________ (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 $191.5 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 8 to our unaudited condensed consolidated financial statements). In addition, in January 2021, we entered into a senior secured revolving credit facility based on our tax credit receivables. The maximum principal amount of the Facility 85 Table of Contents is $120.0 million, subject to availability under the borrowing base, which is based on specified percentages of amounts payable to the Borrowers by governmental authorities pursuant to the tax incentive laws of certain eligible jurisdictions that arise from the production or exploitation of motion pictures and television programming in such jurisdiction. Maximum capacity under the Facility may be increased to $200.0 million through the exercise by the Borrowers of an uncommitted accordion feature through which existing and new lenders may, at their option, agree to provide additional financing. The Facility is expected to mature on January 27, 2025. See Note 18 - Subsequent Events 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 9 to our unaudited condensed consolidated financial statements, remaining performance obligations were $1.6 billion at December 31, 2020 (March 31, 2020 - $1.6 billion). The backlog portion of remaining performance obligations (excluding deferred revenue) related to our Motion Picture and Television Production segments was $1.2 billion at December 31, 2020 (March 31, 2020 - $1.0 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.