Item 1. Financial Statements
Item 1. Financial Statements.
LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
June 30,
2021 March 31,
2021
(Amounts in millions)
ASSETS
Cash and cash equivalents $ 261.6 $ 528.7
Accounts receivable, net 447.2 383.7
Other current assets 144.5 274.3
Total current assets 853.3 1,186.7
Investment in films and television programs and program rights, net 2,429.2 2,222.7
Property and equipment, net 87.3 91.1
Investments 32.8 31.9
Intangible assets 1,541.9 1,575.1
Goodwill 2,764.5 2,764.5
Other assets 503.9 434.2
Total assets $ 8,212.9 $ 8,306.2
LIABILITIES
Accounts payable and accrued liabilities $ 504.5 $ 545.4
Participations and residuals 484.5 508.8
Film obligations 349.1 385.0
Debt - short term portion 40.0 88.0
Deferred revenue 177.5 165.7
Total current liabilities 1,555.6 1,692.9
Debt 2,444.4 2,542.9
Participations and residuals 308.3 304.6
Film obligations 509.3 318.5
Other liabilities 330.2 337.1
Deferred revenue 53.1 56.2
Deferred tax liabilities 41.2 40.3
Redeemable noncontrolling interests 231.4 219.1
Commitments and contingencies (Note 15)
EQUITY
Class A voting common shares, no par value, 500.0 shares authorized, 83.0 shares issued (March 31, 2021 - 83.0 shares issued)
664.9 663.2
Class B non-voting common shares, no par value, 500.0 shares authorized, 139.6 shares issued (March 31, 2021 - 138.2 shares issued)
2,318.6 2,296.0
Accumulated deficit ( 139.1 ) ( 82.9 )
Accumulated other comprehensive loss ( 107.2 ) ( 83.3 )
Total Lions Gate Entertainment Corp. shareholders' equity 2,737.2 2,793.0
Noncontrolling interests 2.2 1.6
Total equity 2,739.4 2,794.6
Total liabilities and equity $ 8,212.9 $ 8,306.2
See accompanying notes.
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LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
June 30,
2021 2020
(Amounts in millions, except per share amounts)
Revenues $ 901.2 $ 813.7
Expenses
Direct operating 486.2 423.0
Distribution and marketing 217.6 141.7
General and administration 130.6 109.0
Depreciation and amortization 43.3 47.6
Restructuring and other 3.2 3.0
Total expenses 880.9 724.3
Operating income 20.3 89.4
Interest expense ( 41.7 ) ( 44.4 )
Interest and other income 3.9 1.7
Other expense ( 1.7 ) ( 1.7 )
Loss on extinguishment of debt ( 26.6 ) —
Gain (loss) on investments ( 0.1 ) 5.1
Equity interests income (loss) 0.7 ( 2.6 )
Income (loss) before income taxes ( 45.2 ) 47.5
Income tax provision ( 6.5 ) ( 1.3 )
Net income (loss) ( 51.7 ) 46.2
Less: Net loss attributable to noncontrolling interests 6.3 4.9
Net income (loss) attributable to Lions Gate Entertainment Corp. shareholders $ ( 45.4 ) $ 51.1
Per share information attributable to Lions Gate Entertainment Corp. shareholders:
Basic net income (loss) per common share $ ( 0.20 ) $ 0.23
Diluted net income (loss) per common share $ ( 0.20 ) $ 0.23
Weighted average number of common shares outstanding:
Basic 221.8 219.5
Diluted 221.8 219.9
See accompanying notes.
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LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three Months Ended
June 30,
2021 2020
(Amounts in millions)
Net income (loss) $ ( 51.7 ) $ 46.2
Foreign currency translation adjustments, net of tax 0.1 0.4
Net unrealized loss on cash flow hedges, net of tax ( 24.0 ) ( 7.0 )
Comprehensive income (loss) ( 75.6 ) 39.6
Less: Comprehensive loss attributable to noncontrolling interests 6.3 4.9
Comprehensive income (loss) attributable to Lions Gate Entertainment Corp. shareholders $ ( 69.3 ) $ 44.5
See accompanying notes.
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LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
Three Months Ended
Class A Voting Class B Non-Voting Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Loss Lions Gate Entertainment Corp. Shareholders' Equity Noncontrolling Interests (a) Total Equity
Common Shares Common Shares
Number Amount Number Amount
(Amounts in millions)
Balance at March 31, 2021 83.0 $ 663.2 138.2 $ 2,296.0 $ ( 82.9 ) $ ( 83.3 ) $ 2,793.0 $ 1.6 $ 2,794.6
Exercise of stock options — 0.4 0.2 1.9 — — 2.3 — 2.3
Share-based compensation, net — 1.2 1.2 20.6 — — 21.8 — 21.8
Issuance of common shares — 0.1 — 0.1 — — 0.2 — 0.2
Noncontrolling interests — — — — — — — 0.7 0.7
Net loss — — — — ( 45.4 ) — ( 45.4 ) ( 0.1 ) ( 45.5 )
Other comprehensive loss — — — — — ( 23.9 ) ( 23.9 ) — ( 23.9 )
Redeemable noncontrolling interests adjustments to redemption value — — — — ( 10.8 ) — ( 10.8 ) — ( 10.8 )
Balance at June 30, 2021 83.0 $ 664.9 139.6 $ 2,318.6 $ ( 139.1 ) $ ( 107.2 ) $ 2,737.2 $ 2.2 $ 2,739.4
Balance at March 31, 2020 83.0 $ 659.2 136.4 $ 2,221.7 $ ( 16.9 ) $ ( 206.0 ) $ 2,658.0 $ 2.0 $ 2,660.0
Share-based compensation, net 0.1 1.0 0.5 10.6 — — 11.6 — 11.6
Issuance of common shares — 0.1 — 0.1 — — 0.2 — 0.2
Repurchase of common shares ( 0.2 ) ( 1.0 ) — — — — ( 1.0 ) — ( 1.0 )
Noncontrolling interests — — — — — — — 0.1 0.1
Net income — — — — 51.1 — 51.1 — 51.1
Other comprehensive loss — — — — — ( 6.6 ) ( 6.6 ) — ( 6.6 )
Redeemable noncontrolling interests adjustments to redemption value — — — — ( 5.9 ) — ( 5.9 ) — ( 5.9 )
Balance at June 30, 2020 82.9 $ 659.3 136.9 $ 2,232.4 $ 28.3 $ ( 212.6 ) $ 2,707.4 $ 2.1 $ 2,709.5
_____________________
(a) Excludes redeemable noncontrolling interests, which are reflected in temporary equity (see Note 8).
See accompanying notes.
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LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
June 30,
2021 2020
(Amounts in millions)
Operating Activities:
Net income (loss) $ ( 51.7 ) $ 46.2
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization 43.3 47.6
Amortization of films and television programs and program rights 371.1 281.2
Amortization of debt financing costs and other non-cash interest 12.0 6.5
Non-cash share-based compensation 34.6 14.4
Other amortization 25.5 18.3
Loss on extinguishment of debt 26.6 —
Equity interests (income) loss ( 0.7 ) 2.6
Loss (gain) on investments 0.1 ( 5.1 )
Deferred income taxes 0.9 —
Changes in operating assets and liabilities:
Accounts receivable, net and other assets ( 149.6 ) 92.5
Investment in films and television programs and program rights, net ( 577.4 ) ( 176.5 )
Accounts payable and accrued liabilities ( 60.1 ) ( 120.8 )
Participations and residuals ( 20.7 ) ( 45.4 )
Program rights and other film obligations ( 11.2 ) ( 51.6 )
Deferred revenue 8.6 ( 28.5 )
Net Cash Flows Provided By (Used In) Operating Activities ( 348.7 ) 81.4
Investing Activities:
Proceeds from the sale of Pantaya 123.6 —
Proceeds from the sale of equity method and other investments — 5.1
Investment in equity method investees and other ( 1.5 ) ( 0.2 )
Capital expenditures ( 6.4 ) ( 6.4 )
Net Cash Flows Provided By (Used In) Investing Activities 115.7 ( 1.5 )
Financing Activities:
Debt - borrowings, net of debt issuance and redemption costs 1,199.9 75.0
Debt - repurchases and repayments ( 1,373.9 ) ( 92.0 )
Production loans - borrowings 214.3 46.1
Production loans - repayments ( 113.2 ) ( 44.1 )
Production tax credit facility advances, net of debt issuance costs 94.9 —
Production tax credit facility repayments ( 32.8 ) —
Interest rate swap settlement payments ( 6.9 ) ( 2.1 )
Repurchase of common shares — ( 2.2 )
Distributions to noncontrolling interest — ( 0.8 )
Exercise of stock options 2.5 —
Tax withholding required on equity awards ( 13.1 ) ( 2.0 )
Net Cash Flows Used In Financing Activities ( 28.3 ) ( 22.1 )
Net Change In Cash, Cash Equivalents and Restricted Cash ( 261.3 ) 57.8
Foreign Exchange Effects on Cash, Cash Equivalents and Restricted Cash — 0.1
Cash, Cash Equivalents and Restricted Cash - Beginning Of Period 528.7 318.2
Cash, Cash Equivalents and Restricted Cash - End Of Period $ 267.4 $ 376.1
See accompanying notes.
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. General
Nature of Operations
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 one of the largest collections of film and television franchises in the independent media space.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Lionsgate and all of its majority-owned and controlled subsidiaries.
The unaudited condensed consolidated financial statements have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to quarterly report on Form 10-Q under the Securities Exchange Act of 1934, as amended, and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of the Company’s management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been reflected in these unaudited condensed consolidated financial statements. Operating results for the three months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2022. The balance sheet at March 31, 2021 has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by U.S. GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements should be read together with the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2021.
Certain amounts presented in prior periods have been reclassified to conform to the current period presentation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions, including the potential impacts arising from the COVID-19 global pandemic, that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. The most significant estimates made by management in the preparation of the financial statements relate to ultimate revenue and costs used for the amortization of investment in films and television programs and licensed program rights; estimates of sales returns; estimates related to the revenue recognition of sales or usage-based royalties; fair value of equity-based compensation; fair value of assets and liabilities for allocation of the purchase price of companies acquired; income taxes including the assessment of valuation allowances for deferred tax assets; accruals for contingent liabilities; and impairment assessments for investment in films and television programs and licensed program rights, property and equipment, equity investments, goodwill and intangible assets. Actual results could differ from such estimates.
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2. Disposition
Pantaya . On March 31, 2021, the Company sold its 75 % majority interest in Pantaya to Hemisphere Media Group for approximately $ 123.6 million in cash, subject to certain customary adjustments pursuant to the terms of the agreement. Under the terms of the purchase agreement, control of Pantaya transferred to Hemisphere Media Group on March 31, 2021, with the cash consideration transferred on April 1, 2021. The receivable for the cash purchase consideration was included in other current assets as of March 31, 2021. Pantaya was previously reflected in and represented substantially all of "Other Streaming Services" in the Company's Media Networks segment (see Note 14). The Company recorded a gain before income taxes of approximately $ 44.1 million, which was reflected in the gain on sale of Pantaya line item in the consolidated statement of operations in the year ended March 31, 2021. This gain amount was net of $ 69.0 million of goodwill allocated from the Media Networks segment as required under the applicable accounting guidance.
3. Investment in Films and Television Programs and Licensed Program Rights
Total investment in films and television programs and licensed program rights by predominant monetization strategy is as follows:
June 30,
2021 March 31,
2021
(Amounts in millions)
Investment in Films and Television Programs:
Individual Monetization
Released, net of accumulated amortization $ 428.1 $ 414.7
Completed and not released 28.4 60.3
In progress 539.1 418.7
In development 92.3 92.9
1,087.9 986.6
Film Group Monetization
Released, net of accumulated amortization 289.6 200.4
Completed and not released — —
In progress 580.6 497.1
In development 18.0 28.2
888.2 725.7
Licensed program rights, net of accumulated amortization 453.1 510.4
Investment in films and television programs and licensed program rights, net $ 2,429.2 $ 2,222.7
At June 30, 2021, acquired film and television libraries have remaining unamortized costs of $ 16.0 million, which are monetized individually and are being amortized using the individual-film-forecast method over a remaining period of approximately 19.25 years.
Amortization of investment in film and television programs and licensed program rights by predominant monetization strategy is as follows for the three months ended June 30, 2021 and 2020, and was included in direct operating expense in the unaudited condensed consolidated statements of operations:
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Three Months Ended
June 30,
2021 2020
(Amounts in millions)
Amortization expense:
Individual monetization $ 235.8 $ 122.5
Film group monetization 32.1 48.2
Licensed program rights 103.2 110.5
$ 371.1 $ 281.2
Impairments. Investment in films and television programs and licensed program rights includes write-downs to fair value, which are included in direct operating expense on the unaudited condensed consolidated statements of operations, and represented the following amounts by segment for the three months ended June 30, 2021 and 2020:
Three Months Ended
June 30,
2021 2020
(Amounts in millions)
Impairments by segment:
Motion Picture $ — $ 0.6
Television Production 25.0 —
$ 25.0 $ 0.6
4. Investments
The Company's investments consisted of the following:
June 30,
2021 March 31,
2021
(Amounts in millions)
Investments in equity method investees $ 31.7 $ 30.1
Other investments 1.1 1.8
$ 32.8 $ 31.9
Equity Method Investments:
The Company has investments in various equity method investees with ownership percentages ranging from approximately 9 % to 49 %. These investments include:
STARZPLAY Arabia. STARZPLAY Arabia (Playco Holdings Limited) offers a STARZ-branded online subscription video-on-demand service in the Middle East and North Africa.
Roadside Attractions . Roadside Attractions is an independent theatrical distribution company.
Pantelion Films. Pantelion Films is a joint venture with Videocine, an affiliate of Televisa, which produces, acquires and distributes a slate of English and Spanish language feature films that target Hispanic moviegoers in the U.S.
Atom Tickets. Atom Tickets is the first-of-its-kind theatrical mobile ticketing platform and app.
Great Point Opportunity Fund. Great Point Opportunity Fund is a partnership to make investments in an operating company that will operate a studio facility in Yonkers, New York.
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Other. In addition to the equity method investments discussed above, the Company holds ownership interests in other immaterial equity method investees.
Summarized Financial Information. Summarized financial information for the Company's equity method investees on an aggregate basis is set forth below:
June 30,
2021 March 31,
2021
(Amounts in millions)
Current assets $ 106.8 $ 135.2
Non-current assets $ 78.4 $ 177.7
Current liabilities $ 208.9 $ 201.1
Non-current liabilities $ 59.6 $ 91.7
Three Months Ended
June 30,
2021 2020
(Amounts in millions)
Revenues $ 14.4 $ 23.9
Gross profit $ 3.9 $ 6.1
Net loss $ ( 11.3 ) $ ( 17.6 )
Gain (Loss) on Investments:
The following table summarizes the components of the gain (loss) on investments:
Three Months Ended
June 30,
2021 2020
(Amounts in millions)
Unrealized gains (losses) on equity securities $ ( 0.6 ) $ 0.5
Gain on sale of other investments and other investment gains 0.5 4.6
$ ( 0.1 ) $ 5.1
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
5. Debt
Total debt of the Company, excluding film obligations, was as follows as of June 30, 2021 and March 31, 2021:
June 30,
2021 March 31,
2021
(Amounts in millions)
Corporate debt:
Revolving Credit Facility $ — $ —
Term Loan A:
2023 Term Loan A 209.7 660.0
2026 Term Loan A 444.9 —
Term Loan B 898.0 952.6
5.500 % Senior Notes
1,000.0 —
5.875 % Senior Notes
— 518.7
6.375 % Senior Notes
— 545.6
Total corporate debt 2,552.6 2,676.9
Unamortized debt issuance costs ( 68.2 ) ( 46.0 )
Total debt, net 2,484.4 2,630.9
Less current portion ( 40.0 ) ( 88.0 )
Non-current portion of debt $ 2,444.4 $ 2,542.9
Fiscal 2022 Debt Transactions:
Senior Notes Redemption and Issuance. On April 1, 2021, the Company redeemed in full all $ 518.7 million outstanding principal amount of its 5.875 % Senior Notes due November 2024 (" 5.875 % Senior Notes") and all $ 545.6 million outstanding principal amount of its 6.375 % Senior Notes due February 2024 (" 6.375 % Senior Notes"). In connection with the early redemption of the 5.875 % Senior Notes and the 6.375 % Senior Notes, the Company paid a prepayment premium of $ 15.2 million and $ 17.4 million, respectively, plus accrued and unpaid interest to the date of redemption, pursuant to the terms of the indentures governing the 5.875 % Senior Notes and the 6.375 % Senior Notes, respectively.
In connection with the redemption of the 5.875 % Senior Notes and the 6.375 % Senior Notes, on April 1, 2021, the Company issued $ 1.0 billion aggregate principal amount of 5.500 % Senior Notes due April 15, 2029 (" 5.500 % Senior Notes").
Credit Agreement Amendment. On April 6, 2021, the Company amended its credit and guarantee agreement dated December 8, 2016, as amended (the "Credit Agreement") to, among other things, extend the maturity (the "Extension") of a portion of its revolving credit commitments, amounting to $ 1.25 billion (the "2026 Revolving Credit Facility"), and a portion of its outstanding term A loans, amounting to $ 444.9 million (the "2026 Term Loan A"), to April 6, 2026, and make certain other changes to the covenants and other provisions therein. After giving effect to the Extension, $ 250.0 million of revolving credit commitments (the "2023 Revolving Credit Facility) and $ 215.1 million of term A loans (the "2023 Term Loan A", and together with the 2026 Term Loan A, the "Term Loan A") remained outstanding with a maturity of March 22, 2023.
Term Loan B Repurchases. In April and May 2021, the Company completed a series of repurchases of the Term Loan B and, in aggregate, paid $ 51.1 million to repurchase $ 51.5 million principal amount of the Term Loan B.
See the Loss on Extinguishment of Debt section further below for a description of the accounting for these transactions.
Senior Credit Facilities (Revolving Credit Facility, Term Loan A and Term Loan B)
Revolving Credit Facility Availability of Funds & Commitment Fee. The Revolving Credit Facility provides for borrowings and letters of credit up to an aggregate of $ 1.5 billion, and at June 30, 2021 there was $ 1.5 billion available. However, borrowing levels are subject to certain financial covenants as discussed below. There were no letters of credit outstanding at June 30, 2021. The Company is required to pay a quarterly commitment fee on the Revolving Credit Facility of 0.250 % to
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
0.375 % per annum, depending on the achievement of certain leverage ratios, as defined in Credit Agreement, on the total Revolving Credit Facility of $ 1.5 billion less the amount drawn.
Maturity Date:
• Revolving Credit Facility: A portion of the revolving credit commitments, amounting to $ 1.25 billion, matures April 6, 2026, and a portion of the revolving credit commitments, amounting to $ 250.0 million, matures March 22, 2023.
• Term Loan A:
◦ 2023 Term Loan A: March 22, 2023.
◦ 2026 Term Loan A: April 6, 2026.
• Term Loan B: March 24, 2025.
Interest:
• Revolving Credit Facility & Term Loan A: The Revolving Credit Facility and Term Loan A bear interest at a rate per annum equal to LIBOR plus 1.75 % (or an alternative base rate plus 0.75 %) margin, with a LIBOR floor of zero . The margin is subject to potential increases of up to 50 basis points ( two ( 2 ) increases of 25 basis points each) upon certain increases to net first lien leverage ratios, as defined in the Credit Agreement (effective interest rate of 1.85 % as of June 30, 2021, before the impact of interest rate swaps).
• Term Loan B: The Term Loan B bears interest at a rate per annum equal to LIBOR plus 2.25 % margin, with a LIBOR floor of zero (or an alternative base rate plus 1.25 % margin) (effective interest rate of 2.35 % as of June 30, 2021, before the impact of interest rate swaps).
Required Principal Payments:
• Term Loan A:
◦ 2023 Term Loan A: Quarterly principal payments, at quarterly rates of 1.25 % beginning June 30, 2019, 1.75 % beginning June 30, 2020, and 2.50 % beginning June 30, 2021 through December 31, 2022, with the balance payable at maturity.
◦ 2026 Term Loan A: Quarterly principal payments beginning September 30, 2022 at a quarterly rate of 1.25 %, then at quarterly rates of 1.75 % beginning September 30, 2023, and 2.50 % beginning September 30, 2024 through March 31, 2026, with the balance payable at maturity.
• Term Loan B: Quarterly principal payments at a quarterly rate of 0.25 %, with the balance payable at maturity.
The Term Loan A and Term Loan B also require mandatory prepayments in connection with certain asset sales, subject to certain significant exceptions, and the Term Loan B is subject to additional mandatory repayment from specified percentages of excess cash flow, as defined in the Credit Agreement.
Optional Prepayment:
• Revolving Credit Facility & Term Loan A: The Company may voluntarily prepay the Revolving Credit Facility and Term Loan A at any time without premium or penalty.
• Term Loan B: The Company may voluntarily prepay the Term Loan B at any time.
Security. The Senior Credit Facilities are guaranteed by the Guarantors (as defined in the Credit Agreement) and are secured by a security interest in substantially all of the assets of Lionsgate and the Guarantors (as defined in the Credit Agreement), subject to certain exceptions.
Covenants. The Senior Credit Facilities contain representations and warranties, events of default and affirmative and negative covenants that are customary for similar financings and which include, among other things and subject to certain significant exceptions, restrictions on the ability to declare or pay dividends, create liens, incur additional indebtedness, make investments, dispose of assets and merge or consolidate with any other person. In addition, a net first lien leverage maintenance covenant and an interest coverage ratio maintenance covenant apply to the Revolving Credit Facility and the Term Loan A and are tested quarterly. As of June 30, 2021, the Company was in compliance with all applicable covenants.
Change in Control. The Company may also be subject to an event of default upon a change in control (as defined in the Credit Agreement) which, among other things, includes a person or group acquiring ownership or control in excess of 50 % of the Company’s common shares.
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Potential Impact of LIBOR Transition. The Chief Executive of the U.K. Financial Conduct Authority (the “FCA”), which regulates the London Interbank Offered Rate, or LIBOR, has announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR after the end of 2021. For U.S dollar LIBOR, publication of the one-week and two-month LIBOR settings will cease after December 31, 2021, and publication of the overnight and 12-month LIBOR settings will cease after June 30, 2023. Immediately after June 30, 2023, the one-month, three-month and six-month U.S. dollar LIBOR settings will no longer be representative. Given these changes, the LIBOR administrator has advised that no new contracts using U.S. dollar LIBOR should be entered into after December 31, 2021. It is also possible that U.S. LIBOR will be discontinued or modified prior to June 30, 2023.
Under the terms of the Company's Credit Agreement, in the event of the discontinuance of LIBOR, a mutually agreed-upon alternate benchmark rate will be established to replace LIBOR. The Company and Lenders (as defined in the Credit Agreement) shall, in good faith, endeavor to establish an alternate benchmark rate that gives due consideration to prevailing market convention for determining a rate of interest for syndicated loans in the United States at such time, and which places the Lenders and the Company in the same economic position that existed immediately prior to the discontinuation of LIBOR. The Company does not anticipate that the discontinuance or modification of LIBOR will materially impact its liquidity or financial position.
5.500 % Senior Notes
Interest: Bears interest at 5.500 % annually (payable semi-annually in arrears on April 15 and October 15 of each year, commencing on October 15, 2021).
Maturity Date: April 15, 2029.
Optional Redemption:
(i) Prior to April 15, 2024, the Company may redeem the 5.500 % Senior Notes in whole at any time, or in part from time to time, at a price equal to 100 % of the principal amount of the notes to be redeemed plus a "make-whole" premium, plus accrued and unpaid interest, if any, to, but not including, the redemption date. The make-whole premium is the greater of (i) 1.0 % of the principal amount redeemed and (ii) the excess, if any, of the present value at such redemption date of the redemption price at April 15, 2024 (see redemption prices below) plus interest through April 15, 2024 (discounted to the redemption date at the treasury rate plus 50 basis points) over the principal amount of the notes redeemed on the redemption date.
(ii) On or after April 15, 2024, the Company may redeem the 5.500 % Senior Notes in whole at any time, or in part from time to time, at certain specified redemption prices, plus accrued and unpaid interest, if any, to, but not including, the redemption date. Such redemption prices are as follows (as a percentage of the principal amount redeemed): (i) on or after April 15, 2024 - 102.750 %; (ii) on or after April 15, 2025 - 101.375 %; and (iii) on or after April 15, 2026 - 100 %. In addition, the Company may redeem up to 40 % of the aggregate principal amount of the notes at any time and from time to time prior to April 15, 2024 with the net proceeds of certain equity offerings at a price of 105.500 % of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the redemption date.
Security. The 5.500 % Senior Notes are unsubordinated, unsecured obligations of the Company.
Covenants. The 5.500 % 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 June 30, 2021, the Company was in compliance with all applicable covenants.
Change in Control. The occurrence of a change of control will be a triggering event requiring the Company to offer to purchase from holders all of the 5.500 % Senior Notes, at a price equal to 101 % of the principal amount, plus accrued and unpaid interest, if any, to the date of purchase. In addition, certain asset dispositions will be triggering events that may require the Company to use the excess proceeds from such dispositions to make an offer to purchase the 5.500 % Senior Notes at 100 % of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase.
Capacity to Pay Dividends
At June 30, 2021, the capacity to pay dividends under the Senior Credit Facilities and the 5.500 % Senior Notes significantly exceeded the amount of the Company's accumulated deficit or net loss, and therefore the Company's net loss of $ 51.7 million and accumulated deficit of $ 139.1 million were deemed free of restrictions from paying dividends at June 30, 2021.
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Loss on Extinguishment of Debt
Accounting for the Fiscal 2022 Debt Transactions Discussed Above:
Revolving Credit Facility.
• Unamortized debt issuance costs: Where the borrowing capacity (measured as the amount available under the revolving credit facility multiplied by the remaining term) was less than it was prior to the amendment to the Revolving Credit Facility on a creditor-by-creditor basis, the unamortized debt issuance costs were written off as a loss on extinguishment of debt in proportion to the decrease in borrowing capacity.
The remaining unamortized debt issuance costs were allocated between the 2023 and 2026 Revolving Credit Facility in proportion to the borrowing capacity of each facility and are being amortized over the respective terms of the 2023 and 2026 Revolving Credit Facility, as applicable.
• Fees paid to creditors and third-party costs: All fees paid to creditors or third parties (i.e., new debt issuance costs) were recorded as a reduction of amounts outstanding under the 2026 Revolving Credit Facility and are being amortized over the term of the 2026 Revolving Credit Facility.
Term Loan A. With respect to substantially all creditors participating in the Term Loan A, the amendment was considered a modification of terms since the present value of the cash flows after the amendment differed by less than a 10% change from the present value of the cash flows on a creditor-by-creditor basis prior to the amendment. Accordingly, the associated costs were accounted for as follows:
• Unamortized debt issuance costs: Previously incurred unamortized debt issuance costs and fees were allocated between the 2023 Term Loan A and the 2026 Term Loan A based on the relative balances outstanding after the amendment and are being amortized over the respective terms of the 2023 Term Loan A and 2026 Term Loan A. To the extent there was a reduction of the outstanding balance on a creditor-by-creditor basis (i.e., a partial prepayment of debt), previously incurred unamortized debt issuance costs and fees were expensed as a loss on extinguishment of debt on the unaudited condensed consolidated statement of operations.
• Fees paid to creditors: Certain fees were paid to creditors based on their 2026 Term Loan A participation. These fees paid to creditors were recorded as a reduction of amounts outstanding under the 2026 Term Loan A and are being amortized over the term of the 2026 Term Loan A.
• Third-party costs: Substantially all third-party costs were expensed as a result of the modification and included in loss on extinguishment of debt in the unaudited condensed consolidated statement of operations.
Senior Notes. In accounting for the issuance and redemption of the 5.875 % and 6.375 % Senior Notes as discussed above, a portion of the Senior Notes redemption and issuance was considered a modification of terms with creditors who participated in both the redeemed Senior Notes and new 5.500 % Senior Notes, a portion was considered a debt extinguishment, and a portion represented new issuances to new creditors, and the debt issuance costs were accounted for as follows:
• Unamortized debt issuance costs: Previously incurred unamortized debt issuance costs and fees on the redeemed Senior Notes are being amortized over the term of the new Senior Notes, to the extent considered a modification of terms, and expensed as a loss on extinguishment of debt to the extent considered an extinguishment. To the extent there was a reduction of the outstanding balance on a creditor-by-creditor basis (i.e., a partial prepayment of debt), previously incurred unamortized debt issuance costs and fees were expensed as a loss on extinguishment of debt on the unaudited condensed consolidated statement of operations.
• Fees paid to creditors: Fees paid to creditors or call premiums were recorded as a reduction of amounts outstanding under the new Senior Notes and are being amortized over the term of the new Senior Notes, to the extent considered a modification of terms or associated with new issuances to new creditors, and expensed as a loss on extinguishment of debt to the extent considered an extinguishment or a partial prepayment of debt.
• Third-party costs: Costs incurred with third parties were recorded as a reduction of amounts outstanding under the new Senior Notes and will be amortized over the term of the new Senior Notes, to the extent considered an extinguishment or associated with new issuances to new creditors, and expensed as a loss on extinguishment of debt to the extent considered a modification of terms.
For all of the above transactions, debt issuance costs recorded as a reduction of outstanding debt are amortized using the effective interest method.
Term Loan B. In connection with the repurchases of the Term Loan B discussed above, the Company recorded a loss on extinguishment of debt of $ 0.2 million related to the write-off of debt issuance costs.
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Loss on Extinguishment of Debt. The following table summarizes the loss on extinguishment of debt recorded related to the transactions described above in the three months ended June 30, 2021. There was no loss on extinguishment of debt in the three months ended June 30, 2020.
Three Months Ended June 30, 2021
Loss on Extinguishment of Debt Recorded as a Reduction of Outstanding Debt Balances & Amortized Over Life of New Issuances Total
(Amounts in millions)
Revolving Credit Facility, Term Loan A and Senior Notes:
New debt issuance costs and call premiums $ 21.2 $ 31.0 $ 52.2
Previously incurred debt issuance costs 5.2 31.1 36.3
$ 26.4 $ 62.1 $ 88.5
Loss on Term Loan B repurchases 0.2
Total loss on extinguishment of debt $ 26.6
6. Film Obligations
June 30,
2021 March 31,
2021
(Amounts in millions)
Program rights and other film obligations $ 203.5 $ 214.6
Production loans 474.6 373.5
Production tax credit facility 184.5 120.0
Total film obligations 862.6 708.1
Unamortized debt issuance costs ( 4.2 ) ( 4.6 )
Total film obligations, net 858.4 703.5
Less current portion ( 349.1 ) ( 385.0 )
Total non-current film obligations $ 509.3 $ 318.5
Program Rights and Other Film Obligations
Program rights and other film obligations include minimum guarantees and accrued licensed program rights obligations, which represent amounts payable for film or television rights that the Company has acquired or licensed and certain theatrical marketing obligations for amounts received from third parties that are contractually committed for theatrical marketing expenditures associated with specific titles.
Production Loans
Production loans represent individual loans for the production of film and television programs that the Company produces. The majority of production loans have contractual repayment dates either at or near the expected completion date, with the exception of certain loans containing repayment dates on a longer term basis, and incur LIBOR-based interest at rates ranging from 2.22 % to 2.66 % (before the impact of interest rate swaps, see Note 16 for interest rate swaps).
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Production Tax Credit Facility
In January 2021, as amended on March 31, 2021, the Company entered into a non-recourse senior secured revolving credit facility (the "Production Tax Credit Facility") based on collateral consisting of certain of the Company’s tax credit receivables. The maximum principal amount of the Production Tax Credit Facility is $ 220.0 million, subject to the amount of collateral available, which is based on specified percentages of amounts payable to the Company 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. Advances under the Production Tax Credit Facility bear interest at a rate equal to, at the Company’s option, LIBOR plus 1.50 % per annum or the base rate plus 0.50 % per annum (effective interest rate of 1.60 % at June 30, 2021). The Production Tax Credit Facility matures on January 27, 2025. As of June 30, 2021, there were no additional amounts available under the Production Tax Credit Facility.
7. Fair Value Measurements
Fair Value
Accounting guidance and standards about fair value define fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Fair Value Hierarchy
Fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The accounting guidance and standards establish three levels of inputs that may be used to measure fair value:
• Level 1 — Quoted prices in active markets for identical assets or liabilities.
• Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
• Level 3 — Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
The following table sets forth the assets and liabilities required to be carried at fair value on a recurring basis as of June 30, 2021 and March 31, 2021:
June 30, 2021 March 31, 2021
Level 1 Level 2 Total Level 1 Level 2 Total
Assets: (Amounts in millions)
Available-for-sale equity securities $ 1.1 $ — $ 1.1 $ 1.8 $ — $ 1.8
Forward exchange contracts (see Note 16) — 0.5 0.5 — 1.5 1.5
Interest rate swaps (see Note 16) (1)
— 119.8 119.8 — 149.0 149.0
Liabilities:
Forward exchange contracts (see Note 16) — ( 1.5 ) ( 1.5 ) — ( 2.6 ) ( 2.6 )
Interest rate swaps (see Note 16) — ( 81.8 ) ( 81.8 ) — ( 78.4 ) ( 78.4 )
________________
(1) Amounts at June 30, 2021 and March 31, 2021 exclude $ 95.7 million and $ 98.2 million, respectively, of financing component of interest rate swaps presented in the table below.
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table sets forth the carrying values and fair values of the Company’s outstanding debt, production loans, Production Tax Credit Facility and interest rate swaps at June 30, 2021 and March 31, 2021:
June 30, 2021 March 31, 2021
(Amounts in millions)
Carrying
Value Fair Value (1)
Carrying Value Fair Value (1)
(Level 2) (Level 2)
Term Loan A $ 646.0 $ 644.8 $ 651.4 $ 647.6
Term Loan B 889.3 891.3 942.8 936.0
5.500 % Senior Notes
963.1 1,052.5 — —
5.875 % Senior Notes
— — 506.7 533.9
6.375 % Senior Notes
— — 540.8 563.0
Production loans 473.7 474.6 372.5 373.5
Production Tax Credit Facility 181.3 184.5 116.5 120.0
Financing component of interest rate swaps (2)
147.9 142.0 152.5 144.7
________________
(1) The Company measures the fair value of its outstanding debt and interest rate swaps using discounted cash flow techniques that use observable market inputs, such as LIBOR-based yield curves, swap rates, and credit ratings (Level 2 measurements).
(2) Amounts at June 30, 2021 and March 31, 2021 include $ 95.7 million and $ 98.2 million, respectively, recorded as a reduction of assets under master netting arrangements.
The Company’s financial instruments also include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, other liabilities, and borrowings under the Revolving Credit Facility, if any. The carrying values of these financial instruments approximated the fair values at June 30, 2021 and March 31, 2021.
8. Noncontrolling Interests
Redeemable Noncontrolling Interests
The table below presents the reconciliation of changes in redeemable noncontrolling interests:
Three Months Ended
June 30,
2021 2020
(Amounts in millions)
Beginning balance $ 219.1 $ 167.8
Net loss attributable to redeemable noncontrolling interests ( 6.2 ) ( 4.9 )
Noncontrolling interests discount accretion 7.7 5.9
Adjustments to redemption value 10.8 5.9
Cash distributions — ( 0.8 )
Ending balance $ 231.4 $ 173.9
Redeemable noncontrolling interests (included in temporary equity on the unaudited condensed consolidated balance sheets) relate to the November 12, 2015 acquisition of a controlling interest in Pilgrim Media Group and the May 29, 2018 acquisition of a controlling interest in 3 Arts Entertainment.
3 Arts Entertainment. The noncontrolling interest holders have a right to put the noncontrolling interest of 3 Arts Entertainment, at fair value, exercisable at five years after the acquisition date of May 29, 2018, for a 60 day period. Beginning 30 days after the expiration of the exercise period for the put rights held by the noncontrolling interest holders, the Company has a right to call the noncontrolling interest of 3 Arts Entertainment, at fair value, for a 60 day period.
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Pilgrim Media Group. Pursuant to an amendment dated April 2, 2021, the put and call rights associated with the Pilgrim Media Group noncontrolling interest were extended and modified, such that the noncontrolling interest holder has a right to put and the Company has a right to call a portion of the noncontrolling interest, equal to 25 % of Pilgrim Media Group, at fair value, exercisable for thirty ( 30 ) days beginning November 12, 2022. 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 for thirty ( 30 ) days beginning November 12, 2024, as amended.
In addition, the noncontrolling interest holder is the President and CEO of Pilgrim Media Group. Pursuant to the original operating agreement of Pilgrim Media Group, if the employment of the noncontrolling interest holder was terminated, under certain circumstances as defined in the operating agreement, the Company could call and the noncontrolling interest holder could put the noncontrolling interest at a discount to fair value, which was being expensed over the call periods in the original operating agreement. Pursuant to the amendment to the operating agreement on April 2, 2021, this discount was eliminated and therefore the remaining unamortized discount of $ 2.7 million has been expensed in the three months ended June 30, 2021. The amortization of the discount through June 30, 2021 was included in general and administrative expense of Pilgrim Media Group and reflected as an addition to redeemable noncontrolling interest.
Redeemable noncontrolling interests are measured at the greater of (i) the redemption amount that would be paid if settlement occurred at the balance sheet date less the amount attributed to unamortized noncontrolling interest discount if applicable, or (ii) the historical value resulting from the original acquisition date value plus or minus any earnings or loss attribution, plus the amount of amortized noncontrolling interest discount, less the amount of cash distributions that are not accounted for as compensation, if any. The amount of the redemption value in excess of the historical values of the noncontrolling interest, if any, is recognized as an increase to redeemable noncontrolling interest and a charge to retained earnings or accumulated deficit.
Other Noncontrolling Interests
The Company has other immaterial noncontrolling interests that are not redeemable.
9. Revenue
The Company's Motion Picture and Television Production segments generate revenue principally from the licensing of content in domestic theatrical exhibition, home entertainment (e.g., digital media and packaged media), television, and international market places. The Company's Media Networks segment generates revenue primarily from the distribution of the Company's STARZ branded premium subscription video services.
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Revenue by Segment, Market or Product Line
The table below presents revenues by segment, market or product line for the three months ended June 30, 2021 and 2020:
Three Months Ended
June 30,
2021 2020
(Amounts in millions)
Revenue by Type:
Motion Picture
Theatrical $ 28.4 $ 0.3
Home Entertainment
Digital Media 112.2 127.7
Packaged Media 34.0 39.5
Total Home Entertainment 146.2 167.2
Television 50.8 58.5
International 62.8 52.5
Other 3.0 2.2
Total Motion Picture revenues 291.2 280.7
Television Production
Television 272.2 95.9
International 67.5 46.4
Home Entertainment
Digital Media 24.5 45.9
Packaged Media 2.3 0.7
Total Home Entertainment 26.8 46.6
Other 19.6 6.8
Total Television Production revenues 386.1 195.7
Media Networks - Programming Revenues
Domestic (1)
358.2 357.3
International 24.1 10.0
382.3 367.3
Intersegment eliminations ( 158.4 ) ( 30.0 )
Total revenues $ 901.2 $ 813.7
___________________
(1) Media Networks domestic revenues for the three months ended June 30, 2020 included revenue from the Company's former Other Streaming Services product line of $ 11.5 million, substantially all of which related to the Company's former interest in Pantaya, which was sold on March 31, 2021 (see Note 2).
Remaining Performance Obligations
Remaining performance obligations represent deferred revenue on the balance sheet plus fixed fee or minimum guarantee contracts where the revenue will be recognized and the cash received in the future (i.e., backlog). Revenues expected to be recognized in the future related to performance obligations that are unsatisfied at June 30, 2021 are as follows:
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Rest of Year Ending March 31, 2022 Year Ending March 31,
2023 2024 Thereafter Total
(Amounts in millions)
Remaining Performance Obligations $ 837.5 $ 376.0 $ 107.0 $ 146.0 $ 1,466.5
The above table does not include estimates of variable consideration for transactions involving sales or usage-based royalties in exchange for licenses of intellectual property. The revenues included in the above table include all fixed fee contracts regardless of duration.
Revenues of $ 72.8 million, including variable and fixed fee arrangements, were recognized during the three months ended June 30, 2021, from performance obligations satisfied prior to March 31, 2021. These revenues were primarily associated with the distribution of television and theatrical product in electronic sell-through and video-on-demand formats, and to a lesser extent, the distribution of theatrical product in the domestic and international markets related to films initially released in prior periods.
Accounts Receivable, Contract Assets and Deferred Revenue
The timing of revenue recognition, billings and cash collections affects the recognition of accounts receivable, contract assets and deferred revenue. At June 30, 2021 and March 31, 2021, accounts receivable, contract assets and deferred revenue are as follows.
Item Balance Sheet Location June 30,
2021 March 31,
2021 Addition (Reduction)
(Amounts in millions)
Accounts receivable, net - current Accounts receivable, net $ 447.2 $ 383.7 $ 63.5
Accounts receivable, net - non-current Other assets - non-current 57.3 49.4 7.9
Contract asset - current Other assets - current (1)
28.7 25.6 3.1
Contract asset - non-current Other assets - non-current (1)
10.6 10.3 0.3
Deferred revenue - current Deferred revenue - current 177.5 165.7 11.8
Deferred revenue - non-current Deferred revenue - non-current 53.1 56.2 ( 3.1 )
__________________
(1) Included in prepaid expenses and other (see Note 17) .
Accounts Receivable. Accounts receivable are presented net of a provision for doubtful accounts. The Company estimates provisions for accounts receivable based on historical experience for the respective risk categories and current and future expected economic conditions. To assess collectibility, the Company analyzes market trends, economic conditions, the aging of receivables and customer specific risks, and records a provision for estimated credit losses expected over the lifetime of the receivables in direct operating expense.
The Company performs ongoing credit evaluations and monitors its credit exposure through active review of customers' financial condition, aging of receivable balances, historical collection trends, and expectations about relevant future events that may significantly affect collectibility. The Company generally does not require collateral for its trade accounts receivable.
Changes in the provision for doubtful accounts consisted of the following:
March 31, 2021 (Benefit) provision for doubtful accounts (1)
Uncollectible accounts written-off June 30,
2021
(Amounts in millions)
Trade accounts receivable $ 6.5 $ ( 0.9 ) $ — $ 5.6
_______________________
(1) Represents collections on accounts receivable previously reserved.
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Contract Assets. Contract assets relate to the Company’s conditional right to consideration for completed performance under the contract (e.g., unbilled receivables). Amounts relate primarily to contractual payment holdbacks in cases in which the Company is required to deliver additional episodes or seasons of television content in order to receive payment, complete certain administrative activities, such as guild filings, or allow the Company's customers' audit rights to expire.
Deferred Revenue. Deferred revenue relates primarily to customer cash advances or deposits received prior to when the Company satisfies the corresponding performance obligation. Revenues of $ 64.1 million were recognized during the three months ended June 30, 2021 related to the balance of deferred revenue at March 31, 2021.
10. Net Income (Loss) Per Share
Basic net income (loss) per share is calculated based on the weighted average common shares outstanding for the period. Basic net income (loss) per share for the three months ended June 30, 2021 and 2020 is presented below:
Three Months Ended
June 30,
2021 2020
(Amounts in millions, except per share amounts)
Basic Net Income (Loss) Per Common Share:
Numerator:
Net income (loss) attributable to Lions Gate Entertainment Corp. shareholders $ ( 45.4 ) $ 51.1
Denominator:
Weighted average common shares outstanding 221.8 219.5
Basic net income (loss) per common share $ ( 0.20 ) $ 0.23
Diluted net income (loss) per common share reflects share purchase options, including share appreciation rights ("SARs"), restricted share units ("RSUs") and restricted stock using the treasury stock method when dilutive, and any contingently issuable shares when dilutive. Diluted net income (loss) per common share for the three months ended June 30, 2021 and 2020 is presented below:
Three Months Ended
June 30,
2021 2020
(Amounts in millions, except per share amounts)
Diluted Net Income (Loss) Per Common Share:
Numerator:
Net income (loss) attributable to Lions Gate Entertainment Corp. shareholders $ ( 45.4 ) $ 51.1
Denominator:
Weighted average common shares outstanding 221.8 219.5
Effect of dilutive securities:
Restricted share units and restricted stock — 0.4
Adjusted weighted average common shares outstanding 221.8 219.9
Diluted net income (loss) per common share $ ( 0.20 ) $ 0.23
As a result of the net loss in the three months ended June 30, 2021, the dilutive effect of the share purchase options, restricted share units and restricted stock, and contingently issuable shares were considered anti-dilutive and, therefore, excluded from diluted net loss per share. The weighted average anti-dilutive shares excluded from the calculation due to the net loss for the three months ended June 30, 2021 totaled 7.4 million.
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Additionally, for the three months ended June 30, 2021 and 2020, the outstanding common shares issuable presented below were excluded from diluted net income (loss) per common share because their inclusion would have had an anti-dilutive effect regardless of net income or loss in the period.
Three Months Ended
June 30,
2021 2020
(Amounts in millions)
Anti-dilutive shares issuable
Share purchase options 13.4 27.8
Restricted share units — 2.6
Other issuable shares 1.9 4.9
Total weighted average anti-dilutive shares issuable excluded from diluted net income (loss) per common share 15.3 35.3
11. Capital Stock
(a) Common Shares
The Company had 500 million authorized Class A voting shares and 500 million authorized Class B non-voting shares at June 30, 2021 and March 31, 2021. The table below outlines common shares reserved for future issuance:
June 30,
2021 March 31,
2021
(Amounts in millions)
Stock options and SARs outstanding 26.8 26.7
Restricted stock and restricted share units — unvested 7.1 9.1
Common shares available for future issuance 16.6 15.6
Shares reserved for future issuance 50.5 51.4
(b) Share-based Compensation
The Company recognized the following share-based compensation expense during the three months ended June 30, 2021 and 2020:
Three Months Ended
June 30,
2021 2020
(Amounts in millions)
Compensation Expense:
Stock options $ 9.4 $ 4.3
Restricted share units and other share-based compensation 22.9 8.9
Share appreciation rights 2.3 1.2
Total share-based compensation expense 34.6 14.4
Tax impact (1)
( 6.6 ) ( 3.0 )
Reduction in net income $ 28.0 $ 11.4
___________________
(1) Represents the income tax benefit recognized in the unaudited condensed consolidated statements of operations for share-based compensation arrangements prior to the effects of changes in the valuation allowance.
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Share-based compensation expense, by expense category, consisted of the following:
Three Months Ended
June 30,
2021 2020
(Amounts in millions)
Share-Based Compensation Expense:
Direct operating $ 0.1 $ 0.4
Distribution and marketing 0.1 0.1
General and administration 34.4 13.9
$ 34.6 $ 14.4
The following table sets forth the stock option, SARs, restricted stock and restricted share unit activity during the three months ended June 30, 2021:
Stock Options and SARs Restricted Stock and Restricted Share Units
Class A Voting Shares Class B Non-Voting Shares Class A Voting Shares Class B Non-Voting Shares
Number of Shares Weighted-Average Exercise Price Number of Shares Weighted-Average Exercise Price Number of Shares Weighted-Average Grant-Date Fair Value Number of Shares Weighted-Average Grant-Date Fair Value
(Number of shares in millions)
Outstanding at March 31, 2021 5.5 $ 24.23 21.2 $ 15.85 — (1)
$ 11.10 9.1 $ 8.71
Granted — — 0.5
$ 13.45 — — 0.3 $ 11.48
Options exercised or restricted stock or RSUs vested — (1)
$ 11.05 ( 0.2 ) $ 11.82 — (1)
$ 11.30 ( 2.0 ) $ 9.33
Forfeited or expired — (1)
$ 23.08 ( 0.2 ) $ 25.19 — — ( 0.3 ) $ 8.03
Outstanding at June 30, 2021 5.5 $ 24.32 21.3 $ 15.73 — (1)
$ 11.07 7.1 $ 8.70
__________________
(1) Represents less than 0.1 million shares.
(c) Share Repurchases
During the three months ended June 30, 2021, the Company did not repurchase any common shares. During the three months ended June 30, 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 . To date, approximately $ 288.1 million common shares have been repurchased, leaving approximately $ 179.9 million of authorized potential repurchases.
12. Income Taxes
The income tax provision for the three months ended June 30, 2021 and 2020 is calculated by estimating the Company's annual effective tax rate (estimated annual tax provision divided by estimated annual income before income taxes), and then applying the effective tax rate to income (loss) before income taxes for the period, plus or minus the tax effects of items that relate discretely to the period, if any.
The Company's income tax provision differs from the federal statutory rate multiplied by pre-tax income (loss) due to the mix of the Company's pre-tax income (loss) generated across the various jurisdictions in which the Company operates, changes in the valuation allowance against the Company's deferred tax assets, and certain minimum taxes and foreign withholding taxes. The Company's income tax provision for the quarter ended June 30, 2021 was also impacted by the additional accrual of interest on uncertain tax benefits. The Company's income tax provision for the quarter ended June 30, 2020 was also impacted by the release of uncertain tax benefits due to the close of audits or expiration of statutory limitations.
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company's income tax provision can be affected by many factors, including the overall level of pre-tax income, the mix of pre-tax income generated across the various jurisdictions in which the Company operates, changes in tax laws and regulations in those jurisdictions, changes in uncertain tax positions, changes in valuation allowances on its deferred tax assets, tax planning strategies available to the Company, and other discrete items.
13. Restructuring and Other
Restructuring and other includes restructuring and severance costs, certain transaction and related costs, and certain unusual items, when applicable. During the three months ended June 30, 2021 and 2020, the Company also incurred certain other unusual charges related to the COVID-19 global pandemic. The following table sets forth restructuring and other and COVID-19 related charges and the statement of operations line items they are included in for the three months ended June 30, 2021 and 2020:
Three Months Ended
June 30,
2021 2020
(Amounts in millions)
Restructuring and other:
Severance (1)
$ 2.4 $ 2.2
COVID-19 related charges included in restructuring and other (2)
0.3 0.5
Transaction and related costs (3)
0.5 0.3
Total Restructuring and Other 3.2 3.0
COVID-19 related charges not included in restructuring and other, included in:
Direct operating expense (4)
1.6 5.7
Distribution and marketing expense (4)
— 4.7
Total restructuring and other and COVID-19 related charges $ 4.8 $ 13.4
_______________________
(1) Severance costs in the three months ended June 30, 2021 and 2020 were primarily related to restructuring activities in connection with cost-saving initiatives and recent acquisitions.
(2) During the three months ended June 30, 2021, the Company has incurred certain costs primarily related to incremental costs required to adhere to health and safety protocols and other incremental costs associated with the COVID-19 global pandemic. In the three months ended June 30 2020, these costs were 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 June 30, 2021 and 2020 reflect transaction, integration and legal costs associated with certain strategic transactions, restructuring activities and legal matters.
(4) 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 theaters, international travel restrictions and the pausing of motion picture and television productions, during the three months ended June 30, 2021 and 2020 the Company incurred certain incremental costs which were expensed in the period. The costs included in direct operating expense primarily represent 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, net of insurance recoveries. In addition, the costs included in distribution and marketing expense primarily consist of contractual marketing spends for film releases and events that have been canceled or delayed and will provide no economic benefit. The Company is in the process of seeking additional insurance recovery for some of these costs. The ultimate amount of insurance recovery cannot be estimated at this time.
Changes in the restructuring and other severance liability were as follows for the three months ended June 30, 2021 and 2020:
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LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Three Months Ended
June 30,
2021 2020
(Amounts in millions)
Severance liability
Beginning balance $ 5.7 $ 11.1
Accruals 2.4 2.2
Severance payments ( 3.8 ) ( 5.3 )
Ending balance (1)
$ 4.3 $ 8.0
_______________________
(1) As of June 30, 2021, the remaining severance liability of approximately $ 4.3 million is expected to be paid in the next 12 months.
14. Segment Information
The Company’s reportable segments have been determined based on the distinct nature of their operations, the Company's internal management structure, and the financial information that is evaluated regularly by the Company's chief operating decision maker.
The Company has three reportable business segments: (1) Motion Picture, (2) Television Production and (3) Media Networks.
Motion Picture. Motion Picture consists of the development and production of feature films, acquisition of North American and worldwide distribution rights, North American theatrical, home entertainment and television distribution of feature films produced and acquired, and worldwide licensing of distribution rights to feature films produced and acquired.
Television Production. Television Production consists of the development, production and worldwide distribution of television productions including television series, television movies and mini-series, and non-fiction programming. Television Production includes the licensing of Starz original series productions to Starz Networks and STARZPLAY International, and the ancillary market distribution of Starz original productions and licensed product. Additionally, the Television Production segment includes the results of operations of 3 Arts Entertainment.
Media Networks. Media Networks consists of the following product lines (i) Starz Networks, which includes the domestic distribution of STARZ branded premium subscription video services through OTT platforms and Distributors and on a direct-to-consumer basis through the Starz App and (ii) STARZPLAY International, which represents revenues primarily from the OTT distribution of the Company's STARZ branded premium subscription video services outside of the U.S. Through March 31, 2021, Media Networks also included Other Streaming Services, which represented primarily our formerly majority owned premium Spanish language streaming services business, Pantaya. The Company sold its interest in Pantaya on March 31, 2021 (see Note 2).
In the ordinary course of business, the Company's reportable segments enter into transactions with one another. The most common types of intersegment transactions include licensing motion pictures or television programming (including Starz original productions) from the Motion Picture and Television Production segments to the Media Networks segment. While intersegment transactions are treated like third-party transactions to determine segment performance, the revenues (and corresponding expenses, assets, or liabilities recognized by the segment that is the counterparty to the transaction) are eliminated in consolidation and, therefore, do not affect consolidated results.
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Segment information is presented in the table below:
Three Months Ended
June 30,
2021 2020
(Amounts in millions)
Segment revenues
Motion Picture $ 291.2 $ 280.7
Television Production 386.1 195.7
Media Networks 382.3 367.3
Intersegment eliminations ( 158.4 ) ( 30.0 )
$ 901.2 $ 813.7
Intersegment revenues
Motion Picture $ 4.4 $ 3.1
Television Production 154.0 26.9
Media Networks — —
$ 158.4 $ 30.0
Gross contribution
Motion Picture $ 68.7 $ 129.9
Television Production 13.0 45.6
Media Networks 109.3 92.3
Intersegment eliminations 8.6 ( 7.7 )
$ 199.6 $ 260.1
Segment general and administration
Motion Picture $ 24.4 $ 28.8
Television Production 10.0 10.7
Media Networks 21.1 20.5
$ 55.5 $ 60.0
Segment profit
Motion Picture $ 44.3 $ 101.1
Television Production 3.0 34.9
Media Networks 88.2 71.8
Intersegment eliminations 8.6 ( 7.7 )
$ 144.1 $ 200.1
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, when applicable, 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, 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 total segment profit to the Company’s income (loss) before income taxes is as follows:
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Three Months Ended
June 30,
2021 2020
(Amounts in millions)
Company’s total segment profit $ 144.1 $ 200.1
Corporate general and administrative expenses ( 24.3 ) ( 26.4 )
Adjusted depreciation and amortization (1)
( 10.1 ) ( 10.1 )
Restructuring and other (2)
( 3.2 ) ( 3.0 )
COVID-19 related charges included in direct operating expense and distribution and marketing expense (3)
( 1.6 ) ( 10.4 )
Adjusted share-based compensation expense (4)
( 34.6 ) ( 14.4 )
Purchase accounting and related adjustments (5)
( 50.0 ) ( 46.4 )
Operating income 20.3 89.4
Interest expense ( 41.7 ) ( 44.4 )
Interest and other income 3.9 1.7
Other expense ( 1.7 ) ( 1.7 )
Loss on extinguishment of debt ( 26.6 ) —
Gain (loss) on investments ( 0.1 ) 5.1
Equity interests income (loss) 0.7 ( 2.6 )
Income (loss) before income taxes $ ( 45.2 ) $ 47.5
___________________
(1) Adjusted depreciation and amortization represents depreciation and amortization as presented on our unaudited condensed consolidated statements of operations less the depreciation and amortization related to the non-cash fair value adjustments to property and equipment and intangible assets acquired in recent acquisitions which are included in the purchase accounting and related adjustments line item above, as shown in the table below:
Three Months Ended
June 30,
2021 2020
(Amounts in millions)
Depreciation and amortization $ 43.3 $ 47.6
Less: Amount included in purchase accounting and related adjustments ( 33.2 ) ( 37.5 )
Adjusted depreciation and amortization $ 10.1 $ 10.1
(2) Restructuring and other includes restructuring and severance costs, certain transaction and related costs, and certain unusual items, when applicable (see Note 13).
(3) 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, during the three months ended June 30, 2021 and 2020 the Company has incurred $ 1.6 million and $ 10.4 million, respectively, in incremental direct operating and distribution and marketing expense (see Note 13). These charges are excluded from segment operating results.
(4) Adjusted share-based compensation represents share-based compensation expense adjusted for amounts included in restructuring and other expenses, when applicable, reflecting the impact of the acceleration of certain vesting schedules for equity awards pursuant to certain severance arrangements.
(5) Purchase accounting and related adjustments primarily represent the amortization of non-cash fair value adjustments to certain assets acquired in recent acquisitions. These adjustments include the accretion of the noncontrolling interest discount related to Pilgrim Media Group and 3 Arts Entertainment, the amortization of the recoupable portion of the purchase price and the expense associated with the earned distributions related to 3 Arts Entertainment, all of which are accounted for as compensation and are included in general and administrative expense. The following sets forth the amounts included in each line item in the financial statements:
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Three Months Ended
June 30,
2021 2020
(Amounts in millions)
Purchase accounting and related adjustments:
Direct operating $ 0.4 $ 0.3
General and administrative expense 16.4 8.7
Depreciation and amortization 33.2 37.4
$ 50.0 $ 46.4
See Note 9 for revenues by media or product line as broken down by segment for the three months ended June 30, 2021 and 2020.
The following table reconciles segment general and administration expense to the Company's total consolidated general and administration expense:
Three Months Ended
June 30,
2021 2020
(Amounts in millions)
General and administration
Segment general and administrative expenses $ 55.5 $ 60.0
Corporate general and administrative expenses 24.3 26.4
Share-based compensation expense included in general and administrative expense 34.4 13.9
Purchase accounting and related adjustments 16.4 8.7
$ 130.6 $ 109.0
The reconciliation of total segment assets to the Company’s total consolidated assets is as follows:
June 30,
2021 March 31,
2021
(Amounts in millions)
Assets
Motion Picture $ 1,446.4 $ 1,212.4
Television Production 1,806.0 1,757.9
Media Networks 4,431.9 4,399.3
Other unallocated assets (1)
528.6 936.6
$ 8,212.9 $ 8,306.2
_____________________
(1) Other unallocated assets primarily consist of cash, other assets and investments.
15. Contingencies
From time to time, the Company is involved in certain claims and legal proceedings arising in the normal course of business.
The Company establishes an accrued liability for claims and legal proceedings when the Company determines that a loss is both probable and the amount of the loss can be reasonably estimated. Once established, accruals are adjusted from time to
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
time, as appropriate, in light of additional information. The amount of any loss ultimately incurred in relation to matters for which an accrual has been established may be higher or lower than the amounts accrued for such matters.
Due to the inherent difficulty of predicting the outcome of claims and legal proceedings, the Company often cannot predict what the eventual outcome of the pending matters will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss, if any, related to each pending matter may be. Accordingly, at this time, the Company has determined a loss related to these matters in excess of accrued liabilities is reasonably possible, however a reasonable estimate of the possible loss or range of loss cannot be made at this time.
Insurance Litigation
Between July 19, 2016 and August 30, 2016, seven putative class action complaints were filed by purported Starz stockholders in the Court of Chancery of the State of Delaware (the "Fiduciary Litigation"). On August 22, 2018, the parties to the Fiduciary Litigation reached an agreement in principle providing for the settlement of the Fiduciary Litigation on the terms and conditions set forth in an executed term sheet. On October 9, 2018, the parties to the Litigation executed a stipulation of settlement, which was filed with the court (the "Stipulation"). The Stipulation provided for, among other things, the final dismissal of the Fiduciary Litigation in exchange for a settlement payment made in the amount of $ 92.5 million, of which $ 37.8 million was reimbursed by insurance. The Fiduciary Litigation settlement was approved by the Court of Chancery of the State of Delaware and the settlement amount and insurance reimbursement discussed above were paid during the quarter ended December 31, 2018. The Company is continuing to seek additional insurance reimbursement, including pursuant to a lawsuit filed by the Company on November 7, 2018 against certain insurers.
On November 5, 2018, an insurer that entered into an agreement and contributed $ 10.0 million to the Company's aggregate insurance reimbursement filed a lawsuit seeking declaratory judgment for reimbursement of its agreed upon payment. The Company believes the lawsuit to be without merit and intends to vigorously defend it.
16. Derivative Instruments and Hedging Activities
Forward Foreign Exchange Contracts
The Company enters into forward foreign exchange contracts to hedge its foreign currency exposures on future production expenses and tax credit receivables denominated in various foreign currencies (i.e., cash flow hedges). The Company also enters into forward foreign exchange contracts that economically hedge certain of its foreign currency risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting. The Company monitors its positions with, and the credit quality of, the financial institutions that are party to its financial transactions. Changes in the fair value of the foreign exchange contracts that are designated as hedges are reflected in accumulated other comprehensive income (loss), and changes in the fair value of foreign exchange contracts that are not designated as hedges and do not qualify for hedge accounting are recorded in direct operating expense. Gains and losses realized upon settlement of the foreign exchange contracts that are designated as hedges are amortized to direct operating expense on the same basis as the production expenses being hedged.
As of June 30, 2021, the Company had the following outstanding forward foreign exchange contracts (all outstanding contracts have maturities of less than 19 months from June 30, 2021):
June 30, 2021
Foreign Currency Foreign Currency Amount US Dollar Amount Weighted Average Exchange Rate Per $1 USD
(Amounts in millions) (Amounts in millions)
British Pound Sterling £ 10.3 in exchange for $ 14.1 £ 0.73
Hungarian Forint HUF 48.1 in exchange for $ 0.2 HUF 256.19
Euro € 23.7 in exchange for $ 28.0 € 0.85
Canadian Dollar C$ 3.1 in exchange for $ 2.9 C$ 1.07
Czech Koruna CZK 285.8 in exchange for $ 12.9 CZK 22.08
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Interest Rate Swaps
The Company is exposed to the impact of interest rate changes primarily through its borrowing activities. The Company’s objective is to mitigate the impact of interest rate changes on earnings and cash flows. The Company primarily uses pay-fixed interest rate swaps to facilitate its interest rate risk management activities, which the Company generally designates as cash flow hedges of interest payments on floating-rate borrowings. Pay-fixed swaps effectively convert floating-rate borrowings to fixed-rate borrowings. The unrealized gains or losses from these designated cash flow hedges are deferred in accumulated other comprehensive income (loss) and recognized in interest expense as the interest payments occur. Changes in the fair value of interest rate swaps that are not designated as hedges are recorded in interest expense (see further explanation below).
Cash settlements related to interest rate contracts are generally classified as operating activities on the consolidated statements of cash flows. However, due to an other-than-insignificant financing element on a portion of our interest rate swaps (see designated cash flow hedges table below), the cash flows related to these contracts are classified as financing activities.
Designated Cash Flow Hedges. As of June 30, 2021, the Company had the following designated cash flow hedge pay-fixed interest rate swaps outstanding (all related to the Company's LIBOR-based debt, see Note 5 and Note 6):
Effective Date Notional Amount Fixed Rate Paid Maturity Date (1)
(in millions)
May 23, 2018 $ 300.0 2.915 % March 24, 2025
May 19, 2020 $ 700.0 1.923 % March 23, 2030 (2)
May 19, 2020 $ 350.0 2.531 % March 23, 2027 (2)
June 15, 2020 $ 150.0 2.343 % March 23, 2027 (2)
August 14, 2020 $ 200.0 1.840 % March 23, 2030 (2)
Total $ 1,700.0
__________________
(1) Subject to a mandatory early termination date of March 23, 2025.
(2) These pay-fixed interest rate swaps are considered hybrid instruments with a financing component and an embedded at-market derivative that was designated as a cash flow hedge (see discussion of cash flow presentation above).
Not Designated. As of June 30, 2021, the Company had the following pay-fixed receive-variable and offsetting pay-variable receive-fixed interest rate swaps outstanding, which are not designated as cash flow hedges:
Pay-Fixed Receive-Variable (1)
Offsetting Pay-Variable Receive-Fixed (1)
Effective Date Notional Amount Fixed Rate Paid Effective Date Notional Amount Fixed Rate Received Maturity Date
(in millions) (in millions)
May 23, 2018 $ 700.0 2.915 % May 19, 2020 $ 700.0 2.915 % March 24, 2025
June 25, 2018 $ 200.0 2.723 % August 14, 2020 $ 200.0 2.723 % March 23, 2025
July 31, 2018 $ 300.0 2.885 % May 19, 2020 $ 300.0 2.885 % March 23, 2025
December 24, 2018 $ 50.0 2.744 % May 19, 2020 $ 50.0 2.744 % March 23, 2025
December 24, 2018 $ 100.0 2.808 % June 15, 2020 $ 100.0 2.808 % March 23, 2025
December 24, 2018 $ 50.0 2.728 % June 15, 2020 $ 50.0 2.728 % March 23, 2025
Total $ 1,400.0 Total $ 1,400.0
__________________
(1) During the fiscal year ended March 31, 2021, the Company completed a series of transactions to amend and extend certain interest rate swap agreements, and as part of these transactions, the $ 1.4 billion pay-fixed receive-variable interest rate swaps presented in the table above were de-designated, and the Company entered into $ 1.4 billion of pay-variable receive-fixed interest rate swaps, as presented in the table above, which are designed to offset the terms of the $ 1.4 billion of pay-fixed receive-variable swaps in the table above. At the time of the de-designation of the above $ 1.4 billion in pay-fixed receive-variable interest rate swaps, there was approximately $ 163.0 million of unrealized losses recorded in accumulated other comprehensive income (loss). This amount is being amortized to interest expense through the remaining term of the de-designated swaps unless it becomes
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
probable that the cash flows originally hedged will not occur, in which case the proportionate amount of the loss will be recorded to interest expense at that time. The $ 1.4 billion of pay-fixed receive-variable interest rate swaps de-designated as cash flow hedges and the $ 1.4 billion of offsetting pay-variable receive-fixed swaps are marked to market with changes in fair value recognized, along with the fixed and variable payments on these swaps, in interest expense, which are expected to nearly offset each other.
Financial Statement Effect of Derivatives
Unaudited condensed consolidated statements of operations and comprehensive income (loss): The following table presents the pre-tax effect of the Company's derivatives on the accompanying unaudited condensed consolidated statements of operations and comprehensive income (loss) for the three months ended June 30, 2021 and 2020:
Three Months Ended
June 30,
2021 2020
(Amounts in millions)
Derivatives designated as cash flow hedges:
Forward exchange contracts
Loss recognized in accumulated other comprehensive loss $ ( 0.2 ) $ ( 0.1 )
Loss reclassified from accumulated other comprehensive loss into direct operating expense $ ( 0.3 ) $ ( 0.1 )
Interest rate swaps
Loss recognized in accumulated other comprehensive loss $ ( 40.8 ) $ ( 17.7 )
Loss reclassified from accumulated other comprehensive loss into interest expense $ ( 8.3 ) $ ( 7.4 )
Derivatives not designated as cash flow hedges:
Forward exchange contracts
Gain recognized in direct operating expense $ — $ 0.3
Interest rate swaps
Loss reclassified from accumulated other comprehensive loss into interest expense $ ( 8.4 ) $ ( 3.4 )
Total direct operating expense on consolidated statements of operations $ 486.2 $ 423.0
Total interest expense on consolidated statements of operations $ 41.7 $ 44.4
Unaudited condensed consolidated balance sheets: The Company classifies its forward foreign exchange contracts and interest rate swap agreements within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments (see Note 7). The portion of the swaps reflecting the financing component of the hybrid instrument discussed above is recorded at amortized cost and reduced over time based on payments. Pursuant to the Company's accounting policy to offset the fair value amounts recognized for derivative instruments, the Company presents the asset or liability position of the swaps that are with the same counterparty under a master netting arrangement net as either an asset or liability in its unaudited condensed consolidated balance sheets. As of June 30, 2021, the gross amount of swaps in an asset and liability position that were subject to a master netting arrangement was $ 174.0 million and $ 229.1 million, respectively, resulting in an asset recorded in other assets - non current of $ 24.1 million and a liability recorded in other liabilities - non-current of $ 79.2 million. As of March 31, 2021, the gross amount of swaps in an asset and liability position that were subject to a master netting arrangement was $ 211.2 million and $ 236.3 million, respectively, resulting in an asset recorded in other assets - non-current of $ 50.8 million and a liability recorded in other liabilities - non-current of $ 75.9 million.
As of June 30, 2021 and March 31, 2021, the Company had the following amounts recorded in the accompanying unaudited condensed consolidated balance sheets related to the Company's use of derivatives:
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
June 30, 2021
Other Current Assets Other Non-Current Assets Accounts Payable and Accrued Liabilities Other Non-Current Liabilities
(Amounts in millions)
Derivatives designated as cash flow hedges:
Forward exchange contracts $ 0.5 $ — $ 1.5 $ —
Interest rate swaps — 45.9 — 11.3
Derivatives not designated as cash flow hedges:
Interest rate swaps (1)
— ( 21.8 ) — 122.8
Fair value of derivatives $ 0.5 $ 24.1 $ 1.5 $ 134.1
________________
(1) Includes $ 95.7 million and $ 52.2 million included in other non-current assets and other non-current liabilities, respectively, representing the financing element of certain hybrid instruments, which is offset by the pay-variable receive-fixed interest rate swaps outstanding at June 30, 2021.
March 31, 2021
Other Current Assets Other Non-Current Assets Accounts Payable and Accrued Liabilities Other Non-Current Liabilities
(Amounts in millions)
Derivatives designated as cash flow hedges:
Forward exchange contracts $ 1.5 $ — $ 2.6 $ —
Interest rate swaps — 72.7 — 5.6
Derivatives not designated as cash flow hedges:
Interest rate swaps (1)
— ( 21.9 ) — 127.1
Fair value of derivatives $ 1.5 50.8 $ 2.6 132.7
________________
(1) Includes $ 98.2 million and $ 54.3 million included in other non-current assets and other non-current liabilities, respectively, representing the financing element of certain hybrid instruments, which is offset by the pay-variable receive-fixed interest rate swaps outstanding at March 31, 2021.
As of June 30, 2021, based on the current release schedule, the Company estimates approximately $ 0.3 million of gains associated with forward foreign exchange contract cash flow hedges in accumulated other comprehensive loss will be reclassified into earnings during the one-year period ending June 30, 2022.
As of June 30, 2021, the Company estimates approximately $ 47.4 million of losses recorded in accumulated other comprehensive loss associated with interest rate swap agreement cash flow hedges will be reclassified into interest expense during the one-year period ending June 30, 2022.
17. Additional Financial Information
The following tables present supplemental information related to the unaudited condensed consolidated financial statements.
Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the unaudited condensed consolidated balance sheet to the total amounts reported in the unaudited condensed consolidated statement of cash flows at June 30, 2021. At June 30, 2021, restricted cash included in other current assets represents amounts related to required cash reserves for interest payments associated with the Production Tax Credit Facility. There were no material amounts of restricted cash in the unaudited condensed consolidated balance sheet as of March 31, 2021.
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
June 30,
2021
(Amounts in millions)
Cash and cash equivalents $ 261.6
Restricted cash included in other current assets 5.8
Total cash, cash equivalents and restricted cash $ 267.4
Other Assets
The composition of the Company’s other assets is as follows as of June 30, 2021 and March 31, 2021:
June 30,
2021 March 31,
2021
(Amounts in millions)
Other current assets
Prepaid expenses and other $ 75.1 $ 68.0
Cash consideration receivable for sale of Pantaya (see Note 2) — 123.6
Product inventory 13.8 14.3
Tax credits receivable 55.6 68.4
$ 144.5 $ 274.3
Other non-current assets
Prepaid expenses and other $ 20.7 $ 25.8
Accounts receivable 57.3 49.4
Tax credits receivable 271.4 181.2
Operating lease right-of-use assets 130.4 127.0
Interest rate swap assets 24.1 50.8
$ 503.9 $ 434.2
Accounts Receivable Monetization
Under the Company's accounts receivable monetization programs, the Company has entered into (1) individual agreements to monetize certain of its trade accounts receivable directly with third-party purchasers and (2) a revolving agreement to monetize designated pools of trade accounts receivable with various financial institutions, as further described below. Under these programs, the Company transfers receivables to purchasers in exchange for cash proceeds, and the Company continues to service the receivables for the purchasers. The Company accounts for the transfers of these receivables as a sale, removes (derecognizes) the carrying amount of the receivables from its balance sheets and classifies the proceeds received as cash flows from operating activities in the statements of cash flows. The Company records a loss on the sale of these receivables reflecting the net proceeds received (net of any obligations incurred), less the carrying amount of the receivables transferred. The loss is reflected in the "other expense" line item on the unaudited condensed consolidated statements of operations. The Company receives fees for servicing the accounts receivable for the purchasers, which represent the fair value of the services and were immaterial for the three months ended June 30, 2021 and 2020.
Individual Monetization Agreements. The Company enters into individual agreements to monetize trade accounts receivable. The third-party purchasers have no recourse to other assets of the Company in the event of non-payment by the customers. The following table sets forth a summary of the receivables transferred under individual agreements or purchases during the three months ended June 30, 2021 and 2020:
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Three Months Ended
June 30,
2021 2020
(Amounts in millions)
Carrying value of receivables transferred and derecognized $ 340.4 $ 313.2
Net cash proceeds received 338.5 311.7
Loss recorded related to transfers of receivables 1.9 1.5
At June 30, 2021, the outstanding amount of receivables derecognized from the Company's unaudited condensed consolidated balance sheets, but which the Company continues to service, related to the Company's individual agreements to monetize trade accounts receivable was $ 509.2 million (March 31, 2021 - $ 562.8 million).
Pooled Monetization Agreement. In December 2019, the Company entered into a revolving agreement to transfer up to $ 150.0 million of certain receivables to various financial institutions on a recurring basis in exchange for cash equal to the gross receivables transferred. As customers pay their balances, the Company transfers additional receivables into the program. The transferred receivables are fully guaranteed by a bankruptcy-remote wholly-owned subsidiary of the Company, which holds additional receivables in the amount of $ 73.1 million as of June 30, 2021 that are pledged as collateral under this agreement. The third-party purchasers have no recourse to other assets of the Company in the event of non-payment by the customers.
The following table sets forth a summary of the receivables transferred under the pooled monetization agreement during the three months ended June 30, 2021 and 2020:
Three Months Ended
June 30,
2021 2020
(Amounts in millions)
Gross cash proceeds received for receivables transferred and derecognized $ 39.1 $ 52.3
Less amounts from collections reinvested under revolving agreement ( 29.3 ) ( 41.3 )
Proceeds from new transfers 9.8 11.0
Collections not reinvested and remitted or to be remitted ( 12.4 ) ( 10.4 )
Net cash proceeds received $ ( 2.6 ) $ 0.6
Carrying value of receivables transferred and derecognized (1)
$ 39.0 $ 52.0
Obligations recorded $ ( 0.1 ) $ 0.4
Loss (gain) recorded related to transfers of receivables $ ( 0.2 ) $ 0.1
___________________
(1) Receivables net of unamortized discounts on long-term, non-interest bearing receivables.
At June 30, 2021, the outstanding amount of receivables derecognized from the Company's unaudited condensed consolidated balance sheet, but which the Company continues to service, related to the pooled monetization agreement was approximately $ 96.4 million (March 31, 2021 - $ 99.0 million).
Accumulated Other Comprehensive Loss
The following table summarizes the changes in the components of accumulated other comprehensive loss, net of tax:
Foreign currency translation adjustments Net unrealized loss on cash flow hedges Total
(Amounts in millions)
March 31, 2021 $ ( 15.1 ) $ ( 68.2 ) $ ( 83.3 )
Other comprehensive income 0.1 ( 24.0 ) ( 23.9 )
June 30, 2021 $ ( 15.0 ) $ ( 92.2 ) $ ( 107.2 )
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Supplemental Cash Flow Information
Significant non-cash transactions during the three months ended June 30, 2021 and 2020 include certain interest rate swap agreements, which are discussed in Note 16, "Derivative Instruments and Hedging Activities".
There were no significant non-cash financing activities for the three months ended June 30, 2021 and 2020.
18. Subsequent Events
Film Library Acquisition. On July 15, 2021, the Company acquired the majority of the Spyglass Media Group, LLC ("Spyglass") feature film library of approximately 200 titles. In connection with the acquisition of the film library, the Company also formed a strategic content partnership (which provides for an investment of a 20 % minority ownership stake) and entered into a multiyear first-look television arrangement with Spyglass.
IP Credit Facility. In July 2021, certain subsidiaries of the Company entered into a senior secured amortizing term credit facility (the "IP Credit Facility") based on the collateral consisting solely of the Company’s rights in certain library titles, including the Spyglass and other recently acquired libraries and non-recourse to other assets of the Company. The maximum principal amount of the IP Credit Facility is $ 100.0 million, subject to the amount of collateral available, which is based on the valuation amount of cash flows from the libraries. The cash flows generated from the exploitation of the rights will be applied to repay the IP Credit Facility subject to a minimum guaranteed payment amount and are expected to be sufficient to fully repay the facility by the stated maturity date. Advances under the IP Credit Facility bear interest at a rate equal to, at the Company’s option, LIBOR plus 2.25 % per annum or the base rate plus 1.25 % per annum. The IP Credit Facility matures on July 30, 2026.
Term Loan B Repurchases. In July and August 2021, the Company completed a series of repurchases of the Term Loan B, and in aggregate, paid $ 38.7 million to repurchase $ 38.9 million principal amount of the Term Loan B.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.