STARZ ENTERTAINMENT CORP /CN/ 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Overview Combining the STARZ premium global subscription platform with world-class motion picture and television studio operations, Lions Gate Entertainment Corp. (the “Company,” “Lionsgate,” "Lions Gate," “we,” “us” or “our”) brings a unique and varied portfolio of entertainment to consumers around the world. Our 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. We classify our operations through three reporting segments: Motion Picture, Television Production, and Media Networks (see further discussion below). COVID-19 Global Pandemic The impacts associated with the COVID-19 global pandemic (including recent variants) and measures to prevent its spread, and the resulting economic uncertainty, continue to affect our business in a number of ways. We have experienced continued delays in theatrical distribution of our films, both domestically and internationally, as well as delays in the production of film and television content (resulting in continued changes in future release dates for some titles and series). While we continue production of films and television series, and theaters have reopened in certain locations with reduced capacity, we are not able to accurately predict when theaters will re-open at scale, at what level consumers will return to movie theaters (and in turn, whether box office numbers will return to pre-pandemic levels), whether productions that have resumed will be paused again, the impact of incremental costs required to adhere to health and safety protocols, or if and when certain of our content will be released. The full extent of impacts related to the COVID-19 global pandemic on our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict. See Part I, Item 1A. “Risk Factors” found in our Annual Report on Form 10-K filed with the SEC on May 28, 2021, as updated by any risk factors found under Part II, Item 1A. "Risk Factors" herein. 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, certain incremental costs were incurred and expensed, as presented in the table below: Three Months Ended Nine Months Ended December 31, December 31, 2021 2020 2021 2020 (Amounts in millions) COVID-19 related charges (benefit) included in: Direct operating expense (1) $ (2.8) $ 8.6 $ (2.3) $ 36.6 Distribution and marketing expense (2) — 5.4 0.3 16.1 Restructuring and other (3) 0.2 0.8 0.9 1.6 Total COVID-19 related charges (benefit) $ (2.6) $ 14.8 $ (1.1) $ 54.3 ___________ (1) Amounts reflected in direct operating expense include incremental costs associated with the pausing and restarting of productions including paying/hiring certain cast and crew, maintaining idle facilities and equipment costs, net of insurance recoveries. In the nine months ended December 31, 2020, these amounts also included film impairment due to changes in performance expectations. In the three and nine months ended December 31, 2021, insurance recoveries exceeded the incremental costs expensed in the period, resulting in a net benefit included in direct operating expense. (2) Amounts reflected 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. (3) Amounts reflected in restructuring and other for the three and nine months ended December 31, 2021 represent certain incremental general and administrative costs associated with the COVID-19 global pandemic. In the three and nine months ended December 31, 2020, these costs were primarily related to transitioning the Company to a remote-work environment and other incremental general and administrative costs associated with the COVID-19 global pandemic. We expect to incur additional incremental costs in future periods, especially if there is a continued spread of recent and new variants; however, if the adverse economic impact and disruptions associated with the COVID-19 global pandemic improve, we expect that the incremental costs we incur in fiscal 2022 will decrease as compared to fiscal 2021. We are in the 45 Table of Contents process of seeking additional insurance recovery for some of these costs. The ultimate amount of insurance recovery cannot be estimated at this time. See further discussion in the Results of Operations section below. The economic impact of the COVID-19 global pandemic and resulting societal changes will depend on numerous evolving factors that cannot be predicted with certainty. There are a number of ways in which these uncertainties resulting from the COVID-19 global pandemic have impacted our current results of operations and could continue to impact our future results of operations. These impacts include the incremental costs and losses presented in the table above, lower revenues from the closure or reopenings of movie theaters and postponement of theatrical releases, partially offset by lower theatrical production and marketing costs, or lower box office revenues from pre-pandemic levels due to shifts in viewing; increased expenses associated with new health and safety protocols on motion picture and television productions; changes in the timing of revenues for motion pictures and television productions associated with delays in production, delivery and/or release; and while STARZ experienced an increase in viewership during the nine months ended December 31, 2020 of its content, future growth could be impacted by whether productions that have resumed will be paused again, and future consumer viewing patterns as the pandemic eases. We expect that the ultimate impact of these disruptions, including the extent of any adverse impact on our business, results of operations and financial condition, will depend on, among other things, the duration and spread of the pandemic (including recent and new variants), the impact of governmental regulations that have been, and may continue to be, imposed in response to the pandemic, the effectiveness of actions taken to contain or mitigate the outbreak (including the availability, effectiveness and/or public acceptance of any U.S. Food and Drug Administration ("FDA")-approved COVID-19 vaccines), and global economic conditions related to the COVID-19 global pandemic. All of these impacts could place limitations on our ability to execute on our business plan and materially and adversely affect our business, financial condition and results of operations. We have implemented policies, procedures and protocols to address the situation and expect to continue to adjust our current policies and procedures as more information and guidance become available. In addition, resurgences of COVID-19, and the discovery and spread of recent and new variants of the virus, may result in the re-imposition of certain restrictions and may lead to more restrictions being implemented again to reduce the spread of COVID-19. These measures could result in further interruptions to our operations. Due to the evolving and uncertain nature of this situation, we are not able to estimate the full extent of the impact on our operating results, cash flows and financial position, particularly over the near to medium term. Revenues Our revenues are derived from the Motion Picture, Television Production and Media Networks segments, as described below. Our revenues are derived from the U.S., Canada, the United Kingdom and other foreign countries. None of the non-U.S. countries individually comprised greater than 10% of total revenues for the three and nine months ended December 31, 2021 and 2020. Motion Picture Our Motion Picture segment includes revenues derived from the following: • Theatrical. Theatrical revenues are derived from the domestic theatrical release of motion pictures licensed to theatrical exhibitors on a picture-by-picture basis (distributed by us directly in the U.S. and through a sub-distributor in Canada). The revenues from Canada are reported net of distribution fees and release expenses of the Canadian sub-distributor. The financial terms that we negotiate with our theatrical exhibitors in the U.S. generally provide that we receive a percentage of the box office results. • Home Entertainment. Home entertainment revenues are derived from the sale or rental of our film productions and acquired or licensed films and certain television programs (including theatrical and direct-to-video releases) on packaged media and through digital media platforms (including pay-per-view and video-on-demand platforms, electronic sell through, and digital rental). In addition, we have revenue sharing arrangements with certain digital media platforms which generally provide that, in exchange for a nominal or no upfront sales price, we share in the rental or sales revenues generated by the platform on a title-by-title basis. • Television. Television revenues are primarily derived from the licensing of our theatrical productions and acquired films to the linear pay, basic cable and free television markets. • International. International revenues are derived from (1) licensing of our productions, acquired films, our catalog product and libraries of acquired titles to international distributors, on a territory-by-territory basis; and (2) the direct distribution of our productions, acquired films, and our catalog product and libraries of acquired titles in the United Kingdom. 46 Table of Contents • Other. Other revenues are derived from, among others, the licensing of our film and television and related content (games, music, location-based entertainment royalties, etc.) to other ancillary markets. Television Production Our Television Production segment includes revenues derived from the following. • Television. Television revenues are derived from the licensing to domestic markets (linear pay, basic cable, free television and syndication) of scripted and unscripted series, television movies, mini-series and non-fiction programming. Television revenues include fixed fee arrangements as well as arrangements in which we earn advertising revenue from the exploitation of certain content on television networks. Television revenues also include revenue from licenses to subscription-video-on-demand ("SVOD") platforms in which the initial license of a television series is to an SVOD platform. • International. International revenues are derived from the licensing and syndication to international markets of scripted and unscripted series, television movies, mini-series and non-fiction programming. • Home Entertainment. Home entertainment revenues are derived from the sale or rental of television production movies or series on packaged media and through digital media platforms. • Other. Other revenues are derived from, among others, the licensing of our television programs to other ancillary markets, the sales and licensing of music from the television broadcasts of our productions, and from commissions earned and executive producer fees related to talent management. Media Networks Our Media Networks segment includes revenues derived from the following: • Starz Networks. Starz Networks’ revenues are derived from the domestic distribution of our STARZ branded premium subscription video services through over-the-top ("OTT") platforms and U.S. multichannel video programming distributors (“MVPDs”) including cable operators, satellite television providers and telecommunications companies (collectively, “Distributors”), and on a direct-to-consumer basis through the Starz App. • STARZPLAY International. STARZPLAY International revenues are primarily derived from OTT distribution of the Company's STARZ branded premium subscription video services outside of the U.S. Through March 31, 2021, our Media Networks segment also included revenues derived from Other Streaming Services, which represented revenues derived primarily from our formerly majority owned premium Spanish language streaming services business, Pantaya, which included subscriber based streaming revenue and other distribution revenue. We sold our interest in Pantaya on March 31, 2021, 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. See Note 2 to our unaudited condensed consolidated financial statements for further information. Expenses Our primary operating expenses include direct operating expenses, distribution and marketing expenses and general and administration expenses. Direct operating expenses include amortization of film and television production or acquisition costs, amortization of programming production or acquisition costs and programming related salaries, participation and residual expenses, provision for doubtful accounts, and foreign exchange gains and losses. Participation costs represent contingent consideration payable based on the performance of the film or television program to parties associated with the film or television program, including producers, writers, directors or actors. Residuals represent amounts payable to various unions or “guilds” such as the Screen Actors Guild - American Federation of Television and Radio Artists, Directors Guild of America, and Writers Guild of America, based on the performance of the film or television program in certain ancillary markets or based on the individual’s (i.e., actor, director, writer) salary level in the television market. Distribution and marketing expenses primarily include the costs of theatrical prints and advertising (“P&A”) and of DVD/Blu-ray duplication and marketing. Theatrical P&A includes the costs of the theatrical prints delivered to theatrical exhibitors and the advertising and marketing cost associated with the theatrical release of the picture. DVD/Blu-ray duplication represents the cost of the DVD/Blu-ray product and the manufacturing costs associated with creating the physical products. DVD/Blu-ray 47 Table of Contents marketing costs represent the cost of advertising the product at or near the time of its release or special promotional advertising. Marketing costs for Media Networks includes advertising, consumer marketing, distributor marketing support and other marketing costs. In addition, distribution and marketing costs includes our Media Networks segment operating costs for the direct-to-consumer service, transponder expenses and maintenance and repairs. General and administration expenses include salaries and other overhead. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of our financial statements in conformity with accounting principles generally accepted in the United States ("GAAP") requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The application of the following accounting policies, which are important to our financial position and results of operations, requires significant judgments and estimates on the part of management. As described more fully below, these estimates bear the risk of change due to the inherent uncertainty of the estimate. In some cases, changes in the accounting estimates are reasonably likely to occur from period to period. In addition, the evolving and uncertain nature of the COVID-19 global pandemic could materially impact our estimates, particularly those that require consideration of forecasted financial information, in the near to medium term. Accordingly, actual results could differ materially from our estimates. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We believe that the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require management's most difficult, subjective and complex judgments. For a summary of all of our accounting policies, including the accounting policies discussed below, see Note 1 to our audited consolidated financial statements in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on May 28, 2021. Accounting for Films and Television Programs and Licensed Program Rights Capitalized costs for films or television programs are amortized and tested for impairment based on whether the content is predominantly monetized individually or as a group. Film and Television Programs Monetized Individually. For films and television programs monetized individually, film cost amortization, participations and residuals expense are based on management's estimates. Costs of acquiring and producing films and television programs and of acquired libraries that are monetized individually are amortized and estimated liabilities for participations and residuals costs are accrued using the individual-film-forecast method, based on the ratio of the current period's revenues to management’s estimated remaining total gross revenues to be earned ("ultimate revenue"). Management's judgment is required in estimating ultimate revenue and the costs to be incurred throughout the life of each film or television program. Management estimates ultimate revenues based on historical experience with similar titles or the title genre, the general public appeal of the cast, audience test results when available, actual performance (when available) at the box office or in markets currently being exploited, and other factors such as the quality and acceptance of motion pictures or programs that our competitors release into the marketplace at or near the same time, critical reviews, general economic conditions and other tangible and intangible factors, many of which we do not control and which may change. For motion pictures, ultimate revenue includes estimates over a period not to exceed ten years following the date of initial release of the motion picture. The most sensitive factor affecting our estimate of ultimate revenues for a film intended for theatrical release is the film's theatrical performance, as subsequent revenues from the licensing and sale in other markets have historically been highly correlated to its theatrical performance. After a film's release, our estimates of revenue from succeeding markets are revised based on historical relationships and an analysis of current market trends. For an episodic television series, the period over which ultimate revenues are estimated cannot exceed ten years following the date of delivery of the first episode, or, if still in production, five years from the date of delivery of the most recent episode, if later. The most sensitive factors affecting our estimate of ultimate revenues for a television series is whether the series will be ordered for a subsequent season and estimates of revenue in secondary markets other than the initial license fee. The initial estimate of ultimate revenue may include estimates of revenues outside of the initial license window (i.e., international, home entertainment and other distribution platforms) and are based on historical experience for similar programs (genre, duration, etc.) based on the estimated number of seasons. We regularly monitor the performance of each season, and evaluate whether impairment indicators are present (i.e., low ratings, cancellations or the season is not reordered), and based upon our review, we revise our estimates as needed and perform an impairment assessment if impairment indicators are present (see below). 48 Table of Contents For titles included in acquired libraries, ultimate revenue includes estimates over a period not to exceed twenty years following the date of acquisition. Due to the inherent uncertainties involved in making such estimates of ultimate revenues and expenses, these estimates have differed in the past from actual results and are likely to differ to some extent in the future from actual results. In addition, in the normal course of our business, some films and titles are more successful or less successful than anticipated. Management regularly reviews and revises when necessary its ultimate revenue and cost estimates, which may result in a change in the rate of amortization of film costs and participations and residuals and/or a write-down of all or a portion of the unamortized costs of the film or television program to its estimated fair value (see below). An increase in the estimate of ultimate revenue will generally result in a lower amortization rate and, therefore, less film and television program amortization expense, while a decrease in the estimate of ultimate revenue will generally result in a higher amortization rate and, therefore, higher film and television program amortization expense, and also periodically results in an impairment requiring a write-down of the film cost to the title’s fair value. These write-downs are included in amortization expense within direct operating expenses in our consolidated statements of operations. See further discussion below under Impairment Assessment . Film and Television Programs Monetized as a Group. Licensed programming rights may include rights to more than one exploitation window under the Company's output and library agreements. For films with multiple windows, the license fee is allocated between the windows based upon the proportionate estimated fair value of each window which generally results in the majority of the cost allocated to the first window on newer releases. Certain license agreements and productions may include additional ancillary rights in addition to the pay television rights. The cost of the Media Networks’ third-party licensed content and produced content is allocated between the pay television market distributed by the Media Networks’ segment and the ancillary revenue markets (e.g., home video, digital platforms, international television, etc.) based on the estimated relative fair values of these markets. Our estimates of fair value for the pay television and ancillary markets and windows of exploitation involve uncertainty and management judgment. Programming costs vary due to the number of airings and cost of our original series, the number of films licensed and the cost per film paid under our output and library programming agreements. The cost of program rights for films and television programs (including original series) exhibited by the Media Networks segment are generally amortized on an accelerated or straight-line basis based on the anticipated number of exhibitions or expected and historical viewership patterns or the license period on a title-by-title or episode-by-episode basis. The number of exhibitions is estimated based on the number of exhibitions allowed in the agreement (if specified) and the expected usage of the content. Participations and residuals are expensed in line with the amortization of production costs. Changes in management’s estimate of the anticipated exhibitions and viewership patterns of films and original series on our networks could result in the earlier recognition of our programming costs than anticipated. Conversely, scheduled exhibitions and expected viewership patterns may not capture the appropriate usage of the program rights in current periods which would lead to the write-off of additional program rights in future periods and may have a significant impact on our future results of operations and our financial position. Impairment Assessment. A film group or individual film or television program is evaluated for impairment when events or changes in circumstances indicate that the fair value of an individual film or film group is less than its unamortized cost. If the result of the impairment test indicates that the carrying value exceeds the estimated fair value, an impairment charge will then be recorded for the amount of the difference. Estimate of Fair Value. For content that is predominantly monetized individually (primarily investment in film and television programs related to the Motion Picture and Television Production segments), the fair value is determined based on a discounted cash flow analysis of the cash flows directly attributable to the title. For motion pictures intended for theatrical release, the discounted cash flow analysis used in the impairment evaluation prior to theatrical release is subjective as key inputs include estimates of future anticipated revenues, estimates of box office performance, which may differ from future actual results. These estimates are based in part on the historical performance of similar films, test audience results when available, information regarding competing film releases, and critic reviews. See further discussion of Valuation Assumptions below. For content that is predominantly monetized as a group (primarily licensed program rights in the Media Networks segment and internally produced programming, as discussed above), the fair value is determined based on the present value of the discounted cash flows of the group using the lowest level for which identifiable cash flows are independent of other produced and licensed content. The Company's film groups are generally aligned along the Company's networks and digital content offerings domestically (i.e., Starz Networks and, through March 31, 2021, Other Streaming Services) and by territory or groups of territories internationally, wherein content assets are shared across the various territories and therefore, the territory or group of territories is the film group. 49 Table of Contents Valuation Assumptions. The discounted cash flow analysis includes cash flows estimates of ultimate revenue and costs as well as a discount rate (a Level 3 fair value measurement, see Note 7 to our unaudited condensed consolidated financial statements). The discount rate utilized in the discounted cash flow analysis is based on the weighted average cost of capital of the Company plus a risk premium representing the risk associated with producing a particular film or television program or film group. The fair value of any film costs associated with a film or television program that management plans to abandon is zero. Estimates of future revenue involve measurement uncertainty and it is therefore possible that reductions in the carrying value of investment in films and television programs may be required as a consequence of changes in management’s future revenue estimates. Revenue Recognition. Our Motion Picture and Television Production segments generate revenue principally from the licensing of content in domestic theatrical exhibition, home entertainment (e.g., digital media and packaged media), television, and international market places. Our Media Networks segment generates revenue primarily from the distribution of our STARZ branded premium subscription video services and, through March 31, 2021, from our formerly majority owned premium Spanish language streaming services business, Pantaya, which includes subscriber based streaming revenue and other distribution revenue. We sold our interest in Pantaya on March 31, 2021, see Note 2 to our unaudited condensed consolidated financial statements for further information. Our content licensing arrangements include fixed fee and minimum guarantee arrangements, and sales or usage based royalties. Our fixed fee or minimum guarantee licensing arrangements in the television, digital media and international markets may, in some cases, include multiple titles, multiple license periods (windows) with a substantive period in between the windows, rights to exploitation in different media, or rights to exploitation in multiple territories, which may be considered distinct performance obligations. When these performance obligations are considered distinct, the fixed fee or minimum guarantee in the arrangement is allocated to the title, window, media right or territory as applicable, based on estimates of relative standalone selling prices. The amounts related to each performance obligation (i.e., title, window, media or territory) are recognized when the content has been delivered, and the window for the exploitation right in that territory has begun, which is the point in time at which the customer is able to begin to use and benefit from the content. Sales or usage based royalties represent amounts due to us based on the “sale” or “usage” of our content by the customer, and revenues are recognized at the later of when the subsequent sale or usage occurs, or the performance obligation to which some or all the sales or usage-based royalty has been allocated has been satisfied (or partially satisfied). Generally, when we license completed content (with standalone functionality, such as a movie, or television show), our performance obligation will be satisfied prior to the sale or usage. When we license intellectual property that does not have stand-alone functionality (e.g., brands, themes, logos, etc.), our performance obligation is generally satisfied in the same period as the sale or usage. The actual amounts due to us under these arrangements are generally not reported to us until after the close of the reporting period. We record revenue under these arrangements for the amounts due and not yet reported to us based on estimates of the sales or usage of these customers and pursuant to the terms of the contracts. Such estimates are based on information from our customers, historical experience with similar titles in that market or territory, the performance of the title in other markets and/or available data in the industry. While we believe these estimates are reasonable estimates of the amounts due under these arrangements, such estimated amounts could differ from the actual amounts to be subsequently reported by the customer, which could be higher or lower than our estimates, and could result in an adjustment to revenues in future periods. Revenue from the theatrical release of feature films are treated as sales or usage-based royalties and recognized starting at the exhibition date and based on our participation in box office receipts of the theatrical exhibitor . Digital media revenue sharing arrangements are recognized as sales or usage based royalties. Revenue from the sale of physical discs (DVDs, Blu-ray or 4K Ultra HD), referred to as "Packaged Media", in the retail market, net of an allowance for estimated returns and other allowances, is recognized on the later of receipt by the customer or “street date” (when it is available for sale by the customer). We estimate reserves for Packaged Media returns based on previous returns experience, point-of-sale data available from certain retailers, current economic trends, and projected future sales of the title to the consumer based on the actual performance of similar titles on a title-by-title basis in each of the Packaged Media businesses. Factors affecting actual returns include, among other factors, limited retail shelf space at various times of the year, success of advertising or other sales promotions, and the near term release of competing titles. We believe that our estimates have been materially accurate in the past; however, due to the judgment involved in establishing reserves, we may have adjustments to our historical estimates in the future. Our estimate of future returns affects reported revenue and operating income. If we underestimate the impact of future returns in a particular period, then we may record less revenue in later periods when returns exceed the estimated amounts. If we overestimate the impact of future returns in a particular period, then we may record additional revenue in later periods when returns are less than estimated. An incremental change of 1% in our estimated sales returns rate (i.e., provisions for returns divided by gross sales of related product) for home entertainment products would 50 Table of Contents have had an impact of approximately $0.5 million and $1.4 million, respectively, on our total revenue in the three and nine months ended December 31, 2021 (2020 - $0.6 million and $1.6 million, respectively). Revenue from commissions are recognized as such services are provided. Media Networks revenues may be based on a fixed fee, subject to nominal annual escalations, or a variable fee (i.e., a fee based on number of subscribers who receive our networks or other factors). Media Networks programming revenue is recognized over the contract term based on the continuous delivery of the content to the distributor. The variable distribution fee arrangements represent sales or usage based royalties and are recognized over the period of such sales or usage by the Company's distributor, which is the same period that the content is provided to the distributor. Payments to distributors for marketing support costs for which Starz receives a discrete benefit are recorded as distribution and marketing costs, and payments to distributors for which Starz receives no discrete benefit are recorded as a reduction of revenue. Goodwill and Indefinite-Lived Intangibles. At December 31, 2021, the carrying value of goodwill and indefinite-lived intangible assets was $2.8 billion and $250.0 million, respectively. Our indefinite-lived intangible assets consist of trade names primarily representing the estimated fair value of the Starz brand name determined in connection with the acquisition of Starz as of December 8, 2016. Goodwill is allocated to our reporting units, which are our operating segments or one level below our operating segments (component level). Reporting units are determined by the discrete financial information available for the component and whether that information is regularly reviewed by segment management. Components are aggregated into a single reporting unit if they share similar economic characteristics. Our reporting units for purposes of goodwill impairment testing, along with their respective goodwill balances at December 31, 2021, were Motion Picture (goodwill of $394 million), Media Networks (goodwill of $1.97 billion), and our Television (goodwill of $309 million) and Talent Management (goodwill of $93 million) businesses, both of which are part of our Television Production segment. Goodwill and indefinite-lived intangible assets are not amortized but are reviewed for impairment each fiscal year or between the annual tests if an event occurs or circumstances change that indicates it is more-likely-than-not that the fair value of a reporting unit or indefinite-lived intangible asset is less than its carrying value. We perform our annual impairment test as of January 1 in each fiscal year. A goodwill or indefinite-lived intangible asset impairment loss would be recognized for the amount that the carrying amount of a reporting unit, including goodwill or an indefinite-lived intangible asset, exceeds its fair value. An entity may perform a qualitative assessment of the likelihood of the existence of a goodwill or indefinite-lived intangible asset impairment. The qualitative assessment is an evaluation, based on all identified events and circumstances which impact the fair value of the reporting unit or indefinite-lived intangible asset, of whether or not it is more-likely-than-not that the fair value is less than the carrying value of the reporting unit or indefinite-lived intangible asset. If we believe that as a result of our qualitative assessment it is more likely than not that the fair value of a reporting unit or indefinite-lived intangible asset is greater than its carrying amount, a quantitative impairment test is not required but may be performed at the option of the Company. A quantitative assessment requires determining the fair value of our reporting units or indefinite-lived intangible assets. The determination of fair value requires considerable judgment and requires assumptions and estimates of many factors, including revenue and market growth, operating margins and cash flows, market multiples and discount rates. In performing a quantitative assessment of goodwill, we determine the fair value of our reporting units by using a combination of discounted cash flow ("DCF") analyses and market-based valuation methodologies. The models rely on significant judgments and assumptions surrounding general market and economic conditions, short-term and long-term growth rates, discount rates, income tax rates, and detailed management forecasts of future cash flow and operating margin projections, and other assumptions, all of which are based on our internal forecasts of future performance as well as historical trends. The market-based valuation method utilizes EBITDA multiples from guideline public companies operating in similar industries and a control premium. The results of these valuation methodologies are weighted as to their relative importance and a single fair value is determined. The fair value of our reporting units is reconciled to the market value of our equity, determined based on the average prices of our common shares just prior to the period end. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the annual or interim goodwill impairment tests will prove to be an accurate prediction of the future. Goodwill Impairment Assessment: For our annual goodwill impairment test for fiscal 2021, due to the increase in the market price of our common shares since our most recent quantitative impairment assessment at March 31, 2020, the performance of the Television and Media Networks reporting units in fiscal 2021, and the improvement of overall economic conditions associated with the COVID-19 pandemic as compared to fiscal 2020, we performed a qualitative assessment for all reporting units. This assessment included consideration of, but not limited to, the results of our most recent quantitative impairment test, consideration of macroeconomic conditions, industry and market conditions, performance and current and projected cash flows of our reporting units, and changes in our 51 Table of Contents share price. Based upon our qualitative assessment, we concluded that it was more-likely-than-not that the fair value of our reporting units was greater than their carrying value. During the three and nine months ended December 31, 2021, there were no events or circumstances that would indicate that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value. Management will continue to monitor all of its reporting units for changes in the business environment that could impact the recoverability in future periods. The recoverability of goodwill is dependent upon the continued growth of revenue and cash flows from our business activities. Examples of events or circumstances that could result in changes to the underlying key assumptions and judgments used in our goodwill impairment tests, and ultimately impact the estimated fair value of our reporting units may include the duration of the COVID-19 global pandemic, its impact on the global economy and the creation and consumption of our content, and the timing of when remaining production can resume and remaining theaters can re-open; adverse macroeconomic conditions; volatility in the equity and debt markets which could result in higher weighted-average cost of capital; the commercial success of our television programming and our motion pictures; our continual contractual relationships with our customers; including our affiliate agreements of our Media Networks business; our subscriber growth rates domestically and internationally across our traditional and OTT platforms and changes in consumer behavior. While historical performance and current expectations have resulted in fair values of our reporting units in excess of carrying values, if our assumptions are not realized, it is possible that an impairment charge may need to be recorded in the future. Indefinite-Lived Intangibles Other Than Goodwill Impairment Assessment: For fiscal 2021, we performed a qualitative impairment assessment of our indefinite-lived trade names. Based on the qualitative impairment assessment of our trade names, we concluded that it is more-likely-than-not that the fair value of our trade names was more than its carrying amount, and therefore our trade names were not considered at risk of impairment. This qualitative analysis considered the relative impact of market-specific and macroeconomic factors. The market-specific factors considered included recent projections of revenues and growth in OTT subscribers, both domestic and internationally, associated with the STARZ brand name. The Company also considered the macroeconomic impact including the uncertainty around the COVID-19 global pandemic, and the resulting uncertain long-term economic impact on discount rates and growth rates, as well as the impact from tax law changes inclusive of the reduction of the federal tax rate since the acquisition of Starz. During the three and nine months ended December 31, 2021, there were no events or circumstances that would indicate that it is more-likely-than-not that the fair value of our indefinite-lived trade names is less than its carrying value. Finite-Lived Intangible Assets. At December 31, 2021, the carrying value of our finite-lived intangible assets was approximately $1.22 billion. Our finite-lived intangible assets primarily relate to customer relationships associated with U.S. MVPDs, including cable operators, satellite television providers and telecommunications companies ("Traditional Affiliate"), which amounted to $1.21 billion. The amount of our customer relationship asset related to these Traditional Affiliate relationships reflects the estimated fair value of these customer relationships determined in connection with the acquisition of Starz on December 8, 2016, net of amortization recorded since the date of the Starz acquisition. Identifiable intangible assets with finite lives are amortized to depreciation and amortization expense over their estimated useful lives, ranging from 5 to 17 years. The Starz Traditional Affiliate customer relationship intangible asset is amortized in the proportion that current period revenues bear to management’s estimate of future revenue over the remaining estimated useful life of the asset, which results in greater amortization in the earlier years of the estimated useful life of the asset than the latter years. Amortizable intangible assets are tested for impairment whenever events or changes in circumstances (triggering events) indicate that the carrying amount of the asset may not be recoverable. If a triggering event has occurred, an impairment analysis is required. The impairment test first requires a comparison of undiscounted future cash flows expected to be generated over the useful life of an asset to the carrying value of the asset. The impairment test is performed at the lowest level of cash flows associated with the asset. If the carrying value of the asset exceeds the undiscounted future cash flows, the asset would not be deemed to be recoverable. Impairment would then be measured as the excess of the asset’s carrying value over its fair value. The Company monitors its finite-lived intangible assets and changes in the underlying circumstances each reporting period for indicators of possible impairments or a change in the useful life or method of amortization of our finite-lived intangible assets. During the fiscal year ended March 31, 2021, due to changes in the industry related to the migration from linear to OTT and direct-to-consumer consumption and the economic uncertainty from the COVID-19 global pandemic, we performed an impairment analysis of our amortizable intangible assets. The impairment analysis requires a comparison of undiscounted future cash flows expected to be generated over the useful life of an asset to the carrying value of the asset. Based on our impairment analysis, the estimated undiscounted cash flows exceeded the carrying amount of the assets and therefore no impairment charge was required. 52 Table of Contents During the three and nine months ended December 31, 2021, there were no events or circumstances that would indicate that the carrying amount of our finite-lived intangible assets may not be recoverable. Determining whether an intangible asset is recoverable or impaired requires various estimates and assumptions, including whether events or circumstances indicate that the carrying amount of the asset may not be recoverable, determining estimates of future cash flows for the assets involved and, when applicable, the assumptions applied in determining fair value, including discount rates, growth rates, market risk premiums and other assumptions about the economic environment. Should the revenues from our Traditional Affiliate relationships decline more than the assumed attrition rates used in our current estimates, either as a result of decreases in subscriber rates or changes of the terms of our renewals of our Traditional Affiliate contracts, we may have indicators of impairment which could result in an impairment of our customer relationships intangible assets, or we may need to further shorten the useful life or adopt a more accelerated method of amortization both of which would increase the amount of amortization expense we record. Income Taxes. We are subject to federal and state income taxes in the U.S., and in several foreign jurisdictions. We record deferred tax assets related to net operating loss carryforwards and certain temporary differences, net of applicable reserves in these jurisdictions. We recognize a future tax benefit to the extent that realization of such benefit is more likely than not on a jurisdiction-by-jurisdiction basis; otherwise, a valuation allowance is applied. In order to realize the benefit of our deferred tax assets, we will need to generate sufficient taxable income in the future in each of the jurisdictions which have these deferred tax assets. However, the assessment as to whether there will be sufficient taxable income in a jurisdiction to realize our net deferred tax assets in that jurisdiction is an estimate which could change in the future depending primarily upon the actual performance of our Company. We will be required to continually evaluate the more likely than not assessment that our net deferred tax assets will be realized, and if operating results deteriorate in a particular jurisdiction, we may need to record a valuation allowance for all or a portion of our deferred tax assets through a charge to our income tax provision. As of March 31, 2021, we had a valuation allowance of $350.9 million against certain U.S. and foreign deferred tax assets that may not be realized on a more likely than not basis. Our quarterly income tax provision and our corresponding annual effective tax rate are based on expected income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which we operate. For interim financial reporting, we estimate the annual effective tax rate based on projected taxable income for the full year and record a quarterly tax provision in accordance with the expected annual effective tax rate. As the year progresses, we refine the estimates of the year’s taxable income as new information becomes available, including year-to-date financial results. This continual estimation process often results in a change to our expected annual effective tax rate for the year. When this occurs, we adjust our income tax provision during the quarter in which the change in estimate occurs so that the year-to-date income tax provision reflects the expected annual effective tax rate. Significant judgment is required in determining our expected annual effective tax rate and in evaluating our tax positions. Our effective tax rates differ from the federal statutory rate and are affected by many factors, including the overall level of pre-tax income (loss), the mix of our pre-tax income (loss) generated across the various jurisdictions in which we operate, any changes in tax laws and regulations in those jurisdictions, changes in uncertain tax positions, changes in valuation allowances against our deferred tax assets, tax planning strategies available to us and other discrete items. RESULTS OF OPERATIONS Three Months Ended December 31, 2021 Compared to Three Months Ended December 31, 2020 Consolidated Results of Operations The following table sets forth our consolidated results of operations for the three months ended December 31, 2021 and 2020. The Media Networks segment results of operations for the three months ended December 31, 2020 included our formerly majority owned premium Spanish language streaming services business, Pantaya (representing substantially all of Other Streaming Services). We sold our interest in Pantaya on March 31, 2021. See Note 2 to our unaudited condensed consolidated financial statements for further information. 53 Table of Contents Three Months Ended December 31, Increase (Decrease) 2021 2020 Amount Percent (Amounts in millions) Revenues Motion Picture $ 275.3 $ 250.3 $ 25.0 10.0 % Television Production 438.6 228.2 210.4 92.2 % Media Networks 388.9 406.2 (17.3) (4.3) % Intersegment eliminations (217.4) (48.3) (169.1) nm Total revenues 885.4 836.4 49.0 5.9 % Expenses: Direct operating 517.9 459.3 58.6 12.8 % Distribution and marketing 198.9 176.2 22.7 12.9 % General and administration 112.5 115.6 (3.1) (2.7) % Depreciation and amortization 46.3 45.8 0.5 1.1 % Restructuring and other 0.5 2.4 (1.9) (79.2) % Total expenses 876.1 799.3 76.8 9.6 % Operating income 9.3 37.1 (27.8) (74.9) % Interest expense (44.4) (45.0) 0.6 (1.3) % Interest and other income 1.4 0.5 0.9 180.0 % Other expense (1.9) (2.1) 0.2 (9.5) % Loss on extinguishment of debt (1.1) — (1.1) n/a Loss on investments (0.2) — (0.2) n/a Equity interests loss (2.5) (0.7) (1.8) 257.1 % Loss before income taxes (39.4) (10.2) (29.2) 286.3 % Income tax provision (9.5) (7.0) (2.5) 35.7 % Net loss (48.9) (17.2) (31.7) 184.3 % Less: Net loss attributable to noncontrolling interest 3.3 3.3 — — % Net loss attributable to Lions Gate Entertainment Corp. shareholders $ (45.6) $ (13.9) $ (31.7) 228.1 % _______________________ nm - Percentage not meaningful. 54 Table of Contents Revenues. Consolidated revenues increased $49.0 million in the three months ended December 31, 2021. Motion Picture revenue increased $25.0 million in the current quarter due to increased television revenue and theatrical revenue, partially offset by lower home entertainment revenue due to fewer releases in the current quarter. Television Production revenue increased $210.4 million due to increased intersegment revenues from the licensing of Starz original series, and a greater number of television episodes delivered to third-parties, as compared to the prior year's quarter. The increases in Television Production and Motion Picture revenue were largely offset by increased intersegment eliminations primarily associated with higher Television Production revenues (a substantial portion of intersegment eliminations relates to Television Production revenue) for licenses of original series to Starz Networks and STARZPLAY International, both in the Media Networks segment. Media Networks revenue decreased $17.3 million due to a decrease of $13.2 million from the prior year's quarter which included revenue from Pantaya, which was sold on March 31, 2021 (reflecting substantially all of our former Other Streaming Services product line), and a decrease of $12.8 million at Starz Networks. These decreases were offset by increased revenue of $8.7 million at STARZPLAY International. See further discussion in the Segment Results of Operations section below. Direct Operating Expenses. Direct operating expenses by segment were as follows for the three months ended December 31, 2021 and 2020: Three Months Ended December 31, 2021 2020 Increase (Decrease) Amount % of Segment Revenues Amount % of Segment Revenues Amount Percent (Amounts in millions) Direct operating expenses Motion Picture $ 118.4 43.0 % $ 136.6 54.6 % $ (18.2) (13.3) % Television Production 402.4 91.7 182.6 80.0 219.8 120.4 % Media Networks 215.0 55.3 175.2 43.1 39.8 22.7 % COVID-19 related charges (2.8) nm 8.6 nm (11.4) (132.6) % Other 0.4 nm 0.6 nm (0.2) (33.3) % Intersegment eliminations (215.5) nm (44.3) nm (171.2) nm $ 517.9 58.5 % $ 459.3 54.9 % $ 58.6 12.8 % _______________________ nm - Percentage not meaningful. Direct operating expenses increased in the three months ended December 31, 2021 due to higher Television Production revenue and higher Media Networks direct operating expense, partially offset by lower COVID-19 related charges (as further described below). The increase in Television Production direct operating expense was partially offset by the increase in intersegment eliminations, which primarily relate to Television Production direct operating costs associated with licenses of original series to Starz Networks and STARZPLAY International, both in the Media Networks segment. Media Networks direct operating expense increased due to increases at Starz Networks of $29.4 million and STARZPLAY International of $13.5 million. See further discussion in the Segment Results of Operations section below. COVID-19 Related Charges. In connection with the disruptions associated with the COVID-19 global pandemic and measures to prevent its spread and mitigate its effects both domestically and internationally, and the related economic disruption, certain incremental costs were incurred and expensed, and included in consolidated direct operating expense and excluded from segment direct operating expense. In the three months ended December 31, 2021, the benefit included in direct operating expense of $2.8 million represents insurance recoveries which were offset by incremental costs associated with the pausing and restarting of productions including paying/hiring certain cast and crew, maintaining idle facilities and equipment costs resulting from circumstances associated with the COVID-19 global pandemic. In the three months ended December 31, 2020, the costs of $8.6 million include incremental costs associated with the pausing and restarting of productions including paying/hiring certain cast and crew, maintaining idle facilities and equipment costs resulting from circumstances associated with the COVID-19 global pandemic. We may incur additional incremental costs for direct operating expense in future periods, 55 Table of Contents depending on if there is a continued spread of recent and new variants; however, if the adverse economic impact and disruptions associated with the COVID-19 global pandemic improve, we expect that the incremental costs we incur in fiscal 2022 will decrease as compared to fiscal 2021. We are 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. Other. Other direct operating expenses in the table above includes the amortization of the non-cash fair value adjustments on film and television assets associated with the application of purchase accounting related to recent acquisitions. Distribution and Marketing Expenses. Distribution and marketing expenses by segment were as follows for the three months ended December 31, 2021 and 2020: Three Months Ended December 31, Increase (Decrease) 2021 2020 Amount Percent (Amounts in millions) Distribution and marketing expenses Motion Picture $ 66.7 $ 37.5 $ 29.2 77.9 % Television Production 7.6 6.6 1.0 15.2 % Media Networks 124.4 126.5 (2.1) (1.7) % COVID-19 related charges — 5.4 (5.4) (100.0) % Other 0.2 0.2 — — % $ 198.9 $ 176.2 $ 22.7 12.9 % U.S. theatrical P&A and Premium VOD expense included in Motion Picture distribution and marketing expense $ 35.0 $ 7.4 $ 27.6 nm _______________________ nm - Percentage not meaningful. Distribution and marketing expenses increased in the three months ended December 31, 2021, due to increased Motion Picture distribution and marketing expense. The increase in Motion Picture distribution and marketing expense is due to increased theatrical P&A expense related to theatrical releases in the quarter, as theaters have reopened in certain locations with varying restrictions. See further discussion in the Segment Results of Operations section below. In connection with the disruptions associated with the COVID-19 global pandemic and measures to prevent its spread and mitigate its effects both domestically and internationally, and the related economic disruption, during the three months ended December 31, 2020, we incurred $5.4 million in costs primarily related to contractual marketing spends for film releases and events that have been canceled or delayed and thus will provide no economic benefit. These charges are excluded from segment operating results. We may incur additional incremental costs for distribution and marketing expense in future periods, depending on if there is a continued spread of recent and new variants; however, if the adverse economic impact and disruptions associated with the COVID-19 global pandemic improve, we expect that the incremental costs we incur in fiscal 2022 will decrease as compared to fiscal 2021. General and Administrative Expenses. General and administrative expenses by segment were as follows for the three months ended December 31, 2021 and 2020: 56 Table of Contents Three Months Ended December 31, Increase (Decrease) 2021 % of Revenues 2020 % of Revenues Amount Percent (Amounts in millions) General and administrative expenses Motion Picture $ 22.7 $ 26.2 $ (3.5) (13.4) % Television Production 9.3 9.5 (0.2) (2.1) % Media Networks 21.0 22.8 (1.8) (7.9) % Corporate 21.8 23.4 (1.6) (6.8) % 74.8 8.4% 81.9 9.8% (7.1) (8.7) % Share-based compensation expense 22.0 19.3 2.7 14.0 % Purchase accounting and related adjustments 15.7 14.4 1.3 9.0 % Total general and administrative expenses $ 112.5 12.7% $ 115.6 13.8% $ (3.1) (2.7) % General and administrative expenses decreased in the three months ended December 31, 2021, resulting from decreases in Motion Picture, Media Networks, Corporate and Television Production general and administrative expenses, partially offset by increases in share-based compensation expense and purchase accounting and related adjustments. See further discussion in the Segment Results of Operations section below. Corporate general and administrative expenses decreased $1.6 million, or 6.8%, primarily due to a decrease in incentive based compensation. The increase in share-based compensation expense included in general and administrative expense in the three months ended December 31, 2021, as compared to the three months ended December 31, 2020 is primarily due to an increase in the number of share-based payment awards incurring expense in the current quarter as compared to the prior year's quarter. The following table reconciles this amount to total share-based compensation expense: Three Months Ended December 31, 2021 2020 (Amounts in millions) Share-based compensation expense by expense category General and administrative expense $ 22.0 $ 19.3 Direct operating expense 0.4 0.5 Distribution and marketing expense 0.2 0.2 Total share-based compensation expense $ 22.6 $ 20.0 Purchase accounting and related adjustments represent the charge for the accretion of the noncontrolling interest discount related to Pilgrim Media Group and 3 Arts Entertainment, the amortization of the recoupable portion of the purchase price and the expense associated with earned distributions related to 3 Arts Entertainment, all of which are accounted for as compensation and are included in general and administrative expense. Purchase accounting and related adjustments increased $1.3 million, or 9.0%, primarily due to the expense associated with the earned distributions related to 3 Arts Entertainment. Depreciation and Amortization Expense. Depreciation and amortization of $46.3 million in the three months ended December 31, 2021 increased $0.5 million, from $45.8 million in the three months ended December 31, 2020. Restructuring and Other. Restructuring and other decreased $1.9 million in the three months ended December 31, 2021 as compared to the three months ended December 31, 2020, and includes restructuring and severance costs, certain transaction and related costs, and certain unusual items, when applicable. Restructuring and other costs were as follows for the three months ended December 31, 2021 and 2020 (see Note 13 to our unaudited condensed consolidated financial statements): 57 Table of Contents Three Months Ended December 31, Increase (Decrease) 2021 2020 Amount Percent (Amounts in millions) Restructuring and other: Severance (1) — 0.9 (0.9) (100.0) % COVID-19 related charges (2) 0.2 0.8 (0.6) (75.0) % Transaction and related costs (3) 0.3 0.7 (0.4) (57.1) % $ 0.5 $ 2.4 $ (1.9) (79.2) % _______________________ (1) Severance costs in the three months ended December 31, 2020 were primarily related to restructuring activities in connection with cost-saving initiatives. (2) During the three months ended December 31, 2021, the Company has incurred certain incremental general and administrative costs associated with the COVID-19 global pandemic. In the three months ended December 31, 2020, these costs were primarily related to transitioning the Company to a remote-work environment and other incremental general and administrative costs associated with the COVID-19 global pandemic. (3) Transaction and related costs in the three months ended December 31, 2021 and 2020 reflect transaction, integration and legal costs associated with certain strategic transactions, restructuring activities and legal matters. Interest Expense. Interest expense of $44.4 million for the three months ended December 31, 2021 decreased $0.6 million, from $45.0 million in the three months ended December 31, 2020, due to lower interest expense on the Senior Notes and term loans. The following table sets forth the components of interest expense for the three months ended December 31, 2021 and 2020: Three Months Ended December 31, 2021 2020 (Amounts in millions) Interest Expense Cash Based: Revolving credit facility $ 1.4 $ 1.2 Term loans 8.1 9.2 Senior Notes 13.9 16.6 Other (1) 8.1 5.9 31.5 32.9 Amortization of debt financing costs and other non-cash interest (2) 12.9 12.1 Total interest expense $ 44.4 $ 45.0 _______________________ (1) Amounts include payments associated with the Company's interest rate swaps (see Note 16 to our unaudited condensed consolidated financial statements). (2) Amounts include the amortization of unrealized losses in accumulated other comprehensive loss related to de-designated interest rate swaps which are being amortized to interest expense (see Note 16 to our unaudited condensed consolidated financial statements). Interest and Other Income. Interest and other income of $1.4 million for the three months ended December 31, 2021 compared to interest and other income of $0.5 million for the three months ended December 31, 2020. Other Expense. Other expense of $1.9 million for the three months ended December 31, 2021 compared to other expense of $2.1 million for the three months ended December 31, 2020, and represented the loss recorded related to our monetization of accounts receivable programs (see Note 17 to our unaudited condensed consolidated financial statements). Loss on Extinguishment of Debt. Loss on extinguishment of debt for the three months ended December 31, 2021 of $1.1 million related to the write-off of debt issuance costs associated with the termination of a portion of our revolving credit 58 Table of Contents commitments. There was no comparable loss in the three months ended December 31, 2020. See Note 5 to our unaudited condensed consolidated financial statements. Loss on Investments. Loss on investments of $0.2 million for the three months ended December 31, 2021 compared to a loss on investments of nil for the three months ended December 31, 2020. Equity Interests Loss. Equity interests loss of $2.5 million in the three months ended December 31, 2021 compared to equity interests loss of $0.7 million in the three months ended December 31, 2020 due to higher losses from our equity method investees in the current quarter. Income Tax Provision. We had an income tax provision of $9.5 million in the three months ended December 31, 2021, compared to an income tax provision of $7.0 million in the three months ended December 31, 2020. Our income tax provision differs from the federal statutory rate multiplied by pre-tax income (loss) due to the mix of our pre-tax income (loss) generated across the various jurisdictions in which we operate, changes in the valuation allowance against our deferred tax assets, and certain minimum taxes and foreign withholding taxes. Our income tax provision for the three months ended December 31, 2021 was also impacted by an interest accrual on uncertain tax benefits, additional uncertain tax benefits related to state income taxes identified during state tax audits, and release of uncertain tax benefits due to the close of audits or expiration of statutory limitations. Our income tax provision for the three months ended December 31, 2020 was also impacted by an interest accrual on uncertain tax benefits, and release of uncertain tax benefits due to the expiration of statutory limitations and settlements with tax authorities. Net Loss Attributable to Lions Gate Entertainment Corp. Shareholders. Net loss attributable to our shareholders for the three months ended December 31, 2021 was $45.6 million, or basic and diluted net loss per common share of $0.20 on 225.0 million weighted average common shares outstanding. This compares to net loss attributable to our shareholders for the three months ended December 31, 2020 of $13.9 million, or basic and diluted net loss per common share of $0.06 on 220.8 million weighted average common shares outstanding. Segment Results of Operations The segment results of operations presented below do not include the elimination of intersegment transactions which are eliminated when presenting consolidated results, and exclude items separately identified in the restructuring and other line item in the unaudited condensed consolidated statements of operations. The Company's primary measure of segment performance is segment profit. Segment profit is defined as gross contribution (revenues, less direct operating and distribution and marketing expense) less segment general and administration expenses. Segment profit excludes, 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 segment profit to the Company's consolidated income (loss) before income taxes is presented in Note 14 to the unaudited condensed consolidated financial statements. 59 Table of Contents Motion Picture The table below sets forth Motion Picture gross contribution and segment profit for the three months ended December 31, 2021 and 2020: Three Months Ended December 31, Increase (Decrease) 2021 2020 Amount Percent (Amounts in millions) Motion Picture Segment: Revenue $ 275.3 $ 250.3 $ 25.0 10.0 % Expenses: Direct operating expense 118.4 136.6 (18.2) (13.3) % Distribution & marketing expense 66.7 37.5 29.2 77.9 % Gross contribution 90.2 76.2 14.0 18.4 % General and administrative expenses 22.7 26.2 (3.5) (13.4) % Segment profit $ 67.5 $ 50.0 $ 17.5 35.0 % U.S. theatrical P&A and Premium VOD expense included in distribution and marketing expense $ 35.0 $ 7.4 $ 27.6 nm Direct operating expense as a percentage of revenue 43.0 % 54.6 % Gross contribution as a percentage of revenue 32.8 % 30.4 % _______________________ nm - Percentage not meaningful. 60 Table of Contents Revenue. The table below sets forth Motion Picture revenue by media and product category for the three months ended December 31, 2021 and 2020: Three Months Ended December 31, 2021 2020 Total Increase (Decrease) Feature Film (1) Other Film (2) Total Feature Film (1) Other Film (2) Total (Amounts in millions) Motion Picture Revenue Theatrical $ 5.1 $ 0.6 $ 5.7 $ 1.5 $ 0.3 $ 1.8 $ 3.9 Home Entertainment Digital Media 47.8 65.8 113.6 63.1 60.0 123.1 (9.5) Packaged Media 12.3 19.0 31.3 17.1 19.3 36.4 (5.1) Total Home Entertainment 60.1 84.8 144.9 80.2 79.3 159.5 (14.6) Television 57.0 11.1 68.1 28.2 8.0 36.2 31.9 International 25.1 27.3 52.4 27.8 20.2 48.0 4.4 Other 2.4 1.8 4.2 3.1 1.7 4.8 (0.6) $ 149.7 $ 125.6 $ 275.3 $ 140.8 $ 109.5 $ 250.3 $ 25.0 ____________________ (1) Feature Film: Includes theatrical releases through our Lionsgate and Summit Entertainment film labels, which includes films developed and produced in-house, films co-developed and co-produced and films acquired from third parties. (2) Other Film: Includes direct-to-DVD motion pictures, acquired and licensed brands, third-party library product and ancillary-driven platform theatrical releases through our specialty films distribution labels including Lionsgate Premiere, through Good Universe, and with our equity method investees, Roadside Attractions and Pantelion Films, and other titles. Theatrical revenue increased $3.9 million in the three months ended December 31, 2021 as compared to the three months ended December 31, 2020 due to an increase of $3.6 million from our Feature Film category which reflects seven days of revenues from the December 25, 2021 release of American Underdog . In the prior year's quarter, theaters were mostly closed due to circumstances associated with the COVID-19 global pandemic. Home entertainment revenue decreased $14.6 million, or 9.2%, in the three months ended December 31, 2021, as compared to the three months ended December 31, 2020, due to lower digital media revenues of $15.3 million in our Feature Film category driven by fewer releases. In particular, the current quarter included revenue from the release of The Protégé , which compared to revenue in the prior year's quarter from the initial release on a streaming platform of Run and from the premium video-on-demand ("Premium VOD") release of Antebellum . Television revenue increased $31.9 million, or 88.1%, in the three months ended December 31, 2021, as compared to the three months ended December 31, 2020, driven by an increase in our Feature Film category of $28.8 million due to a greater number of television windows opening (and revenue recognized) than in the prior year's quarter. If the adverse economic impact and disruptions associated with the COVID-19 global pandemic improve, we currently expect that Motion Picture segment revenues will increase in fiscal 2022 as compared to fiscal 2021. The extent of the increase, if any, to Motion Picture segment revenues, will depend on, among other things, the duration and spread of the pandemic (including recent and new variants), the impact of governmental regulations that have been, and may continue to be, imposed in response to the pandemic, the continued effectiveness of actions taken to contain or mitigate the outbreak (including the availability, effectiveness and/or public acceptance of any FDA-approved COVID-19 vaccines), potential resurgences of COVID-19, and the discovery and spread of recent and new variants of the virus which could result in the re-imposition of certain restrictions and may lead to more restrictions being implemented again to reduce the spread of COVID-19, general global economic conditions, the rate at which theaters are able to re-open at scale, the rate of consumers' return to the theaters, and the impact of a potentially crowded marketplace from movies which are awaiting theatrical release in the market. The evolving and uncertain nature of the situation could result in further interruptions to our operations, including continued delays in domestic and international theatrical distribution and production and the pausing of productions, which could impact Motion Picture segment revenues. 61 Table of Contents Direct Operating Expense. The decrease in direct operating expenses is due to lower direct operating expenses as a percentage of motion picture revenue, driven by the change in the mix of titles and product categories generating revenue in the current quarter as compared to the prior year's quarter. In particular, the decrease in direct operating expenses as a percentage of motion picture revenue was impacted by the lower amortization rate of the fiscal 2022 theatrical slate titles generating revenue in the current quarter, as compared to the amortization rate of the fiscal 2021 theatrical slate titles in the prior year's quarter, which reflected higher investment in film write-downs. Investment in film write-downs included in Motion Picture segment direct operating expense were $1.1 million in the three months ended December 31, 2021, as compared to $13.7 million in the three months ended December 31, 2020. Distribution and Marketing Expense. The increase in distribution and marketing expense in the three months ended December 31, 2021 is due to increased theatrical P&A expense related to theatrical releases in the quarter ( American Underdog ) and P&A incurred in advance for films to be released in subsequent quarters, as compared to the prior year's quarter, which was impacted by the closure of theaters as a result of circumstances associated with the COVID-19 global pandemic . In the three months ended December 31, 2021, approximately $7.2 million of P&A and Premium VOD expense was incurred in advance for films to be released in subsequent quarters ( Moonfall and The Unbreakable Boy) , compared to approximately $1.7 million in the prior year's quarter in the Motion Picture segment. Gross Contribution. Gross contribution of the Motion Picture segment for the three months ended December 31, 2021 increased as compared to the three months ended December 31, 2020, due to increased revenue and lower direct operating expense as a percentage of Motion Picture revenue, partially offset by increased distribution and marketing expense. General and Administrative Expense. General and administrative expenses of the Motion Picture segment decreased $3.5 million, or 13.4%, primarily due to a decrease in incentive based compensation. Television Production The table below sets forth Television Production gross contribution and segment profit for the three months ended December 31, 2021 and 2020: Three Months Ended December 31, Increase (Decrease) 2021 2020 Amount Percent (Amounts in millions) Television Production Segment: Revenue $ 438.6 $ 228.2 $ 210.4 92.2 % Expenses: Direct operating expense 402.4 182.6 219.8 120.4 % Distribution & marketing expense 7.6 6.6 1.0 15.2 % Gross contribution 28.6 39.0 (10.4) (26.7) % General and administrative expenses 9.3 9.5 (0.2) (2.1) % Segment profit $ 19.3 $ 29.5 $ (10.2) (34.6) % Direct operating expense as a percentage of revenue 91.7 % 80.0 % Gross contribution as a percentage of revenue 6.5 % 17.1 % 62 Table of Contents Revenue. The table below sets forth Television Production revenue and changes in revenue by media for the three months ended December 31, 2021 and 2020: Three Months Ended December 31, Increase (Decrease) 2021 2020 Amount Percent (Amounts in millions) Television Production Revenue Television $ 340.4 $ 119.7 $ 220.7 184.4 % International 55.8 26.0 29.8 114.6 % Home Entertainment Digital 12.8 58.0 (45.2) (77.9) % Packaged Media 1.7 3.1 (1.4) (45.2) % Total Home Entertainment 14.5 61.1 (46.6) (76.3) % Other 27.9 21.4 6.5 30.4 % $ 438.6 $ 228.2 $ 210.4 92.2 % The primary component of Television Production revenue is domestic television revenue. Domestic television revenue increased in the three months ended December 31, 2021 as compared to the three months ended December 31, 2020, due to an increase of $120.9 million from intersegment revenues driven by the licensing of Starz original series (Power Book II: Ghost Season 2 , Power Book IV: Force Season 1, Step Up: High Water Season 3 , Becoming Elizabeth Season 1, among others), and an increase from a greater number of television episodes delivered to third-parties ( Love Life Season 2, Home Economics Season 2, Swimming With Sharks, among others). International revenue in the three months ended December 31, 2021 increased $29.8 million, or 114.6%, due to higher intersegment revenues from STARZPLAY International from the licensing of Starz original series ( Step Up: High Water Season 3, Power Book IV: Force Season 1, and Power Book II: Ghost Season 2). Home entertainment revenue in the three months ended December 31, 2021 decreased $46.6 million due to significant digital media revenue in the prior year's quarter for Power Season 6 and the second syndication license of Mad Men Seasons 1 to 7. Other revenue increased $6.5 million in the three months ended December 31, 2021 as compared to the three months ended December 31, 2020. The increase is due to revenue of 3 Arts Entertainment, which was negatively impacted in the three months ended December 31, 2020 as a result of the COVID-19 global pandemic related disruptions. While television production has resumed, the extent of the future impact on other revenue of the COVID-19 global pandemic is uncertain and will depend on film and television productions and releases fully returning to and remaining at pre COVID-19 levels. If the adverse economic impact and disruptions associated with the COVID-19 global pandemic improve, we currently expect that Television Production segment revenues will increase in fiscal 2022 as compared to fiscal 2021. The extent of the increase, to Television Production segment revenues, will depend on, among other things, the duration and spread of the pandemic (including recent and new variants), the impact of governmental regulations that have been, and may continue to be, imposed in response to the pandemic, the continued effectiveness of actions taken to contain or mitigate the outbreak (including the availability, effectiveness and/or public acceptance of any FDA-approved COVID-19 vaccines), potential resurgences of COVID-19, and the discovery and spread of recent and new variants of the virus which could result in the re-imposition of certain restrictions and may lead to more restrictions being implemented again to reduce the spread of COVID-19, and general global economic conditions. The evolving and uncertain nature of the situation could result in further interruptions to our operations, including continued delays in domestic and international distribution and production throughout the U.S., Canada and worldwide, and the pausing of productions, which could impact Television Production segment revenues. 63 Table of Contents Direct Operating Expense. Direct operating expense of the Television Production segment in the three months ended December 31, 2021 increased $219.8 million, or 120.4% due to the increase in Television Production revenues. Direct operating expenses as a percentage of television production revenue increased primarily due to the mix of titles generating revenue in the current quarter as compared to the prior year's quarter, and in particular, the current quarter included a greater number of deliveries of newer shows in which direct operating expense is typically higher as a percentage of revenue. Gross Contribution. Gross contribution of the Television Production segment for the three months ended December 31, 2021 decreased as compared to the three months ended December 31, 2020, due to higher direct operating expense as a percentage of television production revenue. General and Administrative Expense. General and administrative expenses of the Television Production segment decreased $0.2 million, or 2.1%. Media Networks The table below sets forth Media Networks gross contribution and segment profit for the three months ended December 31, 2021 and 2020. The Media Networks segment results of operations for the three months ended December 31, 2020 included our formerly majority owned premium Spanish language streaming services business, Pantaya (representing substantially all of our former Other Streaming Services product line). We sold our interest in Pantaya on March 31, 2021. See Note 2 to our unaudited condensed consolidated financial statements for further information. Three Months Ended December 31, Increase (Decrease) 2021 2020 Amount Percent (Amounts in millions) Media Networks Segment: Revenue $ 388.9 $ 406.2 $ (17.3) (4.3) % Expenses: Direct operating expense 215.0 175.2 39.8 22.7 % Distribution & marketing expense 124.4 126.5 (2.1) (1.7) % Gross contribution 49.5 104.5 (55.0) (52.6) % General and administrative expenses 21.0 22.8 (1.8) (7.9) % Segment profit $ 28.5 $ 81.7 $ (53.2) (65.1) % Direct operating expense as a percentage of revenue 55.3 % 43.1 % Gross contribution as a percentage of revenue 12.7 % 25.7 % The following table sets forth the Media Networks segment profit by product line: Three Months Ended Three Months Ended December 31, 2021 December 31, 2020 Starz Networks STARZPLAY International Total Media Networks Starz Networks STARZPLAY International Other Streaming Services Total Media Networks (Amounts in millions) Media Networks Segment: Revenue $ 362.5 $ 26.4 $ 388.9 $ 375.3 $ 17.7 $ 13.2 $ 406.2 Expenses: Direct operating expense 177.7 37.3 215.0 148.3 23.8 3.1 175.2 Distribution & marketing expense 99.6 24.8 124.4 90.5 25.4 10.6 126.5 Gross contribution 85.2 (35.7) 49.5 136.5 (31.5) (0.5) 104.5 General and administrative expenses 14.8 6.2 21.0 15.7 4.6 2.5 22.8 Segment profit $ 70.4 $ (41.9) $ 28.5 $ 120.8 $ (36.1) $ (3.0) $ 81.7 64 Table of Contents Subscriber Data. The number of period-end service subscribers is a key metric to evaluate a non-ad supported subscription video service as a growing or decreasing subscriber base is a key indicator of the health of the overall business. Service subscribers may impact revenue differently depending on specific distribution agreements we have with our distributors which may include fixed fees, rates per basic video household or a rate per STARZ subscriber. The table below sets forth, for the periods presented, subscriptions to our Media Networks and STARZPLAY Arabia services. December 31, December 31, 2021 2020 (Amounts in millions) Starz Domestic Linear Subscribers 9.9 11.5 OTT Subscribers 11.0 9.5 Total 20.9 21.0 STARZPLAY International Linear Subscribers 1.8 1.9 OTT Subscribers 6.7 2.4 Total 8.5 4.3 Total Starz Linear Subscribers 11.7 13.4 OTT Subscribers 17.7 11.9 Total Starz 29.4 25.3 STARZPLAY Arabia (1) 2.0 1.8 Total Domestic and International Subscribers (2) 31.4 27.1 Subscribers by Platform: Linear Subscribers 11.7 13.4 OTT Subscribers (2)(3) 19.7 13.7 Total Global Subscribers (2) 31.4 27.1 ___________________ (1) Represents subscribers of STARZPLAY Arabia, a non-consolidated equity method investee. (2) Due to the March 31, 2021 sale of Pantaya, total domestic and international subscribers, OTT subscribers and total global subscribers amounts have been adjusted from amounts previously reported for December 31, 2020 to exclude Pantaya in order to be consistent with the presentation at December 31, 2021. Subscribers of Pantaya (all OTT) at December 31, 2020 amounted to 0.9 million. (3) OTT subscribers includes subscribers of STARZPLAY Arabia, as presented above. 65 Table of Contents Revenue. The decrease in Media Networks' revenue of $17.3 million was due to a decrease of $13.2 million due to the prior year's quarter including revenue from Pantaya (representing substantially all of Other Streaming Services), which was sold on March 31, 2021, and lower Starz Networks revenue of $12.8 million primarily due to declines in revenue from traditional linear services of $31.2 million, which were partially offset by higher OTT revenue resulting from increased subscriptions of $17.7 million. These decreases were partially offset by higher STARZPLAY International revenue of $8.7 million, as a result of subscriber and revenue growth in the international territories previously launched, and additional territories launched since December 31, 2020. During the three months ended December 31, 2021 and 2020, the following original series premiered on STARZ: Three Months Ended December 31, 2021 (1) Three Months Ended December 31, 2020 (2) Hightown Season 2 Seduced: Inside the NXIVM Cult Power Book II: Ghost Season 2 The Spanish Princess Season 2 ___________________ (1) In addition, BMF - Black Mafia Family Season 1 premiered on September 26, 2021, with the majority of episodes airing during the three months ended December 31, 2021. (2) In addition, while Power Book II: Ghost Season 1 premiered in the three months ended September 30, 2020, the series returned with a mid-season premiere in December 2020. Direct Operating and Distribution and Marketing Expenses . Direct operating and distribution and marketing expenses primarily represent programming cost amortization and advertising and marketing costs, respectively. The level of programming cost amortization and advertising and marketing costs and thus the gross contribution margin for the Media Networks' segment can fluctuate from period to period depending on the number of new original series and first-run output theatrical movies premiering on the network during the period. Programming cost amortization and advertising and marketing costs generally increase in periods where new original series premiere. In addition, the launch of the STARZPLAY international service has and will continue to result in an increase in expenses as the service continues to expand. The increase in Media Networks direct operating expenses is due to an increase of $29.4 million at Starz Networks, and an increase of $13.5 million at STARZPLAY International in the three months ended December 31, 2021. These increases were partially offset by a decrease of $3.1 million due to the prior year's quarter including direct operating expense from Pantaya (representing substantially all of our former Other Streaming Services product line), which was sold on March 31, 2021. The increase in Starz Networks direct operating expense was primarily due to higher programming cost amortization related to our Starz Originals of $49.5 million due to a higher number of, and more expensive, series' episode premieres, partially offset by lower programming amortization of $24.0 million related to fewer theatrical releases under our programming output agreement with Sony. Direct operating expenses at STARZPLAY International increased as a result of the continued expansion of STARZPLAY International. The slight decrease in Media Networks distribution and marketing expense is due to a decrease of $10.6 million due to the prior year's quarter including distribution and marketing expense from Pantaya (representing substantially all of our former Other Streaming Services product line), which was sold on March 31, 2021. This decrease was partially offset by an increase of $9.1 million at Starz Networks due to increased advertising and marketing due to increased spend to drive growth in our subscribers. Gross Contribution. The decrease in gross contribution of the Media Networks segment compared to the prior year's quarter was due to a decrease at Starz Networks of $51.3 million driven by higher direct operating expense and advertising and marketing expense and a decrease in revenue as described above. General and Administrative Expense. General and administrative expenses of the Media Networks segment in the three months ended December 31, 2021 decreased slightly from the prior year's quarter, driven by a decrease of $2.5 million due to the prior year's quarter including general and administrative expense from Pantaya (representing substantially all of our former Other Streaming Services product line), which was sold on March 31, 2021, and a decrease at Starz Networks of $0.9 million. These decreases were partially offset by an increase at STARZPLAY International of $1.6 million. 66 Table of Contents Nine Months Ended December 31, 2021 Compared to Nine Months Ended December 31, 2020 Consolidated Results of Operations The following table sets forth our consolidated results of operations for the nine months ended December 31, 2021 and 2020. The Media Networks segment results of operations for the nine months ended December 31, 2020 included our formerly majority owned premium Spanish language streaming services business, Pantaya (representing substantially all of Other Streaming Services). We sold our interest in Pantaya on March 31, 2021. See Note 2 to our unaudited condensed consolidated financial statements for further information. Nine Months Ended December 31, Increase (Decrease) 2021 2020 Amount Percent (Amounts in millions) Revenues Motion Picture $ 897.3 $ 788.6 $ 108.7 13.8 % Television Production 1,160.8 621.0 539.8 86.9 % Media Networks 1,155.9 1,161.7 (5.8) (0.5) % Intersegment eliminations (539.6) (176.3) (363.3) 206.1 % Total revenues 2,674.4 2,395.0 279.4 11.7 % Expenses: Direct operating 1,487.2 1,249.0 238.2 19.1 % Distribution and marketing 633.4 484.6 148.8 30.7 % General and administration 353.1 343.3 9.8 2.9 % Depreciation and amortization 134.1 142.9 (8.8) (6.2) % Restructuring and other 7.2 18.9 (11.7) (61.9) % Total expenses 2,615.0 2,238.7 376.3 16.8 % Operating income 59.4 156.3 (96.9) (62.0) % Interest expense (130.0) (135.2) 5.2 (3.8) % Interest and other income 29.4 2.2 27.2 nm Other expense (6.2) (4.5) (1.7) 37.8 % Loss on extinguishment of debt (28.2) — (28.2) n/a Gain on investments 1.2 0.3 0.9 nm Equity interests loss (1.4) (5.1) 3.7 (72.5) % Income (loss) before income taxes (75.8) 14.0 (89.8) nm Income tax provision (21.6) (6.7) (14.9) nm Net income (loss) (97.4) 7.3 (104.7) nm Less: Net loss attributable to noncontrolling interest 13.9 11.5 2.4 20.9 % Net income (loss) attributable to Lions Gate Entertainment Corp. shareholders $ (83.5) $ 18.8 $ (102.3) nm _______________________ nm - Percentage not meaningful. 67 Table of Contents Revenues. Consolidated revenues increased $279.4 million in the nine months ended December 31, 2021. Motion Picture revenue increased $108.7 million in the current period due to a greater number of theatrical and international releases as theaters have reopened in certain locations with varying restrictions, and increased television revenue. These increases were partially offset by lower home entertainment revenue. Television Production revenue increased $539.8 million due to increased intersegment revenues from the licensing of Starz original series, and a greater number of television episodes delivered to third-parties as compared to the prior year's period, which was negatively impacted by the pausing of productions associated with the COVID-19 global pandemic. The increases in Television Production and Motion Picture revenue were partially offset by increased intersegment eliminations primarily associated with higher Television Production revenues (a substantial portion of intersegment eliminations relates to Television Production revenue) for licenses of original series to Starz Networks and STARZPLAY International, both in the Media Networks segment. Media Networks revenue decreased $5.8 million due to a decrease of $38.0 million due to the prior year's period including revenue from Pantaya, which was sold on March 31, 2021 (reflecting substantially all of our former Other Streaming Services product line), and a slight decrease in revenue at Starz Networks of $2.6 million. These decreases were mostly offset by increased revenue at STARZPLAY International of $34.8 million. See further discussion in the Segment Results of Operations section below. Direct Operating Expenses. Direct operating expenses by segment were as follows for the nine months ended December 31, 2021 and 2020: Nine Months Ended December 31, 2021 2020 Increase (Decrease) Amount % of Segment Revenues Amount % of Segment Revenues Amount Percent (Amounts in millions) Direct operating expenses Motion Picture $ 398.5 44.4 % $ 373.0 47.3 % $ 25.5 6.8 % Television Production 1,058.1 91.2 494.3 79.6 563.8 114.1 % Media Networks 574.8 49.7 504.6 43.4 70.2 13.9 % COVID-19 related charges (2.3) nm 36.6 nm (38.9) (106.3) % Other 1.4 nm 2.5 nm (1.1) (44.0) % Intersegment eliminations (543.3) nm (162.0) nm (381.3) 235.4 % $ 1,487.2 55.6 % $ 1,249.0 52.2 % $ 238.2 19.1 % _______________________ nm - Percentage not meaningful. Direct operating expenses increased in the nine months ended December 31, 2021 due to higher Television Production and Motion Picture revenue, and higher Media Networks direct operating expense, partially offset by lower COVID-19 related charges (as further described below). The increase in Television Production direct operating expense was partially offset by the increase in intersegment eliminations, which primarily relate to Television Production direct operating costs associated with licenses of original series to Starz Networks and STARZPLAY International, both in the Media Networks segment. The increase in Media Networks direct operating expense was driven by increases at STARZPLAY International of $44.8 million and at Starz Networks of $33.4 million. See further discussion in the Segment Results of Operations section below. COVID-19 Related Charges. In connection with the disruptions associated with the COVID-19 global pandemic and measures to prevent its spread and mitigate its effects both domestically and internationally, and the related economic disruption, certain incremental costs were incurred and expensed and included in consolidated direct operating expense and excluded from segment direct operating expense. In the nine months ended December 31, 2021, the benefit included in direct operating expense of $2.3 million represents insurance recoveries which were offset by incremental costs associated with the pausing and restarting of productions including paying/hiring certain cast and crew, maintaining idle facilities and equipment costs resulting from circumstances associated with the COVID-19 global pandemic. In the nine months ended December 31, 2020, the charges of $36.6 million include incremental costs associated with film impairment due to changes in performance 68 Table of Contents expectations, the pausing and restarting of productions including paying/hiring certain cast and crew, maintaining idle facilities and equipment costs resulting from circumstances associated with the COVID-19 global pandemic. We may incur additional incremental costs for direct operating expenses in future periods, depending on if there is a continued spread of recent and new variants; however, if the adverse economic impact and disruptions associated with the COVID-19 global pandemic improve, we expect that the incremental costs we incur in fiscal 2022 will decrease as compared to fiscal 2021. We are 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. Other. Other direct operating expenses in the table above includes the amortization of the non-cash fair value adjustments on film and television assets associated with the application of purchase accounting related to recent acquisitions. Distribution and Marketing Expenses. Distribution and marketing expenses by segment were as follows for the nine months ended December 31, 2021 and 2020: Nine Months Ended December 31, Increase (Decrease) 2021 2020 Amount Percent (Amounts in millions) Distribution and marketing expenses Motion Picture $ 215.5 $ 101.7 $ 113.8 111.9 % Television Production 23.1 20.9 2.2 10.5 % Media Networks 394.0 345.5 48.5 14.0 % COVID-19 related charges 0.3 16.1 (15.8) (98.1) % Other 0.5 0.4 0.1 25.0 % $ 633.4 $ 484.6 $ 148.8 30.7 % U.S. theatrical P&A and Premium VOD expense included in Motion Picture distribution and marketing expense $ 114.3 $ 24.9 $ 89.4 nm _______________________ nm - Percentage not meaningful. Distribution and marketing expenses increased in the nine months ended December 31, 2021, due to increased Motion Picture and Media Networks distribution and marketing expense. The increase in Motion Picture distribution and marketing expense is due to increased theatrical P&A related to theatrical releases in the period as theaters have reopened in certain locations with varying restrictions. The increase in Media Networks distribution and marketing expense was due to an increase at Starz Networks of $61.9 million due to increased spend on our Starz Originals and to drive growth in subscriptions and an increase in operating expense related to continued growth in the OTT service, and to a lesser extent, an increase at STARZPLAY International of $16.1 million, partially offset by a decrease of $29.5 million due to the prior year's period including distribution and marketing expense from Pantaya, which was sold on March 31, 2021 (reflecting substantially all of our former Other Streaming Services product line). See further discussion in the Segment Results of Operations section below. In connection with the disruptions associated with the COVID-19 global pandemic and measures to prevent its spread and mitigate its effects both domestically and internationally, and the related economic disruption, during the nine months ended December 31, 2021 and 2020, we incurred $0.3 million and $16.1 million, respectively, in costs primarily related to contractual marketing spends for film releases and events that have been canceled or delayed and thus will provide no economic benefit. These charges are excluded from segment operating results. We may incur additional incremental costs for distribution and marketing expenses in future periods, depending on if there is a continued spread of recent and new variants; however, if the adverse economic impact and disruptions associated with the COVID-19 global pandemic improve, we expect that the incremental costs we incur in fiscal 2022 will decrease as compared to fiscal 2021. 69 Table of Contents General and Administrative Expenses. General and administrative expenses by segment were as follows for the nine months ended December 31, 2021 and 2020: Nine Months Ended December 31, Increase (Decrease) 2021 % of Revenues 2020 % of Revenues Amount Percent (Amounts in millions) General and administrative expenses Motion Picture $ 69.8 $ 79.8 $ (10.0) (12.5) % Television Production 28.8 31.5 (2.7) (8.6) % Media Networks 65.0 65.3 (0.3) (0.5) % Corporate 70.5 76.9 (6.4) (8.3) % 234.1 8.8% 253.5 10.6% (19.4) (7.7) % Share-based compensation expense 76.1 55.2 20.9 37.9 % Purchase accounting and related adjustments 42.9 34.6 8.3 24.0 % Total general and administrative expenses $ 353.1 13.2% $ 343.3 14.3% $ 9.8 2.9 % General and administrative expenses increased in the nine months ended December 31, 2021, resulting from increases in share-based compensation expense and purchase accounting and related adjustments, partially offset by decreased Motion Picture, Corporate, Television Production and Media Networks general and administrative expenses. See further discussion in the Segment Results of Operations section below. Corporate general and administrative expenses decreased $6.4 million, or 8.3%, primarily due to decreases in incentive based compensation and professional fees. The increase in share-based compensation expense included in general and administrative expense in the nine months ended December 31, 2021, as compared to the nine months ended December 31, 2020 is primarily due to an increase in the number of share-based payment awards incurring expense in the current period as compared to the prior year's period partially offset by share-based compensation expense in the prior year's period associated with the Company's incentive based compensation program. The following table reconciles this amount to total share-based compensation expense: Nine Months Ended December 31, 2021 2020 (Amounts in millions) Share-based compensation expense by expense category General and administrative expense $ 76.1 $ 55.2 Restructuring and other (1) — 2.8 Direct operating expense 0.9 1.5 Distribution and marketing expense 0.5 0.5 Total share-based compensation expense $ 77.5 $ 60.0 _______________________ (1) Represents share-based compensation expense included in restructuring and other expenses reflecting the impact of the acceleration of certain vesting schedules for equity awards pursuant to certain severance arrangements. Purchase accounting and related adjustments represent the charge for the accretion of the noncontrolling interest discount related to Pilgrim Media Group and 3 Arts Entertainment, the amortization of the recoupable portion of the purchase price and the expense associated with earned distributions related to 3 Arts Entertainment, all of which are accounted for as compensation and are included in general and administrative expense. Purchase accounting and related adjustments increased $8.3 million, or 24.0%, primarily due to the expense associated with the earned distributions related to 3 Arts Entertainment. Depreciation and Amortization Expense. Depreciation and amortization of $134.1 million for the nine months ended December 31, 2021 decreased $8.8 million, from $142.9 million in the nine months ended December 31, 2020 due to lower 70 Table of Contents amortization expense related to our customer relationship intangible assets. Restructuring and Other. Restructuring and other decreased $11.7 million in the nine months ended December 31, 2021 as compared to the nine months ended December 31, 2020, and includes restructuring and severance costs, certain transaction and related costs, and certain unusual items, when applicable. Restructuring and other costs were as follows for the nine months ended December 31, 2021 and 2020 (see Note 13 to our unaudited condensed consolidated financial statements): Nine Months Ended December 31, Increase (Decrease) 2021 2020 Amount Percent (Amounts in millions) Restructuring and other: Severance (1) Cash $ 3.8 $ 11.6 $ (7.8) (67.2) % Accelerated vesting on equity awards (see Note 11 to our unaudited condensed consolidated financial statements) — 2.8 (2.8) (100.0) % Total severance costs 3.8 14.4 (10.6) (73.6) % COVID-19 related charges (2) 0.9 1.6 (0.7) (43.8) % Transaction and related costs (3) 2.5 2.9 (0.4) (13.8) % $ 7.2 $ 18.9 $ (11.7) (61.9) % _______________________ (1) Severance costs in the nine months ended December 31, 2021 and 2020 were primarily related to restructuring activities in connection with cost-saving initiatives. (2) During the nine months ended December 31, 2021, the Company has incurred certain incremental general and administrative costs associated with the COVID-19 global pandemic. In the nine months ended December 31, 2020, these costs were primarily related to transitioning the Company to a remote-work environment and other incremental general and administrative costs associated with the COVID-19 global pandemic. (3) Transaction and related costs in the nine months ended December 31, 2021 and 2020 reflect transaction, integration and legal costs associated with certain strategic transactions, restructuring activities and legal matters. Interest Expense. Interest expense of $130.0 million in the nine months ended December 31, 2021 decreased $5.2 million from the nine months ended December 31, 2020, due to lower interest expense on the Senior Notes, term loans, and other cash-based interest related to payments associated with the Company's interest rate swaps. These decreases were partially offset by an increase in other non-cash interest due to the amortization of unrealized losses in accumulated other comprehensive loss related to de-designated interest rate swaps which are being amortized to interest expense (see Note 16 to our unaudited condensed consolidated financial statements). The following table sets forth the components of interest expense for the nine months ended December 31, 2021 and 2020: 71 Table of Contents Nine Months Ended December 31, 2021 2020 (Amounts in millions) Interest Expense Cash Based: Revolving credit facility $ 4.9 $ 3.2 Term loans 25.0 29.2 Senior Notes 41.0 48.9 Other (1) 22.0 23.3 92.9 104.6 Amortization of debt financing costs and other non-cash interest (2) 37.1 30.6 Total interest expense $ 130.0 $ 135.2 ______________________ (1) Amounts include payments associated with the Company's interest rate swaps (see Note 16 to our unaudited condensed consolidated financial statements). (2) Amounts include the amortization of unrealized losses in accumulated other comprehensive loss related to de-designated interest rate swaps which are being amortized to interest expense (see Note 16 to our unaudited condensed consolidated financial statements). Interest and Other Income. Interest and other income of $29.4 million for the nine months ended December 31, 2021 compared to interest and other income of $2.2 million for the nine months ended December 31, 2020, due to insurance recoveries on prior shareholder litigation of $22.7 million in the current period and other gains (see Note 15 to our unaudited condensed consolidated financial statements). Other Expense. Other expense of $6.2 million for the nine months ended December 31, 2021 compared to other expense of $4.5 million for the nine months ended December 31, 2020, and represented the loss recorded related to our monetization of accounts receivable programs (see Note 17 to our unaudited condensed consolidated financial statements). Loss on Extinguishment of Debt. Loss on extinguishment of debt for the nine months ended December 31, 2021 related to the write-off of a portion of debt issuance costs (including a portion of call premiums) associated with the redemption of the 5.875% Senior Notes and 6.375% Senior Notes and associated issuance of the 5.500% Senior Notes, the amendment of our credit agreement to extend the maturity of a portion of our revolving credit commitments and a portion of our outstanding term A loans, repurchases of the Term Loan B, and the termination of a portion of our revolving credit commitments. There was no comparable loss in the nine months ended December 31, 2020. See Note 5 to our unaudited condensed consolidated financial statements. Gain on Investments. Gain on investments of $1.2 million for the nine months ended December 31, 2021 compared to a gain on investments of $0.3 million for the nine months ended December 31, 2020. Equity Interests Loss. Equity interests loss of $1.4 million in the nine months ended December 31, 2021 compared to equity interests loss of $5.1 million in the nine months ended December 31, 2020 due to lower losses from our equity method investees. Income Tax Provision. We had an income tax provision of $21.6 million in the nine months ended December 31, 2021, compared to an income tax provision of $6.7 million in the nine months ended December 31, 2020. Our income tax provision differs from the federal statutory rate multiplied by pre-tax income (loss) due to the mix of our pre-tax income (loss) generated across the various jurisdictions in which we operate, changes in the valuation allowance against our deferred tax assets, and certain minimum taxes and foreign withholding taxes. Our income tax provision for the nine months ended December 31, 2021 was also impacted by an interest accrual on uncertain tax benefits, additional uncertain tax benefits related to state income taxes identified during state tax audits, and release of uncertain tax benefits due to the close of audits or expiration of statutory limitations. Our income tax provision for the nine months ended December 31, 2020 was also impacted by an interest accrual on uncertain tax benefits, and release of uncertain tax benefits due to the expiration of statutory limitations and settlements with tax authorities. Net Income (Loss) Attributable to Lions Gate Entertainment Corp. Shareholders. Net loss attributable to our shareholders for the nine months ended December 31, 2021 was $83.5 million, or basic and diluted net loss per common share of $0.37 on 223.7 million weighted average common shares outstanding. This compares to net income attributable to our 72 Table of Contents shareholders for the nine months ended December 31, 2020 of $18.8 million, or basic net income per common share of $0.09 on 220.3 million weighted average common shares outstanding and diluted net income per common share of $0.09 on 221.4 million weighted average common shares outstanding. Segment Results of Operations The segment results of operations presented below do not include the elimination of intersegment transactions which are eliminated when presenting consolidated results, and exclude items separately identified in the restructuring and other line item in the unaudited condensed consolidated statements of operations. The Company's primary measure of segment performance is segment profit. Segment profit is defined as gross contribution (revenues, less direct operating and distribution and marketing expense) less segment general and administration expenses. Segment profit excludes, 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 segment profit to the Company's consolidated income (loss) before income taxes is presented in Note 14 to the unaudited condensed consolidated financial statements. Motion Picture The table below sets forth Motion Picture gross contribution and segment profit for the nine months ended December 31, 2021 and 2020: Nine Months Ended December 31, Increase (Decrease) 2021 2020 Amount Percent (Amounts in millions) Motion Picture Segment: Revenue $ 897.3 $ 788.6 $ 108.7 13.8 % Expenses: Direct operating expense 398.5 373.0 25.5 6.8 % Distribution & marketing expense 215.5 101.7 113.8 111.9 % Gross contribution 283.3 313.9 (30.6) (9.7) % General and administrative expenses 69.8 79.8 (10.0) (12.5) % Segment profit $ 213.5 $ 234.1 $ (20.6) (8.8) % U.S. theatrical P&A and Premium VOD expense included in distribution and marketing expense $ 114.3 $ 24.9 $ 89.4 nm Direct operating expense as a percentage of revenue 44.4 % 47.3 % Gross contribution as a percentage of revenue 31.6 % 39.8 % _______________________ nm - Percentage not meaningful. 73 Table of Contents Revenue. The table below sets forth Motion Picture revenue by media and product category for the nine months ended December 31, 2021 and 2020: Nine Months Ended December 31, 2021 2020 Total Increase (Decrease) Feature Film (1) Other Film (2) Total Feature Film (1) Other Film (2) Total (Amounts in millions) Motion Picture Revenue Theatrical $ 38.8 $ 11.2 $ 50.0 $ 1.5 $ 0.6 $ 2.1 $ 47.9 Home Entertainment Digital Media 174.7 180.9 355.6 193.9 173.1 367.0 (11.4) Packaged Media 42.7 53.7 96.4 55.7 54.1 109.8 (13.4) Total Home Entertainment 217.4 234.6 452.0 249.6 227.2 476.8 (24.8) Television 169.9 39.8 209.7 121.7 32.2 153.9 55.8 International 120.8 53.7 174.5 86.6 59.4 146.0 28.5 Other 5.9 5.2 11.1 5.8 4.0 9.8 1.3 $ 552.8 $ 344.5 $ 897.3 $ 465.2 $ 323.4 $ 788.6 $ 108.7 ____________________ (1) Feature Film: Includes theatrical releases through our Lionsgate and Summit Entertainment film labels, which includes films developed and produced in-house, films co-developed and co-produced and films acquired from third parties. (2) Other Film: Includes direct-to-DVD motion pictures, acquired and licensed brands, third-party library product and ancillary-driven platform theatrical releases through our specialty films distribution labels including Lionsgate Premiere, through Good Universe, and with our equity method investees, Roadside Attractions and Pantelion Films, and other titles. Theatrical revenue increased $47.9 million in the nine months ended December 31, 2021 as compared to the nine months ended December 31, 2020 due to an increase of $37.3 million from our Feature Film category driven by a greater number of releases ( The Hitman's Wife's Bodyguard, Spiral, American Underdog), and an increase of $10.6 million from our Other Film category, as theaters have reopened in certain locations with varying restrictions. In the prior year's period, theaters were mostly closed due to circumstances associated with the COVID-19 global pandemic. The increase in the Feature Film category reflects seven days of revenues from the December 25, 2021 release of American Underdog . Home entertainment revenue decreased $24.8 million, or 5.2%, in the nine months ended December 31, 2021, as compared to the nine months ended December 31, 2020, due to lower digital media revenues of $19.2 million and lower packaged media revenues of $13.0 million from our Feature Film category, driven by fewer home entertainment releases from our fiscal 2021 theatrical slate due to circumstances associated with the COVID-19 global pandemic, as compared to the revenues generated from our larger fiscal 2020 theatrical slate in the prior year's period. These decreases were partially offset by an increase of $7.8 million in digital media revenue from our Other Film category. Television revenue increased $55.8 million, or 36.3%, in the nine months ended December 31, 2021, as compared to the nine months ended December 31, 2020, driven by an increase in our Feature Film category of $48.2 million due to a greater number of television windows opening (and revenue recognized) than in the prior year's period. International revenue increased $28.5 million, or 19.5%, in the nine months ended December 31, 2021, as compared to the nine months ended December 31, 2020 due to an increase in our Feature Film category of $34.2 million, offset by a decrease in Other Film of $5.7 million. The increase in Feature Film related to higher revenue from our fiscal 2022 and 2021 theatrical slates in the current period as theaters have reopened in certain locations with varying restrictions, while the prior year's period had no new significant theatrical releases due to circumstances associated with the COVID-19 global pandemic. If the adverse economic impact and disruptions associated with the COVID-19 global pandemic improve, we currently expect that Motion Picture segment revenues will increase in fiscal 2022 as compared to fiscal 2021. The extent of the increase, if any, to Motion Picture segment revenues, will depend on, among other things, the duration and spread of the pandemic (including recent and new variants), the impact of governmental regulations that have been, and may continue to be, imposed in response to the pandemic, the continued effectiveness of actions taken to contain or mitigate the outbreak (including the 74 Table of Contents availability, effectiveness and/or public acceptance of any FDA-approved COVID-19 vaccines), potential resurgences of COVID-19, and the discovery and spread of recent and new variants of the virus which could result in the re-imposition of certain restrictions and may lead to more restrictions being implemented again to reduce the spread of COVID-19, general global economic conditions, the rate at which theaters are able to re-open at scale, the rate of consumers' return to the theaters, and the impact of a potentially crowded marketplace from movies which are awaiting theatrical release in the market. The evolving and uncertain nature of the situation could result in further interruptions to our operations, including continued delays in domestic and international theatrical distribution and production and the pausing of productions, which could impact Motion Picture segment revenues. Direct Operating Expense. The increase in direct operating expenses is due to higher Motion Picture revenue. The decrease in direct operating expenses as a percentage of motion picture revenue was driven by the change in the mix of titles and product categories generating revenue in the current period as compared to the prior year's period. In particular, the decrease was due to the lower amortization rate of the fiscal 2022 theatrical slate titles generating revenue in the current period, as compared to the amortization rate of the fiscal 2021 theatrical slate titles in the prior year's period, which reflected higher investment in film write-downs. Investment in film write-downs included in Motion Picture segment direct operating expense in the nine months ended December 31, 2021 were $1.2 million, as compared to $14.6 million in the nine months ended December 31, 2020. Distribution and Marketing Expense. The increase in distribution and marketing expense in the nine months ended December 31, 2021 is due to increased theatrical P&A and Premium VOD expense related to theatrical releases in the period and P&A incurred in advance for films to be released in subsequent quarters, as compared to the prior year's period, which was impacted by the closure of theaters as a result of circumstances associated with the COVID-19 global pandemic. Theatrical P&A and Premium VOD expense in the nine months ended December 31, 2021 includes expense associated with the release of American Underdog, The Hitman's Wife's Bodyguard, The Protégé, Spiral, and Voyagers. In the nine months ended December 31, 2021, approximately $10.3 million of P&A and Premium VOD expense was incurred in advance for films to be released in subsequent quarters ( Moonfall, The Unbreakable Boy, and The Unbearable Weight of Massive Talent ), compared to approximately $3.6 million in the prior year's period in the Motion Picture segment. Gross Contribution. Gross contribution of the Motion Picture segment for the nine months ended December 31, 2021 decreased as compared to the nine months ended December 31, 2020 due to higher Motion Picture distribution and marketing expense as a percentage of Motion Picture revenue, partially offset by higher Motion Picture revenue and lower direct operating expense as a percentage of Motion Picture revenue. General and Administrative Expense. General and administrative expenses of the Motion Picture segment in the nine months ended December 31, 2021 decreased $10.0 million, or 12.5%, primarily due to decreases in incentive based and salaries and related compensation. Television Production The table below sets forth Television Production gross contribution and segment profit for the nine months ended December 31, 2021 and 2020: Nine Months Ended December 31, Increase (Decrease) 2021 2020 Amount Percent (Amounts in millions) Television Production Segment: Revenue $ 1,160.8 $ 621.0 $ 539.8 86.9 % Expenses: Direct operating expense 1,058.1 494.3 563.8 114.1 % Distribution & marketing expense 23.1 20.9 2.2 10.5 % Gross contribution 79.6 105.8 (26.2) (24.8) % General and administrative expenses 28.8 31.5 (2.7) (8.6) % Segment profit $ 50.8 $ 74.3 $ (23.5) (31.6) % Direct operating expense as a percentage of revenue 91.2 % 79.6 % Gross contribution as a percentage of revenue 6.9 % 17.0 % 75 Table of Contents Revenue. The table below sets forth Television Production revenue and changes in revenue by media for the nine months ended December 31, 2021 and 2020: Nine Months Ended December 31, Increase (Decrease) 2021 2020 Amount Percent Television Production (Amounts in millions) Television $ 840.7 $ 332.3 $ 508.4 153.0 % International 180.2 120.4 59.8 49.7 % Home Entertainment Digital 70.6 119.8 (49.2) (41.1) % Packaged Media 5.1 4.9 0.2 4.1 % Total Home Entertainment 75.7 124.7 (49.0) (39.3) % Other 64.2 43.6 20.6 47.2 % $ 1,160.8 $ 621.0 $ 539.8 86.9 % The primary component of Television Production revenue is domestic television revenue. Domestic television revenue increased in the nine months ended December 31, 2021, as compared to the nine months ended December 31, 2020, due to an increase of $308.9 million from intersegment revenues from the licensing of Starz original series (Power Book III: Raising Kanan, Power Book IV: Force, Heels Season 1 , BMF Season 1 , Step Up: Highwater Season 3 , Blindspotting Season 1 among others), and an increase from a greater number of television episodes delivered to third-parties ( Love Life Season 2, Home Economics Season 2, Acapulco Season 1, Dear White People Season 4 , among others), both of which were negatively impacted in the prior year's period by disruptions associated with the COVID-19 global pandemic and the associated pausing of productions. International revenue in the nine months ended December 31, 2021 increased $59.8 million, or 49.7% as compared to the nine months ended December 31, 2020 due to higher intersegment revenues of $30.5 million from STARZPLAY International from the licensing of Starz original series ( Power Book III: Raising Kanan Season 1, Heels Season 1, and Step Up: High Water Season 3), and revenue from third-parties in the current period for Dear White People Season 4, and Acapulco Season 1. Home entertainment revenue in the nine months ended December 31, 2021 decreased $49.0 million due to digital media revenue in the prior year's period for the second syndication license of Mad Men Seasons 1 to 7 and digital media revenue for Power Season 6, which compared to digital media revenue in the current period from Weeds Seasons 1 to 8 and Welcome to Flatch Season 1. Other revenue increased $20.6 million in the nine months ended December 31, 2021 as compared to the nine months ended December 31, 2020. The increase is primarily due to revenue of 3 Arts Entertainment, which was negatively impacted in the nine months ended December 31, 2020 as a result of the COVID-19 global pandemic related disruptions. While television production has resumed, the extent of the future impact on other revenue of the COVID-19 global pandemic is uncertain and will depend on film and television productions and releases fully returning to and remaining at pre COVID-19 levels. If the adverse economic impact and disruptions associated with the COVID-19 global pandemic improve, we currently expect that Television Production segment revenues will increase in fiscal 2022 as compared to fiscal 2021. The extent of the increase to Television Production segment revenues, will depend on, among other things, the duration and spread of the pandemic (including recent and new variants), the impact of governmental regulations that have been, and may continue to be, imposed in response to the pandemic, the continued effectiveness of actions taken to contain or mitigate the outbreak (including the availability, effectiveness and/or public acceptance of any FDA-approved COVID-19 vaccines), potential resurgences of COVID-19, and the discovery and spread of recent and new variants of the virus which could result in the re-imposition of certain restrictions and may lead to more restrictions being implemented again to reduce the spread of COVID-19, and general global economic conditions. The evolving and uncertain nature of the situation could result in further interruptions to our operations, including continued delays in domestic and international distribution and production throughout the U.S., Canada and worldwide, and the pausing of productions, which could impact Television Production segment revenues. Direct Operating Expense. Direct operating expense of the Television Production segment in the nine months ended December 31, 2021 increased $563.8 million, or 114.1% due to the increase in Television Production revenues. Direct operating expenses as a percentage of television production revenue increased primarily due to the mix of titles generating 76 Table of Contents revenue in the current period as compared to the prior year's period, and in particular, the current period included a greater number of deliveries of newer shows in which direct operating expense is typically higher as a percentage of revenue. Due to the increase in cost associated with production and changes in season orders, the current period also included increased write-downs to fair value of investment in film and television programs amounting to $28.1 million in aggregate. This compared to lower direct operating expenses as a percentage of television revenue in the prior year's period, which included fewer deliveries of newer shows primarily associated with the pausing of productions due to the COVID-19 global pandemic related disruptions. Gross Contribution. Gross contribution of the Television Production segment for the nine months ended December 31, 2021 decreased as compared to the nine months ended December 31, 2020, due to higher direct operating expenses as a percentage of television production revenue. General and Administrative Expense. General and administrative expenses of the Television Production segment decreased $2.7 million, or 8.6% due to a decrease in incentive based compensation. Media Networks The table below sets forth Media Networks gross contribution and segment profit for the nine months ended December 31, 2021 and 2020. The Media Networks segment results of operations for the nine months ended December 31, 2020 included our formerly majority owned premium Spanish language streaming services business, Pantaya (representing substantially all of our former Other Streaming Services product line). We sold our interest in Pantaya on March 31, 2021. See Note 2 to our unaudited condensed consolidated financial statements for further information. Nine Months Ended December 31, Increase (Decrease) 2021 2020 Amount Percent (Amounts in millions) Media Networks Segment: Revenue $ 1,155.9 $ 1,161.7 $ (5.8) (0.5) % Expenses: Direct operating expense 574.8 504.6 70.2 13.9 % Distribution & marketing expense 394.0 345.5 48.5 14.0 % Gross contribution 187.1 311.6 (124.5) (40.0) % General and administrative expenses 65.0 65.3 (0.3) (0.5) % Segment profit $ 122.1 $ 246.3 $ (124.2) (50.4) % Direct operating expense as a percentage of revenue 49.7 % 43.4 % Gross contribution as a percentage of revenue 16.2 % 26.8 % The following table sets forth the Media Networks segment profit by product line: Nine Months Ended Nine Months Ended December 31, 2021 December 31, 2020 Starz Networks STARZPLAY International Total Media Networks Starz Networks STARZPLAY International Other Streaming Services Total Media Networks (Amounts in millions) Media Networks Segment: Revenue $ 1,079.2 $ 76.7 $ 1,155.9 $ 1,081.8 $ 41.9 $ 38.0 $ 1,161.7 Expenses: Direct operating expense 471.7 103.1 574.8 438.3 58.3 8.0 504.6 Distribution & marketing expense 318.4 75.6 394.0 256.5 59.5 29.5 345.5 Gross contribution 289.1 (102.0) 187.1 387.0 (75.9) 0.5 311.6 General and administrative expenses 47.4 17.6 65.0 47.5 12.6 5.2 65.3 Segment profit $ 241.7 $ (119.6) $ 122.1 $ 339.5 $ (88.5) $ (4.7) $ 246.3 77 Table of Contents Revenue. The decrease in Media Networks' revenue of $5.8 million was due to a decrease of $38.0 million due to the prior year's period including revenue from Pantaya (representing substantially all of Other Streaming Services), which was sold on March 31, 2021, and a slight decrease in Starz Networks' revenue of $2.6 million, mostly offset by higher STARZPLAY International revenue of $34.8 million. STARZPLAY International revenue increased as a result of subscriber and revenue growth in the international territories previously launched, and additional territories launched since December 31, 2020. Starz Networks' revenue decreased slightly as a result of declines in revenue of $91.1 million from traditional linear services, which were mostly offset by higher OTT revenue of $87.1 million resulting from increased subscriptions. During the nine months ended December 31, 2021 and 2020, the following original series premiered on STARZ: Nine Months Ended December 31, 2021 Nine Months Ended December 31, 2020 First Quarter: First Quarter: The Girlfriend Experience Season 3 Vida Season 3 Run the World Season 1 Hightown Season 1 Blindspotting Season 1 Second Quarter: Second Quarter: Power Book III: Raising Kanan Season 1 P-Valley Season 1 Heels Season 1 Power Book II: Ghost Season 1 BMF - Black Mafia Family Season 1 Third Quarter: (1) Third Quarter: (2) Hightown Season 2 Seduced: Inside the NXIVM Cult Power Book II: Ghost Season 2 The Spanish Princess Season 2 ___________________ (1) In addition, BMF - Black Mafia Family Season 1 premiered on September 26, 2021, with the majority of episodes airing during the three months ended December 31, 2021. (2) In addition, while Power Book II: Ghost Season 1 premiered in the three months ended September 30, 2020, the series returned with a mid-season premiere in December 2020. Direct Operating and Distribution and Marketing Expenses . Direct operating and distribution and marketing expenses primarily represent programming cost amortization and advertising and marketing costs, respectively. The level of programming cost amortization and advertising and marketing costs and thus the gross contribution margin for the Media Networks' segment can fluctuate from period to period depending on the number of new original series and first-run output theatrical movies premiering on the network during the period. Programming cost amortization and advertising and marketing costs generally increase in periods where new original series premiere. In addition, the launch of the STARZPLAY international service has and will continue to result in an increase in expenses as the service continues to expand. The increase in Media Networks direct operating expenses is due to increases at STARZPLAY International of $44.8 million, and at Starz Networks of $33.4 million in the nine months ended December 31, 2021. These increases were partially offset by a decrease of $8.0 million due to the prior year's period including direct operating expense from Pantaya (representing substantially all of our former Other Streaming Services product line), which was sold on March 31, 2021. Direct operating expenses at STARZPLAY International increased as a result of the continued expansion of STARZPLAY International. The increase in Starz Networks direct operating expense was primarily due to higher programming cost amortization related to our Starz Originals of $95.7 million due to a higher number of, and more expensive, series premieres, partially offset by lower programming amortization of $63.6 million related to theatrical releases under our programming output agreement with Sony. The increase in Media Networks distribution and marketing expense is due to an increase of $61.9 million at Starz Networks due to increased spend on our Starz Originals and increased spend to drive growth in our subscriptions and an increase in operating expense related to continued growth in the OTT service, and an increase of $16.1 million at STARZPLAY International due primarily to increased advertising and marketing to drive growth in subscribers. These increases were partially offset by a decrease of $29.5 million due to the prior year's period including distribution and marketing expense from Pantaya (representing substantially all of our former Other Streaming Services product line), which was sold on March 31, 2021. Gross Contribution. The decrease in gross contribution compared to the nine months ended December 31, 2020 was due to decreases at Starz Networks of $97.9 million and STARZPLAY International of $26.1 million, driven by higher direct operating expense and distribution and marketing expense, partially offset by higher STARZPLAY International revenue, all as 78 Table of Contents described above. General and Administrative Expense. General and administrative expenses of the Media Networks segment in the nine months ended December 31, 2021 decreased slightly from the prior year's period, driven by a decrease of $5.2 million due to the prior year's period including general and administrative expense from Pantaya (representing substantially all of our former Other Streaming Services product line), which was sold on March 31, 2021, offset by an increase of $5.0 million at STARZPLAY International. 79 Table of Contents LIQUIDITY AND CAPITAL RESOURCES Sources and Uses of Cash Our liquidity and capital resources have been provided principally through cash generated from operations, corporate debt, our production and related loans, our $220.0 million non-recourse senior secured revolving credit facility due January 2025 based on collateral consisting of certain of the Company’s tax credit receivables (the "Production Tax Credit Facility"), and our $140.0 million senior secured amortizing term credit facility due July 2026 (the "IP Credit Facility") based on the collateral consisting solely of the Company’s rights in certain library titles, and the monetization of trade accounts receivable. As of December 31, 2021, we had cash and cash equivalents of $314.4 million. Our corporate debt at December 31, 2021, excluding production and related loans and the IP Credit Facility discussed above, consisted of the following: • Senior Credit Facilities: ◦ Revolving Credit Facility. We have a $1.25 billion revolving credit facility (with no amounts outstanding at December 31, 2021) due April 2026 (the "Revolving Credit Facility"). ◦ Term Loan A. We have a term loan A facility, of which a portion of its outstanding loans, amounting to $444.9 million at December 31, 2021 is due April 2026 (the "2026 Term Loan A") and a portion of its outstanding loans, amounting to $199.0 million at December 31, 2021 is due March 2023 (the "2023 Term Loan A" and together with the 2026 Term Loan A, the "Term Loan A"). ◦ Term Loan B. We have a term loan B facility due March 2025 (the "Term Loan B", and, together with the Revolving Credit Facility and the Term Loan A, the "Senior Credit Facilities"), with $847.3 million outstanding at December 31, 2021. • Senior Notes: ◦ 5.500% Senior Notes. We have $1.0 billion outstanding of 5.500% senior notes due 2029 (the "5.500% Senior Notes") at December 31, 2021. Our principal uses of cash in operations include the funding of film and television productions, film and programming rights acquisitions, and the distribution and marketing of films and television programs. We also use cash for debt service (i.e. principal and interest payments) requirements, equity method or other equity investments, quarterly cash dividends when declared, the purchase of common shares under our share repurchase program, capital expenditures, and acquisitions of or investment in businesses. In addition, the Company has a redeemable noncontrolling interest balance of $255.0 million as of December 31, 2021 related to its acquisition of a controlling interest in Pilgrim Media Group and 3 Arts Entertainment, which may require the use of cash in the event the holders of the noncontrolling interests require the Company to repurchase their interests (see Note 8 to our unaudited condensed consolidated financial statements). We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. Anticipated Cash Requirements. The nature of our business is such that significant initial expenditures are required to produce, acquire, distribute and market films and television programs, while revenues from these films and television programs are earned over an extended period of time after their completion or acquisition. In addition, the launch of the Company's STARZPLAY international service has and will require capital investment as the service expands to other international territories. In the short-term, while a portion of our revenue has been reduced as a result of disruptions associated with the COVID-19 global pandemic, our cash requirements for productions and marketing spends have also been reduced. While we cannot predict the outcome of the disruptions associated with the COVID-19 global pandemic on our operating results, cash flows and financial position, we currently expect that as production activity increases and theaters begin to reopen, our cash requirements for productions and marketing spends will increase in fiscal 2022 as compared to fiscal 2021. However, we currently believe that cash flow from operations, cash on hand, revolving credit facility availability, the monetization of trade accounts receivable, tax-efficient financing, the availability of our Production Tax Credit Facility and IP Credit Facility, and available production or license financing will be adequate to meet known operational cash and debt service 80 Table of Contents (i.e. principal and interest payments) requirements for the foreseeable future, including the funding of future film and television production, film and programming rights acquisitions and theatrical and home entertainment release schedules, and future equity method or other investment funding requirements, and international expansion. We monitor our cash flow liquidity, availability, fixed charge coverage, capital base, film spending and leverage ratios with the long-term goal of maintaining our credit worthiness. Our current financing strategy is to fund operations and to leverage investment in films and television programs through our cash flow from operations, our revolving credit facility, single-purpose production or license financing, government incentive programs, film funds, distribution commitments, the monetization of trade accounts receivable, our Production Tax Credit Facility and our IP Credit Facility. In addition, we continue to expand our STARZPLAY international service and may acquire businesses or assets, including individual films or libraries that are complementary to our business. Any such transaction could be financed through our cash flow from operations, credit facilities, equity or debt financing. If additional financing beyond our existing cash flows from operations and credit facilities cannot fund such transactions, there is no assurance that such financing will be available on terms acceptable to us. Our ability to obtain any additional financing will depend on, among other things, our business plans, operating performance and the condition of the capital markets at the time we seek financing. Additionally, circumstances related to the COVID-19 global pandemic, inflation and rising interest rates has caused disruption in the capital markets, which could make financing more difficult and/or expensive, and we may not be able to obtain such financing. We may also dispose of businesses or assets, including individual films or libraries, and use the net proceeds from such dispositions to fund operations or such acquisitions, or to repay debt. Covenants. The Senior Credit Facilities contain representations and warranties, events of default and affirmative and negative covenants that are customary for similar financings and which include, among other things and subject to certain significant exceptions, restrictions on the ability to declare or pay dividends, create liens, incur additional indebtedness, make investments, dispose of assets and merge or consolidate with any other person. In addition, a net first lien leverage maintenance covenant and an interest coverage ratio maintenance covenant apply to the Revolving Credit Facility and the Term Loan A and are tested quarterly. As of December 31, 2021, the Company was in compliance with all applicable 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 December 31, 2021, the Company was in compliance with all applicable covenants. Share Repurchase Plan. On February 2, 2016, our Board of Directors authorized to increase our previously announced share repurchase plan from $300 million to $468 million. To date, approximately $288.1 million of our common shares have been purchased under the plan, leaving approximately $179.9 million of authorized potential repurchases. The remaining $179.9 million of our common shares authorized under the plan may be purchased from time to time at our discretion, including quantity, timing and price thereof, and will be subject to market conditions. Such purchases will be structured as permitted by securities laws and other legal requirements. During the three and nine months ended December 31, 2021, the Company did not repurchase any common shares. Dividends. The amount of dividends, if any, that we pay to our shareholders is determined by our Board of Directors, at its discretion, and is dependent on a number of factors, including our financial position, results of operations, cash flows, capital requirements and restrictions under our credit agreements, and shall be in compliance with applicable law. In November 2018, our Board of Directors suspended our quarterly cash dividend to focus on driving long-term shareholder value by investing in global growth opportunities for Starz, while also strengthening the Company's balance sheet. Capacity to Pay Dividends. At December 31, 2021, the capacity to pay dividends under the Senior Credit Facilities and the Senior Notes significantly exceeded the amount of the Company's accumulated deficit or net loss, and therefore the Company's net loss of $97.4 million and accumulated deficit of $200.2 million were deemed free of restrictions from paying dividends at December 31, 2021. 81 Table of Contents Discussion of Operating, Investing, Financing Cash Flows Cash, cash equivalents and restricted cash decreased by $207.2 million for the nine months ended December 31, 2021 and increased by $227.4 million for the nine months ended December 31, 2020, before foreign exchange effects on cash. Components of these changes are discussed below in more detail. Operating Activities. Cash flows provided by (used in) operating activities for the nine months ended December 31, 2021 and 2020 were as follows: Nine Months Ended December 31, 2021 2020 Net Change (Amounts in millions) Operating income $ 59.4 $ 156.3 $ (96.9) Depreciation and amortization 134.1 142.9 (8.8) Amortization of films and television programs and program rights 1,118.7 853.6 265.1 Non-cash share-based compensation 77.5 60.1 17.4 Cash interest (92.9) (104.7) 11.8 Interest and other income and expense, net 23.2 (2.2) 25.4 Current income tax (provision) benefit (19.0) (6.7) (12.3) Other amortization 71.5 51.7 19.8 Cash flows from operations before changes in operating assets and liabilities 1,372.5 1,151.0 221.5 Changes in operating assets and liabilities: Accounts receivable, net and other assets (153.2) 133.6 (286.8) Investment in films and television programs and program rights (1,735.4) (984.7) (750.7) Accounts payable and accrued liabilities (17.4) (7.7) (9.7) Other changes in operating assets and liabilities 43.7 (132.9) 176.6 Changes in operating assets and liabilities (1,862.3) (991.7) (870.6) Net Cash Flows Provided By (Used In) Operating Activities $ (489.8) $ 159.3 $ (649.1) Cash flows used in operating activities for the nine months ended December 31, 2021 were $489.8 million compared to cash flows provided by operating activities of $159.3 million for the nine months ended December 31, 2020. The increase in cash used in operating activities is due to greater cash used from changes in operating assets and liabilities as shown above, partially offset by increased cash flows from operations before changes in operating assets and liabilities, which includes the receipt of $24.9 million from insurance recoveries on prior shareholder litigation reflected in the interest and other income and expense, net line item above. The greater use of cash from changes in operating assets and liabilities was driven by increased cash used for investment in films and television programs and program rights, and increases in accounts receivable, net and other assets. These decreases were partially offset by greater cash provided by changes in other operating assets and liabilities as reflected above. In addition, cash flows used in operating activities for the nine months ended December 31, 2021 included a net use of cash of approximately $125.8 million from the monetization of accounts receivables programs, as compared to a net benefit of approximately $23.5 million for the nine months ended December 31, 2020 (see Note 17 to our unaudited condensed consolidated financial statements). Investing Activities. Cash flows used in investing activities for the nine months ended December 31, 2021 and 2020 were as follows: 82 Table of Contents Nine Months Ended December 31, 2021 2020 (Amounts in millions) Proceeds from the sale of Pantaya $ 123.6 $ — Proceeds from the sale of other investments — 5.1 Investment in equity method investees and other (10.8) (0.2) Acquisition of assets (film library and related assets) (161.4) — Capital expenditures (22.2) (25.8) Net Cash Flows Used In Investing Activities $ (75.1) $ (20.9) Cash used in investing activities of $75.1 million for the nine months ended December 31, 2021 compared to cash used in investing activities of $20.9 million for the nine months ended December 31, 2020, primarily due to cash used for the acquisition of a film library and related assets and investment in equity method investees and other as reflected above, offset by proceeds from the sale of Pantaya (see Note 2 to our unaudited condensed consolidated financial statements) during the nine months ended December 31, 2021. Financing Activities. Cash flows provided by financing activities for the nine months ended December 31, 2021 and 2020 were as follows: Nine Months Ended December 31, 2021 2020 (Amounts in millions) Debt - borrowings, net of debt issuance and redemption costs $ 2,138.4 $ 160.0 Debt - repurchases and repayments (2,375.4) (210.9) Net repayments and repurchases of debt (237.0) (50.9) Production and related loans - borrowings, net of debt issuance costs 742.4 219.2 Production and related loans - repayments (225.0) (51.9) Net proceeds from production and related loans 517.4 167.3 IP Credit Facility and other financing advances, net of debt issuance costs 211.6 — IP Credit Facility and other financing repayments (80.3) — Net proceeds from IP Credit Facility and other financing 131.3 — Repurchase of common shares — (2.2) Other financing activities (54.0) (25.2) Net Cash Flows Provided By Financing Activities $ 357.7 $ 89.0 Cash flows provided by financing activities of $357.7 million for the nine months ended December 31, 2021 compared to cash flows provided by financing activities of $89.0 million for the nine months ended December 31, 2020. Cash flows provided by financing activities for the nine months ended December 31, 2021 primarily reflects net production and related loan borrowings of $517.4 million as production activity increased in the period, and net IP Credit Facility and other financing advances of $131.3 million, offset by net debt repayments and repurchases of $237.0 million. In addition, other financing activities in the nine months ended December 31, 2021 includes $21.5 million for interest rate swap settlement payments due to an other-than-insignificant financing element on a portion of our interest rate swaps (see Note 16 to our unaudited condensed consolidated financial statements) and tax withholding required on equity awards of $34.7 million. Net debt repayments and repurchases of $237.0 million in the nine months ended December 31, 2021 included the below transactions and associated debt issuance and redemption costs, along with required repayments on our term loans: • On April 1, 2021, we redeemed in full all $518.7 million outstanding principal amount of our 5.875% Senior Notes and all $545.6 million outstanding principal amount of our 6.375% Senior Notes, and paid a prepayment premium of $15.2 million and $17.4 million on the 5.875% Senior Notes and 6.375% Senior Notes, respectively, plus accrued and unpaid interest to the date of redemption. 83 Table of Contents • On April 1, 2021, in connection with the redemption of the 5.875% Senior Notes and the 6.375% Senior Notes, we issued $1.0 billion aggregate principal amount of 5.500% Senior Notes. • On April 6, 2021, we amended our Credit Agreement to, among other things, extend the maturity of a portion of our revolving credit commitments, amounting to $1.25 billion, and a portion of our outstanding term A loans, amounting to $444.9 million to April 6, 2026. • During the nine months ended December 31, 2021, the Company completed a series of repurchases of the Term Loan B and, in aggregate, paid $95.3 million to repurchase $96.0 million principal amount of the Term Loan B. Cash flows provided by financing activities of $89.0 million for the nine months ended December 31, 2020 primarily reflects net production and related loan borrowings of $167.3 million, as production activity increased in the prior year's period, and net debt repayments of $50.9 million representing required repayments on our term loans. In addition, other financing activities in the nine months ended December 31, 2020 includes $15.4 million for interest rate swap settlement payments due to an other-than-insignificant financing element on a portion of our interest rate swaps (see Note 16 to our unaudited condensed consolidated financial statements). Debt See Note 5 to our unaudited condensed consolidated financial statements for a discussion of our debt. Production and Related Loans and IP Credit Facility See Note 6 to our unaudited condensed consolidated financial statements for a discussion of our production and related loans and IP Credit Facility. 84 Table of Contents Table of Debt and Contractual Commitments The following table sets forth our future annual repayment of debt, and our contractual commitments as of December 31, 2021: Three Months Ending March 31, Year Ending March 31, 2022 2023 2024 2025 2026 Thereafter Total (Amounts in millions) Future annual repayment of debt recorded as of December 31, 2021 (on-balance sheet arrangements) Revolving credit facility $ — $ — $ — $ — $ — $ — $ — Term Loan A 5.4 210.3 28.9 41.1 44.5 313.7 643.9 Term Loan B 3.1 12.5 12.5 819.2 — — 847.3 5.500% Senior Notes — — — — — 1,000.0 1,000.0 Film related and other obligations (1) 214.6 644.1 212.5 251.1 30.5 36.3 1,389.1 Operating lease obligations 3.1 43.0 33.8 30.1 24.2 59.3 193.5 226.2 909.9 287.7 1,141.5 99.2 1,409.3 4,073.8 Contractual commitments by expected repayment date (off-balance sheet arrangements) Film obligations commitments (2) 147.7 612.0 96.4 53.5 28.7 32.9 971.2 Interest payments (3) 30.7 113.3 98.1 94.2 61.1 178.8 576.2 Other contractual obligations 73.9 90.1 48.6 24.0 14.6 44.7 295.9 252.3 815.4 243.1 171.7 104.4 256.4 1,843.3 Total future repayment of debt and other commitments under contractual obligations (4) $ 478.5 $ 1,725.3 $ 530.8 $ 1,313.2 $ 203.6 $ 1,665.7 $ 5,917.1 ___________________ (1) Film related and other obligations include program rights and film obligations, production and related loans, and our IP Credit Facility and other financing obligations. Program rights and film obligations include minimum guarantees, theatrical marketing obligations, and accrued licensed program rights obligations. Production and related loans include individual loans for the production of film and television programs that we produce or license and our Production Tax Credit Facility. Repayment dates of our individual production loans are based on anticipated delivery or release date of the related film or contractual due dates of the obligation. Production Tax Credit Facility amounts represent outstanding amounts under our Production Tax Credit Facility at December 31, 2021, and the repayment date represents the maturity date of the Production Tax Credit Facility (January 27, 2025), however net advances and payments under the Production Tax Credit Facility can fluctuate depending on the amount of collateral available. IP Credit Facility amounts represent outstanding amounts under our IP Credit Facility at December 31, 2021, and repayment dates are based on the projected future cash flows generated from the exploitation of the rights, subject to a minimum guaranteed payment amount, as applicable. See Note 6 to our unaudited condensed consolidated financial statements. (2) Film obligations commitments include distribution and marketing commitments, minimum guarantee commitments, program rights commitments, and production loan commitments. Distribution and marketing commitments represent contractual commitments for future expenditures associated with distribution and marketing of films which we will distribute. The payment dates of these amounts are primarily based on the anticipated release date of the film. Minimum guarantee commitments represent contractual commitments related to the purchase of film rights for pictures to be delivered in the future. Program rights commitments represent contractual commitments under programming license agreements related to films that are not available for exhibition until some future date (see below for further details). Production loan commitments represent amounts committed for future film production and development to be funded through production financing and recorded as a production loan liability when incurred. Future payments under these commitments are based on anticipated delivery or release dates of the related film or contractual due dates of the commitment. The amounts include estimated future interest payments associated with the commitment. (3) Includes cash interest payments on our debt, excluding the interest payments on the revolving credit facility as future amounts are not fixed or determinable due to fluctuating balances and interest rates. 85 Table of Contents (4) Not included in the amounts above are $255.0 million of redeemable noncontrolling interests, as future amounts and timing are subject to a number of uncertainties such that we are unable to make sufficiently reliable estimations of future payments (see Note 8 to our unaudited condensed consolidated financial statements). We are obligated to pay programming fees for all qualifying films that are released theatrically in the U.S. by Sony’s Columbia Pictures, Screen Gems, Sony Pictures Classics and TriStar labels through 2021. We do not license films produced by Sony Pictures Animation. The programming fees to be paid by us to Sony are based on the quantity and domestic theatrical exhibition receipts of qualifying films. Since the term of the output programming agreement with Sony applies to all films released theatrically through December 31, 2021, the Company is obligated to pay fees for films that have not yet been released in theaters. We are unable to estimate the amounts to be paid under these agreements for films that have not yet been released in theaters, however, such amounts are expected to be significant. We have also entered into agreements with a number of other motion picture producers and are obligated to pay fees for the rights to exhibit certain films that are released by these producers. Remaining Performance Obligations and Backlog Remaining performance obligations represent deferred revenue on the balance sheet plus fixed fee or minimum guarantee contracts where the revenue will be recognized and the cash received in the future (i.e., backlog). As disclosed in Note 9 to our unaudited condensed consolidated financial statements, remaining performance obligations were $1.8 billion at December 31, 2021 (March 31, 2021 - $1.6 billion). The backlog portion of remaining performance obligations (excluding deferred revenue) related to our Motion Picture and Television Production segments was $1.3 billion at December 31, 2021 (March 31, 2021 - $1.2 billion). Off-Balance Sheet Arrangements We do not have any transactions, arrangements and other relationships with unconsolidated entities that will affect our liquidity or capital resources. We have no special purpose entities that provided off-balance sheet financing, liquidity or market or credit risk support, nor do we engage in leasing, hedging or research and development services that could expose us to liability that is not reflected on the face of our unaudited condensed consolidated financial statements. Our commitments to fund operating leases, minimum guarantees, production and related loans, equity method investment funding requirements and all other contractual commitments not reflected on the face of our unaudited condensed consolidated financial statements are presented in the table above.