Form 8-K LIONS GATE ENTERTAINMENT For: Nov 09
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): November 9, 2015
Lions Gate Entertainment Corp.
(Exact name of registrant as specified in charter)
British Columbia, Canada
(State or Other Jurisdiction of Incorporation)
(State or Other Jurisdiction of Incorporation)
(Commission File Number) 1-14880 | (IRS Employer Identification No.) N/A | |
(Address of principal executive offices)
250 Howe Street, 20th Floor
Vancouver, British Columbia V6C 3R8
and
2700 Colorado Avenue
Santa Monica, California 90404
250 Howe Street, 20th Floor
Vancouver, British Columbia V6C 3R8
and
2700 Colorado Avenue
Santa Monica, California 90404
Registrant’s telephone number, including area code: (877) 848-3866
No Change
(Former name or former address, if changed since last report)
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o | Written Communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02 Results of Operations and Financial Condition.
On November 9, 2015, Lions Gate Entertainment Corp. (the “Company,” “we,” “us” and “our”) issued a press release announcing our results of operations for the second quarter of fiscal 2016. The press release issued by us in connection with the announcement is furnished as Exhibit 99.1 and is incorporated herein by reference.
EBITDA and Adjusted EBITDA
In our press release, we disclosed EBITDA of negative $29.6 million and Adjusted EBITDA of negative $8.1 million for the quarter ended September 30, 2015. EBITDA and Adjusted EBITDA are non-GAAP financial measures, as defined in Regulation G promulgated by the Securities and Exchange Commission (the “SEC”). A reconciliation of both EBITDA and Adjusted EBITDA to net income (loss), is included in Exhibit 99.1 and is incorporated herein by reference.
The non-GAAP financial measures, EBITDA and Adjusted EBITDA, are in addition to, not a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"). EBITDA is defined as earnings before interest, income tax provision or benefit, and depreciation and amortization.
Adjusted EBITDA represents EBITDA as defined above adjusted for stock-based compensation, restructuring and other items, start-up losses of new business initiatives, loss on extinguishment of debt, and backstopped prints and advertising expense. Stock-based compensation represents compensation expenses associated with stock options, restricted share units and cash and equity settled stock appreciation rights (“SARs”). Restructuring and other items includes restructuring and severance costs, certain unusual items, and certain transaction related costs, when applicable. Start-up losses of new business initiatives represent losses associated with the Company's direct to consumer initiatives including subscription video-on-demand platforms and Atom Tickets, a theatrical movie discovery service. Backstopped prints and advertising expense ("P&A") represents the amount of theatrical marketing expense for third party titles that the Company funded and expensed for which a third party provides a first dollar loss guarantee (subject to a cap) that such expense will be recouped from the performance of the film (which results in minimal risk of loss to the Company). The amount represents the P&A expense incurred net of the impact of expensing the P&A cost over the revenue streams similar to a participation expense (i.e. the P&A under these arrangements are being expensed similar to a participation cost for purposes of the adjusted measure).
The definition of Adjusted EBITDA now includes the gains or losses from the sale of equity method investments. Accordingly, Adjusted EBITDA for the six months ended September 30, 2014 has been revised to include the $11.4 million gain on the sale of our interest in FEARnet which occurred in April 2014. Prior to the sale of FEARnet, we recognized cumulative equity interest losses before income taxes of approximately $11.7 million from our interest in FEARnet.
We believe EBITDA and Adjusted EBITDA to be meaningful indicators of our performance that provide useful information to investors regarding our financial condition and results of operations. EBITDA and Adjusted EBITDA are non-GAAP financial measures commonly used in the entertainment industry and by financial analysts and others who follow the industry to measure operating performance. While we consider EBITDA and Adjusted EBITDA to be important measures of comparative operating performance, they should be considered in addition to, but not as a substitute for, net income (loss) and other measures of financial performance reported in accordance with GAAP. EBITDA and Adjusted EBITDA do not reflect cash available to fund cash requirements. Not all companies calculate EBITDA or Adjusted EBITDA in the same manner and the measures, as presented, may not be comparable to similarly-titled measures presented by other companies.
Free Cash Flow
In our press release, we disclosed free cash flow of negative $11.7 million for the quarter ended September 30, 2015. Free cash flow is a non-GAAP financial measure, as defined in Regulation G promulgated by the SEC. Net cash flows used in operating activities was $137.7 million for the quarter ended September 30, 2015. A reconciliation of free cash flow to net cash flows used in operating activities is included in Exhibit 99.1 and is incorporated herein by reference.
The non-GAAP financial measure, free cash flow, is in addition to, not a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP.
Free cash flow is defined as net cash flows used in operating activities, less purchases of property and equipment, plus or minus the net increase or decrease in production loans, plus or minus excess tax benefits on equity-based compensation awards if applicable. The adjustment for the production loans is made because the GAAP based cash flows from operations reflects a non-cash reduction of cash flows for the cost of films and television programs associated with production loans prior to the time we actually pay for the film or television program. We believe that it is more meaningful to reflect the impact of the payment for these films and television programs in its free cash flow when the payments are actually made.
We believe that this non-GAAP measure provides useful information to investors regarding cash that our operating businesses generate whether classified as operating or financing activity (related to the production of our films and television programs) within our GAAP based statement of cash flows, before taking into account cash movements that are non-operational. Free cash flow is a non-GAAP financial measure commonly used in the entertainment industry and by financial analysts and others who follow the industry. Not all companies calculate free cash flow in the same manner and the measure as presented may not be comparable to similarly titled measures presented by other companies.
Adjusted Income (Loss) Before Income Taxes, Adjusted Net Income (Loss), and Adjusted Earnings (Loss) Per Share
In our press release, we disclosed adjusted loss before income taxes of $22.7 million, adjusted net loss of $28.4 million and adjusted basic and diluted loss per share of $0.19 and $0.19, respectively, for the quarter ended September 30, 2015. Adjusted net income (loss) and adjusted earnings (loss) per share are non-GAAP financial measures, as defined in Regulation G promulgated by the SEC. A reconciliation of adjusted income (loss) before income taxes to income (loss) before income taxes, as reported, adjusted net income (loss) to net income (loss), as reported, and adjusted earnings (loss) per share to earnings (loss) per share, as reported, are included in Exhibit 99.1 and is incorporated herein by reference.
The non-GAAP financial measures, adjusted income (loss) before income taxes, adjusted net income (loss), and adjusted earnings (loss) per share is in addition to, not a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP.
Adjusted income (loss) before income taxes is defined as income (loss) before income taxes, as reported, adjusted for stock-based compensation, restructuring and other items, start-up losses of new business initiatives, loss on extinguishment of debt, and backstopped prints and advertising expense. Adjusted net income (loss) is defined as net income (loss) adjusted for stock-based compensation, net of tax, restructuring and other items, net of tax, start-up losses of new business initiatives, net of tax, loss on extinguishment of debt, net of tax, and backstopped prints and advertising expense, net of tax. Stock-based compensation represents compensation expenses associated with stock options, restricted share units and cash and equity-settled SARs. Restructuring and other items includes restructuring and severance costs, certain unusual items, and certain transaction related costs, when applicable. Start-up losses of new business initiatives represent losses associated with the Company's direct to consumer initiatives including subscription video-on-demand platforms and Atom Tickets, a theatrical movie discovery service. Backstopped prints and advertising expense ("P&A") represents the amount of theatrical marketing expense for third party titles that we funded and expensed for which a third party provides a first dollar loss guarantee (subject to a cap) that such expense will be recouped from the performance of the film (which results in minimal risk of loss to us). The amount represents the P&A expense incurred net of the impact of expensing the P&A cost over the revenue streams similar to a participation
expense (i.e. the P&A under these arrangements are being expensed similar to a participation cost for purposes of the adjusted measure). Adjusted earnings (loss) per share is defined as adjusted net income (loss) per weighted average shares outstanding.
The definition of adjusted income (loss) before income taxes, adjusted net income (loss) and adjusted earnings (loss) per share now includes the gains or losses from the sale of equity method investments. Accordingly, adjusted income before income taxes and adjusted net income for the six months ended September 30, 2014 has been revised to include the gain on the April 2014 sale of our interest in FEARnet of $11.4 million ($7.2 million after income taxes) and representing adjusted basic and diluted earnings per share of $0.05 for the six months ended September 30, 2014. Prior to the sale of FEARnet, we recognized cumulative equity interest losses before income taxes of approximately $11.7 million from our interest in FEARnet.
We believe that these non-GAAP measures provide useful information to investors regarding our results as compared to historical periods. We use these measures, among other measures, to evaluate our operating performance. We believe that the adjusted results provide relevant and useful information for investors because they clarify our actual operating performance and allow investors to review our operating performance in the same way as our management. Since these measures are not calculated in accordance with generally accepted accounting principles, they should not be considered in isolation of, or as a substitute for income (loss) before income taxes, net income (loss), basic and diluted earnings (loss) per share ("EPS"). Not all companies calculate adjusted income (loss) before income taxes, adjusted net income (loss), and adjusted basic and diluted EPS in the same manner and the measures as presented may not be comparable to similarly titled measures presented by other companies.
Item 9.01 Financial Statements and Exhibits.
(d) | Exhibits. | ||
Exhibit No. | Description | ||
99.1 | Press Release dated November 9, 2015 | ||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: | November 9, 2015 | LIONS GATE ENTERTAINMENT CORP. |
/s/ James W. Barge | ||
James W. Barge | ||
Chief Financial Officer | ||
Exhibit 99.1
LIONSGATE REPORTS RESULTS FOR SECOND QUARTER 2016
Revenue is $476.8 Million; Net Loss is $42.1 Million or Net Loss per Share of $0.28;
Adjusted EBITDA is Negative $8.1 Million
Mockingjay - Part 2, Allegiant, Orange is the New Black and Nashville Expected to Drive Film & Television Slates in Second Half of the Year
SANTA MONICA, CA and VANCOUVER, BC, November 9, 2015 - Lionsgate (NYSE: LGF) today reported revenue of $476.8 million, adjusted EBITDA of negative $8.1 million, adjusted net loss of $28.4 million or adjusted net loss per share of $0.19, and net loss of $42.1 million or net loss per share of $0.28 for the fiscal 2016 second quarter ended September 30, 2015.
The Company’s financial results in the quarter were affected by timing of episodic television deliveries and the shift of the wide release of the film Sicario into October. Although the move contributed to the film’s solid box office performance, it resulted in its marketing costs being recorded in the September quarter without significant offsetting revenue benefit. In addition, the wide release American Ultra underperformed during the quarter. The Company also recorded a write-down of $7.2 million on The Last Witch Hunter, a film released after the quarter.
“Although this quarter will be the lightest of the year due to timing and softer-than-anticipated performance of some of our recent film releases, our robust film and television pipelines position us for a very strong second half of the year,” said Lionsgate Chief Executive Officer Jon Feltheimer.
Adjusted EBITDA of negative $8.1 million for the quarter compared to adjusted EBITDA of $59.0 million in the prior year quarter. Adjusted net loss of $28.4 million or adjusted net loss per share of $0.19 for the quarter compared to adjusted net income of $33.0 million or adjusted EPS of $0.24 in the prior year quarter.
Net loss for the quarter was $42.1 million or net loss per share of $0.28 on 148.3 million weighted average number of common shares outstanding compared to net income of $20.8 million or EPS of $0.15 on 137.4 million weighted average number of common shares outstanding during the prior year quarter.
Revenue of $476.8 million for the quarter compared to $552.9 million in the prior year quarter.
Lionsgate Increases Quarterly Cash Dividend
During the quarter, the Company increased its quarterly cash dividend by 29% from $0.07 to $0.09 per common share payable on November 10, 2015 to shareholders of record as of September 30, 2015.
Company Reports Combined Cash Balance and Availability of Over $970 Million and Filmed Entertainment Backlog of $1.2 Billion
The Company reported a combined cash balance and availability on its revolving credit facility of over $970 million at September 30, 2015.
Lionsgate’s filmed entertainment backlog, or already contracted future revenue not yet recorded, was approximately $1.2 billion at September 30, 2015.
1
Overall Motion Picture segment revenue for the quarter was $354.0 million compared to $398.0 million in the prior year quarter. Theatrical revenue declined to $26.3 million with only two wide releases in the quarter, American Ultra and Shaun the Sheep.
As noted above, the wide release of the critically-acclaimed revenge thriller Sicario was moved to October 2nd and its performance will be reflected in a third quarter that also includes the release of the eagerly-anticipated fourth installment of the Company’s global blockbuster Hunger Games franchise, The Hunger Games: Mockingjay - Part 2. Mockingjay 2 will roll out in 86 territories around the world on November 20th, the biggest simultaneous global launch in the Company’s history.
Scheduled wide releases in the fourth quarter include the next film in the hit Divergent series, Allegiant, the visual effects-driven Gods of Egypt and the buddy comedy Dirty Grandpa, starring Robert DeNiro and Zack Efron.
Lionsgate’s home entertainment revenue from motion picture and television production for the quarter was $153.5 million compared to $164.4 million in the prior year quarter due to fewer wide release theatrical titles and product mix. The hit film Insurgent performed well on packaged media, VOD and electronic sell-through during the quarter.
Television revenue included in the Motion Picture segment of $59.9 million in the quarter compared to $69.4 million in the prior year quarter.
International Motion Picture segment revenue for the quarter was $107.8 million compared to $112.9 million in the prior year quarter.
Television production segment revenue was $122.8 million in the quarter compared to $154.9 million in the prior year quarter due to timing of episodic deliveries. Deliveries of the critically-acclaimed hit series Orange is the New Black, Nashville and The Royals are expected to drive revenue growth in the second half of the year. The Company continues to deepen its pipeline of original new series including Casual and Freddie Wong/RocketJump for Hulu, Broke for AMC, Guilt for ABC Family and Graves for Epix.
Lionsgate senior management will hold its analyst and investor conference call to discuss its fiscal 2016 second quarter financial results at 9:00 A.M. ET/6:00 A.M. PT on Tuesday, November 10, 2015. Interested parties may participate live in the conference call by calling 1-800-230-1059 (612-234-9959 outside the U.S. and Canada). A full digital replay will be available from Tuesday morning, November 10, through Tuesday, November 17, by dialing 1-800-475-6701 (320-365-3844 outside the U.S. and Canada) and using access code 371505.
ABOUT LIONSGATE
Lionsgate is a premier next generation global content leader with a strong and diversified presence in motion picture production and distribution, television programming and syndication, home entertainment, digital distribution, new channel platforms, video games and international distribution and sales. The Company currently has over 30 television shows on more than 20 networks spanning its primetime production, distribution and syndication businesses, including such critically-acclaimed hits as Orange is the New Black, the multiple Emmy Award-winning drama Mad Men, the broadcast network series Nashville, the syndication success The Wendy Williams Show, the drama series Manhattan and the breakout comedy The Royals.
Its feature film business has been fueled by such successes as the blockbuster first three installments of The Hunger Games franchise, the first two installments of the Divergent franchise, Sicario, The Age of Adaline, John Wick, CBS Films/Lionsgate’s The Duff, Now You See Me, Roadside Attractions’ Love & Mercy and Mr. Holmes and Pantelion Films’ Instructions Not Included, the highest-grossing Spanish-language film ever released in the U.S.
Lionsgate's home entertainment business is an industry leader in box office-to-DVD and box office-to-VOD revenue conversion rate. The Company handles a prestigious and prolific library of approximately 16,000 motion
2
picture and television titles that is an important source of recurring revenue and serves as the foundation for the growth of the Company's core businesses. The Lionsgate and Summit brands remain synonymous with original, daring, quality entertainment in markets around the world.
***
For further information, please contact:
Peter D. Wilkes
310-255-3726
The matters discussed in this press release include forward-looking statements, including those regarding the performance of future fiscal years. Such statements are subject to a number of risks and uncertainties. Actual results in the future could differ materially and adversely from those described in the forward-looking statements as a result of various important factors, including the substantial investment of capital required to produce and market films and television series, increased costs for producing and marketing feature films and television series, budget overruns, limitations imposed by our credit facility and notes, unpredictability of the commercial success of our motion pictures and television programming, the cost of defending our intellectual property, difficulties in integrating acquired businesses, risks related to our acquisition strategy and integration of acquired businesses, the effects of disposition of businesses or assets, technological changes and other trends affecting the entertainment industry, and the risk factors as set forth in Lionsgate’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission (the “SEC”) on November 9, 2015, which risk factors are incorporated herein by reference. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances.
3
LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2015 | March 31, 2015 | ||||||
(Amounts in thousands, except share amounts) | |||||||
ASSETS | |||||||
Cash and cash equivalents | $ | 170,417 | $ | 102,697 | |||
Restricted cash | 2,508 | 2,508 | |||||
Accounts receivable, net of reserves for returns and allowances of $43,671 (March 31, 2015 - $64,362) and provision for doubtful accounts of $4,476 (March 31, 2015 - $4,120) | 881,474 | 891,880 | |||||
Investment in films and television programs, net | 1,557,084 | 1,381,829 | |||||
Property and equipment, net | 30,094 | 26,651 | |||||
Investments | 474,290 | 438,298 | |||||
Goodwill | 323,328 | 323,328 | |||||
Other assets | 75,835 | 74,784 | |||||
Deferred tax assets | 50,196 | 50,114 | |||||
Total assets | $ | 3,565,226 | $ | 3,292,089 | |||
LIABILITIES | |||||||
Senior revolving credit facility | $ | — | $ | — | |||
5.25% Senior Notes | 225,000 | 225,000 | |||||
Term Loan | 400,000 | 375,000 | |||||
Accounts payable and accrued liabilities | 282,412 | 332,473 | |||||
Participations and residuals | 516,673 | 471,661 | |||||
Film obligations and production loans | 904,091 | 656,755 | |||||
Convertible senior subordinated notes | 98,979 | 114,126 | |||||
Deferred revenue | 250,524 | 274,787 | |||||
Total liabilities | 2,677,679 | 2,449,802 | |||||
Commitments and contingencies | |||||||
SHAREHOLDERS’ EQUITY | |||||||
Common shares, no par value, 500,000,000 shares authorized, 148,504,591 shares issued (March 31, 2015 - 145,532,978 shares) | 884,182 | 830,786 | |||||
Retained earnings (accumulated deficit) | (11,405 | ) | 13,720 | ||||
Accumulated other comprehensive income (loss) | 14,770 | (2,219 | ) | ||||
Total shareholders’ equity | 887,547 | 842,287 | |||||
Total liabilities and shareholders’ equity | $ | 3,565,226 | $ | 3,292,089 | |||
4
LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended | Six Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
(Amounts in thousands, except per share amounts) | |||||||||||||||
Revenues | $ | 476,759 | $ | 552,876 | $ | 885,700 | $ | 1,002,259 | |||||||
Expenses: | |||||||||||||||
Direct operating | 292,810 | 306,391 | 523,120 | 545,264 | |||||||||||
Distribution and marketing | 153,140 | 152,877 | 225,064 | 250,198 | |||||||||||
General and administration | 67,577 | 61,489 | 128,289 | 125,568 | |||||||||||
Depreciation and amortization | 2,520 | 1,631 | 4,350 | 2,977 | |||||||||||
Total expenses | 516,047 | 522,388 | 880,823 | 924,007 | |||||||||||
Operating income (loss) | (39,288 | ) | 30,488 | 4,877 | 78,252 | ||||||||||
Other expenses (income): | |||||||||||||||
Interest expense | |||||||||||||||
Cash interest | 10,357 | 9,537 | 20,728 | 18,979 | |||||||||||
Amortization of debt discount and deferred financing costs | 2,273 | 3,534 | 4,527 | 7,064 | |||||||||||
Total interest expense | 12,630 | 13,071 | 25,255 | 26,043 | |||||||||||
Interest and other income | (555 | ) | (547 | ) | (1,155 | ) | (1,565 | ) | |||||||
Loss on extinguishment of debt | — | 586 | — | 586 | |||||||||||
Total other expenses, net | 12,075 | 13,110 | 24,100 | 25,064 | |||||||||||
Income (loss) before equity interests and income taxes | (51,363 | ) | 17,378 | (19,223 | ) | 53,188 | |||||||||
Equity interests income | 7,149 | 8,245 | 18,537 | 26,455 | |||||||||||
Income (loss) before income taxes | (44,214 | ) | 25,623 | (686 | ) | 79,643 | |||||||||
Income tax provision (benefit) | (2,145 | ) | 4,842 | 699 | 15,601 | ||||||||||
Net income (loss) | $ | (42,069 | ) | $ | 20,781 | $ | (1,385 | ) | $ | 64,042 | |||||
Basic net income (loss) per common share | $ | (0.28 | ) | $ | 0.15 | $ | (0.01 | ) | $ | 0.46 | |||||
Diluted net income (loss) per common share | $ | (0.28 | ) | $ | 0.15 | $ | (0.01 | ) | $ | 0.44 | |||||
Weighted average number of common shares outstanding: | |||||||||||||||
Basic | 148,345 | 137,380 | 147,984 | 137,942 | |||||||||||
Diluted | 148,345 | 146,667 | 147,984 | 151,788 | |||||||||||
Dividends declared per common share | $ | 0.09 | $ | 0.07 | $ | 0.16 | $ | 0.12 | |||||||
LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended | Six Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
(Amounts in thousands) | |||||||||||||||
Operating Activities: | |||||||||||||||
Net income (loss) | $ | (42,069 | ) | $ | 20,781 | $ | (1,385 | ) | $ | 64,042 | |||||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | |||||||||||||||
Depreciation and amortization | 2,520 | 1,631 | 4,350 | 2,977 | |||||||||||
Amortization of films and television programs | 200,871 | 200,284 | 361,290 | 359,092 | |||||||||||
Amortization of debt discount and deferred financing costs | 2,273 | 3,534 | 4,527 | 7,064 | |||||||||||
Non-cash share-based compensation | 17,392 | 17,012 | 33,983 | 33,549 | |||||||||||
Distribution from equity method investee | — | 1,558 | — | 7,788 | |||||||||||
Loss on extinguishment of debt | — | 586 | — | 586 | |||||||||||
Equity interests income | (7,149 | ) | (8,245 | ) | (18,537 | ) | (26,455 | ) | |||||||
Deferred income taxes | (3,403 | ) | 4,211 | (2,612 | ) | 9,316 | |||||||||
Changes in operating assets and liabilities: | |||||||||||||||
Restricted cash | — | (1 | ) | — | 1,390 | ||||||||||
Accounts receivable, net | (122,166 | ) | (85,920 | ) | 12,007 | 83,594 | |||||||||
Investment in films and television programs | (219,609 | ) | (375,168 | ) | (535,470 | ) | (639,019 | ) | |||||||
Other assets | 686 | (1,278 | ) | (1,828 | ) | (896 | ) | ||||||||
Accounts payable and accrued liabilities | 61,036 | 16,676 | (34,300 | ) | (78,990 | ) | |||||||||
Participations and residuals | 15,022 | 24,109 | 44,938 | 22,570 | |||||||||||
Film obligations | (1,930 | ) | (4,324 | ) | (11,148 | ) | (38,913 | ) | |||||||
Deferred revenue | (41,199 | ) | (10,749 | ) | (24,423 | ) | (15,632 | ) | |||||||
Net Cash Flows Used In Operating Activities | (137,725 | ) | (195,303 | ) | (168,608 | ) | (207,937 | ) | |||||||
Investing Activities: | |||||||||||||||
Proceeds from the sale of equity method investees | — | — | — | 14,575 | |||||||||||
Investment in equity method investees | (2,859 | ) | (3,000 | ) | (3,659 | ) | (12,650 | ) | |||||||
Purchases of other investments | — | (2,000 | ) | — | (2,000 | ) | |||||||||
Purchases of property and equipment | (3,632 | ) | (3,068 | ) | (6,880 | ) | (4,495 | ) | |||||||
Net Cash Flows Used In Investing Activities | (6,491 | ) | (8,068 | ) | (10,539 | ) | (4,570 | ) | |||||||
Financing Activities: | |||||||||||||||
Senior revolving credit facility - borrowings | 48,000 | 197,500 | 48,000 | 367,500 | |||||||||||
Senior revolving credit facility - repayments | (48,000 | ) | (142,000 | ) | (48,000 | ) | (325,619 | ) | |||||||
Term Loan - borrowings, net of deferred financing costs of $964 for the six months ended September 30, 2015 | (348 | ) | — | 24,036 | — | ||||||||||
Convertible senior subordinated notes - repurchases | — | — | (5 | ) | (16 | ) | |||||||||
Production loans - borrowings | 167,858 | 177,753 | 370,945 | 385,706 | |||||||||||
Production loans - repayments | (38,198 | ) | (28,576 | ) | (112,474 | ) | (65,435 | ) | |||||||
Repurchase of common shares | — | (16,875 | ) | — | (126,404 | ) | |||||||||
Dividends paid | (10,376 | ) | (6,880 | ) | (20,563 | ) | (13,946 | ) | |||||||
Excess tax benefits on equity-based compensation awards | (45 | ) | (1,621 | ) | — | 1,150 | |||||||||
Exercise of stock options | 1,335 | 1,257 | 4,453 | 1,663 | |||||||||||
Tax withholding required on equity awards | (2,901 | ) | (1,889 | ) | (18,983 | ) | (12,136 | ) | |||||||
Net Cash Flows Provided By Financing Activities | 117,325 | 178,669 | 247,409 | 212,463 | |||||||||||
Net Change In Cash And Cash Equivalents | (26,891 | ) | (24,702 | ) | 68,262 | (44 | ) | ||||||||
Foreign Exchange Effects on Cash | 758 | 599 | (542 | ) | 621 | ||||||||||
Cash and Cash Equivalents - Beginning Of Period | 196,550 | 50,372 | 102,697 | 25,692 | |||||||||||
Cash and Cash Equivalents - End Of Period | $ | 170,417 | $ | 26,269 | $ | 170,417 | $ | 26,269 | |||||||
LIONS GATE ENTERTAINMENT CORP.
RECONCILIATION OF NET INCOME (LOSS) TO EBITDA AND ADJUSTED EBITDA
Three Months Ended | Six Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2015 | 2014 | 2015 | 2014(1) | ||||||||||||
(Amounts in thousands) | |||||||||||||||
Net income (loss) | $ | (42,069 | ) | $ | 20,781 | $ | (1,385 | ) | $ | 64,042 | |||||
Depreciation and amortization | 2,520 | 1,631 | 4,350 | 2,977 | |||||||||||
Cash interest | 10,357 | 9,537 | 20,728 | 18,979 | |||||||||||
Noncash interest expense | 2,273 | 3,534 | 4,527 | 7,064 | |||||||||||
Interest and other income | (555 | ) | (547 | ) | (1,155 | ) | (1,565 | ) | |||||||
Income tax provision (benefit) | (2,145 | ) | 4,842 | 699 | 15,601 | ||||||||||
EBITDA | $ | (29,619 | ) | $ | 39,778 | $ | 27,764 | $ | 107,098 | ||||||
Stock-based compensation(2) | 17,392 | 17,322 | 34,271 | 33,743 | |||||||||||
Restructuring and other items(3) | 4,207 | 1,354 | 4,207 | 6,242 | |||||||||||
Start-up losses of new business initiatives(4) | 2,764 | — | 3,478 | — | |||||||||||
Loss on extinguishment of debt | — | 586 | — | 586 | |||||||||||
Backstopped prints and advertising expense(5) | (2,879 | ) | — | (6,813 | ) | — | |||||||||
Adjusted EBITDA(1) | $ | (8,135 | ) | $ | 59,040 | $ | 62,907 | $ | 147,669 | ||||||
(1) | The definition of Adjusted EBITDA now includes the gains or losses from the sale of equity method investments. Accordingly, Adjusted EBITDA for the six months ended September 30, 2014 has been revised to include the $11.4 million gain on the sale of the Company’s interest in FEARnet which occurred April 2014. Prior to the sale of FEARnet, the Company recognized cumulative equity interest losses before income taxes of approximately $11.7 million from its interest in FEARnet. |
(2) | Stock-based compensation represents compensation expenses associated with stock options, restricted share units and cash and equity settled stock appreciation rights ("SARs"). |
(3) | Restructuring and other items includes restructuring and severance costs, certain unusual items, and certain transaction related costs, when applicable. Amounts in the three and six months ended September 30, 2015 represent pension withdrawal costs of $2.7 million related to an underfunded multi-employer pension plan that the Company is no longer participating in and professional fees associated with certain strategic transactions. Amounts in the six months ended September 30, 2014 primarily represent severance costs associated with the integration of the marketing operations of the Company's Lionsgate and Summit film labels and costs related to the move of our international sales and distribution organization to the United Kingdom. Approximately $1.2 million of these costs are non-cash charges resulting from the acceleration of vesting of stock awards. |
(4) | Start-up losses of new business initiatives represent losses associated with the Company's direct to consumer initiatives including its subscription video-on-demand platforms and Atom Tickets, a theatrical movie discovery service. For the three months ended September 30, 2015, $0.4 million is included in the Company's consolidated general and administrative expenses and $2.3 million is included in equity interests income. For the six months ended September 30, 2015, $0.4 million is included in the Company's consolidated general and administrative expenses and $3.1 million is included in equity interests income. |
(5) | Backstopped prints and advertising expense ("P&A") represents the amount of theatrical marketing expense for third party titles that the Company funded and expensed for which a third party provides a first dollar loss guarantee (subject to a cap) that such expense will be recouped from the performance of the film (which results in minimal risk of loss to the Company). The amount represents the P&A expense incurred net of the impact of expensing the P&A cost over the revenue streams similar to a participation expense (i.e. the P&A under these arrangements are being expensed similar to a participation cost for purposes of the adjusted measure). The amount is subtracted from EBITDA in the three and six months ended September 30, 2015 because there was no additional backstopped P&A expense incurred in the period and the amount represents the estimated amortization of the amounts previously added back. |
EBITDA is defined as earnings before interest, income tax provision or benefit, and depreciation and amortization. EBITDA is a non-GAAP financial measure.
Adjusted EBITDA represents EBITDA as defined above adjusted for stock-based compensation, restructuring and other items, start-up losses of new business initiatives, loss on extinguishment of debt, and backstopped prints and advertising expense. Adjusted EBITDA is a non-GAAP financial measure.
We believe EBITDA and Adjusted EBITDA to be meaningful indicators of our performance that provide useful information to investors regarding our financial condition and results of operations. EBITDA and Adjusted EBITDA are non-GAAP financial
5
measures commonly used in the entertainment industry and by financial analysts and others who follow the industry to measure operating performance. While we consider EBITDA and Adjusted EBITDA to be important measures of comparative operating performance, they should be considered in addition to, but not as a substitute for, net income (loss) and other measures of financial performance reported in accordance with GAAP. EBITDA and Adjusted EBITDA do not reflect cash available to fund cash requirements. Not all companies calculate EBITDA or Adjusted EBITDA in the same manner and the measures, as presented, may not be comparable to similarly-titled measures presented by other companies.
6
LIONS GATE ENTERTAINMENT CORP.
RECONCILIATION OF FREE CASH FLOW TO
NET CASH FLOWS USED IN OPERATING ACTIVITIES
Three Months Ended | Six Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
(Amounts in thousands) | |||||||||||||||
Net Cash Flows Used In Operating Activities | $ | (137,725 | ) | $ | (195,303 | ) | $ | (168,608 | ) | $ | (207,937 | ) | |||
Purchases of property and equipment | (3,632 | ) | (3,068 | ) | (6,880 | ) | (4,495 | ) | |||||||
Net borrowings under and (repayment) of production loans | 129,660 | 149,177 | 258,471 | 320,271 | |||||||||||
Excess tax benefits on equity-based compensation awards | (45 | ) | (1,621 | ) | — | 1,150 | |||||||||
Free Cash Flow, as defined | $ | (11,742 | ) | $ | (50,815 | ) | $ | 82,983 | $ | 108,989 | |||||
Free cash flow is defined as net cash flows used in operating activities, less purchases of property and equipment, plus or minus the net increase or decrease in production loans, plus or minus excess tax benefits on equity-based compensation awards if applicable. The adjustment for the production loans is made because the GAAP based cash flows from operations reflects a non-cash reduction of cash flows for the cost of films and television programs associated with production loans prior to the time the Company actually pays for the film or television program. The Company believes that it is more meaningful to reflect the impact of the payment for these films and television programs in its free cash flow when the payments are actually made.
Free cash flow is a non-GAAP financial measure as defined in Regulation G promulgated by the Securities and Exchange Commission. This non-GAAP financial measure is in addition to, not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.
We believe this non-GAAP measure provides useful information to investors regarding cash that our operating businesses generate whether classified as operating or financing activity (related to the production of our films and television programs) within our GAAP based statement of cash flows, before taking into account cash movements that are non-operational. Free cash flow is a non-GAAP financial measure commonly used in the entertainment industry and by financial analysts and others who follow the industry. Not all companies calculate free cash flow in the same manner and the measure as presented may not be comparable to similarly titled measures presented by other companies.
7
LIONS GATE ENTERTAINMENT CORP.
RECONCILIATION OF EBITDA TO FREE CASH FLOW
Three Months Ended | Six Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
(Amounts in thousands) | |||||||||||||||
EBITDA | $ | (29,619 | ) | $ | 39,778 | $ | 27,764 | $ | 107,098 | ||||||
Plus: Amortization of film and television programs | 200,871 | 200,284 | 361,290 | 359,092 | |||||||||||
Less: Cash paid for film and television programs(1) | (91,879 | ) | (230,315 | ) | (288,147 | ) | (357,661 | ) | |||||||
Amortization of (cash paid for) film and television programs in excess of cash paid (amortization) | 108,992 | (30,031 | ) | 73,143 | 1,431 | ||||||||||
Plus: Non-cash stock-based compensation | 17,392 | 17,012 | 33,983 | 33,549 | |||||||||||
Plus: Distributions from equity method investee | — | 1,558 | — | 7,788 | |||||||||||
Less: Equity interests income | (7,149 | ) | (8,245 | ) | (18,537 | ) | (26,455 | ) | |||||||
Plus: Loss on extinguishment of debt | — | 586 | — | 586 | |||||||||||
EBITDA adjusted for items above | 89,616 | 20,658 | 116,353 | 123,997 | |||||||||||
Changes in other operating assets and liabilities: | |||||||||||||||
Restricted cash | — | (1 | ) | — | 1,390 | ||||||||||
Accounts receivable, net | (122,166 | ) | (85,920 | ) | 12,007 | 83,594 | |||||||||
Other assets | 686 | (1,278 | ) | (1,828 | ) | (896 | ) | ||||||||
Accounts payable and accrued liabilities | 61,036 | 16,676 | (34,300 | ) | (78,990 | ) | |||||||||
Participations and residuals | 15,022 | 24,109 | 44,938 | 22,570 | |||||||||||
Deferred revenue | (41,199 | ) | (10,749 | ) | (24,423 | ) | (15,632 | ) | |||||||
(86,621 | ) | (57,163 | ) | (3,606 | ) | 12,036 | |||||||||
Purchases of property and equipment | (3,632 | ) | (3,068 | ) | (6,880 | ) | (4,495 | ) | |||||||
Interest, taxes and other(2) | (11,105 | ) | (11,242 | ) | (22,884 | ) | (22,549 | ) | |||||||
Free Cash Flow, as defined | $ | (11,742 | ) | $ | (50,815 | ) | $ | 82,983 | $ | 108,989 | |||||
_________________________ | |||||||||||||||
(1) Cash paid for film and television programs is calculated using the following amounts as presented in our consolidated statement of cash flows: | |||||||||||||||
Change in investment in film and television programs | $ | (219,609 | ) | $ | (375,168 | ) | $ | (535,470 | ) | $ | (639,019 | ) | |||
Change in film obligations | (1,930 | ) | (4,324 | ) | (11,148 | ) | (38,913 | ) | |||||||
Production loans - borrowings | 167,858 | 177,753 | 370,945 | 385,706 | |||||||||||
Production loans - repayments | (38,198 | ) | (28,576 | ) | (112,474 | ) | (65,435 | ) | |||||||
Total cash paid for film and television programs | $ | (91,879 | ) | $ | (230,315 | ) | $ | (288,147 | ) | $ | (357,661 | ) | |||
_________________________ | |||||||||||||||
(2) Interest, taxes and other consists of the following: | |||||||||||||||
Cash interest | $ | (10,357 | ) | $ | (9,537 | ) | $ | (20,728 | ) | $ | (18,979 | ) | |||
Interest and other income | 555 | 547 | 1,155 | 1,565 | |||||||||||
Current income tax provision | (1,258 | ) | (631 | ) | (3,311 | ) | (6,285 | ) | |||||||
Excess tax benefits on equity-based compensation awards | (45 | ) | (1,621 | ) | — | 1,150 | |||||||||
Total interest, taxes and other | $ | (11,105 | ) | $ | (11,242 | ) | $ | (22,884 | ) | $ | (22,549 | ) | |||
This reconciliation is provided to illustrate the difference between our EBITDA and free cash flow which are both separately reconciled to their corresponding GAAP metrics.
8
LIONS GATE ENTERTAINMENT CORP.
RECONCILIATION OF INCOME (LOSS) BEFORE INCOME TAXES, NET
INCOME (LOSS), AND BASIC AND DILUTED EPS TO ADJUSTED INCOME (LOSS) BEFORE
INCOME TAXES, ADJUSTED NET INCOME (LOSS), AND ADJUSTED BASIC AND DILUTED EPS
Three Months Ended September 30, 2015 | |||||||||||||||
(Amounts in thousands, except per share amounts) | |||||||||||||||
Income (loss) before income taxes | Net income (loss) | Basic EPS* | Diluted EPS* | ||||||||||||
As reported | $ | (44,214 | ) | $ | (42,069 | ) | $ | (0.28 | ) | $ | (0.28 | ) | |||
Stock-based compensation(1) | 17,392 | 11,014 | 0.07 | 0.07 | |||||||||||
Restructuring and other items(2) | 4,207 | 2,711 | 0.02 | 0.02 | |||||||||||
Start-up losses of new business initiatives(3) | 2,764 | 1,781 | 0.01 | 0.01 | |||||||||||
Backstopped prints and advertising expense(4) | (2,879 | ) | (1,823 | ) | (0.01 | ) | (0.01 | ) | |||||||
As adjusted for stock-based compensation, restructuring and other items, start-up losses of new business initiatives, and backstopped prints and advertising expense | $ | (22,730 | ) | $ | (28,386 | ) | $ | (0.19 | ) | $ | (0.19 | ) | |||
Three Months Ended September 30, 2014 | |||||||||||||||
(Amounts in thousands, except per share amounts) | |||||||||||||||
Income before income taxes | Net income | Basic EPS* | Diluted EPS* | ||||||||||||
As reported | $ | 25,623 | $ | 20,781 | $ | 0.15 | $ | 0.15 | |||||||
Stock-based compensation(1) | 17,322 | 10,972 | 0.08 | 0.07 | |||||||||||
Restructuring and other items(2) | 1,354 | 858 | 0.01 | 0.01 | |||||||||||
Loss on extinguishment of debt(5) | 586 | 371 | — | — | |||||||||||
As adjusted for stock-based compensation, restructuring and other items, and loss on extinguishment of debt | $ | 44,885 | $ | 32,982 | $ | 0.24 | $ | 0.23 | |||||||
Six Months Ended September 30, 2015 | |||||||||||||||
(Amounts in thousands, except per share amounts) | |||||||||||||||
Income (loss) before income taxes | Net income (loss) | Basic EPS* | Diluted EPS* | ||||||||||||
As reported | $ | (686 | ) | $ | (1,385 | ) | $ | (0.01 | ) | $ | (0.01 | ) | |||
Stock-based compensation(1) | 34,271 | 21,704 | 0.15 | 0.14 | |||||||||||
Restructuring and other items(2) | 4,207 | 2,711 | 0.02 | 0.02 | |||||||||||
Start-up losses of new business initiatives(3) | 3,478 | 2,241 | 0.02 | 0.01 | |||||||||||
Backstopped prints and advertising expense(4) | (6,813 | ) | (4,315 | ) | (0.03 | ) | (0.03 | ) | |||||||
As adjusted for stock-based compensation, restructuring and other items, start-up losses of new business initiatives, and backstopped prints and advertising expense | $ | 34,457 | $ | 20,956 | $ | 0.14 | $ | 0.14 | |||||||
Six Months Ended September 30, 2014** | |||||||||||||||
(Amounts in thousands, except per share amounts) | |||||||||||||||
Income before income taxes | Net income | Basic EPS* | Diluted EPS* | ||||||||||||
As reported | $ | 79,643 | $ | 64,042 | $ | 0.46 | $ | 0.44 | |||||||
Stock-based compensation(1) | 33,743 | 21,373 | 0.15 | 0.14 | |||||||||||
Restructuring and other items(2) | 6,242 | 3,954 | 0.03 | 0.03 | |||||||||||
Loss on extinguishment of debt(5) | 586 | 371 | — | — | |||||||||||
As adjusted for stock-based compensation, restructuring and other items, and loss on extinguishment of debt** | $ | 120,214 | $ | 89,740 | $ | 0.65 | $ | 0.61 | |||||||
_________________________ | |||||||||||||||
* Basic and Diluted EPS amounts may not add precisely due to rounding
** The definition of adjusted income before income taxes, adjusted net income and adjusted earnings per share now includes the gains or losses from the sale of equity method investments. Accordingly, adjusted income before income taxes, and adjusted net income for the six
9
months ended September 30, 2014 has been revised to include the gain on the April 2014 sale of the Company's interest in FEARnet of $11.4 million ($7.2 million after income taxes) and representing adjusted basic and diluted earnings per share of $0.05 for the six months ended September 30, 2014. Prior to the sale of FEARnet, the Company recognized cumulative equity interest losses before income taxes of approximately $11.7 million from the Company's interest in FEARnet.
Adjusted income (loss) before income taxes, adjusted net income (loss) and adjusted basic and diluted EPS are adjusted for the following items (the adjustment to net income (loss) is net of the tax impact calculated using the statutory tax rate applicable to each adjustment):
(1) Stock-based compensation: Adjustments for stock-based compensation represents compensation expenses associated with stock options, restricted share units, cash and equity settled SARs.
(2) Restructuring and other items: Adjustments for restructuring and severance costs, certain unusual items, and certain transaction related costs, when applicable. Amounts in the three and six months ended September 30, 2015 represent pension withdrawal costs of $2.7 million related to an underfunded multi-employer pension plan and professional fees associated with certain strategic transactions. Amounts in the six months ended September 30, 2014 primarily represent severance costs associated with the integration of the marketing operations of the Company's Lionsgate and Summit film labels and costs related to the move of our international sales and distribution organization to the United Kingdom. A portion of these costs are non-cash charges resulting from the acceleration of vesting of stock awards.
(3) Start-up losses of new business initiatives: Adjustments for losses associated with the Company's direct to consumer initiatives including subscription video-on-demand platforms and Atom Tickets, a theatrical movie discovery service.
(4) Backstopped prints and advertising expense: This adjusts income (loss) before income taxes and net income (loss) to eliminate the amount of theatrical marketing expense for third party titles that the Company funded and expensed for which a third party provides a first dollar loss guarantee (subject to a cap) that such expense will be recouped from the performance of the film (which results in minimal risk of loss to the company). The amount represents the P&A expense incurred net of the impact of expensing the P&A cost over the revenue streams similar to a participation expense (i.e. the P&A under these arrangements are being expensed similar to a participation cost for purposes of the adjusted measure). The amount is subtracted in the three and six months ended September 30, 2015 because there was no additional backstopped P&A expense incurred in the period and the amount represents the estimated amortization of the amounts previously added back.
(5) Loss on extinguishment of debt: This adjusts income before income taxes and net income to eliminate the loss on extinguishment of debt.
We believe that these non-GAAP measures provide useful information to investors regarding the Company's results as compared to historical periods. The Company uses these measures, among other measures, to evaluate the operating performance of the Company. The Company believes that the adjusted results provide relevant and useful information for investors because they clarify the Company's actual operating performance and allow investors to review our operating performance in the same way as our management. Since these measures are not calculated in accordance with generally accepted accounting principles, they should not be considered in isolation of, or as a substitute for income (loss) before income taxes, net income (loss), basic and diluted EPS. Not all companies calculate adjusted income (loss) before income taxes, adjusted net income (loss), and adjusted basic and diluted EPS in the same manner and the measures as presented may not be comparable to similarly titled measures presented by other companies.
10