STRZ

Business Context and Reporting Period

This summary covers the Form 10-Q filed by Lions Gate Entertainment Corp. (Note: The input metadata referenced "STARZ ENTERTAINMENT CORP," but the filing text explicitly identifies the registrant as Lions Gate Entertainment Corp.) for the quarterly period ended June 30, 2009. The Company is a diversified entertainment studio engaged in the production and distribution of motion pictures, television programming, and home entertainment. Key strategic developments during the period included the acquisition of TV Guide Network in February 2009 and the subsequent sale of a 49% noncontrolling interest in that entity to One Equity Partners in May 2009.

Key Financial Metrics

Note: Total Debt figure combines Bank Loans ($255.0M) and Subordinated Notes/Other Financing Obligations ($262.2M). Q2 2008 cash balance is provided for comparison of liquidity position.

Material Changes vs. Prior Period

• Revenue Growth: Consolidated revenues increased 29.9% to $387.7 million, driven primarily by the inclusion of the Media Networks segment (TV Guide Network) which contributed $27.8 million, and a 112.2% increase in Television Production revenues to $87.2 million.
• Profitability Surge: Net income attributable to shareholders jumped from $3.5 million to $36.3 million. This was significantly aided by a $7.5 million gain on extinguishment of debt resulting from the refinancing of $66.6 million of 3.625% convertible notes in April 2009.
• Segment Performance: Motion Pictures revenue grew 5.9% to $272.7 million, largely due to Mandate Pictures revenue ($53.1 million vs. $8.5 million prior year). However, theatrical revenue declined 25.6% and home entertainment revenue declined 7.2%.
• Expense Increases: Direct operating expenses rose to $213.1 million (from $147.7 million), primarily due to higher amortization of films and television programs ($153.9 million vs. $69.0 million). Depreciation and amortization expenses increased to $8.2 million from $1.4 million due to the TV Guide Network acquisition.

Guidance, Outlook, and Risks

• Outlook: Management intends to release approximately 10 to 12 motion pictures theatrically and produce approximately 70 hours of television programming in fiscal 2010. The Company expects to fund operations through cash flow, credit facilities, and production financing.
• Liquidity: As of June 30, 2009, the Company had $114.7 million in cash and cash equivalents. Under its $340 million credit facility, $255 million was drawn, leaving $62.3 million available. The Company also has $123.1 million available under a slate participation agreement with Societe Generale de Financement du Quebec.
• Debt Refinancing: The Company successfully exchanged $66.6 million of February 2005 notes for new April 2009 notes, extending maturities and generating a gain. The Company holds significant subordinated notes maturing between 2012 and 2025.
• Risks: Key risks include the unpredictability of commercial success for films, budget overruns, and the substantial capital required for production. The Company terminated its theatrical slate participation arrangement with Pride Pictures in May 2009 due to funding disputes, though management does not believe this will have a material adverse effect.
• Contingencies: The Company is involved in various legal proceedings but does not believe any will have a material adverse effect. Significant future commitments include $305.7 million in contractual obligations due in fiscal 2010.

Investor Verification Checklist

• Debt Structure: Verify the terms and conversion prices of the new April 2009 3.625% Notes and the remaining February 2005 and October 2004 notes, particularly regarding potential dilution.
• TV Guide Network Integration: Assess the performance of the Media Networks segment and the impact of the 49% noncontrolling interest sale on future cash flows and consolidation requirements.
• Content Slate Performance: Monitor the box office and home entertainment performance of key titles (e.g., Crank: High Voltage, The Haunting in Connecticut) to validate revenue forecasts for the remainder of fiscal 2010.
• Amortization Rates: Review the Company's estimates for ultimate revenue on film and television programs, as changes in these estimates significantly impact amortization expenses and net income.
• Liquidity Covenants: Confirm compliance with financial covenants under the $340 million credit facility, especially given the high level of production obligations and debt service requirements.