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Business Context and Reporting Period

Company: Lions Gate Entertainment Corp. (Note: The input metadata references "STARZ ENTERTAINMENT CORP," but the filing text is explicitly for Lions Gate Entertainment Corp.)
Filing Type: Form 10-K (Annual Report)
Period Ended: March 31, 2009
Overview: Lions Gate is a diversified entertainment studio engaged in the production and distribution of motion pictures, television programming, home entertainment, and digital content. The company operates through three primary segments: Motion Pictures, Television Production, and Media Networks (acquired in February 2009).

Key Financial Metrics

Note: The company reported a net loss for fiscal 2009, resulting in a shareholders' equity deficiency. The increase in debt is primarily due to a $255 million drawdown on the revolving credit facility.

Material Changes vs. Prior Period

• Profitability Decline: The company shifted from a net loss of $74.0 million in 2008 to $163.0 million in 2009. Operating loss widened significantly from $60.1 million to $141.2 million.
• Revenue Growth: Total revenues increased 7.7% to $1.47 billion, driven by a 16.5% increase in theatrical revenue and a 47.4% increase in television revenue within the Motion Pictures segment.
• Acquisition of TV Guide Network: In February 2009, the company acquired TV Guide Network for approximately $241.6 million. This added a new "Media Networks" segment, contributing $10.3 million in revenue for the period from acquisition to year-end.
• Increased Leverage: Bank loans increased from $0 to $255 million as the company utilized its $340 million credit facility. Total liabilities increased from $1.35 billion to $1.68 billion.
• Write-downs: Investment in film write-downs totaled approximately $37.3 million in 2009, compared to $23.7 million in 2008, due to lower-than-anticipated performance of certain titles.

Guidance, Outlook, and Risks

Management Commentary & Outlook:

• Production Slate: The company intends to release approximately 10 to 12 motion pictures theatrically in fiscal 2010 (down from 18-20 in prior years) and produce approximately 70 hours of television programming.
• TV Guide Network: On May 28, 2009 (post-fiscal year), the company sold a 49% interest in TV Guide Network to One Equity Partners for approximately $123 million in cash.
• Debt Refinancing: In April 2009, the company exchanged approximately $66.6 million of existing convertible notes for new notes with a lower conversion price ($8.25 vs. $14.28).

• Profitability: The company has reported net losses in fiscal 2004, 2008, and 2009. Future profitability is not assured, and the company may be unable to meet debt service requirements.
• Liquidity and Debt Covenants: The company is highly leveraged. Its $340 million credit facility contains restrictive covenants. A "change in control" (acquisition of >20% of stock) could trigger an event of default.
• Customer Concentration: Wal-Mart accounted for approximately 17% of total revenues in fiscal 2009. The loss of this customer could have a material adverse effect.
• Content Performance: Revenues are highly dependent on the commercial success of individual films and TV shows, which is unpredictable. Budget overruns and piracy are also cited as significant risks.

Investor Verification Checklist

• Debt Service Capacity: Verify the company's ability to service $586.7 million in debt obligations given the current operating loss and cash burn.
• TV Guide Network Integration: Assess the financial impact of the 49% sale of TV Guide Network and the resulting minority interest accounting.
• Content Slate Performance: Monitor the box office and ancillary performance of the fiscal 2010 theatrical slate (e.g., Saw VI, Precious, Brothers) to validate revenue forecasts.
• Customer Concentration: Review the stability of the relationship with Wal-Mart, which represents a significant portion of home entertainment revenue.
• Equity Deficiency: Understand the implications of the negative shareholders' equity position and the potential need for additional capital raising.