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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x Quarterly report pursuant to section 13 or 15(d)
of the Securities and Exchange Act of 1934

For the quarterly period ended December 31, 2002

or

o Transition report pursuant to section 13 or 15(d)
of the Securities and Exchange Act of 1934

For the transition period from                      to

Commission File No. 1-14880

LIONS GATE ENTERTAINMENT CORP.
(Exact name of registrant as specified in its charter)

Suite 3123, Three Bentall Centre

595 Burrard Street

Vancouver, British Columbia V7X 1J1

(Address of principal executive offices, zip code)

Registrant’s telephone number, including area code: (604) 609-6100

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    No _______

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes    No _______

     As of February 7, 2003, 43,207,399 shares of the registrant’s no par value common stock were outstanding.

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     Unless the context indicates otherwise, all references herein to “Lions Gate,” “the Company,” “we,” “us,” and “our” refer collectively to Lions Gate Entertainment Corp. and its subsidiaries.

     This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that can be identified by the use of forward-looking terminology such as “may,” “will,” “intend,” “believes,” “expect,” “could” or “continue” or the negative thereof or other variations thereon or comparable terminology. These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause our actual results to be materially different from any future results expressed or implied by us in those statements. The most important factors that could prevent us from achieving our stated goals include, but are not limited to, the following:

	•		any inability to manage our growth or obtain financing to support our operations;
	•		the unpredictability of commercial success of films and television programs which may result in significant write-downs affecting our results of operations and financial condition;
	•		dependence on third party financing, government incentive programs and German tax shelter arrangements that could be reduced, amended or eliminated;
	•		actual production costs exceeding budgets due to circumstances beyond our control;
	•		operating results fluctuating materially from period-to-period;
	•		interest rate changes; and
	•		fluctuating currency rates.

     Because these statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward looking statements. We caution you not to place undue reliance on the statements, which speak only as of the date of this report. We do not undertake any obligation to release publicly any revision to any forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events. For a further discussion of the risks and uncertainties see the Risk Factors section of our Annual Report on Form 10-K.

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PART I

Item 1. Financial Statements.

LIONS GATE ENTERTAINMENT CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS

(All amounts in thousands of United States dollars)

See accompanying notes.

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LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands of United States dollars, except per share amounts)

See accompanying notes.

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LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(All amounts in thousands of United States dollars, except share amounts)

See accompanying notes.

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LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands of United States dollars)

See accompanying notes.

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Lions Gate Entertainment Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

1.     Nature of Operations

     Lions Gate Entertainment Corp. (“the Company” or “Lions Gate”) is a fully integrated entertainment company engaged in the development, production and distribution of feature films, television series, television movies and mini-series, non-fiction programming and animated programming, as well as the management of Canadian-based studio facilities. As an independent distribution company, the Company also acquires distribution rights from a wide variety of studios, production companies and independent producers.

2.     Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements include the accounts of Lions Gate and all of its majority-owned and controlled subsidiaries, with a provision for minority interests. The Company controls a subsidiary company through a combination of existing voting interests and an ability to exercise various rights under certain shareholder agreements and debentures to acquire common shares.

     These unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in Canada (“Canadian GAAP”) which conforms, in all material respects, with the accounting principles generally accepted in the United States (“U.S. GAAP”), except as described in note 12, for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by Canadian or U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been reflected in these condensed consolidated financial statements. Operating results for the quarter are not necessarily indicative of the results that may be expected for the year ending March 31, 2003. Certain reclassifications have been made in the fiscal 2002 financial statements to conform to the fiscal 2003 presentation. For further information, refer to the consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K for the year ended March 31, 2002.

     The balance sheet at March 31, 2002 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.

     Commencing in the quarter ended June 30, 2002 and going forward, our audited condensed consolidated financial statements are, and will be, presented in U.S. dollars as a substantial component of our operations are domiciled in the U.S. and the dominant market for trading volume of our common stock is on the American Stock Exchange.

3.     Accounting Changes

     Goodwill-

     The Company elected to early-adopt the Canadian Institute of Chartered Accountants Section 3062 (“CICA 3062”) on April 1, 2001. Under CICA 3062, goodwill is no longer amortized but is reviewed annually, or more frequently if impairment indicators arise, for impairment, unless certain criteria have been met, and is similar, in many respects, to Statement of Financial Accounting Standards (“SFAS”) 142, “Goodwill and Other Intangible Assets”, under U.S. GAAP. In accordance with the

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adoption provisions of CICA 3062, goodwill is required to be tested for impairment on the date of adoption. Under SFAS 142 goodwill is required to be tested for impairment within six months of adoption, as of the beginning of the year. At April 1, 2001 and September 30, 2001, it was determined that the fair value of each of the reporting units was in excess of its carrying value including goodwill and, therefore, no further work was required and an impairment loss was not required. Goodwill is required to be tested for impairment between the annual tests if an event occurs or circumstances change that more-likely-than-not reduce the fair value of a reporting unit below its carrying value.

     Derivative Instruments and Hedging Activities-

     On April 1, 2001, the Company adopted SFAS 133 “Accounting for Derivative Instruments and Hedging Activities”, as amended in June 2000 by SFAS 138 “Accounting for Certain Derivative Instruments and Certain Hedging Activities”, where the provisions of SFAS 133 were applicable under Canadian GAAP, which requires companies to recognize all derivatives as either assets or liabilities in the balance sheet and measure such instruments at fair value. The adoption of these standards did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

4.     Investment in Films and Television Programs

(all amounts in thousands of U.S. dollars)

     The Company expects that approximately 44% of completed films and television programs, net of accumulated amortization, will be amortized during the one-year period ending December 31, 2003, and approximately 47% of accrued participants’ share will be paid during the one-year period ending December 31, 2003.

     Additionally, the Company expects approximately 84% of completed and released films and television programs, net of accumulated amortization, will be amortized over the three-year period ending December 31, 2005.

     The acquired library is being amortized using the straight-line method over a period of twenty years from the acquisition date. The remaining amortization period is 17.75 years at December 31, 2002 on the unamortized costs of $37.7 million.

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5. Discontinued Operation

     Mandalay Pictures, LLC (“Mandalay”) develops and produces large budget, class-A feature films. Effective April 1, 2002, the carrying value of the Company’s investment in Mandalay was presented as a discontinued operation as it was expected to be sold by the end of the current fiscal year. During the period, the Company received distributions of $2.5 million from Mandalay under a prior agreement. On November 8, 2002, the Company sold its investment in Mandalay for cash of $4.2 million and an interest bearing convertible promissory note totaling $3.3 million. The note, bearing interest at 6%, is payable $1.3 million on December 31, 2005, $1.0 million on December 31, 2006 and $1.0 million on December 31, 2007. No gain or loss was recorded on the sale as the Company’s carrying value of $7.5 million equaled the sales price. At December 31, 2002 the note is included in Other assets in the accompanying Condensed Consolidated Balance Sheet.

6. Bank Loans

     The Company has a $175.0 million U.S. dollar-denominated revolving credit facility, a $25.0 million Canadian dollar-denominated revolving credit facility, a Cdn$2.0 million ($1.3 million) operating line of credit and Cdn$5.0 million ($3.2 million) in demand loans.

     The availability of funds under the revolving credit facilities is limited by the borrowing base, which is calculated on a monthly basis. The borrowing base assets at December 31, 2002 totaled $156.6 million (March 31, 2002 —$152.1 million). The revolving credit facility has an average variable interest rate of U.S. prime minus 0.05% on principal of $113.1 million and an average variable interest rate of Canadian prime plus 0.9% on principal of $14.0 million. The operating line of credit bears interest at Canadian prime plus 1% and the demand loans at Canadian prime plus 0% — 4%. The Company is required to pay a monthly commitment fee of 0.375% on the total revolving credit facilities of $200.0 million less the amount drawn.

7. Gain on Dilution

     On July 10, 2001 a third party invested Cdn$14.0 million ($9.2 million) in the Company’s animation partner to obtain a 35% interest. The gain on dilution of the Company’s investment was Cdn$3.4 million, net of income taxes of $nil ($2.2 million, net of income taxes of $nil) and resulted in a decrease of Cdn$0.2 million ($0.1 million) in goodwill.

8. Income (Loss) per Share

     Basic income (loss) per share is calculated after adjusting net income (loss) for dividends and accretion on the preferred shares and using the weighted average number of common shares outstanding during the three and nine months ended December 31, 2002 of 43,232,000 shares and 43,232,000 shares, respectively (December 31, 2001 — 42,976,000 shares and 42,611,000 shares respectively). The exercise of common share equivalents including employee stock options, share purchase warrants, convertible promissory notes and Series A preferred shares could potentially dilute earnings per share in the future, but were not reflected in fully diluted income per share because to do so would be anti-dilutive.

9. Segmented Information

     SFAS 131 “Disclosures about Segments of an Enterprise and Related Information” requires the Company to make certain disclosures about each reportable segment. The Company has five reportable business segments: Motion Pictures; Television; Animation; Studio Facilities; and CineGate. The

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Company’s reportable business segments are strategic business units that offer different products and services, and are managed separately.

     Motion Pictures consists of the development and production of feature films, acquisition of North American and worldwide distribution rights, North American theatrical, video and television distribution of feature films produced and acquired and worldwide licensing of distribution rights to feature films produced and acquired.

     Television consists of the development, production and worldwide distribution of television productions including television series, television movies and mini-series and non-fiction programming.

     Animation consists of the development, production and worldwide distribution of animated and live action television series, television movies and feature films.

     Studio Facilities consists of management of an eight-soundstage studio facility in Vancouver, Canada. Rental revenue is earned from soundstages, office and other services such as furniture, telephones and lighting equipment to tenants that produce or support the production of feature films, television series, movies and commercials. Tenancies vary from a few days to five years depending on the nature of the project and the tenant.

     CineGate provides management services to Canadian limited partnerships, including accessing tax credits to finance production in Canada. CineGate ceased operations in fiscal 2002 upon the rescission of the tax shelter business by the Canadian government.

     Segmented information by business is as follows:

(all amounts in thousands of U.S. dollars)

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     The reconciliation of total segment profit to the Company’s income before income taxes and discontinued operations is as follows:

(all amounts in thousands of U.S. dollars)