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| 8-K - FORM 8-K - LIONS GATE ENTERTAINMENT CORP /CN/ | a8-kq3f2013earningsrelease.htm |
Exhibit 99.1
LIONSGATE REPORTS REVENUE OF $743.6 MILLION, EBITDA OF $66.2 MILLION, ADJUSTED EBITDA OF $87.2 MILLION AND NET INCOME OF $37.8 MILLION OR $0.28 PER BASIC SHARE IN THE THIRD QUARTER OF FISCAL 2013
Third Quarter Results Driven By Domestic Theatrical Releases of THE TWILIGHT SAGA: BREAKING DAWN - PART 2 And Other Films As Well As Home Entertainment And International Operations
Company Reports $125.2 Million In Free Cash Flow In The Third Quarter
SANTA MONICA, CA, and VANCOUVER, BC, February 11, 2013 - Lionsgate (NYSE: LGF) today reported revenue of $743.6 million, EBITDA of $66.2 million, adjusted EBITDA of $87.2 million and net income of $37.8 million or $0.28 per basic share for the third quarter of Fiscal 2013 (quarter ended December 31, 2012).
Revenue of $743.6 million in the third quarter increased by 130% compared to $323.0 million in the prior year quarter, driven by the domestic theatrical box office performance of THE TWILIGHT SAGA: BREAKING DAWN - PART 2 and several other films, continued strong home entertainment and international revenue and increased pay television revenue.
EBITDA of $66.2 million and adjusted EBITDA of $87.2 million in the third quarter compared to EBITDA of $16.6 million and adjusted EBITDA of $27.3 million in the prior year quarter.
Net income of $37.8 million in the third quarter compared to net loss of $(1.4) million in the prior year quarter. The Company noted that, excluding the $14.7 million noncash expense for extinguishment of debt related to the early payment of the balance of the Summit term loan, net income as adjusted was $52.4 million or $0.39 per basic share.
Profitability and EBITDA growth in the third quarter compared to the prior year quarter was attributable to strong performances of the Company's theatrical, home entertainment and international businesses which more than offset increased marketing costs for a larger slate of films.
Basic net income per common share for the third quarter was $0.28 on 135.0 million weighted average common shares outstanding, compared to basic net loss per common share of $(0.01) on 126.5 million weighted average common shares outstanding in the prior year quarter.
The Company reported $125.2 million in free cash flow in the third quarter compared to free cash flow of negative $(37.0) million in the prior year quarter.
Revenue for the nine months ended December 31, 2012 was $1.92 billion compared to $942.4 million in the prior year nine-month period. EBITDA of $156.9 million and adjusted EBITDA of $214.1 million for the nine-month period compared to EBITDA of $38.4 million and adjusted EBITDA of $41.5 million for the prior year nine-month period.
Net income of $69.2 million or $0.52 basic net income per common share for the nine months ended December 31, 2012 compared to net loss of $(16.4) million or $(0.12) basic net loss per common share for the prior year nine-month period.
Lionsgate's filmed entertainment backlog, or already contracted future revenue not yet recorded, was $1.2 billion at December 31, 2012.
“The quarter reflected not only the impact of our young adult franchises but strong contributions from the rest of our theatrical releases and our home entertainment and international operations,” said Lionsgate Chief Executive Officer Jon Feltheimer. “Our revenue growth compared to the prior year quarter was matched by continued strong EBITDA and free cash flow that will enable us to continue our focus on optimizing our capital structure and deleveraging our balance sheet.”
Overall motion picture revenue for the third quarter was $673.5 million, an increase of 189% from the prior year quarter reflecting strong gains in most categories. Within the motion picture segment, theatrical revenue in the quarter was $192.9 million compared to $8.4 million in the prior year quarter, an increase attributable to the box office performance of THE TWILIGHT SAGA: BREAKING DAWN - PART 2, SINISTER, THE IMPOSSIBLE and several other titles. The TWILIGHT SAGA BREAKING DAWN - PART 2 will have a March 2, 2013 home entertainment release.
Lionsgate's home entertainment revenue from both motion pictures and television was $233.0 million in the third quarter, a 43% increase from the prior year quarter driven by a diverse mix of titles including THE EXPENDABLES 2, STEP UP REVOLUTION, MADEA'S WITNESS PROTECTION, CABIN IN THE WOODS, WHAT TO EXPECT WHEN YOU'RE EXPECTING, ARBITRAGE and continued revenue from THE HUNGER GAMES, released on DVD and digital in August.
Television revenue included in motion picture revenue was $98.8 million in the third quarter, a fourfold increase from the prior year quarter driven by contributions from THE HUNGER GAMES, THE TWILIGHT SAGA: BREAKING DAWN - PART 1 and GOOD DEEDS.
International motion picture revenue of $89.5 million (excluding Lionsgate U.K.) for the third quarter increased six times over from the prior year quarter driven by the strong international theatrical performances of THE TWILIGHT SAGA: BREAKING DAWN - PART 2 and STEP UP REVOLUTION.
Lionsgate U.K. revenue was $36.6 million, an increase of 120% from the prior year quarter, on the strength of a diversified theatrical slate driven by THE EXPENDABLES 2 and WHAT TO EXPECT WHEN YOU'RE EXPECTING, Lionsgate U.K. and third-party titles MAGIC MIKE and KEITH LEMON: THE FILM and the continued strong performance of THE HUNGER GAMES.
Television production revenue was $70.1 million in the third quarter, a decline of 22% compared to the prior year quarter, as strong international sales of ANGER MANAGEMENT, MAD MEN Seasons 3, 4 and 5 and WEEDS Season 8 were offset by revenue declines in domestic series licensing due to timing.
Lionsgate senior management will hold its analyst and investor conference call to discuss its third quarter fiscal 2013 results at 9:00 A.M. ET/6:00 A.M. PT on Tuesday, February 12, 2013. Interested parties may participate live in the conference call by calling 1-800-230-1074 (612-234-9959 outside the U.S. and Canada). A full digital replay will be available from Tuesday morning, February 12, through Tuesday, February 19, by dialing 1-800-475-6701 (320-365-3844 outside the U.S. and Canada) and using access code 279710.
ABOUT LIONSGATE:
Lionsgate is a leading global entertainment company with a strong and diversified presence in motion picture production and distribution, television programming and syndication, home entertainment, family entertainment, digital distribution, new channel platforms and international distribution and sales. The Company has built a strong television presence in production of primetime cable and broadcast network series, distribution and syndication of programming and an array of channel assets. Lionsgate currently has 26 shows on 19 networks spanning its primetime production, distribution and syndication businesses, including the multiple Emmy Award-winning Mad Men, the critically acclaimed series Weeds, Nurse Jackie, Anger Management, which has been picked up for
another 90 episodes by FX, the network series Nashville, the syndication successes Tyler Perry's House of Payne, its spinoff Meet the Browns, For Better Or Worse, The Wendy Williams Show, Are We There Yet? and the upcoming Orange Is The New Black, an original series for Netflix.
Its feature film business has been fueled by such recent successes as the blockbuster first installment of The Hunger Games franchise, the 13th highest-grossing domestic release of all time, The Twilight Saga Breaking Dawn - Part 2, which has grossed more than $800 million at the worldwide box office, Warm Bodies, Texas Chainsaw 3D, The Possession, Sinister, The Expendables 2, Cabin in the Woods, Tyler Perry's Madea's Witness Protection and Arbitrage. With the January 2012 acquisition of Summit Entertainment, the Company has now added the blockbuster Twilight Saga, which has grossed more than $3.3 billion at the worldwide box office, to its current slate, giving the Company the two premier young adult franchises in the world.
Lionsgate's home entertainment business is an industry leader in box office-to-DVD and box office-to-VOD revenue conversion rate. Lionsgate handles a prestigious and prolific library of approximately 15,000 motion 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
pwilkes@lionsgate.com
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 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (the “SEC”) on May 30, 2012,as amended, 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.
LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2012 | March 31, 2012 | ||||||
(Amounts in thousands, except share amounts) | |||||||
ASSETS | |||||||
Cash and cash equivalents | $ | 48,188 | $ | 64,298 | |||
Restricted cash | 16,581 | 11,936 | |||||
Accounts receivable, net of reserves for returns and allowances of $94,449 (March 31, 2012 - $93,860) and provision for doubtful accounts of $5,582 (March 31, 2012 - $4,551) | 656,862 | 784,530 | |||||
Investment in films and television programs, net | 1,367,302 | 1,329,053 | |||||
Property and equipment, net | 9,092 | 9,772 | |||||
Equity method investments | 169,094 | 171,262 | |||||
Goodwill | 323,328 | 326,633 | |||||
Other assets | 82,279 | 90,511 | |||||
Total assets | $ | 2,672,726 | $ | 2,787,995 | |||
LIABILITIES | |||||||
Senior revolving credit facility | $ | 446,474 | $ | 99,750 | |||
Senior secured second-priority notes | 432,076 | 431,510 | |||||
Term loan | — | 477,514 | |||||
Accounts payable and accrued liabilities | 329,104 | 371,092 | |||||
Participations and residuals | 404,309 | 420,325 | |||||
Film obligations and production loans | 487,898 | 561,150 | |||||
Convertible senior subordinated notes and other financing obligations | 85,958 | 108,276 | |||||
Deferred revenue | 294,418 | 228,593 | |||||
Total liabilities | 2,480,237 | 2,698,210 | |||||
Commitments and contingencies | |||||||
SHAREHOLDERS’ EQUITY | |||||||
Common shares, no par value, 500,000,000 shares authorized, 135,164,345 and 143,980,754 shares issued at December 31, 2012 and March 31, 2012, respectively | 667,255 | 712,623 | |||||
Accumulated deficit | (472,880 | ) | (542,039 | ) | |||
Accumulated other comprehensive loss | (1,886 | ) | (3,711 | ) | |||
192,489 | 166,873 | ||||||
Treasury shares, no par value, 11,040,493 shares at March 31, 2012 | — | (77,088 | ) | ||||
Total shareholders’ equity | 192,489 | 89,785 | |||||
Total liabilities and shareholders’ equity | $ | 2,672,726 | $ | 2,787,995 | |||
LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | ||||||||||||
December 31, 2012 | December 31, 2011 | December 31, 2012 | December 31, 2011 | ||||||||||||
As adjusted (Note 1) | As adjusted (Note 1) | ||||||||||||||
(Amounts in thousands, except per share amounts) | |||||||||||||||
Revenues | $ | 743,645 | $ | 323,026 | $ | 1,922,433 | $ | 942,366 | |||||||
Expenses: | |||||||||||||||
Direct operating | 402,334 | 201,957 | 971,382 | 547,659 | |||||||||||
Distribution and marketing | 210,053 | 72,806 | 625,204 | 279,194 | |||||||||||
General and administration | 46,900 | 35,801 | 143,274 | 93,151 | |||||||||||
Gain on sale of asset disposal group | — | — | — | (10,967 | ) | ||||||||||
Depreciation and amortization | 2,020 | 688 | 6,240 | 2,603 | |||||||||||
Total expenses | 661,307 | 311,252 | 1,746,100 | 911,640 | |||||||||||
Operating income | 82,338 | 11,774 | 176,333 | 30,726 | |||||||||||
Other expenses (income): | |||||||||||||||
Interest expense | |||||||||||||||
Contractual cash based interest | 18,166 | 14,468 | 59,802 | 40,343 | |||||||||||
Amortization of debt discount (premium) and deferred financing costs | 4,608 | 2,767 | 13,747 | 10,796 | |||||||||||
Total interest expense | 22,774 | 17,235 | 73,549 | 51,139 | |||||||||||
Interest and other income | (1,079 | ) | (490 | ) | (3,058 | ) | (1,860 | ) | |||||||
Loss on extinguishment of debt | 14,652 | — | 23,811 | 967 | |||||||||||
Total other expenses, net | 36,347 | 16,745 | 94,302 | 50,246 | |||||||||||
Income (loss) before equity interests and income taxes | 45,991 | (4,971 | ) | 82,031 | (19,520 | ) | |||||||||
Equity interests income (loss) | (3,512 | ) | 4,156 | (1,902 | ) | 6,005 | |||||||||
Income (loss) before income taxes | 42,479 | (815 | ) | 80,129 | (13,515 | ) | |||||||||
Income tax provision | 4,649 | 585 | 10,970 | 2,857 | |||||||||||
Net income (loss) | $ | 37,830 | $ | (1,400 | ) | $ | 69,159 | $ | (16,372 | ) | |||||
Basic Net Income (Loss) Per Common Share | $ | 0.28 | $ | (0.01 | ) | $ | 0.52 | $ | (0.12 | ) | |||||
Diluted Net Income (Loss) Per Common Share | $ | 0.27 | $ | (0.01 | ) | $ | 0.51 | $ | (0.12 | ) | |||||
Weighted average number of common shares outstanding: | |||||||||||||||
Basic | 135,030 | 126,451 | 134,222 | 132,389 | |||||||||||
Diluted | 149,807 | 126,451 | 136,735 | 132,389 | |||||||||||
________________________________
(1) | In the quarter ended March 31, 2012, the Company eliminated the lag in recording its share of EPIX’s results. Due to the elimination of the lag in recording the Company’s share of EPIX’s results, prior period amounts presented have been adjusted to eliminate the lag in reporting. The elimination of the lag in reporting of EPIX decreased net loss for the three months ended December 31, 2011 by $0.3 million and increased the net loss for the nine months ended December 31, 2011 by $2.3 million. |
LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | ||||||||||||
December 31, 2012 | December 31, 2011 | December 31, 2012 | December 31, 2011 | ||||||||||||
As adjusted (1) | As adjusted (1) | ||||||||||||||
(Amounts in thousands) | |||||||||||||||
Net income (loss) | $ | 37,830 | $ | (1,400 | ) | $ | 69,159 | $ | (16,372 | ) | |||||
Foreign currency translation adjustments | 657 | 106 | 1,735 | (4,253 | ) | ||||||||||
Net unrealized gain (loss) on foreign exchange contracts | 107 | (188 | ) | 90 | 474 | ||||||||||
Comprehensive income (loss) | $ | 38,594 | $ | (1,482 | ) | $ | 70,984 | $ | (20,151 | ) | |||||
________________________________
(1) | See footnote on Unaudited Condensed Consolidated Statements of Operations table |
LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | ||||||||||||
December 31, 2012 | December 31, 2011 | December 31, 2012 | December 31, 2011 | ||||||||||||
As adjusted (1) | As adjusted (1) | ||||||||||||||
(Amounts in thousands) | |||||||||||||||
Operating Activities: | |||||||||||||||
Net income (loss) | $ | 37,830 | $ | (1,400 | ) | $ | 69,159 | $ | (16,372 | ) | |||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||||||||||
Depreciation of property and equipment | 743 | 618 | 2,268 | 2,383 | |||||||||||
Amortization of intangible assets | 1,277 | 70 | 3,972 | 220 | |||||||||||
Amortization of films and television programs | 264,211 | 135,997 | 658,875 | 355,211 | |||||||||||
Amortization of debt discount (premium) and deferred financing costs | 4,608 | 2,767 | 13,747 | 10,796 | |||||||||||
Non-cash stock-based compensation | 5,967 | 2,797 | 16,884 | 7,599 | |||||||||||
Gain on sale of asset disposal group | — | — | — | (10,967 | ) | ||||||||||
Loss on extinguishment of debt | 14,652 | — | 23,811 | 967 | |||||||||||
Equity interests (income) loss | 3,512 | (4,156 | ) | 1,902 | (6,005 | ) | |||||||||
Changes in operating assets and liabilities: | |||||||||||||||
Restricted cash | 2,822 | (6,003 | ) | 8,124 | 17,993 | ||||||||||
Accounts receivable, net | 44,291 | (33,547 | ) | 128,317 | (56,928 | ) | |||||||||
Investment in films and television programs | (280,755 | ) | (118,422 | ) | (703,875 | ) | (551,806 | ) | |||||||
Other assets | (6,406 | ) | 176 | (7,950 | ) | 1,698 | |||||||||
Accounts payable and accrued liabilities | (41,140 | ) | (67,192 | ) | (38,991 | ) | (51,767 | ) | |||||||
Participations and residuals | (11,568 | ) | (28,172 | ) | (12,583 | ) | (15,841 | ) | |||||||
Film obligations | 114 | 41,393 | (13,706 | ) | 52,391 | ||||||||||
Deferred revenue | 35,966 | 3,784 | 68,305 | 48,576 | |||||||||||
Net Cash Flows Provided By (Used In) Operating Activities | 76,124 | (71,290 | ) | 218,259 | (211,852 | ) | |||||||||
Investing Activities: | |||||||||||||||
Purchases of investments | (2,022 | ) | — | (2,022 | ) | — | |||||||||
Proceeds from the sale of investments | 6,354 | — | 6,354 | — | |||||||||||
Proceeds from the sale of asset disposal group, net of transaction costs and cash disposed of $3,943 | — | — | — | 9,119 | |||||||||||
Investment in equity method investees | — | (202 | ) | — | (1,030 | ) | |||||||||
Increase in loans receivable | — | — | — | (1,500 | ) | ||||||||||
Repayment of loans receivable | — | — | 4,274 | — | |||||||||||
Purchases of property and equipment | (1,110 | ) | (296 | ) | (2,086 | ) | (1,549 | ) | |||||||
Net Cash Flows Provided By Investing Activities | 3,222 | (498 | ) | 6,520 | 5,040 | ||||||||||
Financing Activities: | |||||||||||||||
Exercise of stock options | 2,845 | 151 | 2,897 | 151 | |||||||||||
Tax withholding required on equity awards | (934 | ) | (698 | ) | (4,939 | ) | (2,630 | ) | |||||||
Repurchase of common shares | — | — | — | (77,088 | ) | ||||||||||
Senior revolving credit facility - borrowings | 423,500 | 110,000 | 1,104,924 | 263,650 | |||||||||||
Senior revolving credit facility - repayments | (245,750 | ) | (38,500 | ) | (758,200 | ) | (238,900 | ) | |||||||
Senior revolving credit facility - deferred financing costs | (606 | ) | — | (15,804 | ) | — | |||||||||
Individual production loans - borrowings | 150,182 | 63,278 | 259,130 | 198,148 | |||||||||||
Individual production loans - repayments | (99,618 | ) | (11,112 | ) | (282,548 | ) | (133,998 | ) | |||||||
Film credit facility - borrowings | 97 | 10,712 | 3,994 | 43,714 | |||||||||||
Film credit facility - repayments | — | (14,331 | ) | (39,055 | ) | (23,518 | ) | ||||||||
Pennsylvania Regional Center credit facility - repayments | (500 | ) | — | (500 | ) | — | |||||||||
Change in restricted cash collateral associated with financing activities | (12,769 | ) | 3,043 | (12,769 | ) | — | |||||||||
Term Loan - repayments | (299,160 | ) | (484,664 | ) | — | ||||||||||
Senior secured second-priority notes - consent fee | (3,270 | ) | — | (3,270 | ) | — | |||||||||
Senior secured second-priority notes - borrowings, net of deferred financing costs | — | — | — | 201,955 | |||||||||||
Senior secured second-priority notes - repurchases | — | — | — | (9,852 | ) | ||||||||||
Convertible senior subordinated notes - repurchases | — | (26,583 | ) | (7,639 | ) | (46,059 | ) | ||||||||
Other financing obligations - repayments | — | — | (3,710 | ) | — | ||||||||||
Net Cash Flows Provided By (Used In) Financing Activities | (85,983 | ) | 95,960 | (242,153 | ) | 175,573 | |||||||||
Net Change In Cash And Cash Equivalents | (6,637 | ) | 24,172 | (17,374 | ) | (31,239 | ) | ||||||||
Foreign Exchange Effects on Cash | 426 | (847 | ) | 1,264 | (2,329 | ) | |||||||||
Cash and Cash Equivalents - Beginning Of Period | 54,399 | 29,526 | 64,298 | 86,419 | |||||||||||
Cash and Cash Equivalents - End Of Period | $ | 48,188 | $ | 52,851 | $ | 48,188 | $ | 52,851 | |||||||
________________________________
(1) | See footnote on Unaudited Condensed Consolidated Statements of Operations table |
LIONS GATE ENTERTAINMENT CORP.
RECONCILIATION OF NET INCOME (LOSS) TO EBITDA AND EBITDA, AS ADJUSTED
Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | ||||||||||||
December 31, 2012 | December 31, 2011 | December 31, 2012 | December 31, 2011 | ||||||||||||
As adjusted (1) | As adjusted (1) | ||||||||||||||
(Amounts in thousands) | |||||||||||||||
Net income (loss) | $ | 37,830 | $ | (1,400 | ) | $ | 69,159 | $ | (16,372 | ) | |||||
Depreciation and amortization | 2,020 | 688 | 6,240 | 2,603 | |||||||||||
Contractual cash based interest | 18,166 | 14,468 | 59,802 | 40,343 | |||||||||||
Noncash interest expense | 4,608 | 2,767 | 13,747 | 10,796 | |||||||||||
Interest and other income | (1,079 | ) | (490 | ) | (3,058 | ) | (1,860 | ) | |||||||
Income tax provision | 4,649 | 585 | 10,970 | 2,857 | |||||||||||
EBITDA | $ | 66,194 | $ | 16,618 | $ | 156,860 | $ | 38,367 | |||||||
Gain on sale of asset disposal group | — | — | — | (10,967 | ) | ||||||||||
Loss on extinguishment of debt | 14,652 | — | 23,811 | 967 | |||||||||||
Stock-based compensation | 8,997 | 4,745 | 25,645 | 9,732 | |||||||||||
Acquisition related charges | — | 2,325 | 2,027 | 2,325 | |||||||||||
Corporate defense charges (2) | — | 3,091 | — | 1,044 | |||||||||||
Non-risk prints and advertising expense | (2,596 | ) | 569 | 5,709 | 78 | ||||||||||
EBITDA, as adjusted | $ | 87,247 | $ | 27,348 | $ | 214,052 | $ | 41,546 | |||||||
________________________________
(1) | See footnote on Unaudited Condensed Consolidated Statements of Operations table |
(2) | The nine months ended December 31, 2011 includes a benefit for charges associated with a shareholder activist matter of $2.0 million related to a negotiated settlement with a vendor of costs incurred and recorded in fiscal year 2011, and insurance recoveries of related litigation offset by other costs. |
EBITDA is defined as earnings before interest, income tax provision, and depreciation and amortization. EBITDA is a non-GAAP financial measure.
EBITDA, as adjusted represents EBITDA as defined above adjusted for a gain on sale of asset disposal group, loss on extinguishment of debt, stock-based compensation, acquisition related charges, certain corporate defense and related charges, and non-risk prints and advertising expense. Stock-based compensation represents compensation expenses associated with stock options, restricted share units and stock appreciation rights. Acquisition related charges represent severance and transaction costs associated with the acquisition of Summit. Corporate defense and related charges represent legal fees, other professional fees, and certain other costs associated with a shareholder activist matter. Non-risk prints and advertising expense represents the amount of theatrical marketing expense for third party titles that the Company funded and expensed for which a third party provides a guarantee that such expense will be recouped from the performance of the film (i.e. there is no risk of loss to the company) net of an amount of the estimated amortization of participation expense that would have been recorded if such amount had not been expensed. The amount is subtracted from EBITDA in the three months ended December 31, 2012 because there was no non-risk prints and advertising expense incurred and the amount represents the estimated amortization of participation expense that would have been recorded if such prior period amounts had not been expensed.
Management believes EBITDA and EBITDA, as adjusted to be a meaningful indicator of our performance that provides useful information to investors regarding our financial condition and results of operations. Presentation of EBITDA and EBITDA, as adjusted is a non-GAAP financial measure commonly used in the entertainment industry and by financial analysts and others who follow the industry to measure operating performance. While management considers EBITDA and EBITDA, as adjusted to be an important measure of comparative operating performance, it should be considered in addition to, but not as a substitute for, net income and other measures of financial performance reported in accordance with Generally Accepted Accounting Principles. EBITDA and EBITDA, as adjusted do not reflect cash available to fund cash requirements. Not all companies calculate EBITDA or EBITDA, as adjusted in the same manner and the measure as presented may not be comparable to similarly-titled measures presented by other companies.
LIONS GATE ENTERTAINMENT CORP.
RECONCILIATION OF FREE CASH FLOW TO NET CASH
FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | ||||||||||||
December 31, 2012 | December 31, 2011 | December 31, 2012 | December 31, 2011 | ||||||||||||
(Amounts in thousands) | |||||||||||||||
Net Cash Flows Provided By (Used In) Operating Activities | 76,124 | (71,290 | ) | 218,259 | (211,852 | ) | |||||||||
Purchases of property and equipment | (1,110 | ) | (296 | ) | (2,086 | ) | (1,549 | ) | |||||||
Net borrowings under and (repayment) of production loans | 50,161 | 48,547 | (58,979 | ) | 84,346 | ||||||||||
Restricted cash held in trust | — | (13,992 | ) | — | (13,992 | ) | |||||||||
Free Cash Flow, as defined | $ | 125,175 | $ | (37,031 | ) | $ | 157,194 | $ | (143,047 | ) | |||||
Free cash flow is defined as net cash flows provided by (used in) operating activities, less purchases of property and equipment, plus or minus the net increase or decrease in production loans including production loan activity under the Company’s Film Credit Facility, plus the decrease in restricted cash held in a trust for certain obligations until December 31, 2011. 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 associated with production loans prior to the time the Company actually pays for the film. The Company believes that it is more meaningful to reflect the impact of the payment for these films 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 Generally Accepted Accounting Principles.
Management believes 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) 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.
LIONS GATE ENTERTAINMENT CORP.
RECONCILIATION OF EBITDA TO FREE CASH FLOW
Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | ||||||||||||
December 31, 2012 | December 31, 2011 | December 31, 2012 | December 31, 2011 | ||||||||||||
As adjusted (1) | As adjusted (1) | ||||||||||||||
(Amounts in thousands) | |||||||||||||||
EBITDA | $ | 66,194 | $ | 16,618 | $ | 156,860 | $ | 38,367 | |||||||
Plus: Amortization of film and television programs | 264,211 | 135,997 | 658,875 | 355,211 | |||||||||||
Less: Cash paid for film and television programs (1) | (230,480 | ) | (28,482 | ) | (776,560 | ) | (415,069 | ) | |||||||
Amortization of film and television programs in excess of cash paid | 33,731 | 107,515 | (117,685 | ) | (59,858 | ) | |||||||||
Plus: Non-cash stock-based compensation | 5,967 | 2,797 | 16,884 | 7,599 | |||||||||||
Less: Gain on sale of asset disposal group | — | — | — | (10,967 | ) | ||||||||||
Plus: Equity interests (income) loss | 3,512 | (4,156 | ) | 1,902 | (6,005 | ) | |||||||||
Plus: Loss on extinguishment of debt | 14,652 | — | 23,811 | 967 | |||||||||||
EBITDA adjusted for net investment in film and television programs, non-cash stock-based compensation, equity interests loss, and loss on extinguishment of debt | 124,056 | 122,774 | 81,772 | (29,897 | ) | ||||||||||
Changes in other operating assets and liabilities: | |||||||||||||||
Restricted cash excluding funds held in trust | 2,822 | (19,995 | ) | 8,124 | 4,001 | ||||||||||
Accounts receivable, net | 44,291 | (33,547 | ) | 128,317 | (56,928 | ) | |||||||||
Other assets | (6,406 | ) | 176 | (7,950 | ) | 1,698 | |||||||||
Accounts payable and accrued liabilities | (41,140 | ) | (67,192 | ) | (38,991 | ) | (51,767 | ) | |||||||
Participations and residuals | (11,568 | ) | (28,172 | ) | (12,583 | ) | (15,841 | ) | |||||||
Deferred revenue | 35,966 | 3,784 | 68,305 | 48,576 | |||||||||||
23,965 | (144,946 | ) | 145,222 | (70,261 | ) | ||||||||||
Purchases of property and equipment | (1,110 | ) | (296 | ) | (2,086 | ) | (1,549 | ) | |||||||
Interest, taxes and other (2) | (21,736 | ) | (14,563 | ) | (67,714 | ) | (41,340 | ) | |||||||
Free Cash Flow, as defined | $ | 125,175 | $ | (37,031 | ) | $ | 157,194 | $ | (143,047 | ) | |||||
_________________________ | |||||||||||||||
(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 | (280,755 | ) | (118,422 | ) | (703,875 | ) | (551,806 | ) | |||||||
Change in film obligations | 114 | 41,393 | (13,706 | ) | 52,391 | ||||||||||
Borrowings under individual production loans | 150,182 | 63,278 | 259,130 | 198,148 | |||||||||||
Repayment of individual production loans | (99,618 | ) | (11,112 | ) | (282,548 | ) | (133,998 | ) | |||||||
Production loan repayments under Pennsylvania Regional Center credit facility | (500 | ) | — | (500 | ) | — | |||||||||
Production loan borrowings under film credit facility | 97 | 10,712 | 3,994 | 43,714 | |||||||||||
Production loan repayments under film credit facility | — | (14,331 | ) | (39,055 | ) | (23,518 | ) | ||||||||
Total cash paid for film and television programs | $ | (230,480 | ) | $ | (28,482 | ) | $ | (776,560 | ) | $ | (415,069 | ) | |||
_________________________ | |||||||||||||||
(2) Interest, taxes and other consists of the following: | |||||||||||||||
Contractual cash based interest | (18,166 | ) | (14,468 | ) | (59,802 | ) | (40,343 | ) | |||||||
Interest and other income | 1,079 | 490 | 3,058 | 1,860 | |||||||||||
Income tax provision | (4,649 | ) | (585 | ) | (10,970 | ) | (2,857 | ) | |||||||
Total interest, taxes and other | $ | (21,736 | ) | $ | (14,563 | ) | $ | (67,714 | ) | $ | (41,340 | ) | |||
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(1) | See footnote on Unaudited Condensed Consolidated Statements of Operations table |
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.
LIONS GATE ENTERTAINMENT CORP.
RECONCILIATION OF NET INCOME AND EARNINGS PER SHARE, AS REPORTED
TO NET INCOME AND EARNINGS PER SHARE, AS ADJUSTED
Three Months Ended | |||
December 31, 2012 | |||
(Amounts in thousands, except per share amounts) | |||
Net income, as reported | $ | 37,830 | |
Loss on extinguishment of debt | 14,652 | ||
Income tax effect of loss on extinguishment of debt | (108 | ) | |
Net income, as adjusted | $ | 52,374 | |
Basic Net Income Per Common Share, as reported | $ | 0.28 | |
Loss on extinguishment of debt per share, net of tax | 0.11 | ||
Basic Net Income Per Common Share, as adjusted | $ | 0.39 | |
Diluted Net Income Per Common Share, as reported | $ | 0.27 | |
Loss on extinguishment of debt per share, net of tax | 0.10 | ||
Diluted Net Income Per Common Share, as adjusted | $ | 0.37 | |
Weighted average number of common shares outstanding: | |||
Basic | 135,030 | ||
Diluted | 149,807 | ||
Net income, as adjusted is defined as net income, as reported, adjusted for the loss on early extinguishment of debt, net of tax. The adjustment for the loss on early extinguishment of debt, net of tax, reflects a non-cash charge associated with the early extinguishment of debt. Earnings per share, as adjusted is defined as net income, as adjusted per weighted average shares outstanding.
Management believes that these non-GAAP measures provide useful information to investors regarding our results before taking into account certain non-operating non-cash charges. Not all companies calculate net income, as adjusted in the same manner and the measure as presented may not be comparable to similarly titled measures presented by other companies.