United states securities and exchange commission


LIONS GATE ENTERTAINMENT CORP



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LIONS GATE ENTERTAINMENT CORP.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

traded options on the Company’s stock, historical volatility of the Company’s stock and other factors. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The weighted-average grant-date fair values for options granted during the year ended March 31, 2012 was $5.25 ( 2011 — nil , 2010 — $3.21 ). The following table represents the assumptions used in the Black-Scholes option-pricing model for stock options granted during the years ended March 31, 2012 and 2010 :



















 

Year Ended

 

Year Ended

 

March 31, 2012

 

March 31, 2010

Risk-free interest rate

1.1%

 

2.6% - 3.6%

Expected option lives (in years)

6 years

 

10 years

Expected volatility for options

38%

 

45%

Expected dividend yield

0%

 

0%

The total intrinsic value of options exercised as of each exercise date during the year ended March 31, 2012 was $2.5 million ( 2011 — nil , 2010 — nil ).

During the year ended March 31, 2012 , no shares were cancelled to fund withholding tax obligations upon exercise.



Restricted Share Units

Effective June 27, 2005, the Company, pursuant to the 2004 Plan, began granting restricted share units to certain employees, directors and consultants.



A summary of the status of the Company’s restricted share units as of March 31, 2012 , 2011 and 2010 , and changes during the years then ended is presented below:















































 

 

Number of

 

Number of

 

Total

Number of

 

Weighted Average

Grant Date Fair

Restricted Share Units:

 

Shares (1)

 

Shares (2)

 

Shares

 

Value

Outstanding at April 1, 2009

 

2,181,501




 

384,167




 

2,565,668




 

$

9.27




Granted

 

1,910,792




 

52,500




 

1,963,292




 

5.58




Vested

 

(918,618

)

 

(113,334

)

 

(1,031,952

)

 

9.16




Forfeited

 

(81,040

)

 






 

(81,040

)

 

7.91




Outstanding at March 31, 2010

 

3,092,635




 

323,333




 

3,415,968




 

$

7.22




Granted

 

2,585,688




 

105,000




 

2,690,688




 

6.84




Vested

 

(3,792,987

)

 

(428,333

)

 

(4,221,320

)

 

7.24




Forfeited

 

(84,278

)

 






 

(84,278

)

 

4.90




Outstanding at March 31, 2011

 

1,801,058




 






 

1,801,058




 

$

6.70




Granted

 

1,147,052




 






 

1,147,052




 

9.17




Vested

 

(1,003,700

)

 






 

(1,003,700

)

 

6.83




Forfeited

 

(77,748

)

 






 

(77,748

)

 

6.51




Outstanding at March 31, 2012

 

1,866,662




 






 

1,866,662




 

8.15




______________________________







(1)

Issued under our long-term incentive plans.










(2)

On September 10, 2007, in connection with the acquisition of Mandate Pictures (see Note 15), two executives entered into employment agreements with Lions Gate Films, Inc. Pursuant to the employment agreements, the executives were granted an aggregate of 287,500 restricted share units, all of which have vested. The restricted share units were granted outside of our long-term incentive plans.

The fair values of restricted share units are determined based on the market value of the shares on the date of grant.

The following table summarizes the total remaining unrecognized compensation cost as of March 31, 2012 related to non-vested stock options and restricted share units and the weighted average remaining years over which the cost will be recognized:


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LIONS GATE ENTERTAINMENT CORP.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

























 

Total

Unrecognized

Compensation

Cost

 

Weighted

Average

Remaining

Years

 

(Amounts in thousands)

 

 

Stock Options

$

1,293




 

1.6




Restricted Share Units

10,707




 

1.7




Total

$

12,000




 

 

At March 31, 2012 , 381,698 shares of restricted share units have been awarded to two key executive officers, the vesting of which will be subject to performance targets to be set annually by the Compensation Committee of the Board of Directors of the Company. These restricted share units will vest in two annual installments assuming annual performance targets have been met. The fair value of the 381,698 shares whose future annual performance targets have not been set was $5.3 million , based on the market price of the Company’s common shares as of March 31, 2012 . The market value will be remeasured when the annual performance criteria are set and the value will be expensed over the remaining vesting periods once it becomes probable that the performance targets will be satisfied.

Under the Company’s two stock option and long term incentive plans, the Company withholds shares to satisfy minimum statutory federal, state and local tax withholding obligations arising from the vesting of restricted share units. During the year ended March 31, 2012 , 379,305 shares were withheld upon the vesting of restricted share units.

The Company becomes entitled to an income tax deduction in an amount equal to the taxable income reported by the holders of the stock options and restricted share units when vesting or exercise occurs, the restrictions are released and the shares are issued. Restricted share units are forfeited if the employees terminate prior to vesting.

Stock Appreciation Rights

The Company has the following stock appreciation rights (“SARs”) outstanding as of March 31, 2012 :



 







































































Grant Date

SARs Outstanding

 

Vested and Exercisable

 

Exercise Price

 

Original Vesting Period

(see below)

 

Expiration Date

 

Fair Value March 31, 2012

 

Liability March 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

July 14, 2008

750,000




 

750,000




 

$

9.56




 

3 years

 

July 14, 2013

 

$

5.15




 

$

3,866




February 5, 2009

150,000




 

150,000




 

$

5.45




 

3 years

 

February 5, 2014

 

$

8.64




 

$

8,457




April 6, 2009

75,000




 

75,000




 

$

5.17




 

4 years

 

April 6, 2014

 

$

8.92




 

$

6,313




March 17, 2010

500,000




 

500,000




 

$

5.95




 

4 years

 

March 17, 2015

 

$

8.36




 

$

4,178




February 15, 2011

1,000,000




 

1,000,000




 

$

6.13




 

3 years

 

February 15, 2016

 

$

8.46




 

$

8,459




January 19, 2012

2,400,000




 






 

$

9.48




 

3 years

 

January 19, 2017

 

$

6.61




 

$

1,044




February 9, 2012

350,000




 






 

$

11.01




 

3 years

 

February 9, 2017

 

$

5.90




 

$

96



At March 31, 2012 , the Company has a stock-based compensation liability accrual in the amount of $32.4 million ( March 31, 2011 — $6.1 million ) included in accounts payable and accrued liabilities on the consolidated balance sheets relating to these SARs.


During the year ended March 31, 2012, certain individuals exercised 700,000 and 625,000 SARs granted on February 5, 2009 and April 6, 2009, respectively. Due to the exercise dates for these SARs occurring at the end of the fiscal year, $12.8 million relating to these SARs is included in the Company's stock-based compensation liability accrual at March 31, 2012 and were subsequently paid in April 2012. Additionally, during the year ended March 31, 2012, a third-party producer exercised 250,000 SARs granted on August 14, 2008. There were no exercises during the years ended March 31, 2011 and 2010 .

On June 30, 2010, the SARs granted on February 5, 2009, April 6, 2009 and March 17, 2010 became fully vested due to the triggering of the “change in control” provisions in certain executive officer employment agreements discussed above.

SARs require that upon their exercise, the Company pay the holder the excess of the market value of the Company’s common stock at that time over the exercise price of the SAR multiplied by the number of SARs exercised. SARs can be
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