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)

exercised at any time subsequent to vesting and prior to expiration. The fair value of all unexercised SARs are determined at each reporting period under a Black-Scholes option pricing methodology based on the inputs in the table below and are recorded as a liability over the vesting period. With the exception of the SARs granted on July 14, 2008 and February 15, 2011, the fair value of the SARs is expensed on a pro rata basis over the vesting period or service period, if shorter. Changes in the fair value of vested SARs are expensed in the period of change. SARs granted on July 14, 2008 and February 15, 2011 were granted to a third-party producer and vest in 250,000 and 333,333 SAR increments, respectively, over a three -year period based on the commencement of principal photography of certain films. Accordingly, the pro rata portion of the fair value of SARs is recorded as part of the cost of the related films until commencement of principal photography of the motion picture (i.e., vesting) with subsequent changes in the fair value of SARs recorded to expense.

For the year ended March 31, 2012 , the following assumptions were used in the Black-Scholes option-pricing model:

 






































Grant Date

Risk-Free Interest Rate

 

Expected Option Lives (in years)

 

Expected Volatility for Options

 

Expected Dividend Yield

July 14, 2008

0.2

%

 

1.3 years

 

45

%

 



%

February 5, 2009

0.3

%

 

1.9 years

 

45

%

 



%

April 6, 2009

0.3

%

 

2 years

 

45

%

 



%

March 17, 2010

0.5

%

 

3 years

 

40

%

 



%

February 15, 2011

0.8

%

 

3.9 years

 

40

%

 



%

January 19, 2012

1.0

%

 

4.8 years

 

38

%

 



%

February 9, 2012

1.0

%

 

4.9 years

 

38

%

 



%


Other Share-Based Compensation

During the years ended March 31, 2012 and 2011 , as per the terms of certain employment agreements, the Company granted the equivalent of $1.8 million and $1.8 million , respectively, in common shares to certain officers on a quarterly basis through the term of their employment contracts. For the years ended March 31, 2012 and 2011 , the Company issued 127,299 and 150,299 shares, respectively, net of shares withheld to satisfy minimum tax withholding obligations. The Company recorded stock-based compensation expense related to this arrangement in the amount of $2.0 million , $1.8 million and $1.3 million for the years ended March 31, 2012 , 2011 and 2010 , respectively.




15. Acquisitions and Divestitures

Summit

On January 13, 2012, the Company purchased all of the membership interests in Summit Entertainment, LLC (“Summit”), a worldwide independent film producer and distributor. The aggregate purchase price was approximately $412.1 million , which consisted of $361.9 million in cash, 5,837,781 in the Company's common shares (a part of which are included in escrow for indemnification purposes). Approximately $279.4 million of the purchase price and acquisition costs were funded with cash on the balance sheet of Summit. The value assigned to the shares for purposes of recording the acquisition was $50.2 million and was based on the closing price of the Company’s common shares on the date of closing of the acquisition. Additionally, the Company may be obligated to pay additional cash consideration of up to $7.5 million pursuant to the purchase agreement, should the domestic theatrical receipts from certain films meet certain target performance thresholds.

In addition, on the date of the close, Summit's existing term loan of $507.8 million was paid off with cash from Lionsgate and the net proceeds of $476.2 million , after fees and expenses, from a new term loan with a principal amount of $500.0 million , maturing on September 7, 2016 (see Note 9).

The acquisition was accounted for as a purchase, with the results of operations of Summit included in the Company's consolidated results from January 13, 2012, which includes revenues and net loss of $186.0 million and $27.1 million, respectively . The Company has made a preliminary allocation of the estimated purchase price of Summit to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair value. The preliminary purchase price allocation is subject to revision, as a more detailed analysis of investment in films and intangible assets is completed and additional information on the fair value of assets and liabilities becomes available, including receipt of final appraisals of the net assets acquired. A change in the fair value of the net assets of Summit may change the amount of the purchase price allocable to goodwill, and could impact the amounts of amortization expense. Based on the preliminary valuation and other information currently available, the allocation of the estimated purchase price is as follows:


F-36

Table of Contents



LIONS GATE ENTERTAINMENT CORP.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

















Preliminary purchase price consideration:

(Amounts in thousands)

Cash

$

361,914




Fair value of 5,837,781 of Lionsgate's shares issued

50,205




Estimated purchase price

412,119




 

 

Fair value of contingent consideration

5,900




Required repayment of Summit's existing Term Loan

507,775




Total estimated purchase consideration including debt repayment

$

925,794




 

 

Preliminary allocation of the estimated total purchase consideration:

 

Cash and cash equivalents

$

315,932




Restricted cash

5,126




Accounts receivable, net

161,244




Investment in films and television programs, net

634,840




Other assets acquired

7,972




Finite-lived intangible assets:

 

Sales agency relationships

6,200




Tradenames

6,600




Other liabilities assumed

(305,552

)

Fair value of net assets acquired

832,362




Goodwill

93,432




 

$

925,794



Goodwill of $93.4 million represents the excess of the purchase price over the preliminary estimate of the fair value of the underlying tangible and identifiable intangible assets acquired and liabilities assumed. The acquisition goodwill arises from the opportunity for synergies of the combined companies, strengthening our global distribution infrastructure and building a stronger presence in the entertainment industry allowing for enhanced positioning for motion picture projects and selling opportunities. Although the goodwill will not be amortized for financial reporting purposes, it is anticipated that substantially all of the goodwill will be deductible for federal tax purposes over the statutory period of 15 years.


The following unaudited pro forma condensed consolidated statements of operations presented below illustrate the results of operations of the Company as if the acquisition of Summit as described above and the issuance of the $45.0 million Convertible Senior Subordinated Notes issued in connection with the acquisition occurred at the beginning of the periods presented. The information below is based on the preliminary estimate of the purchase price allocation to the assets and liabilities acquired as shown above. The statements of operations information below includes the statements of operations of Summit for the years ended December 31, 2011 and 2010 combined with the Company's statements of operations for the years ended March 31, 2012 and 2011.

F-37



Table of Contents

LIONS GATE ENTERTAINMENT CORP.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)































 

 

Year Ended

 

Year Ended

 

 

March 31,
2012


 

March 31,
2011


 

 

(Amounts in thousands, except per share amounts)

Revenues

 

$

2,011,377




 

$

2,733,527




Operating income (loss)

 

$

(252

)

 

$

365,580




Net income (loss)

 

$

(99,441

)

 

$

119,625




Basic Net Income (Loss) Per Common Share

 

$

(0.72

)

 

$

0.87




Diluted Net Income (Loss) Per Common Share

 

$

(0.72

)

 

$

0.87




Weighted average number of common shares

outstanding - Basic



 

138,064




 

137,014




Weighted average number of common shares

outstanding - Diluted



 

138,064




 

155,798






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