United states securities and exchange commission



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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)











ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2015

or











¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 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)














British Columbia, Canada

 

N/A

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

 Identification No.)



 

 

 

250 Howe Street, 20th Floor

Vancouver, British Columbia V6C 3R8

 

2700 Colorado Avenue, Suite 200

Santa Monica, California 90404

(877) 848-3866

 

(310) 449-9200

(Address of Principal Executive Offices, Zip Code)

Registrant’s telephone number, including area code:

(877) 848-3866

Securities registered pursuant to Section 12(b) of the Act:














Title of Each Class

 

Name of Each Exchange on Which Registered

Common Shares, without par value

 

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

___________________________________________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or Section 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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):




























Large accelerated filer þ

 

Accelerated filer o

 

Non accelerated filer o

 

Smaller reporting company o

 

 

 

 

(Do not check if a smaller reporting company)

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

The aggregate market value of the voting stock held by non-affiliates of the registrant as of September 30, 2014 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $2,729,000,687, based on the closing sale price as reported on the New York Stock Exchange.

As of May 11, 2015, 147,668,566 shares of the registrant’s no par value common shares were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A and relating to the registrant’s 2015 annual meeting of shareholders are incorporated by reference into Part III.



Table of Contents
 











 

 

 

Page

PART I

 

Item 1. Business

4

Item 1A. Risk Factors

17

Item 1B. Unresolved Staff Comments

29

Item 2. Properties

29

Item 3. Legal Proceedings

29

Item 4. Mine Safety Disclosures

29

 

 

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

30

Item 6. Selected Financial Data

33

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

34

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

72

Item 8. Financial Statements and Supplementary Data

75

Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

75

Item 9A. Controls and Procedures

75

Item 9B. Other Information

78

 

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance

78

Item 11. Executive Compensation

78

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

78

Item 13. Certain Relationships and Related Transactions, and Director Independence

78

Item 14. Principal Accounting Fees and Services

78

 

 

PART IV

 

Item 15. Exhibits, Financial Statement Schedules

78

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FORWARD-LOOKING STATEMENTS
This report includes statements that are, or may deemed to be, “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “potential,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “forecasts,” “may,” “will,” “could,” “would” or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We believe that these risks and uncertainties include, but are not limited to, those discussed under Part I, Item 1A. “Risk Factors”. These factors should not be construed as exhaustive and should be read with the other cautionary statements and information in the report.

We caution you that forward-looking statements made in this report or anywhere else are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially and adversely from those made in or suggested by the forward looking statements contained in this report as a result of various important factors, including, but not limited to, 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 facilities and notes, unpredictability of the commercial success of our motion pictures and television programming, risks related to our acquisition and integration of acquired businesses, the effects of dispositions of businesses or assets, including individual films or libraries, the cost of defending our intellectual property, difficulties in integrating acquired businesses, technological changes and other trends affecting the entertainment industry, and the other risks and uncertainties discussed under Part I, Item 1.A. “Risk Factors”. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward looking statements contained in this report, those results or developments may not be indicative of results or developments in subsequent periods.

Any forward-looking statements, which we make in this report, speak only as of the date of such statement, and we undertake no obligation to update such statements. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

Unless otherwise indicated, all references to the “Company,” “Lionsgate,” “we,” “us,” and “our” include reference to our subsidiaries as well.

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PART I



ITEM 1. BUSINESS.
Overview
Lions Gate Entertainment Corp. (“Lionsgate,” the “Company,” “we,” “us” or “our”) is a premier next generation global content leader with a strong and diversified presence in motion picture production and distribution, television programming and syndication, home entertainment, digital distribution, channel platforms and international distribution and sales. We operate primarily through two reporting segments: Motion Pictures and Television Production .
Motion Pictures
Our Motion Pictures segment includes revenues derived from the following:










Theatrical . Theatrical revenues are derived from the domestic theatrical release of motion pictures licensed to theatrical exhibitors on a picture-by-picture basis (directly distributed by us in the United States and through a sub-distributor in Canada).












Home Entertainment . Home entertainment revenues are derived from the sale and rental of our film productions and acquired or licensed films and certain television programs (including theatrical and direct-to-video releases) to retail stores and through digital media platforms. We distribute a library of approximately 16,000 motion picture titles and television episodes and programs. Home entertainment revenue consists of packaged media revenue and digital media revenue.












Television . Television revenues are primarily derived from the licensing of our theatrical productions and acquired films to the domestic cable, satellite and free and pay television markets.












International . International revenues are derived from the licensing of our productions, acquired films, our catalog product and libraries of acquired titles from our international subsidiaries and revenues from our distribution to international distributors, on a territory-by-territory basis. International revenues also include revenues from the direct distribution of our productions, acquired films and our catalog product and libraries of acquired titles in the United Kingdom.












Motion Pictures-Other . Other revenues are derived from, among others, our interactive ventures and games division, our global franchise management and strategic partnerships division, the sales and licensing of music from the theatrical exhibition of our films and the television broadcasts of our productions, and from the licensing of our films and television programs to ancillary markets.


Television Production
Our Television Production segment includes revenues derived from the following:










Domestic Television. Domestic television revenues are derived from the licensing and syndication to domestic markets of one-hour and half-hour series, television movies, mini-series and non-fiction programming.












International. International revenues are derived from the licensing and syndication to international markets of one-hour and half-hour series, television movies, mini-series and non-fiction programming.












Home Entertainment. Home entertainment revenues are derived from the sale or rental of television production movies or series to retail stores and through digital media platforms. We distribute a library of approximately 16,000 motion picture titles and television episodes and programs. Home entertainment revenue consists of packaged media revenue and digital media revenue.

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Television Production-Other . Other revenues are derived from, among others, product integration in our television episodes and programs, the sales and licensing of music from the television broadcasts of our productions, and from the licensing of our television programs to ancillary markets.


Segment Revenue
For the year ended March 31, 2015, contributions to the Company’s consolidated revenues from its reporting segments included Motion Pictures 75.9% and Television Production 24.1% . Within the Motion Pictures segment, revenues were generated from the following: Theatrical 19.5% , Home Entertainment 36.4% , Television 14.8% , International 27.2% and Motion Pictures-Other 2.1% . Within the Television Production segment, revenues were generated from the following: Domestic Television 71.7% , International 19.4% , Home Entertainment 7.7% and Television Production-Other 1.2% .
Business Strategy
We continue to grow and diversify our portfolio of film, television and digital content to capitalize on demand from emerging and traditional platforms throughout the world marketplace. We maintain a disciplined approach to acquisition, production and distribution of film and television product, by balancing our financial risks against the probability of commercial success for each project. We pursue the same disciplined approach to investments in, and acquisition of, libraries and other assets complementary to our business. We believe that our strategic focus on content and creation of innovative content distribution strategies will enhance our competitive position in the industry, ensure optimal use of our capital, build a diversified foundation for future growth and generate significant long-term value for our shareholders.
Motion Pictures - Theatrical
Production
Theatrical production consists of “greenlighting” and financing motion pictures, as well as the development of screenplays, filming activities and the post-filming editing/post-production process. We take a disciplined approach to film production with the goal of producing content that we can distribute to theatrical and ancillary markets, which include home entertainment, pay and free television, on-demand services and digital media platforms, both domestically and internationally.
Our production team attempts to produce films with disciplined budgets that have commercial potential. After review of hundreds of scripts and original intellectual property, we actively develop a small number of such scripts and work with agencies and producers to recruit talent that appeals to the film's target audiences. We believe the commercial and/or critical success of our films should enhance our reputation and continue to give us access to top talent, scripts and projects.
The decision whether to “greenlight” (or proceed with production of) a film is a diligent process that involves many of our key executives. Generally, our theatrical production division presents projects to a committee comprised of the heads of our production, theatrical distribution, home entertainment, marketing, international distribution, legal and finance departments. In this process, scripts are evaluated for both artistic merit and commercial viability. The committee considers, among other things, the script, the talent that may be attached or pursued, the production division's initial budget and story elements that could make the project more successful. Next, the heads of domestic and international distribution prepare estimates of projected revenues and the costs of marketing and distributing the film. Our finance and legal professionals then review the projections and financing options, and the committee decides whether the picture is worth pursuing by balancing the risk of a production against its potential for financial success or failure. In general, the final “greenlight” decision is made by our senior management team, headed by our Chief Executive Officer, our Vice Chair and the Co-Chairs of our Motion Picture Group.
We typically attempt to mitigate the financial risk associated with film production by negotiating co-production agreements (which provide for joint efforts and cost-sharing between us and one or more third-party production companies) and pre-selling international distribution rights on a selective basis, including through international output agreements (which refers to licensing the rights to distribute a film in one or more media generally for a limited term, in one or more specific territories
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prior to completion of the film). We also often attempt to minimize our production exposure by structuring agreements with talent that provide for them to participate in the financial success of the motion picture in exchange for reducing guaranteed amounts to be paid, regardless of the film's success (referred to as “up-front payments”). Additionally, from time to time, we have entered into other co-financing, development and production-type arrangements with third parties. For instance, we recently entered into an agreement with Hunan TV & Broadcast Intermediary Co. Ltd., one of China's leading media and entertainment companies, and its wholly-owned TIK Films subsidiaries to co-finance qualifying Lionsgate feature films for three years.
In addition, many states and foreign countries have implemented incentive programs designed to attract film production as a means of economic development. Government incentives typically take the form of sales tax refunds, transferable tax credits, refundable tax credits, low interest loans, direct subsidies or cash rebates, which are generally calculated based on the amount of money spent in the particular jurisdiction in connection with the production. Each jurisdiction determines the regulations that must be complied with, as well as the conditions that must be satisfied, in order for a production to qualify for the incentive. We use certain Canadian and United Kingdom tax credits, international tax structures and subsidy programs, domestic state tax incentives and/or programs (in such states as Georgia, Louisiana, North Carolina, New Mexico, New York and Pennsylvania) and other structures that may help reduce our financial risk.
Our approach to acquiring films for theatrical release is similar to our approach to film production. We generally seek to limit our financial exposure while adding films of quality and commercial viability to our release schedule and our library. The decision to acquire a motion picture for theatrical release entails a process involving our key executives from the releasing, home entertainment, acquisitions and marketing departments, as well as corporate executive management. The team meets to discuss a film's expected critical reaction, marketability and potential for commercial success, as well as the cost to acquire the picture, and the estimated theatrical distribution and marketing expenses (typically called “P&A” or “prints and advertising”) required to maximize the targeted audience and ancillary market potential after its theatrical release.

 

Distribution


In general, the economic life of a motion picture consists of its exploitation in theaters and in ancillary markets such as home entertainment, pay-per-view (“PPV”), video-on-demand (“VOD”), electronic-sell-through (“EST”), subscription video-on-demand (“SVOD”), advertiser-supported video-on-demand (“AVOD”), digital rentals, pay television, broadcast television, foreign and other markets. Successful motion pictures may continue to play in theaters for more than three months following their initial release. Concurrent with their release in the U.S., motion pictures are generally released in Canada and may also be released in one or more other foreign markets. After the initial theatrical release, distributors seek to maximize revenues by releasing movies in sequential release date windows, which are generally exclusive against other non-theatrical distribution channels:

Typical Film Release Windows*











 

Months After

Release Period

Initial Release

Theatrical



Premium VOD

3-4 months

Home entertainment (DVD/Blu-ray/EST), VOD, PPV

3-6 months

Pay television, SVOD

7-15 months**

Network television (free and basic), AVOD

27-30 months

Licensing and merchandising

Concurrent

International releasing

Concurrent

* These patterns may not be applicable to every film, and may change based on release patterns, new technologies and product flow.

** First pay television window.

Theatrical distribution refers to the marketing and commercial or retail exploitation of motion pictures. We distribute motion pictures directly to U.S. movie theaters. Generally, distributors and exhibitors (theater owners) will enter into agreements whereby the exhibitor retains a portion of the “gross box office receipts,” which are the admissions paid at the box office. The balance (i.e., gross film rentals) is remitted to the distributor.

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In most territories, international theatrical distribution (outside of the U.S. and Canada) generally follows the same cycle as domestic theatrical distribution. Historically, the international distribution cycle begins a few months after the start of the domestic distribution cycle. However, due, in part, to international box office growth, as well as film piracy in international markets, a much higher percentage of films are being released simultaneously with the U.S. and international markets, or even earlier in certain international markets.
We construct release schedules taking into account moviegoer attendance patterns and competition from other studios' scheduled theatrical releases. We use either wide (generally, more than 2,000 screens nationwide) or limited initial releases, depending on the film. We believe that we generally spend significantly less on P&A for a given film than other studios and design our marketing plans to cost-effectively reach a large audience.
Producing, marketing and distributing a motion picture can involve significant risks and costs, and can cause our financial results to vary depending on the timing of a motion picture’s release. For example, marketing costs are generally incurred before and throughout the theatrical release of a film and, to a lesser extent, other distribution windows, and are expensed as incurred. Therefore, we typically incur losses with respect to a particular film prior to and during the film’s theatrical exhibition, and profitability for the film may not be realized until after its theatrical release window.
However, we may revise the release date of a motion picture as the production schedule changes or in such a manner as we believe is likely to maximize revenues or for other business reasons. Additionally, there can be no assurance that any of the motion pictures scheduled for release will be completed, that completion will occur in accordance with the anticipated schedule or budget, or that the film will ever be released.
Theatrical Releases

In fiscal 2015 (i.e., the twelve-month period ending March 31, 2015), we released 13 motion pictures theatrically in the U.S., which included both Lionsgate and Summit Entertainment label films developed and produced in-house, films co-developed and co-produced and films acquired from third parties. Such titles also included: (i) films acquired or produced by CBS Films (with which we have a multi-year partnership that includes distribution initiatives by us across all media, including theatrical and home entertainment platforms (except U.S. pay television), as well as sales in international markets (with the exception of The DUFF )); and (ii) films released through our wholly-owned subsidiary, CodeBlack Films, a vertically integrated film production and distribution company (that also maintains output agreements for films it produces or co-produces for certain international markets including the Middle East, North Africa and South Africa).

















Fiscal 2015 Theatrical Releases

Title

Release Date

Label

Draft Day

April 4, 2014

Summit

Frankie & Alice

April 4, 2014

CodeBlack Films

The Quiet Ones

April 25, 2014

Lionsgate

America

June 27, 2014

Lionsgate

Step Up: All In

August 8, 2014

Summit

The Expendables 3

August 15, 2014

Lionsgate

Addicted

October 10, 2014

CodeBlack Films

John Wick

October 24, 2014

Summit

Saw 10th Anniversary

October 31, 2014

Lionsgate

The Hunger Games: Mockingjay - Part 1

November 21, 2014

Lionsgate

Mortdecai

January 23, 2015

Lionsgate

The DUFF

January 23, 2015

CBS Films

The Divergent Series: Insurgent

March 20, 2015

Summit



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