ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This section of our Annual Report Form 10-K includes a discussion and analysis of our financial condition and results of operation for the fiscal years ended March 31, 2021 and 2020, and year-to-year comparisons between fiscal 2021 and fiscal 2020. A discussion and analysis of our financial condition and results of operation for the fiscal year ended March 31, 2019 and year-to-year comparisons between fiscal 2020 and fiscal 2019 can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2020, and is herein incorporated by reference.
Overview
Combining the STARZ premium global subscription platform with world-class motion picture and television studio operations, Lions Gate Entertainment Corp. (the “Company,” “Lionsgate,” "Lions Gate," “we,” “us” or “our”) brings a unique and varied portfolio of entertainment to consumers around the world. Our film, television, subscription and location-based entertainment businesses are backed by a 17,000-title library and one of the largest collections of film and television franchises in the independent media space. We classify our operations through three reporting segments: Motion Picture,Television Production, and Media Networks (see further discussion below).
COVID-19 Global Pandemic
In fiscal 2021, the impacts associated with the ongoing COVID-19 global pandemic and measures to prevent its spread, and the resulting economic uncertainty, affected our business in a number of ways. We experienced early termination and delays in theatrical distribution of our films, both domestically and internationally, as well as delays in the production of film and television content (resulting in continued changes in future release dates for some titles and series). While we did begin (and, in certain instances, completed) production on a number of films and television series, and theaters began to reopen in 2021 in certain locations with reduced capacity, we are not able to accurately predict when theaters will re-open at scale, at what level consumers will return to movie theaters, when film production will fully resume, whether productions that have resumed will be paused again, the impact of incremental costs required to adhere to health and safety protocols, or if and when certain of our content will be released. The full extent of impacts related to the COVID-19 global pandemic on our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict. See Item 1A. Risk Factors for further details.
Conversely, television and streaming consumption around the globe increased, as well as home entertainment demand. STARZ experienced an increase in viewership of its content across all platforms as well as an increase in subscribers to its OTT services, both domestically and internationally. However, it is too early to say whether this increase is indicative of future results and whether growth may slow as governmental and other restrictions are relaxed, and as a result of the current and possible longer term negative economic impact of the pandemic. We continue, however, to adapt to these new circumstances. For instance, we changed the release strategies of several of our theatrical films by releasing solely and/or earlier on streaming platforms, initially releasing on premium video-on-demand ("Premium VOD") market, or by licensing directly to streaming platforms. We also began and completed post-production of several of our television series and continue the development of film properties and television series.
In connection with the disruptions associated with the COVID-19 global pandemic and measures to prevent its spread and mitigate its effects both domestically and internationally, and the related economic disruption, including the worldwide closure of most theaters, international travel restrictions and the pausing of motion picture and television productions, during the fiscal years ended March 31, 2021 and 2020, we have incurred $70.5 million and $50.5 million, respectively, in incremental costs which were expensed in the period. These costs include $50.6 million and $46.0 million, respectively, reflected in direct operating expense, which include incremental costs associated with film impairment due to changes in performance expectations, the pausing and restarting of productions including certain cast and crew, idle facilities and equipment costs resulting from circumstances associated with the COVID-19 global pandemic. In addition, these costs include $16.9 million and $4.2 million, respectively, reflected in distribution and marketing expense, which primarily consists of contractual marketing spends for film releases and events that were canceled or delayed and will provide no economic benefit, and $3.0 million and $0.3 million in restructuring and other costs primarily due to transitioning the Company to a remote-work environment and other incremental costs associated with the COVID-19 global pandemic during these periods. We expect to incur additional incremental costs in future periods. However, if the adverse economic impact and disruptions associated with the COVID-19 global pandemic continue to improve, we expect that the incremental costs we incur in future periods will decrease as compared to fiscal 2021. We are in the process of seeking insurance recovery for some of these costs, which cannot be estimated at this
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time, and therefore no material amounts of insurance proceeds have been recorded in our consolidated financial statements. See further discussion in the Results of Operations section below.
The economic impact of the COVID-19 global pandemic and resulting societal changes will depend on numerous evolving factors that cannot be predicted with certainty. There are a number of ways in which these uncertainties resulting from the COVID-19 global pandemic have impacted our current results of operations and could continue to impact our future results of operations. These impacts include the incremental costs and losses discussed in the previous paragraph, lower revenues from the closure of movie theaters and postponement of theatrical releases, partially offset by lower theatrical production and marketing costs; increased expenses associated with new health and safety protocols on motion picture and television productions; changes in the timing of revenues for motion pictures and television productions associated with delays in production and delivery or release; and while STARZ has experienced an increase in viewership of its content, future growth could be impacted by the timing of when productions will fully resume, and whether productions that have resumed will be paused again.
While we have experienced recent improvements in the United States with declining COVID-19 cases and increases in the number of people vaccinated, we expect that the ultimate impact of these disruptions, including the extent of any adverse impact on our business, results of operations and financial condition, will depend on, among other things, the duration and spread of the pandemic, the impact of governmental regulations that have been, and may continue to be, imposed in response to the pandemic, the effectiveness of actions taken to contain or mitigate the outbreak (including the availability, effectiveness and/or public acceptance of any U.S. Food and Drug Administration ("FDA")-approved COVID-19 vaccines), and global economic conditions related to the COVID-19 global pandemic. All of these impacts could place limitations on our ability to execute on our business plan and materially and adversely affect our business, financial condition and results of operations. We have implemented policies, procedures and protocols to address the situation and expect to continue to adjust our current policies and procedures as more information and guidance become available. In addition, resurgences of COVID-19 in certain parts of the world, and the discovery of new variants of the virus, may result in the re-imposition of certain restrictions and may lead to more restrictions being implemented again to reduce the spread of COVID-19. These measures could result in further interruptions to our operations. Due to the evolving and uncertain nature of this situation, we are not able to estimate the full extent of the impact on our operating results, cash flows and financial position, particularly over the near to medium term.
Revenues
Our revenues are derived from the Motion Picture, Television Production and Media Networks segments, as described below. Our revenues are derived from the U.S., Canada, the United Kingdom and other foreign countries. None of the non-U.S. countries individually comprised greater than 10% of total revenues for the years ended March 31, 2021, 2020 and 2019.
Motion Picture
Our Motion Picture 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 (distributed by us directly in the U.S. and through a sub-distributor in Canada). The revenues from Canada are reported net of distribution fees and release expenses of the Canadian sub-distributor. The financial terms that we negotiate with our theatrical exhibitors in the U.S. generally provide that we receive a percentage of the box office results.
•Home Entertainment. Home entertainment revenues are derived from the sale or rental of our film productions and acquired or licensed films and certain television programs (including theatrical and direct-to-video releases) on packaged media and through digital media platforms (including pay-per-view and video-on-demand platforms, electronic sell through, and digital rental). In addition, we have revenue sharing arrangements with certain digital media platforms which generally provide that, in exchange for a nominal or no upfront sales price, we share in the rental or sales revenues generated by the platform on a title-by-title basis.
•Television. Television revenues are primarily derived from the licensing of our theatrical productions and acquired films to the linear pay, basic cable and free television markets.
•International. International revenues are derived from (1) licensing of our productions, acquired films, our catalog product and libraries of acquired titles to international distributors, on a territory-by-territory basis; and (2) the direct distribution of our productions, acquired films, and our catalog product and libraries of acquired titles in the United Kingdom.
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•Other. Other revenues are derived from, among others, the licensing of our film and television and related content (games, music, location-based entertainment royalties, etc.) to other ancillary markets.
Television Production
Our Television Production segment includes revenues derived from the following:
•Television. Television revenues are derived from the licensing to domestic markets (linear pay, basic cable, free television and syndication) of scripted and unscripted series, television movies, mini-series and non-fiction programming. Television revenues include fixed fee arrangements as well as arrangements in which we earn advertising revenue from the exploitation of certain content on television networks. Television revenues also include revenue from licenses to subscription-video-on-demand ("SVOD") platforms in which the initial license of a television series is to an SVOD platform.
•International. International revenues are derived from the licensing and syndication to international markets of scripted and unscripted 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 on packaged media and through digital media platforms.
•Other. Other revenues are derived from, among others, the licensing of our television programs to other ancillary markets, the sales and licensing of music from the television broadcasts of our productions, and from commissions earned and executive producer fees related to talent management.
Media Networks
Our Media Networks segment includes revenues derived from the following:
•Starz Networks. Starz Networks’ revenues are derived from the domestic distribution of our STARZ branded premium subscription video services through over-the-top ("OTT") platforms and U.S. multichannel video programming distributors (“MVPDs”) including cable operators, satellite television providers and telecommunications companies (collectively, “Distributors”) and on a direct-to-consumer basis through the Starz App.
•STARZPLAY International.STARZPLAY International revenues are primarily derived from OTT distribution of the Company's STARZ branded premium subscription video services outside of the U.S.
•Other Streaming Services. Other Streaming Services revenues are derived primarily from our formerly majority owned premium Spanish language streaming services business, Pantaya, which includes subscriber based streaming revenue and other distribution revenue. We sold our interest in Pantaya on March 31, 2021, for approximately $123.6 million in cash, subject to certain customary adjustments pursuant to the terms of the agreement. Under the terms of the purchase agreement, control of Pantaya transferred to Hemisphere Media Group on March 31, 2021, with the cash consideration transferred on April 1, 2021. See Note 2 to our consolidated financial statements for further information.
Expenses
Our primary operating expenses include direct operating expenses, distribution and marketing expenses and general and administration expenses.
Direct operating expenses include amortization of film and television production or acquisition costs, amortization of programming production or acquisition costs and programming related salaries, participation and residual expenses, provision for doubtful accounts, and foreign exchange gains and losses.
Participation costs represent contingent consideration payable based on the performance of the film or television program to parties associated with the film or television program, including producers, writers, directors or actors. Residuals represent amounts payable to various unions or “guilds” such as the Screen Actors Guild - American Federation of Television and Radio Artists, Directors Guild of America, and Writers Guild of America, based on the performance of the film or television program in certain ancillary markets or based on the individual’s (i.e., actor, director, writer) salary level in the television market.
Distribution and marketing expenses primarily include the costs of theatrical prints and advertising (“P&A”) and of DVD/Blu-ray duplication and marketing. Theatrical P&A includes the costs of the theatrical prints delivered to theatrical exhibitors and the advertising and marketing cost associated with the theatrical release of the picture. DVD/Blu-ray duplication represents the cost of the DVD/Blu-ray product and the manufacturing costs associated with creating the physical products. DVD/Blu-ray marketing costs represent the cost of advertising the product at or near the time of its release or special promotional advertising.
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Marketing costs for Media Networks includes advertising, consumer marketing, distributor marketing support and other marketing costs. In addition, distribution and marketing costs includes our Media Networks segment operating costs for the direct-to-consumer service, transponder expenses and maintenance and repairs.
General and administration expenses include salaries and other overhead.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our accounting policies are more fully described in Note 1 to our consolidated financial statements. As disclosed in Note 1 to our consolidated financial statements, the preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The application of the following accounting policies, which are important to our financial position and results of operations, requires significant judgments and estimates on the part of management. As described more fully below, these estimates bear the risk of change due to the inherent uncertainty of the estimate. In some cases, changes in the accounting estimates are reasonably likely to occur from period to period. In addition, the evolving and uncertain nature of the COVID-19 global pandemic could materially impact our estimates, particularly those that require consideration of forecasted financial information, in the near to medium term. Accordingly, actual results could differ materially from our estimates. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We believe that the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require management's most difficult, subjective and complex judgments.
Accounting for Films and Television Programs and Licensed Program Rights
On April 1, 2020, we adopted, on a prospective basis, new Financial Accounting Standards Board ("FASB") guidance on the accounting for costs of films and episodic television series. Under that new guidance, capitalized costs for films or television program are amortized and tested for impairment based on whether the content is predominantly monetized individually or as a group. See Note 1 to our consolidated financial statements for further information.
Film and Television Programs Monetized Individually. For films and television programs monetized individually, film cost amortization, participations and residuals expense are based on management's estimates. Costs of acquiring and producing films and television programs and of acquired libraries that are monetized individually are amortized and estimated liabilities for participations and residuals costs are accrued using the individual-film-forecast method, based on the ratio of the current period's revenues to management’s estimated remaining total gross revenues to be earned ("ultimate revenue"). Management's judgment is required in estimating ultimate revenue and the costs to be incurred throughout the life of each film or television program.
Management estimates ultimate revenues based on historical experience with similar titles or the title genre, the general public appeal of the cast, audience test results when available, actual performance (when available) at the box office or in markets currently being exploited, and other factors such as the quality and acceptance of motion pictures or programs that our competitors release into the marketplace at or near the same time, critical reviews, general economic conditions and other tangible and intangible factors, many of which we do not control and which may change.
For motion pictures, ultimate revenue includes estimates over a period not to exceed ten years following the date of initial release of the motion picture. The most sensitive factor affecting our estimate of ultimate revenues for a film intended for theatrical release is the film's theatrical performance, as subsequent revenues from the licensing and sale in other markets have historically been highly correlated to its theatrical performance. After a film's release, our estimates of revenue from succeeding markets are revised based on historical relationships and an analysis of current market trends.
For an episodic television series, the period over which ultimate revenues are estimated cannot exceed ten years following the date of delivery of the first episode, or, if still in production, five years from the date of delivery of the most recent episode, if later. The most sensitive factors affecting our estimate of ultimate revenues for a television series is whether the series will be ordered for a subsequent season and estimates of revenue in secondary markets other than the initial license fee. The initial estimate of ultimate revenue may include estimates of revenues outside of the initial license window (i.e., international, home entertainment and other distribution platforms) and are based on historical experience for similar programs (genre, duration, etc.) based on the estimated number of seasons. We regularly monitor the performance of each season, and evaluate whether impairment indicators are present (i.e., low ratings, cancellations or the season is not reordered), and based upon our review, we revise our estimates as needed and perform an impairment assessment if impairment indicators are present (see below).
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For titles included in acquired libraries, ultimate revenue includes estimates over a period not to exceed twenty years following the date of acquisition.
Due to the inherent uncertainties involved in making such estimates of ultimate revenues and expenses, these estimates have differed in the past from actual results and are likely to differ to some extent in the future from actual results. In addition, in the normal course of our business, some films and titles are more successful or less successful than anticipated. Management regularly reviews and revises when necessary its ultimate revenue and cost estimates, which may result in a change in the rate of amortization of film costs and participations and residuals and/or a write-down of all or a portion of the unamortized costs of the film or television program to its estimated fair value (see below).
An increase in the estimate of ultimate revenue will generally result in a lower amortization rate and, therefore, less film and television program amortization expense, while a decrease in the estimate of ultimate revenue will generally result in a higher amortization rate and, therefore, higher film and television program amortization expense, and also periodically results in an impairment requiring a write-down of the film cost to the title’s fair value. These write-downs are included in amortization expense within direct operating expenses in our consolidated statements of operations. See further discussion below under Impairment Assessment.
Film and Television Programs Monetized as a Group. Licensed programming rights may include rights to more than one exploitation window under the Company's output and library agreements. For films with multiple windows, the license fee is allocated between the windows based upon the proportionate estimated fair value of each window which generally results in the majority of the cost allocated to the first window on newer releases. Certain license agreements and productions may include additional ancillary rights in addition to the pay television rights. The cost of the Media Networks’ third-party licensed content and produced content is allocated between the pay television market distributed by the Media Networks’ segment and the ancillary revenue markets (e.g., home video, digital platforms, international television, etc.) based on the estimated relative fair values of these markets. Our estimates of fair value for the pay television and ancillary markets and windows of exploitation involve uncertainty and management judgment. Programming costs vary due to the number of airings and cost of our original series, the number of films licensed and the cost per film paid under our output and library programming agreements.
The cost of program rights for films and television programs (including original series) exhibited by the Media Networks segment are generally amortized on an accelerated or straight-line basis based on the anticipated number of exhibitions or expected and historical viewership patterns or the license period on a title-by-title or episode-by-episode basis. The number of exhibitions is estimated based on the number of exhibitions allowed in the agreement (if specified) and the expected usage of the content. Participations and residuals are expensed in line with the amortization of production costs.
Changes in management’s estimate of the anticipated exhibitions and viewership patterns of films and original series on our networks could result in the earlier recognition of our programming costs than anticipated. Conversely, scheduled exhibitions and expected viewership patterns may not capture the appropriate usage of the program rights in current periods which would lead to the write-off of additional program rights in future periods and may have a significant impact on our future results of operations and our financial position.
Impairment Assessment. A film group or individual film or television program is evaluated for impairment when events or changes in circumstances indicate that the fair value of an individual film or film group is less than its unamortized cost. If the result of the impairment test indicates that the carrying value exceeds the estimated fair value, an impairment charge will then be recorded for the amount of the difference.
Estimate of Fair Value. For content that is predominantly monetized individually (primarily investment in film and television programs related to the Motion Picture and Television Production segments), the fair value is determined based on a discounted cash flow analysis of the cash flows directly attributable to the title. For motion pictures intended for theatrical release, the discounted cash flow analysis used in the impairment evaluation prior to theatrical release is subjective as key inputs include estimates of future anticipated revenues, estimates of box office performance, which may differ from future actual results. These estimates are based in part on the historical performance of similar films, test audience results when available, information regarding competing film releases, and critic reviews. See further discussion of Valuation Assumptions below.
For content that is predominantly monetized as a group (primarily licensed program rights in the Media Networks segment and internally produced programming, as discussed above), the fair value is determined based on the present value of the discounted cash flows of the group using the lowest level for which identifiable cash flows are independent of other produced and licensed content. The Company's film groups are generally aligned along the Company's networks and digital content offerings domestically (i.e., Starz Networks and Other Streaming Services) and by territory or groups of territories internationally, wherein content assets are shared across the various territories and therefore, the territory or group of territories is the film group.
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Valuation Assumptions. The discounted cash flow analysis includes cash flows estimates of ultimate revenue and costs as well as a discount rate (a Level 3 fair value measurement, see Note 11 to our consolidated financial statements). The discount rate utilized in the discounted cash flow analysis is based on the weighted average cost of capital of the Company plus a risk premium representing the risk associated with producing a particular film or television program or film group. The fair value of any film costs associated with a film or television program that management plans to abandon is zero. Estimates of future revenue involve measurement uncertainty and it is therefore possible that reductions in the carrying value of investment in films and television programs may be required as a consequence of changes in management’s future revenue estimates.
Revenue Recognition. Our Motion Picture and Television Production segments generate revenue principally from the licensing of content in domestic theatrical exhibition, home entertainment (e.g., digital media and packaged media), television, and international market places. Our Media Networks segment generates revenue primarily from the distribution of our STARZ branded premium subscription video services and, through March 31, 2021, from our formerly majority owned premium Spanish language streaming services business, Pantaya, which includes subscriber based streaming revenue and other distribution revenue. We sold our interest in Pantaya on March 31, 2021, see Note 2 to our consolidated financial statements for further information.
Our content licensing arrangements include fixed fee and minimum guarantee arrangements, and sales or usage based royalties. Our fixed fee or minimum guarantee licensing arrangements in the television, digital media and international markets may, in some cases, include multiple titles, multiple license periods (windows) with a substantive period in between the windows, rights to exploitation in different media, or rights to exploitation in multiple territories, which may be considered distinct performance obligations. When these performance obligations are considered distinct, the fixed fee or minimum guarantee in the arrangement is allocated to the title, window, media right or territory as applicable, based on estimates of relative standalone selling prices. The amounts related to each performance obligation (i.e., title, window, media or territory) are recognized when the content has been delivered, and the window for the exploitation right in that territory has begun, which is the point in time at which the customer is able to begin to use and benefit from the content.
Sales or usage based royalties represent amounts due to us based on the “sale” or “usage” of our content by the customer, and revenues are recognized at the later of when the subsequent sale or usage occurs, or the performance obligation to which some or all the sales or usage-based royalty has been allocated has been satisfied (or partially satisfied). Generally, when we license completed content (with standalone functionality, such as a movie, or television show), our performance obligation will be satisfied prior to the sale or usage. When we license intellectual property that does not have stand-alone functionality (e.g., brands, themes, logos, etc.), our performance obligation is generally satisfied in the same period as the sale or usage. The actual amounts due to us under these arrangements are generally not reported to us until after the close of the reporting period. We record revenue under these arrangements for the amounts due and not yet reported to us based on estimates of the sales or usage of these customers and pursuant to the terms of the contracts. Such estimates are based on information from our customers, historical experience with similar titles in that market or territory, the performance of the title in other markets and/or available data in the industry. While we believe these estimates are reasonable estimates of the amounts due under these arrangements, such estimated amounts could differ from the actual amounts to be subsequently reported by the customer, which could be higher or lower than our estimates, and could result in an adjustment to revenues in future periods.
Revenue from the theatrical release of feature films are treated as sales or usage-based royalties and recognized starting at the exhibition date and based on our participation in box office receipts of the theatrical exhibitor.
Digital media revenue sharing arrangements are recognized as sales or usage based royalties.
Revenue from the sale of physical discs (DVDs, Blu-ray or 4K Ultra HD), referred to as "Packaged Media", in the retail market, net of an allowance for estimated returns and other allowances, is recognized on the later of receipt by the customer or “street date” (when it is available for sale by the customer). We estimate reserves for Packaged Media returns based on previous returns experience, point-of-sale data available from certain retailers, current economic trends, and projected future sales of the title to the consumer based on the actual performance of similar titles on a title-by-title basis in each of the Packaged Media businesses. Factors affecting actual returns include, among other factors, limited retail shelf space at various times of the year, success of advertising or other sales promotions, and the near term release of competing titles. We believe that our estimates have been materially accurate in the past; however, due to the judgment involved in establishing reserves, we may have adjustments to our historical estimates in the future. Our estimate of future returns affects reported revenue and operating income. If we underestimate the impact of future returns in a particular period, then we may record less revenue in later periods when returns exceed the estimated amounts. If we overestimate the impact of future returns in a particular period, then we may record additional revenue in later periods when returns are less than estimated. An incremental change of 1% in our estimated sales returns rate (i.e., provisions for returns divided by gross sales of related product) for home entertainment products would have had an impact of approximately $2.0 million, $3.6 million and $4.2 million on our total revenue in the fiscal years ended March 31, 2021, 2020, and 2019, respectively.
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Revenue from commissions are recognized as such services are provided.
Media Networks revenues may be based on a fixed fee, subject to nominal annual escalations, or a variable fee (i.e., a fee based on number of subscribers who receive our networks or other factors). Media Networks programming revenue is recognized over the contract term based on the continuous delivery of the content to the distributor. The variable distribution fee arrangements represent sales or usage based royalties and are recognized over the period of such sales or usage by the Company's distributor, which is the same period that the content is provided to the distributor. Payments to distributors for marketing support costs for which Starz receives a discrete benefit are recorded as distribution and marketing costs, and payments to distributors for which Starz receives no discrete benefit are recorded as a reduction of revenue.
Goodwill and Indefinite-Lived Intangibles. At March 31, 2021, the carrying value of goodwill and indefinite-lived intangible assets was $2.8 billion and $250.0 million, respectively. Our indefinite-lived intangible assets consist of trade names primarily representing the estimated fair value of the Starz brand name determined in connection with the acquisition of Starz as of December 8, 2016. Goodwill is allocated to our reporting units, which are our operating segments or one level below our operating segments (component level). Reporting units are determined by the discrete financial information available for the component and whether that information is regularly reviewed by segment management. Components are aggregated into a single reporting unit if they share similar economic characteristics. Our reporting units for purposes of goodwill impairment testing, along with their respective goodwill balances at March 31, 2021, were Motion Picture (goodwill of $394 million), Media Networks (goodwill of $1.97 billion), and our Television (goodwill of $309 million) and Talent Management (goodwill of $93 million) businesses, both of which are part of our Television Production segment.
Goodwill and indefinite-lived intangible assets are not amortized but are reviewed for impairment each fiscal year or between the annual tests if an event occurs or circumstances change that indicates it is more-likely-than-not that the fair value of a reporting unit or indefinite-lived intangible asset is less than its carrying value. We perform our annual impairment test as of January 1 in each fiscal year. A goodwill or indefinite-lived intangible asset impairment loss would be recognized for the amount that the carrying amount of a reporting unit, including goodwill or an indefinite-lived intangible asset, exceeds its fair value. An entity may perform a qualitative assessment of the likelihood of the existence of a goodwill or indefinite-lived intangible asset impairment. The qualitative assessment is an evaluation, based on all identified events and circumstances which impact the fair value of the reporting unit or indefinite-lived intangible asset, of whether or not it is more-likely-than-not that the fair value is less than the carrying value of the reporting unit or indefinite-lived intangible asset. If we believe that as a result of our qualitative assessment it is more likely than not that the fair value of a reporting unit or indefinite-lived intangible asset is greater than its carrying amount, a quantitative impairment test is not required but may be performed at the option of the Company. A quantitative assessment requires determining the fair value of our reporting units or indefinite-lived intangible assets. The determination of fair value requires considerable judgment and requires assumptions and estimates of many factors, including revenue and market growth, operating margins and cash flows, market multiples and discount rates.
In performing a quantitative assessment of goodwill, we determine the fair value of our reporting units by using a combination of discounted cash flow ("DCF") analyses and market-based valuation methodologies. The models rely on significant judgments and assumptions surrounding general market and economic conditions, short-term and long-term growth rates, discount rates, income tax rates, and detailed management forecasts of future cash flow and operating margin projections, and other assumptions, all of which are based on our internal forecasts of future performance as well as historical trends. The market-based valuation method utilizes EBITDA multiples from guideline public companies operating in similar industries and a control premium. The results of these valuation methodologies are weighted as to their relative importance and a single fair value is determined. The fair value of our reporting units is reconciled to the market value of our equity, determined based on the average prices of our common shares just prior to the period end. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the annual or interim goodwill impairment tests will prove to be an accurate prediction of the future.
Goodwill Impairment Assessment:
For our annual goodwill impairment test for fiscal 2020, due to the decline in the market price of our common shares in the fourth quarter ended March 31, 2020, which was significantly impacted by the economic uncertainty and market volatility resulting from the COVID-19 global pandemic, we performed a quantitative impairment assessment for all of our reporting units as of March 31, 2020. The DCF analysis of fair values were determined primarily by discounting estimated future cash flows, which included perpetual nominal growth rates ranging from 1.5% to 4.0%, at a weighted average cost of capital (discount rate) ranging from 11.5% to 15%, which considered the risk of achieving the projected cash flows, including the risk applicable to the reporting unit, industry and market as a whole. Based on our annual quantitative impairment assessment for fiscal 2020, we determined that two of our reporting units (Television and Media Networks) were at risk for impairment due to relatively small changes in certain key assumptions that could cause an impairment of goodwill.
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We evaluated the sensitivity of our most critical assumptions used in the fair value analysis of our Television and Media Networks reporting units, including the discount rate, perpetual nominal growth rate and annual revenue growth rates. For our Television business reporting unit, we determined that an increase in the discount rate of up to 3.3% would not have impacted the test results, assuming no changes to other factors. For our Media Networks reporting unit, we determined that an increase in the discount rate of up to 0.7% or a reduction of the perpetual nominal growth rate of up to 1.33% would not have impacted the test results, assuming no changes to other factors. We also performed a sensitivity analysis on annual revenue growth. We determined that a decrease in annual revenue growth by 0.5% for our Television business reporting unit and 0.3% for our Media Networks reporting unit, and holding film cost spend and amortization the same and maintaining other expenses at the same percentage of revenue, the results would have triggered an impairment. As a result of our quantitative assessment for fiscal 2020, we monitored all of our reporting units for changes in the business environment that could impact recoverability during fiscal 2021.
For our annual goodwill impairment test for fiscal 2021, due to the increase in the market price of our common shares since our most recent quantitative impairment assessment at March 31, 2020, the performance of the Television and Media Networks reporting units in fiscal 2021, and the improvement of overall economic conditions associated with the COVID-19 pandemic, we performed a qualitative assessment for all reporting units. This assessment included consideration of, but not limited to, the results of our most recent quantitative impairment test, consideration of macroeconomic conditions, industry and market conditions, performance and current and projected cash flows of our reporting units, and changes in our share price. Based upon our qualitative assessment, we concluded that it was more-likely-than-not that the fair value of our reporting units was greater than their carrying value.
Management will continue to monitor all of its reporting units for changes in the business environment that could impact the recoverability in future periods. The recoverability of goodwill is dependent upon the continued growth of revenue and cash flows from our business activities. Examples of events or circumstances that could result in changes to the underlying key assumptions and judgments used in our goodwill impairment tests, and ultimately impact the estimated fair value of our reporting units may include the duration of the COVID-19 global pandemic, its impact on the global economy and the creation and consumption of our content, and the timing of when remaining production can resume and remaining theaters can re-open; adverse macroeconomic conditions; volatility in the equity and debt markets which could result in higher weighted-average cost of capital; the commercial success of our television programming and our motion pictures; our continual contractual relationships with our customers; including our affiliate agreements of our Media Networks business; our subscriber growth rates domestically and internationally across our traditional and OTT platforms and changes in consumer behavior. While historical performance and current expectations have resulted in fair values of our reporting units in excess of carrying values, if our assumptions are not realized, it is possible that an impairment charge may need to be recorded in the future.
Indefinite-Lived Intangibles Other Than Goodwill Impairment Assessment:
For fiscal 2021, we performed a qualitative impairment assessment of our indefinite-lived trade names. Based on the qualitative impairment assessment of our trade names, we concluded that it is more-likely-than-not that the fair value of our trade names was more than its carrying amount, and therefore our trade names were not considered at risk of impairment. This qualitative analysis considered the relative impact of market-specific and macroeconomic factors. The market-specific factors considered included recent projections of revenues and growth in OTT subscribers, both domestic and internationally, associated with the STARZ brand name. The Company also considered the macroeconomic impact including the uncertainty around the COVID-19 global pandemic, and the resulting uncertain long-term economic impact on discount rates and growth rates, as well as the impact from tax law changes inclusive of the reduction of the federal tax rate since the acquisition of Starz.
Finite-Lived Intangible Assets.At March 31, 2021, the carrying value of our finite-lived intangible assets was approximately $1.33 billion. Our finite-lived intangible assets primarily relate to customer relationships associated with U.S. MVPDs, including cable operators, satellite television providers and telecommunications companies ("Traditional Affiliate"), which amounted to $1.31 billion. The amount of our customer relationship asset related to these Traditional Affiliate relationships reflects the estimated fair value of these customer relationships determined in connection with the acquisition of Starz on December 8, 2016, net of amortization recorded since the date of the Starz acquisition. Identifiable intangible assets with finite lives are amortized to depreciation and amortization expense over their estimated useful lives, ranging from 5 to 17 years. Through the first quarter of fiscal 2020 (see below), we amortized the Starz Traditional Affiliate customer relationships discussed above on a straight-line basis over 17 years.
Amortizable intangible assets are tested for impairment whenever events or changes in circumstances (triggering events) indicate that the carrying amount of the asset may not be recoverable. If a triggering event has occurred, an impairment analysis is required. The impairment test first requires a comparison of undiscounted future cash flows expected to be generated over the useful life of an asset to the carrying value of the asset. The impairment test is performed at the lowest level of cash flows
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associated with the asset. If the carrying value of the asset exceeds the undiscounted future cash flows, the asset would not be deemed to be recoverable. Impairment would then be measured as the excess of the asset’s carrying value over its fair value.
The Company monitors its finite-lived intangible assets and changes in the underlying circumstances each reporting period for indicators of possible impairments or a change in the useful life or method of amortization of our finite-lived intangible assets. Due to changes in the industry related to the migration from linear to OTT and direct-to-consumer consumption, in the second quarter of fiscal 2020, the Company determined it was appropriate to change the pattern of amortization of its Traditional Affiliate customer relationship intangible asset. Accordingly, beginning in the second quarter of fiscal 2020, the Company has adopted an amortization method that reflects amortization in the proportion that current period revenues bear to management’s estimate of future revenue over the remaining estimated useful life of the asset. This method results in greater amortization in the earlier years of the estimated useful life of the asset than the latter years. See Note 1 to our consolidated financial statements under the Finite-Lived Intangible Assets section for further details.
During fiscal 2021 and fiscal 2020, due to industry factors discussed in the preceding paragraph and the economic uncertainty from the COVID-19 global pandemic, we performed an impairment analysis of our amortizable intangible assets. The impairment analysis requires a comparison of undiscounted future cash flows expected to be generated over the useful life of an asset to the carrying value of the asset. Based on our impairment analysis, the estimated undiscounted cash flows exceeded the carrying amount of the assets and therefore no impairment charge was required.
Determining whether an intangible asset is recoverable or impaired requires various estimates and assumptions, including whether events or circumstances indicate that the carrying amount of the asset may not be recoverable, determining estimates of future cash flows for the assets involved and, when applicable, the assumptions applied in determining fair value, including discount rates, growth rates, market risk premiums and other assumptions about the economic environment. Should the revenues from our Traditional Affiliate relationships decline more than the assumed attrition rates used in our current estimates, either as a result of decreases in subscriber rates or changes of the terms of our renewals of our Traditional Affiliate contracts, we may have indicators of impairment which could result in an impairment of our customer relationships intangible assets, or we may need to further shorten the useful life or adopt a more accelerated method of amortization both of which would increase the amount of amortization expense we record.
Income Taxes.We are subject to federal and state income taxes in the U.S., and in several foreign jurisdictions. We record deferred tax assets related to net operating loss carryforwards and certain temporary differences, net of applicable reserves in these jurisdictions. We recognize a future tax benefit to the extent that realization of such benefit is more likely than not on a jurisdiction-by-jurisdiction basis; otherwise, a valuation allowance is applied. In order to realize the benefit of our deferred tax assets, we will need to generate sufficient taxable income in the future in each of the jurisdictions which have these deferred tax assets. However, the assessment as to whether there will be sufficient taxable income in a jurisdiction to realize our net deferred tax assets in that jurisdiction is an estimate which could change in the future depending primarily upon the actual performance of our Company. We will be required to continually evaluate the more likely than not assessment that our net deferred tax assets will be realized, and if operating results deteriorate in a particular jurisdiction, we may need to record a valuation allowance for all or a portion of our deferred tax assets through a charge to our income tax provision. As of March 31, 2021, we have a valuation allowance of $350.9 million against certain U.S. and foreign deferred tax assets that may not be realized on a more likely than not basis.
Our effective tax rates differ from the federal statutory rate and are affected by many factors, including the overall level of pre-tax income (loss), the mix of our pre-tax income (loss) generated across the various jurisdictions in which we operate, any changes in tax laws and regulations in those jurisdictions, changes in uncertain tax positions, changes in valuation allowances against our deferred tax assets, tax planning strategies available to us and other discrete items.
Recent Accounting Pronouncements
See Note 1 to the accompanying consolidated financial statements for a discussion of recent accounting guidance.
RESULTS OF OPERATIONS
Fiscal 2021 Compared to Fiscal 2020
Consolidated Results of Operations
The following table sets forth our consolidated results of operations for the fiscal years ended March 31, 2021 and 2020:
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Year Ended
March 31, Increase (Decrease)
(Amounts in millions)
Revenues
Expenses:
Gain on sale of Pantaya (44.1) — (44.1) n/a
Interest and other income 5.8 8.8 (3.0) (34.1) %
Gain on extinguishment of debt — 5.4 (5.4) (100.0) %
Income tax provision (17.1) (3.3) (13.8) nm
Less: Net loss attributable to noncontrolling interest 15.6 18.0 (2.4) (13.3) %
_______________________
nm - Percentage not meaningful.
Revenues. Consolidated revenues decreased in fiscal 2021, primarily due to decreases in Motion Picture and Television Production revenues, which were negatively impacted by the COVID-19 global pandemic, partially offset by increased Media Networks revenues and lower intersegment eliminations associated with lower Television Production revenues (a substantial portion of intersegment eliminations relates to Television Production revenue) for licenses of original series to Starz Networks and STARZPLAY International, both in the Media Networks segment.
With theaters mostly closed during fiscal 2021 due to circumstances associated with the COVID-19 global pandemic, Motion Picture revenue decreased primarily due to lower theatrical, international revenue, and home entertainment packaged media revenue due to fewer theatrical and home entertainment releases in fiscal 2021, and to a lesser extent, lower television and other revenue.
Television Production revenue decreased due to lower domestic television revenue with decreased intersegment revenues from the licensing of Starz original series and fewer television episodes delivered in fiscal 2021 largely because of the pausing of productions associated with the COVID-19 global pandemic. The decrease in Television Production revenue was also, to a lesser extent, due to lower other revenue. These decreases were partially offset by an increase in home entertainment digital media revenue and international revenue.
The increase in Media Networks revenue was due to increased revenue across STARZPLAY International, Starz Networks and Other Streaming Services. See further discussion in the Segment Results of Operations section below.
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Direct Operating Expenses. Direct operating expenses by segment were as follows for the fiscal years ended March 31, 2021 and 2020:
Year Ended March 31,
Amount % of Segment Revenues Amount % of Segment Revenues Amount Percent
(Amounts in millions)
Direct operating expenses
_______________________
nm - Percentage not meaningful.
Direct operating expenses decreased in fiscal 2021, primarily due to lower Motion Picture and Television Production revenue and lower other direct operating expense related to certain programming and content charges in fiscal 2020 (as further described below), and to a lesser extent, slightly lower Media Networks direct operating expense. These decreases were partially offset by an increase from COVID-19 related charges (as further described below). The decrease in Television Production direct operating expense was partially offset by the decrease in intersegment eliminations, which primarily relate to Television Production direct operating costs associated with licenses of original series to Starz Networks and STARZPLAY International, both in the Media Networks segment. The decrease from Media Networks was due to lower programming amortization at STARZPLAY International, which was partially offset by a benefit at Starz Networks in fiscal 2020 of $39.7 million associated with the modification of a content licensing arrangement, net of amortization for related changes in content availability and air dates. See further discussion in the Segment Results of Operations section below.
COVID-19 Related Charges.In connection with the disruptions associated with the COVID-19 global pandemic and measures to prevent its spread and mitigate its effects both domestically and internationally, and the related economic disruption, during fiscal 2021 and fiscal 2020, we incurred $50.6 million and $46.0 million in incremental costs which were expensed in the periods which are included in consolidated direct operating expense and are excluded from segment direct operating expense. These costs include incremental costs associated with film impairment due to changes in performance expectations, the pausing and restarting of productions including certain cast and crew, idle facilities and equipment costs resulting from circumstances associated with the COVID-19 global pandemic. We expect to incur additional incremental costs in future periods. If the adverse economic impact and disruptions associated with the COVID-19 global pandemic continue to improve, we expect that the incremental costs we incur in future periods will decrease as compared to fiscal 2021. We are in the process of seeking insurance recovery for some of these costs, which cannot be estimated at this time, and therefore no material amounts of insurance proceeds have been recorded in our consolidated financial statements.
Other. During fiscal 2020, in connection with management changes, we implemented changes to our programming and broadcasting strategy including programming acquired or produced under prior management. As a result, we recorded certain programming and content charges of $76.5 million in fiscal 2020, which are excluded from segment operating results but included in direct operating expense in the consolidated statement of operations and reflected in the "other" line item above. In addition, "other" direct operating expenses in the table above includes the amortization of the non-cash fair value adjustments on film and television assets associated with the application of purchase accounting related to recent acquisitions.
Distribution and Marketing Expenses. Distribution and marketing expenses by segment were as follows for the fiscal years ended March 31, 2021 and 2020:
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Year Ended March 31, Increase (Decrease)
(Amounts in millions)
Distribution and marketing expenses
Distribution and marketing expenses decreased in fiscal 2021 due to a decrease in Motion Picture theatrical P&A, international and home entertainment distribution and marketing expense, partially offset by increased Media Networks distribution and marketing expense and COVID-19 related charges (as further described below). The decrease in Motion Picture theatrical P&A and international distribution and marketing expense was primarily impacted by the COVID-19 global pandemic and associated closure of theaters. The increase in Media Networks distribution and marketing expense was driven by increases at STARZPLAY International and Starz Networks. See further discussion in the Segment Results of Operations section below.
In connection with the disruptions associated with the COVID-19 global pandemic and measures to prevent its spread and mitigate its effects both domestically and internationally, and the related economic disruption, during fiscal 2021 and fiscal 2020 we have incurred $16.9 million and $4.2 million, respectively, in costs primarily related to contractual marketing spends for film releases and events that were canceled or delayed and thus will provide no economic benefit. These charges are excluded from segment operating results. We expect to incur additional incremental costs in future periods. If the adverse economic impact and disruptions associated with the COVID-19 global pandemic continue to improve, we expect that the incremental costs we incur in future periods will decrease as compared to fiscal 2021.
General and Administrative Expenses. General and administrative expenses by segment were as follows for the fiscal years ended March 31, 2021 and 2020:
Year Ended
March 31, Increase (Decrease)
2021 % of Revenues 2020 % of Revenues Amount Percent
(Amounts in millions)
General and administrative expenses
Purchase accounting and related adjustments 47.2 52.6 (5.4) (10.3) %
General and administrative expenses increased in fiscal 2021, resulting from an increase in share-based compensation expense, as further described below, and increases in Corporate, Television Production, Media Networks, and Motion Picture general and administrative expenses, partially offset by decreased purchase accounting and related adjustments. See further discussion in the Segment Results of Operations section below.
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Corporate general and administrative expenses increased $14.0 million, or 14.0%, primarily due to an increase in cash based incentive compensation partially offset by a decrease in professional fees.
The increase in share-based compensation expense included in general and administrative expense in the fiscal year ended March 31, 2021, as compared to the fiscal year ended March 31, 2020 is primarily due to higher fair values associated with performance-based stock option and other equity awards that are revalued at each reporting period until the stock option or equity award vests and the applicable performance goals are achieved. Additionally, the increase in share-based compensation expense is due to an increase in the number of share-based payment awards incurring expense in fiscal 2021, as compared to fiscal 2020. The following table presents share-based compensation expense by financial statement line item:
Year Ended
(Amounts in millions)
Share-based compensation expense included in:
General and administrative expense $ 82.9 $ 48.5
Restructuring and other(1) 3.5 0.6
Direct operating expense 2.0 1.0
Distribution and marketing expense 0.6 0.5
Total share-based compensation expense $ 89.0 $ 50.6
_______________________
(1)Represents share-based compensation expense included in restructuring and other expenses reflecting the impact of the acceleration of certain vesting schedules for equity awards pursuant to certain severance arrangements.
Purchase accounting and related adjustments represent the charge for the accretion of the noncontrolling interest discount related to Pilgrim Media Group and 3 Arts Entertainment, the amortization of the recoupable portion of the purchase price and the expense associated with earned distributions related to 3 Arts Entertainment, all of which are accounted for as compensation and are included in general and administrative expense. Purchase accounting and related adjustments decreased $5.4 million, or 10.3%, primarily due to the expense associated with the earned distributions related to 3 Arts Entertainment.
Depreciation and Amortization Expense. Depreciation and amortization of $188.5 million for fiscal 2021 decreased $9.2 million from $197.7 million in fiscal 2020.
Restructuring and Other. Restructuring and other increased $0.4 million in fiscal 2021 as compared to fiscal 2020, and includes restructuring and severance costs, certain transaction and related costs, and certain unusual items, when applicable. Restructuring and other costs were as follows for the fiscal year ended March 31, 2021 and 2020 (see Note 16 to our consolidated financial statements):
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Year Ended March 31, Increase (Decrease)
(Amounts in millions)
Restructuring and other:
Severance(1)
Accelerated vesting on equity awards (see Note 14) 3.5 0.6 2.9 nm
Transaction and related costs(3) 3.4 11.1 (7.7) (69.4) %
_______________________
nm - Percentage not meaningful.
(1)Severance costs in the fiscal years ended March 31, 2021 and 2020 were primarily related to restructuring activities in connection with cost-saving initiatives and recent acquisitions.
(2)During the years ended March 31, 2021 and 2020, the Company has incurred certain costs including costs primarily related to transitioning the Company to a remote-work environment and other incremental costs associated with the COVID-19 global pandemic.
(3)Transaction and related costs in the fiscal years ended March 31, 2021 and 2020 reflect transaction, integration and legal costs incurred associated with certain strategic transactions, restructuring activities and legal matters.
Gain on Sale of Pantaya. Gain on sale of Pantaya of $44.1 million for fiscal 2021 represents the gain before income taxes on the sale of the Company's 75% majority interest in Pantaya on March 31, 2021. This gain amount is net of $69.0 million of goodwill allocated from the Media Networks segment as required under the applicable goodwill accounting guidance. Pantaya was previously reflected in the Company's Media Networks segment (see the Segment Results of Operations section below). See Note 2 to our consolidated financial statements.
Interest Expense. Interest expense of $181.5 million in fiscal 2021 decreased $9.8 million from fiscal 2020 due to lower interest expense on the term loans partially offset by an increase in amortization of debt financing costs and other non-cash interest. The decrease in interest expense on the term loans is primarily due to reductions of the outstanding principal amounts from required principal payments during fiscal 2020 and fiscal 2021, and the lower LIBOR rate in fiscal 2021. The increase in amortization of debt financing costs and other non-cash interest is due to the amortization of unrealized losses in accumulated other comprehensive loss related to de-designated interest rate swaps which are being amortized to interest expense (see Note 16 to our consolidated financial statements). The following table sets forth the components of interest expense for the fiscal years ended March 31, 2021 and 2020:
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Year Ended
(Amounts in millions)
Interest Expense
Cash Based:
Revolving credit facility $ 4.2 $ 6.4
Amortization of financing costs and other non-cash interest(2) 44.8 14.9
______________________
(1)Amounts include payments associated with the Company's interest rate swaps (see Note 19 to our consolidated financial statements).
(2)Amounts include the amortization of unrealized losses in accumulated other comprehensive loss related to de-designated interest rate swaps which are being amortized to interest expense (see Note 19 to our consolidated financial statements).
Other Expense. Other expense of $6.7 million for fiscal 2021 compared to other expense of $11.1 million for fiscal 2020, and represented the loss recorded related to our monetization of accounts receivable programs (see Note 20 to our consolidated financial statements).
Gain on Extinguishment of Debt. Gain on extinguishment of debt of $5.4 million in fiscal 2020 related primarily to the repurchase of a portion of the 5.875% Senior Notes, 6.375% Senior Notes and Term Loan B, with no comparable gain in fiscal 2021. See Note 7 to our consolidated financial statements.
Gain (Loss) on Investments. Gain on investments of $0.5 million for fiscal 2021 included a gain on sale of equity securities without readily determinable fair values of $4.6 million and unrealized gains on equity securities of $1.6 million, which were offset by impairments of $5.7 million on equity method investments and equity securities without readily determinable fair values that were written down to their estimated fair value.This compared to loss on investments of $0.5 millionfor fiscal 2020 which represented unrealized losses on equity securities.
Equity Interests Loss. Equity interests loss of $6.1 million in fiscal 2021 compared to equity interests loss of $17.2 million in fiscal 2020 due to lower losses from our equity method investees.
Income Tax Provision. We had an income tax provision of $17.1 million in fiscal 2021, compared to a provision of $3.3 million in fiscal 2020. Our income tax provision differs from the federal statutory rate multiplied by pre-tax income (loss) due to the mix of our pre-tax income (loss) generated across the various jurisdictions in which we operate, changes in the valuation allowance against our deferred tax assets, and certain minimum taxes and foreign withholding taxes. Our income tax provision for fiscal 2021 and fiscal 2020 was also impacted by the change in uncertain tax benefits due to the expiration of statutory limitations and additional settlements with tax authorities.
At March 31, 2021, we had U.S. net operating loss carryforwards of approximately $1,225.7 million available to reduce future federal income taxes which expire beginning in 2029 through 2039, state net operating loss carryforwards of approximately $740.1 million available to reduce future state income taxes which expire in varying amounts beginning 2022, Canadian loss carryforwards of $7.4 million which will expire beginning in 2028, and Luxembourg loss carryforwards of $591.0 million which will expire beginning in 2036. In addition, at March 31, 2021, we had U.S. credit carryforwards related to foreign taxes paid of approximately $77.3 million to offset future federal income taxes that will expire beginning in 2022.
Net Loss Attributable to Lions Gate Entertainment Corp. Shareholders. Net loss attributable to our shareholders for the fiscal year ended March 31, 2021 was $18.9 million, or basic and diluted net loss per common share of $0.09 on 220.5 million weighted average common shares outstanding. This compares to net loss attributable to our shareholders for the fiscal year ended March 31, 2020 of $188.4 million, or basic and diluted net loss per common share of $0.86 on 217.9 million weighted average common shares outstanding.
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Segment Results of Operations
The segment results of operations presented below do not include the elimination of intersegment transactions which are eliminated when presenting consolidated results, and exclude items separately identified in the restructuring and other line item in the consolidated statements of operations.
The Company's primary measure of segment performance is segment profit. Segment profit is defined as gross contribution (revenues, less direct operating and distribution and marketing expense) less segment general and administration expenses. Segment profit excludes corporate general and administrative expense, restructuring and other costs, share-based compensation, certain programming and content charges as a result of changes in management and associated programming and content strategy, and, when applicable, certain charges related to the COVID-19 global pandemic, and purchase accounting and related adjustments. The Company believes the presentation of segment profit is relevant and useful for investors because it allows investors to view segment performance in a manner similar to the primary method used by the Company's management and enables them to understand the fundamental performance of the Company's businesses. The reconciliation of segment profit to the Company's consolidated loss before income taxes is presented in Note 17 to the consolidated financial statements.
Motion Picture
The table below sets forth Motion Picture gross contribution and segment profit for the fiscal years ended March 31, 2021 and 2020:
Year Ended
March 31, Increase (Decrease)
(Amounts in millions)
Motion Picture Segment:
Expenses:
Direct operating expense as a percentage of revenue 47.0 % 48.5 %
Gross contribution as a percentage of revenue 37.2 % 18.8 %
Revenue. The table below sets forth Motion Picture revenue by media and product category for the fiscal years ended March 31, 2021 and 2020:
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Year Ended March 31,
Feature Film(1) Other Film(2) Total Feature Film(1) Other Film(2) Total
(Amounts in millions)
Motion Picture Revenue
Home Entertainment
____________________
(1)Feature Film: Includes theatrical releases through our Lionsgate and Summit Entertainment film labels, which includes films developed and produced in-house, films co-developed and co-produced and films acquired from third parties.
(2)Other Film: Includes direct-to-DVD motion pictures, acquired and licensed brands, third-party library product and ancillary-driven platform theatrical releases through our specialty films distribution labels including Lionsgate Premiere, through Good Universe, and with our equity method investees, Roadside Attractions and Pantelion Films, and other titles.
With theaters mostly closed during fiscal 2021 due to circumstances associated with the COVID-19 global pandemic, theatrical revenue decreased $343.6 million, or 96.6%, in fiscal 2021 as compared to fiscal 2020. Fiscal 2020 included significant revenue from Knives Out, John Wick: Chapter 3 - Parabellum, Angel Has Fallen, Midway and Rambo: Last Blood, while fiscal 2021 included revenue from the limited theatrical release of Chaos Walking and Fatale.
Home entertainment revenue decreased $103.8 million, or 14.7%, in fiscal 2021, as compared to fiscal 2020, due to a decrease of $117.4 million in packaged media revenues as a result of fewer home entertainment releases from our fiscal 2021 theatrical slate in our Feature Film category due to circumstances associated with the COVID-19 global pandemic, and decreases in our Other Films category. The decrease in packaged media revenues was partially offset by increased digital media revenues of $13.6 million, which included increases in our Other Films category from The Secret: Dare to Dream and Force of Nature. Digital media revenue in our Feature Film category in fiscal 2021 included the Premium VOD release of Antebellum, and the initial release on a streaming platform of Run and from our fiscal 2020 theatrical slate revenues from I Still Believe and Knives Out. Digital media revenue in our Feature Film category in fiscal 2020 included significant digital media revenue from John Wick: Chapter 3 - Parabellum.
Television revenue decreased $16.9 million, or 6.8%, in fiscal 2021, as compared to fiscal 2020, due to fewer television windows opening (and revenue recognized) than in fiscal 2020.
International revenue decreased $124.0 million, or 36.4%, in fiscal 2021, as compared to fiscal 2020 due to lower revenue from our fiscal 2021 theatrical slate, which had limited new theatrical releases due to circumstances associated with the COVID-19 global pandemic, as compared to the revenue generated from our fiscal 2020 theatrical slate in fiscal 2020, which included significant international revenue from John Wick: Chapter 3 - Parabellum and Knives Out.
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If the adverse economic impact and disruptions associated with the COVID-19 global pandemic continue to improve, we currently expect that Motion Picture segment revenues will increase in fiscal 2022 as compared to fiscal 2021. The extent of the increase, if any, to Motion Picture segment revenues, will depend on, among other things, the impact of governmental regulations that have been, and may continue to be, imposed in response to the pandemic, the continued effectiveness of actions taken to contain or mitigate the outbreak (including the availability, effectiveness and/or public acceptance of any FDA-approved COVID-19 vaccines), potential resurgences of COVID-19 in certain parts of the world, and the discovery of new variants of the virus which could result in the re-imposition of certain restrictions and may lead to more restrictions being implemented again to reduce the spread of COVID-19, general global economic conditions, the rate at which theaters are able to re-open at scale, the rate of consumers' return to the theaters, and the impact of a potentially crowded marketplace from movies which are awaiting theatrical release in the market. The evolving and uncertain nature of the situation could result in further interruptions to our operations, including delays in domestic and international theatrical distribution and production and the pausing of productions, which could impact Motion Picture segment revenues.
Direct Operating Expense. The decrease in direct operating expenses is due to a decrease in Motion Picture revenues. The small decrease in direct operating expenses as a percentage of motion picture revenue was driven by the change in the mix of titles and product categories generating revenue in fiscal 2021 as compared to fiscal 2020. In particular, the decrease was impacted by the lower amortization rate of the fiscal 2016 and prior theatrical slate titles and acquired and licensed libraries generating revenue in fiscal 2021 as compared to fiscal 2020. Investment in film write-downs included in Motion Picture segment direct operating expense for fiscal 2021 were $19.4 million, as compared to $42.1 million in fiscal 2020.
Distribution and Marketing Expense.The decrease in distribution and marketing expense in fiscal 2021 is primarily due to lower theatrical P&A and international distribution and marketing expense associated with the closure of theaters during fiscal 2021 due to circumstances associated with the COVID-19 global pandemic, and to a lesser extent, lower home entertainment distribution and marketing expense. Theatrical P&A and Premium VOD expense in fiscal 2021 includes expense associated with the release of Antebellum, Chaos Walking, Fatale, and Barb and Star Go to Vista Del Mar. In fiscal 2021, approximately $7.2 million of P&A and Premium VOD expense was incurred in advance for films to be released in fiscal 2022. In fiscal 2020, approximately $10.8 million of P&A and Premium VOD expense was incurred in advance for films to be released in fiscal 2021, such as Antebellum, Spiral, Barb and Star Go to Visa Del Mar, and Run.
Gross Contribution. While Motion Picture revenue declined during the period as discussed above, gross contribution of the Motion Picture segment for fiscal 2021 increased $88.3 million, or 28.2%, as compared to fiscal 2020 due to lower Motion Picture distribution and marketing expense as a percentage of Motion Picture revenue, and lower direct operating expense as a percentage of Motion Picture revenue, as discussed above.
General and Administrative Expense. General and administrative expenses of the Motion Picture segment increased $1.4 million, or 1.3%, due to increases in cash based incentive compensation, partially offset by decreases in salaries and wages associated with restructuring initiatives, and decreases in rent, facility, and travel and related costs.
Television Production
The table below sets forth Television Production gross contribution and segment profit for the fiscal years ended March 31, 2021 and 2020:
Year Ended
March 31, Increase (Decrease)
(Amounts in millions)
Television Production Segment:
Expenses:
Distribution & marketing expense 29.0 30.7 (1.7) (5.5) %
General and administrative expenses 42.7 37.3 5.4 14.5 %
Direct operating expense as a percentage of revenue 81.3 % 87.9 %
Gross contribution as a percentage of revenue 15.2 % 9.1 %
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Revenue. The table below sets forth Television Production revenue and changes in revenue by media for the fiscal years ended March 31, 2021 and 2020:
Year Ended
March 31, Increase (Decrease)
Television Production (Amounts in millions)
Home Entertainment Revenue
The primary component of Television Production revenue is domestic television revenue. Domestic television revenue decreased in fiscal 2021 as compared to fiscal 2020, due to decreased intersegment revenues from the licensing of Starz original series (fiscal 2020 included significant revenue from Power Season 6), fewer television episodes delivered, and decreased revenue from reality television series, all of which were negatively impacted by disruptions associated with the COVID-19 global pandemic and the associated pausing of productions which resulted in the delay of television episodes delivered in fiscal 2021. In addition, fiscal 2020 included significant revenue from Ambitions and House of Payne.
International revenue in fiscal 2021 increased $11.8 million, or 7.7%, as compared to fiscal 2020, due to increased intersegment revenues from STARZPLAY International from the licensing of Starz original series, and in particular, Power Book II: Ghost.
Home entertainment revenue in fiscal 2021 increased $72.0 million, or 118.4%, as compared to fiscal 2020, driven by digital media revenue in fiscal 2021 for the second syndication license of Mad Men Seasons 1 - 7, and digital media revenue for Power Season 6, partially offset by digital media revenue in fiscal 2020 for Power Season 5.
Other revenue decreased in fiscal 2021 as compared to fiscal 2020. Revenue of 3 Arts Entertainment was negatively impacted in fiscal 2021 as a result of the COVID-19 global pandemic related disruptions.While television production has mostly resumed, the extent of the future impact on other revenue of the COVID-19 global pandemic is uncertain and will depend on film and television productions and releases fully returning to and remaining at pre COVID-19 levels.
If the adverse economic impact and disruptions associated with the COVID-19 global pandemic continue to improve, we currently expect that Television Production segment revenues will increase in fiscal 2022 as compared to fiscal 2021. The extent of the increase, if any, to Television Production segment revenues, will depend on, among other things, the impact of governmental regulations that have been, and may continue to be, imposed in response to the pandemic, the continued effectiveness of actions taken to contain or mitigate the outbreak (including the availability, effectiveness and/or public acceptance of any FDA-approved COVID-19 vaccines), potential resurgences of COVID-19 in certain parts of the world, and the discovery of new variants of the virus which could result in the re-imposition of certain restrictions and may lead to more restrictions being implemented again to reduce the spread of COVID-19, and general global economic conditions. The evolving and uncertain nature of the situation could result in further interruptions to our operations, including delays in domestic and international distribution and production throughout the U.S., Canada and worldwide, and the pausing of productions, which could impact Television Production segment revenues.
Direct Operating Expense. Direct operating expense of the Television Production segment in fiscal 2021 decreased $203.4 million, or 23.1%, due to the decrease in Television Production revenues. Direct operating expenses as a percentage of television production revenue decreased due to the mix of titles generating revenue in fiscal 2021 as compared to fiscal 2020. In particular, fiscal 2021 included significant revenue from Mad Men, which has a lower amortization rate relative to the amortization rate of the Television Production segment, and due to the COVID-19 global pandemic related disruptions, fiscal 2021 included fewer deliveries of newer shows in which direct operating expense is typically higher as a percentage of revenue.
Gross Contribution. Gross contribution of the Television Production segment for fiscal 2021 increased as compared to fiscal 2020, due to lower direct operating expenses as a percentage of television production revenue, partially offset by lower television production revenue.
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General and Administrative Expense. General and administrative expenses of the Television Production segment increased $5.4 million, or 14.5%, due to an increase in incentive compensation partially offset by decreases in travel and related expenses.
Media Networks
The table below sets forth Media Networks gross contribution and segment profit for the fiscal years ended March 31, 2021 and 2020:
Year Ended
March 31, Increase (Decrease)
(Amounts in millions)
Media Networks Segment:
Expenses:
General and administrative expenses 93.9 87.5 6.4 7.3 %
Direct operating expense as a percentage of revenue 43.4 % 45.7 %
Gross contribution as a percentage of revenue 24.5 % 25.6 %
The following table sets forth the Media Networks segment profit by product line. Our majority interest in Pantaya (reflected in and representing substantially all of Other Streaming Services) was sold on March 31, 2021, see Note 2 to our consolidated financial statements for further information.
Year Ended Year Ended
(Amounts in millions)
Media Networks Segment:
Expenses:
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Subscriber Data. The number of period-end service subscribers is a key metric to evaluate a non-ad supported subscription video service as a growing or decreasing subscriber base is a key indicator of the health of the overall business. Service subscribers may impact revenue differently depending on specific distribution agreements we have with our distributors which may include fixed fees, rates per basic video household or a rate per STARZ subscriber. The table below sets forth, for the periods presented, subscriptions to our Media Networks and STARZPLAY Arabia services.
(Amounts in millions)
Starz Domestic
STARZPLAY International
Linear Subscribers 1.9 1.9
OTT Subscribers 4.9 1.3
Total Starz
STARZPLAY Arabia(1) 1.8 1.8
Total Domestic and International Subscribers(2) 29.5 23.9
Subscribers by Platform:
Total Global Subscribers(2) 29.5 23.9
___________________
(1)Represents subscribers of STARZPLAY Arabia, a non-consolidated equity method investee.
(2)Due to the March 31, 2021 sale of Pantaya, total domestic and international subscribers, OTT subscribers and total global subscribers amounts have been adjusted from amounts previously reported for March 31, 2020 to exclude Pantaya in order to be consistent with the presentation at March 31, 2021. Subscribers of Pantaya (all OTT) at March 31, 2021 and March 31, 2020 amounted to 0.9 million and 0.7 million, respectively.
(3)OTT subscribers includes subscribers of STARZPLAY Arabia, as presented above.
Revenue. The increase in Media Networks' revenue was driven by higher STARZPLAY International revenue of $42.6 million, increased Starz Networks' revenue of $16.8 million and increased Other Streaming Services revenue of $16.5 million. STARZPLAY International revenue increased as a result of subscriber and revenue growth in the international territories previously launched, and additional territories launched since March 31, 2020. Starz Networks' revenue increased as a result of higher OTT revenue resulting from increased subscriptions, partially offset by declines in revenue from traditional linear services. Our majority interest in Pantaya (reflected in and representing substantially all of Other Streaming Services) was sold on March 31, 2021, see Note 2 to our consolidated financial statements for further information.
As a result of events related to the COVID-19 global pandemic, television and streaming consumption around the globe increased, as well as home entertainment demand. STARZ experienced an increase in viewership of its content across all platforms as well as an increase in subscribers to its OTT services, both domestically and internationally. This increase in subscribers is dependent upon future economic conditions, our ability to deliver original content and may vary due to changes in consumer viewing and subscription patterns. However, it is too early to say whether this increase is indicative of future results and whether growth may slow as governmental and other restrictions are relaxed, and as a result of the current and possible longer term negative economic impact of the pandemic.
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During fiscal 2021 and fiscal 2020, the following original series premiered on STARZ:
First Quarter: First Quarter:
Vida Season 3 The Spanish Princess
Hightown Season 1 Vida Season 2
The Rook Season 1
Second Quarter: Second Quarter:
P-Valley Season 1 Sweetbitter Season 2
Power Book II: Ghost Power Season 6A
Power Confidential Season 1
Third Quarter:* Third Quarter:
Seduced: Inside the NXIVM Cult Dublin Murders
The Spanish Princess Season 2 Leavenworth
Fourth Quarter: Fourth Quarter:
American Gods Season 3 Power Season 6B
Min in Kilts Wrong Man Season 2
The Gloaming Outlander Season 5
*In addition, while Power Book II: Ghost premiered in the second quarter ended September 30, 2020, the series returned with a mid-season premiere in the third quarter in December 2020.
Direct Operating and Distribution and Marketing Expenses. Direct operating and distribution and marketing expenses primarily represent programming cost amortization and advertising and marketing costs, respectively. The level of programming cost amortization and advertising and marketing costs and thus the gross contribution margin for the Media Networks' segment can fluctuate from period to period depending on the number of new original series and first-run output theatrical movies premiering on the network during the period. Programming cost amortization and advertising and marketing costs generally increase in periods where new original series premiere. In addition, the launch of the STARZPLAY international service has and will continue to result in an increase in expenses as the service continues to expand.
The decrease in Media Networks direct operating expenses is due to lower direct operating expenses at STARZPLAY International, offset by increases at Starz Networks and, to a lesser extent, Other Streaming Services in fiscal 2021. Direct operating expenses at STARZPLAY International decreased as a result of write downs of programming costs during fiscal 2020 and prior periods, which reduced the programming cost basis being amortized in fiscal 2021, partially offset by the continued expansion of STARZPLAY International. The increase in Starz Networks direct operating expense was due to a benefit in fiscal 2020 of $39.7 million associated with the modification of a content licensing arrangement, net of amortization for related changes in content availability and air dates, and higher programming amortization related to theatrical releases under our programming output agreement with Sony, partially offset by lower programming cost amortization related to our Starz Originals due to fewer series premieres and lower development expense.
The increase in Media Networks distribution and marketing expense is due primarily to an increase at STARZPLAY International from increased advertising and marketing costs in order to drive subscriber growth in the international territories previously launched, and additional territories launched since March 31, 2020. In addition, Starz Networks distribution and marketing expense increased due to an increase in operating expense related to continued growth in the OTT service and increased advertising and marketing to drive subscriber growth.
Gross Contribution. The increase in gross contribution compared to fiscal 2020 was due to lower negative contributions from STARZPLAY International and Other Streaming Services, partially offset by a decrease at Starz Networks driven by the benefit in direct operating expense in fiscal 2020 as discussed above.
General and Administrative Expense. General and administrative expenses of the Media Networks segment in fiscal 2021 increased from fiscal 2020, driven by slight increases across STARZPLAY International, Starz Networks and Other Streaming Services.
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Liquidity and Capital Resources
Sources and Uses of Cash
Our liquidity and capital resources have been provided principally through cash generated from operations, corporate debt, our production loans, the monetization of trade accounts receivable and our Production Tax Credit Facility (as defined and further described below). As of March 31, 2021, we had cash and cash equivalents of $528.7 million. Our debt at March 31, 2021 primarily consisted of a $1.5 billion five-year revolving credit facility (with no amounts outstanding at March 31, 2021) due March 2023 (the "Revolving Credit Facility"), a five-year term loan A facility due March 2023 (the "Term Loan A"), a seven-year term loan B facility due March 2025 (the "Term Loan B", and, together with the Revolving Credit Facility and the Term Loan A, the "Senior Credit Facilities"), 5.875% senior notes due 2024 (the "5.875% Senior Notes"), and 6.375% senior notes due 2024 (the "6.375% Senior Notes"). See below for our refinancing and debt transaction activities subsequent to March 31, 2021.
In addition, in January 2021, as amended on March 31, 2021, we entered into a non-recourse senior secured revolving credit facility (the "Production Tax Credit Facility") based on collateral consisting of certain of the Company’s tax credit receivables. The maximum principal amount of the Production Tax Credit Facility is $220.0 million, subject to the amount of collateral available, which is based on specified percentages of amounts payable to the Company by governmental authorities pursuant to the tax incentive laws of certain eligible jurisdictions that arise from the production or exploitation of motion pictures and television programming in such jurisdiction. Advances under the Production Tax Credit Facility bear interest at a rate equal to, at our option, LIBOR plus 1.50% per annum or the base rate plus 0.50% per annum. The Production Tax Credit Facility matures on January 27, 2025.As of March 31, 2021, the Company had $120.0 million outstanding under the Production Tax Credit Facility, and there was $79.2 million available under the Production Tax Credit Facility.
Subsequent to March 31, 2021, we completed the following debt transactions:
Senior Notes Redemption and Issuance. On April 1, 2021, we redeemed in full the $518.7 million outstanding principal amount of the 5.875% Senior Notes due November 2024 and the $545.6 million outstanding principal amount of the 6.375% Senior Notes due February 2024. In connection with the early redemption of the 5.875% Senior Notes and the 6.375% Senior Notes, we paid a prepayment premium of $15.2 million and $17.4 million, respectively, plus accrued and unpaid interest to the date of redemption, pursuant to the terms of the indentures governing the 5.875% Senior Notes and the 6.375% Senior Notes, respectively.
In connection with the redemption of the 5.875% Senior Notes and the 6.375% Senior Notes, on April 1, 2021, we issued $1.0 billion aggregate principal amount of 5.500% Senior Notes due April 15, 2029.
Credit Agreement Amendment. On April 6, 2021, we amended our Credit Agreement to, among other things, extend the maturity (the "Extension") of a portion of its revolving credit commitments, amounting to $1.25 billion, and a portion of its outstanding term A loans, amounting to $444.9 million, to April 6, 2026 (the "2026 Term Loan A"), and make certain other changes to the covenants and other provisions therein. After giving effect to the Extension, $250.00 million of revolving credit commitments and $215.1 million of term A loans remained outstanding with a maturity of March 22, 2023 (the "2023 Term Loan A").
The 2026 Term Loan A requires mandatory quarterly principal payments beginning September 30, 2022 at a quarterly rate of 1.25%, then at quarterly rates of 1.75% beginning September 30, 2023, and 2.50% beginning September 30, 2024 through March 31, 2026, with the balance payable at maturity. The 2023 Term Loan A will continue to require mandatory quarterly principal payments under the original repayment schedule, at quarterly rates of 2.50% beginning June 30, 2021, with the balance payable at maturity.
Term Loan B Repurchases. In April and May 2021, we completed a series of repurchases of the Term Loan B and, in aggregate, paid $60.1 million to repurchase $60.5 million principal amount of the Term Loan B.
See Note 22 to our consolidated financial statements for further information.
Our principal uses of cash in operations include the funding of film and television productions, film and programming rights acquisitions, and the distribution and marketing of films and television programs. We also use cash for debt service (i.e. principal and interest payments) requirements, equity method or other equity investments, quarterly cash dividends, the purchase of common shares under our share repurchase program, capital expenditures, and acquisitions of businesses.
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In addition, the Company has a redeemable noncontrolling interest balance of $219.1 million as of March 31, 2021 related to its acquisition of a controlling interest in Pilgrim Media Group and 3 Arts Entertainment, which may require the use of cash in the event the holders of the noncontrolling interests require the Company to repurchase their interests (see Note 12 to our consolidated financial statements).
We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Anticipated Cash Requirements. The nature of our business is such that significant initial expenditures are required to produce, acquire, distribute and market films and television programs, while revenues from these films and television programs are earned over an extended period of time after their completion or acquisition. In addition, the launch of the Company's STARZPLAY international service has and will require capital investment as the service expands to other international territories.
In the short-term, while a portion of our revenue has been reduced as a result of disruptions associated with the COVID-19 global pandemic, our cash requirements for productions and marketing spends have also been reduced. While we cannot predict the outcome of the disruptions associated with the COVID-19 global pandemic on our operating results, cash flows and financial position, we currently expect that as production activity increases and theaters begin to reopen, our cash requirements for productions and marketing spends will increase in fiscal 2022 as compared to fiscal 2021.
However, we currently believe that cash flow from operations, cash on hand, revolving credit facility availability, the monetization of trade accounts receivable, tax-efficient financing, the availability of our Production Tax Credit Facility, and available production financing will be adequate to meet known operational cash and debt service (i.e. principal and interest payments) requirements for the foreseeable future, including the funding of future film and television production, film and programming rights acquisitions and theatrical and home entertainment release schedules, and future equity method or other investment funding requirements, and international expansion. We monitor our cash flow liquidity, availability, fixed charge coverage, capital base, film spending and leverage ratios with the long-term goal of maintaining our credit worthiness.
Our current financing strategy is to fund operations and to leverage investment in films and television programs through our cash flow from operations, our revolving credit facility, single-purpose production financing, government incentive programs, film funds, distribution commitments, the monetization of trade accounts receivable, and our Production Tax Credit Facility. In addition, we continue to expand our STARZPLAY international service and may acquire businesses or assets, including individual films or libraries that are complementary to our business. Any such transaction could be financed through our cash flow from operations, credit facilities, equity or debt financing. If additional financing beyond our existing cash flows from operations and credit facilities cannot fund such transactions, there is no assurance that such financing will be available on terms acceptable to us. Our ability to obtain any additional financing will depend on, among other things, our business plans, operating performance and the condition of the capital markets at the time we seek financing. Additionally, circumstances related to the COVID-19 global pandemic has caused disruption in the capital markets, which could make financing more difficult and/or expensive, and we may not be able to obtain such financing. We may also dispose of businesses or assets, including individual films or libraries, and use the net proceeds from such dispositions to fund operations or such acquisitions, or to repay debt.
Covenants. The Senior Credit Facilities contain representations and warranties, events of default and affirmative and negative covenants that are customary for similar financings and which include, among other things and subject to certain significant exceptions, restrictions on the ability to declare or pay dividends, create liens, incur additional indebtedness, make investments, dispose of assets and merge or consolidate with any other person. In addition, a net first lien leverage maintenance covenant and an interest coverage ratio maintenance covenant apply to the Revolving Credit Facility and the Term Loan A and are tested quarterly. As of March 31, 2021, the Company was in compliance with all applicable covenants.
The 5.875% Senior Notes and 6.375% Senior Notes contain certain restrictions and covenants that, subject to certain exceptions, limit the Company’s ability to incur additional indebtedness, pay dividends or repurchase the Company’s common shares, make certain loans or investments, and sell or otherwise dispose of certain assets subject to certain conditions, among other limitations. As of March 31, 2021, the Company was in compliance with all applicable covenants.
Share Repurchase Plan. On February 2, 2016, our Board of Directors authorized to increase our previously announced share repurchase plan from $300 million to $468 million. To date, approximately $288.1 million of our common shares have been purchased under the plan, leaving approximately $179.9 million of authorized potential repurchases. The remaining $179.9 million of our common shares authorized under the plan may be purchased from time to time at our discretion, including
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quantity, timing and price thereof, and will be subject to market conditions. Such purchases will be structured as permitted by securities laws and other legal requirements. During the fiscal year ended March 31, 2021, the Company repurchased 0.2 million of its Class A voting shares for an aggregate cost of $1.0 million, with an average repurchase price per share of $5.75.
Dividends. The amount of dividends, if any, that we pay to our shareholders is determined by our Board of Directors, at its discretion, and is dependent on a number of factors, including our financial position, results of operations, cash flows, capital requirements and restrictions under our credit agreements, and shall be in compliance with applicable law. In November 2018, our Board of Directors suspended our quarterly cash dividend to focus on driving long-term shareholder value by investing in global growth opportunities for Starz, while also strengthening the Company's balance sheet.
Capacity to Pay Dividends. At March 31, 2021, the capacity to pay dividends under the Senior Credit Facilities and the 5.875% Senior Notes and 6.375% Senior Notes significantly exceeded the amount of the Company's accumulated deficit or net loss, and therefore the Company's net loss of $34.5 million and accumulated deficit of $82.9 million were deemed free of restrictions from paying dividends at March 31, 2021.
Discussion of Operating, Investing, Financing Cash Flows
Cash and cash equivalents increased by $206.3 million for the fiscal year ended March 31, 2021 and increased by $136.8 million for the fiscal year ended March 31, 2020, before foreign exchange effects on cash. Components of these changes are discussed below in more detail.
Operating Activities. Cash flows provided by (used in) operating activities for the fiscal years ended March 31, 2021 and 2020 were as follows:
Year Ended March 31,
(Amounts in millions)
Operating Activities:
Non-cash share-based compensation 89.0 50.5 38.5
Gain on sale of Pantaya (44.1) — (44.1)
Current income tax provision (13.7) (4.2) (9.5)
Other non-cash charges included in operating activities 72.3 66.2 6.1
Changes in operating assets and liabilities:
Accounts receivable, net and other assets 133.9 397.5 (263.6)
Accounts payable and accrued liabilities 32.7 (31.8) 64.5
Other changes in operating assets and liabilities (66.1) (49.1) (17.0)
Changes in operating assets and liabilities (1,516.2) (1,228.7) (287.5)
Cash flows used in operating activities for the fiscal year ended March 31, 2021 were $0.5 million compared to cash flows provided by operating activities of $614.6 million for the fiscal year ended March 31, 2020. The increase in cash used in operating activities for fiscal 2021 as compared to fiscal 2020 is due to lower cash flows from operations before changes in operating assets and liabilities, and greater cash used from changes in operating assets and liabilities as shown above. The greater use of cash from changes in operating assets and liabilities was driven by lower decreases in accounts receivable, net and other assets, and greater cash used for investment in films and television programs and program rights. These decreases were partially offset by lower use of cash from increases in accounts payable and accrued liabilities, as reflected above, and the receipt of $64.3 million from the Internal Revenue Service related to the Company's net operating loss carryback claim which is subject to review and included in other liabilities until the review is completed. In addition, cash flows used in operating activities for the fiscal year ended March 31, 2021 included a net benefit of approximately $28.2 million from the monetization
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of accounts receivables programs, as compared to a benefit of approximately $253.0 million for the year ended March 31, 2020 (see Note 20 to our consolidated financial statements).
Investing Activities. Cash flows used in investing activities for the fiscal years ended March 31, 2021 and 2020 were as follows:
Year Ended March 31,
(Amounts in millions)
Investing Activities:
Proceeds from the sale of equity method and other investments $ 4.1 $ —
Investment in equity method investees and other (0.2) (20.6)
Capital expenditures (35.0) (31.1)
Net Cash Flows Used In Investing Activities $ (31.1) $ (51.7)
Cash flows used in investing activities of $31.1 million for the fiscal year ended March 31, 2021 compared to cash flows used in investing activities of $51.7 million for the fiscal year ended March 31, 2020, primarily due to lower investment in equity method investees and other, as reflected above.
In addition, on March 31, 2021, the Company sold its 75% majority interest in Pantaya to Hemisphere Media Group for approximately $123.6 million in cash which was paid on April 1, 2021, therefore the receivable for the purchase consideration is included in other current assets as of March 31, 2021 and excluded from the consolidated statement of cash flows, as a non-cash investing activity, for the year ended March 31, 2021 (see Note 20 to our consolidated financial statements).
Financing Activities. Cash flows provided by (used in) financing activities for the fiscal years ended March 31, 2021 and 2020 were as follows:
Year Ended March 31,
(Amounts in millions)
Debt - repurchases and repayments (267.6) (1,033.4)
Net repayments of debt (67.6) (181.3)
Production loans - borrowings 273.7 59.0
Production loans - repayments (53.0) (293.8)
Net proceeds from (repayments of) production loans 220.7 (234.8)
Production tax credit facility advances 118.8 —
Repurchase of common shares (2.2) (2.6)
Other financing activities (31.8) (7.4)
Net Cash Flows Provided By (Used In) Financing Activities $ 237.9 $ (426.1)
Cash flows provided by financing activities of $237.9 million for the fiscal year ended March 31, 2021 compared to cash flows used in financing activities of $426.1 million for the fiscal year ended March 31, 2020.
Cash flows provided by financing activities for fiscal 2021 primarily reflects net production loan borrowings of $220.7 million as production activity increased in the third and fourth quarters of fiscal 2021, Production Tax Credit Facility advances of $118.8 million, and net debt repayments of $67.6 million representing required repayments on our term loans. In addition, other financing activities in fiscal 2021 includes $22.3 million for interest rate swap settlement payments due to an other-than-insignificant financing element on a portion of our interest rate swaps (see Note 19 to our consolidated financial statements), $7.7 million for tax withholding required on equity awards, and cash used for the repurchase of common shares of $2.2 million.
Cash flows used in financing activities for fiscal 2020 primarily reflects net production loan repayments of $234.8 million and net debt repurchases and repayments of $181.3 million. In addition, cash flows used in financing activities for fiscal 2020 reflects cash used for the repurchase of common shares of $2.6 million. Net debt repurchases and repayments of $181.3 million in fiscal 2020 included the below transactions:
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•In March 2020, we paid $1.0 million to repurchase $1.3 million principal amount of the 5.875% Senior Notes, and we paid $3.5 million to repurchase $4.4 million principal amount of the 6.375% Senior Notes.
•In March 2020, we paid $22.0 million to repurchase $28.0 million principal amount of the Term Loan B.
•Voluntary prepayments totaling $101.9 million in principal outstanding under the Term Loan B, together with accrued and unpaid interest.
Debt
See Note 7 to our consolidated financial statements for a discussion of our debt.
Production Loans and Production Tax Credit Facility
See Note 10 to our consolidated financial statements for a discussion of our production loans and production tax credit facility.
Table of Debt and Contractual Commitments
The following table sets forth our future annual repayment of debt, and our contractual commitments as of March 31, 2021:
Year Ended March 31,
(Amounts in millions)
Revolving credit facility(1) $ — $ — $ — $ — $ — $ — $ —
___________________
(1)On April 6, 2021, the Company amended its Credit Agreement to extend the maturity of a portion of its revolving credit commitments, amounting to $1.25 billion, and a portion of its outstanding term A loans, amounting to $444.9 million to April 6, 2026. Additionally, in April and May 2021, we completed a series of repurchases of the Term Loan B and, in aggregate, paid $60.1 million to repurchase $60.5 million principal amount of the Term Loan B. See Note 22 to our consolidated financial statements for subsequent events.
(2)On April 1, 2021, the 5.875% Senior Notes and 6.375% Senior Notes were redeemed in full and $1.0 billion aggregate principal amount of 5.500% Senior Notes due April 2029 were issued. See Note 22 to our consolidated financial statements for subsequent events.
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(3)Film obligations include minimum guarantees, theatrical marketing obligations, and accrued licensed program rights obligations. Production loans represent loans for the production of film and television programs that we produce. Repayment dates are based on anticipated delivery or release date of the related film or contractual due dates of the obligation. Production tax credit facility represent amounts due at March 31, 2021 under our Production Tax Credit Facility, and the repayment date represents the maturity date of the Production Tax Credit Facility (January 27, 2025), however net advances and payments under the Production Tax Credit Facility can fluctuate depending on the amount of collateral available. See Note 10 to our consolidated financial statements.
(4)See Note 8 to our consolidated financial statements for further information on leases.
(5)Film obligation commitments include distribution and marketing commitments, minimum guarantee commitments, and program rights commitments. Distribution and marketing commitments represent contractual commitments for future expenditures associated with distribution and marketing of films which we will distribute. The payment dates of these amounts are primarily based on the anticipated release date of the film. Minimum guarantee commitments represent contractual commitments related to the purchase of film rights for pictures to be delivered in the future. Program rights commitments represent contractual commitments under programming license agreements related to films that are not available for exhibition until some future date (see below for further details). Production loan commitments represent amounts committed for future film production and development to be funded through production financing and recorded as a production loan liability when incurred. Future payments under these commitments are based on anticipated delivery or release dates of the related film or contractual due dates of the commitment. The amounts include estimated future interest payments associated with the commitment.
(6)Includes cash interest payments on our debt outstanding at March 31, 2021, excluding the interest payments on the revolving credit facility as future amounts are not fixed or determinable due to fluctuating balances and interest rates. See footnotes (1) and (2) above for debt transactions subsequent to March 31, 2021 (see Note 22 - Subsequent Events).
(7)Not included in the amounts above are $219.1 million of redeemable noncontrolling interest, as future amounts and timing are subject to a number of uncertainties such that we are unable to make sufficiently reliable estimations of future payments (see Note 12 to our consolidated financial statements).
We are obligated to pay programming fees for all qualifying films that are released theatrically in the U.S. by Sony’s Columbia Pictures, Screen Gems, Sony Pictures Classics and TriStar labels through 2021. We do not license films produced by Sony Pictures Animation. The programming fees to be paid by us to Sony are based on the quantity and domestic theatrical exhibition receipts of qualifying films. Since the term of the output programming agreement with Sony applies to all films released theatrically through December 31, 2021, the Company is obligated to pay fees for films that have not yet been released in theaters. We are unable to estimate the amounts to be paid under these agreements for films that have not yet been released in theaters, however, such amounts are expected to be significant. We have also entered into agreements with a number of other motion picture producers and are obligated to pay fees for the rights to exhibit certain films that are released by these producers.
For additional details of commitments and contingencies, see Note 18 to our consolidated financial statements.
Remaining Performance Obligations and Backlog
Remaining performance obligations represent deferred revenue on the balance sheet plus fixed fee or minimum guarantee contracts where the revenue will be recognized and the cash received in the future (i.e., backlog). As disclosed in Note 13 to our consolidated financial statements, remaining performance obligations were $1.6 billion at March 31, 2021 (March 31, 2020 - $1.6 billion). The backlog portion of remaining performance obligations (excluding deferred revenue) related to our Motion Picture and Television Production segments was $1.2 billion at March 31, 2021 (March 31, 2020 - $1.0 billion), respectively.
Off-Balance Sheet Arrangements
We do not have any transactions, arrangements and other relationships with unconsolidated entities that will affect our liquidity or capital resources. We have no special purpose entities that provided off-balance sheet financing, liquidity or market or credit risk support, nor do we engage in leasing, hedging or research and development services that could expose us to liability that is not reflected on the face of our consolidated financial statements. Our commitments to fund operating leases, minimum guarantees, production loans, equity method investment funding requirements and all other contractual commitments not reflected on the face of our consolidated financial statements are presented in the table above.
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ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Currency and Interest Rate Risk Management
Market risks relating to our operations result primarily from changes in interest rates and changes in foreign currency exchange rates. Our exposure to interest rate risk results from the financial debt instruments that arise from transactions entered into during the normal course of business. As part of our overall risk management program, we evaluate and manage our exposure to changes in interest rates and currency exchange risks on an ongoing basis. Hedges and derivative financial instruments will continue to be used in the future in order to manage our interest rate and currency exposure. We have no intention of entering into financial derivative contracts, other than to hedge a specific financial risk.
Currency Rate Risk. We enter into forward foreign exchange contracts to hedge our foreign currency exposures on future production expenses denominated in various foreign currencies. These contracts are entered into with major financial institutions as counterparties. We are exposed to credit loss in the event of nonperformance by the counterparty, which is limited to the cost of replacing the contracts, at current market rates. We do not require collateral or other security to support these contracts. See Note 19 to our consolidated financial statements for additional information on our financial instruments.
Interest Rate Risk. At March 31, 2021, we had interest rate swap agreements to fix the interest rate on $1.7 billion of variable rate LIBOR-based debt. See Note 19 to our consolidated financial statements for additional information. The difference between the fixed rate to be paid and the variable rate received under the terms of the interest rate swap agreements will be recognized as interest expense for the related debt. Changes in the variable interest rates to be paid or received pursuant to the terms of the interest rate swap agreements will have a corresponding effect on future cash flows.
Certain of our borrowings, primarily borrowings under our Senior Credit Facilities, certain production loans and our Production Tax Credit Facility, are, and are expected to continue to be, at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income would decrease. The applicable margin with respect to loans under the revolving credit facility and Term Loan A is a percentage per annum equal to a LIBOR rate plus 1.75%. The applicable margin with respect to loans under our Term Loan B is a percentage per annum equal to a LIBOR rate plus 2.25%. Assuming the revolving credit facility is drawn up to its maximum borrowing capacity of $1.5 billion, based on the applicable LIBOR in effect as of March 31, 2021, each quarter point change in interest rates would result in a $3.5 million change in annual net interest expense on the revolving credit facility, Term Loan A, Term Loan B and interest rate swap agreements.
The variable interest production loans incur interest at rates ranging from approximately 2.25% to 2.92% and applicable margins ranging from 1.75% over the one, two, or three-month LIBOR to 2.25% over the one, two, or three-month LIBOR. A quarter point increase of the interest rates on the outstanding principal amount of our variable rate production loans would result in $0.9 million in additional costs capitalized to the respective film or television asset.
The applicable margin with respect to advances under the Production Tax Credit Facility is a percentage per annum equal to a LIBOR rate plus 1.50%. Assuming the Production Tax Credit Facility is utilized up to its maximum capacity of $220.0 million, based on the applicable LIBOR in effect as of March 31, 2021, each quarter point change in interest rates would result in a $0.6 million change in annual net interest expense on the Production Tax Credit Facility.
At March 31, 2021, our 5.875% Senior Notes and 6.375% Senior Notes had an aggregate outstanding carrying value of $1,047.5 million, and an estimated fair value of $1,096.9 million. On April 1, 2021, the 5.875% Senior Notes and 6.375% Senior Notes were redeemed in full and $1.0 billion aggregate principal amount of 5.500% Senior Notes due April 2029 were issued (see Note 22 to our consolidated financial statements for subsequent events).
The following table presents information about our financial instruments that are sensitive to changes in interest rates. The table also presents the cash flows of the principal amounts of the financial instruments, or the cash flows associated with the notional amounts of interest rate derivative instruments, and related weighted-average interest rates by expected maturity or required principal payment dates and the fair value of the instrument as of March 31, 2021:
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Year Ended March 31, Fair Value
(Amounts in millions)
Debt, Production Loans and Production Tax Credit Facility
Variable Rates:
Revolving Credit Facility(1)(2) $ — $ — $ — $ — $ — $ — $ — $ —
Average Interest Rate — — — — — —
Average Interest Rate 1.86 % 1.86 % — — — —
Average Interest Rate 2.63 % 2.42 % 2.38 % — — —
Average Interest Rate — — — 1.61 % — —
Fixed Rates:
Average Interest Rate — — — 5.875 % — —
Average Interest Rate — — 6.375 % — — —
Interest Rate Swaps(5)
____________________
(1)The effective interest rate in the table above is before the impact of interest rate swaps.
(2)On April 6, 2021, the Company amended its Credit Agreement to extend the maturity of a portion of its revolving credit commitments, amounting to $1.25 billion, and a portion of its outstanding term A loans, amounting to $444.9 million to April 6, 2026. Additionally, in April and May 2021, we completed a series of repurchases of the Term Loan B and, in aggregate, paid $60.1 million to repurchase $60.5 million principal amount of the Term Loan B. See Note 22 to our consolidated financial statements for subsequent events.
(3)The repayment amount for the Production Tax Credit Facility represents the amount outstanding at March 31, 2021, and the repayment date represents the maturity date of the Production Tax Credit Facility (January 27, 2025), however net advances and payments under the Production Tax Credit Facility can fluctuate depending on the amount of collateral available.
(4)On April 1, 2021, the 5.875% Senior Notes and 6.375% Senior Notes were redeemed in full and $1.0 billion aggregate principal amount of 5.500% Senior Notes due April 2029 were issued. See Note 22 to our consolidated financial statements for subsequent events.
(5)Represents interest rate swap agreements on certain of our LIBOR-based floating-rate debt with fixed rates paid ranging from 1.840% to 2.915% with maturities beginning in March 2025 through March 2030. See Note 19 to our consolidated financial statements.
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ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Auditors’ Report and our Consolidated Financial Statements and Notes thereto appear in a separate section of this report (beginning on page F-1 following Part IV). The index to our Consolidated Financial Statements is included in Item 15.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. We periodically review the design and effectiveness of our disclosure controls and internal control over financial reporting. We make modifications to improve the design and effectiveness of our disclosure controls and internal control structure, and may take other corrective action, if our reviews identify a need for such modifications or actions.
As of March 31, 2021, the end of the period covered by this report, the Company's management had carried out an evaluation under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that such controls and procedures were effective as of March 31, 2021.
Internal Control Over Financial Reporting
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that:
•pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
•provide reasonable assurance that (a) transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and (b) that our receipts and expenditures are being recorded and made only in accordance with authorizations of management and directors of the Company; and
•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a materially effect on the financial statements.
A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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Our management has made an assessment of the effectiveness of our internal control over financial reporting as of March 31, 2021. Management based its assessment on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework).
Based on this assessment, our management has concluded that, as of March 31, 2021, the Company maintained effective internal control over financial reporting. The effectiveness of the Company's internal control over financial reporting has been audited by Ernst & Young LLP, an independent registered public accounting firm. Their report is included below.
Changes in Internal Control over Financial Reporting
There were no changes in internal control over financial reporting during the fiscal fourth quarter ended March 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to disruptions related to the COVID-19 global pandemic, but we are continually monitoring and assessing the COVID-19 situation on our internal controls.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Lions Gate Entertainment Corp.
Opinion on Internal Control Over Financial Reporting
We have audited Lions Gate Entertainment Corp.’s (the Company) internal control over financial reporting as of March 31, 2021, based on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2021 consolidated financial statements and the related notes and schedule listed in the Index at Item 15(a) and our report dated May 28, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Los Angeles, California
May 28, 2021
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ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required by this Item is incorporated by reference to our Proxy Statement for our 2021 Annual General Meeting of Shareholders to be filed with the SEC within 120 days after the end of the fiscal year ended March 31, 2021.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference to our Proxy Statement for our 2021 Annual General Meeting of Shareholders to be filed with the SEC within 120 days after the end of the fiscal year ended March 31, 2021.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS.
The information required by this Item is incorporated by reference to our Proxy Statement for our 2021 Annual General Meeting of Shareholders to be filed with the SEC within 120 days after the end of the fiscal year ended March 31, 2021.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by this Item is incorporated by reference to our Proxy Statement for our 2021 Annual General Meeting of Shareholders to be filed with the SEC within 120 days after the end of the fiscal year ended March 31, 2021.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by this Item is incorporated by reference to our Proxy Statement for our 2021 Annual General Meeting of Shareholders to be filed with the SEC within 120 days after the end of the fiscal year ended March 31, 2021.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a)The following documents are filed as part of this report:
(1)Financial Statements
The financial statements listed on the accompanying Index to Financial Statements are filed as part of this report at pages F-1 to F-68.
(2)Financial Statement Schedules
Schedule II. Valuation and Qualifying Accounts
All other Schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule.
(3)and (b) Exhibits
The exhibits listed on the accompanying Index to Exhibits are filed as part of this report.
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Item 15(a).
Schedule II. Valuation and Qualifying Accounts
Lions Gate Entertainment Corp.
March 31, 2021
(In Millions)
Additions
Reserves:
Provision for doubtful accounts $ 9.3 $ (2.5) $ — $ (0.3) (3) $ 6.5
Reserves:
Provision for doubtful accounts $ 5.4 $ 5.7 $ — $ (1.8) (3) $ 9.3
Reserves:
Provision for doubtful accounts $ 7.5 $ (2.0) $ — $ (0.1) (3) $ 5.4
____________________________
(1)Charges for returns and allowances are charges against revenue.
(2)Actual returns and fluctuations in foreign currency exchange rates.
(3)Uncollectible accounts written off and fluctuations in foreign currency exchange rates.
(4)Valuation allowance adjustments recorded in other comprehensive income and primarily associated with hedging activity.
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Item 15(b).
INDEX TO EXHIBITS
Exhibit Number Exhibit Description Incorporated by Reference
Form Exhibit Filing Date/ Period End Date
3.2x Notice of Articles
4.2 Description of Class A voting shares, no par value per share S-4 — 8/1/2016
10.1*x Director Compensation Summary
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Exhibit Number Exhibit Description Incorporated by Reference
Form Exhibit Filing Date/ Period End Date
21.1x Subsidiaries of the Company
23.1x Consent of Ernst & Young LLP
24.1x Power of Attorney (Contained on Signature Page)
31.1x Certification of CEO pursuant to Section 302 of Sarbanes-Oxley Act of 2002
31.2x Certification of CFO pursuant to Section 302 of Sarbanes-Oxley Act of 2002
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_____________________________
* Management contract or compensatory plan or arrangement.
x Filed herewith
ITEM 16. FORM 10-K SUMMARY.
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on May 28, 2021.
LIONS GATE ENTERTAINMENT CORP.
By: /s/ James W. Barge
James W. Barge
Chief Financial Officer
DATE: May 28, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates so indicated.
Each person whose signature appears below authorizes each of Jon Feltheimer, Michael Burns, Corii Berg and James W. Barge, severally and not jointly, to be his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in such person’s name, place and stead, in any and all capacities, to sign any amendments to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021; granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully for all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, shall lawfully do or cause to be done by virtue hereof.
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Signature Title Date
James W. Barge
/s/ MICHAEL BURNS Vice Chairman, Director May 28, 2021
Michael Burns
/s/ MIGNON CLYBURN Director May 28, 2021
Mignon Clyburn
/s/ GORDON CRAWFORD Director May 28, 2021
Gordon Crawford
Jon Feltheimer
/s/ EMILY FINE Director May 28, 2021
Emily Fine
/s/ MICHAEL T. FRIES Director May 28, 2021
Michael T. Fries
/s/ SUSAN MCCAW Director May 28, 2021
Susan McCaw
/s/ YVETTE OSTOLAZA Director May 28, 2021
Yvette Ostolaza
/s/ MARK H. RACHESKY, M.D. Chairman of the Board of Directors May 28, 2021
Mark H. Rachesky, M.D.