Lionsgate Reports $6M Loss Due to Legal Costs of Fighting Carl Icahn

Studio would’ve turned a quarterly profit, but spent $7.9 million in “corporate defense related to shareholder activist activities”

Last Updated: February 9, 2011 @ 1:50 PM

Lionsgate spent nearly $8 million in legal fees during the last three months of 2010 to defend itself from Carl Icahn's hostile takeover bid — and it cost the studio a change at a quarterly profit.

The company said on Wednesday that it lost $6 million during its fiscal third quarter — a much better result than the $65.3 million net loss in the same period a year ago.

Lionsgate attributed the net loss to interest losses of $13.1 million (including $11.1 million in Lionsgate's interest in Epix) and $7.9 million in "corporate defense and associated costs related to shareholder activist activities." (Read: Carl Icahn.)

Lionsgate's overall revenue increased 24 percent to $422.9 million during the quarter on home entertainment (mostly DVD revenue from "The Expendables") and international film and TV revenue, and a slight increase in box office receipts.

The revenue jump was also the result of lower theatrical marketing costs, Lionsgate said.

Overall motion picture revenue was $326.7 million, up 30 percent the prior year.  Within that, theatrical revenue was up 9 percent (to $53.8 million) on the strength of "The Next Three Days," "For Colored Girls" and "Saw 3D."

International motion picture revenue ($21.4 million) (excluding Lionsgate U.K.) increased 31 percent on the strength of "Saw 3D."

Lionsgate's home entertainment revenue was $174.4 million in the third quarter, up 63 percent, driven "The Expendables," "Tyler Perry's Madea's Big Happy Family," "Killers" and "Kick Ass," as well as releases from sister company Roadside Attractions ("Winter's Bone" and "Mad Men Season 3").

Revenue from Lionsgate's television production business was $96.2 million, up about 5 percent.

Here's the full earnings release:

SANTA MONICA, Calif., and VANCOUVER, British Columbia, Feb. 9, 2011 /PRNewswire/ — Lionsgate (NYSE:  LGF) today reported revenue of $422.9 million and adjusted EBITDA of $28.9 million for the third quarter of fiscal year 2011 (quarter ended December 31, 2010).

Revenue increased 24% compared to the prior year's third quarter driven primarily by increases in home entertainment and international film and TV revenue as well as a slight increase in theatrical revenue.  

The Company reported adjusted EBITDA of $28.9 million in the third quarter compared to negative $9.5 million for the prior year's third quarter.  Net loss was $6.0 million in the quarter compared to net loss of $65.3 million in the prior year's third quarter.  The gain in quarter-to-quarter comparisons was attributable primarily to strong gains in the Company's home entertainment operations, driven by the DVD and digital performance of THE EXPENDABLES, robust international performance, gains in television production and syndication and lower theatrical marketing costs in the quarter despite three wide release films.

Net loss of $6.0 million in the quarter included non-cash equity interest losses of $13.1 million ($11.1 million attributable to Lionsgate's interest in Epix) and $7.9 million in corporate defense and associated costs related to shareholder activist activities.  

Basic net loss per common share for the quarter was $0.04 on 136.7 million weighted average common shares outstanding, compared to basic net loss per common share of $0.55 on 117.7 million weighted average common shares outstanding in the prior year's third quarter.

"We had a strong revenue and EBITDA performance in the quarter driven by contributions from our home entertainment, television and international film and TV businesses as well as our filmed entertainment library, despite a challenging environment for packaged media conversion," said Lionsgate Co-Chairman and Chief Executive Officer Jon Feltheimer. "We continue to execute a long-term business plan designed to balance our key priorities — strengthening our balance sheet, maximizing EBITDA and free cash flow and creating long-term value."

Overall motion picture revenue for the third quarter of fiscal 2011 was $326.7 million, an increase of 30% from the third quarter of the prior year.  Within the motion picture segment, theatrical revenue was $53.8 million, an increase of 9% from the prior year's third quarter, attributable to the box office performance of the films THE NEXT THREE DAYS, FOR COLORED GIRLS and SAW 3D.

Lionsgate's home entertainment revenue from both motion pictures and television was $174.4 million in the third quarter, a 63% increase from the third quarter of the prior year, driven by a strong performance from the theatrical title THE EXPENDABLES as well as contributions from a diversified slate including the stage play TYLER PERRY'S MADEA'S BIG HAPPY FAMILY, the theatrical titles KILLERS and KICK ASS, sister company Roadside Attractions' Academy Award-nominated WINTER'S BONE and the television series MAD MEN SEASON 3.  

Television revenue included in motion picture revenue was $49.7 million in the third quarter, a decrease of 9% from the prior year's third quarter.

International motion picture revenue of $21.4 million (excluding Lionsgate U.K.) in the third quarter increased 31% from the prior year's third quarter as the slate of SAW 3D, THE NEXT THREE DAYS and ALPHA AND OMEGA compared favorably to the slate in the prior year's third quarter.

Lionsgate U.K. revenue also increased in the third quarter, growing 42% to $30.0 million, reflecting the continued strength of Lionsgate titles such as THE EXPENDABLES and KILLERS as well as SAW 3D, newly released in the quarter.

Mandate Pictures' revenue of $11.3 million in the third quarter declined 12% from the prior year's third quarter due to a smaller slate.

Television production revenue was $96.2 million in the third quarter, an increase of 5% from the prior year's third quarter.  Domestic series licensing from Debmar-Mercury increased 52% in the third quarter due to increased revenue from deliveries of the television series "Tyler Perry's House of Payne," its spinoff "Meet The Browns," "Are We There Yet?," "The Wendy Williams Show" and "Weeds Seasons 3, 4 and 5" (into syndication on TV Guide Network).  Domestic series licensing from Lionsgate Television decreased 32% in the third quarter due to timing of deliveries, which included 12 episodes of "Blue Mountain State Season 2" (Spike), nine episodes of "Running Wilde" (Fox), two episodes of "Mad Men Season 4" (AMC) and one episode of "Nurse Jackie Season 3" (Showtime).    

Lionsgate's filmed entertainment backlog was $459.0 million at December 31, 2010.  Filmed entertainment backlog represents the amount of future revenue not yet recorded from contracts for the licensing of films and television product for television exhibition and in international markets.

Lionsgate G&A expenses in the quarter were $27.8 million, excluding stock-based compensation and corporate defense costs related to shareholder activist activities.  G&A as a percentage of revenue, excluding stock-based compensation and corporate defense costs, declined to 6.6% in the third quarter of fiscal year 2011 compared to 7.6% in the prior year third quarter.    

Lionsgate senior management will hold its analyst and investor conference call to discuss its fiscal year 2011 third quarter financial results at 9:00 A.M. ET/6:00 A.M. PT on Thursday, February 10, 2011. Interested parties may participate live in the conference call by calling 1-800-230-1766 (612-332-0228 outside the U.S. and Canada).  A full digital replay will be available from Thursday morning, February 10, through Thursday, February 17, by dialing 1-800-475-6701 (320-365-3844 outside the U.S. and Canada) and using access code 191239.