LIONSGATE REPORTS RESULTS FOR SECOND QUARTER FISCAL 2023

LIONS GATE ENTERTAINMENT CORP.

CONSOLIDATED BALANCE SHEETS

September 30,
2022

March 31,
2022

(Unaudited, amounts in millions)

ASSETS

Cash and cash equivalents

$              557.1

$              371.2

Accounts receivable, net

432.0

442.2

Other current assets

244.9

244.7

Total current assets

1,234.0

1,058.1

Investment in films and television programs and program rights, net

2,986.1

3,013.6

Property and equipment, net

82.3

81.2

Investments

64.5

56.0

Intangible assets

1,372.3

1,440.2

Goodwill

1,289.5

2,764.5

Other assets

652.4

577.6

Total assets

$          7,681.1

$          8,991.2

LIABILITIES

Accounts payable and accrued liabilities

$              614.8

$              585.8

Participations and residuals

469.7

468.5

Film related and other obligations

1,182.2

951.1

Debt - short term portion

37.0

222.8

Deferred revenue

137.8

174.9

Total current liabilities

2,441.5

2,403.1

Debt

2,170.8

2,202.1

Participations and residuals

258.3

265.1

Film related and other obligations

1,277.2

729.0

Other liabilities

249.5

298.7

Deferred revenue

54.7

49.8

Deferred tax liabilities

38.5

38.8

Redeemable noncontrolling interest

343.2

321.2

Commitments and contingencies

EQUITY

Class A voting common shares, no par value, 500.0 shares authorized, 83.4 shares issued (March 31, 2022 - 83.3 shares issued)

670.4

668.2

Class B non-voting common shares, no par value, 500.0 shares authorized, 145.2 shares issued (March 31, 2022 - 142.0 shares issued)

2,373.5

2,353.8

Accumulated deficit

(2,320.4)

(369.7)

Accumulated other comprehensive income

122.3

29.3

Total Lions Gate Entertainment Corp. shareholders' equity

845.8

2,681.6

Noncontrolling interests

1.6

1.8

Total equity

847.4

2,683.4

Total liabilities and equity

$          7,681.1

$          8,991.2

LIONS GATE ENTERTAINMENT CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

Six Months Ended

September 30,

September 30,

2022

2021

2022

2021

(Unaudited, amounts in millions, except per share amounts)

Revenues

$              875.2

$              887.8

$          1,769.1

$          1,789.0

Expenses

Direct operating

563.5

483.2

1,160.0

969.3

Distribution and marketing

184.6

216.9

396.2

434.5

General and administration

121.3

110.0

224.9

240.6

Depreciation and amortization

45.2

44.4

87.6

87.8

Restructuring and other

233.2

3.5

241.3

6.7

Goodwill impairment

1,475.0

—

1,475.0

—

Total expenses

2,622.8

858.0

3,585.0

1,738.9

Operating income (loss)

(1,747.6)

29.8

(1,815.9)

50.1

Interest expense

(57.3)

(44.0)

(103.4)

(85.7)

Interest and other income

1.8

24.1

3.1

28.0

Other expense

(5.4)

(2.7)

(10.4)

(4.3)

Gain (loss) on extinguishment of debt

3.4

(0.4)

2.1

(27.1)

Gain (loss) on investments

(3.1)

1.5

(1.3)

1.5

Equity interests income (loss)

(0.1)

0.4

0.8

1.1

Income (loss) before income taxes

(1,808.3)

8.7

(1,925.0)

(36.4)

Income tax provision

(5.0)

(5.6)

(11.0)

(12.1)

Net income (loss)

(1,813.3)

3.1

(1,936.0)

(48.5)

Less: Net loss attributable to noncontrolling
interests

2.2

4.4

5.9

10.6

Net income (loss) attributable to Lions Gate Entertainment Corp. shareholders

$        (1,811.1)

$                  7.5

$        (1,930.1)

$              (37.9)

Per share information attributable to Lions Gate Entertainment Corp. shareholders:

Basic net income (loss) per common share

$              (7.95)

$                0.03

$              (8.51)

$              (0.17)

Diluted net income (loss) per common share

$              (7.95)

$                0.03

$              (8.51)

$              (0.17)

Weighted average number of common shares outstanding:

Basic

227.9

224.4

226.8

223.1

Diluted

227.9

228.5

226.8

223.1

LIONS GATE ENTERTAINMENT CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

Six Months Ended

September 30,

September 30,

2022

2021

2022

2021

(Unaudited, amounts in millions)

Operating Activities:

Net income (loss)

$      (1,813.3)

$               3.1

$      (1,936.0)

$           (48.5)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization

45.2

44.4

87.6

87.8

Amortization of films and television programs and program rights

427.4

359.0

899.3

730.1

Amortization of debt financing costs and other non-cash interest

6.7

12.2

13.9

24.2

Non-cash share-based compensation

26.6

20.3

35.0

54.9

Other amortization

18.1

25.0

41.2

50.5

Goodwill impairments

1,475.0

—

1,475.0

—

Content and other impairments

218.9

—

218.9

—

(Gain) loss on extinguishment of debt

(3.4)

0.4

(2.1)

27.1

Equity interests (income) loss

0.1

(0.4)

(0.8)

(1.1)

(Gain) loss on investments

3.1

(1.5)

1.3

(1.5)

Deferred income taxes

(0.6)

0.9

(0.3)

1.7

Changes in operating assets and liabilities:

Proceeds from the termination of interest rate swaps

—

—

188.7

—

Accounts receivable, net and other assets

(45.1)

15.4

(39.5)

(134.2)

Investment in films and television programs and program rights, net

(478.8)

(572.2)

(1,087.2)

(1,149.7)

Accounts payable and accrued liabilities

41.9

15.0

(10.0)

(45.2)

Participations and residuals

21.4

25.6

(5.0)

5.0

Program rights and other film obligations

(37.2)

(24.7)

12.1

(35.8)

Deferred revenue

(45.2)

93.6

(31.5)

102.2

Net Cash Flows Provided By (Used In) Operating Activities

(139.2)

16.1

(139.4)

(332.5)

Investing Activities:

Proceeds from the sale of Pantaya

—

—

—

123.6

Proceeds from the sale of other investments

0.6

—

3.0

—

Investment in equity method investees and other

(10.0)

(10.0)

(17.5)

(12.0)

Distributions from equity method investees

—

2.2

—

2.6

Acquisition of assets (film library and related assets)

—

(161.4)

—

(161.4)

Capital expenditures

(11.8)

(8.3)

(21.5)

(14.6)

Net Cash Flows Used In Investing Activities

(21.2)

(177.5)

(36.0)

(61.8)

Financing Activities:

Debt - borrowings, net of debt issuance and redemption costs

472.5

747.3

991.0

1,947.2

Debt - repurchases and repayments

(495.8)

(801.7)

(1,211.0)

(2,175.6)

Film related financing and other obligations - borrowings, net of debt issuance costs

615.0

466.5

1,137.9

775.7

Film related financing and other obligations - repayments

(219.6)

(40.6)

(372.2)

(186.6)

Settlement of financing component of interest rate swaps

—

(7.5)

(134.5)

(14.4)

Distributions to noncontrolling interest

(0.8)

—

(2.5)

(0.1)

Exercise of stock options

—

0.3

3.4

2.9

Tax withholding required on equity awards

(15.2)

(20.0)

(16.2)

(33.2)

Net Cash Flows Provided By Financing Activities

356.1

344.3

395.9

315.9

Net Change In Cash, Cash Equivalents and Restricted Cash

195.7

182.9

220.5

(78.4)

Foreign Exchange Effects on Cash, Cash Equivalents and Restricted Cash

(2.2)

(2.5)

(5.7)

(2.5)

Cash, Cash Equivalents and Restricted Cash - Beginning Of Period

405.9

267.4

384.6

528.7

Cash, Cash Equivalents and Restricted Cash - End Of Period

$           599.4

$           447.8

$           599.4

$           447.8

Three Months Ended

Six Months Ended

September 30,

September 30,

2022

2021

2022

2021

(Unaudited, amounts in millions)

Segment revenues

Studio Business:

Motion Picture

$              224.0

$              330.9

$              502.8

$              622.1

Television Production

430.9

336.0

863.2

722.1

Total Studio Business

654.9

666.9

1,366.0

1,344.2

Media Networks

396.1

384.7

777.3

767.0

Intersegment eliminations

(175.8)

(163.8)

(374.2)

(322.2)

$              875.2

$              887.8

$          1,769.1

$          1,789.0

Gross contribution

Studio Business:

Motion Picture

$                78.7

$              124.5

$              151.8

$              193.2

Television Production

23.8

38.0

54.3

51.0

Total Studio Business

102.5

162.5

206.1

244.2

Media Networks

45.1

28.3

31.6

137.6

Intersegment eliminations

(17.9)

(3.1)

(22.8)

5.5

$              129.7

$              187.7

$              214.9

$              387.3

Segment general and administration

Studio Business:

Motion Picture

$                23.2

$                22.7

$                45.7

$                47.1

Television Production

10.2

9.5

21.3

19.5

Total Studio Business

33.4

32.2

67.0

66.6

Media Networks

24.1

22.8

47.6

43.9

$                57.5

$                55.0

$              114.6

$              110.5

Segment profit

Studio Business:

Motion Picture

$                55.5

$              101.8

$              106.1

$              146.1

Television Production

13.6

28.5

33.0

31.5

Total Studio Business

69.1

130.3

139.1

177.6

Media Networks

21.0

5.5

(16.0)

93.7

Intersegment eliminations

(17.9)

(3.1)

(22.8)

5.5

Total segment profit

$                72.2

$              132.7

$              100.3

$              276.8

Corporate general and administrative expenses

(24.8)

(24.5)

(47.9)

(48.8)

Adjusted OIBDA⁽¹⁾

$                47.4

$              108.2

$                52.4

$              228.0

_______________

(1)

See "Use of Non-GAAP Financial Measures" for the definition of Adjusted OIBDA and reconciliation to the most directly comparable GAAP financial measure.

Three Months Ended

Six Months Ended

September 30,

September 30,

2022

2021

2022

2021

(Unaudited, amounts in millions)

Media Networks revenue:

Starz Networks

$              357.5

$              358.6

$              707.1

$              716.7

LIONSGATE+

38.6

26.1

70.2

50.3

$              396.1

$              384.7

$              777.3

$              767.0

Media Networks gross contribution:

Starz Networks

$                82.6

$                69.0

$              111.4

$              203.9

LIONSGATE+

(37.5)

(40.7)

(79.8)

(66.3)

$                45.1

$                28.3

$                31.6

$              137.6

Media Networks general and administration:

Starz Networks

$                17.6

$                17.0

$                34.1

$                32.5

LIONSGATE+

6.5

5.8

13.5

11.4

$                24.1

$                22.8

$                47.6

$                43.9

Media Networks segment profit (loss):

Starz Networks

$                65.0

$                52.0

$                77.3

$              171.4

LIONSGATE+

(44.0)

(46.5)

(93.3)

(77.7)

$                21.0

$                  5.5

$              (16.0)

$                93.7

As of

As of

6/30/21

9/30/21

12/31/21

3/31/22

6/30/22

9/30/22

(Amounts in millions)

Starz Domestic

Linear Subscribers

10.4

10.2

9.9

9.5

9.2

8.7

OTT Subscribers

9.7

10.4

11.0

11.5

12.2

12.3

Total

20.1

20.6

20.9

21.0

21.4

21.0

LIONSGATE+

Linear Subscribers

1.8

1.8

1.8

1.8

1.8

1.8

OTT Subscribers

5.2

5.7

6.7

11.0

12.2

13.0

Total

7.0

7.5

8.5

12.8

14.0

14.8

Total Starz

Linear Subscribers

12.2

12.0

11.7

11.3

11.0

10.5

OTT Subscribers

14.9

16.1

17.7

22.5

24.4

25.3

Total Starz

27.1

28.1

29.4

33.8

35.4

35.8

STARZPLAY Arabia⁽¹⁾

1.8

1.9

2.0

2.0

1.9

2.0

Total Domestic and International Subscribers

28.9

30.0

31.4

35.8

37.3

37.8

Subscribers by Platform:

Linear Subscribers

12.2

12.0

11.7

11.3

11.0

10.5

OTT Subscribers⁽²⁾

16.7

18.0

19.7

24.5

26.3

27.3

Total Global Subscribers

28.9

30.0

31.4

35.8

37.3

37.8

___________________

(1)

Represents subscribers of STARZPLAY Arabia, a non-consolidated equity method investee.

(2)

OTT subscribers includes subscribers of STARZPLAY Arabia, as presented above.

Three Months Ended

Six Months Ended

September 30,

September 30,

2022

2021

2022

2021

(Unaudited, amounts in millions)

Operating income (loss)

$        (1,747.6)

$                29.8

$        (1,815.9)

$                50.1

Goodwill impairment⁽¹⁾

1,475.0

—

1,475.0

—

Adjusted depreciation and amortization⁽²⁾

9.7

10.8

19.7

21.0

Restructuring and other⁽³⁾

233.2

3.5

241.3

6.7

COVID-19 related charges (benefit)⁽⁴⁾

(6.1)

(0.8)

(7.1)

0.8

Content charges⁽⁵⁾

7.2

—

7.2

—

Adjusted share-based compensation expense⁽⁶⁾

26.6

20.4

34.4

54.9

Purchase accounting and related adjustments⁽⁷⁾

49.4

44.5

97.8

94.5

Adjusted OIBDA

$                47.4

$              108.2

$                52.4

$              228.0

___________________

(1)

For the quarter ended September 30, 2022, due to continued adverse macro and microeconomic conditions, including the competitive environment, continued inflationary trends and recessionary economies worldwide and its impact on the Company's growth in subscribers worldwide, the Company began implementing a plan to restructure its LIONSGATE+ business (formerly STARZPLAY International). This restructuring includes exiting the business in seven international territories (France, Germany, Italy, Spain, Benelux, the Nordics and Japan), and resulted in content impairment and severance charges included in restructuring and other as further discussed below. The Company's Starz domestic operations have also been impacted by these current market conditions, and the Company has revised its subscriber growth and forecasted cash flow assumptions and implemented certain cost-saving measures. Additionally, companies in the media and entertainment industry, and particularly those with significant streaming platforms, have experienced a decline in market valuations, and reflecting this industry trend, as well as potential capital market transactions, the market price of the Company's common shares has continued to decline since June 30, 2022. Accordingly, the Company updated its quantitative impairment assessment for all of its reporting units. In performing its quantitative impairment assessment, the fair value of the Company's reporting units was estimated by using a combination of discounted cash flow ("DCF") analyses and market-based valuation methodologies. Based on its quantitative impairment assessment, the Company determined that the fair value of its reporting units exceeded the carrying values for all of its reporting units, except the Media Networks reporting unit which was previously disclosed as a reporting unit "at risk" of impairment. The analysis resulted in a goodwill impairment charge of $1.475 billion related to the Company's Media Networks reporting unit goodwill, which is recorded in the "goodwill impairment" line item in the unaudited condensed consolidated statement of operations.

(2)

Adjusted depreciation and amortization represents depreciation and amortization as presented on our consolidated statements of operations less the depreciation and amortization related to the non-cash fair value adjustments to property and equipment and intangible assets acquired in recent acquisitions which are included in the purchase accounting and related adjustments line item above, as shown in the table below:

Three Months Ended

Six Months Ended

September 30,

September 30,

2022

2021

2022

2021

(Unaudited, amounts in millions)

Depreciation and amortization

$                45.2

$                44.4

$                87.6

$                87.8

Less: Amount included in purchase accounting and related adjustments

(35.5)

(33.6)

(67.9)

(66.8)

Adjusted depreciation and amortization

$                  9.7

$                10.8

$                19.7

$                21.0

(3)

Restructuring and other includes restructuring and severance costs, certain transaction and related costs, and certain unusual items, when applicable, as shown in the table below:

Three Months Ended

Six Months Ended

September 30,

September 30,

2022

2021

2022

2021

(Unaudited, amounts in millions)

Restructuring and other:

Content and other impairments^(a)

$              218.8

$                   —

$              218.8

$                   —

Severance^(b)

Cash

9.6

1.3

12.4

3.8

Accelerated vesting on equity awards

—

—

0.6

—

Total severance costs

9.6

1.3

13.0

3.8

COVID-19 related charges included in restructuring and other^(c)

—

0.5

0.1

0.8

Transaction and related costs^(d)

4.8

1.7

9.4

2.1

$              233.2

$                  3.5

$              241.3

$                  6.7

_______________________

(a)

As a result of the restructuring of the LIONSGATE+ business discussed above, the Company has recorded charges of $213.0 million in the three months ended September 30, 2022 for content impairment of its film group assets in certain international territories. These charges are excluded from segment results and included in restructuring and other in the unaudited condensed consolidated statement of operations. The Company expects to incur additional charges ranging from approximately $75 million to $100 million in the next six months primarily related to certain contractual content commitments and other items as we fully implement the plan. These amounts also reflect the estimated net future cash expenditures for these charges. In addition, the Company expects future cash expenditures of approximately $75 million related to the content charges recorded in the three months ended September 30, 2022.

Amounts in the three and six months ended September 30, 2022 also include an impairment of an operating lease right-of-use asset amounting to $5.8 million associated with a portion of a facility lease that will no longer be utilized by the Company. The impairment reflects a decline in market conditions since the inception of the lease impacting potential sublease opportunities, and represents the difference between the estimated fair value, which was determined based on the expected discounted future cash flows of the lease asset, and the carrying value.

(b)

In connection with the international restructuring described above, the Company has implemented certain cost-saving initiatives both domestically and internationally, and has recorded severance charges of $5.9 million in the three months ended September 30, 2022 related to the Media Networks segment. In addition, due to the changes in the marketplace and certain management, and the implementation of certain cost-saving initiatives and the streamlining of operations, the Company recorded additional severance charges of $3.7 million primarily related to the Motion Picture segment.

(c)

Amounts represent certain incremental general and administrative costs associated with the COVID-19 global pandemic, such as costs related to transitioning the Company to a remote-work environment, costs associated with return-to-office safety protocols, and other incremental general and administrative costs associated with the COVID-19 global pandemic.

(d)

Transaction and related costs in the three and six months ended September 30, 2022 and 2021 reflect transaction, integration and legal costs associated with certain strategic transactions, restructuring activities and legal matters.

(4)

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, certain incremental costs were incurred and expensed, as presented in the table below:

Three Months Ended

Six Months Ended

September 30,

September 30,

2022

2021

2022

2021

(Unaudited, amounts in millions)

COVID-19 related charges (benefit) included in:

Direct operating expense^(a)

$                (6.1)

$                (1.0)

$                (7.1)

$                  0.5

Distribution and marketing expense

—

0.2

—

0.3

$                (6.1)

$                (0.8)

$                (7.1)

$                  0.8

_______________________

(a)

Amounts reflected in direct operating expense include incremental costs associated with the pausing and restarting of productions including paying/hiring certain cast and crew, maintaining idle facilities and equipment costs, net of insurance recoveries. In the three and six months ended September 30, 2022 and the three months ended September 30, 2021, insurance recoveries exceeded the incremental costs expensed in the periods, resulting in a net benefit included in direct operating expense. The Company is in the process of seeking additional insurance recovery for some of these costs. The ultimate amount of insurance recovery cannot be estimated at this time.

(5)

In connection with certain management changes and changes in the theatrical marketplace in the Motion Picture segment, the Company wrote off approximately $7.2 million of development costs as a result of changes in strategy across its theatrical slate.

(6)

The following table reconciles total share-based compensation expense to adjusted share-based compensation expense:

Three Months Ended

Six Months Ended

September 30,

September 30,

2022

2021

2022

2021

(Unaudited, amounts in millions)

Total share-based compensation expense

$                26.6

$                20.4

$                35.0

$                54.9

Less: Amount included in restructuring and other^(a)

—

—

(0.6)

—

Adjusted share-based compensation

$                26.6

$                20.4

$                34.4

$                54.9

(a)

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.

(7)

Purchase accounting and related adjustments primarily represent the amortization of non-cash fair value adjustments to certain assets acquired in recent acquisitions. These adjustments include 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 the earned distributions related to 3 Arts Entertainment, all of which are accounted for as compensation and are included in general and administrative expense. The following sets forth the amounts included in each line item in the financial statements:

Three Months Ended

Six Months Ended

September 30,

September 30,

2022

2021

2022

2021

(Unaudited, amounts in millions)

Purchase accounting and related adjustments:

Direct operating

$                  0.7

$                  0.1

$                  0.7

$                  0.5

General and administrative expense

13.2

10.8

29.2

27.2

Depreciation and amortization

35.5

33.6

67.9

66.8

$                49.4

$                44.5

$                97.8

$                94.5

Three Months Ended

Six Months Ended

September 30,

September 30,

2022

2021

2022

2021

(Unaudited, amounts in millions)

Operating income (loss)

$        (1,747.6)

$                29.8

$        (1,815.9)

$                50.1

Goodwill impairment

1,475.0

—

1,475.0

—

LIONSGATE+ international restructuring charges⁽¹⁾

218.9

—

218.9

—

Operating income (loss) before goodwill impairment and international restructuring charges

$              (53.7)

$                29.8

$            (122.0)

$                50.1

___________________

(1)

Amounts in the three and six months ended September 30, 2022 include $213.0 million for content impairment and $5.9 million for severance charges related to the restructuring of the Company's LIONSGATE+ (formerly STARZPLAY International) business. These charges are included in the restructuring and other line item on the consolidated statement of operations.

LIONS GATE ENTERTAINMENT CORP.

RECONCILIATION OF NET INCOME (LOSS) ATTRIBUTABLE TO LIONS GATE ENTERTAINMENT CORP. SHAREHOLDERS TO ADJUSTED NET INCOME (LOSS) ATTRIBUTABLE TO LIONS GATE ENTERTAINMENT CORP. SHAREHOLDERS, AND BASIC AND DILUTED EPS TO ADJUSTED BASIC AND DILUTED EPS

Three Months Ended

Six Months Ended

September 30,

September 30,

2022

2021

2022

2021

(Unaudited, amounts in millions, except per share amounts)

Reported Net Income (Loss) Attributable to Lions Gate Entertainment Corp. Shareholders

$        (1,811.1)

$                  7.5

$        (1,930.1)

$              (37.9)

Adjusted share-based compensation expense

26.6

20.4

34.4

54.9

Goodwill impairment

1,475.0

—

1,475.0

—

Restructuring and other

233.2

3.5

241.3

6.7

COVID-19 related charges (benefit)

(6.1)

(0.8)

(7.1)

0.8

Content charges

7.2

—

7.2

—

Purchase accounting and related adjustments⁽¹⁾

49.4

44.5

97.8

94.4

(Gain) loss on extinguishment of debt

(3.4)

0.4

(2.1)

27.1

Insurance recoveries on prior shareholder litigation and net gain on investments and other

3.1

(24.4)

1.3

(26.9)

Tax impact of above items⁽²⁾

(70.5)

(8.5)

(83.1)

(31.9)

Deferred tax valuation allowance⁽³⁾

75.8

(1.4)

101.4

4.8

Noncontrolling interest impact of above items

(7.2)

(6.0)

(15.7)

(14.4)

Adjusted Net Income (Loss) Attributable to Lions Gate Entertainment Corp. Shareholders

$              (28.0)

$               35.2

$              (79.7)

$               77.6

Reported Basic EPS

$              (7.95)

$                0.03

$              (8.51)

$              (0.17)

Impact of adjustments on basic earnings per share

7.83

0.13

8.16

0.52

Adjusted Basic EPS

$              (0.12)

$                0.16

$              (0.35)

$                0.35

Reported Diluted EPS

$              (7.95)

$                0.03

$              (8.51)

$              (0.17)

Impact of adjustments on diluted earnings per share

7.83

0.12

8.16

0.51

Adjusted Diluted EPS

$              (0.12)

$                0.15

$              (0.35)

$                0.34

Adjusted weighted average number of common shares outstanding:

Basic

227.9

224.4

226.8

223.1

Diluted

227.9

228.5

226.8

228.8

_________________________

(1)

Represents the amounts included in Adjusted OIBDA net of interest income on the amortization of non-cash fair value adjustments to finance lease obligations acquired in the acquisition of Starz.

(2)

Represents the tax impact of the adjustments to net income attributable to Lions Gate Entertainment Corp. shareholders, calculated using the blended statutory tax rate applicable to each adjustment.

(3)

Represents an adjustment for the net (benefit) charge from a net (decrease) increase in the valuation allowance for certain of the Company's deferred tax assets.

LIONS GATE ENTERTAINMENT CORP.

RECONCILIATION OF NET CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES

TO ADJUSTED FREE CASH FLOW

Three Months Ended

Six Months Ended

September 30,

September 30,

2022

2021

2022

2021

(Unaudited, amounts in millions)

Net Cash Flows Provided By (Used In) Operating Activities⁽¹⁾

$            (139.2)

$                16.1

$            (139.4)

$            (332.5)

Capital expenditures

(11.8)

(8.3)

(21.5)

(14.6)

Net borrowings under and (repayment) of production and related loans:

Production loans and programming notes

273.2

191.0

400.7

292.1

Production tax credit facility

1.3

21.3

10.7

83.4

Insurance recoveries on prior shareholder litigation

—

(24.9)

—

(24.9)

Proceeds from the termination of interest rate swaps⁽²⁾

—

—

(188.7)

—

Adjusted Free Cash Flow

$              123.5

$              195.2

$                61.8

$                  3.5

________________

(1)

Cash flows provided by (used in) operating activities for the three and six months ended September 30, 2022 includes a net use of cash of approximately ($24.7) million and ($10.9) million, respectively, from the monetization of trade accounts receivable programs (three and six months ended September 30, 2021 - net benefit of approximately $4.7 million, and a net use of cash of approximately ($46.2) million, respectively).

(2)

During the six months ended September 30, 2022, the Company terminated certain interest rate swaps (a portion of which were considered hybrid instruments with a financing component and an embedded at-market derivative) and in exchange, received approximately $56.4 million. The $56.4 million received was classified in the unaudited condensed consolidated statement of cash flows as cash provided by operating activities of $188.7 million reflecting the amount received for the derivative portion of the terminated swaps, and a use of cash in financing activities of $134.5 million reflecting the pay down of the financing component of the terminated swaps (inclusive of payments made between April 1, 2022 and the termination date amounting to $3.2 million). Since the termination of the interest rate swaps was an unusual event, the Company is excluding the $188.7 million reflected in cash provided by operating activities from its adjusted free cash flow. The Company continues to have $1.7 billion notional amount of interest rate swaps as a cash flow hedge of its variable interest rate debt.