Lionsgate Reports Fiscal 2006 Third Quarter Revenue of $231.0 Million, Net Income of $3.1 Million and Free Cash Flow of $19.2 Million

Lionsgate Reports Fiscal 2006 Third Quarter Revenue of $231.0 Million, Net Income of $3.1 Million and Free Cash Flow of $19.2 Million

Company Lowers Fiscal 2006 Guidance to $20 Million in EBITDA, $4 Million in Net Income and $85 Million in Free Cash Flow; Reaffirms Fiscal 2006 Revenue Guidance of More Than $850 Million

SANTA MONICA, Calif. and VANCOUVER, B.C., Feb. 9 /PRNewswire-FirstCall/ -- Lionsgate (NYSE:LGF) Toronto, the leading independent filmed entertainment studio, today reported $231.0 million in revenues, net income of $3.1 million, EBITDA (earnings before interest expense, interest rate swaps mark-to-market, interest income, income tax provision, depreciation and minority interests) of $7.8 million and free cash flow of $19.2 million for its fiscal 2006 third quarter ended December 31, 2005.

Revenue of $231.0 million increased $40.6 million, or 21.3%, compared to $190.4 million in the prior year's quarter. Net income of $3.1 million, or basic income per common share of $0.03 on 103.9 million weighted average common shares outstanding, was comparable to net income of $3.4 million, or basic income per common share of $0.03, on 98.1 million weighted average common shares outstanding, in the prior year's quarter. EBITDA was $7.8 million compared to EBITDA of $12.1 million for the three months ended December 31, 2004 and free cash flow of $19.2 million compared to free cash flow of $32.0 million in the prior year's quarter.

Principal revenue drivers during the third quarter were the theatrical releases SAW II, WAITING and IN THE MIX, the DVD titles THE DEVIL'S REJECTS and HIGH TENSION along with continuing DVD sales of Crash, which has been nominated for six Academy Awards (R) (including Best Picture), BARBIE(TM) AND THE MAGIC OF PEGASUS and the original SAW, international sales of SAW II and HAPPY ENDINGS, domestic television deliveries of the one-hour dramas WILDFIRE (ABC Family), MISSING (Lifetime) and THE DEAD ZONE (USA) and pay television license fees from DIARY OF A MAD BLACK WOMAN.

"The operating performance of our company, particularly our new release business, remains strong. However, the full financial impact of our recent successes will lag by at least one or two fiscal quarters," said Lionsgate Chief Executive Officer Jon Feltheimer. "We are continuing to grow revenue through the success of our motion picture and television businesses and the strength of new theatrical titles on DVD. However, as our industry continues to move through an inflection point in advance of new revenue streams from high-definition DVD, electronic sell-through and other new technologies, we are experiencing continued softness in most areas of family home entertainment and direct-to-video titles which is offsetting gains in our other businesses."

Lionsgate noted that the key negative variances leading to the revised guidance were: approximately $6 million resulting from continued softness of family home entertainment sales; approximately $4 million in continued softness of direct-to-video titles; approximately $4 million in charges related to the bankruptcy of video retailer Musicland; approximately $2 million in additional spend for the Academy Award (R) marketing campaign for CRASH; as well as various other immaterial items, partially offset by the overperformance of the LORD OF WAR DVD, which was released on January 17, 2006.

During the third quarter, SAW II grossed approximately $87 million at the domestic box office and, shortly after the quarter's close, another Lionsgate number one horror hit, HOSTEL, grossed approximately $46 million at the domestic box office. Lionsgate's television production operations generated $26.0 million in revenues in the third quarter of fiscal 2006 and have generated $114.6 million in revenues through the first nine months of the current fiscal year. Upcoming major theatrical releases include Tyler Perry's MADEA'S FAMILY REUNION (February 24) and the inspirational AKEELAH AND THE BEE (April 28), on which Lionsgate has partnered with Starbucks in a unique and innovative promotional partnership.

Lionsgate also noted that its filmed entertainment backlog at December 31, 2005 was $147.6 million, the highest in the Company's history, which represents future revenue not yet recorded from executed contracts for the television exhibition and international sales of titles such as CRASH, SAW II, IN THE MIX, WAITING, SKINWALKERS, LORD OF WAR and the television series WILDFIRE.

For the nine months ended December 31, 2005, Lions Gate reported revenues of $637.8 million, up 4.5%, compared to $610.2 million for the first nine months of fiscal 2005. Net loss for the nine months ended December 31, 2005, was $32.8 million, or basic loss per common share of $0.32 on 102.7 million weighted average common shares outstanding, compared to net income of $0.2 million for the prior year's first nine months or $0.00 basic income per common share on 96.4 million weighted average common shares outstanding. EBITDA of negative $18.4 million for the first nine months of fiscal 2006 decreased $38.6 million compared to EBITDA of $20.2 million for the first nine months of fiscal 2005. Free cash flow of $54.9 million in the nine months ended December 31, 2005 compared to free cash flow of $81.2 million in the prior year's first nine months.

Lionsgate's senior management will hold its analyst and investor conference call to discuss its fiscal 2006 third quarter financial results at 9:00 AM ET/ 6:00 AM PT tomorrow, Friday, February 10, 2006. Interested parties may participate live in the conference call by calling 1-800-288-8975 (1-612-332-0819 outside the U.S. and Canada). A full digital replay will be available from Friday morning, February 10, through Friday, February 17, by dialing 1-800-475-6701 (1-320-365-3844 outside the U.S. and Canada) and using access code #816175.

Lionsgate is the premier independent producer and distributor of motion pictures, television programming, home entertainment, family entertainment and video-on-demand content. Its prestigious and prolific library is a valuable source of stable, recurring revenue and is a foundation for the growth of the Company's core businesses. The Lionsgate brand name is synonymous with original, daring, quality entertainment in markets around the globe.

www.lionsgate.com

For further information, contact:

Peter D. Wilkes
310-255-3726
pwilkes@lionsgate.com

The matters discussed in this press release contain forward-looking statements, including the Company's projections for revenue, free cash flow, EBITDA and net income. In some cases, forward-looking statements can be identified by terms such as "guidance," "upcoming," "expect," "continue," "will," "may" and the negative of these terms. Actual results in the future could differ materially and adversely from those described in the forward-looking statements as a result of various important factors, including but not limited to the possibility of budget overruns, the potential lack of commercial success of the motion pictures, home videos and television programming we distribute, high costs associated with negotiating acquisitions and integrating new businesses, substantial competition, changes in release dates, further decreases in library margins, possible further softness in the DVD market and other risk factors set forth in Lions Gate's Form 8-K filed with the Securities and Exchange Commission on June 29, 2005. These statements are made on the basis of management's views and assumptions regarding future events and business performance as of the time the statements are made, and management does not undertake any obligation to update these statements.

LIONS GATE ENTERTAINMENT CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

December 31, March 31,
2005 2005
(Unaudited)
(Amounts in thousands,
except share amounts)
ASSETS
Cash and cash equivalents $50,548 $112,839
Restricted cash 796 2,913
Investments - auction rate preferreds
and municipal bonds 80,900 --
Investments - equity securities 11,185 --
Accounts receivable, net of reserve
for video returns of $56,988
(March 31, 2005 - $58,449) and provision
for doubtful accounts
of $10,654 (March 31, 2005 - $6,102) 134,522 150,019
Investment in films and television programs 416,963 367,376
Property and equipment 33,909 30,842
Goodwill 186,627 161,182
Other assets 30,730 29,458
$946,180 $854,629

LIABILITIES

Bank loans $-- $1,162
Accounts payable and accrued liabilities 185,453 134,200
Film obligations 211,844 130,770
Subordinated notes 385,000 390,000
Mortgages payable 16,769 18,640
Deferred revenue 41,601 62,459
Minority interests -- 259
840,667 737,490
Commitments and Contingencies

SHAREHOLDERS' EQUITY

Common shares, no par value,
500,000,000 shares authorized,
104,080,322 at December 31, 2005
and 101,843,708 at March 31, 2005
shares issued and outstanding 326,907 305,662
Series B preferred shares
(10 shares issued and outstanding) -- --
Restricted common share units 4,856 --
Unearned compensation (4,128) --
Accumulated deficit (216,009) (183,226)
Accumulated other comprehensive loss (6,113) (5,297)
105,513 117,139
$946,180 $854,629

LIONS GATE ENTERTAINMENT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
2005 2004 2005 2004
(Amounts in thousands, except per share amounts)

Revenues $230,964 $190,398 $637,781 $610,186
Expenses:
Direct operating 110,681 82,461 319,960 258,610
Distribution and
marketing 99,486 80,263 290,655 282,546
General and
administration 12,957 15,582 45,419 49,482
Depreciation 631 835 1,976 2,224
Total expenses 223,755 179,141 658,010 592,862
Operating
Income (Loss) 7,209 11,257 (20,229) 17,324
Other Expense
(Income):
Interest expense 4,929 8,275 14,718 19,388
Interest rate
swaps mark-to-market (218) (419) (119) (2,408)
Interest income (1,046) (74) (2,962) (111)
Minority interests -- (19) -- 2
Other income -- -- -- (825)
Total other
expenses 3,665 7,763 11,637 16,046
Income (Loss) Before
Equity Interests
and Income Taxes 3,544 3,494 (31,866) 1,278
Equity interests (44) -- (98) (200)
Income (Loss) Before
Income Taxes 3,500 3,494 (31,964) 1,078
Income tax provision 358 141 819 857
Net Income (Loss) $3,142 $3,353 $(32,783) $221
Basic Income (Loss)
Income Per Common
Share $0.03 $0.03 $(0.32) $0.00
Diluted Income
(Loss) Per Common
Share $0.03 $0.03 $(0.32) $0.00

LIONS GATE ENTERTAINMENT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Series B
Common Shares Preferred Shares
Number Amount Number Amount
(Amounts in thousands, except share amounts)
Balance at
March 31, 2004 93,615,896 $280,501 10 $--
Exercise of stock
options 4,991,141 13,871
Exercise of
warrants 3,220,867 10,842
Issuance to
directors for
services 15,804 137
Impact of
previously modified
stock options -- 311
Comprehensive
income (loss):
Net income
Foreign currency
translation
adjustments
Net unrealized loss
on foreign
exchange
contracts
Comprehensive
income
Balance at
March 31, 2005 101,843,708 $305,662 10 $--
Exercise of
stock options 244,280 779
Issuance to
directors for
services 20,408 203
Impact of
previously
modified stock
options -- 27
Issuance of common
shares in connection
with acquisition
of film assets 399,042 4,000
Issuance of common
shares in
connection with
acquisition of
common shares of
Image Entertainment 885,258 9,251
Issuance of common
shares in connection
with acquisition
of Redbus 643,460 6,100
Issuance of
restricted share units
Amortization of
restricted share units
Vesting of restricted
share units 44,166 445
Comprehensive loss
Net loss
Foreign currency
translation adjustments
Net unrealized loss
on foreign exchange
contracts
Unrealized loss on
investments - available
for sale
Fair value adjustment
of common shares to
be acquired in
exchange agreement
with Image
Entertainment -- 440
Comprehensive loss
Balance at
December 31,
2005 104,080,322 $326,907 10 $--

Restricted
Common
Share Unearned Accumulated
Units Compensation Deficit
(Amounts in thousands, except share amounts)

Balance at March 31, 2004 $-- $-- $(203,507)
Exercise of stock options
Exercise of warrants
Issuance to directors
for services
Impact of previously
modified stock options
Comprehensive income (loss):
Net income 20,281
Foreign currency
translation adjustments
Net unrealized loss on
foreign exchange contracts
Comprehensive income
Balance at March 31, 2005 $-- $-- $(183,226)
Exercise of stock options
Issuance to directors
for services
Impact of previously modified
stock options
Issuance of common shares in
connection with acquisition
of film assets
Issuance of common shares in
connection with acquisition
of common shares of Image
Entertainment
Issuance of common shares in
connection with
acquisition of Redbus
Issuance of restricted
share units 5,301 (5,301)
Amortization of
restricted share units 1,173
Vesting of restricted
share units (445)
Comprehensive loss
Net loss (32,783)
Foreign currency translation
adjustments
Net unrealized loss on
foreign exchange contracts
Unrealized loss on
investments - available
for sale
Fair value adjustment of
common shares to be
acquired in exchange
agreement with Image
Entertainment
Comprehensive loss
Balance at
December 31, 2005 $4,856 $(4,128) $(216,009)

Accumulated
Comprehensive Other
Income Comprehensive
(Loss) Loss Total
(Amounts in thousands, except share amounts)

Balance at March 31, 2004 $(7,385) $69,609
Exercise of stock options 13,871
Exercise of warrants 10,842
Issuance to directors for services 137
Impact of previously
modified stock options 311
Comprehensive income (loss):
Net income $20,281 20,281
Foreign currency
translation adjustments 2,374 2,374 2,374
Net unrealized loss on
foreign exchange
contracts (286) (286) (286)
Comprehensive income $22,369
Balance at March 31, 2005 $(5,297) $117,139
Exercise of stock options 779
Issuance to directors
for services 203
Impact of previously
modified stock options 27
Issuance of common shares in
connection with acquisition
of film assets 4,000
Issuance of common shares
in connection with acquisition
of common shares of
Image Entertainment 9,251
Issuance of common shares
in connection with
acquisition of Redbus 6,100
Issuance of restricted
share units --
Amortization of restricted
share units 1,173
Vesting of restricted
share units --
Comprehensive loss
Net loss (32,783) (32,783)
Foreign currency
translation adjustments 1,476 1,476 1,476
Net unrealized loss on
foreign exchange contracts (315) (315) (315)
Unrealized loss on
investments - available
for sale (1,537) (1,537) (1,537)
Fair value adjustment of
common shares to be acquired
in exchange agreement with
Image Entertainment (440) (440) --
Comprehensive loss $(33,599)
Balance at
December 31, 2005 $(6,113) $105,513

LIONS GATE ENTERTAINMENT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Nine
Months Months
Ended Ended
December 31, December 31,
2005 2004
(Amounts in thousands)
Operating Activities:
Net income (loss) $(32,783) $221
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation of property and equipment 1,976 2,224
Amortization of deferred financing costs 2,814 5,998
Amortization of films and television
programs 191,337 169,163
Amortization of intangible assets 1,760 1,644
Non-cash stock-based compensation 1,403 364
Interest rate swaps mark-to-market (119) (2,408)
Gain on disposition of assets -- (666)
Minority interests -- 2
Equity interests 98 200
Changes in operating assets and liabilities:
Decrease (increase) in restricted cash 2,117 (20,000)
Accounts receivable, net 12,878 17,137
Increase in investment in films and
television programs (215,192) (125,387)
Other assets (3,186) (1,263)
Accounts payable and accrued
liabilities 43,254 (16,157)
Film obligations 73,043 51,555
Deferred revenue (20,467) 507
Net Cash Flows Provided By Operating
Activities 58,933 83,134
Investing Activities:
Purchases of investments - auction rate
preferreds and municipal bonds (163,400) --
Purchases of investments - equity securities (3,470) --
Sales of investments - auction rate preferreds 82,500 --
Cash received from sale of investment 2,945 --
Cash received from disposition of assets, net -- 1,172
Acquisition of Redbus, net of cash acquired (27,122) --
Purchases of property and equipment (4,059) (1,952)
Net Cash Flows Used In Investing Activities (112,606) (780)
Financing Activities:
Issuance of common shares 779 21,991
Financing fees (240) (1,077)
Increase in subordinated notes, net of
issue costs -- 145,390
Repayment of subordinated notes (5,000) --
Decrease in bank loans -- (251,212)
Repayment of mortgages payable (2,523) (1,585)
Net Cash Flows Used In Financing Activities (6,984) (86,493)
Net Change In Cash And Cash Equivalents (60,657) (4,139)
Foreign Exchange Effects On Cash (1,634) 2,189
Cash and Cash Equivalents - Beginning
Of Period 112,839 7,089
Cash and Cash Equivalents - End Of Period $50,548 $5,139

LIONS GATE ENTERTAINMENT CORP.

RECONCILIATION OF EBITDA TO NET INCOME (LOSS)

Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
2005 2004 2005 2004
(Amounts in thousands)

EBITDA, as defined $7,796 $12,092 $(18,351) $20,173
Depreciation (631) (835) (1,976) (2,224)
Interest expense (4,929) (8,275) (14,718) (19,388)
Interest rate swaps
mark-to-market 218 419 119 2,408
Interest income 1,046 74 2,962 111
Minority interests -- 19 -- (2)
Income tax provision (358) (141) (819) (857)
Net income (loss) $3,142 $3,353 $(32,783) $221

EBITDA is defined as earnings before interest expense, interest rate swaps mark-to-market, interest income, income tax provision, depreciation and minority interests.

LIONS GATE ENTERTAINMENT CORP.

RECONCILIATION OF NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES TO FREE CASH

FLOW FROM OPERATIONS (AFTER DEBT SERVICE)

Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
2005 2004 2005 2004
(Amounts in thousands)
Net Cash Flows
Provided By
Operating
Activities $21,205 $33,795 $58,933 $83,134
Purchases of
property and
equipment (1,967) (1,777) (4,059) (1,952)
Free Cash Flow
From Operations
(after debt
service), as
defined $19,238 $32,018 $54,874 $81,182

Free cash flow is defined as net cash flows provided by operating activities less purchases of property and equipment.

LIONS GATE ENTERTAINMENT CORP.

RECONCILIATION OF FORECAST EBITDA TO FORECAST NET INCOME

Year Ending
March 31,
2006
(Amounts in thousands)
Forecast EBITDA, as defined $20,000
Depreciation (2,600)
Interest expense (19,700)
Interest income 4,100
Estimated pretax gain on the sale
of the studio facilities 5,000
Income tax provision (2,800)
Forecast net income $4,000

Forecast EBITDA is defined as forecast earnings before interest expense, interest rate swaps mark-to-market, interest income, income tax provision, depreciation and estimated pretax gain on the sale of the studio facilities.

LIONS GATE ENTERTAINMENT CORP.

RECONCILIATION OF FORECAST NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES TO

FORECAST FREE CASH FLOW FROM OPERATIONS (AFTER DEBT SERVICE)

Year Ending
March 31,
2006
(Amounts in thousands)
Forecast Net Cash Flows Provided
By Operating Activities $89,500
Purchases of property and equipment (4,500)
Forecast Free Cash Flow From
Operations (after debt service),
as defined $85,000

Source: Lionsgate

CONTACT: Peter D. Wilkes of Lionsgate, +1-310-255-3726,
pwilkes@lionsgate.com

Web site: http://www.lionsgate.com/

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