RHIE Rhi Entertainment (MM)

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2009

OR

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

For the transition period from             to

001-34102
(Commission File Number)

RHI ENTERTAINMENT, INC.

(Exact name of registrant as specified in its charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)		36-4614616 (I.R.S. Employer Identification No.)

1325 Avenue of Americas, 21st Floor
New York, NY 10019
(Address of principal executive offices)

Registrant’s telephone number: (212) 977-9001

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  þ  No  o

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

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

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

     The number of shares of the Registrant’s common stock, par value $0.01 per share, outstanding as of May 6, 2009 was 13,505,100.

 

 

RHI ENTERTAINMENT, INC.
INDEX

		Page
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements			3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			12
Item 3. Qualitative and Quantitative Disclosures about Risk			20
Item 4. Controls and Procedures			20
PART 2. OTHER INFORMATION
Item 1. Legal Proceedings			20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			21
Item 3. Defaults upon Senior Securities			21
Item 4. Submissions of Matters to a Vote on Security Holders			21
Item 5. Other Information			21
Item 6. Exhibits			22
Signatures			23
EX-31.1
EX-31.2
EX-32.1
EX-32.2

Part 1. Financial Information

RHI ENTERTAINMENT, INC.
Unaudited Condensed Consolidated Balance Sheets

		March 31,				December 31,
		2009				2008
		(In thousands, except per share data)
ASSETS
Cash		$	9,093			$	22,373
Accounts receivable, net of allowance for doubtful accounts and discount to present value of $11,401 and $11,933, respectively			150,188				180,125
Film production costs, net			781,527				780,122
Property and equipment, net			343				370
Prepaid and other assets, net			24,400				28,928
Intangible assets, net			1,950				2,264
Total assets		$	967,501			$	1,014,182
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable and accrued liabilities		$	46,459			$	51,477
Accrued film production costs			173,465				195,328
Debt			576,789				576,789
Deferred revenue			12,829				13,530
Total liabilities			809,542				837,124
Stockholders’ equity
Common stock, par value $0.01 per share; 125,000 shares authorized and 13,505 shares issued and outstanding			135				135
Additional paid-in capital			149,885				149,609
Accumulated deficit			(48,897	)			(36,195	)
Accumulated other comprehensive loss			(9,981	)			(11,387	)
Total RHI Inc. stockholders’ equity			91,142				102,162
Non-controlling interest in consolidated entity			66,817				74,896
Total stockholders’ equity			157,959				177,058
Total liabilities and stockholders’ equity		$	967,501			$	1,014,182

See accompanying notes to unaudited condensed consolidated financial statements.

RHI ENTERTAINMENT, INC.
Unaudited Condensed Consolidated Statements of Operations

		(Successor)				(Predecessor)
		Three Months				Three Months
		Ended				Ended
		March 31, 2009				March 31, 2008
		(In thousands, except per share data)
Revenue
Production revenue		$	—			$	4,941
Library revenue			13,003				17,280
Total revenue			13,003				22,221
Cost of sales			13,438				17,578
Gross (loss) profit			(435	)			4,643
Other costs and expenses:
Selling, general and administrative			10,966				12,889
Amortization of intangible assets			314				357
Management fees paid to related parties			—				150
Loss from operations			(11,715	)			(8,753	)
Other (expense) income:
Interest expense, net			(9,632	)			(11,754	)
Interest income			3				19
Other (expense) income, net			(694	)			887
Loss before income taxes and non-controlling interest in loss of consolidated entity			(22,038	)			(19,601	)
Income tax benefit (provision)			25				(593	)
Loss before non-controlling interest in loss of consolidated entity			(22,013	)			(20,194	)
Non-controlling interest in loss of consolidated entity			9,311				—
Net loss		$	(12,702	)		$	(20,194	)
Loss per Share:
Basic		$	(0.94	)			N/A
Diluted		$	(0.94	)			N/A
Weighted Average Shares Outstanding:
Basic			13,505				N/A
Diluted			13,505				N/A

See accompanying notes to unaudited condensed consolidated financial statements.

RHI ENTERTAINMENT, INC.
Unaudited Condensed Consolidated Statements of Cash Flows

		(Successor)				(Predecessor)
		Three Months				Three Months
		Ended				Ended
		March 31, 2009				March 31, 2008
		(In thousands)
Cash flows from operating activities
Net loss		$	(12,702	)		$	(20,194	)
Adjustments to reconcile net loss to net cash used in operating activities:
Non-controlling interest in loss of consolidated entity			(9,311	)			—
Amortization of film production costs			8,222				13,006
Amortization of deferred debt financing costs			845				287
Decrease of accounts receivable reserves			(532	)			(489	)
Share-based compensation			478				484
Amortization of intangible assets			314				357
Deferred income taxes			89				(1,156	)
Depreciation and amortization of fixed assets			52				49
Loss on disposal of fixed assets			1				—
Amortization of debt discount			—				186
Change in operating assets and liabilities:
Decrease in accounts receivable			30,469				16,636
Decrease in prepaid and other assets			3,594				3,109
Additions to film production costs			(9,627	)			(27,413	)
(Decrease) increase in accounts payable and accrued liabilities			(2,582	)			401
(Decrease) increase in accrued film production costs			(21,863	)			3,288
(Decrease) increase in deferred revenue			(701	)			1,309
Net cash used in operating activities			(13,254	)			(10,140	)
Cash flows from investing activities
Purchase of property and equipment			(26	)			(39	)
Net cash used in investing activities			(26	)			(39	)
Cash flows from financing activities
Borrowings from credit facilities			1,000				28,243
Repayments of credit facilities			(1,000	)			(8,943	)
Member capital contributions			—				20
Net cash provided by financing activities			—				19,320
Net (decrease) increase in cash			(13,280	)			9,141
Cash, beginning of period			22,373				1,407
Cash, end of period		$	9,093			$	10,548
Supplemental disclosure of cash flow information:
Cash paid for interest		$	10,730			$	12,709
Cash paid for income taxes			356				1,557

See accompanying notes to unaudited condensed consolidated financial statements.

RHI ENTERTAINMENT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements

(1) Business and Organization

     On January 12, 2006, Hallmark Entertainment Holdings, LLC (Hallmark) sold its 100% interest in Hallmark Entertainment, LLC (Hallmark Entertainment or the Initial Predecessor Company) to HEI Acquisition, LLC. HEI Acquisition, LLC was immediately merged with and into Hallmark Entertainment and its name was changed to RHI Entertainment, LLC (RHI LLC or the Predecessor Company). Subsequent to the transaction, RHI LLC’s sole member was RHI Entertainment Holdings, LLC (Holdings), a limited liability company controlled by affiliates of Kelso & Company L.P. (Kelso). RHI LLC is engaged in the development, production and distribution of made-for-television movies, mini-series and other television programming.

     On June 23, 2008, RHI Entertainment, Inc. (RHI Inc. or the Successor Company) completed its initial public offering (the IPO). RHI Inc. was incorporated for the sole purpose of becoming the managing member of RHI Entertainment Holdings II, LLC and had no operations prior to the IPO. Immediately preceding the IPO, Holdings changed its name to KRH Investments LLC (KRH). KRH then contributed its 100% ownership interest in RHI LLC to a newly formed limited liability company named RHI Entertainment Holdings II, LLC (Holdings II) in consideration for 42.3% of the common membership units in Holdings II and Holdings II’s assumption of all of KRH’s obligations under its financial advisory agreement with Kelso. Upon completion of the IPO, the net proceeds received were contributed by RHI Inc. to Holdings II in exchange for 57.7% (13,500,100) of the common membership units in Holdings II. Upon completion of the IPO, RHI Inc. became the sole managing member of Holdings II and holds a majority of the economic interests. KRH is the non-managing member of Holdings II and holds a minority of the economic interests. To the extent that distributions are made, they will be in accordance with the relative economic interests of RHI Inc. and KRH in Holdings II. RHI Inc. holds a number of common membership units in Holdings II equal to the number of outstanding shares of RHI Inc. common stock.

     The Company has incurred net losses and has had negative cash flows from operations in each of the past three years and for the three months ended March 31, 2009 and at March 31, 2009 has an accumulated deficit of $48,897. The ability to meet debt and other obligations and to reduce the Company’s total debt depends on its future operating performance and on economic, financial, competitive and other factors. Management is continually reviewing its operations for opportunities to adjust the timing of expenditures to ensure that sufficient resources are maintained. It has the ability to manage the timing and related expenditures of certain of these productions. The timing surrounding the commencement of production of movies and mini-series and the related financings are the most significant items that can be altered in terms of managing our resources. For example, we have asked our production partners to finance a significant portion of the cost of each new production without short-term financial support from us. If one of the Company’s production partners cannot finance a substantial portion of a film’s cost through the use of new or existing credit facilities of their own, the Company may not develop or produce that film. As a result, the number of films the Company produces may be reduced, which could have an adverse impact on our production revenue. Management believes that cash on hand, available borrowings under our revolving credit facility and projected cash flows from operations will be sufficient to satisfy the Company’s financial obligations through at least the next twelve months.

(2) Basis of Presentation

     The financial information presented herein has been prepared according to U.S. generally accepted accounting principles. In management’s opinion, the information presented herein reflects all adjustments necessary to fairly present the financial position and results of operations of the Predecessor Company and Successor Company (collectively, the Company).

     The consolidated financial statements of the Predecessor Company include the accounts of RHI LLC and its consolidated subsidiaries. The consolidated financial statements of the Successor Company include the accounts of RHI Inc. and its consolidated subsidiary, Holdings II (which consolidates RHI LLC). All intercompany accounts and transactions have been eliminated.

     The unaudited financial statements as of March 31, 2009 (Successor) and for the three months ended March 31, 2009 (Successor), and the three months ended March 31, 2008 (Predecessor) include, in the opinion of management, all adjustments consisting only of normal recurring adjustments, which the company considers necessary for a fair presentation of the financial position and results of operations of the company for these periods. Results for the aforementioned periods are not necessarily indicative of the results to be expected for the full year.

(3) Summary of Significant Accounting Policies

     For a complete discussion of the Company’s accounting policies, refer to the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, which was filed with the SEC on March 5, 2009.

(a) Use of Estimates

     The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts in the financial statements and footnotes thereto. Actual results could differ from those estimates.

(b) Comprehensive Loss

     Comprehensive loss consists of net loss and other losses (comprised of unrealized gains/losses associated with interest rate swaps with respect to the Company) affecting stockholders’ equity that, under U.S. generally accepted accounting principles are excluded from net loss. Comprehensive loss for the three months ended March 31, 2009 (Successor) and March 31, 2008 (Predecessor) totaled approximately $11.3 million and $31.0 million, respectively.

(c) Segment Information

     The Company operates in a single segment: the development, production and distribution of made-for-television movies, mini-series and other television programming. Long-lived assets located in foreign countries are not material. Revenue earned from foreign licensees represented approximately 33% and 39% of total revenue for the three months ended March 31, 2009 (Successor) and March 31, 2008 (Predecessor), respectively. These revenues, generally denominated in U.S. dollars, were primarily from sales to customers in Europe.

(d) New Accounting Pronouncements Adopted

     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, or SFAS 157. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. Under SFAS 157, fair value refers to the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity does business. It also clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of SFAS 157 could change current practices. SFAS 157 was effective for financial statements issued with fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, however, the effective date for SFAS 157 was deferred until fiscal years beginning after November 15, 2008 for all nonfinancial assets and nonfinancial liabilities. The company adopted SFAS 157 effective January 1, 2009 for nonfinancial assets and nonfinancial liabilities, which did not have an impact on its consolidated financial statements.

     In November 2007, the EITF reached a consensus on Issue No. 07-1, “Accounting for Collaboration Arrangements Related to the Development and Commercialization of Intellectual Property,” or EITF 07-1. EITF 07-1 provides guidance on how the parties to a collaborative agreement should account for costs incurred and revenue generated on sales to third parties, how sharing payments pursuant to a collaboration agreement should be presented in the income statement and certain related disclosure questions. EITF 07-1 was adopted by the company as of January 1, 2009. The adoption of EITF 07-1 by the Company had no impact on its consolidated financial statements.

     In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations,” or SFAS 141R. SFAS 141R requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, measured at their fair values as of that date. SFAS 141R is effective for the company for business combinations for which the acquisition date is on or after January 1, 2009. SFAS 141R was adopted by the Company as of January 1, 2009. The adoption of SFAS 141R by the Company had no impact on its consolidated financial statements.

     In December 2007, the FASB issued SFAS 160 that will change the current accounting and financial reporting for non-controlling (minority) interests. SFAS 160 is effective for fiscal years beginning after December 15, 2008. SFAS 160 will be applied prospectively; however, certain disclosure requirements of SFAS 160 require retrospective treatment. SFAS 160 was adopted by the

Company on January 1, 2009. As a result of the adoption, the company’s non-controlling interest is now classified as a separate component of equity, not as a liability as it was previously presented.

     In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (SFAS 161), which amends SFAS No. 133. SFAS 161 requires companies with derivative instruments to disclose information that should enable financial statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS 133 and related Interpretations, and how derivative instruments and related hedged items affect a company’s financial position, financial performance, and cash flows. Entities shall select the format and the specifics of disclosures relating to their volume of derivative activity that are most relevant and practicable for their individual facts and circumstances. SFAS 161 expands the current disclosure framework in SFAS 133 and is effective prospectively for all periods beginning on or after November 15, 2008. SFAS 161 was adopted by the Company as of January 1, 2009. SFAS 161 did not have a significant impact on the Company’s consolidated financial statements. See Note 7 for the required disclosures.

(4) Loss Per Share, Basic and Diluted

     Basic loss per share is computed on the basis of the weighted average number of common shares outstanding. Diluted loss per share is computed on the basis of the weighted average number of common shares outstanding plus the effect of potentially dilutive common stock options and restricted stock using the treasury stock method. Since the Company has a net loss for the period, outstanding common stock options and restricted stock units are anti-dilutive. As of March 31, 2009, the Company has no potentially dilutive securities outstanding. The weighted average basic and diluted shares outstanding for the three months ended March 31, 2009 (Successor) was 13,505,100.

(5) Non-Controlling Interest

     As discussed in Note 2, Basis of Presentation, RHI Inc. consolidates the financial results of Holdings II and its wholly-owned subsidiary, RHI LLC. The 42.3% minority interest of Holdings II (9,900,000 membership units) held by KRH is recorded as non-controlling interest in the consolidated entity, which results in an associated reduction in additional paid-in capital of RHI Inc. The non-controlling interest in the consolidated entity on the consolidated balance sheet was established in accordance with Emerging Issues Task Force (EITF) 94-2, “Treatment of Minority Interests in Certain Real Estate Investment Trusts” by multiplying the net equity of Holdings II (after reflecting the contributions of KRH and RHI Inc. and costs related to the offering and reorganization) by KRH’s percentage ownership in Holdings II. The non-controlling interest in loss of consolidated entity on the consolidated statement of operations represents the portion of Holdings II’s net loss attributable to KRH.

     The non-controlling interest associated with the initial investment by RHI Inc. in Holdings II and subsequent transactions are calculated as follows (in thousands):

Total Holdings II member’s equity as of June 22, 2008		$	108,766
RHI Inc. investment in Holdings II			173,984
Non-controlling interest associated with distribution to KRH			(34,972	)
Total post-IPO Holdings II members’ equity			247,778
Non-controlling interest of KRH			42.3	%
Initial allocation of non-controlling interest in consolidated entity			104,810
Non-controlling interest in share-based compensation			473
Non-controlling interest in unrealized loss on interest rate swaps			(3,853	)
Non-controlling interest allocation for the period from June 23, 2008 to December 31, 2008			(3,380	)
Non-controlling interest in loss of consolidated entity for the period from June 23, 2008 to December 31, 2008			(26,534	)
Non-controlling interest in consolidated entity as of December 31, 2008		$	74,896
Non-controlling interest in share-based compensation			202
Non-controlling interest in unrealized loss on interest rate swaps			1,030
Non-controlling interest allocation for the three months ended March 31, 2009			1,232
Non-controlling interest in loss of consolidated entity for the three months ended March 31, 2009			(9,311	)
Non-controlling interest in consolidated entity as of March 31, 2009		$	66,817

(6) Film Production Costs, Net

     Film production costs are comprised of the following (in thousands):

		March 31,				December 31,
		2009				2008
Completed films		$	987,302			$	984,805
Crown Film Library			145,326				145,290
Films in process and development			24,874				18,012
			1,157,502				1,148,107
Accumulated amortization			(375,975	)			(367,985	)
		$	781,527			$	780,122

The following table illustrates the amount of overhead and interest costs capitalized to film production costs as well as amortization expense associated with completed films and the Crown Film Library (in thousands):

		(Successor)				(Predecessor)
		Three Months				Three Months
		Ended				Ended
		March 31, 2009				March 31, 2008
Overhead costs capitalized		$	2,353			$	3,595
Interest capitalized			95				141
Amortization of completed films			7,660				11,567
Amortization of Crown Film Library			330				1,275

     Approximately 37% of completed film production costs have been amortized through March 31, 2009. The Company further anticipates that approximately 10% of completed film production costs will be amortized through March 31, 2010. The Company anticipates that approximately 46% of completed film production costs as of March 31, 2009 will be amortized over the next three years and that approximately 80% of film production costs will be amortized within five years. The Crown Film Library has a remaining amortization period of 17 years and 9 months as of March 31, 2009.

(7) Debt

     Debt consists of the following (in thousands):

		March 31,				December 31,
		2009				2008
First Lien Term Loan		$	175,000			$	175,000
Revolver			326,789				326,789
Second Lien Term Loan			75,000				75,000
		$	576,789			$	576,789

     The Company has two credit agreements. The Company’s first lien credit agreement, as amended (the First Lien Credit Agreement), is comprised of two facilities: (i) a $175.0 million term loan (First Lien Term Loan) and (ii) a $350.0 million revolving credit facility, including a letter of credit sub-facility (Revolver). The Company’s second lien credit agreement, as amended (Second Lien Credit Agreement), is comprised of a seven-year $75.0 million term loan (Second Lien Term Loan).

     The First Lien Term Loan amortizes in three installments of 10%, 20% and 70% on April 13, 2011, 2012 and 2013, respectively and bears interest at the Alternate Base Rate (ABR) or LIBOR plus an applicable margin of 1.00% or 2.00% per annum, respectively. The maturity date of the Revolver is April 13, 2013 and the Revolver bears interest at either the ABR or LIBOR plus an applicable margin of 1.00% or 2.00% per annum, respectively. The New Second Lien Term Loan matures on June 23, 2015 and bears interest at ABR or LIBOR plus an applicable margin of 6.50% or 7.50% per annum, respectively. Any prepayment of principal of the New Second Lien Term Loan made prior to June 23, 2009 requires a 1% premium on the loans repaid.

     Interest payments for all loans are due, at the Company’s election, according to interest periods of one, two or three months. The Revolver also requires an annual commitment fee of 0.375% on the unused portion of the commitment. At March 31, 2009, the

interest rates associated with the First Lien Term Loan, Revolver and New Second Lien Term Loan were 3.17%, 3.22%, and 8.74%, respectively. At March 31, 2009, the Company had availability of $19.8 million under its revolver, net of $3.4 million of stand-by letters of credit outstanding.

     The First Lien Credit Agreement and Second Lien Credit Agreement, as amended, include customary affirmative and negative covenants, including among others: (i) limitations on indebtedness, (ii) limitations on liens, (iii) limitations on investments, (iv) limitations on guarantees and other contingent obligations, (v) limitations on restricted junior payments and certain other payment restrictions, (vi) limitations on consolidation, merger, recapitalization or sale of assets, (vii) limitations on transactions with affiliates, (viii) limitations on the sale or discount of receivables, (ix) limitations on lines of business, (x) limitations on production and acquisition of product and (xi) certain reporting requirements. Additionally, the First Lien Credit Agreement includes a Minimum Consolidated Tangible Net Worth covenant (as defined therein) and both the First Lien Credit Agreement and the Second Lien Credit Agreement contain a Coverage Ratio covenant (as defined therein). The First Lien Credit Agreement and Second Lien Credit Agreement also include customary events of default, including among others, a change of control (including the disposition of capital stock of subsidiaries that guarantee the credit agreement).

     On March 2, 2009, the Company further amended its First Lien Credit Agreement to revise a consolidated net worth covenant. The amended covenant excludes the Company’s intangible assets and interest rate swaps and any impact they may have on the Company’s balance sheet and statement of operations in the annual determination of Consolidated Tangible Net Worth (as defined in the First Lien Credit Agreement). The amendment was effective as of December 31, 2008.

     The Company was in compliance with all required financial covenants as of March 31, 2009.

Interest Rate Swaps

     The Company utilizes derivative financial instruments to reduce interest rate risk. The Company does not hold or issue derivative financial instruments for trading purposes. In accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” which was amended by SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities,” the interest rate swaps held by the Company initially were designated as cash flow hedges and qualified for hedge accounting in accordance with method 1 of SFAS No. 133 Implementation Issue No. G7. The critical terms of the interest rate swaps and hedged variable-rate debt coincided and cash flows due to the hedge exactly offset cash flows resulting from fluctuations in the variable rates.

     Under hedge accounting, changes in the fair value of the interest rate swaps are reported as a component of accumulated other comprehensive loss in the Company’s consolidated balance sheet. The fair value of the swap contracts and any amounts payable to or receivable from counterparties are reflected as assets or liabilities in the Company’s consolidated balance sheet. Upon termination of the interest rate swaps or variable-rate debt, all unrealized gains or losses and any cash payments or receipts will be recorded to results of operations.

     As of March 31, 2009 and December 31, 2008, the Company had two identical interest rate swap agreements to manage its exposure to interest rate movements associated with $435.0 million of its credit facilities by effectively converting its variable rate to a fixed rate. These interest rate swaps provided for the exchange of variable rate payments for fixed rate payments. The variable rate was based on three month LIBOR and the fixed rate was 4.98%. The interest rate swaps were scheduled to terminate on April 27, 2010. The aggregate fair market value of the interest rate swaps was approximately $(17.3) million and $(19.7) million as of March 31, 2009 and December 31, 2008, respectively.

     On April 21, 2009, the Company amended its existing interest rate swap agreements and de-designated them as cash flow hedges in accordance with SFAS No. 133. As a result of the de-designation, the fair market value of the swaps immediately preceding the amendments will be recorded as interest expense in the consolidated statement of operations during the period from April 21, 2009 through April 27, 2010. The amended interest rate swaps have not been designated as cash flow hedges and, therefore, changes to their fair value will be recorded as Other income (expense) in the consolidated statement of operations.

     The amended interest rate swap agreements are with three counterparties and continue to cover $435.0 million of the Company’s credit facilities and provide for the exchange of variable rate payments for fixed rate payments. The variable rates are based on one month LIBOR and the weighted average fixed rate is 3.81%. The amended interest rate swaps terminate on April 27, 2010 ($90.3 million), June 27, 2011 ($39.6 million) and April 27, 2012 ($305.1 million).

     The Company is exposed to credit loss in the event of non-performance by the counterparties to the interest rate swap agreements. However, the Company does not anticipate non-performance by the counterparties.

(8) Related Party Transactions

     In 2006, the Company agreed to pay Kelso an annual management fee of $600,000 in connection with planning, strategy, oversight and support to management (financial advisory agreement). This management fee was paid on a quarterly basis. A total of $150,000, of this management fee was recorded as management fees paid to related parties in the unaudited consolidated statements of operations for the three months ended March 31, 2008 (Predecessor). Concurrent with the closing of the IPO, the Company paid Kelso $6.0 million in exchange for the termination of its fee obligations under the existing financial advisory agreement.

     In August 2008, certain affiliates of Kelso guaranteed $20.0 million of the Second Lien Term Loans held by JPMorgan Chase Bank, N.A. (JPM) (but not any subsequent assignee) and also agreed to purchase the loans from JPM on December 7, 2008 if JPM had not sold such loans to third parties or if the loans have not otherwise been repaid by that date. In September 2008, $5.0 million of these loans were syndicated to a third party. As of March 31, 2009, the remaining $15.0 million continued to be guaranteed by affiliates of Kelso, as the requirement to purchase has been extended by JPM until May 6, 2009. Affiliates of Kelso have agreed to purchase such loans from JPM on May 6, 2009.

(9) Share-based Compensation

     On February 9, 2009, the Company granted stock options and RSUs to its chief executive officer and its newly appointed Chairman of the Board of Directors (Chairman). The Company’s chief executive officer was granted 550,000 non-qualified stock options and 150,000 restricted stock units (RSUs). The Company’s Chairman was granted 350,000 non-qualified stock options and 350,000 RSUs. All stock options granted to both the Chairman and chief executive officer have an exercise price equal to $4.04 per share, the closing price per share of the Company’s common stock on February 9, 2009 (the date of grant) and expire 10 years from the date of grant. Subject to each recipient’s continued service with the Company, as of each applicable vesting date, 33 ¹ / ₃ % of the stock options and RSU’s will generally vest on each of the first three anniversaries of the date of grant. With respect to each of the stock options and restricted stock units, (i) 1/3 of the shares that become vested on each anniversary date will become exercisable (with respect to shares subject to stock options) or transferable (with respect to shares subject to RSUs) immediately upon vesting, (ii) 1/3 of the shares that become vested on each anniversary will become exercisable or transferable, as applicable, upon the attainment of a $9.00 stock price performance hurdle and (iii) 1/3 of the shares that become vested on each anniversary will become exercisable or transferable, as applicable, upon the attainment of a $14.00 stock price performance hurdle. The stock options and RSUs provide for accelerated vesting if there is a change in control (as defined in the RSU and stock option agreements). The RSUs were valued at $4.04 per share based on the closing price of the Company’s stock on the date of grant. The stock options granted were valued using a Monte Carlo simulation model and have a grant date fair values associated with each vesting tranche ranging from $2.05 – $2.45 per share.

     Additionally, the Company’s Chairman and chief executive officer were provided with certain distribution rights under the Second Amended and Restated Limited Liability Company Agreement of KRH. The Company’s chief executive officer forfeited 500 Value Units (profit interest in KRH) and certain distribution rights in exchange for his new distribution rights. These Value Unit and distribution right adjustments only impact the return to, and only dilute the interests of, the owners of KRH, and will not impact the return to, or dilute the interest of, the direct holders of the Company’s common stock.

(10) Commitments and Contingencies

     The Company is involved in various legal proceedings and claims incidental to the normal conduct of its business. Although it is impossible to predict the outcome of any outstanding legal proceedings, the Company believes that such outstanding legal proceedings and claims, individually and in the aggregate, are not likely to have a material effect on its financial position or results of operations.

Item 2. Management’s Discussion and analysis of Financial Condition and Results of Operations

     This discussion may contain forward-looking statements that reflect RHI Entertainment Inc.’s (RHI Inc) current views with respect to, among other things, future events and financial performance. RHI Inc. generally identifies forward-looking statements by terminology such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “could,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of those words or other comparable words. Any forward-looking statements contained in this discussion are based upon the historical performance of us and our subsidiaries and on our current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us, or any other person that the future plans, estimates or expectations contemplated by us will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business prospects, growth strategy and liquidity. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from those indicated in these statements. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this Form 10-Q. Unless required by law, RHI Inc. does not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

     The historical consolidated financial data discussed below reflect the historical results of operations of RHI Entertainment, LLC (RHI LLC) and its subsidiaries as RHI Inc. did not have any historical operations prior to June 23, 2008. See Notes to RHI Inc.’s Condensed Consolidated Financial Statements included elsewhere in this Form 10-Q.

      In this discussion, unless the context otherwise requires, the terms “RHI Inc.,” “the Company,” “we,” “us” and “our” refer to RHI Entertainment, Inc. and its subsidiaries including RHI Entertainment Holdings II, LLC and RHI Entertainment, LLC.

Overview

     We develop, produce and distribute new made-for-television (MFT) movies, mini-series and other television programming worldwide. We also selectively produce new episodic series programming for television. In addition to our development, production and distribution of new content, we own an extensive library of existing long-form television content, which we license primarily to broadcast and cable networks worldwide.

     Our revenue and operating results are seasonal in nature. A significant portion of the films that we develop, produce and distribute are delivered to the broadcast and cable networks in the second half of each year. Typically, programming for a particular year is developed either late in the preceding year or in the early portion of the current year. Generally, planning and production take place during the spring and summer and completed film projects are delivered in the third and fourth quarters of each year. As a result, our first, second and third quarters of our fiscal year typically have less revenue than the fourth quarter of such fiscal year. Additionally, the timing of the film deliveries from year-to-year may vary significantly. Importantly, the results of one quarter are not necessarily indicative of results for the next or any future quarter.

     Each year, we develop and distribute a new list, or slate, of film content, consisting primarily of MFT movies and mini-series. The investment required to develop and distribute each new slate of films is our largest operating cash expenditure. A portion of this investment in film each year is financed through the collection of license fees during the production process. Each new slate of films is added to our library in the year subsequent to its initial year of delivery. Cash expenditures associated with the distribution of the library film content are not significant.

     We refer to the revenue generated from the licensing of rights in the fiscal year in which a film is first delivered to a customer as “production revenue.” Any revenue generated from the licensing of rights to films in years subsequent to the film’s initial year of delivery is referred to as “library revenue.” The growth and interaction of these two revenue streams is an important metric we monitor as it indicates the current market demand for both our new content (production revenue) and the content in our film library (library revenue). We also monitor our gross profit, which allows us to determine the overall profitability of our film content. We focus on the profitability of our new film slates rather than volume. As such, we strive to manage the scale of our individual production budgets to meet market demand and enhance profitability.

Discussion of consolidated financial information

Revenue

     We derive our revenue from the distribution of our film content. Historically, most of our revenue has been generated from the licensing of rights to our film content to broadcast and cable networks for specified terms, in specified media and territories.

     The timing of film deliveries during the year can have a significant impact on revenue. Each year, we develop and distribute a new slate of film content, consisting primarily of MFT movies and mini-series. We refer to the revenue generated from the licensing of rights in the fiscal year in which a film is first delivered to a customer as “production revenue.” Any revenue generated from the licensing of rights to films in years subsequent to the film’s initial year of delivery is referred to as “library revenue.”

Cost of sales

     We capitalize costs incurred for the acquisition and development of story rights, film production costs, film production-related interest and overhead, residuals and participations. Residuals and participations represent contingent compensation payable to parties associated with the film including producers, writers, directors or actors. Residuals represent amounts payable to members of unions or “guilds” such as the Screen Actors Guild, Directors Guild of America and Writers Guild of America based on the performance of the film in certain media and/or the guild member’s salary level.

     Cost of sales includes the amortization of capitalized film costs, as well as exploitation costs associated with bringing a film to market.

Selling, general and administrative expense

     Selling, general and administrative expense includes salaries, rent and other expenses net of amounts included in capitalized overhead. We expect increases in general and administrative expense as we incur additional expenses in connection with operating as a publicly traded company.

Interest expense, net

     Interest expense, net represents interest incurred on the Company’s credit facilities (inclusive of amortization of deferred debt issuance costs and original issue discount). Interest expense is reflected net of interest capitalized to film production costs.

Income taxes

     Our operations are conducted through our indirect subsidiary, RHI LLC. Holdings II and RHI LLC are organized as limited liability companies. For U.S. federal income tax purposes, Holdings II is treated as a partnership and RHI LLC is disregarded as a separate entity from Holdings II. Partnerships are generally not subject to income tax, as the income or loss is included in the tax returns of the individual partners.

     The consolidated financial statements of RHI Inc. include a provision for corporate income taxes associated with RHI Inc.’s membership interest in Holdings II as well as an income tax provision related to RHI International Distribution, Inc., a wholly-owned subsidiary of RHI LLC, which is a taxable U.S. corporation.

     KRH is entitled to exchange its common membership units in Holdings II for, at our option, cash or shares of RHI Inc. common stock on a one-for-one basis (as adjusted to account for stock splits, recapitalizations or similar events) or a combination of both stock and cash. These exchanges may result in increases in the tax basis of the assets of Holdings II that otherwise would not have been available. These increases in our proportionate share of tax basis may increase depreciation and amortization deductions for tax purposes and therefore reduce the amount of tax that RHI Inc. would otherwise be required to pay in the future, although the IRS may challenge all or part of that tax basis increase, and a court could sustain such a challenge.

     Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates that we expect to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative facts and circumstances and allowances, if any, are adjusted during each reporting period.

Results of operations

Three months ended March 31, 2009 compared to the three months ended March 31, 2008

     The results of operations for the three months ended March 31, 2009 and 2008 are summarized as follows (in thousands, except for per share data):

		Successor				Predecessor
		Three Months				Three Months
		Ended				Ended
		March 31,				March 31,				Increase/
		2009				2008				(Decrease)
Revenue
Production revenue		$	—			$	4,941			$	(4,941	)
Library revenue			13,003				17,280				(4,277	)
Total revenue			13,003				22,221				(9,218	)
Cost of sales			13,438				17,578				(4,140	)
Gross (loss) profit			(435	)			4,643				(5,078	)
Other costs and expenses:
Selling, general and administrative			10,966				12,889				(1,923	)
Amortization of intangible assets			314				357				(43	)
Management fees paid to related parties			—				150				(150	)
Loss from operations			(11,715	)			(8,753	)			(2,962	)
Other (expense) income:
Interest expense, net			(9,632	)			(11,754	)			2,122
Interest income			3				19				(16	)
Other (expense) income, net			(694	)			887				(1,581	)
Loss before income taxes and non-controlling interest in loss of consolidated entity			(22,038	)			(19,601	)			(2,437	)
Income tax benefit (provision)			25				(593	)			618
Loss before non-controlling interest in loss of consolidated entity			(22,013	)			(20,194	)			(1,819	)
Non-controlling interest in loss of consolidated entity			9,311				—				9,311
Net loss		$	(12,702	)		$	(20,194	)		$	7,492
Basic and diluted loss per share		$	(0.94	)			N/A				N/A

Revenue, cost of sales and gross (loss) profit

		Three Months Ended March 31,
		2009								2008
		(Successor)								(Predecessor)
						As a								As a
						Percentage								Percentage				$ Increase/				% Increase/
		Amount				of Revenue				Amount				of Revenue				(Decrease)				(Decrease)
		(Dollars in thousands)
Production revenue		$	—				0	%		$	4,941				22	%		$	(4,941	)			(100	)%
Library revenue			13,003				100	%			17,280				78	%			(4,277	)			(25	)%
Total revenue			13,003				100	%			22,221				100	%			(9,218	)			(41	)%
Cost of sales			13,438				103	%			17,578				79	%			(4,140	)			(24	)%
Gross (loss) profit		$	(435	)			(3	)%		$	4,643				21	%		$	(5,078	)			(109	)%

     Total revenue decreased $9.2 million, or 41%, to $13.0 million during the three months ended March 31, 2009 from $22.2 million during the same period in 2008.

     There was no production revenue during the three months ended March 31, 2009, a decrease of $4.9 million compared to the same period in 2008. In the three months ended March 31, 2009, there were no original MFT movies or original mini-series delivered, while five MFT movies were delivered during the three months ended March 31, 2008. We significantly slowed down our production activity in the fourth quarter of 2008 due to the difficult economic environment and did not begin any films for the 2009 slate. Film production activity did increase during the first quarter and we are on track to deliver approximately 35 films in 2009, with the majority of these films to be delivered in the third and fourth quarters.

     Library revenue decreased $4.3 million to $13.0 million in the three months ended March 31, 2009 from $17.3 million during the comparable period in 2008. The decrease of approximately 25% primarily resulted from slow down in sales activity during the fourth quarter of 2008. Library revenue is recognized based upon when the window for a particular film becomes open and available for a network to air. Sales made in one quarter often are not recognized as revenue until subsequent quarters due to this issue. Also contributing to the decrease was a $1.5 million reduction in revenue related to the distribution of programming on ION during the three months ended March 31, 2009 compared to the same period in the prior year as a result of a weaker advertising market.

     Cost of sales decreased $4.1 million to $13.4 million during the three months ended March 31, 2009 from $17.6 million during the same period of 2008. Cost of sales as a percentage of revenue increased to 103% during the three months ended March 31, 2009 from 79% during the same period of 2008. Cost of sales is comprised of film cost amortization, certain distribution expenses and amortization of minimum guarantee payments made to ION. While film cost amortization as a percentage of revenue was slightly higher in 2009 than in 2008 (see discussion below), the gross loss during the three months ended March 31, 2009 was primarily a result of the reduction in revenue recognized in the three months ended March 31, 2009 and the fact that the distribution expenses and ION minimum guarantee expense are not driven by revenue recognition.

     Film cost amortization as a percentage of revenue was 63% during the three months ended March 31, 2009 compared to 59% during the same period of 2008. The average amortization rate on library revenue was higher than in 2008 due to the mix of films for which revenue was recognized in each period. Amortization is on a film-by-film basis and, on average, the films for which revenue was recognized during the three months ended March 31, 2009 had higher rates of amortization than those in the same period of 2008. It should be noted that while the rate of margin on library revenue recognized in the quarter slipped slightly, due to the mix of films, the Company has no reason to believe that the full year margin on the 2009 slate and library product will not be consistent with prior years.

     Other cost of goods sold were slightly higher during the three months ended March 31, 2009 as compared to the same period of 2008 due to an increase in costs associated with our ION agreement, including the amortization of minimum guarantee payments made to ION. The increase in amortization of the minimum guarantee payments is due to an increase in required payments during the second year of the agreement with ION.

Other costs and expenses

		Three Months Ended
		March 31,
		2009				2008				$ Increase/				%Increase/
		(Successor)				(Predecessor)				(Decrease)				(Decrease)
		(Dollars in thousands)
Selling, general and administrative		$	10,966			$	12,889			$	(1,923	)			(15	)%
Amortization of intangible assets			314				357				(43	)			(12	)%
Fees to related parties			—				150				(150	)			(100	)%

     Selling, general and administrative expenses decreased $1.9 million to $11.0 million in the three months ended March 31, 2009, from $12.9 million in the same period in 2008. During the three months ended March 31, 2008, we incurred approximately $2.8 million of costs associated with severance agreements. Similar costs were not incurred during the three months ended March 31, 2009. Although we’ve begun to see benefits from our fourth quarter 2008 decision to reduce our overhead costs, we also incurred certain expenses during the three months ending March 31, 2009 related to operating as public company which were not incurred in the first quarter of 2008.

Interest expense, net

     Interest expense, net decreased $2.1 million to $9.6 million for the three months ended March 31, 2009 from $11.8 million during the comparable period in 2008. The decrease in interest expense is largely due to lower average interest rates during the three months ended March 31, 2009 as compared to the comparable period of 2008 resulting from the reductions in the benchmark interest rates (i.e. LIBOR). The average interest rate during the three months ended March 31, 2009 was 4.5%, compared to 6.4% during the comparable period of 2008. Also contributing to the decrease in interest expense, net were lower weighted average debt balances outstanding during the three months ended March 31, 2009 compared to 2008. During the three months ended March 31, 2009, we had an average debt balance of $576.8 million compared to $673.2 million during the comparable period of 2008. Partially offsetting the reduction in interest rates and weighted average debt outstanding was an increase in interest expense recorded in connection with our interest rate swap contracts resulting from the aforementioned reduction in LIBOR. Approximately $3.4 million in interest expense was recorded in connection with our interest rate swap contracts during the three months ended March 31, 2009, compared to $1.3 million in the three months ended March 31, 2008.

Other (expense) income, net

     Other (expense) income, net primarily represents realized foreign currency (losses) gains resulting from the settlement of customer accounts denominated in foreign currencies. For the three months ended March 31, 2009, we realized a foreign currency loss of $695,000 as compared to a foreign currency gain of $887,000 during the three months ended March 31, 2008.

Income tax benefit (provision)

     The income tax benefit (provision) for the three month periods ended March 31 is related to the pre-tax loss/income of our corporate subsidiary and to foreign taxes related to license fees from customers located outside the United States. No tax benefit has been provided for RHI Inc.’s interest in the net loss because insufficient evidence is available that would support that it is more likely than not that we will generate sufficient income during the year to utilize the net operating loss generated by RHI Inc. in the three months ended March 31, 2009.

Net loss

     The net loss for the three months ended March 31, 2009 was $(12.7) million, compared to $(20.2) million for the three months ended March 31, 2008. The reduction is the result of the non-controlling interest in loss of consolidated entity recorded in the three months ended March 31, 2009.

Liquidity and capital resources

     Our credit facilities currently include: (i) two first lien facilities, a $175.0 million term loan and a $350.0 million revolving credit facility; and (ii) a $75.0 million senior second lien term loan. As of March 31, 2009, all of our debt was variable rate and totaled $576.8 million outstanding. To manage the related interest rate risk, we have entered into interest rate swap agreements. As of March 31, 2009, we had floating to fixed interest rate swaps outstanding in the notional amount of $435.0 million, effectively converting that amount of debt from variable rate to fixed rate. The interest rate swaps were amended in April 2009 (refer to footnote

7 of our unaudited condensed consolidated financial statements) which will result in significant cash interest savings over the next twelve months. As of March 31, 2009, we had $9.1 million of cash compared to $22.4 million of cash at December 31, 2008. As of March 31, 2009, we had $19.8 million available under our revolving credit facility, net of an outstanding letter of credit, subject to the terms and conditions of that facility. The decrease in cash reflects our production spending during the three months ended March 31, 2009. Historically, we have financed our operations with funds from operations, capital contributions from our owners and the use of credit facilities. Additionally, from time-to-time, we may seek additional capital through the incurrence of debt, the issuance of equity or other financing alternatives.

     Our ability to meet our debt and other obligations and to reduce our total debt depends on our future operating performance and on economic, financial, competitive and other factors. High levels of interest expense could have negative effects on our future operations. Interest expense, which is net of capitalized interest and includes amortization of debt issuance costs, totaled $9.6 million for the three months ended March 31, 2009. A substantial portion of our cash flow from operations must be used to pay our interest expense and will not be available for other business purposes.

     Management is continually reviewing its operations for opportunities to adjust the timing of expenditures to ensure that sufficient resources are maintained. The majority of our films are in production in the summer months so that they can be delivered late in the third quarter and during the fourth quarter. As such, the second half of the year is typically the period during the year when our revolving credit facility is most fully drawn. We have the ability to manage the timing and related expenditures of certain of these productions. The timing surrounding the commencement of production of movies and mini-series is the most significant item we can alter in terms of managing our resources.

     For example, we have asked our production partners to finance a significant portion of the cost of each new production without short-term financial support from us. If our production partners cannot finance a substantial portion of a film’s cost through the use of new or existing credit facilities of their own, we may not develop or produce that film. See “Risk Factors — Risks related to our business — Our focus on managing our resources in the most efficient manner may result in a reduction in our production slate” in our Annual Report on Form 10-K for the year ended December 31, 2008, which was filed with the SEC on March 5, 2009.

     We believe our cash on hand, available borrowings under our revolving credit facility and projected cash flows from operations will be sufficient to satisfy our financial obligations through at least the next twelve months. However, a development that significantly decreases our revenue or significantly increases our expenses or cash needs may result in the need for additional financing. Given current credit and equity market conditions, our ability to attract additional capital may be significantly more difficult than it has been in the past. See “Risk Factors — Risks related to our business — Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations under our existing senior secured credit facilities” in our Annual Report on Form 10-K for the year ended December 31, 2008, which was filed with the SEC on March 5, 2009.

     The chart below shows our cash flows for the three months ended March 31, 2009 and 2008.

		Three Months Ended
		March 31,
		2009				2008
		(Successor)				(Predecessor)
		(Dollars in thousands)
Net cash used in operating activities		$	(13,254	)		$	(10,140	)
Net cash used in investing activities			(26	)			(39	)
Net cash provided by financing activities			—				19,320
Cash (end of period)			9,093				10,548

Operating activities

     Cash used in operating activities in the three months ended March 31, 2009 was $13.3 million, and reflects spending related to production, distribution, selling, general and administrative expenses and interest, offset by the collection of cash associated with the distribution of our MFT movies, mini-series and other television programming. In the three months ended March 31, 2009, $10.7 million of interest was paid.

     Cash used in operating activities in the three months ended March 31, 2008 was $10.1 million, and reflects spending related to production, distribution, selling, general and administrative expenses and interest, offset by the collection of cash associated with the distribution of our MFT movies, mini-series and other television programming. In the three months ended March 31, 2008, $12.7 million of interest was paid.

Investing activities

     During the three months ended March 31, 2009 and 2008, we used $26,000 and $39,000, respectively, in investing activities, reflecting the purchase of property and equipment.

Financing activities

     During the three months ended March 31, 2009, there was no cash provided by financing activities.

     During the three months ended March 31, 2008, $19.3 million of cash was provided by financing activities from borrowings under our credit facilities (net of repayments of $8.9 million), principally to fund our operating activities.

Contractual obligations

     The following table sets forth our contractual obligations as of March 31, 2009:

						Payments Due by Period
						Less Than												More Than
		Total				1 Year				1-3 Years				3-5 Years				5 Years
		(Dollars in thousands)
Off balance sheet arrangements:
Operating lease commitments (1)		$	36,963			$	3,723			$	7,334			$	6,989			$	18,917
Obligations pursuant to ION Agreement (2)			25,450				23,450				2,000				—				—
Purchase obligations (3)			17,143				9,371				7,772				—				—
			79,556				36,544				17,106				6,989				18,917
Contractual obligations reflected on the balance sheet:
Debt obligations (4)			576,789				—				17,500				484,289				75,000
Accrued film production costs (5)			71,193				58,271				12,922				—				—
Other contractual obligations (6)			8,495				4,495				2,000				2,000				—
			656,477				62,766				32,422				486,289				75,000
Total contractual obligations		$	736,033			$	99,310			$	49,528			$	493,278			$	93,917

Off-balance sheet arrangements

     We do not have any relationships with unconsolidated entities or financial partnerships, such as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical accounting policies and estimates

     For a complete discussion of our accounting policies, see the information under the heading “Management’s discussion and analysis of financial condition and results of operations — Critical accounting policies and estimates” in our Annual Report on Form 10-K for the year ended December 31, 2008, which was filed with the SEC on March 5, 2009. We believe there have been no material changes to the critical accounting policies and estimates disclosed in the Company’s Form 10-K.

Recent accounting pronouncements

     There are no recent accounting pronouncements that the Company has not yet adopted that will have a material effect on the Company’s financial statements. For a description of recent accounting pronouncements adopted, see Note 3 — Summary of Significant Accounting Policies in the “Notes to Unaudited Condensed Consolidated Financial Statements”.

Item 3. Quantitative and Qualitative Disclosures about Risk

Interest rate risk

     We are subject to market risks resulting from fluctuations in interest rates as our credit facilities are variable rate credit facilities. To manage the related risk, we enter into interest rate swap agreements. As of March 31, 2009, we have swaps outstanding that total $435.0 million, effectively converting that portion of debt from variable rate to fixed rate. The interest rate swaps were amended in April 2009 (refer to footnote 7 of our unaudited condensed consolidated financial statements).

Foreign currency risk

     Our reporting currency is the U.S. Dollar. We are subject to market risks resulting from fluctuations in foreign currency exchange rates through some of our international licensees and we incur certain production and distribution costs in foreign currencies. The primary foreign currency exposures relate to adverse changes in the relationships of the U.S. Dollar to the British Pound, the Euro, the Canadian Dollar and the Australian Dollar. However, there is a natural hedge against foreign currency changes due to the fact that, while certain receipts for international sales may be denominated in a foreign currency certain production and distribution expenses are also denominated in foreign currencies, mitigating fluctuations to some extent depending on their relative magnitude.

     Historically, foreign exchange (losses) gains have not been significant. Foreign exchange (losses) gains for the three months ended March 31, 2009 and 2008 were $(695,000) and $887,000, respectively.

Credit risk

     We are exposed to credit risk from our licensees. These parties may default on their obligations to us, due to bankruptcy, lack of liquidity, operational failure or other reasons. As of March 31, 2009, we have an allowance for uncollectible accounts of $3.5 million, which is primarily related to two customers, Tele Munchen and Sogecable, whose payments owed to us are past due.

Item 4. Controls and Procedures

     Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this quarterly report, our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are effective, in all material respects, to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

     In addition, no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during our most recent fiscal quarter that has materially affected, or is likely to materially affect, our internal control over financial reporting.

Part 2. Other Information

Item 1. Legal Proceedings

     None.

Item 1a. Risk Factors

     For a discussion of our potential risks and uncertainties, see the information under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2008, which was filed with the SEC on March 5, 2009 There have been no material changes to the risk factors as disclosed in the Company’s Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     There have not been any unregistered sales of equity securities or repurchases of the Company’s common stock during the quarter ended March 31, 2009.

Item 3. Defaults upon Senior Securities

     None.

Item 4. Submissions of Matters to a Vote on Security Holders

     None.

Item 5. Other Information

     None.

Item 6. Exhibits

Exhibit
Number		Exhibit
31.1		Certification of the Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of the Chief Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURE

     Pursuant to the requirements 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.

EXHIBIT INDEX

Exhibit
Number		Exhibit
31.1		Certification of the Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of the Chief Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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