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, 2010
 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
 þ o
 o o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company þ o þ




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RHI ENTERTAINMENT, INC.
INDEX
 PagePART 1. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3.  Quantitative and Qualitative Disclosures about Risk
    
    
    20Item 4. Controls and Procedures
    
    
    20PART 2. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    21Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 3. Defaults upon Senior Securities
    
    
    22Item 4. (Removed and Reserved)
    
    
    22Item 5. Other Information
    
    
    22Item 6. Exhibits
    
    
    23Signatures
    
    
    24
 2




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##### 



Part 1. Financial Information
 RHI ENTERTAINMENT, INC.
Unaudited Condensed Consolidated Balance Sheets
 March 31,
    
    
    December 31,2010
    
    
    2009(In thousands, except per share data)ASSETSCash
    
    $
    25,096
    
    
    $
    25,120Accounts receivable, net of allowance for doubtful
accounts and discount to present value of $4,828 and
$5,350, respectively
    
    
    67,873
    
    
    
    85,217Film production costs, net
    
    
    464,991
    
    
    
    461,232Property and equipment, net
    
    
    357
    
    
    
    390Prepaid and other assets, net
    
    
    14,747
    
    
    
    14,768Intangible assets, net
    
    
    855
    
    
    
    1,125Total assets
    
    $
    573,919
    
    
    $
    587,852LIABILITIES AND STOCKHOLDERS DEFICITAccounts payable and accrued liabilities
    
    $
    30,933
    
    
    $
    21,610Accrued film production costs
    
    
    160,974
    
    
    
    166,895Debt
    
    
    609,171
    
    
    
    609,171Deferred revenue
    
    
    27,903
    
    
    
    22,861Total liabilities
    
    
    828,981
    
    
    
    820,537Stockholders deficitCommon stock, par value $0.01 per share;125,000 shares
authorized and 23,416 shares issued and outstanding
    
    $
    234
    
    
    $
    234Additional paid-in capital
    
    
    54,818
    
    
    
    54,390Accumulated deficit
    
    
    (310,114
    )
    
    
    (287,309
    )Total RHI Entertainment, Inc. stockholders deficit
    
    
    (255,062
    )
    
    
    (232,685
    )Total liabilities and stockholders deficit
    
    $
    573,919
    
    
    $
    587,852
  3




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##### 



RHI ENTERTAINMENT, INC.
Unaudited Condensed Consolidated Statements of Operations
 Three Months
    
    
    Three MonthsEnded
    
    
    EndedMarch 31, 2010
    
    
    March 31, 2009(In thousands, except per share data)RevenueProduction revenue
    
    $
    969
    
    
    $
    Library revenue
    
    
    7,430
    
    
    
    13,003Total revenue
    
    
    8,399
    
    
    
    13,003Cost of sales
    
    
    7,153
    
    
    
    13,438Gross profit (loss)
    
    
    1,246
    
    
    
    (435
    )Other costs and expenses:Selling, general and administrative
    
    
    12,541
    
    
    
    10,966Amortization of intangible assets
    
    
    270
    
    
    
    314Loss from operations
    
    
    (11,565
    )
    
    
    (11,715
    )Other (expense) income:Interest expense, net
    
    
    (10,400
    )
    
    
    (9,632
    )Interest income
    
    
    7
    
    
    
    3Other expense, net
    
    
    (487
    )
    
    
    (694
    )Loss before income taxes and non-controlling interest in loss of
consolidated entity
    
    
    (22,445
    )
    
    
    (22,038
    )Income tax (provision) benefit
    
    
    (360
    )
    
    
    25Loss before non-controlling interest in loss of consolidated entity
    
    
    (22,805
    )
    
    
    (22,013
    )Non-controlling interest in loss of consolidated entity
    
    
    
    
    
    
    9,311Net loss
    
    $
    (22,805
    )
    
    $
    (12,702
    )Loss per Share:Basic
    
    $
    (0.97
    )
    
    $
    (0.94
    )Diluted
    
    $
    (0.97
    )
    
    $
    (0.94
    )Weighted Average Shares Outstanding:Basic
    
    
    23,422
    
    
    
    13,505Diluted
    
    
    23,422
    
    
    
    13,505
  4




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RHI ENTERTAINMENT, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
 Three Months
    
    
    Three MonthsEnded
    
    
    EndedMarch 31, 2010
    
    
    March 31, 2009(In thousands)Cash flows from operating activitiesNet loss
    
    $
    (22,805
    )
    
    $
    (12,702
    )Adjustments to reconcile net loss to net cash used in
operating activities:Amortization of film production costs
    
    
    5,679
    
    
    
    8,222Amortization of deferred debt financing cost
    
    
    845
    
    
    
    845Decrease of accounts receivable reserves
    
    
    (522
    )
    
    
    (532
    )Share-based compensation
    
    
    428
    
    
    
    478Amortization of intangible assets
    
    
    270
    
    
    
    314Depreciation and amortization of fixed assets
    
    
    33
    
    
    
    53Non-controlling interest in loss of consolidated entity
    
    
    
    
    
    
    (9,311
    )Deferred income taxes
    
    
    
    
    
    
    89Change in operating assets and liabilities:Decrease in accounts receivable
    
    
    17,866
    
    
    
    30,469(Increase) decrease in prepaid and other assets
    
    
    (824
    )
    
    
    3,594Additions to film production costs
    
    
    (9,438
    )
    
    
    (9,627
    )Increase (decrease) in accounts payable and
accrued liabilities
    
    
    9,323
    
    
    
    (2,582
    )Decrease in accrued film production costs
    
    
    (5,921
    )
    
    
    (21,863
    )Increase (decrease) in deferred revenue
    
    
    5,042
    
    
    
    (701
    )Net cash used in operating activities
    
    
    (24
    )
    
    
    (13,254
    )Cash flows from investing activitiesPurchase of property and equipment
    
    
    
    
    
    
    (26
    )Net cash used in investing activities
    
    
    
    
    
    
    (26
    )Cash flows from financing activitiesBorrowings from credit facilities
    
    
    
    
    
    
    1,000Repayments of credit facilities
    
    
    
    
    
    
    (1,000
    )Net cash provided by financing activities
    
    
    
    
    
    
    Net decrease in cash
    
    
    (24
    )
    
    
    (13,280
    )Cash, beginning of period
    
    
    25,120
    
    
    
    22,373Cash, end of period
    
    $
    25,096
    
    
    $
    9,093Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    
    
    
    $
    10,730Cash paid for income taxes
    
    
    708
    
    
    
    356
  5




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RHI ENTERTAINMENT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
 (1) Business and Organization
 In these Notes to Unaudited Condensed Consolidated Financial Statements, unless the context
otherwise requires, the terms the Company, we, us and our refer to RHI Entertainment, Inc.
and its subsidiaries including RHI Entertainment Holdings II, LLC and RHI Entertainment, LLC.
     Liquidity and Restructuring
  6




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(2) Basis of Presentation
 7




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(3) Summary of Significant Accounting Policies
  (a) Use of Estimates
  (b) Comprehensive Loss
  (c) Segment Information
  (d) New Accounting Pronouncements Adopted
  (4) Loss Per Share, Basic and Diluted
  (5) Film Production Costs, Net
  8




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March 31,
    
    
    December 31,2010
    
    
    2009Completed films
    
    $
    786,206
    
    
    $
    783,246Crown Film Library
    
    
    89,702
    
    
    
    89,683Films in process and development
    
    
    14,349
    
    
    
    7,966890,257
    
    
    
    880,895Accumulated amortization
    
    
    (425,266
    )
    
    
    (419,663
    )$
    464,991
    
    
    $
    461,232
  Three Months
    
    Three MonthsEnded
    
    EndedMarch 31, 2010
    
    March 31, 2009(In thousands)Overhead costs capitalized
    
    $
    2,000
    
    
    $
    2,353Interest capitalized
    
    
    
    
    
    
    95Amortization of completed films
    
    
    5,456
    
    
    
    7,660Amortization of Crown Film Library
    
    
    147
    
    
    
    330
  (6) Debt
  March 31,
    
    
    December 31,2010
    
    
    2009First Lien Term Loan
    
    $
    175,000
    
    
    $
    175,000Revolver
    
    
    339,589
    
    
    
    339,589Second Lien Term Loan
    
    
    75,000
    
    
    
    75,000Interest rate swap termination obligation
    
    
    19,582
    
    
    
    19,582$
    609,171
    
    
    $
    609,171
    9




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Defaults and Forbearance
     (7) Share-based Compensation
  10




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(8) Commitments and Contingencies
 Putative Shareholder Class Action Lawsuit
  Flextech Litigation
  MAT IV Litigation
  Restructuring
   11




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  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
     Discussion of consolidated financial information
 Revenue
  12




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Cost of sales
   Selling, general and administrative expense
  Interest expense, net
  Income taxes
      13




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Results of operations
 Three months ended March 31, 2010 compared to the three months ended March 31, 2009
  Three months ended March 31,
    
    
    Increase/2010
    
    
    2009
    
    
    (Decrease)RevenueProduction revenue
    
    $
    969
    
    
    $
    
    
    
    $
    969Library revenue
    
    
    7,430
    
    
    
    13,003
    
    
    
    (5,573
    )Total revenue
    
    
    8,399
    
    
    
    13,003
    
    
    
    (4,604
    )Cost of sales
    
    
    7,153
    
    
    
    13,438
    
    
    
    (6,285
    )Gross (loss) profit
    
    
    1,246
    
    
    
    (435
    )
    
    
    1,681Other costs and expenses:Selling, general and administrative
    
    
    12,541
    
    
    
    10,966
    
    
    
    1,575Amortization of intangible assets
    
    
    270
    
    
    
    314
    
    
    
    (44
    )(Loss) income from operations
    
    
    (11,565
    )
    
    
    (11,715
    )
    
    
    150Other (expense) income:Interest expense, net
    
    
    (10,400
    )
    
    
    (9,632
    )
    
    
    (768
    )Interest income
    
    
    7
    
    
    
    3
    
    
    
    4Other (expense), net
    
    
    (487
    )
    
    
    (694
    )
    
    
    207Loss before income taxes and non-controlling interest in loss of
consolidated entity
    
    
    (22,445
    )
    
    
    (22,038
    )
    
    
    (407
    )Income tax (provision) benefit
    
    
    (360
    )
    
    
    25
    
    
    
    (385
    )Loss before non-controlling interest in loss of consolidated entity
    
    
    (22,805
    )
    
    
    (22,013
    )
    
    
    (792
    )Non-controlling interest in loss of consolidated entity
    
    
    
    
    
    
    9,311
    
    
    
    (9,311
    )Net loss
    
    $
    (22,805
    )
    
    $
    (12,702
    )
    
    $
    (10,103
    )Basic and diluted loss per share.
    
    $
    (0.97
    )
    
    $
    (0.94
    )
    
    $
    (0.03
    )
 14




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##### 



Revenue, cost of sales and gross profit
 Three Months Ended March 31,2010
    
    
    2009As a
    
    
    
    
    
    
    As aPercentage
    
    
    
    
    
    
    Percentage
    
    
    $ Increase/
    
    
    % Increase/Amount
    
    
    of Revenue
    
    
    Amount
    
    
    of Revenue
    
    
    (Decrease)
    
    
    (Decrease)(Dollars in thousands)Production revenue
    
    $
    969
    
    
    
    12
    %
    
    $
    
    
    
    
    0
    %
    
    $
    969
    
    
    
    100
    %Library revenue
    
    
    7,430
    
    
    
    88
    %
    
    
    13,003
    
    
    
    100
    %
    
    
    (5,573
    )
    
    
    (43
    )%Total revenue
    
    
    8,399
    
    
    
    100
    %
    
    
    13,003
    
    
    
    100
    %
    
    
    (4,604
    )
    
    
    (35
    )%Cost of sales
    
    
    7,153
    
    
    
    85
    %
    
    
    13,438
    
    
    
    103
    %
    
    
    (6,285
    )
    
    
    47
    %Gross profit (loss)
    
    $
    1,246
    
    
    
    15
    %
    
    $
    (435
    )
    
    
    (3
    )%
    
    $
    1,681
    
    
    NM
     Other costs and expenses
 Three Months EndedMarch 31,
    
    $ Increase/
    
    %Increase/2010
    
    2009
    
    (Decrease)
    
    (Decrease)(Dollars in thousands)Selling, general and administrative
    
    $
    12,541
    
    
    $
    10,966
    
    
    $
    1,575
    
    
    
    14
    %Amortization of intangible assets
    
    
    270
    
    
    
    314
    
    
    
    (44
    )
    
    
    (14
    )%
  15




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Interest expense, net
  Other expense, net
  Income tax provision
  Net loss
  Liquidity and capital resources
    16




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17




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##### 



Three Months EndedMarch 31,2010
    
    2009(Dollars in thousands)Net cash used in operating activities
    
    $
    (24
    )
    
    $
    (13,254
    )Net cash used in investing activities
    
    
    
    
    
    
    (26
    )Net cash provided by financing activities
    
    
    
    
    
    
    Cash (end of period)
    
    
    25,096
    
    
    
    9,093
 Operating activities
  Investing activities
  Financing activities
  Contractual obligations
  Payments Due by PeriodLess Than
    
    
    
    
    More ThanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 Years(Dollars in thousands)Off balance sheet arrangements:Operating lease commitments (1)
    
    $
    33,249
    
    
    $
    3,724
    
    
    $
    7,147
    
    
    $
    7,032
    
    
    $
    15,346Purchase obligations (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,249
    
    
    
    3,724
    
    
    
    7,147
    
    
    
    7,032
    
    
    
    15,346Contractual obligations reflected on the balance sheet:Debt obligations (3)
    
    
    609,171
    
    
    
    19,582
    
    
    
    52,500
    
    
    
    462,089
    
    
    
    75,000Accrued film production costs (4)
    
    
    63,208
    
    
    
    63,059
    
    
    
    149
    
    
    
    
    
    
    
    Other contractual obligations (5)
    
    
    8,174
    
    
    
    5,174
    
    
    
    2,000
    
    
    
    1,000
    
    
    
    Uncertain tax positions (6)
    
    
    382
    
    
    
    382
    
    
    
    
    
    
    
    
    
    
    
    680,935
    
    
    
    88,197
    
    
    
    54,649
    
    
    
    463,089
    
    
    
    75,000Total contractual obligations
    
    $
    714,184
    
    
    $
    91,921
    
    
    $
    61,796
    
    
    $
    470,121
    
    
    $
    90,346
 
 (1)
    
    Operating lease commitments represent future minimum payment obligations on various long-term
noncancellable leases for office and storage space.(2)
    
    Purchase obligation amounts represent a contractual commitment to exclusively license the
rights in and to a film that is not complete.(3)
    
    Debt obligations include future principal payments due upon the maturity of our bank debt and
interest rate swap termination obligations (see Note 6 in our unaudited consolidated financial
statements), but excludes interest payments. We have been in 18




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##### 



default of our first and second lien credit facilities since December 23, 2009 and February 12,
2010, respectively, and, as a result, our lenders have the ability to accelerate those
obligations.(4)
    
    Accrued film production costs represent contractual amounts payable for completed films as
well as costs incurred for the settlement of certain participations. Obligations for residual
payments to various guilds have not been included due to the uncertain nature of the amounts
and timing of future payments.(5)
    
    Other contractual obligations primarily represent commitments to settle various accrued
liabilities.(6)
    
    Excluded from the table are $2.3 million of unrecognized tax obligations for which the timing
of payment is not estimable. Off-balance sheet arrangements
  Critical accounting policies and estimates
  Recent accounting pronouncements
  19




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Item 3. Quantitative and Qualitative Disclosures about Risk
 Interest rate risk
  Foreign currency risk
   Credit risk
  Item 4. Controls and Procedures
   20




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Part 2. Other Information
 Item 1. Legal Proceedings
 Putative Shareholder Class Action Lawsuit
  Flextech Litigation
  MAT IV Litigation
   Item 1a. Risk Factors
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  21




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##### 



Item 3. Defaults upon Senior Securities
 Item 4. (Removed and Reserved)
 Item 5. Other Information
 22




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##### 



Item 6. Exhibits
 ExhibitNumber
    
    Exhibit31.1*
    
    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.
 
 *
    
    Filed herewith. 23




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##### 



SIGNATURE
  Date: May 13, 2010
    By:
    /s/ Robert A. Halmi, Jr.Robert A. Halmi, Jr.President & Chief Executive Officer
(Principal Executive Officer)Date: May 13, 2010
    By:
    /s/ W illiam J. AliberWilliam J. AliberChief Financial Officer
(Principal Financial Officer) 24




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##### 



EXHIBIT INDEX
 ExhibitNumber
    
    Exhibit31.1*
    
    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.
 
 *
    
    Filed herewith. 25