##### Table of Contents



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
 þ o
 o o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ(Do not check if a smaller reporting company)
Smaller reporting company o 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. Qualitative and Quantitative Disclosures about Risk
    
    
    20Item 4. Controls and Procedures
    
    
    20PART 2. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    20Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 3. Defaults upon Senior Securities
    
    
    21Item 4. Submissions of Matters to a Vote on Security Holders
    
    
    21Item 5. Other Information
    
    
    21Item 6. Exhibits
    
    
    22Signatures
    
    
    23EX-31.1EX-31.2EX-32.1EX-32.2
  i




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##### Table of Contents



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




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##### Table of Contents



RHI ENTERTAINMENT, INC.
Unaudited Condensed Consolidated Statements of Operations
 (Successor)
    
    
    (Predecessor)Three Months
    
    
    Three MonthsEnded
    
    
    EndedMarch 31, 2009
    
    
    March 31, 2008(In thousands, except per share data)RevenueProduction revenue
    
    $
    
    
    
    $
    4,941Library revenue
    
    
    13,003
    
    
    
    17,280Total revenue
    
    
    13,003
    
    
    
    22,221Cost of sales
    
    
    13,438
    
    
    
    17,578Gross (loss) profit
    
    
    (435
    )
    
    
    4,643Other costs and expenses:Selling, general and administrative
    
    
    10,966
    
    
    
    12,889Amortization of intangible assets
    
    
    314
    
    
    
    357Management fees paid to related parties
    
    
    
    
    
    
    150Loss from operations
    
    
    (11,715
    )
    
    
    (8,753
    )Other (expense) income:Interest expense, net
    
    
    (9,632
    )
    
    
    (11,754
    )Interest income
    
    
    3
    
    
    
    19Other (expense) income, net
    
    
    (694
    )
    
    
    887Loss 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/ADiluted
    
    $
    (0.94
    )
    
    
    N/AWeighted Average Shares Outstanding:Basic
    
    
    13,505
    
    
    
    N/ADiluted
    
    
    13,505
    
    
    
    N/A
  2




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RHI ENTERTAINMENT, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
 (Successor)
    
    
    (Predecessor)Three Months
    
    
    Three MonthsEnded
    
    
    EndedMarch 31, 2009
    
    
    March 31, 2008(In thousands)Cash flows from operating activitiesNet 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
    
    
    
    13,006Amortization
of deferred debt financing costs
    
    
    845
    
    
    
    287Decrease of accounts receivable reserves
    
    
    (532
    )
    
    
    (489
    )Share-based compensation
    
    
    478
    
    
    
    484Amortization of intangible assets
    
    
    314
    
    
    
    357Deferred income taxes
    
    
    89
    
    
    
    (1,156
    )Depreciation and amortization of fixed assets
    
    
    52
    
    
    
    49Loss on disposal of fixed assets
    
    
    1
    
    
    
    Amortization of debt discount
    
    
    
    
    
    
    186Change in operating assets and liabilities:Decrease in accounts receivable
    
    
    30,469
    
    
    
    16,636Decrease in prepaid and other assets
    
    
    3,594
    
    
    
    3,109Additions 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
    )
    
    
    1,309Net cash used in operating activities
    
    
    (13,254
    )
    
    
    (10,140
    )Cash flows from investing activitiesPurchase of property and equipment
    
    
    (26
    )
    
    
    (39
    )Net cash used in investing activities
    
    
    (26
    )
    
    
    (39
    )Cash flows from financing activitiesBorrowings from credit facilities
    
    
    1,000
    
    
    
    28,243Repayments of credit facilities
    
    
    (1,000
    )
    
    
    (8,943
    )Member capital contributions
    
    
    
    
    
    
    20Net cash provided by financing activities
    
    
    
    
    
    
    19,320Net (decrease) increase in cash
    
    
    (13,280
    )
    
    
    9,141Cash, beginning of period
    
    
    22,373
    
    
    
    1,407Cash, end of period
    
    $
    9,093
    
    
    $
    10,548Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    10,730
    
    
    $
    12,709Cash paid for income taxes
    
    
    356
    
    
    
    1,557
  3




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RHI ENTERTAINMENT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
 (1) Business and Organization
    (2) Basis of Presentation
    4




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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
     5




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(4) Loss Per Share, Basic and Diluted
  (5) Non-Controlling Interest
   Total Holdings II members equity as of June 22, 2008
    
    $
    108,766RHI Inc. investment in Holdings II
    
    
    173,984Non-controlling interest associated with distribution to KRH
    
    
    (34,972
    )Total post-IPO Holdings II members equity
    
    
    247,778Non-controlling interest of KRH
    
    
    42.3
    %Initial allocation of non-controlling interest in consolidated entity
    
    
    104,810Non-controlling interest in share-based compensation
    
    
    473Non-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
    
    $
    74,896Non-controlling interest in share-based compensation
    
    
    202Non-controlling interest in unrealized loss on interest rate swaps
    
    
    1,030Non-controlling interest allocation for the three months ended March 31, 2009
    
    
    1,232Non-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




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(6) Film Production Costs, Net
  March 31,
    
    
    December 31,2009
    
    
    2008Completed films
    
    $
    987,302
    
    
    $
    984,805Crown Film Library
    
    
    145,326
    
    
    
    145,290Films in process and development
    
    
    24,874
    
    
    
    18,0121,157,502
    
    
    
    1,148,107Accumulated amortization
    
    
    (375,975
    )
    
    
    (367,985
    )$
    781,527
    
    
    $
    780,122
  (Successor)
    
    (Predecessor)Three Months
    
    Three MonthsEnded
    
    EndedMarch 31, 2009
    
    March 31, 2008Overhead costs capitalized
    
    $
    2,353
    
    
    $
    3,595Interest capitalized
    
    
    95
    
    
    
    141Amortization of completed films
    
    
    7,660
    
    
    
    11,567Amortization of Crown Film Library
    
    
    330
    
    
    
    1,275
  (7) Debt
  March 31,
    
    
    December 31,2009
    
    
    2008First Lien Term Loan
    
    $
    175,000
    
    
    $
    175,000Revolver
    
    
    326,789
    
    
    
    326,789Second Lien Term Loan
    
    
    75,000
    
    
    
    75,000$
    576,789
    
    
    $
    576,789
    7




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Interest Rate Swaps
      8




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(8) Related Party Transactions
   (9) Share-based Compensation
 1 3
  (10) Commitments and Contingencies
  9




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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
     10




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Discussion of consolidated financial information
 Revenue
   Cost of sales
   Selling, general and administrative expense
  Interest expense, net
  Income taxes
     11




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Results of operations
 Three months ended March 31, 2009 compared to the three months ended March 31, 2008
  Successor
    
    
    PredecessorThree Months
    
    
    Three MonthsEnded
    
    
    EndedMarch 31,
    
    
    March 31,
    
    
    Increase/2009
    
    
    2008
    
    
    (Decrease)RevenueProduction 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
    )
    
    
    2,122Interest 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
    )
    
    
    618Loss 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
    
    
    
    
    
    
    
    9,311Net loss
    
    $
    (12,702
    )
    
    $
    (20,194
    )
    
    $
    7,492Basic and diluted loss per share
    
    $
    (0.94
    )
    
    
    N/A
    
    
    
    N/A
 12




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Revenue, cost of sales and gross (loss) profit
 Three Months Ended March 31,2009
    
    
    2008(Successor)
    
    
    (Predecessor)As a
    
    
    
    
    
    
    As aPercentage
    
    
    
    
    
    
    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
    )%
       13




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Other costs and expenses
 Three Months EndedMarch 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
    )%
  Interest expense, net
  Other (expense) income, net
  Income tax benefit (provision)
  Net loss
  Liquidity and capital resources
  14




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##### Table of Contents



Three Months EndedMarch 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
    
    
    
    
    
    
    19,320Cash (end of period)
    
    
    9,093
    
    
    
    10,548
 Operating activities
   15




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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)
    
    $
    36,963
    
    
    $
    3,723
    
    
    $
    7,334
    
    
    $
    6,989
    
    
    $
    18,917Obligations 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
    
    
    
    18,917Contractual obligations reflected on the balance sheet:Debt obligations (4)
    
    
    576,789
    
    
    
    
    
    
    
    17,500
    
    
    
    484,289
    
    
    
    75,000Accrued 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
    
    
    
    75,000Total contractual obligations
    
    $
    736,033
    
    
    $
    99,310
    
    
    $
    49,528
    
    
    $
    493,278
    
    
    $
    93,917
 
 (1)
    
    Operating lease commitments represent future minimum payment obligations on various long-term
noncancellable leases for office and storage space.(2)
    
    Obligations pursuant to the ION Agreement represent minimum guarantee payments associated
with our arrangement to provide programming to ION for its primetime weekend schedule.(3)
    
    Purchase obligation amounts represent contractual commitments to exclusively license the
rights in and to films that are not complete.(4)
    
    Debt obligations exclude interest payments and include future principal payments due on our
bank debt (see Note 7).(5)
    
    Accrued film production costs represent contractual amounts payable for the completed films
as well as costs incurred for the buy out of certain participations.(6)
    
    Other contractual obligations primarily represent commitments to settle various accrued
liabilities. Off-balance sheet arrangements
  16




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Critical accounting policies and estimates
  Recent accounting pronouncements
  17




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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
   
 Part 2. Other Information
 
 Item 1. Legal Proceedings
  Item 1a. Risk Factors
  18




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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults upon Senior Securities
  
 Item 4. Submissions of Matters to a Vote on Security Holders
  
 Item 5. Other Information
  19




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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.
 20




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##### Table of Contents



SIGNATURE
  Date: May 6, 2009
    By:
    /s/ Robert A. Halmi, JrRobert A. Halmi, Jr.President & Chief Executive Officer
(Principal Executive Officer)Date: May 6, 2009
    By:
    /s/ William J. AliberWilliam J. AliberChief Financial Officer
(Principal Accounting Officer) 21




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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.
 22