<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1998
Commission file number 1-14099
Loews Cineplex Entertainment Corporation
----------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-3386485
- ------------------------------- --------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
711 Fifth Avenue
New York, New York 10022
- ------------------------------- ----------
(Address of Principal (Zip Code)
Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 833-6200
--------------
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 X No
----
Common Stock outstanding (including non-voting common stock) - 58,622,646 shares
at August 31, 1998
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
INDEX
Page Number
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets 3
Unaudited Consolidated
Statements of Operations 4
Unaudited Consolidated Statements
of Cash Flows 5
Notes to Unaudited
Consolidated Financial Statements 6 to 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 14 to 20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 21
ITEM 2. CHANGES IN SECURITIES 21
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 21
ITEM 5. OTHER INFORMATION 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 22 to 23
SIGNATURES 24
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
August 31, February 28,
1998 1998
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 56,882 $ 9,064
Accounts receivable 19,552 5,479
Inventories 4,946 1,146
Prepaid expenses and other current assets 3,416 2,520
---------- --------
TOTAL CURRENT ASSETS 84,796 18,209
PROPERTY, EQUIPMENT AND LEASEHOLDS, NET 1,146,499 609,152
EXCESS PURCHASE PRICE 296,679 -
OTHER ASSETS
Investments in and advances to partnerships 41,325 31,763
Goodwill, net 83,159 53,143
Other intangibles assets, net 6,346 6,005
Deferred charges and other assets 38,160 10,279
---------- --------
TOTAL ASSETS $1,696,964 $728,551
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 250,585 $ 59,871
Due to Sony affiliates - 3,810
Deferred revenue 19,321 3,063
Current maturities of long-term debt and
other obligations 4,863 250
Current portion of capital leases 5,896 520
---------- --------
TOTAL CURRENT LIABILITIES 280,665 67,514
DEFERRED INCOME TAXES 18,232 18,299
LONG-TERM DEBT AND OTHER OBLIGATIONS 622,842 -
LONG-TERM CAPITAL LEASE OBLIGATIONS 54,137 10,513
DEBT DUE TO SONY AFFILIATES - 292,523
PENSION AND OTHER POST RETIREMENT OBLIGATIONS 9,591 3,791
OTHER LIABILITIES 12,597 11,400
---------- --------
TOTAL LIABILITIES 998,064 404,040
---------- --------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY
Common stock ($.01 par value, 300,000,000 shares authorized; 58,538,646
shares issued and outstanding at August 31, 1998 and 19,270,321 shares issued
and outstanding at February 28, 1998) 586 193
Common stock-Class A non-voting ($.01 par value, 10,000,000 authorized;
nil issued and outstanding at August 31, 1998 and 1,202,486 issued and
outstanding at February 28, 1998) - 12
Common stock-Class B non-voting ($.01 par value, 10,000,000 shares authorized;
84,000 shares issued and outstanding at August 31, 1998 and nil issued and
outstanding at February 28, 1998) 1 -
Accumulated other comprehensive income:
Foreign currency translation adjustment (7,382) -
Additional paid-in capital 694,220 299,277
Retained earnings 11,475 25,029
---------- --------
TOTAL STOCKHOLDERS' EQUITY 698,900 324,511
---------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,696,964 $728,551
========== ========
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
3
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
-------------------------- ------------------------
August 31, August 31, August 31, August 31,
1998 1997 1998 1997
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Admissions $ 206,856 $ 85,624 $ 290,063 $ 152,994
Concessions 81,364 30,390 112,534 53,876
Other 9,239 3,630 12,676 5,990
----------- ----------- ----------- -----------
297,459 119,644 415,273 212,860
----------- ----------- ----------- -----------
EXPENSES
Theatre operations and other expenses 210,444 81,596 295,558 148,995
Cost of concessions 12,826 4,569 17,655 8,265
General and administrative 13,936 6,519 21,882 12,456
Depreciation and amortization 26,088 13,033 40,748 25,605
Loss on sale/disposal of theatres 981 3,163 1,002 3,188
----------- ----------- ----------- -----------
264,275 108,880 376,845 198,509
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 33,184 10,764 38,428 14,351
INTEREST EXPENSE 16,416 3,721 22,522 7,343
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 16,768 7,043 15,906 7,008
INCOME TAX EXPENSE 8,494 3,417 8,375 3,782
----------- ----------- ----------- -----------
NET INCOME $ 8,274 $ 3,626 $ 7,531 $ 3,226
=========== =========== =========== ===========
Weighted Average Shares Outstanding - basic (A) 49,196,205 20,472,807 37,046,497 20,472,807
Weighted Average Shares Outstanding - diluted (A) 49,196,205 20,472,807 37,046,497 20,472,807
Earnings per Share - basic $.17 $.18 $.20 $.16
=========== =========== =========== ===========
Earnings per Share - diluted $.17 $.18 $.20 $.16
=========== =========== =========== ===========
</TABLE>
(A) The periods ended August 31, 1997 have been restated to reflect a stock
dividend declared on February 5, 1998.
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
4
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
For the Six Months Ended
------------------------------------
August 31, August 31,
1998 1997
------------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 7,531 $ 3,226
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 40,748 25,605
Loss on sale/disposal of theatres 1,002 3,188
Equity earnings from long-term investments, net of distributions
received 241 -
Changes in operating assets and liabilities:
Increase in amounts due to SCA affiliates - 2,552
Decrease in deferred taxes (67) (372)
Increase in accounts receivable (3,887) (2,920)
Increase in accounts payable and accrued expenses 41,164 946
Increase in other operating assets and liabilities, net 6,482 911
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 93,214 33,136
--------- --------
INVESTING ACTIVITIES
Repayments/(borrowings) of partnerships 5,493 (4,295)
Investments in partnerships (15,296) (77)
Capital expenditures (34,980) (18,203)
Merger related costs (19,864) -
--------- --------
NET CASH USED IN INVESTING ACTIVITIES (64,647) (22,575)
--------- --------
FINANCING ACTIVITIES
Repayment of debt due to Sony affiliates (299,487) (3,390)
Proceeds from bank credit facility 500,000 -
Repayment of senior credit facility and long-term debt (359,492) (235)
Deferred financing fees on bank credit facility (5,999) -
Repayment of Plitt Theatres, Inc. notes (212,731) -
Proceeds of new note offering, net of deferred financing fees 289,577 -
Proceeds on issuance of common stock, net of offering expenses 102,991 -
Proceeds from issuance of common stock to Universal upon Combination 84,500 -
Dividend paid to Sony affiliate on Combination (80,108) -
--------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 19,251 (3,625)
--------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 47,818 6,936
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 9,064 2,160
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 56,882 $ 9,096
========= ========
Supplemental Cash Flow Information:
Income taxes paid, net of refunds received $ 1,462 $ 1,809
========= ========
Interest paid (including $6,942 and $6,446 paid to Sony affiliates) $ 19,743 $ 6,933
========= ========
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
5
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
NOTE 1 -- THE COMPANY AND BASIS OF PRESENTATION
- -----------------------------------------------
Loews Cineplex Entertainment Corporation ("LCP" or the "Company", formerly LTM
Holdings, Inc.), is a major motion picture theatre exhibition company with
operations in North America and Europe. The Company conducts business under the
Loews Theatres, Sony Theatres, Cineplex Odeon Theatres, Star Theatres, Magic
Johnson Theatres and Yelmo Cineplex Theatres marquees. As of August 31, 1998,
LCP owns, or has interests in, and operates 2,892 screens at 458 theatres in 22
states and the District of Columbia, 6 Canadian provinces, Spain, Hungary and
Turkey. The Company's principal markets include New York, Boston, Chicago,
Baltimore, Dallas, Houston, Detroit, Los Angeles, Seattle, Washington D.C. in
the U.S.; Toronto, Montreal and Vancouver, in Canada; and Madrid, Spain. The
Company holds a 50% partnership interest in each of the Yelmo Cineplex de Espana
("Yelmo"), Loeks-Star Theatres ("LST") and Magic Johnson Theatres ("MJT")
partnerships. Yelmo, LST and MJT hold interests in and operate 25 locations,
comprising a total of 260 screens. Screens and locations for the partnerships
are included in the Company amounts referred to above.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information; therefore, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. The business combination
with Cineplex Odeon Corporation ("Cineplex" or "Cineplex Odeon") has been
accounted for under the purchase method of accounting, and, therefore, the
unaudited consolidated financial statements for the six months ended August 31,
1998 include the operating results of Cineplex Odeon following the date of
combination (May 14, 1998) to August 31, 1998. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended February 28, 1998.
NOTE 2 -- BUSINESS COMBINATION
- -------------------------------
On May 14, 1998, pursuant to the Amended and Restated Master Agreement (the
"Master Agreement") dated September 30, 1997, LTM Holdings, Inc. and Cineplex
Odeon, another motion picture exhibitor with operations in the U.S. and Canada,
combined (the "Combination"). As called for in the Master Agreement, on the date
of the Combination, the outstanding common shares of Cineplex Odeon were
exchanged for LCP shares on a ten for one basis.
At the closing of the Combination, the Company issued 7,264,642 shares of Common
Stock and 80,000 shares of Class B Non-Voting Common Stock to Universal Studios,
Inc. ("Universal"), 4,324,003 shares of Common Stock and 4,000 shares of Class B
Non-Voting Common Stock to the Charles Rosner Bronfman Family Trust and certain
related shareholders (the "Claridge Group") and 6,111,269 shares of common stock
to the other shareholders of record of Cineplex Odeon, for an aggregate value of
approximately $266.8 million, in exchange for the outstanding shares of Cineplex
Odeon and its wholly-owned subsidiary, Plitt Theatres, Inc. ("Plitt"). In
addition, the Company issued 4,426,607 shares of common stock to Universal for
consideration of $84.5 million as required under a subscription agreement, and
2,664,304 shares of Common Stock in connection with the transfer by Sony
Pictures Entertainment Inc. ("SPE") of its interest in Star Theatres of
Michigan, Inc. ("Star") and S&J Theatres, Inc. ("S&J") to the Company.
6
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
NOTE 2 -- CONTINUED
- -------------------
The Combination has been accounted for under the purchase method of accounting
and, accordingly, the cost to acquire Cineplex Odeon will be allocated to the
assets acquired and liabilities assumed of Cineplex Odeon based on their
respective fair values, with the excess to be allocated to goodwill. The
Company has arranged for an independent valuation and other studies required to
determine the fair value of the assets acquired and liabilities assumed. These
valuations and studies have not been completed and, accordingly, the balances
reflected in the unaudited consolidated statement of financial position as of
August 31, 1998 are preliminary and subject to further revision and adjustments.
For purposes of these unaudited consolidated financial statements, the carrying
value of the Cineplex Odeon net assets acquired was assumed to approximate fair
value. Therefore, the $296.7 million of excess purchase price over the
historical net book value of the net assets of Cineplex Odeon (excluding
approximately $31 million of historical goodwill) has been classified on the
unaudited consolidated balance sheet as Excess Purchase Price and the related
amortization expense reflected in the unaudited consolidated statement of
operations and the following unaudited pro forma results of operations for the
six month periods ended August 31, 1998 have been recorded on a straight line
basis over a forty year period.
Upon completion of the determination of fair value, the Excess Purchase Price
will be allocated to specific assets and liabilities of Cineplex Odeon. It is
anticipated that there will be reductions in the carrying value associated with
certain assets, and alternatively the fair value of certain other assets and
liabilities may exceed carrying value. Accordingly, the final valuation could
result in materially different amounts and allocations of Excess Purchase Price
from the amounts and allocations reflected in the following unaudited pro forma
results of operations and the unaudited consolidated financial statements,
primarily between goodwill, property, equipment and leaseholds and certain
liabilities resulting in corresponding changes in depreciation and amortization
amounts. For every one million dollars of Excess Purchase Price allocated to
fixed assets, depreciation and amortization will increase $25 thousand annually
(assuming an average 20 year service life for fixed assets and straight line
depreciation). Based on preliminary estimates of fair value related to certain
assets and liabilities, additional Excess Purchase Price of between $75 million
and $125 million could result at the conclusion of the valuation. The Company
currently anticipates that the necessary valuations and related allocations will
be completed by the end of fiscal 1999.
On October 15, 1998, the Company announced that in order to meet certain
regulatory requirements it has modified the terms of the previously announced
sale to Cablevision Systems Corp. ("Cablevision") of certain theatres in the New
York City, Chicago and suburban New York areas. The Company had originally
announced the sale of 105 screens in 31 locations in the New York City, Chicago
and suburban New York areas for $92 million. The sale of the theatres in New
York City and Chicago were subject to approval by the Department of Justice
("DOJ"), in accordance with the terms of an agreement reached to permit the
merger of Loews Theatres Exhibition Group with Cineplex Odeon. The DOJ indicated
that it would not approve Cablevision as a buyer of the theatres in Chicago.
Under the terms of a revised agreement, Cablevision has agreed to purchase 35
screens in 13 theatres in New York City, in accordance with the DOJ order, and
an additional 29 screens in 11 theatres in the suburban New York area for a
total of $92 million. The Company and Cablevision are now moving forward to
obtain the required final regulatory and third party consents and approvals. The
Company expects that the DOJ will approve Cablevision as a buyer of the New York
City theatres under the modified agreement.
7
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
NOTE 2 -- CONTINUED
- -------------------
The Company also announced that it intends to now sell separately the 49 screens
at 11 theatres in Chicago which were the subject of the DOJ order. Several
parties have expressed interest in these theatres and an announcement is
expected to be made in the near future.
The unaudited condensed pro forma results of operations presented below assume
that the Combination occurred at the beginning of each period presented. The
unaudited pro forma information is not necessarily indicative of the combined
results of operations of LCP and Cineplex Odeon that would have occurred if the
transaction had occurred on the dates previously indicated nor are they
necessarily indicative of future operating results of the combined company.
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------------
August 31, August 31,
1998 1997
------------------ -----------------
<S> <C> <C>
Revenues $511.8 $507.4
====== ======
Net income (loss) $(2.3) $(7.2)
====== ======
Pro forma net income (loss)
per common share $(.04) $(.12)
====== ======
Actual net income per common share* $.20 $.16
====== ======
</TABLE>
* Presented for comparative purposes only.
NOTE 3 -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
- -----------------------------------------------
Accounts payable and accrued expenses consist of:
<TABLE>
<CAPTION>
August 31, February 28,
1998 1998
---------- ------------
<S> <C> <C>
Accounts payable - trade $ 81,489 $36,924
Accrued expenses and other 169,096 22,947
-------- -------
$250,585 $59,871
======== =======
</TABLE>
Accrued expenses and other include $70.7 million of contractual obligations and
other liabilities relating to the Combination.
8
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
NOTE 4 -- LONG-TERM DEBT AND OTHER OBLIGATIONS
- -----------------------------------------------
Long-term debt and other obligations consist of:
<TABLE>
<CAPTION>
August 31, February 28,
1998 1998
---------- ------------
<S> <C> <C>
Bankers Trust Senior Revolving Credit Facility with an average
interest rate of 7.81% at August 31, 1998, due 2003 $303,000 $ -
Loews Cineplex Senior Subordinated Notes with interest at 8 7/8%
due 2008, net of original issue discount 297,572 -
Plitt Theatres, Inc. Senior Subordinated Notes with interest at
10.875% due 2004 5,300 -
Mortgages payable-non-recourse, payable from 1998 through 2008.
Interest rates from 5.61% to 11.5% 21,833 250
-------- ------
627,705 250
Less: Current maturities 4,863 250
-------- ------
$622,842 $ -
======== ======
</TABLE>
On May 14, 1998, in connection with the Combination, the Company entered into a
$1 billion senior revolving credit facility with Bankers Trust Company, as
administrative agent (the "Senior Revolving Credit Facility"). The new Senior
Revolving Credit Facility has been used to repay all intercompany amounts due to
Sony Corporation of America ("SCA") and affiliates and has replaced Cineplex
Odeon's existing credit facility. This Senior Revolving Credit Facility is
comprised of two tranches, a $750 million senior secured revolving credit
facility, secured by substantially all of the assets of LCP and its
subsidiaries, and a $250 million uncommitted facility. The Senior Revolving
Credit Facility bears interest at a rate of either the current prime rate as
offered by Bankers Trust Company or an Adjusted Eurodollar rate plus an
applicable margin based on the Company's Leverage Ratio (as defined in the
credit agreement). The senior credit facility includes various financial
covenants.
At February 28, 1998, the Company had debt due to a SCA affiliate totaling
$296,333 and carrying an interest rate of 5.9%. Concurrently with the closing
of the Combination, the Company repaid this debt on May 14, 1998.
Plitt Theatres, Inc. Tender Offer
- ---------------------------------
On August 4, 1998, Plitt, a wholly owned subsidiary of the Company, announced
the completion of an at-the-market tender offer relating to Plitt's 10 7/8%
Senior Subordinated Notes due 2004 (the "Plitt Notes"). The at-the-market offer
expired on August 4, 1998, with holders of approximately 97% of the outstanding
Plitt Notes tendering into the at-the-market offer for $212.7 million or
109.261% including accrued and unpaid interest. Payment for the tendered Plitt
Notes was made on August 5, 1998.
Debt Private Placement
- ----------------------
On August 5, 1998, the Company issued $300 million of 8 7/8% Senior Subordinated
Notes due 2008. The proceeds of these notes, combined with the proceeds from
the equity offering (see Note 6) were primarily used to fund the tender offer
for the Plitt Notes, reduce debt outstanding under the Company's Senior
Revolving Credit Facility and increase the funds available under this facility
to provide working capital and finance the expansion of the circuit in North
America and internationally.
9
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
NOTE 4 -- CONTINUED
- --------------------
Interest Rate Swaps
- -------------------
In August 1998, the Company entered into interest rate exchange agreements for a
term of four years (expiring in August 2002). As a result of these agreements
the Company has fixed a LIBOR rate of 5.77% per annum (plus the applicable
margin) on a notional amount of $250 million of indebtedness. Each swap has a
quarterly reset date for settlements. The Company is accounting for these swaps
as interest rate hedges.
NOTE 5 -- EARNINGS PER SHARE
- ----------------------------
In 1997, the Financial Accounting Standards Board issued Statement of Accounting
Standards ("SFAS") No. 128, "Earnings per Share." SFAS No. 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented, and where appropriate, restated, to conform
with the requirements of SFAS No. 128. For the three and six months ended
August 31, 1998 the Company is only required to disclose basic earnings per
share, as the conversion of the outstanding employee stock options would be
anti-dilutive.
NOTE 6 -- STOCKHOLDERS' EQUITY
- -------------------------------
Equity Offering
- ---------------
On August 5, 1998, the Company sold to the public in a registered offering 10
million shares of Common Stock at a public offering price of $11.00 per share.
The proceeds of this public offering, combined with the proceeds from the senior
subordinated debt private placement (see Note 4) were primarily used to fund the
tender offer for the Plitt Notes, reduce debt outstanding under the Company's
senior credit facility and increase the funds available under this facility to
provide working capital and finance the expansion of the circuit in North
America and internationally.
In connection with the above mentioned transactions, upon consummation of the
equity offering, the Company's Class A Non-Voting Common Stock held by SPE
automatically converted into an equal number of shares of Common Stock and
3,255,212 additional shares of Common Stock were issued to Universal for no
consideration under anti-dilution provisions of the Company's subscription
agreement with Universal.
In conjunction with the Combination, the Company made a payment of approximately
$395 million to SCA affiliates of which approximately $80 million was a
dividend. The final payment to SCA affiliates is subject to specific post-
closing audit procedures, which have not yet been completed. The Company
estimates that upon completion of the procedures it may be required to make a
further payment within a range of approximately $10 million to $15 million.
10
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
NOTE 6 -- CONTINUED
- --------------------
The following table reconciles the Company's stockholders' equity for the period
from February 28, 1998 to August 31, 1998:
<TABLE>
<CAPTION>
Class A Class B Cumulative Additional
Voting Non-Voting Non-voting Translation Paid-in Retained
Shares Amount Shares Amount Shares Amount Adjustment Capital Earnings
------ ------ ----- ------ ------ ------ ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at February
28, 1998.......... 19,270,321 $193 1,202,486 $12 - $ - $ - $299,277 $25,029
Net loss through
May 14, 1998.... - - - - - - - - (3,944)
Exchange of ex-
isting Cineplex
Odeon shares in
conjunction with
the Combination 17,699,914 177 - - 84,000 1 - 266,579 -
Issuance of shares
to Universal
under a subscrip-
tion agreement... 4,426,607 44 - - - - - 84,456 -
Issuance of shares
to SCA affiliates
for Star Theatres
and S&J Theatres 2,664,304 27 - - - - - (27) -
Exercise of Stock
Options 18,778 - - - - - - 351 -
Dividend to SCA
affiliates - - - - - - - (59,023) (21,085)
---------- --- --------- -- ------ --- -------- -------- -------
Balance at May 14,
1998.............. 44,079,924 441 1,202,486 12 84,000 1 - 591,613 -
Net income from
May 15, to May
31, 1998....... - - - - - - - - 3,201
---------- --- --------- -- ------ --- -------- -------- -------
Balance at May
31, 1998......... 44,079,924 441 1,202,486 12 84,000 1 - 591,613 3,201
Exercise of
Stock Options.. 1,024 - - - - - - 15 -
Issuance of
shares in
Public Offer-
ing, net of
costs and
expenses...... 10,000,000 100 - - - - - 102,625 -
Automatic con-
version of
SPE Class A
non-voting
shares to
common shares 1,202,486 12 (1,202,486) (12) - - - - -
Issuance of
shares to
Universal
under an anti-
dilution
agreement..... 3,255,212 33 - - - - - (33) -
Foreign
currency
translation
adjustment.... - - - - - - (7,382) - -
Net income for
three months
ended August
31, 1998...... - - - - - - - - 8,274
---------- --- --------- -- ------ --- -------- -------- -------
Balance at August
31, 1998........ 58,538,646 $586 - $ - 84,000 $ 1 $(7,382) $694,220 $11,475
========== ==== ========== === ====== === ======= ======== =======
</TABLE>
11
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
NOTE 7 -- NEW ACCOUNTING PRONOUNCEMENTS
- ---------------------------------------
Loews Cineplex has determined that three new pronouncements that have been
issued-but are not yet effective-are applicable to the Company, and may have an
impact on its financial statements:
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosure about
Segments of an Enterprise and Related Information", which is effective for the
Company's fiscal year ending February 28, 1999, requires the Company to disclose
financial information about business segments, including certain information
about products and services, activities in different geographic areas and other
information.
SFAS No. 132, "Employer's Disclosure about Pensions and Other Post-Retirement
Benefits", is effective for the Company's fiscal year ending February 28, 1999.
SFAS No. 132 standardizes the disclosure requirements for pension and other
post-retirement plans; the standard does not change the measurement or
recognition of such plans.
Finally, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activity," is effective for the Company's fiscal quarter ending May 31, 1999.
This statement standardizes the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, by requiring that
the Company recognize those items as assets or liabilities in the statement of
financial position and measure them at fair value.
The Company expects to adopt these standards when required and does not believe
that they will have a significant impact on its financial position or operating
results.
NOTE 8 -- COMPREHENSIVE INCOME
- ------------------------------
The Company has adopted SFAS No. 130 "Reporting Comprehensive Income". This
pronouncement establishes a standard for the reporting of comprehensive income
and its components in the Company's financial statements. The following
components are reflected in the Company's comprehensive income:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
August 31, August 31, August 31, August 31,
1998 1997 1998 1997
---------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Net income $ 8,274 $ 3,626 $ 7,531 $ 3,226
Other comprehensive income:
Foreign currency translation
adjustment, net of income
tax benefit of $5,523 (7,382) - (7,382) -
------- ------- ------- -------
Comprehensive income $ 892 $ 3,626 $ 149 $ 3,226
======= ======= ======= =======
</TABLE>
12
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
The Company has entered into commitments for the future development and
construction of theatre properties and guarantees of joint venture leases
aggregating approximately $305.0 million (including letters of credit in the
amount of $22.3 million).
Two of the Company's leased drive-in motion picture theatres in the State of
Illinois are located on properties on which certain third parties disposed of
substantial quantities of auto shredder residue and other debris. Such material
may contain hazardous substances. With respect to one of these sites, located
in Cicero, Illinois, the Company has been named as one of two defendants in a
lawsuit commenced in August 1998 by the Illinois Attorney General's Office at
the request of the Illinois Environmental Protection Agency. The action was
brought pursuant to the Illinois Environmental Protection Act and alleges, among
other things, that the Company caused or allowed the disposal of certain wastes
bearing hazardous substances on the theatre property. The action seeks civil
penalties and various forms of equitable relief, including the removal of all
wastes allegedly present at the property, soil and groundwater testing and
remediation, if necessary. The Company has accrued an amount that it believes
is the minimum amount of any potential exposure relating to this site. The
Company's range of liability with respect to this action cannot be reasonably
estimated at this time due to several unknown factors, including the scope of
contamination at the theatre property, the allocation of such liability, if any,
to other responsible parties, and the ability of such parties to satisfy their
share of such liability. The Company will continue to evaluate future
information and developments with respect to conditions at the theatre property
and will periodically reassess any liability accordingly. Based on the
foregoing, there can be no assurance that the Company's liability, if any, in
connection with this action will not be material.
Other than the lawsuit noted above, the Company is a defendant in various
lawsuits arising in the ordinary course of business. It is the opinion of
management that any liability to the Company which may arise as a result of
these other matters will not have a material adverse effect on its financial
condition.
NOTE 10 -- SUBSEQUENT EVENTS
- ----------------------------
On October 13, 1998, the Company commenced an offering to exchange up to $300
million aggregate principal amount of its 8 7/8% Senior Subordinated Notes Due
2008, which have been registered under the Securities Act of 1933, as amended,
for a like principal amount of its issued 8 7/8% Senior Subordinated Notes Due
2008.
13
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following discussion of the Company's financial condition and operating
results should be read in conjunction with the unaudited consolidated financial
statements of the Company for the three and six month periods ended August 31,
1998 and 1997. The information presented below includes the results of Cineplex
Odeon, which became a wholly owned subsidiary of the Company on May 14, 1998,
for the period from May 15, 1998 through August 31, 1998 and does not include
any results prior to that time.
This discussion incorporates operating results of partnerships in which the
Company has interests to the extent of its equity share as required by the
equity method of accounting.
RESULTS OF OPERATIONS
THREE MONTHS ENDED AUGUST 31, 1998 COMPARED TO THREE MONTHS ENDED AUGUST 31,
1997
Operating Revenues of approximately $297.5 million for the three months ended
August 31, 1998 were $177.8 million higher than the comparable period of the
prior year. Operating revenues are generated primarily from box office revenues
and concession sales. Box office revenues for the three months ended August 31,
1998 of approximately $206.9 million were $121.2 million higher, and concession
revenues of approximately $81.4 million were $51.0 million higher in comparison
to the three months ended August 31, 1997. These increases in operating
revenues were primarily due to the inclusion of the Cineplex Odeon theatre
operating results for the current quarter, the strong film product exhibited
during the quarter as evidenced by an increase in industry-wide box office
receipt levels, additional revenue from new theatre openings and improvements in
both box office and concessions revenue per patron, which were enhanced as a
result of operating efficiencies realized from the Combination. Excluding the
impact of the Cineplex Odeon operations, LCP operating revenues increased $12.7
million (or 10.6%) due to an increase in attendance volume and increases in
box office and concessions revenue per patron of $.10 and $.16, respectively.
Cineplex Odeon operating revenues for the quarter of $165.1 million were $5.7
million greater than the amount generated in the comparable quarter of the prior
year primarily due to a $.12 increase in concession revenue per patron, a $.03
increase in box office revenue per patron and increases in attendance volume.
The increase in concession revenue per patron was predominantly realized from
the implementation of the LCP concession programs throughout the Cineplex Odeon
circuit during the quarter.
Operating Costs of approximately $223.3 million for the three months ended
August 31, 1998 were approximately $137.1 million higher than the three months
ended August 31, 1997, due primarily to the inclusion of the operating results
for the Cineplex Odeon theatres, increased costs related to the aforementioned
increase in operating revenues and higher occupancy costs attributable to new
theatre openings. Excluding the impact of Cineplex Odeon operations, LCP
operating costs increased $8.5 million primarily due to the increase in
operating revenues mentioned above. Cineplex Odeon operating costs for the
quarter were $128.6 million or $1.6 million (1.2%) lower than comparable quarter
in the prior year. The Cineplex Odeon operating cost level experienced for the
quarter reflects costs savings and operating efficiencies, primarily in
concessions operations, resulting from the Combination. The concession gross
margin experienced during the quarter, for Cineplex Odeon, improved 3.0% from
80.5% last year to 83.5% in the current year.
General and Administrative Costs of approximately $13.9 million for the three
months ended August 31, 1998 were $7.4 million higher than the three months
ended August 31, 1997, due primarily to the inclusion of the operating results
for the Cineplex Odeon theatres, merit increases and the additional costs
relative to the enhancement of the Company's international operations.
14
<PAGE>
Depreciation and Amortization Costs of approximately $26.1 million for the three
months ended August 31, 1998 were $13.1 million higher than for the three months
ended August 31, 1997, primarily due to the inclusion of the operating results
for the Cineplex Odeon theatres, incremental depreciation related to investments
in new theatres which commenced operations in prior periods and the amortization
of excess purchase price recorded as a result of the Combination.
Loss on Sale/Disposal of Theatres of approximately $1.0 million for the three
months ended August 31, 1998 was $2.2 million lower than the three months ended
August 31, 1997, due primarily to the timing, nature and characteristics of
theatre dispositions.
Interest Expense of approximately $16.4 million for the three months ended
August 31, 1998 was $12.7 million higher than for the three months ended August
31, 1997 due primarily to higher borrowings relating to the Combination,
(including debt amounts assumed from Cineplex Odeon) and the impact of
additional borrowings under the Company's Senior Revolving Credit Facility.
Modified EBITDA for the three months ended August 31, 1998 of $60.3 million
increased $33.3 million in comparison to the three months ended August 31, 1997
primarily due to the inclusion of the operating results for Cineplex Odeon for
the three months ended August 31, 1998, the increase in box office and
concession revenues per patron, the strong film product exhibited during the
current quarter, cost savings and operating efficiencies as a result of the
integration of Cineplex Odeon operations into LCP and the impact of newly opened
theatres previously discussed. Modified EBITDA (earnings before interest,
taxes, depreciation and amortization, and gains/losses on asset disposal or
sales) is a measure of financial performance that management uses in measuring
the Company's financial performance. Modified EBITDA measures the amount of
cash that the Company has available for investment or other uses and is used by
the Company as a measure of performance. Modified EBITDA is primarily a
management tool and only one measure of financial performance to be considered
by the investment community. Modified EBITDA is not an alternative to measuring
operating results or cash flow under U.S. GAAP.
SIX MONTHS ENDED AUGUST 31, 1998 COMPARED TO SIX MONTHS ENDED AUGUST 31, 1997
Operating Revenues of approximately $415.3 million for the six months ended
August 31, 1998 were $202.4 million higher than the comparable period of the
prior year. Operating revenues are generated primarily from box office revenues
and concession sales. Box office revenues for the six months ended August 31,
1998 of approximately $290.1 million were $137.1 million higher, and concession
revenues of approximately $112.5 million were $58.7 million higher, in
comparison to the six months ended August 31, 1997. These increases in
operating revenue were primarily due to the inclusion of the Cineplex Odeon
theatre operating results, a strong slate of film products exhibited during the
period, additional revenue from new theatre openings and improvements in both
box office and concessions revenue per patron, which were enhanced as a result
of operating efficiencies realized from the Combination. Excluding the impact
of the Cineplex Odeon operations, LCP operating revenues increased $10.7 million
(or 5%) due to an increase in attendance volume and an increase in average
ticket price and concessions per capita of $.09 and $.16, respectively. The
operating revenues generated for the six months ended August 31, 1998 included
Cineplex Odeon operating revenues of $191.7 million for the period May 15, 1998
to August 31, 1998. The operating revenues of $191.7 million generated by
Cineplex Odeon include operating efficiencies realized from the implementation
of the LCP concession programs throughout the Cineplex Odeon circuit during the
second quarter.
15
<PAGE>
Operating Costs of approximately $313.2 million for the six months ended August
31, 1998 were approximately $156.0 million higher than the six months ended
August 31, 1997, due primarily to the inclusion of the operating results for the
Cineplex Odeon theatres, increased costs related to the aforementioned increase
in operating revenues and higher occupancy costs attributable to new theatre
openings. Excluding the impact of Cineplex Odeon, LCP operating costs increase
$6.2 million (or 3.9%) primarily due to the increase in operating revenues
mentioned above. Cineplex Odeon operating costs for the period May 15, 1998 to
August 31, 1998 were $149.8 million. The operating cost level experienced by
Cineplex Odeon for the period reflects costs savings and operating efficiencies,
primarily in concessions operations, resulting from the Combination during the
second quarter.
General and Administrative Costs of approximately $21.9 million for the six
months ended August 31, 1998 were $9.4 million higher than for the six months
ended August 31, 1997, due primarily to the inclusion of the operating results
for the Cineplex Odeon theatres for the period from May 15, 1998 through August
31, 1998, merit increases and the additional costs relative to the enhancement
of the Company's international operations.
Depreciation and Amortization Costs of approximately $40.7 million for the six
months ended August 31, 1998 were $15.1 million higher than for the six months
ended August 31, 1997 due to the inclusion of the operating results for the
Cineplex Odeon theatres for the period from May 15, 1998 through August 31,
1998, incremental depreciation related to investments in new theatres which
commenced operations in prior periods and the amortization of the excess
purchase price recorded as a result of the Combination.
Loss on Sale/Disposal of Theatres of approximately $1.0 million for the six
months ended August 31, 1998 was $2.2 million lower than for the six months
ended August 31, 1997 due primarily to the timing, nature and characteristics of
theatre dispositions.
Interest Expense of approximately $22.5 million for the six months ended August
31, 1998 was $15.2 million higher than for the six months ended August 31, 1997,
due primarily to higher borrowings relating to the Combination, (including debt
amounts assumed from Cineplex Odeon) and the impact of additional borrowings
under the Company's Senior Revolving Credit Facility.
Modified EBITDA for the six months ended August 31, 1998 of $80.2 million
increased by $37.1 million in comparison to the six months ended August 31,
1997, due primarily to the inclusion of results for Cineplex Odeon for the
period from May 15, 1998 through August 31, the increase in box office and
concession revenues per patron, the strong slate of film product exhibited
during the period, cost savings and operating efficiencies as a result of the
integration of Cineplex Odeon operations into LCP and the impact of newly opened
theatres previously discussed.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced, and expects to continue to realize, improved
operating results as a result of investments in theatres over the last five
years (including new builds, reconfigurations of existing theatres and the
closing of obsolete, unprofitable or uncompetitive theatres). The Company
expects to increase revenues and cash flows as a result of reconfiguration of
the Loews and Cineplex Odeon circuits and from additional investments in North
American and international exhibition theatres in the future. Further, the
Company expects to realize additional cost savings and operational efficiencies
as a result of the Combination.
16
<PAGE>
At August 31, 1998, the Company had capital spending commitments aggregating
approximately $274 million for the future development and construction of 26
theatre properties comprising 418 screens. In the opinion of management, these
capital commitments and the working capital requirements of the Company will be
funded by free cash flow generated from operations, the proceeds from the
required sale of certain theatres (described below) and by the capital structure
(debt and equity) of the Company that has been effected subsequent to the
Combination. The paragraphs below present a summary of significant capital
transactions (debt and equity) that have been completed in connection with and
subsequent to the Combination.
In connection with the Combination, the Company entered into a $1 billion Senior
Revolving Credit Facility with Bankers Trust Company, as administrative agent.
The new credit facility, together with the $84.5 million provided by Universal
under the Subscription Agreement, replaced the Sony Credit Facility and Cineplex
Odeon's existing credit facility, funded cash paid to SPE and/or its affiliates
upon closing of the Combination and will provide ongoing financing to the
Company to fund the Company's working capital requirements and the future
theatre expansion in North America and internationally. This Senior Revolving
Credit Facility is comprised of two tranches, a $750 million senior secured
revolving credit facility, secured by substantially all of the assets of LCP and
its domestic subsidiaries, and a $250 million uncommitted facility. The credit
facility bears interest at a rate of either the current prime rate as offered by
Bankers Trust Company or an Adjusted Eurodollar rate (as defined in the credit
agreement) plus an applicable margin based on the Company's Leverage Ratio (as
defined in the credit agreement). The Company's borrowings under the new credit
facility at August 31, 1998 totaled $303 million.
On August 4, 1998, Plitt, a wholly owned subsidiary of the Company, announced
the completion of an at-the-market tender offer relating to the Plitt Notes.
The at-the-market offer expired on August 4, 1998, with holders of approximately
97% of the outstanding Plitt Notes tendering into the at-the-market offer.
Payment for the tendered Plitt Notes was made on August 5, 1998 in the amount of
$212.7 million or 109.261% of the outstanding principal amount of the Plitt
Notes plus accrued and unpaid interest.
On August 5, 1998, the Company sold to the public in a registered offering 10
million shares of Common Stock at a public offering price of $11.00 per share.
Additionally, the Company issued $300 million of 8 7/8% Senior Subordinated
Notes due 2008. The proceeds of this public offering, combined with the
proceeds from the senior subordinated debt private placement, were primarily
used to fund the tender offer for the Plitt Notes and reduce debt outstanding
under the Company's Senior Revolving Credit Facility.
Upon consummation of the equity offering, the Company's Class A Non-Voting
Common Stock held by SPE automatically converted into an equal number of shares
of Common Stock and 3,255,212 additional shares of Common Stock, were issued to
Universal for no consideration under anti-dilution provisions of the Company's
subscription agreement with Universal.
In August 1998, the Company entered into interest rate exchange agreements for a
term of four years (expiring in August 2002). As a result of these agreements
the Company has fixed a LIBOR rate of 5.77% per annum (plus the applicable
margin) on a notional amount of $250 million of indebtedness. Each swap has a
quarterly reset date for settlements. The Company is accounting for these swaps
as interest rate hedges.
17
<PAGE>
On October 15, 1998, the Company announced that in order to meet certain
regulatory requirements it has modified the terms of the previously announced
sale to Cablevision Systems Corp. ("Cablevision") of certain theatres in the New
York City, Chicago and suburban New York areas. The Company had originally
announced the sale of 105 screens in 31 locations in the New York City, Chicago
and suburban New York areas for $92 million. The sale of the theatres in New
York City and Chicago were subject to approval by the Department of Justice
("DOJ"), in accordance with the terms of an agreement reached to permit the
merger of Loews Theatres Exhibition Group with Cineplex Odeon. The DOJ indicated
that it would not approve Cablevision as a buyer of the theatres in Chicago.
Under the terms of a revised agreement, Cablevision has agreed to purchase 35
screens in 13 theatres in New York City, in accordance with the DOJ order, and
an additional 29 screens in 11 theatres in the suburban New York area for a
total of $92 million. The Company and Cablevision are now moving forward to
obtain the required final regulatory and third party consents and approvals. The
Company expects that the DOJ will approve Cablevision as a buyer of the New York
City theatres under the modified agreement.
The Company also announced that it intends to now sell separately the 49 screens
at 11 theatres in Chicago which were the subject of the DOJ order. Several
parties have expressed interest in these theatres and an announcement is
expected to be made in the near future.
RECENT LITIGATION
Two of the Company's leased drive-in motion picture theatres in the State of
Illinois are located on properties on which certain third parties disposed of
substantial quantities of auto shredder residue and other debris. Such material
may contain hazardous substances. With respect to one of these sites, located
in Cicero, Illinois, the Company has been named as one of two defendants in a
lawsuit commenced in August 1998 by the Illinois Attorney General's Office at
the request of the Illinois Environmental Protection Agency. The action was
brought pursuant to the Illinois Environmental Protection Act and alleges, among
other things, that the Company caused or allowed the disposal of certain wastes
bearing hazardous substances on the theatre property. The action seeks civil
penalties and various forms of equitable relief, including the removal of all
wastes allegedly present at the property, soil and groundwater testing and
remediation, if necessary. The Company has accrued an amount that it believes
is the minimum amount of any potential exposure relating to this site. The
Company's range of liability with respect to this action cannot be reasonably
estimated at this time due to several unknown factors, including the scope of
contamination at the theatre property, the allocation of such liability, if any,
to other responsible parties, and the ability of such parties to satisfy their
share of such liability. The Company will continue to evaluate future
information and developments with respect to conditions at the theatre property
and will periodically reassess any liability accordingly. Based on the
foregoing, there can be no assurance that the Company's liability, if any, in
connection with this action will not be material.
NEW ACCOUNTING PRONOUNCEMENTS
Loews Cineplex has determined that three new pronouncements that have been
issued-but are not yet effective-are applicable to the Company, and may have an
impact on its financial statements:
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosure about
Segments of an Enterprise and Related Information", which is effective for the
Company's fiscal year ending February 28, 1999, requires the Company to disclose
financial information about business segments, including certain information
about products and services, activities in different geographic areas and other
information.
SFAS No. 132, "Employer's Disclosure about Pensions and Other Post-Retirement
Benefits", is effective for the Company's fiscal year ending February 28, 1999.
SFAS No. 132 standardizes the disclosure requirements for pension and other
post-retirement plans; the standard does not change the measurement or
recognition of such plans.
18
<PAGE>
Finally, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activity," is effective for the Company's fiscal quarter ending May 31, 1999.
This statement standardizes the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, by requiring that
the Company recognize those items as assets or liabilities in the statement of
financial position and measure them at fair value.
The Company expects to adopt these standards when required and does not believe
that they will have a significant impact on its financial position or operating
results.
EFFECT OF INFLATION
Inflation has not had a material effect on Loews Cinpelex's operations.
YEAR 2000
The Year 2000 issue affects virtually all companies and organizations. The
Company has implemented programs designed to ensure that all software and
hardware used in connection with providing services to its customers and its
internal operations will manage and manipulate data involving the transition of
dates from 1999 to 2000 without functional or data abnormality. These programs
include, but are not limited to, the integration and conversion of certain point
of sale systems in the Cineplex Odeon circuit to that currently in use by LCP.
It is expected that the integration will be substantially completed during the
fourth quarter of calendar 1999. The Company does not anticipate incurring
significant additional costs to address the Year 2000 issue, although the
effectiveness of the Company's present efforts to address the Year 2000 issue
cannot be assured. In addition, it is currently unknown whether vendors and
other third parties with whom the Company conducts business will successfully
address the Year 2000 issue with respect to their own computer software. If the
Company's present efforts to address the Year 2000 issue are not successful, or
if vendors and other third parties with which the Company conducts business do
not successfully address the Year 2000 issue, the Company's business and
financial condition could be adversely affected.
CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
This Form 10-Q includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts included in this Form 10-Q, including, without
limitation, certain statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" may constitute forward looking
statements. Although the Company believes that the expectations reflected in
such forward looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from the Company's expectations are
disclosed in the following section ("Factors That May Affect Future
Performance"). All forward-looking statements are expressly qualified in their
entirety by the Cautionary Statements.
19
<PAGE>
FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
In addition to other factors and matters discussed elsewhere herein, factors
that, in the view of the Company, could cause actual results to differ
materially from those discussed in forward-looking statements include: (i) the
effect of economic conditions on a national, regional or international basis;
(ii) the continuing ability of the Company to integrate the operations of
Cineplex Odeon, the compatibility of the operating systems of the combined
companies, the degree to which existing administrative functions and costs are
complementary or redundant; (iii) competitive pressures in the motion picture
exhibition industry; (iv) the financial resources of, and films available to,
competition; (v) changes in laws and regulations, including changes in
accounting standards; (vi) the determination of the number, job classification
and location of employee positions to be eliminated as a result of the
combination of LTM Holdings Inc. and Cineplex Odeon; and (vii) opportunities
that may be presented to and pursued by the Company.
20
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company owns, manages and/or operates theatres and other
properties that are subject to certain U.S. and Canadian federal,
provincial, state and local laws and regulations related to
environmental protection and human health and safety, including those
governing the investigation and remediation of contamination resulting
from past or present releases of hazardous substances. Certain of
these laws and regulations may impose joint and several liability on
certain statutory classes of persons for the costs of investigation or
remediation of such contamination, regardless of fault or the legality
of the original disposal. These persons include the present or former
owner or operator of a contaminated property, and companies that
generated, disposed of or arranged for the disposal of hazardous
substances found at the property.
Two of the Company's leased drive-in motion picture theatres in the
State of Illinois are located on properties on which certain third
parties disposed of substantial quantities of auto shredder residue
and other debris. Such materials may contain hazardous substances.
With respect to one of these sites, located in Cicero, Illinois, the
Company has been named as one of two defendants in a lawsuit commenced
in August 1998 by the Illinois Attorney General's Office at the
request of the Illinois Environmental Protection Agency. The action
was brought pursuant to the Illinois Environmental Protection Act and
alleges, among other things, that the Company caused or allowed the
disposal of certain wastes bearing hazardous substances on the theatre
property. The action seeks civil penalties and various forms of
equitable relief, including the removal of all wastes allegedly
present at the property, soil and groundwater testing and remediation,
if necessary. The Company's range of liability with respect to this
action cannot be reasonably estimated at this time due to several
unknown factors, including the scope of contamination at the theatre
property, the allocation of such liability, if any, to other
responsible parties, and the ability of such parties to satisfy their
share of such liability. The Company will continue to evaluate future
information and developments with respect to conditions at the theatre
property and will periodically reassess any liability accordingly.
Based on the foregoing, there can be no assurance that the Company's
liability, if any, in connection with this action will not be
material.
Item 2. CHANGES IN SECURITIES
On August 5, 1998, the Company sold to the public in a registered
offering 10 million shares of Common Stock at a public offering price
of $11.00 per share.
In addition, upon consummation of the equity offering, the Company's
Class A Non-Voting Common Stock held by SPE automatically converted
into an equal number of shares of Common Stock, and 3,255,212
additional shares of Common Stock were issued to Universal for no
consideration under anti-dilution provisions of the Company's
subscription agreement with Universal.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
21
<PAGE>
Item 5. OTHER INFORMATION
Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 (1) Amended and Restated Master Agreement among Sony Pictures
Entertainment Inc, Registrant and Cineplex Odeon Corporation
dated September 30, 1997.
2.2 (4) Amended Agreement dated May 14, 1998.
2.3 (1) Subscription Agreement by and between Registrant and
Universal Studios, Inc. dated as of September 30, 1997.
2.4 (1) Plan of Arrangement.
3.1 (4) Amended and Restated Certificate of Incorporation of
Registrant.
3.2 (5) Amended and Restated By-laws of Registrant.
4.1 (2) Indenture dated as of June 23, 1994, by and among Plitt
Theatres, Inc. and Cineplex Odeon Corporation and The Bank
of New York as Trustee.
4.2 (4) Supplemental Indenture dated as of May 14, 1998 among
Registrant and The Bank of New York, as Trustee.
4.3 (5) Second Supplemental Indenture dated as of July 1, 1998
among Plitt Theatres, Inc., Registrant and the Bank of
New York, as Trustee.
4.4 (6) Indenture dated as of August 5, 1998, by and among
Registrant and Bankers Trust Company, as Trustee.
4.5 (6) Form of New Note.
4.6 (6) Exchange and Registration Rights Agreement dated as of
August 5, 1998 by and among Registrant and the initial
purchasers of the New Notes.
10.1 (1) Amended and Restated Stockholders Agreement among
Registrant, Sony Pictures Entertainment Inc., Universal
Studios, Inc., Charles Rosner Bronfman Family Trust and
Other Parties thereto dated as of September 30, 1997.
10.2 (4) Tax Sharing and Indemnity Agreement dated May 14, 1998 by
and among Registrant and Sony Corporation of America.
10.3 (4) Sony Trademark Agreement dated May 14, 1998 by and among
Registrant and Sony Corporation of America.
10.4 (4) Transition Services Agreement dated May 14, 1998 among
Registrant, Sony Corporation of America and Sony Pictures
Entertainment Inc.
10.5 (4) Sony Entertainment Center Lease made as of May 9, 1997
between SRE San Francisco Retail Inc. and Loews California
Theatres Inc. (portions of such exhibit have been filed
separately with the Commission under an application for
confidential treatment pursuant to Rule 83 of the Commission
Rules on Organization, Conduct and Ethics, and Information
and Regulation (17 CFR (S) 200.83)).
10.6 (4) Sony YBG Entertainment Center Tenant Work Agreement.
10.7 (1) Form of Director Indemnification Agreement.
10.8 (1) Loews Cineplex Entertainment Corporation 1997 Stock
Incentive Plan.
10.9 (4) Credit Agreement dated as of May 14, 1998 among Registrant,
as Borrower, the lenders listed therein, as Lenders, Bankers
Trust Company, as Administrative Agent and Co-Syndication
Agent and Bank of America NT&SA, The Bank of New York and
Credit Suisse First Boston, as Co-Syndication Agents.
10.10 (4) Employment Agreement between Registrant and Lawrence J.
Ruisi, dated May 14, 1998.
22
<PAGE>
10.11 (3) Employment Agreement between Cineplex Odeon Corporation and
Allen Karp, dated July 4, 1996
10.12 (5) Amended and Restated Employment Agreement between Cineplex
Odeon Corporation and Allen Karp, dated November 28, 1997
10.13 (4) Assumption dated May 14, 1998 of Allen Karp Employment
Agreement by Registrant
10.14 (1) Agreement between Registrant and Seymour H. Smith, dated
May 1, 1990, including Letter Amendments dated November 14,
1991, March 9, 1993, May 10, 1995, April 11, 1996 and June
6, 1997
10.15 (1) Agreement between Registrant and Travis Reid, dated October
21, 1995
10.16 (1) Agreement between Registrant and Joseph Sparacio, dated
August 20, 1994, including Term Extension Letter dated March
5, 1997
10.17 (1) Agreement between Registrant and John J. Walker, dated June
1, 1993, including Term Extension Letter dated March 5, 1997
10.18 (1) Letter Agreement between Registrant and John C. McBride,
Jr., dated November 17, 1997
10.19 (4) Letter Agreement between Registrant and Mindy Tucker, dated
December 15, 1997
10.20 (5) Letter Agreement between Registrant and J. Edward Shugrue,
dated December 15, 1997
10.21 (6) Purchase Agreement, dated as of July 31, 1998, by and among
Loews Cineplex Entertainment Corporation and Goldman Sachs
& Co., BT Alex Brown Incorporated, Credit Suisse First
Boston Corporation and Salomon Brothers Inc
10.22 (6) Purchase Agreement, dated as of August 4, 1998, by and among
Loews Cineplex Entertainment Corporation and Goldman Sachs
& Co., BT Alex Brown Incorporated, Credit Suisse First
Boston Corporation and Salomon Brothers Inc
27 Financial Data Schedule (for SEC use only)
(1) Incorporated by reference to the Company's Registration Statement
on Form S-4 filed on February 13, 1998, Commission file number
333-46313.
(2) Incorporated by reference to the Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994 of Cineplex Odeon
Corporation, Commission file number 1-9454.
(3) Incorporated by reference to the Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 of Cineplex Odeon
Corporation, Commission file number 1-9454.
(4) Incorporated by reference to the Annual Report on Form 10-K for
the fiscal year ended February 28, 1998 of Registrant, as
amended, Commission file number 1-14099.
(5) Incorporated by reference to the Company's Registration Statement
on Form S-1 filed on June 15, 1998, as amended, Commission file
number 333-56897.
(6) Incorporated by reference to the Company's Registration Statement
on Form S-4 filed on September 30, 1998, Commission file number
333-64833.
(b) Reports on Form 8-K
Current Report on Form 8-K dated June 16, 1998
Current Report on Form 8-K dated August 10, 1998
23
<PAGE>
SIGNATURES
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.
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
Date: October 15, 1998
By: /s/ John J. Walker
------------------
John J. Walker, Senior Vice President
and Chief Financial Officer
By: /s/ Joseph Sparacio
-------------------
Joseph Sparacio, Vice President,
Finance and Controller
24
<PAGE>
EXHIBITS AND REPORTS ON FORM 8-K
2.1 (1) Amended and Restated Master Agreement among Sony Pictures
Entertainment Inc, Registrant and Cineplex Odeon Corporation dated
September 30, 1997.
2.2 (4) Amended Agreement dated May 14, 1998.
2.3 (1) Subscription Agreement by and between Registrant and Universal
Studios, Inc. dated as of September 30, 1997.
2.4 (1) Plan of Arrangement.
3.1 (4) Amended and Restated Certificate of Incorporation of Registrant.
3.2 (5) Amended and Restated By-laws of Registrant.
4.1 (2) Indenture dated as of June 23, 1994, by and among Plitt Theatres,
Inc. and Cineplex Odeon Corporation and The Bank of New York as
Trustee.
4.2 (4) Supplemental Indenture dated as of May 14, 1998 among Registrant and
The Bank of New York, as Trustee.
4.3 (5) Second Supplemental Indenture dated as of July 1, 1998 among Plitt
Theatres, Inc., Registrant and the Bank of New York, as Trustee.
4.4 (6) Indenture dated as of August 5, 1998, by and among Registrant and
Bankers Trust Company, as Trustee.
4.5 (6) Form of New Note.
4.6 (6) Exchange and Registration Rights Agreement dated as of August 5,
1998 by and among Registrant and the initial purchasers of the New
Notes.
10.1 (1) Amended and Restated Stockholders Agreement among Registrant, Sony
Pictures Entertainment Inc., Universal Studios, Inc., Charles
Rosner Bronfman Family Trust and Other Parties thereto dated as of
September 30, 1997.
10.2 (4) Tax Sharing and Indemnity Agreement dated May 14, 1998 by and among
Registrant and Sony Corporation of America.
10.3 (4) Sony Trademark Agreement dated May 14, 1998 by and among Registrant
and Sony Corporation of America.
10.4 (4) Transition Services Agreement dated May 14, 1998 among Registrant,
Sony Corporation of America and Sony Pictures Entertainment Inc.
10.5 (4) Sony Entertainment Center Lease made as of May 9, 1997 between SRE
San Francisco Retail Inc. and Loews California Theatres Inc.
(portions of such exhibit have been filed separately with the
Commission under an application for confidential treatment
pursuant to Rule 83 of the Commission Rules on Organization,
Conduct and Ethics, and Information and Regulation (17 CFR (S)
200.83)).
10.6 (4) Sony YBG Entertainment Center Tenant Work Agreement.
10.7 (1) Form of Director Indemnification Agreement.
10.8 (1) Loews Cineplex Entertainment Corporation 1997 Stock Incentive Plan.
10.9 (4) Credit Agreement dated as of May 14, 1998 among Registrant, as
Borrower, the lenders listed therein, as Lenders, Bankers Trust
Company, as Administrative Agent and Co-Syndication Agent and
Bank of America NT&SA, The Bank of New York and Credit Suisse
First Boston, as Co-Syndication Agents.
10.10 (4) Employment Agreement between Registrant and Lawrence J. Ruisi, dated
May 14, 1998.
10.11 (3) Employment Agreement between Cineplex Odeon Corporation and Allen
Karp, dated July 4, 1996.
10.12 (5) Amended and Restated Employment Agreement between Cineplex Odeon
Corporation and Allen Karp, dated November 28, 1997.
25
<PAGE>
10.13 (4) Assumption dated May 14, 1998 of Allen Karp Employment
Agreement by Registrant
10.14 (1) Agreement between Registrant and Seymour H. Smith, dated
May 1, 1990, including Letter Amendments dated November 14,
1991, March 9, 1993, May 10, 1995, April 11, 1996 and
June 6, 1997
10.15 (1) Agreement between Registrant and Travis Reid, dated
October 21, 1995
10.16 (1) Agreement between Registrant and Joseph Sparacio, dated
August 20, 1994, including Term Extension Letter dated
March 5, 1997
10.17 (1) Agreement between Registrant and John J. Walker, dated June
1, 1993, including Term Extension Letter dated March 5, 1997
10.18 (1) Letter Agreement between Registrant and John C. McBride,
Jr., dated November 17, 1997
10.19 (4) Letter Agreement between Registrant and Mindy Tucker, dated
December 15, 1997
10.20 (5) Letter Agreement between Registrant and J. Edward Shugrue,
dated December 15, 1997
10.21 (6) Purchase Agreement, dated as of July 31, 1998, by and among
Loews Cineplex Entertainment Corporation and Goldman Sachs &
Co., BT Alex Brown Incorporated, Credit Suisse First Boston
Corporation and Salomon Brothers Inc
10.22 (6) Purchase Agreement, dated as of August 4, 1998, by and among
Loews Cineplex Entertainment Corporation and Goldman Sachs &
Co., BT Alex Brown Incorporated, Credit Suisse First Boston
Corporation and Salomon Brothers Inc
27 Financial Data Schedule (for SEC use only)
(1) Incorporated by reference to the Company's Registration Statement
on Form S-4 filed on February 13, 1998, Commission file number
333-46313.
(2) Incorporated by reference to the Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994 of Cineplex Odeon
Corporation, Commission file number 1-9454.
(3) Incorporated by reference to the Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 of Cineplex Odeon
Corporation, Commission file number 1-9454.
(4) Incorporated by reference to the Annual Report on Form 10-K for
the fiscal year ended February 28, 1998 of Registrant, as
amended, Commission file number 1-14099.
(5) Incorporated by reference to the Company's Registration Statement
on Form S-1 filed on June 15, 1998, as amended, Commission file
number 333-56897.
(6) Incorporated by reference to the Company's Registration Statement
on Form S-4 filed on September 30, 1998, Commission file number
333-64833.
(b) Reports on Form 8-K
Current Report on Form 8-K dated June 16, 1998
Current Report on Form 8-K dated August 10, 1998
26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LOEWS CINEPLEX ENTERTAINMENT CORPORATION FOR THE THREE
MONTHS ENDED AUGUST 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> JUN-01-1998
<PERIOD-END> AUG-31-1998
<CASH> 56,882
<SECURITIES> 0
<RECEIVABLES> 19,552
<ALLOWANCES> 0
<INVENTORY> 4,946
<CURRENT-ASSETS> 84,796
<PP&E> 1,739,843
<DEPRECIATION> 593,344
<TOTAL-ASSETS> 1,696,964
<CURRENT-LIABILITIES> 280,665
<BONDS> 622,842
0
0
<COMMON> 587
<OTHER-SE> 698,313
<TOTAL-LIABILITY-AND-EQUITY> 1,696,964
<SALES> 81,364
<TOTAL-REVENUES> 297,459
<CGS> 12,826
<TOTAL-COSTS> 223,270
<OTHER-EXPENSES> 41,005
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,416
<INCOME-PRETAX> 16,768
<INCOME-TAX> 8,494
<INCOME-CONTINUING> 8,274
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,274
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
