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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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Form 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended February 28, 1999 Commission file number 001-14099
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
(Exact name of Registrant as specified in its charter)
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Delaware 13-3386485
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(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
711 Fifth Avenue, New York, New York 10022
(Address of principal executive offices) (Zip Code)
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(212) 833-6200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class: Name of each exchange on which registered:
Common Stock, par value $.01 per share New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the Registrant's voting stock held by non-
affiliates of the Registrant was $176,784,927 as of May 14, 1999.
The number of shares of common stock, $.01 par value per share, outstanding
on May 14, 1999 was 58,538,646. The number of shares of Class B non-voting
common stock, $.01 par value per share, outstanding on May 14, 1999 was 84,000
shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Fiscal 1999 Annual Report to Stockholders Parts
II and IV
Portions of the Proxy Statement for the 1999 Annual Meeting of
Stockholders Part III
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LOEWS CINEPLEX ENTERTAINMENT CORPORATION
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
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ITEM 1. BUSINESS 4
Fiscal 1999 Highlights................................................... 4
Our U.S. Partners........................................................ 5
Key Business Strategies.................................................. 5
Operating Strategy..................................................... 5
Expansion Strategy and Portfolio Management............................ 7
Theatre Operations....................................................... 10
Competition.............................................................. 11
Segment Information...................................................... 12
Seasonality.............................................................. 12
Government Regulation.................................................... 12
Employees................................................................ 13
Year 2000 Issue.......................................................... 13
Cautionary Notice Regarding Forward Looking Statements................... 13
Factors That May Affect Future Performance............................... 13
ITEM 2. PROPERTIES....................................................... 14
ITEM 3. LEGAL PROCEEDINGS................................................ 14
Antitrust Proceedings.................................................... 15
Environmental Proceedings................................................ 15
Six West Retail Acquisition, Inc......................................... 15
ADA Litigation........................................................... 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS............... 16
EXECUTIVE OFFICERS OF LOEWS CINEPLEX..................................... 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS................................................ 18
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA............................... 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.......................................... 18
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK....... 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................... 19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE............................................... 19
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PART III
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............... 19
ITEM 11. EXECUTIVE COMPENSATION........................................... 19
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT... 19
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................... 19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8- K............................................... 20
SIGNATURES................................................................ 23
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PART I
ITEM 1. BUSINESS
Loews Cineplex Entertainment Corporation ("Loews Cineplex," "we," "us" or
"our") is the world's largest publicly traded theatre exhibition company in
terms of revenues and operating cash flow.
Loews Cineplex was formed by the combination, completed on May 14, 1998, of
the Loews Theatres exhibition business of Sony Pictures Entertainment Inc.
("SPE"), a wholly owned subsidiary of Sony Corporation of America ("SCA"), and
Cineplex Odeon Corporation ("Cineplex Odeon"), another major motion picture
exhibitor with operations predominantly in the U.S. and Canada (the
"Combination"). Loews Cineplex was the first commercial motion picture
exhibitor in the U.S., perhaps the world, with operations beginning in 1904,
when Marcus Loew set up a "nickelodeon" in a rented room above a penny arcade
store in Cincinnati, Ohio. Our theatre circuits have grown over the years
through internal development and acquisitions. Today, we operate theatres under
the Loews, Sony and Cineplex Odeon names. Our partnerships and joint ventures
operate theatres under the Star, Magic Johnson and Yelmo Cineplex names.
Our principal stockholders include SPE, Universal Studios, Inc.
("Universal") and The Charles Rosner Bronfman Discretionary Trust and related
stockholders (the "Claridge Group"), which own 39.5%, 25.5% and 7.4%,
respectively, of our capital stock and collectively own approximately 72.5% of
our capital stock and 72.4% of our voting common stock.
LTM Holdings, Inc., our predecessor, was incorporated under the laws of the
State of Delaware in 1986. Our principal offices are located at 711 Fifth
Avenue, New York, New York 10022, and our telephone number is (212) 833-6200.
Our Internet home page is:
www.loewscineplex.com.
You can learn more about us by visiting our website.
Fiscal 1999 Highlights (all amounts in thousands of U.S. dollars, except per
patron data, and unless otherwise noted)
For the fiscal year ended February 28, 1999, we had approximately $851,160
in revenues and generated approximately $148,775 of Modified EBITDA (earnings
before interest, taxes, depreciation and amortization and loss on
sale/disposals of theatres). On a combined basis we had $947,401 in Total
Revenues and $163,166 in Total EBITDA (earnings before interest, taxes,
depreciation and amortization and loss on sale/disposals of theatres including
100% of the operations of our joint ventures and partnerships). Approximately
69% of these revenues came from box office receipts and 31% from concession
sales and other revenues. Based on publicly available data our share of the
total industry box office receipts in North America during fiscal 1999 was
approximately 10.3% (including 100% of the operations of our joint ventures and
partnerships).
As of February 28, 1999, we owned, operated or had an interest in 2,881
screens at 423 locations. Of these, 2,762 screens were located in 22 U.S.
states, the District of Columbia and six Canadian provinces. Our screens
represent approximately 8% of all exhibition screens in North America. Our
screens are mainly concentrated in densely populated urban and suburban areas,
with a strong presence in metropolitan New York, Boston, Chicago, Baltimore,
Dallas, Houston, Detroit, Los Angeles, Seattle, Washington D.C., Toronto,
Montreal and Vancouver. Approximately 78% of our U.S. theatres are located in 9
of the 10 largest areas of dominant influence (ADI) as defined by A.C. Nielsen
Company/EDI in the U.S., and 83% of our Canadian theatres are located in the
top 10 ADIs in Canada.
We also own a 50% interest in 108 screens in 13 locations (included in the
aforementioned screen and location totals) in Spain through a joint venture
established on June 10, 1998 with Yelmo Films S.A., a leading local Spanish
exhibitor. We will continue to build additional theatres in Spain through this
joint venture. Additionally, we have established an initial presence in both
Hungary and Turkey.
On March 13, 1999, we entered into a 50/50 joint venture in Italy with
Aurelio De Laurentiis' Filmauro Srl., a leading producer, distributor and
exhibitor of motion pictures in Italy. The new
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venture, to be known as De Laurentiis Cineplex, plans to develop 15 to 20
multiplexes over the next five years. The venture currently has numerous sites
under development in regions throughout Italy, including Lombardia, Piemonte,
Veneto, Liguria, Toscana, Emilia Romagna, Lazio, Puglia, Campania, and Sicilia.
On May 19, 1999, we announced that we entered into a 50/50 joint venture in
Turkey with Transturk Holdings A.S. to develop, construct and operate movie
theatres throughout Turkey, Romania and the Turkish Republics of the CIS. The
new venture, to be known as Transturk Cineplex, plans to develop 15 multiplexes
over the next five years in addition to the 5-screen Profilo Theatre already in
operation in Istanbul, Turkey.
We also operate a six-screen theatre in Hungary. Our entry into Austria will
commence in the second quarter of Fiscal Year 2000 with the opening of an 8-
screen multiplex in Vienna.
Our U.S. Partners
Loews Cineplex holds a 50% partnership interest in each of Star Theatres and
Magic Johnson Theatres. As of February 28, 1999, these partnerships held
interests in and operated 12 locations with a total of 152 screens. The Star
theatre locations are concentrated in the metropolitan Detroit, Michigan area.
The Magic Johnson theatres are located in densely populated urban areas with
predominantly minority populations.
Key Business Strategies
Our goals are:
. to be the leading theatrical exhibitor in densely populated metropolitan
centers in North America;
. to expand into selected international markets through joint ventures, new
theatre construction and acquisitions; and
. to maintain our reputation as a preferred exhibitor for distributors and
theatre-going patrons.
We have developed a number of successful operating and expansion strategies
designed to achieve these goals and place us at the forefront of our industry.
Operating Strategy
We intend to achieve the same high levels of operating performance and cash
flow growth historically achieved by Loews Theatres by applying our proven
operating strategy to the Cineplex Odeon theatre circuit acquired last year and
to our new ventures. During the five fiscal years preceding the Combination
(fiscal 1994 to fiscal 1998), Loews Theatres consistently achieved strong
operating results, with Total EBITDA per location growing at a compound annual
growth rate of 18.3% and Total EBITDA per patron improving from $1.11 to $1.48
during the same period. On a pro-forma basis (pro forma information assumes
that the Combination occurred at the beginning of each period presented) for
the nine months ended February 28, 1999 and following the Combination date,
Total EBITDA grew by 20% from $117.5 million to $141.0 million, Total EBITDA
per location grew 21% from $260 to $315 and overall operating margin grew from
14.5% to 17.3% on a comparable basis with the preceding year. We have achieved
these results by:
. actively managing and improving our portfolio;
. providing a high level of customer service;
. aggressively controlling operating costs;
. closely monitoring and managing operations on a daily basis; and
. increasing efficiency through the integration of highly flexible state-
of-the-art information systems into our theatre operations.
Key elements of our operating strategy include:
.Continue to Realize Cost Savings and Operating Efficiencies. During fiscal
1999, we realized a significant portion of the anticipated annual cost savings
and operating efficiencies (currently estimated at approximately $30 million)
as a result of the Combination by applying Loews Theatres' operating practices
and revenue generating programs throughout our combined chain of theatres,
eliminating unnecessary overhead and capitalizing on the benefits of a larger
number of theatres.
Since completing the Combination, we have already substantially reduced
overhead costs by reducing the number of personnel we need to conduct our
business, extending volume discounts on bulk concession items to Cineplex Odeon
and making other improvements.
.Apply Proven Operating Practices. During the 1999 fiscal year, we continued
implementing our
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operating strategies. Over the five fiscal years preceding the Combination,
Loews Theatres increased concession revenue per patron by 31.3% from $1.63 to
$2.14. In addition, our concession margins increased from 80.8% to 84.5% during
the same period. This increase was due to:
. expanded concession offerings;
. implementing employee training and incentive programs which encourage
"upselling";
. effective showtime scheduling to reduce congestion in the lobby and
concession area enabling us to more efficiently service our patrons;
. improved customer service; and
. more efficient concession stand designs.
On a pro-forma basis for the nine months ended February 28, 1999 and
following the Combination date, our concession revenues per patron increased by
5.2% from $1.91 to $2.01, due primarily to improvements of Cineplex Odeon's
overall concession productivity and increased sales (including a $.13
concession per capita increase prior to currency fluctuations) and continued
improvements to the Loews Theatre circuit. Our combined concession margins have
increased from 82.2% to 84.1% during the same period. This improvement is due
to our ability to obtain favorable terms with our vendors, benefit from volume
discounts and offer a variety of product mix, all while maintaining attractive
margins.
Operating expenses, including concession costs, at our Loews Theatres
circuit decreased from 78.8% of revenues to 74.4% between fiscal 1994 and
fiscal 1998. We have been successful in reducing these expenses by:
. minimizing rent through favorable real estate practices;
. implementing more efficient layouts in our newer theatres;
. training our staff to perform several functions; and
. adjusting staffing levels based on "real time" information gathered from
our theatres.
.Capitalize on Larger Presence in the Market. We believe we can improve
operations by realizing cost savings through eliminating unnecessary overhead
and by spreading the remaining overhead costs over a larger theatre group. We
also anticipate that we will realize additional benefits created by a larger
presence in the market. These benefits include:
. volume purchase discounts;
. receiving more favorable terms from vendors and service suppliers; and
. entering into revenue generating contracts on a circuit-wide basis.
We expect additional improvements through more efficient film programming
and scheduling, enabling us to exhibit motion pictures for the maximum play
time by matching the size of the auditorium with rapidly changing audience
demands.
.Focus on Customer Service. Our goal is to be the industry leader in
customer service. We want to provide a high level of customer service and
convenience, positioning us as the "theatre of choice" for movie-going patrons.
We have developed a proven customer service program focused on increasing
patronage and generating customer loyalty by improving the overall movie-going
experience.
This program includes:
. optimizing the scheduling of showtimes to lessen congestion at our
theatres;
. offering more frequent showtimes of popular films; and
. guaranteeing "next-in-line" service to improve ticket and concession
sales.
We also train our employees to improve service and sales techniques thereby
increasing overall concession sales. By serving customers more quickly, we
believe that we can increase our concession revenues per patron. To encourage
increased patronage, we have established new concession programs, provided a
wider selection of concession items and enhanced promotions and merchandising
activities. We have also established box office admission discount programs,
including bargain matinees, group admissions, senior citizen and children
discounts. In addition, our Passport Ticket Program provides for the purchase
of admission tickets at a discount.
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.Maintain State-of-the-Art Information Systems. In the three years before
the Combination, we upgraded our point-of-sale system at the Loews Theatres
circuit and invested in state-of-the-art computer technology at our theater
box offices and concession stands. These investments enabled us to increase
productivity and manage operating costs more efficiently. We have now
substantially completed integrating Cineplex Odeon's U.S. theatre operations
into our system and are completing a feasibility study to capitalize on
related synergies in Canada.
We use touch screen selling stations at our box offices and concession
stands to provide quicker service, resulting in higher customer turnover and
improved productivity. This system has shortened transaction processing times
and provides "real time" information to the home office regarding attendance
levels, box office receipts, concession sales and employee productivity at
each location, as well as better inventory management and control.
With immediate access to this information, we can make daily adjustments to
staffing levels and inventories in order to maximize productivity and overall
profitability. This is especially important during critical operating periods
such as weekends and holidays. We have also made significant investments in
technology to integrate and enhance features within our major reporting
systems.
.Expand Other Revenues. We are continually seeking out other potential
revenue opportunities in addition to box office and concession revenues. We
believe we can be an attractive medium for advertising and joint marketing and
promotion efforts, due to our offering access to mass audiences. In fiscal
1999, we had approximately 140 million patrons on a pro-forma basis, with
highly attractive demographics. We maintain screen advertising programs in all
of our theatres with local and national advertisers. We are continuing to
explore additional advertising and marketing programs with world class
consumer product companies.
We have also generated additional revenue through the leasing of our
theatres for motion picture premieres and screenings, corporate events and
private parties. Some of our theatres have earned reputations as the
"preferred" theatres for these events given their locations in key urban
markets as well as their upscale settings.
.Motivate Key Employees. We have adopted a stock incentive plan which is
designed to link compensation of management with stockholder return. We expect
to expand this program by granting options in our common stock to
approximately 900 of our employees. We will be asking our stockholders to
approve an amendment to the stock incentive plan at the 1999 Annual Meeting
which will allow us to put this program in place.
We provide additional incentives to our theatre staff employees by paying
commissions for concession productivity over certain target levels. We also
offer benefits such as college tuition assistance designed to attract quality
employees, reduce employee turnover and increase operating efficiencies.
Expansion Strategy and Portfolio Management
A key component of our business strategy is pursuing significant expansion
and upgrades of our theatres. In fiscal 1999, we spent approximately $147
million on expanding and upgrading our theatres, and we plan to spend
approximately $1 billion in capital expenditures during the first five years
following the Combination to:
. develop or acquire additional theatres in the North American and select
international markets;
. expand the number of screens at certain existing theatre locations; and
. significantly upgrade and modernize existing theatres where appropriate.
.Upgrade and Expand in North America. During the five years prior to the
Combination, Loews Theaters implemented a major theater reconfiguration and
expansion program, which we have extended to Cineplex Odeon following the
Combination. The essence of the reconfiguration and expansion program is to
build/acquire new modern state-of-the-art multi-screen theatres, expand and/or
renovate existing theatres where appropriate and to close/dispose of old,
obsolete and/or unprofitable theatres. This program increased screens per
location from 5.4 at the end of fiscal year 1994 to 7.4 at the end of fiscal
year 1998.
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In conjunction with this expansion program, we have adopted a prototype
design for new theatre construction. This prototype has between 12 and 24
screens, depending on the location, with oversized screens, stadium seating,
rocking chair seats, state-of-the-art digital sound systems and spacious
lobbies. The prototype incorporates state-of-the-art sales technology, and the
design, location and size of concession stands in the prototype allow us to
operate more efficiently. We believe larger multiscreen theatres are more
efficient to operate and provide for greater operating margins and better use
of assets. The greater number of screens per theatre provides more effective
leverage of fixed costs and staffing levels over a larger revenue base. Multi-
screen facilities also allow us to present a variety of films with more
frequent showtimes to the movie-going public.
During the four fiscal years ended February 28, 1998, Loews Theatres
constructed and placed into service 18 new multiplex and megaplex theatres with
a total of 226 screens. During the same period, we also added 52 new screens at
existing theatres. Since the Combination, we have added 12 new multiplex and
megaplex theatres with a total of 168 screens.
The quality of our theatres and their location in major metropolitan
locations position our theatres among the top grossing theatres in the U.S.
Currently we operate the three highest grossing theatres in the U.S. according
to A.C. Nielsen Company/EDI:
. the 13-screen flagship Sony Theatres Lincoln Square in New York City,
home of the first commercial 3-D IMAX theatre in the United States;
. the 18-screen Universal City at Citywalk, a retail and entertainment
complex in Universal City, California; and
. the 20-screen Star Theatres in Southfield, Michigan.
The following table indicates the number of theatre locations and screens
and changes in each as a result of our upgrading and reconfiguration program
and the addition of the Cineplex Odeon circuit to the Loews Theatres circuit
during the five fiscal years ended February 28, 1999. These figures include
screens and locations operated by Star, Magic Johnson and Yelmo Cineplex.
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Fiscal Year ended February
28 or 29,
-------------------------------- Five Year
1995 1996 1997 1998 1999 Total
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Screens
Beginning of year............... 981 1,030 950 959 1,035 981
New construction............... 54 36 44 92 168 394
Expansions..................... 15 3 22 12 15 67
J.V. investments............... -- -- -- -- 113 113
Combination.................... -- -- -- -- 1,723 1,723
Dispositions................... (20) (119) (57) (28) (173) (397)
----- ----- --- ----- ----- -----
Year end........................ 1,030 950 959 1,035 2,881 2,881
===== ===== === ===== ===== =====
Locations
Beginning of year............... 182 180 154 143 139 182
New construction............... 5 3 4 6 12 30
J.V. investments............... -- -- -- -- 14 14
Combination.................... -- -- -- -- 312 312
Dispositions................... (7) (29) (15) (10) (54) (115)
----- ----- --- ----- ----- -----
Year end........................ 180 154 143 139 423 423
===== ===== === ===== ===== =====
Average screens per location.... 5.7 6.2 6.7 7.4 6.8
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During fiscal 1999, we pursued the sale of certain theatres in New York City
and Chicago that were subject to approval by the Department of Justice ("DOJ"),
in accordance with the terms of an agreement reached with the DOJ to permit the
Combination. As a result, during the fourth quarter, we sold to Cablevision
Sytems Corporation 33 screens in 12 theatres in New York City, in accordance
with the DOJ order, and an additional 14 screens in 4 theatres in the suburban
New York area for aggregate cash proceeds of $87.5 million. A substantial
portion of these proceeds were utilized to pay down our Senior Revolving Credit
Facility.
Under the agreement with the DOJ, we were also required to sell 49 screens
at 11 theatre locations in Chicago. On April 7, 1999, we completed the sale of
30 screens at 8 of these theatre locations to a third party. The sale of these
theatres will not have a significant impact on our operating results or
financial position. The disposition of these Chicago theatres occurred after
February 28, 1999 and accordingly they are included in the table presented
above. Additionally, under the agreement with the DOJ, we are required to sell
the remaining 19 screens at 3 theatre locations in Chicago. We are
investigating several options in order to comply with the requirements of the
agreement with the DOJ.
Finally, we are planning to close or dispose of certain overlapping theatre
locations and underperforming theatres, including older obsolete theatres that
contribute only minimally to cash flow from operations or are operating at a
loss. We have targeted approximately 550 screens for disposition or closing
following the Combination. While in the aggregate these theatres generate
significant revenues, we believe that the disposition or closure of these
screens will actually improve our operating cash flow on an ongoing basis.
Contractual obligations related to most of these theatre closings have been
provided for as part of the cost of acquisition in connection with the
Combination.
We believe we have a significant opportunity to improve our competitive
position in many of our existing markets, as well as to selectively enter new
markets in North America that are currently underserved. Our goal in this
expansion effort is to develop a modern portfolio of multiplex and megaplex
theatre properties which offer customers an exceptional movie-going experience.
Currently, we are targeting to open approximately 12 to 15 new theatre
locations in North America annually, and to add new screens at certain existing
locations. We are also implementing a program to upgrade certain existing
theatres with stadium seating.
.Expand Internationally. According to the Baskerville Communications
Corporation, the international share of total worldwide box office receipts
rose from 43% in 1983 to 63% in 1998. International box office figures are
expected to rise by 41% between 1998 and 2007. We believe that the
international market offers significant growth
opportunities to motion picture exhibitors, particularly through the
replication of the multiplexing process currently underway in the domestic
arena. Much of the world is underscreened and underserved by poor quality
theatres. According to Baskerville Communications Corporation, there were
approximately 8,400 people per screen in the U.S. in 1998, compared to an
average of approximately 26,500 people per screen in Europe and approximately
69,000 people per screen in Latin America. In the U.S., the average person
visits a theatre approximately 5.2 times per year, compared to 2.1 times per
year in Europe and only 0.6 times per year in Latin America. The international
market has upside potential in that small increases in attendance rates and
increased average ticket prices have a dramatic impact in expanding box office
receipts.
In June 1998, we formed the Loews Cineplex International division to
develop, construct and operate theatres outside of the U.S. We are currently
considering expansion opportunities in selected areas throughout the world that
we believe are underscreened and underserved. We have initially targeted
selected markets in Western Europe based on the favorable economy, ease of
doing business and availability of attractive partners. We intend to identify
local partners in targeted international markets with whom management can
pursue joint venture opportunities that capitalize on our development and
operating expertise and access to capital, and that take advantage of the local
partners' established presence and significant local expertise.
On June 10, 1998, Loews Cineplex and Yelmo Films formed Yelmo Cineplex, a
50/50 joint venture, to develop, construct and operate movie theatres
throughout Spain. Yelmo Films is Spain's second largest film exhibition company
and its
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leading builder of state-of-the-art multiplex theatres. Yelmo Cineplex
currently owns and operates 108 screens at 13 theatre locations in high-density
population areas in Madrid, Catalunya and Galicia. Under the terms of the
agreement, Yelmo Films contributed its existing theatre assets to the joint
venture. We are contributing cash equal to the agreed value of the assets net
of debt on an "as-needed" basis, primarily to fund the construction of new
multiplexes. Yelmo Cineplex expects to add approximately 15 new theatre
locations and approximately 175 screens to its existing assets in the next
several years. It currently has two theatre locations with 22 screens under
construction and commitments for eight additional theatre locations aggregating
103 screens. The Spanish film exhibition market has experienced strong growth
recently, with a 27% increase in box office receipts since 1995.
On March 13, 1999, we entered into a 50/50 joint venture in Italy with
Aurelio De Laurentiis' Filmauro Srl., a leading producer, distributor and
exhibitor of motion pictures in Italy. The new venture, to be known as De
Laurentiis Cineplex, plans to develop 15 to 20 multiplexes over the next five
years. The venture currently has numerous sites under development in regions
throughout Italy, including Lombardia, Piemonte, Veneto, Liguria, Toscana,
Emilia Romagna, Lazio, Puglia, Campania, and Sicilia.
On May 19, 1999, we announced that we entered into a 50/50 joint venture in
Turkey with Transturk Holdings A.S. to develop, construct and operate movie
theatres throughout Turkey, Romania and the Turkish Republics of the CIS. The
new venutre, to be known as Transturk Cineplex, plans to develop 15 multiplexes
over the next five years in addition to the 5-screen Profilo Theatre already in
operation in Istanbul, Turkey.
We also operate a six-screen theatre in Hungary. Our entry into Austria will
commence in the second quarter of fiscal year 2000 with the opening of an 8
screen multiplex in Vienna. We are currently evaluating several other specific
international expansion opportunities in Western and Eastern Europe, Latin
America and Asia.
.Pursue Acquisitions and Joint Ventures. We are continually seeking
opportunities to acquire theatres with locations that complement our existing
locations and provide the opportunity to improve operations through significant
cost savings realized through economies of scale. Acquisitions can also provide
the critical mass needed to expand into new markets. We target acquisitions
that can be consummated at an attractive price and where there is a significant
strategic fit with our existing theatres.
We also explore joint ventures with partners that offer complementary
expertise, enabling us to increase our success in entering niche markets or
markets where we currently do not have a presence. Our partnership interest in
Star Theatres gives us the opportunity to capitalize on the local reputation
and consumer recognition of a high quality circuit, while providing the
resources and expertise of a national exhibitor. Magic Johnson Theatres
leverages the brand name of one of the most well-known and respected athletes
in the world and gives us a unique vehicle to make the first successful entry
into underserved minority markets. Our joint ventures with Yelmo Films in Spain
and De Laurentiis Cineplex in Italy are other examples of our strategy of
combining our financial resources and operating expertise with a partner's
knowledge of local markets in order to expand successfully into new
territories.
.Open Theatres in Location-Based Entertainment Centers. As consumers seek
more sophisticated entertainment offerings, we and our competitors have begun
to construct new theatres in location-based entertainment centers. In addition
to theatres, these centers typically have specialty retail stores, themed
restaurants and video arcades. We currently operate the 18-screen Universal
City theatre multiplex at Citywalk in Los Angeles which is scheduled to include
a new IMAX theatre and we will operate a 15-screen theatre and an IMAX theatre
at Metreon(TM), Sony's 350,000 square foot entertainment center in San
Francisco scheduled to open in June 1999 and a 20-screen theatre at Universal
Studios in Orlando, Florida. We are continuing to explore opportunities with
Sony and Universal as well as other developers of entertainment centers.
Theatre Operations
Nearly all of our screens are located in multiscreen theatres. Our theatres
averaged 6.8 screens as of February 28, 1999. We intend to increase this ratio
through the construction of larger
10
<PAGE>
multiplex or megaplex theatres, by expanding certain existing theatres and by
closing smaller theatres. Multiplex theatres enable us to present a variety of
films appealing to several segments of the movie-going public, while serving
patrons from common facilities, box office, concession areas, restrooms and
lobbies. This strategy improves attendance, enables us to operate more
efficiently and uses more of our theatre capacity, all of which enhance
revenues and profitability.
We rely upon advertising and movie schedules in newspapers to inform our
patrons of film selections and show times. We also exhibit previews of coming
attractions and films presently playing on other screens.
Competition
The U.S. motion picture exhibition industry is generally fragmented, with
nine large companies owning or operating a majority of screens. In most of our
markets, we are in direct competition for film exhibition licensing rights and
theatre locations with both large and small exhibition companies.
The following table presents the nine largest exhibition companies in North
America by box office revenue, screens and theatres according to the most
recent publicly available information:
<TABLE>
<CAPTION>
Box Office
Revenues Screens Theatres
Company ---------- ------- --------
(millions)
<S> <C> <C> <C>
Loews Cineplex(1)................................... $721.5 2,881 423
AMC Entertainment................................... 652.1 2,645 217
Regal/Act III....................................... 462.8 3,573 403
United Artists Theatres............................. 454.4 2,184 319
Cinemark Cinemas.................................... 363.2 2,322 227
Carmike Cinemas..................................... 330.5 2,658 468
GC Companies........................................ 272.0 1,045 150
Hoyts Cinemas Corp.................................. N/A 817 112
National Amusements................................. N/A 978 106
</TABLE>
- --------
(1) Includes 100% of our partnerships and the operations of Cineplex Odeon
since March 1, 1998.
In 1998, U.S. motion picture attendance was approximately 1.48 billion, the
highest attendance level recorded by the National Association of Theatre
Operators during the past four decades, and, in the same year, box office
revenues exceeded $6.95 billion, an 8% increase over 1997. The average ticket
price for 1998 was $4.69, an increase of 2% over 1997.
Exhibitors' primary revenues are derived from box office sales of tickets
and sales of concession products. Box office revenues are directly related to:
. attendance, which is driven by the quality of the movie-going experience,
including the comfort, cleanliness and convenience of the location of
theatres,
. the content and quality of film product distributed by major motion
picture and independent film studios,
. the ticket price,
. the quality of projection and sound presentation and
. the level of customer service.
Exhibitors sell concessions, which consist of food and beverages, at stands
in the theatres, and the revenues they generate are largely dependent on
attendance levels, theatre staffing, training and the type and quality of
products offered.
Exhibitors' primary operating costs include:
. film costs for licensing rights paid to motion picture distributors,
. costs of concession products,
.labor,
. theatre rents,
.occupancy costs,
. real estate taxes, and
. advertising.
.Relationship Between Motion Picture Production and Distribution and Motion
Picture Exhibition. The motion picture exhibition and the motion picture
production and distribution industries are closely related. Motion picture
theatres are the primary initial distribution channel for new motion picture
releases. Theatrical success of a motion picture is often the most important
factor in establishing its value in cable television, pay-per-view,
videocassette and other markets. At the same time, the ultimate success of an
exhibitor's box office depends on the quality, quantity, availability and
acceptance by movie-going patrons of the motion pictures produced by
production companies and licensed to the motion picture exhibitors by
distribution companies.
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<PAGE>
A few major movie studios and their distribution operations dominate the
motion picture production and distribution industry in the U.S. These include:
. Columbia and TriStar, both owned by Sony,
. Universal, which is approximately 92% owned by Seagram,
. The Walt Disney Company,
. Warner Bros., which is owned by Time-Warner Inc.,
. Paramount Pictures, which is owned by Viacom Inc.,
. Twentieth Century-Fox, which is owned by News Corporation Ltd. and
. Metro-Goldwyn-Mayer Inc.
Based on box office receipts, these studios account for approximately 90% of
the motion pictures exhibited in the U.S.
. Film Licensing. In order to secure motion pictures, exhibitors must engage
in negotiations with film distributors for licensing rights of first run
feature motion pictures. Exhibitors and distributors conduct negotiations on a
film-by-film and theatre-by-theatre basis. Film exhibition licenses typically
specify rental fees based upon gross receipts or on theatre admissions. Under
gross receipts arrangements, the distributor receives a specified percentage of
box office receipts, with the percentage declining over the term of the run.
Based upon a theatre admissions formula, the distributor receives a specified
percentage of the excess of box office receipts over an agreed upon house
operating expense.
If there are multiple exhibitors in a film zone, a distributor may require
the exhibitors in a zone to bid for a film or may allocate its films among
them. When films are allocated, a distributor will choose which exhibitor is
offered a film and the exhibitor will negotiate film rental terms directly with
the distributor. Over the past several years, distributors have generally
favored the allocation over the bidding process to license their films.
Segment Information
See Note 13 to our Consolidated Financial Statements included in the 1999
Annual Report to Stockholders which is incorporated by reference.
Seasonality
The release of motion pictures is often seasonal, with a disproportionate
number of major motion picture releases taking place during the summer and
holiday seasons. This may cause significant changes, from quarter to quarter,
in our attendance levels, theatre staffing levels and reported results. We
expect this industry-wide trend to continue.
Government Regulation
In the United States, federal and state antitrust laws in large part
regulate the distribution of motion pictures. These laws have been the subject
of numerous antitrust cases. The most significant of these cases is U.S. v.
Paramount Pictures Inc., et al., which was affirmed by the U.S. Supreme Court
in 1950. The decision from the Paramount case binds most major film
distributors and requires the distributors to offer and license their films to
exhibitors on a film-by-film and theatre-by-theatre basis. Consequently, we
cannot be assured of a supply of motion pictures by entering into long-term
arrangements with major distributors. Instead, we must compete and negotiate
for licenses on a film-by-film and theatre-by-theatre basis.
The Americans with Disabilities Act ("ADA") and some state statutes and
local ordinances require places of public accommodation, including existing and
newly constructed theatres, to be accessible to, and have assistive listening
devices available for use by, patrons with disabilities. The ADA may require us
to modify some existing theatres to make the theatres accessible to theatre
patrons and employees who are disabled. The ADA requires theatres to be built
to permit persons with disabilities full use of the theatre and its facilities
and reasonable access to work stations. We have established a program to review
and evaluate our U.S. theatres and to make changes that may be required. The
Disability Rights Council of Greater Washington and others have alleged that
certain theatres in the pre-existing Cineplex Odeon circuit are not in
compliance with the ADA. Additional information relating to these claims
appears under the heading "Legal Proceedings" below.
Motion picture exhibitors are also subject to certain U.S. and Canadian
federal, state, provincial and local laws governing such matters as
12
<PAGE>
construction, renovation and operation of their theatres, employee wages and
working conditions, health and sanitation regulations. We believe all of our
theatres are in compliance with these requirements.
Employees
As of February 28, 1999, we employed approximately 16,000 employees,
including approximately 2,000 full-time and 14,000 part-time employees. Our
employment levels are generally directly related to seasonal changes in
business activity. We are a party to collective bargaining agreements with 33
unions, of which approximately 1,700 employees are members. We believe that our
employee relations are generally good.
Year 2000
The Year 2000 issue is a result of computer programs being written using two
digits rather than four to define a specific year. Absent corrective actions, a
computer program that has date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. The inability to recognize or
properly treat the year 2000 may cause systems to process financial and
operations information incorrectly.
We recognized this challenge early and began work on remediation and overall
upgrades to all information systems several years ago. We have largely
completed remediation of our systems to meet business continuity concerns
throughout the Loews Theatre circuit and at its corporate offices. As a result
of the Combination with Cineplex Odeon we have found that the point-of-sale
systems at several of the Cineplex Odeon theatres and within our Yelmo Cineplex
joint venture may not be year 2000 compliant. Our management and information
systems department are currently evaluating these systems and will take the
necessary action to mitigate all Year 2000 concerns. Completion of the
necessary remediation on these systems is ongoing, and expected to be completed
by the end of our fiscal third quarter. We will also formulate a contingency
plan to address any potential Year 2000 issues that may arise.
The ongoing maintenance and upgrades of our information systems have largely
addressed any significant Year 2000 issues. Due to these significant upgrades
and investments in information systems over the past several years, total costs
incurred to date directly related to the remedy of the Year 2000 issues have
been minimal and the identifiable costs associated with the remaining Year 2000
conversion activities including our non-information technology related systems
are not expected to be significant.
In addition, it is currently unknown whether vendors and other third parties
with whom we conduct business will successfully address the Year 2000 issue
with respect to their own computer software. However, we are working with our
major vendors and other third parties to identify and address Year 2000 issues.
If our present efforts to address the Year 2000 issue are not successful, or if
vendors and other third parties whom we conduct business do not successfully
address the Year 2000 issue, our business and financial condition could be
adversely affected.
Cautionary Notice Regarding Forward Looking Statements
This Form 10-K 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-K may constitute
forward-looking statements. Although we believe that the expectations reflected
in such forward looking statements are reasonable, we cannot be assured that
the expectations will prove to be correct. Important factors that could cause
results to differ materially from our expectations are disclosed below. All
forward-looking statements are expressly qualified in their entirety by these
cautionary statements.
Factors That May Affect Future Performance
In addition to other factors and matters previously mentioned, in our view,
the following items could cause results to differ materially from those
discussed in forward-looking statements:
. the effect of economic conditions on a national, regional or
international basis;
. competitive pressures in the motion picture exhibition industry;
. the financial resources of, and films available to, our competitors;
. changes in laws and regulations, including changes in accounting
standards;
13
<PAGE>
. our high debt levels, which may reduce our operating flexibility, may
impair our ability to obtain financing and may make us more vulnerable in
a downturn;
. our ability to execute successfully our foreign expansion plans;
. the interests of our two major stockholders, Sony Pictures and Universal,
each of which produces and distributes motion pictures; and
. opportunities that may be presented to and pursued by us.
ITEM 2. PROPERTIES
At February 28, 1999, Loews Cineplex, including Star, Magic Johnson and
Yelmo Cineplex theatres, operated or had interests in 2,881 screens in 423
theatres, of which 50 theatres were owned by us, 368 theatres were leased and 5
theatres were subject to management arrangements. Our leases are entered into
on a long-term basis. The lease terms generally range from 20 to 40 years and
contain certain various renewal options, generally in intervals of 5 to 10
years. Theatre leases provide for the payment of a fixed annual rent and,
sometimes, a percentage of box office receipts or total theatre revenue. The
following tables show the locations of our screens at February 28, 1999,
including our partnerships' theatres.
<TABLE>
<CAPTION>
United States
- --------------------------------------------------------------------------------
State Screens Locations
- -------------------------------------------------------------- ------- ---------
<S> <C> <C>
Arizona....................................................... 33 4
California.................................................... 64 8
Connecticut................................................... 21 4
District of Columbia.......................................... 33 10
Florida....................................................... 7 1
Georgia....................................................... 12 1
Idaho......................................................... 21 5
Illinois...................................................... 337 56
Indiana....................................................... 54 6
Kentucky...................................................... 9 2
Maryland...................................................... 153 23
Massachusetts................................................. 93 10
Michigan...................................................... 113 9
Minnesota..................................................... 25 5
New Hampshire................................................. 12 2
New Jersey.................................................... 212 21
New York...................................................... 272 45
Ohio.......................................................... 15 2
Pennsylvania.................................................. 7 1
Texas......................................................... 201 24
Utah.......................................................... 62 11
Virginia...................................................... 49 8
Washington.................................................... 120 18
----- ---
Total....................................................... 1,925 276
===== ===
<CAPTION>
Canada
- --------------------------------------------------------------------------------
Province Screens Locations
- -------------------------------------------------------------- ------- ---------
<S> <C> <C>
Alberta....................................................... 135 20
British Columbia.............................................. 65 12
Manitoba...................................................... 13 3
Ontario....................................................... 381 59
Quebec........................................................ 216 34
Saskatchewan.................................................. 27 4
----- ---
Total....................................................... 837 132
===== ===
</TABLE>
<TABLE>
<CAPTION>
International
- --------------------------------------------------------------------------------
Country Screens Locations
- -------------------------------------------------------------- ------- ---------
<S> <C> <C>
Spain......................................................... 108 13
Hungary....................................................... 6 1
Turkey........................................................ 5 1
----- ---
Total....................................................... 119 15
----- ---
Grand Total................................................. 2,881 423
===== ===
</TABLE>
Under the partnership agreement governing the operation of the Star Theatres
circuit, we are responsible for film booking arrangements. Our joint venture
partner manages the theatres under an operating agreement. The partnership
agreement also has provisions governing the transfer of partnership interests
between the partners and to unaffiliated third parties.
Under the partnership agreement governing the operation of the Magic Johnson
Theatres circuit, we are responsible for film booking arrangements and
management of the theatres. This agreement also has provisions governing the
transfer of partnership interests between the partners and to unaffiliated
third parties.
ITEM 3. LEGAL PROCEEDINGS
We are involved in routine litigation and legal proceedings in the ordinary
course of our business relating to personal injury claims, employment matters
and contractual disputes. Except for those noted below, we do not have any
litigation or proceedings that we believe will have a material adverse effect
on us, individually or in the aggregate.
14
<PAGE>
Antitrust Proceedings
On April 16, 1998, the United States of America, the State of New York, by
and through its Attorney General, Dennis C. Vacco, and the State of Illinois,
by and through its Attorney General, Jim Ryan, on one hand, and us, Sony
Corporation of America, Cineplex Odeon and Seagram Co. Ltd., on the other hand,
entered into, and the Southern District of New York ordered, a Stipulation &
Order setting forth a proposed Final Judgment relating to alleged federal
antitrust violations in New York and Illinois stemming from the Loews/Cineplex
combination. This Stipulation & Order followed the filing of a complaint on the
same day relating to these alleged violations. Under the terms of the
agreement, we were required to divest certain theatres in New York and Chicago.
During fiscal 1999, we pursued the sale of certain theatres in New York City
and Chicago that were subject to approval by the Department of Justice ("DOJ"),
in accordance with the terms of an agreement reached to permit the Combination.
As a result, during the fourth quarter we sold to Cablevision Systems
Corporation 33 screens in 12 theatres in New York City, in accordance with the
DOJ order, and an additional 14 screens in 4 theatres in the suburban New York
area for aggregate cash proceeds of $87.5 million. A substantial portion of
these proceeds were used to pay down our Senior Revolving Credit Facility.
Under the agreement with the DOJ, we were also required to sell 49 screens
at 11 theatre locations in Chicago. On April 7, 1999, we completed the sale of
30 screens at 8 of these theatre locations to a third party. The sale of these
theatres will not have a significant impact on our operating results or
financial position. Additionally, under the agreement with the DOJ, we are
required to sell the remaining 19 screens at 3 theatre locations in Chicago. We
are investigating several options in order to comply with the requirements of
the agreement with the DOJ.
Environmental Proceedings
We own, manage and/or operate theatres and other properties that are subject
to certain U.S. and Canadian federal, state and local laws and regulations
relating 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. Some of these laws and
regulations may impose joint and several liability on statutory classes of
persons for the costs of investigation or remediation of 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 or disposed of hazardous substances found at the
property.
Two of our leased drive-in theatres in the State of Illinois are located on
properties on which third parties disposed of substantial quantities of auto
shredder residue and other debris which may contain hazardous substances. With
respect to the site located in Cicero, Illinois, we have 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 that we caused or allowed the disposal of 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. We cannot precisely estimate our liability at this time due to
unknown factors, including the scope of contamination at the theatre property,
the allocation of liability to other responsible parties and the ability of
other parties to satisfy their share of liability. We will continue to evaluate
future information and developments regarding conditions at the property and
will periodically reassess any liability accordingly. We cannot guarantee,
however, that our liability in connection with this action will not be
material.
Six West Retail Acquisition, Inc.
On July 24, 1997, Six West Retail Acquisition, Inc., a real estate
development company, initiated a lawsuit against us and some of our affiliates
in the U.S. District Court for the Southern District of New York, seeking
injunctive relief and unspecified monetary damages. Six West alleges that we
have violated federal antitrust laws by engaging in block booking agreements
and monopolizing the motion picture exhibition market in New York City. Six
West owns or leases the Paris and New York Twin
15
<PAGE>
theatres in Manhattan. The Paris theatre was managed by one of our subsidiaries
under an oral management agreement that has been terminated. The New York Twin
theatre is managed by one of our subsidiaries under a written management
agreement. Six West also alleges that we violated our contractual and fiduciary
responsibilities in managing the two theatres. On December 3, 1997, Six West
filed an amended complaint asserting similar claims with respect to the
Festival Theatre which was operated by one of our subsidiaries until it was
closed in 1994. All of the defendants moved to dismiss the amended complaint by
motion dated January 8, 1998. The court has not yet rendered a decision on the
motion to dismiss. The parties have commenced document production and discovery
proceedings. We believe that Six West's claims are without merit and intend to
oppose them vigorously.
ADA Litigation
On or about December 17, 1997, the Disability Rights Council of Greater
Washington and others commenced a lawsuit in the U.S. District Court for the
District of Columbia against Cineplex Odeon and its wholly owned subsidiary
Plitt Theatres, Inc. The complaint alleges that Cineplex Odeon's theatres in
the Washington D.C. metropolitan area, which includes Maryland and Virginia,
deny persons with physical disabilities full and equal enjoyment of theatres as
a result of architectural and structural barriers. Furthermore, as a
consequence, they allege that Cineplex Odeon and Plitt are discriminating
against such persons in violation of the ADA and, where applicable, the
District of Columbia Human Rights Act. The plaintiffs are seeking a judgment
with injunctive relief ordering Cineplex Odeon and Plitt to cease their alleged
violation of the ADA, and to bring their facilities into compliance with the
statutes. They also seek compensatory and punitive or exemplary damages in an
unknown amount, in addition to costs and attorneys' fees. We intend to defend
this claim vigorously.
The Department of Justice, in coordination with the New York City Commission
on Human Rights, is currently investigating Cineplex Odeon's theatres in New
York City with respect to its compliance with the ADA and the New York City
Human Rights Law. The Department of Justice has alleged that its investigation
has identified numerous violations of the ADA. The Company has opposed, and
will continue to vigorously oppose the allegations and claims of the Department
of Justice with respect to the compliance of these theatres under the ADA.
However, the Company cannot guarantee that the remediation costs relating to
the ADA will not be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
Not applicable.
16
<PAGE>
EXECUTIVE OFFICERS OF LOEWS CINEPLEX
The following executive officers of Loews Cineplex hold the offices
indicated until their successors are chosen and qualified.
Name, Age and Position Position, Principal Occupation, Business
with Loews Cineplex Experience and Directorships
Lawrence J. Ruisi........... 51 Mr. Ruisi has been President and Chief
Executive Officer of Loews Cineplex since
. President May 1998. Mr. Ruisi was President of Sony
. Chief Executive Officer Retail Entertainment Inc. from September
. Director 1994 until May 1998. Mr. Ruisi also served
since May 1998 as Executive Vice President of Sony
Pictures from 1990 through May 1998. In
these capacities, Mr. Ruisi was responsible
for oversight of Sony Pictures' theatrical
exhibition group, including the Loews
Theatres, Star Theatres and Magic Johnson
Theatres circuits.
Allen Karp.................. 58 Mr. Karp has served as Chairman and Chief
Executive Officer of Cineplex Odeon Canada
. Chairman and CEO of since May 1998. From May 1993 until May
Cineplex Odeon Canada 1998, Mr. Karp served as President and
. Director Chief Executive Officer of Cineplex Odeon
since May 1998 Corporation.
Travis Reid................. 45 Mr. Reid has served as President of Loews
Theatres from October 1996 until May 1998
. President, U.S. Operations and, for the preceding year, served as
since May 1998 Executive Vice President-Film Buying of
Loews Theatres. As Executive Vice President
of Loews Theatres, Mr. Reid was involved in
all aspects of the circuit's strategic
planning, corporate development and
expansion. For the three years prior to
1995, Mr. Reid served as Senior Vice
President of Film. Prior to joining Loews
Theatres in 1991, Mr. Reid served as Vice
President of Film for General Cinema's
Midwestern, Southwestern and Western
regions.
J. Edward Shugrue........... 49 Mr. Shugrue served as a senior corporate
executive of Sony Pictures' Corporate
. President, Loews Cineplex Development Group, from 1996 until June
International 1998, where he was responsible for
since June 1998 identifying and developing growth
opportunities for Sony Pictures in
international markets. From 1987 to 1996,
Mr. Shugrue served as President of Columbia
TriStar Film Distributors International,
the international theatrical arm of Sony
Pictures.
John J. Walker.............. 46 Mr. Walker served as Senior Vice President
and Chief Financial Officer of Loews
. Senior Vice President, Theatres, from 1990 until May 1998. From
Chief Financial Officer 1988 to 1990, Mr. Walker served as Vice
. Treasurer President-Controller of Loews Theatres. Mr.
since May 1998 Walker is responsible for overseeing all
aspects of financial reporting, budgeting,
internal auditing, management information
systems, treasury, risk management and
insurance. Mr. Walker is a certified public
accountant and is a member of the American
Institute of Certified Public Accountants
and the New York State Society of Certified
Public Accountants.
17
<PAGE>
Name, Age and Position Position, Principal Occupation, Business
with Loews Cineplex Experience and Directorships
John C. McBride, Jr. ....... 43 Mr. McBride served as Senior Vice President
Legal Affairs of Sony Pictures, from 1996
. Senior Vice President, to 1998. From 1992 to 1996, Mr. McBride
General Counsel served as Vice President, Legal Affairs of
since May 1998 Sony Pictures. From 1990 to 1992, Mr.
McBride served as Assistant General Counsel
of Sony Pictures.
Joseph Sparacio............. 39 Mr. Sparacio served as Vice President of
Finance and Controller of Loews Theatres,
. Vice President, Finance from 1994 to May 1998. From 1990 to 1994,
and Controller Mr. Sparacio served as Controller of Loews
since May 1998 Theatres. Prior to joining Loews Theatres,
Mr. Sparacio spent eight years with the New
York City office of the independent
accounting firm of Ernst & Young where he
was a Senior Manager of Audit. Mr. Sparacio
is a certified public accountant and is a
member of the American Institute of
Certified Public Accountants and the New
York State Society of Certified Public
Accountants.
Mindy Tucker................ 39 Ms. Tucker served as Senior Vice President
of Development and Planning for Sony Retail
. Corporate Vice President, Entertainment, from 1996 to May 1998. From
Strategic Planning 1994 to 1996, Ms. Tucker served as Vice
. Secretary President of Business Development for Sony
since May 1998 Retail Entertainment. From 1992 to 1994,
Ms. Tucker served as Vice President of
Corporate Strategy and Planning of Sony
Pictures.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the New York and Toronto Stock Exchanges. As
of May 15, 1999 there were approximately 13,400 holders of record of our Common
Stock. Additional information required by this item is incorporated by
reference from page 60 of the 1999 Annual Report to Stockholders.
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data and selected key operating statistics
for the five years ended February 28, 1999, which appear on pages 32 to 34 of
the 1999 Annual Report to Stockholders, is incorporated by reference to this
Form 10-K Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the three years ended February 28, 1999, which appear on pages
35 to 40 of the 1999 Annual Report to Stockholders, is incorporated by
reference to this Form 10-K Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Loews Cineplex has limited exposure to financial market risks, including
changes in interest rates, movement in foreign currency exchange rates and
other relevant market prices.
An increase or decrease in interest rates would affect interest costs
relating to our variable rate senior credit facilities. However, a portion of
these
18
<PAGE>
facilities are hedged through interest rate swap agreements. At February 28,
1999, the amount outstanding under our senior revolving credit facility was
$378 million and the notional amount of our interest rate hedges was $250
million. These amounts approximate fair value. The senior credit facility has a
five year term with interest priced at the bank base rate or LIBOR, at our
option. The weighted average interest rate as of February 28, 1999 was 6.42%.
Generally, there is no required amortization of this credit facility prior to
maturity. Our swaps have a four year term.
We are exposed to market risk arising from changes in foreign currency
exchange rates as a result of international operations. See Item 7--
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing on pages 35 to 40 of the Fiscal 1999 Annual Report to
Stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements together with the report thereon of
PricewaterhouseCoopers LLP dated April 30, 1999, appearing on pages 41 to 59 of
the 1999 Annual Report to Stockholders are incorporated by reference in this
Form 10-K Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors of Loews Cineplex is contained in, and
incorporated by reference from, our Proxy Statement for the 1999 Annual Meeting
of Stockholders. The balance of the response to this item is contained in the
discussion entitled Executive Officers of Loews Cineplex in Part I of this
report.
ITEM 11. EXECUTIVE COMPENSATION
Information about executive compensation is incorporated by reference from
the discussion under the heading Executive Compensation in our Proxy Statement
for the 1999 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information about security ownership of certain beneficial owners and
management is incorporated by reference from the discussion under the heading
Stock Ownership and Stockholders Agreement in our Proxy Statement for the 1999
Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information about certain relationships and transactions with related
parties is incorporated by reference from the discussion under the heading
Related Transactions and Stockholders Agreement in our Proxy Statement for the
1999 Annual Meeting of Stockholders.
19
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
<TABLE>
<CAPTION>
Page(s) in Annual Report*
-------------------------
<S> <C>
Consolidated Balance Sheet at February 28, 1999 and
1998.............................................. 41
Consolidated Statement of Operations for the years
ended February 28, 1999, 1998 and 1997............ 42
Consolidated Statement of Changes in Stockholders'
Equity for the years ended February 28, 1999, 1998
and 1997.......................................... 43
Consolidated Statement of Cash Flows for the years
ended February 28, 1999, 1998 and 1997............ 44
Notes to Consolidated Financial Statements......... 45 to 58
Report of Independent Accountants.................. 59
<CAPTION>
Page(s) in the
Registration Statement on
Form S-4**
-------------------------
<S> <C>
Cineplex Odeon Corporation:
Independent Auditors' Report....................... F-37
Consolidated Balance Sheet at December 31, 1997 and
1996.............................................. F-38
Consolidated Income Statement for the years ended
December 31, 1997, 1996 and 1995.................. F-39
Consolidated Statement of Changes in Cash Resources
for the years ended December 31, 1997 and 1996.... F-40
Consolidated Statement of Changes in Shareholders'
Equity for the years ended December 31, 1997 and
1996.............................................. F-41
Notes to Consolidated Financial Statements......... F-42 to F-53
<CAPTION>
Page(s) in the
Registration Statement on
Form S-4**
-------------------------
<S> <C>
Cineplex Odeon Corporation:
(Unaudited) Consolidated Balance Sheet March 31,
1998.............................................. F-54
(Unaudited) Consolidated Income Statement for the
three months ended March 31, 1998 and 1997........ F-55
(Unaudited) Consolidated Statement of Changes in
Cash Resources for the three months ended March
31, 1998 and 1997................................. F-56
(Unaudited) Notes to Consolidated Financial
Statements........................................ F-57 to F-58
</TABLE>
<TABLE>
<S> <C>
(2) Financial Statement Schedule:
Report of Independent Accountants on the Financial Statement Schedule.
For each of the three years in the period ended February 28, 1999
I. Valuation and Qualifying Accounts
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
--------
* Incorporated by reference from the indicated pages of the 1999 Annual
Report to Stockholders.
** Incorporated by reference from our Registration Statement on Form S-4
filed on October 13, 1999 (Commission file number 333-64883).
20
<PAGE>
(3)Exhibits:
<TABLE>
<C> <C> <S>
2.1 (1) Amended and Restated Master Agreement among Sony Pictures
Entertainment Inc., Registrant and Cineplex Odeon Corporation
dated as of September 30, 1997.
2.2 (3) Amending 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 (3) Amended and Restated Certificate of Incorporation of Registrant.
3.2 (4) Amended and Restated By-laws of Registrant.
10.1 (1) Amended and Restated Stockholders Agreement among Registrant, Sony
Pictures Entertainment Inc., Universal Studios, Inc., The Charles
Rosner Bronfman Family Trust and Other Parties thereto dated as of
September 30, 1997.
10.2 (3) Tax Sharing and Indemnity Agreement, dated May 14, 1998, by and
among Registrant and Sony Corporation of America.
10.3 (3) Sony Trademark Agreement, dated May 14, 1998, by and among
Registrant and Sony Corporation of America.
10.4 (3) Transition Services Agreement, dated May 14, 1998, among
Registrant, Sony Corporation of America and Sony Pictures
Entertainment, Inc.
10.5 (3) 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 SEC
under an application for confidential treatment pursuant to Rule
83 of the SEC Rules on Organization, Conduct and Ethics, and
Information and Regulation (17 CFR (S)
200.83)).
10.6 (3) 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 (3) 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 (5) Indenture, dated as of August 5, 1998, by and among Registrant and
Bankers Trust Company, as Trustee.
10.11 (3) Employment Agreement between Registrant and Lawrence J. Ruisi.
10.12 (2) Employment Agreement between Cineplex Odeon Corporation and Allen
Karp.
10.13 (4) Amended and Restated Employment Agreement between Cineplex Odeon
Corporation and Allen Karp, dated November 28, 1997.
10.14 (3) Assumption dated May 14, 1998 of Allen Karp Employment Agreement
by Registrant.
10.15 (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.
10.16 (1) Agreement between Registrant and Travis Reid, dated October 21,
1995.
10.17 (1) Agreement between Registrant and Joseph Sparacio, dated August 20,
1994, including Term Extension Letter dated March 5, 1997.
10.18 (1) Agreement between Registrant and John J. Walker, dated June 1,
1993, including Term Extension Letter dated March 5, 1997.
10.19 (1) Letter Agreement between Registrant and John C. McBride, Jr.,
dated November 17, 1997.
10.20 (1) Letter Agreement between Registrant and Mindy Tucker, dated
December 15, 1997.
</TABLE>
21
<PAGE>
<TABLE>
<C> <C> <S>
10.21 (4) Letter Agreement between Registrant and J. Edward Shugrue, dated
December 15, 1997.
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of KPMG LLP
27.1 Financial Data Schedule (for SEC use only)
99 Financial Statement Schedule
</TABLE>
--------
(1) Incorporated by reference from Loews Cineplex's Registration Statement
on Form S-4 filed on February 13, 1998, Commission file number 333-
46313.
(2) Incorporated by reference from Cineplex Odeon's Annual Report on Form
10-K for the fiscal year ended December 31, 1996, Commission file
number 1-9454.
(3) Incorporated by reference from Loews Cineplex's Annual Report on Form
10-K for the fiscal year ended February 28, 1998, as amended,
Commission file number 1-14099.
(4) Incorporated by reference from Loews Cineplex's Registration Statement
on Form S-1 filed on June 15, 1998, as amended, Commission file number
333-56897.
(5) Incorporated by reference from Loews Cineplex's Registration Statement
on Form S-4 filed on October 13, 1998, Commission file number 333-
64883.
(b) Form 8-K: No reports on Form 8-K were filed by Registrant during the
quarter ended February 28, 1999.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 (Registrant)
Dated: May 26, 1999
/s/ John C. McBride, Jr.
-------------------------------------
John C. McBride, Jr. Senior Vice
President and General Counsel
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
Signatures Title
Date
/s/ Lawrence J. Ruisi President, Chief May 26, 1999
- ------------------------------------- Executive Officer
Lawrence J. Ruisi and Director
(Principal
Executive Officer)
/s/ John J. Walker Senior Vice May 26, 1999
- ------------------------------------- President and
John J. Walker Chief Financial
Officer and
Treasurer
(Principal
Financial Officer)
/s/ Joseph Sparacio Vice President May 26, 1999
- ------------------------------------- Finance, and
Joseph Sparacio Controller
(Principal
Accounting
Officer)
/s/ George A. Cohon Director May 26, 1999
- -------------------------------------
George A. Cohon
/s/ Nora Ephron Director May 26, 1999
- -------------------------------------
Nora Ephron
/s/ Marinus N. Henny Director May 26, 1999
- -------------------------------------
Marinus N. Henny
/s/ Ronald N. Jacobi Director May 26, 1999
- -------------------------------------
Ronald N. Jacobi
</TABLE>
23
<PAGE>
<TABLE>
<S> <C>
Signatures Title
Date
/s/ Allen Karp Director May 26, 1999
- -------------------------------------
Allen Karp
/s/ Ernest Leo Kolber Director May 26, 1999
- -------------------------------------
Ernest Leo Kolber
Director
- -------------------------------------
Kenneth Lemberger
/s/ Ron Meyer Director May 26, 1999
- -------------------------------------
Ron Meyer
/s/ Brian C. Mulligan Director May 26, 1999
- -------------------------------------
Brian C. Mulligan
/s/ Yuki Nozoe Director May 26, 1999
- -------------------------------------
Yuki Nozoe
/s/ Karen Randall Director May 26, 1999
- -------------------------------------
Karen Randall
/s/ Hellene Runtagh Director May 26, 1999
- -------------------------------------
Hellene Runtagh
/s/ Howard Stringer Director May 26, 1999
- -------------------------------------
Howard Stringer
/s/ Robert Wynnne Director May 26, 1999
- -------------------------------------
Robert Wynne
/s/ Mortimer Zuckerman Director May 26, 1999
- -------------------------------------
Mortimer Zuckerman
</TABLE>
24
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth Selected Historical Financial Data for Loews
Cineplex Entertainment Corporation ("we," "us" and "our") for the five fiscal
years ended February 28, 1999 and has been derived from our annual consolidated
financial statements. The Selected Historical Financial Data and Selected Key
Operating Statistics should be read in conjunction with the separate
consolidated financial statements and notes thereto of Loews Cineplex
Entertainment Corporation and our "Management's Discussion and Analysis of
Financial Condition and Results of Operations," which are included elsewhere in
this annual report. Further, the Selected Historical Financial Data includes the
financial results of Cineplex Odeon Corporation ("Cineplex Odeon") for the
period from May 15, 1998 to February 28, 1999. Cineplex Odeon became our
subsidiary on May 14, 1998.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 28 OR 29,
- -------------------------------------------------------------------------------------------------------------------------------
(in thousands, except share data) 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
- -------------------------------------------------------------------------------------------------------------------------------
Box Office $ 587,078 $ 296,933 $ 273,498 $ 264,585 $ 255,392
- -------------------------------------------------------------------------------------------------------------------------------
Concession 228,332 104,009 90,643 84,358 79,287
- -------------------------------------------------------------------------------------------------------------------------------
Other 35,750 12,568 11,204 10,153 8,656
- -------------------------------------------------------------------------------------------------------------------------------
Total operating revenue 851,160 413,510 375,345 359,096 343,335
- -------------------------------------------------------------------------------------------------------------------------------
Theatre operations and other expenses
(including concession costs) 654,503 307,568 282,480 277,375 268,236
- -------------------------------------------------------------------------------------------------------------------------------
General and administrative 47,882 28,917 21,447 20,282 18,753
- -------------------------------------------------------------------------------------------------------------------------------
Subtotal 148,775 77,025 71,418 61,439 56,346
- -------------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization 90,720 52,307 44,576 41,273 38,572
- -------------------------------------------------------------------------------------------------------------------------------
Loss on sale/disposals of theatres 4,532 7,787 9,951 7,249 13,420
- -------------------------------------------------------------------------------------------------------------------------------
Interest expense 57,216 14,319 14,776 15,376 10,613
- -------------------------------------------------------------------------------------------------------------------------------
Income tax expense/(benefit) 2,187 2,751 2,295 309 (1,337)
- -------------------------------------------------------------------------------------------------------------------------------
Net loss $ (5,880) $ (139) $ (180) $ (2,768) $ (4,922)
- -------------------------------------------------------------------------------------------------------------------------------
Loss per common share:
basic and diluted $ (.12) $ (.01) $ (.01) $ (.14) $ (.24)
- -------------------------------------------------------------------------------------------------------------------------------
Weighted average shares and
equivalent outstanding(A):
Basic 47,834,541 20,472,807 20,472,807 20,472,807 20,472,807
- -------------------------------------------------------------------------------------------------------------------------------
Diluted 47,834,541 20,924,890 20,472,807 20,472,807 20,472,807
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA (AT PERIOD END):
- -------------------------------------------------------------------------------------------------------------------------------
Cash, equivalents and investments $ 48,174 $ 9,064 $ 2,160 $ 2,390 $ 4,759
- -------------------------------------------------------------------------------------------------------------------------------
Property, equipment and leaseholds $ 1,119,977 $ 609,152 $ 613,692 $ 602,435 $ 605,982
- -------------------------------------------------------------------------------------------------------------------------------
Total assets $ 1,806,201 $ 728,551 $ 721,372 $ 715,810 $ 723,108
- -------------------------------------------------------------------------------------------------------------------------------
Total long-term obligations (including
debt) $ 943,811 $ 336,526 $ 339,206 $ 333,268 $ 347,783
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities $ 1,140,905 $ 404,040 $ 396,722 $ 390,980 $ 395,510
- -------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity $ 665,296 $ 324,511 $ 324,650 $ 324,830 $ 327,598
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
CASH FLOW STATEMENT DATA:
- -------------------------------------------------------------------------------------------------------------------------------
Cash flow provided by operating
activities $ 82,711 $ 64,185 $ 47,976 $ 46,326 $ 36,188
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Restated in all periods presented to reflect impact of a stock dividend
declared on February 5, 1998.
32
<PAGE>
SELECTED KEY OPERATING STATISTICS
The table below sets forth unaudited Selected Key Operating Statistics for us as
of and for each of the periods indicated. Management views these statistics as
key financial measures and believes that certain investors find them useful in
analyzing companies in the motion picture exhibition industry. No one measure is
more meaningful than another, and our management uses these measures
collectively to assess operating performance. In order to arrive at a more
meaningful presentation of financial operating data related to our productivity
and performance, except as otherwise noted, all amounts below include 100% of
the operating results of the Loeks-Star Theatres ("LST"), the Magic Johnson
Theatres ("MJT") and the Yelmo Cineplex de Espana ("Yelmo") partnerships in
which we have a 50% interest. Further, the Selected Key Operating Statistics
include data for Cineplex Odeon for the period from May 15, 1998 to February 28,
1999. Cineplex Odeon became our subsidiary on May 14, 1998.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 28 OR 29, (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except locations,
screens, and per patron data) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
- ------------------------------------------------------------------------------------------------------------------------------------
Locations operated at period end 423 139 143 154 180
- ------------------------------------------------------------------------------------------------------------------------------------
Screens operated at period end 2,881 1,035 959 950 1,030
- ------------------------------------------------------------------------------------------------------------------------------------
Screens per location 6.8 7.4 6.7 6.2 5.7
- ------------------------------------------------------------------------------------------------------------------------------------
Attendance 126,605 58,387 53,133 53,544 52,656
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenues $ 947,401 $ 480,437 $ 421,613 $ 400,412 $ 377,171
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues per screen(1) $ 389.84 $ 464.19 $ 439.64 $ 421.49 $ 366.19
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues per location(1) $2,554.45 $3,456.38 $2,948.34 $2,600.08 $2,095.39
- ------------------------------------------------------------------------------------------------------------------------------------
EBITDA(2) $ 144,243 $ 69,238 $ 61,467 $ 54,190 $ 42,926
- ------------------------------------------------------------------------------------------------------------------------------------
Total EBITDA(3) $ 163,166 $ 86,643 $ 78,273 $ 68,177 $ 62,540
- ------------------------------------------------------------------------------------------------------------------------------------
Partners' share of Total EBITDA $ 8,538 $ 6,339 $ 4,853 $ 4,800 $ 4,287
- ------------------------------------------------------------------------------------------------------------------------------------
Attributable EBITDA(3) $ 154,628 $ 80,304 $ 73,420 $ 63,377 $ 58,253
- ------------------------------------------------------------------------------------------------------------------------------------
Total EBITDA per screen(1) $ 67.12 $ 83.71 $ 81.62 $ 71.77 $ 60.72
- ------------------------------------------------------------------------------------------------------------------------------------
Total EBITDA per location(1) $ 439.80 $ 623.33 $ 547.36 $ 442.71 $ 347.44
- ------------------------------------------------------------------------------------------------------------------------------------
Total EBITDA per patron $ 1.29 $ 1.48 $ 1.47 $ 1.27 $ 1.19
- ------------------------------------------------------------------------------------------------------------------------------------
Box Office revenue per patron $ 5.18 $ 5.91 $ 5.79 $ 5.52 $ 5.34
- ------------------------------------------------------------------------------------------------------------------------------------
Concession revenue per patron $ 2.03 $ 2.14 $ 1.98 $ 1.82 $ 1.70
- ------------------------------------------------------------------------------------------------------------------------------------
Concession margin 84.4% 84.5% 82.8% 80.9% 80.9%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of Total EBITDA to Total Revenue 17.2% 18.0% 18.6% 17.0% 16.6%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOW STATEMENT DATA(4):
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 82,711 $ 64,185 $ 47,976 $ 46,326 $ 36,188
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities $ (91,741) $ (51,439) $ (53,254) $ (34,690) $ (82,486)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided/(used) by financing
activities $ 48,140 $ (5,842) $ 5,048 $ (14,005) $ 46,359
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All per screen and location ratios are calculated based upon screens and
locations as of period end and include the LST, MJT and Yelmo
partnerships, except for fiscal year 1999 which are calculated using a
weighted average number of screens and locations. The use of weighted
average amounts in fiscal year 1999 is due to the inclusion of the
operations of Cineplex Odeon for the period from May 15, 1998 to February
28, 1999. Use of weighted average number of screens and locations for the
remaining historical data would not result in substantially different data
from the information presented.
(2) EBITDA consists of earnings before interest, income taxes, depreciation
and amortization, including equity earnings from investments in the LST,
MJT and Yelmo partnerships. EBITDA should not be construed as an
alternative to measuring operating results or cash flows under U.S. GAAP.
(3) Total EBITDA consists of EBITDA plus loss on sale/disposals of theatres
and 100% of the operating results of our partnerships. We believe that
Total EBITDA is an important measure, in addition to cash flow from
operations and EBITDA, in viewing our overall liquidity and borrowing
capacity.
33
<PAGE>
SELECTED KEY OPERATING STATISTICS
(continued)
(3) Continued
A reconciliation of EBITDA to Modified EBITDA, Total EBITDA and Attributable
EBITDA follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 28 OR 29, (UNAUDITED)
- ------------------------------------------------------------------------------------------------------
(in thousands) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EBITDA (as defined above) $144,243 $ 69,238 $ 61,467 $ 54,190 $ 42,926
- ------------------------------------------------------------------------------------------------------
ADD: Loss on sale/disposals of
theatres 4,532 7,787 9,951 7,249 13,420
- ------------------------------------------------------------------------------------------------------
Modified EBITDA, including
equity earnings 148,775 77,025 71,418 61,439 56,346
- ------------------------------------------------------------------------------------------------------
LESS: Equity earnings included
in EBITDA 2,685 3,060 2,851 2,862 2,380
- ------------------------------------------------------------------------------------------------------
ADD: EBITDA from partnerships 17,076 12,678 9,706 9,600 8,574
- ------------------------------------------------------------------------------------------------------
Total EBITDA 163,166 86,643 78,273 68,177 62,540
- ------------------------------------------------------------------------------------------------------
LESS: Partners' share of Total EBITDA 8,538 6,339 4,853 4,800 4,287
- ------------------------------------------------------------------------------------------------------
Attributable EBITDA $154,628 $ 80,304 $ 73,420 $ 63,377 $ 58,253
- ------------------------------------------------------------------------------------------------------
</TABLE>
(4) Cash flow statement data includes cash flows from long-term investments in
partnerships to the extent of our equity interests.
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
The following discussion of the Loews Cineplex Entertainment Corporation ("we,"
"us" and "our") financial condition and operating results should be read in
conjunction with the Selected Historical Financial Data and our audited
consolidated financial statements for the fiscal years ended February 28, 1999,
1998 and 1997. The information presented below includes the results of Cineplex
Odeon Corporation ("Cineplex Odeon"), which became our wholly owned subsidiary
as of May 14, 1998 (the "Combination"), for the period from May 15, 1998 through
February 28, 1999, and does not include any results prior to that time unless
otherwise noted. Where noted, pro forma results compare results for the nine
months ended February 28, 1999 to the nine months ended February 28, 1998 for
Cineplex Odeon.
This discussion incorporates operating results of partnerships in which we have
an interest to the extent of our equity share as required by the equity method
of accounting.
Results of Operations
- --------------------------------------------------------------------------------
FISCAL YEAR ENDED FEBRUARY 28, 1999 COMPARED TO FISCAL YEAR ENDED FEBRUARY 28,
1998
- --------------------------------------------------------------------------------
Operating Revenues of approximately $851.2 million for the fiscal year ended
February 28, 1999 were $437.7 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 fiscal year ended February 28,
1999 of approximately $587.1 million were $290.1 million higher, and concession
revenues of approximately $228.3 million were $124.3 million higher in
comparison to the fiscal year ended February 28, 1998. These increases in
operating revenues were due primarily to the inclusion of the Cineplex Odeon
theatre operating results for the period from May 15, 1998 to February 28, 1999,
additional revenue from new theatre openings and improvements in concession
revenue per patron, which were enhanced as a result of operating efficiencies
realized from the Combination. Excluding the impact of the Cineplex Odeon
operations, our operating revenues increased by $8.2 million, or 2%, due
primarily to new theatre openings, increases in box office revenue per patron of
$.06 and productivity improvements resulting in an increase in concession
revenue per patron of $.11. The operating revenues generated for the twelve
months ended February 28, 1999 included Cineplex Odeon operating revenues of
approximately $427 million for the period May 15, 1998 to February 28, 1999. The
operating revenues of $427 million generated by Cineplex Odeon include operating
efficiencies realized from the continuation of our concession programs
implemented throughout the Cineplex Odeon circuit, which resulted in a pro forma
increase in concession revenue per patron for the nine months of approximately
$.13 (excluding the effect of foreign currency fluctuations) over pro forma
prior year levels.
Operating Costs of approximately $654.5 million for the fiscal year ended
February 28, 1999 were approximately $346.9 million higher than for the fiscal
year ended February 28, 1998, 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, our operating costs increased $3.4 million, or 1%, due primarily to
the increase in operating revenues mentioned above. Cineplex Odeon operating
costs for the period May 15, 1998 to February 28, 1999 were $342.2 million. The
operating cost level experienced by Cineplex Odeon for the period reflects cost
savings and operating efficiencies, primarily in concession operations and
theatre operating expenses, resulting from the Combination. On a pro forma
basis, for the nine months, the Cineplex Odeon concession margin improved 3.4%,
from 80.4% in fiscal year 1998 to 83.8% in fiscal year 1999.
General and Administrative Costs of approximately $47.9 million for the fiscal
year ended February 28, 1999 were $19.0 million higher than for the fiscal year
ended February 28, 1998, due primarily to the inclusion of the operating results
for the Cineplex Odeon theatres for the period May 15, 1998 to February 28, 1999
(net of cost savings realized as a result of the Combination), merit increases
and the additional costs relative to the continued development of our
international operations.
Depreciation and Amortization Costs of approximately $90.7 million for the
fiscal year ended February 28, 1999 were $38.4 million higher than for the
fiscal year ended February 28, 1998, due primarily to the inclusion of the
operating results for the Cineplex Odeon theatres for the period May 15, 1998 to
February 28, 1999, incremental depreciation related to investments in new
theatres which commenced operations in prior periods and the amortization of
goodwill recorded as a result of the Combination.
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Depreciation and amortization costs include adjustments necessary to reflect the
allocation of purchase price to the fair value of Cineplex Odeon assets acquired
and liabilities assumed as part of the Combination. This allocation of value was
substantially completed during the fourth quarter of the current fiscal year and
is expected to be finalized during the first quarter of fiscal year 2000.
Loss on Sale/Disposals of Theatres of approximately $4.5 million for the fiscal
year ended February 28, 1999 was $3.3 million lower than for the fiscal year
ended February 28, 1998, due primarily to the timing, nature and characteristics
of theatre dispositions. During fiscal year 1999, we disposed of 54 theatre
locations comprising 173 screens including certain Cineplex Odeon theatres
acquired in the Combination.
Interest Expense of approximately $57.2 million for the fiscal year ended
February 28, 1999 was $42.9 million higher than for the fiscal year ended
February 28, 1998, due primarily to higher borrowings relating to the
Combination (including debt amounts assumed from Cineplex Odeon) and the impact
of additional borrowings under our Senior Revolving Credit Facility to fund
investments in theatres and joint ventures. See the Liquidity and Capital
Resources section for additional information.
Modified EBITDA for the fiscal year ended February 28, 1999 of $148.8 million
increased $71.8 million in comparison to the fiscal year ended February 28,
1998, due primarily to the inclusion of the operating results for the Cineplex
Odeon theatres for the period from May 15, 1998 to February 28, 1999, the
increase in concession revenues per patron, cost savings and operating
efficiencies as a result of the integration of Cineplex Odeon operations 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 that management uses to evaluate our
financial performance. Modified EBITDA measures the amount of cash that we have
available for investment or other uses and is used by us 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.
- --------------------------------------------------------------------------------
FISCAL YEAR ENDED FEBRUARY 28, 1998 COMPARED TO FISCAL YEAR ENDED FEBRUARY 28,
1997
- --------------------------------------------------------------------------------
Operating Revenues of approximately $413.5 million for the fiscal year ended
February 28, 1998 were $38.2 million, or 10.2%, 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 fiscal year
ended February 28, 1998 of approximately $296.9 million were $23.4 million, or
8.6%, higher and concession revenues of approximately $104.0 million were $13.4
million, or 14.8%, higher in comparison to the fiscal year ended February 28,
1997. Other income for the year ended February 28, 1998 of approximately $12.6
million was $1.4 million higher than for the same period in fiscal 1997. These
increases in revenues were due primarily to the effect of additional revenue
from new theatre openings/expansions of existing theatres of $33.8 million, and
higher box office and concession revenue per patron resulting in an increase of
$6.4 million and $5.2 million, respectively. These increases were partially
offset by other reductions in operating revenues, including the effect of
theatre dispositions, which reduced operating revenues by approximately $7.2
million.
Operating Costs of approximately $307.6 million for the year ended February 28,
1998 were $25.1 million, or 8.9%, higher than for the fiscal year ended February
28, 1997, due primarily to increased costs of $22.7 million related to the
aforementioned increase in operating revenues and higher occupancy costs
attributable to new theatre openings of $5.4 million, offset by lower costs,
including the effect of theatre dispositions of $3.0 million.
General and Administrative Costs of approximately $28.9 million for the year
ended February 28, 1998 were $7.5 million higher than for the fiscal year ended
February 28, 1997 due primarily to higher salaries and fringe benefits as a
result of normal merit increases and higher staffing levels required as a result
of increased business activity, certain contractual buyouts and other Loews
Theatres/Cineplex Odeon merger related costs and the start-up of the Company's
international operations.
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(continued)
Depreciation and Amortization Costs of approximately $52.3 million for the year
ended February 28, 1998 were $7.7 million higher than for the fiscal year ended
February 28, 1997, due primarily to the effect of new theatre openings,
provisions for asset impairment under SFAS No. 121 and incremental depreciation
on refurbishment and information systems expenditures.
Loss on Sale/Disposals of Theatres of approximately $7.8 million for the year
ended February 28, 1998 was $2.2 million lower than for the fiscal year ended
February 28, 1997 due primarily to the timing, nature and characteristics of
theatre dispositions. During fiscal 1998, we disposed of 10 theatres comprising
28 screens.
Interest Expense of approximately $14.3 million for the year ended February 28,
1998 was $500 thousand lower than for the fiscal year ended February 28, 1997
due primarily to the impact of lower interest rates, partially offset by the
impact of new borrowings.
Modified EBITDA for the year ended February 28, 1998 of $77.0 million increased
$5.6 million in comparison to the year ended February 28, 1997 due primarily to
the increase in box office and concession revenues per patron, and the impact of
newly opened theatres which were previously discussed.
Liquidity and Capital Resources
Cash flow from operations for the year ended February 28, 1999 was approximately
$82.7 million, which was approximately $18.5 million higher than for the year
ended February 28, 1998. This increase is due primarily to the inclusion of the
operating results for the Cineplex Odeon theatres. We derive substantially all
of our revenues from cash collected at the box office and through concession
sales. Generally, this provides us with working capital operating float, since
cash revenues are generally collected in advance of the payment of related
expenses.
We have experienced, and expect to continue to realize, improved operating
results as a result of investments in theatres (including new builds,
reconfigurations of existing theatres, and the closing of obsolete, unprofitable
or non-competitive theatres). We expect to continue to increase revenues and
cash flows as a result of reconfiguration of the Loews and Cineplex Odeon
circuits and from the additional future investment in North American and
international exhibition. In addition, we expect to continue to realize
additional cost savings and operational efficiencies as a result of the
Combination.
At February 28, 1999, we had capital spending commitments aggregating
approximately $390 million for the future development and construction of 45
theatre properties comprising approximately 700 screens. At February 28, 1999,
our debt balance includes approximately $82.4 million of capital spending on
theatre projects in various stages of development. In the opinion of management,
these capital commitments and working capital requirements will be funded by
free cash flow generated from operations and by our capital structure (debt and
equity) that has been effected subsequent to the Combination. The paragraphs
below present a summary of the significant capital transactions (debt and
equity) that have been completed in connection with and subsequent to the
Combination.
On May 14, 1998 and in connection with the Combination, we repaid all amounts
outstanding under the Sony Corporation of America ("SCA") Credit Facility ("Sony
Facility"). At February 28, 1998 the outstanding balance against the Sony
Facility was approximately $296.3 million.
In connection with the Combination, we entered into a $1 Billion Senior
Revolving Credit Facility with Bankers Trust Company, as administrative agent.
The Senior Revolving Credit Facility, together with an $84.5 million equity
contribution provided by Universal Studios, Inc. ("Universal"), replaced the
Sony Facility and Cineplex Odeon's existing credit facility, funded cash paid to
Sony Pictures Entertainment Inc. ("SPE") and/or its affiliates upon closing of
the Combination, and provides ongoing financing to us to fund working capital
requirements and 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 our
assets and the assets of our domestic 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 (as defined in the credit agreement) plus an applicable
margin based on our Leverage Ratio (as defined in the credit agreement). Our
borrowings under the Senior Revolving Credit Facility at February 28, 1999
totaled $378 million.
In conjunction with the Combination, we made payments totaling approximately
$417 million to SPE and its affiliates representing (i) a cash payment to
satisfy all intercompany indebtedness to affiliates
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(continued)
of SCA as of the closing date ($296 million), (ii) a cash payment equal to the
fair value of certain transferred assets ($18 million), and (iii) the payment of
a dividend to a subsidiary of SPE ($103 million). The first payment was made on
May 14, 1998, and the final payment, which was as a result of post-closing audit
procedures completed during the third quarter, was made on November 17, 1998.
As a result of the Combination, Plitt Theatres, Inc. ("Plitt"), Cineplex Odeon's
U.S. theatre group, became our wholly owned subsidiary. Plitt had outstanding
$200 million aggregate principal amount of 10 7/8% Senior Subordinated Notes due
2004 (the "Plitt Notes"). The Combination triggered a "change of control" under
provisions of the indenture under which the Plitt Notes were issued (the "Plitt
Indenture"). Accordingly, on June 15, 1998, Plitt commenced an offer to purchase
any and all of the Plitt Notes which it completed on August 4, 1998, with
holders of approximately 97% of the outstanding Plitt Notes tendering. Payment
for the tendered Plitt Notes was made during fiscal year 1999 in the amount of
$215.9 million, or 109.261% of the outstanding principal amount of the Plitt
Notes, plus accrued and unpaid interest. At February 28, 1999, the outstanding
amount of the Plitt Notes was $2.3 million.
On August 5, 1998, we sold to the public in an underwriting offering 10 million
shares of Common Stock at a public offering price of $11.00 per share. Net
proceeds of approximately $103.0 million were used primarily to repay our
borrowings under the Senior Revolving Credit Facility. Upon consummation of the
equity offering, our 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 our subscription agreement with Universal.
On August 5, 1998, we issued $300 million of 8 7/8% Senior Subordinated Notes
due 2008 to qualified institutional buyers in reliance on Rule 144A under the
Securities Act of 1933, as amended (the "Securities Act"). Net proceeds of
$288.6 were used primarily to repay the Plitt Notes and borrowings under the
Senior Revolving Credit Facility. Subsequently, on November 19, 1998, we
completed an offering to exchange $300 million aggregate principal amount of our
8 7/8% Senior Subordinated Notes due 2008, which were registered under the
Securities Act for a like principal amount of our privately placed 8 7/8% Senior
Subordinated Notes due 2008.
In August 1998, we entered into interest rate swap agreements for a term of four
years (expiring in August 2002) to hedge a portion of the Senior Revolving
Credit Facility variable interest rate risk. As a result of these agreements we
have 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. We have accounted for these swaps as interest rate hedges.
During fiscal 1999, we pursued the sale of certain theatres in New York City and
Chicago that were subject to approval by the Department of Justice ("DOJ"), in
accordance with the terms of an agreement reached to permit the Combination. As
a result, during the fourth quarter, we sold to Cablevision Systems Corporation
33 screens in 12 theatres in New York City, in accordance with the DOJ order,
and an additional 14 screens in 4 theatres in the suburban New York area for
aggregate cash proceeds of $87.5 million. A substantial portion of these
proceeds was utilized to pay down the Senior Revolving Credit Facility.
Pursuant to the agreement with the DOJ, we were also required to sell 49 screens
at 11 theatre locations in Chicago. On April 7, 1999, we completed the sale of
30 screens at 8 of these theatre locations to a third party. The sale of these
theatres will not have a significant impact on our operating results or
financial position. Additionally, under the agreement with the DOJ, we are
required to sell the remaining 19 screens at 3 theatre locations in Chicago. We
are investigating several options in order to comply with the requirements of
the agreement with the DOJ.
Effect of Inflation and Foreign Currency
Inflation and foreign currency fluctuations have not had a material effect on
our operations.
Risk Management
The overall objective of our financial risk management program is to seek to
mitigate any potential negative earnings effects from changes in foreign
exchange and interest rates arising in our business activities. We manage these
financial exposures through operational means and by using various financial
instruments. These practices may change as economic conditions change.
38
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(continued)
Our U.S. dollar borrowings are subject to interest rate risk. Under certain
market conditions, interest rate swap contracts are used to adjust these
interest sensitive liabilities.
New Accounting Pronouncements
We have determined that one new pronouncement that has been issued, but is not
yet effective, is applicable to us, and may have an impact on our financial
statements:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities", which becomes effective for our 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 we recognize those items as assets or liabilities
in the statement of financial position and measure them at fair value.
We expect to adopt this standard when required and do not believe that it will
have a significant impact on our operating results or financial position.
Year 2000
The Year 2000 issue is a result of computer programs being written using two
digits rather than four to define a specific year. Absent corrective actions, a
computer program that has date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. The inability to recognize or
properly treat the year 2000 may cause systems to process financial and
operating information incorrectly.
We recognized this challenge early and began work on remediation and overall
upgrades to all information systems several years ago. We have largely completed
remediation of our systems to meet business continuity concerns throughout the
Loews Theatre circuit and at our corporate offices. As a result of the
Combination with Cineplex Odeon, we have found that the point-of-sale systems at
several of the Cineplex Odeon theatres and within our Yelmo Cineplex de Espana
joint venture may not be Year 2000 compliant. Our management and information
systems department are currently evaluating these systems and will take the
necessary action to mitigate all Year 2000 concerns. Completion of the necessary
remediation on these systems is ongoing, and expected to be completed by the end
of our third quarter. We will also formulate a contingency plan to address any
Year 2000 issues that may arise.
Our ongoing maintenance and upgrades of our information system have largely
addressed any significant Year 2000 issues. Due to these significant upgrades
and investments in information systems over the past several years total costs
incurred to date directly related to the remedy of the Year 2000 issues have
been minimal, and the identifiable costs associated with the remaining Year 2000
conversion activities, including our non-information technology related systems,
are not expected to be significant.
In addition, it is currently unknown whether vendors and other third parties
with whom we conduct business will successfully address the Year 2000 issue with
respect to their own computer software. However, we are working with our major
vendors and other third parties to identify and address Year 2000 issues. If our
present efforts to address the Year 2000 issue are not successful, or if vendors
and other third parties with whom we conduct business do not successfully
address the Year 2000 issue, our business and financial condition could be
adversely affected.
Litigation Matters
From time to time, we are involved in routine litigation and legal proceedings
in the ordinary course of our business, such as personal injury claims,
employment matters and contractual disputes. We believe that the ultimate
disposition of these matters, to the extent not previously provided for, will
not have a material impact on our operating results or financial position.
Certain litigation and legal proceedings are discussed in footnote 15 of our
consolidated financial statements for the fiscal year ended February 28, 1999.
39
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(continued)
Theatre Portfolio Changes
The following table indicates the number of theatre locations and screens, and
changes to our theatre circuit configuration as a result of our theatre
reconfiguration program (including screens and locations relating to all our
joint ventures) for the twelve months ended February 28, 1999:
- --------------------------------------------------------------------------------
TWELVE MONTHS ENDED
- --------------------------------------------------------------------------------
FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
North America International Total
- --------------------------------------------------------------------------------
LOCATIONS
- --------------------------------------------------------------------------------
Beginning Balance* 450 1 451
- --------------------------------------------------------------------------------
New builds 12 -- 12
- --------------------------------------------------------------------------------
J.V. Investments -- 14 14
- --------------------------------------------------------------------------------
Dispositions (54) -- (54)
- --------------------------------------------------------------------------------
ENDING BALANCE 408 15 423
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCREENS
- --------------------------------------------------------------------------------
Beginning Balance* 2,752 6 2,758
- --------------------------------------------------------------------------------
New builds/expansions 183 -- 183
- --------------------------------------------------------------------------------
J.V. Investments -- 113 113
- --------------------------------------------------------------------------------
Dispositions (173) -- (173)
- --------------------------------------------------------------------------------
ENDING BALANCE 2,762 119 2,881
- --------------------------------------------------------------------------------
* Beginning balances are on a pro forma basis, as if the Combination had
occurred as of March 1, 1998.
As a result of our theatre reconfiguration program the average screens per
location has grown from 6.1 screens per location at March 1, 1998 to 6.8 screens
per location at February 28, 1999. During the twelve month period ended February
28, 1999 we opened 12 new theatre locations aggregating 168 screens; in the
United States: the Cascade Cinemas 14 and the Woodinville Cinemas 12 in
Washington, the Palisades Center 21 in New York, the Cherry Hill 24 in New
Jersey, the Liberty Tree Mall 20 in Massachusetts and the Stonybrook 15 in Long
Island; in Canada, we opened: the Grande Cinemas 10 in Toronto, the Medicine Hat
10 in Calgary, the First Markham Place Cinema 10 in Markham, the Grande Prairie
Cinema 10 in Grande Prairie, the Strawberry Hill Cinema 12 in Surrey and the
Orion Gate 10 in Brampton. We also expanded four existing theatre locations
adding 15 screens.
During fiscal year 1999, we completed an investment in a joint venture in Spain
called Yelmo Cineplex de Espana which operates 13 locations comprising 108
screens. We intend to further develop the existing circuit by building
additional theatres in Spain.
Additionally, for the twelve months ended February 28, 1999 we disposed
of/closed 54 theatre locations comprising 173 screens.
Forward Looking Statements
This annual report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act, and Section 21E of the Securities Exchange
Act of 1934, as amended. All statements, other than statements of historical
facts included in this annual report may constitute forward-looking statements.
Although we believe that the expectations reflected in such forward looking
statements are reasonable, we cannot be assured that the expectations will prove
to be correct.
40
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
CONSOLIDATED BALANCE SHEET
(in thousands of U.S. dollars, except share information)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
FEBRUARY 28,
- -----------------------------------------------------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
- -----------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 48,174 $ 9,064
- -----------------------------------------------------------------------------------------------------------------
Accounts receivable 28,590 5,479
- -----------------------------------------------------------------------------------------------------------------
Inventories 4,462 1,146
- -----------------------------------------------------------------------------------------------------------------
Prepaid expenses and other current assets 4,041 2,520
- -----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 85,267 18,209
- -----------------------------------------------------------------------------------------------------------------
PROPERTY, EQUIPMENT AND LEASEHOLDS, NET 1,119,977 609,152
OTHER ASSETS
- -----------------------------------------------------------------------------------------------------------------
Investments in and advances to partnerships 47,794 31,763
- -----------------------------------------------------------------------------------------------------------------
Goodwill, net of accumulated amortization of $28,740 and $17,989 498,549 53,143
- -----------------------------------------------------------------------------------------------------------------
Other intangible assets, net of accumulated amortization of $4,367
and $3,165 19,558 6,005
- -----------------------------------------------------------------------------------------------------------------
Deferred charges and other assets 35,056 10,279
- -----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,806,201 $ 728,551
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
- -----------------------------------------------------------------------------------------------------------------
Accounts payable and accrued expenses $ 175,943 $ 59,871
- -----------------------------------------------------------------------------------------------------------------
Due to Sony Corporation of America ("SCA") affiliates -- 3,810
- -----------------------------------------------------------------------------------------------------------------
Deferred revenue 17,241 3,063
- -----------------------------------------------------------------------------------------------------------------
Current maturities of long-term debt and other obligations 1,173 250
- -----------------------------------------------------------------------------------------------------------------
Current portion of capital leases 2,737 520
- -----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 197,094 67,514
- -----------------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES -- 18,299
- -----------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT AND OTHER OBLIGATIONS 690,301 --
- -----------------------------------------------------------------------------------------------------------------
LONG-TERM CAPITAL LEASE OBLIGATIONS 61,997 10,513
- -----------------------------------------------------------------------------------------------------------------
DEBT DUE TO SCA AFFILIATES -- 292,523
- -----------------------------------------------------------------------------------------------------------------
ACCRUED PENSION AND POST RETIREMENT BENEFITS 9,570 3,791
- -----------------------------------------------------------------------------------------------------------------
OTHER LIABILITIES 181,943 11,400
- -----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,140,905 404,040
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Note 15)
- -----------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------
Common stock ($.01 par value, 300,000,000 shares authorized; 58,538,646 shares
issued and outstanding in 1999 and $.01 par value, 25,000,000 shares
authorized, 19,270,321 issued and outstanding in 1998) 586 193
- -----------------------------------------------------------------------------------------------------------------
Common stock-Class A non-voting ($.01 par value, 10,000,000 shares
authorized, nil issued and outstanding in 1999 and 1,202,486 shares issued
and outstanding in 1998) -- 12
- -----------------------------------------------------------------------------------------------------------------
Common stock-Class B non-voting ($.01 par value, 10,000,000 shares
authorized, 84,000 issued and outstanding in 1999 and nil shares issued
and outstanding in 1998) 1 --
- -----------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income (5,063) --
- -----------------------------------------------------------------------------------------------------------------
Additional paid-in capital 671,707 299,277
- -----------------------------------------------------------------------------------------------------------------
Retained (deficit)/earnings (1,935) 25,029
- -----------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 665,296 324,511
- -----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,806,201 $ 728,551
- -----------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands of U.S. dollars, except share information)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED
- -------------------------------------------------------------------------------------------------------
FEBRUARY 28,
- -------------------------------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------------------
REVENUES
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Box office $ 587,078 $ 296,933 $ 273,498
- -------------------------------------------------------------------------------------------------------
Concession 228,332 104,009 90,643
- -------------------------------------------------------------------------------------------------------
Other 35,750 12,568 11,204
- -------------------------------------------------------------------------------------------------------
851,160 413,510 375,345
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
EXPENSES
- -------------------------------------------------------------------------------------------------------
Theatre operations and other expenses 618,946 291,421 266,846
- -------------------------------------------------------------------------------------------------------
Cost of concessions 35,557 16,147 15,634
- -------------------------------------------------------------------------------------------------------
General and administrative 47,882 28,917 21,447
- -------------------------------------------------------------------------------------------------------
Depreciation and amortization 90,720 52,307 44,576
- -------------------------------------------------------------------------------------------------------
Loss on sale/disposals of theatres 4,532 7,787 9,951
- -------------------------------------------------------------------------------------------------------
797,637 396,579 358,454
- -------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 53,523 16,931 16,891
- -------------------------------------------------------------------------------------------------------
INTEREST EXPENSE 57,216 14,319 14,776
- -------------------------------------------------------------------------------------------------------
(LOSS)/INCOME BEFORE INCOME TAXES (3,693) 2,612 2,115
- -------------------------------------------------------------------------------------------------------
INCOME TAX EXPENSE 2,187 2,751 2,295
- -------------------------------------------------------------------------------------------------------
NET LOSS $ (5,880) $ (139) $ (180)
- -------------------------------------------------------------------------------------------------------
Weighted Average Shares Outstanding--basic(A) 47,834,541 20,472,807 20,472,807
- -------------------------------------------------------------------------------------------------------
Weighted Average Shares Outstanding-- diluted(A) 47,834,541 20,924,890 20,472,807
- -------------------------------------------------------------------------------------------------------
Loss per Share--basic and diluted $ (.12) $ (.01) $ (.01)
- -------------------------------------------------------------------------------------------------------
</TABLE>
(A) Fiscal year ended February 28, 1997 has been restated to reflect a stock
dividend declared on February 5, 1998.
The accompanying notes are an integral part of these consolidated
financial statements.
42
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands of U.S. dollars, except share information)
<TABLE>
<CAPTION>
Class A Class B
Non- Non-
Voting voting voting
Shares Amount Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 1, 1996 973 $ 195 -- $ -- -- $ --
Comprehensive income:
Net loss for the fiscal year
ended February 28, 1997 -- -- -- -- -- --
Comprehensive income -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Balance at March 1, 1997 973 195 -- -- -- --
Stock dividend 19,269,348 (2) 1,202,486 12 -- --
Comprehensive income:
Net loss for the
fiscal year ended
February 28, 1998 -- -- -- -- -- --
Comprehensive income -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Balance at March 1, 1998 19,270,321 193 1,202,486 12 -- --
Exchange of existing
Cineplex Odeon
shares in conjunction
with the Combination 17,699,914 177 -- -- 84,000 1
Issuance of shares to
Universal under a
subscription agreement 4,426,607 44 -- -- -- --
Issuance of shares to SCA
affiliates for Star
Theatres and
S&J Theatres 2,664,304 27 -- -- -- --
Exercise of Stock Options 19,802 -- -- -- -- --
Dividend to SCA affiliates -- -- -- -- -- --
Issuance of shares in Public
Offering, net of costs
and expenses 10,000,000 100 -- -- -- --
Automatic conversion of
SCA's 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 -- -- -- --
Comprehensive income:
Foreign currency
translation adjustment -- -- -- -- -- --
Unrealized loss on
marketable securities -- -- -- -- -- --
Net loss for the fiscal year
ended February 28, 1999
Comprehensive Income -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Balance at February 28, 1999 58,538,646 $ 586 -- $ -- 84,000 $ 1
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Accumulated
Other Total
Compre- Additional Retained Stock-
hensive Paid-in Earnings holders
Income Capital /(Deficit) Equity
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at March 1, 1996 $ -- $ 299,082 $ 25,553 $ 324,830
Comprehensive income:
Net loss for the fiscal year
ended February 28, 1997 -- -- (180) (180)
--------
Comprehensive income -- -- -- (180)
- --------------------------------------------------------------------------------------------------
Balance at March 1, 1997 -- 299,082 25,373 324,650
Stock dividend -- 195 (205) --
Comprehensive income:
Net loss for the
fiscal year ended
February 28, 1998 -- -- (139) (139)
--------
Comprehensive income -- -- -- (139)
- --------------------------------------------------------------------------------------------------
Balance at March 1, 1998 -- 299,277 25,029 324,511
Exchange of existing
Cineplex Odeon
shares in conjunction
with the Combination -- 266,579 -- 266,757
Issuance of shares to
Universal under a
subscription agreement -- 84,456 -- 84,500
Issuance of shares to SCA
affiliates for Star
Theatres and
S&J Theatres -- (27) -- --
Exercise of Stock Options -- 366 -- 366
Dividend to SCA affiliates -- (81,536) (21,084) (102,620)
Issuance of shares in Public
Offering, net of costs
and expenses -- 102,625 -- 102,725
Automatic conversion of
SCA's Class A
non-voting shares
to common shares -- -- -- --
Issuance of shares to
Universal under
an anti-dilution
agreement -- (33) -- --
Comprehensive income:
Foreign currency
translation adjustment (4,407) -- -- (4,407)
Unrealized loss on
marketable securities (656) -- -- (656)
Net loss for the fiscal year
ended February 28, 1999 (5,880) (5,880)
--------
Comprehensive Income -- -- -- (10,943)
- --------------------------------------------------------------------------------------------------
Balance at February 28, 1999 $ (5,063) $ 671,707 $ (1,935) $ 665,296
- --------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
43
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands of U.S. dollars, except share information)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED
- --------------------------------------------------------------------------------------------------------------
FEBRUARY 28,
- --------------------------------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
- --------------------------------------------------------------------------------------------------------------
Net loss $ (5,880) $ (139) $ (180)
- --------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 90,720 52,307 44,576
- --------------------------------------------------------------------------------------------------------------
Loss on sale/disposals of theatres 4,532 7,787 9,951
- --------------------------------------------------------------------------------------------------------------
Equity earnings from long-term investments,
net of distributions received 1,506 887 (553)
- --------------------------------------------------------------------------------------------------------------
Changes in operating assets and liabilities:
Increase/(decrease) in due to SCA affiliates -- 2,487 (1,154)
- --------------------------------------------------------------------------------------------------------------
Decrease in deferred income taxes -- (3,812) (2,806)
- --------------------------------------------------------------------------------------------------------------
Decrease/(increase) in accounts receivable 5,292 (1,042) (846)
- --------------------------------------------------------------------------------------------------------------
(Decrease)/increase in accounts payable
and accrued expenses (6,559) 7,249 977
- --------------------------------------------------------------------------------------------------------------
Increase in other operating assets and
liabilities, net (6,900) (1,539) (1,989)
- --------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 82,711 64,185 47,976
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
- --------------------------------------------------------------------------------------------------------------
Proceeds from sale of assets 98,192 -- 1,043
- --------------------------------------------------------------------------------------------------------------
Investment in/advances to partnerships, net
of repayments (17,537) (9,008) 6,623
- --------------------------------------------------------------------------------------------------------------
Merger related costs (25,198) -- --
- --------------------------------------------------------------------------------------------------------------
Capital expenditures (147,198) (42,431) (60,920)
- --------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (91,741) (51,439) (53,254)
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
- --------------------------------------------------------------------------------------------------------------
(Repayment)/borrowing of debt due to SCA affiliate (299,487) (5,333) 5,575
- --------------------------------------------------------------------------------------------------------------
Proceeds from senior credit facility,
net of repayments and deferred financing fees 224,044 -- --
- --------------------------------------------------------------------------------------------------------------
Repayment of long-term debt (34,644) (509) (527)
- --------------------------------------------------------------------------------------------------------------
Repayment of Plitt Theatre, Inc. notes (215,907) -- --
- --------------------------------------------------------------------------------------------------------------
Proceeds of senior subordinated note offering,
net of deferred financing fees 289,263 -- --
- --------------------------------------------------------------------------------------------------------------
Proceeds from 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 SCA affiliate in Combination (102,620) -- --
- --------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED/(USED) BY FINANCING ACTIVITIES 48,140 (5,842) 5,048
- --------------------------------------------------------------------------------------------------------------
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 39,110 6,904 (230)
- --------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 9,064 2,160 2,390
- --------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 48,174 $ 9,064 $ 2,160
- --------------------------------------------------------------------------------------------------------------
Supplemental Cash Flow Information:
Income taxes paid, net of refunds received $ 3,229 $ 1,934 $ 1,414
- --------------------------------------------------------------------------------------------------------------
Interest paid (including $6,942, $14,638 and
$15,394 paid to SCA affiliates) $ 54,583 $ 15,823 $ 16,488
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
44
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands of U.S. dollars, except as otherwise noted)
- --------------------------------------------------------------------------------
NOTE 1-ORGANIZATION AND BUSINESS
- --------------------------------------------------------------------------------
Loews Cineplex Entertainment Corporation ("LCP" or the "Company"), is a major
motion picture theatre exhibition company with operations in North America and
Europe. The Company operates under the Loews Theatres, Sony Theatres, Cineplex
Odeon Theatres, Star Theatres, Magic Johnson Theatres and Yelmo Cineplex
Theatres marquees. As of February 28, 1999, LCP owns, or has interests in, and
operates 2,881 screens at 423 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 and 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.
Business Combination
On May 14, 1998, pursuant to the Amended and Restated Master Agreement (the
"Master Agreement") dated September 30, 1997, LCP (formerly known as LTM
Holdings, Inc.) and Cineplex Odeon Corporation ("Cineplex Odeon"), another major
motion picture exhibitor with operations in the U.S. and Canada, combined (the
"Combination"). As called for in the Master Agreement, the outstanding common
shares of Cineplex Odeon were exchanged for LCP shares on a ten for one basis.
Universal Studios, Inc. ("Universal"), a major shareholder of Cineplex Odeon,
contributed cash of $84.5 million to the Company in exchange for additional
shares of stock in the Company. Sony Pictures Entertainment Inc. ("SPE") and its
affiliates received a cash payment of approximately $417 million representing
(i) a cash payment to satisfy all intercompany indebtedness to affiliates of
Sony Corporation of America ("SCA") as of the closing date, (ii) a cash payment
equal to the fair value of certain transferred assets, and (iii) the payment of
a dividend to a subsidiary of SPE. The consolidated financial statements for the
twelve months ended February 28, 1999 include the operating results of Cineplex
Odeon following the date of Combination (May 14, 1998) to February 28, 1999.
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,
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 $266.6 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 to SPE in connection with the transfer by SPE
of its interest in Star Theatres of Michigan, Inc. ("Star") and S&J Theatres,
Inc. ("S&J") to the Company. As a result of the Combination, SPE, Universal, the
Claridge Group and others owned 51.1%, 26.0%, 9.6% and 13.3%, respectively, of
the Company's common stock.
The Combination has been accounted for under the purchase method of accounting,
and, accordingly, the cost to acquire Cineplex Odeon has been allocated to the
assets acquired and liabilities assumed of Cineplex Odeon based on their
respective fair values, with the excess purchase price allocated to goodwill.
The Company 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 are substantially complete and will be finalized during
the first quarter of fiscal year 2000. Subject to the finalization of the
valuations in the first quarter of fiscal year 2000, the balances reflected in
the consolidated statement of financial position as of February 28, 1999 may
require further adjustments. However, based upon the information available to
date, management does not anticipate that such adjustments will be significant.
On August 5, 1998, the Company sold to the public pursuant to a registered
public offering 10 million shares of Common Stock. Upon consummation of this
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
45
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands of U.S. dollars, except as otherwise noted)
anti-dilution provisions of the Company's subscription agreement with Universal.
As a result of the public offering, SPE, Universal and the Claridge Group own
39.5%, 25.5% and 7.4%, respectively, of the Company's common stock.
Pro Forma (Unaudited)
The unaudited condensed pro forma results of operations presented below assume
that the Combination occurred at the beginning of each period presented. The pro
forma information is not necessarily indicative of the combined results of
operations of LCP and Cineplex Odeon that would have resulted if the transaction
had occurred on the dates previously indicated, and they are not necessarily
indicative of the future operating results of the combined company.
- --------------------------------------------------------------------------------
TWELVE MONTHS ENDED
- --------------------------------------------------------------------------------
FEBRUARY 28,
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Revenues $ 947,671 $ 981,658
- --------------------------------------------------------------------------------
Net loss $ (19,229) $ (26,576)
- --------------------------------------------------------------------------------
Pro forma net loss
per common share $ (.33) $ (.45)
- --------------------------------------------------------------------------------
Actual net loss per common share* $ (.12) $ (.01)
- --------------------------------------------------------------------------------
*Presented for comparative purposes only
During fiscal 1999, the Company pursued the sale of certain theatres in New York
City and Chicago that were subject to approval by the Department of Justice
("DOJ"), in accordance with the terms of an agreement reached to permit the
Combination. As a result, during the fourth quarter, the Company sold to
Cablevision Systems Corporation 33 screens in 12 theatres in New York City, in
accordance with the DOJ order, and an additional 14 screens in 4 theatres in the
suburban New York area, for aggregate cash proceeds of $87.5 million. A
substantial portion of these proceeds was utilized to pay down the Company's
Senior Revolving Credit Facility.
Pursuant to the agreement with the DOJ, the Company was also required to sell 49
screens at 11 theatre locations in Chicago. On April 7, 1999, the Company
completed the sale of 30 screens at 8 of these theatre locations to a third
party. The sale of these theatres will not have a significant impact on the
Company's operating results or financial position. Additionally, under the
agreement with the DOJ, the Company is required to sell the remaining 19 screens
at 3 theatre locations in Chicago. The Company is investigating several options
in order to comply with the requirements of the agreement with the DOJ.
- --------------------------------------------------------------------------------
NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Basis of Presentation and Consolidation: The consolidated financial statements
include the accounts of Loews Cineplex Entertainment Corporation and its
wholly-owned subsidiaries. As part of the Combination, SPE and its affiliates
have transferred their interest in S&J, which owned a 50% interest in MJT, and
Star, which indirectly owned a 50% interest in LST, and certain other exhibition
assets to subsidiaries of the Company. As these transferred interests were among
parties under common control, the Company has included the assets, liabilities
and results of operations of S&J and Star in the financial statements for all
periods included herein on an as if pooled basis. Majority owned companies are
consolidated and 50% or less owned investments in which the Company has
significant influence are accounted for under the equity method of accounting.
Significant intercompany accounts and transactions have been eliminated.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenues and Expenses: Substantially all revenues are recognized when admission
and concession sales are received at the theatres. Other revenues include the
Company's equity earnings from long-
46
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands of U.S. dollars, except as otherwise noted)
term investments. Film rental costs are recorded, as revenue is earned, based
upon the terms of the respective film license arrangements. Advertising costs
are expensed as incurred.
Cash and Cash Equivalents: The Company considers all operating funds held in
financial institutions, cash held by the theatres and all highly liquid
investments with original maturities of three months or less when purchased to
be cash equivalents.
Inventories: Inventories of concession products are stated at the lower of cost
or market. Cost is determined by the first-in, first-out method.
Long-term Investments In and Advances to Partnerships: Investments in
partnerships are recorded under the equity method of accounting. Under the
equity method the cost of the investment is adjusted to reflect the Company's
proportionate share of the partnerships' operating results. Advances to partners
represent advances to respective partnerships, in which LCP has interests, for
working capital and other capital requirements.
Deferred Charges and Other Assets: Deferred charges and other assets consist
principally of debt issuance costs, long term receivables and marketable equity
securities. All marketable equity securities are designated as available for
sale and are reported at the lower of cost or market, with unrealized gains and
losses included in stockholders' equity, net of applicable taxes. Unrealized
losses that are other than temporary are recognized in earnings. Amortization of
debt issuance costs is calculated on a straight-line basis over the terms of the
underlying loan agreements (average life of approximately five to ten years) and
is included as a component of interest expense.
Fair Value of Financial Instruments: Cash, accounts receivable, accounts
payable, accrued liabilities and notes payable are reflected in the financial
statements at carrying value which approximates fair value. Long-term debt
principally consists of obligations which carry floating interest rates that
approximate current market rates.
Property, Equipment and Leaseholds: Property, equipment and leaseholds are
stated at historical cost less accumulated depreciation and amortization. The
Company has acquired the rights to use certain theatre facilities under
previously existing operating leases from other motion picture exhibitors.
Purchase values assigned to these theatre lease rights acquired are capitalized
and amortized over future periods.
Depreciation and amortization are provided on a straight-line basis over the
following useful lives:
Buildings 30-40 years
Equipment 5-10 years
Leasehold Improvements Life of lease but not in excess of useful lives or 40
years
Theatre Lease Rights Life of lease but not in excess of useful lives or 40
years
Interest costs during the period of development and construction of new theatre
properties are capitalized as part of the historical cost of the asset. Interest
capitalized during the fiscal years ended February 28, 1999, 1998 and 1997 was
$2,422, $741 and $586, respectively.
Goodwill and Other Intangible Assets: Goodwill, which represents the excess of
the purchase price over the fair values of net assets acquired, is amortized
using the straight-line method over 40 years. Other intangible assets, including
management agreements and tradenames, are amortized over their estimated useful
lives which range from 5 to 40 years. Management continuously assesses the
recoverability of the net unamortized goodwill and other intangibles by
determining whether the amortization of these balances over the remaining life
can be recovered through projected future undiscounted income from operations.
Amortization expense charged to operations amounted to $10,751, $1,789 and
$1,789 for goodwill and $1,202, $335 and $230 for other intangible assets for
the years ended February 28, 1999, 1998 and 1997, respectively.
Long-Lived Assets: Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of" requires the recoverabil-
47
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands of U.S. dollars, except as otherwise noted)
ity of the carrying value of long-lived assets to be evaluated when changes
occur in historical operating results, future projections and economic and
competitive factors, among others. The Company continuously assesses the
recoverability of its long-lived assets in accordance with SFAS No. 121, by
determining whether the carrying value of these balances over the remaining life
can be recovered through undiscounted projected future cash flows. Based upon
these measures, management has determined that the carrying value of its
long-lived assets is recoverable and fairly stated.
Stock Based Compensation: As permitted under SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company elected to account for its stock based
compensation plans under the provisions of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. The Company has complied with the disclosure requirements of
SFAS No. 123 (see Note 14 to these Consolidated Financial Statements).
Income Taxes: Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to the differences between the financial statement
carrying amounts, less applicable allowances, of existing assets and liabilities
and their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Foreign Currency Translation: The effect of translating foreign currency
financial statements into U.S. dollars is included in accumulated other
comprehensive income in stockholders' equity. Gains and losses on foreign
currency transactions are not significant to operations and have been included
in operating expenses.
Comprehensive Income: During the current fiscal year the Company adopted SFAS
No. 130, "Reporting Comprehensive Income." This statement establishes rules for
the reporting of comprehensive income which consists of net income, unrealized
gains or losses on marketable securities and foreign currency translation
adjustments, and is presented in the Consolidated Statement of Changes in
Stockholders' Equity.
Pensions and Other Post-retirement Benefits: Effective February 28, 1999, the
Company adopted SFAS No. 132, "Employers' Disclosures about Pensions and Other
Post-retirement Benefits." The provisions of SFAS No. 132 revise employers'
disclosures about pension and other post-retirement benefit plans. It does not
change the measurement or recognition of these plans. It standardizes the
disclosure requirements for pension and other post-retirement benefits to the
extent practicable.
Earnings Per Share: A reconciliation of the number of shares used in the
computations for basic and diluted net loss per share is as follows:
- --------------------------------------------------------------------------------
NUMBER OF SHARES
- --------------------------------------------------------------------------------
FEBRUARY 28,
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Weighted average shares outstanding-Basic 47,834,541 20,472,807
- --------------------------------------------------------------------------------
Weighted average share dilution under stock option plans -- 452,083
- --------------------------------------------------------------------------------
Weighted average shares outstanding-Diluted 47,834,541 20,924,890
- --------------------------------------------------------------------------------
Reclassifications: Certain fiscal 1998 balances have been reclassified to
conform with the fiscal 1999 presentation.
- --------------------------------------------------------------------------------
NOTE 3-ACCOUNTS RECEIVABLE
- --------------------------------------------------------------------------------
As of February 28, 1999, accounts receivable of $28.6 million consists of trade
receivables of $9.6 million, receivables related to construction advances of
$11.5 million and other receivables of $7.5 million. As of February 28, 1998,
accounts receivable of $5.5 million consists of trade receivables of $1.9
million and other receivables of $3.6 million.
48
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands of U.S. dollars, except as otherwise noted)
- --------------------------------------------------------------------------------
NOTE 4-PROPERTY, EQUIPMENT AND LEASEHOLDS
- --------------------------------------------------------------------------------
Property, equipment and leaseholds consists of:
- --------------------------------------------------------------------------------
FEBRUARY 28,
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Land $ 72,360 $ 42,173
- --------------------------------------------------------------------------------
Buildings 372,797 227,782
- --------------------------------------------------------------------------------
Equipment 239,655 149,468
- --------------------------------------------------------------------------------
Leasehold Improvements 206,001 101,440
- --------------------------------------------------------------------------------
Theatre Lease Rights 478,841 346,176
- --------------------------------------------------------------------------------
Construction in Progress 82,363 30,859
- --------------------------------------------------------------------------------
TOTAL PROPERTY, EQUIPMENT AND LEASEHOLDS 1,452,017 897,898
- --------------------------------------------------------------------------------
Less: Accumulated Depreciation and Amortization 332,040 288,746
- --------------------------------------------------------------------------------
$1,119,977 $ 609,152
- --------------------------------------------------------------------------------
The cost of property and equipment under capital leases amounted to $34,162 and
$12,971, with accumulated depreciation of $5,842 and $4,584 as of February 28,
1999 and 1998, respectively. Depreciation expense of property and equipment
under capital leases is included in depreciation and amortization expense in the
Consolidated Statement of Operations.
The Company continues to review the assets and related intangibles of its motion
picture theatres for impairment in accordance with the provisions of SFAS No.
121. As a result of this process, the Company has recognized a provision for
asset impairment of $4.8 and $4.4 million for the years ended February 28, 1999
and 1998, respectively, which is included in depreciation and amortization
expense in the Consolidated Statement of Operations.
- --------------------------------------------------------------------------------
NOTE 5-LONG-TERM INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS
- --------------------------------------------------------------------------------
The Company's long-term investments consist of a 50% interest in LST which
operated 9 theatres with 113 screens, MJT which operated 3 theatres with 39
screens, and Yelmo which operated 13 theatres with 108 screens at February 28,
1999. The Company accounts for these investments following the equity method of
accounting.
The Company's carrying value of its investment in LST was approximately $13,270
and $11,102, its investment in MJT was approximately $(1,132) and $370, and its
investment in Yelmo was $18,472 and nil, at February 28, 1999 and 1998,
respectively.
The Company's equity share of earnings in LST, MJT and Yelmo for the fiscal
years ended February 28, 1999, 1998 and 1997 was approximately $2.7 million,
$2.9 million and $2.9 million, respectively.
As of February 28, 1999 and 1998, the Company had advances to LST of $122 and
$10,955 and advances to MJT of $17,062 and $9,336, respectively. These
receivables were in the form of both interest bearing notes and working capital
advances.
49
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands of U.S. dollars, except as otherwise noted)
The following table presents condensed financial information for the LST, MJT
and Yelmo partnerships on a combined basis:
- --------------------------------------------------------------------------------
YEAR ENDED
- --------------------------------------------------------------------------------
FEBRUARY 28,
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Box Office $68,410 $48,036 $34,248
- --------------------------------------------------------------------------------
Concessions/Other 30,606 22,461 15,378
- --------------------------------------------------------------------------------
Total Revenues 99,016 70,497 49,626
- --------------------------------------------------------------------------------
Total Operating Costs 78,289 55,768 38,404
- --------------------------------------------------------------------------------
General and Administrative Costs 3,651 2,051 1,516
- --------------------------------------------------------------------------------
17,076 12,678 9,706
- --------------------------------------------------------------------------------
Depreciation and Amortization 6,905 5,459 3,157
- --------------------------------------------------------------------------------
Income from Operations $10,171 $ 7,219 $ 6,549
- --------------------------------------------------------------------------------
Net Income $ 5,426 $ 5,810 $ 5,786
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 6-ACCOUNTS PAYABLE AND ACCRUED EXPENSES
- --------------------------------------------------------------------------------
Accounts payable and accrued expenses consist of:
- --------------------------------------------------------------------------------
FEBRUARY 28,
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Accounts payable-trade $ 74,065 $ 36,924
- --------------------------------------------------------------------------------
Accrued occupancy 19,634 6,125
- --------------------------------------------------------------------------------
Other accrued expenses 82,244 16,822
- --------------------------------------------------------------------------------
$175,943 $ 59,871
- --------------------------------------------------------------------------------
At February 28, 1999, other accrued expenses include $28.1 million of
contractual obligations and other liabilities related to the Combination.
Additionally, approximately $123.3 million of contractual obligations related to
the Combination are included in Other Long-term Liabilities.
- --------------------------------------------------------------------------------
NOTE 7-DEFERRED REVENUE
- --------------------------------------------------------------------------------
As of February 28, 1999, deferred revenue of $17,241 consists of advanced
admission sales of $8,244, gift certificate sales of $5,332 and other deferred
revenue of $3,665. As of February 28, 1998, deferred revenue consists of
advanced admission sales of $826, gift certificate sales of $195 and other
deferred revenue of $2,042.
50
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands of U.S. dollars, except as otherwise noted)
- --------------------------------------------------------------------------------
NOTE 8-LONG -TERM DEBT AND OTHER OBLIGATIONS
- --------------------------------------------------------------------------------
Long-term debt and other obligations consist of:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
FEBRUARY 28,
- ----------------------------------------------------------------------------------------------
1999 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Senior Revolving Credit Facility due 2003 - average
interest rate of 6.42% at February 28, 1999 $378,000 $ --
- ----------------------------------------------------------------------------------------------
Senior Subordinated Notes with interest at 8.875%
due 2008, net of original issue discount 297,695 --
- ----------------------------------------------------------------------------------------------
Plitt Theatres, Inc. Notes with interest at
10.875% due 2004 2,300 --
- ----------------------------------------------------------------------------------------------
Mortgages payable-non-recourse, payable from 1998 through 2008
Interest rates from 8.5% to 11.5% 13,479 250
- ----------------------------------------------------------------------------------------------
Debt due to SCA affiliates with interest at 5.90%-repaid by the
Company concurrent with the closing of the Combination on May 14, 1998 -- 296,333
- ----------------------------------------------------------------------------------------------
691,474 296,583
- ----------------------------------------------------------------------------------------------
Less: Current maturities 1,173 4,060
- ----------------------------------------------------------------------------------------------
$690,301 $292,523
- ----------------------------------------------------------------------------------------------
</TABLE>
Annual maturities of obligations under long-term debt for the next five fiscal
years and thereafter are set forth as follows:
- --------------------------------------------------------------------------------
YEAR ENDING FEBRUARY 28 or 29, AMOUNT
- --------------------------------------------------------------------------------
2000 $ 1,173
- --------------------------------------------------------------------------------
2001 1,379
- --------------------------------------------------------------------------------
2002 4,449
- --------------------------------------------------------------------------------
2003 378,264
- --------------------------------------------------------------------------------
2004 2,528
- --------------------------------------------------------------------------------
Thereafter 303,681
- --------------------------------------------------------------------------------
$ 691,474
- --------------------------------------------------------------------------------
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 has been used to
repay all intercompany amounts due to SCA and affiliates and has replaced
Cineplex Odeon's existing credit facility. This Senior Revolving Credit Facility
is comprised of a $750 million senior secured revolving credit facility, secured
by substantially all of the assets of LCP and its U.S. 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). The Senior Revolving Credit Facility
includes various financial covenants, including a leverage test and interest
coverage test, as well as customary restrictive covenants, including: (i)
limitations on indebtedness, (ii) limitations on dividends and other payment
restrictions, (iii) limitations on asset sales, (iv) limitations on transactions
with affiliates, (v) limitations on the issuance and sale of capital stock of
subsidiaries, (vi) limitations on lines of business, (vii) limitations on
merger, consolidation or sale of assets and (viii) certain reporting
requirements. An annual commitment fee of 0.25% on unused amounts is payable
under the Senior Revolving Credit Facility.
On August 5, 1998, the Company issued $300 million of 8 7/8% Senior Subordinated
Notes due 2008. These notes include various financial covenants substantially
similar to those of the Senior Revolving Credit Facility.
The Company periodically uses interest rate swaps to manage its exposure to
interest rate fluctuations on its floating debt rate. These interest rate swaps
are entered into for hedging purposes and as such must be designated and
effective as a hedge against the risk of increased interest rates. The
differential between the amounts paid and received is recorded as additional
interest expense.
On August 18, 1998, the Company entered into interest rate swap agreements, with
an aggregate
51
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands of U.S. dollars, except as otherwise noted)
notional amount of $250 million. Under these swap agreements the Company
receives a floating rate of interest based on three month LIBOR, which resets
quarterly, and the Company pays a fixed rate of interest, each quarter, for the
terms of the respective agreements. The terms of these agreements are four years
and the weighted average fixed rate the Company pays is 5.77%. The Company has
entered into these agreements solely to hedge its interest rate risk under its
floating rate bank debt. For the year ended February 28, 1999, these interest
rate swaps did not have a material impact on the Company's operating results or
financial position.
- --------------------------------------------------------------------------------
NOTE 9-LEASES
- --------------------------------------------------------------------------------
The Company conducts a significant part of its operations in leased premises.
Leases generally provide for minimum rentals plus percentage rentals based upon
sales volume and also require the tenant to pay a portion of real estate taxes
and other property operating expenses. Lease terms generally range from 20 to 40
years and contain various renewal options, generally in intervals of 5 to 10
years.
Future minimum rental commitments at February 28, 1999 under the above mentioned
operating and capital leases, having an initial or remaining non-cancelable
lease term of one or more years are set forth as follows:
- --------------------------------------------------------------------------------
OPERATING CAPITAL
YEAR ENDING FEBRUARY 28 or 29, LEASES LEASES
- --------------------------------------------------------------------------------
2000 $ 115,319 $ 6,988
- --------------------------------------------------------------------------------
2001 113,497 6,811
- --------------------------------------------------------------------------------
2002 110,893 6,634
- --------------------------------------------------------------------------------
2003 109,046 6,426
- --------------------------------------------------------------------------------
2004 106,664 6,233
- --------------------------------------------------------------------------------
Thereafter 1,058,930 52,220
- --------------------------------------------------------------------------------
Total Minimum Rentals $ 1,614,349 85,312
- --------------------------------------------------------------------------------
Less Amount Representing Interest 20,578
- --------------------------------------------------------------------------------
Present Value of Net Minimum Rentals $ 64,734
- --------------------------------------------------------------------------------
Minimum rental expense related to operating leases was $74,610, $31,368 and
$30,200 for the years ended February 28, 1999, 1998 and 1997, respectively.
Percentage rental expense for those same periods was $7,265, $3,449 and $2,918,
respectively.
- --------------------------------------------------------------------------------
NOTE 10-EMPLOYEE AND POSTRETIREMENT BENEFIT PLANS
- --------------------------------------------------------------------------------
The Company accrues amounts ranging from 20% to 23% of gross salaries for fringe
benefits in the U.S. and 10% in Canada (i.e. Medical, Dental, FICA and Savings
Plan Contributions), which approximates actual costs incurred.
Profit Sharing and Savings Plan
The Company has a defined contribution Profit Sharing and Savings Plan in the
United States ("Savings Plan") for substantially all eligible salaried employees
under which the Company contributes by matching 50% of the employee contribution
up to a maximum of 6% of the statutory limit of eligible compensation. A
participant may elect to contribute up to an additional 10% of eligible
compensation (subject to the statutory limit), however this amount is not
eligible for matching contributions by the Company. The Savings Plan also
provides for special profit sharing contributions, the annual amount of which is
determined at the discretion of the Company. The expense recorded by the Company
related to contributions to the Savings Plan aggregated $1,922, $1,670 and
$1,204 for the years ended February 28, 1999, 1998 and 1997, respectively.
Effective January 1, 1999, the Company's Savings Plan was amended to include all
eligible salaried Cineplex Odeon employees.
Employee Health and Welfare and Other Post-retirement Benefits
The Company provides health and welfare benefits and post-retirement benefits to
eligible executives and employees in the United States. Effective January 1,
1999, the Company's employee health and welfare and other post-retirement
benefit plans were amended to include all eligible Cineplex Odeon
52
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands of U.S. dollars, except as otherwise noted)
employees. The Company has accrued post-retirement benefits of $3,846 and $3,791
at February 28, 1999 and 1998, respectively, and recognized an annual cost of
$162, $339 and $262 for the years ended February 28, 1999, 1998 and 1997,
respectively. The cost and accrued benefit obligations are calculated utilizing
a discount rate of 7% and 8.5% and a health care trend rate of 5% and 6% at
February 28, 1999 and 1998, respectively.
Pension Plans
As a result of the Combination, the Company acquired the U.S. and Canadian
pension plans previously administered by Cineplex Odeon.
Cineplex Odeon had a defined benefit pension plan covering all full-time
employees in the United States which provides benefits based on years of service
and the employees' compensation for certain periods during the last years of
employment. During the current fiscal year, the Company decided to freeze
benefits under this plan and convert the plan to a cash balance plan. This plan
was restructured as of January 1, 1999 and all eligible employees previously
covered under the plan became eligible to participate in the Company's Savings
Plan. The fair value of the pension plan assets acquired and the projected
benefit obligations assumed as a result of the Combination were $6,679 and
$12,779, respectively. As of February 28, 1999, the pension fund assets were
$7,276, the projected benefit obligations were $13,000 and the Company had
accrued pension costs of $5,724 associated with this plan. The cost and accrued
benefit obligations associated with the pension plan were calculated utilizing a
discount rate of 7% and a long-term rate of return of 8.5%.
The Company has a pension plan covering substantially all full-time Canadian
employees. Prior to January 1, 1993 this plan was a defined benefit plan, and
effective on that date it was converted to a defined contribution plan. At the
date of conversion, benefits under the defined benefit plan were frozen. The
actuarial estimate for the plan covering Canadian employees indicates a surplus
of pension fund assets over accrued benefits of approximately $1,485 as of
February 28, 1999. The cost and accrued benefit obligations associated with the
pension plan were calculated utilizing a discount rate of 7% and a long-term
rate of return of 7%.
Other Plans
Various employees are covered by union sponsored pension plans. The
contributions are determined in accordance with provisions of negotiated labor
contracts. Under these agreements, pension expense aggregated $1,731, $1,204 and
$1,471 for the years ended February 28, 1999, 1998 and 1997, respectively.
- --------------------------------------------------------------------------------
NOTE 11-RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
The Company has exhibited films distributed by SPE in the past, and expects to
continue to do so in the future. Payments are based on negotiated and/or
contracted rates established on terms that management believes are on an
arm's-length basis. At February 28, 1999 and February 28, 1998, the Company owed
SPE and affiliates $1,950 and $2,521, respectively, under film licensing
agreements. The Company has recognized film rental expenses relating to the
exhibition of films distributed by SPE in the amount of $33,799, $30,399 and
$16,189, for the years ended February 28, 1999, 1998 and 1997, respectively.
The Company has exhibited films distributed by Universal in the past, and
expects to continue to do so in the future. Payments are based on negotiated
and/or contracted rates established on terms that management believes are on an
arm's-length basis. At February 28, 1999, the Company owed Universal $1,814
under film licensing agreements. The Company has recognized film rental expenses
relating to the exhibition of films distributed by Universal in the amount of
$20,222 for the year ended February 28, 1999.
At February 28, 1998, the Company had debt due to SCA affiliates totaling $296.3
million. This amount was comprised of a promissory note and working capital
advances. The debt due to SCA affiliates carried interest at an intercompany
interest rate determined by SCA (5.9% at February 28, 1998) and was due October
31, 1998. This amount was repaid in conjunction with the closing of the
Combination on May 14, 1998. Interest expense incurred on the "Debt due to SCA
Affiliates" was $6,942, $14,638 and $14,934 for the years ended February 28,
1999, 1998 and 1997, respectively.
In addition to the above related party transactions, SCA affiliates provided
certain services relating
53
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands of U.S. dollars, except as otherwise noted)
to the following activities: Insurance and risk management services, including
excess liability, workman's compensation and officers and directors coverage
among others, benefits administration and payroll processing, and tax processing
services. LCP provides certain services to SCA affiliates relating to the
following activities: Finance, Administrative and MIS support. The net amount
charged to the Company for these services amounted to $610, $570 and $1,207 for
the years ended February 28, 1999, 1998 and 1997, respectively. For the years
ended February 28, 1999, 1998 and 1997, the Company was also charged by a SCA
affiliate for certain administrative related services in the amounts of $115,
$1,835 and $1,667, respectively. The Company believes the costs of the above
mentioned services are commensurate with that which would be charged by third
parties for similar services.
- --------------------------------------------------------------------------------
NOTE 12-INCOME TAXES
- --------------------------------------------------------------------------------
For periods prior to the closing of the Combination, the Company filed a
consolidated income tax return with SCA for federal income tax purposes and
combined tax returns with SCA in certain state and local jurisdictions. However,
for financial reporting purposes, the Company calculated federal, state and
local income taxes as if it filed its income tax returns on a stand-alone basis.
Any federal, state or local income tax liability resulting from the consolidated
or combined filing with SCA is included in the balance sheet under the caption
"Debt due to SCA affiliate."Any state or local income tax liability resulting
from separately filed income tax returns by the Company was recorded as state
and local income taxes payable. For the period after the closing of the
Combination and all future periods, the Company will file a consolidated tax
return for federal income tax purposes, and appropriate state and local tax
returns, independent of SCA.
The provision for income taxes consists of the following:
- --------------------------------------------------------------------------------
FEBRUARY 28,
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Current tax expense/(benefit)
U.S. Federal $ -- $ 4,013 $ 3,269
State and Local (1,321) 2,551 1,832
Foreign 618 -- --
- --------------------------------------------------------------------------------
Total Current (703) 6,564 5,101
Deferred tax expense/(benefit)
U.S. Federal 1,929 (2,744) (2,019)
State and Local 961 (1,069) (787)
- --------------------------------------------------------------------------------
Total tax provision $ 2,187 $ 2,751 $ 2,295
- --------------------------------------------------------------------------------
Reconciliation of the provision for income taxes to the statutory federal income
tax rate follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
FEBRUARY 28,
- ---------------------------------------------------------------------------------------------
1999 % 1998 % 1997 %
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Benefit)/provision on pre-tax
(loss)/income at statutory
federal income tax rate $(1,293) (35.0) $ 914 35.0 $ 741 35.0
(Benefit)/provision for state
and local taxes (net of
federal income tax benefit) (234) (6.3) 963 36.9 679 32.1
Decrease in valuation reserve (1,000) (27.1) -- -- -- --
Impact of foreign operations
(primarily minimum/capital
taxes) 618 16.7 -- -- -- --
Other non-deductible expenses
(primarily amortization
of goodwill and other
intangible assets) 4,096 110.9 874 33.5 875 41.4
- ---------------------------------------------------------------------------------------------
$ 2,187 59.2 $ 2,751 105.4 $ 2,295 108.5
- ---------------------------------------------------------------------------------------------
</TABLE>
54
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands of U.S. dollars, except as otherwise noted)
Significant components of the deferred tax assets and liabilities follow:
- --------------------------------------------------------------------------------
FEBRUARY 28,
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Net deferred tax assets:
- --------------------------------------------------------------------------------
Net operating loss carryforwards $ 206,038 $ --
Contractual obligations 56,642 --
Book/tax fixed asset basis differences 27,687 --
Loss on sale/disposals of theatres 20,143 6,683
Other 16,676 1,812
- --------------------------------------------------------------------------------
327,186 8,495
Less: Valuation allowance (308,379) --
- --------------------------------------------------------------------------------
Total net deferred tax assets 18,807 8,495
Net deferred tax liabilities:
Depreciation and Amortization 18,807 26,794
- --------------------------------------------------------------------------------
Total net deferred tax liabilities 18,807 26,794
- --------------------------------------------------------------------------------
Net Deferred Tax Liability $ -- $ 18,299
- --------------------------------------------------------------------------------
The valuation allowance of $308.4 million as of February 28, 1999 represents a
provision for uncertainty as to the realization of deferred tax assets,
including temporary differences associated with certain contractual obligations,
book/tax fixed asset basis differences and net operating loss ("NOL")
carryforwards. The Company has concluded that based upon expected future
results, it cannot be reasonably assured that the deferred tax asset balance
will be realized. For tax purposes, NOL's of approximately $479.3 million,
expiring between the years 2000 and 2019, are available to offset future taxable
income. A portion of the U.S. NOL carryforwards, in the amount of $267.7
million, is subject to certain limitations and restrictions under the Internal
Revenue Code of 1986, as amended.
No provisions have been made for foreign withholding taxes or United States
income taxes associated with the cumulative undistributed earnings of foreign
subsidiaries as of February 28, 1999, as these earnings are expected to be
reinvested in working capital and other business needs indefinitely. A
determination of the amount of unrecognized deferred tax liability with respect
to such earnings is not practicable. Moreover, any additional taxes payable on
these earnings if remitted, would be substantially offset by U.S. tax credits
for foreign taxes already paid.
- --------------------------------------------------------------------------------
NOTE 13-SEGMENT AND GEOGRAPHIC DATA
- --------------------------------------------------------------------------------
In fiscal 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement requires that the
internal organization that is used by management for making operating decisions
and assessing performance be the source of the Company's reportable segments.
SFAS No. 131 also requires disclosure about products and services, geographic
areas and major customers. The adoption of SFAS No. 131 did not affect results
of operations or financial position.
55
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands of U.S. dollars, except as otherwise noted)
The Company is engaged in one line of business, motion picture exhibition. The
following table presents summarized financial information about the Company by
geographic area. There were no material amounts of sales among geographic areas.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
UNITED INT'L/
STATES CANADA OTHER CONSOLIDATED
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
February 28, 1999
Box office revenue $ 489,980 $ 95,895 $ 1,203 $ 587,078
Concessions $ 186,336 $ 41,586 $ 410 $ 228,332
Total operating revenue $ 703,532 $ 145,148 $ 2,480 $ 851,160
Income/(loss) from operations $ 45,817 $ 9,512 $ (1,806) $ 53,523
Total assets $1,444,547 $ 339,773 $ 21,881 $1,806,201
Capital expenditures $ 113,978 $ 33,220 $ -- $ 147,198
Depreciation and
amortization expense $ 79,744 $ 10,851 $ 125 $ 90,720
February 28, 1998
Box office revenue $ 296,933 $ -- $ -- $ 296,933
Concessions $ 104,009 $ -- $ -- $ 104,009
Total operating revenue $ 413,510 $ -- $ -- $ 413,510
Income from operations $ 16,931 $ -- $ -- $ 16,931
Total assets $ 728,551 $ -- $ -- $ 728,551
Capital expenditures $ 42,431 $ -- $ -- $ 42,431
Depreciation and
amortization expense $ 52,307 $ -- $ -- $ 52,307
February 28, 1997
Box office revenue $ 273,498 $ -- $ -- $ 273,498
Concessions $ 90,643 $ -- $ -- $ 90,643
Total operating revenue $ 375,345 $ -- $ -- $ 375,345
Income from operations $ 16,891 $ -- $ -- $ 16,891
Total assets $ 721,372 $ -- $ -- $ 721,372
Capital expenditures $ 60,920 $ -- $ -- $ 60,920
Depreciation and
amortization expense $ 44,576 $ -- $ -- $ 44,576
- --------------------------------------------------------------------------------------------
</TABLE>
No single customer accounts for more than 10% of total revenues for each of the
three years ended February 28, 1999.
- --------------------------------------------------------------------------------
NOTE 14-STOCK OPTION PLANS
- --------------------------------------------------------------------------------
During fiscal 1998, the Company created the 1997 Stock Incentive Plan ("the
Plan") providing for the granting of options to employees, officers, directors,
consultants, and advisors of the Company or an affiliate. The Plan is
administered by a committee of the Board of Directors (the "Committee"). The
Plan provides for the grants or awards of incentive and non-qualified stock
options, stock appreciation and dividend equivalent rights, restricted stock,
performance units and performance shares. During December 1997, the Company
granted non-qualified stock options to certain key employees. Except in the case
of 500,000 options granted, which vest immediately, the options generally vest
and become exercisable ratably over a five year period, commencing on the first
anniversary of the closing date of the Combination, but in any event, will be
fully vested and exercisable as of the fifth anniversary of the date of grant.
The options generally expire ten years after grant.
Cineplex Odeon had a stock option plan in place prior to the Combination.
Following the Combination, the Cineplex Odeon options were converted to 1.2
million options in LCP shares at an exchange ratio of 10 for 1 and the
historical option prices were converted by a factor of 10 times. The Cineplex
Odeon options denominated in Canadian dollars have been converted utilizing the
exchange rate in effect on the date of conversion. The conversion costs relating
to the Cineplex Odeon options were not material.
56
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands of U.S. dollars, except as otherwise noted)
The following table summarizes information about the stock options outstanding
at February 28, 1999 and 1998 (per share amounts are in whole dollars):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------------------------------
Weighted Weighted
Number Average Number Average
of Shares Exercise Price of Shares Exercise Price
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares under option:
Outstanding at beginning of year 2,170,000 $ 13.125 -- $ --
Granted -- -- 2,170,000 $ 13.125
Cineplex Odeon Options Converted 1,223,843 $ 12.939 -- --
Exercised (19,802) $ 12.910 -- --
Forfeited (37,488) $ 13.063 -- --
- -----------------------------------------------------------------------------------------------
Outstanding at end of year 3,336,553 $ 13.059 2,170,000 $ 13.125
- -----------------------------------------------------------------------------------------------
Options exercisable at year-end 1,626,016 $ 13.000 500,000 $ 13.125
- -----------------------------------------------------------------------------------------------
Weighted average fair value of
options granted/converted $ 8. 24 $ 4.36
- -----------------------------------------------------------------------------------------------
</TABLE>
The Company applies APB No. 25 and related interpretations in accounting for the
Plan. For purposes of the disclosure below, compensation costs for the Plan have
been determined based upon the fair value at the date of grant for awards under
the Plan, consistent with the methodology under SFAS No. 123, utilizing the
Black-Scholes option pricing model based on the following assumptions:
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Expected life(years) 2.58 5.0
Expected volatility 33.98% 23.46%
Expected dividend yield -- --
Risk free interest rate 5.61% 5.77%
- --------------------------------------------------------------------------------
The Company's net loss and loss per share for the years ended February 28, 1999
and 1998 are presented in the pro forma amounts indicated below:
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Net loss As reported $ (5,880) $ (139)
- --------------------------------------------------------------------------------
Pro forma $ (7,323) $ (1,555)
- --------------------------------------------------------------------------------
Loss per share-basic As reported $ (0.12) $ (0.01)
- --------------------------------------------------------------------------------
Pro forma $ (0.15) $ (0.08)
- --------------------------------------------------------------------------------
Loss per share-diluted As reported $ (0.12) $ (0.01)
- --------------------------------------------------------------------------------
Pro forma $ (0.15) $ (0.07)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 15-COMMITMENTS AND CONTINGENCIES
- --------------------------------------------------------------------------------
Commitments
The Company has entered into commitments for the future development and
construction of theatre properties aggregating approximately $390 million
(including letters of credit of approximately $14 million). The Company has also
guaranteed an additional $30 million related to obligations under lease
agreements entered into by MJT. The Company is of the opinion that MJT will be
able to perform its obligations and that no payment will be required and no
losses will be incurred under these guarantees.
ADA Litigation
On or about December 17, 1997, the Disability Rights Council of Greater
Washington and others commenced a lawsuit in the U.S. District Court for the
District of Columbia against Cineplex Odeon and its wholly owned subsidiary
Plitt. The complaint alleges that Cineplex Odeon's theatres in the Washington,
D.C. metropolitan area, which includes Maryland and Virginia, deny persons with
physical disabilities full and equal enjoyment of theatres as a result of
architectural and structural barriers. Furthermore, as a consequence, they
allege that Cineplex Odeon and Plitt are discriminating against
57
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts in thousands of U.S. dollars, except as otherwise noted)
such persons in violation of the Americans with Disabilities Act ("ADA"), and,
where applicable, the District of Columbia Human Rights Act. The plaintiffs are
seeking a judgment with injunctive relief ordering Cineplex Odeon and Plitt to
cease their alleged violation of the ADA, and to bring their facilities into
compliance with the statutes. They also seek compensatory and punitive or
exemplary damages in an unknown amount, in addition to costs and attorneys'
fees. The Company intends to defend this claim vigorously.
The Department of Justice, in coordination with the New York City Commission on
Human Rights, is currently investigating Cineplex Odeon's theatres in New York
City with respect to its compliance with the ADA and the New York City Human
Rights Law. The Department of Justice has alleged that its investigation has
identified numerous violations of the ADA. The Company has opposed, and will
continue to vigorously oppose the allegations and claims of the Department of
Justice with respect to the compliance of these theatres under the ADA. However,
the Company cannot guarantee that the remediation costs relating to the ADA will
not be material.
Environmental Litigation
One of the Company's leased drive-in theatres and one formerly leased drive-in
theatre, both 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 hazard substances. One of
these properties is the subject of an action by the Illinois Attorney General's
office which seeks civil penalties and various forms of equitable relief,
including the removal of all wastes allegedly present at the property, soil and
ground water 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.
Other
Other than the lawsuits noted above, the Company is a defendant in various
lawsuits arising in the ordinary course of business and is involved in certain
environmental matters. It is the opinion of management that any liability to the
Company which may arise as a result of these matters will not have a material
adverse effect on its operating results and financial position.
58
<PAGE>
REPORT OF MANAGEMENT
- --------------------------------------------------------------------------------
TO THE STOCKHOLDERS OF LOEWS CINEPLEX ENTERTAINMENT CORPORATION:
- --------------------------------------------------------------------------------
The accompanying consolidated financial statements of Loews Cineplex
Entertainment Corporation and its subsidiaries have been prepared by management,
who are responsible for the integrity and objectivity of these statements. The
statements have been prepared in conformity with generally accepted accounting
principles and include amounts based on management's best estimates and
judgments.
Management has established and maintains a system of internal control designed
to provide reasonable assurance that errors or irregularities that could be
material to the financial statements are prevented or are detected within a
timely period. The system of internal control includes widely communicated
statements of policies and business practices which are designed to require all
employees to maintain high ethical standards in the conduct of Company affairs.
The internal controls are augmented by policies and procedures that provide for
appropriate delegation of authority and division of responsibility and by a
program of internal audit with management follow-up.
The Audit Committee of the Board of Directors, composed entirely of outside
directors, meets periodically with the Company's independent accountants,
management and internal auditors to review accounting, auditing, internal
accounting controls and financial reporting matters. The independent accountants
and the internal auditors have free access to this committee.
April 30, 1999
/s/ Lawrence J. Ruisi
Lawrence J. Ruisi
President & Chief Executive Officer
/s/ John J. Walker
John J. Walker
Senior Vice President
Chief Financial Officer & Treasurer
/s/ Joseph Sparacio
Joseph Sparacio
Vice President, Finance & Controller
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
- --------------------------------------------------------------------------------
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Loews Cineplex Entertainment Corporation and its subsidiaries (the "Company") at
February 28, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended February 28, 1999, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
April 30, 1999
59
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
(all dollar amounts in thousands of U.S. dollars, except as otherwise noted)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SELECTED QUARTERLY DATA (UNAUDITED)(1)
- ------------------------------------------------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER(2) TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
February 28, 1999*
Revenue $ 117,814 $ 297,459 $ 211,414 $ 224,473 $ 851,160
Income from operations $ 5,244 $ 33,184 $ 233 $ 14,862 $ 53,523
Net (loss)/income $ (743) $ 8,274 $ (12,106) $ (1,305) $ (5,880)
Earnings per share-basic and diluted $ (.03) $ .17 $ (.21) $ (.02) $ (.12)
Stock prices-New York Stock Exchange (US$)
High $ 19.00 $ 15.50 $ 10.69 $ 10.88 $ 19.00
Low $ 15.44 $ 7.88 $ 7.50 $ 8.63 $ 7.50
Stock prices-Toronto Stock Exchange (CDN$)
High $ 27.95 $ 22.80 $ 16.55 $ 16.70 $ 27.95
Low $ 22.70 $ 12.90 $ 11.50 $ 12.45 $ 11.50
February 28, 1998
Revenue $ 93,216 $ 119,644 $ 85,942 $ 114,708 $ 413,510
Income/(loss) from operations $ 3,587 $ 10,764 $ (5,638) $ 8,218 $ 16,931
Net (loss)/income $ (400) $ 3,626 $ (5,412) $ 2,047 $ (139)
Earnings per share-basic and diluted $ (.02) $ .18 $ (.26) $ .10 $ (.01)
Stock prices-New York Stock Exchange (US$)
High N/A N/A N/A N/A N/A
Low N/A N/A N/A N/A N/A
Stock prices-Toronto Stock Exchange (CDN$)
High N/A N/A N/A N/A N/A
Low N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Earnings per share is computed independently for each of the quarters presented.
Therefore, the sum of the quarterly earnings per share do not necessarily equal
the total for the year.
* Results for the fiscal year ended February 28, 1999 include the operating
results for Cineplex Odeon for the period May 15, 1998 through February 28,
1999. Cineplex Odeon became a subsidiary of the Company on May 14, 1998.
N/A-Not applicable since the Company's common stock was first publicly traded on
May 15, 1998.
Notes:
(1) The Company's business is seasonal with a substantial portion of its
revenues being derived during the summer months and holiday season.
(2) Depreciation and amortization costs include adjustments necessary to
reflect the allocation of purchase price to the fair value of Cineplex
Odeon assets acquired and liabilities assumed as part of the Combination.
This allocation of value was substantially completed during the fourth
quarter of the current fiscal year and is expected to be finalized during
the first quarter of fiscal year 2000. As a result, adjustments of
approximately $3.2 million to reduce previous preliminary estimates of
depreciation and amortization expense were recorded in the fourth quarter
of fiscal year 1999.
60
<PAGE>
Corporate Officers
Lawrence J. Ruisi
President and
Chief Executive Officer
Allen Karp
Chairman and
Chief Executive Officer,
Cineplex Odeon Canada
Travis Reid
President,
Loews Cineplex United States
J. Edward Shugrue
President,
Loews Cineplex International
John C. McBride, Jr.
Senior Vice President
and General Counsel
John J. Walker
Senior Vice President,
Chief Financial Officer
and Treasurer
Joseph Sparacio
Vice President,
Finance and Controller
Mindy Tucker
Corporate Vice President,
Strategic Planning
Directors
George A. Cohon 2,4,5
Senior Chairman of McDonald's
Restaurants of Canada Ltd.
and McDonald's - Russia
Nora Ephron 2
Writer/Director/Producer
Marinus N. Henny 1,3
Executive Vice President
and Chief Financial Officer,
Sony Corporation of America
Ronald N. Jacobi
Executive Vice President,
General Counsel and Secretary
Sony Pictures Entertainment
Allen Karp
Chairman and
Chief Executive Officer,
Cineplex Odeon Canada
Senator E. Leo Kolber 1,3
Claridge, Inc.
Kenneth Lemberger 3
President,
Columbia TriStar
Motion Picture Group
Ron Meyer 4
President and
Chief Operating Officer,
Universal Studios, Inc.
Brian C. Mulligan 1
Executive Vice President,
Operations and Finance,
Universal Studios, Inc.
Yuki Nozoe
Executive Vice President,
Sony Pictures Entertainment
Karen Randall 3
Senior Vice President
and General Counsel,
Universal Studios, Inc.
Lawrence J. Ruisi 1
President and
Chief Executive Officer,
Loews Cineplex Entertainment
Hellene Runtagh
Executive Vice President,
Universal Studios, Inc.
Howard Stringer 4
Chairman and
Chief Executive Officer,
Sony Corporation of America
Robert J. Wynne 1
Co-President and
Chief Operating Officer,
Sony Pictures Entertainment
Mortimer B. Zuckerman 2,4,5
Chairman,
Boston Properties
1 Members of Executive Committee
2 Member of Audit Committee
3 Member of Compensation Committee
4 Member of Nominating Committee
5 Member of Stock Option Committee
61
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
SUBSIDIARY State of Incorporation
- ------------------------------------------------------- -----------------------
<S> <C>
1. LTM New York, Inc. Delaware
2. LTM Spanish Holdings Inc. Delaware
3. Loews Theatre Management Corp. Delaware
4. Star Theatres, Inc. Delaware
5. Star Theatres of Michigan, Inc. Delaware
6. Rochester Hills Star Theatres, Inc. Michigan
7. Taylor Star Theatres, Inc. Michigan
8. Loews USA Cinemas Inc. Delaware
9. S & J Theatres Inc. California
10. Hawthorne Amusement Corporation New York
11. Hinsdale Amusement Corporation. New York
12. Loews Bay Terrace Cinemas, Inc. Delaware
13. Loews Boulevard Cinemas, Inc. New York
14. Loews Broadway Cinemas, Inc. New York
15. Loews Crystal Run Cinemas, Inc. New York
16. Loews Dewitt Cinemas, Inc. New York
17. Loews East Village Cinemas, Inc. New York
18. Loews Elmwood Cinemas, Inc. New York
19. Loews Fine Arts Cinemas, Inc. New York
20. Loews Greece Cinemas, Inc. Delaware
21. Loews Levittown Cinemas, Inc. New York
22. Loews Lincoln Theatre Holding Corp. New York
23. Loews Monroe Cinema, Inc. Delaware
24. Loews Orpheum Cinemas, Inc. New York
25. Loews Palisades Center Cinemas, Inc. New York
26. Loews Paradise Cinemas, Inc. New York
27. Loews Pittsford Cinemas, Inc. Delaware
28. Loews Roosevelt Field Cinemas, Inc. New York
29. Loews South Shore Cinemas, Inc. Delaware
30. Loews Stonybrook Cinemas, Inc. Delaware
31. Loews 34th St. Showplace Cinemas, Inc. New York
32. Loews Towne Cinemas, Inc. New York
33. Loews Trylon Theatre, Inc. New York
</TABLE>
<PAGE>
<TABLE>
<S> <C>
34. Loews Westgate Cinemas, Inc. New York
35. Poli-New England Theatres, Inc. Delaware
36. Putnam Theatrical Corporation New York
37. 71st & 3rd Ave. Corp. New York
38. Tri-Son Supply Corp. New York
39. Westchester Cinemas, Inc. New York
40. Cinema 275 East, Inc. Ohio
41. Cityplace Cinemas, Inc. Texas
42. Colorado Cinemas, Inc. Colorado
43. Crestwood Cinemas, Inc. Illinois
44. District Amusement Corporation New York
45. Eton Amusement Corporation New York
46. Forty-Second Street Cinemas, Inc. New York
47. Fountain Cinemas, Inc. Texas
48. Gerard Theatre Corporation New York
49. Kips Bay Cinemas, Inc. Delaware
50. Lance Theatre Corporation New York
51. Liberty Tree Cinema Corp. Massachusetts
52. Loews Akron Cinemas, Inc. Delaware
53. Loews Arlington Cinemas, Inc. Delaware
54. Loews Arlington West Cinemas, Inc. Texas
55. Loews Astor Plaza, Inc. New York
56. Loews Baltimore Cinemas, Inc. Maryland
57. Loews Berea Cinemas, Inc. Delaware
58. Loews California Theatres, Inc. New York
59. Loews Cedar Cinemas, Inc. Delaware
60. Loews Centerpark Cinemas, Inc. Maryland
61. Loews Century Mall Cinemas, Inc. Indiana
62. Loews Cheri Cinemas, Inc. Massachusetts
63. Loews Cherry Tree Mall Cinemas, Inc. Indiana
64. Loews Chicago Cinemas, Inc. Illinois
65. Loews Chisholm Place Cinemas, Inc. Texas
66. Loews Cinemas Advertising, Inc. Illinois
67. Loews Clarksville Cinemas, Inc. Indiana
68. Loews Connecticut Cinemas, Inc. Connecticut
69. Loews Coral Spring Cinemas, Inc. Florida
70. Loews Deauville Gulf Cinemas, Inc. Texas
71. Loews Deauville Kingwood Cinemas, Inc. Texas
72. Loews Deauville North Cinemas, Inc. Texas
73. Loews Deauville Southwest Cinemas, Inc. Texas
74. Loews East Hanover Cinemas, Inc. New Jersey
75. Loews Exhibition Ride Inc. Delaware
</TABLE>
- 2 -
<PAGE>
<TABLE>
<S> <C>
76. Loews Fort Worth Cinemas, Inc. Texas
77. Loews Freehold Mall Cinemas, Inc. New Jersey
78. Loews Fresh Pond Cinemas, Inc. Massachusetts
79. Loews Front Street Cinemas, Inc. Pennsylvania
80. Loews Fuqua Park Cinemas, Inc. Texas
81. Loews Greenwich Cinemas, Inc. Connecticut
82. Loews Greenwood Cinemas, Inc. Delaware
83. Loews Harmon Cove Cinemas, Inc. New Jersey
84. Loews Houston Cinemas, Inc. Texas
85. Loews I-45 Cinemas, Inc. Texas
86. Loews Indiana Cinemas, Inc. Indiana
87. Loews Kentucky Cinemas, Inc. Kentucky
88. Loews Lafayette Cinemas, Inc. Indiana
89. Loews Lincoln Plaza Cinemas, Inc. Texas
90. Loews Louisville Cinemas, Inc. Kentucky
91. Loews Meadowland Cinemas 8, Inc. New Jersey
92. Loews Meadowland Cinemas, Inc. New Jersey
93. Loews Memorial City Cinemas, Inc. Texas
94. Loews Merrillville Cinemas, Inc. Illinois
95. Loews Montgomery Cinemas, Inc. Pennsylvania
96. Loews Mountainside Cinemas, Inc. New Jersey
97. Loews New Jersey Cinemas, Inc. New Jersey
98. Loews Newark Cinemas, Inc. New Jersey
99. Loews Norgate Cinemas, Inc. Indiana
100. Loews Norwalk Cinemas, Inc. Connecticut
101. Loews Operational Ride Theaters Inc. Delaware
102. Loews Orland Park Cinemas, Inc. Illinois
103. Loews Park Central Cinemas, Inc. Texas
104. Loews Pembroke Pines Cinemas, Inc. Florida
105. Loews Pentagon City Cinemas, Inc. Virginia
106. Loews Piper's Theatres, Inc. Illinois
107. Loews Pocono Cinemas, Inc. Pennsylvania
108. Loews Preston Park Cinemas, Inc. Texas
109. Loews Richmond Mall Cinemas, Inc. Ohio
110. Loews Ridgefield Park Cinemas, Inc. New Jersey
111. Loews Rolling Meadows Cinemas, Inc. Illinois
112. Loews Saks Cinemas, Inc. Delaware
113. Loews Showboat Cinemas, Inc. New Jersey
114. Loews Southland Cinemas, Inc. Delaware
115. Loews Theatres Clearing Corp. Delaware
116. Loews Toms River Cinemas, Inc. New Jersey
117. Loews Vestal Cinemas, Inc. Delaware
</TABLE>
- 3 -
<PAGE>
<TABLE>
<S> <C>
118. Loews Washington Cinemas, Inc. Delaware
119. Loews West Cinemas, Inc. Delaware
120. Loews West Long Branch Cinemas, Inc. New Jersey
121. Loews Westerville Cinemas, Inc. Delaware
122. Loews Westport Cinemas, Inc. Connecticut
123. Loews Williston Cinemas, Inc. Vermont
124. Loews Worldgate Cinemas, Inc. Virginia
125. Loews Yorktown Cinemas, Inc. Delaware
126. Loews-Hartz Music Makers Theatres, Inc. New Jersey
127. Andy Candy Co., Inc. New Jersey
128. Castle Theatre Corp. Delaware
129. Cinnaminson Theatre Corp. New Jersey
130. Circle Twin Cinema Corp. New Jersey
131. Freehold Cinema Center, Inc. New Jersey
132. Middlebrook Theatre Corporation New Jersey
133. Music Makers Theatres, Inc. New Jersey
134. Berkeley Cinema Corp. New Jersey
135. Brick Plaza Cinemas, Inc. New Jersey
136. Bricktown Picture Corp. New Jersey
137. College Theatre Corp. New Jersey
138. New Brunswick Cinemas, Inc. New Jersey
139. Crofton Quad Corporation Maryland
140. H&M Cinema Corporation Maryland
141. East Windsor Picture Corp. New Jersey
142. Eatontown Theatre Corp. New Jersey
143. Freehold Picture Corp. New Jersey
144. Mall Picture Corp. New Jersey
145. Paramay Picture Corp. New Jersey
146. Toms River Theatre Corp. New Jersey
147. Quad Cinema Corp. New Jersey
148. Red Bank Theatre Corporation New Jersey
149. Stroud Mall Cinemas, Inc. Pennsylvania
150. Triangle Theatre Corp. Delaware
151. Massachusetts Cinema Corp. Massachusetts
152. Minnesota Cinemas, Inc. Minnestoa
153. Nutmeg Theatre Circuit, Inc. Delaware
154. Parkchester Amusement Corporation New York
155. Parsippany Theatre Corp. New Jersey
156. Plainville Cinemas, Inc. Connecticut
157. Talent Booking Agency, Inc. New York
158. Theatre Holdings, Inc. Delaware
159. Crescent Advertising Corporation New York
</TABLE>
- 4 -
<PAGE>
<TABLE>
<S> <C>
160. Downstate Theatre Corporation New York
161. Fall River Cinema, Inc. Massachusetts
162. Loews Brookfield Cinemas, Inc. Connecticut
163. Loews Post Cinemas, Inc. Connecticut
164. Midstate Theatre Corp. New York
165. U.S.A. Cinemas, Inc. Delaware
166. Loews Bristol Cinemas, Inc. Connecticut
167. Loews Burlington Cinemas, Inc. Vermont
168. Loews Holiday Cinemas, Inc. Connecticut
169. Loews Mohawk Mall Cinemas, Inc. New York
170. Mid-States Theatres, Inc. Ohio
171. Beaver Valley Cinemas, Inc. Ohio
172. Campus Cinemas, Inc. Kentucky
173. Cine West, Inc. Ohio
174. Cinema Development Corporation Ohio
175. Cinema Investments, Inc. Ohio
176. Continent Cinemas, Inc. Ohio
177. D.H. Garfield Advertising Agency, Inc. Ohio
178. Flat Woods Theater Corporation Kentucky
179. I-75 Theatres, Inc. Kentucky
180. J-Town Cinemas, Inc. Kentucky
181. Lexington Mall Cinemas Corporation Kentucky
182. Lexington North Park Cinemas, Inc. Kentucky
183. Lexington South Park Cinemas, Inc. Kentucky
184. Mickey Amusements, Inc. Ohio
185. Midcin Inc. Kentucky
186. Midtown Cinema, Inc. Kentucky
187. Montclair Cinemas, Inc. Ohio
188. Oxmoor Cinemas, Inc. Kentucky
189. Plaza Cinemas, Inc. Ohio
190. Raceland Cinemas, Inc. Kentucky
191. Salem Mall Theatre, Inc. Ohio
192. Sycamore Theatre, Inc. Ohio
193. Times Theatres Corporation Ohio
194. Towne Center Cinemas, Inc. Ohio
195. Tri-County Cinemas, Inc. Ohio
196. Westland Cinemas, Inc. Kentucky
197. Moviehouse Cinemas, Inc. Connecticut
198. Nickelodeon Boston, Inc. Massachusetts
199. Northern New England Theatres, Inc. Massachusetts
200. Sack Theatres, Inc. Massachusetts
201. Village Cinemas, Inc. New York
</TABLE>
- 5 -
<PAGE>
<TABLE>
<S> <C>
202. Webster Chicago Cinemas, Inc. Illinois
203. White Marsh Cinemas, Inc. New Jersey
204. Woodridge Cinemas, Inc. Illinois
206. Plitt Theatres, Inc. Delaware
207. RKO Century Warner Theatres, Inc. Delaware
208. The Walter Reade Organization, Inc. Delaware
209. Plitt Southern Theatres, Inc. Delaware
210. Cineplex Odeon Films, Inc. Delaware
211. Cineplex Odeon Films International, Inc. Delaware
212. C.O.H. Entertainment, Inc. Delaware
213. Sedgwick Music Company California
214. Boston Cinemas, Inc. Massachusetts
215. Illinois Cinemas, Inc. Illinois
216. Loews Citywalk Theatre Corporation California
217. Methuen Cinemas, Inc. Massachusetts
218. North Star Cinemas, Inc. Illinois
219. Rosemont Cinemas, Inc. Illinois
220. South Holland Cinemas, Inc. Illinois
221. Woodfield Cinemas, Inc. Illinois
222. Cineplex Odeon Corporation Canada
223. Cineplex Odeon (Quebec) Inc. Canada
224. 158983 Canada Inc. Canada
225. Les Films Cineplex Odeon Quebec Inc. Quebec
226. 619918 Ontario Ltd. (Canada Square) Ontario
227. 796278 Ontario Limited Ontario
228. 796279 Ontario Limited Ontario
229. 1002817 Ontario Limited Ontario
230. 1002818 Ontario Limited Ontario
231. 140075 Canada Limited/Ltee. Canada
232. Cine Parc Mercier Inc. Quebec
233. The Film House Group Inc. Ontario
234. Cineplex Odeon International B.V. Netherlands
235. Cineplex Odeon (Barbados) Inc. Barbados
236. Cineplex Odeon Hungary KFT Hungary
237. LTM Spain, S.L. Spain
238. Cineplex Odeon s.r.o. Czech Republic
239. Europlex LCE KinobetriebsgmbH Austria
</TABLE>
- 6 -
<PAGE>
[LETTERHEAD OF PRICEWATERHOUSECOOPERS]
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-52453) of Loews Cineplex Entertainment
Corporation of our report dated April 30, 1999 relating to the financial
statements, which appears in the Annual Report to Shareholders, which is
incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report dated April 30, 1999 relating to the
financial statement schedules, which appears in this Form 10-K.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
May 24, 1999
<PAGE>
[LETTERHEAD OF KPMG]
AUDITORS' REPORT
To the Board of Directors of Cineplex Odeon Corporation
We consent to incorporation by reference in the registration statement (No. 333-
52453) on Form S-8 of Loews Cineplex Entertainment Corporation pertaining to the
Loews Cineplex Entertainment Corporation 1997 Stock Incentive Plan of our report
dated February 13, 1998, relating to the consolidated balance sheets of Cineplex
Odeon Corporation as of December 31, 1997 and 1996, and the related consolidated
statements of income, changes in shareholders' equity and changes in cash
resources for each of the years in the three-year period ended December 31,
1997, which is incorporated by reference in the Annual Report on Form 10K of
Loews Cineplex Entertainment Corporation for the year ended February 28, 1999.
/s/ KPMG LLP
Chartered Accountants
Toronto, Canada
May 20, 1999
<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 FISCAL
YEAR ENDED FEBRUARY 28, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> FEB-28-1999
<EXCHANGE-RATE> 1
<CASH> 48,174
<SECURITIES> 0
<RECEIVABLES> 28,590
<ALLOWANCES> 0
<INVENTORY> 4,462
<CURRENT-ASSETS> 85,267
<PP&E> 1,452,017
<DEPRECIATION> 332,040
<TOTAL-ASSETS> 1,806,201
<CURRENT-LIABILITIES> 197,094
<BONDS> 690,301
0
0
<COMMON> 587
<OTHER-SE> 664,709
<TOTAL-LIABILITY-AND-EQUITY> 1,806,201
<SALES> 228,332
<TOTAL-REVENUES> 851,160
<CGS> 35,557
<TOTAL-COSTS> 654,503
<OTHER-EXPENSES> 143,134
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,216
<INCOME-PRETAX> (3,693)
<INCOME-TAX> 2,187
<INCOME-CONTINUING> (5,880)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,880)
<EPS-BASIC> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
<PAGE>
Report of Independent Accountants on
Financial Statement Schedules
To the Board of Directors of
Loews Cineplex Entertainment Corporation
Our audits of the consolidated financial statements referred to in our
report dated April 30, 1999 appearing in the 1999 Annual Report to Shareholders
of Loews Cineplex Entertainment Corporation (which report and consolidated
financial statements are incorporated by reference in this Annual Report on
Form 10-K) also included an audit of the financial statement schedules listed
in Item 14(a)(2) of this Form 10-K. In our opinion, these financial statement
schedules present fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
April 30, 1999
<PAGE>
SCHEDULE II
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
Balance Additions
at (Charged Balance
Beginning to Deductions at
of Costs and and Other End of
Period Expenses) Charges Period
--------- --------- ---------- -------
<S> <C> <C> <C> <C>
Year Ended February 28, 1999
Reserve for net book value of property,
equipment and leaseholds.............. $5,999 $4,800 $3,490 $7,309
Reserve for other costs................ $3,797 $1,050 $ 803 $4,044
Year Ended February 28, 1998
Reserve for net book value of property,
equipment and leaseholds.............. $3,979 $4,409 $2,389 $5,999
Reserve for other costs................ $ 0 $4,656 $ 859 $3,797
Year Ended February 28, 1997
Reserve for net book value of property,
equipment and leaseholds.............. $4,663 $4,036 $4,720 $3,979
</TABLE>
1
