<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1998
Commission file number 1-14099
Loews Cineplex Entertainment Corporation
----------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-3386485
---------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
711 Fifth Avenue
New York, New York 10022
---------------------------------- ---------------------------
(Address of Principal (Zip Code)
Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 833-6200
--------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---
Common Stock outstanding (including non-voting common stock) - 58,622,646 shares
at November 30, 1998
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
INDEX
<TABLE>
<CAPTION>
Page Number
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets 3
Unaudited Consolidated Statements of Operations 4
Unaudited Consolidated Statements of Cash Flows 5
Notes to Unaudited Consolidated Financial Statements 6 - 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 14 - 20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 21
ITEM 2. CHANGES IN SECURITIES 21
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 21
ITEM 5. OTHER INFORMATION 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 22 - 23
SIGNATURES 24
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
November 30, February 28,
1998 1998
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 51,333 $ 9,064
Accounts receivable 18,841 5,479
Inventories 3,384 1,146
Prepaid expenses and other current assets 1,886 2,520
---------- --------
TOTAL CURRENT ASSETS 75,444 18,209
PROPERTY, EQUIPMENT AND LEASEHOLDS, NET 1,170,143 609,152
EXCESS PURCHASE PRICE, NET 294,564 -
OTHER ASSETS
Investments in and advances to partnerships 43,611 31,763
Goodwill, net 82,445 53,143
Other intangibles assets, net 6,241 6,005
Deferred charges and other assets 42,477 10,279
---------- --------
TOTAL ASSETS $1,714,925 $728,551
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 217,319 $ 59,871
Due to Sony affiliates - 3,810
Deferred revenue 20,833 3,063
Current maturities of long-term debt and other obligations 3,802 250
Current portion of capital leases 2,517 520
---------- --------
TOTAL CURRENT LIABILITIES 244,471 67,514
DEFERRED INCOME TAXES 18,299 18,299
LONG-TERM DEBT AND OTHER OBLIGATIONS 715,468 -
LONG-TERM CAPITAL LEASE OBLIGATIONS 45,686 10,513
DEBT DUE TO SONY AFFILIATES - 292,523
PENSION AND OTHER POST RETIREMENT OBLIGATIONS 9,335 3,791
OTHER LIABILITIES 14,387 11,400
---------- --------
TOTAL LIABILITIES 1,047,646 404,040
---------- --------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY
Common stock ($.01 par value, 300,000,000 shares authorized; 58,538,646
shares issued and outstanding at November 30, 1998 and 19,270,321 shares
issued and outstanding at February 28, 1998) 586 193
Common stock-Class A non-voting ($.01 par value, 10,000,000 authorized;
nil issued and outstanding at November 30, 1998 and 1,202,486 issued and
outstanding at February 28, 1998) - 12
Common stock-Class B non-voting ($.01 par value, 10,000,000 shares authorized;
84,000 shares issued and outstanding at November 30, 1998 and nil issued and
outstanding at February 28, 1998) 1 -
Accumulated other comprehensive income:
Foreign currency translation adjustment (4,384) -
Additional paid-in capital 671,707 299,277
Retained (deficit)/earnings (631) 25,029
---------- --------
TOTAL STOCKHOLDERS' EQUITY 667,279 324,511
---------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,714,925 $728,551
========== ========
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
3
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
---------------------------- ----------------------------
November 30, November 30, November 30, November 30,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES
Box office $ 147,305 $ 62,682 $ 437,368 $ 215,676
Concessions 57,428 21,124 169,962 75,000
Other 6,681 2,136 19,357 8,126
----------- ----------- ----------- -----------
211,414 85,942 626,687 298,802
----------- ----------- ----------- -----------
EXPENSES
Theatre operations and other expenses 158,950 64,389 454,508 213,384
Cost of concessions 9,241 3,576 26,896 11,841
General and administrative 12,518 7,676 34,400 20,132
Depreciation and amortization 26,905 13,189 67,653 38,794
Loss on sale/disposal of theatres 3,567 2,750 4,569 5,938
----------- ----------- ----------- -----------
211,181 91,580 588,026 290,089
----------- ----------- ----------- -----------
INCOME/(LOSS) FROM OPERATIONS 233 (5,638) 38,661 8,713
INTEREST EXPENSE 16,801 3,655 39,323 10,998
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES (16,568) (9,293) (662) (2,285)
INCOME TAX (BENEFIT)/EXPENSE (4,462) (3,881) 3,913 (99)
----------- ----------- ----------- -----------
NET LOSS $ (12,106) $ (5,412) $ (4,575) $ (2,186)
=========== =========== =========== ===========
Weighted Average Shares Outstanding
basic & diluted (A) 58,622,646 20,472,807 44,238,506 20,472,807
Earnings per share - basic & diluted $(.21) $(.26) $(.10) $(.11)
===== ===== ===== =====
</TABLE>
(A) The periods ended November 30, 1997 have been restated to reflect a stock
dividend declared on February 5, 1998.
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
4
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
For the Nine
------------
Months Ended
------------
November 30, November 30,
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (4,575) $ (2,186)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 67,653 38,794
Loss on sale/disposal of theatres 4,569 5,938
Equity earnings from long-term investments, net of distributions
received 838 748
Changes in operating assets and liabilities:
Decrease in amounts due to SCA affiliates - (190)
Decrease in deferred taxes - (491)
Increase in accounts receivable (3,176) (705)
Increase in accounts payable and accrued expenses 7,898 901
Increase/(decrease) in other operating assets and liabilities, net 6,480 (3,143)
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 79,687 39,666
--------- --------
INVESTING ACTIVITIES
Investments in partnerships, net (12,590) (6,032)
Capital expenditures (75,477) (30,972)
Merger related costs (23,731) -
--------- --------
NET CASH USED IN INVESTING ACTIVITIES (111,798) (37,004)
--------- --------
FINANCING ACTIVITIES
(Repayment)/Borrowings of debt due to Sony affiliates (299,487) 16,233
Proceeds from senior credit facility 500,000 -
Repayment of senior credit facility and long-term debt, net of borrowings (278,360) (374)
Deferred financing fees on bank credit facility (5,999) -
Repayment of Plitt Theatres, Inc. notes (215,907) -
Proceeds of new note offering, net of deferred financing fees 289,263 -
Proceeds of issuance of common stock, net of offering expenses 102,991 -
Proceeds from issuance of common stock to Universal upon Combination 84,500 -
Dividend paid to Sony affiliate on Combination (102,621) -
--------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 74,380 15,859
--------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 42,269 18,521
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 9,064 2,160
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 51,333 $ 20,681
========= ========
Supplemental Cash Flow Information:
Income taxes paid, net of refunds received $ 1,894 $ 1,780
========= ========
Interest paid (including $6,942 and $6,446 paid to Sony affiliates) $ 30,094 $ 14,754
========= ========
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
5
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
NOTE 1 -- THE COMPANY AND BASIS OF PRESENTATION
- -----------------------------------------------
Loews Cineplex Entertainment Corporation ("LCP" or the "Company", formerly LTM
Holdings, Inc.), is a major motion picture theatre exhibition company with
operations in North America and Europe. The Company conducts business under the
Loews Theatres, Sony Theatres, Cineplex Odeon Theatres, Star Theatres, Magic
Johnson Theatres and Yelmo Cineplex Theatres marquees. As of November 30, 1998,
LCP owns, or has interests in, and operates 2,880 screens at 449 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.
Investments in partnerships are recorded under the equity method of accounting
whereby 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.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information; therefore, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included.
The business combination with Cineplex Odeon Corporation ("Cineplex" or
"Cineplex Odeon") has been accounted for under the purchase method of
accounting, and, therefore, the unaudited consolidated financial statements for
the nine months ended November 30, 1998 include the operating results of
Cineplex Odeon following the date of combination (May 14, 1998) to November 30,
1998. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form 10-K for
the year ended February 28, 1998.
NOTE 2 -- BUSINESS COMBINATION
- ------------------------------
On May 14, 1998, pursuant to the Amended and Restated Master Agreement (the
"Master Agreement"), dated September 30, 1997, LTM Holdings, Inc. and Cineplex
Odeon, another motion picture exhibitor with operations in the U.S. and Canada,
combined (the "Combination"). As called for in the Master Agreement, on the date
of the Combination, the outstanding common shares of Cineplex Odeon were
exchanged for LCP shares on a ten for one basis.
6
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
NOTE 2 -- CONTINUED
- -------------------
At the closing of the Combination, the Company issued 7,264,642 shares of Common
Stock and 80,000 shares of Class B Non-Voting Common Stock to Universal Studios,
Inc. ("Universal"), 4,324,003 shares of Common Stock and 4,000 shares of Class B
Non-Voting Common Stock to the Charles Rosner Bronfman Family Trust and certain
related shareholders (the "Claridge Group") and 6,111,269 shares of common stock
to the other shareholders of record of Cineplex Odeon, for an aggregate value of
approximately $266.6 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 Sony Pictures Entertainment Inc. ("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.
The Combination has been accounted for under the purchase method of accounting
and, accordingly, the cost to acquire Cineplex Odeon will be allocated to the
assets acquired and liabilities assumed of Cineplex Odeon based on their
respective fair values, with the excess to be allocated to goodwill. The Company
has arranged for an independent valuation and other studies required to
determine the fair value of the assets acquired and liabilities assumed. These
valuations and studies have not been completed and, accordingly, the balances
reflected in the unaudited consolidated statement of financial position as of
November 30, 1998 are preliminary and subject to further revision and
adjustments. For purposes of these unaudited consolidated financial statements,
the carrying value of the Cineplex Odeon net assets acquired was assumed to
approximate fair value. Therefore, the $294.6 million of excess purchase price
over the historical net book value of the net assets of Cineplex Odeon
(excluding approximately $31 million of historical goodwill) has been classified
on the unaudited consolidated balance sheet as Excess Purchase Price. The
related amortization expense reflected in the unaudited consolidated statement
of operations and the following unaudited pro forma results of operations for
the nine month period ended November 30, 1998 has been recorded on a straight
line basis over a forty year period.
Upon completion of the determination of fair value, the Excess Purchase Price
will be allocated to specific assets and liabilities of Cineplex Odeon. It is
anticipated that there will be reductions in the carrying value associated with
certain assets, and alternatively the fair value of certain other assets and
liabilities may exceed carrying value. Accordingly, the final valuation could
result in materially different amounts and allocations of Excess Purchase Price
from the amounts and allocations reflected in the following unaudited pro forma
results of operations and the unaudited consolidated financial statements,
primarily between goodwill, property, equipment and leaseholds and certain
liabilities, resulting in corresponding changes in depreciation and amortization
amounts. For every one million dollars of Excess Purchase Price allocated to
fixed assets, depreciation and amortization will increase $25 thousand annually
(assuming an average 20 year service life for fixed assets and straight line
depreciation). Based on preliminary estimates of fair value related to certain
assets and liabilities, additional Excess Purchase Price of between $75 million
and $125 million could result at the conclusion of the valuation. The Company
currently anticipates that the necessary valuations and related allocations will
be completed during the first quarter of fiscal year 2000.
7
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
NOTE 2 - CONTINUED
- ------------------
In conjunction with the Combination, the Company made a payment to SPE and its
affiliates 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. Under the
requirements of the Combination the Company was required to make a final payment
to SCA affiliates. This final payment was subject to post-closing audit
procedures which were completed during the third quarter. On November 17, 1998
the Company made the final payment to SCA affiliates in the form of a dividend
in the amount of $22.5 million.
The unaudited condensed pro forma results of operations presented below assume
that the Combination occurred at the beginning of each period presented. The
unaudited pro forma information is not necessarily indicative of the combined
results of operations of LCP and Cineplex Odeon that would have occurred if the
transaction had occurred on the dates previously indicated, and they are not
necessarily indicative of the future operating results of the combined company.
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
November 30, November 30,
1998 1997
------------ ------------
<S> <C> <C>
Revenues $ 723,198 $ 712,400
=========== ===========
Net loss $ (17,926) $ (28,375)
=========== ===========
Pro forma net loss
per common share $ (.31) $ (.48)
=========== ============
Actual net loss per common share* $ (.10) $ (.11)
=========== ============
</TABLE>
* Presented for comparative purposes only.
On October 15, 1998, the Company announced that in order to meet certain
regulatory requirements it had modified the terms of the previously announced
sale to Cablevision Systems Corp. ("Cablevision") of certain theatres in the New
York City, Chicago and suburban New York areas. The Company had originally
announced the sale of 105 screens in 31 locations in the New York City, Chicago
and suburban New York areas for $92 million. The sale of the theatres in New
York City and Chicago was subject to approval by the Department of Justice
("DOJ"), in accordance with the terms of an agreement reached to permit the
merger of the Loews Theatres Exhibition Group with Cineplex Odeon. The DOJ
indicated that it would not approve Cablevision as a buyer of the theatres in
Chicago. Under the terms of a revised agreement, Cablevision has agreed to
purchase 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. In December 1998, the Company
completed the transfer of 40 of these screens for aggregate cash proceeds of
$65.8 million.
The Company has entered into an agreement with a third party buyer to sell the
49 screens at 11 theatre locations in Chicago which were also part of the DOJ
order. The pending sale, which has been approved by the DOJ, is subject to
certain other third party approvals.
8
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
NOTE 3 -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
- -----------------------------------------------
Accounts payable and accrued expenses consist of:
<TABLE>
<CAPTION>
November 30, February 28,
1998 1998
------------ ------------
<S> <C> <C>
Accounts payable - trade $ 99,256 $ 36,924
Accrued expenses and other 118,063 22,947
------------ ------------
$ 217,319 $ 59,871
============ ============
</TABLE>
At November 30, 1998, accrued expenses and other include $67.5 million of
contractual obligations and other liabilities relating to the Combination.
NOTE 4 -- LONG-TERM DEBT AND OTHER OBLIGATIONS
- ----------------------------------------------
Long-term debt and other obligations consist of:
<TABLE>
<CAPTION>
November 30, February 28,
1998 1998
------------ ------------
<S> <C> <C>
Bankers Trust Senior Revolving Credit Facility with an average
interest rate of 7.07% at November 30, 1998, due 2003 $ 403,000 $ -
Loews Cineplex Senior Subordinated Notes with interest at 8 7/8%
due 2008, net of original issue discount 297,634 -
Plitt Theatres, Inc. Senior Subordinated Notes with interest at
10.875% due 2004 2,300 -
Mortgages payable-non-recourse, payable from 1998 through 2008.
Interest rates from 5.61% to 11.5% 16,336 250
Debt due to SCA affiliate with interest at 5.90% - repaid by the
Company concurrent with the closing of the Combination on
May 14, 1998 - 296,333
------------ ------------
719,270 296,583
Less: Current maturities 3,802 4,060
------------ ------------
$ 715,468 $ 292,523
============ ============
</TABLE>
On May 14, 1998, in connection with the Combination, the Company entered into a
$1 billion senior revolving credit facility with Bankers Trust Company, as
administrative agent (the "Senior Revolving Credit Facility"). The new Senior
Revolving Credit Facility has been used to repay all intercompany amounts due to
Sony Corporation of America ("SCA") and affiliates and has replaced Cineplex
Odeon's existing credit facility. This Senior Revolving Credit Facility is
comprised of two tranches, a $750 million senior secured revolving credit
facility, secured by substantially all of the assets of LCP and its
subsidiaries, and a $250 million uncommitted facility. The Senior Revolving
Credit Facility bears interest at a rate of either the current prime rate as
offered by Bankers Trust Company or an Adjusted Eurodollar rate plus an
applicable margin based on the Company's Leverage Ratio (as defined in the
credit agreement). The senior credit facility includes various financial
covenants.
9
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
NOTE 4 -- CONTINUED
- -------------------
On October 13, 1998, the Company commenced an offering to exchange up to $300
million aggregate principal amount of its 8 7/8% Senior Subordinated Notes Due
2008, which were registered under the Securities Act of 1933, as amended (the
"New Notes") for a like principal amount of its issued 8 7/8% Senior
Subordinated Notes Due 2008 (the "Old Notes"). The exchange offer was completed
on November 19, 1998 with 100% of its issued Old Notes having been exchanged for
a like principal amount of New Notes.
Interest Rate Swaps
- -------------------
In August 1998, the Company entered into interest rate exchange agreements for a
term of four years (expiring in August 2002). As a result of these agreements
the Company has a fixed LIBOR rate of 5.77% per annum (plus the applicable
margin) on a notional amount of $250 million of indebtedness. Each swap has a
quarterly reset date for settlements. The Company is accounting for these swaps
as interest rate hedges.
NOTE 5 -- EARNINGS PER SHARE
- ----------------------------
In 1997, the Financial Accounting Standards Board issued Statement of Accounting
Standards ("SFAS") No. 128, "Earnings per Share." SFAS No. 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented, and where appropriate, restated, to conform
with the requirements of SFAS No. 128. For the three and nine months ended
November 30, 1998 the Company is only required to disclose basic earnings per
share.
10
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
NOTE 6 -- STOCKHOLDERS' EQUITY
- -------------------------------
The following table reconciles the Company's stockholders' equity for the period
from February 28, 1998 to November 30, 1998:
<TABLE>
<CAPTION>
Class A Class B Cumulative
Voting Non-voting Non-voting Translation
Shares Amount Shares Amount Shares Amount Adjustment
------ ------ ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at February 28, 1998 19,270,321 $193 1,202,486 $ 12 - $ - $ -
Net loss through
May 14, 1998 - - - - - - -
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 18,778 - - - - - -
Dividend to SCA affiliates - - - - - - -
---------- ---- ---------- ---- ------ ---- --------
Balance at May 14, 1998 44,079,924 441 1,202,486 12 84,000 1 -
Net income from May 15,
to May 31, 1998 - - - - - - -
---------- ---- ---------- ---- ------ ---- --------
Balance at May 31, 1998 44,079,924 441 1,202,486 12 84,000 1 -
Exercise of Stock Options 1,024 - - - - - -
Issuance of shares in
Public Offering, net of
costs and expenses 10,000,000 100 - - - - -
Automatic conversion of
SPE Class A non-
voting shares to
common shares 1,202,486 12 (1,202,486) (12) - - -
Issuance of shares to
Universal under an
anti-dilution agreement 3,255,212 33 - - - - -
Foreign currency
translation adjustment - - - - - - (7,382)
Net income for three
months ended
August 31, 1998 - - - - - - -
---------- ---- ---------- ---- ------ ---- --------
Balance at August 31, 1998 58,538,646 586 - - 84,000 1 (7,382)
---------- ---- ---------- ---- ------ ---- --------
Dividend to SCA affiliates - - - - - - -
Foreign currency
translation adjustment - - - - - - 2,998
Net income for three
months ended
November 30, 1998 - - - - - - -
---------- ---- ---------- ---- ------ ---- --------
Balance at November 30, 1998 58,538,646 $586 - $ - 84,000 $ 1 $ (4,384)
========== ==== ========== ==== ====== ==== ========
<CAPTION>
Additional Retained
Paid-in Earnings
Capital /Deficit
------- --------
<S> <C> <C>
Balance at February 28, 1998 $299,277 $25,029
Net loss through
May 14, 1998 - (3,944)
Exchange of existing
Cineplex Odeon
shares in conjunction
with the Combination 266,579 -
Issuance of shares to
Universal under a
subscription agreement 84,456 -
Issuance of shares to SCA
affiliates for Star
Theatres and S&J
Theatres (27) -
Exercise of Stock Options 351 -
Dividend to SCA affiliates (59,023) (21,085)
-------- -------
Balance at May 14, 1998 591,613 -
Net income from May 15,
to May 31, 1998 - 3,201
-------- -------
Balance at May 31, 1998 591,613 3,201
Exercise of Stock Options 15 -
Issuance of shares in
Public Offering, net of
costs and expenses 102,625 -
Automatic conversion of
SPE Class A non-
voting shares to
common shares - -
Issuance of shares to
Universal under an
anti-dilution agreement (33) -
Foreign currency
translation adjustment - -
Net income for three
months ended
August 31, 1998 - 8,274
-------- -------
Balance at August 31, 1998 694,220 11,475
-------- -------
Dividend to SCA affiliates (22,513) -
Foreign currency
translation adjustment - -
Net income for three
months ended
November 30, 1998 - (12,106)
-------- -------
Balance at November 30, 1998 $671,707 $ (631)
======== =======
</TABLE>
11
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
NOTE 7 -- NEW ACCOUNTING PRONOUNCEMENTS
- ---------------------------------------
LCP has determined that three new pronouncements that have been issued, but are
not yet effective, are applicable to the Company, and may have an impact on its
financial statements:
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosure about
Segments of an Enterprise and Related Information", which is effective for the
Company's fiscal year ending February 28, 1999, requires the Company to disclose
financial information about business segments, including certain information
about products and services, activities in different geographic areas and other
information.
SFAS No. 132, "Employer's Disclosure about Pensions and Other Post-Retirement
Benefits", is effective for the Company's fiscal year ending February 28, 1999.
SFAS No. 132 standardizes the disclosure requirements for pension and other
post-retirement plans; the standard does not change the measurement or
recognition of such plans.
Finally, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activity", is effective for the Company's fiscal quarter ending May 31, 1999.
This statement standardizes the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, by requiring that
the Company recognize those items as assets or liabilities in the statement of
financial position and measure them at fair value.
The Company expects to adopt these standards when required and does not believe
that they will have a significant impact on its financial position or operating
results.
NOTE 8 -- COMPREHENSIVE INCOME
- ------------------------------
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income". This
pronouncement establishes a standard for the reporting of comprehensive income
and its components in the Company's financial statements. The following
components are reflected in the Company's comprehensive income:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
November 30, November 30, November 30, November 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net loss $ (12,106) $ (5,412) $ (4,575) $ (2,186)
Other comprehensive income:
Foreign currency translation
adjustment, net of income
tax expense/(benefit) of
$898 and $(3,280),
respectively 2,998 - (4,384) -
---------- --------- --------- ---------
Comprehensive income $ (9,108) $ (5,412) $ (8,959) $ (2,186)
========== ========= ========= =========
</TABLE>
12
<PAGE>
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
The Company has entered into commitments for the future development and
construction of 47 theatre properties comprising 729 screens and guarantees of
joint venture lease obligations aggregating approximately $418 million.
One of the Company's leased drive-in motion picture 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 hazardous
substances. With respect to the currently leased site, located in Cicero,
Illinois, the Company has been named as one of two defendants in a lawsuit
commenced in August 1998 by the Illinois Attorney General's Office at the
request of the Illinois Environmental Protection Agency. The action was brought
pursuant to the Illinois Environmental Protection Act and alleges, among other
things, that the Company caused or allowed the disposal of certain wastes
bearing hazardous substances on the theatre property. The action seeks civil
penalties and various forms of equitable relief, including the removal of all
wastes allegedly present at the property, soil and groundwater testing and
remediation, if necessary. The Company's range of liability with respect to this
action cannot be reasonably estimated at this time due to several unknown
factors, including the scope of contamination at the theatre property, the
allocation of such liability, if any, to other responsible parties, and the
ability of such parties to satisfy their share of such liability. The Company
will continue to evaluate future information and developments with respect to
conditions at the theatre property and will periodically reassess any liability
accordingly. Based on the foregoing, there can be no assurance that the
Company's liability, if any, in connection with this action will not be
material.
Other than the lawsuit noted above, the Company is a defendant in various
lawsuits arising in the ordinary course of business. It is the opinion of
management that any liability to the Company which may arise as a result of
these other matters will not have a material adverse effect on its financial
condition.
13
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The following discussion of the Company's financial condition and operating
results should be read in conjunction with the unaudited consolidated financial
statements of the Company for the three and nine month periods ended
November 30, 1998 and 1997. The information presented below includes the results
of Cineplex Odeon, which became a wholly owned subsidiary of the Company on May
14, 1998, for the period from May 15, 1998 through November 30, 1998 and does
not include any results prior to that time.
This discussion incorporates operating results of partnerships in which the
Company has interests to the extent of its equity share as required by the
equity method of accounting.
RESULTS OF OPERATIONS
THREE MONTHS ENDED NOVEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED NOVEMBER 30,
1997
Operating Revenues of approximately $211.4 million for the three months ended
November 30, 1998 were $125.5 million higher than the comparable period of the
prior year. Operating revenues are generated primarily from box office revenues
and concession sales. Box office revenues for the three months ended
November 30, 1998 of approximately $147.3 million were $84.6 million higher, and
concession revenues of approximately $57.4 million were $36.3 million higher in
comparison to the three months ended November 30, 1997. These increases in
operating revenues were primarily due to the inclusion of the Cineplex Odeon
theatre operating results for the current quarter, the strong film product
exhibited during the quarter as evidenced by an increase in industry-wide box
office receipt levels, additional revenue from new theatre openings and
improvements in concessions revenue per patron, which was enhanced as a result
of operating efficiencies realized from the Combination. Excluding the impact of
the Cineplex Odeon operations, LCP operating revenues increased $6.9 million (or
8.1%) due to an increase in attendance volume and an increase in concessions
revenue per patron of $.22. Cineplex Odeon operating revenues for the quarter of
$117.9 million were $400 thousand less than the amount generated in the
comparable quarter of the prior year primarily due to a $.22 decrease in box
office revenue per patron offset by a $.10 increase in concession revenue per
patron and increases in attendance volume. The decrease in box office revenue
per patron was primarily due to the effect of currency exchange rate fluctuation
experienced by the Company's Canadian operations which also had a negative
impact on concession revenue per patron. The increase in concession revenue per
patron was predominantly realized from the continuation of the LCP concession
programs implemented throughout the Cineplex Odeon circuit during the second
quarter.
Operating Costs of approximately $168.2 million for the three months ended
November 30, 1998 were approximately $100.2 million higher than the three months
ended November 30, 1997, due primarily to the inclusion of the operating results
for the Cineplex Odeon theatres, increased costs related to the aforementioned
increase in operating revenues and higher occupancy costs attributable to new
theatre openings. Excluding the impact of Cineplex Odeon operations, LCP
operating costs increased $2.7 million (4.0%) primarily due to the increase in
operating revenues mentioned above. Cineplex Odeon operating costs for the
quarter were $97.2 million or $8.0 million (7.6%) lower than comparable quarter
in the prior year. The Cineplex Odeon operating cost level experienced for the
quarter reflects costs savings and operating efficiencies, primarily in
concessions operations, resulting from the Combination. The concession gross
margin experienced during the quarter, for Cineplex Odeon, improved 3.3% from
80.1% last year to 83.4% in the current year.
14
<PAGE>
General and Administrative Costs of approximately $12.5 million for the three
months ended November 30, 1998 were $4.8 million higher than for the three
months ended November 30, 1997, due primarily to the inclusion of the operating
results for the Cineplex Odeon theatres (net of cost savings realized as a
result of the Combination), merit increases and the additional costs relative to
the enhancement of the Company's international operations.
Depreciation and Amortization Costs of approximately $26.9 million for the three
months ended November 30, 1998 were $13.8 million higher than for the three
months ended November 30, 1997, primarily due to the inclusion of the operating
results for the Cineplex Odeon theatres, incremental depreciation related to
investments in new theatres which commenced operations in prior periods and the
amortization of excess purchase price recorded as a result of the Combination.
Loss on Sale/Disposal of Theatres of approximately $3.6 million for the three
months ended November 30, 1998 was $800 thousand higher than for the three
months ended November 30, 1997, due primarily to the timing, nature and
characteristics of theatre dispositions.
Interest Expense of approximately $16.8 million for the three months ended
November 30, 1998 was $13.1 million higher than for the three months ended
November 30, 1997, due primarily to higher borrowings relating to the
Combination (including debt amounts assumed from Cineplex Odeon) and the impact
of additional borrowings under the Company's Senior Revolving Credit Facility to
fund the Company's investment in theatres and joint ventures.
Modified EBITDA for the three months ended November 30, 1998 of $30.7 million
increased $20.4 million in comparison to the three months ended November 30,
1997, primarily due to the inclusion of the operating results for the Cineplex
Odeon theatres for the three months ended November 30, 1998, the increase in
concession revenues per patron, the strong film product exhibited during the
current quarter, cost savings and operating efficiencies as a result of the
integration of Cineplex Odeon operations into LCP and the impact of newly opened
theatres previously discussed. Modified EBITDA (earnings before interest, taxes,
depreciation and amortization, and gains/losses on asset disposal or sales) is a
measure of financial performance that management uses in measuring the Company's
financial performance. Modified EBITDA measures the amount of cash that the
Company has available for investment or other uses and is used by the Company as
a measure of performance. Modified EBITDA is primarily a management tool and
only one measure of financial performance to be considered by the investment
community. Modified EBITDA is not an alternative to measuring operating results
or cash flow under U.S. GAAP.
15
<PAGE>
NINE MONTHS ENDED NOVEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED NOVEMBER 30,
1997
Operating Revenues of approximately $626.7 million for the nine months ended
November 30, 1998 were $327.9 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 nine months ended November 30,
1998 of approximately $437.4 million were $221.7 million higher, and concession
revenues of approximately $170.0 million were $95.0 million higher, in
comparison to the nine months ended November 30, 1997. These increases in
operating revenue were primarily due to the inclusion of the Cineplex Odeon
theatre operating results, a strong slate of film products exhibited during the
period, additional revenue from new theatre openings and improvements in both
box office and concessions revenue per patron, which were enhanced as a result
of operating efficiencies realized from the Combination. Excluding the impact of
the Cineplex Odeon operations, LCP operating revenues increased $17.6 million
(or 5.9%) due predominantly to an increase in both box office and concessions
revenue per patron of $.09 and $.19, respectively. The operating revenues
generated for the nine months ended November 30, 1998 included Cineplex Odeon
operating revenues of $308.9 million for the period May 15, 1998 to November 30,
1998. The operating revenues of $308.9 million generated by Cineplex Odeon
include operating efficiencies realized from the continuation of the LCP
concession programs implemented throughout the Cineplex Odeon circuit during the
second quarter.
Operating Costs of approximately $481.4 million for the nine months ended
November 30, 1998 were approximately $256.2 million higher than for the nine
months ended November 30, 1997, due primarily to the inclusion of the operating
results for the Cineplex Odeon theatres, increased costs related to the
aforementioned increase in operating revenues and higher occupancy costs
attributable to new theatre openings. Excluding the impact of Cineplex Odeon,
LCP operating costs increased $8.9 million (or 4.0%), primarily due to the
increase in operating revenues mentioned above. Cineplex Odeon operating costs
for the period May 15, 1998 to November 30, 1998 were $246.4 million. The
operating cost level experienced by Cineplex Odeon for the period reflects costs
savings and operating efficiencies, primarily in concessions operations,
resulting from the Combination.
General and Administrative Costs of approximately $34.4 million for the nine
months ended November 30, 1998 were $14.3 million higher than for the nine
months ended November 30, 1997, due primarily to the inclusion of the operating
results for the Cineplex Odeon theatres for the period from May 15, 1998 through
November 30, 1998 (net of cost savings realized as a result of the Combination),
merit increases and the additional costs relative to the enhancement of the
Company's international operations.
Depreciation and Amortization Costs of approximately $67.7 million for the nine
months ended November 30, 1998 were $28.9 million higher than for the nine
months ended November 30, 1997 due to the inclusion of the operating results for
the Cineplex Odeon theatres for the period from May 15, 1998 through
November 30, 1998, incremental depreciation related to investments in new
theatres which commenced operations in prior periods and the amortization of the
excess purchase price recorded as a result of the Combination.
Loss on Sale/Disposal of Theatres of approximately $4.6 million for the nine
months ended November 30, 1998 was $1.4 million lower than for the nine months
ended November 30, 1997 due primarily to the timing, nature and characteristics
of theatre dispositions.
Interest Expense of approximately $39.3 million for the nine months ended
November 30, 1998 was $28.3 million higher than for the nine months ended
November 30, 1997, due primarily to higher borrowings relating to the
Combination (including debt amounts assumed from Cineplex Odeon) and the impact
of additional borrowings under the Company's Senior Revolving Credit Facility to
fund the Company's investment in theatres and joint ventures.
16
<PAGE>
Modified EBITDA for the nine months ended November 30, 1998 of $110.9 million
increased by $57.4 million in comparison to the nine months ended November 30,
1997, due primarily to the inclusion of the operating results for the Cineplex
Odeon theatres for the period from May 15, 1998 through November 30, 1998, the
increase in box office and concession revenues per patron, the strong slate of
film product exhibited during the period, cost savings and operating
efficiencies as a result of the integration of Cineplex Odeon operations into
LCP and the impact of newly opened theatres previously discussed.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced, and expects to continue to realize, improved
operating results as a result of investments in theatres (including new builds,
reconfigurations of existing theatres and the closing of obsolete, unprofitable
or uncompetitive theatres). The Company expects 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 joint
ventures and international exhibition. In addition, the Company expects to
continue to realize additional cost savings and operational efficiencies as a
result of the Combination.
At November 30, 1998, the Company had capital spending commitments aggregating
approximately $388 million for the future development and construction of 47
theatre properties comprising 729 screens. At November 30, 1998, the Company's
debt balance includes approximately $75 million of capital spending on theatre
projects in various stages of development. In the opinion of management, these
capital commitments and the working capital requirements of the Company will be
funded by free cash flow generated from operations, the proceeds from the
required sale of certain theatres (described below) and by the capital structure
(debt and equity) of the Company that has been effected subsequent to the
Combination. The paragraphs below present a summary of significant capital
transactions (debt and equity) that have been completed in connection with and
subsequent to the Combination.
In connection with the Combination, the Company entered into a $1 billion Senior
Revolving Credit Facility with Bankers Trust Company, as administrative agent.
The new credit facility, together with the $84.5 million provided by Universal
under the Subscription Agreement, replaced the Sony Credit Facility and Cineplex
Odeon's existing credit facility, funded cash paid to SPE and/or its affiliates
upon closing of the Combination and will provide ongoing financing to the
Company to fund the Company's working capital requirements and the future
theatre expansion in North America and internationally. This Senior Revolving
Credit Facility is comprised of two tranches, a $750 million senior secured
revolving credit facility, secured by substantially all of the assets of LCP and
its domestic subsidiaries, and a $250 million uncommitted facility. The credit
facility bears interest at a rate of either the current prime rate as offered by
Bankers Trust Company or an Adjusted Eurodollar rate (as defined in the credit
agreement) plus an applicable margin based on the Company's Leverage Ratio (as
defined in the credit agreement). The Company's borrowings under the new credit
facility at November 30, 1998 totaled $403 million.
On August 4, 1998, Plitt, a wholly owned subsidiary of the Company, announced
the completion of an at-the-market tender offer relating to the Plitt Notes. The
at-the-market offer expired on August 4, 1998, with holders of approximately 97%
of the outstanding Plitt Notes tendering into the at-the-market offer. Payment
for the tendered Plitt Notes was made on August 5, 1998 in the amount of $212.7
million or 109.261% of the outstanding principal amount of the Plitt Notes plus
accrued and unpaid interest. On October 26, 1998, the Company retired an
additional $3.0 million of the outstanding Plitt Theatres, Inc. Senior
Subordinated Notes.
On August 5, 1998, the Company sold to the public in a registered offering 10
million shares of Common Stock at a public offering price of $11.00 per share.
Additionally, the Company issued $300 million of 8 7/8% Senior Subordinated
Notes due 2008. The proceeds of this public offering, combined with the proceeds
from the senior subordinated debt private placement, were primarily used to fund
the tender offer for the Plitt Notes and reduce debt outstanding under the
Company's Senior Revolving Credit Facility.
17
<PAGE>
In August 1998, the Company entered into interest rate exchange agreements for a
term of four years (expiring in August 2002). As a result of these agreements
the Company has a fixed LIBOR rate of 5.77% per annum (plus the applicable
margin) on a notional amount of $250 million of indebtedness. Each swap has a
quarterly reset date for settlements. The Company is accounting for these swaps
as interest rate hedges.
In conjunction with the Combination, the Company made a payment to SPE and its
affiliates representing (i) a cash payment to satisfy all intercompany
indebtedness to affiliates of 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. Under the requirements of the Combination the
Company was required to make a final payment to SCA affiliates. This final
payment was subject to post-closing audit procedures which were completed during
the third quarter. On November 17, 1998 the Company made the final payment to
SCA affiliates in the form of a dividend in the amount of $22.5 million.
On December 8, 1998, the Company's revised sale agreement with Cablevision
received DOJ approval. To date the Company has received proceeds of $65.8
million related to this sale agreement. A substantial portion of these proceeds
were utilized to pay down the Company's Senior Credit Facility.
THEATRE PORTFOLIO CHANGES
The following table indicates the number of theatre locations, screens and
changes to the Company's theatre circuit configuration as a result of the
Combination and its theatre reconfiguration program (including screens and
locations relating to all the Company's joint ventures) for the three and nine
months ended November 30, 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
NOVEMBER 30, 1998 NOVEMBER 30, 1998
----------------- -----------------
NORTH NORTH
AMERICA INT'L TOTAL AMERICA INT'L TOTAL
------- ----- ----- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
LOCATIONS
- ---------
Beginning Balance* 443 15 458 450 1 451
New builds 2 - 2 5 - 5
Expansions - - - - - -
J.V. Investments - - - - 14 14
Dispositions (11) - (11) (21) - (21)
---- -- --- ---- -- ---
Ending Balance 434 15 449 434 15 449
==== == === ==== == ===
SCREENS
- -------
Beginning Balance* 2,773 119 2,892 2,752 6 2,758
New builds 24 - 24 67 - 67
Expansions 2 - 2 17 - 17
J.V. Investments - - - - 113 113
Dispositions (38) - (38) (75) - (75)
----- --- ----- ----- --- -----
Ending Balance 2,761 119 2,880 2,761 119 2,880
===== === ===== ===== === =====
</TABLE>
* - beginning balances for the nine months ended November 30, 1998 are on a pro
forma basis, as if the Combination had occurred as of March 1, 1998.
18
<PAGE>
As a result of the Combination and the Company's theatre reconfiguration program
the average screens per location has grown from 6.1 screens per location at
March 1, 1998 to 6.4 screens per location at November 30, 1998. During the nine
month period ended November 30, 1998 the Company opened five theatre locations
aggregating 67 screens: the Grande Cinemas 10 in Toronto, Medicine Hat 10 in
Calgary, Cascade Cinemas 14 and Woodinville Cinemas 12 in Washington, and the
Palisades Center 21 in Northern New Jersey.
In addition, subsequent to November 30, 1998, the Company opened an additional
six theatre locations aggregating 87 screens: the Stonybrook 15 in Long Island,
the Liberty Tree Mall 20 in Massachusetts, the Cherry Hill 20 in Southern New
Jersey, the First Markham Place Cinema 10 in Markham, Canada, the Grand Prairie
Cinema 10 in Grand Prairie, Canada and the Strawberry Hill Cinema 12 in Surrey,
Canada.
During the nine month period ended November 30, 1998 the Company disposed
of/closed 21 theatre locations comprising 75 screens. In addition, the Company
has also negotiated agreements to dispose of/close an additional 46 theatre
locations comprising 165 screens by the end of the current fiscal year.
NEW ACCOUNTING PRONOUNCEMENTS
LCP has determined that three new pronouncements that have been issued, but are
not yet effective, are applicable to the Company, and may have an impact on its
financial statements:
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosure about
Segments of an Enterprise and Related Information", which is effective for the
Company's fiscal year ending February 28, 1999, requires the Company to disclose
financial information about business segments, including certain information
about products and services, activities in different geographic areas and other
information.
SFAS No. 132, "Employer's Disclosure about Pensions and Other Post-Retirement
Benefits", is effective for the Company's fiscal year ending February 28, 1999.
SFAS No. 132 standardizes the disclosure requirements for pension and other
post-retirement plans; the standard does not change the measurement or
recognition of such plans.
Finally, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activity", is effective for the Company's fiscal quarter ending May 31, 1999.
This statement standardizes the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, by requiring that
the Company recognize those items as assets or liabilities in the statement of
financial position and measure them at fair value.
The Company expects to adopt these standards when required and does not believe
that they will have a significant impact on its financial position or operating
results.
EFFECT OF INFLATION
Inflation has not had a material effect on Loews Cinpelex's operations.
19
<PAGE>
YEAR 2000
The Year 2000 issue affects virtually all companies and organizations. The
Company has implemented programs designed to ensure that all software and
hardware used in connection with providing services to its customers and its
internal operations will manage and manipulate data involving the transition of
dates from 1999 to 2000 without functional or data abnormality. These programs
include, but are not limited to, the integration and conversion of certain point
of sale systems in the Cineplex Odeon circuit to that currently in use by LCP.
It is expected that the integration will be substantially completed in 1999. The
Company does not anticipate incurring significant additional costs to address
the Year 2000 issue, although the effectiveness of the Company's present efforts
to address the Year 2000 issue cannot be assured. In addition, it is currently
unknown whether vendors and other third parties with whom the Company conducts
business will successfully address the Year 2000 issue with respect to their own
computer software. However, the Company is working with its major vendors and
other third parties to identify and address Year 2000 issues. If the Company's
present efforts to address the Year 2000 issue are not successful, or if vendors
and other third parties with which the Company conducts business do not
successfully address the Year 2000 issue, the Company's business and financial
condition could be adversely affected.
CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
This Form 10-Q includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts included in this Form 10-Q, including, without
limitation, certain statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" may constitute forward looking
statements. Although the Company believes that the expectations reflected in
such forward looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from the Company's expectations are
disclosed in the following section ("Factors That May Affect Future
Performance"). All forward-looking statements are expressly qualified in their
entirety by the Cautionary Statements.
FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
In addition to other factors and matters discussed elsewhere herein, factors
that, in the view of the Company, could cause actual results to differ
materially from those discussed in forward-looking statements include, but are
not limited to: (i) the effect of economic conditions on a national, regional or
international basis; (ii) the continuing ability of the Company to integrate the
operations of Cineplex Odeon, the compatibility of the operating systems of the
combined companies, the degree to which existing administrative functions and
costs are complementary or redundant; (iii) competitive pressures in the motion
picture exhibition industry; (iv) the financial resources of, and films
available to, competition; (v) changes in laws and regulations, including
changes in accounting standards; (vi) the determination of the number, job
classification and location of employee positions to be eliminated as a result
of the Combination of the LTM Holdings Inc. and Cineplex Odeon; and (vii)
opportunities that may be presented to and pursued by the Company.
20
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company owns, manages and/or operates theatres and other
properties that are subject to certain U.S. and Canadian federal,
provincial, state and local laws and regulations related to
environmental protection and human health and safety, including those
governing the investigation and remediation of contamination resulting
from past or present releases of hazardous substances. Certain of
these laws and regulations may impose joint and several liability on
certain statutory classes of persons for the costs of investigation or
remediation of such contamination, regardless of fault or the legality
of the original disposal. These persons include the present or former
owner or operator of a contaminated property, and companies that
generated, disposed of or arranged for the disposal of hazardous
substances found at the property.
One of the Company's leased drive-in motion picture 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
materials may contain hazardous substances. With respect to the
currently leased site, located in Cicero, Illinois, the Company has
been named as one of two defendants in a lawsuit commenced in August
1998 by the Illinois Attorney General's Office at the request of the
Illinois Environmental Protection Agency. The action was brought
pursuant to the Illinois Environmental Protection Act and alleges,
among other things, that the Company caused or allowed the disposal of
certain wastes bearing hazardous substances on the theatre property.
The action seeks civil penalties and various forms of equitable
relief, including the removal of all wastes allegedly present at the
property, soil and groundwater testing and remediation, if necessary.
The Company's range of liability with respect to this action cannot be
reasonably estimated at this time due to several unknown factors,
including the scope of contamination at the theatre property, the
allocation of such liability, if any, to other responsible parties,
and the ability of such parties to satisfy their share of such
liability. The Company will continue to evaluate future information
and developments with respect to conditions at the theatre property
and will periodically reassess any liability accordingly. Based on the
foregoing, there can be no assurance that the Company's liability, if
any, in connection with this action will not be material.
Reference is also made to Item 3 of the Company's Annual Report on
Form 10-K for the year ended February 28, 1998.
Item 2. CHANGES IN SECURITIES
Not Applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
Item 5. OTHER INFORMATION
Not Applicable
21
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 (1) Amended and Restated Master Agreement among Sony Pictures
Entertainment Inc., Registrant and Cineplex Odeon
Corporation dated as of September 30, 1997
2.2 (4) Amended Agreement dated May 14, 1998
2.3 (1) Subscription Agreement by and between Registrant and
Universal Studios, Inc. dated as of September 30, 1997
2.4 (1) Plan of Arrangement
3.1 (4) Amended and Restated Certificate of Incorporation of
Registrant
3.2 (5) Amended and Restated By-laws of Registrant
4.1 (2) Indenture dated as of June 23, 1994, by and among Plitt
Theatres, Inc. and Cineplex Odeon Corporation and The
Bank of New York, as Trustee
4.2 (4) Supplemental Indenture dated as of May 14, 1998 among
Registrant and The Bank of New York, as Trustee
4.3 (5) Second Supplemental Indenture dated as of July 1, 1998
among Plitt Theatres, Inc., Registrant and the Bank of
New York, as Trustee
4.4 (6) Indenture dated as of August 5, 1998, by and among
Registrant and Bankers Trust Company, as Trustee
4.5 (6) Form of New Note
4.6 (6) Exchange and Registration Rights Agreement dated as of
August 5, 1998 by and among Registrant and the initial
purchasers of the New Notes
10.1 (1) Amended and Restated Stockholders Agreement among
Registrant, Sony Pictures Entertainment Inc., Universal
Studios, Inc., Charles Rosner Bronfman Family Trust and
Other Parties thereto dated as of September 30, 1997
10.2 (4) Tax Sharing and Indemnity Agreement dated May 14, 1998 by
and among Registrant and Sony Corporation of America
10.3 (4) Sony Trademark Agreement dated May 14, 1998 by and among
Registrant and Sony Corporation of America
10.4 (4) Transition Services Agreement dated May 14, 1998 among
Registrant, Sony Corporation of America and Sony Pictures
Entertainment Inc
10.5 (4) Sony Entertainment Center Lease made as of May 9, 1997
between SRE San Francisco Retail Inc. and Loews
California Theatres Inc. (portions of such exhibit have
been filed separately with the Commission under an
application for confidential treatment pursuant to Rule
83 of the Commission Rules on Organization, Conduct and
Ethics, and Information and Regulation (17 CFR (S)
200.83))
10.6 (4) Sony YBG Entertainment Center Tenant Work Agreement
10.7 (1) Form of Director Indemnification Agreement
10.8 (1) Loews Cineplex Entertainment Corporation 1997 Stock
Incentive Plan
10.9 (4) Credit Agreement dated as of May 14, 1998 among Registrant,
as Borrower, the lenders listed therein, as Lenders,
Bankers Trust Company, as Administrative Agent and Co-
Syndication Agent and Bank of America NT&SA, The Bank of
New York and Credit Suisse First Boston, as Co-
Syndication Agents
10.10 (4) Employment Agreement between Registrant and Lawrence J.
Ruisi, dated May 14, 1998
10.11 (3) Employment Agreement between Cineplex Odeon Corporation and
Allen Karp, dated July 4, 1996
22
<PAGE>
10.12 (5) Amended and Restated Employment Agreement between Cineplex
Odeon Corporation and Allen Karp, dated November 28, 1997
10.13 (4) Assumption dated May 14, 1998 of Allen Karp Employment
Agreement by Registrant
10.14 (1) Agreement between Registrant and Seymour H. Smith, dated
May 1, 1990, including Letter Amendments dated
November 14, 1991, March 9, 1993, May 10, 1995,
April 11, 1996 and June 6, 1997
10.15 (1) Agreement between Registrant and Travis Reid, dated
October 21, 1995
10.16 (1) Agreement between Registrant and Joseph Sparacio, dated
August 20, 1994, including Term Extension Letter dated
March 5, 1997
10.17 (1) Agreement between Registrant and John J. Walker, dated June
1, 1993, including Term Extension Letter dated March 5,
1997
10.18 (1) Letter Agreement between Registrant and John C. McBride,
Jr., dated November 17, 1997
10.19 (4) Letter Agreement between Registrant and Mindy Tucker, dated
December 15, 1997
10.20 (5) Letter Agreement between Registrant and J. Edward Shugrue,
dated December 15, 1997
10.21 (6) Purchase Agreement, dated as of July 31, 1998, by and among
Loews Cineplex Entertainment Corporation and Goldman
Sachs & Co., BT Alex Brown Incorporated, Credit Suisse
First Boston Corporation and Salomon Brothers Inc
10.22 (6) Amendment to Purchase Agreement, dated as of August 4,
1998, by and among Loews Cineplex Entertainment
Corporation and Goldman Sachs & Co., BT Alex Brown
Incorporated, Credit Suisse First Boston Corporation and
Salomon Brothers Inc
27 Financial Data Schedule (for SEC use only)
(1) Incorporated by reference to the Company's Registration Statement
on Form S-4 filed on February 13, 1998, Commission file number
333-46313.
(2) Incorporated by reference to the Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994 of Cineplex Odeon
Corporation, Commission file number 1-9454.
(3) Incorporated by reference to the Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 of Cineplex Odeon
Corporation, Commission file number 1-9454.
(4) Incorporated by reference to the Annual Report on Form 10-K for
the fiscal year ended February 28, 1998 of Registrant, as
amended, Commission file number 1-14099.
(5) Incorporated by reference to the Company's Registration Statement
on Form S-1 filed on June 15, 1998, as amended, Commission file
number 333-56897.
(6) Incorporated by reference to the Company's Registration Statement
on Form S-4 filed on September 30, 1998, Commission file number
333-64833.
(b) Reports on Form 8-K
Current Report on Form 8-K dated June 16, 1998
Current Report on Form 8-K dated August 10, 1998
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
Date: January 11, 1998
By: /s/ John J. Walker
------------------
John J. Walker, Senior Vice President
and Chief Financial Officer
By: /s/ Joseph Sparacio
-------------------
Joseph Sparacio, Vice President, Finance
and Controller
24
<PAGE>
EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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 (4) Amended Agreement dated May 14, 1998
2.3 (1) Subscription Agreement by and between Registrant and
Universal Studios, Inc. dated as of September 30, 1997
2.4 (1) Plan of Arrangement
3.1 (4) Amended and Restated Certificate of Incorporation of
Registrant
3.2 (5) Amended and Restated By-laws of Registrant
4.1 (2) Indenture dated as of June 23, 1994, by and among Plitt
Theatres, Inc. and Cineplex Odeon Corporation and The
Bank of New York, as Trustee
4.2 (4) Supplemental Indenture dated as of May 14, 1998 among
Registrant and The Bank of New York, as Trustee
4.3 (5) Second Supplemental Indenture dated as of July 1, 1998
among Plitt Theatres, Inc., Registrant and the Bank of
New York, as Trustee
4.4 (6) Indenture dated as of August 5, 1998, by and among
Registrant and Bankers Trust Company, as Trustee
4.5 (6) Form of New Note
4.6 (6) Exchange and Registration Rights Agreement dated as of
August 5, 1998 by and among Registrant and the initial
purchasers of the New Notes
10.1 (1) Amended and Restated Stockholders Agreement among
Registrant, Sony Pictures Entertainment Inc., Universal
Studios, Inc., Charles Rosner Bronfman Family Trust and
Other Parties thereto dated as of September 30, 1997
10.2 (4) Tax Sharing and Indemnity Agreement dated May 14, 1998 by
and among Registrant and Sony Corporation of America
10.3 (4) Sony Trademark Agreement dated May 14, 1998 by and among
Registrant and Sony Corporation of America
10.4 (4) Transition Services Agreement dated May 14, 1998 among
Registrant, Sony Corporation of America and Sony Pictures
Entertainment Inc
10.5 (4) Sony Entertainment Center Lease made as of May 9, 1997
between SRE San Francisco Retail Inc. and Loews
California Theatres Inc. (portions of such exhibit have
been filed separately with the Commission under an
application for confidential treatment pursuant to Rule
83 of the Commission Rules on Organization, Conduct and
Ethics, and Information and Regulation (17 CFR (S)
200.83))
10.6 (4) Sony YBG Entertainment Center Tenant Work Agreement
10.7 (1) Form of Director Indemnification Agreement
10.8 (1) Loews Cineplex Entertainment Corporation 1997 Stock
Incentive Plan
10.9 (4) Credit Agreement dated as of May 14, 1998 among
Registrant, as Borrower, the lenders listed therein, as
Lenders, Bankers Trust Company, as Administrative Agent
and Co-Syndication Agent and Bank of America NT&SA, The
Bank of New York and Credit Suisse First Boston, as Co-
Syndication Agents
10.10 (4) Employment Agreement between Registrant and Lawrence J.
Ruisi, dated May 14, 1998
10.11 (3) Employment Agreement between Cineplex Odeon Corporation
and Allen Karp, dated July 4, 1996
10.12 (5) Amended and Restated Employment Agreement between Cineplex
Odeon Corporation and Allen Karp, dated November 28, 1997
25
<PAGE>
10.13 (4) Assumption dated May 14, 1998 of Allen Karp Employment
Agreement by Registrant
10.14 (1) Agreement between Registrant and Seymour H. Smith, dated
May 1, 1990, including Letter Amendments dated
November 14, 1991, March 9, 1993, May 10, 1995,
April 11, 1996 and June 6, 1997
10.15 (1) Agreement between Registrant and Travis Reid, dated
October 21, 1995
10.16 (1) Agreement between Registrant and Joseph Sparacio, dated
August 20, 1994, including Term Extension Letter dated
March 5, 1997
10.17 (1) Agreement between Registrant and John J. Walker, dated
June 1, 1993, including Term Extension Letter dated
March 5, 1997
10.18 (1) Letter Agreement between Registrant and John C. McBride,
Jr., dated November 17, 1997
10.19 (4) Letter Agreement between Registrant and Mindy Tucker,
dated December 15, 1997
10.20 (5) Letter Agreement between Registrant and J. Edward Shugrue,
dated December 15, 1997
10.21 (6) Purchase Agreement, dated as of July 31, 1998, by and
among Loews Cineplex Entertainment Corporation and
Goldman Sachs & Co., BT Alex Brown Incorporated, Credit
Suisse First Boston Corporation and Salomon Brothers Inc
10.22 (6) Amendment to Purchase Agreement, dated as of August 4,
1998, by and among Loews Cineplex Entertainment
Corporation and Goldman Sachs & Co., BT Alex Brown
Incorporated, Credit Suisse First Boston Corporation and
Salomon Brothers Inc
27 Financial Data Schedule (for SEC use only)
(1) Incorporated by reference to the Company's Registration Statement
on Form S-4 filed on February 13, 1998, Commission file number
333-46313.
(2) Incorporated by reference to the Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994 of Cineplex Odeon
Corporation, Commission file number 1-9454.
(3) Incorporated by reference to the Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 of Cineplex Odeon
Corporation, Commission file number 1-9454.
(4) Incorporated by reference to the Annual Report on Form 10-K for
the fiscal year ended February 28, 1998 of Registrant, as
amended, Commission file number 1-14099.
(5) Incorporated by reference to the Company's Registration Statement
on Form S-1 filed on June 15, 1998, as amended, Commission file
number 333-56897.
(6) Incorporated by reference to the Company's Registration Statement
on Form S-4 filed on September 30, 1998, Commission file number
333-64833.
(b) Reports on Form 8-K
Current Report on Form 8-K dated June 16, 1998
Current Report on Form 8-K dated August 10, 1998
26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LOEWS CINEPLEX ENTERTAINMENT CORPORATION FOR THE
THREE MONTHS ENDED NOVEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> SEP-01-1998
<PERIOD-END> NOV-30-1998
<EXCHANGE-RATE> 1
<CASH> 51,333
<SECURITIES> 0
<RECEIVABLES> 18,841
<ALLOWANCES> 0
<INVENTORY> 3,384
<CURRENT-ASSETS> 75,444
<PP&E> 1,768,674
<DEPRECIATION> 598,531
<TOTAL-ASSETS> 1,714,925
<CURRENT-LIABILITIES> 244,471
<BONDS> 715,468
0
0
<COMMON> 587
<OTHER-SE> 666,692
<TOTAL-LIABILITY-AND-EQUITY> 1,714,925
<SALES> 57,428
<TOTAL-REVENUES> 211,414
<CGS> 9,241
<TOTAL-COSTS> 168,191
<OTHER-EXPENSES> 42,990
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,801
<INCOME-PRETAX> (16,568)
<INCOME-TAX> (4,462)
<INCOME-CONTINUING> (12,106)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,106)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
