FORM 10 - K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-9454
CINEPLEX ODEON CORPORATION
(Exact name of Registrant as specified in its charter)
Ontario, Canada Non-Resident Alien
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1303 Yonge Street, Toronto, Ontario M4T 2Y9
(Address of principal executive offices) (Postal Code)
416-323-6600
(Registrant's telephone number
including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which
registered:
Common Shares New York Stock Exchange
Toronto Stock Exchange
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 periods 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 or 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 registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of the Form 10-K or any amendment to this
Form 10-K (X)
TOTAL NO. OF PAGES
EXHIBIT INDEX PAGE
<PAGE>
As of February 11, 1998, Cineplex Odeon Corporation had
103,414,594 Common Shares without par value, outstanding, and the
aggregate market value of the Common Shares (based on the last
sale price of such stock as reported by the New York Stock
Exchange for February 11, 1998) held by nonaffiliates on such
date was approximately $98,037,000. All officers, directors and
more than 5% shareholders of the registrant have been deemed
"affiliates" for the purpose of calculating such aggregate market
value. The registrant does not represent that such persons, or
any of them, would be deemed "affiliates" of the registrant for
any other purpose of the United States Federal Securities Laws.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Corporation's definitive Proxy Statement for the
special meeting to be held on March 26, 1998 (the "Proxy
Statement") are incorporated by reference into Part III of this
Form 10-K.
<PAGE>
PART I
ITEM 1. BUSINESS
General
The Corporation is engaged primarily in the operation of motion
picture theatres in the United States and Canada. The
Corporation was originally incorporated in Ontario, Canada on
July 19, 1977, and commenced operations in April 1979. It
maintains its principal executive offices at 1303 Yonge Street,
Toronto, Ontario, Canada, M4T 2Y9. The Corporation's telephone
number is (416) 323-6600. Unless otherwise specified, or the
context otherwise requires, the term "Corporation" as used herein
shall mean the Corporation and its consolidated subsidiaries.
Recent Developments
On September 30, 1997, the Corporation announced that it has
entered into an agreement with Sony Pictures Entertainment Inc.
(SPE) and LTM Holdings, Inc. (LTM) which provides for the
combination of the businesses of the Corporation and LTM. LTM is
a private Delaware Corporation wholly-owned by SPE. The
transaction will involve combining the Corporation with the Loews
Theatres Exhibition Group, which consists of Sony/Loews Theatres
and its joint ventures with Star Theatres and Magic Johnson
Theatres. It is proposed that the combined company will be named
Loews Cineplex Entertainment Corporation (LCE). It is anticipated
that LCE will have over 2,700 screens in approximately 450
locations in North America.
Pursuant to a series of related transactions to be effected
pursuant to a Plan of Arrangement under the Business Corporations
Act (Ontario), the Corporation's shares will be exchanged for
shares of LCE with the result that the Corporation will become a
wholly-owned subsidiary of LCE. Upon closing of the transaction,
SPE will own approximately 51.1% of LCE's shares (representing
49.9% of LCE's voting shares); Universal Studios Inc. (Universal)
will own approximately 26.0% of LCE's shares (subsequent to a
cash subscription of approximately $84.5 million); the Charles
Rosner Bronfman Discretionary Trust, Charles Bronfman Trust,
Charles R. Bronfman Trust, and certain related parties (the
Bronfman Trusts) will own approximately 9.6% of LCE's shares; and
the shareholders of the Corporation, other than Universal and the
Bronfman Trusts, will own approximately 13.3% of LCE's shares. It
is intended that the LCE shares will be listed on the New York
Stock Exchange and the Toronto Stock Exchange.
The merger is subject to approval by the shareholders of the
Corporation and regulatory approval in both Canada and the United
States. Approval from Investment Canada was received on December
16, 1997. A proxy circular was filed February 13, 1998 and the
special meeting of shareholders is scheduled for March 26, 1998.
It is anticipated that closing of this transaction will take
place in the second quarter of 1998.
For a further discussion of 1997 events, see Part II - Item 7
"Management's Discussion and Analysis of Results of Operations
and Financial Condition."
Theatre Operations
At December 31, 1997, the Corporation operated 178 theatres in
the United States, 136 in Canada and one in Hungary with an
aggregate of 1,729 screens. Most of the Corporation's theatres
are multi-screen facilities.
The Corporation's head office is located in Toronto. Regional
offices are located in Los Angeles, New York, Chicago, Seattle,
Montreal, Minneapolis, Salt Lake City, and Washington, D.C. Head
office activities include corporate policy development, strategic
planning, site selection, theatre design, construction
coordination, labour negotiations, advertising, concession and
supply purchases, finance, accounting and data processing
activities.
Theatre Circuit Development
In 1997 the Corporation opened seven new theatres and refurbished
two theatres in the United States adding a total of 87 new
screens. In Canada in 1997 the Corporation opened ten new
theatres and refurbished four theatres adding a total of 127 new
screens. The Corporation closed or sold 20 locations,
encompassing 52 screens during 1997.
Management's current strategy is to increase its revenue and
operating cash flow by developing and building additional
theatres and screens in target markets that complement the
Corporation's existing position in such markets or that provide
the Corporation with a strategic position in a new market.
During 1998 the Corporation expects, in North America, to open 15
new theatre locations (adding 181 new screens) and refurbish a
total of four theatres (adding 30 new screens).
In 1997 the Corporation announced that it has identified a select
number of theatres for disposal. It is anticipated that this
disposition plan will be completed by the end of 1998.
Film Licensing
The Corporation obtains licenses to exhibit "first-run" films
by directly negotiating with or, in limited circumstances,
submitting bids to film distributors. Film exhibition licenses
typically specify rental fees based upon the higher of a gross
receipts formula or a theatre admissions revenue-sharing formula.
Under a gross receipts formula, the distributor receives a
specified percentage of box office receipts, with the percentage
generally declining over the term of the run. Under a theatre
admissions revenue-sharing formula, the distributor receives a
specified percentage of the excess of box office receipts over
certain house expenses.
A distributor will either require the exhibitors in a zone to bid
for a film or will allocate its films among the exhibitors in the
zone. When films are licensed under the allocation process, a
distributor will choose which exhibitor is offered a movie and
then that exhibitor will negotiate film rental terms directly
with the distributor for the film. Over the past several years,
distributors have generally used the allocation rather than the
bidding process to license their films.
The Corporation's theatre exhibition business is dependent upon
the availability of popular well-marketed motion pictures.
Accordingly, consistent poor performance of major release films
or disruption in the production of motion pictures by the major
studios and/or independent producers could, over time, have a
material adverse affect on the Corporation.
Film Distribution
The Corporation's distribution entity, Cineplex Odeon Films
Canada, is primarily in the business of distributing films in
Canada to the Corporation and other exhibitors for theatre
exhibition and for broadcast by network, syndicated and pay
television, as well as for home viewing through video-cassette
systems. In 1997, distribution activity in Canada included the
provision of theatrical distribution services for Columbia Tri-
Star Films Canada and PolyGram Filmed Entertainment, in addition
to the ongoing distribution of motion pictures in all media for
various other producers and/or distributors.
Geographic Financial Information
For information concerning revenue, income(loss) from operations
and assets in the Corporation's different geographic areas for
the last three years, reference should be made to Note 14 of the
Notes to the Consolidated Financial Statements in Part II - Item
8 "Financial Statements and Supplementary Data."
Competition
The Corporation is the sixth largest film exhibitor in North
America in terms of number of screens and the third largest in
terms of box office revenue as of December 31, 1997. The major
market focus of the Corporation allows its theatre assets to
serve above average patron volumes compared to the industry.
Approximately 86% of the Corporation's U.S. screens are located
in 8 of the 15 largest U.S. Areas of Dominant Influence.
Approximately 83% of the Corporation's Canadian screens are
located in the 10 largest Canadian cities. The Corporation is the
largest film exhibitor in Canada and the tenth largest in the
United States based upon number of screens.
The Corporation competes with other theatre circuits and
independent theatres with respect to acquiring licenses to
successful films, attracting patrons and finding new theatre
sites. In 1997 there was a 9% growth in the total number of
screens in North America. This growth has been largely fuelled
by exhibitors in the United States building theatre complexes
with 15 to 35 screens (megaplexes). While management agrees that
such complexes can succeed in appropriate circumstances there is
no evidence that more screens and more flexible show times have
had an appreciable effect in expanding audiences. In certain
markets such screen growth is having an impact on the
Corporation's theatres. The Corporation, through its continuing
expansion and reconfiguration program, will attempt to address
the impact on the Corporation of the increase in the industry
screen count by both improving the quality of the theatres in its
circuit and by increasing its market share.
Film distributors seek to place films in theatres from which they
can derive the greatest box office revenues. The Corporation
believes the principal competitive factors in obtaining films
from distributors include licensing terms, seating capacity,
location, prestige of the theatre circuit and of the particular
theatre, quality of projection and sound equipment and the
exhibitor's ability and willingness to promote the distributor's
films.
The Corporation believes that the principal competitive factors
in attracting film audiences are the availability of marketable
films, the location of theatres, theatre comfort and environment,
projection and sound quality, level of service and ticket price.
The theatre exhibition industry also faces competition from other
motion picture exhibition delivery systems, such as network,
syndicated and pay television and home video systems. The
Corporation believes that theatre exhibition competes effectively
with these and other alternative exhibition delivery systems for
a variety of reasons including the larger screen size and
superior audio quality. Further, the strength of these
alternative media are largely dependent on the successful
theatrical release in North America of first-run film product. In
addition, there has been significant growth in theatrical
exhibition markets outside of North America. Although this growth
and successful first run exhibitions of motion pictures help
companies in these other business areas derive greater returns,
the Corporation believes that such returns also benefit the
Corporation by providing additional capital to producers and
distributors to finance and distribute new motion pictures which
may be exhibited in the Corporation's theatres.
Regulatory Environment
The Corporation, as an exhibitor of motion pictures, is affected
by certain United States judicial decrees (the "Decrees")
regulating the trade practices of major motion picture
distributors and a small number of motion picture exhibitors
formerly owned by such distributors. The Corporation is not a
party to the Decrees. The Decrees provide, among other things,
that parties subject to the Decrees must distribute motion
pictures to exhibitors on a picture-by-picture and theatre-by-
theatre basis.
The Federal Americans With Disabilities Act ("the Disabilities
Act") prohibits discrimination on the basis of disability in
public accommodations and employment. The Disabilities Act became
effective as to public accommodations in January 1992 and as to
employment in July 1992. The Corporation is unable to predict
precisely the extent to which the Disabilities Act will impact
the Corporation. However, the Corporation currently constructs
new theatres to be accessible to the disabled and believes that
it is otherwise in substantial compliance with all current
applicable regulations relating to accommodations for the
disabled. The Corporation intends to comply with regulations
relating to accommodating the needs of the disabled, and the
Corporation does not currently anticipate that such compliance
will have a material adverse effect on the Company. Also see
discussion under "Legal Proceedings".
Employees
As of December 31, 1997, the Corporation had 1,436 full-time
employees in the United States, 931 full-time employees in
Canada, 3,451 part-time employees in the United States and 2,777
part-time employees in Canada. The number of employees fluctuates
due to the seasonal nature of the Corporation's business.
Approximately 37.7% of the part-time employees are paid the
minimum wage. Approximately 5.6% of the employees of the
Corporation are film projectionists, who are represented by the
International Alliance of Theatrical Stagehand Employees and
Moving Picture Machine Operators ("I.A.T.S.E."). Approximately
5.0% of the employees of the Corporation are ushers, ticket
takers, cashiers, cleaners, stagehands or concession workers who
are represented by the Service Employees International Union, the
B.C. Government Employees Union, the I.A.T.S.E. Stagehands Union,
the I.A.T.S.E. Front of House Union, the United Food and
Commercial Workers Union or the Transportation Technical
Warehouse Industrial and Service Employees Union.
I.A.T.S.E. Local 523 has been locked out of a theatre in Quebec
City since April 16, 1997 as a result of a dispute over the hours
to be worked by, and wages for, projectionists, but the theatre
continues to operate despite the lockout.
The Corporation is currently in negotiations with a union in
Seattle, Washington, where there is a possibility of a labor
dispute. However, management is confident that the theatres will
continue to operate there in the event of a strike or lockout.
The Corporation has started negotiations with I.A.T.S.E.
projectionists in Chicago, Illinois whose contract expired in
February 1998. It is premature to assess the outcome of such
negotiations.
Seasonality
Admission and concession revenues are subject to seasonal
fluctuations which affect all motion picture exhibitors. These
fluctuations are the result of the distribution practices of the
major motion picture studios which have historically concentrated
the release of films during the summer and holiday seasons. The
major motion picture studios have, to some degree, addressed the
seasonality of motion picture exhibition with a strong first
quarter release schedule in both 1996 and 1997.
<PAGE>
ITEM 2. PROPERTIES.
As of December 31, 1997, the Corporation leased an aggregate of
274 theatre locations, approximating 87% of all its theatre
locations, having terms (including options) generally ranging
from 15 to 40 years. For further information regarding leased
locations see Note 11 of the Notes to the Consolidated Financial
Statements in Part II - Item 8 "Financial Statements and
Supplementary Data." In addition to leasing premises the
Corporation owned 40 theatres at December 31, 1997, of which 20
are in the United States and 20 are in Canada, and one office
building in Toronto which is the site of the Corporation's head
office.
ITEM 3. LEGAL PROCEEDINGS.
On or about October 14, 1997, a purported class action was
commenced in the U.S. District Court for the Northern District of
Illinois against the Corporation, Sony Corporation of America
(SCA) and Sony Retail Entertainment (SRE) by Jerrold I.
Rosenthal, on his own behalf and on the behalf of persons
allegedly similarly situated. On November 21, 1997, the
complaint was amended to change the defendants to the
Corporation, LTM and SPE. The complaint alleges that if the
merger as discussed in Part I is consummated, LCE will own 60% or
more of all movie theaters in the metropolitan Chicago area, and,
as a consequence (i) the merger would violate the federal and
Illinois antitrust statutes because the consummation of the
merger would allegedly tend to lessen substantially competition
among and/or tend to create a monopoly over movie theaters in the
metropolitan Chicago area and other, unspecified geographical
areas and (ii) consummation of the merger would allegedly injure
Rosenthal and other members of the purported class by resulting
in higher prices for movie tickets and limitations on the variety
of movies exhibited. Rosenthal is seeking injunctive relief
regarding the merger under federal and Illinois antitrust
statutes preventing consummation of the merger or, if the merger
is consummated, requiring divestiture, and also seeks attorney
fees and costs. Rosenthal has not claimed monetary damages.
Rosenthal is seeking to represent a purported class of "all
patrons of movie theaters in Chicago, Illinois and outlying
areas" and other, unspecified "similar" geographical areas
elsewhere where LCE will own 60% or more of all movie theaters
upon consummation of the merger. No motion for certification of
the purported class has yet been made. The Corporation, having
filed its initial response to the claims made in that litigation
on January 15, 1998, believes that the claims are without merit
and intends to vigorously oppose such claims.
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 the
Corporation. On or about February 27, 1998, the plaintiffs
amended their complaint. The amended complaint alleges that
certain of the Corporation's theatres in Washington, D.C. and
metropolitan area, Maryland and Virginia deny persons with
physical disabilities full and equal enjoyment of such theatres
as a result of architectural and structural barriers. The
complaint alleges that, as a consequence, the Corporation is
discriminating against such persons in violation of the Americans
With Disabilities Act and, where applicable, the District of
Columbia Human Rights Act. The plaintiffs are seeking a judgment
for injunctive relief ordering the Corporation to cease violating
such statutes and to bring their facilities into compliance with
such statutes. The plaintiffs are also seeking compensatory and
punitive or exemplary damages in an unknown amount, as well as
costs and attorneys' fees. The Corporation intends to defend
this claim vigorously.
The Corporation has been, and continues to be, involved in
numerous other legal proceedings. However, although litigation
is inherently uncertain, the Corporation does not believe that
such lawsuits are likely to result in a judgment which would have
a material adverse effect on the Corporation's financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
<PAGE>
Executive Officers
As of February 1, 1998, the Corporation's executive officers were
as follows:
Name Age Office
Ernest Leo Kolber 69 Chairman of the Board and
Director
Allen Karp 57 President, Chief Executive
Officer and Director
Irwin A. Cohen 57 Executive Vice-President,
Operations for North America
Michael Herman 43 Executive Vice-President,
Corporate Affairs and Secretary
Ellis Jacob 44 Executive Vice-President, Chief
Operating Office and Director
Howard I. Lichtman 43 Executive Vice-President,
Marketing and Communications
Robert Tokio 54 Executive Vice-President
Stephen Brown 39 Senior Vice-President and Chief
Financial Officer
Michael McCartney 43 Senior Vice-President,
Head Film Buyer, North America
James Vassos 43 Senior Vice-President,
Business Affairs and Planning
<PAGE>
Senator Kolber was appointed Chairman of the Board of the
Corporation in December 1989. He has been a Member of the Senate
of Canada since December 1983. From October 1987 to September
1993, Senator Kolber was Chairman of Claridge Inc. Senator Kolber
is a director of The Seagram Company Ltd. and The Toronto-
Dominion Bank. Senator Kolber has been a director of the
Corporation since December 1989.
Mr. Karp has been President and Chief Executive Officer of the
Corporation since June 1990. He served as President and Chief
Operating Officer from December 1989 to June 1990. Mr. Karp was
Senior Executive Vice-President of the Corporation from July 1986
to December 1989, and President, North American Theatres Division
of the Corporation from August 1988 to December 1989. Mr. Karp is
a director of Alliance Communications Corporation and Speedy
Muffler King Inc. Mr Karp has been a director of the Corporation
since May 1987.
Mr. Cohen has been Executive Vice-President, Operations for North
America since January 1993. From October 1988 to January 1993 he
served as Senior Vice-President, Theatre Operations, U.S. and
from November 1985 to October 1988 he served as Vice-President,
Northern Division.
Mr. Herman has been Executive Vice-President, Corporate Affairs
and Secretary of the Corporation since January, 1995. He served
as Senior Vice President, Corporate Affairs and Secretary of the
Corporation from May 1992 to December 1994. Mr. Herman was a
partner in the law firm of Goodman and Carr, Toronto from
February 1987 to May 1992.
Mr. Jacob has been Executive Vice-President and Chief Operating
Officer of the Corporation since September 30, 1997, and prior to
that time had been Executive Vice-President and Chief Financial
Officer since December 1989. From February 1989 to December 1989,
he served as Senior Vice-President and Chief Financial Officer,
and from October 1987 to February 1989, he served as Vice-
President Finance and Corporate Controller. Mr. Jacob is a
director of Alliance Communications Corporation. Mr. Jacob has
been a director of the Corporation since June 1990.
Mr. Lichtman has been Executive Vice-President, Marketing and
Communications since December 1989. From August 1988 to December
1989, he served as Senior Vice-President, Marketing; as Vice-
President, Marketing & Promotions from August 1987 to August
1988; as Vice-President, Theatre Publicity and Promotions from
October 1986 to August 1987; and as Director of Publicity and
Promotions for Canadian Theatre Operations from July 1985 to
October 1986.
Mr. Tokio has been Executive Vice-President since November 1990.
He served as Executive Vice-President, Real Estate, from December
1989 to November 1990. From November 1988 to December 1989, he
served as Senior Vice-President, Real Estate Administration.
Mr. Brown has been Senior Vice-President and Chief Financial
Officer of the Corporation since September 30, 1997, and prior to
that time had been Senior Vice-President, Treasury and Tax since
January 1995. He served as Vice-President, Taxation and Treasurer
from August 1990 to December 1994. Mr. Brown joined the
Corporation in March 1990 as Director of Internal Audit.
Mr. McCartney has been Senior Vice-President, Head Film Buyer,
North America, since November 1995. From December 1991 to
November 1995 he served as Senior Vice-President, Film, U.S. and
from September 1988 to December 1991 he served as Vice-President,
Film, U.S. Mr. McCartney joined the Corporation in September 1986
as Regional Film Buyer handling the southern division.
Mr. Vassos has been Senior Vice-President, Business Affairs and
Planning since January 1995. He served as Vice-President,
Business Affairs and Corporate Controller from May 1991 to
December 1994. Mr. Vassos had been Vice-President and Corporate
Controller from January 1990 to April 1991. From February 1989 to
January 1990, Mr. Vassos held the position of Senior Controller -
Planning and Consolidation. Mr Vassos joined the Corporation in
November 1987 as Controller - Planning.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Market Information
The Corporation's Common Shares trade on the New York Stock Exchange and
the Toronto Stock Exchange under the ticker symbol CPX. The following table
indicates the quarterly price range of the Common Shares for the past two
years.
Toronto New York
Stock Exchange Stock Exchange
(CDN. DOLLARS) (U.S. DOLLARS)
-------------------------------------
Fiscal 1996: High Low High Low
- ----------------------------------------------------
First Quarter 2.73 1.70 2.00 1.25
Second Quarter 3.35 1.65 2.50 1.25
Third Quarter 2.80 2.05 2.13 1.50
Fourth Quarter 2.25 1.87 1.63 1.38
Fiscal 1997: High Low High Low
- ----------------------------------------------------
First Quarter 2.15 1.76 1.63 1.25
Second Quarter 3.10 1.81 2.31 1.25
Third Quarter 2.69 1.90 2.00 1.31
Fourth Quarter 2.62 1.41 1.94 1.00
The Corporation's Common Shares began trading on the Toronto Stock Exchange
on October 29, 1982 and on the New York Stock Exchange on May 14, 1987.
Holders
The Corporation had 1,846 registered common shareholders of record as at
February 25, 1998. This amount excludes shareholders whose shares are held
in the name of investment dealers and other nominees.
Dividends
The Corporation has not paid any cash dividends. Under lending agreement
restrictions currently in effect, the Corporation cannot pay any dividends
unless it is in compliance with specified financial ratios. The Corporation
is not currently in compliance with such financial ratios. Any such payment
of dividends is further subject to annual limitations.
Dividends paid to United States shareholders on the Corporation's Common
Shares, if any, will be subject to Canadian non-resident withholding tax at
the treaty reduced rate of 15% of the dividend which is generally
applicable to dividends paid to a resident of the United States or 10% of
the dividend where the beneficial owner is a company which owns 10% of the
voting stock of the Corporation. A United States holder of Common Shares
will generally not be subject to Canadian income tax in respect of capital
gains realized on the disposition of Common Shares.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(In thousands of U.S. dollars except per share data)
- ------------------------------------------------------------------
------------Year ended December 31,-------------
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues * $573,777 $509,692 $513,150 $541,112 $546,230
Earnings before
interest, taxes
depreciation and
amortization * 18,620 49,438 51,966 62,725 72,244
Operating cash flow
excluding net change
in non-cash working
capital * 1,622 10,468 10,972 27,767 38,158
Operating cash
flow * 30,780 12,416 3,522 31,435 38,674
Income(loss) * (62,067) (31,082) (32,907) (14,173) 969
Total assets 635,475 644,171 649,643 688,693 697,105
- ------------------------------------------------------------------------
Long-term
obligations 340,669 335,447 393,556 390,752 344,967
- ------------------------------------------------------------------------
Shareholders'
equity 151,182 218,580 165,992 196,175 200,387
- ------------------------------------------------------------------------
Earning(loss) per share *
Basic (0.35) (0.19) (0.29) (0.13) 0.01
Fully diluted (0.35) (0.19) (0.29) (0.13) 0.01
- ------------------------------------------------------------------------
</TABLE>
* From Continuing Operations
See the Notes to the Consolidated Financial Statements and Part II - Item 7
"Management's Discussion and Analysis of Results of Operations and
Financial Condition" with respect to various factors affecting the
comparability of information with respect to the three fiscal years ended
December 31, 1997. See Part II - Item 7 "Management's Discussion and
Analysis of Results of Operations and Financial Condition" with respect to
various factors which may have an effect on the Corporation's future
financial condition and results of operations.
<PAGE>
ITEM. 7 Management's Discussion and Analysis of
Results of Operations and Financial Condition
(All figures are in U.S. dollars except where otherwise noted)
INTRODUCTION
Management's discussion and analysis of results of operations and financial
condition focuses on liquidity, capital resources and the results of the
Corporation's operations. This section should be read in conjunction with
the consolidated financial statements, the notes thereto and other
information presented elsewhere herein.
The Corporation recorded a net loss for the year ended December 31, 1997 of
$62,067,000 compared to a net loss for the year ended December 31, 1996 of
$31,082,000 and a net loss for the year ended December 31, 1995 of
$32,907,000. Included in the 1997 net loss are other expenses of
$43,401,000 (1996 - $1,377,000 and 1995 - $2,862,000). Other expenses in
1997 includes a charge of $46,239,000 representing the costs associated
with terminating certain leases and disposing of certain properties and the
write-off of the net book value attributable to the related properties.
On September 30, 1997, the Corporation announced that it has entered into
an agreement with SPE and LTM which provides for the combination of the
businesses of the Corporation and LTM. LTM is a private Delaware
Corporation wholly-owned by SPE. The transaction will involve combining the
Corporation with the Loews Theatres Exhibition Group, which consists of
Sony/Loews Theatres and its joint ventures with Star Theatres and Magic
Johnson Theatres. It is proposed that the combined company will be named
Loews Cineplex Entertainment Corporation (LCE). It is anticipated that LCE
will have over 2,700 screens in approximately 450 locations in North
America.
Pursuant to a series of related transactions to be effected pursuant to a
Plan of Arrangement under the Business Corporations Act (Ontario), the
Corporation's shares will be exchanged for shares of LCE with the result
that the Corporation will become a wholly-owned subsidiary of LCE. Upon
closing of the transaction, SPE will own approximately 51.1% of LCE's
shares (representing 49.9% of LCE's voting shares); Universal will own
approximately 26.0% of LCE's shares (subsequent to a cash subscription of
approximately $84.5 million); the Bronfman Trusts will own approximately
9.6% of LCE's shares; and the shareholders of the Corporation, other than
Universal and the Bronfman Trusts, will own approximately 13.3% of LCE's
shares. It is intended that the LCE shares will be listed on the New York
Stock Exchange and the Toronto Stock Exchange.
The merger is subject to approval by the shareholders of the Corporation
and regulatory approval. The special meeting of shareholders is scheduled for
March 26, 1998. It is anticipated that closing of this transaction will
take place in the second quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow from Continuing Operations
Cash flow from operations in 1997 amounted to a net inflow of $30,780,000
compared to a net inflow of $12,416,000 in 1996. The increase in cash flow
from operations is a function of the increase in revenue experienced in
1997 (See Results of Operations). Excluding the impact of the net change in
non-cash working capital, the Corporation's cash flow from operations for
the year ended December 31, 1997 amounted to a net inflow of $1,622,000
compared to a net inflow of $10,468,000 for the year ended December 31,
1996. This decline is attributable to the cash costs associated with the
aforementioned disposition of certain properties which amounted to
$21,648,000.
Long-Term Debt
Long-term debt increased from $326,058,000 at December 31, 1996 to
$333,523,000 at December 31, 1997. This increase is the result of the
capital expenditures associated with the Corporation's expansion program.
At December 31, 1997 the Corporation had approximately $48,000,000
available under its bank credit facilities. The amount available under such
facilities from time to time is dependent on the operating results of the
Corporation. During 1997, the Corporation reached an agreement with the
bank syndicate participating in the bank credit facilities to (1) defer a
commitment reduction scheduled for December 31, 1997 in the amount of
$10,000,000; and (2) provide the Corporation with an additional commitment
of $20,600,000. In accordance with the terms of the bank credit facilities,
commitment reductions of $40,000,000 are required in 1998 with the balance
due in 1999. Upon closing of the business combination with LTM, it is
anticipated that the amount outstanding under the Corporation's bank credit
facilities will be fully repaid. The bank credit facilities are secured by
certain assets of the Corporation and its subsidiaries.
The bank credit facilities contain restrictive covenants which require the
Corporation to maintain certain financial ratios. Given the uncertainty
with respect to the admission and concession revenue that the Corporation
will generate, there is a possibility that the Corporation may not meet
certain financial covenants as early as the first quarter end during the
next fiscal year. The Corporation believes that the bank syndicate
participating in the bank credit facilities would waive the particular
financial covenants if the Corporation is not in compliance at a
measurement date during the next twelve month period.
At December 31, 1997 the Corporation had two interest rate swap agreements
outstanding. The aggregate notional principal associated with the two swap
agreements is $35,000,000 and such agreements require the Corporation to
pay a fixed interest rate and receive a floating rate. The weighted average
fixed interest rates associated with the swap agreements are 5.73%. Of the
Corporation's long-term debt at December 31, 1997 approximately 79% is
subject to fixed rates of interest.
Future Commitments
In 1997 the Corporation opened seven new theatres and refurbished two
theatres in the United States adding a total of 87 new screens. In Canada
in 1997 the Corporation opened ten new theatres and refurbished four
theatres adding a total of 127 new screens. The total cost associated with
the construction of these theatres was approximately $50,000,000.
In 1998 the Corporation expects to open 15 new theatre locations (adding
181 new screens) and refurbish a total of four theatres (adding 30 new
screens) in North America. It is estimated that the total cost for this
expansion will be approximately $54,000,000. The Corporation will continue
to look at opportunities outside of North America although at this stage
there are no definite plans for additional theatres.
The Corporation's current strategy is to develop and build additional
theatres and screens in target markets that complement the Corporation's
existing position in such markets or that provide the Corporation with a
strategic position in a new market. Prior to commitment, management
conducts an exhaustive study of each potential site. Such study includes a
review of competition currently in the market and any proposed competition
and market demographics.
RESULTS OF OPERATIONS - 1997 AND 1996
Industry admission revenue and attendance increased in 1997 by 7.7% and
3.9% respectively compared to 1996 figures.
The Corporation reports its results in United States dollars. In order to
eliminate the impact of exchange rate fluctuations on the yearly comparison
of both admission and concession revenue, the results for the Canadian
operations discussed below are stated in Canadian dollars. In 1996 the
Corporation sold five theatres located in Texas. The impact of this sale
is not considered significant to the Corporation's United States results.
The Corporation's United States theatre circuit box office revenue
increased for both the year and the quarter ended December 31, 1997 by 3.3%
and 10.0% respectively when compared to the corresponding period in the
prior year. This increase in box office revenue for the year ended December
31, 1997 was the result of an increase in attendance of 1.7% and an
increase in box office revenue per patron of 1.6%. The increase in box
office revenue in the fourth quarter of 1997 was the result of an
attendance increase of 8.2% and an increase in box office revenue per
patron of 1.8%. The increase in attendance in the fourth quarter reflects
a strong slate of pictures released in that period,
including Titanic, and the impact of new theatres opened by the Corporation
in the United States.
The Corporation's Canadian theatres reported an increase in box office
revenue of 28.4% in 1997 compared to 1996 (when measured in Canadian
dollars). This increase was the result of an increase in attendance of
24.1% and an increase in box office revenue per patron of 4.3%. In the
fourth quarter of 1997 the Corporation's Canadian theatres reported an
increase in box office revenue of 43.5% compared to the fourth quarter of
1996 (when measured in Canadian dollars). This increase was the result of
an increase in attendance of 39.5% and an increase in box office revenue
per patron of 4.0%. The increase in attendance experienced by the
Corporation's Canadian theatre circuit in both the quarter and year ended
December 31, 1997 compared to 1996 was a result of the Corporation's
relationships with certain film distributors who enjoyed comparatively more
successful film product in 1997 compared to 1996 and the impact of new
theatres opened by the Corporation in Canada.
The Corporation's United States concession revenue increased by 8.8% in
1997 compared to 1996. This increase was the result of an increase in
attendance of 1.7% and an increase in concession revenue per patron of
7.1%. In the fourth quarter of 1997, the Corporation's United States
concession revenue increased by 16.9% when compared to the fourth quarter
of 1996. For the fourth quarter the increase was the result of an increase
in attendance of 8.2% and an 8.7% increase in concession revenue per
patron.
The Corporation's Canadian concession revenue increased in 1997 by 31.5%
(when measured in Canadian dollars) compared to 1996, reflecting an
increase in concession revenue per patron of 7.4% and an increase in
attendance of 24.1%. For the fourth quarter of 1997, the Corporation's
Canadian concession revenue increased by 49.4% comprising an increase in
attendance of 39.5% and an increase in concession revenue per patron of
9.9%.
The increase in concession revenue per patron in both the United States and
Canada for the year reflects the impact of the Corporation's focus in this
area and the augmented design of concession stands in the Corporation's
newer theatres.
Gross Margin and Other Costs
The gross margin from theatre operations (being revenue from theatre
operations less film cost, cost of concessions, advertising, theatre
payroll, occupancy and supplies and services), when expressed as a
percentage of theatre operating revenue, increased in 1997 to 16.2%
compared to 15.4% in 1996. For the fourth quarter of 1997 compared to the
fourth quarter of 1996 the gross margin from theatre operations, when
expressed as a percentage of theatre operating revenue, increased to 17.7%
from 14.0%. The increase in gross margin for both the year and the fourth
quarter was primarily the result of the increase in revenue.
Interest on long-term debt decreased by 4.5% in 1997 compared to the prior
year. The decrease in interest on long-term debt was primarily a result of
the decision to denominate certain of the Corporation's long-term debt in
Canadian dollars during 1997 which, for the period was subject to a lower
interest rate.
In 1997 other expenses were $43,401,000 compared to $1,377,000 in 1996 and
$2,862,000 in 1995. The primary component of this charge is an expense of
$46,239,000 relating to the costs associated with terminating certain
theatre leases and disposing of certain other theatre properties and the
corresponding write-off of the net book value associated with the
properties. It is anticipated that the disposal of these properties will be
substantially complete by the end of 1998 and will result in an annual
operating cash flow improvement of $7,000,000.
During 1997 the value of the Canadian dollar weakened relative to the
United States dollar. While currency movements affect the reporting of
revenues and expenses of the Corporation's Canadian operations, the
financial impact is limited as the costs of operating the Canadian theatres
are supported by the revenues of such theatres.
RESULTS OF OPERATIONS - 1996 AND 1995
Industry admission revenue and attendance increased in 1996 by 7.6% and
6.0% respectively compared to 1995 figures.
The Corporation's United States results have been impacted by the sale of
28 theatres, located in Florida and Georgia, to Carmike Cinemas, Inc. in
the second quarter of 1995. In 1996 the Corporation sold 5 theatres
located in Texas. The impact of this sale is not considered significant to
the Corporation's United States results.
The Corporation's United States theatre circuit box office revenue
decreased for both the year and the quarter ended December 31, 1996 by 4.0%
and 8.6% respectively when compared to the corresponding period in the
prior year. Adjusting for the impact of the sale of the Florida and Georgia
theatres, the Corporation's United States theatre circuit box office
revenue decreased by 1.9% for the year ended December 31, 1996 compared to
the year ended December 31, 1995. This decrease in box office revenue for
the year ended December 31, 1996 was the result of a decrease in attendance
of 4.3% offset by an increase in box office revenue per patron of 2.4%. The
decrease in attendance in 1996 compared to 1995 is a direct result of
increasing competition from other film exhibitors who have been
aggressively building new theatres. The decrease in box office revenue in
the fourth quarter of 1996 was the result of an attendance decrease of
10.3% offset by an increase in box office revenue per patron of 1.7%. The
decrease in attendance in the fourth quarter reflects the fact that the
film product in the fourth quarter of 1996 was not as strong as the prior
year and the aforementioned increasing competition. The Corporation
anticipates that its expansion program will address, at least in part, this
issue of increasing competition.
The Corporation's Canadian theatres reported an increase in box office
revenue of 2.8% in 1996 compared to 1995 (when measured in Canadian
dollars). This increase was the result of an increase in attendance of 3.5%
offset by a decrease in box office revenue per patron of 0.7%. In the
fourth quarter of 1996 the Corporation's Canadian theatres reported an
increase in box office revenue of 5.0% compared to the fourth quarter of
1995 (when measured in Canadian Dollars). This increase was the result of
an increase in attendance of 4.1% and an increase in box office revenue per
patron of 0.9%. The increase in attendance experienced by the Corporation's
Canadian theatre circuit in 1996 compared to 1995 was a result of the
Corporation's relationships with certain film distributors who enjoyed
comparatively more successful film product in 1996 compared to 1995.
The Corporation's United States concession revenue decreased by 3.0% in
1996 compared to 1995. In the fourth quarter of 1996, the Corporation's
United States concession revenue decreased by 5.1% when compared to the
fourth quarter of 1995. Adjusting for the impact of the sale of the Florida
and Georgia theatres, the Corporation's United States concession revenue
for the year ended December 31, 1996 was equivalent to that of the year
ended December 31, 1995. This was achieved due to an increase in concession
revenue per patron of 4.3% which offset the decrease in attendance. For the
fourth quarter the decrease was the result of a decrease in attendance of
10.3% offset by a 5.2% increase in concession revenue per patron.
The Corporation's Canadian concession revenue increased in 1996 by 6.0%
(when measured in Canadian dollars) compared to 1995, reflecting an
increase in concession revenue per patron of 2.5% and an increase in
attendance of 3.5%. For the fourth quarter of 1996, the Corporation's
Canadian concession revenue increased by 3.7% comprising an increase in
attendance of 4.1% and a decrease in concession revenue per patron of 0.4%.
The increase in concession revenue per patron for the year reflects the
impact of the Corporation's focus in this area and the augmented design of
concession stands in the Corporation's newer theatres.
Gross Margin and Other Costs
The gross margin from theatre operations (being revenue from theatre
operations less film cost, cost of concessions, advertising, theatre
payroll, occupancy and supplies and services), when expressed as a
percentage of theatre operating revenue, decreased in 1996 to 15.4%
compared to 15.7% in 1995. The slight decline in gross margin for the year
was primarily the result of a general increase in certain direct costs
associated with theatre operations.
The gross margin from theatre operations, when expressed as a percentage of
theatre operating revenue, decreased in the fourth quarter of 1996 compared
to the fourth quarter of 1995 to 14.0% from 16.4%. The decline in gross
margin for the fourth quarter of 1996 was due to (1) a general increase in
certain direct costs associated with theatre operations; and (2) the fixed
component of theatre operating costs (primarily occupancy costs).
Interest on long-term debt decreased by 13.4% in 1996 compared to the prior
year. The decrease in interest on long-term debt was primarily attributable
to the initial application of equity proceeds from the public offering in
the first quarter of 1996 against the Corporation's long-term debt.
During 1996 the value of the Canadian dollar strengthened relative to the
United States dollar. While currency movements affect the reporting of
revenues and expenses of the Corporation's Canadian operations, the
financial impact is limited as the costs of operating the Canadian theatres
are supported by the revenues of such theatres.
CANADIAN ISSUER
The Corporation is an Ontario corporation and expects to conduct
approximately one-third of its operations in Canada in 1998. The
Corporation is subject to certain Canadian economic, fiscal, monetary and
political policies and factors.
Reference is made to Note 17 of the Notes to the Consolidated Financial
Statements of the Corporation for a reconciliation of the Corporation's
financial statements to United States Generally Accepted Accounting
Principles.
INFLATION
For the three years ended December 31, 1997, inflation has not had a
pronounced effect on the Corporation's results of operations.
YEAR 2000 ISSUE
The Year 2000 issue affects virtually all companies and organizations. The
Corporation has implemented programs designed to ensure that all software
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. The Corporation does not anticipate incurring significant
additional costs to address the Year 2000 issue, although the effectiveness
of the Corporation'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 which the Corporation conducts business will
successfully address the Year 2000 issue with respect to their own computer
software. If the Corporation's present efforts to address the Year 2000
issue are not successful, or if vendors and other third parties with which
the Corporation conducts business do not successfully address the Year 2000
issue, the Corporation's business and financial condition could be
adversely affected.
FORWARD LOOKING STATEMENTS
The Corporation and its representatives have made, or may make, forward
looking statements including those contained in this Management's
Discussion and Analysis of Results of Operations and Financial Condition.
Use of the words "believes", "expects", "estimated", "intends", or
similar expressions identify such forward looking statements.
The results contemplated by the Corporation's forward looking statements
are subject to certain risks and uncertainties that could result in actual
performance being materially different from anticipated results, including
without limitation, lack of high quality commercial film product,
construction risks and delays, failure to obtain future waivers or
amendments under the Corporation's bank credit facilities and other factors
described herein.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Cineplex Odeon Corporation
We have audited the consolidated balance sheets of Cineplex
Odeon Corporation as at December 31, 1997 and December 31,
1996 and the consolidated statements of income and changes
in shareholders' equity and cash resources for each of the
years in the three year period ended December 31, 1997.
These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform an audit to obtain reasonable assurance
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. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements
present fairly, in all material respects, the financial
position of the Corporation as at December 31, 1997 and
December 31, 1996 and the results of its operations and the
changes in its shareholders' equity and cash resources for
each of the years in the three year period ended December
31, 1997 in accordance with generally accepted accounting
principles.
KPMG
Chartered Accountants
Toronto, Canada
February 13, 1998
<PAGE>
ITEM 8. Financial Statements and Supplementary Data
CINEPLEX ODEON CORPORATION
CONSOLIDATED BALANCE SHEET
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 3,505 $ 2,718
Accounts receivable (note 3) 13,222 9,552
Other 9,315 8,852
--------------- --------------
26,042 21,122
PROPERTY, EQUIPMENT AND
LEASEHOLDS (note 4) 567,431 579,841
OTHER ASSETS
Long-term investments
and receivables 2,206 2,535
Goodwill
(less accumulated amortization
of $12,382; 1996 - $11,281) 31,687 32,816
Deferred charges
(less accumulated amortization
of $5,194; 1996 - $3,671) 8,109 7,857
-------------- ------------
42,002 43,208
-------------- ------------
TOTAL ASSETS $ 635,475 $ 644,171
============== ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable
and accruals (note 5) $ 91,849 $ 59,474
Deferred income (note 6) 20,364 17,150
Current portion of long-term debt
and other obligations 27,446 6,926
------------- -------------
139,659 83,550
LONG-TERM DEBT (note 7) 333,523 326,058
CAPITALIZED LEASE
OBLIGATIONS (note 11) 6,271 8,317
DEFERRED INCOME (note 6) 3,965 6,594
PENSION OBLIGATION (note 9) 875 1,072
SHAREHOLDERS' EQUITY
Capital stock (note 10) 555,400 555,374
Translation adjustment 939 4,016
Retained earnings (deficit) (405,157) (340,810)
----------- ----------
151,182 218,580
COMMITMENTS AND CONTINGENCIES (note 11)
TOTAL LIABILITIES ------------- -----------
AND SHAREHOLDERS' EQUITY $ 635,475 $ 644,171
============= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
CINEPLEX ODEON CORPORATION
CONSOLIDATED INCOME STATEMENT
(in thousands of U.S. dollars except per share figures)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1997 December 31, 1996 December 31, 1995
---------------- ----------------- -----------------
<S> <C> <C> <C>
REVENUE
Admissions $ 399,171 $ 358,973 $ 365,220
Concessions 147,892 126,636 126,319
Other 26,714 24,083 21,611
------------ ------------ ------------
573,777 509,692 513,150
EXPENSES
Theatre operations
and other expenses 462,738 418,328 418,731
Cost of concessions 28,705 22,357 22,016
General and administrative 20,313 18,192 17,575
Depreciation and amortization 45,715 43,648 42,621
------------ ------------ -----------
557,471 502,525 500,943
------------ ------------ ------------
Income before the undernoted
(note 17) 16,306 7,167 12,207
Other expenses (note 12) (43,401) (1,377) (2,862)
------------ ------------ -----------
Income/(loss) before interest
on long-term debt
and income taxes (note 17) (27,095) 5,790 9,345
Interest on long-term debt 33,900 35,482 40,983
------------ ------------ -----------
Loss before income taxes (60,995) (29,692) (31,638)
Income taxes (note 13) 1,072 1,390 1,269
------------ ------------ -----------
NET LOSS $ (62,067) $ (31,082) $ (32,907)
============ ============ =============
BASIC
Weighted average shares
outstanding 176,795,000 163,473,000 114,764,000
Loss per share ($0.35) ($0.19) ($0.29)
FULLY DILUTED
Weighted average shares
outstanding 191,304,000 176,107,000 122,616,000
Loss per share ($0.35) ($0.19) ($0.29)
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
CINEPLEX ODEON CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN CASH RESOURCES
(in thousands of U.S. dollars except per share figures)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1997 December 31, 1996 December 31, 1995
----------------- ------------------ -----------------
<S> <C> <C> <C>
CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES
Net loss $ (62,067) $ (31,082) $ (32,907)
Depreciation and amortization 45,715 43,648 42,621
Write down of property,
equipment and leaseholds 24,591 - -
Other non-cash items (6,617) (2,098) 1,258
----------- ------------ -----------
1,622 10,468 10,972
Net change in non-cash
working capital 29,158 1,948 (7,450)
----------- ------------ ------------
30,780 12,416 3,522
----------- ------------ ------------
FINANCING ACTIVITIES
Decrease in long-term debt
and other obligations (5,275) (58,411) (9,289)
Increase in long-term debt
and other obligations 31,017 - 14,085
Issue of share capital,
net of issue costs 26 82,895 64
Other 2,936 175 (615)
----------- --------- -----------
28,704 24,659 4,245
----------- --------- -----------
INVESTMENT ACTIVITIES
Additions to property, equipment
and leaseholds (66,203) (36,989) (30,749)
Long-term investments 4,270 - (109)
Proceeds on sale of certain
theatre properties 3,563 1,974 23,674
Proposed merger costs (2,280) - -
Other 1,953 (946) (530)
------------ ---------- -----------
(58,697) (35,961) (7,714)
------------ ---------- -----------
NET INCREASE DURING YEAR 787 1,114 53
CASH AT BEGINNING OF YEAR 2,718 1,604 1,551
----------- ---------- -----------
CASH AT END OF YEAR $ 3,505 $ 2,718 $ 1,604
=========== ========== ===========
CASH FLOW FROM OPERATING
ACTIVITIES PER SHARE
Basic $ 0.17 $ 0.08 $ 0.03
Fully Diluted $ 0.16 $ 0.07 $ 0.03
CHANGE IN NON-CASH WORKING CAPITAL
Current assets
Accounts receivable $ (3,938) $ 1,117 $ 629
Other (214) (1,024) 1,383
Current liabilities
Accounts payable and accruals 29,660 (998) (9,509)
Deferred income 3,276 2,157 508
Income taxes payable 374 696 (461)
---------- --------- ----------
$ 29,158 $ 1,948 $ (7,450)
========== ========= ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest on long-term
debt paid $ 33,900 $ 35,482 $ 40,983
========== ========= =========
Income taxes paid $ 1,072 $ 1,390 $ 1,269
========== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
CINEPLEX ODEON CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands of U.S. dollars, except for number of shares)
<TABLE>
<CAPTION>
Subordinate Restricted
Common Shares Voting Shares Retained Total
- ------------------------------------------------------------------- Earnings Translation Shareholders'
Shares Amount Shares Amount (Deficit) Adjustment Equity
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1994 65,541,677 $ 213,890 49,204,245 $ 258,525 $ (276,821) $ 581 $ 196,175
Exercise of options 38,950 64 64
Net loss (32,907) (32,907)
Translation adjustment 2,660 2,660
- -------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1995 65,580,627 213,954 49,204,245 258,525 (309,728) 3,241 165,992
Exercise of options 276,118 375 375
Net loss (31,082) (31,082)
Translation adjustment 775 775
Issue of shares 37,477,412 49,187 24,242,181 33,333 82,520
- -------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1996 103,334,157 263,516 73,446,426 291,858 (340,810) 4,016 218,580
Exercise of options 18,750 26 26
Net loss (62,067) (62,067)
Proposed merger costs (note 20) (2,280) (2,280)
Translation adjustment (3,077) (3,077)
- ------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1997 103,352,907 $ 263,542 73,446,426 $ 291,858 $ (405,157) $ 939 $ 151,182
======================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars unless otherwise stated)
1. GENERAL
The Corporation is incorporated under the Ontario Business Corporations
Act.
The financial results of the Corporation's operations are presented in
United States dollars, as approximately two-thirds of the Corporation's
activities emanate from the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in Canada, which, except as
described in note 17, conform in all material respects with accounting
principles generally accepted in the United States. A summary of
significant accounting policies is set out below.
Principles of Consolidation: The consolidated financial statements include
the accounts of the Corporation and its subsidiaries. Intercompany accounts
and transactions have been eliminated. The Corporation accounts for its
interests in joint ventures through the proportionate consolidation method.
Inventories: Inventories are stated at the lower of cost (first-in, first-
out basis) and net realizable value.
Property, Equipment and Leaseholds: Property, equipment and leaseholds are
stated at cost less accumulated depreciation and amortization. Depreciation
and amortization are calculated using the following methods and annual
rates:
Buildings Straight-line over 40 years
Projection equipment Straight-line over 20 years
Other equipment Straight-line over 15 years
Leaseholds Straight-line over periods from 15 to 40
years
Construction in progress is depreciated from the date the asset is ready
for productive use.
Goodwill: Goodwill represents the excess of the purchase price of certain
businesses over the fair value of the net identifiable assets acquired and
is being amortized, on a straight-line basis, over 40 years. The
Corporation regularly reviews the recoverability of goodwill by determining
whether the amortization of the goodwill balance over its remaining life
can be recovered through projected future undiscounted income from
operations before interest on long-term debt and effects of goodwill
amortization.
Deferred Income: Advance payments received under a strategic marketing
relationship with a major supplier, advance sales of admissions, the sale
of gift certificates and income from certain promotional programs are
included as deferred income, and are recognized as income when services are
rendered.
Deferred Charges: Deferred charges, consisting primarily of costs
associated with debt refinancing, are amortized over the term of the
related debt.
Foreign Currency Translation: Assets and liabilities denominated in a
currency other than U.S. dollars are translated to U.S. dollars at exchange
rates in effect at the balance sheet date. The resulting gains or losses
are accumulated in a separate component of shareholders' equity under the
caption "Translation adjustment". Revenue and expense items are translated
at average exchange rates prevailing during the year.
Admissions Revenue: Admissions revenue from the exhibition of motion
pictures is recognized on the dates of exhibition.
Earnings Per Share: Basic earnings per share are calculated using the
weighted daily average number of Common Shares and Subordinate Restricted
Voting Shares outstanding. Fully diluted earnings per share are calculated
assuming the exercise of stock options at the beginning of the year, or for
those stock options issued during the year, at the date of the grant to the
extent the impact is dilutive.
Interest Rate Hedging Activities: The Corporation uses interest rate swaps
to manage interest rate risk. These financial instruments are not held for
trading purposes and any payments or receipts under such contracts are
recognized as adjustments to interest expense.
Measurement Uncertainty: 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 period. Actual results could
differ from those estimates.
3. ACCOUNTS RECEIVABLE
- -------------------------------------------------------------------
December 31, 1997 December 31, 1996
- -------------------------------------------------------------------
Trade $ 10,246,000 $ 8,446,000
Current portion of
long-term receivables 162,000 150,000
Other 3,021,000 1,098,000
Employee loans 210,000 323,000
Allowance for doubtful accounts (417,000) (465,000)
- -------------------------------------------------------------------
$ 13,222,000 $ 9,552,000
===================================================================
4. PROPERTY, EQUIPMENT AND LEASEHOLDS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
December 31, 1997 December 31, 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
Land $ 62,436,000 $ 63,116,000
-------------- --------------
Buildings Cost 123,023,000 126,217,000
Accumulated depreciation (25,700,000) (19,919,000)
------------ ------------
97,323,000 106,298,000
------------ ------------
Equipment Cost 141,499,000 136,521,000
Accumulated depreciation (76,384,000) (70,851,000)
------------ ------------
65,115,000 65,670,000
------------ -------------
Leaseholds Cost 566,754,000 537,153,000
(including Accumulated depreciation (230,490,000) (197,688,000)
capital ------------- -------------
leases) 336,264,000 339,465,000
------------- -------------
Construction in progress 6,293,000 5,292,000
- -------------------------------------------------------------------------
$ 567,431,000 $ 579,841,000
=========================================================================
The net book value of assets held under capital leases at December 31, 1997
was $18,734,000 (1996-$20,508,000), net of accumulated amortization of
$9,053,000 (1996-$7,700,000).
5. ACCOUNTS PAYABLE AND ACCRUALS
- ----------------------------------------------------------------
December 31, 1997 December 31, 1996
- ----------------------------------------------------------------
Trade $ 49,851,000 $ 40,332,000
Accrued liabilities 20,554,000 9,809,000
Sales and other taxes 9,817,000 8,517,000
Other 11,627,000 816,000
- -----------------------------------------------------------------
$ 91,849,000 $ 59,474,000
=================================================================
6. DEFERRED INCOME
- --------------------------------------------------------------------------
December 31, 1997 December 31, 1996
- --------------------------------------------------------------------------
Strategic marketing relationship $ 5,665,000 $ 8,296,000
Advance admission sales 11,452,000 9,678,000
Gift certificates 5,522,000 5,001,000
Promotional programs 1,401,000 491,000
Other 289,000 278,000
- ---------------------------------------------------------------------------
24,329,000 23,744,000
Less: Current portion 20,364,000 17,150,000
- ---------------------------------------------------------------------------
$ 3,965,000 $ 6,594,000
===========================================================================
7. LONG-TERM DEBT
- -------------------------------------------------------------------------
December 31, 1997 December 31, 1996
- -------------------------------------------------------------------------
Senior subordinated notes
maturing June 15, 2004,
bearing interest at 10.875% $ 200,000,000 $ 200,000,000
Bank credit facilities of
$158,530,000 maturing
December 31, 1999 110,957,000 79,940,000
Various notes and mortgages
(interest rates from 5.61% to 11.50%) 47,071,000 49,877,000
- ------------------------------------------------------------------------
358,028,000 329,817,000
Less: Current portion 24,505,000 3,759,000
- -------------------------------------------------------------------------
$ 333,523,000 $ 326,058,000
=========================================================================
The bank credit facilities bear interest at variable rates based upon an
applicable margin over LIBOR or the bank's reference rate. The applicable
margin for LIBOR borrowings will vary from a maximum of 2.25% to a minimum
of 1.25% based upon the Corporation meeting certain financial ratios.
During 1997, the Corporation reached an agreement with the bank syndicate
participating in the bank credit facilities to (1) defer a commitment
reduction scheduled for December 31, 1997 in the amount of $10,000,000; and
(2) provide the Corporation with an additional commitment of $20,600,000.
Based on the above information, commitment reductions under the bank credit
facility are $40,000,000 in 1998 with the balance due in 1999. The bank
credit facilities are secured by certain assets of the Corporation and its
subsidiaries.
The bank credit facilities contain restrictive covenants which require the
Corporation to maintain certain financial ratios. Given the uncertainty
with respect to the admission and concession revenue that the Corporation
will generate, the Corporation may not meet certain financial covenants as
early as the first quarter end during the next fiscal year. The Corporation
believes that the bank syndicate participating in the bank credit
facilities would waive the particular financial covenants if the
Corporation is not in compliance at a measurement date during the next
twelve month period.
Principal repayments on long-term debt during each of the next five years
approximate the following:
- ----------------------------
1998 $ 24,505,000
1999 119,047,000
2000 2,083,000
2001 1,169,000
2002 4,034,000
Thereafter 207,190,000
- ----------------------------
$ 358,028,000
============================
8. FINANCIAL INSTRUMENTS
(i) Swap Agreements - The Corporation has entered into interest rate swap
agreements to manage its interest rate exposure. At December 31, 1997 the
Corporation had outstanding two interest rate swap agreements with a
commercial bank. The details of the swaps are as follows:
(a) Notional principal - $15,000,000. The Corporation pays 5.74% per
annum, payable on a quarterly basis and receives three month LIBOR
rate. This swap expires November 30, 1998.
(b) Notional principal - $20,000,000. The Corporation pays 5.72% per
annum, payable on a quarterly basis and receives three month LIBOR
rate. This swap expires November 30, 1998.
The Corporation is exposed to credit loss in the event of non-performance
by the other party to the interest rate swap agreements. However, the
Corporation does not anticipate non-performance by the counterparty.
(ii) Currency Options - The Corporation has entered into three currency
option agreements to manage its exposure to movements in the Canadian
dollar relative to the United States dollar. These agreements are for a
total notional principal of $6,000,000 Canadian, $44,000,000 Canadian and
$50,000,000 Canadian and expire on January 14, 1998, January 28, 1998 and
March 30, 1998 respectively. The Corporation is exposed to credit loss in
the event of non-performance by the other party to the currency option.
However, the Corporation does not anticipate non-performance by the
counterparty.
(iii) Fair Value of Financial Instruments - The carrying value of cash,
accounts receivable, accounts payable and accruals and the current portion
of long-term debt and other obligations approximates fair value due to the
short term maturities of these instruments. Financial instruments with a
carrying value different from their fair value include:
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
December 31, 1997 December 31, 1996
- ----------------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets
Long-term investments
and receivables
- Practicable to estimate
fair value $ 631,000 $ 7,135,000 $ 935,000 $7,873,000
- Not practicable $ 1,575,000 --- $ 1,600,000 ---
Financial liabilities
Long-term debt $333,523,000 $347,523,000 $326,058,000 $326,558,000
Swap agreements net receivable --- $ 32,000 --- $ 123,000
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The fair value of long-term investments and receivables is based on quoted
market prices (where applicable) or by discounting future cash flows,
including interest payments, using rates currently available for similar
investments and receivables. The fair value of long-term debt is based on
quoted market prices (where applicable) or by discounting future cash
flows, including interest payments, using rates currently available for
debt of similar terms and maturity. The fair value of interest rate swap
agreements are the estimated amounts that the Corporation would receive
upon termination of the agreements.
9. PENSION OBLIGATION
The Corporation has a defined benefit pension plan covering full-time
employees in the United States. The benefits under this plan are based upon
years of service and the employees' compensation for certain periods during
the last years of employment. This plan is non-contributory and the
Corporation's funding policy is to make the minimum annual contribution
required by the applicable regulations. At December 31, 1997, approximately
52% of the assets of this plan were held in bonds, 36% in treasury bills,
11% in equities, and 1% in cash. The most recent actuarial estimate for the
plan covering these employees as at December 31, 1997 indicates pension
fund assets of $6,679,000 (1996-$6,557,000) and accrued pension benefits
of $12,779,000 (1996-$12,185,000).
The Corporation has a pension plan covering full time employees in Canada.
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 the conversion benefits under the defined benefit plan were frozen. The
most recent actuarial estimate for the plan covering Canadian employees
indicates a surplus of pension fund assets over accrued benefits of
approximately $2,101,000.
At December 31, 1997, the Corporation's pension obligation is $1,846,000,
of which $875,000 is the long-term portion ($2,145,000 at December 31, 1996
of which $1,072,000 was the long-term portion).
10. CAPITAL STOCK
- ------------------------------------------------------------------------------
December 31, 1997 December 31, 1996
- ------------------------------------------------------------------------------
Authorized:
Unlimited number of Common Shares, no par value
Unlimited number of First Preference Shares issuable in series, no par value
Unlimited number of Subordinate Restricted Voting Shares, no par value
Issued
103,352,907 Common Shares
(December 31, 1996 - 103,334,157) $ 263,542,000 $ 263,516,000
73,446,426 Subordinate Restricted Voting Shares
(December 31, 1996 - 73,446,426) 291,858,000 291,858,000
- ------------------------------------------------------------------------------
$ 555,400,000 $ 555,374,000
===============================================================================
i) On March 20, 1996 the Corporation filed a supplemented short form
prospectus in Canada and the United States pursuant to the multi-
jurisdictional disclosure system with respect to an offering of 25,000,000
Common Shares to the public at a price of $1.375 per share, for an
aggregate consideration of $34,375,000. In addition, in accordance with the
provisions of the Amended and Restated Subscription Agreement, Universal
Studios, Inc. (Universal) (formerly MCA INC.) and the Charles Rosner
Bronfman Trust (the Trust) agreed to subscribe for 24,242,181 Subordinate
Restricted Voting (SRV) Shares and 12,121,454 Common Shares respectively,
at the same price as the offering to the public, for aggregate
consideration of $50,000,000. The public offering and the subscriptions by
Universal and the Trust were completed on March 28, 1996. On April 16,
1996, the Corporation issued 355,958 Common Shares at a price of $1.375 per
share as part of the over-allotment option provided to the underwriters
pursuant to the public offering. The net proceeds from the issuance of the
Common and SRV Shares were used to reduce indebtedness owing under the
Corporation's revolving bank credit facilities.
ii) The SRV Shares are held by Universal. Under the terms of the shares,
Universal is entitled to exercise no more than one-third less one vote of
the voting rights applicable to all issued voting shares.
iii) In 1996 the Amended and Restated Stock Option Plan (the Option Plan)
was approved. The Option Plan provides for the granting of rights to
purchase Common Shares under both incentive and non-incentive stock option
agreements. The options granted under the Option Plan are for 10 year terms
and vest over various periods to a maximum of 5 years. The maximum number
of options which can be granted under the Option Plan is 17,646,716.
The following options to purchase Common Shares expire between October 15,
2001 and December 18, 2007:
- --------------------------------------------------
Option price per share December 31, 1997
- --------------------------------------------------
$ 1.70 Canadian 8,450
1.87 Canadian 14,323,939
2.00 Canadian 106,750
2.60 Canadian 15,000
1.31 United States 1,000,000
- ---------------------------------------------------
Options outstanding end of year 15,454,139
===================================================
Stock option transactions for the respective years were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
December 31, 1997 December 31, 1996
Number Weighted Av. Number Weighted Av.
of Exercise of Exercise
Options Price ($Cdn) Options Price ($Cdn)
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding
beginning of year 14,503,239 1.87 7,835,289 3.06
Additional options granted 1,121,750 1.79 8,019,020 1.87
Less options exercised 18,750 1.87 276,118 1.87
Less options terminated,
canceled or expired 152,100 1.87 1,074,952 2.74
- ------------------------------------------------------------------------------
Options outstanding
end of year 15,454,139 1.86 14,503,239 1.87
==============================================================================
</TABLE>
At December 31, 1997 there were 10,385,334 options exercisable and
1,621,666 options available for grant.
iv) Under the Corporation's current financing arrangements, the Corporation
is prohibited from paying any Common Share or Subordinate Restricted Voting
Share dividends unless it is in compliance with specified financial ratios.
The Corporation is not currently in compliance with such financial ratios.
Any such payment of dividends is further subject to annual limitations.
11. COMMITMENTS AND CONTINGENCIES
i) Certain theatre properties and theatre equipment are subject to lease
agreements. Certain of the property leases require the Corporation to pay
additional rent and to pay all business and realty taxes and a proportion
of the landlord's operating costs in respect of the leased premises. Future
minimum payments, by year and in the aggregate, under theatre operating
leases and theatre and equipment capital leases, as at December 31, 1997,
are as follows:
- ---------------------------------------------------------------------
Capital leases Operating leases
- ---------------------------------------------------------------------
1998 $ 2,613,000 $ 86,846,000
1999 2,441,000 85,702,000
2000 2,316,000 83,682,000
2001 1,085,000 81,360,000
2002 520,000 78,118,000
Thereafter 1,521,000 755,759,000
- ---------------------------------------------------------------------
Total minimum lease payments 10,496,000 $ 1,171,467,000
=================
Less: Imputed interest at rates
between 7.5% and 8.5% 2,255,000
Current portion 1,970,000
- -------------------------------------------------
$ 6,271,000
=================================================
ii) The Corporation and its subsidiaries are currently subject to audit by
taxation authorities in several jurisdictions. The taxation authorities
have proposed to reassess taxes in respect of certain transactions and
income and expense items. The Corporation and its subsidiaries are
vigorously contesting the adjustments proposed by the taxation authorities.
Although such matters cannot be predicted with certainty, management does
not consider the Corporation's exposure to such proposed reassessments to
be material to these financial statements.
iii) The Corporation and its subsidiaries are also involved in certain
litigation arising out of the ordinary course and conduct of its business.
The outcome of this litigation is not currently determinable. Although such
matters cannot be predicted with certainty, management does not consider
the Corporation's exposure to such litigation to be material to these
financial statements.
12. OTHER INCOME(EXPENSES)
Other income(expenses) is comprised of the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Year ended Year ended Year ended
December 31, 1997 December 31, 1996 December 31, 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loss on sale
or write down of
theatre related assets $ (46,239,000) $ (14,000) $ (3,014,000)
Net gain on sale
or realization of
non-theatre related assets 3,787,000 --- 1,175,000
Other (949,000) (1,363,000) (1,023,000)
- --------------------------------------------------------------------------------
$ (43,401,000) $(1,377,000) $ (2,862,000)
=================================================================================
</TABLE>
During the year ended December 31, 1997 the Corporation conducted a review
of its operating assets and identified a select number of theatres for
disposal. Accordingly, the Corporation took a charge of $46,239,000
representing the costs associated with terminating certain leases and
disposing of certain properties and the write-off of the net book value
attributable to the related properties. It is anticipated that the
disposal plan will be substantially completed by the end of fiscal 1998.
An amount of $10,307,000, representing remaining lease termination
payments, is included in accounts payable as at December 31, 1997.
13. INCOME TAXES
- --------------------------------------------------------------------
Year ended Year ended Year ended
December 31, 1997 December 31, 1996 December 31, 1995
- --------------------------------------------------------------------
Current $ 1,072,000 $ 1,390,000 $ 1,269,000
====================================================================
The Corporation's income tax provision based upon income(loss) from
continuing operations before income taxes is made up as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Year ended Year ended Year ended
December 31, 1997 December 31, 1996 December 31, 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory income tax rate 44.0% 44.0% 44.0%
Provision based on statutory
income tax rate $ (27,173,000) $ (13,064,000) $ (13,921,000)
Increase (decrease) in income tax
provision resulting from:
Tax exempt portion
of capital gains (359,000) (6,000) (48,000)
Permanent differences other
than capital gains 519,000 62,000 766,000
Non-recognition of tax benefit of
current year's losses for tax purposes:
Canada --- --- 1,290,000
United States 35,130,000 14,050,000 11,913,000
Recognition of tax benefit of
prior years' losses for tax purposes:
Canada (8,117,000) (1,042,000) ---
United States --- --- ---
- ------------------------------------------------------------------------------
--- --- ---
Large Corporations Tax
and state taxes 1,072,000 1,390,000 1,269,000
- ------------------------------------------------------------------------------
Income tax provision $ 1,072,000 $ 1,390,000 $ 1,269,000
==============================================================================
</TABLE>
For taxation purposes there are net operating loss carryforwards of
approximately $272,000,000 available to offset future taxable income. These
losses expire between the years 1998 and 2012. A portion of the United
States net operating loss carryforwards, in the amount of $41,000,000, are
subject to annual limitations.
14. SEGMENTED INFORMATION
Substantially all of the Corporation's operations are in the exhibition
business, including the exhibition and distribution of motion picture
films. The geographic distribution of revenue, income(loss) before income
taxes, income taxes, income (loss) and assets are shown below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Year ended Year ended Year ended
December 31, 1997 December 31, 1996 December 31, 1995
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
Canada $ 206,547,000 $ 159,068,000 $ 150,026,000
United States 367,230,000 350,624,000 363,124,000
- -----------------------------------------------------------------------
$ 573,777,000 $ 509,692,000 $ 513,150,000
=======================================================================
Income(loss) before income taxes
Canada $ 19,236,000 $ 2,394,000 $ (2,788,000)
United States (80,231,000) (32,086,000) (28,850,000)
- ------------------------------------------------------------------------
$ (60,995,000) $ (29,692,000) $ (31,638,000)
========================================================================
Income taxes
Canada $ 323,000 $ 235,000 $ 126,000
United States 749,000 1,155,000 1,143,000
- ------------------------------------------------------------------------
$ 1,072,000 $ 1,390,000 $ 1,269,000
========================================================================
Income(loss)
Canada $ 18,913,000 $ 2,159,000 $ (2,914,000)
United States (80,980,000) (33,241,000) (29,993,000)
- -------------------------------------------------------------------------
$ (62,067,000) $ (31,082,000) $ (32,907,000)
=========================================================================
</TABLE>
- ---------------------------------------------------------------
December 31, 1997 December 31, 1996
- ---------------------------------------------------------------
Assets
Canada $ 163,323,000 $ 142,448,000
United States 472,152,000 501,723,000
- ---------------------------------------------------------------
$ 635,475,000 $ 644,171,000
===============================================================
Film exhibition operations outside of Canada and the United States are
currently limited to one theatre (six screens) in Budapest, Hungary. This
location is not material to the Corporation's financial position or results
of operations and is included with Canada for segmented disclosure
purposes.
15. SUMMARY FINANCIAL INFORMATION OF PLITT THEATRES, INC. (PLITT)
The following is summarized consolidated financial information of Plitt:
- ----------------------------------------------------------------------------
Year ended Year ended Year ended
December 31, 1997 December 31, 1996 December 31, 1995
- ----------------------------------------------------------------------------
Revenue $ 367,230,000 $ 350,624,000 $ 363,124,000
============================================================================
Income (loss) from
continuing operations
before general and
administrative expenses,
depreciation and amortization,
interest on long-term debt
and income taxes $ (1,813,000) $ 45,847,000 $ 46,148,000
===========================================================================
Net loss $ (80,980,000) $ (33,241,000) $ (29,993,000)
===========================================================================
The results for the year ended December 31, 1997 include $1,313,000 of
costs charged to Plitt by the Corporation (1996-$1,799,000; 1995-$Nil).
- ----------------------------------------------------------------
December 31, 1997 December 31, 1996
- ----------------------------------------------------------------
Current assets $ 14,382,000 $ 17,105,000
Noncurrent assets $ 457,770,000 $ 484,618,000
Current liabilities $ 130,838,000 $ 55,078,000
Noncurrent liabilities $ 256,008,000 $ 265,386,000
================================================================
Current liabilities at December 31, 1997 include a net payable to the
Corporation and other corporations within the consolidated group in the
amount of $32,477,000 (1996-$9,551,000). Noncurrent liabilities at December
31, 1997 and December 31, 1996 include $10,000,000 that is owed to the
Corporation.
16. RELATED PARTY TRANSACTIONS
Related party transactions not disclosed elsewhere in these financial
statements include film distribution and exhibition agreements which the
Corporation enters into with Universal. These agreements are conducted in
accordance with normal business terms and conditions. Pursuant to these
agreements, the Corporation, in the year ended December 31, 1997, paid
approximately $27,459,000 in film licensing fees to Universal (1996-
$20,631,000, 1995-$31,198,000) and received from Universal approximately
$1,010,000 (1996-$666,000, 1995-$576,000) relating to distribution
services.
17. RECONCILIATION BETWEEN CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)
i) The Corporation has adopted the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109), for
its financial statements presented under United States accounting
principles. Under FAS 109 the Corporation's method of accounting for income
taxes changes from the deferred method, as recorded under Canadian
accounting principles, to an asset and liability approach. Under the asset
and liability method of FAS 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases.
The income tax provision for the year ended December 31, 1997 calculated in
accordance with United States accounting principles was the same as that
reported under Canadian accounting principles after reflecting a net
decrease in the valuation allowance of $58,600,000 (1996 - net increase of
$19,400,000, 1995 - net increase of $22,700,000).
The application of the above noted United States accounting principles on
the balance sheet of the Corporation as at December 31, 1997 resulted in no
net difference in deferred taxes from that reported under Canadian
accounting principles. Net deferred tax assets and liabilities are
comprised of the following:
- --------------------------------------------------------------
December 31, 1997 December 31, 1996
- --------------------------------------------------------------
Deferred Tax Assets
Non capital losses $ 22,378,000 $ 98,039,000
Depreciation 27,225,000 25,922,000
Loss on disposals 13,729,000 ---
Other 13,768,000 15,039,000
- --------------------------------------------------------------
77,100,000 139,000,000
Less: Valuation allowance (44,400,000) (103,000,000)
- --------------------------------------------------------------
$ 32,700,000 $ 36,000,000
==============================================================
- ---------------------------------------------------------------
Deferred Tax Liabilities
Depreciation $ 32,134,000 $ 34,755,000
Other 566,000 1,245,000
- ---------------------------------------------------------------
$ 32,700,000 $ 36,000,000
===============================================================
ii) Under GAAP in the United States and the financial reporting
requirements of the Securities and Exchange Commission, all operating
income and expenses, such as those listed in note 12 to the consolidated
financial statements, are required to be included in any subtotal
purporting to represent income(loss) from operations. Therefore, under U.S.
GAAP, income(loss) from operations as cross-referenced from the income
statement to this note would be as follows:
- -----------------------------------------------------------
Year ended Year ended Year ended
December 31, 1997 December 31, 1996 December 31, 1995
- -----------------------------------------------------------
$ (27,095,000) $ 5,790,000 $ 9,345,000
===========================================================
iii) The Corporation applies APB Opinion No. 25 in accounting for its stock
options under United States GAAP. Beginning in 1996, United States GAAP
encourages, but does not require, the recording of compensation cost for
stock options at fair value. The new United States accounting
pronouncement, SFAS No. 123, does however, require the disclosure of pro
forma net income and earnings per share information as if the Corporation
had accounted for its stock options issued in 1997, 1996 and 1995 under the
fair value method. Accordingly, the fair value of these options has been
estimated at the date of grant or re-issue using the Black-Scholes option
pricing model with the following assumptions for 1997 and 1996: weighted
average risk free interest rate of 5.38% and 5.96%; dividend yield of 0%;
volatility factor of the expected market price of the Corporation's Common
Shares of 0.42 and 0.60; and a weighted average expected life of the
options of 2.0 and 2.9 years. The weighted-average grant-date fair value of
the options issued in 1997 was Canadian $0.48 and in 1996 was Canadian
$0.80. For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period which
ranges from upon issuance or re-issue to four years. Retroactive
application of the fair value method to prior years is not permitted,
therefore the full effect of the fair value method will not be reflected in
the pro forma disclosures until it has been applied to all non-vested
options. Assuming the Corporation has accounted for its stock options
issued under the fair value method, United States GAAP pro forma net loss
and net loss per share for the years ended December 31, 1997 and 1996 would
have been $63,559,000 ($0.36 per share) and $35,059,000 ($0.21 per share)
respectively. Compensation cost for the year ended December 31, 1995 has
not been estimated as the number of options issued in the year was
insignificant.
iv) Under GAAP in the United States and the financial reporting
requirements of the Securities and Exchange Commission, presentation of
Cash Flow from Operating Activities per Share is not permitted on the face
of the Statement of Changes in Cash Resources.
v) In accordance with FAS 87 the following disclosures are made:
Defined Benefit Pension Plan
- -----------------------------------------------------------------------------
Year ended Year ended Year ended
December 31, 1997 December 31, 1996 December 31, 1995
- -----------------------------------------------------------------------------
Periodic Pension Cost
Service cost $ 315,000 $ 332,000 $ 318,000
Interest cost 899,000 896,000 926,000
Return on assets (554,000) (537,000) (460,000)
Other 214,000 529,000 263,000
- -----------------------------------------------------------------------------
$ 874,000 $ 1,220,000 $ 1,047,000
=============================================================================
Key assumptions
Discount rate 7.75% 7.50% 8.00%
Expected long term return
on assets 8.50% 8.50% 8.50%
Compensation increase rate 6.00% 6.00% 6.00%
- ------------------------------------------------------------------------------
Year ended Year ended
December 31, 1997 December 31, 1996
- ------------------------------------------------------------------------------
Reconciliation of Funded Status
Projected benefit obligation $ (12,779,000) $ (12,185,000)
Plan assets at fair value 6,679,000 6,557,000
Unrecognized net loss 3,384,000 2,515,000
Prior service costs not yet recognized 108,000 129,000
Unrecognized net transition obligation 824,000 989,000
Other (62,000) (150,000)
===============================================================================
$ (1,846,000) $ (2,145,000)
===============================================================================
Defined Contribution Pension Plan
No cost is recognized in any of the three years ended December 31, 1997
with respect to this plan.
vi) Under GAAP in the United States and the financial reporting
requirements of the Securities and Exchange Commission, costs related to
the proposed merger in the amount of $2,280,000, which have been charged to
retained earnings under Canadian GAAP, would be charged to expense under
U.S. GAAP. Accordingly, the following tabular reconciliation is provided
for net loss in accordance with U.S. GAAP:
- -------------------------------------------------------
Year ended
December 31, 1997
- -------------------------------------------------------
Net loss as reported on the
consolidated income statement $ (62,067,000)
Proposed merger costs 2,280,000
- ------------------------------------------------------
Net loss in accordance with
U.S. GAAP $ (64,347,000)
======================================================
In accordance with U.S. GAAP the basic and fully diluted loss per share is
$0.36. Shareholders' equity is unaffected.
18. JOINT VENTURES
The Corporation's prorata share of the joint venture operations through
which it carries out part of its activities is summarized below. The
Balance Sheet amounts below reflect the elimination of accounts between
these joint ventures and the Corporation.
- -----------------------------------------------------------------------------
Year ended Year ended Year ended
December 31, 1997 December 31, 1996 December 31, 1995
- -----------------------------------------------------------------------------
Revenue $ 8,367,000 $ 4,727,000 $ 3,624,000
Expenses 4,881,000 3,519,000 2,588,000
- ----------------------------------------------------------------------------
Net income $ 3,486,000 $ 1,208,000 $ 1,036,000
============================================================================
Cash flow from operations $ 3,969,000 $ 1,589,000 $ 1,251,000
============================================================================
- ------------------------------------------------------------------
December 31, 1997 December 31, 1996
- ------------------------------------------------------------------
Current assets $ 2,281,000 $ 966,000
Noncurrent assets $ 12,833,000 $ 10,953,000
Current liabilities $ 2,305,000 $ 1,629,000
Noncurrent liabilities $ 2,381,000 $ 2,167,000
==================================================================
19. RECLASSIFICATIONS
Certain prior years' balances have been reclassified to conform with the
financial statement presentation adopted in the current year.
20. PROPOSED MERGER
On September 30, 1997, the Corporation announced that it has entered into
an agreement with SPE and LTM which provides for the combination of the
businesses of the Corporation and LTM. LTM is a private Delaware
Corporation wholly-owned by SPE. The transaction will involve combining the
Corporation with the Loews Theatres Exhibition Group, which consists of
Sony/Loews Theatres and its joint ventures with Star Theatres and Magic
Johnson Theatres. It is proposed that the combined company will be named
Loews Cineplex Entertainment Corporation (LCE). It is anticipated that LCE
will have over 2,700 screens in approximately 450 locations in North
America.
Pursuant to a series of related transactions to be effected pursuant to a
Plan of Arrangement under the Business Corporations Act (Ontario), the
Corporation's shares will be exchanged for shares of LCE with the result
that the Corporation will become a wholly-owned subsidiary of LCE. Upon
closing of the transaction, SPE will own approximately 51.1% of LCE's
shares (representing 49.9% of LCE's voting shares); Universal will own
approximately 26.0% of LCE's shares (subsequent to a cash subscription of
approximately $84.5 million); the Bronfman Trusts will own approximately
9.6% of LCE's shares; and the shareholders of the Corporation, other than
Universal and the Bronfman Trusts, will own approximately 13.3% of LCE's
shares. It is intended that the LCE shares will be listed on the New York
Stock Exchange and the Toronto Stock Exchange.
The merger is subject to approval by the shareholders of the Corporation
and regulatory approval in both Canada and the United States. The special
meeting of shareholders is scheduled for March 26, 1998. It is anticipated
that closing of this transaction will take place in the second quarter of
1998.
During the year ended December 31, 1997 the Corporation incurred legal,
investment banking and other costs directly attributable to the proposed
merger. Such costs are considered to be a capital transaction under
Canadian GAAP and accordingly have been charged to retained earnings (note
17).
<PAGE>
Selected Quarterly Financial Data
(In thousands of U.S. dollars except per share data)
<TABLE>
<CAPTION>
Unaudited
- -----------------------------------------------------------------------------
Three Months Ended
March 31 June 30 September 30 December 31
1996 1996 1996 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 128,351 $ 117,783 $ 141,976 $ 121,582
Operating income(loss) 3,951 (1,793) 6,523 (1,514)
Loss (7,157) (11,070) (2,970) (9,885)
Loss per share
Basic (0.06) (0.06) (0.02) (0.06)
Fully Diluted (0.06) (0.06) (0.02) (0.06)
- -----------------------------------------------------------------------------
Three Months Ended
March 31 June 30 September 30 December 31
1997 1997 1997 1997
- -----------------------------------------------------------------------------
Revenue $ 150,546 $ 127,215 $ 149,960 $ 146,056
Operating income(loss) 10,759 (5,527) 6,409 4,665
Income(loss) 2,107 (14,579) (7,164) (42,431)
Earnings(loss) per share
Basic 0.01 (0.08) (0.04) (0.24)
Fully Diluted 0.01 (0.08) (0.04) (0.24)
- -----------------------------------------------------------------------------
</TABLE>
SUPPLEMENTAL SCHEDULES:
Schedules of the Corporation for each of the three years in the
period ended December 31, 1997 are filed under Item 14 hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not Applicable.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 is set forth in the
Corporation's Proxy Statement under the caption "Directors and
Officers" and "Security Ownership of Certain Beneficial Owners
and Management" and is incorporated herein by reference (except
that certain information regarding the Corporation's executive
officers is included in Part I under the heading "Executive
Officers").
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is set forth in the
Corporation's Proxy Statement under the caption "Compensation"
and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 is set forth in the
Corporation's Proxy Statement under the caption "Security
Ownership of Certain Beneficial Owners and Management" and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13 is set forth in the
Corporation's Proxy Statement under the captions "Interests of
Insiders in Material Transactions" and "Compensation" and is
incorporated herein by reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) 1. FINANCIAL STATEMENTS
The following financial statements of the Corporation have been
filed under Item 8 hereto.
Auditors' Report
Consolidated Balance Sheets at December 31, 1997 and 1996
For each of the years ended December 31, 1997, 1996 and 1995:
Consolidated Income Statement
Consolidated Statement of Changes in Cash Resources
Consolidated Statement of Changes in Shareholders' Equity
Notes to the Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULE
Auditors' Report on Schedule
Schedule II - Valuation and qualifying accounts
All other schedules have been omitted because the information
required is included in the consolidated financial statements or
the notes thereto.
<PAGE>
3. EXHIBITS:
(i) The following Exhibits, numbered as they were numbered for
filing as Exhibits to the Corporation's Form S-1 Registration Statement,
No. 33-12919, as amended, effective May 14, 1987, are incorporated
herein by reference:
10.9 Restated Subscription Agreement between Cineplex
Odeon Corporation and MCA INC. dated January 15, 1986, as
amended May 6, 1986
10.11 Cineplex Standstill Agreement between Cineplex
Odeon Corporation and MCA INC. dated May 12, 1986, as amended
January, 1987
10.14 MCA Registration Agreement between Cineplex
Odeon Corporation and MCA INC. dated May 12, 1986
10.26 Amendment to Restated Subscription Agreement dated
May 4, 1987
10.27 Amendment to Standstill Agreement dated May 4, 1987
(ii) The following Exhibit,
numbered as it was for filing as an Exhibit to the
Corporation's Annual Report on Form 10-K for 1987, is
incorporated herein by reference:
10.2 Amendment to Cineplex Standstill Agreement dated as
of March 3, 1988
(iii) The following Exhibits,
numbered as they were for filing as Exhibits to the
Corporation's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1989 are incorporated herein by
reference:
10.6 Agreement made May 15, 1989 between Cineplex Odeon
Corporation and MCA INC., further amending the Standstill Agreement between
them dated May 12, 1986
10.7 Form of Indemnity as executed by Cineplex Odeon Corporation
in favour of each of the Corporation's directors
(iv) The following Exhibits, numbered as they were for filing
as Exhibits to the Corporation's report on Form 8-K which was filed
October 24, 1989 are incorporated herein by reference:
3 Agreement made October 24, 1989 between Cineplex Odeon
Corporation and MCA INC., further amending the Standstill Agreement between
them dated May 12, 1986
(v) The following Exhibits, numbered as they were for filing
as Exhibits to the Corporation's Annual Report on Form 10-K for 1989, are
incorporated herein by reference:
3.2 Bylaws
(vi) The following Exhibits, numbered as they were for filing
as Exhibits to the Corporation's Annual Report on Form 10-K for 1990, are
incorporated herein by reference:
3.1 Articles of Amalgamation
10.2 Sample Cineplex Odeon Corporation Option Agreement
for United States resident
(vii) The following Exhibits, numbered as they were for filing
as an Exhibit to the Corporation's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994 are incorporated herein by reference:
4.1 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.
10.1 Credit Agreement dated as of June 23, 1994, by and among
Cineplex Odeon Corporation and Plitt Theatres, Inc. and The
Bank of Nova Scotia as agent, and the banks party thereto.
10.2 Letter Agreement dated as of June 23, 1994, regarding the
establishment of an operating credit facility, between
Cineplex Odeon Corporation, as borrower, and The Bank of Nova Scotia.
(viii) The following Exhibits, numbered as they were for filing
as an Exhibit to the Corporation's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995 are incorporated herein by reference:
10.1 Second Amendment Agreement dated as of March 31, 1995 by
and among Cineplex Odeon Corporation, Plitt Theatres, Inc., the Guarantors,
The Bank of Nova Scotia as agent, and the Banks party thereto.
(ix) The following Exhibits, numbered as they were for filing
as an Exhibit to the Corporation's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995 are incorporated herein by reference:
10.1 Third Amendment Agreement dated as of September 30, 1995
by and among Cineplex Odeon Corporation, Plitt Theatres, Inc., the Guarantors,
The Bank of Nova Scotia as agent, and the Banks party thereto.
(x) The following Exhibits, numbered as they were for filing
as an Exhibit to the Corporation's Annual Report on Form 10-K for 1995 are
incorporated herein by reference:
10.1 Fifth Amendment Agreement dated as of March 26, 1996 by
and among Cineplex Odeon Corporation, Plitt Theatres, Inc., the Guarantors,
The Bank of Nova Scotia as agent, and the Banks party thereto.
10.2 Amended and Restated Subscription Agreement dated
as of March 19, 1996 by and among Cineplex Odeon Corporation, MCA INC.
and the Charles Rosner Bronfman Trust.
(xi) The following Exhibits, numbered as they were for filing
as an Exhibit to the Corporation's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996 are incorporated herein by reference:
3.1 Articles of the Corporation as amended effective June 6, 1996.
10.1 Stock Option Plan as amended effective June 6, 1996.
(xii) The following Exhibits, numbered as they were for filing
as an Exhibit to the Corporation's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 are incorporated herein by reference:
10.1 Sixth Amendment Agreement dated as of August 16, 1996 by
and among Cineplex Odeon Corporation, Plitt Theatres, Inc., the Guarantors,
The Bank of Nova Scotia as agent, and the Banks party thereto.
10.2 Seventh Amendment Agreement dated as of October 31, 1996
by and among Cineplex Odeon Corporation, Plitt Theatres, Inc., the Guarantors,
The Bank of Nova Scotia as agent, and the Banks party thereto.
(xiii) The following Exhibits, numbered as they were for filing
as an Exhibit to the Corporation's Annual Report on Form 10-K for 1996 are
incorporated herein by reference:
10.1 Eighth Amendment Agreement dated as of February 17, 1997
by and among Cineplex Odeon Corporation, Plitt Theatres,
Inc., the Guarantors, The Bank of Nova Scotia as agent, and
the Banks party thereto.
10.2 Employment Agreement between Cineplex Odeon Corporation
and Mr. Allen Karp dated as of July 4, 1996 as amended by
letter agreement dated as of December 6, 1996.
10.3 Employment Agreement between Cineplex Odeon Corporation
and Mr. Ellis Jacob dated as of December 6, 1996.
10.4 Employment Agreement between Cineplex Odeon Corporation
and Mr. Robert Tokio dated as of December 6, 1996.
10.5 Employment Agreement between Cineplex Odeon Corporation
and Mr. Michael Herman dated as of December 6, 1996.
10.6 Employment Agreement between Cineplex Odeon Corporation
and Mr. Howard Lichtman dated as of December 6, 1996.
10.7 Employment Agreement between Cineplex Odeon Corporation
and Mr. Irwin Cohen dated as of December 6, 1996.
10.8 Employment Agreement between Cineplex Odeon Corporation
and Mr. Michael McCartney dated as of September 15, 1995 as amended by letter
agreement dated as of January 22, 1997.
(xiv) The following Exhibit, numbered as they were for filing
as an Exhibit to the Corporation's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997 are incorporated herein by reference:
10.1 Performance-Based Option Agreement.
(xv) The following Exhibits, numbered as they were for filing
as an Exhibit to the Corporation's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997 are incorporated herein by reference:
10.1 Tenth Amendment Agreement dated as of November 7, 1997
by and among Cineplex Odeon Corporation, Plitt Theatres, Inc., the Guarantors,
the Bank of Nova Scotia as agent, and the Banks party thereto.
(xvi) The following Exhibits are filed herewith:
11.1 Statement re computation of earnings per share.
21.1 Subsidiaries of the Corporation.
23.1 Consent of KPMG.
27 Financial Data Schedule.
(b) On October 17, 1997, the Corporation filed a
Form 8-K dated September 30, 1997 reporting that the
Corporation, SPE and LTM have entered into an agreement
which provides for the combination of the businesses of
the Corporation and LTM. The following Exhibits,
numbered as they were for filing as an Exhibit to the
Form 8-K are incorporated herein by reference:
1 Master Agreement among Sony Pictures Entertainment Inc.,
LTM Holdings, Inc. and Cineplex Odeon Corporation dated as of
September 30, 1997.
2 Form of Plan of Arrangement of Cineplex Odeon Corporation
under Section 182 of the Business Corporations Act (Ontario).
3 Stockholders Agreement among LTM Holdings, Inc., Sony
Pictures Entertainment Inc., Universal Studios, Inc., Charles Rosner Bronfman
Family Trust and certain other parties dated as of September 30, 1997.
4 Subscription Agreement by and between LTM Holdings, Inc. and
Universal Studios, Inc. dated as of September 30, 1997.
5 Press Release of Cineplex Odeon Corporation and Sony
Corporation of America dated September 30, 1997.
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Corporation has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CINEPLEX ODEON CORPORATION
By: Allen Karp
--------------------
Allen Karp
President and Chief
Executive Officer
Date: March 11, 1998
By: Stephen Brown
---------------------
Stephen Brown
Senior Vice-President
and Chief Financial Officer
Date: March 11, 1998
<PAGE>
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
Allen Karp President, Chief Executive March 11, 1998
---------- Officer and Director
Allen Karp (Principal Executive
Officer)
Ellis Jacob Executive Vice-President March 11, 1998
----------- and Chief Operating Officer
Ellis Jacob and Director
E. Leo Kolber Chairman of the Board March 11, 1998
-------------
E. Leo Kolber
Rudolph P. Bratty Director March 11, 1998
-----------------
Rudolph P. Bratty
----------------- Director
John H. Daniels
----------------- Director
Bruce L. Hack
Director
-----------------
Brian C. Mulligan
Director
-----------------
Andrew J. Parsons
Eric W. Pertsch Director March 11, 1998
-----------------
Eric W. Pertsch
Robert Rabinovitch Director March 11, 1998
------------------
Robert Rabinovitch
James D. Raymond Director March 11, 1998
----------------
James D. Raymond
Director
------------------
Howard L. Weitzman
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors and Shareholders of Cineplex Odeon Corporation
Under date of February 13, 1998 we reported on the
consolidated balance sheets of Cineplex Odeon Corporation as
at December 31, 1997 and 1996 and the related consolidated
statements of income and changes in shareholders' equity and
cash resources for each of the years in the three year
period ended December 31, 1997, as contained in the annual
report on Form 10-K for the year 1997. In connection with
our audits of the aforementioned consolidated financial
statements, we also have audited the related financial
statement schedule in the Form 10-K. This financial
statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on
this financial statement schedule based on our audits.
In our opinion, the related financial statement schedule,
when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
KPMG
Chartered Accountants
Toronto, Canada
February 13, 1998
<PAGE>
CINEPLEX ODEON CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
For fiscal periods 1997, 1996 and 1995
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Balance at Charged to Charged to Deductions/ Balance
Beginning of Costs and Other Other at End
Description Period Expenses Accounts Changes of Period
- ----------- ------------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997
Allowance for
doubtful accounts $465 N/A N/A ($48) (ii) $417
Goodwill 11,281 1,109 0 (8) 12,382
Deferred charges 3,671 1,597 0 (74) 5,194
-------- ------- ----- -------- -------
$15,417 $2,706 $0 ($130) $17,993
-------- ------- ----- -------- -------
Year Ended December 31, 1996
Allowance for
doubtful accounts $524 N/A N/A ($59) $465
Goodwill 10,167 1,114 0 0 11,281
Deferred charges 2,395 1,275 0 1 3,671
------- ------ ----- ----- ------
$13,086 $2,389 $0 ($58) $15,417
------- ------ ----- ----- -------
Year Ended December 31, 1995
Allowance for
doubtful accounts $519 N/A N/A $5 $524
Goodwill 9,702 1,147 0 (682) (iii) 10,167
Deferred charges 1,170 1,452 0 (227) (iv) 2,395
------- ------ ----- ------- ------
$11,391 $2,599 $0 ($904) $13,086
------- ------ ----- ------- ------
</TABLE>
Notes
(i) Unless otherwise stated, Deductions/Other Changes represent the
translation adjustment on the conversion of Canadian dollar amounts to
U.S. dollars.
(ii) $32 relates to the write-off of uncollectible property tax
(iii) $687 relates to the write-off of the accumulated amortization of
goodwill associated with the sale of certain theatres.
(iv) $236 relates to the write-off of a deferred charge item that had
become fully amortized during the period.
<PAGE>
EXHIBIT INDEX
Exhibit Description Page Number
11.1 Statement re computation of earnings per share.
21.1 Subsidiaries of the Corporation
23.1 Consent of KPMG.
27 Financial Data Schedule.
EXHIBIT 11.1
CINEPLEX ODEON CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(Calculated in accordance with United States generally accepted
accounting principles)
(In U.S. dollars, except number of shares)
<TABLE>
<CAPTION>
Year ended Year ended Year ended
December 31, 1997 December 31, 1996 December 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Primary
- --------
Loss from continuing
operations (G) ($64,347,000) ($31,082,000) ($32,907,000)
-------------- -------------- -------------
Net loss (H) ($64,347,000) ($31,082,000) ($32,907,000)
-------------- -------------- -------------
Weighted average
outstanding common and
subordinate restricted
voting shares (I) 176,795,000 163,473,000 114,764,000
------------- ------------ ------------
Loss per share
from continuing
operations (G/I) ($0.36) ($0.19) ($0.29)
-------- -------- --------
Loss per share (H/I) ($0.36) ($0.19) ($0.29)
-------- -------- --------
Fully Diluted
- -------------
Loss from continuing
operations ($64,347,000) ($31,082,000) ($32,907,000)
Imputed interest
savings on
convertible debt N/A (1) N/A (1) N/A (1)
Adjusted net loss
from continuing -------------- ------------- ------------
operations (J) ($64,347,000) ($31,082,000) ($32,907,000)
-------------- ------------- -------------
Net loss ($64,347,000) ($31,082,000) ($32,907,000)
------------- ------------- -------------
Imputed interest
savings on
convertible debt N/A (1) N/A (1) N/A (1)
------------- ------------- -------------
Adjusted net loss(K) ($64,347,000) ($31,082,000) ($32,907,000)
------------- ------------- -------------
Weighted average
outstanding common and
subordinate restricted
voting shares 176,795,000 163,473,000 114,764,000
Add: Incremental shares
on convertible debt N/A (2) N/A (2) N/A(2)
Adjusted weighted
average outstanding ----------- ------------ -----------
shares (L) 176,795,000 163,473,000 114,764,000
----------- ------------ -----------
Loss per share
from continuing
operations (J/L) ($0.36) ($0.19) ($0.29)
-------- -------- --------
Loss per share (K/L) ($0.36) ($0.19) ($0.29)
-------- -------- --------
</TABLE>
(1) Imputed interest calculation would be anti-dilutive and therefore
has been excluded in calculations.
(2) Inclusion of conversions would be anti-dilutive and therefore are
excluded in calculations.
EXHIBIT 21.1
CINEPLEX ODEON CORPORATION SUBSIDIARIES
1. Cine Parc Mercier Inc. (Quebec, Canada)
2. Cineplex Odeon (Quebec) Inc. (Canada)
3. Cineplex Odeon Films, Inc. (Delaware)
4. Cineplex Odeon Films International, Inc. (Delaware)
5. C.O.H. Entertainment, Inc. (Delaware)
6. Plitt Southern Theatres, Inc. (Delaware)
7. Plitt Theatres, Inc. (Delaware)
8. RKO Century Warner Theatres, Inc. (Delaware)
9. Sedgwick Music Company (California)
10. The Walter Reade Organisation, Inc. (Delaware)
11. Westlake Investments, Ltd. (Manitoba, Canada)
12. 140075 Canada Limited (Canada)
13. 158983 Canada Inc. (Canada)
14. 619918 Ontario Inc. (Ontario, Canada)
15. 796278 Ontario Limited (Ontario, Canada)
16. 796279 Ontario Limited (Ontario, Canada)
17. The Film House Group Inc. (Ontario, Canada)
18. 1002818 Ontario Limited (Ontario, Canada)
19. Les Films Cineplex Odeon Quebec Inc. (Quebec, Canada)
20. 1002817 Ontario Limited (Ontario, Canada)
21. Cineplex Odeon (Barbados) Inc. (Barbados)
22. Cineplex Odeon Hungary Kft. (Hungary)
23. Gatineau General Partnership (Quebec, Canada)
24. Rio Centre Associates Limited Partnership (District of
Columbia)
25 Cineplex Odeon International B.V. (Netherlands)
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration
Statements (Numbers 33-19713 and 33-86878) on Forms S-8 of
our reports dated February 13, 1998 on the consolidated
financial statements and schedule included in the Annual
Report on Form 10-K of Cineplex Odeon Corporation for the
year ended December 31, 1997.
KPMG
Chartered Accountants
Toronto, Canada
March 18, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,505
<SECURITIES> 264
<RECEIVABLES> 4,236
<ALLOWANCES> 417
<INVENTORY> 6,562
<CURRENT-ASSETS> 26,042
<PP&E> 900,005
<DEPRECIATION> 332,574
<TOTAL-ASSETS> 635,475
<CURRENT-LIABILITIES> 139,659
<BONDS> 222,566
0
0
<COMMON> 555,400
<OTHER-SE> (404,218)
<TOTAL-LIABILITY-AND-EQUITY> 635,475
<SALES> 147,892
<TOTAL-REVENUES> 573,777
<CGS> 28,705
<TOTAL-COSTS> 491,443
<OTHER-EXPENSES> 109,429
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,900
<INCOME-PRETAX> (60,995)
<INCOME-TAX> 1,072
<INCOME-CONTINUING> (62,067)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (62,067)
<EPS-PRIMARY> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
