Loews Cineplex Entertainment (LCP) 10-Q 2006 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2005

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 001-14099

LOEWS CINEPLEX ENTERTAINMENT CORPORATION

(Exact name of Registrant as specified in its charter)

DELAWARE	13-3386485
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)
711 Fifth Avenue, New York, NY	10022
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (646) 521-6000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ¨    No  x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes  ¨    No  x

There is no market for the registrant’s equity. The total number of shares of the registrant’s common stock, par value $0.01 per share, outstanding on September 30, 2005 was 1,000.

LOEWS CINEPLEX ENTERTAINMENT CORPORATION

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

TABLE OF CONTENTS

Part I.	Financial Information
Item 1.	Financial Statements
Unaudited Condensed Consolidated Balance Sheet at December 31, 2004 and September 30, 2005		1
Unaudited Condensed Combined Consolidated Statement of Operations for the One Month ended July 31, 2004 (Predecessor Company), the Two Months ended September 30, 2004 (Successor Company), the Three Months ended September 30, 2005 (Successor Company), the Seven Months ended July 31, 2004 (Predecessor Company), the Two Months ended September 30, 2004 (Successor Company) and the Nine Months ended September 30, 2005 (Successor Company)		2
Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity for the Nine Months ended September 30, 2005		3
Unaudited Condensed Combined Consolidated Statement of Cash Flows for the Seven Months ended July 31, 2004 (Predecessor Company), the Two Months ended September 30, 2004 (Successor Company) and the Nine Months ended September 30, 2005 (Successor Company)		4
Notes to Unaudited Condensed Combined Consolidated Financial Statements		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Qualitative and Quantitative Disclosures Amount Market Risk	39
Item 4.	Controls and Procedures	40
Part II.	Other Information
Item 1.	Legal Proceedings	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults Upon Senior Securities	40
Item 4.	Submission of Matters to a Vote of Security Holders	40
Item 5.	Other Information	40
Item 6.	Exhibits	40

ITEM 1.

LOEWS CINEPLEX ENTERTAINMENT CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET

(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)

	December 31, 2004			September 30, 2005
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	71,015		$	48,951
Accounts and other receivables		34,284			34,658
Prepaid rent		9,924			10,007
Inventories		3,981			3,907
Assets held for sale		2,408			2,974
Prepaid expenses and other current assets		11,316			8,794
TOTAL CURRENT ASSETS		132,928			109,291
PROPERTY, EQUIPMENT AND LEASEHOLDS, NET		732,156			683,166
OTHER ASSETS
Investments in and advances to partnerships		115,577			104,368
Goodwill		550,536			556,945
Other intangible assets, net		164,483			152,409
Deferred charges and other assets		56,278			59,628
TOTAL ASSETS	$	1,751,958		$	1,665,807
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	133,800		$	114,903
Deferred revenue		33,538			30,234
Current maturities of long-term debt		6,401			6,409
Current portion of capital leases		1,044			1,108
TOTAL CURRENT LIABILITIES		174,783			152,654
LONG-TERM DEBT		1,031,506			1,038,056
LONG-TERM CAPITAL LEASE OBLIGATIONS		26,989			26,158
ACCRUED PENSION AND POST-RETIREMENT BENEFITS		12,125			12,009
OTHER LIABILITIES		101,165			78,893
TOTAL LIABILITIES		1,346,568			1,307,770
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Common stock voting ($0.01 par value, 3,000 shares authorized; 1,000 shares issued and outstanding at December 31, 2004 and September 30, 2005)		—			—
Additional paid-in capital		421,671			422,774
Accumulated other comprehensive income		6,577			9,984
Retained deficit		(22,858	)		(74,721	)
TOTAL STOCKHOLDERS’ EQUITY		405,390			358,037
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,751,958		$	1,665,807

The accompanying notes are an integral part of these unaudited condensed combined consolidated financial statements.

1

LOEWS CINEPLEX ENTERTAINMENT CORPORATION

UNAUDITED CONDENSED COMBINED CONSOLIDATED STATEMENT OF OPERATIONS

(IN THOUSANDS OF U.S. DOLLARS)

	Combined Consolidated Predecessor Company			Consolidated Successor Company			Consolidated Successor Company			Combined Consolidated Predecessor Company			Consolidated Successor Company			Consolidated Successor Company
	One Month Ended July 31, 2004			Two Months Ended September 30, 2004			Three Months Ended September 30, 2005			Seven Months Ended July 31, 2004			Two Months Ended September 30, 2004			Nine Months Ended September 30, 2005
REVENUES
Box office	$	76,748		$	85,147		$	148,161		$	384,814		$	85,147		$	428,129
Concession		30,063			33,384			61,635			156,646			33,384			180,039
Other		5,291			8,281			12,293			25,820			8,281			32,440
Total operating revenues		112,102			126,812			222,089			567,280			126,812			640,608
EXPENSES
Theatre operations and other expenses		72,887			100,694			164,495			404,674			100,694			483,235
Cost of concessions		4,426			5,184			9,373			23,365			5,184			27,341
General and administrative		11,550			8,600			13,440			43,334			8,600			39,666
Depreciation and amortization		6,955			14,051			29,799			49,623			14,051			84,116
(Gain)/loss on sale/disposal of theatres and other		(46	)		1			960			(3,734	)		1			1,159
Total operating expenses		95,772			128,530			218,067			517,262			128,530			635,517
INCOME/(LOSS) FROM OPERATIONS		16,330			(1,718	)		4,022			50,018			(1,718	)		5,091
Interest expense, net		2,414			11,921			20,723			16,663			11,921			59,070
Loss on early extinguishment of debt		6,856			882			—			6,856			882			—
Equity income in long-term investments		(965	)		(1,750	)		(2,482	)		(933	)		(1,750	)		(3,019	)
INCOME/(LOSS) BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS		8,025			(12,771	)		(14,219	)		27,432			(12,771	)		(50,960	)
Income tax expense/(benefit)		4,911			(4,608	)		1,645			12,886			(4,608	)		903
INCOME/(LOSS) BEFORE DISCONTINUED OPERATIONS		3,114			(8,163	)		(15,864	)		14,546			(8,163	)		(51,863	)
Discontinued operations – sale of Canadian operations, net of tax of $3,499 for the one months ended July 31, 2004, and $4,720 for the seven months ended July 31, 2004		5,497			—			—			7,417			—			—
NET INCOME/(LOSS)	$	8,611		$	(8,163	)	$	(15,864	)	$	21,963		$	(8,163	)	$	(51,863	)

The accompanying notes are an integral part of these unaudited condensed combined consolidated financial statements.

2

LOEWS CINEPLEX ENTERTAINMENT CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA)

	Common Stock	Amount		Accumulated Other Comprehensive Income			Additional Paid-In Capital		Retained Deficit			Total Stockholders’ Equity
Balance as of December 31, 2004	1,000	$	—	$	6,577		$	421,671	$	(22,858	)	$	405,390
Foreign currency translation adjustment	—		—		5,653			—		—			5,653
Unrealized income/(loss) on interest rate swap contracts	—		—		(2,340	)		—		—			(2,340	)
Unrealized gain on marketable equity securities	—		—		94			—		—			94
Net loss for the nine months ended September 30, 2005	—		—		—			—		(51,863	)		(51,863	)
Comprehensive loss	—		—		—			—		—			(48,456	)
Capital contribution from LCE Holdings, Inc.	—		—		—			1,103		—			1,103
Balance as of September 30, 2005	1,000	$	—	$	9,984		$	422,774	$	(74,721	)	$	358,037

The accompanying notes are an integral part of these unaudited condensed combined consolidated financial statements.

3

LOEWS CINEPLEX ENTERTAINMENT CORPORATION

UNAUDITED CONDENSED COMBINED CONSOLIDATED STATEMENT OF CASH FLOWS

(IN THOUSANDS OF U.S. DOLLARS)

	Combined Consolidated Predecessor			Consolidated Successor			Consolidated Successor
	Seven Months Ended July 31, 2004			Two Months Ended September 30, 2004			Nine Months Ended September 30, 2005
OPERATING ACTIVITIES
Net income/(loss)	$	21,963		$	(8,163	)	$	(51,863	)
Gain from discontinued operations		(7,417	)		—			—
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
Depreciation and amortization		49,623			14,051			84,116
(Gain)/loss on sale/disposal of theatres		(3,734	)		1			1,159
Loss on early extinguishment of debt		6,856			882			—
Amortization of debt issuance costs		1,862			1,001			3,322
Equity (income)/loss from long-term investments		(933	)		(1,750	)		(3,019	)
Deferred income taxes		7,503			—			—
Dividend received from Megabox Cineplex		—			—			13,426
Changes in operating assets and liabilities:
Increase in accounts receivable		(1,621	)		(2,689	)		(374	)
Increase/(decrease) in accounts payable and accrued expenses		8,724			(21,429	)		(19,325	)
Changes in other operating assets and liabilities, net		(7,600	)		(1,065	)		(6,667	)
Net Cash Provided by/(Used in) Operating Activities		75,226			(19,161	)		20,775
INVESTING ACTIVITIES
Proceeds from sale of Cineplex Odeon Canada		205,861			—			—
Proceeds from sale of assets		7,449			146			81
Investment in/advances to partnerships, net		(2,370	)		—			—
Acquisition of marketable equity securities		—			—			(1,225	)
Acquisition of additional interest in Magic Johnson Theatres		—			—			(3,731	)
Payment of purchase price to former shareholders		—			(1,305,861	)		—
Capital expenditures		(36,638	)		(8,733	)		(39,567	)
Net Cash Provided by/(Used in) Investing Activities		174,302			(1,314,448	)		(44,442	)
FINANCING ACTIVITIES
Equity contribution		—			421,671			—
Equity contribution from LCE Holdings, Inc.		—			—			1,103
Proceeds from U.S. Term B Facility.		—			630,000			—
Proceeds from issuance of senior subordinated notes.		—			315,000			—
Proceeds from Grupo Cinemex Term Loan.		—			90,000			10,000
Borrowings from revolving credit facility.		—			2,250			—
Repayments on Term Loan Agreement		(214,979	)		(92,335	)		—
Repayments on Priority Secured Credit Facility		(2,400	)		(28,650	)		—
Repayment under Grupo Cinemex Credit Facility		—			(87,682	)		—
Payment or Transaction related expenses		—			(15,864	)		—
Debt issuance costs		—			(41,556	)		(951	)
Repayments of U.S. Term B facility		—			—			(8,000	)
Repayment of mortgage and capital leases		(605	)		(177	)		(873	)
Net Cash (Used in)/Provided by Financing Activities		(217,984	)		1,192,657			1,279
Effect of exchange rate changes on cash and cash equivalents		(544	)		(11	)		324
Increase/(decrease) in cash and cash equivalents		31,000			(140,963	)		(22,064	)
Cash and cash equivalents at beginning of period		139,425			170,425			71,015
Cash and cash equivalents at end of period	$	170,425		$	29,462		$	48,951

The accompanying notes are an integral part of these unaudited condensed combined consolidated financial statements.

4

LOEWS CINEPLEX ENTERTAINMENT CORPORATION

NOTES TO UNAUDITED CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA AND AS OTHERWISE NOTED)

NOTE 1 – THE COMPANY AND BASIS OF PRESENTATION

Loews Cineplex Entertainment Corporation (“LCE” or the “Company”) is a major film exhibition company with operations and/or investments in the United States, Mexico, Spain and South Korea. The Company operates theatres under the Loews Theatres, Cineplex Odeon, Cinemex, Star Theatres and Magic Johnson Theatres names. The Company’s significant joint ventures operate theatres under the Universal Cineplex, Megabox and Yelmo Cineplex names. As of September 30, 2005, the Company owns, or has an interest in, and operates 2,227 screens at 200 theatres in 18 states and the District of Columbia, Mexico, Spain and South Korea. The Company’s principal geographic markets include the metropolitan areas of New York, Baltimore, Boston, Chicago, Dallas, Detroit, Houston, Los Angeles, San Francisco, Seattle and Washington D.C. in the U.S.; Mexico City in Mexico; Madrid in Spain; and Seoul in South Korea.

Included in the Company’s screen and theatre counts are 365 screens in 33 theatres in which it holds a joint venture interest. The Company’s significant joint venture interests include a 50% partnership interest Yelmo Cineplex, S.L. (“Yelmo Cineplex”), which operates 299 screens in 26 theatres in Spain and Megabox Cineplex, Inc. (“Megabox Cineplex”), which operates 66 screens in seven theatres in South Korea.

On July 30, 2004, LCE Holdings, Inc., a company formed by Bain Capital Partners, LLC (“Bain”), The Carlyle Group (“Carlyle”) and Spectrum Equity Investors (“Spectrum”), acquired 100% of the capital stock of the Company and, indirectly, Grupo Cinemex S.A. de C.V. (“Grupo Cinemex”) for an aggregate purchase price of approximately $1.5 billion (the “Acquisition”) pursuant to an agreement between LCE Holdings, Inc. and the Company’s former investors, Onex Corporation (“Onex”) and OCM Cinema Holdings, LLC (“OCM Cinema”).

The date of the Acquisition was July 30, 2004, but for accounting purposes and to coincide with its normal financial closing, the Company has utilized July 31, 2004 as the effective date of the Acquisition. As a result, the Company has reported operating results and financial position for all periods presented prior to July 31, 2004 as those of the Predecessor Company and for all periods from and after August 1, 2004 as those of the Successor Company due to the resulting change in the basis of accounting.

On June 20, 2005, LCE Holdings, Inc., the parent company of LCE, entered into a definitive merger agreement with Marquee Holdings Inc., the holding company of AMC Entertainment Inc. (“AMC”), one of the world’s leading film exhibition companies. If the transactions described in the merger agreement are consummated, they would result in the combination of the businesses of LCE and AMC, the merger of LCE Holdings, Inc. with and into Marquee Holdings, Inc. with Marquee Holdings, Inc. continuing as the holding company of the merged businesses, and the merger of LCE and AMC Entertainment Inc., with AMC Entertainment Inc. continuing after the merger. The merger is expected to close sometime late in 2005 or early in 2006. Completion of the merger is subject to the satisfaction of customary closing conditions for transactions of this type including antitrust approval and completion of financing to refinance the Company’s U.S. senior secured credit facility and the senior secured credit facility of AMC Entertainment Inc.

Each of the parties to the merger agreement has made customary representations, warranties and covenants, including, among others, (i) to conduct their respective businesses in the ordinary course prior to consummation of the merger, (ii) to use reasonable best efforts to obtain regulatory approval, including antitrust approval under the Hart-Scott-Rodino Act and (iii) to cooperate in connection with the refinancing of the senior credit facilities of AMC Entertainment Inc. and the Company.

If the merger were consummated, the Sponsors and certain members of the Company’s management would receive approximately 40% of the outstanding common stock of Marquee Holdings Inc., the surviving holding company, in exchange for their equity in LCE Holdings, Inc. Upon the consummation of a merger, the shareholders of Marquee Holdings Inc., the surviving holding company, would enter into a stockholders agreement that would provide for the governance of Marquee Holdings Inc. The current owners of Marquee Holdings Inc. would be entitled to appoint five directors with a majority of the votes of the board of directors. The current owners of LCE Holdings, Inc. would be entitled to appoint four directors. The terms of the stockholders agreement would also require the consent of a specified majority of the stockholders in order to approve many types of transactions.

5

LOEWS CINEPLEX ENTERTAINMENT CORPORATION

NOTES TO UNAUDITED CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA AND AS OTHERWISE NOTED)

NOTE 1 – THE COMPANY AND BASIS OF PRESENTATION, CONTINUED

Under the terms of the indenture governing the Company’s senior subordinated notes, its merger with AMC would constitute a change of control. Because the Company will not meet certain conditions in the indenture, upon consummation of the merger, the Company will be required to give the holders of its senior subordinated notes an opportunity to sell the notes to the Company at a price of 101% of the principal amount of the senior subordinated notes, plus accrued and unpaid interest and additional interest (as defined in the indenture), if any, to the date of the repurchase. AMC has secured commitments to finance this repurchase offer.

On September 12, 2005, the exchange offer of the Company’s $315 million new senior subordinated notes due 2014 for an equal amount of the Company’s $315 million outstanding senior subordinated notes due 2014 closed, with 100% of the previously outstanding notes accepting the Company’s offer to exchange. The terms and conditions of the new senior subordinated notes are identical to those of the outstanding senior subordinated notes (i.e., interest rate, maturity date, payment schedule, etc.). The exchange offer did not have a material impact on the Company’s results of operations or financial position.

Basis of Presentation

These unaudited condensed combined consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. The Company’s combined consolidated financial statements include the accounts of LCE and its consolidated subsidiaries, and, for the periods through July 31, 2004, Grupo Cinemex and its consolidated subsidiaries, on a combined basis, as LCE and Grupo Cinemex were entities under common control. As a result of the Acquisition, the consolidated financial statements include the accounts of Grupo Cinemex on a consolidated basis from August 1, 2004. Majority-owned companies are consolidated and, except where consolidation is required in accordance with FIN 46(R), 50% or less owned investments in which the Company has significant influence are accounted for under the equity method of accounting. Significant intercompany accounts and transactions have been eliminated.

In the opinion of management, these unaudited condensed combined consolidated financial statements contain all adjustments necessary to fairly state the financial position of the Company as of September 30, 2005 and December 31, 2004 and the results of operations and cash flows for the three and nine months ended September 30, 2005 and 2004. All adjustments are of a normal recurring nature. These unaudited condensed combined consolidated financial statements should be read in conjunction with the Company’s audited combined consolidated December 31, 2004 financial statements.

Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and revenues and expenses during the periods reported. Actual results could differ from those estimates.

New Accounting Principles

In December 2004, the FASB issued FASB Statement No. 123 (revised 2004) (“SFAS 123(R)”), “Share-Based Payment”, which replaces FASB Statement No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”) and supercedes Accounting Principles Board (“APB”) Opinion No. 25 “Accounting for Stock Issued to Employees” (“APB No. 25”). SFAS 123(R) eliminates the ability to account for share-based compensation transactions using APB No. 25 and requires that such transactions be accounted for using a fair value-based method. SFAS 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans.

6

LOEWS CINEPLEX ENTERTAINMENT CORPORATION

NOTES TO UNAUDITED CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA AND AS OTHERWISE NOTED)

NOTE 1 – THE COMPANY AND BASIS OF PRESENTATION, CONTINUED

SFAS 123(R) may be adopted using one of two methods: (i) a “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of Statement 123 for all awards granted to employees prior to the effective date of SFAS 123(R) that remain unvested on the effective date, or (ii) a “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption.

In April 2005, the SEC approved a new rule delaying the effective date of SFAS No. 123(R) for public companies until the first fiscal year beginning after June 15, 2005. As such, the Company will be required to apply SFAS No. 123(R) beginning in 2006. Until such implementation, the Company will continue to apply the disclosure-only requirements of SFAS No. 123 and will apply intrinsic value accounting for its employee stock options that defines compensation cost for stock options, if any, as the excess of the quoted market price of the stock at the date of grant over the amount an employee must pay to acquire the stock. Management is in the process of determining the impact on the results of operations or financial position of the Company.

In March 2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (“FIN 47”). FIN 47 is an interpretation of SFAS 143, “Asset Retirement Obligations”, which was issued in June 2001. FIN 47 was issued to address diverse accounting practices that have developed with regard to the timing of liability recognition for legal obligations associated with the retirement of a tangible long-lived asset in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. According to FIN 47, uncertainty about the timing and (or) method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. The provisions of FIN 47 have been adopted by the Company and did not have a material impact on the results of operations or financial position of the Company.

In May 2005, the FASB issued SFAS No. 154 “Accounting Changes and Error Corrections” (“SFAS 154”), a replacement of APB Opinion No. 20, “Accounting Changes”, and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements”, effective for fiscal years beginning after December 15, 2005. SFAS 154 changes the requirements for the accounting for and reporting of a voluntary change in accounting principle as well as the changes required by an accounting pronouncement that does not include specific transition provisions. SFAS 154 is not expected to have a material impact on the results of operations or financial position of the Company.

NOTE 2 – DISCONTINUED OPERATIONS

In January 2004, Company management committed to a plan to sell Cineplex Odeon Corporation (“COC”), the Company’s wholly owned subsidiary (comprising its Canadian operations, including its interest in the Cineplex Galaxy Limited Partnership), to Onex and OCM Cinema. This transaction closed on July 30, 2004. As a result of that decision, the Company has reported COC’s results of operations for the one and seven months ended July 31, 2004 as discontinued operations. COC generated total revenue of $33.2 million and $159.7 million and income before taxes of $9.0 million and $12.1 million for the one and seven months ended July 31, 2004, respectively.

NOTE 3 – VARIABLE INTEREST ENTITIES

The Company has owned a 50% interest in the Magic Johnson Theatre (“MJT”) partnership since it was formed in 1994. Based on the criteria set forth in FIN 46(R), the Company concluded during the first quarter of 2004 that its investment in MJT, previously accounted for under the equity method of accounting, met the definition of a VIE and the Company was deemed to be the primary beneficiary. Accordingly, the Company has consolidated MJT for all periods presented. As a result of the consolidation of MJT, the Company has recorded additional assets of $10.2 million and additional liabilities of $1.5 million at December 31, 2004.

7

LOEWS CINEPLEX ENTERTAINMENT CORPORATION

NOTES TO UNAUDITED CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA AND AS OTHERWISE NOTED)

NOTE 3 – VARIABLE INTEREST ENTITIES, CONTINUED

In August of 2005, the Company acquired an additional 49.99% interest in MJT from its partner in the MJT partnership, Johnson Development Corporation, for total consideration of $3.7 million, including professional fees paid by the Company and, on the same day, the partnership was converted from a general partnership to a limited partnership. Johnson Development Corporation retained a .01% interest in the limited partnership. As noted above, the Company had previously consolidated the operating results and financial position of the MJT partnership as a result of the Company’s adoption of FIN 46, therefore, this transaction has not had any significant effect on the results of operations or financial position of the Company. The $3.7 million purchase price has been allocated to goodwill, as all MJT assets are stated at fair value as estimated by management.

The amount recorded for Goodwill is not subject to amortization, is recorded at the subsidiary level and is not expected to be deductible for tax purposes.

NOTE 4 – ASSETS HELD FOR SALE

On December 2, 2004 and September 30, 2005, the Company entered into agreements to sell theatre properties located in Arizona and Indiana, respectively. As a result of these transactions, the Company has classified $2.4 million and $3.0 million on its December 31, 2004 and September 30, 2005, respectively, consolidated balance sheets asAssets held for sale. These balances reflect the net book value of the respective theatre properties to be sold. Additionally, as the operations of these theatres were not significant to the results of operations of the Company, they were not classified as discontinued operations in the Company’s combined consolidated statement of operations. The sales of these theatre properties in Arizona and Indiana are expected to close in the second quarter of 2006 and the fourth quarter of 2005, respectively, with the Company receiving net proceeds of $4.0 million.

NOTE 5 – LONG-TERM INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS

The Company’s domestic long-term investments consist of a 50% interest in certain U.S. partnerships, which together operate three theatres with 31 screens and are accounted for using the equity method.

The Company’s international long-term investments include a 50% interest in Yelmo Cineplex, which operates 26 theatres with 299 screens at September 30, 2005 and a 50% interest in Megabox Cineplex, which operates seven theatres with 66 screens at September 30, 2005. The Company accounts for these investments following the equity method of accounting.

The following table presents condensed financial information for the Company’s unconsolidated partnerships on a combined basis for the periods presented:

	Combined Consolidated Predecessor Company		Consolidated Successor Company		Consolidated Successor Company		Combined Consolidated Predecessor Company		Consolidated Successor Company		Consolidated Successor Company
	One Month Ended July 31, 2004		Two Months Ended September 30, 2004		Three Months Ended September 30, 2005		Seven Months Ended July 31, 2004		Two Months Ended September 30, 2004		Nine Months Ended September 30, 2005
Total revenues	$	22,154	$	39,661	$	59,441	$	159,812	$	39,661	$	162,372
Total operating costs	$	15,743	$	29,737	$	44,734	$	131,181	$	29,737	$	126,841
Income from continuing operations	$	3,794	$	5,044	$	7,166	$	7,567	$	5,044	$	12,082
Net income	$	1,930	$	3,500	$	4,964	$	1,866	$	3,500	$	6,038

The condensed financial information above includes the operating results of the Company’s German partnership for the one and seven months ended July 31, 2004. On July 30, 2004, the Company sold its interest in its German partnership to affiliates of its former shareholders and as a result the operating results of the German partnership are not included for the two months ended September 30, 2004 and the three and nine months ended September 30, 2005.

8

LOEWS CINEPLEX ENTERTAINMENT CORPORATION

NOTES TO UNAUDITED CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA AND AS OTHERWISE NOTED)

NOTE 6 – EMPLOYEE BENEFITS

Employee Health and Welfare and Other Post-retirement Benefits

The Company provides post-retirement health and welfare benefits to eligible employees in the United States. Employees become eligible for the benefits upon retirement. These benefits are payable, with regard to health care, for the life of the retiree and up to 12 months following the death of the retiree for the spouse, and with regard to life insurance, for the life of the retiree. The Company retains the right to modify or terminate the post-retirement life and medical benefits. The post-retirement life and health care benefits are contributory, with retiree contributions including deductibles and co-payments. The Company has not funded this plan as of September 30, 2005.

The following are the components of net periodic expense related to the post-retirement health and welfare plan for the three and nine months ended September 30, 2004 and 2005:

	Combined Consolidated Predecessor Company			Consolidated Successor Company		Consolidated Successor Company		Combined Consolidated Predecessor Company			Consolidated Successor Company		Consolidated Successor Company
	One Month Ended July 31, 2004			Two Months Ended September 30, 2004		Three Months Ended September 30, 2005		Seven Months Ended July 31, 2004			Two Months Ended September 30, 2004		Nine Months Ended September 30, 2005
Net periodic benefit cost
Service cost	$	20		$	43	$	105	$	141		$	43	$	316
Interest cost		47			92		146		325			92		436
Amortization of prior service cost		(1	)		—		—		(4	)		—		—
Amortization of losses		24			—		—		170			—		—
Net periodic post-retirement expense	$	90		$	135	$	251	$	632		$	135	$	752

The Company did not make any significant contributions to the post-retirement health and welfare plan for the three and nine months ended September 30, 2005. The Company expects to contribute $476 to the post-retirement health and welfare plan by December 31, 2005.

On January 12, 2004, the FASB issued FASB Staff Position (“FSP”) No. 106-1, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003, (“FSP No. 106-1”). The Company had elected to defer recognition while evaluating the new law and the pending issuance of authoritative guidance. In May 2004, the FASB issued FSP No. 106-2 which provides accounting guidance for this new subsidy. The Company sponsors a postretirement benefit plan which may benefit from the subsidy. The Company is planning to adopt FSP No. 106-2 during 2006. The adoption of FSP No. 106-2 is expected to decrease the Company’s APBO by approximately $1.0 million for the subsidy related to past service as of January 1, 2006. The adoption of FSP No. 106-2 is not expected to have a material impact on the Company’s net periodic post-retirement pension cost.

Pension Plans

The Company provides several pension plans covering its employees in both the U.S. and Mexico.

In the U.S., the Company maintains two pension plans, the Cineplex Odeon Corporation U.S. Employees’ Pension Plan (the “U.S. Pension Plan”) and the Loews Cineplex Entertainment Corporation Service Recognition Plan for Hourly Employees (the “SRP”). The U.S. Pension Plan is a frozen cash balance plan. The SRP is a defined benefit plan covering all eligible hourly U.S. employees, as defined by the SRP, and provides benefits based on years of service.

9

LOEWS CINEPLEX ENTERTAINMENT CORPORATION

NOTES TO UNAUDITED CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA AND AS OTHERWISE NOTED)

NOTE 6 – EMPLOYEE BENEFITS, CONTINUED

In Mexico, the Company provides a Seniority Premium and Termination Indemnity for Retirement Plan (the “Mexico Plan”) to all eligible employees of Servicios Cinematograficos Especializados, S.A. de C.V. (“SCE”) and a Termination Indemnity Retirement Plan to all eligible employees of Servino, S.A. de C.V. (“Servino”). Both SCE and Servino are wholly owned subsidiaries of Grupo Cinemex. The Mexico Plan establishes compensation upon retirement (pension and seniority premium) based on years of service rendered and the employee’s age and salary at the date of retirement. The Company has not funded the Mexico Plan as of September 30, 2005.

The following are the components of net periodic expense related to the pension plans for the three and nine months ended September 30, 2004 and 2005:

	Combined Consolidated Predecessor Company			Consolidated Successor Company			Consolidated Successor Company			Combined Consolidated Predecessor Company			Consolidated Successor Company			Consolidated Successor Company
	One Month Ended July 31, 2004			Two Months Ended September 30, 2004			Three Months Ended September 30, 2005			Seven Months Ended July 31, 2004			Two Months Ended September 30, 2004			Nine Months Ended September 30, 2005
Net periodic benefit cost
Service cost	$	15		$	36		$	58		$	108		$	36		$	169
Interest cost		53			100			171			370			100			463
Amortization of losses		1			—			1			4			—			1
Expected return on plan assets		(63	)		(126	)		(168	)		(441	)		(126	)		(512	)
Net periodic pension expense	$	6		$	10		$	62		$	41		$	10		$	121

The Company did not make any significant contributions to the pension plans for the three or nine months ended September 30, 2005. The Company expects to contribute $121 to the pension plans by December 31, 2005.

NOTE 7 – INCOME TAXES

The Company determines income tax expense for interim periods by applying Statement of Financial Accounting Standards (SFAS) No. 109,Accounting for Income Taxes, which prescribes the use of the full year’s estimated effective tax rate in financial statements for interim periods. The provision for income taxes for the seven months ended July 31, 2004 and the two months ended September 30, 2004 indicates tax expense of $12.9 million and tax benefit of $4.6 million, respectively, while the provision for the nine months ended September 30, 2005 indicates tax expense of $ 0.9 million, reflecting an effective tax rate of 47.0% for the seven months ended July 31, 2004, 36.1% for the two months ended September 30, 2004 and 1.8% for the nine months ended September 30, 2005, respectively. The change in the effective rate between the periods is primarily a result of the non-recognition of U.S. tax benefits which have been fully offset by valuation allowances, the impact of foreign withholding taxes and the impact of Mexican inflationary adjustments.

The tax expense in the third quarter of 2005 was attributable primarily to a one-time payment of South Korean withholding taxes related to a dividend distribution received from the Company’s Megabox Cineplex joint venture during the third quarter partially offset by the benefit generated by the Company’s Mexican operations. The Company did not record any benefit, including foreign tax credits, for U.S. income taxes in the third quarter of 2005 because the Company has continued to record an offsetting valuation allowance against the U.S. deferred tax asset, since it was determined more likely than not that the deferred tax assets would not be realized.

10

LOEWS CINEPLEX ENTERTAINMENT CORPORATION

NOTES TO UNAUDITED CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA AND AS OTHERWISE NOTED)

NOTE 7 – INCOME TAXES, CONTINUED

In October 2004, the American Jobs Creation Act of 2004 (the “AJCA”) was passed. The AJCA creates a temporary incentive for U.S. corporations to repatriate accumulated income earned abroad by providing an 85% dividends received deduction for certain dividends from controlled foreign corporations. The deduction is subject to a number of limitations. The Company continues to evaluate to what extent, it might repatriate foreign earnings to the U.S under the AJCA. On July 29, 2005, the Company received a dividend distribution from Megabox of approximately $11.9 million (12.3 billion South Korean won) net of local withholding taxes of $1.5 million. The Company is still analyzing whether this dividend will qualify for the AJCA deduction.

NOTE 8 – RELATED PARTY TRANSACTIONS

The Company has entered into transactions with certain related parties, including its stockholders. A summary of significant transactions with these parties is provided below.

Prior to the Acquisition the Company had agreed to pay Onex and OCM Cinema an annual management fee of $5.0 million. A total of $7.9 million of this management fee was accrued as of July 31, 2004. This liability was discharged in connection with the Acquisition. A total of $0.4 million and $3.2 million was included in theGeneral and administrative expense line item in the combined consolidated statement of operations for the one and seven months ended July 31, 2004, respectively

In conjunction with the Acquisition the Company has agreed to pay Bain, Carlyle and Spectrum, collectively, an annual management fee of $4.0 million, in connection with planning, strategy, oversight and support to management. This management fee is prepaid on a quarterly basis. A total of $1.0 million of this management fee was included in the consolidated balance sheet underPrepaid expenses and other current assets as of September 30, 2005. A total of $0.7 million, $1.0 million and $3.0 million was included in theGeneral and administrative expenses line item in the consolidated statement of operations for the two months ended September 30, 2004, and the three and nine months ended September 30, 2005, respectively.

The Company has an outstanding note receivable from a former officer of Grupo Cinemex. This note receivable is denominated in U.S. dollars and bears interest at a fixed rate of 8.0% per annum. This note receivable balance was $1.4 million and $1.0 million as of December 31, 2004 and September 30, 2005, respectively. The Company has a liability of $2.3 million and $1.6 million payable to the same former officer related to a non-compete agreement as of December 31, 2004 and September 30, 2005, respectively.

Construction of Grupo Cinemex’ theatres is primarily performed by three companies: Inmobiliaria y Constructora K, S.A. de C.V. (“Inmobiliaria K”), Inmobiliaria y Constructora L S.A. de C.V. (“Inmobiliaria L”) and Constructora Andres Bello (“Andres Bello”). An individual who has investments in each of the three entities serves on the board of directors of Grupo Cinemex. The general manager of Inmobiliaria K, Inmobiliaria L and Andres Bello is the father of the same individual. The construction services provided by the three companies are generally negotiated at cost plus a predetermined margin.

The following tables provide additional information related to the transactions between Grupo Cinemex and the related parties noted above.

	Combined Consolidated Predecessor Company		Consolidated Successor Company		Consolidated Successor Company		Combined Consolidated Predecessor Company		Consolidated Successor Company		Consolidated Successor Company
	One Month Ended July 31, 2004		Two Months Ended September 30, 2004		Three Months Ended September 30, 2005		Seven Months Ended July 31, 2004		Two Months Ended September 30, 2004		Nine Months Ended September 30, 2005
Andres Bello	$	—	$	—	$	—	$	1,867	$	—	$	—
Inmobiliaria K	$	1,170	$	3,054	$	—	$	5,025	$	3,054	$	2,325

11

LOEWS CINEPLEX ENTERTAINMENT CORPORATION

NOTES TO UNAUDITED CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA AND AS OTHERWISE NOTED)

NOTE 8 – RELATED PARTY TRANSACTIONS, CONTINUED

On January 1, 2005, the Boards of Directors of LCE Holdings, Inc. and LCE Intermediate Holdings, Inc., the Company’s parent companies, approved, and on January 12, 2005, these companies entered into, Management Subscription Agreements providing for the sale of 91,948 shares of Class A Common Stock, 10,216 shares of Class L Common Stock of LCE Holdings, Inc. and 1,830 shares of Preferred Stock of LCE Intermediate Holdings, Inc. to key employees of the Company. The sale was completed on April 27, 2005 for total proceeds of $1.1 million. These proceeds were contributed to the Company by LCE Holdings, Inc. and LCE Intermediated Holdings, Inc. during the second quarter of 2005 and have been recorded as a capital contribution.

On July 18, 2005, the Company purchased 7,500 shares of The Orion Group common stock for a purchase price of approximately $1.2 million. The Orion Group is the parent company of Mediaplex, Inc., the Company’s partner in its Megabox Cineplex joint venture. This investment was classified as available-for-sale in accordance with the provisions of SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities” and has been recorded asDeferred charges and other assets in the Company’s consolidated balance sheet as of September 30, 2005. Available-for-sale securities are carried at fair value ($1.3 million as of September 30, 2005) with the unrealized gain or loss, net of tax, reported in other comprehensive income (gain of $0.1 million as of September 30, 2005).

NOTE 9 – SEGMENT AND GEOGRAPHIC DATA

The Company is engaged in one line of business, film exhibition. The following table presents summarized financial information about the Company by geographic segment. Financial information related to the Company’s international joint ventures and its investment in Grupo Cinemex is included in International. Information related to the international joint ventures is included on an equity method basis. There were no material amounts of sales or transfers among geographic segments.

	United States			International			Total
Predecessor Company
One month ended July 31, 2004
Box office revenues	$	68,099		$	8,649		$	76,748
Concession revenues		24,716			5,347			30,063
Total operating revenues		96,177			15,925			112,102
Income/(loss) from continuing operations		16,629			(299	)		16,330
Equity income in long-term investments		(161	)		(804	)		(965	)
Successor Company
Two months ended September 30, 2004
Box office revenues	$	73,447		$	11,700		$	85,147
Concession revenues		26,660			6,724			33,384
Total operating revenues		105,432			21,380			126,812
Income/(loss) from continuing operations		(2,015	)		297			(1,718	)
Equity income in long-term investments		(94	)		(1,656	)		(1,750	)
Three months ended September 30, 2005
Box office revenues	$	128,517		$	19,644		$	148,161
Concession revenues		49,490			12,145			61,635
Total operating revenues		185,533			36,556			222,089
Income from continuing operations		3,295			727			4,022
Equity income in long-term investments		(204	)		(2,278	)		(2,482	)

12

LOEWS CINEPLEX ENTERTAINMENT CORPORATION

NOTES TO UNAUDITED CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA AND AS OTHERWISE NOTED)

NOTE 9 – SEGMENT AND GEOGRAPHIC DATA, CONTINUED

	United States			International			Total
Predecessor Company
Seven months ended July 31, 2004
Box office revenues	$	336,544		$	48,270		$	384,814
Concession revenues		126,942			29,704			156,646
Total operating revenues		480,910			86,370			567,280
Income from continuing operations		44,453			5,565			50,018
Equity income in long-term investments		(94	)		(839	)		(933	)
Successor Company
Two months ended September 30, 2004
Box office revenues	$	73,447		$	11,700		$	85,147
Concession revenues		26,660			6,724			33,384
Total operating revenues		105,432			21,380			126,812
Income/(loss) from continuing operations		(2,015	)		297			(1,718	)
Equity income in long-term investments		(94	)		(1,656	)		(1,750	)
Nine months ended September 30, 2005
Box office revenues	$	372,174		$	55,955		$	428,129
Concession revenues		146,076			33,963			180,039
Total operating revenues		539,828			100,780			640,608
Income from continuing operations		4,882			209			5,091
Equity income in long-term investments		(214	)		(2,805	)		(3,019	)
Total assets as of September 30, 2005		1,246,108			419,699			1,665,807

NOTE 10 – COMMITMENTS AND CONTINGENCIES

Guarantees and Indemnification Obligations

The Company has agreements with certain vendors, financial institutions, lessors and service providers pursuant to which it has agreed to indemnify the other party for certain matters, such as acts and omissions of the Company, its employees, agents or representatives.

In November 2003, the Cineplex Galaxy Income Fund (the “Fund”), a Canadian income trust, was established to indirectly hold substantially all the assets of COC and all of the capital stock of Galaxy Entertainment, Inc., another Canadian film exhibitor controlled by Onex. On November 26, 2003, the Fund completed an initial public offering of Fund Units in Canada. As a result of these transactions the Company, through COC, indirectly owned 44.4% of the Fund and agreed to indemnify the Fund, the holders of Fund Units and the underwriters, among others, for liabilities resulting from misrepresentations in the prospectus used in the offering of Fund Units and breaches of the representations and warranties made by COC in the various agreements entered into in connection with the sale of COC’s assets and the offering. The Company’s total maximum liability under this indemnity was limited to the net cash proceeds of the offering plus amounts drawn under the Cineplex Galaxy Term Loan facility that was put in place in connection with the offering ($164.5 million). In connection with the sale of COC to affiliates of Onex and OCM Cinema, these affiliates agreed to indemnify the Company for any and all liabilities resulting from the Company’s indemnification obligations.

In January 2004, the Company issued a corporate guaranty on behalf of Neue Filmpalast GmbH & Co. KG (“Neue Filmpalast”), its former German partnership, for certain acquisition related costs that the partnership was required to pay. In April 2004, the Company made an additional contribution of $1.2 million to Neue Filmpalast, which the Company believes satisfied a significant portion of the guaranty. Additionally, a subsidiary of the Company was guarantor of several of the theatre leases of Neue Filmpalast. In connection with the sale of the Company’s interest in this partnership to affiliates of Onex and OCM Cinema, these affiliates agreed to indemnify the Company for any and all liabilities resulting from the Company’s indemnification obligations.

13

LOEWS CINEPLEX ENTERTAINMENT CORPORATION

NOTES TO UNAUDITED CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA AND AS OTHERWISE NOTED)

NOTE 10 – COMMITMENTS AND CONTINGENCIES, CONTINUED

Based upon the Company’s historical experience and information known as of September 30, 2005, the Company believes its potential liability related to its guarantees and indemnities is not material.

Commitments

As of September 30, 2005, the Company had aggregate capital commitments in the U.S. of $98.6 million primarily related to the completion of construction of five theatre properties (comprising 78 screens) and the expansion of two theatre properties (comprising nine screens). The Company expects to complete construction and to open these theatres during the next five years.

As of September 30, 2005, Grupo Cinemex had planned capital investments (but not contractual obligations) of $60.8 million related to eight theatre properties (comprising 74 screens). Grupo Cinemex expects to complete construction and to open these theatres during the next five years.

Metreon Arbitration

In May 1997, the Company entered into a 21-year lease with Metreon, Inc. (“Metreon”) to operate a megaplex theatre in an entertainment/retail center developed by Metreon in San Francisco. Since that theatre opened in June 1999, the Company has had a dispute with Metreon with respect to (1) construction costs that Metreon claims are the Company’s responsibility under the lease and (2) the percentage of the center occupied by the theatre and the nature, magnitude and allocation of the costs that Metreon is seeking to include as operating expenses under the lease. The amount of operating expenses claimed by Metreon to be allocable to this theatre is based upon the landlord’s assertion that the Company occupies at least 48.5% of the center. The Company asserted that it occupied substantially less of the center and that various expenses included in operating expenses charged to the Company were improper. In the Chapter 11 proceeding the Company assumed the Metreon lease without prejudice to any of the Company’s or Metreon’s rights with respect to the merits of the dispute or the appropriate forum for resolving the dispute. In September 2003, an arbitration was conducted to determine the percentage of the center occupied by the theatre. On March 16, 2004, the arbitrators issued a final award fixing at 34.49% the percentage, as of August 1, 2003, of the center occupied by the Company and directing Metreon to pay the Company’s legal fees and expenses related to the arbitration. Metreon sought to have the award vacated in state court in California and a hearing regarding Metreon’s motion was held on July 8, 2004. By Order dated August 2, 2004, the court denied Metreon’s motion to vacate the arbitration award, confirmed the award, and awarded the Company attorneys fees and costs to be determined in post-hearing submissions. A judgment confirming the arbitration award was entered by the court on September 3, 2004. Metreon is appealing this judgment. If the final award is confirmed by the appellate court, the maximum liability of the Company for operating expenses claimed by Metreon to be allocable to the Company’s theatre will be reduced significantly and the Company expects that Metreon will then commence legal proceedings to collect the remaining amount of operating expenses it claims are due from the Company. The Company believes it has meritorious defenses to all of Metreon’s claims against the Company under the lease and the Company intends to vigorously defend its position.

Six West Retail Acquisition, Inc.

Six West Retail Acquisition, Inc., a real estate development company, commenced an action on July 24, 1997, alleging that Sony Corporation, the Company and certain of its current and former officers and directors violated federal antitrust laws by engaging in block-booking agreements and monopolizing the motion picture exhibition market in New York City, and that the Company violated its contractual and fiduciary responsibilities in managing three theatres for Six West. The Company believes that Six West’s claims are without merit and intends to continue to oppose them vigorously. The Company believes that any recovery by the plaintiff will be limited to the distributions to general unsecured claims provided for pre-petition claims in the Plan. In March 2004, the judge in this case issued an opinion and order granting defendants’ motion for summary judgment and dismissing all of Six West’s claims. Six West appealed that decision only as against the corporate defendants and not the individuals. On March 30 2005, a panel of the court of appeals affirmed the lower court’s decision. On April 13, 2005, Six West petitioned the court of appeals for a rehearing of its appeal by the full court. This motion was subsequently denied. In September 2005, Six West filed a petition for writ of certiorari with the Supreme Court of the United States regarding this case.

14

LOEWS CINEPLEX ENTERTAINMENT CORPORATION

NOTES TO UNAUDITED CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA AND AS OTHERWISE NOTED)

NOTE 10 – COMMITMENTS AND CONTINGENCIES, CONTINUED

Discount Ticket Litigation

The Company sold various types of advance sale discount movie tickets with expirations dates to California business customers that, in turn, have either re-sold or given away such movie tickets to employees or valued customers. On December 15, 2003, Daniel C. Weaver filed suit in San Francisco Superior Court against the Company alleged its illegal sale in California of gift certificates with expiration dates under California Civil Code Section 1749.5 (a strict liability statute which expressly prohibits such sales), California Civil Code Section 1750 et seq. and California’s Business and Professions Code Section 17200 et seq. The Weaver compliant alleged that such corporate discount tickets constituted gift certificates subject to California’s prohibition on selling gift certificates that contain an expiration date. The Weaver case was filed as both a class action and as a private attorney general action on behalf of the general public, and sought declaratory relief, injunctive relief, disgorgement and restitution related to sales of such alleged gift certificates during the putative class period. The Company has reached agreement to settle this case, and the Court has preliminarily approved the class action settlement agreement. The Company anticipates obtaining the Court’s final approval of the class action settlement in November 2005. The Company does not expect its obligations under the settlement agreement to have a material impact on its operating results or financial position.

Other

Other than the lawsuits noted above, the Company is a defendant in various lawsuits arising in the ordinary course of business and is involved in certain environmental matters. From time to time the Company is involved in disputes with landlords, contractors and other third parties. It is the opinion of management that any liability to the Company, which may arise as a result of these matters, will not have a material adverse effect on the Company’s operating results, financial position or cash flows.

NOTE 11 – STOCK-BASED COMPENSATION

Stock Option Plan

As permitted under SFAS No. 123, “Accounting for Stock Based Compensation,” (“SFAS No. 123”) the Company elected to account for its stock based compensation plans under the provisions of Accounting Principles Board (“APB”) opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. No stock options were outstanding prior to November 2004. No stock-based compensation expense is reflected in the three and nine months ended September 30, 2005, as all stock options granted had an exercise price equal to the fair market value of the underlying stock on the date of grant.

On November 8, 2004, the Boards of Directors of LCE Holdings, Inc. and LCE Intermediate Holdings, Inc. approved and these companies adopted a new Management Stock Option Plan (the “Option Plan”) providing for the granting of options to key employees of the Company. On November 8, 2004, under the Option Plan, the Boards of Directors of LCE Holdings, Inc. and LCE Intermediate Holdings, Inc. granted stock options to a participant thereunder to purchase up to 59,103 shares of Class A Common Stock and 6,567 shares of Class L Common Stock of LCE Holdings, Inc. and 1,176 shares of Preferred Stock of LCE Intermediate Holdings, Inc. On January 1, 2005, the Boards of Directors of LCE Holdings, Inc. and LCE Intermediate Holdings, Inc. expanded the Option Plan to authorize the grant of options to acquire up to an aggregate of 2,859,836 shares of Class A Common Stock and 317,760 shares of Class L Common Stock of LCE Holdings, Inc. and 56,925 shares of Preferred Stock of LCE Intermediate Holdings, Inc. On January 12, 2005, the Company granted stock options to purchase up to 1,313,617 shares of Class A Common Stock and 145,956 shares of Class L Common Stock of LCE Holdings, Inc. and 26,153 shares of Preferred Stock of LCE Intermediate Holdings, Inc. Additionally, on April 4, 2005, the Company granted stock options to purchase up to 76,262 shares of Class A Common Stock and 8,474 shares of Class L Common Stock of LCE Holdings, Inc. and 1,518 shares of Preferred Stock of LCE Intermediate Holdings, Inc. The exercise prices of the Class A Common Stock, the Class L Common Stock and Preferred Stock options are $1.00, $81.00 and $100.00, respectively. If unexercised, the options granted on November 8, 2004 and January 12, 2005 will expire on July 30, 2014 and the options granted on April 4, 2005 will expire on April 4, 2015. One-third of the options granted with respect to each class of stock vest in equal annual installments on each of the five annual anniversary dates from July 30, 2004. The remaining two-thirds may vest in whole or in part based upon the value of the equity of LCE Holdings, Inc. upon certain changes of control or upon certain transfers of shares at or following an initial public offering and in any event will vest by July 30, 2011 (or April 4, 2012 in the case of the options granted on April 4, 2005). The weighted average exercise price of the options granted during 2005 was $10.60 per share.

15

LOEWS CINEPLEX ENTERTAINMENT CORPORATION

NOTES TO UNAUDITED CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA AND AS OTHERWISE NOTED)

NOTE 11 – STOCK-BASED COMPENSATION, CONTINUED

For purposes of the disclosure below, compensation costs for the Plan have been determined based upon the SFAS No. 123 fair value method, utilizing the Black-Scholes option pricing model and the following assumptions:

Expected life (years)	7
Expected volatility	39.0	%
Expected dividend yield	—
Risk free interest rate	3.80	%

If the fair value method had been applied to stock option grants, the Company’s net loss for the three and nine months ended September 30, 2005 would have changed as follows:

	Three Months Ended September 30, 2005			Nine Months Ended September 30, 2005
Net loss, as reported	$	(15,864	)	$	(51,863	)
Deduct: total stock-based compensation expense determined under fair value method		(335	)		(952	)
Pro forma	$	(16,199	)	$	(52,815	)

NOTE 12 – CONDENSED COMBINED CONSOLIDATING FINANCIAL INFORMATION

As of September 30, 2005, the Company had outstanding $315.0 million aggregate principal amount of 9% senior subordinated notes due 2014. These senior subordinated notes are fully and unconditionally guaranteed, jointly and severally and on an unsecured senior subordinated basis, subject to certain limited exceptions, by all of the Company’s wholly-owned existing and future domestic subsidiaries. The Company’s foreign subsidiaries, including Grupo Cinemex and its subsidiaries, and its domestic and foreign joint ventures do not guarantee the senior subordinated notes.

The following supplemental tables present condensed consolidating balance sheets for the Company and its subsidiary guarantors and subsidiary non-guarantors as of December 31, 2004 and September 30, 2005 and the condensed combined consolidating statements of operation for the one and seven months ended July 31, 2004 (Predecessor Company), the two months ended September 30, 2004 (Successor Company) and the three and nine months ended September 30, 2005 (Successor Company) and the condensed combined consolidating statements of cash flows for the seven months ended July 31, 2004 (Predecessor Company), the two months ended September 30, 2004 (Successor Company) and the nine months ended September 30, 2005 (Successor Company).

16

LOEWS CINEPLEX ENTERTAINMENT CORPORATION

NOTES TO UNAUDITED CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA AND AS OTHERWISE NOTED)

NOTE 12 – CONDENSED COMBINED CONSOLIDATING FINANCIAL INFORMATION, CONTINUED

Condensed Consolidating Balance Sheet as of December 31, 2004

	Loews Cineplex Entertainment Corporation			Subsidiary Guarantors		Subsidiary Non-Guarantors			Eliminations			Consolidated
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	—		$	58,523	$	12,492		$	—		$	71,015
Other current assets		—			34,600		27,313			—			61,913
TOTAL CURRENT ASSETS		—			93,123		39,805			—			132,928
PROPERTY, EQUIPMENT AND LEASEHOLDS, NET		—			575,852		156,304			—			732,156
OTHER ASSETS
Goodwill		—			465,143		85,393			—			550,536
Investments in subsidiaries and partnerships		1,333,175			101,798		—			(1,319,396	)		115,577
Other non-current assets		31,829			150,163		38,769			—			220,761
TOTAL ASSETS	$	1,365,004		$	1,386,079	$	320,271		$	(1,319,396	)	$	1,751,958
LIABILITIES AND STOCKHOLDERS’ EQUITY
TOTAL CURRENT LIABILITIES	$	22,475		$	128,506	$	23,802		$	—		$	174,783
LONG-TERM DEBT		937,125			2,320		92,061			—			1,031,506
OTHER LONG-TERM LIABILITIES		14			122,539		17,726			—			140,279
TOTAL LIABILITIES		959,614			253,365		133,589			—			1,346,568
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Common stock		—			—		—			—			—
Additional paid-in capital		421,671			1,116,637		190,201			(1,306,838	)		421,671
Accumulated other comprehensive income		6,577			—		6,591			(6,591	)		6,577
Retained earnings/(deficit)		(22,858	)		16,077		(10,110	)		(5,967	)		(22,858	)
TOTAL STOCKHOLDERS’ EQUITY		405,390			1,132,714		186,682			(1,319,396	)		405,390
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,365,004		$	1,386,079	$	320,271		$	(1,319,396	)	$	1,751,958

17

LOEWS CINEPLEX ENTERTAINMENT CORPORATION

NOTES TO UNAUDITED CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA AND AS OTHERWISE NOTED)

NOTE 12 – CONDENSED COMBINED CONSOLIDATING FINANCIAL INFORMATION, CONTINUED

Condensed Consolidating Balance Sheet as of September 30, 2005

	Loews Cineplex Entertainment Corporation			Subsidiary Guarantors		Subsidiary Non-Guarantors			Eliminations			Consolidated
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	—		$	39,725	$	9,226		$	—		$	48,951
Other current assets		—			30,304		30,036			—			60,340
TOTAL CURRENT ASSETS		—			70,029		39,262			—			109,291
PROPERTY, EQUIPMENT AND LEASEHOLDS, NET		—			526,708		156,458			—			683,166
OTHER ASSETS
Goodwill		—			468,662		88,283			—			556,945
Investments in subsidiaries and partnerships		1,275,851			104,368		—			(1,275,851	)		104,368
Other non-current assets		29,567			139,930		42,540			—			212,037
TOTAL ASSETS	$	1,305,418		$	1,309,697	$	326,543		$	(1,275,851	)	$	1,665,807
LIABILITIES AND STOCKHOLDERS’ EQUITY
TOTAL CURRENT LIABILITIES	$	18,256		$	106,083	$	28,315		$	—		$	152,654
LONG-TERM DEBT		929,125			2,236		106,695			—			1,038,056
OTHER LONG-TERM LIABILITIES		—			102,398		14,662			—			117,060
TOTAL LIABILITIES		947,381			210,717		149,672			—			1,307,770
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Common stock		—			—		—			—			—
Additional paid-in capital		422,774			1,078,156		188,453			(1,266,609	)		422,774
Accumulated other comprehensive income		9,984			—		9,985			(9,985	)		9,984
Retained earnings/(deficit)		(74,721	)		20,824		(21,567	)		743			(74,721	)
TOTAL STOCKHOLDERS’ EQUITY		358,037			1,098,980		176,871			(1,275,851	)		358,037
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,305,418		$	1,309,697	$	326,543		$	(1,275,851	)	$	1,665,807

18

LOEWS CINEPLEX ENTERTAINMENT CORPORATION

NOTES TO UNAUDITED CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA AND AS OTHERWISE NOTED)

NOTE 12 – CONDENSED COMBINED CONSOLIDATING FINANCIAL INFORMATION, CONTINUED

Condensed Combined Consolidating Statement of Operations for the One Month Ended July 31, 2004 (Predecessor)

	Loews Cineplex Entertainment Corporation			Subsidiary Guarantors			Subsidiary Non-Guarantors			Eliminations			Consolidated
REVENUES
Box office	$	—		$	66,446		$	10,302		$	—		$	76,748
Concession		—			24,000			6,063			—			30,063
Other		—			3,285			2,006			—			5,291
Total operating revenues		—			93,731			18,371			—			112,102
EXPENSES
Theatre operations and other expenses		—			62,447			10,440			—			72,887
Cost of concessions		—			2,999			1,427			—			4,426
General and administrative		—			6,944			4,606			—			11,550
Depreciation and amortization		—			4,848			2,107			—			6,955
(Gain)/loss on sale/disposal of theatres		—			13			(59	)		—			(46	)
Total operating expenses		—			77,251			18,521			—			95,772
INCOME FROM OPERATIONS		—			16,480			(150	)		—			16,330
Interest expense, net		—			1,081			1,333			—			2,414
Loss on early extinguishment of debt		—			6,856			—			—			6,856
Equity income in long-term investments		(8,611	)		(691	)		—			8,337			(965	)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		8,611			9,234			(1,483	)		(8,337	)		8,025
Income tax expense		—			4,082			829			—			4,911
INCOME FROM CONTINUING OPERATIONS		8,611			5,152			(2,312	)		(8,337	)		3,114
Discontinued operations, net of tax		—			—			5,497			—			5,497
NET INCOME	$	8,611		$	5,152		$	3,185		$	(8,337	)	$	8,611

Condensed Consolidating Statement of Operations for the Two Months Ended September 30, 2004 (Successor)

	Loews Cineplex Entertainment Corporation			Subsidiary Guarantors			Subsidiary Non-Guarantors			Eliminations			Consolidated
REVENUES
Box office	$	—		$	70,985		$	14,162		$	—		$	85,147
Concession		—			25,640			7,744			—			33,384
Other		—			5,125			3,156			—			8,281
Total operating revenues		—			101,750			25,062			—			126,812
EXPENSES
Theatre operations and other expenses		—			84,548			16,146			—			100,694
Cost of concessions		—			3,473			1,711			—			5,184
General and administrative		—			5,483			3,117			—			8,600
Depreciation and amortization		—			9,727			4,324			—			14,051
(Gain)/loss on sale/disposal of theatres and other		—			(13	)		14			—			1
Total operating expenses		—			103,218			25,312			—			128,530
INCOME FROM OPERATIONS		—			(1,468	)		(250	)		—			(1,718	)
Interest expense/(income), net		10,039			(280	)		2,162			—			11,921
Loss on early extinguishment of debt		—			—			882			—			882
Equity income in long-term investments		(1,876	)		(569	)		—			695			(1,750	)
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		(8,163	)		(619	)		(3,294	)		(695	)		(12,771	)
Income tax benefit		—			(3,471	)		(1,137	)		—			(4,608	)
NET INCOME/(LOSS)	$	(8,163	)	$	2,852		$	(2,157	)	$	(695	)	$	(8,163	)

19

LOEWS CINEPLEX ENTERTAINMENT CORPORATION

NOTES TO UNAUDITED CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA AND AS OTHERWISE NOTED)

NOTE 12 – CONDENSED COMBINED CONSOLIDATING FINANCIAL INFORMATION, CONTINUED

Condensed Consolidating Statement of Operations for the Three Months Ended September 30, 2005 (Successor)

	Loews Cineplex Entertainment Corporation			Subsidiary Guarantors			Subsidiary Non-Guarantors			Eliminations			Consolidated
REVENUES
Box office	$	—		$	128,517		$	19,644		$	—		$	148,161
Concession		—			49,490			12,145			—			61,635
Other		—			7,526			4,767			—			12,293
Total operating revenues		—			185,533			36,556			—			222,089
EXPENSES
Theatre operations and other expenses		—			143,981			20,514			—			164,495
Cost of concessions		—			6,442			2,931			—			9,373
General and administrative		—			10,274			3,166			—			13,440
Depreciation and amortization		—			21,278			8,521			—			29,799
Loss on sale/disposal of theatres and other		—			263			697			—			960
Total operating expenses		—			182,238			35,829			—			218,067
INCOME FROM OPERATIONS		—			3,295			727			—			4,022
Interest expense, net		17,141			877			2,705			—			20,723
Equity income in long-term investments		(1,277	)		(2,482	)		—			1,277			(2,482	)
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		(15,864	)		4,900			(1,978	)		(1,277	)		(14,219	)
Income tax expense/(benefit)		—			523			1,122			—			1,645
NET INCOME/(LOSS)	$	(15,864	)	$	4,377		$	(3,100	)	$	(1,277	)	$	(15,864	)

Condensed Combined Consolidating Statement of Operations for the Seven Months Ended July 31, 2004 (Predecessor)

	Loews Cineplex Entertainment Corporation			Subsidiary Guarantors			Subsidiary Non-Guarantors			Eliminations			Consolidated
REVENUES
Box office	$	—		$	326,778		$	58,036		$	—		$	384,814
Concession		—			122,728			33,918			—			156,646
Other		—			16,892			8,928			—			25,820
Total operating revenues		—			466,398			100,882			—			567,280
EXPENSES
Theatre operations and other expenses		—			342,533			62,141			—			404,674
Cost of concessions		—			16,258			7,107			—			23,365
General and administrative		—			32,609			10,725			—			43,334
Depreciation and amortization		—			34,673			14,950			—			49,623
(Gain)/loss on sale/disposal of theatres		—			(4,550	)		816			—			(3,734	)
Total operating expenses		—			421,523			95,739			—			517,262
INCOME FROM OPERATIONS		—			44,875			5,143			—			50,018
Interest expense, net		—			9,155			7,508			—			16,663
Loss on early extinguishment of debt		—			6,856			—			—			6,856
Equity (income)/loss in long-term investments		(21,963	)		1,967			—			19,063			(933	)
INCOME/(LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		21,963			26,897			(2,365	)		(19,063	)		27,432
Income tax expense		—			11,228			1,658			—			12,886
INCOME/(LOSS) FROM CONTINUING OPERATIONS		21,963			15,669			(4,023	)		(19,063	)		14,546
Discontinued operations, net of tax		—			—			7,417			—			7,417
NET INCOME	$	21,963		$	15,669		$	3,394		$	(19,063	)	$	21,963

20

LOEWS CINEPLEX ENTERTAINMENT CORPORATION

NOTES TO UNAUDITED CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA AND AS OTHERWISE NOTED)

NOTE 12 – CONDENSED COMBINED CONSOLIDATING FINANCIAL INFORMATION, CONTINUED

Condensed Consolidating Statement of Operations for the Two Months Ended September 30, 2004 (Successor)

	Loews Cineplex Entertainment Corporation			Subsidiary Guarantors			Subsidiary Non-Guarantors			Eliminations			Consolidated
REVENUES
Box office	$	—		$	70,985		$	14,162		$	—		$	85,147
Concession		—			25,640			7,744			—			33,384
Other		—			5,125			3,156			—			8,281
Total operating revenues		—			101,750			25,062			—			126,812
EXPENSES
Theatre operations and other expenses		—			84,548			16,146			—			100,694
Cost of concessions		—			3,473			1,711			—			5,184
General and administrative		—			5,483			3,117			—			8,600
Depreciation and amortization		—			9,727			4,324			—			14,051
(Gain)/loss on sale/disposal of theatres and other		—			(13	)		14			—			1
Total operating expenses		—			103,218			25,312			—			128,530
LOSS FROM OPERATIONS		—			(1,468	)		(250	)		—			(1,718	)
Interest expense/(income), net		10,039			(280	)		2,162			—			11,921
Loss on early extinguishment of debt		—			—			882			—			882
Equity income in long-term investments		(1,876	)		(569	)		—			695			(1,750	)
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		(8,163	)		(619	)		(3,294	)		(695	)		(12,771	)
Income tax benefit		—			(3,471	)		(1,137	)		—			(4,608	)
NET INCOME/(LOSS)	$	(8,163	)	$	2,852		$	(2,157	)	$	(695	)	$	(8,163	)

Condensed Consolidating Statement of Operations for the Nine Months Ended September 30, 2005 (Successor)

	Loews Cineplex Entertainment Corporation			Subsidiary Guarantors			Subsidiary Non-Guarantors			Eliminations			Consolidated
REVENUES
Box office	$	—		$	365,267		$	62,862		$	—		$	428,129
Concession		—			143,030			37,009			—			180,039
Other		—			21,211			11,229			—			32,440
Total operating revenues		—			529,508			111,100			—			640,608
EXPENSES
Theatre operations and other expenses		—			413,048			70,187			—			483,235
Cost of concessions		—			19,297			8,044			—			27,341
General and administrative		—			31,155			8,511			—			39,666
Depreciation and amortization		—			58,730			25,386			—			84,116
Loss on sale/disposal of theatres and other		—			462			697			—			1,159
Total operating expenses		—			522,692			112,825			—			635,517
INCOME/(LOSS) FROM OPERATIONS		—			6,816			(1,725	)		—			5,091
Interest expense/(income), net		49,405			(237	)		9,902			—			59,070
Equity (income)/loss in long-term investments		2,458			1,233			—			(6,710	)		(3,019	)
INCOME/(LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		(51,863	)		5,820			(11,627	)		6,710			(50,960	)
Income tax expense/(benefit)		—			1,073			(170	)		—			903
NET INCOME/(LOSS)	$	(51,863	)	$	4,747		$	(11,457	)	$	6,710		$	(51,863	)

21

LOEWS CINEPLEX ENTERTAINMENT CORPORATION

NOTES TO UNAUDITED CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA AND AS OTHERWISE NOTED)

NOTE 12 – CONDENSED COMBINED CONSOLIDATING FINANCIAL INFORMATION, CONTINUED

Condensed Combined Consolidating Statement of Cash Flows for the Seven Months Ended July 31, 2004 (Predecessor)

	Loews Cineplex Entertainment Corporation		Subsidiary Guarantors			Subsidiary Non-Guarantors			Eliminations			Consolidated
OPERATING ACTIVITIES
Net Cash Provided by Operating Activities	$	—	$	66,652		$	8,574		$	—		$	75,226
INVESTING ACTIVITIES
Capital expenditures		—		(27,835	)		(8,803	)		—			(36,638	)
Proceeds from sale of Cineplex Odeon Canada		—		205,861			—			—			205,861
Other investing activities		—		5,556			(2,370	)		1,893			5,079
Net Cash Provided by/(Used in) Investing Activities	$	—	$	183,582		$	(11,173	)	$	1,893		$	174,302
FINANCING ACTIVITIES
Repayment under Term Loan		—		(214,979	)		—			—			(214,979	)
Other financing activities		—		(3,005	)		1,893			(1,893	)		(3,005	)
Net Cash Provided by/(Used in) Financing Activities	$	—	$	(217,984	)	$	1,893		$	(1,893	)	$	(217,984	)
Effect of exchange rate changes on cash and cash equivalents		—		—			(544	)		—			(544	)
Increase/(decrease) in cash and cash equivalents		—		32,250			(1,250	)		—			31,000
Cash and cash equivalents at beginning of period		—		117,340			22,085			—			139,425
Cash and cash equivalents at end of period	$	—	$	149,590		$	20,835		$	—		$	170,425

22

LOEWS CINEPLEX ENTERTAINMENT CORPORATION

NOTES TO UNAUDITED CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA AND AS OTHERWISE NOTED)

NOTE 12 – CONDENSED COMBINED CONSOLIDATING FINANCIAL INFORMATION, CONTINUED

Condensed Consolidating Statement of Cash Flow for the Two Months Ended September 30, 2004 (Successor)

	Loews Cineplex Entertainment Corporation			Subsidiary Guarantors			Subsidiary Non-Guarantors			Eliminations			Consolidated
OPERATING ACTIVITIES
Net Cash Used Operating Activities	$	—		$	(14,049	)	$	(5,112	)	$	—		$	(19,161	)
INVESTING ACTIVITIES
Payment of purchase price		(1,127,259	)		—			(178,602	)		—			(1,305,861	)
Acquisition of Grupo Cinemex		(178,602	)		—			—			178,602			—
Capital expenditures		—			(5,428	)		(3,305	)		—			(8,733	)
Other investing activities		—			(896	)		—			1,042			146
Net Cash Used in Investing Activities	$	(1,305,861	)	$	(6,324	)	$	(181,907	)	$	179,644		$	(1,314,448	)
FINANCING ACTIVITIES
Equity contributions		421,671			—			178,602			(178,602	)		421,671
Proceeds from U.S. Term B Facility		630,000			—			—			—			630,000
Proceeds from issuance of senior subordinated notes		315,000			—			—			—			315,000
Borrowings from revolving credit facility		2,250			—			—			—			2,250
Proceeds from Grupo Cinemex Term Loan		—			—			90,000			—			90,000
Repayments on Term Loan Agreement		—			(92,335	)		—			—			(92,335	)
Repayments on Priority Secured Credit Agreement		—			(28,650	)		—			—			(28,650	)
Repayment on Grupo Cinemex Facility		—			—			(87,682	)		—			(87,682	)
Transaction costs		(15,864	)		—			—			—			(15,864	)
Deferred financing fees		(40,817	)		—			(739	)		—			(41,556	)
Other financing activities		(6,379	)		6,202			1,042			(1,042	)		(177	)
Net Cash Provided by/(Used in) Financing Activities	$	1,305,861		$	(114,783	)	$	181,223		$	(179,644	)	$	1,192,657
Effect of exchange rate changes on cash and cash equivalents		—			—			(11	)		—			(11	)
Decrease in cash and cash equivalents		—			(135,156	)		(5,807	)		—			(140,963	)
Cash and cash equivalents at beginning of period		—			149,590			20,835			—			170,425
Cash and cash equivalents at end of period	$	—		$	14,434		$	15,028		$	—		$	29,462

23

LOEWS CINEPLEX ENTERTAINMENT CORPORATION

NOTES TO UNAUDITED CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA AND AS OTHERWISE NOTED)

NOTE 12 – CONDENSED COMBINED CONSOLIDATING FINANCIAL INFORMATION, CONTINUED

Condensed Consolidating Statement of Cash Flow for the Nine Months Ended September 30, 2005 (Successor)

	Loews Cineplex Entertainment Corporation			Subsidiary Guarantors			Subsidiary Non-Guarantors			Eliminations			Consolidated
OPERATING ACTIVITIES
Net Cash Provided by/(Used by) Operating Activities	$	13,426		$	(1,526	)	$	8,875		$	—		$	20,775
INVESTING ACTIVITIES
Proceeds from sale of assets		—			81			—			—			81
Capital expenditures		—			(13,794	)		(25,773	)		—			(39,567	)
Acquisition of Magic Johnson Theatres		—			(3,731	)		—			—			(3,731	)
Other investing activities		—			(4,533	)		—			3,308			(1,225	)
Net Cash Used in Investing Activities	$	—		$	(21,977	)	$	(25,773	)	$	3,308		$	(44,442	)
FINANCING ACTIVITIES
Borrowings from Grupo Cinemex Delayed Draw		—			—			10,000			—			10,000
Intercompany transfers		(5,426	)		5,426			3,308			(3,308	)		—
Capital contribution from LCE Holdings, Inc.		—			1,103			—			—			1,103
Debt issuance costs		—			(951	)		—			—			(951	)
Repayments on U.S. Term Loan		(8,000	)		—			—			—			(8,000	)
Other financing activities		—			(873	)		—			—			(873	)
Net Cash Provided by/(Used in) Financing Activities	$	(13,426	)	$	4,705		$	13,308		$	(3,308	)	$	1,279
Effect of exchange rate changes on cash and cash equivalents		—			—			324			—			324
Decrease in cash and cash equivalents		—			(18,798	)		(3,266	)		—			(22,064	)
Cash and cash equivalents at beginning of period		—			58,523			12,492			—			71,015
Cash and cash equivalents at end of period	$	—		$	39,725		$	9,226		$	—		$	48,951

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes included elsewhere in this quarterly report. This discussion contains forward-looking statements. Please see “Forward-Looking Statements” for a discussion of the risks, uncertainties and assumptions relating to these statements.

Overview

Loews Cineplex Entertainment Corporation (“we”, “us” and “our”) is a major film exhibition company with operations in the U.S., Mexico, Spain and South Korea. We operate theatres under the Loews Theatres, Cineplex Odeon, Star Theatres and Magic Johnson Theatres names in the U.S. and Cinemex in Mexico. Our significant joint ventures operate theatres under the Universal Cineplex, Megabox and Yelmo Cineplex names. As of September 30, 2005, we owned, or had an interest in, and operated 200 theatres with 2,227 screens in 18 states and the District of Columbia, Mexico, Spain and South Korea. Our principal geographic markets include the metropolitan areas of New York, Baltimore, Boston, Chicago, Dallas, Detroit, Houston, Los Angeles, San Francisco, Seattle and Washington D.C. in the U.S.; Mexico City in Mexico; Seoul in South Korea; and Madrid and Barcelona in Spain.

Recent Events

On June 20, 2005, LCE Holdings, Inc., our parent company, entered into a definitive merger agreement with Marquee Holdings Inc., the holding company of AMC Entertainment Inc. (“AMC”), one of the world’s leading film exhibition companies. If the transactions described in the merger agreement are consummated, they would result in the combination of the businesses of us and AMC, the merger of LCE Holdings, Inc. with and into Marquee Holdings, Inc. with Marquee Holdings, Inc. continuing as the holding company of the merged businesses, and the merger of us and AMC Entertainment Inc., with AMC Entertainment Inc. continuing after the merger. The merger is expected to close sometime late in 2005 or early in 2006. Completion of the merger is subject to the satisfaction of customary closing conditions for transactions of this type including antitrust approval and completion of financing to refinance our U.S. senior secured credit facility and the senior secured credit facility of AMC Entertainment Inc.

Each of the parties to the merger agreement has made customary representations, warranties and covenants, including, among others, (i) to conduct their respective businesses in the ordinary course prior to consummation of the merger, (ii) to use reasonable best efforts to obtain regulatory approval, including antitrust approval under the Hart-Scott-Rodino Act and (iii) to cooperate in connection with the refinancing of the senior credit facilities of AMC Entertainment Inc. and Loews Cineplex Entertainment Corporation. Each of the respective controlling stockholders of Marquee Holdings Inc. and LCE Holdings, Inc. has given its consent to the Merger and the Merger Agreement, and each has entered into a consent and support agreement pursuant to which such stockholders agreed to approve the Merger and take certain other actions to support the transactions contemplated by the Merger Agreement.

If the merger is consummated, our Sponsors and certain members of our management would receive approximately 40% of the outstanding common stock of Marquee Holdings Inc., the surviving holding company, in exchange for their equity in LCE Holdings, Inc. Upon the consummation of a merger, the shareholders of Marquee Holdings Inc., the surviving holding company, would enter into a stockholders agreement that would provide for the governance of Marquee Holdings Inc. The current owners of Marquee Holdings Inc. would be entitled to appoint five directors with a majority of the votes of the board of directors. The current owners of LCE Holdings, Inc. would be entitled to appoint four directors. The terms of the stockholders agreement would also require the consent of a specified majority of the stockholders in order to approve many types of transactions. We expect that the surviving company would be called AMC Entertainment Inc. and would be headquartered in Kansas City, Missouri. We also expect that Peter C. Brown, the Chairman of the Board, Chief Executive Office and President of Marquee Holdings Inc. would remain in these roles in the surviving holding company.

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Under the terms of the indenture governing our senior subordinated notes, our merger with AMC would constitute a change of control. Because we will not meet certain conditions in the indenture, upon consummation of the merger, we will be required to give the holders of our senior subordinated notes an opportunity to sell the notes to us at a price of 101% of the principal amount of the senior subordinated notes, plus accrued and unpaid interest and additional interest (as defined in the indenture), if any, to the date of the repurchase. AMC has secured commitments to finance this repurchase offer.

On September 12, 2005, our exchange offer of $315 million new senior subordinated notes due 2014 for an equal amount of our $315 million outstanding senior subordinated notes due 2014 closed, with 100% of the previously outstanding notes accepting our offer to exchange. The terms and conditions of the new senior subordinated notes are identical to those of the outstanding senior subordinated notes (i.e., interest rate, maturity date, payment schedule, etc.). The exchange offer did not have a material impact on our results of operations or financial position.

You can find more information about AMC in their public filings available at www.sec.gov.

The July 2004 Transactions

On July 30, 2004, LCE Holdings, Inc., a company formed by investment funds affiliated with Bain Capital Partners, LLC, The Carlyle Group and Spectrum Equity Investors, which we refer to as our Sponsors, acquired 100% of the capital stock of our company and, indirectly, Grupo Cinemex S.A. de C.V., or Cinemex, for an aggregate purchase price of approximately $1.5 billion. The purchase of our company and Cinemex was financed with borrowings by Loews under a senior secured credit facility, the issuance of our senior subordinated notes and cash equity investments by the Sponsors. Prior to the closing, we sold all of our Canadian and German film exhibition operations to our former investors, who indemnified us for certain potential liabilities in connection with those sales. We refer to these and other related transactions collectively as the “Transactions”.

Revenues

We generate revenues primarily from box office receipts, concession sales and other revenue sources including screen advertising sales, promotional activities and theatre management fees. Attendance levels and changes in average admission and concession revenues per patron affect our revenues. Attendance is primarily affected by the commercial appeal of the films released during the period reported and the level of marketing and promotion by film studios and distributors. Historically, the major film distributors released those films that they anticipated would be the most successful during the summer and holiday seasons. Consequently, our revenue during the first and third quarters is typically lower. Average admissions per patron are affected by the mix of film types (i.e., each film’s appeal to certain audiences, such as children, teens or young adults) and established ticket prices. Average concession revenues per patron are affected by concession product mix, concession prices and the mix of film types. We generate other revenues related to theatre operations from such sources as on-screen and in-lobby advertising and sponsorships, the leasing of our theatres for motion picture premieres, screenings, private parties and corporate events and from game machines and ATMs in some of our theatre lobbies.

Expenses

The largest expenses of operating our theatres are film rental fees and theatre leasing expense. Other significant expenses include marketing and advertising, salaries and wages, concession product costs, insurance, utilities, maintenance and other occupancy related charges. Certain operating costs, such as film rental costs, salaries and wages and concession costs, vary directly with changes in revenues and attendance levels. Film rental fees are based on the related box office receipts at either mutually agreed-upon firm terms or estimates of the final settlement, depending upon our film licensing arrangement with a distributor for a particular film. We purchase concession supplies to replace units sold. Although theatre salaries and wages include a fixed cost component, these expenses vary in relation to revenues as theatre staffing levels are adjusted to handle fluctuations in attendance. Conversely, lease expenses are primarily a fixed cost at the theatre level, as our theatre leases generally require a fixed monthly minimum rent payment. Many of our theatre leases also include a percentage rent clause whereby the landlord is paid an additional amount of rent based upon revenues over a specified threshold. Certain of our leases provide for percentage rent only.

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General and administrative expenses are related primarily to costs associated with executive and corporate management and the oversight of our business, and include functions such as film buying, marketing and promotions, operations and concession management, accounting and financial reporting, legal, treasury, internal audit, safety and security, construction and design, real estate development and administration, human resources and information systems. Our general and administrative costs also include payroll, occupancy costs related to our corporate office in New York City, professional fees (such as audit and legal fees) and travel and related costs. Our general and administrative staffing and associated costs are maintained at a level that we deem appropriate to manage and support the size and nature of our theatre portfolio and our business activities.

Attributable EBITDA and Debt

Our consolidated financial statements incorporate the operating results of our partnerships to the extent of our equity share as required by the equity method of accounting. However, covenants included in our senior secured credit agreement and in the indenture for our senior subordinated notes are based on our Attributable EBITDA. EBITDA represents income/(loss) before income from discontinued operations, cumulative effect of a change in accounting principle, loss on early extinguishment of debt, interest expense, income taxes and depreciation and amortization. Attributable EBITDA represents the combined consolidated EBITDA of our wholly owned operations, plus or minus certain adjustments to EBITDA required under the terms of the note indenture, plus our 50% share of our joint ventures’ EBITDA in the U.S., South Korea and Spain, as reported to us by those joint ventures, and 100% of the EBITDA of our Magic Johnson Theatres joint venture. EBITDA and Attributable EBITDA are not presentations made in accordance with generally accepted accounting principles, are not measures of financial condition or profitability, and should not be considered as an alternative to (1) net income determined in accordance with GAAP or (2) operating cash flows determined in accordance with GAAP. We believe that these measures provide additional information with respect to our ability to meet our future debt service, capital expenditures and working capital requirements and because certain covenants in our borrowing arrangements are tied to similar measures. Attributable EBITDA is a material component of these covenants. For instance, our senior secured credit facility contains financial covenant ratios, specifically, total leverage and interest coverage ratios, and the indenture governing our senior subordinated notes contains limitations on our ability to borrow and to make certain payments, in each case that are calculated by reference to Attributable EBITDA. Non-compliance with the financial ratio maintenance covenants contained in our senior secured credit facility could result in the requirement to immediately repay all amounts outstanding under such facilities, while non-compliance with the debt incurrence ratios contained in the indenture governing our senior subordinated notes would prohibit us from being able to incur additional indebtedness other than pursuant to specified exceptions. In addition, under the restricted payments covenants contained in our senior secured credit facility and indenture, our ability to pay dividends is restricted by a formula based on the amount of Attributable EBITDA. We believe that Attributable EBITDA is a key indicator of our operating performance, because it shows our ability to realize free cash flow at a theatre level, whether the theatre is held by us or through one of our joint ventures. Attributable EBITDA reflects how our management analyzes our operating performance. Furthermore, our budgeting process is based on Attributable EBITDA measures.

Additionally, our senior secured credit agreement and the covenants included in the indenture for our senior subordinated notes require us to include 50% of each partnership’s debt in our debt amounts for covenant purposes, which we refer to as “Attributable Debt.” Attributable Debt is not a GAAP term. Management uses Attributable Debt as a measure to monitor our compliance with our debt agreements.

While our management uses these measures, they are not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation. We do not control the decision-making for our international joint ventures, and our ability to transfer cash from these and our U.S. joint ventures is restricted. In addition, our joint ventures do not guarantee our debt, and will not be bound by the covenants contained in our credit agreement or note indenture. The debt of our joint ventures is non-recourse to us.

Discontinued Operations

In January 2004, Company management committed to a plan to sell Cineplex Odeon Corporation (“COC”), the Company’s wholly owned subsidiary (comprising its Canadian operations, including its interest in the Cineplex Galaxy Limited Partnership), to Onex and OCM Cinema. This transaction closed on July 30, 2004. As a result of that decision, the Company has reported COC’s results of operations for the one and seven months ended July 31, 2004 as discontinued operations. COC generated total revenue of $33.2 million and $159.7 million and income before taxes of $9.0 million and $12.1 million for the one and seven months ended July 31, 2004, respectively.

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On July 30, 2004, as a condition to, and immediately prior to, the closing of the Transactions, we sold 100% of our shares of capital stock of COC to affiliates of our former investors for a cash purchase price of $205.9 million. We used the proceeds from this sale to repay debt outstanding under our old credit facilities. As this sale was a transaction among parties under common control, the excess of the proceeds received ($205.9 million) over the book value of the assets sold ($33.3 million) has been recorded as a capital contribution ($172.6 million).

Results of Operations

On July 30, 2004, LCE Holdings, Inc, a company formed by our Sponsors, acquired 100% of the capital stock of our company and, indirectly, Cinemex. For all accounting purposes and consistent with our reporting periods, we have used July 31, 2004 as the effective date of the Transactions. Based on this event, we have reported operating results and financial position for all periods presented from January 1, 2004 through July 31, 2004 as those of the Predecessor Company and for all periods from and after August 1, 2004 as those of the Successor Company. Each period has a different basis of accounting and, as a result, they are not comparable. As a result, for purposes of presenting a comparison of our 2005 results to prior periods, we have presented the three and nine months ended September 30, 2004 as the mathematical addition of our operating results for the one and seven months ended July 31, 2004 to the operating results for the two months ended September 30, 2004. We believe that this presentation provides more meaningful information about our results of operations. This approach is not consistent with GAAP, may yield results that are not strictly comparable on a period-to-period basis, and may not reflect the actual results we would have achieved.

Three Months Ended September 30, 2005 Compared to the Combined Three Months Ended September 30, 2004

Total operating revenues. Total operating revenues for the three months ended September 30, 2005 decreased $16.8 million, or 7.0%, to $222.1 million from $238.9 million for the three months ended September 30, 2004.

Specific factors affecting the major components of our total operating revenues are discussed below.

Box office revenue. Box office revenue for the three months ended September 30, 2005 decreased $13.7 million, or 8.5%, to $148.2 million from $161.9 million for the three months ended September 30, 2004. This decrease in box office revenue was due primarily to a decrease in attendance volume ($24.2 million) during the period and a decrease in box office revenue from closed theatres ($1.9 million). These decreases in box office revenue, which total $26.1 million, were partially offset by an increase in average revenue per patron ($6.9 million) during the period, an increase in box office revenue from the operation of new theatres ($4.1 million) and an increase due to the effect of foreign currency exchange rates on our international operations ($1.4 million). Attendance decreased approximately 3.6 million patrons, or 12.9%, for the three months ended September 30, 2005 as compared to the same period in the prior year. This decrease in attendance can be attributed to the industry-wide lackluster performance of current films and the strong performance of films shown during the three months ended September 30, 2004 includingSpider-Man 2 and The Bourne Supremacy.

Concession revenue. Concession revenue for the three months ended September 30, 2005 decreased $1.8 million, or 2.9%, to $61.6 million from $63.4 million for the three months ended September 30, 2004. This decrease in concession revenue was due primarily to a decrease in attendance volume during the period ($9.5 million) and a decrease in concession revenue from closed theatres ($0.7 million). These decreases in concession revenue, which aggregated $10.2 million, were offset by an increase in concession revenue per patron ($5.4 million) during the period, an increase in concession revenue from the operation of new theatres ($2.1 million) and an increase due to the effect of foreign currency exchange rates on our international operations ($0.9 million).

Other revenues. Other revenues for the three months ended September 30, 2005 decreased $1.3 million, or 9.4%, to $12.3 million from $13.6 million for the three months ended September 30, 2004. This decrease in other revenues was due primarily to decreases in advertising and promotional income, ATM usage, phone and Internet ticket sales ($1.5 million), a decrease in attendance volume during the period ($0.2 million) and a decrease in other revenues from closed theatres ($0.1 million). These decreases in other revenues, which aggregated $1.8 million, were partially offset by an increase in other revenues from the operation of new theatres ($0.2 million) and an increase due to the effect of foreign currency exchange rates on our international operations ($0.3 million).

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Theatre operations and other expenses. Theatre operations and other expenses for the three months ended September 30, 2005 decreased $9.1 million, or 5.2%, to $164.5 million from $173.6 million for the three months ended September 30, 2004. This decrease in theatre operating and other expenses was due primarily to decreases in operating costs associated with a decrease in attendance volume ($13.6 million), a decrease in operating costs related to closed theatres ($2.5 million), a decrease in film rental costs related to a decrease in film rental percentage ($0.9 million) and a decrease in various other theatre operating expense items ($1.8 million). These decreases in theatre operations and other expenses, which aggregated $18.8 million, were offset by increases in operating costs related to incremental costs associated with the operation of new theatres ($4.8 million), the increases in film rental payments resulting from ticket price increases ($3.4 million), and an increase due to the effect of foreign currency exchange rates on our international operations ($1.5 million). Theatre operating and other expenses, as a percentage of total revenues, increased to 74.1% for the three months ended September 30, 2005 as compared to 72.7% for the three months ended September 30, 2004 due primarily to the aforementioned decrease in revenues.

Specific factors affecting the major components of our theatre operations and other expenses are discussed below.

Film costs. Film costs decreased $7.6 million, or 9.6% for the three months ended September 30, 2005 to $71.0 million from $78.6 million for the three months ended September 30, 2004. This decrease in film costs was due primarily to the decrease in attendance ($11.7 million), a decrease in film costs associated with closed theatres ($1.0 million) and a decrease in film costs as a result of a decrease in film rental percentage primarily related to film product mix ($0.9 million). These decreases, which aggregated $13.6 million were partially offset by increases in film rental payments resulting from ticket price increases ($3.4 million), increased film costs associated with the operation of new theatres ($2.1 million) and an increase due to the effect of foreign currency exchange rates with respect to our international operations ($0.5 million). Film costs as a percentage of box office revenue were 47.9% for the three months ended September 30, 2005 as compared to 48.5% for the same period in the prior year.

Rent expense. Rent expense increased $0.2 million, or 0.7%, for the three months ended September 30, 2005 to $30.8 million from $30.6 million for the three months ended September 30, 2004. This increase in rent expense is due primarily to a increase in leasing costs associated with new theatres which were partially offset by a decrease in costs associated with closed theatres and the decrease in box office revenue noted above.

Cost of concessions. Cost of concessions for the three months ended September 30, 2005 decreased $0.2 million, or 2.5%, to $9.4 million from $9.6 million for the three months ended September 30, 2004. This decrease in cost of concessions was due primarily to lower costs associated with the decrease in attendance volume ($1.4 million) and a decrease in the cost of concessions from closed theatres ($0.1 million). These decreases in cost of concessions, which aggregated $1.5 million, were partially offset by an increase in product costs and the timing related to certain promotional programs ($0.6 million), the incremental costs associated with the operation of new theatres ($0.5 million) and an increase due to the effect of foreign currency exchange rates on our international operations ($0.2 million). Cost of concessions, as a percentage of concession revenues, remained relatively flat at 15.2% for the three months ended September 30, 2005 as compared to the three months ended September 30, 2004.

General and administrative costs. General and administrative costs for the three months ended September 30, 2005 decreased $6.7 million, or 33.3%, to $13.4 million from $20.1 million for the three months ended September 30, 2004. This decrease in general and administrative costs was due primarily to a decrease in professional and legal fees related to potential merger and acquisition transactions which we incurred during the third quarter of 2004. General and administrative expenses, as a percentage of total revenues, decreased to 6.1% for the three months ended September 30, 2005 as compared to 8.4% for the three months ended September 30, 2004.

Depreciation and amortization. Depreciation and amortization costs for the three months ended September 30, 2005 increased $6.8 million, or 32.6%, to $27.8 million from $21.0 million for the three months ended September 30, 2004. This increase in depreciation and amortization was due primarily to incremental depreciation related to investment in new depreciable assets related to new builds and the revaluation of our depreciable assets as a result of the closing of the Transactions ($6.4 million) and an increase due to the effect of foreign currency exchange rates on our international operations ($0.4 million).

Income from operations. Our operating income for the three months ended September 30, 2005 decreased $8.4 million to $6.2 million from $14.6 million for the three months ended September 30, 2004. This decrease in operating income was due to the aggregate effect of all the factors described above.

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Interest expense. Interest expense for the three months ended September 30, 2005 increased $6.4 million, or 44.6%, to $20.7 million from $14.3 million for the three months ended September 30, 2004. This increase in our interest expense was due primarily to the increased level of debt outstanding as a result of the refinancing we undertook in order to effect the Transactions and an overall increase in the average interest rate paid on our outstanding debt.

Loss on early extinguishment of debt. Our loss on early extinguishment of debt decreased by $7.7 million, or 100%, to nil for the three months ended September 30, 2005 from $7.7 million for the three months ended September 30, 2004. This decrease was due to the write-off of deferred debt financing fees on our and Cinemex’s former credit facilities during the three months ended September 30, 2004.

Income tax expense/(benefit). Income tax expense/(benefit) for the three months ended September 30, 2005 increased $1.3 million to $1.6 million from $0.3 million for the three months ended September 30, 2004. The increase was driven primarily by a one-time payment of South Korean withholding taxes on a dividend distribution from our Megabox Cineplex joint venture during the current period. The effective tax rate for the three months ended September 30, 2005 was approximately 11.6% as compared to approximately 6.4% for three months ended September 30, 2004. We did not record any benefit, including foreign tax credits, for U.S. income taxes for the three months ended September 30, 2005 because we continue to record an offsetting valuation allowance against the U.S. deferred tax asset, since it was determined more likely than not that the deferred tax assets would not be realized.

Net Income/(Loss). Net income/(loss) decreased $16.3 million to a loss of $15.9 million for the three months ended September 30, 2005 from income of $0.4 million for the three months ended September 30, 2004. This change was due to the aggregate effect of all the factors described above and the effect of income from discontinued operations that had been included in the three months ended September 30, 2004. Our net loss, excluding discontinued operations, increased by $10.9 million to a loss of $15.9 million for the three months ended September 30, 2005 as compared to a loss of $5.0 million for the three months ended September 30, 2004 due to the aggregate effect of the items noted above.

Attributable EBITDA. Our Attributable EBITDA for the three months ended September 30, 2005 decreased $8.5 million, or 15.6%, to $45.9 million from $54.4 million for the three months ended September 30, 2004. This decrease in Attributable EBITDA was due primarily to decreases in our wholly owned EBITDA in the U.S. ($6.6 million) and Mexico ($1.1 million) which was due to the aggregate effect of all the factors described above and a decrease in the operating results of our joint venture in Spain ($1.2 million). These decreases in Attributable EBITDA, which aggregated $8.9 million, were partially offset by an increase in the operating results of our joint venture in South Korea ($0.4 million).

The reconciliation of net loss before discontinued operations to each of EBITDA and Attributable EBITDA is shown below:

	Predecessor Company			Successor Company
	Three Months Ended September 30, 2004			Three Months Ended September 30, 2005
	(in thousands)
Net loss before discontinued operations	$	(5,049	)	$	(15,864	)
Depreciation and amortization		21,006			29,799
Interest expense, net		14,335			20,723
Loss on early extinguishment of debt		7,738			—
Income tax expense		303			1,645
EBITDA		38,333			36,303
Adjustments to EBITDA
Management fee		1,091			999
(Gain)/loss on sale/disposal of theatres		(45	)		960
Straight-line rent accrual in excess of cash		1,867			1,811
Transaction related expenses		8,628			1,887
Equity income in long-term investments		(2,715	)		(2,482	)
Our share of partnership EBITDA		7,293			6,461
Attributable EBITDA	$	54,452		$	45,939

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Nine Months Ended September 30, 2005 Compared to the Combined Nine Months Ended September 30, 2004

Total operating revenues. Total operating revenues for the nine months ended September 30, 2005 decreased $53.5 million, or 7.7%, to $640.6 million from $694.1 million for the nine months ended September 30, 2004.

Specific factors affecting the major components of our total operating revenues are discussed below.

Box office revenue. Box office revenue for the nine months ended September 30, 2005 decreased $41.9 million, or 8.9%, to $428.1 million from $470.0 million for the nine months ended September 30, 2004. This decrease in box office revenue was due primarily to a decrease in attendance volume ($71.0 million) during the period and a decrease in box office revenue from closed theatres ($5.4 million). These decreases in box office revenue, which total $76.4 million, were partially offset by an increase in average revenue per patron ($21.7 million) during the period, an increase in box office revenue from the operation of new theatres ($11.0 million) and an increase due to the effect of foreign currency exchange rates on our international operations ($1.8 million). Attendance decreased approximately 10.8 million patrons, or 13.3%, for the nine months ended September 30, 2005 as compared to the same period in the prior year. This decrease in attendance can be attributed to the industry-wide lackluster performance of current films and the strong performance of film shown during the nine months ended September 30, 2004 includingShrek 2, Spider-Man 2 andThe Passion of the Christ.

Concession revenue. Concession revenue for the nine months ended September 30, 2005 decreased $10.0 million, or 5.3%, to $180.0 million from $190.0 million for the nine months ended September 30, 2004. This decrease in concession revenue was due primarily to a decrease in attendance volume during the period ($28.7 million) and a decrease in concession revenue from closed theatres ($2.0 million). These decreases in concession revenue, which aggregated $30.7 million, were offset by an increase in concession revenue per patron ($13.8 million) during the period, an increase in concession revenue from the operation of new theatres ($5.8 million) and an increase due to the effect of foreign currency exchange rates on our international operations ($1.1 million).

Other revenues. Other revenues for the nine months ended September 30, 2005 decreased $1.7 million, or 4.9%, to $32.4 million from $34.1 million for the nine months ended September 30, 2004. This decrease in other revenues was due primarily to a decrease in attendance volume during the period ($0.6 million), a decrease in other revenues from closed theatres ($0.3 million) and decreases in advertising and promotional income, ATM usage, phone and Internet ticket sales ($2.1 million). These decreases in other revenues, which aggregated $3.0 million, were partially offset by an increase in other revenues from the operation of new theatres ($0.4 million), an increase due to the effect of foreign currency exchange rates on our international operations ($0.4 million) and increases in other sources of income ($0.5 million).

Theatre operations and other expenses. Theatre operations and other expenses for the nine months ended September 30, 2005 decreased $22.2 million, or 4.4%, to $483.2 million from $505.4 million for the nine months ended September 30, 2004. This decrease in theatre operating and other expenses was due primarily to decreases in operating costs associated with a decrease in attendance volume ($39.7 million) and a decrease in operating costs related to closed theatres ($6.9 million) and a decrease in various other theatre operating expense items ($1.5 million). These decreases in theatre operations and other expenses, which aggregated $48.1 million, were offset by increases in operating costs related to incremental costs associated with the operation of new theatres ($13.3 million), an increase in film rental costs resulting from ticket price increases ($10.5 million), an increase in film rental costs related to an increase in film rental percentage ($0.3 million) and an increase due to the effect of foreign currency exchange rates on our international operations ($1.8 million). Theatre operating and other expenses, as a percentage of total revenues, increased to 75.4% for the nine months ended September 30, 2005 as compared to 72.8% for the nine months ended September 30, 2004 due primarily to the aforementioned decrease in revenues.

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Specific factors affecting the major components of our theatre operations and other expenses are discussed below.

Film costs. Film costs decreased $19.4 million, or 8.6% for the nine months ended September 30, 2005 to $207.1 million from $226.5 million for the nine months ended September 30, 2004. This decrease in film costs was due primarily to the decrease in attendance ($34.2 million) and a decrease in film costs associated with closed theatres ($2.6 million). These decreases, which aggregated $36.8 million were partially offset by increases in film rental payments resulting from ticket price increases ($10.5 million), increased film costs associated with the operation of new theatres ($5.8 million), increased film costs as a result of an increase in film rental percentage primarily related to film product mix ($0.3 million) and an increase due to the effect of foreign currency exchange rates with respect to our international operations ($0.8 million). Film costs as a percentage of box office revenue were 48.4% for the nine months ended September 30, 2005 as compared to 48.2% for the same period in the prior year.

Rent expense. Rent expense increased $0.9 million, or 1.0%, for the nine months ended September 30, 2005 to $91.5 million from $90.6 million for the nine months ended September 30, 2004. This increase in rent expense is due primarily to leasing costs associated with new theatres, which were partially offset by a decrease in leasing costs associated with closed theatres and the decrease in box office revenue noted above.

Cost of concessions. Cost of concessions for the nine months ended September 30, 2005 decreased $1.2 million, or 4.2%, to $27.3 million from $28.5 million for the nine months ended September 30, 2004. This decrease in cost of concessions was due primarily to lower costs associated with the decrease in attendance volume ($4.3 million) and a decrease in the cost of concessions from closed theatres ($0.3 million). These decreases in cost of concessions, which aggregated $4.6 million, were partially offset by an increase in product costs and the timing related to certain promotional programs ($2.0 million), the incremental costs associated with the operation of new theatres ($1.2 million) and an increase due to the effect of foreign currency exchange rates on our international operations ($0.2 million). Cost of concessions, as a percentage of concession revenues, increased slightly to 15.2% for the nine months ended September 30, 2005 as compared to 15.0% for the nine months ended September 30, 2004.

General and administrative costs. General and administrative costs for the nine months ended September 30, 2005 decreased $12.2 million, or 23.6%, to $39.7 million from $51.9 million for the nine months ended September 30, 2004. This decrease in general and administrative costs was due primarily to a decrease in professional and legal fees related to potential merger and acquisition transactions which we incurred during the nine months ended September 30, 2004 ($12.1 million) and a decrease in the management fee paid to our current Sponsors compared to the management fee we paid to our former investors ($0.6 million). This decrease in general and administrative expenses, which aggregated $12.7 million, was partially offset by an increase in costs associated with our day-to-day home office operations ($0.1 million) and an increase due to the effect of foreign currency exchange rates on our international operations ($0.4 million). General and administrative expenses, as a percentage of total revenues, decreased to 6.2% for the nine months ended September 30, 2005 as compared to 7.5% for the nine months ended September 30, 2004.

Depreciation and amortization. Depreciation and amortization costs for the nine months ended September 30, 2005 increased $18.5 million, or 29.0%, to $82.2 million from $63.7 million for the nine months ended September 30, 2004. This increase in depreciation and amortization was due primarily to incremental depreciation related to investment in new depreciable assets related to new builds and the revaluation of our depreciable assets as a result of the closing of the Transactions ($18.0 million) and an increase due to the effect of foreign currency exchange rates on our international operations ($0.5 million).

Income from operations. Our operating income for the nine months ended September 30, 2005 decreased $41.0 million to $7.3 million from $48.3 million for the nine months ended September 30, 2004. This decrease in operating income was due to the aggregate effect of all the factors described above.

Interest expense. Interest expense for the nine months ended September 30, 2005 increased $30.5 million, or 106.7%, to $59.1 million from $28.6 million for the nine months ended September 30, 2004. This increase in our interest expense was due primarily to the increased level of debt outstanding as a result of the refinancing we undertook in order to effect the Transactions and an overall increase in the average interest rate paid on our outstanding debt.

Loss on early extinguishment of debt. Our loss on early extinguishment of debt decreased by $7.7 million, or 100%, to nil for the nine months ended September 30, 2005 from $7.7 million for the nine months ended September 30, 2004. This decrease was due to the write-off of deferred debt financing fee on our and Cinemex’s former credit facilities during the nine months ended September 30, 2004.

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Income tax expense/(benefit). Income tax expense for the nine months ended September 30, 2005 decreased $7.4 million to $0.9 million from $8.3 million for the nine months ended September 30, 2004. The decrease was primarily driven by operating losses generated during the period for which no tax benefit has been booked partially offset by a one-time payment of South Korean withholding taxes on a dividend distribution received from our Megabox Cineplex joint venture during the period. The effective tax rate for the nine months ended September 30, 2005 was approximately 1.8% as compared to approximately 56.5% for nine months ended September 30, 2004. We did not record any benefit, including foreign tax credits, for U.S. income taxes for the nine months ended September 30, 2005 because we continue to record an offsetting valuation allowance against the U.S. deferred tax asset, since it was determined more likely than not that the deferred tax assets would not be realized.

Net Income/(Loss). Net income/(loss) decreased $65.7 million to a loss of $51.9 million for the nine months ended September 30, 2005 from income of $13.8 million for the nine months ended September 30, 2004. This decrease in our net income/(loss) was due to the aggregate effect of all the factors described above and the effect of income from discontinued operations that had been included in the nine months ended September 30, 2004. Our net income/(loss), excluding discontinued operations, decreased by $58.3 million to a loss of $51.9 million for the nine months ended September 30, 2005 from income of $6.4 million for the nine months ended September 30, 2004 due to the aggregate effect of the items noted above.

Attributable EBITDA. Our Attributable EBITDA for the nine months ended September 30, 2005 decreased $32.4 million, or 21.6%, to $117.7 million from $150.1 million for the nine months ended September 30, 2004. This decrease in Attributable EBITDA was due primarily to decreases in our wholly owned EBITDA in the U.S. ($24.5 million) and Mexico ($6.1 million) which was due to the aggregate effect of all the factors described above and a decrease in the operating results of our joint venture in Spain ($2.3 million). These decreases in Attributable EBITDA, which aggregated $32.9 million, were partially offset by an increase in the operating results of our joint venture in South Korea ($0.5 million).

The reconciliation of net income/(loss) before discontinued operations to each of EBITDA and Attributable EBITDA is shown below:

	Predecessor Company			Successor Company
	Nine Months Ended September 30, 2004			Nine Months Ended September 30, 2005
	(in thousands)
Net income/(loss) before discontinued operations	$	6,383		$	(51,863	)
Depreciation and amortization		63,674			84,116
Interest expense, net		28,584			59,070
Loss on early extinguishment of debt		7,738			—
Income tax expense		8,278			903
EBITDA		114,657			92,226
Adjustments to EBITDA
Management fee		3,593			2,997
(Gain)/loss on sale/disposal of theatres		(3,733	)		1,159
Straight-line rent accrual in excess of cash		5,602			5,518
Transaction related expenses		15,817			3,815
Equity income in long-term investments		(2,683	)		(3,019	)
Our share of partnership EBITDA		16,881			14,988
Attributable EBITDA	$	150,134		$	117,684

Liquidity and Capital Resources

Cash Flows

We generate cash flows from our theatre operations. Our cash flows are generated primarily from the sale of admission tickets, concession sales and other revenue including advertising and promotional income. Generally, this provides us with positive working capital, which is consistent with our industry, since cash revenues are generally collected in advance of payment of our operating expenses. Our operating revenue levels are directly related to the success and appeal of the film product produced and distributed by the studios.

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Based on our current and anticipated levels of operations and conditions in our markets and industry, we believe that our cash on hand, cash flow from operations and availability under our revolving credit facilities will enable us to meet our working capital, capital expenditure, debt service and other funding requirements for the short-term and long-term. Additionally, we believe that our credit facilities in the U.S. and Mexico will be adequate to fund our long-term capital requirements and needs. However, our ability to fund our working capital needs, debt payments and other obligations, and to comply with the financial covenants under our debt agreements, depends on our future operating performance and cash flow, which are in turn subject to prevailing economic conditions and other factors, many of which are beyond our control, including but not limited to film product that is available. Any future theatre construction and renovation, acquisitions, investment in joint ventures or other similar transactions will likely require additional capital and there can be no assurance that any such capital will be available to us on acceptable terms, if at all. From time to time we may also acquire a portion of our senior subordinated notes in market transactions depending on market conditions and our liquidity requirements.

Operating Cash Flows. Net cash provided by/(used in) operating activities, as reflected in our statement of cash flows, was $20.8 million, $(19.2) million and $75.2 million for the nine months ended September 30, 2005, the two months ended September 30, 2004 and the seven months ended July 31, 2004, respectively. The decrease in cash provided by operating activities for the periods presented was due primarily to the aforementioned downturn in attendance and changes in our working capital related to the timing of payments to various vendors. We had working capital deficits of $13.1 million and $8.3 million as of September 30, 2005 and December 31, 2004, respectively. We believe that our $119.3 million of borrowing capacity against our U.S. and Mexican revolving credit facilities is adequate to meet obligations as they come due.

Investing Cash Flows. Net cash (used in)/provided by investing activities, as reflected in our statement of cash flows, was $(44.4) million, $(1,314.4) million and $174.3 million for the nine months ended September 30, 2005, the two months ended September 30, 2004 and the seven months ended July 31,2004, respectively. Cash used in investing activities for the nine months ended September 30, 2005 was due primarily to capital expenditures ($39.6 million) related to expenditures for new builds, maintenance and upgrades to existing theatres and spending on management information systems and applications, the acquisition of an additional 49.99% interest in our MJT partnership ($3.7 million) and the acquisition of marketable equity securities ($1.2 million). Cash used in investing activities for the two months ended September 30, 2004 was due primarily to the payment of the purchase price of the transaction to our former shareholders ($1,305.9 million) and capital expenditures related to expenditures for new builds, maintenance and upgrades to existing theatres and spending on management information systems and applications ($8.7 million). Cash provided by investing activities for the seven months ended July 31, 2004 was due primarily to the proceeds from the sale of Cineplex Odeon Canada ($205.9 million) and proceeds from the sale of assets ($7.4 million). These sources of cash were partially offset by capital expenditures related to expenditures for new builds, maintenance and upgrades to existing theatres and spending on management information systems and applications ($36.6 million) and investment in/advances to our partnerships ($2.4 million).

Financing Cash Flows. Net cash provided by/(used in) financing activities, as reflected in our statement of cash flows, was $1.3 million, $1,192.7 million and $(218.0) million for the nine months ended September 30, 2005, the two months ended September 30, 2004 and the seven months ended July 31, 2004, respectively. Cash provided by financing activities for the nine months ended September 30, 2005 was due primarily to the proceeds from the delayed draw portion of the Cinemex credit facility ($10.0 million) and an equity contribution from LCE Holdings, Inc. ($1.1 million). These sources of cash were partially offset by payments made on our U.S. Term B Loan ($8.0 million), debt issuance costs incurred ($1.0 million) and the payment made on our mortgage and capital leases. Cash provided by financing activities for the two months ended September 31, 2004 was primarily due to the proceeds received from an equity contribution from our Sponsors ($421.7 million), and the proceeds from the issuance of our senior secured credit facility ($630.0 million), our senior subordinated notes ($315.0 million), the new Cinemex term loan ($90 .0 million) and amounts drawn on our revolving credit facility $2.3 million). These sources of cash were partially offset by repayment of our former term loan ($92.3 million), our priority secured credit agreement ($28.7 million), the Mexican credit facility ($87.7 million), Transaction related expenses ($15.9 million) and debt issuance costs ($41.6 million). Cash used in financing activities for the seven months ended July 31, 2004 was due primarily to repayments of debt related to our senior secured credit facility in the U.S. ($215.0 million) and the repayment of our priority secured credit agreement ($2.4 million).

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Capital Expenditures

We fund the cost of our capital expenditures through internally generated cash flows, cash on hand and financing activities. Our capital requirements have historically arisen principally in connection with acquisitions, construction of new theatres, adding new screens to existing theatres, upgrading our theatre facilities and general systems upgrades. During the nine months ended September 30, 2005, the two months ended September 30, 2004 and the seven months ended July 31, 2004 we had $39.6 million, $8.7 million and $36.6 million, respectively, in capital expenditures. We intend to continue to grow our theatre circuit through selective new building, the expansion of existing theatres and acquisitions. As of September 30, 2005, we had aggregate capital commitments in the U.S. of $98.6 million primarily related to the completion of construction of five theatre properties (comprising 78 screens) and the expansion of two theatre properties (comprising nine screens). Additionally, as of September 30, 2005, Cinemex had planned capital investments (but not contractual obligations) of $60.8 million related to eight theatre properties (comprising 74 screens). We expect to complete construction and to open these theatres during the next five years.

Theatre Portfolio Changes

The following table indicates the number of theatre locations and screens and the changes to our theatre circuit portfolio (including screens and locations relating to all our joint ventures) for the nine month period ended September 30, 2005:

	United States		International		Total
Locations
Beginning Balance – December 31, 2004	131		70		201
New Builds	1		2		3
Disposals	(4	)	—		(4	)
Ending Balance – September 30, 2005	128		72		200
Screens
Beginning Balance – December 31, 2004	1,440		778		2,218
New Builds	16		21		37
Disposals	(27	)	(1	)	(28	)
Ending Balance – September 30, 2005	1,429		798		2,227

The average screens per location has grown from 11.0 screens per location at December 31, 2004 to 11.1 screens per location at September 30, 2005.

During the nine months ended September 30, 2005, we further developed our existing circuit by opening one theatre with 16 screens in Washington State in the U.S. and two theatres with 21 screens in Mexico.

U.S. Credit Facility

On July 30, 2004, we entered into a $730 million senior secured credit facility with Citicorp North America, Inc., as administrative agent. This credit facility is comprised of two tranches: (i) a $630 million term loan and (ii) a $100 million revolving credit facility, including letter of credit and swing line sub-facilities. The proceeds of the term loan were used to fund the payment of a portion of the purchase price paid to our former investors. This facility is guaranteed by our parent and by all of our existing and future domestic subsidiaries, with the exception of unrestricted subsidiaries, as defined in the Credit Agreement (we had no unrestricted subsidiaries as of June 30, 2005), and is collateralized by a perfected security interest in substantially all of our assets and the assets of our direct and indirect restricted domestic subsidiaries, including a pledge of 100% of our capital stock, the capital stock of each of our restricted domestic subsidiaries and 65% of the capital stock of certain of our foreign subsidiaries that are directly owned by us or one of our restricted domestic subsidiaries. The term loan amortizes 1% per annum in equal quarterly installments commencing on December 31, 2004 and the maturity date is July 30, 2011. The term loan bears interest at a rate of: (i) the base rate or a Eurodollar rate plus (ii) an applicable margin based on our Adjusted Leverage Ratio (as defined in the credit agreement). The maturity date of the revolving credit facility is July 30, 2010. The revolving credit facility bears interest at a rate of: (i) the base rate or a Eurodollar rate plus (ii) an applicable margin based on our Adjusted Leverage Ratio (as defined in the credit agreement). At September 30, 2005, we had not drawn against the revolving credit facility. The term loan bore interest at a weighted average rate of 5.4% at September 30, 2005 and interest is payable on the earlier of the maturity of the LIBOR contract(s) then in effect or on a quarterly basis.

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Additionally, as of September 30, 2005, we had $5.7 million in stand-by letters of credit issued under our revolving credit facility to support our commitments with respect to certain contractual obligations. As of September 30, 2005, we had additional availability of $94.3 million under our revolving credit facility.

Senior Subordinated Notes

On September 12, 2005, our exchange offer of $315 million new senior subordinated notes due 2014 for an equal amount of our $315 million outstanding senior subordinated notes due 2014 closed, with 100% of the previously outstanding notes accepting the Company’s offer to exchange. The terms and conditions of the new senior subordinated notes are identical to those of the outstanding senior subordinated notes issued on July 30, 2004 (i.e., interest rate, maturity date, payment schedule, etc.). These notes are unsecured obligations and are subordinated in right of payment to all of our existing and future senior debt (as defined in the indenture). These notes are pari passu in right of payment with any of our future senior subordinated indebtedness. These notes carry an interest rate of 9% and interest is payable semi-annually on each of February 1st and August 1st and mature on August 1, 2014. We used the proceeds of these notes to fund the payment of a portion of the purchase price to our former investors. These notes are guaranteed by all of our existing and future domestic subsidiaries, with the exception of unrestricted subsidiaries, as defined in the indenture (we had no unrestricted subsidiaries as of September 30, 2005).

Covenants

Our senior secured credit facility and note indenture include customary affirmative and negative covenants, including: (i) limitations on indebtedness, (ii) limitations on liens, (iii) limitations on investments, (iv) limitations on contingent obligations, (v) limitations on restricted junior payments and certain other payment restrictions, (vi) limitations on merger, consolidation or sale of assets, (vii) limitations on transactions with affiliates, (viii) limitations on the sale or discount of receivables, (ix) limitations on the disposal of capital stock of subsidiaries, (x) limitations on lines of business, (xi) limitations on capital expenditures, (xii) certain reporting requirements and (xiii) interest hedging requirements. Additionally, our senior secured credit facility includes financial performance covenants, including: (i) a Maximum Adjusted Leverage Ratio (as defined therein) and (ii) a Minimum Interest Coverage Ratio (as defined therein). We were in compliance with our financial covenants as of September 30, 2005.

Commitments for Replacement Financing

If we consummate a merger with AMC Entertainment Inc., we would be required to repay all amounts outstanding under our existing $730 million U.S. senior secured credit facility and AMC would be required to repay all amounts outstanding under its existing senior secured credit facility. To refinance these existing senior secured credit facilities, AMC, as the surviving company in the merger, would enter into a new senior secured credit facility pursuant to the terms and conditions of the binding commitments that AMC has received from Citigroup Global Markets Inc., JPMorgan Chase Bank, N.A. and Credit Suisse, Cayman Islands Branch. As the terms of the surviving company’s new credit agreement have not been agreed upon, they may differ significantly from those described herein, however we expect that the new credit facilities will consist of senior secured financing of up to $850 million, comprised of a $650 million term loan facility and a $200 million revolving credit facility. We expect that the initial interest rate on the $650 million term loan facility would be equal to LIBOR plus 2.50% or a base rate plus 1.50% and the initial interest rate on the $200 million revolving credit facility would be LIBOR plus 1.75% or a base rate plus 0.75%. The interest rate on the new term loan would initially be 0.25% higher than the rate on the term loan under our existing U.S. senior secured credit facility. The interest rate on the new revolving credit facility would be 1.00% lower than the rate on our existing revolving credit facility. We expect that the new $850 million senior secured credit facility would have affirmative covenants that are substantially consistent with the covenants in the existing Loews and AMC senior secured credit facilities and would have negative covenants that are consistent with the covenants in the existing Loews and AMC senior secured credit facilities. We expect that the baskets for permitted amounts under the new covenants would be adjusted as appropriate to reflect the combined size of the surviving entity. We expect that the new term loan facility of the surviving company would not be subject to any financial covenants. The new revolving credit facility would include a covenant that the combined company maintain a ratio of net senior secured debt to the EBITDA of the combined company and its subsidiaries that does not exceed 3.25x. Under the terms of the indenture governing our senior subordinated notes, our merger with AMC would constitute a change of control. Because we will not meet certain conditions in the indenture, upon consummation of the merger, we will be required to give the holders of our senior subordinated notes an opportunity to sell the notes to us at a price of 101% of the principal amount of the senior subordinated notes, plus accrued and unpaid interest and additional interest (as defined in the indenture), if any, to the date of the repurchase. AMC has secured commitments to finance this repurchase offer.

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Cinemex Credit Facility

On August 16, 2004, Cadena Mexicana S.A. de C.V., a wholly-owned subsidiary of Cinemex, entered into a new senior secured credit facility. The initial amount drawn under the Cinemex senior secured credit facility was one billion Mexican pesos (approximately $90 million as of August 16, 2004). The Cinemex senior secured credit facility also includes a term loan with a one-year delay draw option of the peso equivalent of $10 million with Banco Inbursa, S.A., Scotiabank Inverlat, S.A. and Banco Nacional de Mexico, S.A. and an available revolving credit line of the peso equivalent of $25 million with Banco Inbursa, S.A. and Scotiabank Inverlat, S.A. (the term loan and the revolving credit facility portions of the new senior secured credit facility are peso denominated debt). All obligations of Cadena Mexicana under the Cinemex senior secured credit facility are guaranteed by Cinemex and each existing and future operating subsidiary of Cadena Mexicana, except for specified excluded subsidiaries, as defined.

The Cinemex borrowings are non-recourse to Loews. Interest on the Cinemex term loan is payable in arrears on a monthly basis at the Equilibrium Interbank Interest Rate (Tasa de Interes Interbancaria de Equilibrio) for a period of 28 days (the TIIE rate), plus an applicable margin of 1.50% in years one and two, 1.75% in year three and 2.00% in years four and five. The interest rate on the Cinemex term loan as of September 30, 2005 was 11.48%. This rate was adjusted to 8.5% on $78.7 million of the Cinemex borrowing by an interest rate swap entered into on July 28, 2003 and which was redesignated as a hedge of the Cinemex senior secured credit facility on August 16, 2004 (see “Interest Rate Risk” below for additional information related to this interest rate swap). The Cinemex term loan matures on August 16, 2009 and will amortize beginning on February 16, 2007 in installments ranging from 10% to 30% per annum over the five-year period.

The Cinemex senior secured credit facility contains customary affirmative and negative covenants with respect to Cadena Mexicana and each of the guarantors and, in certain instances, Cadena Mexicana’s subsidiaries that are not guarantors, as defined in its credit agreement. Affirmative covenants include the requirement to furnish periodic financial statements and ensure that the obligations of Cadena Mexicana and the guarantors under the Cadena Mexicana senior secured credit facility rank at least pari passu with all existing debt of such parties. Negative covenants include limitations on disposition of assets, capital expenditures, dividends and additional indebtedness and liens. The facility also includes certain financial covenants, including, without limitation, a maximum total leverage ratio, a maximum total net debt to equity ratio, a minimum interest coverage ratio, a maximum true-lease adjusted leverage ratio and a minimum consolidated net worth requirement. Cinemex was in compliance with its financial covenants as of September 30, 2005.

International Joint Ventures

We have no contractual obligation to provide capital or credit support to our international joint ventures, Yelmo Cineplex, S.L., or Yelmo, and Megabox Cineplex, Inc., or Megabox.

Yelmo has a local standalone reducing credit facility of 32.5 million euros (approximately $39.1 million), which was fully drawn as of September 30, 2005. This facility matures in August 2007. In March 2004, the Yelmo credit agreement was amended to waive a default by Yelmo in its minimum EBITDA covenant for the fiscal year ended December 31, 2003. Also, pursuant to this amendment, Yelmo’s maximum debt to EBITDA ratio was increased and its ability to pay dividends restricted through the period ending December 31, 2005. The Yelmo borrowings are non-recourse to us.

Megabox has several stand-alone credit facilities totaling 37 billion Korean won (approximately $36.0 million), of which $17.3 million was drawn as of September 30, 2005. The Megabox borrowings are non-recourse to us.

On July 29, 2005, we received a dividend distribution from Megabox of approximately $11.9 million (12.3 billion Korean won) net of local withholding taxes.

Guarantees and Indemnification Obligations

We have agreements with certain vendors, financial institutions, lessors and service providers pursuant to which we have agreed to indemnify the other party for certain matters, such as acts and omissions made by us, our employees, agents or representatives.

We have agreements with each of our directors and executive officers to indemnify such director or executive officer, to the extent legally permissible, against all liabilities reasonably incurred in connection with any action in which such individual may be involved by reason of such individual being or having been our director or officer.

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In November 2003, Cineplex Galaxy Income Fund, or the Fund, a Canadian income trust, was established to indirectly hold substantially all the assets of COC and all of the capital stock of Galaxy Entertainment, Inc., another Canadian film exhibitor controlled by one of our former investors. On November 26, 2003, the Fund completed an initial public offering of Fund units in Canada. As a result of these transactions we, through COC, indirectly owned 44.4% of the Fund and in connection with the offering we agreed to indemnify the Fund, the holders of Fund units and the underwriters, among others, for liabilities resulting from misrepresentations in the prospectus used in the offering and breaches of the representations and warranties made by COC in the various agreements entered into in connection with the sale of COC’s assets and the offering. Our total maximum liability under this indemnity was limited to the net cash proceeds of the offering plus amounts drawn under the Cineplex Galaxy term loan facility that was put in place in connection with the offering. In connection with the sale of COC to affiliates of our former investors, these affiliates have agreed to indemnify us for any and all liabilities resulting from our indemnification obligations.

In January 2004, we issued a corporate guaranty on behalf of our former German partnership for certain acquisition related costs that the partnership was required to pay. In April 2004, we made an additional contribution of $1.2 million to our former German partnership, which we believed would satisfy a significant portion of the guaranty. Additionally, a subsidiary of ours is guarantor of several of the theatre leases of this partnership. In connection with the sale of our interest in this partnership to affiliates of our former investors, these affiliates have agreed to indemnify us for any and all liabilities resulting from our indemnification obligations.

Based upon our historical experience and information known as of September 30, 2005, we believe the potential liability related to these guarantees and indemnities is not material.

New Accounting Pronouncements

In December 2004, the FASB issued FASB Statement No. 123 (revised 2004) (“SFAS 123(R)”), “Share-Based Payment”, which replaces FASB Statement No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”) and supercedes Accounting Principles Board (“APB”) Opinion No. 25 “Accounting for Stock Issued to Employees” (“APB No. 25”). SFAS 123(R) eliminates the ability to account for share-based compensation transactions using APB No. 25 and requires that such transactions be accounted for using a fair value-based method. SFAS 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans.

SFAS 123(R) may be adopted using one of two methods: (i) a “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of Statement 123 for all awards granted to employees prior to the effective date of SFAS 123(R) that remain unvested on the effective date, or (ii) a “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption.

In April 2005, the SEC approved a new rule delaying the effective date of SFAS No. 123(R) for public companies until the first fiscal year beginning after June 15, 2005. As such, we will be required to apply SFAS No. 123(R) beginning in 2006. Until such implementation, we will continue to apply the disclosure-only requirements of SFAS No. 123 and will apply intrinsic value accounting for its employee stock options that defines compensation cost for stock options, if any, as the excess of the quoted market price of the stock at the date of grant over the amount an employee must pay to acquire the stock. Management is in the process of determining the impact on our results of operations or financial position.

In March 2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (“FIN 47”). FIN 47 is an interpretation of SFAS 143, “Asset Retirement Obligations”, which was issued in June 2001. FIN 47 was issued to address diverse accounting practices that have developed with regard to the timing of liability recognition for legal obligations associated with the retirement of a tangible long-lived asset in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. According to FIN 47, uncertainty about the timing and (or) method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. The provisions of FIN 47 have been adopted by us and did not have a material impact on our results of operations or financial position.

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In May 2005, the FASB issued SFAS No. 154 “Accounting Changes and Error Corrections” (“SFAS 154”), a replacement of APB Opinion No. 20, “Accounting Changes”, and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements”, effective for fiscal years beginning after December 15, 2005. SFAS 154 changes the requirements for the accounting for and reporting of a voluntary change in accounting principle as well as the changes required by an accounting pronouncement which does not include specific transition provisions. SFAS 154 is not expected to have a material impact on our results of operations or financial position.

ITEM 3. Qualitative and Quantitative Disclosures about Market Risk

We are exposed to financial market risks, including changes in interest rates, foreign currency exchange rates and other relevant market prices.

Interest Rate Risk

As of September 30, 2005, we had long-term debt or other obligations (including current maturities) of $1,071.7 million, of which $495.4 million was variable rate debt. An increase or decrease in interest rates on our variable rate debt would affect interest costs related to our debt. For comparative purposes, for every change of 0.125% in interest rates, our interest costs on our variable rate debt would change by approximately $0.6 million per year.

On July 28, 2003, Cinemex entered into an interest rate swap agreement with a maturity of December 26, 2007 to manage its exposure to interest rate movements by effectively converting its previous long-term senior secured credit facility from a variable to a fixed rate. The notional amount of this interest rate swap reduces in accordance with the repayment provisions of Cinemex’s previous long-term senior secured credit facility. Although this senior secured facility was repaid on August 13, 2004, the swap agreement remains outstanding and was redesignated as a hedge of the Cinemex term loan.

The face amount of the July 28, 2003 interest rate swap on September 30, 2005 was 850 million Mexican pesos ($78.7 million). The swap agreement provides for the exchange of variable rate payments for fixed rate payments. The variable rate is based on the 28-day TIIE rate and the fixed rate is 8.5%. The fair market value of the interest rate swap was $(0.4) million as of September 30, 2005.

On August 5, 2005, Cinemex entered into a new interest rate swap as a complement to the July 28, 2003 interest rate swap noted above. The new interest rate swap was entered into in order to hedge the outstanding debt balance not covered by the July 28, 2003 interest rate swap. This new interest rate swap provides for the exchange of variable rate payment for fixed rate payments. The variable rate is based on the 28-day TIIE rate and the fixed rate is 9.89%. The fair market value of this interest rate swap was $1.7 million as of September 30, 2005.

On October 28, 2004, we entered into an interest rate cap in the U.S. as a hedge of a portion of our floating rate debt. This hedge caps the interest rate at a maximum of 6% on $125 million of notional amount of debt for two years. Below the cap of 6% we continue to pay the actual prevailing interest rate on the underlying debt. The fair market value of this interest rate cap was immaterial as of September 30, 2005.

We are exposed to credit loss risk in the event of non-performance by the counterparty to our interest rate swap and cap agreements. However, we do not anticipate non-performance by the counterparty.

Market Rate Risk

As of September 30, 2005, we had $315 million of senior subordinated notes outstanding. Increases in market interest rates would generally cause a decrease in the fair value of these notes and a decrease in market interest rates would generally cause an increase in the fair value of these notes.

Foreign Currency Exchange Risk

We are also exposed to market risk arising from changes in foreign currency exchange rates as a result of our operations in Mexico, Spain and South Korea. Accounting principles generally accepted in the U.S. require that subsidiaries use the currency of the primary economic environment in which they operate as their functional currency. We report, as a component of other comprehensive income, foreign currency translation adjustments relating to currency fluctuations between the U.S. dollar and the functional currency of our Mexican operations and our international joint ventures.

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ITEM 4. Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Senior Vice President, Chief Financial Officer and Treasurer, of the effectiveness of the design and operation of our disclosure control and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this quarterly report. Based upon this evaluation, our President and Chief Executive Officer and our Senior Vice President, Chief Financial Officer and Treasurer concluded that our disclosure controls and procedures were effective.

During the period covered by this report, there were no changes in our internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

Six West Retail Acquisition, Inc.

In September 2005, Six West filed a petition for writ of certiorari with the Supreme Court of the United States regarding this case.

Other

We are a defendant in various lawsuits arising in the ordinary course of business and are involved in certain environmental matters. From time to time we are involved in disputes with landlords, contractors and other third parties. It is the opinion of management that any liability to us that may arise as a result of these matters will not have a material adverse effect on our operating results, financial position or cash flows.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit 31.1 - Certification of President and Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).

Exhibit 31.2 - Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).

Exhibit 32.1 - Certification of President and Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350.

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Forward-Looking Statements

This report contains “forward-looking statements.” Forward-looking statements give our current expectations or forecasts of future events. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “project” or “continue” or the negative thereof or other similar words. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. Any or all of our forward-looking statements in this report and in any public statements we make may turn out to be incorrect, possibly to a material degree. Such statements can be affected by inaccurate assumptions we might make or by known or unknown risks or uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual results may vary materially. Investors are cautioned not to place undue reliance on any forward-looking statements.

You should also understand that it is not possible to predict or identify all the risks and uncertainties that could affect future events and should not consider the following list to be a complete statement of all potential risks and uncertainties. Important factors that could cause actual results to differ materially from the forward-looking statements include, but are not limited to:

• our ability to make scheduled payments of principal and interest on our indebtedness;

• poor performance of, or any disruption in the production or distribution of, first-run motion pictures, or a reduction in the marketing efforts of film distributors;

• the risk that a deterioration in our relationship with any of the major film distributors or primary concession suppliers could adversely affect our ability to negotiate licensing agreements or supply arrangements on favorable terms;

• an oversupply of screens in the U.S. and/or in our international markets;

• the cost of capital investments in electronic media;

• the inherent risks of international operations;

• the impact of alternative film delivery methods and other forms of entertainment on theatre attendance and ticket prices;

• our ability to develop and acquire theatres at reasonable prices, on favorable terms or at all;

• potential fines, awards of damages or injunctive relief if we fail to comply with the Americans with Disabilities Act;

• the effect of a prolonged economic downturn on consumer spending and the demand for motion pictures;

• the intense competition that exists in our industry;

• our ability to take action and maintain operating efficiencies with the presence of partners;

• the effect of our bankruptcy reorganization on our ability to obtain financing, to enter into new leases or to attract high-quality employees;

• our ability to effectively generate additional ancillary revenue opportunities from our theatres; and

• the loss of services of one or more members of our senior management team.

The foregoing factors are not exhaustive, and new factors may emerge or changes to the foregoing factors may occur that could impact our business. Except to the extent required by law, we undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, on this 31th day of October, 2005.

LOEWS CINEPLEX ENTERTAINMENT CORPORATION
By:	/s/    JOHN J. WALKER
	John J. Walker
	Senior Vice President, Chief Financial Officer and Treasurer

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