FORM 10 - K 	SECURITIES AND EXCHANGE COMMISSION 	WASHINGTON, D.C. 20549 (Mark One) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 	 For the fiscal year ended: December 31, 1997 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 	 For the transition period from to 	 Commission file number: 1-9454 CINEPLEX ODEON CORPORATION 	(Exact name of Registrant as specified in its charter) 	 Ontario, Canada 			 Non-Resident Alien 	(State or other jurisdiction			 (I.R.S. Employer 	 of incorporation or organization)		 Identification No.) 	 1303 Yonge Street, Toronto, Ontario 	 M4T 2Y9 	(Address of principal executive offices)	 (Postal Code) 	 416-323-6600 	(Registrant's telephone number 	including area code) 								 Securities registered pursuant to Section 12(b) of the Act: Title of each class:	Name of each exchange on which 			registered: Common Shares	 	New York Stock Exchange 			 Toronto Stock Exchange 	 Securities registered pursuant to Section 12(g) of the Act: 	None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.	 Yes X or No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K	(X) TOTAL NO. OF PAGES EXHIBIT INDEX PAGE As of February 11, 1998, Cineplex Odeon Corporation had 103,414,594 Common Shares without par value, outstanding, and the aggregate market value of the Common Shares (based on the last sale price of such stock as reported by the New York Stock Exchange for February 11, 1998) held by nonaffiliates on such date was approximately $98,037,000. All officers, directors and more than 5% shareholders of the registrant have been deemed "affiliates" for the purpose of calculating such aggregate market value. The registrant does not represent that such persons, or any of them, would be deemed "affiliates" of the registrant for any other purpose of the United States Federal Securities Laws. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Corporation's definitive Proxy Statement for the special meeting to be held on March 26, 1998 (the "Proxy Statement") are incorporated by reference into Part III of this Form 10-K. PART I ITEM 1.	BUSINESS General The Corporation is engaged primarily in the operation of motion picture theatres in the United States and Canada. The Corporation was originally incorporated in Ontario, Canada on July 19, 1977, and commenced operations in April 1979. It maintains its principal executive offices at 1303 Yonge Street, Toronto, Ontario, Canada, M4T 2Y9. The Corporation's telephone number is (416) 323-6600. Unless otherwise specified, or the context otherwise requires, the term "Corporation" as used herein shall mean the Corporation and its consolidated subsidiaries. Recent Developments On September 30, 1997, the Corporation announced that it has entered into an agreement with Sony Pictures Entertainment Inc. (SPE) and LTM Holdings, Inc. (LTM) which provides for the combination of the businesses of the Corporation and LTM. LTM is a private Delaware Corporation wholly-owned by SPE. The transaction will involve combining the Corporation with the Loews Theatres Exhibition Group, which consists of Sony/Loews Theatres and its joint ventures with Star Theatres and Magic Johnson Theatres. It is proposed that the combined company will be named Loews Cineplex Entertainment Corporation (LCE). It is anticipated that LCE will have over 2,700 screens in approximately 450 locations in North America. Pursuant to a series of related transactions to be effected pursuant to a Plan of Arrangement under the Business Corporations Act (Ontario), the Corporation's shares will be exchanged for shares of LCE with the result that the Corporation will become a wholly-owned subsidiary of LCE. Upon closing of the transaction, SPE will own approximately 51.1% of LCE's shares (representing 49.9% of LCE's voting shares); Universal Studios Inc. (Universal) will own approximately 26.0% of LCE's shares (subsequent to a cash subscription of approximately $84.5 million); the Charles Rosner Bronfman Discretionary Trust, Charles Bronfman Trust, Charles R. Bronfman Trust, and certain related parties (the Bronfman Trusts) will own approximately 9.6% of LCE's shares; and the shareholders of the Corporation, other than Universal and the Bronfman Trusts, will own approximately 13.3% of LCE's shares. It is intended that the LCE shares will be listed on the New York Stock Exchange and the Toronto Stock Exchange. The merger is subject to approval by the shareholders of the Corporation and regulatory approval in both Canada and the United States. Approval from Investment Canada was received on December 16, 1997. A proxy circular was filed February 13, 1998 and the special meeting of shareholders is scheduled for March 26, 1998. It is anticipated that closing of this transaction will take place in the second quarter of 1998. For a further discussion of 1997 events, see Part II - Item 7 "Management's Discussion and Analysis of Results of Operations and Financial Condition." Theatre Operations At December 31, 1997, the Corporation operated 178 theatres in the United States, 136 in Canada and one in Hungary with an aggregate of 1,729 screens. Most of the Corporation's theatres are multi-screen facilities. The Corporation's head office is located in Toronto. Regional offices are located in Los Angeles, New York, Chicago, Seattle, Montreal, Minneapolis, Salt Lake City, and Washington, D.C. Head office activities include corporate policy development, strategic planning, site selection, theatre design, construction coordination, labour negotiations, advertising, concession and supply purchases, finance, accounting and data processing activities. Theatre Circuit Development In 1997 the Corporation opened seven new theatres and refurbished two theatres in the United States adding a total of 87 new screens. In Canada in 1997 the Corporation opened ten new theatres and refurbished four theatres adding a total of 127 new screens. The Corporation closed or sold 20 locations, encompassing 52 screens during 1997. Management's current strategy is to increase its revenue and operating cash flow by developing and building additional theatres and screens in target markets that complement the Corporation's existing position in such markets or that provide the Corporation with a strategic position in a new market. During 1998 the Corporation expects, in North America, to open 15 new theatre locations (adding 181 new screens) and refurbish a total of four theatres (adding 30 new screens). In 1997 the Corporation announced that it has identified a select number of theatres for disposal. It is anticipated that this disposition plan will be completed by the end of 1998. Film Licensing The Corporation obtains licenses to exhibit "first-run" films by directly negotiating with or, in limited circumstances, submitting bids to film distributors. Film exhibition licenses typically specify rental fees based upon the higher of a gross receipts formula or a theatre admissions revenue-sharing formula. Under a gross receipts formula, the distributor receives a specified percentage of box office receipts, with the percentage generally declining over the term of the run. Under a theatre admissions revenue-sharing formula, the distributor receives a specified percentage of the excess of box office receipts over certain house expenses. A distributor will either require the exhibitors in a zone to bid for a film or will allocate its films among the exhibitors in the zone. When films are licensed under the allocation process, a distributor will choose which exhibitor is offered a movie and then that exhibitor will negotiate film rental terms directly with the distributor for the film. Over the past several years, distributors have generally used the allocation rather than the bidding process to license their films. The Corporation's theatre exhibition business is dependent upon the availability of popular well-marketed motion pictures. Accordingly, consistent poor performance of major release films or disruption in the production of motion pictures by the major studios and/or independent producers could, over time, have a material adverse affect on the Corporation. Film Distribution The Corporation's distribution entity, Cineplex Odeon Films Canada, is primarily in the business of distributing films in Canada to the Corporation and other exhibitors for theatre exhibition and for broadcast by network, syndicated and pay television, as well as for home viewing through video-cassette systems. In 1997, distribution activity in Canada included the provision of theatrical distribution services for Columbia Tri- Star Films Canada and PolyGram Filmed Entertainment, in addition to the ongoing distribution of motion pictures in all media for various other producers and/or distributors. Geographic Financial Information For information concerning revenue, income(loss) from operations and assets in the Corporation's different geographic areas for the last three years, reference should be made to Note 14 of the Notes to the Consolidated Financial Statements in Part II - Item 8 "Financial Statements and Supplementary Data." Competition The Corporation is the sixth largest film exhibitor in North America in terms of number of screens and the third largest in terms of box office revenue as of December 31, 1997. The major market focus of the Corporation allows its theatre assets to serve above average patron volumes compared to the industry. Approximately 86% of the Corporation's U.S. screens are located in 8 of the 15 largest U.S. Areas of Dominant Influence. Approximately 83% of the Corporation's Canadian screens are located in the 10 largest Canadian cities. The Corporation is the largest film exhibitor in Canada and the tenth largest in the United States based upon number of screens. The Corporation competes with other theatre circuits and independent theatres with respect to acquiring licenses to successful films, attracting patrons and finding new theatre sites. In 1997 there was a 9% growth in the total number of screens in North America. This growth has been largely fuelled by exhibitors in the United States building theatre complexes with 15 to 35 screens (megaplexes). While management agrees that such complexes can succeed in appropriate circumstances there is no evidence that more screens and more flexible show times have had an appreciable effect in expanding audiences. In certain markets such screen growth is having an impact on the Corporation's theatres. The Corporation, through its continuing expansion and reconfiguration program, will attempt to address the impact on the Corporation of the increase in the industry screen count by both improving the quality of the theatres in its circuit and by increasing its market share. Film distributors seek to place films in theatres from which they can derive the greatest box office revenues. The Corporation believes the principal competitive factors in obtaining films from distributors include licensing terms, seating capacity, location, prestige of the theatre circuit and of the particular theatre, quality of projection and sound equipment and the exhibitor's ability and willingness to promote the distributor's films. The Corporation believes that the principal competitive factors in attracting film audiences are the availability of marketable films, the location of theatres, theatre comfort and environment, projection and sound quality, level of service and ticket price. The theatre exhibition industry also faces competition from other motion picture exhibition delivery systems, such as network, syndicated and pay television and home video systems. The Corporation believes that theatre exhibition competes effectively with these and other alternative exhibition delivery systems for a variety of reasons including the larger screen size and superior audio quality. Further, the strength of these alternative media are largely dependent on the successful theatrical release in North America of first-run film product. In addition, there has been significant growth in theatrical exhibition markets outside of North America. Although this growth and successful first run exhibitions of motion pictures help companies in these other business areas derive greater returns, the Corporation believes that such returns also benefit the Corporation by providing additional capital to producers and distributors to finance and distribute new motion pictures which may be exhibited in the Corporation's theatres. Regulatory Environment The Corporation, as an exhibitor of motion pictures, is affected by certain United States judicial decrees (the "Decrees") regulating the trade practices of major motion picture distributors and a small number of motion picture exhibitors formerly owned by such distributors. The Corporation is not a party to the Decrees. The Decrees provide, among other things, that parties subject to the Decrees must distribute motion pictures to exhibitors on a picture-by-picture and theatre-by- theatre basis. The Federal Americans With Disabilities Act ("the Disabilities Act") prohibits discrimination on the basis of disability in public accommodations and employment. The Disabilities Act became effective as to public accommodations in January 1992 and as to employment in July 1992. The Corporation is unable to predict precisely the extent to which the Disabilities Act will impact the Corporation. However, the Corporation currently constructs new theatres to be accessible to the disabled and believes that it is otherwise in substantial compliance with all current applicable regulations relating to accommodations for the disabled. The Corporation intends to comply with regulations relating to accommodating the needs of the disabled, and the Corporation does not currently anticipate that such compliance will have a material adverse effect on the Company. Also see discussion under "Legal Proceedings". Employees As of December 31, 1997, the Corporation had 1,436 full-time employees in the United States, 931 full-time employees in Canada, 3,451 part-time employees in the United States and 2,777 part-time employees in Canada. The number of employees fluctuates due to the seasonal nature of the Corporation's business. Approximately 37.7% of the part-time employees are paid the minimum wage. Approximately 5.6% of the employees of the Corporation are film projectionists, who are represented by the International Alliance of Theatrical Stagehand Employees and Moving Picture Machine Operators ("I.A.T.S.E."). Approximately 5.0% of the employees of the Corporation are ushers, ticket takers, cashiers, cleaners, stagehands or concession workers who are represented by the Service Employees International Union, the B.C. Government Employees Union, the I.A.T.S.E. Stagehands Union, the I.A.T.S.E. Front of House Union, the United Food and Commercial Workers Union or the Transportation Technical Warehouse Industrial and Service Employees Union. I.A.T.S.E. Local 523 has been locked out of a theatre in Quebec City since April 16, 1997 as a result of a dispute over the hours to be worked by, and wages for, projectionists, but the theatre continues to operate despite the lockout. The Corporation is currently in negotiations with a union in Seattle, Washington, where there is a possibility of a labor dispute. However, management is confident that the theatres will continue to operate there in the event of a strike or lockout. The Corporation has started negotiations with I.A.T.S.E. projectionists in Chicago, Illinois whose contract expired in February 1998. It is premature to assess the outcome of such negotiations. Seasonality Admission and concession revenues are subject to seasonal fluctuations which affect all motion picture exhibitors. These fluctuations are the result of the distribution practices of the major motion picture studios which have historically concentrated the release of films during the summer and holiday seasons. The major motion picture studios have, to some degree, addressed the seasonality of motion picture exhibition with a strong first quarter release schedule in both 1996 and 1997. ITEM 2.	PROPERTIES. As of December 31, 1997, the Corporation leased an aggregate of 274 theatre locations, approximating 87% of all its theatre locations, having terms (including options) generally ranging from 15 to 40 years. For further information regarding leased locations see Note 11 of the Notes to the Consolidated Financial Statements in Part II - Item 8 "Financial Statements and Supplementary Data." In addition to leasing premises the Corporation owned 40 theatres at December 31, 1997, of which 20 are in the United States and 20 are in Canada, and one office building in Toronto which is the site of the Corporation's head office. ITEM 3.	LEGAL PROCEEDINGS. On or about October 14, 1997, a purported class action was commenced in the U.S. District Court for the Northern District of Illinois against the Corporation, Sony Corporation of America (SCA) and Sony Retail Entertainment (SRE) by Jerrold I. Rosenthal, on his own behalf and on the behalf of persons allegedly similarly situated. On November 21, 1997, the complaint was amended to change the defendants to the Corporation, LTM and SPE. The complaint alleges that if the merger as discussed in Part I is consummated, LCE will own 60% or more of all movie theaters in the metropolitan Chicago area, and, as a consequence (i) the merger would violate the federal and Illinois antitrust statutes because the consummation of the merger would allegedly tend to lessen substantially competition among and/or tend to create a monopoly over movie theaters in the metropolitan Chicago area and other, unspecified geographical areas and (ii) consummation of the merger would allegedly injure Rosenthal and other members of the purported class by resulting in higher prices for movie tickets and limitations on the variety of movies exhibited. Rosenthal is seeking injunctive relief regarding the merger under federal and Illinois antitrust statutes preventing consummation of the merger or, if the merger is consummated, requiring divestiture, and also seeks attorney fees and costs. Rosenthal has not claimed monetary damages. Rosenthal is seeking to represent a purported class of "all patrons of movie theaters in Chicago, Illinois and outlying areas" and other, unspecified "similar" geographical areas elsewhere where LCE will own 60% or more of all movie theaters upon consummation of the merger. No motion for certification of the purported class has yet been made. The Corporation, having filed its initial response to the claims made in that litigation on January 15, 1998, believes that the claims are without merit and intends to vigorously oppose such claims. On or about December 17, 1997, the Disability Rights Council of Greater Washington and others commenced a lawsuit in the U.S. District Court for the District of Columbia against the Corporation. On or about February 27, 1998, the plaintiffs amended their complaint. The amended complaint alleges that certain of the Corporation's theatres in Washington, D.C. and metropolitan area, Maryland and Virginia deny persons with physical disabilities full and equal enjoyment of such theatres as a result of architectural and structural barriers. The complaint alleges that, as a consequence, the Corporation is discriminating against such persons in violation of the Americans With Disabilities Act and, where applicable, the District of Columbia Human Rights Act. The plaintiffs are seeking a judgment for injunctive relief ordering the Corporation to cease violating such statutes and to bring their facilities into compliance with such statutes. The plaintiffs are also seeking compensatory and punitive or exemplary damages in an unknown amount, as well as costs and attorneys' fees. The Corporation intends to defend this claim vigorously. The Corporation has been, and continues to be, involved in numerous other legal proceedings. However, although litigation is inherently uncertain, the Corporation does not believe that such lawsuits are likely to result in a judgment which would have a material adverse effect on the Corporation's financial condition. ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. Executive Officers As of February 1, 1998, the Corporation's executive officers were as follows: Name		 		Age	 		Office Ernest Leo Kolber		69 		Chairman of the Board and 						Director Allen Karp	 		57	 	President, Chief Executive 			 			Officer and Director Irwin A. Cohen	 		57 	Executive Vice-President, 					 	Operations for North America Michael Herman	 		43 		Executive Vice-President, 						Corporate Affairs and Secretary Ellis Jacob		 	44		 Executive Vice-President, Chief Operating Office		and Director Howard I. Lichtman	43 		Executive Vice-President, 						 Marketing and Communications Robert Tokio	 		54 		Executive Vice-President Stephen Brown	 		39 Senior Vice-President and Chief 	 					Financial Officer			 	 Michael McCartney		43	 	Senior Vice-President, 		 				Head Film Buyer, North America James Vassos		 	43	 	Senior Vice-President, 				 		Business Affairs and Planning Senator Kolber was appointed Chairman of the Board of the Corporation in December 1989. He has been a Member of the Senate of Canada since December 1983. From October 1987 to September 1993, Senator Kolber was Chairman of Claridge Inc. Senator Kolber is a director of The Seagram Company Ltd. and The Toronto- Dominion Bank. Senator Kolber has been a director of the Corporation since December 1989. Mr. Karp has been President and Chief Executive Officer of the Corporation since June 1990. He served as President and Chief Operating Officer from December 1989 to June 1990. Mr. Karp was Senior Executive Vice-President of the Corporation from July 1986 to December 1989, and President, North American Theatres Division of the Corporation from August 1988 to December 1989. Mr. Karp is a director of Alliance Communications Corporation and Speedy Muffler King Inc. Mr Karp has been a director of the Corporation since May 1987. Mr. Cohen has been Executive Vice-President, Operations for North America since January 1993. From October 1988 to January 1993 he served as Senior Vice-President, Theatre Operations, U.S. and from November 1985 to October 1988 he served as Vice-President, Northern Division. Mr. Herman has been Executive Vice-President, Corporate Affairs and Secretary of the Corporation since January, 1995. He served as Senior Vice President, Corporate Affairs and Secretary of the Corporation from May 1992 to December 1994. Mr. Herman was a partner in the law firm of Goodman and Carr, Toronto from February 1987 to May 1992. Mr. Jacob has been Executive Vice-President and Chief Operating Officer of the Corporation since September 30, 1997, and prior to that time had been Executive Vice-President and Chief Financial Officer since December 1989. From February 1989 to December 1989, he served as Senior Vice-President and Chief Financial Officer, and from October 1987 to February 1989, he served as Vice- President Finance and Corporate Controller. Mr. Jacob is a director of Alliance Communications Corporation. Mr. Jacob has been a director of the Corporation since June 1990. Mr. Lichtman has been Executive Vice-President, Marketing and Communications since December 1989. From August 1988 to December 1989, he served as Senior Vice-President, Marketing; as Vice- President, Marketing & Promotions from August 1987 to August 1988; as Vice-President, Theatre Publicity and Promotions from October 1986 to August 1987; and as Director of Publicity and Promotions for Canadian Theatre Operations from July 1985 to October 1986. Mr. Tokio has been Executive Vice-President since November 1990. He served as Executive Vice-President, Real Estate, from December 1989 to November 1990. From November 1988 to December 1989, he served as Senior Vice-President, Real Estate Administration. Mr. Brown has been Senior Vice-President and Chief Financial Officer of the Corporation since September 30, 1997, and prior to that time had been Senior Vice-President, Treasury and Tax since January 1995. He served as Vice-President, Taxation and Treasurer from August 1990 to December 1994. Mr. Brown joined the Corporation in March 1990 as Director of Internal Audit. Mr. McCartney has been Senior Vice-President, Head Film Buyer, North America, since November 1995. From December 1991 to November 1995 he served as Senior Vice-President, Film, U.S. and from September 1988 to December 1991 he served as Vice-President, Film, U.S. Mr. McCartney joined the Corporation in September 1986 as Regional Film Buyer handling the southern division. Mr. Vassos has been Senior Vice-President, Business Affairs and Planning since January 1995. He served as Vice-President, Business Affairs and Corporate Controller from May 1991 to December 1994. Mr. Vassos had been Vice-President and Corporate Controller from January 1990 to April 1991. From February 1989 to January 1990, Mr. Vassos held the position of Senior Controller - Planning and Consolidation. Mr Vassos joined the Corporation in November 1987 as Controller - Planning. PART II ITEM 5.	MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Market Information The Corporation's Common Shares trade on the New York Stock Exchange and the Toronto Stock Exchange under the ticker symbol CPX. The following table indicates the quarterly price range of the Common Shares for the past two years. 		 	 Toronto New York Stock Exchange		 Stock Exchange 			 (CDN. DOLLARS)			(U.S. DOLLARS) 	 ------------------------------------- Fiscal 1996:	 	 High	 Low				High		 Low - ---------------------------------------------------- First Quarter		 2.73		1.70				2.00		 1.25 Second Quarter		 3.35		1.65				2.50		 1.25 Third Quarter		 2.80		2.05				2.13		 1.50 Fourth Quarter		 2.25		1.87				1.63		 1.38 Fiscal 1997:		 High	 Low 				High		 Low - ---------------------------------------------------- First Quarter		 2.15		1.76				1.63		 1.25 Second Quarter		 3.10		1.81				2.31		 1.25 Third Quarter		 2.69		1.90				2.00		 1.31 Fourth Quarter		 2.62		1.41				1.94		 1.00 The Corporation's Common Shares began trading on the Toronto Stock Exchange on October 29, 1982 and on the New York Stock Exchange on May 14, 1987. Holders The Corporation had 1,846 registered common shareholders of record as at February 25, 1998. This amount excludes shareholders whose shares are held in the name of investment dealers and other nominees. Dividends The Corporation has not paid any cash dividends. Under lending agreement restrictions currently in effect, the Corporation cannot pay any dividends unless it is in compliance with specified financial ratios. The Corporation is not currently in compliance with such financial ratios. Any such payment of dividends is further subject to annual limitations. Dividends paid to United States shareholders on the Corporation's Common Shares, if any, will be subject to Canadian non-resident withholding tax at the treaty reduced rate of 15% of the dividend which is generally applicable to dividends paid to a resident of the United States or 10% of the dividend where the beneficial owner is a company which owns 10% of the voting stock of the Corporation. A United States holder of Common Shares will generally not be subject to Canadian income tax in respect of capital gains realized on the disposition of Common Shares. ITEM 6.	SELECTED FINANCIAL DATA (In thousands of U.S. dollars except per share data) - ------------------------------------------------------------------ 			 ------------Year ended December 31,------------- 				 	1997 1996 1995 1994 1993 - --------------------------------------------------------------------- Revenues *		 	 $573,777	 $509,692 $513,150 $541,112 $546,230 Earnings before interest, taxes depreciation and amortization *		 18,620 49,438 51,966	 62,725 72,244 Operating cash flow excluding net change in non-cash working capital *		 	 1,622 10,468 10,972 27,767 38,158 Operating cash flow *	 	 30,780 12,416 3,522 31,435 38,674 Income(loss) *		 (62,067) (31,082) (32,907) (14,173) 969 Total assets		 635,475 644,171 649,643 688,693 697,105 - ------------------------------------------------------------------------ Long-term obligations 340,669 335,447 393,556 390,752 344,967 - ------------------------------------------------------------------------ Shareholders' equity 151,182 218,580 165,992 196,175 200,387 - ------------------------------------------------------------------------ Earning(loss) per share * 	Basic		 (0.35) (0.19) (0.29) (0.13) 0.01 Fully diluted	 (0.35) (0.19) (0.29) (0.13) 0.01 - ------------------------------------------------------------------------ * From Continuing Operations See the Notes to the Consolidated Financial Statements and Part II - Item 7 "Management's Discussion and Analysis of Results of Operations and Financial Condition" with respect to various factors affecting the comparability of information with respect to the three fiscal years ended December 31, 1997. See Part II - Item 7 "Management's Discussion and Analysis of Results of Operations and Financial Condition" with respect to various factors which may have an effect on the Corporation's future financial condition and results of operations. ITEM. 7		Management's Discussion and Analysis of 		Results of Operations and Financial Condition (All figures are in U.S. dollars except where otherwise noted) INTRODUCTION Management's discussion and analysis of results of operations and financial condition focuses on liquidity, capital resources and the results of the Corporation's operations. This section should be read in conjunction with the consolidated financial statements, the notes thereto and other information presented elsewhere herein. The Corporation recorded a net loss for the year ended December 31, 1997 of $62,067,000 compared to a net loss for the year ended December 31, 1996 of $31,082,000 and a net loss for the year ended December 31, 1995 of $32,907,000. Included in the 1997 net loss are other expenses of $43,401,000 (1996 - $1,377,000 and 1995 - $2,862,000). Other expenses in 1997 includes a charge of $46,239,000 representing the costs associated with terminating certain leases and disposing of certain properties and the write-off of the net book value attributable to the related properties. On September 30, 1997, the Corporation announced that it has entered into an agreement with SPE and LTM which provides for the combination of the businesses of the Corporation and LTM. LTM is a private Delaware Corporation wholly-owned by SPE. The transaction will involve combining the Corporation with the Loews Theatres Exhibition Group, which consists of Sony/Loews Theatres and its joint ventures with Star Theatres and Magic Johnson Theatres. It is proposed that the combined company will be named Loews Cineplex Entertainment Corporation (LCE). It is anticipated that LCE will have over 2,700 screens in approximately 450 locations in North America. Pursuant to a series of related transactions to be effected pursuant to a Plan of Arrangement under the Business Corporations Act (Ontario), the Corporation's shares will be exchanged for shares of LCE with the result that the Corporation will become a wholly-owned subsidiary of LCE. Upon closing of the transaction, SPE will own approximately 51.1% of LCE's shares (representing 49.9% of LCE's voting shares); Universal will own approximately 26.0% of LCE's shares (subsequent to a cash subscription of approximately $84.5 million); the Bronfman Trusts will own approximately 9.6% of LCE's shares; and the shareholders of the Corporation, other than Universal and the Bronfman Trusts, will own approximately 13.3% of LCE's shares. It is intended that the LCE shares will be listed on the New York Stock Exchange and the Toronto Stock Exchange. The merger is subject to approval by the shareholders of the Corporation and regulatory approval. The special meeting of shareholders is scheduled for March 26, 1998. It is anticipated that closing of this transaction will take place in the second quarter of 1998. LIQUIDITY AND CAPITAL RESOURCES Cash Flow from Continuing Operations Cash flow from operations in 1997 amounted to a net inflow of $30,780,000 compared to a net inflow of $12,416,000 in 1996. The increase in cash flow from operations is a function of the increase in revenue experienced in 1997 (See Results of Operations). Excluding the impact of the net change in non-cash working capital, the Corporation's cash flow from operations for the year ended December 31, 1997 amounted to a net inflow of $1,622,000 compared to a net inflow of $10,468,000 for the year ended December 31, 1996. This decline is attributable to the cash costs associated with the aforementioned disposition of certain properties which amounted to $21,648,000. Long-Term Debt Long-term debt increased from $326,058,000 at December 31, 1996 to $333,523,000 at December 31, 1997. This increase is the result of the capital expenditures associated with the Corporation's expansion program. At December 31, 1997 the Corporation had approximately $48,000,000 available under its bank credit facilities. The amount available under such facilities from time to time is dependent on the operating results of the Corporation. During 1997, the Corporation reached an agreement with the bank syndicate participating in the bank credit facilities to (1) defer a commitment reduction scheduled for December 31, 1997 in the amount of $10,000,000; and (2) provide the Corporation with an additional commitment of $20,600,000. In accordance with the terms of the bank credit facilities, commitment reductions of $40,000,000 are required in 1998 with the balance due in 1999. Upon closing of the business combination with LTM, it is anticipated that the amount outstanding under the Corporation's bank credit facilities will be fully repaid. The bank credit facilities are secured by certain assets of the Corporation and its subsidiaries. The bank credit facilities contain restrictive covenants which require the Corporation to maintain certain financial ratios. Given the uncertainty with respect to the admission and concession revenue that the Corporation will generate, there is a possibility that the Corporation may not meet certain financial covenants as early as the first quarter end during the next fiscal year. The Corporation believes that the bank syndicate participating in the bank credit facilities would waive the particular financial covenants if the Corporation is not in compliance at a measurement date during the next twelve month period. At December 31, 1997 the Corporation had two interest rate swap agreements outstanding. The aggregate notional principal associated with the two swap agreements is $35,000,000 and such agreements require the Corporation to pay a fixed interest rate and receive a floating rate. The weighted average fixed interest rates associated with the swap agreements are 5.73%. Of the Corporation's long-term debt at December 31, 1997 approximately 79% is subject to fixed rates of interest. Future Commitments In 1997 the Corporation opened seven new theatres and refurbished two theatres in the United States adding a total of 87 new screens. In Canada in 1997 the Corporation opened ten new theatres and refurbished four theatres adding a total of 127 new screens. The total cost associated with the construction of these theatres was approximately $50,000,000. In 1998 the Corporation expects to open 15 new theatre locations (adding 181 new screens) and refurbish a total of four theatres (adding 30 new screens) in North America. It is estimated that the total cost for this expansion will be approximately $54,000,000. The Corporation will continue to look at opportunities outside of North America although at this stage there are no definite plans for additional theatres. The Corporation's current strategy is to develop and build additional theatres and screens in target markets that complement the Corporation's existing position in such markets or that provide the Corporation with a strategic position in a new market. Prior to commitment, management conducts an exhaustive study of each potential site. Such study includes a review of competition currently in the market and any proposed competition and market demographics. RESULTS OF OPERATIONS - 1997 AND 1996 Industry admission revenue and attendance increased in 1997 by 7.7% and 3.9% respectively compared to 1996 figures. The Corporation reports its results in United States dollars. In order to eliminate the impact of exchange rate fluctuations on the yearly comparison of both admission and concession revenue, the results for the Canadian operations discussed below are stated in Canadian dollars. In 1996 the Corporation sold five theatres located in Texas. The impact of this sale is not considered significant to the Corporation's United States results. The Corporation's United States theatre circuit box office revenue increased for both the year and the quarter ended December 31, 1997 by 3.3% and 10.0% respectively when compared to the corresponding period in the prior year. This increase in box office revenue for the year ended December 31, 1997 was the result of an increase in attendance of 1.7% and an increase in box office revenue per patron of 1.6%. The increase in box office revenue in the fourth quarter of 1997 was the result of an attendance increase of 8.2% and an increase in box office revenue per patron of 1.8%. The increase in attendance in the fourth quarter reflects a strong slate of pictures released in that period, including Titanic, and the impact of new theatres opened by the Corporation in the United States. The Corporation's Canadian theatres reported an increase in box office revenue of 28.4% in 1997 compared to 1996 (when measured in Canadian dollars). This increase was the result of an increase in attendance of 24.1% and an increase in box office revenue per patron of 4.3%. In the fourth quarter of 1997 the Corporation's Canadian theatres reported an increase in box office revenue of 43.5% compared to the fourth quarter of 1996 (when measured in Canadian dollars). This increase was the result of an increase in attendance of 39.5% and an increase in box office revenue per patron of 4.0%. The increase in attendance experienced by the Corporation's Canadian theatre circuit in both the quarter and year ended December 31, 1997 compared to 1996 was a result of the Corporation's relationships with certain film distributors who enjoyed comparatively more successful film product in 1997 compared to 1996 and the impact of new theatres opened by the Corporation in Canada. The Corporation's United States concession revenue increased by 8.8% in 1997 compared to 1996. This increase was the result of an increase in attendance of 1.7% and an increase in concession revenue per patron of 7.1%. In the fourth quarter of 1997, the Corporation's United States concession revenue increased by 16.9% when compared to the fourth quarter of 1996. For the fourth quarter the increase was the result of an increase in attendance of 8.2% and an 8.7% increase in concession revenue per patron. The Corporation's Canadian concession revenue increased in 1997 by 31.5% (when measured in Canadian dollars) compared to 1996, reflecting an increase in concession revenue per patron of 7.4% and an increase in attendance of 24.1%. For the fourth quarter of 1997, the Corporation's Canadian concession revenue increased by 49.4% comprising an increase in attendance of 39.5% and an increase in concession revenue per patron of 9.9%. The increase in concession revenue per patron in both the United States and Canada for the year reflects the impact of the Corporation's focus in this area and the augmented design of concession stands in the Corporation's newer theatres. Gross Margin and Other Costs The gross margin from theatre operations (being revenue from theatre operations less film cost, cost of concessions, advertising, theatre payroll, occupancy and supplies and services), when expressed as a percentage of theatre operating revenue, increased in 1997 to 16.2% compared to 15.4% in 1996. For the fourth quarter of 1997 compared to the fourth quarter of 1996 the gross margin from theatre operations, when expressed as a percentage of theatre operating revenue, increased to 17.7% from 14.0%. The increase in gross margin for both the year and the fourth quarter was primarily the result of the increase in revenue. Interest on long-term debt decreased by 4.5% in 1997 compared to the prior year. The decrease in interest on long-term debt was primarily a result of the decision to denominate certain of the Corporation's long-term debt in Canadian dollars during 1997 which, for the period was subject to a lower interest rate. In 1997 other expenses were $43,401,000 compared to $1,377,000 in 1996 and $2,862,000 in 1995. The primary component of this charge is an expense of $46,239,000 relating to the costs associated with terminating certain theatre leases and disposing of certain other theatre properties and the corresponding write-off of the net book value associated with the properties. It is anticipated that the disposal of these properties will be substantially complete by the end of 1998 and will result in an annual operating cash flow improvement of $7,000,000. During 1997 the value of the Canadian dollar weakened relative to the United States dollar. While currency movements affect the reporting of revenues and expenses of the Corporation's Canadian operations, the financial impact is limited as the costs of operating the Canadian theatres are supported by the revenues of such theatres. RESULTS OF OPERATIONS - 1996 AND 1995 Industry admission revenue and attendance increased in 1996 by 7.6% and 6.0% respectively compared to 1995 figures. The Corporation's United States results have been impacted by the sale of 28 theatres, located in Florida and Georgia, to Carmike Cinemas, Inc. in the second quarter of 1995. In 1996 the Corporation sold 5 theatres located in Texas. The impact of this sale is not considered significant to the Corporation's United States results. The Corporation's United States theatre circuit box office revenue decreased for both the year and the quarter ended December 31, 1996 by 4.0% and 8.6% respectively when compared to the corresponding period in the prior year. Adjusting for the impact of the sale of the Florida and Georgia theatres, the Corporation's United States theatre circuit box office revenue decreased by 1.9% for the year ended December 31, 1996 compared to the year ended December 31, 1995. This decrease in box office revenue for the year ended December 31, 1996 was the result of a decrease in attendance of 4.3% offset by an increase in box office revenue per patron of 2.4%. The decrease in attendance in 1996 compared to 1995 is a direct result of increasing competition from other film exhibitors who have been aggressively building new theatres. The decrease in box office revenue in the fourth quarter of 1996 was the result of an attendance decrease of 10.3% offset by an increase in box office revenue per patron of 1.7%. The decrease in attendance in the fourth quarter reflects the fact that the film product in the fourth quarter of 1996 was not as strong as the prior year and the aforementioned increasing competition. The Corporation anticipates that its expansion program will address, at least in part, this issue of increasing competition. The Corporation's Canadian theatres reported an increase in box office revenue of 2.8% in 1996 compared to 1995 (when measured in Canadian dollars). This increase was the result of an increase in attendance of 3.5% offset by a decrease in box office revenue per patron of 0.7%. In the fourth quarter of 1996 the Corporation's Canadian theatres reported an increase in box office revenue of 5.0% compared to the fourth quarter of 1995 (when measured in Canadian Dollars). This increase was the result of an increase in attendance of 4.1% and an increase in box office revenue per patron of 0.9%. The increase in attendance experienced by the Corporation's Canadian theatre circuit in 1996 compared to 1995 was a result of the Corporation's relationships with certain film distributors who enjoyed comparatively more successful film product in 1996 compared to 1995. The Corporation's United States concession revenue decreased by 3.0% in 1996 compared to 1995. In the fourth quarter of 1996, the Corporation's United States concession revenue decreased by 5.1% when compared to the fourth quarter of 1995. Adjusting for the impact of the sale of the Florida and Georgia theatres, the Corporation's United States concession revenue for the year ended December 31, 1996 was equivalent to that of the year ended December 31, 1995. This was achieved due to an increase in concession revenue per patron of 4.3% which offset the decrease in attendance. For the fourth quarter the decrease was the result of a decrease in attendance of 10.3% offset by a 5.2% increase in concession revenue per patron. The Corporation's Canadian concession revenue increased in 1996 by 6.0% (when measured in Canadian dollars) compared to 1995, reflecting an increase in concession revenue per patron of 2.5% and an increase in attendance of 3.5%. For the fourth quarter of 1996, the Corporation's Canadian concession revenue increased by 3.7% comprising an increase in attendance of 4.1% and a decrease in concession revenue per patron of 0.4%. The increase in concession revenue per patron for the year reflects the impact of the Corporation's focus in this area and the augmented design of concession stands in the Corporation's newer theatres. Gross Margin and Other Costs The gross margin from theatre operations (being revenue from theatre operations less film cost, cost of concessions, advertising, theatre payroll, occupancy and supplies and services), when expressed as a percentage of theatre operating revenue, decreased in 1996 to 15.4% compared to 15.7% in 1995. The slight decline in gross margin for the year was primarily the result of a general increase in certain direct costs associated with theatre operations. The gross margin from theatre operations, when expressed as a percentage of theatre operating revenue, decreased in the fourth quarter of 1996 compared to the fourth quarter of 1995 to 14.0% from 16.4%. The decline in gross margin for the fourth quarter of 1996 was due to (1) a general increase in certain direct costs associated with theatre operations; and (2) the fixed component of theatre operating costs (primarily occupancy costs). Interest on long-term debt decreased by 13.4% in 1996 compared to the prior year. The decrease in interest on long-term debt was primarily attributable to the initial application of equity proceeds from the public offering in the first quarter of 1996 against the Corporation's long-term debt. During 1996 the value of the Canadian dollar strengthened relative to the United States dollar. While currency movements affect the reporting of revenues and expenses of the Corporation's Canadian operations, the financial impact is limited as the costs of operating the Canadian theatres are supported by the revenues of such theatres. CANADIAN ISSUER The Corporation is an Ontario corporation and expects to conduct approximately one-third of its operations in Canada in 1998. The Corporation is subject to certain Canadian economic, fiscal, monetary and political policies and factors. Reference is made to Note 17 of the Notes to the Consolidated Financial Statements of the Corporation for a reconciliation of the Corporation's financial statements to United States Generally Accepted Accounting Principles. INFLATION For the three years ended December 31, 1997, inflation has not had a pronounced effect on the Corporation's results of operations. YEAR 2000 ISSUE The Year 2000 issue affects virtually all companies and organizations. The Corporation has implemented programs designed to ensure that all software used in connection with providing services to its customers and its internal operations will manage and manipulate data involving the transition of dates from 1999 to 2000 without functional or data abnormality. The Corporation does not anticipate incurring significant additional costs to address the Year 2000 issue, although the effectiveness of the Corporation's present efforts to address the Year 2000 issue cannot be assured. In addition, it is currently unknown whether vendors and other third parties with which the Corporation conducts business will successfully address the Year 2000 issue with respect to their own computer software. If the Corporation's present efforts to address the Year 2000 issue are not successful, or if vendors and other third parties with which the Corporation conducts business do not successfully address the Year 2000 issue, the Corporation's business and financial condition could be adversely affected. FORWARD LOOKING STATEMENTS The Corporation and its representatives have made, or may make, forward looking statements including those contained in this Management's Discussion and Analysis of Results of Operations and Financial Condition. Use of the words "believes", "expects", "estimated", "intends", or similar expressions identify such forward looking statements. The results contemplated by the Corporation's forward looking statements are subject to certain risks and uncertainties that could result in actual performance being materially different from anticipated results, including without limitation, lack of high quality commercial film product, construction risks and delays, failure to obtain future waivers or amendments under the Corporation's bank credit facilities and other factors described herein. INDEPENDENT AUDITORS' REPORT To the Shareholders of Cineplex Odeon Corporation We have audited the consolidated balance sheets of Cineplex Odeon Corporation as at December 31, 1997 and December 31, 1996 and the consolidated statements of income and changes in shareholders' equity and cash resources for each of the years in the three year period ended December 31, 1997. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Corporation as at December 31, 1997 and December 31, 1996 and the results of its operations and the changes in its shareholders' equity and cash resources for each of the years in the three year period ended December 31, 1997 in accordance with generally accepted accounting principles. KPMG Chartered Accountants Toronto, Canada February 13, 1998 ITEM 8. Financial Statements and Supplementary Data CINEPLEX ODEON CORPORATION CONSOLIDATED BALANCE SHEET (in thousands of U.S. dollars) December 31, 1997 December 31, 1996 ----------------- ----------------- ASSETS CURRENT ASSETS Cash $ 3,505 $ 2,718 Accounts receivable (note 3) 13,222 9,552 Other 9,315 8,852 --------------- -------------- 26,042 21,122 PROPERTY, EQUIPMENT AND LEASEHOLDS (note 4) 567,431 579,841 OTHER ASSETS Long-term investments and receivables 2,206 2,535 Goodwill (less accumulated amortization of $12,382; 1996 - $11,281) 31,687 	32,816 Deferred charges (less accumulated amortization of $5,194; 1996 - $3,671) 8,109 	7,857 -------------- ------------ 42,002 43,208 -------------- ------------ TOTAL ASSETS $ 635,475 $ 644,171 ============== ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accruals (note 5) $ 91,849 $ 59,474 Deferred income (note 6) 20,364 17,150 Current portion of long-term debt 	 and other obligations 27,446	 	 6,926 ------------- ------------- 			 139,659		 83,550 LONG-TERM DEBT (note 7) 333,523 	326,058 CAPITALIZED LEASE OBLIGATIONS (note 11) 6,271 8,317 DEFERRED INCOME (note 6) 3,965 6,594 PENSION OBLIGATION (note 9) 875	 	1,072 SHAREHOLDERS' EQUITY Capital stock (note 10) 555,400 555,374 Translation adjustment 939 4,016 Retained earnings (deficit) (405,157) (340,810) ----------- ---------- 		 	 151,182 	 	218,580 COMMITMENTS AND CONTINGENCIES (note 11) TOTAL LIABILITIES ------------- ----------- AND SHAREHOLDERS' EQUITY $ 635,475 $ 644,171 ============= =========== The accompanying notes are an integral part of these consolidated financial statements. 	CINEPLEX ODEON CORPORATION							 	CONSOLIDATED INCOME STATEMENT					 (in thousands of U.S. dollars except per share figures)							 								 		 Year Ended	 	Year Ended		 Year Ended		 	December 31, 1997	December 31, 1996	December 31, 1995		 ---------------- ----------------- ----------------- REVENUE								 Admissions	 $ 399,171 $ 358,973 $ 365,220 		 Concessions 		147,892 		 126,636 126,319 		 Other	 	 	 26,714 24,083 		21,611 		 ------------ ------------ ------------ 573,777 509,692 		 513,150 EXPENSES						 Theatre operations and other expenses	 462,738 		418,328 	 	418,731 Cost of concessions		 28,705 	 22,357 	 	22,016 General and administrative 		20,313 		18,192 		17,575 Depreciation and amortization	 	45,715 	 	43,648 	 	42,621 ------------ ------------ ----------- 					557,471 		502,525 	 	500,943 ------------ ------------ ------------ Income before the undernoted (note 17)	 16,306 	 	7,167 		 12,207 						 Other expenses (note 12)			 (43,401)	 	(1,377) 		(2,862) ------------ ------------ ----------- Income/(loss) before interest on long-term debt					 and income taxes (note 17) 		(27,095)	 	5,790 		9,345 Interest on long-term debt 		33,900 35,482 	40,983 	 ------------ ------------ ----------- Loss before income taxes	 	(60,995)	 	(29,692)	 	(31,638)		 Income taxes (note 13)	 	1,072 	 	1,390 	 	1,269 		 								 ------------ ------------ ----------- NET LOSS	 	 $ (62,067)	 	 $ (31,082)		 $ (32,907)		 ============ ============ ============= BASIC								 Weighted average shares outstanding 176,795,000 	163,473,000 	114,764,000 		 Loss per share			 	($0.35)		 ($0.19)		 ($0.29)		 								 FULLY DILUTED								 Weighted average shares outstanding 191,304,000 		176,107,000 122,616,000 		 Loss per share 		($0.35)	 	($0.19)	 	($0.29)		 								 The accompanying notes are an integral part of these consolidated financial statements. CINEPLEX ODEON CORPORATION				 CONSOLIDATED STATEMENT OF CHANGES IN CASH RESOURCES				 (in thousands of U.S. dollars except per share figures)				 				 				 				 Year Ended	 	Year Ended		 Year Ended 				December 31, 1997 	December 31, 1996 December 31, 1995 ----------------- ------------------ ----------------- CASH PROVIDED BY (USED FOR)				 OPERATING ACTIVITIES				 	Net loss	 	 	$ (62,067)	 	$ (31,082) 	 $ (32,907) 	Depreciation and amortization	 45,715 	 	43,648 			42,621 	Write down of property, equipment and leaseholds 24,591 	 - 	 - 	Other non-cash items 		 (6,617)	 	(2,098)		 1,258 		 ----------- ------------ ----------- 		 	1,622 	 	10,468 		 10,972 	Net change in non-cash working capital	 29,158 1,948 		(7,450) 				 ----------- ------------ ------------	 	30,780 	12,416 		3,522 				 ----------- ------------ ------------ FINANCING ACTIVITIES		 	 	 	Decrease in long-term debt and other obligations 	(5,275) 	(58,411)	 (9,289) 	Increase in long-term debt and other obligations 31,017 	 - 	 14,085 	Issue of share capital, net of issue costs	 	26 	82,895 	64 	Other				 		2,936 		175 	(615) ----------- ---------						 ----------- 	28,704 	 24,659 	 4,245 ----------- --------- ----------- INVESTMENT ACTIVITIES				 	Additions to property, equipment and leaseholds 	 (66,203)	 (36,989)	 (30,749) 	Long-term investments	 		 4,270 	 - 	 (109) 	Proceeds on sale of certain theatre properties	 3,563 1,974 23,674 	Proposed merger costs	 		(2,280)	 - 	 - 	Other				 	1,953 	 (946)	 (530) 		 ------------ ---------- ----------- 							(58,697)	 (35,961)	 (7,714) ------------ ---------- ----------- NET INCREASE DURING YEAR			 	787 	 1,114 	 53 				 CASH AT BEGINNING OF YEAR		 	2,718 	 1,604 		1,551 				 ----------- ---------- ----------- CASH AT END OF YEAR 		 $ 3,505 	 $ 2,718 	 $ 1,604 =========== ========== =========== CASH FLOW FROM OPERATING ACTIVITIES PER SHARE				 	Basic		 		 $ 0.17 	 $ 0.08 	 $ 0.03 	Fully Diluted			 $ 0.16 	 $ 0.07 	 $ 0.03 				 CHANGE IN NON-CASH WORKING CAPITAL				 Current assets				 	Accounts receivable		 $ (3,938)	 $ 1,117 	 $ 629 	Other			 		(214)		 (1,024)		 1,383 Current liabilities				 	Accounts payable and accruals	 	29,660 		(998)		 (9,509) 	Deferred income	 			3,276 		 2,157 		 508 	Income taxes payable			 374 	 696 	 (461) 				 ---------- --------- ----------					 $ 29,158 	 $ 1,948 	 $ (7,450) ========== ========= ========== SUPPLEMENTAL CASH FLOW INFORMATION				 	Interest on long-term debt paid	 $ 33,900 	 $ 35,482 	 $ 40,983 	 ========== ========= ========= Income taxes paid		 $ 1,072 	 $ 1,390 	 $ 1,269 	 ========== ========= =========			 The accompanying notes are an integral part of these consolidated financial statements.			 CINEPLEX ODEON CORPORATION					 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY		 (in thousands of U.S. dollars, except for number of shares)										 										 	 		 Subordinate Restricted 	 							 Common Shares Voting Shares Retained Total - ------------------------------------------------------------------- Earnings Translation Shareholders' 		 Shares	 Amount	 Shares 	Amount (Deficit) 	Adjustment Equity 	 - ------------------------------------------------------------------------------------------------------------ BALANCE AT										 DECEMBER 31, 1994	 65,541,677 $ 213,890 49,204,245 	$ 258,525 $ (276,821)	 $ 581 	 $ 196,175 										 										 Exercise of options	 38,950 	64 				 	 64 		 Net loss		 				(32,907) (32,907) 	 Translation adjustment			 	 2,660 2,660 											 - ------------------------------------------------------------------------------------------------------- BALANCE AT								 DECEMBER 31, 1995		 65,580,627 213,954 49,204,245 258,525 (309,728) 3,241 165,992													 Exercise of options	 	276,118 	375 			 		375 	 Net loss					 	(31,082)		 (31,082) Translation adjustment	 			775 	 775 				 Issue of shares	 		37,477,412 	49,187 24,242,181 33,333 	 	 82,520 								 - ------------------------------------------------------------------------------------------------------- BALANCE AT											 DECEMBER 31, 1996	 103,334,157 263,516 73,446,426 291,858 (340,810)	 4,016 218,580 		 Exercise of options		 18,750 	 26 	 	26 Net loss				 		(62,067)		 (62,067) Proposed merger costs (note 20)	 		(2,280)		 (2,280) Translation adjustment				 	 (3,077)		(3,077) - ------------------------------------------------------------------------------------------------------	 BALANCE AT										 DECEMBER 31, 1997	 103,352,907 $ 263,542 73,446,426 $ 291,858 $ (405,157)	 $ 939 $ 151,182 ======================================================================================================										 								 The accompanying notes are an integral part of these consolidated financial statements. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (all amounts in U.S. dollars unless otherwise stated) 1. GENERAL The Corporation is incorporated under the Ontario Business Corporations Act. The financial results of the Corporation's operations are presented in United States dollars, as approximately two-thirds of the Corporation's activities emanate from the United States. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements are prepared in accordance with accounting principles generally accepted in Canada, which, except as described in note 17, conform in all material respects with accounting principles generally accepted in the United States. A summary of significant accounting policies is set out below. Principles of Consolidation: The consolidated financial statements include the accounts of the Corporation and its subsidiaries. Intercompany accounts and transactions have been eliminated. The Corporation accounts for its interests in joint ventures through the proportionate consolidation method. Inventories: Inventories are stated at the lower of cost (first-in, first- out basis) and net realizable value. Property, Equipment and Leaseholds: Property, equipment and leaseholds are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated using the following methods and annual rates: Buildings 	 	Straight-line over 40 years Projection equipment	 Straight-line over 20 years Other equipment 	Straight-line over 15 years Leaseholds	 	Straight-line over periods from 15 to 40 	 		years Construction in progress is depreciated from the date the asset is ready for productive use. Goodwill: Goodwill represents the excess of the purchase price of certain businesses over the fair value of the net identifiable assets acquired and is being amortized, on a straight-line basis, over 40 years. The Corporation regularly reviews the recoverability of goodwill by determining whether the amortization of the goodwill balance over its remaining life can be recovered through projected future undiscounted income from operations before interest on long-term debt and effects of goodwill amortization. Deferred Income: Advance payments received under a strategic marketing relationship with a major supplier, advance sales of admissions, the sale of gift certificates and income from certain promotional programs are included as deferred income, and are recognized as income when services are rendered. Deferred Charges: Deferred charges, consisting primarily of costs associated with debt refinancing, are amortized over the term of the related debt. Foreign Currency Translation: Assets and liabilities denominated in a currency other than U.S. dollars are translated to U.S. dollars at exchange rates in effect at the balance sheet date. The resulting gains or losses are accumulated in a separate component of shareholders' equity under the caption "Translation adjustment". Revenue and expense items are translated at average exchange rates prevailing during the year. Admissions Revenue: Admissions revenue from the exhibition of motion pictures is recognized on the dates of exhibition. Earnings Per Share: Basic earnings per share are calculated using the weighted daily average number of Common Shares and Subordinate Restricted Voting Shares outstanding. Fully diluted earnings per share are calculated assuming the exercise of stock options at the beginning of the year, or for those stock options issued during the year, at the date of the grant to the extent the impact is dilutive. Interest Rate Hedging Activities: The Corporation uses interest rate swaps to manage interest rate risk. These financial instruments are not held for trading purposes and any payments or receipts under such contracts are recognized as adjustments to interest expense. Measurement Uncertainty: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. 3. ACCOUNTS RECEIVABLE - ------------------------------------------------------------------- 			December 31, 1997	 December 31, 1996 - ------------------------------------------------------------------- Trade		 			$ 10,246,000	 $ 8,446,000 Current portion of long-term receivables 	162,000 		150,000 Other 	 				3,021,000	 1,098,000 Employee loans				 210,000		 323,000 Allowance for doubtful accounts 	 	(417,000) 	(465,000)	 - ------------------------------------------------------------------- 			 		 $ 13,222,000	 $ 9,552,000 =================================================================== 4. PROPERTY, EQUIPMENT AND LEASEHOLDS - ---------------------------------------------------------------------------- 	 	 December 31, 1997 	December 31, 1996 - ---------------------------------------------------------------------------- Land 				 	$ 62,436,000 	$ 63,116,000 -------------- -------------- 		 Buildings	 Cost		 	123,023,000	 126,217,000 		 Accumulated depreciation	 (25,700,000)	 (19,919,000) ------------ ------------			 		 			97,323,000 	106,298,000 		 ------------ ------------ Equipment	 Cost	 		141,499,000 	136,521,000 		 Accumulated depreciation	 (76,384,000) 	(70,851,000) ------------ ------------			 				 	65,115,000	 65,670,000 		 ------------ ------------- Leaseholds	Cost		 	566,754,000 	537,153,000 (including	Accumulated depreciation	(230,490,000) 	(197,688,000) capital ------------- ------------- leases)		 	 		336,264,000 339,465,000 ------------- ------------- 		 Construction in progress 			6,293,000 	5,292,000 - -------------------------------------------------------------------------			 					$ 567,431,000	 $ 579,841,000 ========================================================================= The net book value of assets held under capital leases at December 31, 1997 was $18,734,000 (1996-$20,508,000), net of accumulated amortization of $9,053,000 (1996-$7,700,000). 5. ACCOUNTS PAYABLE AND ACCRUALS - ---------------------------------------------------------------- 		December 31, 1997	 December 31, 1996 - ---------------------------------------------------------------- Trade			 $ 49,851,000	 $ 40,332,000 Accrued liabilities 	 20,554,000	 9,809,000 Sales and other taxes	 9,817,000	 8,517,000 Other		 	11,627,000	 816,000 - ----------------------------------------------------------------- 	 		$ 91,849,000	 $ 59,474,000 ================================================================= 6. DEFERRED INCOME - -------------------------------------------------------------------------- 				December 31, 1997	 December 31, 1996 - -------------------------------------------------------------------------- Strategic marketing relationship	 $ 5,665,000	 $ 8,296,000 Advance admission sales		 11,452,000	 9,678,000 Gift certificates	 		5,522,000 	5,001,000 Promotional programs	 	1,401,000 	491,000 Other 				 289,000 		278,000 - --------------------------------------------------------------------------- 	 			24,329,000 	23,744,000 	Less: Current portion 	20,364,000	 17,150,000 - --------------------------------------------------------------------------- 			 	$ 3,965,000	 $ 6,594,000 =========================================================================== 7. LONG-TERM DEBT - ------------------------------------------------------------------------- 					December 31, 1997	 December 31, 1996 - ------------------------------------------------------------------------- Senior subordinated notes maturing June 15, 2004, bearing interest at 10.875%	 		$ 200,000,000 	$ 200,000,000 Bank credit facilities of $158,530,000 maturing December 31, 1999	 			110,957,000	 79,940,000 	 Various notes and mortgages (interest rates from 5.61% to 11.50%)	 		47,071,000 	49,877,000 - ------------------------------------------------------------------------ 			 				358,028,000	 329,817,000 	Less: Current portion 				24,505,000 	3,759,000 - ------------------------------------------------------------------------- 					 		$ 333,523,000	 $ 326,058,000 ========================================================================= The bank credit facilities bear interest at variable rates based upon an applicable margin over LIBOR or the bank's reference rate. The applicable margin for LIBOR borrowings will vary from a maximum of 2.25% to a minimum of 1.25% based upon the Corporation meeting certain financial ratios. During 1997, the Corporation reached an agreement with the bank syndicate participating in the bank credit facilities to (1) defer a commitment reduction scheduled for December 31, 1997 in the amount of $10,000,000; and (2) provide the Corporation with an additional commitment of $20,600,000. Based on the above information, commitment reductions under the bank credit facility are $40,000,000 in 1998 with the balance due in 1999. The bank credit facilities are secured by certain assets of the Corporation and its subsidiaries. The bank credit facilities contain restrictive covenants which require the Corporation to maintain certain financial ratios. Given the uncertainty with respect to the admission and concession revenue that the Corporation will generate, the Corporation may not meet certain financial covenants as early as the first quarter end during the next fiscal year. The Corporation believes that the bank syndicate participating in the bank credit facilities would waive the particular financial covenants if the Corporation is not in compliance at a measurement date during the next twelve month period. Principal repayments on long-term debt during each of the next five years approximate the following: - ---------------------------- 1998 		$ 24,505,000 1999	 	119,047,000 2000	 	2,083,000 2001 		1,169,000 2002		 4,034,000 Thereafter	 207,190,000 - ---------------------------- 		 $ 358,028,000 ============================ 8. FINANCIAL INSTRUMENTS (i) Swap Agreements - The Corporation has entered into interest rate swap agreements to manage its interest rate exposure. At December 31, 1997 the Corporation had outstanding two interest rate swap agreements with a commercial bank. The details of the swaps are as follows: (a) Notional principal - $15,000,000. The Corporation pays 5.74% per annum, payable on a quarterly basis and receives three month LIBOR rate. This swap expires November 30, 1998. (b) Notional principal - $20,000,000. The Corporation pays 5.72% per annum, payable on a quarterly basis and receives three month LIBOR rate. This swap expires November 30, 1998. The Corporation is exposed to credit loss in the event of non-performance by the other party to the interest rate swap agreements. However, the Corporation does not anticipate non-performance by the counterparty. (ii) Currency Options - The Corporation has entered into three currency option agreements to manage its exposure to movements in the Canadian dollar relative to the United States dollar. These agreements are for a total notional principal of $6,000,000 Canadian, $44,000,000 Canadian and $50,000,000 Canadian and expire on January 14, 1998, January 28, 1998 and March 30, 1998 respectively. The Corporation is exposed to credit loss in the event of non-performance by the other party to the currency option. However, the Corporation does not anticipate non-performance by the counterparty. (iii) Fair Value of Financial Instruments - The carrying value of cash, accounts receivable, accounts payable and accruals and the current portion of long-term debt and other obligations approximates fair value due to the short term maturities of these instruments. Financial instruments with a carrying value different from their fair value include: - ---------------------------------------------------------------------------- 		December 31, 1997 December 31, 1996 - ---------------------------------------------------------------------------- 	 	 Carrying Fair 	 Carrying Fair 		Value Value Value Value - ---------------------------------------------------------------------------- Financial assets Long-term investments and receivables - Practicable to estimate fair value	 $ 631,000 	$ 7,135,000	 $ 935,000 $7,873,000 - Not practicable	 $ 1,575,000 	---	 $ 1,600,000 	--- Financial liabilities Long-term debt	 $333,523,000	 $347,523,000	 $326,058,000	$326,558,000 	 Swap agreements net receivable	 ---	 $ 32,000 	--- 	$ 123,000 - --------------------------------------------------------------------------------------------------------- The fair value of long-term investments and receivables is based on quoted market prices (where applicable) or by discounting future cash flows, including interest payments, using rates currently available for similar investments and receivables. The fair value of long-term debt is based on quoted market prices (where applicable) or by discounting future cash flows, including interest payments, using rates currently available for debt of similar terms and maturity. The fair value of interest rate swap agreements are the estimated amounts that the Corporation would receive upon termination of the agreements. 9. PENSION OBLIGATION The Corporation has a defined benefit pension plan covering full-time employees in the United States. The benefits under this plan are based upon years of service and the employees' compensation for certain periods during the last years of employment. This plan is non-contributory and the Corporation's funding policy is to make the minimum annual contribution required by the applicable regulations. At December 31, 1997, approximately 52% of the assets of this plan were held in bonds, 36% in treasury bills, 11% in equities, and 1% in cash. The most recent actuarial estimate for the plan covering these employees as at December 31, 1997 indicates pension fund assets of $6,679,000 (1996-$6,557,000) and accrued pension benefits of $12,779,000 (1996-$12,185,000). The Corporation has a pension plan covering full time employees in Canada. Prior to January 1, 1993 this plan was a defined benefit plan and effective on that date it was converted to a defined contribution plan. At the date of the conversion benefits under the defined benefit plan were frozen. The most recent actuarial estimate for the plan covering Canadian employees indicates a surplus of pension fund assets over accrued benefits of approximately $2,101,000. At December 31, 1997, the Corporation's pension obligation is $1,846,000, of which $875,000 is the long-term portion ($2,145,000 at December 31, 1996 of which $1,072,000 was the long-term portion). 10. CAPITAL STOCK - ------------------------------------------------------------------------------ 				 December 31, 1997 	December 31, 1996 - ------------------------------------------------------------------------------ Authorized: Unlimited number of Common Shares, no par value Unlimited number of First Preference Shares issuable in series, no par value Unlimited number of Subordinate Restricted Voting Shares, no par value 		 Issued 103,352,907 Common Shares (December 31, 1996 - 103,334,157) 	$ 263,542,000 	$ 263,516,000 73,446,426 Subordinate Restricted Voting Shares (December 31, 1996 - 73,446,426)		 291,858,000 	 291,858,000 - ------------------------------------------------------------------------------ 				 	$ 555,400,000	 $ 555,374,000 =============================================================================== i) On March 20, 1996 the Corporation filed a supplemented short form prospectus in Canada and the United States pursuant to the multi- jurisdictional disclosure system with respect to an offering of 25,000,000 Common Shares to the public at a price of $1.375 per share, for an aggregate consideration of $34,375,000. In addition, in accordance with the provisions of the Amended and Restated Subscription Agreement, Universal Studios, Inc. (Universal) (formerly MCA INC.) and the Charles Rosner Bronfman Trust (the Trust) agreed to subscribe for 24,242,181 Subordinate Restricted Voting (SRV) Shares and 12,121,454 Common Shares respectively, at the same price as the offering to the public, for aggregate consideration of $50,000,000. The public offering and the subscriptions by Universal and the Trust were completed on March 28, 1996. On April 16, 1996, the Corporation issued 355,958 Common Shares at a price of $1.375 per share as part of the over-allotment option provided to the underwriters pursuant to the public offering. The net proceeds from the issuance of the Common and SRV Shares were used to reduce indebtedness owing under the Corporation's revolving bank credit facilities. ii) The SRV Shares are held by Universal. Under the terms of the shares, Universal is entitled to exercise no more than one-third less one vote of the voting rights applicable to all issued voting shares. iii) In 1996 the Amended and Restated Stock Option Plan (the Option Plan) was approved. The Option Plan provides for the granting of rights to purchase Common Shares under both incentive and non-incentive stock option agreements. The options granted under the Option Plan are for 10 year terms and vest over various periods to a maximum of 5 years. The maximum number of options which can be granted under the Option Plan is 17,646,716. The following options to purchase Common Shares expire between October 15, 2001 and December 18, 2007: 	 - -------------------------------------------------- 	Option price per share	 December 31, 1997 - -------------------------------------------------- 	$	1.70 Canadian		 8,450 	 	1.87 Canadian	 	14,323,939 	 	2.00 Canadian	 	106,750 	 	2.60 Canadian	 	15,000 	 	1.31 United States	 1,000,000 - --------------------------------------------------- Options outstanding end of year		15,454,139 =================================================== Stock option transactions for the respective years were as follows: - ---------------------------------------------------------------------------- 		 December 31, 1997 December 31, 1996 	 Number 		Weighted Av. Number Weighted Av. of Exercise of 	 Exercise Options Price ($Cdn) Options Price ($Cdn) - ----------------------------------------------------------------------------- Options outstanding beginning of year 14,503,239 1.87 7,835,289 3.06 Additional options granted 1,121,750 1.79 8,019,020 1.87 Less options exercised 18,750 1.87 276,118 1.87 Less options terminated, canceled or expired 152,100 1.87 1,074,952 2.74 - ------------------------------------------------------------------------------ Options outstanding end of year 15,454,139 1.86 14,503,239 1.87 ============================================================================== At December 31, 1997 there were 10,385,334 options exercisable and 1,621,666 options available for grant. iv) Under the Corporation's current financing arrangements, the Corporation is prohibited from paying any Common Share or Subordinate Restricted Voting Share dividends unless it is in compliance with specified financial ratios. The Corporation is not currently in compliance with such financial ratios. Any such payment of dividends is further subject to annual limitations. 11. COMMITMENTS AND CONTINGENCIES i) Certain theatre properties and theatre equipment are subject to lease agreements. Certain of the property leases require the Corporation to pay additional rent and to pay all business and realty taxes and a proportion of the landlord's operating costs in respect of the leased premises. Future minimum payments, by year and in the aggregate, under theatre operating leases and theatre and equipment capital leases, as at December 31, 1997, are as follows: - --------------------------------------------------------------------- 				Capital leases 	Operating leases - --------------------------------------------------------------------- 1998			 	$ 2,613,000 	$ 86,846,000 1999		 		2,441,000	 85,702,000 2000		 		2,316,000	 83,682,000 2001		 		1,085,000 	81,360,000 2002			 	520,000	 	78,118,000 Thereafter	 		1,521,000	 755,759,000 - --------------------------------------------------------------------- Total minimum lease payments	 10,496,000	 $ 1,171,467,000 					 	=================	 Less: Imputed interest at rates 	 between 7.5% and 8.5%	 2,255,000 	 Current portion		 1,970,000 - ------------------------------------------------- 	 			$ 6,271,000	 ================================================= ii) The Corporation and its subsidiaries are currently subject to audit by taxation authorities in several jurisdictions. The taxation authorities have proposed to reassess taxes in respect of certain transactions and income and expense items. The Corporation and its subsidiaries are vigorously contesting the adjustments proposed by the taxation authorities. Although such matters cannot be predicted with certainty, management does not consider the Corporation's exposure to such proposed reassessments to be material to these financial statements. iii) The Corporation and its subsidiaries are also involved in certain litigation arising out of the ordinary course and conduct of its business. The outcome of this litigation is not currently determinable. Although such matters cannot be predicted with certainty, management does not consider the Corporation's exposure to such litigation to be material to these financial statements. 12. OTHER INCOME(EXPENSES) Other income(expenses) is comprised of the following: - ----------------------------------------------------------------------------------- 	 Year ended		 Year ended 	 	Year ended 	December 31, 1997 	December 31, 1996 	December 31, 1995 - ---------------------------------------------------------------------------------- Net loss on sale or write down of theatre related assets $ (46,239,000) 	$ (14,000)	 $ (3,014,000) 	 Net gain on sale or realization of non-theatre related assets	 3,787,000	 ---	 1,175,000 Other	 		(949,000) 	(1,363,000) 	(1,023,000) - -------------------------------------------------------------------------------- 			$ (43,401,000) 	$(1,377,000)	 $ (2,862,000) ================================================================================= During the year ended December 31, 1997 the Corporation conducted a review of its operating assets and identified a select number of theatres for disposal. Accordingly, the Corporation took a charge of $46,239,000 representing the costs associated with terminating certain leases and disposing of certain properties and the write-off of the net book value attributable to the related properties. It is anticipated that the disposal plan will be substantially completed by the end of fiscal 1998. An amount of $10,307,000, representing remaining lease termination payments, is included in accounts payable as at December 31, 1997. 13. INCOME TAXES - -------------------------------------------------------------------- 				Year ended	 Year ended	 Year ended 			 December 31, 1997 	December 31, 1996	 December 31, 1995 - -------------------------------------------------------------------- Current 	 			$ 1,072,000 	$ 1,390,000	 $ 1,269,000 ==================================================================== The Corporation's income tax provision based upon income(loss) from continuing operations before income taxes is made up as follows: - ----------------------------------------------------------------------------- 	 Year ended	 Year ended	 Year ended 	December 31, 1997	 December 31, 1996	 December 31, 1995 - ----------------------------------------------------------------------------- Statutory income tax rate 44.0% 44.0% 44.0% 	 Provision based on statutory income tax rate 	 		 $ (27,173,000) 	$ (13,064,000) $ (13,921,000) 	 Increase (decrease) in income tax provision resulting from: 	 Tax exempt portion of capital gains	 (359,000) 	(6,000) 	(48,000) 	 Permanent differences other than capital gains 		 	519,000 	62,000 	 766,000 	 Non-recognition of tax benefit of current year's losses for tax purposes: 	 Canada 				 	---	 --- 	1,290,000 	United States	 	35,130,000	 14,050,000	 11,913,000 	 Recognition of tax benefit of prior years' losses for tax purposes: 	 Canada 	 	 		 (8,117,000) 	 (1,042,000) 	--- 	United States	 			---	 ---	 --- - ------------------------------------------------------------------------------ 				 		--- 	--- 	--- Large Corporations Tax and state taxes	 1,072,000 	1,390,000	 1,269,000 - ------------------------------------------------------------------------------ Income tax provision 	$ 1,072,000	 $ 1,390,000 	$ 1,269,000 ============================================================================== For taxation purposes there are net operating loss carryforwards of approximately $272,000,000 available to offset future taxable income. These losses expire between the years 1998 and 2012. A portion of the United States net operating loss carryforwards, in the amount of $41,000,000, are subject to annual limitations. 14. SEGMENTED INFORMATION Substantially all of the Corporation's operations are in the exhibition business, including the exhibition and distribution of motion picture films. The geographic distribution of revenue, income(loss) before income taxes, income taxes, income (loss) and assets are shown below: - ------------------------------------------------------------------------ 			 Year ended 	Year ended		 Year ended 	 	December 31, 1997 	 December 31, 1996	 December 31, 1995 - ------------------------------------------------------------------------ Revenue 	Canada	 	$ 206,547,000	 $ 159,068,000	 $ 150,026,000 	United States	 367,230,000	 350,624,000	 363,124,000 - ----------------------------------------------------------------------- 			$ 573,777,000 $ 509,692,000	 $ 513,150,000 ======================================================================= Income(loss) before income taxes 	Canada 		$ 19,236,000	 $ 2,394,000	 $ (2,788,000) 	United States	 (80,231,000)	 (32,086,000)	 (28,850,000) - ------------------------------------------------------------------------ 		$ (60,995,000)	 $ (29,692,000)	 $ (31,638,000) ======================================================================== Income taxes 	Canada	 $ 323,000 	$ 235,000 	$ 126,000 	United States	 749,000	 1,155,000 	1,143,000 - ------------------------------------------------------------------------ 	 	$ 1,072,000	 $ 1,390,000	 $ 1,269,000 ======================================================================== Income(loss) 	Canada	 $ 18,913,000 	 $ 2,159,000 	$ (2,914,000) 	United States	 (80,980,000)	 (33,241,000)	 (29,993,000) - ------------------------------------------------------------------------- 		 $ (62,067,000)	 $ (31,082,000)	 $ (32,907,000) ========================================================================= - --------------------------------------------------------------- 			December 31, 1997	 December 31, 1996	 - --------------------------------------------------------------- Assets 	Canada 	 		$ 163,323,000	 $ 142,448,000 United States	 	472,152,000	 501,723,000 - --------------------------------------------------------------- 			 	$ 635,475,000	 $ 644,171,000 =============================================================== Film exhibition operations outside of Canada and the United States are currently limited to one theatre (six screens) in Budapest, Hungary. This location is not material to the Corporation's financial position or results of operations and is included with Canada for segmented disclosure purposes. 15. SUMMARY FINANCIAL INFORMATION OF PLITT THEATRES, INC. (PLITT) The following is summarized consolidated financial information of Plitt: - ---------------------------------------------------------------------------- 				 Year ended	 Year ended 	Year ended 			 December 31, 1997	December 31, 1996	December 31, 1995 - ---------------------------------------------------------------------------- Revenue				 	$ 367,230,000 	 $ 350,624,000	 $ 363,124,000 ============================================================================ Income (loss) from continuing operations before general and administrative expenses, depreciation and amortization, interest on long-term debt and income taxes			 	$ (1,813,000)	 $ 45,847,000	 $ 46,148,000 =========================================================================== Net loss					 $ (80,980,000) 	$ (33,241,000)	 $ (29,993,000) =========================================================================== The results for the year ended December 31, 1997 include $1,313,000 of costs charged to Plitt by the Corporation (1996-$1,799,000; 1995-$Nil). - ---------------------------------------------------------------- 			December 31, 1997	 December 31, 1996 - ---------------------------------------------------------------- Current assets		 $ 14,382,000	 $ 17,105,000 Noncurrent assets 	$ 457,770,000	 $ 484,618,000 Current liabilities 	$ 130,838,000	 $ 55,078,000 Noncurrent liabilities	 $ 256,008,000 	$ 265,386,000 ================================================================ Current liabilities at December 31, 1997 include a net payable to the Corporation and other corporations within the consolidated group in the amount of $32,477,000 (1996-$9,551,000). Noncurrent liabilities at December 31, 1997 and December 31, 1996 include $10,000,000 that is owed to the Corporation.	 16. RELATED PARTY TRANSACTIONS Related party transactions not disclosed elsewhere in these financial statements include film distribution and exhibition agreements which the Corporation enters into with Universal. These agreements are conducted in accordance with normal business terms and conditions. Pursuant to these agreements, the Corporation, in the year ended December 31, 1997, paid approximately $27,459,000 in film licensing fees to Universal (1996- $20,631,000, 1995-$31,198,000) and received from Universal approximately $1,010,000 (1996-$666,000, 1995-$576,000) relating to distribution services. 17. RECONCILIATION BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) i) The Corporation has adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109), for its financial statements presented under United States accounting principles. Under FAS 109 the Corporation's method of accounting for income taxes changes from the deferred method, as recorded under Canadian accounting principles, to an asset and liability approach. Under the asset and liability method of FAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The income tax provision for the year ended December 31, 1997 calculated in accordance with United States accounting principles was the same as that reported under Canadian accounting principles after reflecting a net decrease in the valuation allowance of $58,600,000 (1996 - net increase of $19,400,000, 1995 - net increase of $22,700,000). The application of the above noted United States accounting principles on the balance sheet of the Corporation as at December 31, 1997 resulted in no net difference in deferred taxes from that reported under Canadian accounting principles. Net deferred tax assets and liabilities are comprised of the following: - --------------------------------------------------------------		 	December 31, 1997	 December 31, 1996	 - -------------------------------------------------------------- Deferred Tax Assets Non capital losses		 $ 22,378,000	 $ 98,039,000	 Depreciation		 	 27,225,000	 25,922,000 Loss on disposals		 13,729,000	 --- Other 			13,768,000	 15,039,000 - -------------------------------------------------------------- 		 		77,100,000 	139,000,000 Less: Valuation allowance	(44,400,000) 	(103,000,000) - -------------------------------------------------------------- 				$ 32,700,000	 $ 36,000,000 ============================================================== - --------------------------------------------------------------- Deferred Tax Liabilities Depreciation	 		$ 32,134,000 	$ 34,755,000 Other		 	566,000		 1,245,000 - --------------------------------------------------------------- 			 	 $ 32,700,000	 $ 36,000,000 =============================================================== ii) Under GAAP in the United States and the financial reporting requirements of the Securities and Exchange Commission, all operating income and expenses, such as those listed in note 12 to the consolidated financial statements, are required to be included in any subtotal purporting to represent income(loss) from operations. Therefore, under U.S. GAAP, income(loss) from operations as cross-referenced from the income statement to this note would be as follows: - ----------------------------------------------------------- Year ended		 Year ended		 Year ended December 31, 1997	 December 31, 1996	 December 31, 1995 - ----------------------------------------------------------- $ (27,095,000)		 $ 5,790,000	 	 $ 9,345,000 =========================================================== iii) The Corporation applies APB Opinion No. 25 in accounting for its stock options under United States GAAP. Beginning in 1996, United States GAAP encourages, but does not require, the recording of compensation cost for stock options at fair value. The new United States accounting pronouncement, SFAS No. 123, does however, require the disclosure of pro forma net income and earnings per share information as if the Corporation had accounted for its stock options issued in 1997, 1996 and 1995 under the fair value method. Accordingly, the fair value of these options has been estimated at the date of grant or re-issue using the Black-Scholes option pricing model with the following assumptions for 1997 and 1996: weighted average risk free interest rate of 5.38% and 5.96%; dividend yield of 0%; volatility factor of the expected market price of the Corporation's Common Shares of 0.42 and 0.60; and a weighted average expected life of the options of 2.0 and 2.9 years. The weighted-average grant-date fair value of the options issued in 1997 was Canadian $0.48 and in 1996 was Canadian $0.80. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period which ranges from upon issuance or re-issue to four years. Retroactive application of the fair value method to prior years is not permitted, therefore the full effect of the fair value method will not be reflected in the pro forma disclosures until it has been applied to all non-vested options. Assuming the Corporation has accounted for its stock options issued under the fair value method, United States GAAP pro forma net loss and net loss per share for the years ended December 31, 1997 and 1996 would have been $63,559,000 ($0.36 per share) and $35,059,000 ($0.21 per share) respectively. Compensation cost for the year ended December 31, 1995 has not been estimated as the number of options issued in the year was insignificant. iv) Under GAAP in the United States and the financial reporting requirements of the Securities and Exchange Commission, presentation of Cash Flow from Operating Activities per Share is not permitted on the face of the Statement of Changes in Cash Resources. v) In accordance with FAS 87 the following disclosures are made: Defined Benefit Pension Plan - ----------------------------------------------------------------------------- 	 		Year ended		 Year ended	 	Year ended	 	 		December 31, 1997	 December 31, 1996 	December 31, 1995 - ----------------------------------------------------------------------------- Periodic Pension Cost Service cost 		$ 315,000	 $ 332,000	 $ 318,000 Interest cost		 899,000	 	896,000	 	926,000	 Return on assets	 (554,000)	 (537,000)	 (460,000) Other 			214,000 		529,000	 	263,000 - ----------------------------------------------------------------------------- 			 $ 874,000	 $ 1,220,000 	$ 1,047,000 ============================================================================= Key assumptions Discount rate				 7.75%	 7.50%	 8.00% Expected long term return on assets 	8.50% 	8.50%	 8.50%	 Compensation increase rate		 6.00%	 6.00%	 6.00%	 - ------------------------------------------------------------------------------ 		 		 	Year ended	 Year ended	 	 			December 31, 1997 	December 31, 1996 - ------------------------------------------------------------------------------ Reconciliation of Funded Status Projected benefit obligation 		$ (12,779,000) 	$ (12,185,000)	 Plan assets at fair value			 6,679,000	 6,557,000	 Unrecognized net loss			 3,384,000 	2,515,000	 Prior service costs not yet recognized	 108,000 		129,000	 Unrecognized net transition obligation 	824,000	 	989,000	 Other			 		 (62,000)	 (150,000)	 =============================================================================== 		 			$ (1,846,000) 	$ (2,145,000)	 =============================================================================== Defined Contribution Pension Plan No cost is recognized in any of the three years ended December 31, 1997 with respect to this plan. vi) Under GAAP in the United States and the financial reporting requirements of the Securities and Exchange Commission, costs related to the proposed merger in the amount of $2,280,000, which have been charged to retained earnings under Canadian GAAP, would be charged to expense under U.S. GAAP. Accordingly, the following tabular reconciliation is provided for net loss in accordance with U.S. GAAP: - ------------------------------------------------------- 			 					Year ended	 						 		December 31, 1997 - ------------------------------------------------------- Net loss as reported on the consolidated income statement 		$ (62,067,000)	 Proposed merger costs					 	2,280,000 - ------------------------------------------------------ Net loss in accordance with U.S. GAAP		 		$ (64,347,000) ====================================================== In accordance with U.S. GAAP the basic and fully diluted loss per share is $0.36. Shareholders' equity is unaffected. 18. JOINT VENTURES The Corporation's prorata share of the joint venture operations through which it carries out part of its activities is summarized below. The Balance Sheet amounts below reflect the elimination of accounts between these joint ventures and the Corporation. - ----------------------------------------------------------------------------- 	Year ended 	Year ended 	Year ended 	 December 31, 1997 December 31, 1996 	December 31, 1995 - ----------------------------------------------------------------------------- Revenue	 $ 8,367,000 	$ 4,727,000	 $ 3,624,000 Expenses 	4,881,000 	3,519,000	 2,588,000 - ---------------------------------------------------------------------------- Net income 	$ 3,486,000	 $ 1,208,000	 $ 1,036,000 ============================================================================ Cash flow from operations	 $ 3,969,000 	$ 1,589,000 	 $ 1,251,000 ============================================================================ 	 - ------------------------------------------------------------------ 			 December 31, 1997	 December 31, 1996	 - ------------------------------------------------------------------ Current assets		 $ 2,281,000 	$ 966,000 Noncurrent assets 	$ 12,833,000	 $ 10,953,000 Current liabilities	 $ 2,305,000	 $ 1,629,000 Noncurrent liabilities	 $ 2,381,000	 $ 2,167,000 ================================================================== 19. RECLASSIFICATIONS Certain prior years' balances have been reclassified to conform with the financial statement presentation adopted in the current year. 20. PROPOSED MERGER On September 30, 1997, the Corporation announced that it has entered into an agreement with SPE and LTM which provides for the combination of the businesses of the Corporation and LTM. LTM is a private Delaware Corporation wholly-owned by SPE. The transaction will involve combining the Corporation with the Loews Theatres Exhibition Group, which consists of Sony/Loews Theatres and its joint ventures with Star Theatres and Magic Johnson Theatres. It is proposed that the combined company will be named Loews Cineplex Entertainment Corporation (LCE). It is anticipated that LCE will have over 2,700 screens in approximately 450 locations in North America. Pursuant to a series of related transactions to be effected pursuant to a Plan of Arrangement under the Business Corporations Act (Ontario), the Corporation's shares will be exchanged for shares of LCE with the result that the Corporation will become a wholly-owned subsidiary of LCE. Upon closing of the transaction, SPE will own approximately 51.1% of LCE's shares (representing 49.9% of LCE's voting shares); Universal will own approximately 26.0% of LCE's shares (subsequent to a cash subscription of approximately $84.5 million); the Bronfman Trusts will own approximately 9.6% of LCE's shares; and the shareholders of the Corporation, other than Universal and the Bronfman Trusts, will own approximately 13.3% of LCE's shares. It is intended that the LCE shares will be listed on the New York Stock Exchange and the Toronto Stock Exchange. The merger is subject to approval by the shareholders of the Corporation and regulatory approval in both Canada and the United States. The special meeting of shareholders is scheduled for March 26, 1998. It is anticipated that closing of this transaction will take place in the second quarter of 1998. During the year ended December 31, 1997 the Corporation incurred legal, investment banking and other costs directly attributable to the proposed merger. Such costs are considered to be a capital transaction under Canadian GAAP and accordingly have been charged to retained earnings (note 17). Selected Quarterly Financial Data (In thousands of U.S. dollars except per share data) 	 Unaudited - ----------------------------------------------------------------------------- 							Three Months Ended 		 March 31	 June 30	 September 30 	December 31 		 1996 1996 1996 1996 - ----------------------------------------------------------------------------- Revenue		 	$ 128,351 $ 117,783 $ 141,976 $ 121,582 Operating income(loss)	 3,951 (1,793) 6,523 (1,514) Loss 		 (7,157) (11,070) (2,970) (9,885) Loss per share Basic		 	 (0.06) (0.06) (0.02) (0.06) Fully Diluted	 (0.06) (0.06) (0.02) (0.06) - ----------------------------------------------------------------------------- 					 Three Months Ended 	 	March 31	 June 30	 September 30 	 December 31 				 1997 1997 1997 1997 - ----------------------------------------------------------------------------- Revenue	 	$ 150,546 $ 127,215 $ 149,960 $ 146,056 Operating income(loss)	 10,759 (5,527) 6,409 4,665 Income(loss) 		 2,107 (14,579) (7,164) (42,431) Earnings(loss) per share Basic	 	0.01 (0.08) (0.04) (0.24) Fully Diluted	 0.01 (0.08) (0.04) (0.24) - ----------------------------------------------------------------------------- 		SUPPLEMENTAL SCHEDULES: Schedules of the Corporation for each of the three years in the period ended December 31, 1997 are filed under Item 14 hereto. ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. 		Not Applicable. PART III ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by Item 10 is set forth in the Corporation's Proxy Statement under the caption "Directors and Officers" and "Security Ownership of Certain Beneficial Owners and Management" and is incorporated herein by reference (except that certain information regarding the Corporation's executive officers is included in Part I under the heading "Executive Officers"). ITEM 11.	EXECUTIVE COMPENSATION. The information required by Item 11 is set forth in the Corporation's Proxy Statement under the caption "Compensation" and is incorporated herein by reference. ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by Item 12 is set forth in the Corporation's Proxy Statement under the caption "Security Ownership of Certain Beneficial Owners and Management" and is incorporated herein by reference. ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by Item 13 is set forth in the Corporation's Proxy Statement under the captions "Interests of Insiders in Material Transactions" and "Compensation" and is incorporated herein by reference. PART IV ITEM 14.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a)	1.	FINANCIAL STATEMENTS The following financial statements of the Corporation have been filed under Item 8 hereto. Auditors' Report Consolidated Balance Sheets at December 31, 1997 and 1996 For each of the years ended December 31, 1997, 1996 and 1995: 	Consolidated Income Statement 	Consolidated Statement of Changes in Cash Resources 	Consolidated Statement of Changes in Shareholders' Equity Notes to the Consolidated Financial Statements 2.	FINANCIAL STATEMENT SCHEDULE 	Auditors' Report on Schedule 	Schedule II -	Valuation and qualifying accounts All other schedules have been omitted because the information required is included in the consolidated financial statements or the notes thereto. 	3.	EXHIBITS: (i) 	The following Exhibits, numbered as they were numbered for filing as Exhibits to the Corporation's Form S-1 Registration Statement, No. 33-12919, as amended, effective May 14, 1987, are incorporated herein by reference: 10.9		Restated Subscription Agreement between Cineplex Odeon Corporation and MCA INC. dated January 15, 1986, as amended May 6, 1986 10.11		Cineplex Standstill Agreement between Cineplex Odeon Corporation and MCA INC. dated May 12, 1986, as amended January, 1987 10.14		MCA Registration Agreement between Cineplex Odeon Corporation and MCA INC. dated May 12, 1986 10.26		Amendment to Restated Subscription Agreement dated May 4, 1987 10.27		Amendment to Standstill Agreement dated May 4, 1987 (ii)		The following Exhibit, numbered as it was for filing as an Exhibit to the Corporation's Annual Report on Form 10-K for 1987, is incorporated herein by reference: 10.2		Amendment to Cineplex Standstill Agreement dated as of March 3, 1988 (iii)		The following Exhibits, numbered as they were for filing as Exhibits to the Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989 are incorporated herein by reference: 10.6		Agreement made May 15, 1989 between Cineplex Odeon Corporation and MCA INC., further amending the Standstill Agreement between them dated May 12, 1986 10.7		Form of Indemnity as executed by Cineplex Odeon Corporation in favour of each of the Corporation's directors (iv)		The following Exhibits, numbered as they were for filing as Exhibits to the Corporation's report on Form 8-K which was filed October 24, 1989 are incorporated herein by reference: 3		Agreement made October 24, 1989 between Cineplex Odeon Corporation and MCA INC., further amending the Standstill Agreement between them dated May 12, 1986 (v)		The following Exhibits, numbered as they were for filing as Exhibits to the Corporation's Annual Report on Form 10-K for 1989, are incorporated herein by reference: 3.2		Bylaws 	 (vi)		The following Exhibits, numbered as they were for filing as Exhibits to the Corporation's Annual Report on Form 10-K for 1990, are incorporated herein by reference: 3.1		Articles of Amalgamation 10.2		Sample Cineplex Odeon Corporation Option Agreement for United States resident (vii)		The following Exhibits, numbered as they were for filing as an Exhibit to the Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994 are incorporated herein by reference: 4.1		Indenture dated as of June 23, 1994, by and among Plitt Theatres, Inc. and Cineplex Odeon Corporation and The Bank of New York as Trustee. 10.1		Credit Agreement dated as of June 23, 1994, by and among Cineplex Odeon Corporation and Plitt Theatres, Inc. and The Bank of Nova Scotia as agent, and the banks party thereto. 10.2		Letter Agreement dated as of June 23, 1994, regarding the establishment of an operating credit facility, between Cineplex Odeon Corporation, as borrower, and The Bank of Nova Scotia. 		 (viii)	The following Exhibits, numbered as they were for filing as an Exhibit to the Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995 are incorporated herein by reference: 10.1		Second Amendment Agreement dated as of March 31, 1995 by and among Cineplex Odeon Corporation, Plitt Theatres, Inc., the Guarantors, The Bank of Nova Scotia as agent, and the Banks party thereto. (ix)		The following Exhibits, numbered as they were for filing as an Exhibit to the Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 are incorporated herein by reference: 10.1		Third Amendment Agreement dated as of September 30, 1995 by and among Cineplex Odeon Corporation, Plitt Theatres, Inc., the Guarantors, The Bank of Nova Scotia as agent, and the Banks party thereto. (x)		The following Exhibits, numbered as they were for filing as an Exhibit to the Corporation's Annual Report on Form 10-K for 1995 are incorporated herein by reference: 10.1		Fifth Amendment Agreement dated as of March 26, 1996 by and among Cineplex Odeon Corporation, Plitt Theatres, Inc., the Guarantors, The Bank of Nova Scotia as agent, and the Banks party thereto. 10.2		Amended and Restated Subscription Agreement dated as of March 19, 1996 by and among Cineplex Odeon Corporation, MCA INC. and the Charles Rosner Bronfman Trust. (xi)		The following Exhibits, numbered as they were for filing as an Exhibit to the Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 are incorporated herein by reference: 3.1		Articles of the Corporation as amended effective June 6, 1996. 10.1		Stock Option Plan as amended effective June 6, 1996. 	 (xii)		The following Exhibits, numbered as they were for filing as an Exhibit to the Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 are incorporated herein by reference: 10.1		Sixth Amendment Agreement dated as of August 16, 1996 by and among Cineplex Odeon Corporation, Plitt Theatres, Inc., the Guarantors, The Bank of Nova Scotia as agent, and the Banks party thereto.	 				 10.2		Seventh Amendment Agreement dated as of October 31, 1996 by and among Cineplex Odeon Corporation, Plitt Theatres, Inc., the Guarantors, The Bank of Nova Scotia as agent, and the Banks party thereto. (xiii)	The following Exhibits, numbered as they were for filing as an Exhibit to the Corporation's Annual Report on Form 10-K for 1996 are incorporated herein by reference: 		 10.1		Eighth Amendment Agreement dated as of February 17, 1997 by and among Cineplex Odeon Corporation, Plitt Theatres, Inc., the Guarantors, The Bank of Nova Scotia as agent, and the Banks party thereto. 10.2		Employment Agreement between Cineplex Odeon Corporation and Mr. Allen Karp dated as of July 4, 1996 as amended by letter agreement dated as of December 6, 1996. 			 10.3		Employment Agreement between Cineplex Odeon Corporation and Mr. Ellis Jacob dated as of December 6, 1996. 10.4		Employment Agreement between Cineplex Odeon Corporation and Mr. Robert Tokio dated as of December 6, 1996. 10.5		Employment Agreement between Cineplex Odeon Corporation and Mr. Michael Herman dated as of December 6, 1996. 10.6		Employment Agreement between Cineplex Odeon Corporation and Mr. Howard Lichtman dated as of December 6, 1996. 10.7		Employment Agreement between Cineplex Odeon Corporation and Mr. Irwin Cohen dated as of December 6, 1996. 10.8		Employment Agreement between Cineplex Odeon Corporation and Mr. Michael McCartney dated as of September 15, 1995 as amended by letter agreement dated as of January 22, 1997. 		 (xiv)		The following Exhibit, numbered as they were for filing as an Exhibit to the Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 are incorporated herein by reference: 10.1		Performance-Based Option Agreement. (xv)		The following Exhibits, numbered as they were for filing as an Exhibit to the Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 are incorporated herein by reference: 			 10.1		Tenth Amendment Agreement dated as of November 7, 1997 by and among Cineplex Odeon Corporation, Plitt Theatres, Inc., the Guarantors, the Bank of Nova Scotia as agent, and the Banks party thereto. (xvi)		The following Exhibits are filed herewith: 11.1	 	Statement re computation of earnings per share. 21.1 	Subsidiaries of the Corporation. 23.1		Consent of KPMG. 27	 	Financial Data Schedule. (b)	On October 17, 1997, the Corporation filed a Form 8-K dated September 30, 1997 reporting that the Corporation, SPE and LTM have entered into an agreement which provides for the combination of the businesses of the Corporation and LTM. The following Exhibits, numbered as they were for filing as an Exhibit to the Form 8-K are incorporated herein by reference: 1		Master Agreement among Sony Pictures Entertainment Inc., LTM Holdings, Inc. and Cineplex Odeon Corporation dated as of September 30, 1997. 2		Form of Plan of Arrangement of Cineplex Odeon Corporation under Section 182 of the Business Corporations Act (Ontario). 	 3		Stockholders Agreement among LTM Holdings, Inc., Sony Pictures Entertainment Inc., Universal Studios, Inc., Charles Rosner Bronfman Family Trust and certain other parties dated as of September 30, 1997. 4		Subscription Agreement by and between LTM Holdings, Inc. and Universal Studios, Inc. dated as of September 30, 1997. 5		Press Release of Cineplex Odeon Corporation and Sony Corporation of America dated September 30, 1997. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 						CINEPLEX ODEON CORPORATION 						By: Allen Karp -------------------- 						 Allen Karp 						 President and Chief 						 Executive Officer 						Date: March 11, 1998 						By: Stephen Brown --------------------- 				 	Stephen Brown 	 					 Senior Vice-President 						 and Chief Financial Officer 						Date: March 11, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated. Signature		 Title				 Date Allen Karp 	 President, Chief Executive 	 March 11, 1998 ---------- Officer and Director Allen Karp		 (Principal Executive 			 Officer) Ellis Jacob Executive Vice-President 	 	March 11, 1998 ----------- and Chief Operating Officer Ellis Jacob and Director 				 E. Leo Kolber 	 Chairman of the Board	 	March 11, 1998 ------------- E. Leo Kolber Rudolph P. Bratty 	 	Director		 	 	March 11, 1998 	 ----------------- Rudolph P. Bratty ----------------- Director			 			 John H. Daniels ----------------- Director			 		 Bruce L. Hack Director			 		 ----------------- Brian C. Mulligan Director			 		 ----------------- Andrew J. Parsons Eric W. Pertsch 	 	Director		 	 	March 11, 1998	 ----------------- Eric W. Pertsch Robert Rabinovitch 		Director			 	March 11, 1998	 ------------------ Robert Rabinovitch James D. Raymond 	 	Director			 	March 11, 1998	 ---------------- James D. Raymond Director			 		 ------------------ Howard L. Weitzman INDEPENDENT AUDITORS' REPORT ON SCHEDULE The Board of Directors and Shareholders of Cineplex Odeon Corporation Under date of February 13, 1998 we reported on the consolidated balance sheets of Cineplex Odeon Corporation as at December 31, 1997 and 1996 and the related consolidated statements of income and changes in shareholders' equity and cash resources for each of the years in the three year period ended December 31, 1997, as contained in the annual report on Form 10-K for the year 1997. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedule in the Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG Chartered Accountants Toronto, Canada February 13, 1998 CINEPLEX ODEON CORPORATION											 SCHEDULE II											 VALUATION AND QUALIFYING ACCOUNTS						 For fiscal periods 1997, 1996 and 1995							 (in thousands of U.S. dollars)											 Column A 		Column B	 Column C	 Column D	 Column E 			Balance at 	Charged to	 Charged to	 Deductions/			Balance		 Beginning of Costs and 	 Other	 Other at End Description 		Period 	Expenses	 Accounts 		 Changes of Period - ----------- ------------- --------- ---------- ----------- --------- Year Ended December 31, 1997											 											 Allowance for doubtful accounts 	$465 		N/A 	N/A	 	($48)	(ii)	 $417 Goodwill	 		11,281 	 	1,109 	0 	 	(8)	 12,382 Deferred charges	 	3,671 	 	1,597 	0 	 	(74)	 5,194 -------- ------- ----- -------- -------										 	 	$15,417 	 	$2,706 		$0 	 	($130)	 	$17,993 -------- ------- ----- -------- -------										 Year Ended December 31, 1996											 Allowance for doubtful accounts 	$524 		N/A	 	N/A		 ($59)	 $465 Goodwill	 	10,167 1,114 		0 	 	0 		 11,281 Deferred charges	 	2,395 		 1,275 		 0 	 	1 	 3,671 											 ------- ------ ----- ----- ------ 	 $13,086 	$2,389 		$0 	 	($58)	 	$15,417 											 ------- ------ ----- ----- ------- Year Ended December 31, 1995										 											 Allowance for doubtful accounts	 $519 	 	N/A 		N/A	 $5 	 $524 Goodwill	 	9,702 	 1,147 	 0 		 (682)	(iii)	10,167 Deferred charges			 1,170 	1,452 		 0 	(227)	(iv) 	2,395 			 ------- ------ ----- ------- ------ $11,391 		 $2,599 $0 		($904) 	$13,086 ------- ------ ----- ------- ------											 Notes											 (i) Unless otherwise stated, Deductions/Other Changes represent the translation adjustment on the conversion of Canadian dollar amounts to U.S. dollars.											 (ii) $32 relates to the write-off of uncollectible property tax 											 (iii) $687 relates to the write-off of the accumulated amortization of goodwill associated with the	sale of certain theatres.											 (iv) $236 relates to the write-off of a deferred charge item that had become fully amortized	during the period. 									 EXHIBIT INDEX Exhibit			Description	 Page Number 11.1	 Statement re computation of earnings per share. 21.1 	Subsidiaries of the Corporation 23.1	 Consent of KPMG. 27	 Financial Data Schedule.