SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1999
Commission file number 1-14099
Loews Cineplex Entertainment Corporation
----------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-3386485
- ----------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
711 Fifth Avenue
New York, New York 10022
- ----------------------------------- ---------------------------
(Address of Principal (Zip Code)
Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 833-6200
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Common Stock outstanding (including non-voting common stock) - 58,622,646 shares
at November 30, 1999
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE DATA)
November 30, February 28,
1999 1999
-------------- -------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 31,556 $ 48,174
Accounts receivable 13,151 28,590
Inventories 4,433 4,462
Prepaid expenses and other current assets 2,353 4,041
---------- ----------
TOTAL CURRENT ASSETS 51,493 85,267
PROPERTY, EQUIPMENT AND LEASEHOLDS, NET 1,174,785 1,119,977
OTHER ASSETS
Investments in and advances to partnerships 69,869 47,794
Goodwill, net 496,735 498,549
Other intangible assets, net 22,986 19,558
Deferred charges and other assets 30,729 35,056
---------- ----------
TOTAL ASSETS $1,846,597 $1,806,201
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 190,882 $ 175,943
Deferred revenue 8,798 17,241
Current maturities of long-term debt and other obligations 1,433 1,173
Current portion of capital leases 2,802 2,737
---------- ----------
TOTAL CURRENT LIABILITIES 203,915 197,094
LONG-TERM DEBT AND OTHER OBLIGATIONS 759,116 690,301
LONG-TERM CAPITAL LEASE OBLIGATIONS 59,582 61,997
ACCRUED PENSION AND POST RETIREMENT OBLIGATIONS 9,541 9,570
OTHER LIABILITIES 177,539 181,943
---------- ----------
TOTAL LIABILITIES 1,209,693 1,140,905
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY
Common stock ($.01 par value, 300,000,000 shares authorized; 58,538,646
shares issued and outstanding at November 30, 1999 and at February 28, 1999) 586 586
Common stock-Class B non-voting ($.01 par value, 10,000,000 shares authorized;
84,000 shares issued and outstanding at November 30, 1999 and at February 28,
1999) 1 1
Accumulated other comprehensive income (3,601) (5,063)
Additional paid-in capital 671,707 671,707
Retained deficit (31,789) (1,935)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 636,904 665,296
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,846,597 $1,806,201
========== ==========
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
2
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE DATA)
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
November 30, November 30, November 30, November 30,
1999 1998 1999 1998(A)
----------- ----------- ----------- ------------
REVENUES
Box Office $ 145,823 $ 147,305 $ 500,197 $ 437,368
Concession 53,228 57,428 186,728 169,962
Other 10,199 6,681 27,401 19,357
----------- ----------- ----------- -----------
209,250 211,414 714,326 626,687
----------- ----------- ----------- -----------
EXPENSES
Theatre operations and other expenses 161,090 158,950 531,722 454,508
Cost of concessions 8,703 9,241 29,082 26,896
General and administrative 13,282 12,518 39,691 34,400
Depreciation and amortization 30,084 26,905 83,891 67,653
Loss on sale/disposal of theatres 2,411 3,567 7,124 4,569
----------- ----------- ----------- -----------
215,570 211,181 691,510 588,026
----------- ----------- ----------- -----------
(LOSS)/INCOME FROM OPERATIONS (6,320) 233 22,816 38,661
INTEREST EXPENSE 17,619 16,801 51,265 39,323
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES (23,939) (16,568) (28,449) (662)
INCOME TAX (BENEFIT)/EXPENSE (101) (4,462) 1,405 3,913
----------- ----------- ----------- -----------
NET LOSS $ (23,838) $ (12,106) $ (29,854) $ (4,575)
=========== =========== =========== ===========
Weighted Average Shares Outstanding - basic
and diluted 58,622,646 58,622,646 58,622,646 44,238,506
Loss per Share - basic and diluted $ (.41) $ (.21) ($.51) ($.10)
=========== =========== =========== ===========
(A) Includes the operating results of Cineplex Odeon Corporation from May 15,
1998 through November 30, 1998.
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
3
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
For the Nine Months Ended
-------------------------
November 30, November 30,
1999 1998
----------- ------------
OPERATING ACTIVITIES
Net loss $ (29,854) $ (4,575)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 83,891 67,653
Loss on sale/disposal of theatres 7,124 4,569
Equity earnings from long-term investments, net of distributions
received 8 838
Changes in operating assets and liabilities:
Decrease/(increase) in accounts receivable 4,541 (3,176)
Increase in accounts payable and accrued expenses 14,250 7,898
(Decrease)/increase in other operating assets and liabilities, net (3,349) 6,480
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 76,611 79,687
--------- ---------
INVESTING ACTIVITIES
Investments in and advances to partnerships, net (22,083) (12,590)
Capital expenditures (132,248) (75,477)
Merger related costs (5,438) (23,731)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (159,769) (111,798)
--------- ---------
FINANCING ACTIVITIES
(Repayment)/borrowing of debt due to Sony Corporation of America (SCA) - (299,487)
affiliate
Proceeds from Senior Revolving Credit Facility, net of repayments and
deferred financing fees 72,000 249,044
Repayment of long-term debt (3,160) (33,403)
Repayment of Plitt Theatres, Inc. Notes (2,300) (215,907)
Proceeds of new note offering, net of deferred financing fees - 289,263
Proceeds on issuance of common stock, net of offering expenses - 102,991
Proceeds from issuance of common stock to Universal upon Combination - 84,500
Dividend paid to SCA affiliate on Combination - (102,621)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 66,540 74,380
--------- ---------
(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (16,618) 42,269
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 48,174 9,064
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 31,556 $ 51,333
========= =========
Supplemental Cash Flow Information:
Income taxes paid, net of refunds received $ 1,104 $ 1,894
========= =========
Interest paid (including nil and $6,942 paid to SCA affiliates) $ 43,524 $ 30,094
========= =========
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
4
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION
- ----------------------------------------------
Loews Cineplex Entertainment Corporation ("LCP" or the "Company"), formerly LTM
Holdings, Inc., is a major motion picture theatre exhibition company with
operations in North America and Europe. The Company conducts business under the
Loews Theatres, Sony Theatres, Cineplex Odeon Theatres, Star Theatres, Magic
Johnson Theatres and Yelmo Cineplex Theatres marquees. As of November 30, 1999,
LCP owns, or has interests in, and operates 2,916 screens at 399 theatres in 22
states and the District of Columbia, 6 Canadian provinces, Spain, Hungary,
Turkey and Austria. The Company's principal markets include New York and the
metropolitan area, Boston, Chicago, Baltimore, Dallas, Houston, Detroit, Los
Angeles, Seattle and Washington D.C. in the U.S.; Toronto, Montreal and
Vancouver in Canada; and Madrid, Spain. The Company holds a 50% partnership
interest in each of the Yelmo Cineplex de Espana ("Yelmo"), Loeks-Star Theatres
("LST") and Magic Johnson Theatres ("MJT") partnerships. Yelmo, LST and MJT
hold interests in and operate 27 locations, comprising a total of 299 screens.
Screens and locations for the partnerships are included in the Company amounts
referred to above. The Company also holds a 50% interest in a joint venture in
Italy with plans to develop multiplexes over the next five years. The Company is
actively pursuing joint ventures in other international territories.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information; therefore, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended February 28, 1999.
NOTE 2 - BUSINESS COMBINATION
- -----------------------------
On May 14, 1998, pursuant to the Amended and Restated Master Agreement (the
"Master Agreement") dated September 30, 1997, LTM Holdings, Inc. and Cineplex
Odeon Corporation ("Cineplex Odeon"), another motion picture exhibitor with
operations in the U.S. and Canada, combined (the "Combination"). As called for
in the Master Agreement, on the date of the Combination, the outstanding common
shares of Cineplex Odeon were exchanged for LCP shares on a ten for one basis.
Universal Studios, Inc. ("Universal"), a major shareholder of Cineplex Odeon,
contributed cash of $84.5 million to the Company in exchange for additional
shares of stock in the Company. Sony Pictures Entertainment Inc. ("SPE") and
its affiliates received a cash payment of approximately $417 million
representing (i) a cash payment to satisfy all intercompany indebtedness to
affiliates of Sony Corporation of America ("SCA") as of the closing date, (ii) a
cash payment equal to the fair value of certain transferred assets, and (iii)
the payment of a dividend to a subsidiary of SPE. The consolidated financial
statements for the nine months ended November 30, 1998 include the operating
results of Cineplex Odeon from May 15, 1998 to November 30, 1998.
At the closing of the Combination, the Company issued 7,264,642 shares of Common
Stock and 80,000 shares of Class B Non-Voting Common Stock to Universal,
4,324,003 shares of Common Stock and 4,000 shares of Class B Non-Voting Common
Stock to the Charles Rosner Bronfman Family Trust and certain related
shareholders (the "Claridge Group") and 6,111,269 shares of common stock to the
other shareholders of record of Cineplex Odeon, for an aggregate value of
approximately $266.6 million, in exchange for the outstanding shares of Cineplex
5
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
NOTE 2 - CONTINUED
- ------------------
Odeon and its wholly-owned subsidiary, Plitt Theatres, Inc. ("Plitt"). In
addition, the Company issued 4,426,607 shares of common stock to Universal for
consideration of $84.5 million and 2,664,304 shares of Common Stock in
connection with the transfer by SPE of its interest in Star Theatres of
Michigan, Inc. ("Star") and S&J Theatres, Inc. ("S&J") to the Company.
On August 5, 1998, the Company sold to the public under a registered public
offering 10 million shares of Common Stock. Upon consummation of this offering,
the Company's Class A Non-Voting Common Stock held by SPE automatically
converted into an equal number of shares of Common Stock and 3,255,212
additional shares of Common Stock were issued to Universal for no consideration
under anti-dilution provisions of the Company's subscription agreement with
Universal. As a result of the Combination and public offering, SPE, Universal
and the Claridge Group own approximately 39.5%, 25.5% and 7.4%, respectively, of
the Company's Common Stock.
The Combination has been accounted for under the purchase method of accounting
and, accordingly, the cost to acquire Cineplex Odeon has been allocated to the
assets acquired and liabilities assumed of Cineplex Odeon based on their
respective fair values, with the excess purchase price allocated to goodwill.
The Company arranged for an independent valuation and other studies required to
determine the fair value of the assets acquired and liabilities assumed. These
valuations and studies were completed during the first quarter of the current
fiscal year.
NOTE 3 - NEW ACCOUNTING PRONOUNCEMENT
- -------------------------------------
The following new pronouncement has been issued but is not yet effective:
On June 23, 1999, the Financial Accounting Standards Board decided to defer the
effective date of Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activity." As a result of
this deferral, SFAS No. 133 will be effective for all of the Company's fiscal
quarters beginning March 1, 2001. This statement standardizes the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, by requiring that the Company recognize those items as assets
or liabilities in the statement of financial position and measure them at fair
value.
The Company expects to adopt the above standard when required and does not
believe that it will have a significant impact on its financial position or
operating results.
6
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
NOTE 4 - COMPREHENSIVE INCOME
- -----------------------------
The Company has adopted SFAS No. 130 "Reporting Comprehensive Income". This
pronouncement establishes a standard for the reporting of comprehensive income
and its components in the Company's financial statements.
The following components are reflected in the Company's comprehensive income:
Three Months Ended Nine Months Ended
November 30, November 30, November 30, November 30,
1999 1998 1999 1998
--------------- --------------- -------------- --------------
Net loss $(23,838) $(12,106) $(29,854) $(4,575)
Other comprehensive income/(loss) 980 2,998 1,462 (4,384)
-------- -------- -------- -------
Comprehensive loss $(22,858) $ (9,108) $(28,392) $(8,959)
======== ======== ======== =======
The following is a reconciliation of the Company's accumulated other
comprehensive income:
1999
------
Accumulated other comprehensive
income as of February 28, $(5,063)
Other comprehensive income for the
nine months ended November 30,:
Foreign currency translation
adjustment, net of income tax
expense of $1,953 2,610
Unrealized loss on marketable
securities, net of income tax
benefit of $858 (1,148)
-------
Accumulated other comprehensive
income as of November 30, $(3,601)
=======
7
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
NOTE 5 - SEGMENT AND GEOGRAPHIC DATA
- ------------------------------------
The Company is engaged in one line of business, motion picture exhibition. The
following table presents summarized financial information about the Company by
geographic area. There were no material amounts of sales among geographic
areas.
UNITED INT'L/
STATES CANADA OTHER CONSOLIDATED
----------- --------- -------- ------------
Three Months Ended
November 30, 1999
Total revenue $ 170,721 $ 36,875 $ 1,654 $ 209,250
Loss from operations $ (1,416) $ (3,887) $(1,017) $ (6,320)
Three Months Ended
November 30, 1998
Total revenue $ 170,195 $ 40,416 $ 803 $ 211,414
Income/(loss) from operations $ (442) $ 1,525 $ (850) $ 233
Nine Months Ended
November 30, 1999
Total revenue $ 572,481 $138,636 $ 3,209 $ 714,326
Income/(loss) from operations $ 25,575 $ 467 $(3,226) $ 22,816
Total assets $1,464,472 $335,897 $46,228 $1,846,597
Nine Months Ended
November 30, 1998
Total revenue $ 522,532 $102,762 $ 1,393 $ 626,687
Income/(loss) from operations $ 30,708 $ 9,064 $(1,111) $ 38,661
8
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
NOTE 6 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
Commitments
The Company has entered into commitments for the future development and
construction of theatre properties aggregating approximately $424 million over
the next three year period. The Company has also guaranteed an additional $36
million related to obligations under lease agreements entered into by MJT. The
Company is of the opinion that MJT will be able to perform under its respective
obligations and that no payment will be required and no losses will be incurred
under these guarantees.
Environmental Litigation
One of the Company's leased drive-in theatres and one formerly leased drive-in
theatre, both in the State of Illinois, are located on properties on which
certain third parties disposed of substantial quantities of auto shredder
residue and other debris. Such material may contain hazardous substances. One
of these properties is the subject of an action by the Illinois Attorney
General's office which seeks civil penalties and various forms of equitable
relief, including the removal of all wastes allegedly present at the property,
soil and groundwater testing and remediation, if necessary. The Company's range
of liability with respect to this action cannot be reasonably estimated at this
time due to several unknown factors, including the scope of contamination at the
theatre property, the allocation of such liability, if any, to other responsible
parties, and the ability of such parties to satisfy their share of such
liability. The Company will continue to evaluate future information and
developments with respect to conditions at the theatre property and will
periodically reassess any liability accordingly. Based on the foregoing, there
can be no assurance that the Company's liability, if any, in connection with
this action will not be material.
Other
In addition to the matter noted above, the Company is a defendant in various
lawsuits arising in the ordinary course of business and is involved in certain
environmental matters. It is the opinion of management that any liability to
the Company which may arise as a result of these matters will not have a
material adverse effect on its financial condition.
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The following discussion of the Loews Cineplex Entertainment Corporation ("we",
"us" and "our") financial condition and operating results should be read in
conjunction with our unaudited consolidated financial statements for the three
and nine month periods ended November 30, 1999 and 1998. The information
presented below includes the results of Cineplex Odeon Corporation ("Cineplex
Odeon"), which became our wholly owned subsidiary on May 14, 1998 (the
"Combination"), for the period from May 15, 1998 through November 30, 1998 with
regard to the prior year, and does not include any results prior to that time.
Where noted, pro forma information compares the results for the nine months
ended November 30, 1999 to the full nine month period ended November 30, 1998
for Cineplex Odeon. In addition, where noted, for a more meaningful comparison,
our prior year operating results have been adjusted to remove the operating
performance of theatres we were required to sell pursuant to an agreement with
the Department of Justice (herein referred to as the "DOJ Theatres").
This discussion incorporates operating results of partnerships in which we have
interests to the extent of our equity share as required by the equity method of
accounting.
Results of Operations
Three Months Ended November 30, 1999 Compared to Three Months Ended November 30,
1998
Operating Revenues are generated primarily from box office revenues and
concession sales. Operating revenues of approximately $209.3 million for the
three months ended November 30, 1999 were $2.2 million lower than the comparable
period of the prior year. Excluding the prior year operating revenues of the
DOJ Theatres, operating revenues were $10.5 million or 5.3% greater than the
prior year. The net increase in operating revenues was primarily due to
additional revenue from new theatre openings and improvements in admission
revenue per patron. These increases, which aggregated $35.0 million, were
partially offset by other reductions in operating revenues, which aggregated
$24.5 million, including the effect of theatre dispositions (other than the DOJ
Theatres) and a decline in attendance levels, including a decrease in attendance
at some of our older theatres, and the unfavorable film product allocation for
our theatres in Canada.
Operating Costs of approximately $169.8 million for the three months ended
November 30, 1999 were approximately $1.6 million higher than the three months
ended November 30, 1998. Excluding the impact of the DOJ Theatres, operating
costs increased by $12.6 million or 8.0% in comparison to the prior year. The
$12.6 million increase in operating costs was due primarily to increased costs
of $23.3 million related to the aforementioned increase in operating revenues
and higher occupancy costs of $5.1 million attributable to new theatre openings
offset by lower costs, including the effect of theatre dispositions (other than
the DOJ Theatres) and attendance declines at our older locations, aggregating
$15.8 million.
General and Administrative Costs of approximately $13.3 million for the three
months ended November 30, 1999 were approximately $800 thousand higher than the
three months ended November 30, 1998, due primarily to normal inflationary
increases and additional costs related to the continued development of our
international operations.
Depreciation and Amortization Costs of approximately $30.1 million for the three
months ended November 30, 1999 were $3.2 million higher than for the three
months ended November 30, 1998, primarily due to the incremental depreciation
related to investments in new theatres partially offset by the effect of theatre
dispositions.
10
Loss on Sale/Disposal of Theatres of approximately $2.4 million for the three
months ended November 30, 1999 was $1.2 million lower than the three months
ended November 30, 1998, due primarily to the timing, nature and characteristics
of theatre dispositions.
Interest Expense of approximately $17.6 million for the three months ended
November 30, 1999 was approximately $800 thousand higher than for the three
months ended November 30, 1998, primarily due to a higher amount of debt
outstanding.
Modified EBITDA of $26.2 million for the three months ended November 30, 1999
decreased $4.5 million or 14.8% in comparison to the three months ended November
30, 1998 as a result of a decline in attendance levels primarily due to theatre
disposals (including the DOJ Theatres), the aforementioned lower attendance
volume experienced at some older locations and the unfavorable film product
allocation in Canada. These decreases were partially offset by the increase in
admission revenue per patron and the aforementioned effect of new theatre
openings. Excluding the prior year impact of the DOJ Theatres, Modified EBTIDA
for the quarter decreased $2.9 million or 9.9% for the period. Modified EBITDA
(earnings before interest, taxes, depreciation and amortization, and
gains/losses on asset disposal or sales) is a measure of financial performance
that management uses in measuring our financial performance. Modified EBITDA
measures the amount of cash that a company has available for investment or other
uses and is used by us as a measure of performance. Modified EBITDA is
primarily a management tool and only one measure of financial performance to be
considered by the investment community. Modified EBITDA is not an alternative
to measuring operating results or cash flow under U.S. GAAP.
Nine Months Ended November 30, 1999 Compared to Nine Months Ended November 30,
1998
Operating Revenues are generated primarily from box office revenues and
concession sales. Operating revenues of approximately $714.3 million for the
nine months ended November 30, 1999 were $87.6 million higher than the
comparable period of the prior year. Box office revenues for the nine months
ended November 30, 1999 of approximately $500.2 million were $62.8 million
higher, and concession revenues of approximately $186.7 million were $16.8
million higher, in comparison to the nine months ended November 30, 1998. These
increases in operating revenue were primarily due to the inclusion of the
Cineplex Odeon theatre operating results for the full nine month period in the
current year as opposed to inclusion from the date of the Combination in the
prior year, partially offset by the reduction in operating revenues related to
the sale of the DOJ Theatres (incremental impact of approximately $45.5
million). Excluding the impact of the Cineplex Odeon operations, our operating
revenues increased $42.1 million or 13.3% due primarily to new theatre openings
and increases in box office revenue per patron of $.19, partially offset by the
effect of theatre dispositions. The operating revenues generated for the nine
months ended November 30, 1999 includes Cineplex Odeon operating revenues of
$354.7 million which includes operating efficiencies realized from the
continuation of our concession programs implemented throughout the Cineplex
Odeon circuit resulting in a pro forma increase in concession revenue per patron
of approximately $.06 over prior year pro forma levels.
Operating Costs of approximately $560.8 million for the nine months ended
November 30, 1999 were approximately $79.4 million higher than the nine months
ended November 30, 1998, due primarily to the inclusion of the operating results
for the Cineplex Odeon theatres for the full nine month period as compared to
inclusion from the date of the Combination in the prior year and increased costs
related to the aforementioned increase in operating revenues and higher
occupancy costs attributable to new theatre openings, partially offset by the
impact of theatre dispositions. The incremental increase in operating costs
associated with the inclusion of Cineplex Odeon's operating results for the full
nine month period in the current year was approximately $48.3 million.
Excluding the impact of Cineplex Odeon, our operating costs increased $31.1
million or 13.2% primarily due to the increase in operating revenues mentioned
above and an increase in film costs resulting from higher than normal film rent
terms for the period primarily associated with the strong performance of Star
Wars-Episode 1, The Phantom Menace (circuit-wide impact estimated at $5.3
million). Cineplex Odeon's operating costs for the nine months ended November
30, 1999 were approximately $295.1 million. The operating cost level
experienced by Cineplex Odeon for the period reflects costs savings and
11
operating efficiencies, primarily in concessions operations, which resulted in a
pro forma improvement in concession margin experienced for the period from 82.8%
in the prior year to 83.8% in the current year.
General and Administrative Costs of approximately $39.7 million for the nine
months ended November 30, 1999 were $5.3 million higher than for the nine months
ended November 30, 1998, due primarily to the inclusion of the operating results
for the Cineplex Odeon theatres for the full nine month period as compared to
inclusion from the date of the Combination in the prior year (net of cost
savings realized as a result of the Combination), normal inflationary increases
and the additional costs relative to the enhancement of our international
operations.
Depreciation and Amortization Costs of approximately $83.9 million for the nine
months ended November 30, 1999 were $16.2 million higher than for the nine
months ended November 30, 1998 due to the inclusion of the operating results for
the Cineplex Odeon theatres for the full nine month period as compared to
inclusion from the date of the Combination in the prior year, incremental
depreciation related to investments in new theatres which commenced operations
and incremental goodwill amortization resulting from the Combination recorded
for a full nine month period in comparison to a partial period last year.
Loss on Sale/Disposal of Theatres of approximately $7.1 million for the nine
months ended November 30, 1999 was approximately $2.6 million higher than for
the nine months ended November 30, 1998 due primarily to the timing, nature and
characteristics of theatre dispositions.
Interest Expense of approximately $51.3 million for the nine months ended
November 30, 1999 was $11.9 million higher than for the nine months ended
November 30, 1998, due primarily to higher borrowings related to the Combination
(including debt amounts assumed from Cineplex Odeon) and the impact of
additional borrowings under our Senior Revolving Credit Facility to fund
investments in theatres and joint ventures. See the Liquidity and Capital
Resources section for additional information.
Modified EBITDA for the nine months ended November 30, 1999 of $113.8 million
increased by $2.9 million in comparison to the nine months ended November 30,
1998, due primarily to new theatre openings and higher admissions revenue per
patron, partially offset by the higher than normal film rental costs as
previously discussed and the impact of theatre dispositions. Excluding the
prior year impact of the DOJ Theatres, Modified EBITDA for the nine months
increased $4.2 million or 3.8% for the period.
Liquidity and Capital Resources
We have experienced, and expect to continue to realize, improved operating
results as a result of investments in theatres (including new builds and
reconfigurations of existing theatres) and the closing of obsolete, unprofitable
or uncompetitive theatres. Further, we expect to continue to increase revenues
and cash flows as a result of the reconfiguration of the Loews and Cineplex
Odeon circuits and additional future investment in North American joint ventures
and international exhibition.
At November 30, 1999, we had capital spending commitments aggregating
approximately $424 million over the next three year period for the future
development and construction of 46 theatre properties comprising approximately
672 screens. At November 30, 1999, our debt balance included approximately $90
million of capital spending on theatre projects in various stages of
development. In the opinion of management, these capital commitments and the
working capital requirements will be funded by free cash flow generated from
operations and by our capital structure (debt and equity) that has been effected
subsequent to the Combination. The paragraphs below present a summary of
significant capital transactions impacting the periods reported. Also see
"Factors That May Affect Future Performance".
12
In connection with the Combination, we entered into a $1 billion Senior
Revolving Credit Facility with Bankers Trust Company, as administrative agent.
The Senior Revolving Credit Facility, together with an $84.5 million equity
contribution provided by Universal, replaced our existing Sony Corporation of
America credit facility and Cineplex Odeon's existing credit facility, funded
cash paid to SPE and/or its affiliates upon closing of the Combination and
provides ongoing financing to us to fund our working capital requirements and
the future theatre expansion in North America and internationally. This Senior
Revolving Credit Facility is comprised of two tranches, a $750 million Senior
Secured Revolving Credit Facility, secured by substantially all of our assets
and the assets of our domestic subsidiaries, and a $250 million uncommitted
facility. The Senior Revolving Credit Facility bears interest at a rate of
either the current prime rate as offered by Bankers Trust Company or an Adjusted
Eurodollar rate (as defined in the credit agreement) plus an applicable margin
based on our Leverage Ratio (as defined in the credit agreement). Our
borrowings under the Senior Revolving Credit Facility at November 30, 1999
totaled $450 million. We have entered into certain transactions which have
effectively fixed the interest rate on a significant portion of this
indebtedness for a period of one to three years.
Since the Combination, we pursued the sale of certain theatres in New York City
and Chicago that were subject to approval by the Department of Justice ("DOJ"),
in accordance with the terms of an agreement reached to permit the merger of
Loews Theatres with Cineplex Odeon. As a result, during the fourth quarter of
fiscal 1999, we sold to Cablevision Systems Corporation 33 screens in 12
theatres in New York City, in accordance with the DOJ order, and an additional
14 screens in 4 theatres in the suburban New York area for aggregate cash
proceeds of $87.5 million. A substantial portion of these proceeds were used to
pay down our Senior Revolving Credit Facility.
Under the agreement with the DOJ, we were required to sell 49 screens at 11
theatre locations in Chicago. On April 7, 1999, we completed the sale of 30
screens at 8 theatre locations in Chicago to a third-party. This transaction
was not significant to our operating results or financial position. A portion
of these proceeds was utilized to pay down the Senior Revolving Credit Facility.
Additionally, under the agreement with the DOJ, we are required to sell the
remaining 19 screens at 3 theatre locations in Chicago. No sale of these
locations has occurred and the DOJ has moved to appoint a trustee to effect the
sale of these locations.
As a result of the Combination, Plitt Theatres, Inc. ("Plitt"), Cineplex Odeon's
U.S. theatre group, became our wholly owned subsidiary. During fiscal 1999, we
commenced an offer to purchase any and all of the Plitt 10 7/8% Senior
Subordinated Notes due 2004 ("Plitt Notes"), which was completed with holders of
approximately 97% of the outstanding Plitt Notes tendering. On May 13, 1999, we
called the remaining 3% of the outstanding Plitt Notes. Payment for the called
Plitt Notes was made on June 15, 1999 in the amount of $2.5 million, which
included the premium paid to noteholders as well as the accrued and unpaid
interest.
13
Properties
At November 30, 1999, Loews Cineplex, including Star, Magic Johnson and Yelmo
Cineplex theatres, operated or had interests in 2,916 screens in 399 theatres,
of which 50 theatres were owned by us, 344 theatres were leased and 5 theatres
were operated by us under management arrangements. Our leases are entered into
on a long-term basis. The lease terms generally range from 20 to 40 years and
contain certain various renewal options, generally in intervals of 5 to 10
years. Theatre leases provide for the payment of a fixed annual rent and,
sometimes, a percentage of box office receipts or total theatre revenue. The
following tables show the locations of our screens in operation as at November
30, 1999, including our partnerships' theatres.
United States Canada
State Screens Locations Province Screens Locations
- ------------------------------------------------------- -------------------------------------------------------
Arizona 33 4 Alberta 129 17
California 80 9 British Columbia 67 11
Connecticut 20 3 Manitoba 13 3
District of Columbia 33 10 Ontario 386 57
Florida 27 2 Quebec 213 33
Georgia 12 1 Saskatchewan 27 4
Idaho 20 4 -------- -------
Illinois 310 46 Total 835 125
Indiana 51 5 ======== =======
Kentucky 9 2
Maryland 149 22
Massachusetts 93 10 International
Michigan 143 10
Minnesota 19 4 Country Screens Locations
New Hampshire 12 2 -------------------------------------------------------
New Jersey 206 20 Austria 8 1
New York 286 44 Hungary 6 1
Ohio 6 1 Spain 117 14
Pennsylvania 27 2 Turkey 5 1
Texas 186 21 ------ -------
Utah 62 11 Total 136 17
Virginia 41 6 ====== =======
Washington 120 18
-------- --------
Total 1,945 257
======== ========
14
Theatre Portfolio Changes
The following table indicates the number of theatre locations and screens and
the changes to our theatre circuit portfolio (including screens and locations
relating to all our joint ventures) for the three and nine month periods ended
November 30, 1999:
Three Months ended Nine Months ended
November 30, 1999 November 30, 1999
----------------- -----------------
North North
America Int'l Total America Int'l Total
------- ----- ----- ------- ----- -----
Locations
- ---------
Beginning Balance 390 16 406 408 15 423
New builds 2 1 3 9 2 11
Expansions - - - - - -
Dispositions (10) - (10) (35) - (35)
----- --- ----- ----- --- -----
Ending Balance 382 17 399 382 17 399
===== === ===== ===== === =====
Screens
- -------
Beginning Balance 2,784 127 2,911 2,762 119 2,881
New builds 33 9 42 147 17 164
Expansions - - - 5 - 5
Dispositions (37) - (37) (134) - (134)
----- --- ----- ----- --- -----
Ending Balance 2,780 136 2,916 2,780 136 2,916
===== === ===== ===== === =====
As a result of our continuing theatre reconfiguration program the average
screens per location has grown from 6.8 screens per location at March 1, 1999 to
7.3 screens per location at November 30, 1999. During the nine month period
ended November 30, 1999 we opened eleven theatre locations aggregating 164
screens; in the United States, we opened the Woodridge 18 in Illinois, the Great
Lakes 25 in Michigan, the Kips Bay 15 and 42/nd/ Street E-walk 13 in Manhattan,
the Metreon and Metreon IMAX comprising 16 screens in California, the Universal
20 in Florida and the North Versailles 20 in Pennsylvania; in Canada, we opened
the Grand 12 in Barrie and the Aberdeen Mall 8 in Kamloops; in Austria we opened
the Auhof Center in Vienna comprising 8 screens; in Spain we opened the Madrid
Sur comprising 9 screens. We also expanded one existing theatre location by
adding five screens.
During the nine month period ended November 30, 1999, we disposed of or closed
35 theatre locations comprising 134 screens. We also continue to review our
theatre portfolio exploring ways to accelerate the disposition of our older,
obsolete theatres.
15
New Accounting Pronouncements
We have determined that one new pronouncement that has been issued - but is not
yet effective - is applicable to us, and may have an impact on our financial
statements:
On June 23, 1999, the Financial Accounting Standards Board decided to defer the
effective date of Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activity." As a result of
this deferral, SFAS No. 133 will be effective for all of our fiscal quarters
beginning March 1, 2001. This statement standardizes the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, by requiring that we recognize those items as assets or
liabilities in the statement of financial position and measure them at fair
value.
We expect to adopt the above standard when required and we do not believe that
it will have a significant impact on our financial position or operating
results.
Effect of Inflation and Foreign Currency
Inflation and foreign currency fluctuations have not had a material effect on
our operations.
Year 2000
The Year 2000 issue is a result of computer programs being written using two
digits rather than four to define a specific year. Absent corrective actions, a
computer program that has date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. The inability to recognize or
properly treat the year 2000 may cause systems to process financial and
operations information incorrectly.
We recognized this challenge early and began work on remediation and overall
upgrades to all information systems several years ago. Our ongoing maintenance
and upgrades of our information systems have addressed any significant Year 2000
issues. Due to these upgrades and investments in information systems over the
past several years, total costs incurred to date directly related to the remedy
of the Year 2000 issues have been minimal.
To-date, as a result of the above remediation procedures of our systems to meet
business continuity concerns throughout our theatre circuit and at our corporate
offices, we have not experienced any significant functional problems related to
the Year 2000 issue. In addition, to-date, we have not experienced any
significant Year 2000 issues with respect to vendors and/or other third parties
with whom we conduct business. In the event that any Year 2000 issues arise, we
have formulated a contingency plan to address any such matters.
Cautionary Notice Regarding Forward Looking Statements
This Form 10-Q includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts included in this Form 10-Q, including, without
limitation, certain statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" may constitute forward-looking
statements. Although we believe that the expectations reflected in such forward-
looking statements are reasonable, we cannot be assured that such expectations
will prove to be correct. Important factors that could cause actual results to
differ materially from our expectations are disclosed in the following section
("Factors That May Affect Future Performance"). All forward-looking statements
are expressly qualified in their entirety by these cautionary statements.
16
Factors That May Affect Future Performance
In addition to other factors and matters discussed elsewhere herein, factors
that, in our view, could cause actual results to differ materially from those
discussed in forward-looking statements include: (1) the effect of economic
conditions on a national, regional or international basis; (2) competitive
pressures in the motion picture exhibition industry; (3) the financial resources
of, and films available to, us and our competition; (4) changes in laws and
regulations, including changes in accounting standards; (5) our high debt
levels, which may reduce our operating flexibility, may impair our ability to
obtain financing and may make us more vulnerable in a downturn; (6) our ability
to execute successfully our foreign expansion plans; (7) the interests of our
two major shareholders, SPE and Universal each of which produces and distributes
motion pictures; and (8) opportunities that may be presented to and pursued by
us.
The covenant requirements under our Senior Revolving Credit Facility may impair
our continuing ability to maintain existing financing levels and/or obtain
additional financing which may reduce our operating flexibility. We expect to
enter into discussions with our lenders and seek amendments of certain covenants
during the fourth fiscal quarter. There can of course be no assurance that we
will be able to enter into satisfactory amendments.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We have limited exposure to financial market risks, including changes in
interest rates, movement in foreign currency exchange rates and other relevant
market prices. There has been no material change in this market risk exposure
from that disclosed in our Annual Report on Form 10-K for the fiscal year ended
February 28, 1999.
17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in routine litigation and legal proceedings in the
ordinary course of our business relating to personal injury claims,
employment matters and contractual disputes. Except for those noted
below, we do not have any litigation or proceedings that we believe
will have a material adverse effect on us, individually or in the
aggregate.
Antitrust Proceedings
On April 16, 1998, the United States of America, the State of New
York, by and through its Attorney General, Dennis C. Vacco, and the
State of Illinois, by and through its Attorney General, Jim Ryan, on
one hand, and us, Sony Corporation of America, Cineplex Odeon and
Seagram Co. Ltd., on the other hand, entered into, and the Southern
District of New York ordered, a Stipulation & Order setting forth a
proposed Final Judgment relating to alleged federal antitrust
violations in New York and Illinois stemming from the Loews/Cineplex
combination. This Stipulation & Order followed the filing of a
complaint on the same day relating to these alleged violations. Under
the terms of the agreement, we were required to divest certain
theatres in New York and Chicago.
Since the Combination, we pursued the sale of certain theatres in New
York City and Chicago that were subject to approval by the Department
of Justice ("DOJ"), in accordance with the terms of an agreement
reached to permit the merger of Loews Theatres with Cineplex Odeon.
As a result, during the fourth quarter of fiscal 1999, we sold to
Cablevision Systems Corporation 33 screens in 12 theatres in New York
City, in accordance with the DOJ order, and an additional 14 screens
in 4 theatres in the suburban New York area for aggregate cash
proceeds of $87.5 million. A substantial portion of these proceeds
were used to pay down our Senior Revolving Credit Facility.
Under the agreement with the DOJ, we were also required to sell 49
screens at 11 theatre locations in Chicago. On April 7, 1999, we
completed the sale of 30 screens at 8 of these theatre locations to a
third-party. This transaction was not significant to our operating
results or financial position. A portion of these proceeds was
utilized to pay down the Senior Revolving Credit Facility.
Additionally, under the agreement with the DOJ, we are required to
sell the remaining 19 screens at 3 theatre locations in Chicago. No
sale of these locations has occurred and the DOJ has moved to appoint
a trustee to effect the sale of these locations.
ADA Litigation
On or about December 17, 1997, the Disability Rights Council of
Greater Washington and others commenced a lawsuit in the U.S. District
Court for the District of Columbia against Cineplex Odeon and our
wholly owned subsidiary Plitt Theatres, Inc. ("Plitt"). The complaint
alleged that Cineplex Odeon's theatres in the Washington, D.C.
metropolitan area, which includes Maryland and Virginia, denied
persons with physical disabilities full and equal enjoyment of
theatres as a result of architectural and structural barriers.
Furthermore, as a consequence, they alleged that Cineplex Odeon and
Plitt were discriminating against such persons in violation of the ADA
and, where applicable, the District of Columbia Human Rights Act. The
plaintiffs sought a judgment with injunctive relief ordering Cineplex
18
Odeon and Plitt to cease their alleged violation of the ADA, and to
bring their facilities into compliance with the statutes. They also
sought compensatory and punitive or exemplary damages in an unknown
amount, in addition to costs and attorneys' fees. We settled this
lawsuit during the current quarter. The amount of the settlement was
not significant to our operating results or financial position.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule (for SEC use only)
99 Supplemental Financial Information
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended November 30, 1999.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
Date: January 13, 1999
By: /s/ John J. Walker
------------------
John J. Walker, Senior Vice President
and Chief Financial Officer
By: /s/ Joseph Sparacio
-------------------
Joseph Sparacio, Vice President Finance
and Controller
20