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 May 31, 1998
Commission file number
Loews Cineplex Entertainment Corporation
----------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-3386485
- ------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
711 Fifth Avenue
New York, New York 10022
- ---------------------------- ----------------
(Address of Principal (Zip Code)
Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 833-6200
--------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----
Common Stock outstanding (including non-voting common stock) - 45,366,410 shares
at May 31, 1998
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)
May 31, February 28,
1998 1998
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 37,785 $ 9,064
Accounts receivable 15,374 5,479
Inventories 4,659 1,146
Prepaid expenses and other current assets 14,114 2,520
---------- --------
TOTAL CURRENT ASSETS 71,932 18,209
PROPERTY, EQUIPMENT AND LEASEHOLDS, NET 1,180,376 609,152
EXCESS PURCHASE PRICE 224,304 -
OTHER ASSETS
Long-term investments and advances to partnerships 28,941 31,763
Goodwill, net 83,913 53,143
Other intangible assets, net 6,503 6,005
Deferred charges and other assets 21,318 10,279
---------- --------
TOTAL ASSETS $1,617,287 $728,551
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 230,471 $ 62,934
Due to Sony affiliates - 3,810
Deferred revenue 22,122 -
Current maturities of long-term debt and other obligations 9,785 770
---------- --------
TOTAL CURRENT LIABILITIES 262,378 67,514
DEFERRED INCOME TAXES 16,174 18,299
LONG-TERM DEBT AND OTHER OBLIGATIONS 720,056 10,513
DEBT DUE TO SONY AFFILIATES - 292,523
PENSION AND OTHER POSTRETIREMENT OBLIGATIONS 9,668 3,791
OTHER LIABILITIES 13,743 11,400
---------- --------
TOTAL LIABILITIES 1,022,019 404,040
---------- --------
COMMITMENTS AND CONTINGENCIES (Note 13)
STOCKHOLDERS' EQUITY
Common stock ($.01 par value, 300,000,000 shares authorized; 44,079,924
shares issued and outstanding at May 31, 1998 and 19,270,321 shares issued
and outstanding at February 28, 1998) 441 193
Common stock-Class A non-voting ($.01 par value, 10,000,000 authorized;
1,202,486 shares issued and outstanding at May 31, 1998 and February
28, 1998) 12 12
Common stock-Class B non-voting ($.01 par value,
10,000,000 shares authorized; 84,000 shares issued and outstanding at
May 31, 1998 and nil issued and outstanding at February 28, 1998) 1 -
Additional paid-in capital 591,613 299,277
Retained earnings 3,201 25,029
---------- --------
TOTAL STOCKHOLDERS' EQUITY 595,268 324,511
---------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,617,287 $728,551
========== ========
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
---------------------------------------------
May 31, May 31,
1998 (B) 1997
---------------------- ---------------------
REVENUES
Admissions $ 83,207 $ 67,370
Concessions 31,170 23,486
Other 3,437 2,360
----------- -----------
117,814 93,216
----------- -----------
EXPENSES
Theatre operations and other expenses 85,115 67,400
Cost of concessions 4,828 3,695
General and administrative 7,946 5,937
Depreciation and amortization 14,681 12,597
----------- -----------
112,570 89,629
----------- -----------
INCOME FROM OPERATIONS 5,244 3,587
INTEREST EXPENSE 6,106 3,622
----------- -----------
LOSS BEFORE INCOME TAXES (862) (35)
INCOME TAX (BENEFIT)/ EXPENSE (119) 365
----------- -----------
NET LOSS $ (743) $ (400)
=========== ===========
Weighted Average Shares Outstanding - basic (A) 24,619,805 20,472,807
Weighted Average Shares Outstanding - diluted (A) 24,984,549 20,472,807
Loss per Share - basic $(.03) $(.02)
=========== ===========
Loss per Share - diluted $(.03) $(.02)
=========== ===========
(A) The quarter ended May 31, 1997 has been restated to reflect a stock
dividend declared on February 5, 1998.
(B) Includes the operating results of Cineplex Odeon Corporation from May 15,
1998 through May 31, 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 Three Months Ended
-----------------------------------------
May 31, May 31,
1998 1997
----------------- ----------------
OPERATING ACTIVITIES
Net loss $ (743) $ (400)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 14,681 12,597
Equity earnings from long-term investments, net of distributions
received (514) 640
Changes in operating assets and liabilities:
Decrease in deferred taxes (2,125) (953)
(Increase)/decrease in accounts receivable 291 491
Increase/(decrease) in accounts payable and accrued expenses 12,030 (1,652)
Increase/(decrease) in other operating assets and liabilities, net 3,672 (749)
--------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 27,292 9,974
--------- -------
INVESTING ACTIVITIES
Repayments/(borrowings) from partnerships 5,994 (3,556)
Investments in partnerships (2,658) -
Capital expenditures (16,117) (5,404)
Merger related costs (5,809) -
--------- -------
NET CASH USED IN INVESTING ACTIVITIES (18,590) (8,960)
--------- -------
FINANCING ACTIVITIES
(Repayment)/borrowing of debt due to Sony affiliates (299,487) 10,535
Proceeds from bank credit facility 500,000 (86)
Repayment of long-term debt (179,294) -
Proceeds on exercise of stock options 351 -
Deferred financing fees from bank credit facility (5,943) -
Dividend paid to Sony affiliate on Combination (80,108) -
Proceeds from issuance of common stock to Universal on Combination 84,500 -
--------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 20,019 10,449
--------- -------
INCREASE IN CASH AND CASH EQUIVALENTS 28,721 11,463
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 9,064 2,160
--------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 37,785 $13,623
========= =======
Supplemental Cash Flow Information:
Income taxes paid, net of refunds received $ 600 $ 917
========= =======
Interest paid (including $6,942 and $6,609 paid to Sony affiliates) $ 9,121 $ 6,861
========= =======
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 May 31, 1998, LCP
owns, or has interests in, and operates 2,794 screens at 450 theatres in 22
states and the District of Columbia, 6 Canadian provinces, Hungary and Turkey.
The Company's principal markets include New York, Boston, Chicago, Baltimore,
Dallas, Houston, Detroit, Los Angeles, Seattle, Washington D.C., Toronto,
Montreal and Vancouver. The Company holds a 50% partnership interest in each of
the Loeks-Star Theatres ("LST") and Magic Johnson Theatres ("MJT") partnerships.
LST and MJT hold interests in and operate 12 locations, comprising a total of
149 screens. Screens and locations for the partnerships are included in the
Company amounts referred to above. Since June 10, 1998, the Company also has a
50% interest in 108 screens in 13 theatre locations in Spain through a joint
venture with Yelmo Films S.A, called Yelmo Cineplex de Espana.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information; therefore, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. The business combination
with Cineplex Odeon has been accounted for under the purchase method of
accounting, and, therefore, the unaudited consolidated financial statements
include the operating results of Cineplex Odeon Corporation from the date of
combination (May 15, 1998) to May 31, 1998. Operating results for the three
months ended May 31, 1998 are not necessarily indicative of the results that may
be expected for the year ending February 28, 1999. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the year ended February 28, 1998.
NOTE 2 -- BUSINESS COMBINATION
- -------------------------------
On May 14, 1998, pursuant to the Amended and Restated Master Agreement (the
"Master Agreement") dated September 30, 1997, LTM Holdings, Inc. and Cineplex
Odeon Corporation ("Cineplex" or "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.
At the closing of the Combination, the Company issued 7,264,642 shares of Common
Stock and 80,000 shares of Class B Non-Voting Common Stock to Universal Studios,
Inc. ("Universal"), 4,324,003 shares of Common Stock and 4,000 shares of Class B
Non-Voting Common Stock to the Charles Rosner Bronfman Family Trust and certain
related shareholders (the "Claridge Group") and 6,111,269 shares of common stock
to the other shareholders of record of Cineplex Odeon Corporation, for an
aggregate value of approximately $266.8 million, in exchange for the outstanding
shares of Cineplex Odeon Corporation and its wholly-owned subsidiary, Plitt
Theatres, Inc. In addition, the Company issued 4,426,607 shares of common stock
to Universal for consideration of $84.5 million as required under a subscription
agreement and 2,664,304 shares of common stock in connection with the transfer
by Sony Pictures Entertainment Inc. ("SPE") of its interest in Star Theatres of
Michigan, Inc. ("Star") and S&J Theatres, Inc. ("S&J") to the Company.
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
- --------------------
As a result of the Combination, SPE, Universal, the Claridge Group and others
own 51.1% (49.9% voting common stock), 26.0% (26.6% voting common stock), 9.6%
and 13.3%, respectively, of LCP common stock.
The Combination has been accounted for under the purchase method of accounting
and, accordingly, the cost to acquire Cineplex Odeon will be allocated to the
assets acquired and liabilities assumed of Cineplex Odeon based on their
respective fair values, with the excess to be allocated to goodwill. The
Company has arranged for an independent valuation and other studies required to
determine the fair value of the assets acquired and liabilities assumed. These
valuations and studies have not been completed and, accordingly, the balances
reflected in the unaudited consolidated statement of financial position as of
May 31, 1998 are preliminary and subject to further revision and adjustments.
For purposes of these unaudited financial statements, the carrying value of the
Cineplex Odeon net assets acquired was assumed to approximate fair value.
Therefore, the $224.3 million of excess purchase price over the historical net
book value of the net assets of Cineplex Odeon (excluding $31million of
historical goodwill) has been classified on the unaudited balance sheet as
Excess Purchase Price and the related amortization expense reflected in the
unaudited consolidated statement of operations and the following unaudited pro
forma results of operations for the three months ended May 31, 1998 has been
recorded on a straight line basis over a forty year period.
Upon completion of the determination of fair value, the Excess Purchase Price
will be allocated to specific assets and liabilities of Cineplex Odeon. It is
anticipated that there will be reductions in the carrying value associated with
certain assets, and alternatively the fair value of certain other assets and
liabilities may exceed carrying value. Accordingly, the final valuation could
result in materially different amounts and allocations of Excess Purchase Price
from the amounts and allocations reflected in the following unaudited pro forma
results of operations and the unaudited consolidated financial statements,
primarily between goodwill, property, equipment and leaseholds and certain
liabilities resulting in corresponding changes in depreciation and amortization
amounts. For every one million dollars of Excess Purchase Price allocated to
fixed assets, depreciation and amortization will increase $25 annually (assuming
an average 20 year service life for fixed assets and straight line
depreciation). Based on preliminary estimates of fair value related to certain
assets and liabilities, additional Excess Purchase Price of between $100 million
and $150 million could result at the conclusion of the valuation. The Company
currently anticipates that the necessary valuations and related allocations will
be completed by the end of fiscal 1999.
6
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
- --------------------
The unaudited condensed pro forma results of operations presented below assumes
that the Combination occurred at the beginning of each period presented. The
unaudited pro forma information is not necessarily indicative of the combined
results of operations of LCP and Cineplex Odeon that would have occurred if the
transaction had occurred on the dates previously indicated nor are they
necessarily indicative of future operating results of the combined company.
Three Months Ended
---------------------------------------------
May 31, May 31,
1998 1997
------------------- --------------------
Revenues $214,325 $228,358
======== ========
Net loss $(14,536) $ (8,310)
======== ========
Net loss per common share $ (0.32) $ (0.18)
======== ========
NOTE 3 -- ACCOUNTS RECEIVABLE
- ------------------------------
As of May 31, 1998, accounts receivable consisted of trade receivables of
$12,248 and other receivables of $3,126. As of February 28, 1998, accounts
receivable consisted of trade receivables of $1,885 and other receivables of
$3,594.
NOTE 4 -- PROPERTY, EQUIPMENT AND LEASEHOLDS
- --------------------------------------------
Property, equipment and leaseholds totaled $1,180,376 and $609,152 as of May 31,
1998 and February 28, 1998, respectively. The increase experienced during the
period is primarily due to the inclusion of the net book value of the property,
equipment and leaseholds of Cineplex Odeon Corporation in conjunction with the
Combination. As more fully described in Note 2, for purposes of these unaudited
consolidated financial statements, the historical carrying value of Cineplex
Odeon property, equipment and leaseholds was assumed to approximate fair value
and is subject to further revision and adjustment.
NOTE 5 -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
- ------------------------------------------------
Accounts payable and accrued expenses consist of:
May 31, February 28,
1998 1998
--------------- ---------------
Accounts payable - trade $ 80,973 $36,924
Accrued expenses and other 149,498 26,010
-------- -------
$230,471 $62,934
======== =======
7
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
NOTE 6 -- LONG-TERM DEBT AND OTHER OBLIGATIONS
- -----------------------------------------------
Long-term debt and other obligations consist of:
May 31, February 28,
1998 1998
-------------- ---------------
Mortgages payable-Non-recourse, payable from 1998 through 2008.
Interest rates from 5.61% to 11.5% $ 27,373 $250
Capitalized lease obligations payable in various amounts
through 2017. Interest rates range from 8% to 16%. 29,468 11,033
Bankers Trust revolving credit facility of up to $750,000, with
interest at Base Rate (as defined) (8.5% at May 31, 1998) due
2003 473,000 -
Plitt Theatres, Inc. Senior Subordinated Notes with interest at
10.875% due 2004 200,000 -
-------- -------
729,841 11,283
Less: Current maturities 9,785 770
-------- -------
$720,056 $10,513
======== =======
On May 14, 1998, in connection with the Combination, the Company entered into a
$1 billion senior credit facility with Bankers Trust Company, as administrative
agent. The new credit facility has been used to repay all intercompany amounts
due to Sony Corporation of America and affiliates and has replaced Cineplex
Odeon's existing credit facility. This credit facility is comprised of a $750
million senior secured revolving credit facility, secured by substantially all
of the assets of LCP and its subsidiaries, and a $250 million uncommitted
facility. The credit facility bears interest, at a rate of either the current
prime rate as offered by Bankers Trust Company or an Adjusted Eurodollar rate
plus an applicable margin based on the Company's Leverage Ratio (as defined).
The senior credit facility includes various financial covenants, including a
leverage test and interest coverage test, as well as customary restrictive
covenants, including: (i) limitations on indebtedness, (ii) limitations on
dividends and other payment restrictions, (iii) limitations on asset sales, (iv)
limitations on transactions with affiliates, (v) limitations on the issuance and
sale of capital stock of subsidiaries, (vi) limitations on lines of business,
(vii) limitations on merger, consolidation or sale of assets and (viii) certain
reporting requirements. The Company's initial borrowing under the new credit
facility to fund the aforementioned transactions at the time of closing was $500
million.
The Company's revolving credit facility and Plitt Theatres, Inc. note indenture
contain certain covenants including those related to the maintenance of maximum
leverage ratios and a minimum debt service coverage ratio, as defined by the
agreements.
At February 28, 1998, the Company had debt due to a Sony Corporation of America
affiliate totaling $296,333 carrying an interest rate of 5.9%. Concurrently
with the closing of the Combination the Company repaid this debt on May 14,
1998.
8
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
NOTE 7 STOCKHOLDERS' EQUITY
- ------------------------------
The following table reconciles the Company's stockholders' equity for the period
from February 28, 1998 to May 31, 1998.
Class A Class B Additional
Voting Non-voting Non-voting Paid-in Retained
Shares Amount Shares Amount Shares Amount Capital Earnings
----- ------ ------ ------ ----- ------ ------- --------
Balances, February 28, 1998 19,270,321 $193 1,202,486 $12 - $- $ 299,277 $ 25,029
Net loss through May 14, 1998 - - - - - - - (3,944)
Exchange of existing Cineplex
Odeon shares in conjunction
with the Combination 17,699,914 177 - - 84,000 1 266,579 -
Issuance of shares to
Universal under a
subscription agreement 4,426,607 44 - - - - 84,456 -
Issuance of shares to Sony
affiliates for Star
Theatres and S&J Theatres 2,664,304 27 - - - - (27) -
Stock Options Exercise 18,778 - - - - - 351 -
Dividend to Sony affiliate - - - - - - (59,023) (21,085)
---------- ---- --------- --- ------- -- --------- ---------
44,079,924 441 1,202,486 12 84,000 1 591,613 -
Results from May 14, to
May 31, 1998 - - - - - - - 3,201
---------- ---- --------- --- ------- -- --------- --------
Balance at May 31, 1998 44,079,924 $441 1,202,486 $12 84,000 $1 $ 591,613 $ 3,201
========== ==== ========= === ====== == ========= ========
NOTE 8 -- LEASES
- -----------------
The Company conducts a significant part of its operations in leased premises.
Leases generally provide for minimum rentals plus percentage rentals based upon
sales volume and also require the tenant to pay a portion of real estate taxes
and other property operating expenses. Lease terms generally range from 20 to 40
years and contain various renewal options, generally in intervals of 5 to 10
years.
Future minimum rental commitments at May 31, 1998 and February 28, 1998, related
to operating and capital leases, having an initial or remaining noncancelable
lease term of one or more years, aggregated $1,838,309 and $521,469,
respectively. The increase in future minimum lease commitments experienced
during the period was primarily due to the inclusion of the Cineplex Odeon
commitments assumed as a result of the consummation of the Combination.
9
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
NOTE 9 -- EARNINGS PER SHARE
- ----------------------------
In 1997, the Financial Accounting Standards Board issued Statement of Accounting
Standards ("SFAS") No. 128, "Earnings per Share." SFAS No. 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented, and where appropriate, restated, to conform
with the requirements of SFAS No. 128. A reconciliation of the number of shares
used in the computations for basic and diluted net loss per share is as follows:
THREE MONTHS ENDED MAY 31, 1998
-------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
Basic EPS net loss applicable to common stock ($743) 24,619,805 ($0.03)
Effect of dilutive securities - 364,744 -
----- ---------- ------
Diluted EPS net loss ($743) 24,984,549 ($0.03)
===== ========== ======
THREE MONTHS ENDED MAY 31, 1997
-------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
Basic EPS net loss applicable to common stock ($400) 20,472,807 ($0.02)
Effect of dilutive securities
- - -
----- ---------- ------
Diluted EPS net loss ($400) 20,472,807 ($0.02)
===== ========== ======
NOTE 10 STOCK OPTIONS
- ----------------------
Pursuant to the Combination, the Company has converted the outstanding Cineplex
Odeon stock options as of May 14, 1998 into the Company's stock options. As a
result, the Company has a total of 3,413,633 stock options at a weighted average
exercise price of $13.05 outstanding at May 31, 1998. Of the total options
outstanding as of that date a total of 1,526,360 are currently exercisable.
NOTE 11 -- NEW ACCOUNTING PRONOUNCEMENT
- ---------------------------------------
The following new pronouncement has been issued but is not yet effective:
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activity," is
effective for all the Company's fiscal quarters for all fiscal years beginning
February 28, 2000. 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.
10
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
NOTE 12 -- SUBSEQUENT EVENTS
- ----------------------------
Plitt Tender Offer
- ------------------
As a result of the Combination, Plitt Theatres, Inc. ("Plitt"), Cineplex Odeon's
U.S. theatre group became a wholly owned subsidiary of the Company. Plitt has
outstanding $200 million aggregate principal amount of its 10 7/8% Senior
Subordinated Notes due 2004 (the "Plitt Notes"). Additionally, a "change of
control" was triggered under provisions of the indenture under which the Plitt
Notes were issued (the "Plitt Indenture"). Accordingly, on June 15, 1998, Plitt
commenced an offer to purchase (the "Change of Control Offer") any and all of
the Plitt Notes for cash in an amount equal to 101% of the principal amount
thereof, plus accrued and unpaid interest to (but excluding) the date of
purchase.
On June 15, 1998, Plitt commenced an at-the-market tender offer and consent
solicitation (the "At-the-Market Offer" and, together with the Change of Control
Offer, the "Plitt Note Repurchase") for any and all outstanding Plitt Notes.
Under the terms of the At-the-Market Offer, as amended on June 26, 1998, Plitt
has offered to purchase the outstanding Plitt Notes for cash at a purchase price
to be determined by reference to a fixed spread of 55 basis points over the
yield to maturity of the United States Treasury 6.25% Bonds due May 31, 1999
(the "Reference Security") on the second business day preceding the expiration
date of the At-the-Market Offer (the "Rate Date"), plus accrued and unpaid
interest to (but excluding) the date of payment. The consent solicitation
sought noteholder approval to amend the indenture in order to eliminate
substantially all of the restrictive covenants contained in the indenture. The
consent solicitation expired on July 1, 1998, when a supplemental indenture
effecting the proposed amendments was executed. On July 2, 1998, the Company
announced that the holders of more than 95% of the outstanding principal amount
of the Plitt Notes consented, in connection with the at-the-market offer, to the
above mentioned amendments. However, the proposed amendments will only become
operative upon consummation of the At-the-Market Offer. The At-the-Market
Offer, which expires on August 4, 1998, is subject to various conditions,
including no event continuing that could materially impair the benefits to the
Company of the offer and consent solicitation contemplated at the time that the
offer was commenced.
Equity Offering
- ---------------
On June 15, 1998, the Company filed a Registration Statement on Form S-1 under
the Securities Act of 1933 offering to sell 10 million shares of Common Stock,
plus up to an additional 1.5 million shares under an over-allotment option to be
granted to the underwriters.
If the offering is consummated, the Company may be obligated to issue additional
shares of Common Stock to Universal for no additional consideration pursuant to
anti-dilution provisions in the Company's subscription agreement with Universal.
Debt Offering
- -------------
On June 17, 1998, the Company commenced an offering of $200 million aggregate
principal amount of Senior Subordinated Notes due 2008 to qualified
institutional buyers in reliance on Rule 144A under the Securities Act of 1933.
11
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
NOTE 13 COMMITMENTS AND CONTINGENCIES
- --------------------------------------
The Company has entered into commitments for the future development and
construction of theatre properties aggregating approximately $290.0 million
(including letters of credit in the amount of $23.1 million). The Company has
also guaranteed an additional $45.4 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.
Additionally, the Company is committed, under the terms of the joint venture
agreement dated June 10, 1998 with Yelmo Films S.A., to provide funding for the
future development and construction of theatre properties aggregating up to
approximately $50 million. This acquisition will be accounted for under the
purchase method of accounting and the operating results of the joint venture
will be included from the date of acquisition.
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.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The following discussion of the Company's financial condition and operating
results should be read in conjunction with selected historical financial data
and the unaudited consolidated financial statements of the Company for the three
month periods ended May 31, 1998 and 1997. The information presented below
includes the results of Cineplex Odeon Corporation, which became a wholly owned
subsidiary of the Company on May 14, 1998, for the 17 day period ended May 31,
1998.
This discussion incorporates operating results of partnerships in which the
Company has interests to the extent of its equity share as required by the
equity method of accounting.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MAY 31, 1998 COMPARED TO THREE MONTHS ENDED MAY 31, 1997
Operating Revenues of approximately $117.8 million for the three months ended
May 31, 1998 were $24.6 million, or 26.4%, higher than the comparable period of
the prior year. Operating revenues are generated primarily from admission
revenues and concession sales. Admission revenues for the three months ended
May 31, 1998 of approximately $83.2 million were $15.8 million, or 23.4%,
higher, and concession revenues of approximately $31.2 million were $7.7
million, or 32.8%, higher, in comparison to the three months ended May 31, 1997.
The increases in revenue for the quarter were primarily due to the inclusion of
17 days of operating results for Cineplex Odeon of $26.5 million.
Operating Costs of approximately $89.9 million for the three months ended May
31, 1998 were approximately $18.8 million, or 26.4%, higher than the three
months ended May 31, 1997, due primarily to the inclusion of 17 days of
operating results for the Cineplex Odeon theatres of $21.1 million.
General and Administrative Costs of approximately $7.9 million for the three
months ended May 31, 1998 were $2.0 million higher than the three months ended
May 31, 1997 due primarily to the inclusion of 17 days of operating results for
Cineplex Odeon and start up costs associated with the Company's international
operations.
Depreciation and Amortization Costs of approximately $14.7 for the three months
ended May 31, 1998 were $2.1 million higher than for the three months ended May
31, 1997 due to the inclusion of 17 days of operating results for the Cineplex
Odeon theatres.
Interest Expense of approximately $6.1 million for the three months ended May
31, 1998 was $2.5 million higher than for the three months ended May 31, 1997
due primarily to the inclusion of 17 days of results for Cineplex Odeon and the
impact of additional borrowings under the Company's new credit facility.
Modified EBITDA for the three months ended May 31, 1998 of $19.9 million
increased $3.7 million in comparison to the three months ended May 31, 1997
primarily due to the inclusion of 17 days of results for Cineplex Odeon.
Modified EBITDA (earnings before interest, taxes, depreciation and amortization,
and gains/losses on asset disposal or sales) is a measure of financial
performance that management uses in measuring the Company's financial
performance. Modified EBITDA measures the amount of cash that a company has
available for investment or other uses and is used by the Company as a measure
of performance. Modified EBITDA is primarily a management tool and only one
measure of financial performance to be considered by the investment community.
Modified EBITDA is not an alternative to measuring operating results or cash
flow under U.S. GAAP.
13
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations for the three months ended May 31, 1998 was
approximately $27.3 million, which was approximately $17.3 million higher than
for the three months ended May 31, 1997. The Company derives substantially all
of its revenues from cash collected at the box office and through concession
sales. Generally, this provides the Company with a working capital operating
float since cash revenues are generally collected in advance of the payment of
related expenses.
On May 14, 1998 and in connection with the Combination, the Company repaid all
amounts outstanding under the Sony Corporation of America Credit Facility ("Sony
Facility"). At February 28, 1998, LTM Holdings Inc.'s outstanding balance
against the Sony Facility was approximately $296.3 million.
For periods prior to the closing of the Combination, the Company was included in
the consolidated federal income tax returns of SCA. For financial reporting
purposes, the Company reports its federal income tax expense and related
liability as if it filed a separate income tax return. The resultant liability
(or benefit) is treated as an intercompany payable (or receivable).
The Company has experienced, and expects to continue to realize, improved
operating results as a result of investments in theatres over the last five
years (including new builds, reconfigurations of existing theatres and closing
unprofitable or uncompetitive theatres). At May 31, 1998, the Company had
capital spending commitments for the future development and construction of 41
theatre properties comprising 608 screens aggregating approximately $290.0
million.
Additionally, the Company is committed, under the terms of the joint venture
agreement dated June 10, 1998 with Yelmo Films S.A., to provide funding for the
future development and construction of theatre properties aggregating
approximately $50 million.
LIQUIDITY AND CAPITAL RESOURCES - (POST-COMBINATION)
In connection with the Combination, the Company entered into a $1 billion senior
credit facility with Bankers Trust Company, as administrative agent. The new
credit facility, together with funds provided by Universal under the
Subscription Agreement, replaced the Sony Credit Facility and Cineplex Odeon's
existing credit facility, funded cash paid to SPE and/or its affiliates upon
closing of the Combination and will provide ongoing financing to the Company to
fund the Company's further expansion in North America and internationally. This
credit facility is comprised of a $750 million senior secured revolving credit
facility, secured by substantially all of the assets of LCP and its
subsidiaries, and a $250 million uncommitted facility. The credit facility bears
interest at a rate of either the current prime rate as offered by Bankers Trust
Company or an Adjusted Eurodollar (as defined therein) rate plus an applicable
margin based on the Company's Leverage Ratio (as defined therein).
The Company's borrowings under the new credit facility at May 31, 1998 totaled
$473 million.
As a result of the Combination, Plitt Theatres, Inc. ("Plitt"), Cineplex Odeon's
U.S. theatre group, became a wholly owned subsidiary of the Company. Plitt has
outstanding $200 million aggregate principal amount of its 10 7/8% Senior
Subordinated Notes due 2004 (the "Plitt Notes"). As a result of the
Combination, a "change of control" was triggered under provisions of the
indenture under which the Plitt Notes were issued (the "Plitt Indenture").
Accordingly, on June 15, 1998, Plitt commenced an offer to purchase (the "Change
of Control Offer") any and all of the Plitt Notes for cash in an amount equal to
101% of the principal amount thereof, plus accrued and unpaid interest to (but
excluding) the date of purchase.
14
Additionally, on June 15, 1998, Plitt commenced an at-the-market tender offer
and consent solicitation (the "At-the-Market Offer" and, together with the
Change of Control Offer, the "Plitt Note Repurchase") for any and all
outstanding Plitt Notes. Under the terms of the At-the-Market Offer, as amended
on June 26, 1998, Plitt has offered to purchase the outstanding Plitt Notes for
cash at a purchase price to be determined by reference to a fixed spread of 55
basis points over the yield to maturity of the United States Treasury 6.25%
Bonds due May 31, 1999 (the "Reference Security") on the second business day
preceding the expiration date of the At-the-Market Offer (the "Rate Date"), plus
accrued and unpaid interest to (but excluding) the date of payment. The consent
solicitation sought noteholder approval to amend the indenture in order to
eliminate substantially all of the restrictive covenants contained in the
indenture. The consent solicitation expired July 1, 1998, when a supplemental
indenture effecting the proposed amendments was executed. On July 2, 1998, the
Company announced that the holders of more than 95% of the outstanding principal
amount of the Plitt Notes consented, in connection with the at-the-market offer,
to the above mentioned amendments. However, the proposed amendments will only
become operative upon consummation of the At-the-Market Offer. The At-the-
Market Offer, which expires August 4, 1998, is subject to various conditions,
including no event continuing that could materially impair the benefits to the
Company of the offer and consent solicitation contemplated at the time the offer
was commenced.
On June 15, 1998, the Company filed a Registration Statement on Form S-1 under
the Securities Act of 1933 offering to sell 10 million shares of Common Stock,
plus up to an additional 1.5 million shares under an over-allotment option to be
granted to the underwriters.
If the offering is consummated, the Company may be obligated to issue additional
shares of common stock to Universal for no additional consideration pursuant to
anti-dilution provisions in the Company's subscription agreement with Universal.
On June 17, 1998, the Company commenced an offering of $200 million aggregate
principal amount of Senior Subordinated Notes due 2008 to qualified
institutional buyers in reliance on Rule 144A under the Securities Act of 1933.
15
New Accounting Pronouncements
The Company has determined that one new pronouncement that has been issued but
is not yet effective is applicable to the Company, and may have an impact on its
financial statements:
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activity," is
effective for all the Company's fiscal quarters for all fiscal years beginning
February 28, 2000. This statement standardizes the accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts by requiring that the Company to 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.
Cautionary Notice Regarding Forward Looking Statements
This Form 10-Q includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts included in this Form 10-Q, including, without
limitation, certain statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" may constitute forward looking
statements. Although the Company believes that the expectations reflected in
such forward looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from the Company's expectations are
disclosed in the following section ("Factors That May Affect Future
Performance"). All forward-looking statements are expressly qualified in their
entirety by the Cautionary Statements.
Factors That May Affect Future Performance
In addition to other factors and matters discussed elsewhere herein, factors
that, in the view of the Company, could cause actual results to differ
materially from those discussed in forward-looking statements include: (i) the
effect of economic conditions on a national, regional or international basis;
(ii) the ability of the Company to integrate the operations of Cineplex Odeon,
the compatibility of the operating systems of the combined companies, the degree
to which existing administrative functions and costs are complementary or
redundant; (iii) competitive pressures in the motion picture exhibition
industry; (iv) the financial resources of, and films available to, competition;
(v) changes in laws and regulations, including changes in accounting standards;
(vi) the determination of the number, job classification and location of
employee positions to be eliminated as a result of the combination of LTM
Holdings Inc. and Cineplex Odeon; and (vii) opportunities that may be presented
to and pursued by the Company.
16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Item 3 of the Company's Annual Report on Form 10-
K for the year ended February 28, 1998.
ITEM 2. CHANGES IN SECURITIES
On May 14, 1998, the Company issued (i) 291,086.591 shares of Common
Stock to a wholly owned subsidiary of Sony Pictures Entertainment Inc.
("SPE") in connection with the exchange of such shares for all of the
issued and outstanding shares of S&J Theatres, Inc., which holds the
Company's 50% interest in Magic Johnson Theatres and (ii)
2,373,217.409 shares of Common Stock to a wholly owned subsidiary of
SPE in connection with the merger of Star Theatres, Inc., which holds
the Company's 50% interest in Loeks-Star Theatres, into a wholly owned
subsidiary of the Company. Such issuances were not registered under
the Securities Act of 1933, as amended, in reliance on the exemption
provided by Section 4(2) thereof.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Plitt Tender Offer
- ------------------
As a result of the Combination, Plitt Theatres, Inc. ("Plitt"), Cineplex Odeon's
U.S. theatre group became a wholly owned subsidiary of the Company. Plitt has
outstanding $200 million aggregate principal amount of its 10 7/8% Senior
Subordinated Notes due 2004 (the "Plitt Notes"). Additionally, a "change of
control" was triggered under provisions of the indenture under which the Plitt
Notes were issued (the "Plitt Indenture"). Accordingly, on June 15, 1998, Plitt
commenced an offer to purchase (the "Change of Control Offer") any and all of
the Plitt Notes for cash in an amount equal to 101% of the principal amount
thereof, plus accrued and unpaid interest to (but excluding) the date of
purchase.
On June 15, 1998, Plitt commenced an at-the-market tender offer and consent
solicitation (the "At-the-Market Offer" and, together with the Change of Control
Offer, the "Plitt Note Repurchase") for any and all outstanding Plitt Notes.
Under the terms of the At-the-Market Offer, as amended on June 26, 1998, Plitt
has offered to purchase the outstanding Plitt Notes for cash at a purchase price
to be determined by reference to a fixed spread of 55 basis points over the
yield to maturity of the United States Treasury 6.25% Bonds due May 31, 1999
(the "Reference Security") on the second business day preceding the expiration
date of the At-the-Market Offer (the "Rate Date"), plus accrued and unpaid
interest to (but excluding) the date of payment. The consent solicitation sought
noteholder approval to amend the indenture in order to eliminate substantially
all of the restrictive covenants contained in the indenture. The consent
solicitation expired on July 1, 1998, when a supplemental indenture effecting
the proposed amendments was executed. However, the proposed amendments will only
become operative upon consummation of the At-the-Market Offer. The At-the-Market
Offer, which expires on August 4, 1998, is subject to various conditions,
including no event continuing that could materially impair the benefits to the
Company of the offer and consent solicitation contemplated at the time that the
offer was commenced.
17
Equity Offering
- ---------------
On June 15, 1998, the Company filed a Registration Statement on Form S-1 under
the Securities Act of 1933 offering to sell 10 million shares of Common Stock,
plus up to an additional 1.5 million shares under an over-allotment option to be
granted to the underwriters.
If the offering is consummated, the Company may be obligated to issue additional
shares of Common Stock to Universal for no additional consideration pursuant to
anti-dilution provisions in the Company's subscription agreement with Universal.
Debt Offering
- -------------
On June 17, 1998, the Company commenced an offering of $200 million aggregate
principal amount of Senior Subordinated Notes due 2008 to qualified
institutional buyers in reliance on Rule 144A under the Securities Act of 1933.
18
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: July 15, 1998
By: /s/ John J. Walker
-----------------------
John J. Walker
Senior Vice President and
Chief Financial Officer
By: /s/ Joseph Sparacio
-----------------------
Joseph Sparacio
Vice President and Controller
19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 (1) Amended and Restated Certificate of Incorporation of
Registrant
3.2 (2) Form of Amended and Restated By-laws of Registrant
4.1 (3) Indenture dated as of June 23, 1994, by and among Plitt
Theatres, Inc. and Cineplex Odeon Corporation and The Bank
of New York as Trustee
4.2 (1) Supplemental Indenture dated as of May 14, 1998 among
Registrant and The Bank of New York, as Trustee
4.3 Second Supplemental Indenture dated as of July 1, 1998
among Plitt Theatres, Inc., Registrant and the Bank of New
York, as Trustee
10.1 (1) Stockholders Agreement among Registrant, Sony Pictures
Entertainment Inc., Universal Studios, Inc., Charles
Rosner Bronfman Family Trust and Other Parties thereto
dated as of September 30, 1997
10.2 (1) Tax Sharing and Indemnity Agreement dated May 14, 1998 by
and among Registrant and Sony Corporation of America
10.3 (1) Sony Trademark Agreement dated May 14, 1998 by and among
Registrant and Sony Corporation of America
10.4 (1) Transition Services Agreement dated May 14, 1998 among
Registrant, Sony Corporation of America and Sony Pictures
Entertainment, Inc.
10.5 (4) Sony Entertainment Center Lease made as of May 9, 1997
between SRE San Francisco Retail Inc. and Loews California
Theatres Inc. (portions of such exhibit have been filed
separately with the Commission under an application for
confidential treatment pursuant to Rule 83 of the
Commission Rules on Organization, Conduct and Ethics, and
Information and Regulation (17 CFR (S) 200.83))
10.6 (1) Sony YBG Entertainment Center Tenant Work Agreement
10.7 (2) Form of Director Indemnification Agreement
10.8 (2) Loews Cineplex Entertainment Corporation 1997 Stock
Incentive Plan
10.9 (1) Credit Agreement dated as of May 14, 1998 among
Registrant, as Borrower, the lenders listed therein, as
Lenders, Bankers Trust Company, as Administrative Agent
and Co-Syndication Agent and Bank of America NT&SA, The
Bank of New York and Credit Suisse First Boston, as Co-
Syndication Agents
10.10 (1) Employment Agreement between Registrant and Lawrence J.
Ruisi
10.11 (5) Employment Agreement between Cineplex Odeon Corporation
and Allen Karp
10.12 (1) Assumption dated May 14, 1998 of Allen Karp Employment
Agreement by Registrant
10.13 (2) Agreement between Registrant and Seymour H. Smith, dated
May 1, 1990, including Letter Amendments dated November
14, 1991, March 9, 1993, May 10, 1995, April 11, 1996 and
June 6, 1997
10.14 (2) Agreement between Registrant and Travis Reid, dated
October 21, 1995
10.15 (2) Agreement between Registrant and Joseph Sparacio, dated
August 20, 1994, including Term Extension Letter dated
March 5, 1997
10.16 (2) Agreement between Registrant and John J. Walker, dated
June 1, 1993, including Term Extension Letter dated March
5, 1997
10.17 (2) Letter Agreement between Registrant and John C. McBride,
Jr., dated November 17, 1997
10.18 (2) Letter Agreement between Registrant and Mindy Tucker,
dated December 15, 1997
27 Financial Data Schedule (for SEC use only)
20
(1) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended February 28, 1998, Commission file number 1-14099.
(2) Incorporated by reference to the Company's Registration Statement on Form
S-4 filed on February 13, 1998, Commission file number 333-46313.
(3) Incorporated by reference to the Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994 of Cineplex Odeon Corporation, Commission file
number 1-9454.
(4) Incorporated by reference to Amendment Number 1 on Form 10-K/A to the
Company's Annual Report on Form 10-K for the fiscal year ended February 28,
1998, Commission file number 1-14099.
(5) Incorporated by reference to the Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 of Cineplex Odeon Corporation, Commission file
number 1-9454.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended May
31, 1998.
21