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, 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
--------------
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) - 58,622,646 shares
at May 31, 1999
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
CONSOLIDATED BALANCE SHEET
(ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA)
May 31, February 28,
1999 1999
----------- -------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 44,920 $ 48,174
Accounts receivable 24,355 28,590
Inventories 5,047 4,462
Prepaid expenses and other current assets 4,288 4,041
---------- ----------
TOTAL CURRENT ASSETS 78,610 85,267
PROPERTY, EQUIPMENT AND LEASEHOLDS, NET 1,129,179 1,119,977
OTHER ASSETS
Investments in and advances to partnerships 48,483 47,794
Goodwill, net 503,644 498,549
Other intangible assets, net 17,032 19,558
Deferred charges and other assets 32,502 35,056
---------- ----------
TOTAL ASSETS $1,809,450 $1,806,201
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 173,597 $ 175,943
Deferred revenue 13,245 17,241
Current maturities of long-term debt and other obligations 1,217 1,173
Current portion of capital leases 2,796 2,737
---------- ----------
TOTAL CURRENT LIABILITIES 190,855 197,094
LONG-TERM DEBT AND OTHER OBLIGATIONS 727,575 690,301
LONG-TERM CAPITAL LEASE OBLIGATIONS 61,250 61,997
ACCRUED PENSION AND POST RETIREMENT BENEFITS 9,616 9,570
OTHER LIABILITIES 174,243 181,943
---------- ----------
TOTAL LIABILITIES 1,163,539 1,140,905
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY
Common stock ($.01 par value, 300,000,000 shares authorized; 58,538,646 shares
issued and outstanding at May 31, 1999 and February 28, 1999) 586 586
Common stock-Class B non-voting ($.01 par value, 10,000,000 shares authorized;
84,000 issued and outstanding at May 31, 1999 and February 28, 1999) 1 1
Accumulated other comprehensive income (2,569) (5,063)
Additional paid-in capital 671,707 671,707
Retained deficit (23,814) (1,935)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 645,911 665,296
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,809,450 $1,806,201
========== ==========
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
2
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA)
For the Three Months Ended
----------------------------
May 31, May 31,
1999 1998 (A)
------------- -------------
REVENUES
Box office $ 141,373 $ 83,207
Concessions 53,185 31,170
Other 7,226 3,437
----------- -----------
201,784 117,814
----------- -----------
EXPENSES
Theatre operations and other expenses 161,120 85,115
Cost of concessions 7,605 4,828
General and administrative 12,135 7,946
Depreciation and amortization 26,079 14,681
----------- -----------
206,939 112,570
----------- -----------
(LOSS)/INCOME FROM OPERATIONS (5,155) 5,244
INTEREST EXPENSE 16,065 6,106
----------- -----------
LOSS BEFORE INCOME TAXES (21,220) (862)
INCOME TAX EXPENSE/(BENEFIT) 659 (119)
----------- -----------
NET LOSS $ (21,879) $ (743)
=========== ===========
Weighted Average Shares Outstanding--basic 58,622,646 24,619,805
=========== ===========
Weighted Average Shares Outstanding-- diluted 58,622,646 24,984,549
=========== ===========
Loss per Share--basic and diluted $(.37) $(.03)
=========== ===========
(A) 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 STATEMENT OF CASH FLOWS
(ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
For the Three Months Ended
--------------------------
May 31, May 31,
1999 1998
------------ ------------
OPERATING ACTIVITIES
Net loss $ (21,879) $ (743)
Adjustments to reconcile net loss to net cash (used in)/provided by
operating activities:
Depreciation and amortization 26,079 14,681
Equity earnings from long-term investments, net of distributions
received 357 (514)
Changes in operating assets and liabilities:
Decrease in deferred income taxes - (2,125)
Decrease in accounts receivable 4,235 291
(Decrease)/increase in accounts payable and accrued expenses (2,146) 12,030
(Decrease)/increase in other operating liabilities and assets, net (9,972) 3,672
-------- ---------
NET CASH (USED IN)/PROVIDED BY OPERATING ACTIVITIES (3,326) 27,292
-------- ---------
INVESTING ACTIVITIES
(Borrowings)/repayments from partnerships (125) 5,994
Investment in/advances to partnerships (921) (2,658)
Capital expenditures (34,401) (16,117)
Merger related costs (1,051) (5,809)
-------- ---------
NET CASH USED IN INVESTING ACTIVITIES (36,498) (18,590)
-------- ---------
FINANCING ACTIVITIES
(Repayment)/borrowing of debt due to Sony Corporation of America (SCA) affiliate - (299,487)
Proceeds from senior revolving credit facility 37,500 500,000
Repayment of long-term debt (930) (179,294)
Proceeds on exercise of stock options - 351
Deferred financing fees from senior revolving credit facility - (5,943)
Proceeds from issuance of common stock to Universal upon Combination - 84,500
Dividend paid to SCA affiliate in Combination - (80,108)
-------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 36,570 20,019
-------- ---------
(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (3,254) 28,721
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 48,174 9,064
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 44,920 $ 37,785
======== =========
Supplemental Cash Flow Information:
Income taxes paid, net of refunds received $ 39 $ 600
======== =========
Interest paid (including nil and $6,942 paid to SCA affiliates) $ 8,947 $ 9,121
======== =========
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, 1999, LCP
owns, or has interests in, and operates 2,908 screens at 415 theatres in 22
states and the District of Columbia, 6 Canadian provinces, Spain, Hungary and
Turkey. The Company's principal markets include New York, 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 26 locations,
comprising a total of 290 screens. Screens and locations for the partnerships
are included in the Company amounts referred to above.
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 three months ended May 31, 1998 include the operating results of Cineplex
Odeon from May 15, 1998 to May 31, 1998.
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 - BUSINESS COMBINATION, CONTINUED
- -----------------------------------------
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, for an aggregate value of
approximately $266.6 million, in exchange for the outstanding shares of Cineplex
Odeon 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.
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 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 current fiscal quarter.
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". The new
effective date will impact all 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
May 31, May 31,
1999 1998
------------ -------------
Net loss $ (21,879) $ (743)
Other comprehensive income 2,494
------------ ------------
Comprehensive loss $ (19,385) $ (743)
============ ============
The following is a reconciliation of the Company's accumulated other
comprehensive income:
1999 1998
------------ ------------
Accumulated other comprehensive
loss as of February 28, $ (5,063) $ -
Other comprehensive income for the three
months ended May 31,:
Foreign currency translation
adjustment, net of income tax
expense of $923 2,748 -
Unrealized loss on marketable
securities, net of income tax
benefit of $190 (254) -
------------ ------------
Accumulated other comprehensive
loss as of May 31, $ (2,569) $ -
============ ============
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
----------- --------- -------- -------------
May 31, 1999
Total revenue $ 158,527 $ 42,776 $ 481 $ 201,784
Loss from operations $ (1,825) $ (2,317) $(1,013) $ (5,155)
Total assets $1,446,458 $338,688 $24,304 $1,809,450
May 31, 1998
Total revenue $ 109,304 $ 8,436 $ 74 $ 117,814
Income/(loss) from operations $ 4,376 $ 891 $ (23) $ 5,244
Total assets $1,444,383 $171,946 $ 958 $1,617,287
NOTE 6 - EARNINGS PER SHARE
- ---------------------------
A reconciliation of the number of shares used in the computations for basic and
diluted net loss per share is as follows:
Number of Shares
May 31,
1999 1998
---------- ----------
Weighted average shares outstanding-Basic 58,622,646 24,619,805
Weighted average share dilution under
stock option plan - 364,744
---------- ----------
Weighted average shares outstanding-Diluted 58,622,646 24,984,549
========== ==========
NOTE 7 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
Commitments
The Company has entered into commitments for the future development and
construction of theatre properties aggregating approximately $480 million
(including letters of credit in the amount of approximately $17 million). The
Company has also guaranteed an additional $29 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.
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 - COMMITMENTS AND CONTINGENCIES, CONTINUED
- -------------------------------------------------
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 alleges that Cineplex Odeon's
theatres in the Washington, D.C. metropolitan area, which includes Maryland and
Virginia, deny persons with physical disabilities full and equal enjoyment of
theatres as a result of architectural and structural barriers. Furthermore, as
a consequence, they allege that Cineplex Odeon and Plitt are discriminating
against such persons in violation of the ADA and, where applicable, the District
of Columbia Human Rights Act. The plaintiffs are seeking a judgment with
injunctive relief ordering Cineplex Odeon and Plitt to cease their alleged
violation of the ADA, and to bring their facilities into compliance with the
statutes. They also seek compensatory and punitive or exemplary damages in an
unknown amount, in addition to costs and attorneys' fees. The Company intends
to defend this claim vigorously.
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
Other than the lawsuits noted above, the Company is a defendant in various
lawsuits arising in the ordinary course of business and is involved in certain
environmental matters. 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
month periods ended May 31, 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
full three month period ended May 31, 1999 as compared to 17 days for the same
period in the prior year. Where noted, pro forma information compares the
results for the three months ended May 31, 1999 to the three months ended May
31, 1998 for Cineplex Odeon.
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 May 31, 1999 Compared to Three Months Ended May 31, 1998
- ---------------------------------------------------------------------------
Operating Revenues of approximately $201.8 million for the three months ended
May 31, 1999 were $84.0 million higher than for the comparable period of the
prior year. Operating revenues are generated primarily from box office revenues
and concession sales. Box office revenues for the three months ended May 31,
1999 of approximately $141.4 million were $58.2 million higher, and concession
revenues of approximately $53.2 million were $22.0 million higher, in comparison
to the three months ended May 31, 1998. These increases in operating revenues
were due primarily to the inclusion of Cineplex Odeon's operating results for a
full quarter this year as opposed to 17 days in the prior year (incremental
impact of approximately $79.8 million for the quarter). Excluding the impact of
Cineplex Odeon operations, our operating revenues increased by $4.2 million, or
4.6%, due primarily to new theatre openings and increases in box office revenue
per patron of $.10. The operating revenue generated for the quarter ended May
31, 1999 includes Cineplex Odeon operating revenue of approximately $106.4
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 for the
quarter of approximately $.08 over prior year pro forma levels.
Operating Costs of approximately $168.7 million for the three months ended May
31, 1999 were approximately $78.8 million higher than for the three months ended
May 31, 1998, due primarily to the inclusion of the operating results for
Cineplex Odeon for the full three month period as compared to 17 days for the
same period in the prior year, increased costs related to the aforementioned
increase in operating revenues, higher occupancy costs attributable to new
theatre openings and higher than normal film costs. The incremental increase in
operating costs associated with the inclusion of Cineplex Odeon's operating
results for the full quarter this year was approximately $72.5 million.
Excluding the impact of Cineplex Odeon's operations, our operating costs
increased by $6.3 million, or 9%, due primarily to the increase in operating
revenues mentioned above and an increase of approximately $3.8 million 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 which was in
its early weeks of release. Cineplex Odeon's operating costs for the three
months ended May 31, 1999 were approximately $93.6 million. The operating cost
level experienced by Cineplex Odeon for the period reflects cost savings and
operating efficiencies, primarily in concession operations, which resulted in a
pro forma improvement in the concession margin experienced for the quarter from
81.3% last year to 84.7% in the current year.
10
General and Administrative Costs of approximately $12.1 million for the three
months ended May 31, 1999 were $4.2 million higher than for the three months
ended May 31, 1998 due primarily to the inclusion of the operating results for
Cineplex Odeon for the full three month period as compared to 17 days for the
same period in the prior year (net of cost savings realized as a result of the
Combination), merit increases and additional costs related to the continued
development of our international operations.
Depreciation and Amortization Costs of approximately $26.1 for the three months
ended May 31, 1999 were $11.4 million higher than for the three months ended May
31, 1998 due primarily to the inclusion of the operating results for Cineplex
Odeon for the full three month period as compared to 17 days for the same period
in the prior year, incremental depreciation related to investments in new
theatres which commenced operations in prior periods and a full quarter of
amortization of goodwill recorded as a result of the Combination.
Interest Expense of approximately $16.1 million for the three months ended May
31, 1999 was $10.0 million higher than for the three months ended May 31, 1998
due primarily to higher borrowings relating 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 of $20.9 million for the three months ended May 31, 1999
increased approximately $1.0 million in comparison to the three months ended May
31, 1998 due primarily to the inclusion of the operating results for Cineplex
Odeon for the full three month period as compared to 17 days for the same period
in the prior year and new theatre openings partially offset by the higher than
normal film rental costs previously mentioned. 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.
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. In addition, we expect to continue to realize
cost savings and operating efficiencies as a result of the Combination.
At May 31, 1999, we had capital spending commitments aggregating approximately
$480 million for the future development and construction of 53 theatre
properties comprising approximately 815 screens. At May 31, 1999, our debt
balance included approximately $115 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 which occurred
during our fiscal first quarter.
11
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 SCA 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 May 31, 1999 totaled $415.5 million.
During fiscal 1999, 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. Pursuant to this 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. We are investigating several options in order to comply with the
requirements of the agreement with the DOJ.
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.
12
Theatre Portfolio Changes
The following table indicates the number of theatre locations, screens and
changes to our theatre circuit configuration as a result of the Combination and
our theatre reconfiguration program (including screens and locations relating to
all our joint ventures) for the three months ended May 31, 1999:
Three Months ended
May 31, 1999
------------
North
America Int'l Total
------- ----- -----
Locations
- ---------
Beginning Balance 408 15 423
New builds 4 - 4
Expansions - - -
Dispositions (12) - (12)
----- --- -----
Ending Balance 400 15 415
===== === =====
Screens
- -------
Beginning Balance 2,762 119 2,881
New builds 70 - 70
Expansions 5 - 5
Dispositions (48) - (48)
------ ---- -----
Ending Balance 2,789 119 2,908
====== ==== =====
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
7.0 screens per location at May 31, 1999. During the three month period ended
May 31, 1999 we opened four theatre locations aggregating 70 screens; in the
United States, we opened the Woodridge 18 in Illinois, the Great Lakes 25 in
Michigan and the Kips Bay 15 in New York; in Canada, we opened the Grande 12 in
Barrie. We also expanded one existing theatre location by adding five screens.
During the three month period ended May 31, 1999 we disposed of or closed 12
theatre locations comprising 48 screens.
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". The new effective
date will impact 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.
13
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. We have largely
completed remediation of our systems to meet business continuity concerns
throughout the Loews Theatre circuit and at our corporate offices. As a result
of the Combination with Cineplex Odeon we have found that the point-of-sale
systems at several of the Cineplex Odeon theatres and within our Yelmo Cineplex
de Espana joint venture may not be Year 2000 compliant. Our management and
information systems department are currently evaluating these systems and will
take the necessary action to mitigate all Year 2000 concerns. Completion of the
necessary remediation on these systems is ongoing and expected to be completed
by the end of our third quarter. We will also formulate a contingency plan to
address any Year 2000 issues that may arise.
Our ongoing maintenance and upgrades of our information systems have largely
addressed any significant Year 2000 issues. Due to these significant 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 and the identifiable costs associated with the remaining Year 2000
conversion activities including our "non-information technology systems" related
facilities are not expected to be significant.
In addition, we do not currently know whether vendors and other third parties
with whom we conduct business will successfully address the Year 2000 issue with
respect to their own computer software. However, we are working with our major
vendors and other third parties to identify and address Year 2000 issues. If
our present efforts to address the Year 2000 issue are not successful, or if
vendors and other third parties with whom we conduct business do not
successfully address the Year 2000 issue, our business and financial condition
could be adversely affected.
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.
14
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.
15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
On June 24, 1999, we held our annual meeting of stockholders. At the
meeting, our stockholders (1) approved the re-election of all 16
members of our board of directors (George A. Cohon, 56,197,462 votes
for and 147,687 votes withheld; Nora Ephron, 56,195,171 votes for and
149,978 votes withheld; Marinus N. Henny, 56,200,683 votes for and
144,466 votes withheld; Ronald N. Jacobi, 56,196,828 votes for and
148,321 votes withheld; Allen Karp, 56,192,577 votes for and 152,572
votes withheld; Senator E. Leo Kolber, 54,839,070 votes for and
1,506,079 votes withheld; Kenneth Lemberger, 56,197,453 votes for and
147,696 votes withheld; Ron Meyer, 54,815,274 votes for and 1,529,875
votes withheld; Brian C. Mulligan, 54,818,616 votes for and 1,526,533
votes withheld; Yuki Nozoe, 56,199,548 votes for and 145,601 votes
withheld; Karen Randall, 56,197,293 votes for and 147,856 votes
withheld; Lawrence J. Ruisi, 56,195,563 votes for and 149,586 votes
withheld; Hellene Runtagh, 56,199,353 votes for and 145,796 votes
withheld; Howard Stringer, 56,197,728 votes for and 147,421 votes
withheld; Robert J. Wynne, 56,197,333 votes for and 147,816 votes
withheld and Mortimer B. Zuckerman, 56,196,811 votes for and 148,338
votes withheld); (2) approved and adopted our amended and restated
stock incentive plan (53,613,839 votes for, 2,709,332 votes against
and 21,978 abstentions); and (3) ratified the appointment of
PricewaterhouseCoopers LLP as our independent public accountants for
the current fiscal year (55,638,689 votes for, 684,659 votes against
and 21,801 abstentions).
ITEM 5. OTHER INFORMATION
Not Applicable
16
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 8, 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
17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 (3) Amended and Restated Certificate of
Incorporation of Registrant.
3.2 (4) Amended and Restated By-laws of Registrant.
10.1 (1) Amended and Restated Stockholders Agreement
among Registrant, Sony Pictures Entertainment
Inc., Universal Studios, Inc., The Charles
Rosner Bronfman Family Trust and Other Parties
thereto dated as of September 30, 1997.
10.2 (3) Tax Sharing and Indemnity Agreement, dated May
14, 1998, by and among Registrant and Sony
Corporation of America.
10.3 (3) Sony Trademark Agreement, dated May 14, 1998, by
and among Registrant and Sony Corporation of
America.
10.4 (3) Transition Services Agreement, dated May 14,
1998, among Registrant, Sony Corporation of
America and Sony Pictures Entertainment Inc.
10.5 (3) 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
SEC under an application for confidential
treatment pursuant to Rule 83 of the SEC Rules
on Organization, Conduct and Ethics, and
Information and Regulation (17 CFR (S) 200.83)).
10.6 (3) Sony YBG Entertainment Center Tenant Work
Agreement.
10.7 (1) Form of Director Indemnification Agreement.
10.8 (6) Amended and Restated Loews Cineplex
Entertainment Corporation 1997 Stock Incentive
Plan.
10.9 (3) 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 (5) Indenture, dated as of August 5, 1998, by and
among Registrant and Bankers Trust Company, as
Trustee.
10.11 (3) Employment Agreement between Registrant and
Lawrence J. Ruisi.
10.12 (2) Employment Agreement between Cineplex Odeon
Corporation and Allen Karp.
10.13 (4) Amended and Restated Employment Agreement
between Cineplex Odeon Corporation and Allen
Karp, dated November 28, 1997.
10.14 (3) Assumption dated May 14, 1998 of Allen Karp
Employment Agreement by Registrant.
10.15 (1) 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.
10.16 (1) Agreement between Registrant and Travis Reid,
dated October 21, 1995.
10.17 (1) Agreement between Registrant and Joseph
Sparacio, dated August 20, 1994, including Term
Extension Letter dated March 5, 1997.
10.18 (1) Agreement between Registrant and John J. Walker,
dated June 1, 1993, including Term Extension
Letter dated March 5, 1997.
10.19 (1) Letter Agreement between Registrant and John C.
McBride, Jr., dated November 17, 1997.
10.20 (1) Letter Agreement between Registrant and Mindy
Tucker, dated December 15, 1997.
10.21 (4) Letter Agreement between Registrant and J.
Edward Shugrue, dated December 15, 1997.
27 Financial Data Schedule (for SEC use only)
18
(1) Incorporated by reference from Loews Cineplex's Registration
Statement on Form S-4 filed on February 13, 1998, Commission file
number 333-46313.
(2) Incorporated by reference from Cineplex Odeon's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996, Commission
file number 1-9454.
(3) Incorporated by reference from Loews Cineplex's Annual Report on
Form 10-K for the fiscal year ended February 28, 1998, as
amended, Commission file number 1-14099.
(4) Incorporated by reference from Loews Cineplex's Registration
Statement on Form S-1 filed on June 15, 1998, as amended,
Commission file number 333-56897.
(5) Incorporated by reference from Loews Cineplex's Registration
Statement on Form S-4 filed on October 13, 1998, Commission file
number 333-64883.
(6) Incorporated by reference from Loews Cineplex's Definitive Proxy
Statement for the fiscal year ended February 28, 1999, Commission
file number 1-14099.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter
ended May 31, 1999.
19