ITEM 1. BUSINESS
Loews Cineplex Entertainment Corporation ("Loews Cineplex", "we", "us" or "our") is one of the world's largest theatre exhibition companies in terms of revenues and operating cash flow.
As a result of, among other things, the factors described below, on February 15, 2001, Loews Cineplex and all of its wholly owned U.S. subsidiaries filed voluntary petitions to reorganize under Chapter 11 ("Chapter 11") of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). In Canada, an order (the "Initial Order") to initiate a restructuring of obligations and operations under the Companies' Creditors Arrangement Act ("CCAA") was obtained on February 15, 2001 from the Ontario Superior Court of Justice (the "Superior Court") for our wholly owned subsidiary, Cineplex Odeon Corporation ("Cineplex Odeon") and certain of its other Canadian subsidiaries. Additionally, on February 26, 2001, Loews Cineplex's wholly owned Austrian subsidiary, LCE Europlex KinobetriebsgmbH ("LCE Europlex") filed a petition for bankruptcy in Vienna, Austria, and on March 16, 2001, we filed a petition for bankruptcy in Warsaw, Poland on behalf of our wholly owned Polish subsidiary. We are presently operating our businesses as debtors-in-possession in the U.S. and pursuant to the Initial Order in Canada (hereinafter referred to as "Debtors" with respect to both our U.S. and Canadian operations). We are authorized to operate our business in the ordinary course. See the "Bankruptcy Proceedings" section below for further information.
Effective February 15, 2001, we were delisted by the New York Stock Exchange ("NYSE") and therefore, our stock is no longer traded on the NYSE. Our stock continues to be listed on The Toronto Stock Exchange.
Loews Cineplex was formed by the combination, completed on May 14, 1998, of the Loews Theatres exhibition business of Sony Pictures Entertainment Inc. ("SPE"), a wholly owned subsidiary of Sony Corporation of America ("SCA"), and Cineplex Odeon, another major motion picture exhibitor with operations predominantly in the U.S. and Canada (the "Combination"). Loews Cineplex was the first commercial motion picture exhibitor in the U.S., perhaps the world, with operations beginning in 1904, when Marcus Loew set up a "nickelodeon" in a rented room above a penny arcade store in Cincinnati, Ohio. Our theatre circuits have grown over the years through internal development and acquisitions. Today, we operate theatres under the Loews Theatres and Cineplex Odeon names. Our partnerships and joint ventures operate theatres under the Star, Magic Johnson, Yelmo Cineplex and Megabox names.
As of February 28, 2001, we owned, operated or had an interest in 2,563 screens at 294 locations. Of these, 2,375 screens were located in 20 U.S. states, the District of Columbia and six Canadian provinces. See "Portfolio Management" section below for further discussion. Our screens represent approximately 6.4% of all exhibition screens in North America. Our screens are mainly concentrated in densely populated urban and suburban areas, with a strong presence in metropolitan New York, Boston, Chicago, Baltimore, Dallas, Houston, Detroit, Los Angeles, Seattle, Washington, D.C., Toronto, Montreal and Vancouver. Approximately 77% of our U.S. theatres are located in the 10 largest areas of dominant influence (ADI) in the U.S., and 76% of our Canadian theatres are located in the top 10 ADIs in Canada. ADIs are television markets, defined by A.C. Nielsen Company/EDI - an international media research firm, that are used as benchmarks by certain entertainment marketers. ADI markets generally contain concentrations of substantial populations. The exhibition industry uses ADI as an important media measure since there is a correlation between television and movie viewing audiences.
Loews Cineplex holds a 50% partnership interest in each of Star Theatres and Magic Johnson Theatres. As of February 28, 2001, these partnerships held interests in and operated 15 locations with a total of 216 screens. The Star theatre locations are concentrated in the metropolitan Detroit, Michigan area. The Magic Johnson theatres are located in densely populated urban areas with predominantly minority populations. Additionally, our exhibition assets include a 50% interest in 161 screens in 18 locations in Spain through a joint venture established on June 10, 1998 with Yelmo Films S.A., a leading local Spanish exhibitor. We will continue to build additional theatres in Spain through this joint venture. We also have a presence in Korea where we hold a 24% interest in a joint venture that operates the 16-screen Megabox theatre. Screens and locations for all of these partnerships are included in the Loews Cineplex amounts referred to above.
Currently, our principal stockholders include SPE, Universal Studios, Inc. ("Universal") and The Charles Rosner Bronfman Discretionary Trust and related stockholders (the "Claridge Group"), which own 39.5%, 25.5% and 7.3%, respectively, of our capital stock and collectively own approximately 72.5% of our capital stock and 72.4% of our voting common stock.
LTM Holdings, Inc., our predecessor, was incorporated under the laws of the State of Delaware in 1986. Our principal offices are located at 711 Fifth Avenue, New York, New York 10022, and our telephone number is (212) 833-6200.
Our Internet home page is: www.loewscineplex.com. You can learn more about us by visiting our website.
Current Exhibition Industry Environment
During the five years prior to the current year, the annual North American theatre attendance level had experienced a gradual increase from 1 billion to over 1.47 billion patrons and a steady increase in ticket prices driving the industry-wide box office from $5.0 billion in 1990 to over $7.5 billion in 1999. However, during the current year, the industry experienced a downturn in attendance of approximately 3% as reflected in year over year operating performance measures. Although box office revenues have increased due to increased ticket prices, cash flow generated from operations has been diminished by the higher costs of operating so many screens in addition to movie studios getting a larger portion of box office receipts due to shorter film run times (see additional discussion below).
In addition, distributors have changed release patterns over the past several years, opening films with significant box office potential on an increasing number of screens and reducing the "zones of exclusivity" previously held by exhibitors. Generally, the number of screens for a wide film release has increased and, while major film releases may have the same number of play dates, the run has been compressed into a shorter period of time over a larger number of screens. The pressure on distributors to make a significant impact in the opening weekend for certain films has led to distributors' willingness to play films on screens in closer proximity to maximize initial box office results which are at high film rent terms to the exhibitor. This quick "burn off" of film has resulted in an industry-wide increase in film cost (as a percentage of box office revenue) over the past several years. It is important that the number of older, obsolete industry-wide screens be reduced significantly to relieve some of the current pressure being experienced related to film terms.
The exhibition industry continues to experience significant liquidity pressures caused by a number of factors including the recent downturn in attendance as reflected in year over year operating performance measures, the moderate to aggressive new build strategies employed by the industry's larger exhibitors which, coupled with the difficulty in closing older, obsolete theatres, has resulted in an oversupply of theatre screens in many North American markets, impairment write-offs and losses on theatre dispositions, the continued downward credit ratings of the industry and the recent bankruptcy filings by several theatre chains, including five of the eleven largest exhibitors, and defaults of certain loan agreements which have been publicly disclosed. The greater number of screens in North America caused by the industry's building new theatres and the lack of a corresponding number of theatre closures in the same period have resulted in a saturation of screens and have contributed to shortened lengths of film run times and increased film cost percentages paid by exhibitors to distributors. These factors, as well as the industry's disappointing operating performance, have contributed to significant reductions in the prices of publicly traded debt and equity securities and have materially reduced the industry's access to capital, making it increasingly difficult to meet obligations as they become due. In addition, the industry has generally fallen out of favor with investors and lenders due to the liquidity issues noted above and due to a lack of credit support from the usual capital markets. The industry has fallen on hard times and is presently going through one of the most significant and unprecedented reorganizations in its history. We have been negatively affected by these events and have experienced significant pressures on our liquidity and our ability to meet obligations as they became due. In an effort to relieve the pressures on our liquidity, we were active in pursuing possible solutions including seeking capital through other sources including asset securitizations, equity offerings, sale-leaseback transactions, strategic alliances with other exhibitors, a consensual restructuring of our capital structure or a restructuring of certain of our subsidiaries. We were unable to implement these transactions on the scale required to relieve us from the continued deterioration in our liquidity and cash flow. These conditions are among the factors that led up to us filing for bankruptcy protection.
On February 14, 2001, we signed a letter of intent with Onex Corporation, Oaktree Capital Management, LLC and Pacific Capital Group, Inc. regarding a proposed acquisition of us and a restructuring of our outstanding indebtedness which would be consummated pursuant to a Chapter 11 plan of reorganization and a Canadian CCAA plan of arrangement. Under this proposed acquisition and restructuring, those parties to the letter of intent that hold our bank debt would convert $250 million of the bank debt they currently hold into 88% of the outstanding equity of the Company with the remaining 12% of the equity plus warrants to purchase an additional 5% of such equity being distributed to our unsecured creditors. Under the terms of the letter of intent, the investor group was granted an exclusivity period of 30 days to consummate a definitive agreement with regard to our recapitalization and restructuring. This exclusivity period ended on March 17, 2001. Since that time, Pacific Capital Group, Inc. has indicated that it is no longer interested in pursuing a restructuring transaction involving Loews Cineplex. While the remaining parties continue discussions with regard to restructuring our capital structure, there is no guarantee that a restructuring will be completed.
Bankruptcy Proceedings
On February 15, 2001, Loews Cineplex and all of its wholly owned U.S. subsidiaries filed voluntary petitions to reorganize under Chapter 11 in the U.S. Bankruptcy Court. On February 27, 2001, the Office of the United States Trustee for the Southern District of New York (the "U.S.
Trustee") appointed a statutory committee of unsecured creditors (the "Creditors' Committee") to represent the interests of the Debtors' unsecured creditors. The Creditors' Committee has the right to review and object to certain business transactions and may participate in the formulation of our long-term business plan and plan of reorganization. We are required to reimburse certain fees and expenses of the Creditors' Committee, including fees for attorneys and other professionals, to the extent allowed by the Bankruptcy Court. In Canada, the Initial Order was obtained on February 15, 2001 from the Superior Court for our wholly owned subsidiary, Cineplex Odeon and certain of its other Canadian subsidiaries. Additionally, on February 26, 2001, Loews Cineplex's wholly owned Austrian subsidiary, LCE Europlex, filed a petition for bankruptcy in Vienna, Austria. Effective as of February 25, 2001, LCE Europlex abandoned an existing eight-screen theater to the care of the landlord and notified the landlord for a project in development that the Company will not be completing and operating that theater in accordance with the terms of the lease. As a result of this course of action, we no longer have any operations or presence in Austria. Also, on March 16, 2001, we filed a petition for bankruptcy in Warsaw, Poland on behalf of our wholly owned Polish subsidiary LCE Polska Holding Sp. z o.o.
We are presently operating our businesses as debtors-in-possession in the U.S. and pursuant to the Initial Order in Canada. We are authorized to operate our business in the ordinary course.
In order to provide liquidity over the next fiscal year, we entered into an agreement dated February 15, 2001, as amended, with a group of lenders led by Bankers Trust Company, as Administrative Agent, for a debtor-in-possession credit facility (the "DIP Facility"). The DIP Facility was approved by the Bankruptcy Court on April 4, 2001. The debtor-in-possession commitment that we received from Bankers Trust is for approximately $146 million, $60 million of which consists of a revolving credit line with the remaining $86 million used to repay post-default advances (i.e., subsequent to August 31, 2000) made under our Senior Revolving Credit Facility, which were secured with mortgages on eleven of our existing theatre properties, and to provide for outstanding letters of credit. The $60 million revolving credit facility included in the DIP Facility will be used (i) to finance our operations in the normal course of business during the restructuring process (including the required adequate protection payment and funding the operating requirements and certain capital projects of Cineplex Odeon Canada -up to a maximum of $20 million) and (ii) to complete certain "designated" construction projects, currently under construction, which were committed prior to the petition date. The terms of the DIP Facility also require us to make adequate protection payments on a monthly basis on the pre-default amounts borrowed under our Senior Revolving Credit Facility (approximately $655 million). The amount of the monthly adequate protection payments is based on the base rate of interest plus 150 basis points. This DIP Facility, which expires on the earlier of January 31, 2002 or upon the occurrence of certain other events including the effectiveness of a plan of reorganization, is designed to provide liquidity to allow us to operate in the ordinary course and meet certain of our funding commitments for completion of certain theatre complexes now under construction in North America. Refer to the Liquidity and Capital Resources section in Item 7 and Notes 1 and 11 to the Consolidated Financial Statements in Items 8 and 14(a) for further discussion.
As a result of the Chapter 11 filing, substantially all actions to secure the payment of pre-petition indebtedness are subject to compromise or other treatment under a plan of reorganization. Generally, actions to enforce or otherwise effect payment of pre-Chapter 11 liabilities are stayed. Pre-petition claims secured by our assets ("secured claims") are also stayed, although the holders of such claims have the right to move the court for relief from the stay. Pre-petition secured claims (primarily representing amounts borrowed under our Senior Revolving Credit Facility) are generally secured by all personal property and certain real property of Loews Cineplex and our domestic subsidiaries, a pledge of stock of all domestic subsidiaries and our equity interest in and loans to our foreign subsidiaries. Although pre-petition claims are generally stayed, as part of the first day orders and subsequent motions granted by the Bankruptcy Court, the Bankruptcy Court approved our motions to pay certain pre-petition obligations including: (i) payments, on normal terms, to film distributors, (ii) continuing to honor gift certificates, movie passes and other customer programs, (iii) payment for employee wages and related benefits and reimbursement of employee business expenses and (iv) adequate protection payments to the lenders of our Senior Revolving Credit Facility. We have been and intend to continue to pay undisputed post-petition claims of all vendors, film distributors and other suppliers in the ordinary course of business. In addition, we may reject pre-petition executory contracts and unexpired leases with the approval of the Bankruptcy Court with respect to our U.S. operations. Any damages resulting from rejection of executory contracts and unexpired leases are treated as general unsecured claims in the United States. We will notify all known claimants subject to the bar date of their need to file a proof of claim with the Bankruptcy Court. A bar date is the date by which claims against us must be filed if the claimants wish to receive any distribution in the Chapter 11 case. No bar date has yet been set by the Bankruptcy Court. Differences between liability amounts estimated by us and claims filed by creditors will be investigated and the Bankruptcy Court will make a final determination of the allowable claim. The determination of how liabilities will ultimately be settled and treated cannot be made until the Bankruptcy Court approves a Chapter 11 plan of reorganization.
As a result of the Initial Order of the Superior Court, substantially all actions to enforce or otherwise effect payment of pre-filing obligations of Cineplex Odeon and its subsidiaries are stayed. The rights of secured creditors to enforce against our Canadian assets are also stayed. The stay period expires on June 15, 2001 and Cineplex Odeon intends to seek an extension thereof; the granting of an extension is within the discretion of the Superior Court. The Initial Order permits (i) payments on normal terms to persons supplying goods and services after the date of the Initial Order, including film
suppliers, as well as certain pre-filing claims, (ii) continuing to honor gift certificates, movie passes and other customer programs, (iii) payment for employee wages and related benefits and reimbursement of employee business expenses as well as statutory severance pay and (iv) the borrowing of up to $20 million from Loews Cineplex and the granting of security by the assets of Cineplex Odeon and its subsidiaries to secure such borrowings. Cineplex Odeon has been and intends to continue to pay undisputed post-filing claims of all vendors, film suppliers and other suppliers in the ordinary course of business. In addition, the Initial Order permits the repudiation of unexpired leases of Cineplex Odeon and its subsidiaries. Landlords whose leases have been repudiated will be entitled to file a claim in the CCAA proceedings in respect of such repudiation. The treatment of such claims has yet to be determined and will be set out in a plan of compromise and arrangement to be presented by Cineplex Odeon to the Superior Court and to its affected creditors. A claims process and claims bar date must also be established to determine the claims entitled to vote on a plan as well as to receive distributions thereunder. This will be determined by an order of the Superior Court. Ultimately, any plan of compromise or arrangement must be approved by a vote of a majority in number of creditors of each class of creditors affected by the plan as well as by a vote of holders of two-thirds of the value of the claims of each such class. If such a vote is favorable, the plan must then be sanctioned by the Superior Court.
Fiscal 2001 Overview
For the fiscal year ended February 28, 2001, we had revenues of $903.5 million, 70% of which came from box office receipts and 30% from concession sales and other revenues. Based on publicly available data, our share of the total industry box office receipts in North America during fiscal 2001 was approximately 8.7% (including 100% of the operations of our joint ventures and partnerships). Our current year revenues decreased $26.9 million in comparison to the prior year revenues of $930.4 million due to a significant decline in attendance primarily due to lower industry-wide attendance levels (approximately 3%) in comparison to the prior year (particularly driven by the "sub-par" performance of the summer and fall film product) and the continued decline in attendance at many of our older theatres. These decreases were partially offset by the positive impact of new theatre openings and improvements in admission and concession revenues per patron. For the fiscal year ended February 28, 2001, we generated $100.0 million of Modified EBITDA (earnings, including equity earnings from investments in partnerships and joint ventures, before cumulative effect of change in accounting principle, interest, taxes, depreciation and amortization, loss on sale/disposal of theatres and other, restructuring charges and reorganization costs) which was $44.4 million lower as compared to the prior year. This decrease was due primarily to the aforementioned shortfall in attendance levels partially offset by the favorable impact of new theatre openings, higher admission and concession revenues per patron and reductions in our overhead levels in our U.S. and Canadian operations. We have incurred a significant net loss in fiscal 2001. The fiscal year 2001 net loss of $436.2 million includes charges for (i) loss on sale/disposal of theatres and other of $245.8 million, (ii) reorganization costs of $42.1 million and (iii) restructuring charges of $12.7 million. Additionally, the net loss for the fiscal year ended February 28, 2001 also includes a one-time charge of $7.8 million to reflect adoption of Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements", regarding the accounting for our Passport and Gift Certificate Programs. This $7.8 million charge is referred to as "Cumulative Effect of Change in Accounting Principle" on the face of the statement of operations. See additional discussion in Results of Operations for the fiscal year ended February 28, 2001 compared to the fiscal year ended February 29, 2000 in Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations and the Notes to the Consolidated Financial Statements included in Items 8 and 14(a).
Portfolio Management
The following table indicates the number of theatre locations and screens and changes in each during the five fiscal years ended February 28, 2001. These figures include screens and locations operated by Star, Magic Johnson, Yelmo Cineplex and Megabox.
Note: The fiscal 2001 dispositions in the table above include 11 locations comprising 71 screens which closed on March 1, 2001. All data as of February 28, 2001 and for the fiscal year then ended in this Annual Report on Form 10-K gives effect to these dispositions.
We continue to close or dispose of certain overlapping theatre locations and underperforming theatres, including older, obsolete theatres that contribute only minimally to cash flow from operations or are operating at a loss. As a result of management's plan to accelerate the disposal of theatres due primarily to continued weak operating performance and the continued industry downturn, we targeted 189 locations comprising 1,160 screens for accelerated disposition or closing including 108 locations comprising 645 screens in the U.S., 79 locations comprising 501 screens in Canada and 2 locations comprising 14 screens internationally. These theatres generated $215.4 million in revenues and $22.2 million in negative operating cash flow during fiscal 2001. While in the aggregate these theatres generate significant revenues, the disposition or closure of these screens will improve our operating cash flow on an ongoing basis. In addition to the aforementioned locations, we have also cancelled the development of five previously committed projects. Through the end of fiscal year 2001, 107 of these locations (aggregating 587 screens) have been closed, including 11 locations comprising 71 screens which closed on March 1, 2001. The remaining 82 locations (573 screens) are targeted for disposal and/or renegotiation during fiscal year 2002. We anticipate that we will be successful in closing these theatres targeted for disposal because as debtors-in-possession in the U.S. and pursuant to the Initial Order in Canada, we have the right, subject to Bankruptcy Court and Superior Court approval and certain other limitations, to reject/repudiate unexpired leases. In bankruptcy to date, we have rejected 69 of these theatre leases in the U.S., repudiated 32 of these theatres in Canada and terminated four of these leases in Austria and Poland. As a result of our continued review of the leases in our portfolio and the results of the lease renegotiation process, additional leases may be targeted for rejection/repudiation or restructuring in the future.
Theatre Operations
Nearly all of our screens are located in multiscreen theatres. Our theatres averaged 8.7 screens as of February 28, 2001. This ratio should increase by closing theatres (including many smaller, older and/or obsolete theatres), through the selective construction of larger multiplex or megaplex theatres and by expanding certain existing theatres. However, our current expansion plans have been materially reduced as a result of our capital constraints and the Chapter 11 and CCAA filings. Multiplex theatres enable us to present a variety of films appealing to several segments of the movie-going public, while serving patrons from common facilities (i.e., box office, concession areas, restrooms and lobbies). This strategy enables us to operate more efficiently and uses more of our theatre capacity. Also, we continually seek to maximize cash flows through adherence to cost containment practices and initiatives.
We rely upon advertising and movie schedules in newspapers as well as on our website to inform our patrons of film selections and show times. We also exhibit previews of coming attractions and films presently playing on other screens.
Additionally, we provide a comprehensive offering of remote ticketing services, showtimes, reviews and movie trailers through an internet movie portal company that we initially developed with five other major movie theatre companies.
We are continually seeking other potential revenue opportunities in addition to box office and concession revenues. We believe we can be an attractive medium for advertising and joint marketing and promotion efforts, due to our offering access to mass audiences. In fiscal 2001, we had approximately 128 million patrons, with highly attractive demographics. We maintain on-screen advertising programs in all of our theatres with local and national advertisers. Additionally, during fiscal year 2000, we entered into a 3 year deal in Spain (through our Yelmo Cineplex joint venture) with an outside third party whereby we receive compensation for on-screen advertising based upon actual attendance levels. We are continuing to explore additional advertising and marketing programs with other world class consumer product companies in North America and internationally.
We have also generated additional revenue through the leasing of our theatres for motion picture premieres and screenings, corporate events and private parties. Some of our theatres have earned reputations as the "preferred" theatres for these events given their locations in key urban markets as well as their upscale settings.
Competition
The U.S. motion picture exhibition industry is generally fragmented, with eleven large companies owning or operating a majority of screens. The following table presents the eleven largest exhibition companies in North America by box office revenue, screens and theatres according to the most recent publicly available information:
Box Office Company Revenues (millions) Screens Theatres - -------------------------- ------------------- ------- -------- Regal/Act III $ 767.1 4,328 391 AMC Entertainment $ 763.1 2,903 211 Loews Cineplex (1) $ 714.5 2,563 294 Cinemark Cinemas $ 511.3 2,938 273 United Artists Theatres $ 372.4 1,599 213 Carmike Cinemas $ 315.4 2,438 352 GC Companies $ 237.1 685 78 National Amusements N/A 1,079 99 Hoyts Cinemas Corp N/A 926 106 Edwards Theatres N/A 730 63 Century Theatres N/A 722 75
(1) Includes 100% of our partnerships.
In 2000, U.S. motion picture attendance was approximately 1.42 billion which was approximately 3% lower in comparison to the prior year, and box office revenues exceeded $7.66 billion, a 2% increase over 1999. The average ticket price for 2000 was $5.39, an increase of 6% over 1999.
Exhibitors' primary revenues are derived from box office sales of tickets and sales of concession products. Box office revenues are directly related to:
. attendance, which is driven by the quality of the movie-going experience, including the comfort, cleanliness and convenience of the location of theatres,
. the content and quality of film product distributed by major motion picture and independent film studios,
. the ticket price,
. the quality of projection and sound presentation, and
. the level of customer service.
Exhibitors sell concessions, which consist of food and beverages, at stands in the theatres, and the revenues they generate are largely dependent on attendance levels, theatre staffing, training and the type and quality of products offered.
Exhibitors' primary operating costs include:
. film costs for licensing rights paid to motion picture distributors,
. costs of concession products and related supplies and services,
. labor,
. occupancy costs, including theatre rents and real estate taxes, and
. advertising.
Relationship Between Motion Picture Production and Distribution and Motion Picture Exhibition. The motion picture exhibition and the motion picture production and distribution industries are closely related. Motion picture theatres are the primary initial distribution channel for new motion picture releases. Theatrical success of a motion picture is often the most important factor in establishing its value in cable television, pay-per-view, videocassette and other markets. At the same time, the ultimate success of an exhibitor's box office depends on the quality, quantity, availability and acceptance by movie-going patrons of the motion pictures produced by production companies and licensed to the motion picture exhibitors by distribution companies.
A few major movie studios and their distribution operations dominate the motion picture production and distribution industry in North America. These include Columbia, TriStar, Universal, The Walt Disney Company, Warner Bros., Paramount Pictures, Twentieth Century-Fox, Metro-Goldwyn-Mayer, and Dreamworks. Based on box office receipts, these studios account for approximately 92% of the motion pictures exhibited in North America.
Film Licensing. In order to secure motion pictures, exhibitors must engage in negotiations with film distributors for licensing rights of first run feature motion pictures. Exhibitors and distributors conduct negotiations on a film-by- film and theatre-by-theatre basis. Film exhibition licenses typically specify rental fees based upon weekly box office receipts. The distributor generally receives the greater of the specified percentage of the box office receipts or 90% of the amount left after deducting an agreed upon house overhead allowance from box office receipts. The specified percentage generally declines over the term of the engagement and may be negotiated either prior to, or at the conclusion of, the engagement.
If there are multiple exhibitors in a film zone, a distributor may offer the exhibitors the opportunity to bid, select a customer, or allocate its films among some or all of the exhibitors in the zone. When films are not awarded on bid, the exhibitor and distributor directly negotiate the terms of the engagement. Over the past several years all films have been licensed to us by direct negotiation.
It is also important to note that the distribution of film product in Canada is based on historical relationships that result in the two major exhibitors (Famous Players and us) primarily playing product from specific suppliers. As a result, there can be large fluctuations from year to year in box office revenue performance based on the strength of a particular studio's film product. Even though this situation has recently changed moderately, the traditional relationships still hold in most of the major markets. One of the challenges faced by us is to balance existing relationships with distributors in order to receive the broadest mix of film product for our theatres in Canada.
We continue to receive film product in the ordinary course. We have not experienced any interruption of film supply as a result of the Chapter 11 and CCAA filings and we continue to enjoy a supply of film product from all distributors. We have received Bankruptcy Court and Superior Court approval to pay in full all of our pre-petition and post-petition obligations to film distributors in the normal course of business.
Segment Information
See Note 16 to our Consolidated Financial Statements included in Items 8 and 14(a).
Seasonality
The release of motion pictures is often seasonal, with a disproportionate number of major motion picture releases taking place during the summer and holiday seasons. This may cause significant changes, from quarter to quarter, in our attendance levels, theatre staffing levels and reported results. We expect this industry-wide trend to continue.
Government Regulation
In the United States, federal and state antitrust laws in large part regulate the distribution of motion pictures. These laws have been the subject of numerous antitrust cases. The most significant of these cases is U.S. v. Paramount Pictures Inc., et al., which was affirmed by the U.S. Supreme Court in 1950. The decision from the Paramount case binds most major film distributors and requires the distributors to offer and license their films to exhibitors on a film-by-film and theatre-by-theatre basis. Consequently, we cannot be assured of a supply of motion pictures by entering into long-term arrangements with major distributors. Instead, we must compete and negotiate for licenses on a film-by-film and theatre-by-theatre basis.
Motion picture exhibitors are also subject to certain U.S. and Canadian federal, state, provincial and local laws governing such matters as construction, renovation and operation of their theatres, employee wages and working conditions, and health and sanitation regulations. We believe all of our theatres are in compliance with these requirements. We are also subject to the evolving laws and increased public attention on the accessibility of our theatres to persons with physical disabilities.
Employees
As of February 28, 2001, we employed approximately 14,000 employees, including approximately 1,415 full-time and 12,585 part-time employees. Our employment levels are generally directly related to seasonal changes in business activity. We are a party to collective bargaining agreements with 30 unions, of which approximately 1,365 employees are members. We believe that our employee relations are generally good.
Cautionary Notice Regarding Forward Looking Statements
This Annual Report on Form 10-K 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 included in this Annual Report on Form 10-K, other than statements of historical facts, may constitute forward-looking statements. Although we believe that the expectations reflected in such forward looking statements are reasonable, we cannot be assured that the expectations will prove to be correct. Important factors that could cause results to differ materially from our expectations are disclosed below. All forward-looking statements are expressly qualified in their entirety by these cautionary statements.
Factors That May Affect Future Performance
In addition to other factors and matters previously mentioned, in our view, the following items could cause results to differ materially from those discussed in forward-looking statements:
. our ability to successfully emerge from our bankruptcy proceedings in a reasonable time period, including the success of future operations and the ability to meet obligations as they become due;
. the adequacy of our DIP Facility relevant to our liquidity throughout the bankruptcy period;
. our high debt levels, which need to be restructured and reduced as part of a Chapter 11 reorganization plan and CCAA plan of arrangement;
. the effect of economic conditions on a national, regional or international basis;
. competitive pressures in the motion picture exhibition industry;
. the financial resources of, and films available to, us and our competitors;
. the impact of a potential strike by the Screen Actors Guild ("SAG") if they are unable to resolve unsettled contract issues with the studios prior to the expiration of the current contract on June 30, 2001 - an unresolved prolonged job action by members of the SAG may result in reduced availability of film product which could adversely effect us and the industry;
. changes in laws and regulations, including changes in environmental and disabilities laws and changes in accounting standards; and
. opportunities that may be presented to and pursued by us.
See the Liquidity and Capital Resources section and the Outlook section included in the Management's Discussion and Analysis of Financial Condition and Results of Operations included in Item 7.
ITEM 2.
ITEM 2. PROPERTIES
At February 28, 2001, Loews Cineplex, including Star, Magic Johnson, Yelmo Cineplex and Megabox theatres, operated or had interests in 2,563 screens in 294 theatres, of which 29 theatres were owned by us, 261 theatres were leased and 4 theatres were subject to management arrangements. Our leases are entered into on a long-term basis. The lease terms generally range from 20 to 40 years and contain various renewal options, generally in intervals of 5 to 10 years. Theatre leases provide for the payment of a fixed annual rent and, sometimes, a percentage of box office receipts or total theatre revenue. The following tables show the locations of our screens at February 28, 2001, including our partnerships' theatres.
Under the partnership agreement governing the operation of the Star Theatres circuit, we are responsible for film booking arrangements. Our joint venture partner manages the theatres under an operating agreement. The partnership agreement also has provisions governing the transfer of partnership interests between the partners and to unaffiliated third parties.
Under the partnership agreement governing the operation of the Magic Johnson Theatres circuit, we are responsible for film booking arrangements and management of the theatres.
Under the partnership agreement governing the operation of the Yelmo Cineplex circuit, our joint venture partner manages the theatres under an operating agreement. The partnership agreement also has provisions governing the transfer of partnership interests between the partners and to unaffiliated third parties.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
On February 15, 2001, Loews Cineplex and all of its wholly owned U.S. subsidiaries (the "U.S. Debtors") filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York. In addition, on February 15, 2001 an order to initiate a restructuring of obligations and operations under the CCAA was obtained from the Ontario Superior Court of Justice for our wholly owned subsidiary, Cineplex Odeon and certain of its other Canadian subsidiaries. Additionally, on February 26, 2001, Loews Cineplex's wholly owned Austrian subsidiary, LCE Europlex, filed a petition for bankruptcy in Vienna, Austria, and on March 16, 2001, we filed a petition for bankruptcy in Warsaw, Poland on behalf of our wholly owned Polish subsidiary.
At this time, we are unable to predict the outcome of the Chapter 11 and CCAA proceedings or their effect on our operations. Refer to Item 1 and Item 7 of this Form 10-K and Notes 1, 3 and 4 to the consolidated financial statements for additional information.
We are involved in routine litigation and legal proceedings in the ordinary course of our business relating to personal injury claims, employment matters and contractual disputes. Generally, all pre-filing date litigation against the U.S. Debtors was automatically stayed. Entities who were litigating such claims against Loews Cineplex and the other U.S. Debtors as of the filing date, or who could have done so, instead will have to file with the Bankruptcy Court proofs of claim for the amounts to which they contend they were entitled, subject to the right of Loews Cineplex and the U.S. Debtors to contest such claims. Alternatively, creditors may seek to have the stay lifted to pursue their claims. In such event, we and the other U.S. Debtors may be required to defend such litigation, but collection of any judgments obtained will be stayed. A similar process exists for dealing with pre-filing litigation under the CCAA proceedings. Except for those noted below, we do not have any litigation or proceedings that we believe will have a material adverse effect on us, individually or in the aggregate.
Antitrust Proceedings
On April 16, 1998, the United States of America, the State of New York, by and through its Attorney General, Dennis C. Vacco, and the State of Illinois, by and through its Attorney General, Jim Ryan, on one hand, and us, Sony Corporation of America, Cineplex Odeon and Seagram Co. Ltd., on the other hand, entered into, and the Southern District of New York ordered, a Stipulation & Order setting forth a proposed Final Judgment relating to alleged federal antitrust violations in New York and Illinois stemming from the Loews/Cineplex combination. This Stipulation & Order followed the filing of a complaint on the same day relating to these alleged violations. Under the terms of the agreement, we were required to divest certain theatres in New York and Chicago.
Since the Combination, we pursued the sale of certain theatres in New York City and Chicago that were subject to approval by the Department of Justice ("DOJ"), in accordance with the terms of an agreement reached to permit the merger of Loews Theatres with Cineplex Odeon. As a result, during the fourth quarter of fiscal 1999, we sold to Cablevision Systems Corporation 33 screens in 12 theatres in New York City, in accordance with the DOJ order, and an additional 14 screens in 4 theatres in the suburban New York area for aggregate cash proceeds of $87.5 million. Approximately $87.2 million of these proceeds was used to pay down our Senior Revolving Credit Facility.
Under the agreement with the DOJ, we were also required to sell 49 screens at 11 theatre locations in Chicago. On April 7, 1999, we completed the sale of 30 screens at 8 of these theatre locations to a third party. This transaction was not significant to our operating results or financial position. A portion of these proceeds was utilized to pay down our Senior Revolving Credit Facility. Additionally, under the agreement with the DOJ, we were required to sell the remaining 19 screens at 3 theatre locations in Chicago. We were unable to sell these locations and, pursuant to the original agreement with the DOJ, a trustee was appointed to effect the sale of these locations. The trustee was also unable to sell these locations and
had submitted a final report to the court. On November 9, 2000, the DOJ consented to us retaining these three locations and a stipulation and order received court approval.
Environmental Proceedings
We own, manage and/or operate theatres and other properties that are subject to certain U.S. and Canadian federal, state and local laws and regulations relating to environmental protection and human health and safety, including those governing the investigation and remediation of contamination resulting from past or present releases of hazardous substances. Some of these laws and regulations may impose joint and several liability on statutory classes of persons for the costs of investigation or remediation of contamination, regardless of fault or the legality of the original disposal. These persons include the present or former owner or operator of a contaminated property and companies that generated or disposed of hazardous substances found at the property.
Two of our leased drive-in theatres, both in the State of Illinois, are located on properties on which third parties disposed of, or may have disposed of, substantial quantities of construction debris, auto shredder residue and other debris. Such material may contain hazardous substances. One of these leases terminated in the ordinary course prior to the Debtors filing their Chapter 11 cases. Pursuant to order of the Bankruptcy Court, the other lease was rejected in accordance with the Bankruptcy Code. Termination or rejection of these leases, however, may not terminate all of the Debtors' liability in connection with the disposal of debris on these properties. In addition, the rejected lease property is the subject of an action, filed in August 1998 in the Circuit Court of Cook County, Illinois by the Illinois Attorney General's office seeking 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. This action may be stayed, in whole or in part, as the result of the commencement of the Debtors' Chapter 11 cases. Our range of probable 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 likelihood of any particular remedial action being required, the allocation of liability, if any, to other responsible parties, and the ability of such parties to satisfy their share of such liability, and the ability of the Debtors to discharge certain claims and liabilities in connection with this action under Bankruptcy law. If necessary, we intend to vigorously defend this action and will continue to evaluate future information and developments with respect to conditions at this property and will periodically reassess any liability accordingly. Based on the foregoing, there can be no assurance that our liability, if any, in connection with this action will not be material.
Six West Retail Acquisition, Inc.
On July 24, 1997, Six West Retail Acquisition, Inc., a real estate development company, initiated a lawsuit against us and some of our affiliates in the U.S. District Court for the Southern District of New York, seeking injunctive relief and unspecified monetary damages. Six West alleges that we have violated federal antitrust laws by engaging in block booking agreements and monopolizing the motion picture exhibition market in New York City. Six West owns or leases the Paris and New York Twin theatres in Manhattan. The Paris theatre was managed by one of our subsidiaries under an oral management agreement that has been terminated. The New York Twin theatre is managed by one of our subsidiaries under a written management agreement. Six West also alleges that we violated our contractual and fiduciary responsibilities in managing the two theatres. On December 3, 1997, Six West filed an amended complaint asserting similar claims with respect to the Festival Theatre which was operated by one of our subsidiaries until it was closed in 1994. All of the defendants moved to dismiss the amended complaint by motion dated January 8, 1998. The court decided both motions in a memorandum opinion and order dated March 8, 2000. The court granted defendants' motion to dismiss the contract claims against the individual non-corporate defendants and a portion of one claim against us. The court denied the motion with respect to the remainder of the amended complaint and the non- Loews Cineplex corporate defendants. Discovery in the action is still in progress. This action was stayed with respect to those defendants that are among the U.S. Debtors as a result of the filing of the Chapter 11 petition. We believe that Six West's claims are without merit and intend to oppose them vigorously.
ADA Litigation
The Department of Justice, in coordination with the New York City Commission on Human Rights, is currently investigating Cineplex Odeon's theatres in New York City with respect to its compliance with the ADA and the New York City Human Rights Law. The Department of Justice has alleged that its investigation has identified numerous violations of the ADA. We have opposed, and will continue to vigorously oppose the allegations and claims of the Department of Justice with respect to the compliance of these theatres under the ADA. However, we cannot guarantee that the remediation costs relating to the ADA will not be material.
Metreon Arbitration
In May 1997, we entered into a 21 year lease with Metreon, Inc. ("Metreon"), an affiliate of Sony Corporation of
America, to operate a multiplex theatre in an entertainment/retail complex developed by Metreon in San Francisco. Since that theatre opened in June 1999, we have had a dispute with Metreon with respect to construction costs (amount of dispute is approximately $5 million) that may be our responsibility under the lease, the nature of the costs that Metreon is seeking to include as operating expenses under the lease, and the proper allocation of operating expenses to our theatre, based on our proportionate share of the complex. To date, we have been unable to resolve these issues through negotiation with Metreon. The estimated difference in operating expenses allocable to our theatre, taking into account differences over both the nature of allocable costs and determination of our proportionate share of the complex, is approximately $3 - $4 million per annum for the duration of the lease. Pursuant to the terms of the lease, we are to contribute to the operating expenses of the complex in an amount equal to our proportionate share of the total floor area of the complex. Metreon has asserted that our proportionate share of the complex is approximately 49%, while we assert that our proportionate share is approximately 32%. On September 19, 2000, as permitted by the lease, Metreon filed a demand for arbitration with the American Arbitration Association seeking a declaration of the proportionate share of the complex floor area occupied by our theatre. We believe that we have meritorious defenses to all of Metreon's claims against us under the lease and intend to vigorously assert our position regarding our proportionate share of the complex. This arbitration is stayed as a result of the filing of the Chapter 11 petition.
Competition Bureau Proceedings
The Canadian Competition Bureau (the "Bureau") recently obtained a Federal Court Order requiring a number of exhibitors and distributors, including our subsidiaries (Cineplex Odeon Corporation and Cineplex Odeon (Quebec) Inc.), to produce significant business information by April 27, 2001. This Order is in connection with an inquiry by the Bureau relating to certain practices of motion picture exhibitors, including Cineplex Odeon Corporation, and motion picture distributors. On April 27, 2001, Cineplex Odeon complied with the order and provided the required business information to the Competition Bureau. We intend to vigorously oppose any allegation of anti-competitive conduct on our part.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Dividend Policy
We do not pay any dividends on our common stock and are prohibited under the terms of our Senior Revolving Credit Facility and DIP Facility from paying such dividends.
Price Range of Common Stock
Our common stock was traded on the New York and Toronto Stock Exchanges. Effective February 15, 2001, we were delisted by the New York Stock Exchange ("NYSE") and therefore, our stock is no longer traded on the NYSE. Our stock continues to be listed on The Toronto Stock Exchange. As of May 22, 2001 there were approximately 11,200 holders of record of our common stock. The table below sets forth the high and low sales prices of our common stock as reported by the New York and Toronto Stock Exchanges for the periods indicated.
ITEM 6.
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth Selected Historical Financial Data for Loews Cineplex Entertainment Corporation ("we", "us" and "our") for the five fiscal years ended February 28, 2001 and has been derived from our annual consolidated financial statements. The Selected Historical Financial Data and Selected Key Operating Statistics should be read in conjunction with the separate consolidated financial statements and notes thereto of Loews Cineplex Entertainment Corporation and our "Management's Discussion and Analysis of Financial Condition and Results of Operations", which are included elsewhere in this Annual Report on Form 10-K. Further, the Selected Historical Financial Data includes the financial results of Cineplex Odeon Corporation ("Cineplex Odeon") for the period from May 15, 1998 to February 28, 2001. Cineplex Odeon became our wholly owned subsidiary on May 14, 1998.
(A) See Notes 1 and 3 to the Consolidated Financial Statements with respect to our bankruptcy and financial reporting in accordance with Statement of Financial Position 90-7 "Financial Reporting by Entities in Reorganization under the Bankruptcy Code". Also see Notes 4, 5 and 6 to the Consolidated Financial Statements with respect to restructuring charges, reorganization costs and loss on sale/disposal of theatres and other.
(B) Represents a one-time charge to reflect the adoption of Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements", regarding the accounting for our Passport and Gift Certificate Programs. See additional discussion in Note 2 to the Consolidated Financial Statements.
(C) Restated in all periods presented to reflect impact of a stock dividend declared on February 5, 1998.
(D) Includes liabilities subject to compromise of $471,390 for the fiscal year ended February 28, 2001 and nil for fiscal years 1997 through 2000. See Note 3 to the Consolidated Financial Statements for further discussion.
Selected Key Operating Statistics
The table below sets forth unaudited Selected Key Operating Statistics for us as of and for each of the periods indicated. Management views these statistics as key financial measures and believes that certain investors find them useful in analyzing companies in the motion picture exhibition industry. No one measure is more meaningful than another and our management uses these measures collectively to assess operating performance. In order to arrive at a more meaningful presentation of financial operating data related to our productivity and performance, except as otherwise noted, all amounts below include 100% of the operating results of the Loeks-Star Theatres ("LST"), the Magic Johnson Theatres ("MJT") and the Yelmo Cineplex de Espana ("Yelmo") partnerships in which we have a 50% interest. Further, the Selected Key Operating Statistics include data for Cineplex Odeon for the period from May 15, 1998 to February 28, 2001. Cineplex Odeon became our wholly owned subsidiary on May 14, 1998.
(1) Cash flow statement data includes cash flows from long-term investments in our partnerships and joint ventures to the extent of our equity interests.
(2) All per screen and location ratios are calculated using a weighted average number of screens and locations (including the LST, MJT, Yelmo and Megabox partnerships), except for fiscal years 1997 and 1998 which are calculated using the number of screens and locations as of period end. The use of weighted average amounts in fiscal years 1999, 2000 and 2001 is due to the inclusion of the operations of Cineplex Odeon for the period subsequent to May 14, 1998 and the significant number of theatre disposals and newly opened theatres in each of these periods. Use of weighted average number of screens and locations for the remaining historical data would not result in substantially different data in comparison to the information presented.
(3) Modified EBITDA consists of earnings, including equity earnings from investments in partnerships and joint ventures, before cumulative effect of change in accounting principle, interest, income taxes, depreciation and amortization, loss on sale/disposal of theatres and other, restructuring charges and reorganization costs. Modified EBITDA should not be construed as an alternative to measuring operating results or cash flows under U.S. GAAP. In addition, the Modified
EBITDA measure presented herein may not be comparable to similarly titled measures reported by other companies.
(4) Total EBITDA consists of Modified EBITDA plus 100% of the operating results of our partnerships. We believe that Total EBITDA is an important measure, in addition to cash flow from operations and Modified EBITDA, in viewing our overall liquidity and borrowing capacity.
A reconciliation of Modified EBITDA to Total EBITDA and Attributable EBITDA follows:
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
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 Selected Historical Financial Data and our audited consolidated financial statements for the three years ended February 28, 2001. The information presented below includes the results of Cineplex Odeon Corporation ("Cineplex Odeon"), which became our wholly owned subsidiary as of May 14, 1998 (the "Combination"), for the period from May 15, 1998 through February 28, 2001 and does not include any results prior to that time unless otherwise noted. Where noted, for a more meaningful comparison, we have referred to the operating performance of theatres we were required to sell, pursuant to an agreement with the Department of Justice (herein referred to as the "DOJ theatres"), as a result of the Combination.
This discussion incorporates operating results of partnerships in which we have an interest to the extent of our equity share as required by the equity method of accounting, except as otherwise noted.
On February 15, 2001, Loews Cineplex and all of its wholly owned U.S. subsidiaries filed voluntary petitions to reorganize under Chapter 11 in the U.S. Bankruptcy Court. In Canada, the Initial Order to initiate a restructuring of obligations and operations under the CCAA was obtained on February 15, 2001 from the Superior Court for our wholly owned subsidiary, Cineplex Odeon and certain of its other Canadian subsidiaries. The Chapter 11 and CCAA filings are hereinafter collectively referred to as the "Bankruptcy Proceedings". In addition, on February 26, 2001, our wholly owned Austrian subsidiary LCE Europlex KinobetriebsgmbH filed a petition for bankruptcy in Vienna, Austria and on March 16, 2001, we filed a petition for bankruptcy in Warsaw, Poland on behalf of our wholly owned Polish subsidiary LCE Polska Holding Sp. z o.o.
The Chapter 11 and CCAA filings resulted from a sequence of events and the unforeseen effect that these events would have in the aggregate on us. Such events included, among other things, (i) the lower industry-wide attendance levels (approximately 3%) due primarily to the "sub-par" film performance during the summer and fall of 2000, (ii) the continued decline in revenues experienced at many of our older theatres, (iii) significantly higher costs associated with building megaplexes and in making improvements to existing theatres in order to attract and accommodate larger audiences, and (iv) significant liquidity pressures. Faced with significant operating shortfalls, unavailability of credit and our inability to satisfactorily achieve a restructuring with our lenders, among other things, we filed for bankruptcy protection under Chapter 11 in the United States and under the CCAA in Canada.
We have incurred a significant net loss in fiscal 2001. The fiscal year 2001 net loss of $436.2 million includes charges for (i) loss on sale/disposal of theatres and other of $245.8 million, (ii) reorganization costs of $42.1 million and (iii) restructuring charges of $12.7 million. See respective discussion below regarding each of these items. The net loss for the fiscal year ended February 28, 2001 also includes a one-time charge of $7.8 million to reflect adoption of Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements", regarding the accounting for our Passport and Gift Certificate Programs. This $7.8 million charge is referred to as "Cumulative Effect of Change in Accounting Principle" on the face of the statement of operations. See additional discussion below in Results of Operations for the fiscal year ended February 28, 2001 compared to the fiscal year ended February 29, 2000.
As a result of our recurring losses, the Chapter 11 and CCAA filings and circumstances relating to these events, including our debt structure and current economic conditions, realization of assets and liquidation of liabilities are subject to significant uncertainty. We believe that cash from operations along with financing provided through a Debtor-in-Possession Credit Facility entered into on February 15, 2001, as amended (the "DIP Facility"), should be available to provide liquidity to allow us to continue as a going concern. However, there can be no assurance of this. Our ability to continue as a going concern is dependent upon our ability to maintain compliance with debt covenants under the DIP Facility and the ability to generate sufficient cash from operations and financing sources to meet our obligations as they become due. In the event a Chapter 11 plan of reorganization/CCAA plan of arrangement (collectively referred to as "plans of reorganization") are confirmed by the Bankruptcy Court/Superior Court and become effective, continuation of our business thereafter will be dependent on our ability to achieve successful operations, maintain satisfactory capital and liquidity and obtain access to funds under a credit facility. Until the plans of reorganization are confirmed by the Bankruptcy Court/Superior Court and become effective, there can be no assurance that we will emerge from these bankruptcy proceedings, and the effect of the terms and conditions of such plans of reorganization on our business cannot be determined and therefore there is substantial doubt regarding our ability to continue as a going concern.
Results of Operations
FISCAL YEAR ENDED FEBRUARY 28, 2001 COMPARED TO FISCAL YEAR ENDED FEBRUARY 29,
Operating Revenues of approximately $903.5 million for the fiscal year ended February 28, 2001 were $26.9 million lower than the comparable period of the prior year. Operating revenues are generated primarily from box office revenues and concession sales. Box office revenues for the fiscal year ended February 28, 2001 of approximately $628.9 million were $18.9 million lower, and concession revenues of approximately $241.0 million were $2.5 million lower in comparison to the fiscal year ended February 29, 2000. These decreases in operating revenues were due primarily to a significant decline in attendance primarily due to lower industry-wide attendance levels of approximately 3% in comparison to the prior year (particularly driven by the "sub-par" performance of the summer and fall film product) and the continued decline in attendance at many of our older theatres. This overall decrease in revenues is net of additional revenues of approximately $90.6 million from new theatre openings and improvements in admission and concession revenues per patron.
Operating Costs of approximately $753.2 million for the fiscal year ended February 28, 2001 were approximately $20.2 million higher than the fiscal year ended February 29, 2000. This increase was due primarily to incremental costs associated with new theatre openings, including occupancy costs, and the impact of improvements in admission and concession revenues per patron. The overall increase in operating costs, which aggregated $77.4 million, was partially offset by reductions in variable operating expenses commensurate with the aforementioned decrease in operating revenues relating to attendance declines and as a result of the closing of older, obsolete theatres.
General and Administrative Costs of approximately $50.4 million for the fiscal year ended February 28, 2001 were approximately $2.7 million lower compared with the fiscal year ended February 29, 2000 due primarily to reductions in overhead levels in our U.S. and Canadian operations slightly offset by normal inflationary increases.
Depreciation and Amortization Costs of approximately $125.5 million for the fiscal year ended February 28, 2001 were $12.5 million higher than the fiscal year ended February 29, 2000, due primarily to incremental amortization expense resulting from a change in the estimated remaining useful life of goodwill and incremental depreciation related to investments in new theatres which commenced operations partially offset by the effect of theatre disposals. Goodwill primarily represents the excess purchase price associated with our combination with Cineplex Odeon in May 1998. Prior to the third quarter of the current fiscal year, goodwill was amortized over a 40 year estimated useful life. In connection with our third quarter review and assessment of our goodwill and as a result of management's plan at that time to accelerate the disposal of a significant number of screens in the U.S. and Canada, coupled with the continued industry downturn, we had determined that a reduction in the remaining useful life for goodwill amortization was appropriate. As a result, effective September 1, 2000, we determined that a more appropriate remaining useful life for unamortized goodwill is 20 years, resulting in additional amortization expense of approximately $4.8 million during the six months ended February
28, 2001, net of the impact of the write-off of allocated goodwill. The remaining $7.7 million increase in depreciation and amortization costs was due primarily to the aforementioned incremental depreciation related to investments in new theatres partially offset by the effect of theatre dispositions, including the significant number of theatres targeted for accelerated disposal.
Restructuring Charges of approximately $12.7 million for the fiscal year ended February 28, 2001 includes $8.8 million for professional and advisory fees associated with our evaluation of a longer-term financial plan (including amendments to our bank debt) and severance related payments (approximately $3.9 million) primarily associated with headcount reductions in our U.S. operations during November 2000.
Loss on Sale/Disposal of Theatres and Other includes losses on theatres which have been sold or disposed, the write-down of net book value (including allocated goodwill) and other costs associated with theatres targeted for accelerated disposition or lease renegotiation and a charge of approximately $4.6 million related to the impairment of assets related to the Magic Johnson Partnership. The loss on sale/disposal of theatres and other of approximately $245.8 million for the fiscal year ended February 28, 2001 was $237.4 million higher than the fiscal year ended February 29, 2000, due primarily to the timing, nature and characteristics of theatre dispositions and includes a fourth quarter charge of $80.5 million primarily associated with the write-off of net book value relating to 32 locations comprising 246 screens additionally targeted for accelerated disposal or lease renegotiation on a short-term basis. For the fiscal year ended February 28, 2001, the loss on sale/disposal of theatres includes a charge of $245.8 million (consisting primarily of the write-off of net book value of $207.0 million and allocated goodwill of $58.5 million partially offset by net proceeds from asset sales), including the aforementioned fourth quarter charge, for a plan to accelerate the disposal of approximately 189 theatres comprising 1,160 screens in the U.S., Canada and internationally. These accelerated disposal plans were as a result of the continued decline in attendance levels experienced at these theatres which was exacerbated by the "sub-par" industry-wide summer and fall box office levels. These 189 theatres targeted for disposal generated $215.4 million in revenues and negative operating cash flow of $22.2 million for the fiscal year ended February 28, 2001. During the fiscal year ended February 28, 2001, we actually disposed of 107 of these theatre locations comprising 587 screens with the remainder targeted for disposal/renegotiation in Fiscal 2002. See the Liquidity and Capital Resources section for additional information.
Reorganization Costs of approximately $42.1 million represent charges incurred as a result of the activities related to the Bankruptcy Proceedings. Reorganization costs relate to (i) landlord claims related to the rejection of 69 theatre leases (451 screens) in the U.S., 32 theatres (180 screens) repudiated in Canada and four leases terminated in Austria and Poland, (ii) the write-off of deferred financing fees and (iii) professional and advisory fees incurred directly related to and subsequent to the bankruptcy filing on February 15, 2001. See Note 4 to the consolidated financial statements for additional information.
Cumulative effect of change in accounting principle of approximately $7.8 million for the fiscal year ended February 28, 2001 represents a one-time charge to reflect adoption of SAB No. 101, "Revenue Recognition in Financial Statements", regarding the accounting for our Passport and Gift Certificate Programs (hereinafter referred to as "certificates"). SAB No. 101 was effective beginning December 1, 2000 requiring retroactive application to the beginning of our 2001 fiscal year with restatement, if necessary, of all quarters for the current fiscal year. SAB No. 101 impacts the timing of when revenues may be recorded for unredeemed certificates. Prior to the issuance of SAB No. 101, we would recognize "breakage revenue" into income immediately upon the sale of certificates for the estimated portion of certificates that would not be redeemed. However, in accordance with SAB No. 101, we no longer record breakage revenue upon sale but rather upon the expiration date of the certificate or the date the obligation is otherwise fulfilled. This change in accounting principle has no impact on cash flows or the value of unredeemed certificates held by customers. The retroactive application of SAB No. 101 to fiscal year 2000 would not have a significant impact on our revenues.
Interest Expense of approximately $98.6 million for the fiscal year ended February 28, 2001 was approximately $25.9 million higher than the fiscal year ended February 29, 2000, due primarily to the impact of additional borrowings under our Senior Revolving Credit Facility coupled with the impact of an increase in the variable borrowing rate relating to our Senior Revolving Credit Facility. See the Liquidity and Capital Resources section for additional information.
Attributable EBITDA of $112.3 million for the fiscal year ended February 28, 2001 decreased $41.9 million in comparison to the fiscal year ended February 29, 2000, due primarily to the aforementioned shortfall in attendance levels experienced primarily during the second and third quarters of the current year and the continued sub-par performance of many of our older locations. These decreases were partially offset by other increases in Attributable EBITDA including the favorable impact of new theatre openings, higher admission and concession revenue per patron and the reductions in overhead levels in our U.S. and Canadian operations, as previously discussed. Attributable EBITDA (earnings before cumulative effect of change in accounting principle, interest, taxes, depreciation and amortization, loss on sale/disposal of theatres and other, restructuring charges, reorganization costs and equity earnings included in EBITDA plus EBITDA from partnerships, net of partners' share) is a measure that management uses to evaluate our financial performance. Attributable EBITDA measures the amount of cash that we have available for investment or other uses and is used by us as a measure of
performance. Attributable EBITDA is primarily a management tool and only one measure of financial performance to be considered by the investment community. Attributable EBITDA is not an alternative to measuring operating results or cash flow under U.S. GAAP. In addition, the Attributable EBITDA measure presented herein may not be comparable to similarly titled measures reported by other companies.
FISCAL YEAR ENDED FEBRUARY 29, 2000 COMPARED TO FISCAL YEAR ENDED FEBRUARY 28,
Operating Revenues of approximately $930.4 million for the fiscal year ended February 29, 2000 were $79.3 million higher than the comparable period of the prior year. Box office revenues for the fiscal year ended February 29, 2000 of approximately $647.8 million were $60.7 million higher, and concession revenues of approximately $243.5 million were $15.2 million higher in comparison to the fiscal year ended February 28, 1999. These increases in operating revenues were due primarily to the inclusion of the Cineplex Odeon theatre operating results for the full twelve month period in the current year as compared to inclusion from the date of the Combination in the prior year (partially offset by the reduction in operating revenues related to the sale of the DOJ theatres), additional revenue from new theatre openings and improvements in admission revenue per patron. Excluding the impact of the Cineplex Odeon operations, our operating revenues increased by $50.8 million, or 12.0%, due primarily to additional revenue from new theatre openings and improvements in admission revenue per patron of $.23. These increases, which aggregated $86.6 million, were partially offset by other reductions in operating revenues, which aggregated $35.8 million, including the effect of theatre dispositions and a decline in attendance levels at some of our older locations.
Operating Costs of approximately $733.0 million for the fiscal year ended February 29, 2000 were approximately $78.5 million higher than for the fiscal year ended February 28, 1999, due primarily to the inclusion of the operating results for the Cineplex Odeon theatres for the full twelve month period in the current year as compared to inclusion from the date of the Combination in the prior year (partially offset by the reduction in operating costs related to the sale of the DOJ theatres), increased costs related to the aforementioned increase in operating revenues and incremental occupancy costs attributable to new theatre openings. Excluding the impact of the Cineplex Odeon operations, our operating costs increased $38.5 million, or 12.3%, due primarily to the increase in operating revenues mentioned above and an increase in film costs resulting from higher than normal film rent terms for the period primarily associated with the strong performance of Star Wars - Episode I: The Phantom Menace (circuit-wide impact estimated at $6.2 million). These increases, which aggregated $67.3 million, were partially offset by lower costs, including the impact of theatre dispositions and attendance declines at some of our older locations, aggregating $28.8 million.
General and Administrative Costs of approximately $53.0 million for the fiscal year ended February 29, 2000 were $5.1 million higher than for the fiscal year ended February 28, 1999, due primarily to the inclusion of the operating results for the Cineplex Odeon theatres for the entire period in the current year as compared to inclusion from the date of the Combination in the prior year (net of cost savings realized as a result of the Combination), normal inflationary increases and the additional costs related to the continued development of our international operations.
Depreciation and Amortization Costs of approximately $113.0 million for the fiscal year ended February 29, 2000 were $22.3 million higher than for the fiscal year ended February 28, 1999, due primarily to the inclusion of the operating results for the Cineplex Odeon theatres for the full twelve month period in the current year as compared to inclusion from the date of the Combination in the prior year, incremental depreciation related to investments in new theatres which commenced operations and incremental goodwill amortization resulting from the Combination recorded for a full twelve month period in the current year in comparison to a partial period in the prior year. The aforementioned increases were partially offset by the effect of theatre dispositions.
Loss on Sale/Disposals of Theatres of approximately $8.4 million for the fiscal year ended February 29, 2000 was $3.9 million higher than for the fiscal year ended February 28, 1999, due primarily to the timing, nature and characteristics of theatre dispositions. During fiscal year 2000, we disposed of 55 theatre locations comprising 219 screens, which primarily were older, obsolete theatres which generated marginal or negative cash flows. We will continue to aggressively dispose of theatres that are underperforming or non-strategic. See the Liquidity and Capital Resources section for additional information.
Interest Expense of approximately $72.7 million for the fiscal year ended February 29, 2000 was $15.5 million higher than for the fiscal year ended February 28, 1999, 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 coupled with the impact of an increase in the variable borrowing rate relating to our Senior Revolving Credit Facility. See the Liquidity and Capital Resources section for additional information.
Attributable EBITDA for the fiscal year ended February 29, 2000 of $154.3 million was $300 thousand lower in comparison to the fiscal year ended February 28, 1999, due primarily to the aforementioned lower attendance levels experienced at some of our older locations, the higher than normal film rental costs as previously discussed, the impact of theatre dispositions (including the DOJ theatres) and the additional general and administrative costs relative to the enhancement of our international operations. These decreases were partially offset by other increases in Attributable EBITDA including the impact of new theatre openings and higher admissions revenue per patron. Excluding the prior year impact of the DOJ theatres, Attributable EBITDA for the year ended February 29, 2000 increased $5.5 million or 3.7% over the prior year.
Liquidity and Capital Resources
Our industry continues to experience significant liquidity pressures which is evident by the number of theatre exhibitors that have filed for bankruptcy within the past year. These liquidity pressures are due to a number of factors including the downturn in attendance as reflected in year over year operating performance measures (approximately 3%), the moderate to aggressive new build strategies employed by the industry's larger exhibitors which, coupled with the difficulty in closing older, obsolete theatres, has resulted in an oversupply of theatre screens in many North American markets, impairment write-offs and losses on theatre dispositions, the continued downward credit ratings of the industry and the recent bankruptcy filings by several theatre chains, including five of the eleven largest exhibitors, and defaults of certain loan agreements which have been publicly disclosed. The greater number of screens in North America caused by the industry's building new theatres and the lack of a corresponding number of theatre closures in the same period, has resulted in a saturation of screens and has contributed to shortened lengths of film run times and increased film cost percentages paid by exhibitors to distributors. These factors, as well as the industry's disappointing operating performance, have contributed to significant reductions in the prices of publicly traded debt and equity securities and has materially reduced the industry's access to capital, making it increasingly difficult to meet obligations as they become due. In addition, the industry has generally fallen out of favor with investors and lenders due to the liquidity issues noted above and due to a lack of credit support from the usual capital markets. The industry has fallen on hard times and is presently going through one of the most significant and unprecedented reorganizations in its history. We have been negatively affected by these events and have experienced significant pressures on our liquidity and our ability to meet obligations as they became due. In an effort to relieve the pressures on our liquidity, we were active in pursuing possible solutions including seeking capital through other sources including asset securitizations, equity offerings, sale-leaseback transactions, strategic alliances with other exhibitors, a consensual restructuring of our capital structure or a restructuring of certain of our subsidiaries. We were unable to implement these transactions on the scale required to relieve us from the continued deterioration in our liquidity and cash flow. These conditions are among the factors that led up to us filing for bankruptcy protection.
On February 15, 2001, Loews Cineplex and all of its wholly owned U.S. subsidiaries filed voluntary petitions to reorganize under Chapter 11 in the U.S. Bankruptcy Court. In Canada, the Initial Order was obtained on February 15, 2001 from the Superior Court for our wholly owned subsidiary, Cineplex Odeon and certain of its other Canadian subsidiaries. The Chapter 11 and CCAA filings are hereinafter collectively referred to as the "Bankruptcy Proceedings". In addition, on February 26, 2001, our wholly owned Austrian subsidiary, LCE Europlex, filed a petition for bankruptcy in Vienna, Austria and on March 16, 2001, we filed a petition for bankruptcy in Warsaw, Poland on behalf of our wholly owned Polish subsidiary LCE Polska Holding Sp. z o.o.
We are presently operating our businesses as debtors-in-possession in the U.S. and pursuant to the Initial Order in Canada. We are authorized to operate our business in the ordinary course. As a result of the Chapter 11 filing, substantially all actions to secure the payment of pre-petition indebtedness are subject to compromise or other treatment under a plan of reorganization. Generally, actions to enforce or otherwise effect payment of pre-Chapter 11 liabilities are stayed. Pre-petition claims secured by our assets ("secured claims") are also stayed, although the holders of such claims have the right to move the court for relief from the stay. Pre-petition secured claims (primarily representing amounts borrowed under our Senior Revolving Credit Facility) are generally secured by all personal property and certain real property of Loews Cineplex and our domestic subsidiaries, a pledge of stock of all domestic subsidiaries and our equity interest in and loans to our foreign subsidiaries. Although pre-petition claims are generally stayed, as part of the first day orders and subsequent motions granted by the Bankruptcy Court, the Bankruptcy Court approved our motions to pay certain pre-petition obligations including: (i) payments, on normal terms, to film distributors, (ii) continuing to honor gift certificates, movie passes and other customer programs, (iii) payment for employee wages and related benefits and reimbursement of employee business expenses and (iv) adequate protection payments to the lenders of our Senior Revolving Credit Facility. We have been and intend to continue to pay undisputed post-petition claims of all vendors, film distributors and other suppliers in the ordinary course of business. In addition, we may reject pre-petition executory contracts and unexpired leases with the approval of the Bankruptcy Court with respect to our U.S. operations. Any damages resulting from rejection of executory contracts and unexpired leases are treated as general unsecured claims in the U.S. We will notify all known claimants subject to the bar
date of their need to file a proof of claim with the Bankruptcy Court. A bar date is the date by which claims against us must be filed if claimants wish to receive any distribution in the Chapter 11 case. No bar date has yet been set by the Bankruptcy Court. Differences between liability amounts estimated by us and claims filed by creditors will be investigated and the Bankruptcy Court will make a final determination of the allowable claim. The determination of how liabilities will ultimately be settled and treated cannot be made until the Bankruptcy Court approves a Chapter 11 plan of reorganization.
As a result of the Initial Order of the Superior Court, substantially all actions to enforce or otherwise effect payment of pre-filing obligations of Cineplex Odeon and its subsidiaries are stayed. The rights of secured creditors to enforce against our Canadian assets are also stayed. The stay period expires on June 15, 2001 and Cineplex Odeon intends to seek an extension thereof; the granting of an extension is within the discretion of the Superior Court. The Initial Order permits (i) payments on normal terms to persons supplying goods and services after the date of the Initial Order, including film suppliers, as well as certain pre-filing claims, (ii) continuing to honor gift certificates, movie passes and other customer programs, (iii) payment for employee wages and related benefits and reimbursement of employee business expenses as well as statutory severance pay and (iv) the borrowing of up to $20 million from Loews Cineplex and the granting of security by the assets of Cineplex Odeon and its subsidiaries to secure such borrowings. Cineplex Odeon has been and intends to continue to pay undisputed post-filing claims of all vendors, film suppliers and other suppliers in the ordinary course of business. In addition, the Initial Order permits the repudiation of unexpired leases of Cineplex Odeon and its subsidiaries. Landlords whose leases have been repudiated will be entitled to file a claim in the CCAA proceedings in respect of such repudiation. The treatment of such claims has yet to be determined and will be set out in a plan of compromise and arrangement to be presented by Cineplex Odeon to the Superior Court and to its affected creditors. A claims process and claims bar date must also be established to determine the claims entitled to vote on a plan as well as to receive distributions thereunder. This will be determined by an order of the Superior Court. Ultimately, any plan of compromise or arrangement must be approved by a vote of a majority in number of creditors of each class of creditors affected by the plan as well as by a vote of holders of two-thirds of the value of the claims of each such class. If such a vote is favorable, the plan must then be sanctioned by the Superior Court.
As a result of our recurring losses, the Chapter 11 and CCAA filings and circumstances relating to these events, including our debt structure and current economic conditions, realization of assets and liquidation of liabilities are subject to significant uncertainty. We believe that cash from operations along with financing provided through the DIP Facility should be available to provide liquidity to allow us to continue as a going concern. However, there can be no assurance of this. Our ability to continue as a going concern is dependent upon our ability to maintain compliance with debt covenants under the DIP Facility and the ability to generate sufficient cash from operations and financing sources to meet our obligations as they become due. In the event a Chapter 11 plan of reorganization/CCAA plan of arrangement (collectively referred to as "plans of reorganization") are confirmed by the Bankruptcy Court/Superior Court and become effective, continuation of our business thereafter will be dependent on our ability to achieve successful operations, maintain satisfactory capital and liquidity and obtain access to funds under a credit facility. Until plans of reorganization are confirmed by the Bankruptcy Court/Superior Court and become effective, there can be no assurance that we will emerge from these bankruptcy proceedings, and the effect of the terms and conditions of such plans of reorganization on our business cannot be determined and therefore there is substantial doubt regarding our ability to continue as a going concern.
We expect that our current liquidity needs can be financed through the DIP Facility. The DIP Facility was approved by the Bankruptcy Court on April 4, 2001. This DIP Facility, which expires on the earlier of January 31, 2002 or upon the occurrence of certain other events including the effectiveness of a plan of reorganization, is designed to provide liquidity to allow us to operate in the ordinary course and meet certain of our funding commitments for completion of certain theatre complexes now under construction in North America. The debtor-in-possession commitment that we received from Bankers Trust is for approximately $146 million, $60 million of which consists of a revolving credit line with the remaining $86 million to repay post-default advances (i.e., subsequent to August 31, 2000) made under our Senior Revolving Credit Facility, which were secured with mortgages on eleven of our existing theatre properties, and to provide for outstanding letters of credit. Loans under the DIP Facility bear interest at the bank's base rate plus 1.5% or LIBOR plus 3.25%. The terms of the DIP Facility contain certain restrictive covenants which include: limitations on the incurrence of additional guarantees, liens and indebtedness, limitations on the sale of assets and the funding of capital expenditures. The DIP Facility also requires that we meet certain minimum consolidated cumulative earnings before interest, taxes, depreciation/amortization and other expenses as defined. For the months ended February 28, 2001 and March 31, 2001, we were in compliance with all financial covenant requirements reflected in the DIP Facility.
The $60 million revolving credit facility included in the DIP Facility will be used (i) to finance our operations in the normal course of business during the restructuring process (including the required adequate protection payments funding the operating requirements and certain capital projects of Cineplex Odeon Canada- up to a maximum of $20 million) and (ii) to complete certain "designated" construction projects, currently under construction, which were committed to prior to the petition date. The terms of the DIP Facility also require us to make adequate protection payments on a monthly basis on the pre- default amounts borrowed under our Senior Revolving Credit Facility (approximately $655 million). The amount of the monthly adequate protection payments is based on the base rate of interest plus 150 basis points. The loan by us to
Cineplex Odeon Canada of up to $20 million was approved by the Superior Court on February 15, 2001. This loan has been secured by the assets of Cineplex Odeon Canada and its subsidiaries with the security being held by Deutsche Bank (Canada) as agent. The loan and the security therefor have been pledged to the lenders under the DIP Facility. As of February 28, 2001, no amounts had been drawn against the DIP Facility. As of May 18, 2001, we have drawn $4.0 million against the DIP Facility. Our availability under the DIP Facility amounts to $56 million as of May 18, 2001.
Cash flow used by operating activities for the year ended February 28, 2001 was approximately $43.2 million as compared to cash flow provided by operating activities of approximately $57.1 million for the year ended February 29, 2000. This decrease is due primarily to the lower level of cash flow generated from operations and additional interest expense in comparison to the prior year. See discussion of operating results previously presented in this "Management's Discussion and Analysis of Financial Condition and Results of Operations". We generate cash flow from our theatre operations (including cash generated from investments in new builds and reconfigurations of existing theatres). Also, we preserve cash, after applicable buy-out costs, as a result of the closing of obsolete, unprofitable or non-strategic theatres, the majority of which generate negative cash flow from operations. Our revenues are generated primarily from the sale of admission tickets, concession sales and ancillary revenues. Generally, this provides us with working capital operating float, which is consistent with the industry, since cash revenues are generally collected in advance of the payment of related expenses. Our operating revenue levels are directly related to the success and appeal of the film product produced and distributed by the studios. In addition to cash flow generated from operations, in the past, our liquidity requirements have been funded primarily by availability under our Senior Revolving Credit Facility. By reason of the commencement of the Chapter 11 cases, we have no additional availability under this facility.
We are continually seeking other potential revenue opportunities in addition to box office and concession revenues. Unfortunately, the benefit resulting from our new build program and additional ancillary revenues was overshadowed by the significant decline in revenues experienced during the second and third quarters. This decline in revenues was primarily due to lower than anticipated industry-wide attendance levels experienced during the summer and fall months (primarily attributable to the "sub-par" film product) and the continued decline in attendance at many of our older, obsolete theatres.
We continue to close or dispose of certain overlapping theatre locations and underperforming theatres, including older, obsolete theatres which contribute only marginally to cash flow or operate at a cash flow loss. In connection with the Chapter 11 and CCAA filings, we have established reserves for settlement of landlord claims as a result of rejection or repudiation of theatre leases. These claims may be settled either by cash or equity of Loews Cineplex or, in the case of Cineplex Odeon, as otherwise provided in its CCAA plan of arrangement. The nature and magnitude of how these liabilities will ultimately be treated and settled cannot be determined until a Chapter 11 plan of reorganization/CCAA plan of arrangement is confirmed by the Bankruptcy Court or Superior Court and become effective. As of May 15, 2001, 69 theatres comprising 451 screens have been approved for rejection by the Bankruptcy Court in the U.S., 32 theatres comprising 180 screens have been repudiated in Canada and four leases have been terminated in Austria and Poland. As a result of our continued review of the leases in our portfolio and the results of the lease renegotiation process, additional leases may be targeted for rejection or repudiation in the future.
At February 28, 2001, we had capital spending commitments aggregating approximately $60.4 million that we anticipated funding over the next year for the completion of construction of 7 theatre properties comprising 117 screens. These projects are currently under construction and were previously committed prior to our bankruptcy filing. Given the decline in our cash flow and our need to satisfactorily resolve our liquidity needs and rationalize our capital structure, we have halted our expansion program until we are able to resolve our financing needs.
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 Studios, Inc. ("Universal"), replaced the Sony Corporation of America ("SCA") Credit Facility and Cineplex Odeon's existing credit facility, funded cash paid to Sony Pictures Entertainment Inc. ("SPE") and/or its affiliates upon closing of the Combination, and provided ongoing financing to us to fund working capital requirements and theatre expansion in North America and internationally. This Senior Revolving Credit Facility was comprised of two tranches, a $750 million senior secured revolving credit facility, secured by substantially all of our assets, other than real property interests, and the assets, other than real property interests, of our domestic subsidiaries, and a $250 million uncommitted facility. The Senior Revolving Credit Facility bears interest, payable monthly, 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 February 28, 2001 totaled $733.8 million, with an additional $6.5 million of availability for outstanding letters of credit. The amount of accrued and unpaid pre-petition interest is approximately $2.0 million. By reason of the Chapter 11 filing, there is no additional availability under the Senior Revolving Credit Facility. In accordance with the final order approving the DIP Facility, the Company is authorized to make adequate protection payments in an amount equal to the monthly interest due on the pre-default bank debt outstanding under the Senior Revolving Credit Facility (approximately $655 million).
On August 5, 1998, we issued $300 million of 8 7/8% Senior Subordinated Notes due 2008 to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"). Net proceeds of $288.6 million were used primarily to repay the Plitt Notes (as defined below) and borrowings under the Senior Revolving Credit Facility. Subsequently, on November 19, 1998, we completed an offering to exchange $300 million aggregate principal amount of our 8 7/8% Senior Subordinated Notes Due 2008, which were registered under the Securities Act for a like principal amount of our privately placed 8 7/8% Senior Subordinated Notes Due 2008. On February 1, 2001, the required interest payment of $13.3 million due on these Senior Subordinated Notes was blocked by the lenders under our Senior Revolving Credit Facility. In accordance with the Indenture, we had thirty days to cure the default before such payment default became an event of default which would permit the requisite holders to accelerate payment of the outstanding principal amount of and accrued interest on these notes. These notes automatically accelerated as a result of the Chapter 11 filing. We do not at this time have access to capital to be able to repay these notes or interest in cash. The payments on the 8 7/8% Senior Subordinated Notes, including interest have been stayed.
Our joint venture in Spain entered into a revolving credit facility with a group of banks in the amount of Euros 75 million which was put into place during September 2000. This facility is non-recourse and not guaranteed by us. The loan is fully collateralized by the assets and operations of our joint venture in Spain. The proceeds of this facility will be used to fund new theatre construction activity and operations of Yelmo Cineplex in Spain.
In connection with the Combination, we made payments totaling approximately $417 million to SPE and its affiliates representing (i) a cash payment to satisfy all intercompany indebtedness to affiliates of SCA as of the closing date ($296 million), (ii) a cash payment equal to the fair value of certain transferred assets ($18 million), and (iii) the payment of a dividend to a subsidiary of SPE ($103 million). The first payment was made on May 14, 1998, and the final payment, which was as a result of post-closing audit procedures completed during the third quarter of fiscal 1999, was made on November 17, 1998.
As a result of the Combination, Plitt Theatres, Inc. ("Plitt"), Cineplex Odeon's U.S. theatre group, became our wholly owned subsidiary. Plitt had outstanding $200 million aggregate principal amount of 10 7/8% Senior Subordinated Notes due 2004 (the "Plitt Notes"). The Combination triggered a "change of control" under provisions of the indenture under which the Plitt Notes were issued. Accordingly, on June 15, 1998, Plitt commenced an offer to purchase any and all of the Plitt Notes which it completed on August 4, 1998, with holders of approximately 97% of the outstanding Plitt Notes tendering. Payment for the tendered Plitt Notes was made during fiscal year 1999 in the amount of $215.9 million, or 109.261% of the outstanding principal amount of the Plitt Notes, plus accrued and unpaid interest. 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.
On August 5, 1998, we sold to the public in an underwritten offering 10 million shares of common stock at a public offering price of $11.00 per share. Net proceeds of approximately $103.0 million were used primarily to repay our borrowings under the Senior Revolving Credit Facility. Upon consummation of the equity offering, our 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.
In August 1998, we entered into interest rate swap agreements, with an aggregate notional amount of $250 million, for a period of four years to hedge a portion of the Senior Revolving Credit Facility variable interest rate risk. On May 26, 2000, we monetized the value of these contracts and sold these swaps for $8.65 million. We believe that we maximized the value of these contracts as a result of this sale. As we had accounted for these swaps as interest rate hedges, the gain realized from the sale has been deferred and will be realized pending reorganization of the debt.
Since the Combination, we pursued the sale of certain theatres in New York City and Chicago that were subject to approval by the Department of Justice ("DOJ"), in accordance with the terms of an agreement reached to permit the Combination. As a result, during the fourth quarter of fiscal 1999, we sold to Cablevision Systems Corporation 33 screens in 12 theatres in New York City, in accordance with the DOJ order, and an additional 14 screens in 4 theatres in the suburban New York area for aggregate cash proceeds of $87.5 million. Approximately $87.2 million of these proceeds was utilized to pay down our Senior Revolving Credit Facility.
Pursuant to the agreement with the DOJ, we were also required to sell 49 screens at 11 theatre locations in Chicago. On April 7, 1999, we completed the sale of 30 screens at 8 of these theatre locations to a third party. This transaction was not significant to our operating results or financial position. A portion of these proceeds was utilized to pay down our 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 were unable to sell these locations and, pursuant to the original agreement with the DOJ, a trustee was appointed to effect the sale of these locations. The trustee was also unable to sell these locations and had submitted a final report to the court. On November 9, 2000, the DOJ consented to us retaining these three locations and a stipulation and order received court approval.
Although we continue to realize net operating losses ("NOL") for income tax purposes, we continue to be subject to levels of minimum state and local income and capital taxes in North America which are not offset by our NOLs. Additionally, all of our goodwill arising from the Combination will be non-deductible in determining future income tax expense in the United States. However, we believe that any additional tax calculated on the add-back of goodwill amortization will be substantially offset by our NOL carryforward from prior years.
Effect of Inflation and Foreign Currency
Inflation and foreign currency fluctuations have not had a material effect on our operations.
Risk Management
The overall objective of our financial risk management program is to seek to mitigate any potential negative earnings effects from changes in foreign exchange and interest rates arising in our business activities. We manage these financial exposures through operational means and by using various financial instruments. These practices may change as economic conditions change. Under certain market conditions, interest rate swap contracts and forward currency exchange contracts are used to adjust these interest and currency sensitive liabilities.
New Accounting Pronouncements
On June 23, 1999, the Financial Accounting Standards Board decided to defer the effective date of Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activity". As a result of this deferral, SFAS No. 133 will be effective for all of our fiscal quarters beginning March 1, 2001. This statement standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, by requiring that we recognize those items as assets or liabilities in our statement of financial position and measure them at fair value. The adoption of this standard will not have a significant impact on our operating results or financial position.
Litigation Matters
From time to time, we are involved in routine litigation and legal proceedings in the ordinary course of business, such as personal injury claims, employment matters and contractual disputes. We believe that the ultimate disposition of these matters, to the extent not previously provided for, will not have a material impact on our operating results or financial position. Certain litigation and legal proceedings are discussed in Item 3 - Legal Proceedings and Note 18 of our consolidated financial statements for the fiscal year ended February 28, 2001.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Loews Cineplex has limited exposure to financial market risks, including changes in interest rates, movement in foreign currency exchange rates and other relevant market prices.
As a result of our bankruptcy proceedings, we entered into the DIP Facility. As of February 28, 2001, no amounts had been drawn against the DIP Facility. As of May 18, 2001, we have $4.0 million outstanding against the DIP Facility. Prior to the Chapter 11 and CCAA filings, we borrowed money under our Senior Revolving Credit Facility to fund operating needs, and at February 28, 2001, we had outstanding borrowings of $733.8 million. Prior to the petition date, the amounts borrowed under our Senior Revolving Credit Facility were subject to interest at a variable interest rate priced at the applicable margin over the bank base rate or LIBOR. The weighted average interest rate as of February 28, 2001 was 9.2%. As a result of the Chapter 11 and CCAA filings, principal and interest payments may not be made on pre-petition debt (other than court approved adequate protection payments) until the plan of reorganization defining the repayment terms has been approved by the Bankruptcy Court.
The amount outstanding under our Senior Revolving Credit Facility of $733.8 million plus $6.5 million outstanding under existing letters of credit at February 28, 2001 represents a pre-petition secured claim that is subject to compromise or other treatment under a plan of reorganization. Pre-petition secured claims are stayed although the holders of such claims have the right to move the court for relief from the stay. The determination of how this liability will ultimately be treated cannot be made
until the Bankruptcy Court approves a plan of reorganization. Accordingly, the ultimate amount and settlement terms for this liability is presently not determinable.
We are exposed to market risk arising from changes in foreign currency exchange rates as a result of international operations. See Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this Form 10-K Annual Report.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of Loews Cineplex are submitted as a separate section of this report. For a list of financial statements and schedules filed as part of this report, see the "Index to Financial Statements" on page.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors of Loews Cineplex is set forth below.
Information concerning the executive officers (who are not also directors) of Loews Cineplex is set forth below.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers to file reports of holdings and transactions in our shares with the SEC. Based on our records and other information, we believe that during the 2001 fiscal year our directors and executive officers and 10% shareholders met all applicable SEC filing requirements.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The table below shows the before-tax compensation for the last three years of our five highest paid executive officers at the end of the 2001 fiscal year.
Summary Compensation Table
______________________ (1) Unless otherwise indicated, with respect to any individual named in the above table, the aggregate amount of perquisites and other personal benefits, securities or property was less than the lesser of $50,000 or 10% of the annual salary and bonus reported for the named executive officer.
(2) Represents amounts paid by us to Mr. Ruisi related to the following: $5,023 contributed to our savings plan as a matching contribution, $7,200 contributed to our savings plan as a profit sharing contribution and $2,052 in premiums paid by us for life insurance.
(3) Includes amounts paid to Mr. Ruisi as President of Sony Retail Entertainment, a position in which Mr. Ruisi's responsibilities included oversight and direction of the Sony theatrical exhibition group.
(4) Represents amounts paid to Mr. Ruisi from the Sony Corporation of America deferred compensation plan.
(5) Represents amounts paid by us to Mr. Reid related to the following: $5,087 contributed to our savings plan as a matching contribution (including a $492 true-up contribution), $7,200 contributed to our savings plan as a profit sharing contribution and $729 in premiums paid by us for life insurance.
(6) Represents $149,924 paid to Mr. Shugrue for relocation expenses and $12,013 paid to Mr. Shugrue for a car allowance.
(7) Represents amounts paid by us to Mr. Shugrue related to the following: $2,679 contributed to our savings plan as a matching contribution, $7,200 contributed to our savings plan as a profit sharing contribution and $1,058 in premiums paid by us for life insurance.
(8) Represents $11,257 paid to Mr. Shugrue for a car allowance and $170,389 paid to Mr. Shugrue for relocation expenses.
(9) Represents amounts paid to Mr. Shugrue under the Sony Pictures deferred compensation plan.
(10) Represents amounts paid by us to Mr. McBride related to the following: $3,463 contributed to our savings plan as a matching contribution, $7,200 contributed to our savings plan as a profit sharing contribution and $490 in premiums paid by us for life insurance.
(11) Represents $14,836 paid to Mr. McBride under the Sony Pictures deferred compensation plan and $80,940 paid to Mr. McBride as relocation expenses.
(12) Represents amounts paid by us to Mr. Walker related to the following: $5,808 contributed to our savings plan as a matching contribution (including a $1,203 true-up contribution), $7,200 contributed to our savings plan as a profit sharing contribution and $496 in premiums paid by us for life insurance.
Option Grants in the Last Fiscal Year
(1) The per share option exercise prices represent the fair market value of our common stock as of the date of the grant. The options vest and become exercisable at the rate of one-fifth per year over a five-year period from the date of the grant and have a term of ten years. In addition, all options granted become exercisable upon a change of control as defined in the 1997 Stock Incentive Plan.
(2) The amounts shown in these columns are calculated at the 5% and 10% rates set by the Securities and Exchange Commission and are not intended to forecast future appreciation of our stock price.
None of the named executive officers were granted stock appreciation rights during the last fiscal year.
Aggregate Option Exercises and Fiscal Year-End Values
Employment Agreements
Mr. Ruisi. Effective May 14, 1998, we entered into an employment agreement with Mr. Ruisi for a term of five years. During his employment term, Mr. Ruisi will serve as President and CEO of Loews Cineplex and be a director of Loews Cineplex and Cineplex Odeon Canada. Mr. Ruisi will be paid a base salary of $750,000 each year. He will also be eligible to participate in all of our then- operative employee benefit plans applicable generally to our senior executives. Moreover, Mr. Ruisi will be eligible to receive an annual bonus targeted at $500,000 plus a specified cost of living adjustment (but in any event not less than $250,000 plus the specified cost of living adjustment). We made an initial grant to Mr. Ruisi of options to purchase 900,000 shares of our common stock at an exercise price of $13.125. Of these options, 800,000 are fully vested and 100,000 will vest on May 14, 2002. In addition, on April 26, 2000, we granted Mr. Ruisi options to purchase 100,000 shares of our common stock at an exercise price of $3.625. We are obligated under the terms of Mr. Ruisi's agreement to grant him an additional 100,000 options on each of May 13, 2001 and 2002. Given that we have recently filed for protection under Chapter 11 of the Bankruptcy Code, however, the options due to be granted on May 13, 2001 have not been granted. The terms of all of these options are governed by the 1997 Stock Incentive Plan.
If we terminate Mr. Ruisi's employment without cause, Mr. Ruisi will receive:
. accrued but unpaid salary and benefits and a pro rata portion of the minimum annual bonus for the year of termination, and
. his base salary, employee benefits and minimum annual bonus that would have been payable during the balance of his employment term.
In addition, any options awarded before his termination will vest immediately and continue to be exercisable in accordance with our stock incentive plan for up to twelve months from the termination date. In all other termination events, Mr. Ruisi will receive his accrued but unpaid salary and benefits and a pro rata portion of the minimum annual bonus for the year of termination.
Travis Reid. Mr. Reid entered into his current employment agreement with us effective May 1, 1998. This agreement had an initial term of three years and we had an option to extend it for an additional two years, which we exercised on December 8, 2000. Mr. Reid's employment agreement provides for an annual base salary of $450,000, with annual cost of living increases at the end of years one, two and four. Upon our exercise of the extension option, at the end of year three of his contract, Mr. Reid's annual base salary was increased by $50,000. Mr. Reid's agreement provides for an annual bonus targeted at $200,000, which is subject each year to the attainment of goals to be established by the Board.
J. Edward Shugrue. Mr. Shugrue entered into an employment agreement with us effective December 15, 1997, to serve as President, International Operations for a term of four years. We had a one year option to extend his agreement, which we exercised on December 8, 2000. Mr. Shugrue's agreement provides for an annual base salary of $450,000, with annual cost of living increases at the end of years one, two and four and a $50,000 increase at the end of year three. The agreement also provides an annual bonus targeted at $200,000, which is subject each year to the attainment of goals to be established by the Board, and reimbursement of relocation and related transportation expenses. Pursuant to his employment agreement, we made Mr. Shugrue a full-recourse interest-bearing loan in the principal amount of $1.25 million.
John C. McBride, Jr. Mr. McBride entered into an employment agreement with us effective January 19, 1998 for a term of five years. Mr. McBride's agreement provides for an annual base salary of $325,000, with annual cost of living increases at the end of years one, two and four and a $25,000 increase at the end of year three. The agreement also provides for an annual bonus targeted at between $75,000 and $125,000, which is subject each year to the attainment of performance goals to be established by the Board.
John J. Walker. Mr. Walker entered into his current employment agreement with us effective May 1, 1998. This agreement had an initial term of three years and we had an option to extend it for an additional two years, which we exercised on December 8, 2000. Mr. Walker's employment agreement provides for an annual base salary of $275,000, with annual cost of living increases at the end of years one, two and four. Upon our exercise of the extension option, at the end of year three of his contract, Mr. Walker's annual base salary was increased by $50,000. Mr. Walker's agreement provides for an annual bonus targeted at $125,000, which is subject each year to the attainment of goals to be established by the Board.
Under the employment agreements with Messrs. Reid, Shugrue, McBride and Walker, during their respective employment terms, they are also entitled to participate in all employee benefit plans applicable generally to our senior executives. They also receive car allowances. If we terminate the employment of any of Messrs. Reid, Shugrue, McBride or Walker without cause prior to the expiration of their respective terms, the executive will receive his base salary, target bonus and benefits through such date, reduced by any compensation paid or payable to him in respect of any subsequent employment for the same period.
Compensation of Directors
None of the directors, other than the independent directors, receive compensation from Loews Cineplex to serve in their capacity as directors.
Annual Cash Retainer Fees. Independent directors receive an annual cash stipend of $30,000 per year.
Meeting Fees. Independent directors also receive a fee of $1,000 for each Board or committee meeting they attend.
Stock Compensation. On April 14, 1999, we awarded to each of our independent directors stock options to purchase 5,000 shares of our common stock. These options were granted under the terms of our 1997 Stock Incentive Plan.
Compensation Committee Interlocks and Insider Participation
None of the members of the compensation or stock option committees is or has been an officer or employee of Loews Cineplex. No executive officer of Loews Cineplex currently serves on the compensation committee or any similar committee of another public company.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the number of Loews Cineplex common shares beneficially owned as of May 15, 2001 by:
. each person who we know beneficially owns more than five percent of our common shares,
. each of our directors,
. each executive officer named in the Summary Compensation Table on page 32 and
. our directors and executive officers as a group
* Indicates beneficial ownership or control of less than 1% of the outstanding shares of common stock.
(1) All of such shares are subject to the terms of the Stockholders Agreement.
(2) Vivendi Universal S.A. owns an approximately 92% indirect interest in Universal. Based on a Schedule 13D filed with the SEC on December 18, 2000, descendants of the late Samuel Bronfman and trusts established for their benefit beneficially owned, directly or indirectly, an aggregate of 88,896,034 Vivendi Universal American Depository Shares and exchange shares, representing approximately 8.6% of the then outstanding Vivendi Universal voting rights.
(3) Based on a Schedule 13G filed by MDP Ventures II LLC ("MDP Ventures"), Millenium Development Partners II LLC ("Millenium Development") and Christopher M. Jeffries ("CMJ") with the SEC on August 25, 2000. MDP Ventures is the holder of record with respect to 6,092,700 shares of common stock. Millennium Development, as the managing member of MDP Ventures, has the power to vote and the power to dispose of the common stock held by MDP Ventures. CMJ, as the holder of a majority of the limited liability company interests of Millennium Development, has the power to manage Millennium Development and therefore has the sole power to vote and the sole power to dispose of the common stock held by MDP Ventures. The reporting parties do not have shared power to vote or direct the vote, or shared power to dispose or to direct the disposition of the common stock.
(4) Based on a Schedule 13D filed by the Claridge Group with the SEC on November 15, 2000. Excludes 17,426 shares of common stock owned by the wives of Mr. Bronfman and Sen. Kolber, as to which beneficial ownership has been disclaimed. Members of the Claridge Group and their holdings of voting securities are as follows: - The Charles Rosner Bronfman Discretionary Trust: 1,918,907 shares, - The Charles Bronfman Trust: 1,000,000 shares, - The Charles R. Bronfman Trust: 1,000,000 shares, and - Senator E. Leo Kolber: 350,309 shares. Charles Rosner Bronfman may be deemed to share beneficial ownership of the shares held by the three trusts listed above.
(5) Based on a Schedule 13G filed by Dimensional Fund Advisors Inc with the SEC on February 2, 2001.
(6) Excludes Mr. Ruisi, a management director, who is included below under Executive Officers.
(7) Includes options to acquire shares of our common stock granted to each independent director on April 14, 1999, 2,000 of which are currently exercisable.
(8) Excludes 23,137,111 shares of common stock owned by Sony Pictures. Messrs. Harris, Lemberger, Wiesenthal, Singh and Stringer, officers of Sony Pictures or its affiliates, disclaim beneficial ownership of all Loews Cineplex shares owned by Sony Pictures.
(9) Includes 1,714 shares of common stock which are beneficially owned by the Allen and Sharon Karp Trust, as to which Mr. Karp disclaims beneficial ownership and 535,900 shares of common stock which relate to options currently exercisable.
(10) Excludes 14,946,461 shares of common stock and 80,000 shares of Class B common stock owned by Universal. Mr. Sutman, Mr. Mergenthaler, Ms. Randall and Ms. Schulz, officers of Universal or its affiliates, disclaim beneficial ownership of all Loews Cineplex shares owned by Universal.
(11) Includes 800,000 options currently exercisable.
(12) Represents 166,000 options currently exercisable.
(13) Represents 149,400 options currently exercisable.
(14) Represents 99,600 options currently exercisable.
(15) Represents 99,600 options currently exercisable.
Stockholders Agreement
The following is a brief summary of our Stockholders Agreement with Sony Pictures, Universal and the Claridge Group.
The Board of Directors
The Stockholders Agreement requires us to have a 16-member Board of Directors. Two of these members must be the most senior executives of Loews Cineplex. At least three others must be independent directors. The current management directors are Lawrence J. Ruisi, who is our President and Chief Executive Officer, and Allen Karp, who is Chairman and Chief Executive Officer of Cineplex Odeon Corporation. As long as Mr. Karp is an executive officer of Loews Cineplex or an affiliate, the Agreement says that he must be one of the management directors.
An "independent director" is any director who:
. is free from any relationship that, in the opinion of the nominating committee, would interfere with the exercise of independent judgment as a director,
. is not an affiliate of Loews Cineplex, Sony Pictures, Universal or the Claridge Group or a current or former officer of Loews Cineplex, Sony Pictures or Universal or any of their respective subsidiaries,
. does not also act on a regular basis as an individual or representative of an organization serving as a professional advisor, legal counsel or consultant to management of Loews Cineplex, Sony Pictures, Universal or the Claridge Group or any of their respective subsidiaries, and
. does not represent, and is not a member of the immediate family of, a person who does not satisfy the requirements of the foregoing four categories.
Sony Pictures, Universal and the Claridge Group are entitled to designate for nomination for election to our Board, the number of directors that generally corresponds to the percentage of our voting shares they each own, as follows:
As described below, Sony Pictures and Universal must consent to our issuance of voting shares above specified thresholds. If we issue shares below these thresholds at a time when their consent would be required for an issuance above the thresholds, we do not include the new shares in calculating these percentages. The Stockholders Agreement refers to these percentages as the "applicable percentage" and they are used to define the rights of Sony Pictures, Universal and the Claridge Group in a number of important areas.
The following additional limitations and exceptions apply to the general rule of proportionality in Board representation:
. May 14, 2003, the Claridge Group is entitled to designate one director if it owns more than 3.5% of our common stock, and, after May 14, 2003, if it owns more than 5%,
. if Sony Pictures, Universal and the Claridge Group would together be entitled to designate more than 14 directors, each of the thresholds on the chart will be increased by the smallest percentage that would result in their being entitled to 14 directors; and
. until May 15, 2002, no stockholder is entitled to designate more than eight directors. This cap ends, however, if a stockholder would be entitled to designate more than eight directors on the basis of its "adjusted applicable percentage" ownership of our voting shares. In calculating this percentage, the agreement generally lets a
stockholder count the shares it owned at the closing of the combination, shares acquired from each other and their permitted transferees, shares acquired through their exercise of the equity purchase rights described later on and shares acquired through stock splits and the like. It does not let them count shares acquired in the market, in privately negotiated purchases from third parties or by direct purchases from us except through the exercise of equity purchase rights.
Sony Pictures, Universal and the Claridge Group also agreed among themselves that:
. none of them will be entitled to designate more than six directors. However, this cap also ends if one of the stockholders could designate a majority of the directors on the basis of its "adjusted applicable percentage". In addition, this cap increases from six directors to seven if the "applicable percentage" of one of the stockholders exceeds 45% on or after May 14, 2001.
. at any time that either Sony Pictures or Universal's "applicable percentage" equals or exceeds 40.625% and the six-director cap applies, the other has agreed that one of its Board designees will be an independent director so long as its "applicable percentage" equals or exceeds 21.875%.
If Sony Pictures, Universal and the Claridge Group collectively can designate 13 or more directors, at least one of the individuals designated by each of Sony Pictures and Universal will be an independent director, unless one of them is only entitled to designate one director. In this case, two of the designees of the other must be independent.
We and the other parties to the Stockholders Agreement have agreed that, except for the stockholder designees and the management directors, everyone else that we nominate to our Board will be independent, unless the sitting independent directors waive this requirement.
Sony Pictures, Universal and the Claridge Group have agreed to vote their voting shares to cause each of their designees and each of the independent directors and management directors designated by the nominating committee to be elected to the Board. We have also agreed to use our best efforts to cause the election of these designees and nominees.
At each Board election, the nominating committee is charged with designating the management directors and the independent directors and determining whether prospective nominees as management directors and independent directors meet the criteria for these positions. The Stockholders Agreement requires the nominating committee to comprise four directors, consisting of two independent directors designated by a majority of the independent directors, one designee of Sony Pictures and one designee of Universal. The nominating committee does not consider nominees recommended by other stockholders.
The Stockholders Agreement requires each committee of the Board to include a number of Sony Pictures directors and Universal directors proportionate to the numbers of their designees then serving on the whole Board. The Stockholders Agreement contains other provisions relating to committees and various provisions relating to the procedures, including meetings and agendas, and the powers of the Board.
Sony Pictures, Universal and the Claridge Group have each agreed that they will not without the prior written consent of both Sony Pictures and Universal:
. seek the election or removal of any director, except as contemplated in the Stockholders Agreement,
. subject any shares of common stock to any arrangement with respect to the voting of such shares,
. subject to certain exceptions, engage in any "solicitation" within the meaning of Rule 14a-11 under the Exchange Act of proxies or consents or become a "participant" in any "election contest" within the meaning of Rule 14a-11 under the Exchange Act with respect to Loews Cineplex, or
. form a "group" with respect to any shares of common stock within the meaning of Section 13(d)(3) of the Exchange Act, other than a group consisting of other parties to the Stockholders Agreement, any of their affiliates and permitted transferees.
Consent Rights
So long as either Sony Pictures or Universal has an "applicable percentage" of at least 17.86%, it will have the right to consent to specified actions by us and our subsidiaries, including:
. voluntary bankruptcy filings by us or any "significant subsidiary",
. acquisitions and dispositions meeting specified tests of materiality,
. with limited exceptions, engaging in any business other than the exhibition of films,
. transactions with Sony Pictures or Universal or any of their respective affiliates involving more than $1,000,000 per calendar year, excluding arm's-length transactions in the ordinary course of business, including film booking arrangements,
. changing the number of directors comprising the entire Board,
. issuing any voting shares or their equivalents exceeding specified thresholds,
. paying cash dividends or making any other cash distributions on any shares of our capital stock or securities convertible into, exchangeable or exercisable for, our capital stock exceeding specified thresholds,
. incurring any debt in excess of specified amounts, with specified exceptions,
. hiring, or renewing the employment contract of, either of our two most senior executive officers,
. entering into any arrangement with any holder of voting shares in the holder's capacity as a holder which subjects actions taken by us or any of our subsidiaries to the prior approval of any person,
. entering into certain discriminatory stockholder arrangements, including any stockholders rights plan, and
. amending our by-laws by action of the Board.
Sony Pictures and Universal have additional consent rights if we fail to meet specified budgeted financial targets, including the right to approve:
. a new five-year strategic business plan,
. making capital expenditures exceeding specified thresholds,
. incurring any debt in excess of specified amounts,
. incurring liens to secure unsecured debt, and
. issuing any of our capital stock.
Some of these consent rights have exceptions.
Any dispute between us and either Sony Pictures or Universal relating to these consent rights must be submitted to arbitration by an independent arbitrator. Pending resolution of the dispute, which generally must be resolved within ten business days of its submission, we may not take the action which is the subject of the dispute.
Moreover, Sony Pictures, Universal and the Claridge Group have each agreed to vote their shares or cause their designees to the Board to vote, at the request of Sony Pictures or Universal, against any action of the Board or stockholders, related to any
. merger,
. voluntary liquidation, dissolution or winding up of Loews Cineplex,
. amendment or restatement of our certificate of incorporation, or
. amendment or repeal of any provision of Loews Cineplex's by-laws.
These rights apply only if Sony Pictures' or Universal's "applicable percentage" equals or exceeds 17.86% at the time of the request.
So long as Sony Pictures' or Universal's "applicable percentage" equals or exceeds 17.86%, our certificate of incorporation provides that effecting a merger or dissolution, amending our certificate of incorporation or amending or repealing our by-laws by action of the stockholders will require the affirmative vote or written consent of the holders of at least 80% of the outstanding shares of common stock, unless the action is approved by at least 14 members of the Board. If
14 members of the Board approve the matter, a majority vote, or with respect to a merger a 66 2/3% vote, will be required. However, this exception to the 80% vote requirement does not apply to by-law amendments.
Finally, so long as Sony Pictures' or Universal's "applicable percentage" equals or exceeds 17.86%, neither Sony Pictures, nor Universal, nor the Claridge Group will vote in favor of, consent in writing to, or take any other action to effect an amendment or repeal of these 66 2/3% vote provisions of our certificate of incorporation.
Approval of Certain Combinations by Disinterested Directors
If Sony Pictures' or Universal's "applicable percentage" equals or exceeds 17.86%, they will not enter into any contract with us, nor will we otherwise engage in any transaction with them involving more than $1,000,000 per calendar year, unless this transaction is approved by a majority of the disinterested directors following disclosure of material facts to the directors. This approval requirement does not apply to transactions in the ordinary course of our business, including film booking arrangements.
Restrictions on Transfers of Loews Cineplex Stock
The Stockholders Agreement includes the following restrictions on transfers by Sony Pictures and Universal:
Rights to Participate in Sales for All Loews Cineplex Stockholders Including Public Stockholders. Neither Sony Pictures nor Universal may transfer, individually or collectively, an aggregate of more than 50% of our outstanding voting shares to a third party transferee unless each of our stockholders has the right to participate in such transfer on the same basis as Sony Pictures or Universal. This right does not apply if Sony Pictures or Universal exercises its right of first refusal to purchase the shares to be transferred.
Rights to Participate in Sales for Universal and the Claridge Group. Sony Pictures may not transfer more than 50% of our shares initially owned by it to any person, other than a permitted transferee, unless Universal and the Claridge Group each has the right to participate in this transfer on the same basis as Sony Pictures.
Right of First Refusal of Sony Pictures and Universal. Sony Pictures and Universal have given each other reciprocal rights of first refusal in connection with
. any transfer in one or more series of related privately negotiated transactions or a public offering if (1) 5% or more of the then outstanding voting shares are subject to the transfer, (2) any transferee would, following this transfer, beneficially own 5% or more of the outstanding voting shares or (3) in the case of any transfer by Sony Pictures or any of its affiliates, Sony Pictures' "applicable percentage" exceeds 25%,
. any transfer pursuant to a bona fide third party tender offer or exchange offer,
. any transfer to us or any of our subsidiaries, and
. any transfer in a brokers' transaction within the meaning of Section 4(4) of the Securities Act.
No right of first refusal applies to any transfer between Sony Pictures or Universal and any of their respective permitted transferees.
Standstill Agreements
Each of Sony Pictures, Universal and the Claridge Group has agreed not to, and to cause its affiliates not to, acquire, directly or indirectly, the beneficial ownership of any additional voting shares, except for:
. acquisitions of up to an aggregate of 5% of the outstanding voting shares during any twelve-month period, subject to specific price restrictions and
. acquisitions in privately negotiated transactions from five or fewer persons pursuant to offers not made generally to holders of voting shares and pursuant to which the value of any consideration paid does not exceed 115% of the "market price" as determined in accordance with regulations under the Securities Act (Ontario).
These exceptions are not available to a stockholder whose "applicable percentage" would equal or exceed 25% after the acquisition if, as a result of the acquisition, the public stockholders would beneficially own less than 20% of the outstanding voting shares.
There are the following additional exceptions for acquisitions:
. from Sony Pictures, Universal or the Claridge Group,
. pursuant to the exercise of the equity purchase rights described below,
. on terms and conditions approved by the independent directors,
. pursuant to a tender or exchange offer made in accordance with applicable law,
. to restore Sony Pictures', Universal's or the Claridge Group's "applicable percentage" following a dilutive issuance of voting shares, and
. acquisitions of shares of common stock upon the conversion of the shares of Class B Non-Voting Common Stock.
Sony Pictures, Universal and the Claridge Group have agreed that, in the case of any permitted acquisition that would constitute a "Rule 13e-3 transaction" as defined in Rule 13e-3 under the Exchange Act, prior to the consummation of this transaction:
. a nationally recognized investment bank shall have delivered an opinion to our Board that the transaction is fair from a financial point of view to our stockholders, other than the stockholder initiating the acquisition,
. a majority of the independent directors shall have approved the transaction, and
. if our public stockholders beneficially own more than 20% of our voting shares, and if stockholder approval is required under Delaware law or our certificate of incorporation, a majority of the shares of common stock held by the public stockholders shall have been voted in favor of the transaction.
The standstill restrictions terminate on the earlier of (1) May 14, 2004, and (2) any time after May 14, 2002 if the Claridge Group ceases to have the right to designate a director, or upon the occurrence of:
. a good faith tender or exchange offer to acquire more than 20% of our voting shares made by any person, except that these restrictions shall not terminate for a stockholder who makes or induces the tender or exchange offer. Additionally, the restrictions will be reinstated if the offer is withdrawn or expires without being consummated,
. the "applicable percentage" of Sony Pictures, Universal or the Claridge Group equaling or exceeding 80%, or, in the case of Universal, 33 1/3% at any time Universal beneficially owns more voting shares than any other holder,
. with respect to any particular stockholder, its "applicable percentage" being less than 15% of our voting shares, except that the restrictions will be reinstated if its percentage ownership equals or exceeds 15% of our voting shares within one year after falling below this threshold,
. any person (other than Sony Pictures, Universal and the Claridge Group or a permitted transferee) beneficially owning more than 20% of the voting shares, not counting voting shares acquired from Sony Pictures, Universal or the Claridge Group, a permitted transferee or Loews Cineplex, or
. the public stockholders beneficially owning more than 66 2/3% of our voting shares.
Sony Pictures and Universal have agreed with each other and the Claridge Group has agreed with each of them that none of them nor any of their affiliates will acquire, directly or indirectly, the beneficial ownership of any of our voting shares:
. if immediately prior to the acquisition its "applicable percentage" exceeds 50%, not counting voting shares acquired from one another or permitted transferees, or
. if, as a result of the acquisition, (1) it would beneficially own more than 50% of our voting shares, not counting voting shares acquired from one another or permitted transferees, or (2) the public stockholders would beneficially own less than 20% of our voting shares.
These last restrictions do not apply if, upon consummation of such acquisition, the acquiror's "applicable percentage" would be less than 25%. These restrictions do not prohibit the acquisition of shares of common stock upon the conversion of shares of Class B non-voting common stock.
These restrictions will terminate if:
. the "applicable percentage" of either Sony Pictures or Universal is less than 10%. However, the restrictions will be reinstated if the applicable percentage equals or exceeds 10% within one year after falling below this threshold.
. any person makes a good faith tender or exchange offer to acquire more than 15% of our outstanding voting shares, except that these restrictions will not terminate for a stockholder who makes or induces the tender or exchange offer or is acting in concert with the person making the offer. Additionally, the restrictions will be reinstated if the offer is withdrawn or expires without being consummated.
. any person (other than Sony Pictures, Universal or the Claridge Group or a permitted transferee) beneficially owns more than 15% of our voting shares, not counting shares acquired from Sony Pictures, Universal or the Claridge Group or a permitted transferee, but only if the sum of the "applicable percentages" of Sony Pictures and Universal is less than 45%.
Registration Rights
The Stockholders Agreement gives Sony Pictures, Universal and the Claridge Group demand and piggyback registration rights with respect to the registration under the Securities Act of shares of common stock owned by them. Sony Pictures, Universal and the Claridge Group are each able to demand registration under the Securities Act of shares of common stock owned by them, subject to specific limitations. In no event will Loews Cineplex be required to effect, in the case of each of Sony Pictures and Universal, more than four registrations on demand, in the case of the Claridge Group, more than one registration on demand, and in the aggregate, more than nine registrations on demand.
Sony Pictures, Universal and the Claridge Group also have piggyback registration rights to include shares of common stock owned by them in any registration statement filed by us with respect to our common stock, subject to specific exceptions.
Equity Purchase Rights
Sony Pictures and Universal have equity purchase rights if we propose to issue or sell any voting shares in a transaction for which they have rights. Subject to applicable rules of any stock exchange on which our common stock is then listed, their rights will entitle them to acquire from us a portion of the securities that we propose to issue or sell in proportion to their respective "applicable percentages", prior to giving effect to the proposed issuance or sale. They may exercise their rights in whole or in part.
Assignments of Rights and Obligations to Transferees
Permitted transferees of Sony Pictures, Universal and the Claridge Group will be subject to the terms and conditions of the Stockholders Agreement. In some circumstances, third party transferees will have the right to designate directors. They may also be entitled to registration rights. Third party transferees will not receive the tag-along rights, rights of first refusal or equity purchase rights described above. In addition, the consent rights of Sony Pictures and Universal may not be assigned to third parties.
Certain Remedies
If either Sony Pictures or Universal has a good faith belief that we or another party to the Stockholders Agreement is likely to breach, or has breached, in any material respect, its obligations under the agreement, it may deliver notice of its belief to us and/or the breaching stockholder. When we receive this notice and until the dispute is resolved, neither we nor any other party to the Agreement may take any action that would facilitate the breach. If we receive this notice, we have agreed we will take reasonable actions to prevent the breach, if it has not yet occurred, or to minimize any adverse consequences to the aggrieved stockholder. Our operations may be interrupted or delayed pending such resolution.
In addition, if Sony Pictures or we breach in any material respect any of our obligations to Universal under the Stockholders Agreement, Sony Pictures and we must, at the request of Universal, use our best efforts to amend our certificate of incorporation to authorize a new class of common stock to be issued by us to Universal and its permitted transferees in exchange for the common stock held by them. This new class would be identical in all respects to the common stock, except that it would entitle Universal to proportionate representation on the Board on the same basis that Universal is entitled to representation under the Stockholders Agreement. Universal's consent rights would also be incorporated in this new class, and Sony Pictures and Universal would cease to have consent rights under the Stockholders Agreement. Such new class of common stock, if issued, would be convertible into shares of common stock on a one-for-one basis at any time at the discretion of the holder.
Termination
Except as otherwise described in the Stockholders Agreement, the rights and obligations of a stockholder under the Stockholders Agreement terminates when its "applicable percentage" is less than 6.25% or, in the case of the Claridge Group, 3.5% until May 14, 2003 and 5% after that date. The rights do not end, however, if the decrease results from our issuance of additional voting shares.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Sony Pictures and Universal are major film studios and distributors. We exhibited films distributed by Sony Pictures and Universal in the past and expect to continue to do so in the future. We pay Sony Pictures and Universal based on negotiated and/or contracted rates established on terms that we believe are equivalent to an arm's-length basis. At February 28, 2001, we owed Sony Pictures approximately $10.9 million and Universal approximately $1.0 million under film licensing agreements. We recognized approximately $41.0 million in film rental expenses relating to the exhibition of films distributed by Sony Pictures and approximately $48.2 million in film rental expenses relating to the exhibition of film distributed by Universal, in each case, for the 2001 fiscal year.
In addition to the Stockholders Agreement with Sony Pictures, Universal and the Claridge Group (described above in Item 12), we have ongoing obligations with Sony Corporation of America under the following agreements:
Trademark Agreement. Subject to certain conditions and termination rights, Sony Corporation of America granted Loews Cineplex a five-year right to use the trademark "Sony" and all goodwill associated with the mark in connection with the operation of two of our theatres, the Sony Lincoln Square theatre in New York City and the Sony Metreon Theatre located in Sony's Metreon entertainment/retail complex in San Francisco. Sony Corporation of America recently terminated this right pursuant to the terms of the agreement.
Tax Sharing and Indemnity Agreement. Sony Corporation of America is responsible for and will indemnify us and our U.S. subsidiaries against certain consolidated, combined and unitary federal, state, local and foreign income, franchise and capital taxes for all taxable years ending on or prior to the closing of our combination with Cineplex Odeon, except for taxes incurred by us and our U.S. subsidiaries after that date arising by reason of an audit or court proceeding. The agreement also sets forth procedures for (1) preparing and filing consolidated combined and unitary federal and state income, franchise and capital tax returns with respect to taxable years ending on or prior to the combination and (2) the conduct and settlement of certain tax audits and proceedings with respect to these taxable years. We have agreed to indemnify and hold harmless Sony Corporation of America and Sony Pictures with respect to certain liabilities that may arise in connection with agreements that we assumed from them at the time of the combination.
Transition Services Agreement. Sony Corporation of America and Sony Pictures have agreed to provide us with specified administrative services to the extent we require such services to conduct our operations in the ordinary course of business. They have agreed to provide these services at prices and rates, and subject to termination, as Sony Pictures and we may agree upon. These terms must be no less favorable to us than would be obtainable from unaffiliated third parties.
An affiliate of Sony Corporation of America developed an entertainment/retail complex in San Francisco. We entered into a lease to operate a 3D IMAX(R) theatre and a state-of-the-art 15-screen multiplex theatre located in this complex. Total occupancy related payments during fiscal year 2001 were approximately $4.7 million.
In September 1990, Cineplex Odeon sold its interest in the Universal City Cinema motion picture theatre facility located at the Universal City, California retail and entertainment complex Citywalk to Universal. Universal has retained us to manage the 18-screen theatre there on a long-term basis for a fee of 3% of gross revenue plus 3% of net cash flow from the multiplex. For the fiscal year ended February 28, 2001, we received approximately $636 thousand under this management agreement with Universal. During a three-year period beginning from and after the later of (1) May 14, 2000 and (2) the fifteenth day of the month following the first month end as of which our debt is less than 4.75 times our consolidated EBITDA for the 12-month period then ended, Universal can cause us to lease the Universal City Cinema for 20 years. If Universal exercises this right, we will pay Universal, for entering into the lease and conveying the related personal property, a cash payment equal to (1) ten times the cash flow of the Universal City Cinema for the 12-month period ended on the last day of the month preceding Universal's notice of exercise minus (2) the cost of eliminating any deficiencies from the operating requirements and standards set forth in the lease. Universal's put right will terminate three years after it first becomes exercisable.
We also currently operate an IMAX theatre located in the 18-screen Universal City theatre at Citywalk and the 20-screen Universal Cineplex theatre at Universal Studios in Orlando, Florida.
We have entered into several transactions with affiliates of Millennium Development, an affiliate of MDP Ventures II LLC, and negotiations are ongoing with respect to other transactions. We lease real property in New York from an affiliate of Millennium. Total occupancy related payments to Millennium during fiscal year 2001 were approximately $5.3 million. In December 2000, we entered into an agreement with an affiliate of Millennium to restructure a lease entered into by one of our subsidiaries concerning a property in Boston, Massachusetts. Under the terms of the revised agreement, aggregate base lease payments will be approximately $3.8 million per year with percentage rent payments based on the performance of the theatre. Payments under this lease are expected to commence in fiscal year 2002. Our Star Theatres partnership and an affiliate of Millennium each hold a 50% interest in Star Southfield Center, LLC, which leases real property in Michigan to Star Theatres. Total rental related payments to Star Southfield Center, LLC under this lease for fiscal year 2001 were approximately $2.8 million.
Pursuant to his employment agreement, we made Mr. Shugrue a full-recourse interest bearing bridge loan in the principal amount of $1.25 million in 1999. The loan currently bears interest at the prime rate plus 2% and is secured by real property and a portfolio of investment securities owned by Mr. Shugrue's family trust.
Pursuant to Mr. Karp's employment agreement, we made him an interest bearing loan in the amount of $425,000 in 1999. The loan bears interest at the rate of 8.875% pursuant to the terms of his employment agreement.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements: The financial statements listed in the "Index to Financial Statements" included beginning on page of this report.
(2) Financial Statement Schedules: Valuation and Qualifying Accounts included on page S-1 of this report.
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
(3) Exhibits: The exhibits listed in the "Exhibit Index" included in this report.
(b) Reports on Form 8-K:
We filed a current report on Form 8-K dated December 8, 2000. The report disclosed in Item 5 that we entered into the fifth amendment and limited waiver to our credit agreement.
(c) Exhibits: The response to this portion of Item 14 is submitted as a separate section of this report.
(d) Financial statement schedule: See Item 14(a)(2)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 (Registrant)
Dated: May 29, 2001
/s/ JOHN C. MCBRIDE, JR. ------------------------------------------- John C. McBride, Jr. Senior Vice President and General Counsel
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
ANNUAL REPORT ON FORM 10-K
ITEMS 8 AND 14(a)
LOEWS CINEPLEX ENTERTAINMENT CORPORATION
(DEBTORS-IN-POSSESSION)
Financial Statement Schedule:
For the three years ended February 28, 2001 Schedule II - Valuation and Qualifying Accounts are included on page S-1.
REPORT OF MANAGEMENT TO THE SHAREHOLDERS OF LOEWS CINEPLEX ENTERTAINMENT CORPORATION
The accompanying consolidated financial statements of Loews Cineplex Entertainment Corporation and its subsidiaries have been prepared by management, who are responsible for the integrity and objectivity of these statements. The statements have been prepared in conformity with generally accepted accounting principles in the United States and include amounts based on management's best estimates and judgments.
Management has established and maintains a system of internal control designed to provide reasonable assurance that errors or irregularities that could be material to the financial statements are prevented or are detected within a timely period. The system of internal control includes widely communicated statements of policies and business practices which are designed to require all employees to maintain high ethical standards in the conduct of Company affairs. The internal controls are augmented by policies and procedures that provide for appropriate delegation of authority and division of responsibility and by a program of internal audit with management follow-up.
The Audit Committee of the Board of Directors, composed entirely of outside directors, meets periodically with the Company's independent accountants, management and internal auditors to review accounting, auditing, internal accounting controls and financial reporting matters. The independent accountants and the internal auditors have free access to this committee.
May 18, 2001
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Loews Cineplex Entertainment Corporation:
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Loews Cineplex Entertainment Corporation (the "Company") and its subsidiaries at February 28, 2001 and February 29, 2000, and the results of their operations and their cash flows for each of the three years in the period ended February 28, 2001 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully discussed in Note 1 to the financial statements, the Company and certain of its subsidiaries filed voluntary petitions to reorganize in several jurisdictions, both domestically and internationally. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management is in the process of developing a plan of reorganization, which includes the restructuring of certain of its financial obligations. In the event a Chapter 11 plan of reorganization/CCAA plan of arrangement are confirmed by the Bankruptcy Court/Superior Court and become effective, continuation of the Company's business thereafter will be dependent on the Company's ability to achieve successful operations, maintain satisfactory capital and liquidity and obtain access to funds under a credit facility. The financial statements do not include any adjustments to reflect the possible future effects that might result from the outcome of this uncertainty on the recoverability and classification of assets or the amounts and classification of liabilities.
/s/ PricewaterhouseCoopers LLP - ---------------------------------- New York, New York May 18, 2001
LOEWS CINEPLEX ENTERTAINMENT CORPORATION (DEBTORS-IN-POSSESSION)
CONSOLIDATED BALANCE SHEET (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
The accompanying notes are an integral part of these consolidated financial statements.
LOEWS CINEPLEX ENTERTAINMENT CORPORATION (DEBTORS-IN-POSSESSION)
CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
The accompanying notes are an integral part of these consolidated financial statements.
LOEWS CINEPLEX ENTERTAINMENT CORPORATION (DEBTORS-IN-POSSESSION)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
The accompanying notes are an integral part of these consolidated financial statements.
LOEWS CINEPLEX ENTERTAINMENT CORPORATION (DEBTORS-IN-POSSESSION)
CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS OF U.S. DOLLARS)
The accompanying notes are an integral part of these consolidated financial statements.
LOEWS CINEPLEX ENTERTAINMENT CORPORATION DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (all dollar amounts in thousands of U.S. dollars, except as otherwise noted)
NOTE 1 - ORGANIZATION AND BUSINESS - ----------------------------------
Loews Cineplex Entertainment Corporation ("LCP" or the "Company"), is a major motion picture theatre exhibition company with operations in North America and Europe. The Company operates theatres under the Loews Theatres, Cineplex Odeon Theatres, Star Theatres, Magic Johnson Theatres, Megabox Theatres and Yelmo Cineplex Theatres marquees. As of February 28, 2001, LCP owns, or has interests in, and operates 2,563 screens at 294 theatres in 20 states, the District of Columbia, 6 Canadian provinces, Spain, Hungary, Turkey and Korea. The Company's principal markets include New York and the metropolitan area, Boston, Chicago, Baltimore, Dallas, Houston, Detroit, Los Angeles, Seattle and Washington D.C. in the U.S., Toronto, Montreal and Vancouver in Canada, and Madrid, Spain. The Company holds a 50% partnership interest in each of the Yelmo Cineplex de Espana ("Yelmo"), Loeks-Star Theatres ("LST") and Magic Johnson Theatres ("MJT") partnerships and holds a 24% interest in the Megabox Cineplex, Inc. ("Megabox") joint venture in Korea. Yelmo, LST, MJT and Megabox hold interests in and operate 34 locations, comprising a total of 393 screens. Screens and locations for these partnerships are included in the Company amounts referred to above.
Bankruptcy Proceedings
The exhibition industry continues to experience significant liquidity pressures caused by a number of factors including the downturn in attendance as reflected in year over year operating performance measures, the moderate to aggressive new build strategies employed by the industry's larger exhibitors which, coupled with the difficulty in closing older, obsolete theatres, has resulted in an oversupply of theatre screens in many North American markets, impairment write-offs and losses on theatre dispositions, the continued downward credit ratings of the industry and the recent bankruptcy filings by several theatre chains, including five of the eleven largest exhibitors, and defaults of certain loan agreements which have been publicly disclosed. These factors, as well as the industry's disappointing operating performance, have contributed to significant reductions in the prices of publicly traded debt and equity securities and have materially reduced the industry's access to capital, making it increasingly difficult to meet obligations as they become due. The Company has been negatively affected by these events and experienced significant pressures on its liquidity and its ability to meet its obligations as they became due.
Due to these factors, among other things, on February 15, 2001, LCP and all of its wholly owned U.S. subsidiaries filed voluntary petitions to reorganize under Chapter 11 ("Chapter 11") of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). On February 27, 2001, the Office of the United States Trustee for the Southern District of New York (the "U.S. Trustee") appointed a statutory committee of unsecured creditors (the "Creditors' Committee") to represent the interests of the debtors' unsecured creditors. The Creditors' Committee has the right to review and object to certain business transactions and may participate in the formulation of the Company's long-term business plan and plan of reorganization. In Canada, an order (the "Initial Order") to initiate a restructuring of obligations and operations under the Companies' Creditors Arrangement Act ("CCAA") was obtained on February 15, 2001 from the Ontario Superior Court of Justice (the "Superior Court") for the Company's wholly owned subsidiary, Cineplex Odeon Corporation ("Cineplex Odeon") and certain of its other Canadian subsidiaries. Additionally, on February 26, 2001, LCP's wholly owned Austrian subsidiary LCE Europlex KinbetribsgmbH ("LCE Europlex") filed a petition for bankruptcy in Vienna, Austria. Also, on March 16, 2001, the Company filed a petition for bankruptcy in Warsaw, Poland on behalf of its wholly owned Polish subsidiary LCE Polska Holding Sp. z o.o. The debtors are operating their respective businesses as debtors-in-possession. See Note 3 - Bankruptcy Proceedings and Liabilities Subject to Compromise for further discussion.
Basis of Presentation
The consolidated financial statements of the Company have been prepared in accordance with Statement of Position 90-7 "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7") for the period beginning February 15, 2001 and thereafter, and generally accepted accounting principles applicable to a going concern which, unless otherwise noted, assumes the realization of assets and the payment of liabilities in the ordinary course of business. SOP 90-7 requires (i) that pre-petition liabilities that are subject to compromise be segregated in the Company's consolidated balance sheet as liabilities subject to compromise and (ii) that revenues, expenses, realized gains and losses, and provisions for losses resulting from the reorganization and restructuring of the Company be reported separately as reorganization items
LOEWS CINEPLEX ENTERTAINMENT CORPORATION DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (all dollar amounts in thousands of U.S. dollars, except as otherwise noted)
NOTE 1 - ORGANIZATION AND BUSINESS, CONTINUED - ---------------------------------------------
in the consolidated statement of operations. Liabilities as recorded in the amounts reflected on the debtors' books and records may not be paid in full. As a result of the reorganization proceedings under Chapter 11 and CCAA, the debtor companies may take, or may be required to take, actions which may cause assets to be realized, or liabilities to be liquidated, for amounts other than those reflected in the consolidated financial statements.
As a result of the Company's recurring losses, the Chapter 11 and CCAA filings and circumstances relating to these events, including the Company's debt structure and current economic conditions, realization of assets and liquidation of liabilities are subject to significant uncertainty. In order to provide liquidity over the next fiscal year, the Company entered into an agreement dated February 15, 2001, as amended, with a group of lenders led by Bankers Trust Company, as Administrative Agent, for a Debtor-in-Possession Credit Facility (the "DIP Facility"). The DIP Facility provided the Company with $60 million in additional financing through the earlier of January 31, 2002 or upon the occurrence of certain other events including effectiveness of a Chapter 11 plan of reorganization. See Note 11 to these consolidated financial statements for further discussion. The Company believes that cash from operations along with financing provided through the DIP Facility should be available to provide liquidity to allow the Company to continue as a going concern. However, there can be no assurance of this. The accompanying consolidated financial statements of LCP have been prepared on a going concern basis of accounting and do not reflect any adjustments that might result if the Company is unable to continue as a going concern. The Company's ability to continue as a going concern is dependent upon its ability to maintain compliance with debt covenants under the DIP Facility and the ability to generate sufficient cash from operations and financing sources to meet its obligations as they become due. In the event a Chapter 11 plan of reorganization/CCAA plan of arrangement (collectively referred to as "plans of reorganization) are confirmed by the Bankruptcy Court/Superior Court and become effective, continuation of the Company's business thereafter will be dependent on the Company's ability to achieve successful operations, maintain satisfactory capital and liquidity and obtain access to funds under a credit facility. Until the plans of reorganization are confirmed by the Bankruptcy Court/Superior Court and become effective, there can be no assurance that the Company will emerge from these bankruptcy proceedings, and the effect of the terms and conditions of such a plan of reorganization on the Company's business cannot be determined and therefore there is substantial doubt regarding the Company's ability to continue as a going concern.
Business Combination
On May 14, 1998, pursuant to the Amended and Restated Master Agreement (the "Master Agreement") dated September 30, 1997, LCP (formerly known as LTM Holdings, Inc.) and Cineplex Odeon, another major motion picture exhibitor with operations in the U.S. and Canada, combined (the "Combination"). As called for in the Master Agreement, 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 include the operating results of Cineplex Odeon following the date of Combination (May 14, 1998).
At the closing of the Combination, the Company issued 7,264,642 shares of Common Stock and 80,000 shares of Class B Non-Voting Common Stock to Universal, 4,324,003 shares of Common Stock and 4,000 shares of Class B Non-Voting Common Stock to the Charles Rosner Bronfman Family Trust and certain related shareholders (the "Claridge Group") and 6,111,269 shares of common stock to the other shareholders of record of Cineplex Odeon, for an aggregate value of approximately $266.6 million, in exchange for the outstanding shares of Cineplex Odeon and its whollyowned subsidiary, Plitt Theatres, Inc. ("Plitt"). In addition, the Company issued 4,426,607 shares of common stock to Universal for consideration of $84.5 million as required under a subscription agreement, and 2,664,304 shares of Common Stock to SPE in connection with the transfer by SPE of its interest in Star Theatres of Michigan, Inc. ("Star") and S&J Theatres, Inc. ("S&J") to the Company.
On August 5, 1998, the Company sold to the public pursuant to 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
LOEWS CINEPLEX ENTERTAINMENT CORPORATION DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (all dollar amounts in thousands of U.S. dollars, except as otherwise noted)
NOTE 1 - ORGANIZATION AND BUSINESS, CONTINUED - ---------------------------------------------
to Universal for no consideration under anti-dilution provisions of the Company's subscription agreement with Universal. As a result of the public offering, SPE, Universal and the Claridge Group owned 39.5%, 25.5% and 7.4%, respectively, of the Company's common stock.
The Combination has been accounted for under the purchase method of accounting, and, accordingly, the cost to acquire Cineplex Odeon has been allocated to the assets acquired and liabilities assumed of Cineplex Odeon based on their respective fair values, with the excess purchase price allocated to goodwill. The Company arranged for an independent valuation and other studies required to determine the fair value of the assets acquired and liabilities assumed. These valuations and studies were completed during the first quarter of fiscal 2000.
Since the Combination, the Company 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 Combination. As a result, during the fourth quarter of fiscal 1999, the Company sold to Cablevision Systems Corporation 33 screens in 12 theatres in New York City, in accordance with the DOJ order, and an additional 14 screens in 4 theatres in the suburban New York area, for aggregate cash proceeds of $87.5 million. Approximately $87.2 million of these proceeds was utilized to pay down the Company's Senior Revolving Credit Facility.
Under the agreement with the DOJ, the Company was also required to sell 49 screens at 11 theatres in Chicago. On April 7, 1999, the Company completed the sale of 30 screens at 8 of these theatre locations to a third party. This transaction was not significant to the Company's 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, the Company was required to sell the remaining 19 screens at 3 theatre locations in Chicago. The Company was unable to sell these locations and, pursuant to the original agreement with the DOJ, a trustee was appointed to effect the sale of these locations. The trustee was also unable to sell these locations and had submitted a final report to the court. On November 9, 2000, the DOJ consented to the Company retaining these three locations and a stipulation and order received court approval.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - ---------------------------------------------------
Consolidation: The consolidated financial statements include the accounts of Loews Cineplex Entertainment Corporation and its wholly owned subsidiaries, including all entities in bankruptcy operating as debtors-in-possession. Majority owned companies are consolidated and 50% or less owned investments in which the Company has significant influence are accounted for under the equity method of accounting. Significant intercompany accounts and transactions have been eliminated.
Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenues and Expenses: Substantially all revenues are recognized when admission and concession sales are received at the theatres. Other revenues include the Company's equity earnings from long-term investments. Film rental costs are recorded, as revenue is earned, based upon the terms of the respective film license arrangements. Advertising costs are expensed as incurred.
Cash and Cash Equivalents: The Company considers all operating funds held in financial institutions, cash held by the theatres and all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents.
LOEWS CINEPLEX ENTERTAINMENT CORPORATION DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (all dollar amounts in thousands of U.S. dollars, except as otherwise noted)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED - --------------------------------------------------------------
Inventories: Inventories of concession products are stated at the lower of cost or market. Cost is determined by the first-in, first-out method.
Long-term Investments In/Advances to Partnerships: Investments in partnerships are recorded under the equity method of accounting. Under the equity method the cost of the investment is adjusted to reflect the Company's proportionate share of the partnerships' operating results. Advances to partners represent advances to respective partnerships, in which LCP has interests, for working capital and other capital requirements.
Fair Value of Financial Instruments: Cash, accounts receivable, accounts payable, accrued liabilities and notes payable are reflected in the financial statements at carrying value which approximates fair value, except liabilities subject to compromise as disclosed in Note 3 to these consolidated financial statements. Long-term debt principally consists of obligations which carry floating interest rates that approximate current market rates.
Property, Equipment and Leaseholds: Property, equipment and leaseholds are stated at historical cost less accumulated depreciation and amortization. The Company has acquired the rights to use certain theatre facilities under previously existing operating leases from other motion picture exhibitors. Purchase values assigned to these theatre lease rights acquired are capitalized and amortized over future periods.
Depreciation and amortization are provided on the straight-line basis over the following useful lives:
Interest costs during the period of development and construction of new theatre properties are capitalized as part of the historical cost of the asset. Interest capitalized during the fiscal years ended February 28 or 29, 2001, 2000 and 1999 was $1,328, $3,323 and $2,422, respectively.
Goodwill and Other Intangible Assets: Goodwill, which represents the excess of the purchase price over the fair values of net assets acquired, is amortized using the straight-line method over its estimated useful life. Prior to the third quarter of fiscal 2001, goodwill was amortized over a 40 year estimated useful life. As a result of the Company's change in outlook as well as the aforementioned industry downturn, the Company re-evaluated the period of amortization and determined that these events and circumstances warranted a revised estimated useful life. Effective September 1, 2000, the Company determined that a more appropriate remaining useful life for unamortized goodwill is 20 years, resulting in increased amortization expense of approximately $4.8 million during the six months ended February 28, 2001, net of the write-off of allocated goodwill. The impact on earnings per share was $0.08 per share. Other intangible assets, including management agreements and tradenames, are amortized over their estimated useful lives which range primarily from 5 to 20 years. Management continuously assesses the recoverability of the net unamortized goodwill and other intangibles by determining whether the amortization of these balances over the remaining life can be recovered through projected future undiscounted income from operations. Amortization expense charged to operations amounted to $18,331, $13,540 and $10,751 for goodwill and $1,484, $1,401 and $1,202 for other intangible assets for the years ended February 28 or 29, 2001, 2000 and 1999, respectively.
Long-Lived Assets: Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of", requires the recoverability of the carrying value of long-lived assets to be evaluated when changes occur in historical operating results, future projections and economic and competitive factors, among others. The Company continuously assesses the recoverability of its long-lived assets in accordance with SFAS No. 121, by determining whether the carrying value of these balances over the remaining life can be recovered
LOEWS CINEPLEX ENTERTAINMENT CORPORATION DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (all dollar amounts in thousands of U.S. dollars, except as otherwise noted)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED - --------------------------------------------------------------
through undiscounted projected future cash flows primarily on a theatre-by- theatre basis. In making its assessment, the Company also considers the useful lives of its assets, the competitive landscape in which those assets operate, the introduction of new technologies within the industry and decay factors (attendance erosion) in theatre attendance. As previously discussed, the continued industry downturn coupled with the oversupply of theatre screens in many North American markets, as well as the liquidity issues experienced by the Company, resulted in a change in outlook by the Company beginning during the second quarter and continuing through the fourth quarter of the current fiscal year with respect to its theatre portfolio. See Notes 6 and 8 to these Consolidated Financial Statements for further discussion.
Stock Based Compensation: As permitted under SFAS No. 123, "Accounting for Stock-Based Compensation", the Company elected to account for its stock based compensation plans under the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. The Company has complied with the disclosure requirements of SFAS No. 123 (see Note 17 to these Consolidated Financial Statements).
Income Taxes: Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts, less applicable allowances, of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Foreign Currency Translation: The effect of translating foreign currency financial statements into U.S. dollars is included in the accumulated other comprehensive income account in stockholders' equity. Gains and losses on foreign currency transactions are not significant to operations and have been included in operating expenses.
Earnings per Share: SFAS No. 128, "Earnings Per Share", establishes standards for computing and presenting earnings per share ("EPS") which applies to entities with publicly held common stock or potential common stock. The Company calculates EPS in accordance with SFAS No. 128 which states that basic EPS is computed by dividing net income/(loss) by the weighted average number of common shares outstanding for the period, and diluted EPS is computed similarly to basic EPS while giving effect to the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. However, pursuant to SFAS No. 128, the computation of diluted EPS shall not assume conversion or exercise of securities that would have an antidilutive effect on earnings per share. Since including potential common shares in the diluted per share computation always results in an antidilutive per share amount when an entity has a net loss, we have therefore not calculated diluted EPS for each of the three years ended February 28, 2001 as presented in the Consolidated Statement of Operations.
Cumulative Effect of Change in Accounting Principle: Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements", regarding the accounting for the Company's Passport and Gift Certificate Program ("certificates"), was effective beginning December 1, 2000, requiring retroactive application to the beginning of the Company's 2001 fiscal year with restatement, if necessary, of all quarters for the current fiscal year. SAB No. 101 impacts the timing of when revenues may be recorded for unredeemed certificates. Prior to the issuance of SAB No. 101, the Company would recognize "breakage revenue" into income immediately upon the sale of certificates for the estimated portion of certificates that would not be redeemed. However, in accordance with SAB No. 101, the Company no longer records breakage revenue upon sale but rather upon the expiration date of certificates or the date the obligation is otherwise fulfilled. As a result, the Company recorded a one-time charge of $7.8 million ($0.13 per share) to reflect adoption of SAB No. 101. This $7.8 million charge is referred to as "Cumulative Effect of Change in Accounting Principle" on the face of the statement of operations. The change in accounting principle has no impact on cash flows or the value of unredeemed certificates held by customers. Additionally, the retroactive application of SAB No. 101 to the Company's fiscal years 1999 and 2000 would not have a significant impact on the Company's revenues.
LOEWS CINEPLEX ENTERTAINMENT CORPORATION DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (all dollar amounts in thousands of U.S. dollars, except as otherwise noted)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED - --------------------------------------------------------------
Reclassifications: Certain fiscal 2000 balances have been reclassified to conform with the fiscal 2001 presentation.
New Accounting Pronouncements: On June 23, 1999, the Financial Accounting Standards Board decided to defer the effective date of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activity". As a result of this deferral, SFAS No. 133 will be effective for all of the Company's fiscal quarters beginning March 1, 2001. This statement standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, by requiring that the Company recognize those items as assets or liabilities in the statement of financial position and measure them at fair value. The adoption of SFAS No. 133 will not have a significant impact on the Company's operating results or financial position.
NOTE 3 - BANKRUPTCY PROCEEDINGS AND LIABILITIES SUBJECT TO COMPROMISE - ---------------------------------------------------------------------
As previously discussed in Note 1 to these consolidated financial statements, the Company has been operating as debtors-in-possession under Chapter 11 in the U.S. and pursuant to the Initial Order of the Superior Court since February 15, 2001. The Company is authorized to operate its business in the ordinary course.
Liabilities Subject to Compromise
As a result of the Chapter 11 filing, all actions to collect the payment of pre- petition indebtedness are subject to compromise or other treatment under a plan of reorganization. Generally, actions to enforce or otherwise effect payment of pre-Chapter 11 liabilities are stayed. These claims are reflected in the February 28, 2001 consolidated balance sheet as Liabilities Subject to Compromise. Pre-petition claims secured by the debtor's assets ("secured claims") are also stayed, although the holders of such claims have the right to move the court for relief from the stay. Pre-petition secured claims (primarily representing amounts borrowed under the Senior Revolving Credit Facility) are generally secured by all personal property and certain real property of LCP and its domestic subsidiaries, a pledge of stock of all domestic subsidiaries and LCP's equity interest in and loans to its foreign subsidiaries. Although pre- petition claims are generally stayed, as part of the first day orders and subsequent motions granted by the Bankruptcy Court, the Bankruptcy Court approved LCP's motions to pay certain pre-petition obligations including: (i) payments, on normal terms, to film distributors, (ii) continuing to honor gift certificates, movie passes and other customer programs, (iii) payment for employee wages and related benefits and reimbursement of employee business expenses and (iv) adequate protection payments to the lenders of the Senior Revolving Credit Facility. The Company has been and intends to continue to pay undisputed post-petition claims of all vendors, film distributors and other suppliers in the ordinary course of business. In addition, the Company may reject pre-petition executory contracts and unexpired leases with the approval of the Bankruptcy Court with respect to the Company's U.S. operations. Any damages resulting from rejection of executory contracts and unexpired leases are treated as general unsecured claims in the U.S. and are classified as liabilities subject to compromise. LCP will notify all known claimants subject to the bar date of their need to file a proof of claim with the Bankruptcy Court. A bar date is the date by which claims against the Company must be filed if the claimants wish to receive any distribution in the Chapter 11 case. No bar date has yet been set by the Bankruptcy Court. Differences between liability amounts estimated by the Company and claims filed by creditors will be investigated and the Bankruptcy Court will make a final determination of the allowable claim. The determination of how liabilities will ultimately be settled and treated cannot be made until the Bankruptcy Court approves a Chapter 11 plan of reorganization. Accordingly, the ultimate amount of such liabilities is presently not determinable.
As a result of the Initial Order of the Superior Court, substantially all actions to enforce or otherwise effect payment of pre-filing obligations of Cineplex Odeon and its subsidiaries are stayed. The rights of secured creditors to enforce against the Company's Canadian assets are also stayed. These claims are reflected in the February 28, 2001 consolidated balance sheet as Liabilities Subject to Compromise. The stay period expires on June 15, 2001 and Cineplex Odeon intends to seek an extension thereof; the granting of an extension is within the discretion of the Superior Court. Although pre-petition claims
LOEWS CINEPLEX ENTERTAINMENT CORPORATION DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (all dollar amounts in thousands of U.S. dollars, except as otherwise noted)
NOTE 3 - BANKRUPTCY PROCEEDINGS AND LIABILITIES SUBJECT TO COMPROMISE, CONTINUED - --------------------------------------------------------------------------------
are generally stayed, the Initial Order permits (i) payments on normal terms to persons supplying goods and services after the date of the Initial Order, including film suppliers, as well as certain pre-filing claims, (ii) continuing to honor gift certificates, movie passes and other customer programs, (iii) payment for employee wages and related benefits and reimbursement of employee business expenses as well as statutory severance pay and (iv) the borrowing of up to $20 million from LCP and the granting of security by the assets of Cineplex Odeon and its subsidiaries to secure such borrowings. Cineplex Odeon has been and intends to continue to pay undisputed post-filing claims of all vendors, film suppliers and other suppliers in the ordinary course of business. In addition, the Initial Order permits the repudiation of unexpired leases of Cineplex Odeon and its subsidiaries. Landlords whose leases have been repudiated will be entitled to file a claim in the CCAA proceedings in respect of such repudiation. The treatment of such claims has yet to be determined and will be set out in a plan of compromise and arrangement to be presented by Cineplex Odeon to the Superior Court and to its affected creditors. A claims process and claims bar date must also be established to determine the claims entitled to vote on a plan as well as to receive distributions thereunder. This will be determined by an order of the Superior Court. Ultimately, any plan of compromise or arrangement must be approved by a vote of a majority in number of creditors of each class of creditors affected by the plan as well as by a vote of holders of two-thirds of the value of the claims of each such class. If such a vote is favorable, the plan must then be sanctioned by the Superior Court.
Valuation methods used in Chapter 11 reorganization cases vary depending on the purpose for which they are prepared and used and are rarely based on generally accepted accounting principles, the basis of which the accompanying financial statements are prepared. Accordingly, the values set forth in the accompanying consolidated financial statements are not likely to be indicative of the values presented to or used by the Bankruptcy Court.
As of February 28, 2001, the Company has liabilities subject to compromise of approximately $471.4 million which include the following:
Year ended February 28, 2001 ----------------- 8 7/8% Senior Subordinated Notes $300,000 Interest payable - Senior Subordinated Notes 14,348 Trade payables 31,454 Rent and rent related charges 17,702 Lease termination claim liability (see above and Note 4) 94,380 Accrued Expenses/Other 13,506 -------- Total $471,390 ========
All amounts presented above may be subject to future adjustments depending on Bankruptcy Court actions, further developments with respect to disputed claims, determinations of the secured status of certain claims, the values of any collateral securing such claims, or other events.
Amounts outstanding under the 8 7/8% Senior Subordinated Notes as of February 15, 2001 are classified as liabilities subject to compromise in the consolidated statement of financial position until a plan of reorganization is approved and implemented. The last required interest payment of $13.3 million due February 1, 2001 was blocked by the lenders under the Senior Revolving Credit Facility. Interest on unsecured claims has not been accrued during the period subsequent to the filing date (February 15, 2001).
The lease termination claim liability is based upon the Company's estimates of the landlords' claims for 69 theatres (451 screens) rejected in the U.S., 32 theatres (180 screens) repudiated in Canada and four theatres terminated in Austria and Poland. In the U.S., the amount accrued by the Company for a landlord's lease claim, with respect to rejected theatres, is limited under the Bankruptcy Code. This limitation provides the Company with a far smaller lease termination liability than would have been incurred if these leases had been terminated without the protection of the Bankruptcy Code. This provision may be subject to future adjustments based on claims filed by the landlords and Bankruptcy Court actions. In Canada, the amount
LOEWS CINEPLEX ENTERTAINMENT CORPORATION DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (all dollar amounts in thousands of U.S. dollars, except as otherwise noted)
NOTE 3 - BANKRUPTCY PROCEEDINGS AND LIABILITIES SUBJECT TO COMPROMISE, CONTINUED - --------------------------------------------------------------------------------
payable in respect of repudiated leases is established under the plan presented for approval by the affected classes of the creditors and the Superior Court. Although this amount is usually less than would otherwise be payable upon the unilateral termination of a lease, it is not prescribed by statute. The Company cannot presently determine or reasonably estimate the ultimate liability which may result from the filing of claims for any rejected/repudiated contracts or from additional leases which may be rejected/repudiated in connection with the bankruptcy proceedings. Of the $94.4 million lease termination claim liability noted above, approximately $71.4 million represents reserves previously established which have been reclassified from accrued expenses and other long-term liabilities (which had been previously related to certain above market lease obligations) and $23.0 million represents a charge recorded in the 4th quarter as a component of reorganization costs - see Note 4. The Company is negotiating with certain of its remaining landlords and is continuing to evaluate its remaining leases as part of its reorganization plan process.
NOTE 4 - REORGANIZATION COSTS - -----------------------------
The Company has incurred reorganization related charges of approximately $42.1 million for the fiscal year ended February 28, 2001 which have been reflected in the Reorganization Costs line of the Statement of Operations. Reorganization costs are directly associated with the reorganization proceedings under the Company's Chapter 11 and CCAA filings. Included in such costs are amounts related to (i) landlord claims related to the rejection of 69 theatres in the U.S., 32 theatres repudiated in Canada and four leases terminated in Austria and Poland, (ii) the write-off of deferred financing fees (previously included in "Deferred Charges and Other Assets" in the Consolidated Balance Sheet) and (iii) professional and advisory fees incurred directly related to and subsequent to the bankruptcy filing on February 15, 2001. Reorganization costs for the fiscal year ended February 28, 2001 are as follows:
See Note 3 - Liabilities Subject to Compromise regarding the lease claim charge presented in the table above.
NOTE 5 - RESTRUCTURING CHARGES - ------------------------------
The Company has incurred restructuring charges of approximately $12.7 million for the fiscal year ended February 28, 2001 which have been reflected in the Restructuring Charges line of the Statement of Operations. This charge includes $8.8 million for professional and advisory fees associated with our evaluation of a longer-term financial plan (including amendments to our bank debt) and severance related payments (approximately $3.9 million) primarily associated with headcount reductions and other reductions in costs in our U.S. operations during November 2000. As of February 28, 2001, all of these terminated employees have been paid in full all amounts due as a result of this headcount reduction.
Note 6 - LOSS ON SALE/DISPOSAL OF THEATRES and OTHER - ----------------------------------------------------
Loss on sale/disposal of theatres and other includes losses on theatres which have been sold or disposed, the write-down of net book value (including allocated goodwill) and other costs associated with theatres targeted for accelerated disposition or lease renegotiation and a charge of approximately $4.6 million related to the impairment of assets related to the Magic Johnson Partnership. The loss on sale/disposal of theatres and other of $245.8 million for the fiscal year ended February 28, 2001 includes a fourth quarter charge of $80.5 million primarily associated with the write-off of net book value relating to 32 locations comprising 246 screens targeted for accelerated disposal or lease renegotiation on a short-term
LOEWS CINEPLEX ENTERTAINMENT CORPORATION DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (all dollar amounts in thousands of U.S. dollars, except as otherwise noted)
NOTE 6 - LOSS ON SALE/DISPOSAL OF THEATRES AND OTHER, CONTINUED - ---------------------------------------------------------------
basis. For the fiscal year ended February 28, 2001, the loss on sale/disposal of theatres includes a charge of $245.8 million (consisting primarily of the write- off of net book value of $207.0 million and allocated goodwill of $58.5 million partially offset by net proceeds from asset sales), including the aforementioned fourth quarter charge, for a plan to accelerate the disposal of approximately 189 theatres comprising 1,160 screens in the U.S., Canada and internationally. These accelerated disposal plans were as a result of the continued decline in attendance levels experienced at these theatres which was exacerbated by the "sub-par" industry-wide summer and fall box office levels. These 189 theatres targeted for disposal generated $215.4 million in revenues and negative operating cash flow of $22.2 million for the fiscal year ended February 28, 2001. During the fiscal year ended February 28, 2001, the Company actually disposed of 107 of these theatre locations comprising 587 screens with the remainder targeted for disposal/renegotiation in Fiscal 2002.
The aforementioned loss on sale/disposal of theatres, which also includes the write-off of certain costs associated with discontinued theatre projects, has been included in the Loss on Sale/Disposal of Theatres and Other line of the Statement of Operations.
NOTE 7 - ACCOUNTS RECEIVABLE - ----------------------------
As of February 28, 2001, accounts receivable of $11.5 million consists of trade receivables of $6.3 million and other receivables of $5.2 million. As of February 29, 2000, accounts receivable of $17.3 million consists of trade receivables of $9.9 million, receivables related to construction advances of $4.0 million and other receivables of $3.4 million.
NOTE 8 - PROPERTY, EQUIPMENT AND LEASEHOLDS - -------------------------------------------
Property, equipment and leaseholds consists of:
The cost of property and equipment under capital leases amounted to $40.3 million and $59.5 million, with accumulated depreciation of $9.9 million and $10.1 million as of February 28, 2001 and February 29, 2000, respectively. Depreciation expense of property and equipment under capital leases is included in depreciation and amortization expense in the Consolidated Statement of Operations.
The Company continues to review the assets and related intangibles of its motion picture theatres for impairment in accordance with the provisions of SFAS No. 121. As a result of this process, the Company has recognized a provision for asset impairment for theatres we continue to operate of $7.5 million, $5.5 million and $4.8 million for the years ended February 28, 2001, February 29, 2000, and February 28, 1999, respectively, which is included in depreciation and amortization expense in the Consolidated Statement of Operations.
LOEWS CINEPLEX ENTERTAINMENT CORPORATION DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (all dollar amount in thousands of U.S. dollars, except as otherwise noted)
NOTE 9 - LONG-TERM INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - ---------------------------------------------------------------
The Company's long-term investments consist primarily of a 50% interest in LST which operated 10 theatres with 156 screens, MJT which operated 5 theatres with 60 screens, and Yelmo which operated 18 theatres with 161 screens at February 28, 2001. The Company accounts for these investments following the equity method of accounting.
The Company's carrying value of its investment in LST was approximately $13.0 million and $13.5 million, its investment in MJT was approximately $17.3 million and $19.1 million, and its investment in Yelmo was $57.5 million and $43.3 million, at February 28, 2001 and February 29, 2000, respectively. The investments were in the form of equity, interest bearing notes and working capital advances.
The Company's equity share of (losses)/earnings in LST, MJT and Yelmo, in the aggregate, for the fiscal years ended February 28 or 29, 2001, 2000 and 1999 was approximately ($2.3) million, $1.5 million and $2.7 million, respectively. In addition, the Company recorded a charge of approximately $4.6 million related to the write down of certain assets related to MJT which are reflected in the Loss on Sale/Disposal of Theatres and Other line in the Statement of Operations. The following table presents condensed financial information for the LST, MJT and Yelmo partnerships on a combined basis:
NOTE 10 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES - -----------------------------------------------
Accounts payable and accrued expenses consist of:
At February 28, 2001 and February 29, 2000, other accrued expenses include $4.0 million and $21.5 million, respectively, of contractual obligations and other liabilities related to the Combination. Additionally, approximately $44.0 million and $104.5 million of contractual obligations related to the Combination are included in Other Long-term Liabilities at February 28 or 29, 2001 and 2000, respectively. These contractual obligations relate to unfavorable above market lease obligations or contractual buyouts for certain theatres identified in the Cineplex Odeon circuit at the time of the acquisition and were included in the acquisition cost of the Combination. Also see Note 3 to these consolidated financial statements as certain liabilities in the current year have been reclassified to liabilities subject to compromise as a result of the bankruptcy proceedings.
LOEWS CINEPLEX ENTERTAINMENT CORPORATION DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (all dollar amount in thousands of U.S. dollars, except as otherwise noted)
NOTE 11 - LONG-TERM DEBT AND OTHER OBLIGATIONS - ----------------------------------------------
Due to the Company's failure to comply with certain financial covenants and the commencement of the Chapter 11 and CCAA cases, the Company is in default on substantially all of its pre-petition debt obligations. Except as otherwise may be determined by the Bankruptcy Court or the Superior Court, the stay protection afforded by the Chapter 11 and CCAA cases prevents any action from being taken with regard to any of the defaults under the pre-petition debt obligations. Certain of these obligations are classified as Liabilities Subject to Compromise at February 28, 2001. See Note 3 to these consolidated financial statements for additional information. No interest has been paid or accrued on indebtedness subsequent to the petition date and no principal payments have been made since the petition date. In accordance with the final order approving the DIP Facility, the Company is authorized to make adequate protection payments on a monthly basis in an amount equal to the base rate of interest plus 150 basis points on the pre-petition bank debt outstanding under the Senior Revolving Credit Facility. Long-term debt and other obligations consist of:
Annual maturities of obligations under long-term debt for the next five fiscal years and thereafter are set forth as follows:
YEAR ENDING FEBRUARY 28 or 29, DEBT - ------------------------------ ---- 2002 $738,197 2003 250 2004 213 2005 236 2006 261 Thereafter 5,433 -------- $744,590 ========
In connection with the Company's Chapter 11 and CCAA filings, on February 15, 2001, the Company entered into the DIP Facility with Bankers Trust Company, as Administrative Agent. The DIP Facility was approved by the Bankruptcy Court on April 4, 2001. The DIP Facility, which expires on the earlier of January 31, 2002 or upon the occurrence of certain other events, including the effectiveness of a plan of reorganization, is designed to provide the Company with liquidity to operate in the ordinary course and meet certain of its funding commitments for completion of certain theatre complexes now under construction in North America. The debtor-in-possession commitment that LCP received from Bankers Trust is for approximately $146 million, $60 million of which consists of a revolving credit line with the remaining $86 million being used to repay post- default advances (i.e., subsequent to August 31, 2000) made under the Senior Revolving Credit Facility, which were secured with mortgages on eleven of the Company's existing theatre properties, and to provide for outstanding letters of credit. Loans under the DIP Facility bear interest at the bank's base rate plus 1.5% or LIBOR plus 3.25%. The terms of the DIP Facility contain certain restrictive covenants which include: limitations on the incurrence of additional guarantees, liens and indebtedness, limitations on the sale of assets, and the funding of capital expenditures. The DIP Facility also requires that the Company meet certain minimum consolidated cumulative earnings before interest, taxes, depreciation/amortization and other expenses as defined. For the months ended February 28, 2001 and March 31, 2001, the Company was in compliance with all financial covenant requirements reflected in the DIP Facility.
LOEWS CINEPLEX ENTERTAINMENT CORPORATION DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (all dollar amount in thousands of U.S. dollars, except as otherwise noted)
NOTE 11 - LONG-TERM DEBT AND OTHER OBLIGATIONS, CONTINUED - ---------------------------------------------------------
The $60 million revolving credit facility included in the DIP Facility will be used to finance the Company's operations in the normal course of business during the restructuring process (including the required adequate protection payments and funding the operating requirements and certain capital projects of Cineplex Odeon Canada- up to a maximum of $20 million) and the completion of certain "designated" construction projects, currently under construction, which were committed to prior to the petition date. The terms of the DIP Facility also require the Company to make adequate protection payments on a monthly basis on the pre-default amounts borrowed under the Senior Revolving Credit Faciliity (approximately $655 million). The amount of the monthly adequate protection payments is based on the base rate of interest plus 150 basis points. The loan to Cineplex Odeon of up to $20 million was approved by the Superior Court on February 15, 2001. This loan has been secured by the assets of Cineplex Odeon and its subsidiaries with the security being held by Deutsche Bank (Canada) as agent. The loan and the security therefor have been pledged to the lenders under the DIP Facility. As of February 28, 2001, no amounts had been drawn against the DIP Facility. As of May 18, 2001, $4.0 million has been drawn against the DIP Facility. The Company's availability under the DIP Facility amounts to $56 million as of May 18, 2001.
On August 5, 1998, the Company issued $300 million of 8 7/8% Senior Subordinated Notes due 2008. On February 1, 2001, the required interest payment of $13.3 million due on the Company's Notes was blocked by the lenders under the Senior Revolving Credit Facility. In accordance with the Indenture, the Company had thirty days to cure the default before such payment default became an event of default which would permit the requisite holders to accelerate payment of the outstanding principal amount of and accrued interest on these notes. These notes automatically accelerated as a result of the Chapter 11 filing. The Company does not at this time have access to capital to be able to repay these notes or interest in cash. The payments on the 8 7/8% Senior Subordinated Notes, including interest, have been stayed and have been reclassified as Liabilities Subject to Compromise in the February 28, 2001 consolidated balance sheet.
On August 18, 1998, the Company entered into interest rate swap agreements, with an aggregate notional amount of $250 million, for a period of four years to hedge a portion of the Senior Revolving Credit Facility variable interest rate risk. On May 26, 2000, the Company monetized the value of these contracts and sold these swaps for $8.65 million. The Company believes that it maximized the value of these contracts as a result of this sale. As the Company had accounted for these swaps as interest rate hedges, the gain realized from the sale has been deferred and will be realized pending the reorganization of the debt.
NOTE 12 - 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 may include escalation clauses, guarantees and certain other restrictions, 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 February 28, 2001 under the above mentioned operating and capital leases, having an initial or remaining non-cancelable lease term of one or more years are set forth as follows:
OPERATING CAPITAL YEAR ENDING FEBRUARY 28 or 29, LEASES LEASES - ------------------------------ ------------ ----------- 2002 $ 105,148 $ 4,377 2003 104,281 4,316 2004 101,992 4,374 2005 102,161 4,299 2006 102,432 4,244 Thereafter 1,133,832 43,306 ------------ -----------
Total Minimum Rentals $ 1,649,846 64,916 ============ Less Amount Representing Interest 29,529 -----------
Present Value of Net Minimum Rentals $ 35,387 ===========
The future minimum rental commitments at February 28, 2001 for the next five fiscal years and thereafter, as set forth in the table above, exclude rental commitments for those leases which have been rejected/repudiated as a result of the Chapter 11 and CCAA filings.
Minimum rental expense related to operating leases was $115,050, $102,888 and $74,610 for the years ended February 28 or 29, 2001, 2000 and 1999, respectively. Percentage rental expense for those same periods was $4,936, $7,521 and $7,265, respectively.
LOEWS CINEPLEX ENTERTAINMENT CORPORATION DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (all dollar amount in thousands of U.S. dollars, except as otherwise noted)
NOTE 13 - EMPLOYEE AND POSTRETIREMENT BENEFIT PLANS - ---------------------------------------------------
Profit Sharing and Savings Plan
The Company has a defined contribution Profit Sharing and Savings Plan ("Savings Plan") for substantially all eligible salaried employees in the United States and Canada under which the Company contributes by matching 50% of the employee contribution up to a maximum of 6% of the statutory limit of eligible compensation. A participant may elect to contribute up to an additional 10% of eligible compensation (subject to the statutory limit), however this amount is not eligible for matching contributions by the Company. The Savings Plan also provides for special profit sharing contributions, the annual amount of which is determined at the discretion of the Company. The expense recorded by the Company related to contributions to the Savings Plan aggregated $2,613, $2,377 and $1,922 for the years ended February 28 or 29, 2001, 2000, and 1999, respectively.
Employee Health and Welfare and Other Post-retirement Benefits
The Company provides health and welfare benefits and post-retirement benefits to eligible executives and employees in the United States and Canada. The Company has accrued post-retirement benefits of $3,535 and $3,640 at February 28, 2001 and February 29, 2000, respectively, and recognized an annual cost of $49, nil and $162 for the years ended February 28 or 29, 2001, 2000, and 1999, respectively. The cost and accrued benefit obligations are calculated using a discount rate of 7.5% and 8% for the years ended February 28, 2001 and February 29, 2000, respectively, and a health care trend rate of 8% for fiscal year 2001 (with this rate assumed to gradually decrease to 5% for fiscal 2004 and thereafter).
Pension Plans
As a result of the Combination, the Company acquired the U.S. and Canadian pension plans previously administered by Cineplex Odeon.
Cineplex Odeon had a defined benefit pension plan covering all full-time employees in the United States which provides benefits based on years of service and the employees' compensation for certain periods during the last years of employment. During fiscal year 1999, the Company decided to freeze benefits under this plan and convert the plan to a cash balance plan. This plan was restructured as of January 1, 1999 and all eligible employees previously covered under the plan became eligible to participate in the Company's Savings Plan. The fair value of the pension plan assets acquired and the projected benefit obligations assumed as a result of the Combination were $6,679 and $12,779, respectively. As of February 28 or 29, 2001 and 2000, and February 28, 1999 the pension fund assets were $8,052 and $7,256, respectively, the projected benefits obligations were $11,125 and $11,137, respectively, and the Company had accrued pension costs of $3,205 and $4,661, respectively, associated with this plan. Additionally, the Company has recognized an annual cost of $368, $402 and nil for the year ended February 28, 2001, February 29, 2000 and February 28, 1999, respectively. The cost and accrued benefit obligations associated with the pension plan were calculated utilizing a discount rate of 7.5% and 8% for the years ended February 28, 2001 and February 29, 2000, respectively, and a long- term rate of return of 8.5% for fiscal years 2001 and 2000.
The Company has a pension plan covering substantially all full-time Canadian employees. Prior to January 1, 1993 this plan was a defined benefit plan, and effective on that date it was converted to a defined contribution plan. At the date of conversion, benefits under the defined benefit plan were frozen. The actuarial estimate for the plan covering Canadian employees indicate a surplus of pension fund assets over accrued benefits of approximately $918 and $1,538 as of February 28, 2001 and February 29, 2000, respectively. The cost and accrued benefit obligations associated with the pension plan were calculated utilizing a discount rate of 6.5% and 7% and a long-term rate of return of 7% for fiscal years 2001 and 2000.
LOEWS CINEPLEX ENTERTAINMENT CORPORATION DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (all dollar amount in thousands of U.S. dollars, except as otherwise noted)
NOTE 13 - EMPLOYEE AND POSTRETIREMENT BENEFIT PLANS, CONTINUED - --------------------------------------------------------------
Other Plans
Various employees are covered by union sponsored pension plans. The contributions are determined in accordance with provisions of negotiated labor contracts. Under these agreements, benefit expenses aggregated $1,590, $1,790 and $1,731 for the years ended February 28 or 29, 2001, 2000 and 1999, respectively.
NOTE 14 - RELATED PARTY TRANSACTIONS - ------------------------------------
The Company has exhibited films distributed by SPE in the past, and expects to continue to do so in the future. Payments are based on negotiated and/or contracted rates established on terms that management believes are on an arm's- length basis. At February 28, 2001 and February 29, 2000, the Company owed SPE and affiliates $10,866 and $6,186, respectively, under film licensing agreements. The Company has recognized film rental expenses relating to the exhibition of films distributed by SPE in the amount of $41,015, $38,449 and $33,799, for the years ended February 28 or 29, 2001, 2000 and 1999, respectively. Additionally, the Company leases a theatre property from an affiliate of SCA. Total occupancy related payments during fiscal years 2001 and 2000 were $4,685 and $1,967, respectively.
The Company has exhibited films distributed by Universal in the past, and expects to continue to do so in the future. Payments are based on negotiated and/or contracted rates established on terms that management believes are on an arm's-length basis. At February 28, 2001 and February 29, 2000, the Company owed Universal $1,014 and $5,221, respectively, under film licensing agreements. The Company has recognized film rental expenses relating to the exhibition of films distributed by Universal in the amount of $48,172 and $51,266 for the years ended February 28 or 29, 2001 and 2000, respectively.
At February 28, 1998, the Company had debt due to SCA affiliates totaling $296.3 million. This amount was comprised of a promissory note and working capital advances. The debt due to SCA affiliates carried interest at an intercompany interest rate determined by SCA (5.9% at February 28, 1998) and was due October 31, 1998. This amount was repaid in conjunction with the closing of the Combination on May 14, 1998. Interest expense incurred on the "Debt due to SCA Affiliates" was $6,942 for the year ended February 28, 1999.
In addition to the above related party transactions, SCA and LCP provided certain services to one another, primarily relating to activities prior to the Combination. SCA affiliates provided certain services relating to the following activities: Insurance and risk management services, including excess liability, workman's compensation and officers and directors coverage among others, benefits administration and payroll processing, and tax processing services. LCP provided certain services to SCA affiliates relating to the following activities: Finance, Administrative and MIS support. The net amount charged to the Company for these services amounted to $25, $143 and $610 for the years ended February 28 or 29, 2001, 2000 and 1999, respectively. For the years ended February 28 or 29, 2001, 2000 and 1999, the Company was also charged by a SCA affiliate for certain administrative related services in the amounts of nil, nil and $115, respectively. The Company believes the costs of the above mentioned services are commensurate with that which would be charged by third parties for similar services.
The Company has entered into several transactions with affiliates of Millennium Development, an affiliate of MDP Ventures II LLC, and negotiations are ongoing with respect to other transactions. The Company leases real property in New York from an affiliate of Millennium. Total occupancy related payments to Millennium during fiscal year 2001 were approximately $5.3 million. In December 2000, the Company entered into an agreement with an affiliate of Millennium to restructure a lease entered into by one of its subsidiaries concerning a property in Boston, Massachusetts. Under the terms of the revised agreement, aggregate base lease payments will be approximately $3.8 million per year with percentage rent payments based on the performance of the theatre. Payments under this lease are expected to commence in fiscal year 2002. The Company's Star Theatres partnership and an affiliate of Millennium each hold a 50% interest in Star Southfield Center, LLC, which leases real property in Michigan to Star Theatres. Total rental related payments to Star Southfield Center, LLC under this lease for fiscal year 2001 were approximately $2.8 million.
LOEWS CINEPLEX ENTERTAINMENT CORPORATION DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (all dollar amount in thousands of U.S. dollars, except as otherwise noted)
NOTE 15 - INCOME TAXES - ----------------------
The Company accounts for income taxes under SFAS No. 109, "Accounting for Income Taxes". This statement applies an asset and liability approach that requires the recognition of deferred tax assets and liabilities with respect to the expected future tax consequences of events that have been recognized in the consolidated financial statements and tax returns.
For periods prior to the closing of the Combination, the Company filed a consolidated tax return with SCA for federal income tax purposes and combined tax returns with SCA in certain state and local jurisdictions. However, for financial reporting purposes, the Company calculated federal, state and local income taxes as if it filed its returns on a stand-alone basis. For all periods after the closing of the Combination, the Company files a consolidated tax return for federal income tax purposes, and appropriate state and local tax returns, independent of SCA.
The provision for income taxes consists of the following:
Reconciliation of the provision for income taxes to the statutory federal income tax rate follows:
Significant components of the deferred tax assets and liabilities follow:
FEBRUARY 28, FEBRUARY 29, 2001 2000 ------------ ------------ Net deferred tax assets: Net operating loss carryforwards $ 293,344 $ 211,860 Loss on sale/disposals of theatres and other 96,594 15,110 Contractual obligations 42,161 47,119 Book/tax fixed asset basis differences 22,757 25,588 Other 19,111 15,150 ------------ ------------ 473,967 314,827 Less: Valuation allowance (457,817) (296,854) ------------------------- Total net deferred tax assets 16,150 17,973
Net deferred tax liabilities: Depreciation and Amortization 16,150 17,973 ------------ ------------ Total net deferred tax liabilities 16,150 17,973 ------------ ------------
Net Deferred Tax Liability $ - $ - ============ ============
LOEWS CINEPLEX ENTERTAINMENT CORPORATION DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (all dollars amounts in thousands of U.S. dollars, except as otherwise noted)
NOTE 15 - INCOME TAXES, CONTINUED - ---------------------------------
The valuation allowance of $457.8 million as of February 28, 2001 represents a provision for the uncertainty as to the realization of deferred tax assets, including temporary differences associated with the loss on sale and disposals of theatres, certain contractual obligations and net operating loss ("NOL") carryforwards. The Company has concluded that based upon expected future results, it cannot be reasonably assured that the deferred tax asset balance will be realized. During the current year, the valuation allowance for deferred tax assets increased by approximately $161.0 million. This increase was due to the generation of NOLs, relating to a book taxable loss and additional temporary differences, primarily relating to the loss on sale and disposals of theatres.
For tax purposes, NOLs of approximately $683.3 million, expiring between the years 2002 and 2020, are available to offset future taxable income. A portion of the U.S. NOL carryforwards, in the amount of $253.6 million, is subject to certain limitations and restrictions under the Internal Revenue Code of 1986, as amended. Although the Company continues to realize net operating losses ("NOLs") for income tax purposes, it continues to be subject to levels of minimum state and local income and capital taxes in North America, which are not offset by NOLs. Additionally, all of the goodwill arising from the Combination will be non-deductible in determining future income tax expense in the United States. However, the Company believes that its NOLs will substantially offset any additional tax calculated on the add-back of goodwill amortization.
As a result of any plan of reorganization, the net operating loss carryforward may be reduced, and possibly eliminated, due to any potential extinguishment of debt. In addition, any remaining net operating losses may be limited due to any potential change in ownership.
No provisions have been made for foreign withholding taxes or United States income taxes associated with the cumulative undistributed earnings of foreign subsidiaries as of February 28, 2001, as these earnings are expected to be reinvested in working capital and other business needs indefinitely. A determination of the amount of unrecognized deferred tax liability with respect to such earnings is not practicable. Moreover, any additional taxes payable on these earnings if remitted, would be substantially offset by U.S. tax credits for foreign taxes already paid.
LOEWS CINEPLEX ENTERTAINMENT CORPORATION DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (all dollars amounts in thousands of U.S. dollars, except as otherwise noted)
NOTE 16 - 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 or transfers among geographic areas.
No single customer accounts for more than 10% of total revenues for each of the three years ended February 28, 2001.
NOTE 17 - STOCK OPTION PLANS - ----------------------------
During fiscal 1998, the Company created the 1997 Stock Incentive Plan (the "Plan") providing for the granting of options to employees, officers, directors, consultants, and advisors of the Company or an affiliate. The Plan is administered by a committee of the Board of Directors (the "Committee"). The Plan provides for the grants or awards of incentive and non-qualified stock options, stock appreciation and dividend equivalent rights, restricted stock, performance units and performance shares. During December 1997, the Company granted non-qualified stock options to certain key employees. During April 1999, the Company granted 1,991,472 additional non-qualified stock options to 900 of its employees. Additionally, during April 2000, the Committee approved a grant of 340,000 non-qualified stock options to the Company's employees. Under the Plan, the Company has a total of 5,862,265 shares available for the grant of awards. As of February 28, 2001, an aggregate of 5,143,361 shares were outstanding with 718,904 available for future grant. These options granted, in addition to the options available for future grant, could potentially dilute future earnings per share. Except in the case of 500,000 options granted, which vested immediately, the options generally vest and become exercisable ratably over a five year period, commencing on the first anniversary of the closing date of the Combination, but in any event, will be fully vested and exercisable as of the fifth anniversary of the date of grant. The options generally expire ten years after grant.
Cineplex Odeon had a stock option plan in place prior to the Combination. Following the Combination, the Cineplex Odeon options were converted to 1.2 million options in LCP shares at an exchange ratio of 10 for 1 and the historical option
LOEWS CINEPLEX ENTERTAINMENT CORPORATION DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (all dollars amounts in thousands of U.S. dollars, except as otherwise noted)
NOTE 17 - STOCK OPTION PLANS, CONTINUED - ---------------------------------------
prices were converted by a factor of 10 times. The Cineplex Odeon options denominated in Canadian dollars have been converted utilizing the exchange rate in effect on the date of conversion. The conversion costs relating to the Cineplex Odeon options were not material.
The following table summarizes information about the stock options outstanding at February 28, 2001 and February 29, 2000 (per share amounts are in whole dollars):
The Company applies APB No. 25 and related interpretations in accounting for the Plan. For purposes of the disclosure below, compensation costs for the Plan have been determined based upon the fair value at the date of grant for awards under the Plan, consistent with the methodology under SFAS No. 123, utilizing the Black-Scholes option pricing model based on the following assumptions:
The Company's net loss and loss per share for the years ended February 28, 2001, February 29, 2000 and February 28, 1999 are presented in the pro forma amounts indicated below:
LOEWS CINEPLEX ENTERTAINMENT CORPORATION DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (all dollars amounts in thousands of U.S. dollars, except as otherwise noted)
NOTE 18 - COMMITMENTS AND CONTINGENCIES - ---------------------------------------
Commitments The Company has entered into commitments for the completion of construction of 7 theatre properties (comprising 117 screens) aggregating approximately $60.4 million anticipated to be funded over the next year. The Company has also guaranteed an additional $99.4 million related to obligations under lease agreements entered into by MJT.
Metreon Arbitration In May 1997, the Company entered into a 21 year lease with Metreon, Inc. ("Metreon") an affiliate of Sony Corporation of America, to operate a multiplex theatre in an entertainment/retail complex developed by Metreon in San Francisco. Since that theatre opened in June 1999, the Company has had a dispute with Metreon with respect to construction costs (amount of dispute is approximately $5 million) that may be the Company's responsibility under the lease. Also, the Company is in dispute with regard to the nature of the costs that Metreon is seeking to include as operating expenses under the lease, and the proper allocation of operating expenses to this theatre, based on the Company's proportionate share of the complex. To date, the Company has been unable to resolve these issues through negotiation with Metreon. The estimated difference in operating expenses allocable to this theatre, taking into account differences over both the nature of the allocable costs and determination of the Company's proportionate share of the complex, is approximately $3 - $4 million per annum for the duration of the lease. Pursuant to the terms of the lease, the Company is to contribute to the operating expenses of the complex in an amount equal to its proportionate share of the total floor area of the complex. Metreon has asserted that the Company's proportionate share of the complex is approximately 49%, while the Company asserts that its proportionate share is approximately 32%. On September 19, 2000, as permitted by the lease, Metreon filed a demand for arbitration with the American Arbitration Association seeking a declaration of the proportionate share of the complex floor area occupied by this theatre. The Company believes that it has meritorious defenses to all of Metreon's claims against the Company under the lease and intends to vigorously assert its position regarding its proportionate share of the complex. This arbitration is stayed as a result of the filing of the Chapter 11 petition.
ADA Litigation The Department of Justice, in coordination with the New York City Commission on Human Rights, is currently investigating Cineplex Odeon's theatres in New York City with respect to its compliance with the Americans with Disabilities Act ("ADA") and the New York City Human Rights Law. The Department of Justice has alleged that its investigation had identified numerous violations of the ADA. The Company has opposed, and will continue to vigorously oppose the allegations and claims of the Department of Justice with respect to the compliance of these theatres under the ADA. However, the Company cannot guarantee that the remediation costs relating to the ADA will not be material.
Environmental Litigation Two of the Company's leased drive-in theatres, both in the State of Illinois, are located on properties on which certain third parties disposed of, or may have disposed of, substantial quantities of construction debris, auto shredder residue and other debris. Such material may contain hazardous substances. One of these leases terminated in the ordinary course prior to the Debtors filing their Chapter 11 cases. Pursuant to an order of the Bankruptcy Court, the other lease was rejected in accordance with the Bankruptcy Code. Termination or rejection of these leases, however, may not terminate all of the Debtors' liability in connection with the disposal of debris on these properties. In addition, the rejected lease property is the subject of an action, filed in August 1998 in the circuit court of Cook County, Illinois by the Illinois Attorney General's office seeking civil penalties and various forms of equitable relief, including the removal of all wastes allegedly present at the property, soil and ground water testing and remediation, if necessary. This action may be stayed, in whole or in part, as the result of the commencement of the Debtors's Chapter 11 cases. The Company's range of probable 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 likelihood of any particular remedial action being required, the allocation of liability, if any, to other responsible parties, and the ability of such parties to satisfy their share of such liability, and the ability of the Debtors to discharge certain claims and liabilities in connection with this action under applicable Bankruptcy law. If necessary, the Company intends to vigorously defend against this action and will continue to evaluate future information and developments with respect to conditions at this property and will periodically reassess any liability
LOEWS CINEPLEX ENTERTAINMENT CORPORATION DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (all dollars amounts in thousands of U.S. dollars, except as otherwise noted)
NOTE 18 - COMMITMENTS AND CONTINGENCIES, CONTINUED - --------------------------------------------------
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.
Competition Bureau Proceedings The Canadian Competition Bureau (the "Bureau") recently obtained a Federal Court Order requiring a number of exhibitors and distributors, including the Company's subsidiaries (Cineplex Odeon Corporation and Cineplex Odeon (Quebec) Inc.), to produce significant business information by April 27, 2001. This Order is in connection with an inquiry by the Bureau relating to certain practices of motion picture exhibitors, including Cineplex Odeon Corporation, and motion picture distributors. On April 27, 2001, Cineplex Odeon complied with the order and provided the required business information to the Competition Bureau. The Company intends to vigorously oppose any allegation of anti-competitive conduct on its part.
Six West Retail Acquisition, Inc. On July 24, 1997, Six West Retail Acquisition, Inc., a real estate development company, initiated a lawsuit against us and some of our affiliates in the U.S. District Court for the Southern District of New York, seeking injunctive relief and unspecified monetary damages. Six West alleges that we have violated federal antitrust laws by engaging in block booking agreements and monopolizing the motion picture exhibition market in New York City. Six West owns or leases the Paris and New York Twin theatres in Manhattan. The Paris theatre was managed by one of our subsidiaries under an oral management agreement that has been terminated. The New York Twin theatre is managed by one of our subsidiaries under a written management agreement. Six West also alleges that we violated our contractual and fiduciary responsibilities in managing the two theatres. On December 3, 1997, Six West filed an amended complaint asserting similar claims with respect to the Festival Theatre which was operated by one of our subsidiaries until it was closed in 1994. All of the defendants moved to dismiss the amended complaint by motion dated January 8, 1998. The court decided both motions in a memorandum opinion and order dated March 8, 2000. The court granted defendants' motion to dismiss the contract claims against the individual non-corporate defendants and a portion of one claim against Loews. The court denied the motion with respect to the remainder of the amended complaint and the non-Loews corporate defendants. Discovery in the action is still in progress. This action was stayed with respect to these defendants that are among the U.S. Debtors as a result of the filing of the Chapter 11 petition. We believe that Six West's claims are without merit and intend to oppose them vigorously.
Other Other than the lawsuits noted above, the Company is a defendant in various lawsuits arising in the ordinary course of business and is involved in certain environmental matters. From time to time the Company is involved in disputes with landlords, contractors and other third parties. It is the opinion of management that any liability to the Company which may arise as a result of these matters will not have a material adverse effect on its operating results, financial position and cash flows.
LOEWS CINEPLEX ENTERTAINMENT CORPORATION DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (all dollar amounts in thousands of U.S. dollars, except as otherwise noted)
NOTE 19 - SELECTED UNAUDITED QUARTERLY DATA - -------------------------------------------
The table below presents selected unaudited quarterly data/(1)/. All dollar amounts reflected in the table below are in thousands of U.S. dollars, except per share amounts.
Earnings per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly earnings per share do not necessarily equal the total for the year.
Notes: (1) The Company's business is seasonal with a substantial portion of its revenues being derived during the summer months and holiday season.
(2) Depreciation and amortization costs include adjustments necessary to reflect the allocation of purchase price to the fair value of Cineplex Odeon assets acquired and liabilities assumed as part of the Combination. This allocation of value was substantially completed during the fourth quarter of fiscal year 1999 and was completed during the first quarter of the fiscal year 2000. As a result, adjustments of approximately $3.2 million to reduce previous preliminary estimates of depreciation and amortization expense were recorded in the fourth quarter of fiscal year 1999.
(3) Reflects required retroactive application to the beginning of Fiscal 2001 of SAB No. 101 "Revenue Recognition in Financial Statements." The Company has recorded a one-time charge of $7.8 million to reflect adoption of SAB No. 101. See Note 2 for additional information. The retroactive application of SAB No. 101 to the Company's quarters for fiscal year 2000 would not have a significant impact on the Company's revenues.
(4) The fourth quarter net loss before cumulative effect of change in accounting principle of $155.5 million includes charges for (i) loss on sale/disposal of theatres and other of $80.5 million, (ii) reorganization costs of $42.1 million and (iii) restructuring charges of $7.3 million.
SCHEDULE II
LOEWS CINEPLEX ENTERTAINMENT CORPORATION VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS OF U.S. DOLLARS)
S-1
ANNUAL REPORT ON FORM 10-K
ITEMS 14(a) and 14(c)
EXHIBIT INDEX
2.1 (1) Amended and Restated Master Agreement among Sony Pictures Entertainment Inc., Registrant and Cineplex Odeon Corporation dated as of September 30, 1997. 2.2 (2) Amending Agreement dated May 14, 1998. 2.3 (1) Subscription Agreement by and between Registrant and Universal Studios, Inc. dated as of September 30, 1997. 2.4 (1) Plan of Arrangement. 3.1 (2) Amended and Restated Certificate of Incorporation of Registrant. 3.2 (3) 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 (2) Tax Sharing and Indemnity Agreement, dated May 14, 1998, by and among Registrant and Sony Corporation of America. 10.3 (2) Sony Trademark Agreement, dated May 14, 1998, by and among Registrant and Sony Corporation of America. 10.4 (2) Transition Services Agreement, dated May 14, 1998, among Registrant, Sony Corporation of America and Sony Pictures Entertainment, Inc. 10.5 (2) 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 (2) Sony YBG Entertainment Center Tenant Work Agreement. 10.7 (1) Form of Director Indemnification Agreement. 10.8 (1) Loews Cineplex Entertainment Corporation Amended and Restated 1997 Stock Incentive Plan. 10.9 (2) 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. 10.9.1 (6) First Amendment to Credit Agreement, dated as of February 29, 2000. 10.9.2 (7) Second Amendment and Limited Waiver to Credit Agreement, dated as of September 19, 2000. 10.9.3 (7) Third Amendment and Limited Waiver to Credit Agreement, dated as of October 16, 2000. 10.9.4 (8) Fourth Amendment and Limited Waiver to Credit Agreement, dated as of November 21, 2000. 10.9.5 (9) Fifth Amendment and Limited Waiver to Credit Agreement, dated as of December 7, 2000. 10.10 (4) Indenture, dated as of August 5, 1998, by and among Registrant and Bankers Trust Company, as Trustee. 10.10.1 (9) Supplemental Indenture, dated as of December 8, 2000, by and among Registrant and HSBC Bank USA as Trustee 10.11 (2) Agreement between Registrant and Lawrence J. Ruisi, dated April 30, 1998. 10.13 (5) Agreement between Cineplex Odeon Corporation and Allen Karp, dated August 18, 1999. 10.15 (6) Agreement between Registrant and Seymour H. Smith, dated November 1, 1999. 10.16 (6) Agreement between Registrant and Travis Reid, dated May 1, 1998. 10.17 (7) Agreement between Registrant and Joseph Sparacio, dated May 1, 1998. 10.18 (7) Agreement between Registrant and John J. Walker, dated May 1, 1998. 10.19 (6) Agreement between Registrant and John C. McBride, Jr., dated January 19, 1998. 10.20 (6) Agreement between Registrant and Mindy Tucker, dated December 15, 1997. 10.21 (7) Agreement between Registrant and J. Edward Shugrue, dated December 15, 1997. 21.1 Subsidiaries of the Registrant. 23.1 Consent of PricewaterhouseCoopers LLP
(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 Loews Cineplex's Annual Report on Form 10-K for the fiscal year ended February 28, 1998, as amended.
(3) 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.
(4) Incorporated by reference from Loews Cineplex's Registration Statement on Form S-4 filed on October 13, 1998, Commission file number 333-64883.
(5) Incorporated by reference from Loews Cineplex's Quarterly Report on Form 10-Q for the period ended August 31, 1999.
(6) Incorporated by reference from Loews Cineplex's Annual Report on Form 10-K for the fiscal year ended February 29, 2000.
(7) Incorporated by reference from Loews Cineplex's Quarterly Report on Form 10-Q for the period ended August 31, 2000.
(8) Incorporated by reference from Loews Cineplex's Current Report on Form 8-K, dated November 21, 2000.
(9) Incorporated by reference from Loews Cineplex's Current Report on Form 8-K, dated December 8, 2000.