Cineplex Galaxy Income Fund
TSX : CGX.UN

Cineplex Galaxy Income Fund
Cineplex Entertainment

November 03, 2005 07:00 ET

Cineplex Galaxy Income Fund Reports Third Quarter Results

TORONTO, ONTARIO--(CCNMatthews - Nov. 3, 2005) - Cineplex Galaxy Income Fund (the "Fund") (TSX:CGX.UN) today released the financial results of Cineplex Entertainment Limited Partnership (the "Partnership"), for the third quarter of 2005.

Third Quarter Results

- Total revenues for the quarter were $151.9 million compared to $85.1 million for 2004.

- Adjusted EBITDA for the quarter was $11.0 million compared to $19.6 million for 2004 -due to a decline in box office volume and the inclusion of $8.8 million in one-time charges.

- Distributable cash flow per unit for the quarter was $0.2063 compared to a declared distribution of $0.2874.

"Our goal is to be the best motion picture exhibitor in the business and we focussed our efforts during the third quarter on completing the acquisition of Famous Players and establishing the infrastructure to allow us to achieve this goal" said Ellis Jacob, President and CEO. Mr. Jacob went on to say that "while the business results for the quarter have been disappointing due to weak film product, we have accelerated the divestiture process timelines, restructured the corporate organization, integrated core IT systems and concentrated on realizing synergies and reviewing other revenue enhancement and cost reduction opportunities. We are now well positioned to achieve our goals for Cineplex Entertainment."

EBITDA is not an earnings measure recognized by generally accepted accounting principles and does not have a standardized meaning in accordance with such principles. Therefore, EBITDA may not be comparable to similar measures presented by other issuers. EBITDA is calculated by adding back to net income, income tax expense, amortization, loss on impairment of assets and interest expense net of interest income. Adjusted EBITDA is calculated by adjusting EBITDA for non-controlling interests, loss on extinguishment of debt, gains or losses on disposal of theatre assets and income from discontinued operations.

Third Quarter Results

The third quarter results were impacted by the inclusion of the post acquisition results of Famous Players, the financings to pay for the acquisition and the inclusion of certain one-time and transaction related charges. The acquisition of Famous Players was completed on July 22, 2005 and as such the third quarter results of Cineplex Entertainment include the results for Famous Players from July 22, 2005 to September 30, 2005. Included in operating results for the quarter are $8.1 million in compensation expense related to the issuance of 500,000 partnership units to management on the successful completion of the transaction and $0.7 million in severance costs related to former Cineplex Galaxy employees. The Partnership has reduced approximately 35% of the headcount of the combined administrative team and the severance costs of former Cineplex Galaxy employees are expensed to general and administrative expenses whereas the severance costs of former Famous Players employees are included in the acquisition cost of Famous Players. These severance costs are to be funded out of a $25 million reserve for integration and restructuring costs established with a portion of the proceeds of the debt and equity offerings.

The third quarter of 2005 was characterized by a lack of successful film product. The Canadian industry box office was down approximately 11% and Cineplex Entertainment's base business was down by approximately 10%. Total revenues for the third quarter increased $66.8 million to $151.9 million for the quarter. Famous Players contribution to total revenues for the quarter was $73.5 million. Our combined average concession revenue per patron amount of $3.40 consisted of a new Q3 record of $3.18 for the retained Cineplex Galaxy locations and $3.68 for Famous Players. Other income increased $6.9 million to $12.7 million of which Famous Players contributed $6.7 million.

Adjusted EBITDA for the third quarter decreased $8.6 million to $11.0 million, however, included in Adjusted EBITDA for the quarter are the approximately $8.8 million in transaction related charges described above.

Distributable Cash

For the third quarter of 2005 distributable cash flow per unit was $0.2063 and the declared distribution per unit for this period was $0.2874.

Transaction and Divestiture Update

On July 22, 2005, Cineplex Entertainment completed the acquisition of the Famous Players theatre exhibition business from Viacom Inc.

The sale of real estate interests to RioCan REIT was completed during the third quarter, generating gross proceeds of $67 million. The proceeds of these transactions were used to repay a portion of the debt financing incurred in connection with the acquisition of Famous Players.

The divestiture process mandated by the Competition Bureau is proceeding and in the third quarter we completed the sale of 27 locations in Ontario and Western Canada for gross proceeds of $83 million. We expect to announce the sale of the 7 Quebec locations before the end of the fourth quarter. The net proceeds of these sales will be used to repay a portion of the debt incurred in connection with the acquisition of Famous Players.

With respect to synergies, we have reduced approximately 35% of the headcount of the combined administrative team and are on track to achieve our target of $20 million in annual savings within 6 - 9 months of the closing of the acquisition, ahead of the previous estimate of 12 months.

About Cineplex Entertainment

The Partnership owns, operates or has an interest in 130 theatres with 1,270 screens (after giving effect to the 7 theatres and 80 screens in Quebec to be divested pursuant to a consent agreement with the Canadian Commissioner of Competition) and is the largest film exhibition company in Canada. The Partnership operates theatres with the following six top-tier brands: Cineplex Odeon, Coliseum, Colossus, Famous Players, Galaxy and SilverCity. Proudly Canadian, Cineplex Galaxy Income Fund, which owns approximately 50.5% of Cineplex Entertainment LP, is a public company traded on the Toronto Stock Exchange under Cineplex Galaxy Income Fund (symbol CGX.UN). More information can be found at www.cineplex.com and www.famousplayers.com.

Further information can be found in the disclosure documents filed by the Fund with the securities regulatory authorities, available at www.sedar.com.

This news release contains "forward-looking statements" within the meaning of applicable securities laws, such as statements concerning synergies and divestitures and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts. These statements are not guarantees of future performance and are subject to numerous risks and uncertainties, including those described in our annual information form and in this news release. Those risks and uncertainties include adverse factors generally encountered in the film exhibition industry; the risks associated with world events, including war, terrorism, international conflicts, natural disasters, extreme weather conditions and infectious diseases; and general economic conditions. Many of these risks and uncertainties can affect our actual results and could cause our actual results to differ materially from those expressed or implied in any forward-looking statement made by us or on our behalf. All forward-looking statements in this news release are qualified by these cautionary statements. These statements are made as of the date of this news release and, except as required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Additionally, we undertake no obligation to comment on analyses, expectations or statements made by third parties in respect of Cineplex Entertainment, its financial or operating results or its securities.

You are cordially invited to participate in a teleconference call with the management of Cineplex Entertainment LP (TSX: CGX.UN) to review the Company's third quarter. Ellis Jacob, Chief Executive Officer and Gord Nelson, Chief Financial Officer, will host the call. The teleconference call is scheduled for:



Thursday, November 3, 2005
10:30 a.m. Eastern Time


In order to participate in the conference call, please dial (416) 640-4127 or outside of Toronto dial 1-800-814-4853 at least ten minutes prior to 10:30 a.m. Eastern Time on Thursday, November 3, 2005.

- If you cannot participate in the live mode, a replay will be available. Please dial 416-640-1917 or 1-877-289-8525 and enter code 21157722#. The replay will begin at 12:30 p.m. on Thursday, November 3, 2005 and end at 11:59 p.m. ET on Thursday, November 10, 2005.

- Note that media will be participating in the call in listen - only mode.

- Thank you in advance for your interest and participation.



Cineplex Galaxy Limited Partnership
Consolidated Supplemental Information
(unaudited)
---------------------------------------------------------------------
---------------------------------------------------------------------
(expressed in thousands of Canadian dollars, except number of units
and per unit data)

Reconciliation to Adjusted EBITDA
---------------------------------

Three months ended Nine months ended
September 30, September 30,
2005 2004 2005 2004
--------------------------------------
--------------------------------------

Net income $5,672 $10,442 $5,715 $23,420

Amortization 14,136 5,858 26,713 16,303
Impairment on assets 4,296 - 4,296 -
Interest on long-term debt 6,160 2,068 10,710 5,973
Interest on loan from
Cineplex Galaxy Trust 3,500 3,500 10,500 10,500
Interest income (109) (200) (287) (355)
Income tax expense (712) 74 (538) 171
--------------------------------------

EBITDA $32,943 $21,742 $57,109 $56,012

Non-controlling interest 614 - 614 -
Loss on extinguishment
of debt 4,156 - 4,156 -
Income from discontinued
operations (26,912) (2,068) (28,736) (5,083)
Loss (gain) on disposal of
theatre assets 195 (72) 176 (114)
--------------------------------------
Adjusted EBITDA $10,996 $19,602 $33,319 $50,815
--------------------------------------
--------------------------------------



Cineplex Galaxy Limited Partnership
Consolidated Supplemental Information
(unaudited)
---------------------------------------------------------------------
(expressed in thousands of Canadian dollars, except number of units
and per unit data)

Distributable Cash
------------------

Three months ended Nine months ended
September 30, September 30,
2005 2004 2005 2004
-----------------------------------------
-----------------------------------------

Cash used in operating
activities (i) $964 $13,001 $4,979 $16,727
Less: Changes in
operating assets and
liabilities (ii) 7,671 2,801 16,532 21,536
Tenant Inducements (iii) (269) (428) (2,165) (978)
Capital lease payments (210) - (210) -
Dividends paid to
minority shareholders
net of earnings (758) - (758) -
Total Capital
expenditure (9,497) (8,759) (17,863) (14,217)
Add: Interest on loan
from Cineplex Galaxy
Trust (iv) 3,500 3,500 10,500 10,500
New theatre and
Project capital
expenditures (v) 7,351 7,749 12,825 11,695
POS/Rebranding capital
expenditures (vi) 1,556 378 2,514 378
Non Cash components in
operating assets and
liabilities (vii) 283 - 283 -
Expenses funded through
integration and
restructuring reserve
(viii) 784 - 784 -
-----------------------------------------

Distributable $11,375 $18,242 $27,421 $45,641
-----------------------------------------
-----------------------------------------

Number of Units
outstanding (ix) 55,150,421 47,566,974 50,122,568 47,566,974

Distributable cash
per Unit $0.2063 $0.3835 $0.5471 $0.9595

(i) Comparative mounts for tenant inducements have been
reclassified from a financing activity to an operating
activiy in the consolidated statements of cash flows to
conform to the current year's financial statement
presentation.
(ii) Changes in operating assets and liabilities are not considered
a source or use of distributable cash.
(iii) Tenant inducements received are for the purpose of funding new
theatre capital expenditures and are not considered a source
of distributable cash flow.
(iv) Subject to "Catch-up Payment" provision and is considered part
of distributable cash.
(v) The total capital expenditures noted above includes new
theatre and maintenance capital expenditures of which the new
theatre capital expenditures and Board approved projects are
funded out of the Partnership's Development Facility
(discussed below under "Liquidity and Capital Resources -
Credit Facilities - Revolving Facilities) and therefore are
added back to calculate distributable cash.
(vi) Point-of-Sale ("POS") and rebranding capital expenditures are
funded out of a $5.5 million reserve fund established on
November 26, 2003.
(vii) Reflects non-cash expenses including accretion on Class C LP
Units, amortization of deferred gain on Riocan sale-leaseback
transaction and amortization of swap on extinguished debt (see
discussion under "The Acquisition and Related Transactions").
(viii) Amounts financed by the reserve set up upon completion of the
Acquisition not considered a use of distributable cash flow.
See discussion under "Future Obligations" below.
(ix) Units outstanding for three and nine months ended September
30, 2005 reflect the issuance on July 22, 2005 of 6,835,000
Class A LP Units and Class D LP Units to fund the Acquisition



Cineplex Galaxy Limited Partnership
Consolidated Balance Sheets
---------------------------------------------------------------------
(expressed in thousands of Canadian dollars)

September 30, December 31,
2005 2004
(Unaudited)

Assets

Current assets
Cash and cash equivalents $25,221 $38,427
Restricted cash - 7,637
Accounts receivable 15,184 10,931
Inventories 4,066 1,899
Prepaid expenses and other current assets 3,457 2,665
Due from related parties 10 4
Assets held for sale - current 448 481
---------------------------

48,386 62,044

Property, equipment and leaseholds 451,043 225,905

Goodwill 192,128 22,942

Intangible assets 62,645 2,228

Future income taxes 3,264 1,615

Assets held for sale - long-term 2,000 8,949

Deferred charges 9,442 1,747
---------------------------

$768,908 $325,430
---------------------------
---------------------------

Liabilities

Current liabilities
Accounts payable and accrued expenses $58,257 $26,280
Distributions payable 4,117 10,996
Due to related parties 6,317 1,655
Income taxes payable 467 153
Deferred revenue 25,553 13,580
Current portion of long-term debt 18,044 52
Current portion of capital lease
obligations 1,357 -
Liabilities related to property held
for sale - current 126 92
---------------------------

114,238 52,808

Long-term debt 239,000 125,512

Capital lease obligations - long-term 38,626 -

Due to Cineplex Galaxy Trust 100,000 100,000

Accrued pension liability 7,257 589

Liabilities related to property
held for sale - long-term 400 6,717

Other liabilities 119,633 83,067

Class C Units - liability component 96,937 -
---------------------------

716,091 368,693

Non-controlling interest 306 -
---------------------------

716,397 368,693

Partners' Equity (Deficiency)

Partners' equity (deficit) 52,511 (43,263)
---------------------------

$768,908 $325,430
---------------------------
---------------------------



Cineplex Galaxy Limited Partnership
Consolidated Statements of Income
(Unaudited)
---------------------------------------------------------------------
(expressed in thousands of Canadian dollars)


Three Three Nine Nine
months months months months
ended ended ended ended
September September September September
30, 2005 30, 2004 30, 2005 30, 2004

Revenue
Box office $96,713 $56,539 $190,632 $159,652
Concessions 42,440 22,738 82,745 64,560
Other 12,726 5,783 23,736 14,727
----------------------------------------

151,879 85,060 297,113 238,939
----------------------------------------

Expenses
Film cost 48,760 29,207 98,080 82,617
Cost of concessions 8,409 4,674 16,750 13,241
Occupancy 32,117 11,484 56,029 34,911
Other theatre operating
expenses 35,073 16,393 66,781 46,404
General and administrative 16,524 3,535 25,930 10,451
Management fee - 165 224 500
----------------------------------------

140,883 65,458 263,794 188,124
----------------------------------------

Income before undernoted 10,996 19,602 33,319 50,815

Amortization 14,136 5,858 26,713 16,303

Loss (gain) on disposal
of theatre assets 195 (72) 176 (114)

Loss on extinguishment
of debt 4,156 - 4,156 -

Impairment of long-lived assets 4,296 - 4,296 -

Interest on long-term debt 6,160 2,068 10,710 5,973

Interest on loan from
Cineplex Galaxy Trust 3,500 3,500 10,500 10,500

Interest income (109) (200) (287) (355)
----------------------------------------

(Loss) income before
income taxes (21,338) 8,448 (22,945) 18,508
----------------------------------------

Provision for (recovery of)
income taxes
Current 854 74 1,028 171
Future (1,566) - (1,566) -
----------------------------------------

(712) 74 (538) 171
----------------------------------------

(Loss) income before
non-controlling interests
and discontinued operations (20,626) 8,374 (22,407) 18,337

Non-controlling interests 614 - 614 -
----------------------------------------

(Loss) income from
continuing operations (21,240) 8,374 (23,021) 18,337

Income from discontinued
operations 26,912 2,068 28,736 5,083
----------------------------------------

Net income for the period $5,672 $10,442 $5,715 $23,420
----------------------------------------
----------------------------------------



Cineplex Galaxy Limited Partnership
Consolidated Statements of Partners' Equity (Deficiency)
(Unaudited)
---------------------------------------------------------------------
(expressed in thousands of Canadian dollars)

For the nine months ended September 30, 2005

Accu-
Accu- mulated
Partners' mulated distri-
capital Deficit earnings butions Total

Balance -
January 1, 2005 $110,203 $(147,795) $38,949 $(44,620) $(43,263)

Distributions
declared - - - (32,693) (32,693)
Issuance of
Partnership units
- net of costs 114,297 - - 114,297
Issuance of Class C
Partnership units -
equity component 8,546 - - - 8,546
Investment in
Cineplex Galaxy
Income Fund units (282) - - - (282)
LTIP compensation
obligation 191 - - - 191
Net income for the
period - - 5,715 - 5,715
------------------------------------------------

Balance -
September 30,2005 $232,955 $(147,795) $44,664 $(77,313) $52,511
------------------------------------------------
------------------------------------------------


For the nine months ended September 30, 2004

Accu-
Accu- mulated
Partners' mulated distri-
capital Deficit earnings butions Total

Balance -
January 1, 2004,
as previously
reported $110,425 $(147,698) $8,707 $(3,937) $(32,503)

Adoption of asset
retirement obligation
standard - (121) (6) - (127)
------------------------------------------------

Balance - January 1,
2004, as restated 110,425 (147,819) 8,701 (3,937) (32,630)

Distributions
declared - - - (30,512) (30,512)
Formation of
Partnership
issuance costs (222) - - - (222)
Contribution of
capital on
acquisition of
theatres - 24 - - 24
Net income for
the period - - 23,420 - 23,420
------------------------------------------------

Balance -
September 30,
2004 $110,203 $(147,795) $32,121 $(34,449) $(39,920)
------------------------------------------------
------------------------------------------------



Cineplex Galaxy Limited Partnership
Consolidated Statements of Cash Flows
(Unaudited)
---------------------------------------------------------------------

(expressed in thousands of Canadian dollars)

Three Three Nine Nine
months months months months
ended ended ended ended
September September September September
30, 2005 30, 2004 30, 2005 30, 2004

Cash provided by (used in)

Operating activities
Net income for the period $5,672 $10,442 $5,715 $23,420
Adjustments to reconcile net
income to net cash used in
operating activities
Amortization of property,
equipment and leaseholds 14,214 6,159 27,428 17,201
Amortization of tenant
inducements, rent averaging
liabilities and fair value
lease contract assets (519) (1,446) (3,246) (3,927)
Amortization of debt issuance
costs 466 291 935 705
Future income taxes (1,566) - (1,566) -
Loss on extinguishment
of debt 4,156 - 4,156 -
Impairment of long-lived
assets 4,296 - 4,296 -
Tenant inducements 269 428 2,165 978
Issuance of Class D LP Units 8,050 - 8,050 -
Gain on disposal of theatre
assets (26,403) (72) (26,422) (114)
Changes in operating assets
and liabilities (7,671) (2,801) (16,532) (21,536)
-----------------------------------------

964 13,001 4,979 16,727
-----------------------------------------

Investing activities
Proceeds from sale of
theatre assets 67,001 72 67,026 122
Proceeds from sale of
discontinued operations 85,004 - 85,004 -
Capital expenditures (9,497) (8,759) (17,863) (14,217)
Acquisition of Famous
Players Limited Partnership
and Famous Players Co.
- net of cash acquired (431,188) - (448,688) -
Cash received from
segregated account
for distribution - - 8,297 -
Cash transferred to
segregated account
for future distributions - (2,073) (691) (5,531)
-----------------------------------------

(288,680) (10,760) (306,915) (19,626)
-----------------------------------------

Financing activities
Borrowings under credit
facility 263,000 5,500 282,500 11,000
Payments under capital
leases (210) - (210) -
Issuance of Partnership
units - net of
issuance costs 207,247 - 207,247 -
Formation of Partnership
issuance costs paid - (120) - (222)
Distributions paid (11,625) (8,097) (39,571) (25,529)
Repayment of long-term
debt (147,005) (12) (151,018) (37)
Investment in Cineplex
Galaxy Income Fund units - - (423) -
Deferred financing fees (7,780) - (9,818) -
-----------------------------------------

303,627 (2,729) 288,707 (14,788)
-----------------------------------------

Increase (decrease) in
cash and cash equivalents
during the period 15,911 (488) (13,229) (17,687)

Cash and cash equivalents -
Beginning of period 9,523 26,328 38,663 43,527
-----------------------------------------

Cash and cash equivalents
- End of period $25,434 $25,840 $25,434 $25,840
-----------------------------------------
-----------------------------------------

Supplemental information
Cash paid for interest $7,541 $6,007 $18,628 $15,914
Cash paid for income taxes - net $223 $73 $600 $177



Contact Information

  • Cineplex Entertainment LP
    Gord Nelson
    Chief Financial Officer
    (416) 323-6602
    or
    Cineplex Entertainment LP
    Pat Marshall
    Vice President, Communications and Investor Relations
    (416) 323-6648