2020
Table of Contents
Chair of the Board of Directors' Letter to Shareholders ..................................................................................... 4
Chief Executive Officer's Letter to Shareholders ............................................................................................... 6
Management’s Discussion and Analysis.......................................................................................................... 9
Overview of Cineplex.................................................................................................................................. 10
Business Strategy......................................................................................................................................... 20
Cineplex’s Businesses.................................................................................................................................. 21
Overview of Operations............................................................................................................................... 27
Results of Operations................................................................................................................................... 30
Balance Sheets............................................................................................................................................. 45
Liquidity and Capital Resources.................................................................................................................. 48
Adjusted Free Cash Flow and Dividends..................................................................................................... 55
Share Activity .............................................................................................................................................. 56
Seasonality and Quarterly Results ............................................................................................................... 58
Related Party Transactions .......................................................................................................................... 60
Significant Accounting Judgments and Estimation Uncertainties ............................................................... 60
Accounting Policies ..................................................................................................................................... 62
Risks and Uncertainties ............................................................................................................................... 63
Controls and Procedures .............................................................................................................................. 73
Subsequent Events....................................................................................................................................... 74
Outlook ........................................................................................................................................................ 75
Non-GAAP Measures .................................................................................................................................. 77
Reconciliation: World Gaming Network LP................................................................................................ 82
Financial Statements and Notes .................................................................................................................... 84
Management’s Report to Shareholders ......................................................................................................... 84
Independent Auditor’s Report....................................................................................................................... 85
Consolidated Balance Sheets ........................................................................................................................ 91
Consolidated Statements of Operations........................................................................................................ 93
Consolidated Statements of Comprehensive Income.................................................................................... 94
Consolidated Statements of Changes in Equity ............................................................................................ 95
Consolidated Statements of Cash Flows....................................................................................................... 96
Notes to Consolidated Financial Statements................................................................................................. 97
Investor Information .................................................................................................................................... 162
Cineplex Inc.
Letter to Shareholders
Letter from the Chair of the Board
Dear fellow shareholders,
It is my pleasure to address you today as the Chair of the Board of Directors
of Cineplex Inc. As a former Cineplex board member and previous Chair of
the Board, I am honoured to be back leading this great group of Directors
and to be part of an organization that I believe in so strongly.
In light of the ongoing public health concerns related to the spread of
COVID-19, this year Cineplex will once again host a hybrid in-person and
virtual Annual General Meeting (“AGM”) on Wednesday, May 19, 2021.
Registered shareholders and duly appointed proxyholders can participate in-
person or via live webcast, which will include voting on the motions put
forward and the ability to ask questions, all in real-time.
During a year that challenged us all, the Board remained guided by our
corporate strategy, took strong, decisive action to ensure the ongoing
viability of the Company and upheld our commitment to protect employees
and support customers and communities.
Navigating A Year Like No Other
When I look back on 2020, I am extremely proud of the Cineplex team for managing through what was a truly
unprecedented year in the company’s history. We began with a strong focus and commitment to completing the
proposed Cineworld transaction, which was ultimately repudiated by Cineworld and is now in litigation.
Then the pandemic hit in early March and the negative impact was significant for both the movie exhibition
industry around the world, and the other industries in which we operate. Pivoting with great agility, the team’s
top priorities were to protect the health and safety of employees and guests, as well as manage costs and address
liquidity options to solidify the financial health of the Company. As a result, Cineplex significantly reduced
operating and capital expenditures, worked with partners to abate or defer payments, initiated a number of
liquidity measures, and focused on growing and supporting our diversified and online businesses. In anticipation
of re-opening, the team also developed an industry-leading health and safety program to ensure that employees
and guests feel comfortable when they return to our venues.
Continued Good Governance and Corporate Citizenship
Throughout this past year, the Board worked closely with senior management to ensure the financial health of
the Company, in addition to focusing on our strategic direction and long-term value creation for shareholders
beyond the current pandemic environment. All Directors have been extremely focused and involved, holding 21
full board meetings in 2020 to address the unusual challenges.
Further, Cineplex’s dedication to being a good corporate citizen and community partner was made all the more
evident this year, through our ongoing support of local communities across the country during the COVID-19
pandemic. Just one example of this includes hosting our annual Community Day fundraiser in 2020, which
traditionally welcomes guests across Canada into our theatres for a morning of free movies. Instead of the in-
theatre event, Cineplex raised money for Food Banks Canada by donating $1 from certain transactions on the
Cineplex Store, as well as through our food delivery services.
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LETTER TO SHAREHOLDERS
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Cineplex Inc.
Letter to Shareholders
Commitment to Inclusion and Diversity
As we continue to prioritize inclusion and diversity within Cineplex, I am proud to report that our Board currently
includes four members who identify as women, who together represent 44% of the Directors or 50% of the
independent Directors. The Board also includes four members who identify as minorities, who together represent
44% of the Directors. Finally, three members of executive management of the Company, including its major
subsidiaries, identify as women, representing 38% of executive management.
In addition to the Company’s long standing commitment to inclusion, in 2020, Mr. Jacob signed the Black North
Initiative CEO Pledge – acknowledging the existence of anti-Black systemic racism in Canada and ensuring that
inclusion remains at the core of Cineplex’s workplace culture. The pledge includes a commitment to hire a
minimum of one Black leader to fill an executive or Board member role in Canada by 2025. Also, in response
to the social injustice happening in North America, Cineplex launched its ‘Understanding Black Stories’
collection – a curated collection of films to help educate and inform perspectives on Black storytelling and
culture that were available as free rentals on the Cineplex Store.
Path Forward: The Future is Bright
Throughout 2020, the team took necessary actions to address the ongoing impact of the pandemic and liquidity
needs of the company. We focused on the other revenue-generating areas of our business, including Cineplex
Digital Media, our expanded food delivery services and our online Cineplex Store, and will continue to focus on
all revenue sources as we emerge from the pandemic. Cineplex is moving toward the next phase of its future.
We are all looking forward to reopening the entire circuit of theatres and entertainment venues, which together
with the pent-up consumer demand and abundance of film product available, gives us confidence for a bright
future ahead.
On behalf of the entire Board, I extend our thanks and appreciation to the management team and to all employees
for their hard work, passion and dedication during what has been the toughest year in Cineplex’s history. I look
forward to connecting with you at our AGM, but should you wish to contact me directly, please send an email
to boardchair@cineplex.com.
Sincerely yours,
Phyllis Yaffe
Chair of the Board, Cineplex Inc.
boardchair@cineplex.com
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LETTER TO SHAREHOLDERS
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Cineplex Inc.
Letter to Shareholders
Letter from the CEO
Dear fellow shareholders,
This has truly been a year like no other in the history of our company.
The impact of COVID-19 has been wide-spread and has dramatically
affected so many industries, including entertainment and movie
exhibition. As expected, given our mandated closures, capacity
restrictions and the shifts in the film release slate, our annual results were
significantly impacted.
Our teams worked diligently throughout the year to mitigate the negative
effects of COVID-19, support the Company’s long-term stability and
implement industry leading operating procedures focused on the health,
safety and well-being of our employees and guests. We remained laser-
focused on minimizing cash burn, extracting value from all of our assets,
and implementing liquidity measures to see us through the pandemic
recovery period. We adapted with agility and created a leaner, more
resilient Cineplex and laid the groundwork to set us on a path to create a
stronger, more successful organization for the future.
Focused Response to COVID-19
Throughout the year, our team worked harder than ever to adapt our operations, control costs, and strengthen
Cineplex’s financial position. We significantly reduced capital expenditures and our two primary operating costs:
payroll and lease costs.
During mandated closure periods, we temporarily laid off our part-time field workforce, our full-time employees
voluntarily took temporary salary reductions and we realigned and consolidated our corporate teams,
permanently eliminating 130 full-time roles across the Cineplex ecosystem. We also benefited from
approximately $57 million in wage subsidies, primarily through the Canada Emergency Wage Subsidy program
(“CEWS program”) and worked with our landlord partners to obtain relief that materially reduced net cash lease
outflows by approximately $73 million. With the second wave of COVID-19 resulting in another round of
widespread temporary closures from late 2020 into 2021, we were pleased to hear that the CEWS program was
extended through June 2021. We are also continuing discussions with our landlord partners for further relief as
we respond to the pandemic crisis together.
Additionally, in an effort to further reduce our operating costs, we eliminated all discretionary spending, and
worked with our suppliers to renegotiate and revise contracts.
Gold Standard in Health & Safety Protocols
Our top priority is the health and safety of our employees and our guests. During the Canada-wide shut down
between March and June 2021, we used that time to carefully re-examine our health and safety processes and
procedures and worked with the country’s top infectious disease experts to develop and implement an industry-
leading program. We made sure that our guests would feel confident and relaxed returning to our venues.
Detailed information about the measures we have put in place is available on Cineplex.com, but at a high-level,
our strategy centres around three key components – enhanced cleaning, reducing capacity to ensure physical
distancing and leveraging technology to ease operations and reduce physical touchpoints between our employees
and guests. It’s also important to note that there remains no claim of COVID-19 transmission in a cinema to date
– globally. As a worldwide industry, we have all focused on the safety of our guests and will continue to do so.
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LETTER TO SHAREHOLDERS
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Letter to Shareholders
A Leaner, More Resilient Cineplex
In response to the challenges faced in 2020, we adapted with agility and created a leaner, more resilient Cineplex.
We scrutinized our business divisions, analyzed our structures and challenged every assumption, in an effort to
streamline our operations, and more importantly, improve our profitability for the long-term. We took a strategic
look at the structure of our business divisions, our partnerships and programs, and made some tough, but
necessary decisions, to reduce overheads, operating expenses and capital commitments. We re-aligned and
streamlined our corporate and divisional operating structures to improve efficiencies, and reduced the number
of capital projects, recognizing that this isn’t the time to invest in large development projects.
While we were able to dramatically reduce our cash burn, we also focused on the other revenue-generating areas
of our business, which were not as heavily impacted by COVID-19. These included Cineplex Digital Media, our
expanded food delivery services through SkipTheDishes and Uber Eats, and our online Cineplex Store, which
experienced significant growth with a massive 39% increase in registered users from the prior year, to 1.9 million
total users. As Canadians were forced to stay home, the Cineplex Store, which is a key differentiator for us from
our peers, provided us with the opportunity to meaningfully engage with our guests through our digital platform,
and offer them the chance to view film content directly in their homes.
Overall, in the short and medium term, we are focusing on a smaller number of projects and priorities supported
by a sustainable financial model.
Strengthening our Financial Position
Cineplex has a unique suite of assets like no other exhibitor in the world, allowing us to extract additional value
and strengthen our financial position beyond the current pandemic environment. A key example of this was in
the fourth quarter, when we entered into an agreement to enhance and expand the SCENE loyalty program,
receiving $60 million from Scotiabank.
We raised over $300 million in additional financing in 2020, in the form of convertible unsecured subordinated
debentures and subsequent to year end raised another $250 million in the form of senior secured second lien
notes. We obtained additional relief under our credit facilities, which subsequent to year end, was extended
through to the fourth quarter of 2021. We also began the sale process of our Head Office, which was completed
subsequent to year end for $57 million and expect to receive approximately $66 million in tax refunds in early
2021, as a result of the tax losses created in 2020.
These initiatives, combined with our ongoing focus on minimizing costs, will provide the liquidity we need to
see us through the pandemic recovery period as vaccines are rolled out, restrictions are lifted and a return to
normalcy begins.
Undeniable Recovery of the Industry
Although the pandemic has lasted longer than any of us initially expected, we know that the exhibition,
amusement and leisure industries will recover. The box office numbers coming out of countries where theatres
are currently operating, like Japan, China and Australia have exceeded expectations and, in some cases, have
broken all-time records. Closer to home, we experienced record-breaking opening results from our newest
location of Playdium in Dartmouth, Nova Scotia, which opened in February 2021. We know our guests will be
looking for safe and affordable out of home entertainment experiences coming out of the pandemic and our focus
is how best to leverage and capitalize on this desire.
With the vaccine roll-out underway and restrictions starting to ease in certain regions, our team is looking
forward to safely reopening the rest of our circuit of theatres and entertainment venues across Canada. Recent
theatre reopenings have proven very successful and we anticipate a return to more normal operating conditions
in the near future. We have all been cooped up for over a year and are longing to come back together as a
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LETTER TO SHAREHOLDERS
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Cineplex Inc.
Letter to Shareholders
community and take part in social experiences. That desire, combined with the buildup of strong film content
for both this year and next, means there is a lot to look forward to.
As I look back on 2020, I am extremely proud of the ‘One Cineplex’ team and want to thank them for their focus,
agility and willingness to make sacrifices as we worked together to accomplish all that we did. I also want to
thank our Board of Directors for their ongoing support and sound advice during these unprecedented times.
Finally, I want to thank our customers, partners, guests and investors for their ongoing support and belief in
Cineplex.
The bottom line is that Cineplex will make it through this tough time. We have fortified the financial position of
our company, secured the financing we need to see us through, and developed the ‘gold standard’ in health and
safety protocols to safely welcome guests back. We remain confident in our strategy and will continue to take
all necessary actions to ensure Cineplex not only survives the pandemic, but thrives for years to come.
Sincerely,
Ellis Jacob
President and CEO, Cineplex Inc.
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LETTER TO SHAREHOLDERS
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Management's Discussion and Analysis
Management’s Discussion and Analysis
—————————————————————————————————————————————
MANAGEMENT’S DISCUSSION AND ANALYSIS
February 10, 2021
The following management’s discussion and analysis (“MD&A”) of Cineplex Inc. (“Cineplex”) financial condition
and results of operations should be read together with the consolidated financial statements and related notes of
Cineplex (see Section 1, Overview of Cineplex). These financial statements, presented in Canadian dollars, were
prepared in accordance with Canadian generally accepted accounting principles (“GAAP”), defined as
International Financial Reporting Standards (“IFRS”) as set out in the Handbook of the Canadian Institute of
Chartered Professional Accountants.
Unless otherwise specified, all information in this MD&A is as of December 31, 2020 and all amounts are in
Canadian dollars.
Non-GAAP Measures
Cineplex reports on certain non-GAAP measures that are used by management to evaluate performance of Cineplex.
In addition, non-GAAP measures are used in measuring compliance with debt covenants. Because non-GAAP
measures do not have standardized meanings, securities regulations require that non-GAAP measures be clearly
defined and qualified, and reconciled to their nearest GAAP measure. The definition, calculation and reconciliation
of non-GAAP measures are provided in Section 18, Non-GAAP measures.
Forward-Looking Statements
Certain information included in this MD&A contains forward-looking statements within the meaning of applicable
securities laws. These forward-looking statements include, among others, statements with respect to Cineplex’s
objectives, goals and strategies to achieve those objectives and goals, as well as statements with respect to
Cineplex’s beliefs, plans, objectives, expectations, anticipations, estimates and intentions. The words “may”, “will”,
“could”, “should”, “would”, “suspect”, “outlook”, “believe”, “plan”, “anticipate”, “estimate”, “expect”,
“intend”, “forecast”, “objective” and “continue” (or the negative thereof), and words and expressions of similar
import, are intended to identify forward-looking statements. Forward-looking statements also include, statements
pertaining to:
•
•
•
Cineplex’s outlook, goals, expectations and projected results of operations, including factors and
assumptions underlying Cineplex’s projections regarding the duration and impact of a novel strain of
coronavirus (“COVID-19”) pandemic on Cineplex, the movie exhibition industry and the economy in
general, as well as Cineplex’s response to the pandemic related to the closure of its theatres and
location-based entertainment (“LBE”) venues, employee reductions and other cost-cutting initiatives
and increased expenses relating to safety measures taken at its facilities to protect the health and well-
being of guests and employees;
Cineplex’s expectations with respect to net cash burn, liquidity and capital expenditures, including its
ability to meet its ongoing capital, operating and other obligations, and anticipated needs for, and
sources of, funds; and
Cineplex’s ability to execute cost-cutting and revenue enhancement initiatives in response to the
COVID-19 pandemic.
The COVID-19 pandemic has had an unprecedented impact on Cineplex, along with the rest of the movie exhibition
industry and other industries in which Cineplex operates, including material decreases in revenues, results of
operations and cash flows. The situation continues to evolve and the social and economic effects are widespread. As
an entertainment and media company that operates spaces where guests gather in close proximity, Cineplex’s
business has been significantly impacted by the actions taken to control the spread of COVID-19. These actions
include, among other things, the temporary closure of theatres and LBE venues, the introduction of social distancing
measures and restrictions including those on capacity. There is limited visibility on when these restrictions will be
lifted in many of the markets in which Cineplex operates and how quickly guests will return to Cineplex’s locations
once its operations resume due to prolonged safety concerns and adverse economic conditions. Cineplex is actively
monitoring the situation and is adapting its business strategies as the impact of the COVID-19 pandemic evolves.
CINEPLEX INC. 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION & ANALYSIS
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MANAGEMENT'S DISCUSSION AND ANALYSIS
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Management's Discussion and Analysis
Management’s Discussion and Analysis
—————————————————————————————————————————————
By their very nature, forward-looking statements involve inherent risks and uncertainties, including those described
in Cineplex’s Annual Information Form (“AIF”), and in this MD&A. Those risks and uncertainties, both general
and specific, give rise to the possibility that predictions, forecasts, projections and other forward-looking statements
will not be achieved. Certain material factors or assumptions are applied in making forward-looking statements and
actual results may differ materially from those expressed or implied in such statements. Cineplex cautions readers
not to place undue reliance on these statements, as a number of important factors, many of which are beyond
Cineplex’s control, could cause actual results to differ materially from the beliefs, plans, objectives, expectations,
anticipations, estimates and intentions expressed in such forward-looking statements. These factors include, but are
not limited to, the duration and impact of the COVID-19 pandemic on Cineplex, the movie exhibition industry and
the economy in general, as well as Cineplex’s response to the COVID-19 pandemic as it relates to the closure of its
theatres and LBE venues, employee reductions and other cost-cutting initiatives, and increased expenses relating to
safety measures taken at its facilities to protect the health and well-being of customers and employees; Cineplex’s
expectations with respect to liquidity and capital expenditures, including its ability to meet its ongoing capital,
operating and other obligations, and anticipated needs for, and sources of, funds; Cineplex’s ability to execute cost-
cutting and revenue enhancement initiatives in response to the COVID-19 pandemic; risks generally encountered in
the relevant industry, competition, customer, legal, taxation and accounting matters; the outcome of any litigation
surrounding the termination of the Cineworld transaction (described below); and diversion of management time on
litigation related to the Cineworld transaction.
The foregoing list of factors that may affect future results is not exhaustive. When reviewing Cineplex’s forward-
looking statements, readers should carefully consider the foregoing factors and other uncertainties and potential
events. Additional information about factors that may cause actual results to differ materially from expectations and
about material factors or assumptions applied in making forward-looking statements may be found in the “Risks and
Uncertainties” section of this MD&A.
Cineplex does not undertake to update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by applicable Canadian securities law. Additionally, we
undertake no obligation to comment on analyses, expectations or statements made by third parties in respect of
Cineplex, its financial or operating results or its securities. All forward-looking statements in this MD&A are made
as of the date hereof and are qualified by these cautionary statements. Additional information, including Cineplex’s
AIF, can be found on SEDAR at www.sedar.com.
1. OVERVIEW OF CINEPLEX
Cineplex is a top-tier Canadian brand that operates in the film entertainment and content, amusement and leisure,
and media sectors. As a leading entertainment and media company, Cineplex welcomes millions of guests annually
through its circuit of theatres and LBE venues across the country. In addition to being Canada’s largest and most
innovative film exhibitor, Cineplex also operates businesses in digital commerce (Cineplex Store), food service,
alternative programming (Cineplex Events), cinema media (Cineplex Media), digital place-based media (Cineplex
Digital Media “CDM”) and amusement solutions (Player One Amusement Group “P1AG”). Additionally, Cineplex
operates an LBE business through Canada’s destinations for ‘Eats & Entertainment’ (The Rec Room), and
entertainment complexes specifically designed for teens and families (Playdium). Cineplex is a joint venture partner
in SCENE, Canada’s largest entertainment loyalty program.
Cineplex’s theatre circuit is concentrated in major metropolitan and mid-sized markets. As of December 31, 2020,
Cineplex owned, leased or had a joint venture interest in 1,667 screens in 162 theatres from coast to coast as well as
eight LBE venues in four provinces.
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MANAGEMENT’S DISCUSSION & ANALYSIS
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MANAGEMENT'S DISCUSSION AND ANALYSIS
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Management's Discussion and Analysis
Management’s Discussion and Analysis
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Cineplex
Theatre locations and screens at December 31, 2020
Province
Ontario
Quebec
British Columbia
Alberta
Nova Scotia
Saskatchewan
Manitoba
New Brunswick
Newfoundland &
Labrador
Prince Edward Island
TOTALS
Percentage of
screens
Locations
Screens
Screens UltraAVX
3D Digital
IMAX
Screens (i)
VIP
Auditoriums
D-BOX
Auditoriums
Recliner
Auditoriums
Other
Screens (ii)
68
18
24
19
12
6
5
5
3
2
730
230
231
208
91
54
49
41
20
13
358
91
125
112
44
28
26
20
9
6
162
1,667
819
41
10
16
20
1
3
1
2
—
—
94
13
3
3
2
1
1
1
—
1
—
25
48
4
15
11
—
3
3
—
—
—
84
48
7
16
16
2
3
2
2
1
1
98
108
12
39
78
—
16
—
—
—
—
253
10
—
1
6
1
1
—
—
—
—
19
49 %
6 %
1 %
5 %
6 %
15 %
1 %
(i) All IMAX screens are 3D enabled. Total 3D screens including IMAX screens are 844 screens or 51% of the circuit.
(ii) Other screens includes 4DX, Cineplex Clubhouse and ScreenX.
Cineplex - Theatres, screens and premium offerings in the last eight quarters
2020
2019
Q4
Q3
Q2
162
164
164
Q1
164
Q4
Q3
Q2
Q1
165
165
165
165
1,667
1,687
1,687
1,687
1,693
1,695
1,695
1,692
819
826
826
826
826
827
826
824
94
25
84
98
253
19
94
25
84
99
221
19
94
25
84
99
221
19
94
25
84
99
221
19
94
25
84
97
213
17
93
25
79
92
182
5
93
25
79
92
182
4
90
25
75
89
173
4
The Rec Room
Playdium
3
3
1
1
8
2
—
—
—
2
Theatres
Screens
3D Digital Screens
UltraAVX Screens
IMAX Screens
VIP Auditoriums
D-BOX Locations
Recliner Screens
Other Screens
Cineplex - LBE - at December 31, 2020
Province
Ontario
Alberta
Manitoba
Newfoundland & Labrador
TOTALS
1.1 RECENT DEVELOPMENTS
Response to COVID-19 and going concern
In early 2020, the outbreak of COVID-19 was confirmed in multiple countries throughout the world and on March
11, 2020, it was declared a global pandemic by the World Health Organization. In response, Cineplex immediately
introduced enhanced cleaning protocols and reduced theatre capacities to promote social distancing. By mid-March,
each of Canada’s provinces and territories had declared a state of emergency resulting in, among other things, the
mandated closure of non-essential businesses, restrictions on public gatherings and quarantining of people who may
have been exposed to the virus.
CINEPLEX INC. 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION & ANALYSIS
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MANAGEMENT'S DISCUSSION AND ANALYSIS
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Management's Discussion and Analysis
Management’s Discussion and Analysis
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On March 16, 2020, Cineplex announced the temporary closure of all of its theatres and LBE venues across Canada,
as well as substantially all route locations operated by P1AG. On April 1, 2020, in response to applicable
government directives and guidance from Canadian public health authorities, Cineplex announced that the closure of
its theatres and LBE venues across Canada would remain in effect and that the reopening of such locations would be
reassessed as further guidance is provided by Canadian public health authorities and applicable government
authorities.
Cineplex was able to reopen a limited number of venues in late June, and as government restrictions across the
country were eased, additional locations were opened. On August 21, 2020, Cineplex became one of the first of all
the major film exhibitors in the world to reopen its entire circuit of theatres across Canada, including location based
entertainment venues. During this period, Cineplex continued its negotiations with landlords, finalizing the majority
of discussions and realizing material reductions in rent payments for both the closure period in the second, third, as
well as for the fourth quarter and future periods.
In Canada, most provinces have adopted a phased approach to reopening businesses. The following table reflects the
current status of reopening to the date of this MD&A. The reopening plans are subject to change from time to time.
Province
British
Columbia
All cinemas closed as of November 24, 2020.
Theatres
Restaurants
Restaurants limited to 50% capacity as of
November 24, 2020.
a
All indoor dining closed as of December 13,
2020.
Alberta
All cinemas closed as of December 31, 2020.
Saskatchewan a Cinemas open at 30 per auditorium.
a Restaurants open.
Manitoba
All cinemas closed as of November 12, 2020.
Ontario
Cinemas will begin reopening in Ontario on February 10 with
additional regions scheduled to reopen on February 16 and 22.
Quebec
All cinemas closed as of November 11, 2020.
All indoor dining closed as of November 20,
2020.
Restaurants will begin reopening in Ontario on
February 10 with additional regions scheduled
to reopen on February 16 and 22.
All indoor dining closed as of November 11,
2020.
New
Brunswick
a Cinemas open at 50 per building.
a Restaurants open.
Nova Scotia a Cinemas open at 100 per auditorium.
a Indoor dining open as of January 4, 2021.
Prince Edward
Island
a Cinemas open at 200 per building, no more than 50 per auditorium.
a Indoor dining permitted with a limit of up to 50
patrons.
Newfoundland a Permitted since June 24.
a Permitted since June 8.
Limit of 50 persons per auditorium or 50% capacity, whichever is less.
To mitigate the negative impact of COVID-19 and support its long-term stability, Cineplex has undertaken a variety
of measures including:
Liquidity measures:
•
•
•
entered into amendment agreements with The Bank of Nova Scotia as administrative agent to the seventh
amended and restated credit agreement that provided Cineplex with certain financial covenant relief in light
of the COVID-19 pandemic and its effects on Cineplex’s business. Refer to Section 7.4, Credit Facilities
and Section 16, Subsequent events, for a summary of key terms of the First, Second and Third Credit
Agreement Amendments;
issued convertible unsecured subordinated debentures for net proceeds of $303.0 million (the
“Debentures”) (see Section 9.1, Convertible debentures);
entered into an agreement to enhance and expand the SCENE Scotiabank Loyalty program receiving $60.0
million with respect to the reorganization.
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MANAGEMENT’S DISCUSSION & ANALYSIS
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MANAGEMENT'S DISCUSSION AND ANALYSIS
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•
•
focused on revenue driving opportunities including the expansion of Cineplex Store offerings and
expansion of food home delivery from theatres and LBE venues; and
filed corporate tax returns for income tax recoveries in a timely manner
Cost reduction and subsidy measures:
•
•
•
•
•
•
•
•
•
•
•
•
temporary layoffs of all part-time and full-time hourly employees as well as a number of full-time
employees who chose a temporary layoff rather than a salary reduction;
reduced full-time employee salaries by agreement with such employees during the second and third
quarters;
suspended or deferred current capital spending and reviewing all capital projects to consider either deferral
or cancellation;
reduced non-essential discretionary operational expenditures (such as spending on marketing, travel and
entertainment);
implemented a more stringent review and approval process for all outgoing procurement and payment
requests;
continued negotiations with landlords for rent relief, including abatements and converting fixed rent to
variable rent depending on attendance, until attendance returns to previous levels;
worked with major suppliers and other business partners to modify the timing and quantum of certain
contractual payments;
reviewed and applied for government subsidy programs where available, including municipal and
provincial property tax and energy rebates or subsidies;
applied for the ongoing Canada Emergency Wage Subsidy (“CEWS”) made available by the Government
of Canada since March 2020;
applied for the ongoing Canada Emergency Rent Subsidy (“CERS”), which was launched by the
Government of Canada as a result of government mandated lockdowns, providing a variable subsidy for
rent and other occupancy-related costs incurred from September 27, 2020 through June, 2021;
continued evaluation of Cineplex’s eligibility under other relief programs; and
continued the suspension of dividends;
In addition to cost savings associated with the temporary layoffs of its employees, reductions in salaries and other
mitigation efforts, Cineplex has suspended or deferred certain capital spending and is reviewing all capital projects
to consider further deferrals or cancellations and has plans to reduce purchases of property, plant and equipment (net
of tenant inducements) to approximately $50.0 million over the next 12 months.
The COVID-19 pandemic has had a material negative effect on all aspects of Cineplex’s businesses resulting in
material decreases in revenues, results of operations and cash flows. Since March 15, 2020, Cineplex has
experienced a net cash burn of approximately $15 million to $20 million per month as a result of having to close its
theatres and LBE venues (for Q4 2020 net cash burn was $74.3 million for the three months or approximately $24.8
million monthly) (see Section 18, Non-GAAP measures). When used in this MD&A, net cash burn is calculated as
adjusted EBITDAaL (see Section 18, Non-GAAP measures) less cash interest (excluding amounts with respect to
lease obligations), provision for income taxes and net capital expenditures.
As some of Cineplex’s largest expenses, such as film cost and cost of food services, are fully variable, during the
closure of its theatres and LBE venues Cineplex focused on reducing its largest fixed and semi-fixed expenses,
including those attributed to theatre payroll and theatre occupancy. As a result of the measures described above and
below, including receipt of assistance under the CEWS, Cineplex was able to materially reduce theatre payroll
expenses from $41.9 million reported in the fourth quarter of 2019 to approximately $5.2 million in the fourth
quarter of 2020. In total, Cineplex has received approximately $57.0 million in wage subsidies to end of the fourth
quarter, primarily under the CEWS program. With respect to theatre occupancy expenses, Cineplex has worked with
its landlord partners to obtain relief measures, which resulted in significantly reduced cash rent being paid in 2020
subsequent to the lockdowns. During the fourth quarter Cineplex was able to reduce occupancy costs by
approximately $14.9 million. Including the sale of certain restrictive lease rights to landlords during the third
quarter, on an annual basis Cineplex was able to materially reduce net cash lease outflows by approximately $72.5
million. The focus was on identifying opportunities for lease-related abatements during the closure period,
converting fixed components of rent to variable rent during the reopening period and looking for other opportunities
to extract value under its existing lease agreements. With the second wave of COVID-19 resulting in another round
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of closures in the fall and winter of 2020/2021, Cineplex continues to work with landlord partners to obtain further
relief.
Since the closure of its theatres and LBE venues in March 2020, Cineplex diligently prepared for their safe
reopening, with the health and well-being of its employees and guests being its top priority. Cineplex carefully re-
examined all of its buildings and processes, so that when its theatres and LBE venues reopened, it had implemented
an industry-leading program with end-to-end health and safety protocols.
Some of the new measures implemented on reopening included:
•
•
•
•
•
•
launching reserved seating in all auditoriums across Canada; seating options are automatically blocked off
to ensure proper distance in every direction between guests;
reducing capacity in all auditoriums to allow for physical distancing in accordance with government
regulations;
enhancing cleaning practices throughout our facilities, with particular focus on high-contact surfaces,
restrooms and seats;
accepting debit and credit payments only, with the exception of gift card purchases;
limiting food offerings in theatres;
ensuring employees have the personal protective equipment they need and as required by provincial
regulations; and
• making hand sanitizer readily available for guests and employees throughout the buildings.
Although restrictions on social gatherings were partially lifted in many of the markets in which Cineplex operated
during the third quarter, social gathering restrictions were reinstituted in the fourth quarter with the increased
number of COVID-19 cases throughout the country. The second wave of increased cases during the fall months
resulted in several provinces across Canada implementing mandatory lockdown measures which have resulted in
prolonged mandatory theatre closures and operating restrictions on the LBE businesses. Due to the uncertainty of the
timing of the reductions of many government-imposed restrictions and the potential long-term effects that the
COVID-19 pandemic may have on the exhibition and amusement and leisure businesses, COVID-19 may have a
prolonged negative impact on Cineplex’s operations. In addition, with the global delay of exhibitors reopening,
specifically those in California and New York, distributors shifted the release dates of major movie titles out of 2020
into 2021 and beyond, in an effort to maximize box office revenues on the eventual release of such titles. This
included the following releases: Godzilla vs. Kong, Black Widow, Fast & Furious 9, Cruella, Peter Rabbit 2,
Venom: Let There Be Carnage, Minions: The Rise of Gru, Top Gun: Maverick, Shang-Chi and the Legend of the
Ten Rings, Space Jam: A New Legacy, Jungle Cruise, The Suicide Squad, The King’s Man, A Quiet Place Part II,
Dune, No Time To Die, Eternals, Ghostbuster: Afterlife, Mission: Impossible 7, Spider-Man 3, West Side Story and
The Matrix 4.
In addition, a limited number of previously expected theatrical releases have instead been redirected to streaming
services. The impact of the reduction of new releases in the fourth quarter as a result of these changes in
combination with the ongoing and potentially expanded restrictions on the reopening of Cineplex’s businesses, also
negatively impacted the timing of Cineplex’s return to profitability.
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In December 2020, Health Canada approved and authorized the Pfizer-BioNTech and Moderna COVID-19 vaccines
for use in Canada with the first doses arriving during the holiday season. Canada has begun the inoculation process
of Canadians, starting with front line workers and high-risk individuals with plans to start vaccinating the general
population during the spring of 2021, and having all Canadians immunized by the fall of 2021. The efficient rollout
of vaccines is a significant leap forward to the return of normalcy and end of the COVID-19 pandemic. However,
the supply and roll-out of approved vaccines in Canada has been inconsistent to date and there can be no assurance
that vaccines will be widely available or distributed as currently anticipated, which would delay a return to
normalcy.
With the unknown duration of the pandemic and yet to be determined timing of the phased complete reopening of
Cineplex’s businesses, as well as consumers’ future risk tolerance regarding health matters, it is not possible to
know the impact of the pandemic on future results. However, Cineplex is optimistic that the exhibition and
amusement and leisure industries will recover over time. Cineplex believes consumer demand for the theatrical
experience combined with a backlog of anticipated releases of strong film content will help drive visitation, and that
LBE activities will increase as people seek out-of-home experiences they have been restricted from enjoying for
almost a year.
Management continues to pursue all viable options to maintain adequate liquidity to fund operations for the
currently anticipated duration of the pandemic. During the fourth quarter, Cineplex entered into an agreement to
enhance and expand the SCENE Scotiabank Loyalty program receiving $60.0 million with respect to the
reorganization. In addition, Cineplex continues to explore other measures to maintain adequate liquidity, including
but is not limited to planned asset sales such as Cineplex’s head office building in Toronto which was completed
subsequent to year end, additional financing sources and amendments to existing credit facilities. All proceeds are
used to repay the Credit Facilities, in part as a permanent reduction.
As of December 31, 2020, Cineplex was in compliance with all financial covenants under the terms of its senior
secured credit facilities (“Credit Facilities”). However, with potential ongoing closures and delayed film releases,
management’s forecasts indicate a potential breach of covenants within the next twelve months as a result of the
ongoing pandemic. Management’s forecasts may change materially as the impact of COVID-19 on Cineplex’s
business is better understood over the course of time. A violation of its covenants would represent an event of
default under the terms of the Credit Facilities, enabling the lenders to demand immediate repayment of all amounts
due. See section 16, Subsequent Events, for a description of certain amendments to the Credit Facilities entered into
after year end.
As of December 31, 2020, Cineplex had a cash balance of $16.3 million and $153.8 million available under its
Credit Facilities subject to the liquidity covenants set forth in the Credit Facilities as amended (see Section 16,
Subsequent events). Cineplex also reported a loss from continuing operations during the year of $624.0 million and
an accumulated deficit of $903.4 million. Subsequent to year end, Cineplex entered into an amendment to the credit
agreement governing the Credit Facilities to obtain certain financial covenant relief from the syndicate of lenders
under its Credit Facilities, see Section 16, Subsequent Events. Cineplex continues to pursue a variety of options to
maintain adequate liquidity to fund operations for the currently anticipated duration of the pandemic and is
investigating additional sources of financing including further asset sales, such as the sale of the head office
completed subsequent to year end, however as of the date of this MD&A, no further financing had been concluded,
and there can be no assurance that such financing initiatives will be successful.
Cineplex has prepared its condensed consolidated financial statements on a going concern basis, which presumes it
will continue its operations for the foreseeable future, and will be able to realize its assets and discharge its liabilities
and commitments in the normal course of business as they become due. While Cineplex currently has sufficient
liquidity to satisfy its immediate financial obligations, there can be no assurance that the steps that management is
taking will provide sufficient liquidity in the near term to meet its ongoing obligations, nor can it be assured that it
will be able to obtain additional financing at favorable terms, or at all. These material uncertainties lend significant
doubt about the Company’s ability to continue as a going concern and, accordingly, the appropriateness of the use of
accounting principles applicable to a going concern. The consolidated financial statements do not reflect adjustments
and classifications of assets, liabilities, revenues and expenses which would be necessary if Cineplex were unable to
continue as a going concern. Such adjustments could be material.
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MANAGEMENT’S DISCUSSION & ANALYSIS
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Cineworld Transaction
On December 15, 2019, Cineplex entered into an arrangement agreement (the “Arrangement Agreement”) with
Cineworld Group, plc (“Cineworld”), pursuant to which an indirect wholly-owned subsidiary of Cineworld agreed to
acquire all of the issued and outstanding common shares of Cineplex (“Shares”) for $34 per share in cash (the
“Cineworld Transaction”). The Cineworld Transaction was to be implemented by way of a statutory plan of
arrangement under the Business Corporation Act (Ontario).
On June 12, 2020, Cineworld delivered a notice (the “Termination Notice”) to Cineplex purporting to terminate the
Arrangement Agreement. In the Termination Notice, Cineworld alleged that Cineplex took certain actions that
constituted breaches of Cineplex’s covenants under the Arrangement Agreement including failing to operate its
business in the ordinary course. In addition, Cineworld alleged that a material adverse effect had occurred with
respect to Cineplex. Cineworld’s repudiation of the Arrangement Agreement has been acknowledged by Cineplex
and the Cineworld Transaction will not proceed. Cineplex vigorously denies Cineworld’s allegations. The
Arrangement Agreement explicitly excludes any “outbreaks of illness or other acts of God” from the definition of
material adverse effect and all of Cineworld’s allegations stem from an outbreak of illness and act of God
(COVID-19). Cineplex believes that Cineworld had no legal basis to terminate the Arrangement Agreement and
that Cineworld breached the Arrangement Agreement and its other contractual obligations because, among other
failures, it did not use reasonable best efforts to obtain approval under the Investment Canada Act as soon as
reasonably practicable (“ICA Approval”). If Cineworld had complied with its obligation to obtain ICA Approval,
Cineplex believes the ICA Approval would have been obtained and the Cineworld Transaction would have closed
well before the outside date for completion in the Arrangement Agreement. No amounts are due to be paid by
Cineplex as a result of the Termination Notice and no amounts have been accrued in the financial statements with
respect to the Termination Notice.
On July 3, 2020, Cineplex announced that it had commenced an action in the Ontario Superior Court of Justice
against Cineworld and 1232743 B.C. Ltd. seeking damages arising from what Cineplex claims was a wrongful
repudiation of the Arrangement Agreement. The claim seeks damages, including the approximately $2.18 billion
that Cineworld would have paid upon the closing of the Cineworld Transaction for Cineplex’s securities, reduced by
the value of the Cineplex securities retained by its security holders, as well as compensation for other losses
including the failure of Cineworld to repay or refinance Cineplex’s approximately $664 million in debt and
transaction expenses. Cineplex has also advanced alternative claims for damages for the loss of benefits to its
security holders, and to require Cineworld to disgorge the benefits it improperly received by wrongfully repudiating
the Cineworld Transaction.
Cineplex claims that Cineworld breached its contractual obligations and its duty of good faith and honesty in
contractual performance. Cineworld purports to rely upon alleged adverse impacts of COVID-19 on Cineplex’s
business to terminate the Arrangement Agreement, which it is not entitled to do. The contractual agreements
between the parties expressly exclude outbreaks of illness, such as the COVID-19 pandemic, as a circumstance
entitling Cineworld to terminate the Arrangement Agreement. Without any legal right to avoid its contractual
obligations, Cineworld intentionally chose to breach its obligations, including its obligation to obtain ICA Approval.
On July 6, 2020, Cineworld announced that it would defend Cineplex’s claim, and on September 2, 2020, filed its
Statement of Defence and Counterclaim in which it denied Cineplex’s claims and advanced a counterclaim seeking
reimbursement of an unspecified amount for costs incurred with respect to the transaction and an unspecified
amount for punitive damages. Cineplex responded to Cineworld’s defence and counterclaim on September 15, 2020,
denying all claims levied by Cineworld.
While a trial date has been set for September 2021, due to uncertainties inherent in litigation, it is not possible for
Cineplex to predict the timing or final outcome of the legal proceedings against Cineworld or to determine the
amount of damages, if any, that may be awarded. Further, even if Cineplex’s action against Cineworld is successful,
Cineworld may not have the ability to pay the full amount of any damages awarded.
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MANAGEMENT’S DISCUSSION & ANALYSIS
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1.2 FINANCIAL HIGHLIGHTS
Financial highlights
Fourth Quarter
Full Year
(in thousands of dollars, except theatre attendance in
thousands of patrons and per Share and per patron
amounts)
Total revenues (ii)
Theatre attendance
Net (loss) income from continuing operations
Net loss from discontinued operations
Net (loss) income
Box office revenues per patron (“BPP”) (iv)
Concession revenues per patron (“CPP”) (iv)
Adjusted EBITDA (iv)
Adjusted EBITDAaL (iii) (iv)
2020
2019 Change (i)
2020
2019 Change (i)
$ 52,452
$ 443,220
-88.2 % $ 418,263
$ 1,665,146
786
$ (230,403)
$
—
$ (230,403)
$
$
9.23
9.06
$
$
$
$
$
16,849
4,668
(1,196)
3,472
10.79
6.81
-95.3 %
13,065
NM $ (624,001)
NM $
(4,952)
NM $ (628,953)
-14.5 % $
10.17
33.0 % $
6.99
$
$
$
$
$
66,360
36,516
(7,625)
28,891
10.63
6.73
$ (32,097)
$ 106,529
NM $ (55,866)
$ 405,786
$ (65,948)
$
62,327
NM $ (182,815)
$ 230,546
-74.9 %
-80.3 %
NM
NM
NM
-4.3 %
3.9 %
NM
NM
Adjusted EBITDAaL margin (iii) (iv)
(125.7) %
14.1 %
-139.8 %
(43.7) %
13.8 %
-57.5 %
Adjusted free cash flow (iv)
Adjusted free cash flow per Share (iv)
Earnings per Share (“EPS”) from continuing operations -
basic and diluted (iii)
EPS from discontinued operations - basic and diluted
EPS - basic and diluted (iii)
$ (30,530)
$
(0.482)
$
$
$
(3.64)
—
(3.64)
$
$
$
$
$
39,127
0.618
0.08
(0.02)
0.06
NM $ (161,870)
$ 168,455
NM $
(2.556)
$
2.660
NM $
NM $
NM $
(9.85)
(0.08)
(9.93)
$
$
$
0.58
(0.12)
0.46
NM
NM
NM
-33.3 %
NM
(i) Throughout this MD&A, changes in percentage amounts are calculated as 2020 value less 2019 value.
(ii) All amounts are from continuing operations. See Section 13, Accounting policies.
(iii) 2020 includes expenses related to the Cineworld Transaction and associated Litigation in the amount of $1.3 million for the fourth quarter
and $4.1 million for the full year.
(iv) See Section 18, Non-GAAP measures.
In response to the second wave of COVID-19, increased operating restrictions for non-essential businesses in
addition to new government mandated lockdown measures were implemented across Canada, resulting in the
closure of most of Cineplex’s theatres and LBE venues by the end of the year. Total revenues for the fourth quarter
of 2020 decreased 88.2%, or $390.8 million to $52.5 million as compared to the prior year period, due to the
ongoing material negative impact of the COVID-19 pandemic on Cineplex’s business operations. For the periods
when venues were open, Cineplex reported box office revenues of $7.3 million and food service revenues of
$10.5 million including theatre food service revenue of $7.1 million, home delivery revenues of $2.8 million and
LBE food service revenues of $0.6 million. Media revenues of $12.5 million were mainly from digital place-based
media revenues which recognized the majority of its $11.1 million of revenue from creative and support services.
Amusement revenues of $13.6 million were primarily from route operations including family entertainment centres
(“FEC”) and equipment sales. As a result of the ongoing negative impact of COVID-19, adjusted EBITDAaL
decreased $128.3 million to a loss of $65.9 million as compared to the prior year period and adjusted free cash flow
per Share decreased $1.100 to $(0.482) per Share.
Reflecting the impact of the business closures and reduced operations that began in March and continued through
the rest of the year, total revenues for the year ended December 31, 2020 decreased by $1.2 billion, or 74.9% as
compared to the prior year period. Adjusted EBITDAaL decreased $413.4 million to a loss of $182.8 million
1.3
KEY DEVELOPMENTS IN 2020
The following describes certain key business initiatives undertaken and results achieved during 2020 in each of
Cineplex’s core business areas:
FILM ENTERTAINMENT AND CONTENT
Theatre Exhibition
•
Government operating restrictions and mandated closures during the fourth quarter resulted in the closure
of most of Cineplex’s theatres by the end of the year.
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•
•
•
•
•
Reported annual box office revenues of $132.8 million, a 81.2% decrease from 2019 as a result of the
impact of the COVID-19 pandemic on theatre operations commencing at the end of the first quarter.
Opened two new ScreenX auditoriums: Scotiabank Theatre Halifax in Nova Scotia and Cineplex Cinemas
Ottawa in Ontario.
Converted four auditoriums to recliner seating during the year.
Announced a multi-year agreement with Universal Filmed Entertainment Group that provides theatrical
exclusivity of their film releases for a shortened window of a minimum of 17 days up to a maximum of 31
days after which the studio will have the option to make its title available on Premium Video on Demand
(“PVOD”).
Launched Private Movie Nights offering up to 20 guests to enjoy a private moving-screening experience
with more than 1,000 movies to choose from.
Theatre Food Service
•
•
•
Reported annual theatre food service revenues of $91.4 million, a 79.5% decrease from 2019 as a result of
the impact of COVID-19 on theatre operations.
Expanded alcohol beverage service to an additional four theatres, now totaling 91 (not including VIP
auditoriums).
Increased focus on home delivery services with Uber Eats and Skip the Dishes as a result of the theatre and
LBE restrictions and closures, reporting annual theatre food service delivery revenues of $8.4 million.
During the year, added five additional locations to the Uber Eats delivery platform, and seven additional
locations to the Skip the Dishes platform.
Alternative Programming
•
•
Alternative Programming (Cineplex Events) included the feature release of On The Rocks, concerts
included Stevie Nicks 24 Karat Gold and the re-release of Break The Silence: The Movie starring BTS
along with anime title Fate/stay night [Heaven’s Feel] III, Akira 4K.
Cineplex released the feature 100% Wolf on October 9, 2020 across the country with the exception of
Quebec. While theatres did continue to shut down in most markets, the film remained on-screen through
mid-December and was in Cineplex’s top five films for the quarter.
Digital Commerce
•
•
•
•
Experienced significant growth for the Cineplex Store benefiting from PVOD releases including Wonder
Woman 1984 and The Croods: A New Age.
Total registered users for Cineplex Store increased by 39% from the prior year, reaching over 1.9 million
users.
Cineplex Store continued to show significant growth with a 36% increase over the prior year in active
monthly users and an increase of 57% in device activation compared to the prior year.
Cineplex offered a collection of “Understanding Black Stories” films that were available free to rent or
stream to support the Black Lives Matter movement.
MEDIA
•
Reported annual media revenues of $65.4 million, a decrease of $131.4 million or 66.8% compared to the
prior year.
Cinema Media
•
Cinema media reported annual revenues of $23.6 million in 2020, a decrease of $91.8 million or 79.6%,
due to decreases in show-time and pre-show advertising as a result of theatre closures and limited film
releases.
Digital Place-Based Media
•
Reported annual revenues of $41.8 million in 2020, a decrease of $39.6 million or 48.6%, compared to
2019 mainly due to decreases in recurring revenue and lower project installation revenues as a result of
COVID-19 and reductions in customers’ business.
AMUSEMENT AND LEISURE
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Amusement Solutions
•
Reported annual revenues of $62.5 million in 2020 ($2.5 million from Cineplex theatre gaming and $60.0
million from all other sources of revenues), a decrease of $126.6 million as compared to the prior year. The
decrease is due to closures and capacity restrictions of route operations that remained in effect for a
majority of the year and decreased distribution sales as a result of the negative economic impact of
COVID-19 across all markets.
Location-based Entertainment
•
•
•
•
Increased operating restrictions for non-essential businesses in addition to new government mandated
lockdown measures were implemented across Canada in response to the second wave of COVID-19,
resulting in closures of most LBE locations.
Reported total annual revenues of $25.5 million including food service revenues of $9.1 million,
amusement revenues of $15.4 million and other revenues of $1.0 million, a decrease of $53.7 million or
67.8% as compared to 2019 due to closures and capacity restrictions on locations that were able to open.
Opened The Rec Room at Seasons of Tuxedo in Winnipeg, Manitoba, on February 18, 2020, the eighth
location of The Rec Room.
Terminated its partnership with Topgolf in the third quarter of 2020.
LOYALTY
• Membership in the SCENE loyalty program increased by 0.1 million in 2020, reaching 10.4 million
•
•
members at December 31, 2020.
Cineplex entered into an agreement with Scotiabank to bring together the full benefits of SCENE with
Scotia Rewards, Scotiabank’s flexible customer loyalty program. The repositioning includes adding new
rewards partners, driving value through future consolidation of SCENE and Scotia Rewards. Cineplex
received cash proceeds of $60.0 million for the reorganization of its joint operation with SCENE.
During the year, SCENE announced a strategic three-year extension with its long-standing partners at
Recipe Unlimited Corporation.
CORPORATE
•
•
•
•
•
•
•
•
On June 12, 2020, Cineworld delivered the Termination Notice to Cineplex purporting to terminate the
Arrangement Agreement (See section 1.1, Recent Developments). Cineplex has commenced legal action
against Cineworld for its wrongful termination of the Agreement.
On June 29, 2020, Cineplex and Cineplex Entertainment Limited Partnership entered into an amendment
agreement with The Bank of Nova Scotia, as administrative agent, and the lenders from time to time named
therein, to the seventh amended and restated credit agreement with a syndicate of lenders (See section 7.4
Credit Facilities).
Cineplex completed the offering of $316.3 million aggregate principal amount of convertible unsecured
subordinated debentures on July 17, 2020.
In July, Cineplex announced a cost restructuring program incurring $8.3 million in related costs during the
year.
On June 29,2020, Cineplex sold its interest in WorldGaming Network for a nominal amount.
Cineplex announced the appointment and return of Phyllis Yaffe to the Board of Directors. Ms. Yaffe
returned to the role of Board Chair, replacing Ian Greenberg who did not stand for re-election at the Annual
and Special Meeting of shareholders held in October 2020.
On November 12, 2020, Cineplex and Cineplex Entertainment Limited Partnership entered into the Second
Credit Agreement Amendment with the Bank of Nova Scotia, as administrative agent, and the lenders from
time to time named therein, to the seventh amended and restated credit agreement with a syndicate of
lenders (see section 7.4, Credit Facilities).
During the year, Cineplex initiated a process to sell its head office building located at 1303 Yonge Street
and 1257 Yonge Street, Toronto, Ontario. Subsequent to period end, Cineplex completed a sale-leaseback
transaction for cash proceeds of $57.0 million (see Section 16, Subsequent Events).
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Management’s Discussion and Analysis
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2. CINEPLEX’S BUSINESS AND STRATEGY
Cineplex’s mission statement is “Passionately delivering exceptional experiences.” All of its efforts are focused
towards this mission and it is Cineplex’s goal to consistently provide guests and customers with exceptional
experiences.
Cineplex’s operations are primarily conducted in four main areas: film entertainment and content, media,
amusement and leisure and location-based entertainment, all supported by the SCENE loyalty program. Cineplex’s
key strategic areas of focus include the following:
•
•
•
•
•
Continue to enhance and expand Cineplex’s presence as an entertainment destination for Canadians in-
theatre, at-home and on-the-go;
Capitalize on core media strengths and infrastructure to provide continued growth of Cineplex’s media
business both inside and outside theatres;
Develop and scale amusement and leisure concepts by extending existing capabilities and infrastructure;
Drive value within businesses by leveraging opportunities to optimize value, realize synergies,
implement customer-centric technology and leverage big data across the Cineplex ecosystems; and
Pursue opportunities that capitalize on Cineplex’s core strengths.
Cineplex uses the SCENE loyalty program and database as a strategic asset to link these areas of focus and drive
customer acquisition and ancillary businesses.
Diversified Entertainment and Media Company
Key elements of this strategy include going beyond movies to reach customers in new ways and maximizing
revenue per patron. Cineplex has implemented in-theatre initiatives to improve the overall entertainment experience,
including increased premium offerings, enhanced in-theatre services, alternative pricing strategies, continued
development of the SCENE loyalty program and initiatives in theatre food service such as optimizing and adding
product offerings and improving service execution. The ultimate goal of these in-theatre customer service initiatives
is to maximize revenue per patron and increase the frequency of movie-going at Cineplex’s theatres.
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While box office revenues (which include alternative programming) continue to account for the largest portion of
Cineplex’s revenues, expanded theatre food service offerings, cinema media, digital place-based media, amusement
and leisure, the Cineplex Store, promotions and other revenue streams have increased as a share of total revenues.
Cineplex is committed to diversifying its revenue streams outside of the traditional theatre exhibition model through
its media and amusement and leisure businesses.
As a result of the impact of the COVID-19 pandemic on Cineplex’s business, Cineplex’s attention has shifted to
respond to the impacts of the COVID-19 pandemic by implementing a variety of measures to reduce costs and has
placed an increased focus on the safe reopening of its business (see Section 1.1 Response to COVID-19).
Adjusted EBITDAaL
(millions) (i)
2016
2017
2018
2019
2020
$(182.8)
$222.9
$224.7
$247.3
$230.5
Adjusted EBITDAaL
Margin (i)
15.1% 14.5% 15.3% 13.8%
2016
2017
2018
2019
2020
(43.7)%
(i) 2020 includes expenses related to the Cineworld Transaction and associated Litigation in the amount of $4.1 million.
3. CINEPLEX’S BUSINESSES
During 2020, all aspects of Cineplex’s business were materially negatively impacted by COVID-19. Despite this
impact, the following reflects management’s belief that its business will return when it is able to reopen theatres and
LBE venues without restrictions. Cineplex’s operations are primarily conducted in four main areas: film
entertainment and content, media, amusement and leisure and location-based entertainment, all supported by the
SCENE loyalty program.
FILM ENTERTAINMENT AND CONTENT
Theatre Exhibition
Theatre exhibition is the core business of Cineplex. Box office revenues are highly dependent on the marketability,
quality and appeal of the film product released by the major motion picture studios.
The motion picture industry consists of three principal
activities: production, distribution and exhibition.
Production involves the development, financing and
creation of feature-length motion pictures. Distribution
involves the promotion and exploitation of motion
pictures in a variety of different channels. Theatrical
exhibition is the primary channel for new motion picture
releases and is the core business function of Cineplex.
Canadian Industry Box Office
(in millions)
$994.0
$992.5
$1,031.3
$1,022.0
$235.0
2016
2017
2018
2019
2020
Source: Movie Theatre Association of Canada ("MTAC")
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Cineplex believes that the following market trends are important factors in the growth of the film exhibition industry
in Canada:
•
•
•
•
•
Importance of theatrical success in establishing movie brands and subsequent movies. Theatrical exhibition
is the initial and most important channel for new motion picture releases. A successful theatrical release
which “brands” a film is often the determining factor in its popularity and value in “downstream”
distribution channels, such as
transactional video-on-demand (“TVoD”), Blu-ray, pay-per-view,
subscription video-on-demand as well as network television.
Continued supply of successful films. Studios are increasingly producing film franchises, such as Star
Wars, Fast & Furious and Jurassic Park. Additionally, new franchises continue to be developed, such as
the films in the Marvel and DC universes. When the first film in a franchise is successful, subsequent films
in the franchise benefit from existing public awareness and anticipation. The result is that such features
typically attract large audiences and generate strong box office revenues. The success of a broader range of
film genres also benefits film exhibitors. In 2021, the studios are currently planning to release a strong slate
of films, including Godzilla vs. Kong, Black Widow, Fast & Furious 9, Cruella, Peter Rabbit 2, Venom:
Let There Be Carnage, Minions: The Rise of Gru, Top Gun: Maverick, Shang-Chi and the Legend of the
Ten Rings, Space Jam: A New Legacy, Jungle Cruise, The Suicide Squad, The King’s Man, A Quiet Place
Part II, Dune, No Time To Die, Eternals, Ghostbuster: Afterlife, Mission: Impossible 7, Spider-Man 3, West
Side Story and The Matrix 4. In spite of changing release models, Cineplex remains confident that there
will continue to be significant theatrical releases.
Convenient and affordable form of out-of-home entertainment. Cineplex’s BPP was $10.17 and $10.63 in
2020 and 2019 respectively. Excluding the impact of Cineplex’s premium-priced product, BPP was $9.18
and $9.17 in 2020 and 2019 respectively. The movie-going experience continues to provide value and
compares favorably to alternative forms of out-of-home entertainment in Canada such as professional
sporting events or live theatre, and with Cineplex, SCENE members enjoy the ability to earn points towards
Cineplex products as well as discounts and special offers.
Providing a variety of premium and enhanced guest theatre experiences. Premium priced theatre offerings
include 3D, 4DX, UltraAVX, VIP, IMAX, D-BOX, ScreenX and Cineplex Clubhouse. BPP for premium-
priced product was $14.04 in 2020, and accounted for 28.1% of total box office revenues in 2020. Recent
enhancements to the current circuit include the addition of 4 retrofit auditoriums.
Reduced seasonality of revenues. Historically, film exhibition industry revenues have been seasonal, with
the most marketable motion pictures generally being released during the summer and the late-November
through December holiday season. The seasonality of motion picture exhibition theatre attendance has
become less pronounced as film studios have expanded the historical summer and holiday release windows
and increased the number of films released during traditionally weaker periods.
Box Office Revenues (millions)
$734.1
$715.6
$724.2
$705.5
$132.8
Box Office Revenue per
Patron
$9.84
$10.17
$10.46
$10.63
$10.17
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
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leading market position enables
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Cineplex’s
effectively manage film, food service and other theatre-
level costs, thereby maximizing operating efficiencies.
Cineplex seeks to continue to achieve incremental
operating savings by, among other things, implementing
best practices and negotiating
improved supplier
contracts. In addition, Cineplex continues to evaluate its
existing theatre portfolio on an ongoing basis.
Theatre Attendance (millions)
to
it
2018
2016
2020
2019
2017
69.3
74.6
70.4
13.1
66.4
The development of premium experiences through design, structure and digital technology makes Cineplex theatres
ideal locations for meetings and corporate events. Organizations, particularly corporations with offices across the
country, can use Cineplex’s theatres and digital technology for annual meetings, product launches and employee or
customer events, producing revenue streams independent of film exhibition.
In recognition of the need to adapt to changing consumer behavior, particularly as the entertainment industry
continues to navigate the impact of COVID-19, during 2020, Cineplex entered into a multi-year agreement with
Universal Filmed Entertainment Group that provides theatrical exclusivity of their film releases for a shortened
window of a minimum of 17 days up to a maximum of 31 days, at which point the studio will have the option to
make its titles available across PVOD. Management continues to work with distributors to ensure it is well
positioned as venues begin to reopen to provide moviegoers with the theatrical experience that is a key factor to the
success of film.
Theatre Food Service
Cineplex’s theatre food service business offers guests a range of food choices to enhance their theatre experience
while generating strong profit margins for the company. Cineplex’s theatres feature its internally developed brands:
Outtakes, Poptopia and Melt. Certain Cineplex theatres also feature popular fast food retail branded outlets
(“RBO’s”) including Starbucks and Pizza Pizza, among others.
Cineplex continually focuses on process improvements designed to increase the speed of service at the concession
counter in addition to optimizing the RBO’s available at Cineplex’s theatres. Each of the wide range of menu items
available at Outtakes locations, expanded liquor service available in theatres, partnerships with Uber Eats and Skip
The Dishes as well as the expanded menu and the licensed lounge service available at VIP Cinemas are designed to
reach a wider market and to increase both purchase incidence and transaction value. Digital menu boards installed
across the circuit offer flexibility in menu offerings to guests which contribute to an improved guest experience
while also creating additional revenue opportunities.
Theatre Food Service
Revenues (millions)
$440.7
$446.6
$422.3
$421.2
Concession Revenue per
Patron
$6.36
$6.73
$6.00
$6.99
$5.65
$99.6
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
Alternative Programming
Alternative programming includes Cineplex’s international film programming as well as content offered under its
Event Cinema brand offerings, including The Metropolitan Opera, NFL Sunday Nights, sporting events, concerts
and dedicated event screens. International film programming includes Bollywood content as well as Cantonese,
Hindi, Punjabi, Mandarin, Korean and Filipino language films, amongst others, in select theatres across the country
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based on local demographics. This programming attracts a more diverse audience, expanding Cineplex’s
demographic reach and enhancing revenues.
The success of Cineplex’s alternative programming events has led to offerings including the National Theatre from
London, the In the Gallery series and screening select television content on the big screen. Cineplex offers the
Classic Film Series and Family Favorites programming at non-peak hours to enhance theatre utilization rates. As
additional content becomes available, Cineplex will continue to expand its alternative programming offerings.
Digital Commerce
Cineplex’s digital products consist of cineplex.com, the Cineplex mobile app and the Cineplex Store. Cineplex has
developed cineplex.com into one of the leading entertainment sites in Canada, a destination of choice for Canadians
seeking movie entertainment information on the internet. The website offers streaming video, movie information,
showtimes and the ability to buy tickets online, entertainment news and box office reports as well as advertising and
digital commerce opportunities. To complement cineplex.com, the Cineplex mobile app is available as a free
download for a wide variety of devices, providing guests with the ability to find showtimes, buy tickets as well as
find information relating to the latest movie choices and movie-related entertainment content and provide mobile
food and beverage ordering in VIP auditoriums.
These features and others enable Cineplex to engage and interact with its guests online and on-the-go, allowing
Cineplex to offer engaging, targeted and sponsored content to visitors and advertisers, resulting in opportunities to
generate additional revenues.
The Cineplex Store rents and sells over 9,000 movies in digital form (TVoD and PVOD movies). Cineplex
continues to improve the user experience including releasing new Cineplex Store user interfaces and experiences
across the website and multiple connected televisions and device apps.
Cineplex’s strong brand association with movies and well-established partnerships with movie studios combined
with Cineplex’s website, app and the Cineplex Store provide Cineplex with the ability to expand its touchpoints to
consumers across multiple channels. As emerging technologies continue to change the ways in which content is
consumed, Cineplex will continue to leverage its digital commerce properties to provide guests with in home and
on-the-go options for content delivery.
MEDIA
Cineplex’s media businesses cover two major categories: cinema media, which incorporates advertising mediums
related to theatre exhibition, and digital place-based media which provides digital signage solutions.
Media Revenues
(millions) (i)
$166.7
$167.1
$162.8
$196.8
$65.4
2016
2017
2018
2019
2020
(i) Media revenues for prior year periods have been restated to present revenue amounts from continuing operations.
Cinema Media
Cinema media incorporates advertising mediums related to theatre exhibition, both within Cineplex’s own circuit of
theatres as well as in competitors’ theatres through revenue sharing arrangements.
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Cineplex’s core cinema media offerings include:
•
•
•
Show-time advertising, which runs just prior to the movie trailers in the darkened auditorium with limited
distractions.
Pre-show advertising, featured on the big screen as guests settle in to enjoy their movie night, in the period
prior to Show-time.
Digital lobby advertising and digital poster cases located in the highest-traffic areas featuring big, bold
digital signage.
• Website and mobile advertising sales through cineplex.com and the Cineplex mobile app.
Cineplex’s theatres also provide opportunities for advertisers’ special media placements (including floor and door
coverings, window clings, standees, banners, samplings, activations and lobby domination setups).
In addition to these individual offerings, Cineplex offers integrated solutions that can cross over some or all of the
above-mentioned platforms. Advertisers can utilize these forms of media individually or take advantage of an
integrated advertising program spanning multiple platforms. In partnership with its digital commerce platforms,
Cineplex offers online media packages that include page dominations, page skins, pre-roll and post-roll advertising;
all with geo-targeting capabilities.
Cineplex’s cinema media business is well positioned for continued growth and is the ideal channel for advertisers
wanting to reach all demographics, especially the highly sought-after 17 to 25-year-old Canadian market.
Cineplex also generates revenues from the sale of sponsorship and advertising at LBE venues.
Digital Place-Based Media
Cineplex’s digital place-based media designs, installs, maintains and operates digital signage networks in four
verticals including digital out of home (in public spaces such as shopping malls and office towers), quick service
restaurants, financial institutions and retailers.
Cineplex media’s advertising sales team combined with the project management, system design, network operations,
and creative services teams within its digital place-based media business have Cineplex well positioned to expand its
media reach throughout its current infrastructure as well as in numerous place-based advertising locations across the
country. Cineplex believes that the strength of its digital place-based media assets make it a leader in the indoor
digital signage industry and provide a platform for significant growth throughout North America and Europe.
AMUSEMENT AND LEISURE
Amusement and leisure includes two primary areas of operations:
•
•
Amusement solutions, comprised of P1AG which is one of the largest distributors and operators of
amusement, gaming and vending equipment in North America;
Location-based entertainment, which includes social entertainment destinations featuring gaming,
entertainment and dining, including The Rec Room, and Playdium.
Amusement Solutions
Cineplex’s amusement solutions business generates revenues from the following activities in both Canada and the
United States:
•
•
•
Route operations: P1AG collects a revenue share on games revenues earned by P1AG-owned amusement
and vending equipment placed into locations such as family entertainment centres, arcades, theatres,
restaurants, bars and other locations.
Third party equipment sales.
Operating family entertainment centres.
In addition to expanding Cineplex’s amusement and gaming presence outside of its theatres, the acquisition and
expansion of P1AG allowed Cineplex to vertically integrate its gaming operations. Cineplex’s in-theatre gaming
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business features Cineplex’s 38 XSCAPE Entertainment Centres as well as arcade games in select Cineplex theatres,
with all of the games supplied and serviced by P1AG.
Location-based Entertainment
Cineplex operates LBE establishments under the brand names The Rec Room and Playdium, as well as other family
entertainment centres.
The Rec Room is a social entertainment destination targeting millennials featuring a wide range of entertainment
options including virtual reality (“VR”), simulation, redemption, video and recreational gaming, and a live
entertainment venue for watching a wide range of entertainment programming. These entertainment options are
complemented with an upscale casual dining environment, featuring an open kitchen and contemporary menu, as
well as a larger bar with a wide range of digital monitors and a large screen for watching sporting and other major
events.
The Rec Room earns revenues from food and beverage service, from amusement, gaming and leisure attraction play,
and from ticket sales for events held within the destination.
Cineplex has eight locations of The Rec Room and announced plans to open two additional locations in Barrie,
Ontario, and Burnaby, British Columbia in 2021.
Playdium is the Playdium brand concept relaunched for targeting families and teens in mid-sized communities
across Canada. Cineplex has two locations of Playdium, and announced plans to open one additional location in
Dartmouth, Nova Scotia with an expected opening date in early 2021.
LOYALTY
Cineplex has a joint venture agreement with Scotiabank to operate the SCENE loyalty program, providing Cineplex
with significant data and a more comprehensive understanding of the demographics and behaviors of its audience.
During the fourth quarter of 2020, Cineplex and Scotiabank entered into an agreement to enhance and expand the
SCENE Scotiabank Loyalty program. Cineplex received $60.0 million with respect to the reorganization.
SCENE is a customer loyalty program designed to offer members discounts and the opportunity to earn and redeem
SCENE points. SCENE members can earn and redeem SCENE points for purchases at Cineplex’s theatres, at its
location-based entertainment establishments, online at the Cineplex Store as well as at locations operated by select
program partners and as part of the Cineplex Tuesdays program. In conjunction with the reorganization of its joint
operation in SCENE, Cineplex announced an agreement with Scotiabank to bring together the full benefits of
SCENE with Scotia Rewards, Scotiabank’s flexible customer loyalty program. Beginning in the fall of 2021,
members can look forward to redemption opportunities for a wide variety of popular retailers. Members will also be
able to apply points as statement credits on certain Scotiabank products, as well as book flexible travel.
The SCENE loyalty program has been well received as evidenced by the strong membership growth and high
engagement and satisfaction levels of its program members. Membership in the SCENE loyalty program at
December 31, 2020 was approximately 10.4 million, an increase of approximately 0.1 million members during 2020.
Through SCENE, Cineplex has gained a more thorough understanding of its customers, driven increased customer
frequency, increased overall spending across its businesses and provides Cineplex with the ability to communicate
directly and regularly with customers.
The SCENE customer database has allowed Cineplex to segment SCENE’s member population and provide special
offers to Cineplex’s guests, implement targeted marketing programs and deliver tailored messages to subsets of the
membership base, providing members with relevant information and offers which in turn drive increased frequency
and spend. Cineplex continues to influence consumer behavior through the use of SCENE bonus points and
experience upgrades for SCENE members in its initiatives as well as in partnership with movie studios.
Cineplex has gained tremendous insight into customer behavior with over 13 years of data collected. Cineplex will
continue to focus on leveraging this data through marketing automation to drive customer behavior as well as
accelerating the adoption of artificial intelligence and machine learning for more robust consumer insight. SCENE
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continues to build its strategic marketing partnerships with participating partners across Canada, providing
promotions and offerings.
SCENE Members
(millions)
9.6
10.3
8.9
8.1
10.4
2016
2017
2018
2019
2020
4. OVERVIEW OF OPERATIONS
Revenues
Cineplex generates revenues primarily from box office and food service sales. These revenues are affected primarily
by theatre attendance levels and by changes in BPP and CPP. Due to the closures as a result of the COVID-19
pandemic, revenues were materially impacted during 2020. The following table presents the revenue mix for
comparative years:
Revenue mix % by period
Box office
Food service
Media
Amusement
Other
Total
2020
31.8 %
26.0 %
15.6 %
18.6 %
8.0 %
2019
42.4 %
29.0 %
11.8 %
13.7 %
3.1 %
2018
44.9 %
29.5 %
10.1 %
12.8 %
2.7 %
2017
46.2 %
28.5 %
10.8 %
11.9 %
2.6 %
2016
49.8 %
28.8 %
11.3 %
7.6 %
2.5 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
Cineplex has four reportable segments, film entertainment and content, media, amusement and leisure and location-
based entertainment. The reportable segments are business units offering differing products and services and
managed separately due to their distinct natures. These four reportable segments have been determined by
Cineplex’s chief operating decision makers. The revenue mix percentages for the four reportable segments during
the year were materially impacted by the closures and reduced capacities of theatres and LBE locations as a result of
COVID-19.
Revenue mix % by year
Film Entertainment and Content
Media
Amusement and Leisure
LBE
Total
Year to date
2020
64.0 %
15.5 %
14.4 %
6.1 %
2019
72.8 %
11.8 %
10.7 %
4.7 %
100.0 %
100.0 %
A key component of Cineplex’s business strategy is to position itself as the leading exhibitor in the Canadian market
by focusing on providing customers with an exceptional entertainment experience. Box office revenues were
negatively impacted as a result of the negative economic effects of COVID-19. Cineplex optimized revenues in the
current period by offering a catalog of classic film products and expanding product offerings through the Cineplex
Store which saw significant growth in the period. In addition, as a result of Cineplex’s focus on diversifying the
business beyond the traditional movie exhibition model, its revenue mix has shifted from box office revenue to other
revenue sources.
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The commercial appeal of the films and alternative content released during a given period, and the success of
marketing as well as promotion for those films by film studios, distributors and content providers all drive theatre
attendance. BPP is affected by the mix of film and alternative content product that appeals to certain audiences (such
as children or seniors who pay lower ticket prices), ticket prices during a given period and the appeal of premium
priced product available. While BPP is negatively impacted by the SCENE loyalty program and the Cineplex
Tuesdays program, these programs are designed to increase theatre attendance frequency at Cineplex’s theatres.
Cineplex’s main focus is to drive incremental visits to theatres, to employ a ticket price strategy which takes into
account the local demographics at each individual theatre and to maximize BPP through premium offerings.
Food service revenues are comprised primarily of concession revenues, arising from food and beverage sales at
theatre locations, as well as food and beverage sales at LBE venues including The Rec Room and Playdium. In
addition, food service revenues include home delivery serviced by Uber Eats and by Skip the Dishes. CPP represents
theatre food service revenues divided by theatre attendance, and is impacted by the theatre food service product mix,
theatre food service prices, film genre, promotions and the issuance and redemption of SCENE points on the
purchases of food and beverages at theatres. Films targeted to families and teenagers tend to result in a higher CPP
and more adult-oriented product tends to result in a lower CPP. As a result, CPP can fluctuate from quarter to
quarter depending on the genre of film product playing. The SCENE points issued and redeemed on theatre food
service purchases decreases food service revenues on individual purchases. Cineplex believes the program drives
incremental purchase incidence, increasing overall revenues. Cineplex focuses primarily on growing CPP by
optimizing the product offerings, improving operational excellence and strategic pricing to increase purchase
incidence and transaction value. Food service revenues from LBE include food and beverage revenues from the
various bars and restaurants located throughout the venues.
Media revenues include both cinema media (Cineplex Media) and digital place-based media (Cineplex Digital
Media) revenues. Cineplex Media generates revenues primarily from selling pre-show and show-time advertising in
Cineplex’s theatres as well as other circuits through representation sales agreements. Additionally, Cineplex Media
sells media placements throughout Cineplex’s circuit including digital poster cases, as well as sponsorship and
advertising in LBE venues. Cineplex Media also sells digital advertising for cineplex.com, the Cineplex mobile app
and on third party networks operated by Cineplex Digital Media. Cineplex Digital Media designs, installs, maintains
and operates digital signage networks in four verticals including digital out of home (in public spaces such as
shopping malls and office towers), quick service restaurants, financial institutions and retailers.
Amusement revenues include amusement solutions revenues from P1AG, which supplies and services all of the
games in Cineplex’s theatre circuit while also supplying equipment to third party arcades, amusement parks and
centres, bowling alleys and theatre circuits across Canada and the United States, in addition to owning and operating
family entertainment centres. Additionally, included in amusement revenues are revenues generated by Cineplex’s
XSCAPE Entertainment Centres and game rooms in theatres as well as revenues generated at LBE venues.
Cineplex generates other revenues from the Cineplex Store, promotional activities, screenings, private parties,
corporate events, breakage on gift card sales and revenues from management fees.
Cost of Sales and Expenses
Film cost represents the film rental fees paid to distributors on films exhibited in Cineplex theatres. Film costs are
calculated as a percentage of box office revenue and are dependent on various factors including the performance of
the film. Film costs are accrued on the related box office receipts at either mutually agreed-upon terms established
prior to the opening of the film, or estimated terms where a mutually agreed settlement is reached upon conclusion
of the film’s run, depending upon the film licensing arrangement. There can be significant variances in film cost
percentage between quarters due to, among other things, the concentration of box office revenues amongst the top
films in the period with stronger performing films having a higher film cost percentage.
Cost of food service represents the cost of concession items and other theatre food service items sold and varies with
changes in concession and other theatre food service revenues as well as the quantity and mix of concession and
other food service offerings sold. Cost of food and beverages sold at LBE is also included in cost of food service.
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Depreciation - right-of-use assets, represents the depreciation of Cineplex’s right-of-use assets related to leases.
Depreciation is calculated on a straight-line basis from the date of commencement of the lease to the earlier of the
end of the useful life of the asset or the end of the lease term.
Depreciation and amortization - other, represents the depreciation and amortization of Cineplex’s property,
equipment and leaseholds, as well as certain of its intangible assets. Depreciation and amortization are calculated on
a straight-line basis over the useful lives of the assets.
(Gain) loss on disposal of assets represents the (gain) loss recognized on assets or components of assets that were
sold or otherwise disposed.
Other costs are comprised of theatre occupancy expenses, other operating expenses and general and administrative
expenses. These categories are described below.
Theatre occupancy expenses include lease related expenses, percentage rent, property related taxes, business related
taxes and insurance and exclude cash rent.
Other operating expenses consist of fixed and variable expenses, with the largest component being theatre salaries
and wages. Although theatre salaries and wages net of subsidies (CEWS) include a fixed cost component, these
expenses vary in relation to revenues as theatre staffing levels are adjusted to handle fluctuations in theatre
attendance. Other components of this category include marketing and advertising, media, amusement and leisure
(including P1AG and LBE), loyalty including SCENE, digital commerce, supplies and services, utilities and
maintenance. To the extent these costs are variable, they can be curtailed with changes in business volumes.
General and administrative expenses are primarily costs associated with managing Cineplex’s business, including
film buying, marketing and promotions, operations and theatre food service management, accounting and financial
reporting, legal, treasury, design and construction, real estate development, communications and investor relations,
information systems and administration. Included in these costs are payroll (including the Omnibus Incentive Plan
(“Incentive Plan”) costs), occupancy costs related to Cineplex’s corporate offices, professional fees (such as public
accountant and legal fees) and travel and related costs. Cineplex maintains general and administrative staffing and
associated costs at a level that it deems appropriate to manage and support the size and nature of its theatre portfolio
and its business activities. Many of these costs have been and can be further reduced as required by changes in
business volumes.
Accounting for Joint Arrangements
The financial statements incorporate the operating results of joint arrangements in which Cineplex has an interest
using either the equity accounting method (for joint ventures and associates) or recognizing Cineplex’s share of the
assets, liabilities, revenues and expenses in Cineplex’s consolidated results (for joint operations), as required by
GAAP.
Under IFRS 11, Cineplex’s 50% share of one IMAX auditorium in Ontario, its 78.2% interest in the Canadian
Digital Cinema Partnership (“CDCP”) and a 50% interest in YoYo’s Yogurt Cafe (“YoYo’s”) are classified as joint
ventures or associates. Through equity accounting, Cineplex’s share of the results of operations for these joint
ventures and associates are reported as a single item in the statements of operations, ‘Share of income of joint
ventures and associates’. Theatre attendance for the IMAX auditorium held in a joint venture is not reported in
Cineplex’s consolidated theatre attendance as the line-by-line results of the joint venture are not included in the
relevant lines in the statement of operations.
In the fourth quarter of 2020, Cineplex announced that it had entered into an agreement with Scotiabank to enhance
and expand the SCENE loyalty program. Cineplex received $60.0 million with respect to the agreement to
reorganize the program and reposition it for future growth. In conjunction with the agreement, Cineplex’s interest in
the operations of SCENE was reduced to 33.3%. Cineplex continues to have joint control of the joint operation and
is entitled to and responsible for 50% of the economic benefits and obligations until specific non-financial
milestones are met, resulting in the deferral of recognition of the proceeds in other liabilities, and the continued
consolidation of 50% of SCENE.
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MANAGEMENT’S DISCUSSION & ANALYSIS
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Management’s Discussion and Analysis
—————————————————————————————————————————————
5. RESULTS OF OPERATIONS
5.1 SELECTED FINANCIAL DATA
The following table presents summarized financial data for Cineplex for the three most recently completed financial
years (expressed in thousands of dollars except Shares outstanding, per Share data and per patron data, unless
otherwise noted):
Year ended
December 31,
2020
Year ended
December 31,
2019
Year ended
December 31,
2018
Box office revenues
Food service revenues
Media revenues
Amusement revenues
Other revenues
Total revenues
Film cost
Cost of food service
Depreciation - right-of-use assets
Depreciation and amortization - other assets
(Gain) loss on disposal of assets
Other costs (a)
Impairment of long-lived assets and goodwill
Costs of operations
Net (loss) income from continuing operations
Net loss from discontinued operations
Net (loss) income
Adjusted EBITDA (i) (iii)
Adjusted EBITDAaL (i) (iii)
(a) Other costs include:
Theatre occupancy expenses
Other operating expenses
General and administrative expenses (iii)
Total other costs
$
132,820 $
108,632
65,358
77,901
33,552
418,263
66,922
30,667
128,393
124,846
(13,101)
375,690
294,863
1,008,280
(624,001) $
(4,952)
(628,953) $
(55,866) $
(182,815) $
60,514
276,092
39,084
$
$
$
$
705,521 $
483,330
196,755
228,231
51,309
724,244
475,501
162,820
205,793
44,080
1,665,146
1,612,438
369,386
106,823
145,946
128,883
1,764
782,693
—
379,325
100,191
—
127,423
2,681
870,358
—
1,535,495
1,479,978
36,516 $
(7,625)
28,891 $
405,786 $
230,546 $
71,867
629,849
80,977
85,459
(8,503)
76,956
262,357
247,295
209,838
593,736
66,783
870,357
1.35
(0.13)
1.22
Net (loss) income per share from continuing operations - basic and diluted (iii) $
(9.85) $
0.58 $
$
375,690 $
782,693 $
Net loss per share from discontinued operations - basic and diluted
Net (loss) income per share - basic and diluted (iii)
Total assets
Total long-term financial liabilities (ii)
Shares outstanding at period end
Cash dividends declared per Share
Adjusted free cash flow per Share (i)
Box office revenue per patron (i)
Concession revenue per patron (i)
Film cost as a percentage of box office revenues
Theatre attendance (in thousands of patrons) (i)
Theatre locations (at period end)
Theatre screens (at period end)
$
$
$
$
$
$
$
(0.08)
(9.93) $
(0.12)
0.46 $
2,333,870 $
3,100,412 $
725,271 $
625,000 $
63,333,238
63,333,238
1,856,449
580,000
63,333,238
0.150 $
(2.556) $
10.17 $
6.99 $
50.4%
13,065
162
1,667
1.780 $
2.660 $
10.63 $
6.73 $
52.4%
66,360
165
1,693
1.720
2.887
10.46
6.36
52.4%
69,272
164
1,686
(i) See Section 18, Non-GAAP measures, for the definition of non-GAAP measures reported by Cineplex.
(ii) Represents the principal component of convertible debentures. Excludes share-based compensation, lease obligations, fair value of interest
rate swap agreements, post-employment benefit obligations and other liabilities.
(iii) 2020 includes expenses related to the Cineworld Transaction and resulting litigation in the amount of $4.1 million.
CINEPLEX INC. 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION & ANALYSIS
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Management’s Discussion and Analysis
—————————————————————————————————————————————
5.2 OPERATING RESULTS FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 2020
Total revenues
Total revenues for the three months ended December 31, 2020 decreased $390.8 million (88.2%) to $52.5 million as
compared to the prior year period. Total revenues for the year ended December 31, 2020 decreased $1.2 billion
(74.9%) to $418.3 million as compared to the prior year. A discussion of the factors affecting the changes in box
office, food service, media, amusement and other revenues for the two periods is provided below.
Non-GAAP measures discussed throughout this MD&A, including adjusted EBITDA, adjusted EBITDAaL,
adjusted store level EBITDAaL, adjusted EBITDAaL margin, adjusted store level EBITDAaL margin, adjusted free
cash flow, theatre attendance, BPP, premium priced product, same theatre metrics, CPP, film cost percentage, food
service cost percentage and concession margin per patron are defined and discussed in Section 18, Non-GAAP
measures.
Box office revenues
The following table highlights the movement in box office revenues, theatre attendance and BPP for the quarter and
the full year (in thousands of dollars, except theatre attendance reported in thousands of patrons and per patron
amounts, unless otherwise noted):
Box office revenues
Box office revenues
Theatre attendance (i)
Box office revenue per patron (i)
BPP excluding premium priced product (i)
Same theatre box office revenues (i)
Same theatre attendance (i)
% Total box from premium priced product (i)
(i) See Section 18, Non-GAAP measures.
Fourth Quarter
Full Year
2020
2019
Change
2020
2019
Change
$
$
$
7,260
786
9.23
8.61
7,177
778
19.1 %
$ 181,789
16,849
10.79
9.40
$
$
180,184
16,686
38.7 %
-96.0 % $ 132,820
13,065
-95.3 %
10.17
-14.5 % $
9.18
-8.4 % $
-96.0 % $ 130,124
-95.3 %
12,825
-19.6 %
28.1 %
$ 705,521
66,360
10.63
9.17
$
$
$ 694,360
65,342
41.7 %
-81.2 %
-80.3 %
-4.3 %
0.1 %
-81.3 %
-80.4 %
-13.6 %
Box office continuity
Fourth Quarter
Full Year
2019 as reported
Same theatre attendance change
Impact of same theatre BPP change
New and acquired theatres (i)
Disposed and closed theatres (i)
2020 as reported
Box Office
181,789
(171,789)
(1,220)
(535)
(985)
7,260
$
$
Theatre
Attendance
16,849 $
(15,908)
—
(45)
(110)
786 $
Box Office
705,521
(558,074)
(6,163)
(4,278)
(4,186)
132,820
Theatre
Attendance
66,360
(52,517)
—
(299)
(479)
13,065
(i) See Section 18, Non-GAAP measures. Represents theatres opened, acquired, disposed or closed subsequent to the start of the prior year
comparative period.
Fourth Quarter and Full Year
Fourth Quarter 2020 Top Cineplex Films
1 Honest Thief
2 Tenet
3 The War With Grandpa
4 The Croods: A New Age
5 100% Wolf
3D % Box Fourth Quarter 2019 Top Cineplex Films
11.9 % 1 Joker
11.3 % 2 Frozen II
10.3 % 3 Star Wars: The Rise Of Skywalker
7.6 % 4 Jumanji: The Next Level
5.3 % 5 Maleficent: Mistress Of Evil
3D % Box
15.4 %
a 14.4 %
a 13.9 %
a 7.3 %
a 3.6 %
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MANAGEMENT’S DISCUSSION & ANALYSIS
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Management’s Discussion and Analysis
—————————————————————————————————————————————
Full Year 2020 Top Cineplex Films
1 1917
2 Star Wars: The Rise of Skywalker
3 Jumanji: The Next Level
4 Bad Boys For Life
5 Sonic The Hedgehog
Fourth Quarter and Full Year
3D % Box Full Year 2019 Top Cineplex Films
8.1 % 1 Avengers: Endgame
a 7.7 % 2 The Lion King
a 7.6 % 3 Captain Marvel
7.2 % 4 Joker
5.4 % 5 Frozen II
3D % Box
a 8.6 %
a 4.7 %
a 4.3 %
4.0 %
a 3.7 %
Box office revenues decreased $174.5 million, or 96.0%, to $7.3 million during the fourth quarter of 2020,
compared to $181.8 million recorded in the same period in 2019. This decrease was due to a 95.3% decrease in
theatre attendance as a result of mandatory lockdown measures during the fourth quarter of 2020 in many provinces
in response to the second wave of rising COVID-19 infections, as well as reduced seating capacity restrictions in
venues that were open and limited first run film product.
BPP for the three months ended December 31, 2020 was $9.23, a $1.56 decrease from the prior year period as a
result of lower ticket pricing on classic film product, SCENE promotions and reduced premium offerings.
Box office revenues for the year ended December 31, 2020 were $132.8 million, a decrease of $572.7 million or
81.2% from the prior year. The decrease in box office revenues was primarily due to a 80.3% decrease in theatre
attendance as a result of the negative impact of COVID-19 government mandated restrictions that have kept a
theatres closed or operating below full capacity for a majority of the year.
Cineplex’s BPP for the year ended December 31, 2020 decreased $0.46, or 4.3%, from $10.63 in 2019 to $10.17 in
2020. This decrease was primarily due to lower ticket pricing on previously released content with limited new film
releases during the year as a distributors have continued to push their film slates further out in the calendar and into
2021.
Food service revenues
The following table highlights the movement in food service revenues, theatre attendance and CPP for the quarter
and the full year (in thousands of dollars, except theatre attendance and same store attendance reported in thousands
of patrons and per patron amounts):
Food service revenues
Food service - theatres
Food delivery - theatres
Food service - LBE
Food delivery - LBE
Fourth Quarter
Full Year
2020
2019
Change
2020
2019
Change
$
7,122 $ 114,678
—
2,660
10,481
632
-93.8 % $
91,384 $ 446,639
-79.5 %
NM
-94.0 % $
8,175
8,882
191
—
NM
36,691
-75.8 %
—
NM
129
—
NM
Total food service revenues
$
10,543 $ 125,159
-91.6 % $ 108,632 $ 483,330
-77.5 %
Theatre attendance (i)
CPP (i) (ii)
Same theatre food service revenues (i)
Same theatre attendance (i)
(i) See Section 18, Non-GAAP Measures.
786
16,849
-95.3 %
13,065
66,360
-80.3 %
$
$
9.06 $
6.81
33.0 % $
6.99 $
6.73
7,131 $ 113,706
-93.7 % $
89,282 $ 439,444
778
16,686
-95.3 %
12,825
65,342
3.9 %
-79.7 %
-80.4 %
(ii) Food service revenue from LBE and delivery is not included in the CPP calculation.
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MANAGEMENT’S DISCUSSION & ANALYSIS
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Management’s Discussion and Analysis
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Theatre food service revenue continuity
Fourth Quarter
Full Year
2019 as reported
Same theatre attendance change
Impact of same theatre CPP change
New and acquired theatres (i)
Disposed and closed theatres (i)
2020 as reported
Theatre Food
Service
Theatre
Attendance
Theatre Food
Service
Theatre
Attendance
$
114,678
16,849 $
446,639
(111,112)
(15,908)
(361,365)
4,444
(293)
(595)
7,122
$
—
(45)
(110)
786 $
11,205
(2,462)
(2,633)
91,384
66,360
(52,517)
—
(299)
(479)
13,065
(i) See Section 18, Non-GAAP measures. Represents theatres opened, acquired, disposed or closed subsequent to the start of the prior year
comparative period.
Fourth Quarter and Full Year
Food service revenues are comprised primarily of concession revenues, which includes food service sales at theatre
locations and through delivery services including Uber Eats and Skip the Dishes. Food service revenues also include
food and beverage sales at LBE venues, The Rec Room and Playdium.
Food services revenues were materially impacted by the government mandated capacity restrictions and closures of
theatres and LBE venues as a result of COVID-19. Food delivery sales continue to produce strong results with
quarterly revenues of $2.8 million. Theatre food service revenues decreased $107.6 million (93.8%) as compared to
the prior year period to $7.1 million.
CPP increased 33.0% as compared to the prior year period to $9.06 from $6.81. The increase in CPP compared to
the prior period is largely attributable to increased concession purchases as a result of customers excited to return to
the theatre incurring a higher spend per visit in addition to a higher percentage of theatres open in provinces that
historically have a higher CPP.
Annual food service revenues decreased $374.7 million, or 77.5% as compared to the prior year to $108.6 million,
due to impact of COVID-19 on its business. Cineplex continued to provide home delivery services through Uber
Eats and Skip the Dishes and reported revenues of $8.4 million.
Media revenues
The following table highlights the movement in media revenues for the quarter and the full year (in thousands of
dollars):
Media revenues
Cinema media
Digital place-based media
Fourth Quarter
Full Year
2020
2019
Change
2020
2019
Change
$
1,368 $
42,171
-96.8 % $
23,568 $ 115,415
11,128
27,374
-59.3 %
41,790
81,340
Total media revenues from continuing operations
$
12,496 $
69,545
-82.0 % $
65,358 $ 196,755
Media revenues from discontinued operations
—
248
-100.0 %
602
1,075
Total media revenues
$
12,496 $
69,793
-82.1 % $
65,960 $ 197,830
-79.6 %
-48.6 %
-66.8 %
-44.0 %
-66.7 %
Fourth Quarter and Full Year
Total media revenues from continuing operations decreased 82.0% to $12.5 million in the fourth quarter of 2020
compared to the prior year period. This decrease was due to a $40.8 million decrease in cinema media and
$16.2 million decrease in digital place-based media. The second wave of rising COVID-19 infections during the
fourth quarter further prolonged the closure of theatres leading to a sharp decline in pre-show and show-time
revenues which have historically provided strong results during the holiday season. Further, re-imposed mandatory
lockdown measures during the fourth quarter kept many malls and restaurants closed for a majority of the quarter
leading to a decline in installation and digital advertising revenues.
Total media revenues from continuing operations decreased $131.4 million, or 66.8%, in the year ended December
CINEPLEX INC. 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION & ANALYSIS
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Management’s Discussion and Analysis
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31, 2020 compared to the prior year to $65.4 million. This decrease was due to a $91.8 million decrease in cinema
media revenue primarily as a result of a decrease in pre-show advertising and show time advertising revenue due to
theatre closures and limited first run film product available. In addition, digital place-based media decreased $39.6
million as compared to the prior period. The decrease compared to the prior period is primarily attributable to a
decrease in media hardware sales, and digital media revenue as a result of mall and theatre closures that have
remained in effect for a majority of the year due to the COVID-19 pandemic.
The following table shows a breakdown of the nature of digital place-based media revenues for the quarter and the
full year (in thousands of dollars):
Digital place-based media revenues
Fourth Quarter
2020
2019
Change
2020
Full Year
2019
Project revenues (i)
Other revenues (ii)
$
1,972 $
14,189
-86.1 % $
11,066 $
39,943
9,156
13,185
-30.6 %
30,724
41,397
Change
-72.3 %
-25.8 %
Total digital place-based media revenues
$
11,128 $
27,374
-59.3 % $
41,790 $
81,340
-48.6 %
(i) Project revenues include hardware sales and professional services.
(ii) Other revenues include sales of software and its support as well as media advertising.
Amusement revenues
The following table highlights the movement in amusement revenues for the quarter and the full year (in thousands
of dollars):
Amusement revenues
Fourth Quarter
Full Year
2020
2019
Change
2020
2019
Change
Amusement - P1AG excluding Cineplex exhibition and
LBE (i)
Amusement - Cineplex exhibition (i)
Amusement - LBE
Total amusement revenues
$
11,815 $
39,931
-70.4 % $
60,027 $ 178,209
130
1,652
2,668
10,872
-95.1 %
-84.8 %
2,457
15,417
10,907
39,115
$
13,597 $
53,471
-74.6 % $
77,901 $ 228,231
-66.3 %
-77.5 %
-60.6 %
-65.9 %
(i) Cineplex receives a venue revenue share on games revenues earned at in-theatre game rooms and XSCAPE Entertainment Centres.
Amusement - Cineplex exhibition reports the total of this venue revenue share which is consistent with the historical presentation of Cineplex’s
amusement revenues. Amusement - P1AG excluding Cineplex exhibition and LBE reflects P1AG’s gross amusement revenues, net of the venue
revenue share paid to Cineplex reflected in Amusement - Cineplex exhibition above.
Fourth Quarter and Full Year
Amusement revenues decreased $39.9 million (74.6%) to $13.6 million during the quarter compared to the prior
year period. For the full year period, amusement revenues decreased by $150.3 million (65.9%) to $77.9 million.
The quarterly and full year decrease in revenue was primarily due to the government mandated closures of P1AG
route locations, Cineplex theatres and LBE venues due to COVID-19 implemented throughout the second to fourth
quarters.
The following table presents the adjusted EBITDAaL for the quarter and the full year for P1AG (in thousands of
dollars):
P1AG Summary
Amusement revenues
Operating Expenses
Cash rent related to lease obligations (i)
Total adjusted operating expenses
Fourth Quarter
Full Year
2020
2019
Change
2020
2019
$ 11,815
$ 39,931
-70.4 % $ 60,027
$ 178,209
14,900
594
35,275
1,543
-57.8 %
69,216
150,615
-61.5 %
2,422
6,072
$ 15,494
$ 36,818
-57.9 % $ 71,638
$ 156,687
P1AG adjusted EBITDAaL (ii)
$
(3,679)
$
3,113
NM $ (11,611)
$ 21,522
Change
-66.3 %
-54.0 %
-60.1 %
-54.3 %
NM
P1AG adjusted EBITDAaL Margin (ii)
(i) Cash rent that has been reallocated to offset the lease obligations.
(31.1) %
(ii) See Section 18, Non-GAAP measures.
7.8 %
-38.9 %
(19.3) %
12.1 %
-31.4 %
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Management’s Discussion and Analysis
—————————————————————————————————————————————
Mandatory closures of P1AG route locations as well as increased operating restrictions beginning in March 2020
due to rising COVID-19 cases resulted in decreased margins for the fourth quarter and full year when compared to
the prior year periods. Certain operating expenses such as, salaries, rent, and utilities are fixed in nature, which also
contributed to the lower adjusted EBITDAaL margin. Payroll costs were reduced by $0.7 million received under the
COVID-19 CEWS wage subsidy program during the quarter and $4.6 million for the full year. Cash rent related to
lease obligations decreased as a result of rent abatements negotiated with landlords.
The following table presents the adjusted store level EBITDAaL for the quarter and the full year for LBE (in
thousands of dollars):
LBE Summary
Food service revenues
Amusement revenues
Media and other revenues
Total revenues
Cost of food service
Operating expenses before adjustments (i)
Cash rent related to lease obligations (ii)
Total adjusted costs
Adjusted store level EBITDAaL (iii)
$
$
Fourth Quarter
Full Year
2020
2019
Change
2020
2019
$
$
761
$ 10,481
-92.7 % $
9,073
$ 36,691
1,652
78
10,872
911
-84.8 %
15,417
-91.4 %
1,040
39,115
3,391
$
2,491
$ 22,264
-88.8 % $ 25,530
$ 79,197
285
3,057
1,979
5,321
2,478
13,127
1,564
-88.5 %
2,822
-76.7 %
21,258
26.5 %
5,473
9,517
47,392
5,718
$ 17,169
-69.0 % $ 29,553
$ 62,627
Change
(75.3) %
(60.6) %
(69.3) %
(67.8) %
-70.3 %
-55.1 %
-4.3 %
-52.8 %
(2,830)
$
5,095
NM $
(4,023)
$ 16,570
NM
(36.7) %
Adjusted store level EBITDAaL Margin (iii)
(i) Includes operating costs of LBE. Pre-opening costs relating to LBE and overhead relating to management of LBE portfolio are not included.
(ii) Cash rent that has been reallocated to offset the lease obligations.
(iii) See Section 18, Non-GAAP measures.
22.9 % (136.5) %
(113.6) %
(15.8) %
20.9 %
Negative operating margins in the fourth quarter and annual period compared to the prior year periods are due to
operating restrictions and mandatory closures that have kept LBE locations with limited operations or closed for a
majority of the year. In addition, operating restrictions as a result of COVID-19 have resulted in limited corporate
events at LBE locations which have historically resulted in higher margins. Certain fixed costs such as salaries and
rent are fixed in nature contributing to lower margins. Payroll costs were partially offset by $1.1 million and $3.6
million government wage subsidies recognized during the quarter and full year, respectively.
Other revenues
The following table highlights the other revenues which includes revenues from the Cineplex Store, promotional
activities, screenings, private parties, corporate events, breakage on gift card sales and revenues from management
fees for the quarter and the full year (in thousands of dollars):
Other revenues
Fourth Quarter
Full Year
2020
2019
Change
2020
2019
Change
Other revenues from continuing operations
Other revenues from discontinued operations
Total other revenues
$
$
8,556 $
13,256
-35.5 % $
33,552 $
51,309
-34.6 %
—
—
NM
199
16
NM
8,556 $
13,256
-35.5 % $
33,751 $
51,325
-34.2 %
Fourth Quarter and Full Year
The quarterly and annual decreases in other revenues from continuing operations were primarily due to the
suspension of the recognition of deferred revenues on gift card and other related products during the shutdown of
theatre and LBE venues. In addition, the shutdown reduced other ancillary revenues generated from theatres, such as
venue rentals. This decrease was partially offset by higher sales from Cineplex Store during the year resulting from
the widespread closures and lockdowns across all businesses and the strength of PVOD titles including Wonder
Woman 1984.
CINEPLEX INC. 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION & ANALYSIS
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MANAGEMENT'S DISCUSSION AND ANALYSIS
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Management's Discussion and Analysis
Management’s Discussion and Analysis
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Film cost
The following table highlights the movement in film cost and the film cost percentage for the quarter and the full
year (in thousands of dollars, except film cost percentage):
Film cost
Film cost
Film cost percentage (i)
(i) See Section 18, Non-GAAP measures.
Fourth Quarter and Full Year
Fourth Quarter
Full Year
2020
2019
Change
2020
2019
Change
$
3,151
$ 93,925
-96.6 % $ 66,922
$ 369,386
43.4 %
51.7 %
-8.3 %
50.4 %
52.4 %
-81.9 %
-2.0 %
Film cost varies primarily with box office revenues, and can vary from quarter to quarter usually based on the
relative strength of the titles exhibited during the period, impacted by film cost terms varying by title and distributor.
Film costs decreased during the fourth quarter and annual period due to limited releases of first run product and
lower settlement rates on older and classic film products. Due to the ongoing pandemic, major distributors have
continued to delay films which were initially scheduled to release in 2020 further into 2021 and beyond or have
released via other platforms.
Cost of food service
The following table highlights the movement in cost of food service and food service cost as a percentage of food
service revenues (“concession cost percentage”) for both theatres and LBE for the quarter and the full year (in
thousands of dollars, except percentages and margins per patron):
Cost of food service
Cost of food service - theatre
Cost of food service - LBE
Total cost of food service
Fourth Quarter
Full Year
2020
2019
Change
2020
2019
Change
$
3,704
$ 25,223
-85.3 % $ 27,845
$ 97,306
285
2,478
-88.5 %
2,822
9,517
$
3,989
$ 27,701
-85.6 % $ 30,667
$ 106,823
Theatre concession cost percentage (i)
LBE food cost percentage (i)
37.9 %
37.4 %
Theatre concession margin per patron (i)
$
5.63
$
22.0 %
23.6 %
5.31
15.9 %
13.8 %
28.0 %
31.1 %
6.0 % $
5.04
$
21.8 %
25.9 %
5.26
(i) See Section 18, Non-GAAP measures.
Fourth Quarter and Full Year
-71.4 %
-70.3 %
-71.3 %
6.2 %
5.2 %
-4.2 %
Cost of food service at the theatres varies primarily with theatre attendance as well as the quantity and mix of
offerings sold. Cost of food service at LBE venues varies primarily with the volume of guests who visit the locations
as well as the quantity and mix between food and beverage items sold. The increase in theatre and LBE food cost
percentages as compared to the prior period is primarily due to increases in prepackaged products associated with
food delivery services, and a decrease in groups and events bookings which have historically reduced the average
cost of food purchases and increased reserves taken for perishable concession items as a result of year end closures.
Decreases in cost of food service for both segments are primarily attributable to the temporary capacity restrictions
and mandated closures at Cineplex’s theatres and LBE locations. Cineplex opened a limited number of theatres and
LBE locations, which were then subsequently closed as several provinces across Canada experienced a surge in
COVID-19 cases during the fourth quarter, further limiting the reopening phase of theatre circuits. Increases in
theatre and LBE food cost percentages were primarily due to lower volumes of foods sales, and increased reserves
taken on perishable concession items as a result of year end closures after limited openings during the summer and
fall periods.
CINEPLEX INC. 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION & ANALYSIS
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MANAGEMENT'S DISCUSSION AND ANALYSIS
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Management's Discussion and Analysis
Management’s Discussion and Analysis
—————————————————————————————————————————————
Depreciation and amortization
The following table highlights the movement in depreciation and amortization expenses during the quarter and the
full year (in thousands of dollars):
Depreciation and amortization expenses
Fourth Quarter
Full Year
2020
2019
Change
2020
2019
Change
Depreciation of property, equipment and leaseholds
$
27,043 $
29,967
-9.8 % $ 113,346 $ 116,911
Amortization of intangible assets and other
1,707
3,168
-46.1 %
11,500
11,972
Sub-total - depreciation and amortization - other assets
$
28,750 $
33,135
-13.2 % $ 124,846 $ 128,883
-3.0 %
-3.9 %
-3.1 %
Depreciation - right-of-use assets
28,136
36,471
-22.9 %
128,393
145,946
-12.0 %
Total depreciation and amortization from continuing
operations
Depreciation and amortization from discontinued
operations
$
56,886 $
69,606
-18.3 % $ 253,239 $ 274,829
-7.9 %
—
—
NM
—
3,623
-100.0 %
Total depreciation and amortization
$
56,886 $
69,606
-18.3 % $ 253,239 $ 278,452
-9.1 %
Fourth Quarter and Full Year
Depreciation of property, equipment and leaseholds from continuing operations decreased by $2.9 million, or 9.8%
during the quarter compared to the prior year period, and by $3.6 million or 3.0% for the year compared to the prior
year period. The decrease was due to the impact of the impairment recorded in the first quarter of 2020 on the
carrying amount of long-lived assets.
The quarterly and annual amortization of intangible assets and other from continuing operations decreased as
compared to the prior year periods as a result of fully depreciated intangible assets.
The quarterly and annual decrease in depreciation of right-of-use assets from continuing operations was due to
reduced carrying values resulting from the impairment recorded in the first quarter of 2020 in addition to
modifications to lease agreements related to COVID-19 that reduced the carrying value of these assets.
Impairment of long-lived assets, goodwill and investments
The following table highlights the movement in impairment of long-lived assets, goodwill and investments during
the quarter and the full year (in thousands of dollars):
Impairment of long-lived assets, goodwill and
investments
Fourth Quarter
Full Year
2020
2019
Change
2020
2019
Change
Impairment of property, equipment and leaseholds
$
(5,243) $
Impairment of right-of-use assets
Impairment of goodwill
Impairment of investments
(21,236)
(26,906)
(2,790)
Impairment of long-lived assets, goodwill and investments
$
(56,175) $
—
—
—
—
—
NM $
(39,192) $
NM
(71,846)
NM
(181,035)
NM
(2,790)
NM $ (294,863) $
—
—
—
—
—
NM
NM
NM
NM
NM
Fourth Quarter and Full Year
With the closure of its operations on March 16, 2020 as a result of the declaration of a global pandemic, and the
ensuing negative impact on Cineplex’s businesses throughout the remainder of the year, triggering events for
purposes of testing long-lived assets and goodwill for impairment occurred at each quarter end.
At each of March 31st and September 30th carrying values of assets were tested for recoverability measured as the
fair value based on internal budgets which reflected the negative impact of the COVID-19 pandemic on Cineplex’s
current and future results. Where the carrying value of assets were assessed as exceeding the recoverable value of
those assets at those points in time, impairments were recognized. As at June 30th, management determined that
there were no material changes in key judgements or assumptions from those determined as at March 31st and
therefore concluded that there was no impairment as at June 30th.
CINEPLEX INC. 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION & ANALYSIS
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MANAGEMENT'S DISCUSSION AND ANALYSIS
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Management's Discussion and Analysis
Management’s Discussion and Analysis
—————————————————————————————————————————————
In addition to its required annual testing for impairment of goodwill and indefinite-lived intangible assets in the
fourth quarter, the closure of most theatre and location-based entertainment operations resulted in further decreases
in revenues, results of operations and cash flows which represented an indicator to trigger impairment testing for
both long-lived assets and goodwill at December 31, 2020. Based on the results of the impairment tests, Cineplex
recognized non-cash impairment charges of $53.4 million ($26.9 million to goodwill and $26.5 million to tangible
and right-of-use assets) for the three months ended December 31, 2020 and $292.1 million ($181.0 million to
goodwill and $111.1 million to tangible and right-of-use assets) for the full year.
Where an impairment has been recorded with respect to a long-lived asset, it will be reversed when and if the
recoverable value of the related asset increases. Management will monitor and re-assess the recoverable value of the
impaired assets, reversing the impairments where it increases. Impairments recorded with respect to goodwill cannot
be reversed.
If the return to business continues to be delayed as a result of actions outside of the control of management,
including but not limited to additional changes to the film slate release schedule, ongoing government restrictions
impacting the re-opening of entertainment venues and delays in the vaccine roll out, management's estimates of
operating results and further cash flows for the forecasted period may be negatively impacted. As a result, they may
be insufficient to support the recoverability of goodwill and long lived assets in certain CGUs, thus requiring further
impairment charges. Cineplex will continue to evaluate the recoverability of goodwill at the cash generating unit
level on an annual basis during its fourth quarter and whenever events or changes in circumstances indicate there
may be a potential impairment.
During the quarter, Cineplex assessed the recoverability of its investment in VR Studios Inc. and recognized
impairment of $2.8 million, reducing the carrying value of its investment to $nil.
Impairment of intangible assets - discontinued operations
The following table highlights the movement in impairment of intangible assets - discontinued operations during the
quarter and the full year (in thousands of dollars):
Impairment of intangible assets - discontinued
operations
Fourth Quarter
Full Year
2020
2019
Change
2020
2019
Change
Impairment of intangible assets - discontinued operations
$
— $
—
NM $
5,156 $
—
NM
Intangible assets included in assets held for sale were written down prior to disposition to reflect their expected net
realizable value.
(Gain) loss on disposal of assets
The following table shows the movement in the loss on disposal of assets during the quarter and the full year (in
thousands of dollars):
(Gain) loss on disposal of assets
Fourth Quarter
Full Year
2020
2019
Change
2020
2019
Change
(Gain) loss on disposal from continuing operations
Loss on disposal from discontinued operations
(Gain) loss on disposal of assets
$
$
(283) $
—
(283) $
868
—
868
NM $
(13,101) $
1,764
NM
129
—
NM $
(12,972) $
1,764
NM
NM
NM
The quarterly and annual movements in (gain) loss on disposal of assets from continuing operations as compared to
the prior year periods were due mainly to the negotiated sale of certain restrictive lease rights completed during the
third quarter.
Other costs
Other costs include three main sub-categories of expenses; theatre occupancy expenses, which capture the rent and
associated occupancy costs for Cineplex’s theatre operations; other operating expenses, which include the costs
CINEPLEX INC. 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION & ANALYSIS
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MANAGEMENT'S DISCUSSION AND ANALYSIS
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Management's Discussion and Analysis
Management’s Discussion and Analysis
—————————————————————————————————————————————
related to running Cineplex’s film entertainment and content, media, as well as amusement and leisure; and general
and administrative expenses, which include costs related to managing Cineplex’s operations, including head office
expenses. Please see the discussions below for more details on these categories. The following table highlights the
movement in other costs for the quarter and the full year (in thousands of dollars):
Other costs
Fourth Quarter
Full Year
2020
2019
Change
2020
2019
Change
Theatre occupancy expenses
Other operating expenses
General and administrative expenses
$
9,891 $
18,493
-46.5 % $
60,514 $
71,867
55,567
11,755
167,416
29,014
-66.8 %
276,092
629,849
-59.5 %
39,084
80,977
Total other costs from continuing operations
$
77,213 $ 214,923
-64.1 % $ 375,690 $ 782,693
Other costs from discontinued operations
—
1,471
NM
2,212
7,001
Total other costs
$
77,213 $ 216,394
-64.3 % $ 377,902 $ 789,694
-15.8 %
-56.2 %
-51.7 %
-52.0 %
-68.4 %
-52.1 %
Theatre occupancy expenses
The following table highlights the movement in theatre occupancy expenses for the quarter and the full year (in
thousands of dollars):
Theatre occupancy expenses
Fourth Quarter
Full Year
2020
2019
Change
2020
2019
Change
Cash rent paid/payable (i)
Other occupancy
One-time items (ii)
$
23,727 $
39,042
-39.2 % $ 109,161 $ 156,921
12,820
18,545
-30.9 %
65,545
73,736
(169)
(62)
NM
(2,108)
(2,275)
Total theatre occupancy including cash lease payments
$
36,378 $
57,525
-36.8 % $ 172,598 $ 228,382
Cash rent paid/payable related to lease obligations (iii)
(26,487)
(39,032)
-32.1 %
(112,084)
(156,515)
Theatre occupancy as reported
$
9,891 $
18,493
-46.5 % $
60,514 $
71,867
(i) Represents the cash payments for theatre rent paid or payable during the quarter.
(ii) One-time items include amounts related to both theatre rent and other theatre occupancy costs. They are isolated here to illustrate
Cineplex’s theatre rent and other theatre occupancy costs excluding these one-time, non-recurring items.
(iii) Cash rent paid/payable that has been reallocated to offset the lease obligations.
-30.4 %
-11.1 %
-7.3 %
-24.4 %
-28.4 %
-15.8 %
Theatre occupancy continuity
2019 as reported
Impact of new and acquired theatres
Impact of disposed theatres
Same store rent change (i)
One-time items
Other
Impact of IFRS 16 adoption:
Cash rent related to lease obligations
2020 as reported
(i) See Section 18, Non-GAAP measures.
Fourth Quarter
Fourth Quarter
Occupancy
Full Year
Occupancy
$
18,493 $
(20)
(251)
(15,094)
(107)
(5,675)
$
12,545
9,891 $
71,867
580
(1,241)
(44,623)
167
(10,667)
44,431
60,514
Theatre occupancy expenses decreased $8.6 million during the fourth quarter of 2020 compared to the prior year
period. This decrease was primarily due to the rent relief measures Cineplex has undertaken with landlord partners
resulting in lower theatre rent related expense including common area maintenance and taxes as compared to the
prior year period. In addition, the decrease compared to the prior period can be attributed to rent and realty tax
subsidies totaling $2.8 million and $3.2 million, of which $2.7 million and $2.9 million were offset against theatre
occupancy costs during the period, respectively.
CINEPLEX INC. 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION & ANALYSIS
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MANAGEMENT'S DISCUSSION AND ANALYSIS
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Management's Discussion and Analysis
Management’s Discussion and Analysis
—————————————————————————————————————————————
Full Year
The decrease in theatre occupancy expenses of $11.4 million for the 2020 year compared the prior year was mainly
due to lower theatre rent related expense including common area maintenance and taxes as compared to the prior
year period, net of rent and realty tax subsidies received.
Other operating expenses
The following table highlights the movement in other operating expenses during the quarter and the full year (in
thousands of dollars):
Other operating expenses
Fourth Quarter
Full Year
2020
2019
Change
2020
2019
Change
Theatre payroll
Theatre operating expenses
Media
P1AG
LBE (i)
LBE pre-opening (ii)
SCENE
Marketing
Other (iii)
$
5,157 $
41,925
-87.7 % $
40,689 $ 160,593
12,717
8,513
15,494
5,037
785
4,890
2,136
5,093
32,986
27,762
36,818
14,692
603
2,470
5,128
9,686
-61.4 %
-69.3 %
-57.9 %
-65.7 %
30.3 %
98.0 %
-58.3 %
-47.4
61,359
42,913
71,638
26,731
1,907
13,423
7,223
24,389
121,833
88,621
156,687
53,110
2,447
15,549
16,254
32,879
Other operating expenses including cash lease payments
$
59,822 $ 172,070
-65.2 % $ 290,272 $ 647,973
Cash rent paid/payable related to lease obligations (iv)
(4,255)
(4,654)
-8.6 %
(14,180)
(18,124)
Other operating expenses from continuing operations
$
55,567 $ 167,416
-66.8 % $ 276,092 $ 629,849
Other operating expenses from discontinued operations
—
1,471
NM
2,212
7,001
Total other operating expenses
$
55,567 $ 168,887
-67.1 % $ 278,304 $ 636,850
(i) Includes operating costs of LBE locations. Overhead relating to management of LBE portfolio are included in the ‘Other’ line.
(ii) Includes pre-opening costs of LBE.
(iii) Other category includes overhead costs related to LBE and other Cineplex internal departments.
(iv) Cash rent paid/payable that has been reallocated to offset the lease obligations.
-74.7 %
-49.6 %
-51.6 %
-54.3 %
-49.7 %
-22.1 %
-13.7 %
-55.6 %
-25.8 %
-55.2 %
-21.8 %
-56.2 %
-68.4 %
-56.3 %
Other operating continuity from continuing operations
Fourth Quarter
Other Operating
Full Year
Other Operating
2019 as restated
Impact of new and acquired theatres
Impact of disposed theatres
Same theatre payroll change (i)
Same theatre operating expenses change (i)
Media operating expenses change
P1AG operating expenses change
LBE operating expenses change
LBE pre-opening change
SCENE change
Marketing change
Other
Impact of IFRS 16 adoption:
Cash rent related to lease obligations
2020 as reported
(i) See Section 18, Non-GAAP measures.
$
$
$
167,416 $
(166)
(535)
(36,233)
(20,102)
(19,249)
(21,324)
(9,655)
182
2,420
(2,992)
(4,594)
399 $
55,567 $
629,849
(1,182)
(1,953)
(117,621)
(59,626)
(45,708)
(85,049)
(26,379)
(540)
(2,126)
(9,031)
(8,486)
3,944
276,092
CINEPLEX INC. 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION & ANALYSIS
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MANAGEMENT'S DISCUSSION AND ANALYSIS
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Management's Discussion and Analysis
Management’s Discussion and Analysis
—————————————————————————————————————————————
Fourth Quarter
The overall decrease in other operating expenses was a result of the restricted operations and temporary closures of
theatres, LBE locations and P1AG route locations and the resulting impact on all other parts of the business. In
managing its costs, Cineplex benefited from government subsidy programs in Canada and the United States. During
the fourth quarter, Cineplex recognized $14.3 million in payroll subsidies, with $6.9 million offsetting theatre
payroll and additionally $1.8 million offsetting utilities.
Full Year
The overall decrease in other operating expenses was as a result of the temporary closure of theatres, LBE locations
and P1AG route locations leading to a decrease in business volumes. Rising COVID-19 cases during the fall months
resulted in delayed rollouts of re-openings and limited operating capacity on locations permitted to remain open.
General and administrative expenses
The following table highlights the movement in general and administrative (“G&A”) expenses during the quarter
and the full year, including share-based compensation costs, and G&A net of these costs (in thousands of dollars):
G&A expenses
Fourth Quarter
Full Year
2020
2019
Change
2020
2019
Change
G&A excluding the following items
$
7,261 $
16,403
-55.7 % $
43,717 $
64,108
-31.8 %
Restructuring
Transaction / Litigation costs
LTIP (i)
Option plan
2,396
1,279
248
718
189
NM
11,711
-89.1 %
8,258
4,101
466
407
NM
(15,104)
76.4 %
(1,203)
1,078
11,711
3,076
1,605
NM
-65.0 %
NM
NM
G&A expenses including cash lease payments
$
11,902 $
29,176
-59.2 % $
39,769 $
81,578
-51.3 %
Cash rent paid/payable included as part of lease obligations
(ii)
(147)
(162)
-9.3 %
(685)
(601)
G&A expenses as reported
$
11,755 $
29,014
-59.5 % $
39,084 $
80,977
(i) LTIP includes the expense for RSUs and PSUs, as well as the expense for the executive and Board deferred share unit plans.
14.0 %
-51.7 %
(ii) Cash rent paid/payable that has been reallocated to offset the lease obligations.
Fourth Quarter and Full Year
G&A expenses decreased $17.3 million during the fourth quarter of 2020 compared to the prior year period. This
was primarily due to a $9.1 million decrease in G&A excluding LTIP costs as a result of the $2.3 million received
under the COVID-19 CEWS wage subsidy program, and $10.4 million decrease in Cineworld Transaction related
costs as compared to the prior period. These savings were partially offset by costs of $2.4 million arising from a cost
restructuring program implemented in the third quarter.
G&A expenses for 2020 decreased $41.9 million (51.7%) as compared to the prior year. The decrease is due to a
$26.6 million decrease in Incentive Plan expenses, $8.4 million of which was included in the $11.7 million
Cineworld Transaction costs, a $2.8 million decrease in option plan expense and the $9.4 million received under the
COVID-19 CEWS wage subsidy program that was recorded against payroll costs. Additionally, payroll costs were
reduced mainly due to voluntary salary reductions for full-time employees. With the termination of the Arrangement
Agreement, Share options have been reclassified to being accounted for as equity-settled and equity instruments
issued under the previous Long-Term Incentive Plan have been accounted for over their original vesting periods
(prior to the Arrangement Agreement). These savings were partially offset by an increase in restructuring costs of
$7.2 million compared to the prior period.
Share of loss (income) of joint ventures and associates
Cineplex’s joint ventures and associates include its 78.2% interest in CDCP (2019 - 78.2%), 50% interest in one
IMAX screen in Ontario (2019 - 50%), 50% interest in YoYo’s and 34.7% interest in VRStudios (2019 - 34.7%).
CINEPLEX INC. 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION & ANALYSIS
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MANAGEMENT'S DISCUSSION AND ANALYSIS
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Management's Discussion and Analysis
Management’s Discussion and Analysis
—————————————————————————————————————————————
The following table highlights the components of share of income of joint ventures and associates during the quarter
and the full year (in thousands of dollars):
Share of income of joint ventures and associates
Fourth Quarter
Full Year
2020
2019
Change
2020
2019
Change
Share of loss (income) of CDCP
Share of loss of other joint ventures and associates
Total loss (income) of joint ventures and associates
$
$
2,085 $
(1,803)
NM $
7,279 $
(4,827)
260
206
26.2 %
1,130
658
2,345 $
(1,597)
NM $
8,409 $
(4,169)
NM
71.7 %
NM
CDCP revenues were negatively impacted by the temporary closures of theatres from March with limited reopenings
in the third quarter during the quarter with a slow rollout and a limited number of first-run movies, resulting in a
$3.9 million decrease in share of loss (income) from CDCP for the quarter and $12.6 million decrease for the full
year. In the fourth quarter of 2020, Cineplex assessed the recoverability of its investment in VRStudios Inc. and
recognized an impairment loss of $2,790, reducing the carrying value to nil.
Interest expense
The following table highlights the movement in interest expense during the quarter and full year (in thousands of
dollars):
Interest expense
Long-term debt interest expense
Financing fees
Convertible debenture interest expense
Sub-total - long-term debt interest expense
Lease interest expense (i)
Sub-total - cash interest expense
Deferred financing fee accretion and other non-cash
interest, net
Convertible debenture accretion
Interest rate swap - non-cash
Sub-total - non-cash interest expense
Total interest expense
(i) See Section 13, Accounting policies.
Fourth Quarter
Full Year
2020
2019
Change
2020
2019
Change
$
$
$
$
8,128 $
700
4,584
13,412 $
13,858
27,270 $
368
3,428
2,509
6,305
33,575 $
6,693
—
—
6,693
11,497
18,190
408
—
11,891
12,299
30,489
21.4 % $
NM
NM
NM $
20.5 %
49.9 % $
30,026 $
1,500
8,459
39,985 $
47,794
87,779 $
-9.8 %
NM
-78.9 %
-48.7 %
10.1 % $ 110,568 $
1,396
7,471
13,922
22,789
25,487
—
—
25,487
47,018
72,505
1,745
—
10,472
12,217
84,722
17.8 %
NM
NM
56.9 %
1.7 %
21.1 %
-20.0 %
NM
32.9 %
86.5 %
30.5 %
Interest expense increased $3.1 million for the quarter and increased $25.8 million during for the full year as
compared to the prior year periods. The increase in the fourth quarter compared to the prior period is due to the
increases in cash interest of $9.1 million, and non-cash interest of $3.4 million relating to the issuance of the
Debentures, partially offset by a $9.4 million decrease in non-cash interest relating to the interest rate swap. The
increase in interest expense for the annual period as compared to the prior year period is due to a $15.3 million
increase in cash interest and a $10.6 million increase in non-cash interest which is primarily as a result of the
issuance of the Debentures. For both the fourth quarter and annual period, the increase in cash interest was primarily
due to increased borrowing on Cineplex’s revolving credit facility (see Section 7.4, Credit Facilities), in addition to
interest incurred as a result of the issuance of the Debentures on July 15, 2020 (see Section 9.1, Convertible
debentures).
Non-cash interest decreased in the quarter which was mainly due to the decrease in non-cash interest relating to the
interest rate swaps which are being accounted for without hedge accounting. The increase in non-cash interest for
the full year is mainly due to accretion expense arising on the issuance of the Debentures. The change in fair value
of the interest rate swaps has been recorded in the statement of operations as of December 31, 2019 as a result of
terms of the Arrangement Agreement. The termination of the Arrangement Agreement does not change accounting
treatment as the swaps require re-designation on a prospective basis to qualify for hedge accounting.
CINEPLEX INC. 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION & ANALYSIS
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MANAGEMENT'S DISCUSSION AND ANALYSIS
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Interest income
Interest income during the fourth quarter and the full year was as follows (in thousands of dollars):
Interest income
Interest income
Foreign exchange
Fourth Quarter
Full Year
2020
2019
Change
2020
2019
Change
$
33 $
44
-25.0 % $
182 $
252
-27.8 %
The following table highlights the movement in foreign exchange during the quarter and the full year (in thousands
of dollars):
Foreign exchange
Fourth Quarter
2020
2019
Change
2020
Full Year
2019
Foreign exchange loss (gain) from continuing operations
Foreign exchange loss (gain) from discontinued operations
Total foreign exchange loss (gain)
$
$
759 $
—
759 $
496
82
578
53.0 % $
NM
31.3 % $
57 $
(117)
(60) $
1,065
268
1,333
Change
-94.6
NM
NM
The movement in the quarterly and full year foreign exchange was due to the change in the CAD/USD foreign
exchange month end rate from 1.3339 at September 30, 2020 and 1.2988 at December 31, 2019 to 1.2732 at
December 31, 2020.
Income taxes
The following table highlights the movement in current and deferred income tax expense during the quarter and the
full year (in thousands of dollars):
Income taxes
Fourth Quarter
Full Year
2020
2019
Change
2020
2019
Change
Current income tax expense (recovery)
Deferred income tax expense (recovery)
Provision for income taxes from continuing operations
Provision for income taxes from discontinued operations
Provision for income taxes
$
$
$
(65,776) $
114,854
49,078 $
—
49,078 $
5,414
(3,228)
2,186
(109)
2,077
NM $
NM
NM $
NM
NM $
(73,495) $
(11,373)
(84,868) $
(1,627)
(86,495) $
21,759
(9,990)
11,769
(2,176)
9,593
NM
NM
NM
-25.2 %
NM
The increase in the fourth quarter provision for income taxes was primarily due to the derecognition of deferred
income tax assets as a consequence of material uncertainties resulting from COVID-19 business impacts, risks and
going concern (see Section 1.1, Response to COVID-19 and going concern). The remaining change was related to
the expected recovery of income taxes paid in prior periods which have been recognized as income taxes receivable.
The decrease in the annual provision for income taxes was primarily due to the derecognition of deferred income tax
assets as a consequence of material uncertainties resulting from COVID-19 business impacts, risks and going
concern (see Section 1.1, Response to COVID-19 and going concern). The remaining change was related to the
expected recovery of income taxes paid in prior periods which have been recognized as income taxes receivable.
The use of $26.6 million of losses by Cineplex to offset taxable income generated in 2014 remains under objection
with the Canada Revenue Agency (“CRA”). Cineplex believes that it should prevail in defending its original filing
position although no assurance can be given in this regard.
Cineplex’s combined statutory income tax rate at December 31, 2020 was 26.8% (2019 - 26.8%).
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MANAGEMENT’S DISCUSSION & ANALYSIS
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Net (loss) income
Net income during the fourth quarter of 2020 and the year ended December 31, 2020 was as follows (in thousands of
dollars):
Net income
Fourth Quarter
Full Year
2020
2019
Change
2020
2019
Change
Net (loss) income from continued operations
$ (230,403) $
4,668
NM $ (624,001) $
36,516
NM
Net loss from discontinued operations
—
(1,196)
NM
(4,952)
(7,625)
-35.1 %
Net (loss) income
$ (230,403) $
3,472
NM $ (628,953) $
28,891
NM
5.3 EARNINGS BEFORE INTEREST, INCOME TAXES, DEPRECIATION AND AMORTIZATION
(“EBITDA”) (see Section 18, Non-GAAP measures)
The following table presents EBITDA, adjusted EBITDA and adjusted EBITDAaL for the three months and year
ended December 31, 2020 as compared to the prior year periods (expressed in thousands of dollars, except adjusted
EBITDAaL margin):
EBITDA
EBITDA
Adjusted EBITDA
Adjusted EBITDAaL
Adjusted EBITDAaL margin
Fourth Quarter
Full Year
2020
2019
Change
2020
2019
Change
$ (90,897)
$ 106,905
NM $ (345,244)
$ 407,584
$ (32,097)
$ 106,529
NM $ (55,866)
$ 405,786
$ (65,948)
$ 62,327
NM $ (182,815)
$ 230,546
NM
NM
NM
(125.7) %
14.1 %
-139.8 %
(43.7) %
13.8 %
-57.5 %
Adjusted EBITDAaL for the fourth quarter of 2020 decreased $128.3 million, as compared to the prior year period.
For the year ended December 31, 2020, adjusted EBITDAaL decreased $413.4 million, as compared to the prior
year period. The quarterly and annual decreases were primarily due to the impact of the COVID-19 government
imposed restrictions and resulting closure of substantially all of Cineplex businesses since March 2020. In
computing adjusted EBITDAaL, cash rents paid or payable have been partially offset by the quantified lease-related
savings negotiated with landlords as a result of the COVID-19 closures. This includes agreements with landlords
that are evidenced by way of written confirmation of the terms agreed upon up to the date of this MD&A, and are in
the process of being formally documented. Adjusted EBITDAaL margin is calculated as adjusted EBITDAaL
divided by total revenues.
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Management’s Discussion and Analysis
—————————————————————————————————————————————
6. BALANCE SHEETS
The following sets out significant changes to Cineplex’s consolidated balance sheets during the year ended
December 31, 2020 as compared to December 31, 2019 (in thousands of dollars):
December 31, 2020
December 31, 2019
Change ($)
Change (%)
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Income taxes receivable
Inventories
Prepaid expenses and other current assets
Fair value of interest rate swap agreements
Assets held for sale
Non-current assets
Property, equipment and leaseholds
Right-of-use assets
Deferred income taxes
Fair value of interest rate swap agreements
Interests in joint ventures
Intangible assets
Goodwill
Liabilities
Current liabilities
Accounts payable and accrued expenses
Share-based compensation
Dividends payable
Income taxes payable
Deferred revenue
Lease obligations
Fair value of interest rate swap agreements
Liabilities related to assets held for sale
Non-current liabilities
Share-based compensation
Long-term debt
Fair value of interest rate swap agreements
Lease obligations
Post-employment benefit obligations
Other liabilities
Deferred income taxes
Convertible debentures
Equity
Equity attributable to owners of Cineplex
Non-controlling interests
Total Equity
$
16,254 $
51,834
66,551
21,712
11,613
—
—
167,964
555,340
881,418
—
—
8,644
84,922
635,582
26,080 $
168,065
(9,826)
(116,231)
9,757
30,995
14,226
1,022
6,573
256,718
662,798
1,232,849
14,197
472
28,221
88,367
816,790
56,794
(9,283)
(2,613)
(1,022)
(6,573)
(88,754)
(107,458)
(351,431)
(14,197)
(472)
(19,577)
(3,445)
(181,208)
(766,542)
$
$
$
2,333,870 $
3,100,412 $
82,992 $
220,188 $
(137,196)
482
—
802
219,983
97,259
7,202
—
408,720
2,670
506,000
19,157
1,073,666
11,503
68,649
—
219,271
2,309,636
25,681
9,500
1,183
222,998
106,352
1,874
2,808
(25,199)
(9,500)
(381)
(3,015)
(9,093)
5,328
(2,808)
590,584
(181,864)
—
625,000
10,837
1,261,243
10,678
9,813
1,263
—
2,509,418
2,670
(119,000)
8,320
(187,577)
825
58,836
(1,263)
219,271
(199,782)
24,234
—
24,234
2,333,870 $
591,103
(566,869)
(109)
590,994
3,100,412 $
109
(566,760)
(766,542)
-37.7 %
-69.2 %
582.1 %
-29.9 %
-18.4 %
-100.0 %
-100.0 %
-34.6 %
-16.2 %
-28.5 %
-100.0 %
-100.0 %
-69.4 %
-3.9 %
-22.2 %
-24.7 %
-62.3 %
-98.1 %
-100.0 %
-32.2 %
-1.4 %
-8.5 %
284.3 %
-100.0 %
-30.8 %
NM
-19.0 %
76.8 %
-14.9 %
7.7 %
599.6 %
-100.0 %
NM
-8.0 %
-95.9 %
-100.0 %
-95.9 %
-24.7 %
Cash and cash equivalents. The decrease in cash and cash equivalents is due to the minimal use of cash at theatres
and LBE venues resulting in a reduction of manager’s funds held at locations in addition to lower cash in transit.
Trade and other receivables. The decrease in trade and other receivables is primarily due to the low business
CINEPLEX INC. 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION & ANALYSIS
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—————————————————————————————————————————————
volumes in 2020 including the reduced sale of gift cards and vouchers as a result of the impact of COVID-19.
Income taxes receivable. The increase in income taxes receivable is primarily the result of tax refunds of $66.2
million expected from loss carrybacks realized in 2020 to offset taxable income in prior years.
Inventories. The decrease in inventories is primarily due to lower theatre and location-based entertainment
inventories as a result of the lower business volumes due to continued government restrictions and business closures.
Prepaid expenses and other current assets. The decrease in prepaid expenses and other current assets is due to the
deferral of some real estate tax payments due to the impact of COVID-19 on the businesses.
Fair value of interest rate swap agreements. The interest rate swaps provide for fixed interest rates on $450
million of debt. The increase in the net liability for swap agreements is due to the expectation of future interest rate
decreases (see discussion in Section 7.4, Credit Facilities).
Assets held for sale. The decrease in assets held for sale is due to the sale of discontinued operations during the
second quarter of 2020.
Property, equipment and leaseholds. The decrease in property, equipment and leaseholds is due to amortization
expenses ($113.3 million), asset dispositions ($3.7 million), foreign exchange impact ($0.2 million), and an
impairment charge ($39.2 million) recorded during the year. This was offset by new build and other capital
expenditures ($42.9 million), maintenance capital expenditures ($5.4 million) and a reclassification from assets held
for sale to continuing operations ($0.7 million).
Right-of-use assets. The decrease in right-of-use assets is due to amortization expense ($128.4 million) and lease
modifications ($144.1 million) resulting from renegotiated lease terms due to the impact of COVID-19 on the
business, and an impairment charge ($71.8 million) recorded during the year. In addition, during the third quarter of
2020, Cineplex sold certain protective rights on leased properties which resulted in a derecognition of right-of use
assets ($7.2 million).
Deferred income tax assets. The decrease is due to the derecognition of the net deferred income tax asset as a
consequence of material uncertainties resulting from COVID-19 business impacts, risks and going concern (see
Section 1.1, Response to COVID-19 and going concern).
Interests in joint ventures. The decrease in interest in joint ventures is primarily due to the equity loss realized by
CDCP which has been negatively impacted by the theatre closures, in addition to an impairment of the investment in
VR studios Inc. ($2.8 million) during the fourth quarter of 2020.
Intangible assets. The decrease in intangible assets is due to the amortization expense ($11.5 million), partially
offset by the capitalization of software development costs ($8.1 million).
Goodwill. The decrease in goodwill is due to an impairment charges recorded ($181.0 million) during the year,
offset by the impact of foreign exchange ($0.2 million).
Accounts payable and accrued expenses. The decrease in accounts payable and accrued liabilities relates to lower
business volume in 2020 as a result of the impact of COVID-19.
Share-based compensation. The decrease in share-based compensation is due to the decrease in Share price, which
fell to $9.27 per Share at December 31, 2020 from $34.00 per Share as contemplated by the Arrangement
Agreement at December 31, 2019, decreasing the fair value of the compensation liability, as well as the
reclassification of the liability with respect to options to equity on the termination the Cineworld Transaction (see
Section 9, Share Activity). Current grants under the Incentive Plan are accounted for as equity settled and included
in equity.
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MANAGEMENT’S DISCUSSION & ANALYSIS
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MANAGEMENT'S DISCUSSION AND ANALYSIS
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Management’s Discussion and Analysis
—————————————————————————————————————————————
Dividends Payable. The decrease in dividends payable is due to the suspension of dividends as required by the
Arrangement Agreement with Cineworld in the first quarter of 2020 and the continued suspension as required by the
terms of the First and Second Credit Agreement Amendments entered into during 2020.
Income taxes payable. The decrease in income taxes payable represents amounts paid by several taxable entities in
Cineplex’s consolidated group during 2020 for taxes due based on its 2019 results. The remaining balance includes
minimum tax payable by certain entities as a result of losses used to offset taxable income in 2020.
Deferred revenue. The deferred revenue decrease is primarily due to the significant decrease in gift cards and
vouchers sales during the 2020 holiday season as a result of the impact of COVID-19.
Long-term debt. The decrease in long-term debt is primarily due to the repayment of long-term debt with the
proceeds from the issuance of the Debenture (see Section 9.1, Convertible Debentures) and payment received with
respect to the reorganization of SCENE.
Lease obligations. The decrease in lease obligations is primarily due to lease modifications recognized from
renegotiated leases due to the impact of COVID-19 on the business and settlement of lease obligation.
Other liabilities. The increase in other liabilities is due to the deferral of $60.0 million proceeds received for the
reorganization of SCENE. Cineplex continues to have joint control of the joint operation and is entitled to and
responsible for 50% of the economic benefits and obligations until specific non-financial milestones are met,
resulting in the deferral of recognition of the proceeds in other liabilities.
Convertible debentures. The increase in convertible debentures is due to the issuance of the Debentures completed
during the third quarter and the accretion of the Debentures (see Section 9, Share Activity).
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MANAGEMENT’S DISCUSSION & ANALYSIS
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MANAGEMENT'S DISCUSSION AND ANALYSIS
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Management’s Discussion and Analysis
—————————————————————————————————————————————
7. LIQUIDITY AND CAPITAL RESOURCES
7.1 OPERATING ACTIVITIES
Cash flow is generated primarily from film entertainment (the sale of admission tickets and food service sales),
media sales and services, amusement and leisure (amusement and food service sales) and other revenues. Generally,
this provides Cineplex with positive working capital, since certain cash revenues are normally collected in advance
of the payment of certain expenses. Box office revenues are directly related to the success and appeal of the film
product produced and distributed by the studios. The following table highlights the movements in cash from
operating activities for the three months and year ended December 31, 2020 and 2019 (in thousands of dollars):
Cash flows provided by operating activities
Fourth Quarter
Full Year
2020
2019
Change
2020
2019
Change
Net (loss) income from continuing operations
$ (230,403) $
4,668 $ (235,071) $ (624,001) $
36,516 $ (660,517)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of other assets (i)
Depreciation of right-of-use assets
Unrealized foreign exchange
Interest rate swap agreements - non-cash interest
Accretion of convertible debentures
Other non-cash interest (ii)
(Gain) loss on disposal of assets
Deferred income taxes (recovery)
Non-cash Share-based compensation
Impairment of ling-lived assets and goodwill
Net change in interests in joint ventures and associates
Changes in operating assets and liabilities
28,750
28,136
787
2,509
3,428
368
(283)
114,854
(3,149)
56,175
5,044
(67,257)
33,135
36,471
309
(4,385)
124,846
(8,335)
128,393
478
342
128,883
145,946
698
11,891
(9,382)
13,922
10,472
—
408
868
(3,228)
407
—
(1,466)
40,670
3,428
(40)
(1,151)
118,082
(3,556)
56,175
6,510
(107,927)
7,471
1,396
(13,101)
(11,373)
1,228
294,863
12,878
(43,178)
—
1,745
1,764
(9,990)
1,608
—
(4,704)
8,727
(4,037)
(17,553)
(356)
3,450
7,471
(349)
(14,865)
(1,383)
(380)
294,863
17,582
(51,905)
Net cash (used in) provided by operating activities
$
(61,041) $ 124,133 $ (185,174) $ (106,314) $ 321,665 $ (427,979)
(i) Includes depreciation of property, equipment and leaseholds and amortization of intangible assets.
(ii) Includes accretion of asset retirement obligations and non-cash interest costs on lease obligations.
Fourth Quarter and Full Year
Cash used in operating activities was $61.0 million in the fourth quarter and $106.3 million for the year ended
December 31, 2020, as compared to cash provided by operating activities of $124.1 million and $321.7 million in
the prior year comparative periods. The movements were primarily due to the negative impact of COVID-19 on
businesses, coupled with the timing of settlement of accounts payables and recognition of income taxes receivable
during the quarter. Tax returns with respect to these receivables were promptly filed subsequent to year end.
7.2 INVESTING ACTIVITIES
The following table highlights the movements in cash used in investing activities for the three months and year
ended December 31, 2020 and 2019 (in thousands of dollars):
Cash flows provided by (used in) investing activities
Fourth Quarter
Full Year
2020
2019
Change
2020
2019
Change
Proceeds from disposal of assets, including sale of
discontinued operations
Purchases of property, equipment and leaseholds
Intangible assets additions
Tenant inducements
Net cash received from joint ventures and associates
$
59,870 $
(9,969)
(2,106)
2,697
—
— $
(51,448)
(2,709)
4,832
2,882
59,870 $
41,479
603
(2,135)
(2,882)
80,920 $
(73,411)
(9,005)
24,296
3,910
— $
(146,367)
(7,865)
13,985
15,394
80,920
72,956
(1,140)
10,311
(11,484)
Net cash provided by (used in) investing activities
$
50,492 $
(46,443) $
96,935 $
26,710 $ (124,853) $ 151,563
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Fourth Quarter
Cash provided by investing activities during the fourth quarter of 2020 was $50.5 million, as compared to cash used
in investing activities of $46.4 million in the prior year period. The movement was primarily due to the reduction of
capital expenditures during the period as a result of COVID-19, and cash proceeds of $60.0 million that were
received as a result of Cineplex’s reorganization of its joint operation with SCENE. The negative capital
expenditures resulted from accruals movement during the quarter.
Full Year
For the full year, cash provided by investing activities was $26.7 million, as compared to cash used in investing
activities of $124.9 million in the prior year. The movement was primarily due to cash proceeds received from the
sale of certain protective rights on leased properties in the third quarter of 2020, $60.0 million proceeds from
Cineplex’s reorganization of its joint operation with SCENE, and reduced capital expenditures as a result of the
significant reduction of all capital assets acquisitions and contractual projects during the period due to COVID-19.
Components of capital expenditures include (in thousands of dollars):
Capital expenditures
Gross capital expenditures
Less: tenant inducements
Net capital expenditures
Net capital expenditures consists of:
Growth and acquisition capital expenditures (i)
Tenant inducements
Media growth capital expenditures
Premium formats (ii)
Amusement and leisure growth capital expenditures
(excluding LBE build expenditures)
Maintenance capital expenditures
Other (iii)
Fourth Quarter
Full Year
2020
2019
Change
2020
2019
Change
9,969 $
(2,697)
7,272 $
51,448 $
(4,832)
46,616 $
(41,479) $
2,135
(39,344) $
73,411 $ 146,367 $
(13,985)
(24,296)
49,115 $ 132,382 $
(72,956)
(10,311)
(83,267)
8,823 $
(2,697)
—
541
32,962 $
(4,832)
26
13,951
(24,139) $
2,135
(26)
(13,410)
37,104 $ 102,220 $
(13,985)
(24,296)
402
198
21,662
2,884
(65,116)
(10,311)
(204)
(18,778)
372
1,171
(938)
7,272 $
4,561
14,246
(14,298)
46,616 $
(4,189)
(13,075)
13,360
(39,344) $
877
5,379
26,969
49,115 $ 132,382 $
5,748
31,702
(15,367)
(4,871)
(26,323)
42,336
(83,267)
$
$
$
$
(i) Growth and acquisition capital expenditures include expenditures on the construction of new locations (including VIP cinemas) and other
Board approved growth projects with the exception of premium formats, media growth, and amusement gaming and leisure growth capital
expenditures.
(ii) Premium formats include capital expenditures for recliner seating, IMAX, UltraAVX, 3D, 4DX and ScreenX.
(iii) Primary component of Other is the impact of the timing of cash payments relating to the purchases of property, equipment and leaseholds.
7.3 FINANCING ACTIVITIES
The following table highlights the movements in cash from financing activities for the three months and year ended
December 31, 2020 and 2019 (in thousands of dollars):
Cash flows provided by (used in) financing activities
Fourth Quarter
Full Year
2020
2019
Change
2020
2019
Change
Dividends paid
Borrowings (repayments) under credit facility, net
Repayments of lease obligations - principal
Issuance of convertible debentures, net
Financing fees
$
— $
46,000
(32,323)
—
(700)
(28,498) $
(24,000)
(32,352)
—
—
28,498 $
70,000
29
—
(700)
(19,000) $ (112,415) $
(119,000)
(91,946)
303,063
45,000
(128,252)
—
(243)
(1,500)
93,415
(164,000)
36,306
303,063
(1,257)
Net cash provided by (used in) financing activities
$
12,977 $
(84,850) $
97,827 $
71,617 $ (195,910) $ 267,527
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MANAGEMENT’S DISCUSSION & ANALYSIS
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Management’s Discussion and Analysis
—————————————————————————————————————————————
Fourth Quarter
Cash flows provided by financing activities were $13.0 million in the fourth quarter of 2020, as compared to cash
used in financing activities in the prior year comparative periods in the amount of $84.9 million. The movement was
mainly due to borrowings under the Credit Facilities to fund operations during the COVID-19 driven closures.
Dividends were suspended under the terms of the Arrangement Agreement subsequent to the dividend paid on
February 28, 2020 and remained suspended after the termination of the Arrangement Agreement as a result of the
terms of the Credit Agreement Amendments.
Full Year
Cash flows provided by financing activities were $71.6 million for the year ended December 31, 2020, as compared
to cash used in financing activities in the prior year period in the amount of $196.0 million. The movement was
mainly due to the net proceeds arising from the issuance of the Debentures of $303.1 million net of repayment of
amounts borrowed under the Credit Facilities. In addition, cash rent paid was reduced as a result of the relief
measures that Cineplex negotiated with landlords in response to COVID-19. Dividends were suspended under the
terms of the Arrangement Agreement subsequent to the dividend paid on February 28, 2020 and remained
suspended after the termination of the Arrangement Agreement as a result of the terms of the Credit Agreement
Amendments.
In response to the impact of the COVID-19 pandemic, Cineplex is closely monitoring its liquidity. Details with
respect to its ongoing measures to maximize liquidity are detailed in Section 1.1 Response to COVID-19.
7.4 CREDIT FACILITIES
Cineplex increased and extended its Credit Facilities effective November 13, 2018. On June 29, 2020, Cineplex and
Cineplex Entertainment Limited Partnership entered into the First Credit Agreement Amendment with The Bank of
Nova Scotia, as administrative agent, and the lenders from time to time named therein, to the seventh amended and
restated credit agreement with a syndicate of lenders. The First Credit Agreement Amendment Agreement (along
with the Second Credit Amendment and Third Credit Agreement Amendment described below) provides Cineplex
with certain financial covenant relief in light of the COVID-19 pandemic and its effects on Cineplex’s businesses.
At December 31, 2020, the Credit Facilities consisted of the following (in millions of dollars), subject to
amendments described below pursuant to the Credit Agreement Amendment:
(i)
(ii)
a five-year senior secured revolving credit facility (“Revolving Facility”)
a five-year senior secured non-revolving term facility (“Term Facility”) (i)
$
$
620.0 $
50.0 $
456.0 $
50.0 $
Available
Drawn
Reserved Remaining
153.8
—
10.2 $
— $
Letters of credit outstanding at December 31, 2020 of $10.2 million are reserved against the Revolving Facility.
(i) Reduced to a five-year senior secured non-revolving term facility with a balance of $50.0 million available and drawn as a result of the
repayment of $100.0 million on the successful completion of the issuance of the Debentures.
The Credit Facilities bear interest at a floating rate based on the Canadian dollar prime rate, U.S. Base Rate, LIBOR
or bankers’ acceptances rates plus, in each case, an applicable margin to those rates. The Revolving Facility matures
in November 2023 and, as a result of the First Credit Agreement Amendment, the Term Facility also matures in
November 2023, payable in full at maturity with no scheduled repayment of principal required prior to maturity.
Cineplex’s Credit Facilities contain restrictive covenants that limit the discretion of Cineplex’s management with
respect to certain business matters. These covenants place limits and restrictions on, among other things, the ability
of Cineplex to create liens or other encumbrances, to pay dividends or make certain other payments, minimum
liquidity covenants, anti-hoarding provisions, investments, loans and guarantees and to sell or otherwise dispose of
assets and merge or consolidate with another entity. The Credit Facilities are secured by all of Cineplex’s assets.
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The following is a summary of the key terms of the First Credit Agreement Amendment (certain of which have been
modified further by the Second Credit Agreement Amendment and Third Credit Agreement Amendment described
below):
•
•
•
•
•
•
•
•
•
•
Financial covenant testing was suspended effective upon execution of the First Credit Agreement
Amendment, and subsequently extended for the second and third quarters of 2020 following a $100.0
million permanent repayment of the Term Facility from the proceeds of the offering of the Debentures (see
Section 8 Share Activity). On the resumption of financial covenant testing at the beginning of the fourth
quarter of 2020, it will be based on an annualized calculation of Adjusted EBITDA for the following four
fiscal quarters;
The leverage ratio of 3.75x will apply when financial covenants are reinstated, and will be reduced over the
course of 2021 each quarter until it is at 3.00x for the fourth fiscal quarter of 2021 until the fourth quarter of
2021 at which point it will reach a level of 3.00x;
The maturity date for the Term Facility was advanced by two years to be coincident with the maturity date
for the Revolving Facility of November 13, 2023;
If Cineplex chooses to undertake any new debt, equity or equity-related issuances or the sale of certain
assets, Cineplex will be required to make certain mandatory permanent repayments of the Credit Facilities
from the proceeds of such issuances or asset sales;
Growth capital expenditures will be limited to certain agreed projects. After December 31, 2020, additional
growth capital expenditures will be permitted subject to a pro forma leverage covenant of 2.75x (both prior
to and immediately after giving effect to any such growth capital expenditure);
Distributions will be limited to free cash flow and only permitted when the leverage ratio is less than 2.75x
(both prior to and immediately after giving effect to any such distribution);
Cineplex will not be permitted to make any acquisitions without consent from at least three of its lenders
holding, in the aggregate, a minimum of 51% of the commitments under its Credit Facilities;
The applicable margins for the interest rates on all borrowings will increase;
Cineplex will no longer be able to request an increase in the total commitments under the Credit Facilities
pursuant to the “accordion” provisions of the Credit Agreement prior to amendment; and
Payments of interest on the Debentures (as defined below) will be permitted so long as no default or event
of default has occurred under the Credit Agreement.
On November 12, 2020, Cineplex and Cineplex Entertainment Limited Partnership entered into the Second Credit
Agreement Amendment. Without the provisions of the Second Credit Agreement Amendment, management’s
internal forecasts indicated a potential breach of the financial covenants as of December 31, 2020.
The following is a summary of the key terms of the Second Credit Agreement Amendment that are updated from the
First Credit Agreement Amendment (certain of which have been modified further by the Third Credit Agreement
Amendment in Section 16 Subsequent Events):
•
•
•
•
•
•
Financial covenant testing will be suspended until the second quarter of 2021. On resumption of financial
covenant testing in the second quarter of 2021, the testing will be based on an annualized calculation of
Adjusted EBITDA for the following four fiscal quarters;
The leverage ratio of 3.75x will apply when financial covenants are reinstated, and will be reduced over the
course of successive four quarters until the first quarter of 2022 at which point it will reach a level of 3.00x;
Effective with the second quarter of 2021, additional growth capital expenditures will be subject to pro-
forma leverage covenant of 2.75x (both prior to and immediately after giving effect to any such growth
capital expenditure) based on actual last twelve month EBITDA;
A liquidity covenant effective at all times through the covenant suspension period beginning in November
2020, through to and including June 2021, requiring available liquidity as defined on a monthly basis;
Distributions continue to be blocked during the extended financial covenant suspension period and only
permitted when the leverage ratio is less than 2.75x (both prior to and immediately after giving effect to any
such distribution); and
An anti-cash hoarding provision has been added limiting the request for advances under the Credit
Facilities to those amounts required to fund costs and expenses reasonably anticipated to be incurred in the
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ordinary course of business. No amounts may be requested if sufficient cash on hand exists to pay such
costs.
Following the First and Second Credit Agreement Amendments, including mandatory repayments, the Credit
Facilities consist of the following:
a) a five-year, $620.0 million senior, secured, Revolving Facility; and
b) a five-year, $50.0 million, senior, secured, Term Facility.
Subsequent to year end, Cineplex completed a sale-leaseback transaction for its head office buildings located at
1303 Yonge Street and 1257 Yonge Street, Toronto, Ontario for gross proceeds of $57.0 million. Fifty percent of the
net proceeds were used to permanently reduce Cineplex’s Revolving Facility to $591.7 million(see Section 16,
Subsequent events).
Subsequent to year end, on February 8, 2021, Cineplex entered into the Third Credit Agreement Amendment, which,
among other things, extended the suspension of financial covenant testing for two additional fiscal quarters and
extended the liquidity covenant requirement until December 2021 (see Section 16, Subsequent events).
The Credit Facilities mature and are payable in full at maturity, with no scheduled repayment of principal required
prior to maturity. The Credit Facilities bear interest at a floating rate, based on the Canadian dollar prime rate, or
bankers’ acceptances rate plus, in each case, an applicable margin to those rates. Borrowings on the Revolving
Facility and the Term Facility can be made in either Canadian or US dollars.
A copy of the Credit Agreement Amendments are available on SEDAR at www.sedar.com.
letters of credit but does not
One of the key financial covenants in the Credit Facilities
is the leverage covenant which will be calculated in
accordance with IFRS in effect at November 13, 2018
which excludes the impact of the adoption of IFRS 16 on
Cineplex’s financial reporting. The definition of debt in
the Credit Facilities includes long-term debt, financing
leases and
include
Debentures, the lease obligations arising on the adoption
of IFRS 16 or a reduction for cash on hand. For the
purposes of the Credit Facilities definition, EBITDA is
adjusted for certain non-cash, non-recurring items and the
annualized
locations or
acquisitions. Under the term of the Second Credit
Agreement Amendment, financial covenant testing has
been suspended until the end of the second quarter of
2021 and further extended to the fourth quarter of 2021
pursuant to the terms of the Third Credit Agreement
Amendment entered into after year end.
impact of new operating
Covenant Leverage
Ratio
1.88
1.31
2.17
2.32
2016
2017
2018
2019
2020
—
Management continues to pursue all viable options to maintain adequate liquidity to fund operations for the
currently anticipated duration of the pandemic. During the fourth quarter, Cineplex entered into an agreement to
enhance and expand the SCENE Scotiabank Loyalty program receiving $60.0 million with respect to the
reorganization. In addition, Cineplex continues to explore other measures to maintain adequate liquidity, including
but is not limited to planned asset sales such as Cineplex’s head office building in Toronto which was completed
subsequent to year end, additional financing sources and amendments to existing credit facilities. All proceeds are
used to repay the Credit Facilities, in part as a permanent reduction.
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As of December 31, 2020, Cineplex was in compliance with all financial covenants under the terms of the Credit
Facilities. However, management’s forecasts indicate a potential breach of its covenants within the next 12 months
as a result of the COVID-19 pandemic. Management’s forecasts may change materially as the impact of COVID-19
on Cineplex’s business is better understood. A violation of its covenants would represent an event of default under
the terms of the Credit Facilities, enabling the lenders to demand immediate repayment of all amounts due.
Interest rate swap agreements. Cineplex entered into interest rate swap agreements where Cineplex agreed to pay
fixed rates per annum, plus an applicable margin and receive a floating rate of interest equal to the three-month
Canadian deposit offering rate set quarterly in advance, with net settlements quarterly.
The following table outlines Cineplex’s current interest rate swap agreements as of December 31, 2020:
Interest rate swap agreements
Swap - 1
Swap - 2
Swap - 3
Swap - 4
Notional amount
$200.0 million
Inception date
April 25, 2016
Effective date
Maturity date
Fixed rate payable
October 24, 2018
April 26, 2021
$200.0 million
November 13, 2018
April 26, 2021
November 14, 2023
$100.0 million
November 13, 2018
November 13, 2018
November 14, 2023
$150.0 million
November 13, 2018
November 13, 2018
November 14, 2025
1.484 %
2.945 %
2.830 %
2.898 %
The purpose of the interest rate swap agreements is to act as a cash flow hedge on the floating interest rate payable
on Cineplex’s first $450.0 million of borrowings. Cineplex ceased the use of hedge accounting for the interest rate
swaps during the fourth quarter of 2019. The interest rate swap will be measured at fair market value at each
reporting period with changes in fair market value recognized in the consolidated statement of operations.
As a result of the terms of the Arrangement Agreement, hedge accounting was determined to no longer to be
appropriate. Despite the termination of the Arrangement Agreement, the swaps can only be re-designated on a
prospective basis for hedge accounting treatment.
Accordingly, losses associated with the interest rate swaps previously recognized in Other Comprehensive Income
(“OCI”) were recognized as interest expense in the fourth quarter of 2019. Changes in the value of these interest rate
swaps are recognized in net income.
Based on the amended credit agreement in effect at December 31, 2020 Cineplex’s effective cost of borrowing on
the $450.0 million hedged borrowings was 5.754% (December 31, 2019 - $450.0 million hedged borrowings -
4.079%).
7.5 FUTURE OBLIGATIONS
At December 31, 2020, Cineplex had the following contractual or other commitments authorized by the Board
(expressed in thousands of dollars):
Contractual obligations
Total Within 1 year
2-3 years
4-5 years
After 5 years
Payments due by period
Long-term debt
Interest rate swap agreements
Capital commitment - exhibition and LBE
Deferred consideration - AMC
Equipment obligations
Convertible debentures
506,000
26,359
82,100
3,134
4,168
316,250
—
7,201
14,470
3,134
1,975
—
506,000
15,449
67,630
—
2,018
—
—
3,709
—
—
150
316,250
Total contractual obligations
$
938,011 $
26,780 $
591,097 $
320,109 $
—
—
—
—
25
—
25
The following table discloses the undiscounted cash flow for lease obligations as of December 31, 2020:
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Less than one year
One to five years
More than five years
Total undiscounted lease obligations
$
$
159,928
635,088
695,714
1,490,730
Cineplex has aggregate gross capital commitments of $82.1 million ($53.9 million net of tenant inducements)
related to the completion of construction of 11 operating locations including both theatres and location-based
entertainment locations, in addition to the ongoing rollout of expanded entertainment offerings at select theatres and
location-based entertainment locations, over the next four years.
As a result of the negative impact of COVID-19 on its business, Cineplex has minimized all capital expenditures by
deferring or canceling project spending during the crisis. With the uncertainty surrounding the timing and impact of
the theatre and LBE venue closures, management will continue to assess its future capital spending taking into
consideration its legal commitments, restrictions imposed by the Credit Facilities (as amended) and requirements of
the business on a short and long-term basis.
Cineplex conducts a significant part of its operations in leased premises. Cineplex’s leases generally provide for
minimum rent and a number of the leases also include percentage rent based primarily upon sales volume.
Cineplex’s leases may also include escalation clauses, guarantees and certain other restrictions, and generally require
it to pay a portion of the real estate taxes and other property operating expenses. Initial lease terms generally range
from 15 to 20 years and contain various renewal options, generally in intervals of five to ten years. In response to the
COVID-19 pandemic and resulting government mandated closures, Cineplex temporarily closed all of its theatres
and LBE locations on March 16, 2020. Government mandates remain in effect in multiple markets which have
resulted in theatre closures and restrictions on the LBE business.
Cineplex is guarantor under the leases for the remainder of the lease terms for certain theatres that it has sold in the
event that the purchaser of the theatres does not fulfill its obligations under the respective lease; ten or fewer of those
theatres are still operated by a third-party lease under which Cineplex arguably could be responsible as a guarantor.
Cineplex has assessed the fair value of the lease guarantees and determined that the fair value of these guarantees at
December 31, 2020 is nominal. As such, no additional amounts have been provided in the consolidated financial
statements for these guarantees. Should the purchasers of the theatres fail to fulfill their lease commitment
obligations, Cineplex could face a substantial financial burden, which could be mitigated by Cineplex operating any
theatres under default.
At December 31, 2020, Cineplex had $316.3 million ($303.1 million net of fees) principal amount of Debentures
outstanding that bear interest at 5.75% and have a maturity date of September 30, 2025. At December 31, 2020, the
Debentures were recorded on Cineplex’s balance sheet at $219.3 million (see Section 9.1, Convertible debentures).
The Debentures are being accreted to their maturity value using the effective interest method as prescribed by IFRS
9, Financial Instruments. The Debentures are not redeemable by Cineplex prior to September 30, 2023. On or after
September 30, 2023 and prior to September 30, 2024, Cineplex may, at its option, redeem the Debentures in whole
or in part from time to time, subject to specific market conditions. On or after September 30, 2024, the Debentures
may be redeemed in whole or in part from time to time at the option of Cineplex at a price equal to their principal
amount plus accrued and unpaid interest. Redemption may be in cash or in the form of Shares, at the option of
Cineplex. See Section 9, Share activity, for more information regarding the Debentures.
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8. ADJUSTED FREE CASH FLOW AND DIVIDENDS (see Section 18, Non-GAAP measures)
Cineplex’s dividend policy is subject to the discretion of the Board and may vary depending on, among other things,
Cineplex’s results of operations, cash requirements, financial condition, contractual restrictions, business
opportunities, provisions of applicable law and other factors that the Board may deem relevant. As a result of the
Arrangement Agreement, Cineplex did not pay any further dividends after the monthly dividend that was paid on
February 28, 2020. Cineplex does not expect to return to paying dividends until the negative impact of the
COVID-19 crisis has been addressed and liquidity improved. The payment of any dividends in the future is also
subject to the terms of the Credit Facilities (as amended). Cineplex hereby currently designates all dividends paid or
deemed to be paid as “eligible dividends” for purposes of subsection 89(14) of the Income Tax Act (Canada), and
similar provincial and territorial legislation, unless indicated otherwise.
8.1 ADJUSTED FREE CASH FLOW
Prior to the monthly dividend that was paid on February 28, 2020, Cineplex distributed cash to its shareholders on a
monthly basis. The following table illustrates adjusted free cash flow per Share, dividends paid per Share, and the
payout ratio of dividends relative to adjusted free cash flow for the three months and year ended December 31, 2020
and 2019:
Adjusted free cash flow
Fourth Quarter
Full Year
2020
2019
Change
2020
2019
Change
Adjusted free cash flow per Share
Dividends declared per Share
Payout ratio - year ended December 31
$
$
(0.482) $
— $
—
0.618
0.450
—
NM $
(2.556)
-100.0 % $
0.150
$
$
2.660
1.780
—
(5.9) %
66.9 %
NM
-91.6 %
-72.8 %
Adjusted free cash flow per Share for the fourth quarter and full year compared to the prior year decreased due to
weaker operating results as a result of the economic effects of COVID-19 and the temporary closure of theatres and
LBE locations and P1AG route locations.
Measures relevant to the discussion of adjusted free cash flow per Share are as follows (expressed in thousands of
dollars except Shares outstanding):
Fourth Quarter
Full Year
2020
2019
Change
2020
2019
Change
Cash flows (used in) provided by continuing
operations
Net (loss) income from continuing operations
Standardized free cash flow
Adjusted free cash flow
Cash dividends declared
$
$
$
$
$
(230,403) $
(92,060) $
(30,530) $
— $
4,668
72,685
39,127
28,499
NM $
(624,001) $
36,516
NM $
(179,725) $
175,298
NM $
(161,870) $
168,455
-100.0 % $
9,500 $
112,731
-91.6 %
NM
NM
NM
NM
(61,041) $
124,133
NM $
(106,314) $
321,665
Average number of Shares outstanding
63,333,238
63,333,238
— % 63,333,238
63,333,238
— %
8.2 DIVIDENDS
Cineplex has not paid any dividends after the monthly dividend that was paid on February 28, 2020 and is restricted
from paying any dividends under the Credit Facilities (as amended).
The following table outlines Cineplex’s distribution and dividend history:
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Distribution and dividend history
Effective Date
January 2004 (i)
May 2007
May 2008
May 2011
May 2012
May 2013
May 2014
May 2015
May 2016
May 2017
May 2018
May 2019 - January 2020
(i) Cineplex Galaxy Income Fund, the predecessor to Cineplex (“The Fund”) declared and paid distributions at a rate of $0.1050 per month
from May 2008 until December 2010. The Fund converted to a corporation on January 1, 2011, at which time distributions ceased and
dividends began at the same rate of $0.1050 per month.
Monthly Distribution/Dividend per Unit/Share
$0.0958
$0.1000
$0.1050
$0.1075
$0.1125
$0.1200
$0.1250
$0.1300
$0.1350
$0.1400
$0.1450
$0.1500
9. SHARE ACTIVITY
Share capital at December 31, 2020 and the transactions during the year are as follows (expressed in thousands of
dollars except Share amounts):
Shares
Number of common
shares issued and
outstanding
Amount
Common shares
Total
Balance - December 31, 2019 and 2020
63,333,238 $
852,379 $
852,379
On November 12, 2020, the Board of Directors approved the new Omnibus Incentive Plan (the “Incentive Plan”).
This plan supersedes the former Incentive Plans (“Legacy Plan”) that included Options, Performance Share Units
(“PSU”) and Restricted Share Units (“RSU”). All employees and consultants are eligible to participate in the
Incentive Plan. The Incentive Plan consists of stock options, RSU and PSU. Awards of RSU and PSU granted
during a service year will be subject to a three year service period. The aggregate number of Shares that may be
issued under the Incentive Plan is 1.8 million provided that no more than 1.2 million Shares may be issued in
aggregate pursuant to the settlement of RSUs and PSUs. Options that were issued under the Legacy Plan and
cancelled subsequent to the approval of the Incentive Plan will be available to be issued under the Incentive Plan.
The base Share equivalents granted as RSU and PSU awards attract compounding notional dividends at the same
rate as outstanding Shares, which are notionally re-invested as additional base Share equivalents. PSU and RSU
awards may be settled in Shares issued from treasury, cash, or a mix of Shares and cash, at Cineplex’s option at the
time of settlement. Cineplex has determined that the 2020 award will be settled in Shares, and as a result are
accounted for as equity-settled. Awards outstanding under prior plans shall remain in full force and effect under the
prior plans according to their respective terms. Under the prior plans, the effects of changes in estimates of
performance results are recognized in the year of change. As at December 31, 2020, 2.1 million Shares are available
to be issued under the Incentive Plan.
Incentive Plan costs are estimated at the grant date based on expected performance results then accrued and
recognized on a graded basis over the vesting period. Forfeitures are estimated at $nil.
Stock options issued under the Incentive Plan will be administered by the Board of Directors who will establish the
exercise price at the time each option is granted, which in all cases will not be less than the market price on the grant
date. All of the options must be exercised over specified periods not to exceed ten years from the date granted.
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Options issued under the Incentive Plan may be exercised for cash or on a cash less basis, both of which result in the
issuance of Shares from treasury. Options will be accounted for as equity-settled.
A summary of option activities for the year ended December 31, 2020 and 2019 is as follows:
2020
2019
Options outstanding - January 1
Granted
Cancelled
Forfeited
Weighted
average
remaining
contractual life
(years)
6.67
Number of
underlying
Shares
3,123,521 $
725,758
(1,408,439)
(398,821)
Weighted
average
exercise price
38.62
8.25
44.74
29.64
Number of
underlying
Shares
2,433,589
757,639
—
(67,707)
Options outstanding – end of period
7.64
2,042,019 $
25.37
3,123,521 $
Weighted
average
exercise price
42.84
25.05
38.51
38.62
Until December 15, 2019, the options could only be equity-settled, and were accounted for as equity, not liabilities.
Upon cashless exercises, the options exercised in excess of Shares issued were cancelled and returned to the pool
available for future grants. The expense amount for options was determined at the time of their issuance, recognized
over the vesting period of the options. Effective December 15, 2019, as a result of the terms of the Arrangement
Agreement, the options were considered cash-settled, and the fair value of the options outstanding in excess of their
respective exercise price was recognized as a current share-based compensation liability, and changes in value were
reflected in the statement of operations. With the Termination Notice delivered by Cineworld on June 12, 2020 to
terminate the Arrangement Agreement, the options were revalued and accounted for as equity-settled, with expected
lives of the lesser of four years and their contractual lives. The value of vested options at March 31, 2020 of $3,944
was reclassified from liability to contributed surplus. Unvested options will be recognized over their remaining
vesting periods at the value determined at March 31, 2020. Forfeitures are estimated at nil, based on historical
forfeiture rates.
Cineplex recorded $1.2 million of employee benefits recovery with respect to the options during the year ended
December 31, 2020 (2019 - $2.5 million). At December 31, 2020, $nil associated with the options is reflected in
current share-based compensation liability on the consolidated balance sheets (2019 - $6.3 million). The intrinsic
value of vested share options at December 31, 2020 is $nil (2019 - $0.6 million, based on the purchase price of
$9.27 per share (2019 - $34.00). Cineplex undertook a one-time voluntary stock option cancellation program in
December 2020 under which qualified holders of outstanding options granted from 2012 to 2017 were given the
opportunity to cancel their options in exchange for a market value payment. In December, 1.3 million options were
cancelled for aggregate proceeds of $0.5 million.
9.1 CONVERTIBLE DEBENTURES
During the third quarter of 2020, Cineplex issued a $316.3 million principal amount of convertible unsecured
subordinated debentures, maturing on September 30, 2025 (the “Maturity Date”) and bearing interest at a rate of
5.75% per annum, payable semi-annually in arrears on September 30 and March 31 in each year, commencing on
September 30, 2020. At the holder’s option, the Debentures may be converted into Shares at a conversion price of
$10.94 per Share at any time prior to the close of business on the earlier of: (i) five business days prior to the
Maturity Date, and (ii) if called for redemption, five business days immediately preceding the dated fixed for
redemption of the Debentures, at a conversion price to be determined at the time of pricing. Holders who convert
their Debentures into Shares will receive accrued and unpaid interest for the period from the date of the latest
Interest Payment Date to the date of conversion.
The Debentures are direct, unsecured subordinated obligations of Cineplex, subordinated to any senior indebtedness
of Cineplex and ranking equally with one another and with all other existing and future unsecured subordinated
indebtedness of Cineplex.
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Management’s Discussion and Analysis
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The Debentures will not be redeemable by Cineplex prior to September 30, 2023. On or after September 30, 2023
and prior to September 30, 2024, Cineplex may, at its option, redeem the Debentures in whole or in part from time
to time provided that the volume weighted average trading price of the Share on the Toronto Stock Exchange during
the 20 consecutive trading days ending on the fifth trading day preceding the date on which the notice of redemption
is given is not less than 125% of the conversion price. On or after September 30, 2024, the Debentures may be
redeemed in whole or in part from time to time at the option of Cineplex at a price equal to their principal amount
plus accrued and unpaid interest. Redemption may in cash or in the form of Shares, at the option of Cineplex.
At the holder’s option, the Debentures may be converted into shares at a conversion price of $10.94 per share at any
time prior to the close of business on the earlier of: (i) five business days prior to the Maturity Date, and (ii) if called
for redemption, five business days immediately preceding the dated fixed for redemption of the Debentures, at a
conversion price to be determined at the time of pricing. Holders who convert their Debentures into shares will
receive accrued and unpaid interest for the period from the date of the latest interest payment date to the date of
conversion.
The fair value of the liability component of the Debentures was assessed at inception based on an estimated market
discount rate of 14.1% less the pro-rata portion of transaction costs, and will be accreted to the full face value over
the term of the debenture. Cineplex recorded accretion on Debentures of $7.5 million. Accretion on Debentures is
included as part of the interest expense on the consolidated statement of operations. The residual value was allocated
to the equity component less the pro-rata portion of transaction costs as prescribed by IFRS 9, Financial
Instruments.
10. SEASONALITY AND QUARTERLY RESULTS
Historically, Cineplex’s revenues have been seasonal, coinciding with the timing of major film releases. The most
marketable motion pictures were traditionally released during the summer and the late-November through December
holiday season. This caused changes from quarter to quarter in theatre attendance, affecting theatre exhibition
reported results. The seasonality of theatre attendance has become less pronounced as film studios have expanded
the historical summer and holiday release windows and increased the number of heavily marketed films released
during traditionally weaker periods. Cineplex’s diversification into other businesses such as digital media and
amusement and leisure, which are not as dependent on Hollywood content, has contributed to reduce the impact of
this seasonality on Cineplex’s consolidated results. To meet working capital requirements during lower revenue
quarters, Cineplex can draw upon the Revolving Facility subject to restrictions under the Credit Facilities including
liquidity covenants set forth in the Credit Facilities (as amended, see Section 16, Subsequent Events), which had
$456.0 million drawn and $153.8 million available subject to the Credit Facilities (see Section 16, Subsequent
events) as of December 31, 2020. In response to the impact of the COVID-19 pandemic, Cineplex is closely
monitoring its liquidity. Details with respect to its ongoing measures are detailed in Section 1.1 Response to
COVID-19.
Summary of Quarterly Results (in thousands of dollars except per Share, per patron, theatre attendance and theatre
location and screen data, unless otherwise noted):
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MANAGEMENT’S DISCUSSION & ANALYSIS
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Management’s Discussion and Analysis
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Revenues
Box office revenues
Food service revenues
Media revenues
Amusement revenues
Other revenues
Expenses
Film cost
Cost of food service
Q4
2020
Q3
Q2
Q1
Q4
2019
Q3
Q2
Restated
Q1
Restated
$ 7,260
$ 14,531
$
27
$ 111,002
$ 181,789
$ 177,865
$ 189,371
$ 156,496
10,543
15,468
3,256
79,365
125,159
125,550
129,563
103,058
12,496
12,825
7,880
32,157
69,545
43,308
49,196
34,706
13,597
13,236
3,731
47,337
53,471
58,143
58,117
58,500
8,556
4,962
7,094
12,940
13,256
13,582
12,608
11,864
52,452
61,022
21,988
282,801
443,220
418,448
438,855
364,624
3,151
3,989
7,261
3,680
10
56,500
93,925
93,735
103,005
78,721
789
22,209
27,701
27,439
28,247
23,436
Depreciation - right-of-use assets
28,136
30,539
34,185
35,533
36,471
36,456
36,557
36,462
Depreciation and amortization - other
28,750
30,375
31,759
33,962
33,135
31,712
32,403
31,633
(Gain) loss on disposal of assets
(283)
(14,113)
478
817
868
303
116
477
Other costs
77,213
78,754
62,175
157,548
214,922
190,955
192,988
183,828
Impairment of long-lived assets and
goodwill
(Loss) income from continuing
operations
56,175
65,634
—
173,054
—
—
—
—
197,131
202,130
129,396
479,623
407,022
380,600
393,316
354,557
$ (144,679) $ (141,108) $ (107,408) $ (196,822) $ 36,198
$ 37,848
$ 45,539
$ 10,067
Adjusted EBITDA (i)
$ (32,097) $ (28,928) $ (41,313) $ 46,472
$ 106,529
$ 106,132
$ 114,383
$ 78,742
Adjusted EBITDAaL (i) (ii)
$ (65,948) $ (46,725) $ (72,532) $ 2,390
$ 62,327
$ 62,312
$ 70,255
$ 35,652
Net (loss) income from continuing
operations
$ (230,403) $ (121,209) $ (98,234) $ (174,155) $ 4,668
$ 15,100
$ 22,077
$ (5,329)
Net loss from discontinued operations
—
—
(693)
(4,259)
(1,196)
(1,718)
(2,680)
(2,031)
Net (loss) income
$ (230,403) $ (121,209) $ (98,927) $ (178,414) $ 3,472
$ 13,382
$ 19,397
$ (7,360)
EPS - basic and diluted from continuing
operations
EPS - basic and diluted from
discontinued operations
$ (3.64)
$
(1.91)
$
(1.55)
$
(2.75)
$
0.08
$
0.24
$
0.35
$
(0.09)
—
—
(0.01)
(0.07)
(0.02)
(0.03)
(0.04)
(0.03)
EPS - basic and diluted
$ (3.64)
$
(1.91)
$
(1.56)
$
(2.82)
$
0.06
$
0.21
$
0.31
$
(0.12)
Cash (used in) provided by operating
activities (ii)
Cash provided by (used in) investing
activities (ii)
Cash provided by (used in) financing
activities
Effect of exchange rate differences on
cash
$ (61,041) $ (86,558) $ 18,095
$ 23,190
$ 124,133
$ 77,760
$ 58,346
$ 61,426
50,492
11,384
(8,947)
(26,219)
(46,443)
(25,791)
(24,851)
(27,768)
12,977
74,252
(2,793)
(12,819)
(84,850)
(52,336)
(24,447)
(34,277)
650
292
560
(950)
345
(158)
235
61
Net change in cash
$ 3,078
$
(630)
$ 6,915
$ (16,798) $ (6,815)
$
(525)
$ 9,283
$
(558)
Cash flows used in discontinued
operations
BPP (i)
CPP (i)
$ —
$ —
$ 9.23
$ 9.06
$
$
9.30
7.37
$
$
(253)
$ (2,138)
$ 2,821
$ (1,441)
$ (1,120)
$
(807)
4.50
$ 10.36
$ 10.79
$ 10.16
$ 11.13
$ 10.44
$ 10.33
$
6.79
$
6.81
$
6.68
$
7.04
$
6.35
Film cost percentage (i)
43.4 %
50.0 %
37.0 %
50.9 %
51.7 %
52.7 %
54.4 %
50.3 %
Theatre attendance (in thousands of
patrons) (i)
Theatre locations (at period end)
786
162
Theatre screens (at period end)
1,667
(i) See section 18, Non-GAAP measures.
1,563
164
1,687
6
10,710
16,849
17,512
17,011
14,988
164
1,687
164
1,687
165
1,693
165
1,695
165
1,695
165
1,692
(ii) Prior period figures have been revised to current period presentation. See Section 19, Reconciliation for further details.
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MANAGEMENT’S DISCUSSION & ANALYSIS
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Management’s Discussion and Analysis
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Summary of adjusted free cash flow by quarter
Management calculates adjusted free cash flow per Share as follows (see Section 18, Non-GAAP measures, for a
discussion of adjusted free cash flow) (in thousands of dollars except per Share data and number of Shares
outstanding):
2020
2019
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Restated
Q1
Restated
Cash (used in) provided by operating
activities (i)
Less: Total capital expenditures net of
proceeds on sale of assets
$ (61,041) $ (86,558) $ 18,095 $ 23,190 $ 124,133 $ 77,760 $ 58,346 $ 61,426
(10,099)
(11,418)
(14,391)
(37,503)
(51,448)
(34,905)
(27,653)
(32,361)
Standardized free cash flow
(71,140)
(97,976)
3,704
(14,313)
72,685
42,855
30,693
29,065
Add/(Less):
Changes in operating assets and liabilities
67,257
34,894
(69,401)
10,428
(40,670)
3,666
30,432
(2,155)
Changes in operating assets and liabilities
of joint ventures
(2,699)
372
(986)
(1,156)
(131)
(411)
(240)
1,317
Principal component of lease obligations
(32,323)
(24,811)
(993)
(33,819)
(32,352)
(31,836)
(31,580)
(32,484)
Principal portion of cash rent paid not
pertaining to current period
(357)
(357)
(357)
1,071
(346)
(345)
(346)
1,037
Growth capital expenditures and other
8,928
10,801
13,777
34,526
37,202
30,580
19,190
27,693
Share of income of joint ventures, net of
non-cash depreciation
Non-controlling interests
Net cash received from CDCP
(196)
(255)
(331)
(73)
(147)
(189)
(238)
—
—
—
—
4
782
1
4
2
7
3,128
2,882
3,910
3,128
5,474
92
11
Adjusted free cash flow
$ (30,530) $ (77,332) $ (53,801) $
(207) $ 39,127 $ 48,232 $ 51,046 $ 30,050
Average number of Shares outstanding
63,333,238
63,333,238
63,333,238
63,333,238
63,333,238
63,333,238
63,333,238
63,333,238
Adjusted free cash flow per Share
$
(0.482) $
(1.221) $
(0.849) $
(0.003) $
0.618 $
0.762 $
0.806 $
0.474
(i) Prior period figures have been revised to conform to current period presentation. See Section 19, Reconciliation for further details.
11. RELATED PARTY TRANSACTIONS
Cineplex may have transactions in the normal course of business with entities whose management, directors or
trustees are also directors of Cineplex. Any such transactions are in the normal course of operations and are
measured at market-based exchange amounts. Unless otherwise noted, these transactions are not considered related
party transactions for financial statement purposes.
The Chief Executive Officer of Riocan Real Estate Investment Trust (“Riocan”) served as a member of the Board
until May 5, 2020. Prior to his departure, Cineplex incurred theatre expenditures for theatres under lease
commitments with Riocan in the amount of $20.2 million (2019 - $43.0 million).
12. SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATION UNCERTAINTIES
Cineplex makes estimates and assumptions concerning the future that may not equal actual results. The following
are the estimates and judgments applied by management that most significantly impact Cineplex’s consolidated
financial statements. These estimates and judgments have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next financial year.
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Management’s Discussion and Analysis
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Goodwill - recoverable amount
Cineplex tests at least annually whether goodwill suffered any impairment. Management makes key assumptions
and estimates in determining the recoverable amount of groups of cash generating units’ goodwill, including future
cash flows based on historical and budgeted operating results, growth rates, tax rates and appropriate after-tax
discount rates.
Financial instruments - fair value of over-the-counter derivatives
Cineplex’s over-the-counter derivatives include interest rate swaps used to economically hedge exposure to variable
cash flows associated with interest payments on Cineplex’s borrowings. Management estimates the fair values of
these derivatives as the present value of expected future cash flows to be received or paid, based on available market
data, which includes market yields and counter-party credit spreads.
Revenue recognition - gift cards
Management estimates the value of gift cards that are not expected to be redeemed by customers, based on the terms
of the gift cards and historical redemption patterns, including industry data. The estimates are reviewed annually, or
when evidence indicates the existing estimate is not valid.
Income taxes
The timing of reversal of timing differences and the expected income allocation to various tax jurisdictions within
Canada affect the effective income tax rate used to compute the deferred income tax asset. Management estimates
the reversals and income allocation based on historical and budgeted operating results and income tax laws existing
at the consolidated balance sheet dates. In addition, management occasionally estimates the current or future
deductibility of certain expenditures, affecting current or deferred income tax balances and expenses.
Fair value of identifiable assets acquired and liabilities assumed in business combinations
Significant judgment is required in the identifying of tangible and intangible assets and liabilities of the acquired
businesses, as well as determining their fair values.
Share-based compensation
Management is required to make certain assumptions and to estimate future financial performance to estimate the
fair value of Share-based awards at each consolidated balance sheet date. The LTIP and Incentive Plan requires
management to estimate future non-GAAP earnings measures, future revenue growth relative to specified industry
peers, and total shareholder return, both absolutely and relative to specified industry peers. Future non-GAAP
earnings are estimated based on current projections, updated at least annually, taking into account actual
performance since the grant of the award. Future revenue growth relative to peers is based on historical performance
and current projections, updated at least annually for actual performance since the grant of the award by Cineplex
and its peers. Total shareholder return for Cineplex and its peers is updated at each consolidated balance sheet date
based on financial models, taking into account financial market observable inputs.
Lease terms
Some leases of property contain extension options exercisable by Cineplex up to one year before the end of the non-
cancellable contract period. Where practicable, Cineplex seeks to include extension options in new leases to provide
operational flexibility. In determining the lease term, Cineplex considers all facts and circumstances that create an
economic incentive to exercise an extension option, or not exercise a termination option. The assessment is reviewed
upon a trigger by a significant event or a significant change in circumstances.
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Management’s Discussion and Analysis
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13. ACCOUNTING POLICIES
ACCOUNTING STANDARDS APPLIED OR ADOPTED IN THE CURRENT YEAR
Management of Cineplex reviews all changes to the IFRS when issued. The International Accounting Standards
Board (“IASB”) has issued the following standards, which have not yet been adopted by Cineplex. The following is
a description of the new standards:
Accounting for Government Subsidies
Cineplex recorded, presented, and disclosed the government subsidies received in Canada and the United States in
accordance with IAS 20, Accounting for Government Grants and Disclosure of Government Assistance. During the
year ended December 31, 2020, Cineplex recorded subsidies in the amount of $61.9 million which have been offset
in other costs.
ACCOUNTING STANDARDS
IFRS 16, Leases (“IFRS 16”) - Amendment
In May 2020, the IASB issued an amendment to IFRS 16, which added a practical expedient to provide relief for
lessees from lease modification accounting for rent concessions related to COVID-19. The practical expedient is
only applicable to rent concessions provided as a direct result of the COVID-19 pandemic. In order to apply the
practical expedient, all of the following conditions must be met:
•
•
•
the change in lease payments results in revised consideration for the lease that is substantially the same as,
or less than, the consideration for the lease immediately preceding the change;
the rent concession is for relief for payments that were originally due on or before June 30, 2021. Any
subsequent rental increases of amounts deferred can extend beyond June 30, 2021; and
there is no substantive change to other terms and conditions of the lease.
The practical expedient relieve lessees from assessing whether rent concessions are lease modifications and applying
the lease modification requirements to those concessions. A lessee applying the practical expedient would generally
account for forgiveness or waiver of lease payments as a variable lease payment which is recognized on the
Statement of Operations as a gain or loss with a corresponding adjustment to derecognize the portion of lease
liability which has been waived or forgiven. Lease payments that are deferred to other periods would result in a re-
measurement of the lease obligation using the original incremental borrowing rate with any difference related to the
change in timing of payments being recognized in gain or loss. Rent concessions can also incorporate both a
forgiveness or waiver of payments and a change in the timing of payments.
Cineplex will not apply the practical expedient to lease concessions.
Accounting standards issued but not yet applied
Management of Cineplex reviews all changes to IFRS when issued. The International Accounting Standards Board
(“IASB”) has issued the following standard, which has not yet been adopted by Cineplex. The following is a
description of the new standard:
IAS 1 Presentation of Financial Statements - Amendment
In January 2020, the IASB issued Classification of Liabilities as Current or Non-current, which amended IAS 1
Presentation of Financial Statements and clarified how to classify debt and other financial liabilities as current or
non-current in particular circumstances. The amendments are effective for annual reporting periods beginning on or
after January 1, 2023, with earlier application permitted.
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Management’s Discussion and Analysis
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Under the new amendment, an entity shall classify a liability as current when: (a) it expects to settle the liability in
its normal operating cycle: (b) it holds the liability primarily for the purpose of trading; (c ) the liability is due to be
settled within twelve months after the reporting period; or (d) it does not have the right at the end of the reporting
period to defer settlement of the liability for at least twelve months after the reporting period.
If Cineplex were to early adopt the amendment to IAS 1, the application would result in the long-term debt being
classified as current in the December 31, 2020 balance sheet due to the projected covenant breaches.
14. RISKS AND UNCERTAINTIES
Cineplex is exposed to a number of risks and uncertainties in the normal course of business that have the potential to
affect operating performance. Cineplex has operating and risk management strategies and insurance programs to
help minimize these operating risks and uncertainties. In addition, Cineplex has entity level controls and governance
procedures including a corporate code of business conduct and ethics, whistle blowing procedures, clearly
articulated corporate values and detailed policies outlining the delegation of authority within Cineplex.
Cineplex conducts an annual enterprise risk management assessment which is overseen by Cineplex’s executive
management team and the audit committee of the Board and is reported to the full Board. The enterprise risk
management framework sets out principles and tools for identifying, evaluating, prioritizing and managing risk
effectively and consistently across Cineplex. Senior management participate in a detailed review of enterprise risk
in four major categories: environment risks, process risks, information risks and business unit risks. In addition,
Cineplex monitors risks and changing economic conditions on an ongoing basis and adapts its operating strategies as
required.
This section describes the principal risks and uncertainties that could have a material adverse effect on Cineplex’s
business and financial results. The risks and uncertainties described below are not the only risks that may impact
Cineplex’s business. Additional risks not currently known to Cineplex or that management currently believes are
immaterial may also have a material adverse effect on future business and operations. Any discussion about risks
should be read in conjunction with “Forward-Looking Statements”.
Impact of COVID-19 on the Business, Financial Condition and Results of Operations of Cineplex
The outbreak of the COVID-19 pandemic has had an unprecedented impact on all of Cineplex’s business segments.
As an entertainment company that operates in spaces where guests gather in close proximity, including theatres and
LBE venues, Cineplex has been significantly impacted by the actions taken to control the spread of COVID-19. On
March 16, 2020, Cineplex announced the temporary closure of all of its theatres and LBE venues across Canada, as
well as substantially all route locations operated by P1AG. On April 1, 2020, in response to applicable government
directives and guidance from Canadian public health authorities, Cineplex announced that the closure of its theatres
and LBE venues across Canada would remain in effect and that the reopening of such locations would be reassessed
as further guidance is provided by Canadian public health authorities and applicable government authorities.
Although Cineplex has been able to temporarily open some locations since March 2020, the second wave of
COVID-19 infections in the fall and winter of 2020/2021 has resulted in another round of government mandated
closures in select markets, many of which remain in force at the date of this MD&A with no clear date for
reopening.
The impact of the COVID-19 pandemic cannot be quantified at this time because of the significant uncertainty
around the timing of the reductions of government imposed restrictions and mandated closures of non-essential
businesses, and the potential long-term effects that COVID-19 may have on Cineplex’s exhibition and amusement
and leisure businesses. Cineplex cannot predict when restrictions will be lifted or how quickly (a) its businesses will
be permitted to resume operations and (b) guests will return to its locations once operations have resumed, which
may be a function of (i) continued safety and health concerns, (ii) additional regulatory requirements limiting
Cineplex’s seating capacity, and/or (iii) depressed consumer sentiment due to adverse economic conditions,
including job losses, among other things. If Cineplex does not respond appropriately to the pandemic, or if guests do
not perceive its response to be adequate, Cineplex could suffer damage to its reputation, which could adversely
affect its business.
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Management’s Discussion and Analysis
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Additional significant impacts on Cineplex’s business caused by the COVID-19 pandemic include, and are likely to
continue to include, among others:
•
•
•
•
•
•
•
•
•
•
lack of availability of films in the short or long-term, including as a result of (i) continued delay in film
releases; (ii) release of scheduled films on alternative channels, (iii) disruptions or suspensions of film
production, or (iv) the reduction or elimination of the theatrical exclusive release window including the
introduction of a Premium Video On Demand (“PVOD”) window and direct to streaming services releases;
increased operating costs resulting from additional regulatory requirements enacted in response to the
COVID-19 pandemic and from precautionary measures it voluntarily takes at Cineplex’s locations for the
health and well being of its guests and employees;
challenges maintaining relationships with its business partners, including its landlords, suppliers and
motion picture distributors as a result of its business closures during the COVID-19 pandemic;
unavailability of employees and/or their inability or unwillingness to conduct work under revised work
environment protocols;
increased risks related to employee matters, including increased employment litigation and claims relating
to terminations or leaves of absence caused by the suspension of operations;
reductions and delays associated with planned operating and capital expenditures;
Cineplex’s inability to generate significant cash flow from operations if Cineplex’s theatres continue to
operate at significantly lower than historical levels, which could, in the long-term, lead to a substantial
increase in indebtedness and may negatively impact Cineplex’s ability to comply with the financial
covenants in the Credit Facilities;
Cineplex’s inability to access lending, capital markets and other sources of liquidity, if needed, on
reasonable terms, or at all, or obtain amendments, extensions and waivers of financial maintenance or other
material terms;
Cineplex’s inability to effectively meet short-term and long-term obligations which it does not have the
ability to eliminate or reduce (including interest payments, taxes, critical maintenance capital expenditures
and compensation and benefits payments); and
Cineplex’s inability to service its existing and future indebtedness.
The longer and more severe the COVID-19 pandemic is, including new outbreaks in the future, the more significant
the effects will be on Cineplex’s business, financial conditions and results of operations. Even when the COVID-19
pandemic subsides, Cineplex cannot guarantee that it will recover as rapidly as other industries, or as other operators
within the movie exhibition industry, due to its strong footprint in densely populated areas. Further, if Canada
experiences additional outbreaks of COVID-19, Cineplex may elect on a voluntary basis to again close (after
reopening) certain of its theatres and LBE venues or governmental officials may order additional closures, impose
further restrictions on travel or introduce social distancing measures such as limiting the number of people allowed
in a theatre or other venue at any given time.
While Cineplex has eliminated certain variable costs and reduce fixed costs to the extent possible, Cineplex
continues to incur significant expenses, including interest payments, taxes, critical maintenance capital expenditures,
occupancy costs, and compensation and benefits payments. Cineplex cannot be certain that it will have access to
sufficient liquidity to meet its obligations for the time required to allow its operations to resume or normalize. The
net cash burn experienced by the Company in the second, third and fourth quarters of 2020 may not be sustainable at
its current levels and may worsen in the future. Further, Cineplex may not be able to obtain additional liquidity and
any relief provided by lenders, governmental agencies, and business partners may not be adequate or may include
onerous terms.
Cineplex continues to actively monitor all aspects of its business and operations in order to minimize the impact of
COVID-19 on its operations wherever possible. However, the outbreak of COVID-19 has caused significant
disruptions to Cineplex’s ability to generate profitability and cash flows. Cineplex expects the ongoing COVID-19
pandemic and the events and circumstances resulting from the COVID-19 pandemic to have a material negative
impact on its business, financial condition and results of operations into 2021.
CINEPLEX INC. 2020 ANNUAL REPORT
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Litigation Arising Out of the Termination of the Cineworld Transaction
Cineplex has commenced an action against Cineworld as a result of Cineworld’s repudiation of the Arrangement
Agreement. Cineworld has filed a counterclaim against Cineplex for an unspecified amount of costs that it incurred
as a result of Cineplex’s alleged breaches of the Arrangement Agreement. See Section 1.1 Recent Developments.
While Cineplex denies Cineworld’s allegations and believes that Cineworld (a) had no legal basis to terminate the
Arrangement Agreement, and (b) breached the Arrangement Agreement and its other contractual obligations, the
outcome of such litigation cannot be predicted with certainty. Cineplex will incur additional expenses in connection
with these matters, and there can be no assurance that it will be successful in obtaining any financial remedy. Even if
Cineplex’s action against Cineworld is successful, Cineworld may not have the ability to pay the full amount of any
damages awarded. As well, the litigation proceedings could take away from management’s time and effort, which
could be otherwise spent on running Cineplex’s business. There can be no assurance that the proceedings, and
associated costs, will not have a material adverse impact on Cineplex’s financial performance, cash flow and results
of operations.
General Economic Conditions
Entertainment companies compete for guests’ entertainment time and spending, and as such can be sensitive to
global, national or regional economic conditions and any changes in the economy may either adversely influence
these revenues in times of an economic downturn or positively influence these revenue streams should economic
conditions improve. Historical data shows that movie theatre attendance has not been negatively affected by
economic downturns over the past 25 years. However, COVID-19 has significantly increased economic uncertainty,
which could lead to a long lasting recession in Canada, which will further adversely affect Cineplex’s business, and
such adverse effects may be material. Cineplex has never previously experienced a sustained complete halt of its
operations across Canada, and as a result, its ability to predict the impact of such a halt on its operations and future
prospects is uncertain.
Negative Cash Flow from Operations
Cineplex reported negative cash flow from operations for the year ended December 31, 2020 due to the impact of
the COVID-19 pandemic. There can be no assurance that Cineplex will generate sufficient revenues to achieve or
maintain profitability or positive cash flow from operations in the future. If Cineplex does not achieve or maintain
profitability or positive cash flow from operating activities, then there could be a material adverse effect on
Cineplex’s business, financial condition and results of operation.
Business Continuity Risk
Cineplex’s primary sources of revenues are derived from providing an out of home entertainment experience. Our
business results could be significantly impacted by a terrorist threat, severe weather incidents, the outbreak of a
pandemic or general fear of community gatherings that may cause people to stay away from public places including
movie theatres, malls and amusement and leisure locations. Cineplex operates in locations spread throughout North
America which mitigates the risk to a specific location or locations. Cineplex has procedures to manage such events
should they occur. These procedures identify risks, prioritize key services, plan for large staff absences and clarify
communication and public relations processes. However, should there be a large-scale threat or occurrence, it is
uncertain to what extent Cineplex could mitigate this risk and the costs that may be associated with any such crises.
Further, Cineplex purchases insurance coverage from third-party insurance companies to cover certain operational
risks, and is self-insured for other matters.
Upon reopening its theatres and location-based entertainment venues following the closures resulting from
COVID-19, there is a risk that locations operate at significantly lower levels than prior to the COVID-19 pandemic
and as a result this may negatively impact the ability of Cineplex to meet its financial covenants, access debt or
equity capital markets for sources of additional liquidity on reasonable terms, and meet its short and long-term
obligations.
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Customer Risk
In its consumer-facing entertainment businesses, Cineplex competes for the leisure time and disposable income of
all potential customers. All other forms of entertainment are substantial competitors to the movie-going experience
including home and online consumption of content, sporting events, streaming services, gaming, live music
concerts, live theatre, other entertainment venues and restaurants. Cineplex aims to deliver value to its guests
through a wide variety of entertainment experiences and price points. Cineplex monitors pricing in all markets to
ensure that it offers a reasonably priced out of home experience compared to other entertainment alternatives. If
Cineplex is too aggressive in raising ticket prices or concession prices, there may be an adverse effect on theatre
attendance and food service revenues.
To mitigate this risk, Cineplex offers the SCENE loyalty program, which rewards guests for their patronage with
special offers as well as the ability to earn and redeem points. However, loyalty programs also carry a risk in that
customers may not be satisfied with the offering or any change in offerings. There also exists a risk of saturation of
loyalty programs in a market or the inability to further grow membership such that the program may generate costs
in excess of the benefits. Cineplex monitors customer needs to try and ensure that its entertainment experiences meet
the anticipated needs of key demographic groups. Cineplex is differentiating the movie-going experience by
providing premium alternatives such as UltraAVX, VIP, 4DX, ScreenX, Cineplex Clubhouse and D-BOX seating.
Cineplex also includes XSCAPE Entertainment Centres in select theatres and provides alternative programming
which appeals to specific demographic groups. In addition, digital technology has allowed for more niche
programming.
In the event that consumer preferences change, Cineplex may need to incur further capital expenditures to redevelop
or upgrade existing locations. Cineplex continues to improve the quality of its theatre assets through ongoing
renovations and theatre recliner retrofits. If Cineplex’s execution of processes does not consistently meet or exceed
customer expectations due to poor customer service or poor quality of assets, movie theatre attendance may be
adversely affected. Cineplex monitors customer satisfaction through surveys and focus groups and maintains a guest
services department to address customer concerns. Guest satisfaction is tied to performance measures for theatre
management ensuring alignment between corporate and operational objectives.
Even when government restrictions are lifted as the number of COVID-19 cases subside, it is unclear how quickly
customers will return to Cineplex’s theatres and location-based entertainment venues, which may be a function of
continued concerns over safety and social distancing and/or depressed consumer sentiment due to adverse economic
conditions. Even once theatres resume operations, a single outbreak of COVID-19 in a theatre could result in
additional costs and further closures. If Cineplex does not respond appropriately to the COVID-19 pandemic, or if
customers do not perceive its response to be adequate, Cineplex could suffer damage to its reputation, which could
significantly adversely affect its business, financial condition and results of operations.
There is the potential for misinformation to be spread virally through social media relating to Cineplex’s assets as
well as the quality of its customer service. In response to this risk, Cineplex monitors commentary on social media
in order to respond quickly to potential social media misinformation or service issues.
Cineplex developed its Cineplex Store in response to the risk created by new in-home and on-the-go entertainment
offerings. Cineplex’s offerings through the Cineplex Store of TVoD movies are delivered online via third-party
technology platforms. Technological issues relating to online delivery of content could negatively impact customer
satisfaction. Cineplex monitors performance metrics for electronic delivery in order to proactively manage any
potential customer satisfaction issues.
Regarding its media sales businesses, certain of Cineplex’s media customers have signed contracts of finite lengths
or that allow for early termination. There is a risk that these customers could choose not to renew these contracts at
their maturity, or take steps to terminate them prior to maturity, which would have adverse effects on Cineplex’s
media revenues.
In its digital place-based media and amusement solutions businesses, Cineplex engages with multiple businesses
where it provides products and services. These arrangements include the risk that businesses could decide to source
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the same products or similar services from a competitor, delay the timing of contract fulfillment or curtail spending
due to economic conditions, which would have a negative impact on Cineplex’s results.
Film Entertainment and Content Risk
Cineplex’s ability to operate successfully depends upon the availability, diversity and appeal of filmed content, the
ability of Cineplex to license films and the performance of these films in Cineplex’s markets. Cineplex primarily
licenses first-run films, the success of which is dependent upon their quality, as well as on the marketing efforts of
film studios and distributors. To mitigate this risk, Cineplex continues to diversify its entertainment offerings.
Nonetheless, Cineplex is highly dependent on film product and film performance, including the number and success
of blockbuster films. A reduction in quality or quantity of both 2D and 3D film product, any disruption or delay in
the production or release of films, the introduction of new delivery platforms for first run product, a strike or threat
of a strike in film production, a reduction in the marketing efforts of film studios and distributors or a significant
change in film release patterns, would have a negative effect on movie theatre attendance and adversely affect
Cineplex’s business and results of operations.
The impact of COVID-19 has led to less film productions by studios, delayed film releases, further reductions to the
theatrical release window and redirection of a limited number of theatrical releases to streaming services. There is a
risk that there will be less film content available on the reopening of theatres to entice customers to return to theatres
at historical levels.
Cineplex box office revenues depend upon movie production and its relationships with film distributors, including a
number of major Hollywood and Canadian distributors. In 2019, seven major film distributors accounted for
approximately 86% of Cineplex’s box office revenues, which is consistent with industry standards. Deterioration in
Cineplex’s relationships with any of the major film distributors or an increase in studio concentration or
consolidation could affect its ability to negotiate film licenses on favourable terms or its ability to obtain
commercially successful films. Cineplex actively works on maintaining good relations with these distributors, as
this affects its ability to negotiate commercially favourable licensing terms for first-run films or to obtain licenses at
all. In addition, a change in the type and breadth of movies offered by studios may adversely affect the demographic
base of moviegoers.
Cineplex competes with other consumption platforms, including cable, satellite television, and Blu-rays, as well as
TVoD, subscription video on demand (“SVOD”) and other over the top operators via the Internet. The release date
of a film in other channels of distribution such as over the top internet streaming, pay television and SVOD is at the
discretion of each distributor and day and date release or earlier release windows for these or new alternative
channels including the recent pilots by certain studios with PVOD models could have a negative impact on
Cineplex’s business.
Exhibition Industry Risk
Cineplex operates in each of its local markets with other forms of entertainment, as well as in some of its markets
with national and regional film exhibition circuits and independent film exhibitors. In respect of other film
exhibitors, Cineplex primarily competes with respect to film licensing, attracting guests and acquiring and
developing new theatre sites and acquiring existing theatres. Movie-goers are generally not brand conscious and
usually choose a theatre based on its location, the films showing, showtimes available and the theatre’s amenities.
As a result, the building of new theatres, renovations or upgrades to existing theatres, or the addition of screens to
existing theatres by competitors in areas in which Cineplex operates theatres may result in reduced theatre
attendance levels at Cineplex’s theatres.
In response to this risk, management continually reviews and upgrades its existing locations. Cineplex also fosters
strong ties with the real estate and development communities and monitors potential development sites. Most prime
locations in larger markets have been developed such that significant further development would be generally
uneconomical. In addition, the exhibition industry is capital intensive with high operating costs and long-term
contractual commitments. Significant construction and real estate costs make it increasingly difficult to develop new
sites profitably.
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In response to risks to theatre attendance, Cineplex continues to pursue other revenue opportunities including media
in the form of in-theatre and out of home advertising, amusement and leisure, promotions and alternative uses of its
theatres during non-peak hours. Amusement and leisure includes amusement solutions offered by P1AG, in-theatre
gaming locations, XSCAPE Entertainment Centres and in-theatre at select Cineplex locations and location-based
entertainment including The Rec Room and Playdium. Cineplex’s ability to achieve its business objectives may
depend in part on its ability to successfully increase these revenue streams.
Media Risk
Media revenue has been shown to be particularly sensitive to economic conditions and any changes in the economy
may either adversely influence this revenue stream in times of a downturn or positively influence this revenue
stream should economic conditions improve. Cineplex has numerous large media and digital place-based media
customers, the loss of which could impact Cineplex’s results. There is no guarantee that Cineplex could replace the
revenues generated by these large customers if their business was lost.
The majority of Cineplex’s advertising revenue is earned at Cineplex theatres. There is a risk of decreased
attendance at theatres once they reopen as a result of continued safety and health concerns and depressed consumer
sentiment due to adverse economic conditions, arising from the impact of COVID-19 pandemic. This could result in
media customers electing to reduce their spending in cinemas and advertise through alternative channels.
Amusement and Leisure Risk
Cineplex’s location-based entertainment concepts are new concepts in the Canadian marketplace, and as such there
is a risk that consumers may not react as favourably to the concepts, entertainment options or food service options as
Cineplex’s projections indicate. As part of Cineplex’s vertical integration, P1AG is the primary supplier of games
and amusement offerings for Cineplex’s theatres, The Rec Room and Playdium locations, mitigating supplier risk.
Cineplex’s amusement and leisure operations compete against other offerings for guests’ entertainment spending. In
each of the local markets in which Cineplex operates and will operate, it faces competition from local, national or
international brands that also offer a wide variety of restaurant and/or amusement and gaming experiences, including
sporting events, bowling alleys, entertainment centres, nightclubs and restaurants. Competition for guests’
entertainment time and spending also extends to in-home entertainment such as internet or video gaming and other
in-home leisure activities. Cineplex’s failure to compete favourably in these markets could have a material adverse
effect on Cineplex’s business, results of operations and financial condition.
Cineplex’s new location-based entertainment locations may not meet or exceed the performance of our existing
locations or our performance targets. New locations may even operate at a loss, which could have a significant
adverse effect on our overall operating results.
Cineplex’s results of operations are subject to fluctuations due to the timing of location-based entertainment
openings which may result in significant fluctuations in our quarterly performance. Cineplex typically incurs most
cash pre-opening costs for a new location within the two months immediately preceding, and the month of, the
location’s opening. In addition, the labor and operating costs for a newly opened store during the first three to six
months of operation are materially greater than what can be expected after that time, both in aggregate dollars and as
a percentage of revenues. Additionally, a portion of a current fiscal year new location capital expenditures is related
to locations that are not expected to open until the following fiscal year.
To mitigate these risks, Cineplex leverages its core competencies in food service execution, its partnership in
SCENE and its knowledge of the trends in amusement and gaming via its P1AG operations to continuously update
its amusement and leisure offerings in order to provide guests with the most compelling offerings available in
Canada.
Due to the outbreak of the COVID-19 pandemic, there is a risk of a permanent decrease in guests and corporate
events frequenting LBE locations upon reopening. Cineplex’s LBE venues have a larger guest-facing footprint and
higher levels of customer traffic than other concepts in the dining and entertainment industry. The effects of the
COVID-19 pandemic as a result of continued concerns over safety and social distancing and/or depressed consumer
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sentiment due to adverse economic conditions could have an adverse effect on Cineplex’s business, financial
conditional and results of operations.
P1AG’s procurement of games and amusement offerings is dependent upon a few suppliers, the ability to continue
to procure new games, amusement offerings and other entertainment-related equipment. To the extent that the
number of suppliers declines, P1AG could be subject to the risk of distribution delays, pricing pressure, lack of
innovation and other associated risks. In addition, any increase in cost or decrease in availability of new amusement
offerings that appeal to customers could have a negative impact on Cineplex’s revenues from its amusement and
leisure businesses.
P1AG competes with other providers of amusement and gaming services across North America. P1AG manages the
risk of customers switching gaming providers by continually monitoring the performance of its amusement solutions
and reacting quickly to replace underperforming solutions with newer or more relevant equipment. P1AG’s
expertise and experience in the industry and proven success maximizing revenue for its customers helps mitigate this
switching risk. A material amount of P1AG’s revenue is dependent on the customer traffic in venues in which they
operate. The COVID-19 pandemic in North America resulted in the closure of venues in which P1AG operates
gaming equipment. There is a risk that these venues will have decreased customer traffic once shutdowns are lifted
or may permanently shut down. Any reduction in traffic or permanent shutdown of venues could have a material
impact on their business.
Technology Risk
Technological advances have made it easier to create, transmit and electronically share unauthorized high-quality
copies of films during theatrical release. Some consumers may choose to obtain unauthorized copies of films rather
than attending the theatre which may have an adverse effect on Cineplex’s business. In addition, as home theatre
technology becomes more sophisticated and additional technologies become available to consume content,
consumers may choose other technology options rather than attending a theatre.
To mitigate these risks, Cineplex continues to enhance the out of home experience through the addition of new
technologies and experiences including 3D, VIP, UltraAVX, D-BOX, 4DX, ScreenX and digital projection in order
to further differentiate the theatrical product from the home product. Cineplex has also diversified its offerings to
customers by operating the Cineplex Store which sells TVOD movies in order to participate in the in-home and on-
the-go entertainment markets.
Changing platform technologies and new emerging technologies in the digital commerce industry, and specifically
relating to the delivery of TVOD and SVOD services, present a risk to the Cineplex Store’s operations. Should
Cineplex’s supplier cease operations or have its technology platform rendered obsolete, Cineplex’s sales of TVOD
products could be jeopardized.
Cineplex relies on various information technology solutions to provide its services to guests and customers, as well
in running its operations from its various office locations. Cineplex may be subject to information technology
malfunctions, outages, thefts or other unlawful acts that could result in loss of communication, unauthorized access
to data, change in data, or loss of data which could compromise Cineplex’s operations and/or the privacy of
Cineplex’s guests, customers and suppliers. Currently, as the majority of Cineplex’s corporate employees have
moved to a work-from-home platform, there is an increased risk to Cineplex’s technology systems, In response,
Cineplex has implemented additional security measures, including training, monitoring and testing and contingency
plans, to protect systems.
Information Management Risk
Cineplex needs an effective information technology infrastructure including hardware, networks, software, people
and processes to effectively support the current and future needs of the business in an efficient, cost-effective and
well-controlled fashion. To mitigate this risk, Cineplex is continually upgrading systems and infrastructure to meet
business needs.
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Cineplex requires relevant and reliable information to support the execution of its business model and reporting on
performance. The integrity, reliability and security of information are critical to Cineplex’s daily and strategic
operations. Inaccurate, incomplete or unavailable information or inappropriate access to information could lead to
incorrect financial or operational reporting, poor decisions, privacy breaches or inappropriate disclosure of sensitive
information. To mitigate this risk, Cineplex continues to strengthen general information technology controls by
developing operating policies and procedures in the areas of change management, computer operations and security
access.
At select times during the normal course of business, Cineplex and its subsidiary and joint venture partners store
sensitive data, including intellectual property, proprietary business information including data with respect to
suppliers, employees and business partners, as well as some personally identifiable information on their customers
and employees. Further, Cineplex regularly works with third party suppliers in the delivery of services to their
customers and employees where such data is provided in the normal course of the commercial relationship. The
secure processing, maintenance and transmission of this information is critical to Cineplex’s operations and business
strategies. As such Cineplex adheres to industry standards for the payment card industry (“PCI”) data security
standard (“DSS”) compliance, as well as undertaking commercially reasonable efforts for non-financial data.
Cineplex recognizes that security breaches of the information systems of Cineplex or any one of its third-party
suppliers could compromise this information and expose Cineplex to liability, which could cause their businesses or
reputations to suffer. Despite security measures, information technology and infrastructure may be vulnerable to
unforeseen attacks by hackers or breached due to employee error, malfeasance, computer viruses, malware,
phishing, denial of service attacks, unauthorized access to confidential, proprietary or sensitive information,
industrial espionage or other disruptions. Any such breach could compromise networks and the information stored
there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information
could result in legal claims or proceedings, liability under laws that protect the privacy of personal information,
regulatory penalties, disrupt operations and the services provided to customers, damage reputation and cause a loss
of confidence in products and services, which could adversely affect business, financial condition, results of
operations and cash flows. In response to this risk, Cineplex has employees whose role is to monitor information
technology and processes to ensure risk is minimized.
Real Estate Risk
The acquisition and development of potential operating locations by Cineplex is dependent on the ability of
Cineplex to identify, acquire and develop suitable sites for these locations with favorable economic terms in both
new and existing markets, while competing with other entertainment and non-entertainment companies for site
locations. The cost to develop a new building is substantial and its success is not assured. While Cineplex is diligent
in selecting sites, the significant time lag from identifying a new site to opening can result in a change in local
market circumstances and could negatively impact the location’s chance of success. In addition, building new
operating locations may draw audiences away from existing sites operated by Cineplex. Cineplex considers the
overall return for the theatres in a geographic area when making the decision to build new locations. The majority of
Cineplex’s operating sites are subject to long-term leases. In accordance with the terms of these leases, Cineplex is
responsible for costs associated with utilities consumed at the location and property taxes associated with the
location. Cineplex has no control over these costs and these costs have been increasing over the last number of
years. Furthermore, due to the outbreak of the COVID-19 pandemic, Cineplex continued its negotiations with
landlord partners with respect to reductions in rent payments for current and future periods. While Cineplex works
hard to maintain positive relationships with its landlords, we cannot guarantee continued reductions in future rent
payments and there exists a potential for a default on existing lease obligations should the pandemic continue.
Cineplex continues to be liable for obligations under theatre leases in respect of certain divested theatres. If the
transferee of any such theatres fails to satisfy the obligations under such leases, Cineplex may be required to assume
the lease obligations.
Sourcing Risk
Cineplex relies on a small number of companies for the distribution of a substantial portion of its concession
supplies. If these distribution relationships were disrupted, Cineplex could be forced to negotiate a number of
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substitute arrangements with alternative distributors that could, in the aggregate, be less favourable to Cineplex than
the current arrangements.
Substantially all of Cineplex’s non-alcohol beverage concessions are products of one major beverage company. If
this relationship was disrupted, Cineplex may be forced to negotiate a substitute arrangement that could be less
favourable to Cineplex than the current arrangement. Any such disruptions could therefore increase the cost of
concessions and harm Cineplex’s operating margins, which would adversely affect its business and results of
operations.
Cineplex relies on one major supplier to source popcorn seed, and has entered contracts with this supplier to
guarantee a fixed supply. As crop yields can be affected by drought or other environmental factors, the supplier may
be unable to fulfill the whole of its contractual commitments, such that Cineplex would need to source the remaining
needed corn product from other suppliers at a potentially higher cost.
In order to minimize these operating risks, Cineplex actively monitors and manages its relationships with its key
suppliers.
The economic impacts of COVID-19 may have negative impact on Cineplex’s suppliers and as a result its suppliers
may not be able to sustain operations after the pandemic. A reduction in the number of suppliers or the loss of
critical suppliers may result in increased costs, or the inability to find satisfactory replacement goods and services in
the short or long-term.
Human Resources Risk
The success of Cineplex depends upon the retention of senior executive management, including its Chief Executive
Officer, Ellis Jacob. The loss of services of one or more members of the executive management team could
adversely affect Cineplex’s business, results of operations and Cineplex’s ability to effectively pursue its business
strategy. Cineplex does not maintain key-man life insurance for any of its employees but does provide long-term
incentive programs to retain key personnel and undertakes a comprehensive succession planning program.
Cineplex typically employs approximately 10,000 people, of whom approximately 80% are hourly workers whose
compensation is based on the prevailing provincial minimum wages with incremental adjustments as required to
match market conditions. Any increase in these minimum wages will increase employee related costs. Any increase
in minimum wages will impact employee-related costs. In order to mitigate the impact of the proposed increases,
Cineplex works to expand automation, take advantage of technological efficiencies and continually reviews pricing.
Approximately 6% of Cineplex’s employees are represented by unions, located primarily in the province of Quebec.
Because of the small percentage of employees represented by unions, the impact of labour disruption nationally is
low.
As a result of the government mandated closures, due to the impact of the COVID-19 pandemic, Cineplex
temporarily laid off all part-time staff members. There is a risk upon reopening, Cineplex may not be able to rehire
enough staff to sustain operations due to their unavailability, inability or unwillingness to rejoin the workforce.
Health and Safety Risk
Cineplex is subject to risks associated with food safety, alcohol consumption by guests, product handling and the
operation of machinery. Cineplex is in compliance with health and safety legislation and conducts employee
awareness and training programs on a regular basis. Health and safety issues related to our guests such as pandemics
and bedbug concerns are risks that may deter people from attending places of public gathering, potentially including
movie theatres, gaming centres, malls and dining locations. For those risks that it can control, Cineplex has
programs in place to mitigate its exposure. Cineplex will investigate further methods in order to keep guests and
employees safe at both locations and corporate offices.
There is a significant risk that concerns over health and safety as a result of COVID-19 will be long lasting and will
have an adverse impact on the business of Cineplex. In order to help mitigate these risks, Cineplex has made
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changes to its operations to enable social distancing, as well as increasing safety measures by reducing capacity,
promoting cashless transactions where possible and by cleaning and disinfecting surfaces on a regular basis.
Environment/Sustainability Risk
Cineplex’s business is primarily a service and retail business which delivers guest experiences rather than physical
commercial products and thus does not have substantial environmental risk. Cineplex operates multiple locations in
major urban markets and does not anticipate any significant changes to operations due to climate change. Should
legislation change to require more stringent management of carbon emissions or more stringent reporting of
environmental impacts, Cineplex anticipates this will result in minimal cost increases or changes to operating
procedures. Severe weather incidents (as a result of environmental changes or otherwise) have potential to
negatively impact Cineplex’s operation. See “Business Continuity Risk” above.
Integration Risk
While Cineplex has successfully integrated businesses acquired in the past, there can be no assurance that all
acquisitions, including recent acquisitions, will be successfully integrated or that Cineplex will be able to realize
expected operating and economic efficiencies from the acquisitions.
Financial and Markets Risk
Cineplex requires efficient access to capital in order to fuel growth, execute strategies and generate future financial
returns. For this reason Cineplex entered into the Revolving Facility. Cineplex hedges interest rates on the Term
Facility and $300 million of the Revolving Facility, thereby minimizing the impact of significant fluctuations in the
market rates. Cineplex’s exposure to currency and commodity risk is minimal as the majority of its transactions are
in Canadian dollars and commodity costs are not a significant component of the overall cost structure. Counter party
risk on the interest rate swap agreements is minimized through entering into these transactions with Cineplex’s
lenders. Upon the maturity of the Credit Facilities, there is a risk that Cineplex may not be able to renegotiate under
favorable terms in the then current economic environment.
As a result of COVID-19, Cineplex may not have sufficient funds available under its current financing sources to
fund operations on a short and/or long-term basis. The effects of COVID-19 on the financial markets could
significantly impact the ability of Cineplex to raise capital and could increase the cost of borrowing. There is a risk
that Cineplex may not be able to find timely sources of financing, which could have an adverse effect on its
business, financial condition and results of operations.
Foreign Currency Risk
Cineplex is exposed to foreign currency risk related to transactions in its normal course of business that are
denominated in currencies other than the Canadian dollar. Cineplex’s largest foreign currency exposure is to the US
dollar, as its amusement solutions and digital place-based media all operate in the United States and which represent
13.4% of Cineplex’s revenues. These revenues are naturally hedged by Cineplex’s US-based operating costs.
Interest Rate Risk
Cineplex is exposed to risk on the interest rates applicable on its Credit Facilities. To mitigate this risk, Cineplex has
entered into interest rate swap agreements as outlined in Section 7.4, Credit Facilities.
Legal, Regulatory, Taxation and Accounting Risk
Changes to any of the various international, federal, provincial and municipal laws, tariffs, treaties, rules and
regulations related to Cineplex’s business could have a material impact on its financial results. Compliance with any
changes could also result in significant cost to Cineplex. Failure to fully comply with various laws, rules and
regulations may expose Cineplex to proceedings which may materially affect its performance.
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On an ongoing basis, Cineplex may be involved in various judicial, administrative, regulatory and litigation
proceedings concerning matters arising in the ordinary course of business operations, including but not limited to,
personal injury claims, landlord-tenant disputes, alcohol-related incidents, commercial disputes, tax disputes,
employment disputes and other contractual disputes. Many of these proceedings seek an indeterminate amount of
damages.
To mitigate these risks, Cineplex promotes a strong ethical culture through its values and code of conduct. Cineplex
employs in-house counsel and uses third party tax and legal experts to assist in structuring significant transactions
and contracts. Cineplex also has systems and controls that ensure efficient and orderly operations. Cineplex also has
systems and controls that ensure the timely production of financial information in order to meet contractual and
regulatory requirements and has implemented disclosure controls and internal controls over financial reporting
which are tested for effectiveness on an ongoing basis. In situations where management believes that a loss arising
from a proceeding is probable and can be reasonably estimated, Cineplex records the amount of the probable loss.
As additional information becomes available, any potential liability related to these proceedings is assessed and the
estimates are revised, if necessary.
15. CONTROLS AND PROCEDURES
15.1 DISCLOSURE CONTROLS AND PROCEDURES
Management of Cineplex is responsible for establishing and maintaining disclosure controls and procedures for
Cineplex as defined under National Instrument 52-109 issued by the Canadian Securities Administrators.
Management has designed such disclosure controls and procedures, or caused them to be designed under its
supervision, to provide reasonable assurance that material information relating to Cineplex, including its
consolidated subsidiaries, is made known to the Chief Executive Officer and the Chief Financial Officer by others
within those entities, particularly during the period in which the annual filings are being prepared.
Management has evaluated the design and operation of Cineplex’s disclosure controls and procedures as of
December 31, 2020 and has concluded that such disclosure controls and procedures are effective.
15.2 INTERNAL CONTROLS OVER FINANCIAL REPORTING
Management of Cineplex is responsible for designing and evaluating the effectiveness of internal controls over
financial reporting for Cineplex as defined under National Instrument 52-109 issued by the Canadian Securities
Administrators. Management has designed such internal controls over financial reporting using the Integrated
Control - Integrated Framework: 2013 issued by the Committee of Sponsoring Organizations of the Treadway
Commission, or caused them to be designed under their supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of the financial statements for external purposes in accordance
with GAAP.
Management has used the Internal Control - Integrated Framework: 2013 to evaluate the effectiveness of internal
controls over financial reporting, which is a recognized and suitable framework developed by COSO.
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with policies
and procedures may deteriorate.
Management has evaluated the design and operation of Cineplex’s internal controls over financial reporting as of
December 31, 2020, and has concluded that such controls over financial reporting are effective. There are no
material weaknesses that have been identified by management in this regard.
There has been no change in Cineplex’s internal controls over financial reporting that occurred during the most
recently completed interim period that has materially affected, or is reasonably likely to materially affect, Cineplex’s
internal control over financial reporting.
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16. SUBSEQUENT EVENTS
Subsequent to December 31, 2020, Cineplex completed a sale and leaseback transaction for its head office buildings
located at 1303 Yonge Street and 1257 Yonge Street, Toronto, Ontario for gross proceeds of $57.0 million. Fifty
percent of the net proceeds were used to permanently reduce Cineplex’s Revolving Credit Facilities to $591.7
million.
In January 2021, 165,146 stock options were cancelled as part Cineplex’s voluntary stock option cancellation
program for payment of $59 thousand. The cancelled stock options were returned to the pool available for future
grants under the Incentive Plan.
On February 8, 2021, Cineplex and Cineplex Entertainment Limited Partnership entered into the Third Credit
Agreement Amendment with The Bank of Nova Scotia providing Cineplex with certain financial covenant relief in
light of the COVID-19 pandemic and its effects on Cineplex’s business.
The following is a summary of the key terms of the Third Credit Agreement Amendment that are updated from the
First and Second Credit Agreement Amendments.
•
Allow the issuance by Cineplex of second lien secured notes (the “Second Lien Notes”) with the following
terms:
▪
▪
▪
a minimum of $200 million and a maximum of $250 million of notes may be issued on or prior to
March 31, 2021;
tenor of at least five years;
secured second lien ranking, subordinate to the security granted for the obligations under the
Credit Facilities, and shall be subject to the terms of an intercreditor agreement that incorporates
certain agreed intercreditor principles and otherwise in form and substance satisfactory to the
agent under to the Credit Facilities; and
▪ mandatory repayment of the Credit Facilities from the issuance of Second Lien Notes, $100
million of which would constitute a permanent reduction.
•
The following amendments to the Credit Facilities would become effective upon the completion of the
issuance of at least $200 million of Notes on or prior to March 31, 2021:
▪
▪
▪
▪
▪
▪
The suspension of financial covenant testing would be extended until the fourth quarter of 2021.
On resumption of financial covenant testing in the fourth quarter of 2021, testing will be based on
an annualized calculation of Adjusted EBITDA (as further adjusted per Credit Agreement
definitions) for the fourth quarter of 2021 and immediately following two fiscal quarters, and
thereafter on a trailing four fiscal quarter period;
The Total Leverage Ratio of 3.75x will apply when financial covenants are reinstated, and will be
reduced until the third quarter of 2022 at which point it will reach a level of 3.00x;
The liquidity covenant would continue and be amended and extended beginning in February 2021,
through to and including December 2021, requiring available liquidity as defined on a monthly
basis (November 1, 2020 through January 31, 2021 - $100.0 million; February 2021 - $75.0
million; March 2021 - $60.0 million; April 1, 2021 through December 31, 2020 - $100.0 million;
The addition of a Senior Leverage Ratio to be based on annualized Adjusted EBITDA and set at
1.0x lower than the Total Leverage Ratio. Senior Leverage Ratio to be defined as (i) Total Debt
less any Second Lien Notes to (ii) Adjusted EBITDA.
Effective with the fourth quarter of 2021, additional growth capital expenditures will be subject to
pro-forma leverage covenant of 2.75x (both prior to and immediately after giving effect to any
such growth capital expenditure) based on actual last twelve month EBITDA; and
Distributions continue to be blocked during the extended financial covenant suspension period and
only permitted when the total leverage ratio is less than 2.75x (both prior to and immediately after
giving effect to any such distribution).
On February 8, 2021, Cineplex announced that it has entered into an engagement letter with BMO Capital Markets
and Scotiabank in connection with a proposed private placement offering (the “Note Offering”) of second lien
secured notes (the “Notes”), subject to market and other conditions, Cineplex intends to use the net proceeds from
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the proposed Note Offering, if completed, to repay indebtedness under its Credit Facilities, in accordance with the
terms of the Third Amendment.
17. OUTLOOK
The following discussion is qualified in its entirety by the caution regarding forward-looking statements at the
beginning of this MD&A and Section 14, Risks and uncertainties.
The outlook for Cineplex’s businesses is contingent on its ability to navigate the current and future impact of
COVID-19 on its businesses.
On March 16, 2020, Cineplex temporarily closed all of its theatres and LBE locations and substantially all of its
route locations throughout North America in response to the COVID-19 pandemic. Cineplex’s related businesses,
including its media business, continue to experience the fallout of the closure of significant portions of the global
economy.
Since the closure of its theatres and LBE venues in March 2020, Cineplex diligently prepared for their safe
reopening, with the health and well being of its employees and guests being its top priority. Cineplex has carefully
re-examined all of its buildings and processes, so that when its theatres and LBE venues reopened, it has
implemented an industry-leading program with end-to-end health and safety protocols. At Cineplex’s theatres
specifically, it has also launched reserved seating in all auditoriums across the country to ensure proper physical
distancing between its guests.
Cineplex has been able to maintain connections with its guests during the period of theatre and LBE venue closures
through its online Cineplex Store and home delivery of food offerings via Uber Eats and Skip the Dishes, as well as
through the SCENE loyalty program and social media channels. Cineplex will use these communication channels to
ensure that its guests are made aware of when its theatres and LBE venues will reopen, and the various measures put
in place to ensure their safety while enjoying a long-deserved outing.
Cineplex gradually reopened theatre and LBE locations throughout July and August as government mandated
closures were reduced in markets in which Cineplex operates. On August 21, 2020, Cineplex became the first of all
the major film exhibitors in the world to reopen its entire circuit of theatres with all 164 Cineplex theatres and 1,687
screens across Canada were reopened, including 22 VIP Cinemas locations, as well as 10 location-based
entertainment venues. Although restrictions on social gatherings were partially lifted in many of the markets in
which Cineplex operated during the third quarter, social gathering restrictions were reinstituted in the fourth quarter
with the increased number of COVID-19 cases throughout the country. The second wave of COVID-19 cases during
the fall and winter months resulted in several provinces across Canada implementing mandatory lockdown measures
which have resulted in prolonged mandatory theatre closures and operating restrictions on the LBE businesses.
In December 2020, Health Canada approved and authorized the Pfizer-BioNTech and Moderna COVID-19 vaccines
for use in Canada with the first doses arriving during the holiday season. Canada has begun the inoculation process
of Canadians, starting with front line workers and high-risk individuals with plans to start vaccinating the general
population during the spring of 2021, and having all Canadians immunized by the fall of 2021. The efficient rollout
of vaccines is a significant leap forward to the return of normalcy and end of the COVID-19 pandemic. However,
the supply and roll-out of approved vaccines in Canada has been inconsistent to date and there can be no assurance
that vaccines will be widely available or distributed as currently anticipated, which would delay a return to
normalcy.
Countries around the world have recently updated their scheduled reopening dates for cinemas. Countries that are
scheduled to reopen their cinemas in January 2021 include but are not limited to Australia, Greece, Bulgaria and
Denmark. Japan had its biggest box office weekend in the country’s history during the fourth quarter of 2020 with
the exhibition of Demon Slayer: Mugen Train. The film exceeded expectations and welcomed over 3.4 million
guests and resulting in a record opening box office weekend topping the country’s previous record. With the strong
slate of upcoming film products, Cineplex remains confident that there will continue to be significant theatrical
releases.
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Based on how the exhibition industry has historically performed during depressed economic environments, and the
results of openings in other countries subsequent to COVID-19 related closures, Cineplex believes, but cannot
guarantee, that the industry will recover as consumer demand for the theatrical experience combined with a build-up
of anticipated content will help drive visitation as people look to return to normalcy. However, the significance of
the COVID-19 pandemic, including the adverse impact on Cineplex’s business, financial condition and results of
operations will be dictated by the duration of the pandemic and the effect on the economy and of responsive
governmental directives, all of which are currently unknown. Cineplex’s business could also be significantly
negatively impacted by changes in consumer behaviors as a result of COVID-19 (such as social distancing) or
further reductions to the theatrical release window. Further, the effect of COVID-19 on financial markets could
significantly impact the ability to raise capital and increase the cost of borrowing. There are limitations on the ability
of Cineplex to mitigate the adverse financial impact of the foregoing. The COVID-19 pandemic also creates
challenges for Cineplex in predicting future performance of its businesses or its liquidity needs in the near term.
FINANCIAL OUTLOOK
Cineplex continues to be negatively impacted by the ongoing COVID-19 pandemic and management focus
continues to be on minimizing net cash burn and optimizing liquidity. Since the onset of the COVID-19 pandemic,
Cineplex and Cineplex Entertainment Limited Partnership have entered into three amendments to its Credit
Facilities, providing Cineplex with certain financial covenant relief in light of the COVID-19 pandemic and its
effects on Cineplex’s businesses (see Section 6.4 Credit Facilities and Section 16, Subsequent events).
On July 15, 2020, Cineplex completed the offering of the Debentures for gross proceeds of $316.3 million, allowing
it to meet the conditions of the First Credit Agreement Amendment and providing additional liquidity for the
recovery period. In addition, a restructuring undertaken in July 2020 reduced headcount by approximately 130
positions, resulting in annual saving of approximately $12.0 million in employee costs, approximately half of which
relates to corporate overhead functions.
In December 2020, Cineplex entered into an agreement with Scotiabank to enhance and expand the SCENE program
receiving $60.0 million with respect to the reorganization. A portion of the proceeds were used to permanently repay
the Credit Facilities, and the remaining proceeds are available to be drawn under the Credit Facilities to fund
continuing operations.
In January 2021, Cineplex announced the sale of its head office building located at 1257 Yonge Street and 1303
Yonge Street, Toronto, Ontario for total cash proceeds of $57.0 million. Cineplex will continue to use the office
building through a sale-leaseback transaction. Cineplex used a portion of the proceeds to permanently repay the
Credit Facilities and the remaining proceeds are available to be drawn under the Credit Facilities to fund continuing
operations.
On February 8, 2021, Cineplex announced that it has entered into an engagement letter with BMO Capital Markets
and Scotiabank in connection with a proposed private placement offering (the “Note Offering”) of second lien
secured notes (the “Notes”), subject to market and other conditions, Cineplex intends to use the net proceeds from
the proposed Note Offering, if completed, to repay indebtedness under its Credit Facilities, in accordance with the
terms of the Third Amendment.
Management continues to focus on reducing costs including the elimination of future capital expenditures and the
termination of its partnership with Topgolf during the third quarter of 2020. With the issuance of the Debentures,
amendments to the Credit Facilities, planned asset sales and income tax recoveries, management believes that it has
adequate liquidity to fund operations for the currently anticipated duration of the pandemic.
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18. NON-GAAP MEASURES
The following measures included in this MD&A do not have a standardized meaning under GAAP and may not be
comparable to similar measures provided by other issuers. Cineplex includes these measures because its
management believes that they assist investors in assessing financial performance.
18.1 EBITDA, ADJUSTED EBITDA AND ADJUSTED EBITDAaL
Management defines EBITDA as earnings before interest income and expense, income taxes and depreciation and
amortization expense. Adjusted EBITDA excludes the change in fair value of financial instrument, (gain) loss on
disposal of assets, foreign exchange, impairment of long-lived assets, goodwill and investments, the equity loss
(income) of CDCP, the non-controlling interests’ share of adjusted EBITDA of TG-CPX Limited Partnership, and
depreciation, amortization, interest and taxes of Cineplex’s other joint ventures and associates. Adjusted EBITDAaL
modifies adjusted EBITDA to deduct current period cash rent paid or payable related to lease obligations net of
quantified savings negotiated with landlords as a result of the COVID-19 closures, including savings negotiated after
the period end. This includes agreements with landlords that are evidenced by way of written confirmation of the
terms agreed upon to the date of approval of the MD&A, and are in the process of being formally documented.
Cineplex’s management believes that adjusted EBITDAaL is an important supplemental measure of Cineplex’s
profitability at an operational level and provides analysts and investors with comparability in evaluating and valuing
Cineplex’s performance period over period. EBITDA, adjusted for various unusual items, is also used to define
certain financial covenants in Cineplex’s Credit Facilities. Management calculates adjusted EBITDAaL margin by
dividing adjusted EBITDAaL by total revenues.
EBITDA, adjusted EBITDA and adjusted EBITDAaL are non-GAAP measures generally used as an indicator of
financial performance and they should not be seen as a measure of liquidity or a substitute for comparable metrics
prepared in accordance with GAAP. Cineplex’s EBITDA, adjusted EBITDA and adjusted EBITDAaL may differ
from similar calculations as reported by other entities and accordingly may not be comparable to EBITDA, adjusted
EBITDA or adjusted EBITDAaL as reported by other entities.
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The following represents management’s calculation of EBITDA, adjusted EBITDA, and adjusted EBITDAaL
(expressed in thousands of dollars):
Net (loss) income from continuing operations
Depreciation and amortization - other
Depreciation - right-of-use assets
Interest expense - lease obligations
Interest expense - other
Interest income
Current income tax (recovery) expense
Deferred income tax recovery
EBITDA from continuing operations
(Gain) loss on disposal of assets
CDCP equity loss (income) (i)
Foreign exchange loss (gain)
Impairment of long-lived assets, goodwill and investments
Non-controlling interest adjusted EBITDA
Depreciation and amortization - joint ventures and associates (ii)
Taxes and interest of joint ventures and associates (ii)
Year ended December 31,
2020
(624,001) $
$
2019
36,516 $
124,846
128,393
49,085
61,483
(182)
(73,495)
(11,373)
128,883
145,946
48,659
36,063
(252)
21,759
(9,990)
2018
85,459
127,423
—
535
30,155
(274)
28,894
(6,580)
$
(345,244) $
407,584 $
265,612
(13,101)
7,279
57
294,863
5
73
202
1,764
(4,827)
1,065
—
24
99
77
2,681
(4,186)
(1,981)
—
78
33
120
Adjusted EBITDA from continuing operations
$
(55,866) $
405,786 $
262,357
Cash rent paid/payable related to lease obligations
Rent previously recognized as a finance lease (iii)
Non-cash rent (v)
Adjusted EBITDAaL (iv) (vi)
(126,949)
(175,240)
—
—
—
—
—
(3,956)
(11,106)
$
(182,815) $
230,546 $
247,295
(i) CDCP equity loss (income) not included in adjusted EBITDA as CDCP is a limited-life financing vehicle that is funded by virtual print
fees collected from distributors.
(ii) Includes the joint ventures with the exception of CDCP (see (i) above).
(iii) Rent payments that were charged to the finance lease obligations in the previous reporting period.
(iv) See Section 18, Non-GAAP measures.
(v) Prior period figures have been revised to conform to current period presentation.
18.2 ADJUSTED FREE CASH FLOW
Free cash flow measures the amount of cash from operating activities net of capital expenditures available for
activities such as repayment of debt, dividends to owners and investments in future growth through acquisitions.
Free cash flow is a non-GAAP measure generally used by Canadian corporations as an indicator of financial
performance and it should not be viewed as a measure of liquidity or a substitute for comparable metrics prepared in
accordance with GAAP. Standardized free cash flow is a non-GAAP measure recommended by the CICA in its
2008 interpretive release, Improved Communication with Non-GAAP Financial Measures: General Principles and
Guidance for Reporting EBITDA and Free Cash Flow, and is designed to enhance comparability.
Cineplex presents standardized free cash flow and adjusted free cash flow per Share because they are key measures
used by investors to value and assess Cineplex. Management of Cineplex defines adjusted free cash flow as
standardized free cash flow adjusted for certain items, and considers adjusted free cash flow the amount available for
distribution to Shareholders. Standardized free cash flow is defined by the CICA as cash from operating activities as
reported in the GAAP financial statements, less total capital expenditures minus proceeds from the disposition of
capital assets other than those of discontinued operations, as reported in the GAAP financial statements; and
dividends, when stipulated, unless deducted in arriving at cash flows from operating activities. The standardized
free cash flow calculation excludes common dividends and others that are declared at the Board’s discretion.
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Management calculates adjusted free cash flow per Share as follows (expressed in thousands of dollars except
Shares outstanding and per Share data):
Cash (used in) provided by operating activities (i)
Less: Total capital expenditures net of proceeds on sale of assets
$
(106,314) $
(73,411)
321,665 $
(146,367)
Year ended December 31
2020
2019
2018
Restated
198,364
(108,149)
Standardized free cash flow
(179,725)
175,298
90,215
Add/(Less):
Changes in operating assets and liabilities (ii)
Changes in operating assets and liabilities of joint ventures and associates (ii)
Principal component of lease obligations
Growth capital expenditures and other (iii)
Share of income of joint ventures and associates, net of non-cash depreciation (iv)
Non-controlling interests
Net cash received from CDCP (iv)
Adjusted free cash flow
Average number of Shares outstanding
Adjusted free cash flow per Share
Dividends declared
43,178
(4,469)
(91,946)
68,032
(855)
5
3,910
(8,727)
535
(128,252)
114,665
(482)
24
15,394
(161,870) $
168,455 $
3,660
(609)
(3,420)
88,941
(285)
78
4,266
182,846
63,333,238
63,333,238
63,332,159
(2.556) $
0.150 $
2.660 $
1.780 $
2.887
1.720
$
$
$
(i) Prior period figures have been revised to conform to current period presentation. See Section 19, Reconciliation for further details.
(i) Changes in operating assets and liabilities are not considered a source or use of adjusted free cash flow.
(iii) Growth capital expenditures and other represent expenditures on Board approved projects, exclude maintenance capital expenditures
and are net of proceeds on asset sales. The Revolving Facility (discussed above in Section 7.4 Credit Facilities) is available to Cineplex to
fund Board approved projects.
(iv) Excludes the share of income of CDCP, as CDCP is a limited-life financing vehicle funded by virtual print fees collected from
distributors. Cash invested into CDCP, as well as distributions received from CDCP, are considered to be uses and sources of adjusted free
cash flow.
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Alternatively, the calculation of adjusted free cash flow using the income statement as a reference point would be as
follows (expressed in thousands of dollars):
Net (loss) income from continuing operations
$
(624,001) $
36,516 $
85,459
Year ended December 31,
2020
2019
2018
Restated
Adjust for:
Depreciation and amortization - other
Depreciation - right-of-use assets
(Gain) loss on disposal of assets
Non-cash interest (i)
Non-cash foreign exchange
Impairment of long-lived assets, goodwill and investments
Financing fees in interest expense
Share of loss (income) of CDCP (ii)
Non-controlling interests
Non-cash depreciation of joint ventures and associates
Deferred income tax recovery
Taxes and interest of joint ventures and associates
Maintenance capital expenditures
Principal component of finance lease obligations
Net cash received from CDCP (ii)
Non-cash items:
124,846
128,393
(13,101)
22,789
342
294,863
—
7,279
5
73
(11,373)
202
(5,379)
(91,946)
3,910
128,883
145,946
1,764
12,217
698
—
—
(4,827)
24
99
(9,990)
77
(31,702)
(128,252)
15,394
Amortization of tenant inducements, rent averaging liabilities and fair value
lease contract assets
Non-cash Share-based compensation
—
1,228
—
1,608
127,423
—
2,681
5,080
(1,231)
—
1,718
(4,186)
78
33
(6,580)
120
(19,207)
(3,420)
4,266
(11,106)
1,718
Adjusted free cash flow
$
(161,870) $
168,455 $
182,846
(i) Non-cash interest includes amortization of deferred financing costs on the long-term debt, accretion expense on the convertible debentures,
and other non-cash interest expense items.
(ii) Excludes the share of income of CDCP, as CDCP is a limited-life financing vehicle funded by virtual print fees collected from distributors.
Cash invested into CDCP, as well as cash distributions received from CDCP, are considered to be uses and sources of adjusted free cash flow.
Management uses the following non-GAAP measures as indicators of performance for Cineplex.
Earnings per Share Metrics
Cineplex has presented basic and diluted earnings per share net of this item to provide a more comparable earnings
per share metric between the current periods and prior year periods. In the non-GAAP measure, earnings is defined
as net income attributable to Cineplex excluding the change in fair value of financial instrument.
Per Patron Revenue Metrics
Cineplex reviews per patron metrics as they relate to box office revenue and theatre food service revenue such as
BPP, CPP, BPP excluding premium priced product, and concession margin per patron, as these are key measures
used by investors to value and assess Cineplex’s performance, and are widely used in the theatre exhibition industry.
Management of Cineplex defines these metrics as follows:
Theatre attendance: Theatre attendance is calculated as the total number of paying patrons that frequent Cineplex’s
theatres during the period.
BPP: Calculated as total box office revenues divided by total paid theatre attendance for the period.
BPP excluding premium priced product: Calculated as total box office revenues for the period, less box office
revenues from 3D, 4DX, UltraAVX, VIP, ScreenX and IMAX product; divided by total paid theatre attendance for
the period, less paid theatre attendance for 3D, 4DX, UltraAVX, VIP, ScreenX and IMAX product.
CPP: Calculated as total theatre food service revenues divided by total paid theatre attendance for the period.
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Premium priced product: Defined as 3D, 4DX, UltraAVX, IMAX, ScreenX and VIP film product.
Theatre concession margin per patron: Calculated as total theatre food service revenues less total theatre food
service cost, divided by theatre attendance for the period.
Same Theatre Analysis
Cineplex reviews and reports same theatre metrics relating to box office revenues, theatre food service revenues,
theatre rent expense and theatre payroll expense, as these measures are widely used in the theatre exhibition industry
as well as other retail industries.
Same theatre metrics are calculated by removing the results for all theatres that have been opened, acquired, closed
or otherwise disposed of subsequent to the start of the prior year comparative period. For the three months ended
December 31, 2020 the impact of 1 location that has been opened or acquired and 4 locations that have been closed
have been excluded, resulting in 157 theatres being included in the same theatre metrics. For the year ended
December 31, 2020 the impact of the 2 locations that have been opened or acquired and the 5 locations that have
been closed have been excluded, resulting in 155 theatres being included in the same theatre metrics.
Cost of sales percentages
Cineplex reviews and reports cost of sales percentages for its two largest revenue sources, box office revenues and
food service revenues as these measures are widely used in the theatre exhibition industry. These measures are
reported as film cost percentage and concession cost percentage, respectively, and are calculated as follows:
Film cost percentage: Calculated as total film cost expense divided by total box office revenues for the period.
Theatre concession cost percentage: Calculated as total theatre food service costs divided by total theatre food
service revenues for the period.
LBE food cost percentage: Calculated as total LBE food costs divided by total LBE food service revenues for the
period.
P1AG Adjusted EBITDAaL
Calculated as amusement revenues of P1AG less the total operating expenses of P1AG, which excludes foreign
exchange.
P1AG Adjusted EBITDAaL Margin
Calculated as P1AG Adjusted EBITDAaL divided by total amusement revenues for P1AG for the period.
Adjusted Store Level EBITDAaL Metrics
Cineplex reviews and reports adjusted EBITDAaL at the location level for LBE which is calculated as total LBE
revenues from all locations less the total operating expenses of LBE, which excludes pre-opening costs and
overhead relating to the management of LBE.
Adjusted Store Level EBITDAaL Margin
Calculated as adjusted store level EBITDAaL divided by total revenues for LBE for the period.
Lease-related cash saving
Quantified savings negotiated with landlords as a result of the COVID-19 disclosures. This includes agreements that
are evidenced by way of written confirmation of the terms agreed upon to the date of this MD&A, and are in the
process of formally documented.
Net Cash Burn
Calculated as adjusted EBITDAaL less cash interest expense (excluding amounts with respect to lease obligations),
provision for income taxes and net capital expenditures.
CINEPLEX INC. 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION & ANALYSIS
CINEPLEX INC. 2020 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
81
73
Cineplex Inc.
Cineplex Inc.
Management's Discussion and Analysis
Management’s Discussion and Analysis
—————————————————————————————————————————————
Net cash burn
Adjusted EBITDAaL
Cash interest expense excluding lease obligations
Provision for income taxes
Net capital expenditures
Total net cash burn
Average monthly net cash burn
Q4
(65,948) $
(13,412)
12,355
(7,272)
(74,277) $
(24,759) $
$
$
$
2020
Q3
(46,725) $
(11,317)
16,497
(8,198)
(49,743) $
(16,581) $
Q2
(72,532)
(7,782)
34,440
(8,019)
(53,893)
(17,964)
19. RECONCILIATION: WORLD GAMING NETWORK LP
During the quarter ended September 30, 2019, Cineplex initiated a review process of WorldGaming Network LP’s
(“WGN”) online esports business, engaging a third-party adviser to identify a strategic equity partner. On June 29,
2020, Cineplex sold all of its interest in WGN for a nominal amount. Cineplex has measured, presented and
disclosed the financial information of WGN as a discontinued operation in accordance with IFRS 5, Non-current
assets held for sale and discontinued operations. As a result, prior period figures have been retroactively restated to
exclude the results related to discontinued operations in order to provide comparability to the current year period.
The following table discloses the changes to the other operating expenses for the first two quarters in 2019:
Other operating expenses
Theatre payroll
Theatre operating expenses
Media
P1AG
LBE (i)
LBE pre-opening (ii)
SCENE
Marketing
Other (iii)
Other operating expenses including cash lease payments
Cash rent related to lease obligations (iv)
Other operating expenses from continuing operations as reported
Other operating expenses from discontinued operations as reported
Total other operating expenses
Restated 2019
Q1
Q2
36,710 $
28,562
16,742
40,965
11,148
691
5,038
2,851
8,174
150,881 $
41,072
30,225
21,185
40,529
13,957
673
4,060
4,192
7,892
163,785
(4,312)
(4,652)
146,569 $
159,133
1,614
2,525
148,183 $
161,658
$
$
$
$
(i) Includes operating costs of LBE. Overhead relating to management of LBE portfolio are included in the ‘Other’ line.
(ii) Includes pre-opening costs of LBE.
(iii) Other category includes overhead costs related to LBE and other Cineplex internal departments.
(iv) Cash rent that has been reallocated to offset the lease obligations.
The following tables show the changes to the previously disclosed balances for other expenses for the first two
quarters in 2019:
Other
Other expenses included in other operating expense as previously reported
Other expenses included in other operating expense from discontinued operations
Other expenses included in other operating expense as restated
Restated 2019
Q1
9,809 $
(1,635)
8,174 $
Q2
10,427
(2,535)
7,892
$
$
CINEPLEX INC. 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION & ANALYSIS
CINEPLEX INC. 2020 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
82
74
Cineplex Inc.
Cineplex Inc.
Management's Discussion and Analysis
Management’s Discussion and Analysis
—————————————————————————————————————————————
The following tables show the changes to the previously disclosed balances for cash rent related to lease obligation
in 2019:
Other
Cash rent related to lease obligations as reported
Cash rent related to lease obligations from discontinued operations
Restated 2019
Q1
(4,333) $
21
(4,312) $
Q2
(4,662)
10
(4,652)
$
$
The following table shows the calculation of adjusted EBITDAaL from adjusted EBITDA as previously disclosed
for the first two quarters in 2019.
Adjusted EBITDAaL
Adjusted EBITDA as previously reported
Net loss from discontinued operations
Depreciation and amortization from discontinued operations
Income tax recovery from discontinued operations
Foreign exchange (gain) loss from discontinued operations
Adjusted EBITDA from continuing operations
Cash rent related to lease obligations
Cash rent paid not pertaining to current period
Adjusted EBITDAaL as restated
Restated 2019
Q2
112,249 $
2,680
(1,186)
658
(18)
114,383 $
(43,775)
(353)
70,255 $
Q1
77,442
2,031
(1,222)
671
(180)
78,742
(44,150)
1,060
35,652
$
$
$
The following tables show the changes to the previously disclosed balances in cash provided by operating activities
and in cash used in investing activities, for the first two quarters in 2019.
Cash provided by operating activities
Cash provided by operating activities as previously reported
Less:
Operating cash flows in discontinued operations
Cash provided by operating activities as restated
Cash used in investing activities
Cash used in investing activities as previously reported
Less:
Investing cash flows in discontinued operations
Cash used in investing activities as restated
Restated 2019
Q2
Q1
57,494 $
60,580
(852)
58,346 $
(846)
61,426
Restated 2019
Q2
Q1
(25,110) $
(27,885)
(259)
(24,851) $
(117)
(27,768)
$
$
$
$
CINEPLEX INC. 2020 ANNUAL REPORT
MANAGEMENT’S DISCUSSION & ANALYSIS
CINEPLEX INC. 2020 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
83
75
Cineplex Inc.
Management's Report to Shareholders
Management’s Report to Shareholders
Management is responsible for the preparation of the accompanying consolidated financial statements and all other
information contained in this Annual Report. The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards, which involve management’s best estimates and
judgments, based on available information.
Management maintains a system of internal accounting controls designed to provide reasonable assurance that
transactions are authorized, assets are safeguarded, and financial records are reliable for preparing consolidated
financial statements.
The Board of Directors of Cineplex Inc. (the “Board” of the “Company”) is responsible for ensuring that
management fulfills its responsibilities for financial reporting and internal control. The Board is assisted in
exercising its responsibilities through the Audit Committee of the Board (the “Audit Committee”). The Audit
Committee meets periodically with management and the independent auditor to satisfy itself that management’s
responsibilities are properly discharged and to recommend approval of the consolidated financial statements to the
Board.
PricewaterhouseCoopers LLP serves as the Company’s auditor. PricewaterhouseCoopers LLP’s report on the
accompanying consolidated financial statements follows. It outlines the extent of its examination as well as an
opinion on the consolidated financial statements.
Ellis Jacob
Chief Executive Officer
Toronto, Ontario
February 10, 2021
Gord Nelson
Chief Financial Officer
CINEPLEX INC. 2020 ANNUAL REPORT
MANAGEMENT'S REPORT TO SHAREHOLDERS
84
Independent auditor’s report
To the Shareholders of Cineplex Inc.
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the financial position of Cineplex Inc. and its subsidiaries (together, the Company) as at December 31,
2020 and 2019, and its financial performance and its cash flows for the years then ended in accordance
with International Financial Reporting Standards (IFRS).
What we have audited
The Company’s consolidated financial statements comprise:
(cid:31)
(cid:31)
(cid:31)
(cid:31)
(cid:31)
(cid:31)
the consolidated balance sheets as at December 31, 2020 and 2019;
the consolidated statements of operations for the years then ended;
the consolidated statements of comprehensive (loss) income for the years then ended;
the consolidated statements of changes in equity for the years then ended;
the consolidated statements of cash flows for the years then ended; and
the notes to the consolidated financial statements, which include significant accounting policies and
other explanatory information.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of
the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Company in accordance with the ethical requirements that are relevant to our
audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities
in accordance with these requirements.
Material uncertainty related to going concern
We draw attention to note 2 in the consolidated financial statements, which describes events or conditions
that indicate the existence of a material uncertainty that may cast significant doubt about the Company’s
ability to continue as a going concern. Our opinion is not modified in respect of this matter.
PricewaterhouseCoopers LLP
PwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, Canada M5J 0B2
T: +1 416 863 1133, F: +1 416 365 8215
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
85
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements for the year ended December 31, 2020. These matters were
addressed in the context of our audit of the consolidated financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter
described in the Material uncertainty related to going concern section, we have determined the matter
described below to be the key audit matter to be communicated in our report.
Key audit matter
How our audit addressed the key audit matter
Impairment assessment of goodwill, indefinite lived
intangible assets, property, equipment and
leaseholds, right-of-use assets and definite lived
intangible assets
Refer to note 11 – Goodwill and impairment of long-
lived assets and investments and note 32 – Significant
accounting policies, judgments and estimation
uncertainty to the consolidated financial statements.
As at December 31, 2020, the Company had $636
million of goodwill, $555 million of property,
equipment and leaseholds (PPE), $881.4 million of
right-of-use assets (ROU), $21 million of definite lived
intangible assets and $64 million of indefinite lived
intangible assets.
Goodwill and indefinite lived intangible assets are
tested for impairment annually or more frequently if
specific events or circumstances dictate that the
carrying amount of the asset group may not be fully
recoverable. Property, equipment and leaseholds, right-
of-use assets and definite lived intangible assets
(collectively, long-lived assets) are tested for
impairment when events or changes in circumstances
indicate that the carrying value may not be recoverable.
For the purpose of measuring recoverable amounts,
assets are grouped at the lowest levels for which there
are separately identifiable cash inflows relating to the
relevant intangible asset (cash-generating units or
CGUs).
Our approach to addressing the matter included the
following procedures, among others:
●
–
–
–
Evaluated how management determined the
recoverable amounts of all goodwill and
indefinite lived intangible assets CGUs and a
sample of long-lived assets CGUs, which
included the following:
Tested the appropriateness of the method used
and the mathematical accuracy of the
discounted cash flow models.
Tested the reasonableness of attendance and
the related revenue growth rates, operating
margins, variable and fixed cash flows and
discount rates applied by management by
comparing them to the budget, management’s
strategic plans approved by the Board of
Directors and available third party published
economic data, industry forecasts and
historical trends.
Professionals with specialized skill and
knowledge in the field of valuation assisted in
testing the reasonableness of the discount
rates applied by management based on
available data of comparable companies.
–
Tested the underlying data used in the
discounted cash flow models.
86
–
Tested the disclosures made in the
consolidated financial statements, particularly
with regard to the sensitivity of the key
assumptions used.
An impairment loss is recognized for the amount by
which the CGU’s carrying value exceeds its recoverable
amount. The recoverable amounts were determined
based on the fair value less costs to sell method using
discounted cash flow models. The key assumptions
applied by management in estimating the recoverable
amounts of the CGUs included attendance and the
related revenue growth rates, operating margins,
variable and fixed cash flows and discount rates.
Due to the COVID-19 pandemic, Cineplex noted during
the year a material decreases in revenues, results of
operations and cash flows which represented an
indicator to trigger impairment testing for both long-
lived assets, indefinite lived intangible assets and
goodwill. The impairment tests resulted in property,
equipment and leaseholds and right of use assets
impairment charges of $111 million and an impairment
loss of $181 million with respect to goodwill. No
impairment loss was required for definite and indefinite
lived intangible assets.
We considered this a key audit matter due to (i) the
significance of the balances and (ii) the significant
judgment made by management in determining the
recoverable amounts of all of the goodwill and indefinite
lived intangible assets CGUs and certain long-lived
assets CGUs, including the use of key assumptions. This
has resulted in a high degree of subjectivity and audit
effort in performing audit procedures to test the key
assumptions. Professionals with specialized skill and
knowledge in the field of valuation assisted us in
performing our procedures.
Other information
Management is responsible for the other information. The other information comprises the Management’s
Discussion and Analysis, which we obtained prior to the date of this auditor’s report and the information,
other than the consolidated financial statements and our auditor’s report thereon, included in the annual
report, which is expected to be made available to us after that date.
87
Our opinion on the consolidated financial statements does not cover the other information and we do not
and will not express an opinion or any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of this
auditor’s report, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard. When we read the information, other
than the consolidated financial statements and our auditor’s report thereon, included in the annual report,
if we conclude that there is a material misstatement therein, we are required to communicate the matter to
those charged with governance.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to liquidate
the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting
process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
88
(cid:31)
(cid:31)
(cid:31)
(cid:31)
(cid:31)
(cid:31)
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Company’s ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to draw attention in our
auditor’s report to the related disclosures in the consolidated financial statements or, if such
disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor’s report. However, future events or conditions may cause the
Company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Company to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group audit.
We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
89
The engagement partner on the audit resulting in this independent auditor’s report is Paul Feetham.
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Ontario
February 10, 2021
90
Cineplex Inc.
Cineplex Inc.
Consolidated Balance Sheets
Consolidated Balance Sheets
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars)
(expressed in thousands of Canadian dollars)
Assets
Current assets
Cash and cash equivalents (note 3)
Trade and other receivables (note 4)
Income taxes receivable (note 8)
Inventories (note 5)
Prepaid expenses and other current assets
Fair value of interest rate swap agreements (note 29)
Assets held for sale (note 31)
Non-current assets
Property, equipment and leaseholds (note 6 and 11)
Right-of-use assets (note 7 and 11)
Deferred income taxes (note 8)
Fair value of interest rate swap agreements (note 29)
Interests in joint ventures and associates (note 9)
Intangible assets (note 10)
Goodwill (note 11)
COVID-19 business impacts and risks and going concern (note 2)
Subsequent events (note 34)
December 31,
December 31,
2020
2019
$
16,254 $
51,834
66,551
21,712
11,613
—
—
26,080
168,065
9,757
30,995
14,226
1,022
6,573
167,964
256,718
555,340
881,418
—
—
8,644
84,922
635,582
662,798
1,232,849
14,197
472
28,221
88,367
816,790
$
2,333,870 $
3,100,412
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - CONSOLIDATED BALANCE SHEETS
CINEPLEX INC. 2020 ANNUAL REPORT
CONSOLIDATED BALANCE SHEETS
91
(1)
Cineplex Inc.
Cineplex Inc.
Consolidated Balance Sheets...continued
Consolidated Balance Sheets...continued
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars)
(expressed in thousands of Canadian dollars)
December 31,
December 31,
2020
2019
Liabilities
Current liabilities
Accounts payable and accrued liabilities (note 12)
$
82,992 $
Share-based compensation (note 13)
Dividends payable (note 14)
Income taxes payable
Deferred revenue (note 21)
Lease obligations (note 15)
Fair value of interest rate swap agreements (note 29)
Liabilities related to assets held for sale (note 31)
Non-current liabilities
Share-based compensation (note 13)
Long-term debt (note 16)
Fair value of interest rate swap agreements (note 29)
Lease obligations (note 15)
Post-employment benefit obligations (note 18)
Other liabilities (note 19)
Deferred income taxes (note 8)
Convertible debentures (note 17)
Total liabilities
Equity
Share capital (note 20)
Deficit
Hedging reserves and other
Contributed surplus
Cumulative translation adjustment
Total equity attributable to owners of Cineplex
Non-controlling interests
Total equity
Approved by the Board of Directors
482
—
802
219,983
97,259
7,202
—
408,720
2,670
506,000
19,157
1,073,666
11,503
68,649
—
219,271
220,188
25,681
9,500
1,183
222,998
106,352
1,874
2,808
590,584
—
625,000
10,837
1,261,243
10,678
9,813
1,263
—
1,900,916
1,918,834
2,309,636
2,509,418
852,379
(903,394)
(131)
75,882
(502)
24,234
—
852,379
(264,310)
(131)
4,052
(887)
591,103
(109)
24,234
590,994
$
2,333,870 $
3,100,412
Director
Director
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - CONSOLIDATED BALANCE SHEETS
CINEPLEX INC. 2020 ANNUAL REPORT
CONSOLIDATED BALANCE SHEETS
92
(2)
Cineplex Inc.
Cineplex Inc.
Consolidated Statements of Operations
Consolidated Statements of Operations
For the years ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
Revenues (note 21)
Box office
Food service
Media
Amusement
Other
Expenses
Film cost
Cost of food service
Depreciation - right-of-use assets
Depreciation and amortization - other assets
(Gain) loss on disposal of assets (note 7)
Other costs (note 22)
Share of loss (income) of joint ventures and associates (note 9)
Interest expense - lease obligations (note 15)
Interest expense - other
Interest income
Foreign exchange
Impairment of long-lived assets, goodwill and investments (notes 9 and 11)
2020
2019
$
132,820 $
108,632
65,358
77,901
33,552
705,521
483,330
196,755
228,231
51,309
418,263
1,665,146
66,922
30,667
128,393
124,846
(13,101)
375,690
8,409
49,085
61,483
(182)
57
294,863
369,386
106,823
145,946
128,883
1,764
782,693
(4,169)
48,659
36,063
(252)
1,065
—
1,127,132
1,616,861
(Loss) income from continuing operations before income taxes
(708,869)
48,285
Provision for income taxes (note 8)
Current
Deferred
Net (loss) income from continuing operations
Net loss from discontinued operations, net of taxes (note 31)
Net (loss) income
Net (loss) income from continuing operations attributable to:
Owners of Cineplex
Non-controlling interests
Net (loss) income from continuing operations
Net (loss) income attributable to:
Owners of Cineplex
Non-controlling interests
Net (loss) income
$
$
$
$
$
$
Net (loss) income per share attributable to owners of Cineplex - basic and diluted:
Continuing operations (note 23)
$
Discontinued operations (note 23)
Total operations
$
(73,495)
(11,373)
(84,868)
(624,001) $
(4,952)
(628,953) $
(623,996) $
(5)
(624,001) $
(628,948) $
(5)
(628,953) $
(9.85) $
(0.08)
(9.93) $
21,759
(9,990)
11,769
36,516
(7,625)
28,891
36,540
(24)
36,516
28,915
(24)
28,891
0.58
(0.12)
0.46
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - CONSOLIDATED STATEMENTS OF OPERATIONS
CINEPLEX INC. 2020 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF OPERATIONS
93
(3)
Cineplex Inc.
Cineplex Inc.
Consolidated Statements of Comprehensive (Loss) Income
Consolidated Statements of Comprehensive (Loss) Income
For the years ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
————————————————————————————————————————————
(expressed in thousands of Canadian dollars)
(expressed in thousands of Canadian dollars)
2020
2019
Restated
(note 33)
Net (loss) income from continuing operations
$
(624,001) $
36,516
Other comprehensive (loss) income from continuing operations
Items that will be reclassified subsequently to net income:
Gain on hedging instruments
Associated deferred income taxes recovery
Foreign currency translation adjustment
Recognition of currency translation adjustment on disposition of discontinued
operations (note 31)
Items that will not be reclassified to net income:
Actuarial loss of post-employment benefit obligations
Associated deferred income taxes expense
Other comprehensive loss
Comprehensive (loss) income from continuing operations
Net loss from discontinued operations, net of taxes (note 31)
Foreign currency translation adjustment from discontinued operations
—
—
378
(160)
(495)
133
(144)
(624,145)
(4,952)
7
4,853
(1,306)
(3,398)
—
(1,054)
282
(623)
35,893
(7,625)
210
Comprehensive (loss) income
$
(629,090) $
28,478
Comprehensive (loss) income from continuing operations attributable to:
Owners of Cineplex
Non-controlling interests
Comprehensive (loss) income attributable to:
Owners of Cineplex
Non-controlling interests
$
$
$
$
(624,140) $
35,917
(5)
(24)
(624,145) $
35,893
(629,085) $
28,502
(5)
(24)
(629,090) $
28,478
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
CINEPLEX INC. 2020 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
94
(4)
Cineplex Inc.
Cineplex Inc.
Consolidated Statements of Changes in Equity
Consolidated Statements of Changes in Equity
For the years ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
————————————————————————————————————————————
(expressed in thousands of Canadian dollars)
(expressed in thousands of Canadian dollars)
Share
capital
Contributed
surplus
Hedging
reserves and
other
Cumulative
translation
adjustment
Non-
controlling
interests
Deficit
Total
January 1, 2020
$
852,379 $
4,052 $
(131) $
(887) $
(264,310) $
(109) $
590,994
Net loss
Other comprehensive
loss (page 4)
Total comprehensive
loss
Dividends declared
Share option expense
PSU/RSU expense
Settlement for
cancelled options
Conversion to equity-
settled option plan
(note 13)
Conversion to equity-
settled PSU/RSU plan
Issuance of convertible
debentures (note 17)
Non-controlling
interests acquired
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,152
76
(453)
3,944
311
66,800
—
—
—
—
—
—
—
—
—
—
—
—
—
(628,948)
(5)
(628,953)
385
385
—
—
—
—
—
—
—
—
(522)
—
(137)
(629,470)
(9,500)
—
—
—
—
—
—
(5)
(629,090)
—
—
—
—
—
—
—
(9,500)
1,152
76
(453)
3,944
311
66,800
(114)
114
—
December 31, 2020
$
852,379 $
75,882 $
(131) $
(502) $
(903,394) $
— $
24,234
January 1, 2019
$
852,379 $
7,815 $
(3,678) $
2,301 $
(179,721) $
(85) $
679,011
Net income
Other comprehensive
loss (page 4)
Total comprehensive
income
Dividends declared
Share option expense
Conversion to cash-
settled option plan
—
—
—
—
—
—
—
—
—
—
1,607
(5,370)
—
3,547
3,547
—
—
—
—
28,915
(24)
28,891
(3,188)
(772)
—
(413)
(3,188)
28,143
(24)
28,478
—
—
—
(112,732)
—
—
—
—
—
(112,732)
1,607
(5,370)
December 31, 2019
$
852,379 $
4,052 $
(131) $
(887) $
(264,310) $
(109) $
590,994
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
CINEPLEX INC. 2020 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
95
(5)
Cineplex Inc.
Cineplex Inc.
Consolidated Statements of Cash Flows
Consolidated Statements of Cash Flows
For the years ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars)
(expressed in thousands of Canadian dollars)
2020
2019
$
(624,001) $
36,516
Cash provided by (used in)
Operating activities
Net (loss) income from continuing operations
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization of property, equipment and leaseholds, and
intangible assets
Depreciation of right-of-use assets
Unrealized foreign exchange
Interest rate swap agreements - non-cash interest
Accretion of convertible debentures
Other non-cash interest
(Gain) loss on disposal of assets
Deferred income taxes
Non-cash share-based compensation
Impairment of long-lived assets, goodwill and investments (note 11)
Net change in interests in joint ventures and associates
Changes in operating assets and liabilities (note 27)
Net cash (used in) provided by operating activities
Investing activities
Proceeds from disposal of assets, including sale of discontinued operations (notes
7 and 9)
Purchases of property, equipment and leaseholds
Intangible assets additions
Tenant inducements
Net cash received from CDCP
Net cash provided by (used in) investing activities
Financing activities
Dividends paid
(Repayments) borrowings under credit facilities, net
Repayments of lease obligations - principal
Issuance of convertible debentures, net (note 17)
Financing fees
Net cash provided by (used in) financing activities
Effect of exchange rate differences on cash
(Decrease) increase in cash and cash equivalents from continuing operations
Cash flows used in discontinued operations (note 31)
Cash and cash equivalents - Beginning of period
Cash and cash equivalents - End of period
Supplemental information
Cash paid for interest - lease obligation
Cash paid for interest - other
Cash (received) paid for income taxes, net
124,846
128,393
342
13,922
7,471
1,396
(13,101)
(11,373)
1,228
294,863
12,878
(43,178)
(106,314)
80,920
(73,411)
(9,005)
24,296
3,910
26,710
9
(19,000)
(119,000)
(91,946)
303,063
(1,500)
2
1
2
1
71,617
552
(7,435)
(2,391)
26,080
16,254 $
32,371 $
47,859 $
(16,297) $
$
$
$
$
128,883
145,946
698
10,472
—
1,745
1,764
(9,990)
1,608
—
(4,704)
8,727
321,665
—
(146,367)
(7,865)
13,985
15,394
(124,853)
(112,415)
45,000
(128,252)
—
(243)
(195,910)
483
1,385
(547)
25,242
26,080
47,018
25,302
36,402
(6)
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - CONSOLIDATED STATEMENTS OF CASH FLOWS
CINEPLEX INC. 2020 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CASH FLOWS
96
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
1. General information
Cineplex Inc. (“Cineplex”) an Ontario, Canada corporation, is one of Canada’s largest entertainment organizations,
with theatres and location-based entertainment venues in ten provinces. Cineplex also operates businesses in digital
commerce, cinema media, digital place-based media and amusement solutions through its wholly owned
subsidiaries, Cineplex Entertainment Limited Partnership (the “Partnership”), Famous Players Limited Partnership
(“Famous Players”), Galaxy Entertainment Inc. (“GEI”), Cineplex Digital Media Inc. (“CDM”), and Player One
Amusement Group Inc. (“P1AG”). Cineplex is headquartered at 1303 Yonge Street, Toronto, Ontario, M4T 2Y9.
On December 15, 2019, Cineplex entered into an arrangement agreement (the “Arrangement Agreement”) with
Cineworld Group, plc (“Cineworld”), pursuant to which an indirect wholly-owned subsidiary of Cineworld agreed to
acquire all of the issued and outstanding common shares of Cineplex (“Shares”) for $34.00 per share in cash (the
“Cineworld Transaction”). The Cineworld Transaction was to be implemented by way of a statutory plan of
arrangement under the Business Corporation Act (Ontario).
On June 12, 2020, Cineworld delivered a notice (the “Termination Notice”) to Cineplex purporting to terminate the
Arrangement Agreement. In the Termination Notice, Cineworld alleged that Cineplex took certain actions that
constituted breaches of Cineplex’s covenants under the Arrangement Agreement including failing to operate its
business in the ordinary course. In addition, Cineworld alleged that a material adverse effect had occurred with
respect to Cineplex. Cineworld’s repudiation of the Arrangement Agreement has been acknowledged by Cineplex
and the Cineworld Transaction will not proceed. Cineplex vigorously denies Cineworld’s allegations. The
Arrangement Agreement explicitly excludes any “outbreaks of illness or other acts of God” from the definition of
material adverse effect and all of Cineworld’s allegations stem from an outbreak of illness and act of God
(COVID-19). Cineplex believes that Cineworld had no legal basis to terminate the Arrangement Agreement and
that Cineworld breached the Arrangement Agreement and its other contractual obligations because, among other
failures, it did not use reasonable best efforts to obtain approval under the Investment Canada Act as soon as
reasonably practicable (“ICA Approval”). If Cineworld had complied with its obligation to obtain ICA Approval,
Cineplex believes the ICA Approval would have been obtained and the Cineworld Transaction would have closed
well before the outside date for completion in the Arrangement Agreement. No amounts are due to be paid by
Cineplex as a result of the Termination Notice and no amounts have been accrued in the financial statements with
respect to the Termination Notice.
On July 3, 2020, Cineplex announced that it had commenced an action in the Ontario Superior Court of Justice
against Cineworld and 1232743 B.C. Ltd. seeking damages arising from what Cineplex claims was a wrongful
repudiation of the Arrangement Agreement. The claim seeks damages, including the approximately $2,180,000 that
Cineworld would have paid upon the closing of the Cineworld Transaction for Cineplex’s securities, reduced by the
value of the Cineplex securities retained by its security holders, as well as compensation for other losses including
the failure of Cineworld to repay or refinance Cineplex’s approximately $664,000 in debt and transaction expenses.
Cineplex has also advanced alternative claims for damages for the loss of benefits to its security holders, and to
require Cineworld to disgorge the benefits it improperly received by wrongfully repudiating the Cineworld
Transaction.
Cineplex claims that Cineworld breached its contractual obligations and its duty of good faith and honesty in
contractual performance. Cineworld purports to rely upon alleged adverse impacts of COVID-19 on Cineplex’s
business to terminate the Arrangement Agreement, which it is not entitled to do. The contractual agreements
between the parties expressly exclude outbreaks of illness, such as the COVID-19 pandemic, as a circumstance
entitling Cineworld to terminate the Arrangement Agreement.
On July 6, 2020, Cineworld announced that it would defend Cineplex’s claim, and on September 2, 2020, filed its
Statement of Defence and Counterclaim in which it denied Cineplex’s claims and advanced a counterclaim seeking
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
97
(7)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
reimbursement of an unspecified amount for costs incurred with respect to the transaction and an unspecified
amount for punitive damages. Cineplex responded to Cineworld’s defence and counterclaim on September 15, 2020,
denying all claims levied by Cineworld.
While a trial date has been set for September 2021, due to uncertainties inherent in litigation, it is not possible for
Cineplex to predict the timing or final outcome of the legal proceedings against Cineworld or to determine the
amount of damages, if any, that may be awarded. Further, even if Cineplex’s action against Cineworld is successful,
Cineworld may not have the ability to pay the full amount of any damages awarded.
The Board of Directors approved these consolidated financial statements on February 10, 2021.
2. COVID-19 business impacts, risks and going concern
In early 2020, the outbreak of COVID-19 was confirmed in multiple countries throughout the world and on March
11, 2020, it was declared a global pandemic by the World Health Organization. In response, Cineplex immediately
introduced enhanced cleaning protocols and reduced theatre capacities to promote social distancing. By mid-March,
each of Canada’s provinces and territories had declared a state of emergency resulting in, among other things, the
mandated closure of non-essential businesses, restrictions on public gatherings and quarantining of people who may
have been exposed to the virus.
On March 16, 2020, Cineplex announced the temporary closure of all of its theatres and LBE venues across Canada,
as well as substantially all route locations operated by P1AG. On April 1, 2020, in response to applicable
government directives and guidance from Canadian public health authorities, Cineplex announced that the closure of
its theatres and LBE venues across Canada would remain in effect and that the reopening of such locations would be
reassessed as further guidance is provided by Canadian public health authorities and applicable government
authorities.
Cineplex was able to reopen a limited number of venues in late June, and as government restrictions across the
country were eased, additional locations were opened. On August 21, 2020, Cineplex became one of the first of all
the major film exhibitors in the world to reopen its entire circuit of theatres across Canada, including location based
entertainment venues. During this period, Cineplex continued its negotiations with landlords, finalizing the majority
of discussions and realizing material reductions in rent payments for both the closure period in the second, third, as
well as for the fourth quarter and future periods.
To mitigate the negative impact of COVID-19 and support its long-term stability, Cineplex has undertaken a variety
of measures including:
Liquidity measures:
•
•
•
entered into amendment agreements with The Bank of Nova Scotia as administrative agent to the seventh
amended and restated credit agreement that provided Cineplex with certain financial covenant relief in light
of the COVID-19 pandemic and its effects on Cineplex’s business. Refer to note 16, Long-term debt and
note 34, Subsequent events, for a summary of key terms of the First, Second and Third Credit Agreement
Amendments;
issued convertible unsecured subordinated debentures for net proceeds of $303,063 (the “Debentures”),
refer to note 17, Convertible debentures;
entered into an agreement to enhance and expand the SCENE Scotiabank Loyalty program receiving
$60,000 with respect to the reorganization;
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
98
(8)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
•
•
focused on revenue driving opportunities including the expansion of Cineplex Store offerings and
expansion of food home delivery from theatres and LBE venues; and
filed corporate tax returns for income tax recoveries in a timely manner.
Cost reduction and subsidy measures:
•
•
•
•
•
•
•
•
•
•
•
•
temporary layoffs of all part-time and full-time hourly employees as well as a number of full-time
employees who chose a temporary layoff rather than a salary reduction;
reduced full-time employee salaries by agreement with such employees during the second and third
quarters;
suspended or deferred current capital spending and reviewing all capital projects to consider either deferral
or cancellation;
reduced non-essential discretionary operational expenditures (such as spending on marketing, travel and
entertainment);
implemented a more stringent review and approval process for all outgoing procurement and payment
requests;
continued negotiations with landlords for rent relief, including abatements and converting fixed rent to
variable rent depending on attendance, until attendance returns to previous levels;
worked with major suppliers and other business partners to modify the timing and quantum of certain
contractual payments;
reviewed and applied for government subsidy programs where available, including municipal and
provincial property tax and energy rebates or subsidies;
applied for the ongoing Canada Emergency Wage Subsidy (“CEWS”) made available by the Government
of Canada since March 2020;
applied for the ongoing Canada Emergency Rent Subsidy (“CERS”), which was launched by the
Government of Canada as a result of government mandated lockdowns, providing a variable subsidy for
rent and other occupancy-related costs incurred from September 27, 2020 through June, 2021;
continued evaluation of Cineplex’s eligibility under other relief programs; and
continued the suspension of dividends.
In addition to cost savings associated with the temporary layoffs of its employees, reductions in salaries and other
mitigation efforts, Cineplex has suspended or deferred certain capital spending and is reviewing all capital projects
to consider further deferrals or cancellations and has plans to reduce purchases of property, plant and equipment (net
of tenant inducements) to approximately $50,000 over the next 12 months.
Since the closure of its theatres and LBE venues in March 2020, Cineplex diligently prepared for their safe
reopening, with the health and well-being of its employees and guests being its top priority. Cineplex carefully re-
examined all of its buildings and processes, so that when its theatres and LBE venues reopened, it had implemented
an industry-leading program with end-to-end health and safety protocols.
Some of the new measures implemented on reopening included:
•
•
•
•
•
•
launching reserved seating in all auditoriums across Canada; seating options are automatically blocked off
to ensure proper distance in every direction between guests;
reducing capacity in all auditoriums to allow for physical distancing in accordance with government
regulations;
enhancing cleaning practices throughout our facilities, with particular focus on high-contact surfaces,
restrooms and seats;
accepting debit and credit payments only, with the exception of gift card purchases;
limiting food offerings in theatres;
ensuring employees have the personal protective equipment they need and as required by provincial
regulations; and
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
99
(9)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
• making hand sanitizer readily available for guests and employees throughout the buildings.
Although restrictions on social gatherings were partially lifted in many of the markets in which Cineplex operated
during the third quarter, social gathering restrictions were reinstituted in the fourth quarter with the increased
number of COVID-19 cases throughout the country. The second wave of increased cases during the fall months
resulted in several provinces across Canada implementing mandatory lockdown measures which have resulted in
prolonged mandatory theatre closures and operating restrictions on the LBE businesses. Due to the uncertainty of the
timing of the reductions of many government-imposed restrictions and the potential long-term effects that the
COVID-19 pandemic may have on the exhibition and amusement and leisure businesses, COVID-19 may have a
prolonged negative impact on Cineplex’s operations. In addition, with the global delay of exhibitors reopening,
specifically those in California and New York, distributors shifted the release dates of major movie titles out of 2020
into 2021 and beyond, in an effort to maximize box office revenues on the eventual release of such titles. This
included the following releases: Godzilla vs. Kong, Black Widow, Fast & Furious 9, Cruella, Peter Rabbit 2,
Venom: Let There Be Carnage, Minions: The Rise of Gru, Top Gun: Maverick, Shang-Chi and the Legend of the
Ten Rings, Space Jam: A New Legacy, Jungle Cruise, The Suicide Squad, The King’s Man, A Quiet Place Part II,
Dune, No Time To Die, Eternals, Ghostbuster: Afterlife, Mission: Impossible 7, Spider-Man 3, West Side Story and
The Matrix 4.
In addition, some previously expected theatrical releases have instead been redirected to streaming services. The
impact of the reduction of new releases in the fourth quarter as a result of these postponements in combination with
the ongoing and potentially expanded restrictions on the reopening of Cineplex’s businesses, also negatively
impacted the timing of Cineplex’s return to profitability.
In December 2020, Health Canada approved and authorized the Pfizer-BioNTech and Moderna COVID-19 vaccines
for use in Canada with the first doses arriving during the holiday season. Canada has begun the inoculation process
of Canadians, starting with front line workers and high-risk individuals with plans to start vaccinating the general
population during the spring of 2021, and having all Canadians immunized by the fall of 2021. The efficient rollout
of vaccines is a significant leap forward to the return of normalcy and end of the COVID-19 pandemic. However,
the supply and roll-out of approved vaccines in Canada has been inconsistent to date and there can be no assurance
that vaccines will be widely available or distributed as currently anticipated, which would delay a return to
normalcy.
With the unknown duration of the pandemic and yet to be determined timing of the phased complete reopening of
Cineplex’s businesses, as well as consumers’ future risk tolerance regarding health matters, it is not possible to
know the impact of the pandemic on future results. However, Cineplex is optimistic that the exhibition and
amusement and leisure industries will recover over time. Cineplex believes consumer demand for the theatrical
experience combined with a backlog of anticipated releases of strong film content will help drive visitation, and that
LBE activities will increase as people seek out-of-home experiences they have been restricted from enjoying for
almost a year.
Management continues to pursue all viable options to maintain adequate liquidity to fund operations for the
foreseeable future. This includes but is not limited to planned asset sales such as Cineplex’s head office building in
Toronto which was completed subsequent to period end (note 34, Subsequent events), additional financing sources
and amendments to existing credit facilities. The proceeds received are primarily used to repay Cineplex’s existing
credit facilities and fund continuing operations.
As of December 31, 2020, Cineplex was in compliance with all financial covenants under the terms of its senior
secured credit facilities (“Credit Facilities”). However, management’s forecasts indicate a potential breach of
covenants within the next twelve months as a result of the ongoing pandemic. Management’s forecasts may change
materially as the impact of COVID-19 on Cineplex’s business is better understood over the course of time. A
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
100
(10)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
violation of its covenants would represent an event of default under the terms of the Credit Facilities, enabling the
lenders to demand immediate repayment of all amounts due. See note 34, Subsequent events, for a description of
certain amendments to the Credit Facilities entered into after year end.
As of December 31, 2020, Cineplex had a cash balance of $16,254 and $153,766 available under its Credit Facilities
subject to the liquidity covenants set forth in the Credit Facilities as amended (note 34, Subsequent events). Cineplex
also reported a loss from continuing operations during the year of $624,001 and an accumulated deficit of $903,394.
Subsequent to year end, Cineplex entered into an amendment to the credit agreement governing the Credit Facilities
to obtain certain financial covenant relief from the syndicate of lenders under its Credit Facilities, see note 34,
Subsequent events. Cineplex continues to pursue a variety options to maintain adequate liquidity to fund operations
for the currently anticipated duration of the pandemic and is investigating additional sources of financing including
further asset sales, such as the sale of the head office completed subsequent to year end, however as of the date of
the consolidated financial statements, no further financing had been concluded, and there can be no assurance that
such financing initiatives will be successful.
Cineplex has prepared its condensed consolidated financial statements on a going concern basis, which presumes it
will continue its operations for the foreseeable future, and will be able to realize its assets and discharge its liabilities
and commitments in the normal course of business as they become due. While Cineplex currently has sufficient
liquidity to satisfy its immediate financial obligations, there can be no assurance that the steps that management is
taking will provide sufficient liquidity in the near term to meet its ongoing obligations, nor can it be assured that it
will be able to obtain additional financing at favorable terms, or at all. These material uncertainties lend significant
doubt about the Company’s ability to continue as a going concern and, accordingly, the appropriateness of the use of
accounting principles applicable to a going concern. The consolidated financial statements do not reflect adjustments
and classifications of assets, liabilities, revenues and expenses which would be necessary if Cineplex were unable to
continue as a going concern. Such adjustments could be material.
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
101
(11)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
3. Cash and cash equivalents
Cash and cash equivalents comprise the following:
Cash at bank and on hand, net of outstanding cheques
$
16,254 $
26,080
2020
2019
4. Trade and other receivables
Trade and other receivables comprise the following:
Trade receivables
Other receivables
5. Inventories
Inventories comprise the following:
Food service inventories
Gaming inventories
Other inventories, including work-in-progress
2020
29,188 $
22,646
2019
136,647
31,418
51,834 $
168,065
2020
3,023 $
12,088
6,601
21,712 $
2019
9,304
14,447
7,244
30,995
$
$
$
$
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
102
(12)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
6. Property, Equipment, and Leaseholds
Property, equipment and leaseholds consist of:
Buildings and
leasehold
improvements
Land
Buildings and
leasehold
improvements
under finance
lease
Equipment
Construction-
in-progress
Total
At January 1, 2020
Cost
$
19,372
$
823,965
$
$
$
—
$
841,572
$
$
$
45,324 $
1,730,233
Accumulated depreciation
—
(480,554)
—
(586,881)
—
(1,067,435)
Net book value
$
19,372
$
343,411
$
$
$
—
$
254,691
$
$
$
45,324 $
662,798
Year ended December 31, 2020
Opening net book value
$
19,372
$
343,411
$
$
$
—
$
254,691
$
$
$
45,324 $
662,798
Additions, net of transfers
Reclassification to assets held for sale
Disposals
Impairment (note 11)
Foreign exchange rate changes
Depreciation for the year - continuing
operations
10
—
—
—
—
—
19,152
1
(481)
(34,117)
(7)
(43,956)
—
—
—
—
—
17,499
723
(2,118)
(881)
(237)
(69,391)
Closing net book value
$
19,382
$
284,003
$
$
$
—
$
200,286
$
$
11,664
—
(1,125)
(4,194)
—
—
48,325
724
(3,724)
(39,192)
(244)
(113,347)
51,669 $
555,340
$
`
At December 31, 2020
Cost
Accumulated amortization
Net book value
$
$
19,382
$
804,439 $
$
— $
837,073 $
51,669 $
1,712,563
—
(520,436)
—
(636,787)
—
(1,157,223)
19,382 $
284,003
$
0
—
$
200,286
0
$
0
51,669 $ — $
555,340
At January 1, 2019
Cost
$
19,372
$
759,661
$
$
$
34,498
$
772,298
$
$
$
30,652 $
1,616,481
Accumulated depreciation
—
(436,153)
(23,259)
(522,715)
—
(982,127)
Net book value
$
19,372
$
323,508
$
$
$
11,239
$
249,583
$
$
$
30,652 $
634,354
Year ended December 31, 2019
Opening net book value
$
19,372
$
323,508
$
$
$
11,239
$
249,583
$
$
$
30,652 $
634,354
Additions, net of transfers
Reclassification to right-of-use assets
Reclassification to assets held for sale
Disposals
Foreign exchange rate changes
Depreciation for the year - continuing
operations
Depreciation for the year -
discontinued operations
—
—
—
—
—
—
—
67,325
—
79,588
14,915
(405)
(1)
(355)
(98)
(46,562)
(1)
(11,239)
—
—
—
—
—
—
(723)
(999)
(2,135)
(70,349)
(274)
—
—
(243)
—
—
—
161,828
(11,644)
(724)
(1,597)
(2,233)
(116,911)
(275)
Closing net book value
$
19,372
$
343,411 $
$
— $
254,691 $
45,324 $
662,798
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
103
(13)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
7. Right-of-use assets
Right-of-use assets consists of:
At December 31, 2020
Cost
Accumulated depreciation
Net book value
Year ended December 31, 2020
Balance - December 31, 2019
Modifications, net of additions
Disposals
Foreign exchange rate changes
Depreciation for the period
Impairment (note 11)
Closing net book value
At December 31, 2019
Cost
Accumulated depreciation
Net book value
Year ended December 31, 2019
Opening net book value upon adoption of IFRS 16
Additions, net of modifications
Foreign exchange rate changes
Depreciation for the period
Closing net book value
Property
Equipment
Total
$
1,132,613 $
19,843 $
1,152,456
(260,872)
(10,166)
(271,038)
$
871,741 $
9,677 $
881,418
$
1,218,054 $
14,795 $
1,232,849
(144,078)
(7,151)
39
(4)
—
2
(144,082)
(7,151)
41
(123,277)
(5,116)
(128,393)
(71,846)
—
(71,846)
$
871,741 $
9,677 $
881,418
Property
Equipment
Total
$
1,358,671 $
19,849 $
1,378,520
(140,617)
(5,054)
(145,671)
$
1,218,054 $
14,795 $
1,232,849
$
1,323,187 $
19,406 $
1,342,593
36,372
(614)
(140,891)
446
(2)
(5,055)
36,818
(616)
(145,946)
$
1,218,054 $
14,795 $
1,232,849
During the third quarter of 2020, Cineplex disposed of certain protective rights on leased properties in exchange for
$21,000 cash proceeds. Cineplex recognized a gain of $13,780 on the derecognition of $7,220 of right-of-use assets.
COVID-19 resulted in closures of substantially all leased properties and the suspension of use of most equipment for
a period in 2020. During the third and fourth quarters of 2020, Cineplex agreed to a variety of arrangements with
landlords to reduce or defer payments. The effect of those reductions or deferrals reduced both lease obligations and
right-of-use assets by approximately $129,085.
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
104
(14)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
8. Deferred income taxes
Based on substantively enacted corporate tax rates, expected timing of reversals and expected taxable income
allocation to various tax jurisdictions, deferred income taxes are as follows:
Deferred income tax assets
Property, equipment and leaseholds and deferred tenant inducements -
difference between net carrying value and undepreciated capital cost
Accounting provisions not currently deductible
Deferred revenue
Interest rate swap agreements
Income tax credits available
Operating losses available for carry-forward and carry-back
$
Total gross deferred income tax assets
Future deferred tax liabilities
Intangible assets
Goodwill
Other
Convertible debentures
Total gross deferred income tax liabilities
Net deferred income tax recognized
2020
2019
12,494 $
83,900
16,243
6,943
397
24,656
144,633
(10,151)
(27,841)
4,892
(24,464)
(57,564)
10,534
46,316
958
2,882
381
17,022
78,093
(11,871)
(54,146)
858
—
(65,159)
$
— $
12,934
The recognition of non-cash impairment related to long-lived assets in the first and fourth quarters of 2020 has
resulted in deferred income tax assets of $29,736. The non-cash goodwill impairment losses in the first, third and
fourth quarters of 2020 resulted in additional deferred income tax assets of $29,073.
Due to the material uncertainties described in note 2, COVID-19 business impacts, risks and going concern, the
recoverability of the net deferred income tax assets in the normal course of business is uncertain and accordingly the
net deferred tax assets have been derecognized at December 31, 2020. Cineplex expects to recover income taxes
paid in prior periods of $65,963 when it files its tax returns for the 2020 taxation year. That amount has been
recognized as income taxes receivable on the consolidated balance sheet.
The provision for income taxes included in the consolidated statement of operations differs from the statutory
income tax rate for the years ended December 31, 2020 and 2019 as follows:
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
105
(15)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
Income from continuing operations before income taxes
Combined statutory income tax rates for the current year
Income taxes (recoverable) payable at statutory rate
Adjustments relating to prior periods
Goodwill impairment - permanent differences
Other permanent differences
Derecognition of deferred income tax assets
Provision for income taxes
2020
2019
$
(708,869)
$
48,285
26.81 %
26.79 %
(190,020)
2,244
19,447
(3,608)
87,069
(84,868)
$
$
12,934
(2,126)
—
961
—
11,769
Adjustments relating to prior periods include differences between the prior year provision and the income tax returns
as filed.
Non-capital losses available for carry-forward expire as follows:
2027
2028
2029
2030
2032
2034
2035
2036
2037
2038
2040
Indefinite
Losses denominated in US dollars reflect changes in the foreign exchange rate
$
$3,258
8,822
5,122
2,184
254
1,947
2,770
2,749
18,546
3,110
18,936
22,397
90,095
In October 2018, Cineplex received a proposal letter from the Canada Revenue Agency (“CRA”) proposing to deny
a portion of the losses of AMC Ventures Inc. (“AMC”), which was acquired by Cineplex in 2012. In 2019, the CRA
issued a notice of reassessment (“NOR”) denying the use of $26,600 of losses by Cineplex, which offset taxable
income generated in 2014, thereby increasing taxes and interest payable by approximately $8,600, 50% of which
was payable immediately. Cineplex disagrees with the CRA’s position and has filed a notice of objection in respect
of the NOR. Cineplex believes that it should prevail in defending its original filing position although no assurance
can be given in this regard. The payment relating to the disputed tax reassessment of Cineplex’s 2014 tax return is
reflected in income taxes receivable.
As a result of reducing taxable income through losses, Cineplex is subject to minimum tax in certain jurisdictions
which may be credited against income taxes payable on taxable income earned in periods after the losses have been
fully used. In 2020, an additional $16 of minimum taxes were payable such that the minimum income tax credits
totaled $397 through December 31, 2020 (2019 - $381) and have been recorded as deferred income tax assets and a
reduction of deferred income tax expense.
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
106
(16)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
9. Interests in joint ventures and associates
Cineplex participates in incorporated and unincorporated joint ventures with other parties and accounts for its
interests using the equity method.
Cineplex Digital Cinemas Partnership, (“CDCP”), is a joint venture formed by Cineplex and Empire Theatres
Limited to finance the implementation of digital projectors. Cineplex leases its digital projectors from CDCP.
Other joint ventures include a 50% interest in a theatre operation (2019 - 50%), and a 50% interest in YoYo’s (2019
- 50%), and a 34.7% interest in VR Studios Inc (2019 - 34.7%). In the fourth quarter of 2020, Cineplex assessed the
recoverability of its investment in VR Studios Inc. and recognized an impairment loss of $2,790, reducing the
carrying value to nil.
The joint ventures and associates are headquartered in Canada and the United States.
The net interest in joint ventures is summarized as follows as at December 31, 2020 and 2019:
2020
Ownership percentage
Voting percentage
Interest at beginning of year
Dividends or distributions
Impairment
Net change in receivable or payable
Share of net (loss)
$
CDCP
78.2%
50%
24,578 $
(3,910)
—
(4,750)
(7,279)
Other
Total
34.7%-50%
34.7%-50%
3,643 $
—
(2,790)
282
(1,130)
28,221
(3,910)
(2,790)
(4,468)
(8,409)
Net interest in joint ventures and associates
$
8,639 $
5 $
8,644
2019
Ownership percentage
Voting percentage
Interest at beginning of year
Investments
Dividends or distributions
Net change in receivable or payable
Share of net income (loss)
Net interest in joint ventures
CDCP
78.2 %
50 %
Other
Total
34.7%-50%
34.7%-50%
$
$
34,451
246
(15,640)
694
4,827
4,461 $
—
—
(160)
(658)
38,912
246
(15,640)
534
4,169
$
24,578
$
3,643 $
28,221
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
107
(17)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
The summarized balance sheets including 100% of the assets, liabilities and equity of each of the joint ventures at
December 31 each year are as follows:
CDCP
Other
Total
Total liabilities and equity
$
12,897 $
333 $
2020
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Prepaid expenses and other current assets
Equipment
Total assets
Liabilities
Accounts payable and accrued liabilities
Deferred revenue
Long-term debt
Total liabilities
Equity (Deficit)
2019
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Prepaid expenses and other current assets
Equipment
Total assets
Liabilities
Accounts payable and accrued liabilities
Deferred revenue
Long-term debt
Total liabilities
Equity (Deficit)
$
623 $
$
$
2,079
—
60
2,762
10,135
12,897 $
1,804 $
158
1,962
—
1,962
10,935
85 $
183
31
25
324
9
333 $
641 $
—
641
2,669
3,310
(2,977)
$
384 $
7,078
—
—
7,462
19,603
797 $
476
293
643
2,209
356
$
$
27,065 $
2,565 $
1,663 $
158
1,821
—
1,821
25,244
2,674 $
639
3,313
4,052
7,365
(4,800)
708
2,262
31
85
3,086
10,144
13,230
2,445
158
2,603
2,669
5,272
7,958
13,230
1,181
7,554
293
643
9,671
19,959
29,630
4,337
797
5,134
4,052
9,186
20,444
29,630
CDCP
Other
Total
Total liabilities and equity
$
27,065 $
2,565 $
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
108
(18)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
The summarized statements of comprehensive income (loss) including 100% of the revenue, expenses and income
of each of the joint ventures for the years ending December 31 are as follows:
2020
Revenues
Depreciation and amortization
Interest expense
Other expenses
Total expenses
Net loss
Comprehensive loss
2019
Revenues
Depreciation and amortization
Interest (income) expense
Other expenses
Total expenses
Net income (loss)
Comprehensive income (loss)
CDCP
Other
$
6,484 $
464 $
9,458
23
6,312
15,793
—
92
1,187
1,279
Total
6,948
9,458
115
7,499
17,072
$
$
(9,309) $
(815) $
(10,124)
(9,309) $
(815) $
(10,124)
CDCP
Other
Total
$
23,872 $
3,318 $
27,190
10,812
(77)
6,965
17,700
255
180
11,927
12,362
11,067
103
18,892
30,062
6,172 $
(9,044) $
(2,872)
6,172 $
(9,044) $
(2,872)
$
$
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
109
(19)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
SCENE
In addition to the joint ventures which are equity accounted, Cineplex consolidates its 50% share of assets,
liabilities, revenues and expenses of its joint operation in the Scene loyalty program (Scene). In the fourth quarter,
Cineplex announced that it had entered into an agreement with its existing partner to enhance and expand the Scene
loyalty program. Cineplex received $60,000 from its existing partner with respect to the agreement to reorganize the
program and reposition it for future growth. In conjunction with the agreement, Cineplex’s interest in the operations
of Scene was reduced to 33.3%. Cineplex continues to have joint control of the joint operation and is entitled to and
responsible for 50% of the economic benefits and obligations until specific non-financial milestones are met,
resulting the deferral of recognition of the proceeds in other liabilities, and the continued consolidation of 50% of
Scene. The summarized combined balance sheets of SCENE GP and SCENE LP at December 31 are as follows:
Assets
Cash and cash equivalents
Trade and other receivables
Prepaid expenses
Intangible Assets
Equipment
Right-of-use assets
Total assets
Liabilities
Accounts payable and accrued liabilities
Deferred revenue
Lease obligations
Total liabilities
Deficiency
$
$
$
2020
2019
13,527 $
16,460
1,320
31,307
1,745
137
20
33,209 $
7,604 $
72,643
21
80,268
(47,059)
3,299
25,027
—
28,326
715
252
102
29,395
29,926
42,979
105
73,010
(43,615)
$
33,209 $
29,395
The summarized combined results of operations of SCENE GP and SCENE LP are as follows:
Revenues
Expenses
Net loss
2020
36,686 $
52,130
2019
98,952
122,408
(15,444) $
(23,456)
$
$
Cineplex and the other partner of SCENE GP and SCENE LP contribute capital as required to fund SCENE’s
operations.
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
110
(20)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
10. Intangible assets
Intangible assets consist of the following:
At January 1, 2020
Cost
Accumulated amortization
Net book value
Year ended December 31, 2020
Opening net book value
Additions
Disposals
Reclassification to right-of-use assets
Reclassification to assets held for sale
Foreign exchange rate changes
Amortization for the year - continuing
operations
Customer
relationships
Fair value
of leases -
assets
Trademarks
and
trade
names
Other
Total
$
32,988
$
$
(24,764)
—
—
$
47,152
$
$
63,599
$
$
143,739
$
(30,608)
—
(55,372)
$
$
8,224
$
$
—
$
16,544
$
$
63,599
$
$
$
88,367
8,224
—
$
$
16,544
$
$
63,599
$
$
88,367
$
—
—
—
—
(17)
(4,388)
—
—
—
—
—
—
8,546
(514)
—
(21)
60
(7,111)
—
—
—
—
—
—
8,546
(514)
—
(21)
43
(11,499)
$
84,922 `
Closing net book value
$
3,819
$
$
—
$
17,504
$
$
63,599
$
$
At December 31, 2020
Cost
$
32,755
$
—
$
$
55,224
$
$
63,599
$
$
151,578
$
Accumulated amortization
(28,936)
—
(37,720)
—
(66,656)
Net book value
$
3,819
$
—
$
$
17,504
$
$
63,599
$
$
84,922
$
At January 1, 2019
Cost
$
33,583
$
21,911
$
$
58,473
$
$
63,599
$
$
177,566
$
Accumulated amortization
(19,592)
(12,222)
(36,994)
—
(68,808)
Net book value
$
13,991
$
9,689
$
$
21,479
$
$
63,599
$
$
108,758
$
Year ended December 31, 2019
Opening net book value
$
13,991
$
9,689
$
$
21,479
$
$
63,599
$
$
108,758
$
Additions
Reclassification to right-of-use assets
Reclassification to assets held for sale
Foreign exchange rate changes
Amortization for the year - continuing
operations
Amortization for the year - discontinued
operations
—
—
—
(342)
(5,425)
—
—
10,264
(9,689)
—
—
—
—
—
(5,231)
(73)
(6,547)
(3,348)
—
—
—
—
—
—
10,264
(9,689)
(5,231)
(415)
(11,972)
(3,348)
Closing net book value
$
8,224
$
—
$
$
16,544
$
$
63,599
$
$
88,367
$
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
111
(21)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
11. Goodwill and impairment of long-lived assets, goodwill and investments
Cineplex performs its annual test for impairment of goodwill and indefinite-lived intangible assets in the fourth
quarter, in accordance with the policy described in note 32, Significant accounting policies, judgements and
estimation uncertainty. Assessment of impairment for long-lived assets, including property, equipment, leaseholds,
right-of-use assets, intangible assets and goodwill is performed more frequently as specific events or circumstances
dictate and changes in circumstances indicate that the carrying amount of the asset group may not be fully
recoverable.
In early 2020, in response to the outbreak of COVID-19 pandemic declared by the WHO, the government of Canada
announced mandated closure of schools, public facilities and non-essential businesses, effective March 16, 2020
Cineplex temporarily closed all of its theatres and location-based entertainment venues across Canada, resulting in
material decreases in revenues, results of operations and cash flows which represented an indicator to trigger
impairment testing for both long-lived assets and goodwill as of March 31, 2020. The recoverable amount was
determined based on the fair value less costs to sell method using discounted cash flow models. Based on the results
of the impairment tests completed, Cineplex recognized impairment charges of $88,495 to goodwill, non-cash
impairment losses of $52,341 with respect to theatres and $32,218 with respect to location-based entertainment
venues inclusive of the related right of use assets for the three months ended March 31, 2020.
A triggering event occurred on June 30,2020 as a result of the material decrease in Cineplex’s market value due to
sharp decline in its share price at that date from March 31, 2020. Cineplex reassessed the underlying key
assumptions and inputs used during the impairment testing completed as at March 31, 2020. Cineplex determined
that there were no material changes in those key judgements and conclusions and therefore concluded that there was
no further impairment.
A triggering event occurred on September 30, 2020 as a result of the material decrease in Cineplex’s market value
due to a sharp decline in its share price at that date from June 30, 2020. Cineplex reassessed the underlying key
assumptions and inputs used during the impairment testing completed as at March 31, 2020 and June 30, 2020.
Based on the results of the impairment tests completed, Cineplex recognized impairment charges of $65,634 to
goodwill for the three months ended September 30, 2020.
In addition to its required annual testing for impairment of goodwill and indefinite-lived intangible assets in the
fourth quarter, the closure of most theatre and location-based entertainment operations resulted in further decreases
in revenues, results of operations and cash flows which represented an indicator to trigger impairment testing for
both long-lived assets and goodwill at December 31, 2020. Based on the results of the impairment tests, Cineplex
recognized non-cash impairment charges of $26,906 to goodwill and $26,479 with respect to theatres inclusive of
the related right-of-use assets for the three months ended December 31, 2020.
Fair value less cost to sell is determined using Level 3 inputs such as attendance and the related revenue growth
rates, variable and fixed cash flows, operating margins, and discount rates based on Cineplex’s internal budget.
Cineplex projects revenue, operating margins and cash flows for a period of five years, and applies a perpetual long-
term growth rate thereafter. In arriving at its forecasts, Cineplex considers past experience, economic trends such as
inflation, as well as industry and market trends. Cineplex has considered the significant impact of COVID-19 on the
business in 2020 with the majority of theatres and location based entertainment venues being closed for a significant
portion of the year. Estimates have been applied for a reopening of both Cineplex and customer locations in 2021,
with a growth in EBITDAaL of 102% for 2022 over 2021 during which Cineplex’s businesses are expected to return
to normal as the pandemic restrictions are removed. In arriving at its estimates, Cineplex undertook a review of
multiple cash flow scenarios, applying a weighted average to potential outcomes, taking into consideration the
probability of each scenario being realized. Subsequent to 2022, a range of estimates for growth in EBITDAaL from
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
112
(22)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
3% to 7% has been applied across locations for the period 2023-2025 to reflect a staged reopening and other
scenarios. Cineplex’s estimated EBITDAaL for 2021 contemplates the latest information provided by government,
at the measurement date, related to the timing of lifting of restrictions on locations and available information related
to the release of film content, as well as observable evidence from other territories of consumer behaviour upon the
reopening of theatres.
Cineplex’s 2021 base case scenario assumes business will resume during the second quarter with a return to
operations referencing 2019 levels in the third and fourth quarters, as vaccine roll-outs in Canada and United States
and expected film releases take place as currently scheduled. However, in recognition of uncertainties surrounding
the timing of the lifting of government mandated closures and operating restrictions during the re-opening phase as
well as vaccine roll-outs and the potential for shifting film releases, plausible downside scenarios were also
considered. Under these scenarios, the resumption of business, referenced against the 2019 levels, was delayed in
varying extents, to 2022. Weightings were applied to each of the scenarios based on management’s expectations of
each outcome, to arrive at a blended result for 2021. The potential impact on impairment charges of a delay of a
return to business of one quarter might reasonably be expected to be approximately $10,000 - $15,000 for each
quarter that business openings are delayed.
Discount rates applied to the groups of goodwill CGUs represent Cineplex’s assessment of the risks specific to each
group of CGUs regarding the time value of money and individual risks of the underlying assets. Cineplex used
discount rates between 11.0% and 16.7% (2019 - between 9.0% and 14.0%), and perpetual growth rates between
0.5% and 1% (2019 - between 0.5% and 1%), which are consistent with the observed long-term average growth
rates in the exhibition, amusement and leisure, and digital media industries.
The determination of fair value less costs of disposal is sensitive to the growth rates, discount rates, and long-term
growth rates used. The risk premiums expected by market participants related to uncertainties about the industry and
assumptions relating to future cash flows may differ, depending on economic conditions and other events.
Accordingly, it is reasonably possible that future changes in assumptions may negatively impact future assessments
of the recoverable amount for groups of CGUs.
Impairment of long-lived assets, goodwill and investments for the year ended December 31, 2020 and 2019 were as
follows:
Impairment of property, equipment and leaseholds
Impairment of right-of-use assets
Impairment of investments
Impairment of goodwill
$
39,192 $
71,846
2,790
181,035
Impairment of long-lived assets, goodwill and investments
$
294,863 $
—
—
—
—
2020
2019
The following table discloses the change in goodwill for the years ended and December 31:
Balance - Beginning of year
Goodwill impairment
Foreign exchange rate changes
Balance - End of year
2020
2019
$
816,790 $
(181,035)
(173)
817,235
—
(445)
$
635,582 $
816,790
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
113
(23)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
For the purpose of impairment testing, goodwill has been allocated to CGUs or groups of CGUs. Total goodwill of
the reportable segments are as follows:
Exhibition
Media
Amusement and leisure
$
2020
413,915 $
206,385
15,282
2019
594,950
206,385
15,455
$
635,582 $
816,790
For goodwill, Cineplex concluded there were non-cash impairment losses in the exhibition business within the Film
Entertainment and Content segment. Six CGU’s, defined in this segment as theatre districts, recognized impairment
losses totaling $181,035. In addition to the groups of CGUs which recognized impairments during the year, for one
group of CGUs in the Film Entertainment and Content segment, if the discount rates were to increase by 2.0%,
assuming a constant cash flow margin, or discounted cash flows were more than 13% less than estimated, the
carrying amount of the group of CGUs would exceed the reasonable range for the recoverable amounts. The
goodwill for this CGU represents 6% of the total carrying amount of goodwill. For all other CGUs, no reasonably
possible change in assumption would cause the recoverable amount to fall below the carrying value.
In addition to the impairment charges noted, Cineplex recognized a non-cash impairment charge for its investment
in VRStudios Inc. of $2,790 (note 9, Interests in joint ventures and associates).
At the end of each future reporting period the Company will assess whether there are indications that the impairment
loss recognised for an asset other than goodwill may no longer exist or may have decreased. If any such indication
exists, the Company will estimate the recoverable amount of that asset and may reverse previously recorded
impairment losses.
If the return to business continues to be delayed as a result of actions outside of the control of management,
including but not limited to additional changes to the film slate release schedule, ongoing government restrictions
impacting the re-opening of entertainment venues and delays in the vaccine roll out, management's estimates of
operating results and further cash flows for the forecasted period may be negatively impacted. As a result, they may
be insufficient to support the recoverability of goodwill and long lived assets in certain CGUs, thus requiring further
impairment charges. Cineplex will continue to evaluate the recoverability of goodwill at the cash generating unit
level on an annual basis during its fourth quarter and whenever events or changes in circumstances indicate there
may be a potential impairment.
12. Accounts payable and accrued liabilities
Accounts payable and accrued liabilities consist of:
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
114
(24)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
Accounts payable - trade
Film payables and accruals
Accrued salaries and benefits
Sales taxes payable
Accrued occupancy costs
Other payables and accrued liabilities
13. Share-based compensation
Omnibus Incentive Plan (“Incentive Plan”)
$
2020
39,098 $
3,700
14,915
6,017
4,868
14,394
2019
100,326
44,103
27,594
10,915
3,474
33,776
$
82,992 $
220,188
On November 12, 2020, the Board of Directors approved the new Omnibus Incentive Plan (the “Incentive Plan”).
This plan supersedes the former Incentive Plans (“Legacy Plan”) that included Options, Performance Share Units
(“PSUs”) and Restricted Share Units (“RSUs”). All employees and consultants are eligible to participate in the
Incentive Plan. The Incentive Plan consists of stock options, RSUs and PSUs. Awards of RSUs and PSUs granted
during a service year will be subject to a three year service period. The aggregate number of Shares that may be
issued under the Incentive Plan is 1,756,834 provided that no more than 1,200,000 Shares may be issued in
aggregate pursuant to the settlement of RSUs and PSUs. Options that were issued under the Legacy Plan and
cancelled subsequent to the approval of the Incentive Plan will be available to be issued under the Incentive Plan.
The base Share equivalents granted as RSU and PSU awards attract compounding notional dividends at the same
rate as outstanding Shares, which are notionally re-invested as additional base Share equivalents. PSU and RSU
awards may be settled in Shares issued from treasury, cash, or a mix of Shares and cash, at Cineplex’s option at the
time of settlement. Cineplex has determined that the 2020 award will be settled in Shares, and as a result are
accounted for as equity-settled. Awards outstanding under prior plans shall remain in full force and effect under the
prior plans according to their respective terms. Under the prior plans, the effects of changes in estimates of
performance results are recognized in the year of change. As at December 31, 2020, 2,111,140 Shares are available
to be issued under the Incentive Plan.
Stock Options
Stock options issued under the Incentive Plan will be administered by the Board of Directors who will establish the
exercise price at the time each option is granted, which in all cases will not be less than the market price on the grant
date. All of the options must be exercised over specified periods not to exceed ten years from the date granted.
Options issued under the Incentive Plan may be exercised for cash or on a cashless basis, both of which result in the
issuance of Shares from treasury. Options will be accounted for as equity-settled.
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
115
(25)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
Stock options have been granted as follows:
Grant date
Number of
options
granted
February 15, 2011
529,774
February 15, 2011
500,000
Exercise
price
23.12
23.12
February 14, 2012
474,000
27.33
February 12, 2013
385,834
33.49
September 3, 2013
20,000
39.12
February 14, 2014
440,519
40.45
February 14, 2014
100,000
40.45
February 18, 2015
446,004
49.14
February 12, 2016
501,270
47.86
February 21, 2017
544,922
51.25
February 27, 2018
559,703
33.59
February 20, 2019
709,092
25.05
April 26, 2019
48,547
25.06
August 17, 2020
725,758
8.25
Number of
employees
granted
options
41
1
42
42
1
54
1
59
76
80
74
78
1
76
Vesting period
Expiry
One third on each successive
anniversary of the grant date
One fourth on each successive
anniversary of the grant date
One third on each successive
anniversary of the grant date
One third on each successive
anniversary of the grant date
One third on each successive
anniversary of the grant date
One third on each successive
anniversary of the grant date
One fourth on each successive
anniversary of the grant date
One fourth on each successive
anniversary of the grant date
One fourth on each successive
anniversary of the grant date
One fourth on each successive
anniversary of the grant date
One fourth on each successive
anniversary of the grant date
One fourth on each successive
anniversary of the grant date
One fourth on each successive
anniversary of the grant date
One fourth on February 17, 2021,
2022, 2023 and 2024
February 14, 2021
February 14, 2021
February 13, 2022
February 11, 2023
September 2, 2023
February 14, 2024
February 14, 2024
February 18, 2025
February 12, 2026
February 21, 2027
February 27, 2028
February 20, 2029
April 26, 2029
August 17, 2030
The exercise price was equal to the market price of Cineplex shares or units at the grant date.
Until December 15, 2019, the options could only be equity-settled, and were accounted for as equity, not liabilities.
Upon cashless exercises, the options exercised in excess of Shares issued were cancelled and returned to the pool
available for future grants. The expense amount for options was determined at the time of their issuance, recognized
over the vesting period of the options. Effective December 15, 2019, as a result of the terms of the Arrangement
Agreement, the options were considered cash-settled, and the fair value of the options outstanding in excess of their
respective exercise price was recognized as a current share-based compensation liability, and changes in value were
reflected in the statement of operations. With the Termination Notice delivered by Cineworld on June 12, 2020 to
terminate the Arrangement Agreement, the options were revalued and accounted for as equity-settled, with expected
lives of the lesser of four years and their contractual lives. The value of vested options at March 31, 2020 of $3,944
was reclassified from liability to contributed surplus. Unvested options will be recognized over their remaining
vesting periods at the value determined at March 31, 2020. Forfeitures are estimated at nil, based on historical
forfeiture rates.
Cineplex recorded $1,203 of employee benefits recovery with respect to the options during the year ended
December 31, 2020 (2019 - $2,537). At December 31, 2020, $nil associated with the options is reflected in current
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
116
(26)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
share-based compensation liability on the consolidated balance sheets (2019 - $6,299). The intrinsic value of vested
share options at December 31, 2020 is $nil (2019 - $632), based on the purchase price of $9.27 per share (2019 -
$34.00). Cineplex undertook a one-time voluntary stock option cancellation program in December 2020 under which
qualified holders of outstanding options granted from 2012 to 2017 were given the opportunity to cancel their
options in exchange for a market value payment. In December, 1,307,301 options were cancelled for aggregate
proceeds of $453.
A summary of option activities in 2020 and 2019 is as follows:
2020
2019
Weighted
average
remaining
contractual life
(years)
Number of
underlying
shares
Weighted
average
exercise
price
Number of
underlying
shares
Weighted
average
exercise
price
Options outstanding, January 1
6.67
3,123,521 $
38.62
2,433,589 $
42.84
Granted
Cancelled
Forfeited
725,758
(1,408,439)
(398,821)
8.25
44.7
29.64
757,639
—
(67,707)
25.05
—
38.51
Options outstanding, December 31
7.64
2,042,019 $
25.37
3,123,521 $
38.62
At December 31, 2020 and 2019, options are vested and exercisable as follows:
Options vested and exercisable at $25.05
Options vested and exercisable at $33.59
Options vested and exercisable at $51.25
Options vested and exercisable at $47.86
Options vested and exercisable at $49.14
Options vested and exercisable at $40.45
Options vested and exercisable at $33.49
Options vested and exercisable at $27.33
Options vested and exercisable at $23.12
2020
140,996
211,378
76,416
96,478
81,574
69,985
44,634
15,237
9,186
2019
—
123,413
231,377
300,249
374,061
430,282
169,977
53,351
12,746
745,884
1,695,456
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
117
(27)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
The fair values of options granted in 2020 and 2019 were determined using the Black-Scholes valuation model using
the following significant inputs:
Number of options granted
Share price
Exercise price
Expected option life (years)
Volatility
Dividend yield
Annual risk-free rate
Fair value of options granted
$
$
2020
2019
725,758
757,639
8.25
8.25
4.0
60 %
— %
0.27 %
$25.05 - $25.06
$25.05 - $25.06
4.0
16 %
3.38 %
2.06 %
$
3.15
$
2.34
The expected volatility was estimated based on the historical volatility of the Company’s shares that covers the
expected life of the options granted. The expected option life was estimated based on historical data and represents
the numbers of years the options are expected to be outstanding. The risk-free rate was estimated based on the
Government of Canada marketable bonds with a term that covers the expected life of the options granted.
The 2020 RSU and PSU awards were accounted as cash-settled from the grant date. On November 12, 2020, the
Board approved the settlement of 2020 RSU and PSU awards issued under the Incentive Plan in equity. Cineplex
revised the previous estimates and recognized the services received based on the revised grant date fair value at
November 12, 2020 for RSU and PSU awards issued. The revised grant date fair value per unit was $6.37 and $1.71,
respectively. The 2019 RSU and PSU awards are accounted for as cash-settled, and included in current hare-based
compensation liability.
RSU
Valuation of restricted stock units is based on Cineplex’s closing share price on the grant date. On August 17, 2020,
Cineplex granted 277,105 RSUs with a fair value of $8.19 per unit (total fair value of $2,269), that will fully vest in
September 2022, at the completion of the three year performance period.
A summary of RSU activities during the year ended December 31, 2020 is as follows:
RSUs outstanding, January 1
Granted
Notional dividends
Settled
Cancelled
RSUs outstanding, December 31
2020
93,835
277,105
415
(37,572)
(38,594)
295,189
2019
35,895
54,940
5,803
(243)
(2,560)
93,835
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
118
(28)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
PSU
On August 17, 2020, Cineplex granted 284,214 PSUs which will be equity-settled in September 2022, representing
the completion of the three year performance period. Compensation expense is recorded based on the number of
units expected to vest, the current market price of Cineplex’s common shares, and the application of a performance
multiplier that ranges from a minimum of zero to a maximum of two. Performance multipliers are developed based
on Total Shareholder Return percentile rank relative to a select peer group and composite group. Participants will
receive one fully paid Share issued from treasury that can vary depending on the achievement of established
performance targets.
A summary of PSU activities during the year ended December 31, 2020 is as follows:
PSUs outstanding, January 1
Granted
Notional dividends
Settled
Cancelled
PSUs outstanding, December 31
2020
183,323
284,214
1,624
(18,455)
(116,798)
333,908
2019
316,743
105,777
20,611
(179,459)
(80,349)
183,323
Incentive Plan costs are estimated at the grant date based on expected performance results then accrued and
recognized on a graded basis over the vesting period. Forfeitures are estimated at $nil. For the year ended December
31, 2020, Cineplex recognized compensation recovery of $(6,858) (2019 cost - $7,140) under the Incentive Plan
relating to RSU and PSU. At December 31, 2020, $384 (2019 - $8,104) was included in current share-based
compensation liability.
Deferred equity units
Members of the Board of Directors and certain officers of Cineplex may elect to defer a portion of their
compensation in the form of deferred equity units. For the year ended December 31, 2020, Cineplex recognized
compensation recovery of $8,246 (2019 - $3,385) associated with the deferred equity units. At December 31, 2020,
$2,768 (2019 - $11,278) was included in share-based compensation liability.
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
119
(29)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
14. Dividends payable
Cineplex has declared the following dividends during the years:
Record date
Amount
January
February
March
April
May
June
July
August
September
October
November
December
$
9,500 $
—
—
—
—
—
—
—
—
—
—
—
2020
Amount
per share
0.1500 $
—
—
—
—
—
—
—
—
—
—
—
2019
Amount
per share
0.1450
0.1450
0.1450
0.1450
0.1500
0.1500
0.1500
0.1500
0.1500
0.1500
0.1500
0.1500
Amount
9,183 $
9,183
9,183
9,183
9,500
9,500
9,500
9,500
9,500
9,500
9,500
9,500
The dividends are paid on the last business day of the following month. Dividends are at the discretion of the Board
of Directors of Cineplex. Cineplex has not paid any dividends after the monthly dividend was paid on February 28,
2020 and does not expect to return to paying dividends as a result of Credit Facilities restrictions and the negative
impact of the COVID-19 crisis on liquidity.
15. Lease obligations
The following table presents lease obligations for Cineplex for the year ended December 31, 2020 and 2019:
Year ended December 31, 2020
Opening balance
Modifications, net of additions
Tenant inducement
Lease payment
Interest expense
Foreign exchange rate changes
Closing lease obligations
Less: current portion
Property
Equipment
Total
$
1,352,541 $
15,054 $
1,367,595
(143,954)
22,587
(4)
—
(143,958)
22,587
(118,922)
(5,394)
(124,316)
48,664
(67)
420
—
49,084
(67)
$
1,160,849 $
92,869
10,076 $
4,390
1,170,925
97,259
Non-current portion of lease obligations
$
1,067,980 $
5,686 $
1,073,666
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
120
(30)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
Year ended December 31, 2019
Opening balance
Additions, net of modifications
Tenant inducement
Lease payment
Interest expense
Foreign exchange rate changes
Closing lease obligations
Less: current portion
Property
Equipment
Total
$
1,422,579 $
19,277 $
1,441,856
36,238
16,289
446
—
36,684
16,289
(170,029)
(5,241)
(175,270)
48,086
(622)
573
(1)
48,659
(623)
$
1,352,541 $
15,054 $
1,367,595
101,398
4,954
106,352
Non-current portion of lease obligations
$
1,251,143 $
10,100 $
1,261,243
Current portion of lease obligations are net of estimate tenant inducements.
The following table discloses the undiscounted cash flow for lease obligations as of December 31:
Less than one year
One to five years
More than five years
Total undiscounted lease obligations
2020
159,928 $
635,088
695,714
2019
178,205
661,979
815,621
1,490,730 $
1,655,805
$
$
The following table provides the lease amounts recognized in the statement of operations for the period ended
December 31:
Depreciation expense on right-of-use assets
Interest expense on lease obligations
Expense relating to variable lease payments not included in the
measurement of the lease obligations (i)
(i) Variable lease payments include realty taxes and insurance.
2020
128,393 $
49,085 $
2019
145,946
48,659
52,993 $
56,235
$
$
$
Cineplex conducts a significant part of its operations in leased premises. Leased premises include leases for theatre
locations, location-based entertainment venues, route operation locations, warehouses and offices. Cineplex also
leases equipment for use in its theatre operations and offices. Leases for premises generally provide for minimum
rentals and, in certain situations, percentage rentals based on sales volume or other identifiable targets; and may
require the tenant to pay a portion of realty taxes and other property operating expenses. Property lease terms
generally range from 15 to 20 years and contain various renewal options, generally, in intervals of five to ten years.
Equipment lease terms generally range from one to five years and may contain renewal options.
Cineplex records the landlord’s share of amusement revenue under venue revenue share (note 22, Other Costs).
This balance consists of all variable rental payments paid to landlords. Certain contracts may contain a lease under
the definition in IFRS 16, however no obligation is recorded because the payment is variable. Venue revenue share
also includes fixed payments where Cineplex has concluded the contract does not contain a lease under IFRS 16.
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
121
(31)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
Some of the property leases in which Cineplex is the lessee contain fixed lease payments and variable lease
payments that are derived from sales or attendance generated from the leased properties. Variable payments related
to these leases for the period ended December 31, 2020 were not material.
16. Long-term debt
In the fourth quarter of 2018, Cineplex increased and extended its bank credit facilities, primarily with the same
syndicate of lenders to November 13, 2023 for the revolving credit facility (the “Revolving Facility”) and to
November 13, 2025 for the non-revolving credit facility (the “Term Facility”, and together with the Revolving
Facility, the “Credit Facilities”). The amendment to the Revolving Facility required no cash flow but was accounted
for as an extinguishment under IFRS 9 as it included a prepayment option at par with no significant penalty at the
date of negotiation. The Term Facility was accounted for as a modification under IFRS 9 but there was no material
adjustment to be recognized.
The Credit Facilities consisted of the following until the First Amendment Agreement, described below:
a) a five-year, $650,000 senior, secured, Revolving Facility; and
b) a seven-year, $150,000, senior, secured, Term Facility.
There were provisions to increase the Revolving Facility commitment amount by an additional $150,000 with the
consent of the lenders. The financial covenants and nominal variable interest rates of the Credit Facilities were
substantially similar to the prior Credit Facilities.
The Credit Facilities contain numerous restrictive covenants that limit the discretion of Cineplex’s management with
respect to certain business matters. These covenants place restrictions on, among other things, the ability of Cineplex
to create liens or other encumbrances, to pay dividends or make certain other payments, investments, loans and
guarantees and to sell or otherwise dispose of assets and merge or consolidate with another entity. The Revolving
Facility is drawn upon and repaid on a regular basis and as such is presented on a net basis in the Statement of
Operations.
On June 29, 2020, Cineplex and Cineplex Entertainment Limited Partnership entered into the First Amendment
Agreement with The Bank of Nova Scotia, as administrative agent, and the lenders from time to time named therein,
to the seventh amended and restated credit agreement with a syndicate of lenders. The First Amendment Agreement
(along with the Second Credit Amendment and Third Credit Agreement Amendment described below) provides
Cineplex with certain financial covenant relief in light of the COVID-19 pandemic and its effects on Cineplex’s
businesses.
The following is a summary of the key terms of the First Credit Agreement Amendment (certain of which have been
modified further by the Second Credit Agreement Amendment and Third Credit Agreement Amendment described
below):
•
Financial covenant testing was suspended effective upon execution of the First Credit Agreement
Amendment, and subsequently extended for the second and third quarters of 2020 following a $100,000
permanent repayment of the Term Facility from the proceeds of the offering of the Debentures (note 17,
Convertible debentures). On the resumption of financial covenant testing at the beginning of the fourth
quarter of 2020, it will be based on an annualized calculation of Adjusted EBITDA for the following four
fiscal quarters;
The leverage ratio of 3.75x will apply when financial covenants are reinstated, and will be reduced over the
course of 2021 each quarter until it is at 3.00x for the fourth fiscal quarter of 2021;
The maturity date for the Term Facility was advanced by two years to be coincident with the maturity date
for the Revolving Facility of November 13, 2023;
•
•
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2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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122
(32)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
•
•
•
•
•
•
•
If Cineplex chooses to undertake any new debt, equity or equity-related issuances or the sale of certain
assets, Cineplex will be required to make certain mandatory permanent repayments of the Credit Facilities
from the proceeds of such issuances or asset sales;
Growth capital expenditures will be limited to certain agreed projects. After December 31, 2020, additional
growth capital expenditures will be permitted subject to a pro forma leverage covenant of 2.75x (both prior
to and immediately after giving effect to any such growth capital expenditure);
Distributions will be limited to free cash flow and only permitted when the leverage ratio is less than 2.75x
(both prior to and immediately after giving effect to any such distribution);
Cineplex will not be permitted to make any acquisitions without consent from at least three of its lenders
holding, in the aggregate, a minimum of 51% of the commitments under its Credit Facilities;
The applicable margins for the interest rates on all borrowings will increase;
Cineplex will no longer be able to request an increase in the total commitments under the Credit Facilities
pursuant to the “accordion” provisions of the Credit Agreement prior to amendment; and
Payments of interest on the Debentures (as defined below) will be permitted so long as no default or event
of default has occurred under the Credit Agreement.
On November 12, 2020, Cineplex and Cineplex Entertainment Limited Partnership entered into the Second Credit
Agreement Amendment. Without the provisions of the Second Credit Agreement Amendment, management’s
internal forecasts indicated a potential breach of the financial covenants as of December 31, 2020.
The following is a summary of the key terms of the Second Credit Agreement Amendment that are updated from the
First Credit Agreement Amendment (certain of which have been modified further by the Third Credit Agreement
Amendment described in note 34, Subsequent events):
•
•
•
•
•
•
Financial covenant testing will be suspended until the second quarter of 2021. On resumption of financial
covenant testing in the second quarter of 2021, the testing will be based on an annualized calculation of
Adjusted EBITDA for the following four fiscal quarters;
The leverage ratio of 3.75x will apply when financial covenants are reinstated, and will be reduced over the
course of successive four quarters until the first quarter of 2022 at which point it will reach a level of 3.00x;
Effective with the second quarter of 2021, additional growth capital expenditures will be subject to pro-
forma leverage covenant of 2.75x (both prior to and immediately after giving effect to any such growth
capital expenditure) based on actual last twelve month EBITDA;
A liquidity covenant effective at all times through the covenant suspension period beginning in November
2020, through to and including June 2021, requiring available liquidity as defined on a monthly basis;
Distributions continue to be blocked during the extended financial covenant suspension period and only
permitted when the leverage ratio is less than 2.75x (both prior to and immediately after giving effect to any
such distribution); and
An anti-cash hoarding provision has been added limiting the request for advances under the Credit
Facilities to those amounts required to fund costs and expenses reasonably anticipated to be incurred in the
ordinary course of business. No amounts may be requested if sufficient cash on hand exists to pay such
costs.
Following the First and Second Credit Agreement Amendments, including mandatory repayments, the Credit
Facilities consist of the following:
a) a five-year, $620,000 senior, secured, Revolving Facility; and
b) a five-year, $50,000, senior, secured, Term Facility.
Subsequent to year end, Cineplex completed a sale-leaseback transaction for its head office buildings located at
1303 Yonge Street and 1257 Yonge Street, Toronto, Ontario for gross proceeds of $57,000. Fifty percent of the net
proceeds were used to permanently reduce Cineplex’s Revolving Facility to $591,668 (see note 34, Subsequent
events).
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
123
(33)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
Subsequent to year end, on February 8, 2021, Cineplex entered into the Third Credit Agreement Amendment, which,
among other things, extended the suspension of financial covenant testing for two additional fiscal quarters and
extended the liquidity covenant requirement until December 2021 (see note 34, Subsequent events).
The Credit Facilities mature and are payable in full at maturity, with no scheduled repayment of principal required
prior to maturity. The Credit Facilities bear interest at a floating rate, based on the Canadian dollar prime rate, or
bankers’ acceptances rate plus, in each case, an applicable margin to those rates. Borrowings on the Revolving
Facility and the Term Facility can be made in either Canadian or US dollars.
As of December 31, 2020, Cineplex was in compliance with all financial covenants under the terms of the Credit
Facilities. However, management’s forecasts indicate a potential breach of its covenants within the next twelve
months. Management’s forecasts may change materially as the impact of COVID-19 on Cineplex’s business is better
understood. A violation of its covenants would represent an event of default under the terms of the Credit Facilities,
enabling the lenders to demand immediate repayment of all amounts due.
Cineplex has entered into interest rate swap agreements to act as a cash flow hedge on the floating interest rate
payable on Cineplex’s first $450.0 million of borrowings. Cineplex ceased the use of hedge accounting for the
interest rate swaps during the fourth quarter of 2019 as a result of the terms of the Arrangement Agreement. The
interest rate swaps are measured at fair market value at each reporting period with changes in fair market value
recognized in the consolidated statement of operations.
The following table outlines Cineplex’s current interest rate swap agreements as of December 31, 2020:
Interest rate swap agreements
Swap - 1
Swap - 2
Swap - 3
Swap - 4
Notional amount
Inception date
Effective date
$200.0 million
April 25, 2016
October 24, 2018
Maturity date
April 26, 2021
$200.0 million November 13, 2018
April 26, 2021 November 14, 2023
$100.0 million November 13, 2018 November 13, 2018 November 14, 2023
$150.0 million November 13, 2018 November 13, 2018 November 14, 2025
Fixed rate
payable
1.484 %
2.945 %
2.830 %
2.898 %
Long-term debt consists of:
Term Facility
Revolving Facility
Letters of credit reserved against Revolving Facility
Revolving Facility available (note 34)
$
$
$
2020
50,000 $
456,000
2019
150,000
475,000
506,000 $
625,000
10,234 $
153,766
8,748
166,252
At December 31, 2020, Cineplex was subject to a margin of 3.00% (2019 - 0.70%) on the prime rate and 4.00%
(2019 - 1.70%) on the bankers’ acceptance rate, plus a 0.25% (2019 - 0.25%) per annum fee for letters of credit
issued on the Revolving Facility. The average interest rate on borrowings under the Credit Facilities was 4.87% for
the year ended December 31, 2020 (2019 - 3.85%). Cineplex pays a commitment fee on the daily unadvanced
portion of the Revolving Facility, which will vary based on certain financial ratios and was 1.00% at December 31,
2020 (2019 - 0.34%).
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
124
(34)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
17. Convertible debentures
Convertible debentures consist of the following:
Opening face value of convertible debentures
Equity component of convertible debentures
Fees and costs of issuing debentures
Accretion expense
Convertible debentures
2020
316,250
(91,264)
(13,187)
7,472
219,271
$
$
$
$
On July 15, 2020, Cineplex completed the offering of $275,000 aggregate principal amount of convertible unsecured
subordinated debentures. On July 17, 2020, the underwriters purchased an over-allotment option for an additional
$41,250 aggregate principal amount. The debentures will mature and be repayable on September 30, 2025 (the
“Maturity Date”) and bear interest at a rate of 5.75% per annum, payable semi-annually in arrears on September 30
and March 31 in each year.
The Debentures will not be redeemable by Cineplex prior to September 30, 2023. On or after September 30, 2023
and prior to September 30, 2024, Cineplex may, at its option, redeem the debentures in whole or in part from time to
time provided that the volume weighted average trading price of the Shares on the Toronto Stock Exchange during
the 20 consecutive trading days ending on the fifth trading day preceding the date on which the notice of redemption
is given is not less than 125% of the conversion price. On or after September 30, 2024, the Debentures may be
redeemed in whole or in part from time to time at the option of Cineplex at a price equal to their principal amount
plus accrued and unpaid interest.
At the holder’s option, the Debentures may be converted into shares at a conversion price of $10.94 per share at any
time prior to the close of business on the earlier of: (i) five business days prior to the Maturity Date, and (ii) if called
for redemption, five business days immediately preceding the dated fixed for redemption of the Debentures, at a
conversion price to be determined at the time of pricing. Holders who convert their Debentures into shares will
receive accrued and unpaid interest for the period from the date of the latest interest payment date to the date of
conversion.
The fair value of the liability component of the Debenture was assessed at inception based on an estimated market
discount rate of 14.1% less the pro-rata portion of transaction costs, and will be accreted to the full face value over
the term of the Debenture. Cineplex recorded accretion on the Debentures of $7,472. Accretion on the Debentures is
included as part of the interest expense on the consolidated statement of operations. The residual value was allocated
to the equity component less the pro-rata portion of transaction costs as prescribed by IFRS 9, Financial
instruments.
Deferred income tax liabilities of $24,464 associated with the equity component of the Debentures were recognized,
resulting in a net increase of equity of $66,800.
18. Post-employment benefit obligations
Cineplex sponsors a defined benefit supplementary executive retirement plan (“DB SERP”). The DB SERP has a
defined benefit obligation of $10,966 at December 31, 2020 (December 31, 2019 - $9,936), which is substantially
CINEPLEX INC.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
125
(35)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
unfunded. Annual benefits payable are between $575 and $650, depending on the retirement date of the sole
beneficiary. The DB SERP does not have a material effect on the operations or cash flows of Cineplex.
Cineplex also sponsors the Retirement Plan for Salaried Employees of Famous Players Limited Partnership, a
defined benefit pension plan, and the Famous Players Retirement Excess Plan (collectively known as the “Famous
Players Plans”). Effective October 23, 2005, Cineplex elected to freeze future accrual of defined benefits under the
Famous Players Plans. The Famous Players Plans do not have a material effect on the operations, cash flows or
financial position of Cineplex.
Cineplex also provides a group registered retirement plan for the benefit of full-time employees.
The net post-retirement benefit obligation for each of the plans is as follows:
DB SERP obligation, net of assets
Famous Players Plans obligations
Net post-retirement benefit obligation
Reconciliation of the net post-retirement benefit obligations
Accrued benefit obligations
Balance - Beginning of year
Current service cost
Interest cost
Benefits paid
Actuarial (gains) losses
Balance - End of year
Less: Fair value of plan assets
Net post-retirement benefit obligation
2020
9,868 $
1,635
2019
9,032
1,646
11,503 $
10,678
2020
2019
11,582 $
485
371
(107)
270
12,601 $
1,098 $
10,003
431
393
(116)
871
11,582
904
11,503 $
10,678
$
$
$
$
$
$
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
126
(36)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
Significant assumptions
Accrued benefit obligations at December 31
Discount rate - all plans
Health care cost trend rates at December 31
Initial rate
Ultimate rate
Year ultimate rate reached
Sensitivity analysis
2020
2019
2.10% - 2.40% 3.00% - 3.10%
5.82 %
4.00 %
2041
6.16 %
4.46 %
2028
The following table shows the impact of a 1% increase or decrease of the discount rate on the defined benefit
obligation at the end of the year.
Impact of 1% increase in the discount rate
Impact of 1% decrease in the discount rate
19. Other liabilities
Other liabilities consist of the following:
Asset retirement obligations
Licensing obligations - non-current
Deferred consideration - AMC business acquisition
Other, including provisions
$
$
$
2020
2019
(1,340) $
(1,209)
1,529 $
1,440
2020
2,984 $
2,120
3,134
60,411
$
68,649 $
2019
3,296
2,142
3,134
1,241
9,813
Other liabilities includes $60,000 proceeds for the reorganization of SCENE (note 9, Interests in joint ventures and
associates).
CINEPLEX INC.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
127
(37)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
20. Share capital
Cineplex is authorized to issue an unlimited number of common shares and 10,000,000 preferred shares of which
none are outstanding.
Share capital balances at December 31, 2020 and 2019 and transactions during the periods are as follows:
Number of
common shares
issued and
outstanding Common shares
Amount
Total
Balance - December 31, 2019 and 2020
63,333,238 $
852,379 $
919,179
21. Revenue
The following tables disclose the changes in deferred revenue for the years ended December 31, 2020 and 2019:
Gift cards
SCENE loyalty program
Advances and deposits
December 31,
2019
184,755 $
21,277
16,966
222,998 $
$
$
Additions
Revenue
Recognized
23,743 $
33,173
20,854
77,770 $
44,473 $
18,341
17,971
80,785 $
December 31,
2020
164,025
36,109
19,849
219,983
The following tables provide the disaggregation of revenue into categories by nature for the years ended December
31, 2020 and 2019:
Box revenues
Box office revenues
Food service revenues
Food service - theatres
Food delivery - theatres
Food service - location-based entertainment
Food delivery - location-based entertainment
Total food service revenues
Year ended December 31,
2020
2019
$
132,820 $
705,521
Year ended December 31,
2019
2020
$
$
91,384 $
8,175 $
8,882
191
108,632 $
446,639
—
36,691
—
483,330
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
128
(38)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
Media revenues
Cinema media
Digital place-based media
Total media revenues
Amusement revenues
Amusement solutions excluding exhibition
Amusement solutions - exhibition
Amusement solutions - location based entertainment
Total amusement revenues
Other revenues
Other revenues
Year ended December 31,
2019
2020
23,568 $
41,790
65,358 $
115,415
81,340
196,755
Year ended December 31,
2019
2020
60,027 $
2,457
15,417
77,901 $
178,209
10,907
39,115
228,231
$
$
$
$
Year ended December 31,
2020
$
33,552 $
2019
51,309
22. Other costs
CINEPLEX INC.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
129
(39)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
Employee salaries and benefits
Rent
Realty and occupancy taxes and maintenance fees
Utilities
Purchased services
Other inventories consumed, including amusement and digital place-based media
Venue revenue share
Repairs and maintenance
Advertising and promotion
Office and operating supplies
Licences and franchise fees
Insurance
Professional and consulting fees
Telecommunications and data
Bad debts
Equipment rental
Other costs
Year ended December 31,
$
2020
106,942 $
(2,278)
67,381
23,870
37,185
40,256
15,577
25,271
11,353
6,122
15,028
5,691
10,560
5,195
1,735
61
5,742
2019
317,433
4,482
75,132
33,935
70,464
93,524
48,629
36,182
23,688
15,304
19,454
5,238
12,007
7,750
869
1,371
17,231
$
375,691 $
782,693
Management undertook several cost cutting measures to mitigate the negative impact of COVID-19 on Cineplex’s
business, in addition to applying for government subsidy programs where available. During the year ended
December 31, 2020, Cineplex recorded wage subsidies of $57,014, rent subsidies of $2,761, realty tax subsidies of
$3,249, and utilities subsidies of $1,838 which have all been offset in their related costs.
23. Net (loss) income per share
Basic
Basic earnings per share (“EPS”) is calculated by dividing the net (loss) income by the weighted average number of
shares outstanding during the period.
Net (loss) income attributable to owners of Cineplex - continuing
operations
Net (loss) income attributable to owners of Cineplex
Weighted average number of shares outstanding
Basic EPS from continuing operations
Basic EPS from discontinued operations
Basic EPS
2020
2019
$
$
$
$
(623,996) $
(628,948) $
36,540
28,915
63,333,238
63,333,238
(9.85) $
(0.08)
(9.93) $
0.58
(0.12)
0.46
Diluted
CINEPLEX INC.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
130
(40)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
Diluted EPS is calculated by adjusting the weighted average number of shares outstanding to assume conversion of
all dilutive potential shares. A calculation is done to determine the number of shares that could have been acquired at
fair value (determined as the average market share price of the outstanding shares for the period), based on the
monetary value of the rights attached to the potentially dilutive shares. The number of shares calculated above is
compared with the number of shares that would have been issued assuming exercise of conversions, exchanges or
options. The options and convertible debentures are anti-dilutive in 2020.
Net (loss) income attributable to owners of Cineplex - continuing
operations
Net (loss) income attributable to owners of Cineplex
Weighted average number of shares outstanding
Adjustments for stock options
Weighted average number of shares for diluted EPS
Diluted EPS from continuing operations
Diluted EPS from discontinued operations
Diluted EPS
2020
(623,996) $
(628,948) $
2019
36,540
28,915
63,333,238
63,333,238
—
2,446
63,333,238
63,335,684
(9.85) $
(0.08)
(9.93) $
0.58
(0.12)
0.46
$
$
$
$
24. Operating segments
Cineplex has four reportable segments; Film Entertainment and Content, Media, Amusement and Leisure and
Location-Based Entertainment. The reportable segments are business units offering differing products and services
and managed separately due to their distinct natures. These four reportable segments have been determined by
Cineplex’s chief operating decision makers. The Film Entertainment and Content reporting segment does not charge
an access fee to the Media reporting segment. All other inter-segment transactions are eliminated in the Corporate
and other category, which includes all corporate general and administrative costs not directly associated with a
segment.
Film Entertainment and Content
The Film Entertainment and Content reporting segment includes all direct and ancillary revenues from theatre
attendance, including box office and food service revenues and the associated costs to provide those products and
services. Also included in the Film Entertainment and Content segment are in-theatre amusement, theatre rentals and
digital commerce rental and sales and associated costs.
Media
The Media reporting segment is comprised of the aggregation of two operating segments, cinema media and digital
place-based media. Cinema media consists of all in-theatre advertising revenues and costs, including pre-show,
showtime, magazine and lobby advertising. Digital place-based media is comprised of revenues and costs associated
with the design, installation and operations of digital signage networks, along with advertising on certain networks.
Aggregation of these operating segments is based on the segments having similar economic characteristics.
Amusement and Leisure
The Amusement and Leisure reporting segment includes the amusement solutions operating segment. Amusement
solutions is comprised of revenues and costs associated with operating and distributing amusement, gaming and
vending equipment. Previously reported periods included results for eSports in the Amusement and Leisure segment.
These financial statements present eSports in net loss from discontinued operations. Prior periods have been restated
to reflect this presentation.
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
131
(41)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
Location-Based Entertainment
Location-based entertainment is comprised of the social entertainment destinations featuring gaming, entertainment
and dining. These entertainment options are complemented with an upscale casual dining environment, featuring an
open kitchen and contemporary menu, as well as a larger bar with a wide range of digital monitors and a large screen
for watching sporting and other major events.
In accordance with IFRS 8, Operating Segments, Cineplex discloses information about its reportable segments based
upon the measures used by management in assessing the performance of those reportable segments. Cineplex uses
adjusted EBITDAaL to measure the performance of its reportable segments.
Management defines EBITDA as earnings before interest income and expense, income taxes and depreciation and
amortization expense. Adjusted EBITDA excludes the change in fair value of financial instrument, (gain) loss on
disposal of assets, foreign exchange, the equity (loss) income of CDCP, the non-controlling interests’ share of
adjusted EBITDA of TG-CPX Limited Partnership, and impairment, depreciation, amortization, interest and taxes of
Cineplex’s other joint ventures and associates. Adjusted EBITDAaL modifies adjusted EBITDA to deduct current
period cash rent paid or payable related to lease obligations. During the year, Cineplex agreed to a variety of
arrangements with landlords to reduce or defer cash rent paid or payable as a result of the impact of COVID-19.
This includes agreements with landlords that are evidenced by way of written confirmation of the terms agreed upon
to the date of approval of the financial statements, and are in the process of being formally documented.
Cineplex’s management believes that adjusted EBITDAaL is an important supplemental measure of Cineplex’s
profitability at an operational level and provides analysts and investors with comparability in evaluating and valuing
Cineplex’s performance period over period. EBITDA, adjusted for various unusual items, is also used to define
certain financial covenants in Cineplex’s Credit Facilities.
The following tables disclose the results of the Film Entertainment and Content, Media, Amusement and Leisure and
Location-Based Entertainment segments for the year ended December 31, 2020 and 2019:
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
132
(42)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
Year ended December 31, 2020
Major product and service lines
Box office
Food service
Media
Amusement
Other
Total revenues
Film
Entertainment
and Content
(i)
Amusement
and Leisure
(restated - note
33)
Location-
Based
Entertainment
Media (i)
Corporate and
other (iii)
Consolidated
$
132,820
$
99,559
—
2,457
33,112
$
—
—
64,758
—
—
—
—
—
60,027
—
$
— $
— $
9,073
600
15,417
440
—
—
—
—
132,820
108,632
65,358
77,901
33,552
$
267,948
$
64,758
$
60,027
$
25,530 $
— $
418,263
Primary geographical markets
Canada
$
267,948
$
50,387
$
18,259
$
25,530 $
United States and other countries
—
14,371
41,768
—
Total revenues
$
267,948
$
64,758
$
60,027
$
25,530 $
Timing of revenue recognition
Transferred at a point in time
$
267,948
$
17,624
$
60,027
$
24,930 $
—
47,134
—
600
$
267,948
$
64,758
$
60,027
$
25,530 $
Transferred over time
Total revenues
Adjusted EBITDAaL
— $
362,124
—
56,139
— $
418,263
— $
370,529
—
47,734
— $
418,263
(145,855)
21,775
(10,805)
(8,160)
(39,770)
(182,815)
Difference between the sum of depreciation of right-of-use assets and interest expense related
to the lease obligations as compared to the cash rent paid or payable related to lease
obligations with respect to the current period.
Other adjustments (ii)
Depreciation and amortization - other assets
Interest expense - other
Interest income
Income taxes recovery
Impairment of long-lived assets and
goodwill
Net loss from continuing operations
Net loss from discontinued operations (note 32)
Net loss
Other operating segment disclosures
50,535
(5,491)
124,846
61,483
(182)
(84,868)
294,863
(624,001)
(4,952)
(628,953)
$
$
Depreciation - right-of-use assets
$
114,798
Depreciation and amortization - other assets $
$
Interest expense - lease obligations
72,319
44,153
Impairment of long-lived assets, goodwill
and investments
Goodwill balance
$
$
262,645
413,915
$
$
$
$
$
3,360
10,318
457
—
206,385
$
$
$
$
$
4,469
28,053
617
—
15,282
$
$
$
$
$
5,065 $
14,156 $
3,833 $
32,218 $
— $
701 $
128,393
— $
25 $
— $
— $
124,846
49,085
294,863
635,582
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
133
(43)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
Year ended December 31, 2019
Major product and service lines
Box office
Food service
Media
Amusement
Other
Film
Entertainment
and Content
(i)
Amusement
and Leisure
(restated - note
33)
Location-
Based
Entertainment
Media (i)
Corporate and
other (iii)
Consolidated
$
705,521 $
446,639
— $
—
—
195,680
10,907
48,993
—
—
— $
— $
— $
705,521
—
—
178,209
—
36,691
1,075
39,115
2,316
—
—
—
—
483,330
196,755
228,231
51,309
Total revenues
$
1,212,060 $
195,680 $
178,209 $
79,197 $
— $
1,665,146
Primary geographical markets
Canada
$
1,212,060 $
164,339 $
53,939 $
79,197 $
— $
1,509,535
United States and other countries
—
31,341
124,270
—
—
155,611
Total revenues
$
1,212,060 $
195,680 $
178,209 $
79,197 $
— $
1,665,146
Timing of revenue recognition
Transferred at a point in time
$
1,212,060 $
51,445 $
178,209 $
79,197 $
— $
1,520,911
Transferred over time
Total revenues
Adjusted EBITDAaL
—
144,235
—
—
—
144,235
$
1,212,060 $
195,680 $
178,209 $
79,197 $
— $
1,665,146
178,860
106,350
21,757
7,391
(83,812)
230,546
Difference between the sum of depreciation of right-of-use assets and interest expense related to the lease
obligations as compared to the cash rent paid or payable related to lease obligations with respect to the current
period.
Other adjustments (ii)
Depreciation and amortization - other assets
Interest expense - other
Interest income
Income taxes expense
Net income from continuing operations
Net loss from discontinued operations (note 32)
Net income
Other operating segment disclosures
19,365
(1,798)
128,883
36,063
(252)
11,769
36,516
(7,625)
28,891
$
$
Depreciation - right-of-use assets
$
130,290 $
3,437 $
5,820 $
5,756 $
643 $
145,946
Depreciation and amortization - other assets $
75,077 $
13,607 $
27,704 $
12,495 $
Interest expense - lease obligations
$
44,466 $
505 $
715 $
2,934 $
— $
39 $
128,883
48,659
(i) The Film Entertainment and Content reporting segment does not charge an access fee to the Media reporting segment for in-theatre
advertising.
(ii) Other adjustments include gain/loss on disposal of assets, CDCP equity (loss) income, foreign exchange, non-controlling interest adjusted
EBITDA, depreciation and amortization for joint ventures and taxes and interest - joint ventures.
(iii) Corporate and other represents the cost of centralized corporate overhead that is not allocated to the other operating segments and includes
the change in fair value of financial instruments.
Cineplex’s cash management and other treasury functions are centralized; interest expense not related to the lease
obligations and interest income are not allocated to segments. Income taxes are accounted for by entity, and cannot
be attributable to individual segments. Cineplex does not report balance sheet information by segment because that
information is not used to evaluate performance or allocate resources between segments.
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
134
(44)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
25. Barter transactions
Cineplex occasionally enters into barter arrangements with other parties to exchange goods or services. During the
year ended December 31, 2020, Cineplex provided advertising and media services to third parties and recognized
advertising revenues of $144 (2019 - $1,140). Cineplex received sponsorship and advertising services in exchange,
recording marketing expenses of $345 (2019 - $952). The exchanges were measured at the estimated fair value of
the services provided by Cineplex, by reference to similar services provided by Cineplex for monetary consideration
to arm’s-length third parties other than those with whom the transactions were entered into.
26. Related party transactions
Cineplex may have transactions in the normal course of business with entities whose management, directors or
trustees are also directors of Cineplex. Any such transactions are in the normal course of operations and are
measured at market-based exchange amounts. Unless otherwise noted, these transactions are not considered related
party transactions for financial statement purposes.
The Chief Executive Officer of Riocan Real Estate Investment Trust (“Riocan”) served as a Board member until
May 5, 2020. Prior to his departure, Cineplex incurred theatre expenditures for theatres under lease commitments
with Riocan in the amount of $20,217 (2019 - $42,989).
Joint ventures
Cineplex leased digital projection systems from CDCP in the amount of $1,178 for the year ended December 31,
2020 (2019 - $1,897).
Cineplex performs certain management and film booking services for the joint ventures in which it is either a joint
venturer or an associate. During the year ended December 31, 2020, Cineplex earned revenue of $571 for these
services (2019 - $780).
Compensation of key management
Compensation recognized in employee benefits for key management, who are defined as the Named Executive
Officers, included:
Salaries and short-term employee benefits
Post-employment benefits
Share-based payments
2020
2,155 $
1,037
(5,492)
2019
4,448
972
5,674
(2,300) $
11,094
$
$
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
135
(45)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
27. Changes in operating assets and liabilities
The following summarizes the changes in operating assets and liabilities:
Trade and other receivables
Inventories
Prepaid expenses and other current assets
Accounts payable and accrued liabilities
Income taxes receivable
Deferred revenue
Post-employment benefit obligations
Share-based compensation
Other liabilities
$
2020
115,122 $
10,222
2,737
(87,968)
(56,825)
(2,990)
330
(20,681)
(3,125)
$
(43,178) $
2019
(4,140)
(188)
(140)
14,028
(14,479)
8,706
1,429
6,291
(2,780)
8,727
Property, equipment and leasehold purchases are included in accounts payable and accrued liabilities as at December
31, 2020, in the amount of $4,717 (2019 - $33,158).
28. Commitments, guarantees and contingencies
Commitments
As of December 31, 2020, Cineplex has aggregate capital commitments as follows:
Capital commitments for operating locations to be completed or renovated during 2021 - 2024
Letters of credit
$
$
82,100
10,234
Guarantees
During 2005 and 2006, Cineplex entered into agreements with third parties to divest a total of 36 theatres, 30 of
which were leased properties. Cineplex is guarantor under the leases for the remainder of the lease terms for certain
theatres that it has sold in the event that the purchaser of the theatres does not fulfill its obligations under the
respective lease; ten or fewer of those theatres are still operated by a third party lease under which Cineplex arguably
could be responsible as a guarantor.
Cineplex has assessed the fair value of the lease guarantees and determined that the fair value of these guarantees at
December 31, 2020 is nominal. As such, no additional amounts have been provided in the consolidated financial
statements for these guarantees. Should the purchasers of the theatres fail to fulfill their lease commitment
obligations, Cineplex could face a substantial financial burden, which could be mitigated by Cineplex operating any
theatres under default.
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
136
(46)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
Other
Cineplex or a subsidiary of Cineplex is a defendant in various claims and lawsuits arising in the ordinary course of
business. From time to time, Cineplex is involved in disputes with landlords, contractors, suppliers, former
employees and other third parties. It is the opinion of management that any liability to Cineplex, which may arise as
a result of these matters, will not have a material adverse effect on Cineplex’s operating results, financial position or
cash flows.
29. Financial instruments
Fair value of financial instruments
The carrying value and fair value of Cineplex’s financial instruments at December 31, 2020 and 2019 are as follows:
Convertible debentures
Other liabilities - equipment liabilities
Interest rate swap agreements, net
Deferred consideration - AMC
Input
level
Carrying
value
1
2
2
2
219,271
4,168
26,359
3,134
2020
Fair
value
344,713
4,168
26,359
3,134
Carrying
value
—
4,195
11,217
3,134
2019
Fair
value
—
4,195
11,217
3,134
Cash and cash equivalents, trade and other receivables, accounts payable and accrued liabilities and dividends
payable are reflected in the consolidated financial statements at carrying values that approximate fair values because
of the short-term maturities of these financial instruments.
At the time of entering into the Third Credit Amendment Agreement, there was no further change to the interest
margins charged by the Bank on Cineplex’s outstanding debt from that implemented under the First and Second
Credit Amendment Agreements. The debt is considered a Level 3 fair value measurement and no other observable
inputs are available. If the interest rate were to increase by 2% to 4%, the effect would be to decrease the fair value
of the debt by approximately $30,000 to $60,000. The numerous external factors impacting the future performance
of Cineplex, as discussed in note 2, COVID-19 business impacts, risks and going concern, and note 11, Goodwill
and impairment of long-loved assets, goodwill and investments, indicate that there is significant uncertainty in the
inputs to, and therefore the measurement of, the fair value of the debt as at December 31, 2020. As a result, changes
in these underlying assumptions could cause the fair value to vary materially.
The equipment liabilities are recorded at amortized cost, as derived from expected cash outflows and Cineplex’s
estimated incremental borrowing rate, 4.9%. The equipment liabilities are included in accounts payable and accrued
liabilities (current portion) and in other liabilities on the balance sheet.
The purpose of the interest rate swap agreements is to act as a cash flow hedge of the floating interest rate payable
on Cineplex’s first $450,000 of borrowings. Cineplex ceased hedge accounting for the interest rate swaps during the
fourth quarter of 2019. The interest rate swap is measured at fair market value at each reporting period with changes
in fair market value recognized in the consolidated statement of operations.
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
137
(47)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
The deferred consideration for AMC (an undiscounted amount of $3,134 based on estimated non-capital losses
arising from the 2012 acquisition of AMC Ventures Inc.) is recorded at fair value and included in other liabilities
(note 19, Other liabilities). There was no change in fair value of $3,134 for the year ended December 31, 2020.
The convertible debentures are publicly traded on the TSX, and are recorded at amortized cost (note 17, Convertible
debentures).
In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical financial assets
or financial liabilities that Cineplex has the ability to access.
Fair values determined by Level 2 inputs use inputs other than the quoted prices included in Level 1 that are
observable for the financial asset or financial liability, either directly or indirectly. Level 2 inputs include quoted
prices for similar financial assets and financial liabilities in active markets, and inputs other than quoted prices that
are observable for the financial assets or financial liabilities. Cineplex uses market interest rates and yield curves that
are observable at commonly quoted intervals in the valuation of its interest rate swap agreements. The derivative
positions are valued using models developed internally by the respective counterparty that uses as its basis readily
observable market parameters (such as forward yield curves) and are classified within Level 2 of the valuation
hierarchy. Cineplex considers its own credit risk as well as the credit risk of its counterparties when evaluating the
fair value of its derivatives. Any adjustments resulting from credit risk are recorded as a change in fair value of the
derivatives and reflected in OCI.
Level 3 inputs are unobservable inputs for the financial asset or financial liability, and include situations where there
is little, if any, market activity for the financial asset or financial liability. Cineplex’s assessment of the significance
of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to
the financial asset or financial liability.
Credit risk
Credit risk is the risk of financial loss to Cineplex if a customer or counterparty to a financial instrument fails to
meet its contractual obligation. Management believes the credit risk on cash and cash equivalents is low because the
counterparties are banks with high credit ratings.
Accounts receivable include trade and other receivables. Trade receivables are amounts billed to customers for the
sales of goods and services, and represent the maximum exposure to credit risk of those financial assets, exclusive of
the allowance for doubtful accounts. Normal credit terms for amounts due from customers call for payment within
30 to 45 days. Other receivables include amounts due from suppliers and landlords and other miscellaneous
amounts. Cineplex’s credit risk is primarily related to its trade receivables, as other receivables generally are
recoverable through ongoing business relationships with the counterparties.
Cineplex grants credit to customers in the normal course of business. Cineplex typically does not require collateral
or other security from customers; however, credit evaluations are performed prior to the initial granting of credit
when warranted and periodically thereafter. Cineplex records a reserve for estimated uncollectible amounts, which
management believes reduces credit risk. See note 32, Significant accounting policies, judgments and estimation
uncertainty, for Cineplex’s policy on impairment of financial assets.
The following schedule reflects the balance and age of trade receivables at December 31, 2020 and 2019:
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
138
(48)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
Trade receivables carrying value
Percentage past due
Percentage outstanding more than 120 days
2020
2019
$
29,188
$
136,647
57 %
27 %
36 %
3 %
The following schedule reflects the changes in the allowance for trade receivables during the years ended
December 31, 2020 and 2019:
Expected credit loss for trade receivables - Beginning of year
Additional allowance recorded
Amounts written off
Expected credit loss for trade receivables - End of year
2020
516 $
1,244
(569)
1,191 $
$
$
2019
628
508
(620)
516
Due to Cineplex’s diversified client base, management believes Cineplex does not have a significant concentration
of credit risk.
Liquidity risk
Liquidity risk is the risk that Cineplex will encounter difficulty in meeting obligations associated with its financial
liabilities.
The table below reflects the contractual maturity of Cineplex’s undiscounted cash flows for its financial liabilities
and interest rate swap agreements:
2020
Payments due by period
Contractual obligations
Total
Within
1 year
2 - 3
years
4 - 5
years
After
5 years
Accounts payable and accrued liabilities
Interest rate swap agreements
Long-term debt
Interest on long-term debt
Equipment obligations
Deferred consideration - AMC
Convertible debentures
Convertible debentures interest
$ 82,992 $ 82,992 $
— $
— $
26,359
506,000
70,618
4,168
3,134
316,250
86,388
7,201
—
24,642
1,975
—
—
18,184
15,449
506,000
45,976
2,018
3,134
—
36,369
3,709
—
—
150
—
316,250
31,835
Total contractual obligations
$ 1,095,909 $ 134,994 $ 608,946 $ 351,944 $
—
—
—
—
25
—
—
—
25
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
139
(49)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
Contractual obligations
Total
Within
1 year
2 - 3
years
4 - 5
years
After
5 years
2019
Payments due by period
Accounts payable and accrued liabilities
Dividends payable
Interest rate swap agreements
Long-term debt
Interest on long-term debt
Equipment obligations
Deferred consideration - AMC
$ 220,188 $ 220,188 $
9,500
11,217
625,000
87,280
4,195
3,134
9,500
852
—
24.063
2,006
3,134
— $
—
5,455
—
48,125
2,014
—
— $
—
4,028
475,000
34,132
150
—
—
—
882
150,000
5,000
25
—
Total contractual obligations
$ 960,514 $ 235,704 $ 55,594 $ 513,310 $ 155,907
Existing lease commitments are disclosed in note 15. Cineplex also has significant new theatre and other capital
commitments (note 28, Commitments, guarantees and contingencies), as well as contingent obligations in the form
of letters of credit, guarantees and the Incentive Plan for options, RSUs, and PSUs.
Management believes the Cineplex’s cash flows from certain planned asset sales, including but not limited to the
sale of its head office building, income tax recoveries, and funding sourced by the issuance of Debentures will be
adequate to support all of its financial liabilities. Refer to note 2, COVID-19 business impacts, risks and going
concern, for a discussion of management’s liquidity measures.
Currency risk
Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of the
changes in foreign currency exchange rates.
The majority of Cineplex’s revenues and expenses are in Canadian dollars, with the remainder denominated in US
dollars. Approximately 13.4% of Cineplex’s revenues are derived from sales to customers in the United States,
which are naturally hedged by the Cineplex’s US-based operating costs. Management considers currency risk to be
low and does not hedge its currency risk. An assumed increase of 10% in exchange rates at December 31, 2020
would have increased other comprehensive income by $3,061 and decreased net income by $2,920. An assumed
decrease of 10% in exchange rates at December 31, 2020 would have decreased other comprehensive income by
$3,053 and increased net income by $2,920.
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of
changes in market interest rates.
Cineplex is exposed to interest rate risk on its long-term debt, which bears interest at floating rates.
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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(50)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
Interest expense on the long-term debt is adjusted to include the payments made or received under the interest rate
swap agreements. The interest rate swap agreements are recognized in the consolidated balance sheets at their
estimated fair value. During the year ended December 31, 2020, Cineplex recorded non-cash interest expense of
$13,922 relating its interest rate swaps (2019 - interest expense of $10,472).
There was no impact on OCI in the current and prior period resulting from a 1% change in interest rates on
Cineplex’s long-term debt and interest rate swap agreements. The following table shows Cineplex’s exposure to
interest rate risk and the pre-tax effects on net income for the years ended December 31, 2020 and 2019 of a 1%
change in interest rates management believes is reasonably possible:
Pre-tax effects on net income and OCI - increase (decrease)
1% decrease
in interest rates
1% increase
in interest rates
2020
Carrying
value of
financial
liability
$ 506,000 $
26,360
$
Net income
Net income
5,836 $
(12,192)
(6,356) $
(5,836)
11,692
5,856
2019
Pre-tax effects on net income and OCI - increase (decrease)
1% decrease
in interest rates
1% increase
in interest rates
Carrying
value of
financial
liability
$ 625,000 $
11,217
$
Net income
Net income
6,399
(17,597)
$
(11,198) $
(6,399)
16,995
10,596
Long-term debt
Interest rate swap agreements - net
Long-term debt
Interest rate swap agreements - net
The carrying value of the interest rate swaps liability was $26,359 at December 31, 2020. If interest rates changed
plus or minus 1% from existing estimates throughout the contract period, the carrying value would decrease to
$14,668 or increase to $38,551, primarily affecting interest expenses.
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(51)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
30. Capital disclosures
Cineplex’s objectives when managing capital are to:
a) maintain financial flexibility to preserve its ability to meet financial obligations and growth objectives,
including future investments;
b) deploy capital to provide an appropriate investment return to its shareholders; and
c) maintain a capital structure that allows multiple financing options, should a financing need arise.
Cineplex defines its capital as follows:
long-term debt, convertible debentures, and finance lease obligations, including the current portion;
a) equity;
b)
c) fair value equipment liabilities, including the current portion; and
d) cash and cash equivalents.
It is Cineplex’s policy to distribute annually to shareholders available cash from operations after cash required for
maintenance capital expenditures, working capital and other reserves at the discretion of the Board of Directors.
Distributions will be limited and only permitted when the leverage ratio is less than 2.75 to 1 as required under
Credit Facility, both prior to and immediately after giving effect to any such distribution. Distributions are not
allowed during the financial covenant suspension period.
During the fiscal period, Cineplex entered into a First and Second Credit Agreement Amendment with The Bank of
Nova Scotia, as administrative agent, and the lenders from time to time named therein. The credit agreement
amendments provide Cineplex with financial covenant relief in light of the COVID-19 pandemic and its effects on
Cineplex’s business. As a result, financial covenant testing has been temporarily suspended until the end of the
second quarter of 2021. On the reinstatement of financial covenant testing, the total leverage ratio may not exceed
3.75 to 1, and will be reduced over the course of 2021 each quarter until it is at 3 to 1 for the fourth fiscal quarter of
2021. Growth capital expenditures will be limited to certain agreed projects during the year. After December 31,
2020, additional growth capital expenditures will be permitted subject to a pro forma leverage covenant of 2.75 to 1,
both prior to and immediately after giving effect to any such growth capital expenditures.
The basis for Cineplex’s capital structure is dependent on Cineplex’s expected growth and changes in the business
and regulatory environments. To maintain or adjust its capital structure, Cineplex may purchase shares for holding
or cancellation, issue new shares, raise debt or refinance existing debt with different characteristics.
Objectives and strategies are reviewed periodically by management. During 2020, Cineplex completed the offering
of convertible debentures for $316,250 aggregate principal amount where $100,000 of the proceeds raised were used
to permanently repay the credit facility outstanding as required under the Arrangement Agreement. In 2020,
Cineplex’s capital composition, objectives or strategies all changed in response to the substantial business
challenges of COVID-19.
31. Assets held for sale and discontinued operations
During the quarter ended September 30, 2019, Cineplex initiated a review process of WorldGaming Network LP’s
(“WGN”) online esports business, engaging a third party adviser to identify a strategic equity partner. On June 29,
2020, Cineplex sold all of its interest in WGN for a nominal amount. A nominal gain was recognized on the
disposition and is included in net loss from discontinued operations.
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(52)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
Cineplex applied IFRS 5, Non-current assets held for sale and discontinued operations (“IFRS 5”) to measure,
present and disclose the financial information for WGN during the period in which WGN had met the criteria to be
recorded as a discontinued operation. Effective with the quarter ended September 30, 2019, WGN’s financial
performance and cash flows are presented in these consolidated financial statements as discontinued operations on a
retroactive basis. All other notes to the financial statements include amounts for continuing operations, unless
indicated otherwise.
The major classes of assets and liabilities classified as held for sale are as follows:
Trade and other receivables
Prepaid expenses and other current assets
Property, equipment and leaseholds
Intangible assets
Assets held for sale
Accounts payable and accrued liabilities
Deferred revenue
Deferred income taxes
Liabilities related to assets held for sale
Net assets held for sale
December 31, December 31,
2019
2020
$
$
$
$
$
— $
—
—
—
— $
— $
—
—
— $
607
11
724
5,231
6,573
1,254
316
1,238
2,808
— $
3,765
The following table discloses revenues and expenses for the year ended December 31:
Revenues
Media revenues
Other revenues
Expenses
Depreciation and amortization - other assets
Loss on disposal of assets
Other costs
Impairment of intangible assets
Foreign exchange
Loss before income taxes
Recovery of income taxes
Current
Deferred
Net loss from discontinued operations
Foreign currency translation adjustment from discontinued operations
Other comprehensive loss from discontinued operations
2020
2019
602 $
199
801
—
129
2,212
5,156
(117)
7,380
1,075
16
1,091
3,623
—
7,001
—
268
10,892
(6,579)
(9,801)
(384)
(1,243)
(1,627)
(4,952) $
(1,415)
(761)
(2,176)
(7,625)
7
210
(4,945) $
(7,415)
$
$
$
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(53)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
The following table discloses cash flows for the year ended December 31:
Net cash used in operating activities
Net cash used in investing activities
Effect of exchange rate differences on cash
Net cash used in discontinued operations
2020
(1,768) $
(215)
(408)
(2,391) $
2019
367
(1,168)
254
(547)
$
$
32. Significant accounting policies, judgments and estimation uncertainty
Significant accounting policies
The significant accounting policies used in the preparation of these consolidated financial statements are described
below.
Basis of preparation and measurement
Cineplex prepares its consolidated financial statements in accordance with Canadian generally accepted accounting
principles (“Canadian GAAP”), defined as International Financial Reporting Standards (“IFRS”) as set out in the
CPA Canada Handbook - Accounting. The preparation of consolidated financial statements in accordance with IFRS
requires the use of certain critical accounting estimates. It also requires management to exercise judgment in
applying Cineplex’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas
where assumptions are significant to the consolidated financial statements are disclosed later in this note.
These consolidated financial statements have been prepared under the historical cost convention, except for the
revaluation of certain financial assets and financial liabilities to fair value, including derivative instruments and
available-for-sale investments.
Reportable operating segments
Cineplex is comprised of four reportable operating segments, Film Entertainment and Content, Media, Amusement
and Leisure, and Location-Based Entertainment. The reportable segments are business units offering differing
products and services. Details of Cineplex’s four reportable operating segments are provided in (note 24, Operating
segments).
Consolidation
Subsidiaries are all entities over which Cineplex has control. Cineplex controls an entity when it is exposed to, or
has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through
its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to
Cineplex. They are deconsolidated from the date that control ceases.
Cineplex applies the acquisition method to account for business combinations. The consideration transferred for the
acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred to the former owners of
the acquiree and the equity interests issued by Cineplex. The consideration transferred includes the fair value of any
asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities
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(54)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
and contingent liabilities assumed in a business combination are measured initially at their fair values at the
acquisition date. Cineplex recognises any non-controlling interest in the acquiree at fair value of the recognised
amounts of the acquiree’s identifiable net assets.
Acquisition-related costs are expensed as incurred.
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously
held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising
from such re-measurement are recognised in profit or loss.
Any contingent consideration to be transferred by Cineplex is recognised at fair value at the acquisition date.
Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is
recognised in accordance with IFRS 9 in profit or loss. Contingent consideration that is classified as equity is not re-
measured, and its subsequent settlement is accounted for within equity.
The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the
acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net
assets acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interest recognised
and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the
case of a bargain purchase, the difference is recognised directly in the statement of operations.
Inter-company transactions, balances and unrealised gains and losses on transactions between Cineplex entities are
eliminated. When necessary, amounts reported by subsidiaries have been adjusted to conform with Cineplex’s
accounting policies.
Transactions with non-controlling interests that do not result in loss of control are accounted for as equity
transactions – that is, as transactions with the owners in their capacity as owners. The difference between fair value
of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is
recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.
Associates are all entities over which Cineplex has significant influence but not control, generally accompanying a
shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the
equity method of accounting. Under the equity method, the investment is initially recognised at cost, and the
carrying amount is increased or decreased to recognise the investor’s share of the profit or loss of the investee after
the date of acquisition. Cineplex’s investment in associates includes goodwill identified on acquisition.
Cineplex determines at each reporting date whether there is any objective evidence that the investment in the
associate is impaired. If this is the case, Cineplex calculates the amount of impairment as the difference between the
recoverable amount of the associate and its carrying value and recognises the amount in the statement of operations.
Profits and losses resulting from upstream and downstream transactions between Cineplex and its associate are
recognised in the group’s financial statements only to the extent of unrelated investor’s interests in the associates.
Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Accounting policies of associates have been changed where necessary to ensure consistency with the policies
adopted by Cineplex.
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(55)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
Dilution gains and losses arising in investments in associates are recognised in the consolidated statement of
operations.
Investments in joint ventures and associates
Investments in joint arrangements are classified either as joint operations and proportionately consolidated or as
joint ventures or associates and equity-accounted, depending on the contractual rights and obligations of each
investor.
Under the equity method of accounting, interests in joint ventures and associates are initially recognised at cost and
adjusted thereafter to recognise Cineplex’s share of the post-acquisition profits or losses and movements in OCI.
When Cineplex’s share of losses in a joint venture or an associate equals or exceeds its interests in that joint venture
or associate (which includes any long-term interests that, in substance, form part of Cineplex’s net investment in the
joint ventures), Cineplex does not recognise further losses, unless it has incurred obligations or made payments on
behalf of the joint venture or associate.
Unrealised gains on transactions between Cineplex and its joint ventures and associates are eliminated to the extent
of Cineplex’s interest in the joint ventures and associates. Unrealised losses are also eliminated unless the
transaction provides evidence of an impairment of the asset transferred. Accounting policies of the joint ventures
have been changed where necessary to ensure consistency with the policies adopted by Cineplex.
Cineplex assesses at each year-end whether there is any objective evidence that its interests in joint ventures and
associates are impaired. In determining the value-in-use of an investment, Cineplex estimates its share of the present
value of the estimated cash flows expected to be generated by the joint venture or associate, including the cash flows
from the operations of the joint venture or associate and the proceeds on the ultimate disposal of the investment, or
the present value of the estimated future cash flows expected to arise from dividends to be received from the joint
venture or associate and its ultimate disposal. If impaired, the carrying value of Cineplex’s share of the underlying
assets of joint ventures or associates is written down to its estimated recoverable amount (being the higher of fair
value less costs of disposal and value in use) and charged to the consolidated statements of operations.
Cineplex has interests in a jointly controlled entity and accounts for its share of assets and liabilities, revenue and
expenses of the joint operation. Cineplex conducts a portion of its business through SCENE GP, a joint operation
whereby the joint operation participants are bound by contractual agreements establishing joint control. Joint
control exists when unanimous consent of the joint operation participants is required regarding strategic, financial
and operating policies of the joint operation. Cineplex’s share of results from SCENE has been recognized in
Cineplex’s consolidated financial statements. Inter-company transactions between Cineplex and SCENE are
eliminated to the extent of Cineplex’s interest.
Foreign currency translation
Functional and presentation currency
Cineplex determines its subsidiaries’ functional currency by reviewing the currency of the primary economic
environment in which each entity operates (the “functional currency”). The functional currency of three subsidiaries
of P1AG is the United States dollar. The functional currency of all other entities of the Cineplex group is the
Canadian dollar.
The consolidated financial statements are presented in Canadian dollars.
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Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the
dates of the transactions. Generally, foreign exchange gains and losses resulting from the settlement of foreign
currency transactions and from the translation at fiscal year-end exchange rates of monetary assets and liabilities
denominated in currencies other than an operation’s functional currency are recognized in the consolidated
statements of operations.
Subsidiaries
The results and balance sheet of the subsidiaries that have a functional currency different from the presentation
currency are translated into the presentation currency as follows:
• assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that
balance sheet;
• income and expenses for each statement of profit or loss and statement of comprehensive income are
translated at average exchange rates, and
• all resulting exchange differences are recognised in other comprehensive income.
Goodwill recognized on the acquisition of a subsidiary are treated as assets and liabilities of the subsidiary and
translated at the closing rate.
Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held with banks, and other short-term highly liquid
investments with original maturities of three months or less. Cash equivalents are readily converted into known
amounts of cash, and are subject to an insignificant risk of changes in value.
Financial instruments
Financial assets and financial liabilities are recognized when Cineplex becomes a party to the contractual provisions
of the financial instrument. Financial assets are derecognized when the rights to receive cash flows from the
financial assets have expired or have been transferred and Cineplex has transferred substantially all risks and
rewards of ownership. Financial liabilities are derecognized when the contractual obligations are discharged,
canceled or expire. Regular purchases and sales of financial assets are recognized on the trade-date, the date on
which Cineplex commits to purchase or sell the asset.
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated balance sheets
when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net
basis, or realize the financial asset and settle the financial liability simultaneously.
IFRS 9 contains three classification categories for financial assets and liabilities measured at amortized cost, fair
value through profit or loss (“FVPL”) and fair value through other comprehensive income (“FVOCI”).
At initial recognition, Cineplex classifies its financial instruments in the following categories depending on the
purpose for which the financial instruments were acquired:
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Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
i.
Financial assets and financial liabilities at FVPL: The only instruments held by Cineplex classified in
this category are certain equipment purchase liabilities, and the deferred consideration payable for
business combinations. Derivatives are included in this category unless they are designated as hedges.
Financial instruments in this category are recognized initially and subsequently at fair value.
Transaction costs are expensed in the consolidated statements of operations. Gains and losses arising
from changes in fair value are presented in the consolidated statements of operations. Financial assets
and financial liabilities at fair value through profit or loss are classified as current, except for the
portion expected to be realized or paid beyond 12 months of the consolidated balance sheet date,
which is classified as non-current. Financial assets and liabilities at FVPL are presented within
changes in operating assets and liabilities in the consolidated statements of cash flows.
ii.
Financial assets and liabilities at amortized cost: Loans and receivables are non-derivative financial
assets with fixed or determinable payments that are not quoted in an active market. Cineplex’s loans
and receivables comprise trade receivables and cash and cash equivalents, and are included in current
assets due to their short-term nature. Loans and receivables are initially recognized at the amount
expected to be received, less, when material, a discount to reduce the loans and receivables to fair
value. Subsequently, loans and receivables are measured at amortized cost using the effective interest
method, less a provision for impairment.
Financial liabilities at amortized cost include trade payables, dividends and distributions payable,
bank indebtedness and long-term debt and the non-derivative component of convertible debentures.
Trade payables are initially recognized at the amount required to be paid, less, when material, a
discount to reduce the payables to fair value. Subsequently, trade payables are measured at amortized
cost using the effective interest method. Bank indebtedness and long-term debt, and the non-
derivative component of convertible debentures are recognized initially at fair value, net of any
transaction costs incurred and, subsequently, at amortized cost using the effective interest method.
Financial liabilities are classified as current liabilities if payment is due within 12 months. Otherwise,
they are presented as non-current liabilities.
Equity investments are required to be measured fair value with all changes recognized at FVPL. At
initial recognition, Cineplex can make an irrevocable election to classify the instruments at FVOCI,
with all subsequent changes in fair value being recognized in OCI. Cineplex has not classified any
equity instruments at FVOCI.
iii.
Financial instruments at FVOCI: Cineplex ceased the use of hedge accounting for its interest rate
swap agreements during the fourth quarter of 2019 as a result of the terms of the Arrangement
Agreement. The interest rate swap are measured at fair market value at each reporting period with
changes in fair market value recognized in the consolidated statement of operations.
Impairment of financial assets
At each reporting date, Cineplex assesses whether there is objective evidence that a financial asset is impaired. If
such evidence exists, Cineplex recognizes an impairment loss. IFRS 9 uses forward-looking Expected Credit Loss
(“ECL”), Cineplex applies the impairment model to financial asset measured at amortized cost or FVOCI, except for
investments in equity instruments, and to contract assets.
Under IFRS 9, loss allowances will be measured on either of the following bases:
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(58)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
i.
ii.
12-month ECLs which are ECLs that result from possible default events within 12 months after the
reporting date; and
lifetime ECLs which are ECLs that result from all possible default events over the expected life of a
financial instruments.
Cineplex applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected
loss allowance for all trade receivables. Impairment losses on financial assets carried at amortized cost or FVOCI
are reversed in subsequent years if the amount of the loss decreases and the decrease can be related objectively to an
event occurring after the impairment was recognized.
Inventories
Inventories consist of food service inventories, gaming inventories and other inventories, including work in
progress.
Food service inventories, gaming equipment purchased for re-sale, merchandise that is used as redemption prizes
and work-in progress inventories are stated at the lower of cost and net realizable value. Cost is determined using
the first-in, first-out method. Net realizable value is the estimated selling price less applicable selling expenses.
Gaming inventories includes gaming equipment purchased for re-sale or transferred from property, equipment and
leaseholds and merchandise that is used as redemption prizes for certain games. Gaming equipment also includes
equipment that has been transferred from property, equipment and leaseholds to inventory when it is no longer in
route operations and it will be sold or auctioned to third parties at the discretion of management. Gaming equipment
is transferred to inventory at its net book value and stated at the lower of the net book value or net realizable value.
Net realizable value is the estimated selling price less applicable selling expenses.
Other inventories include consumable supplies and work-in-progress being assembled for sale or installation by
CDM.
Impairment of non-financial assets
Property, equipment and leaseholds and intangible assets subject to amortization are tested for impairment when
events or changes in circumstances indicate that the carrying value may not be recoverable. Long-lived assets that
are not amortized are subject to an annual impairment test. For the purpose of measuring recoverable amounts,
assets are grouped at the lowest levels for which there are separately identifiable cash inflows relating to the relevant
intangible asset (“cash-generating units” or “CGUs”). Cineplex considers each theatre a CGU. The recoverable
amount is the higher of an asset’s fair value less costs to sell and value in use (being the present value of the
expected future cash flows of the relevant asset or CGU). An impairment loss is recognized for the amount by which
the CGU’s carrying value exceeds its recoverable amount.
Goodwill is reviewed for impairment annually or at any time if an indicator of impairment exists.
Goodwill acquired through a business combination is allocated to each CGU or group of CGUs that is expected to
benefit from the related business combination. A group of CGUs represents the lowest level within the entity at
which the goodwill is monitored for internal management purposes, which is not higher than an operating segment.
Cineplex groups theatre CGUs based on geographical regions of financial management responsibility in testing
goodwill for impairments.
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Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
Cineplex groups CGUs based on trade name in testing indefinite-lived trade names for impairment.
Cineplex evaluates impairment losses, other than goodwill impairment, for potential reversals when events or
circumstances warrant such consideration.
Property, equipment and leaseholds
Property, equipment and leaseholds are stated at cost less accumulated depreciation and accumulated impairment
losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. Subsequent costs are
included in the asset’s carrying value or recognized as a separate asset, as appropriate, only when it is probable that
future economic benefits associated with the item will flow to Cineplex and the cost can be measured reliably. The
carrying value of a replaced asset is derecognized when replaced. Repairs and maintenance costs are charged to the
consolidated statements of operations during the year in which they are incurred.
The major categories of property, equipment and leaseholds are depreciated on a straight-line basis as follows:
Buildings
Equipment
Leasehold improvements
30 - 40 years
3 - 10 years
term of lease but not in excess of the useful lives
For owned buildings constructed on leased property, the useful lives do not exceed the terms of the land leases.
Cineplex allocates the amount initially recognized in respect of an item of property, equipment and leaseholds to its
significant parts and depreciates separately each such part. Residual values, method of depreciation and useful lives
of the assets are reviewed at least annually or whenever events or circumstances suggest a change that may
otherwise indicate an impairment exists and adjusted if appropriate. Construction-in-progress is depreciated from
the date the asset is ready for productive use.
Gains and losses on disposals of property, equipment and leaseholds are determined by comparing the proceeds with
the carrying value of the asset and are included as part of other gain or loss on the sale of assets in the consolidated
statements of operations.
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of Cineplex’s share of the net
identifiable assets of the acquired business at the date of acquisition.
Identifiable intangible assets
Intangible assets include trademarks, trade names, leases, software and customer relationships acquired by Cineplex.
As Cineplex intends to use certain of the trademarks and trade names of the Partnership and GEI for the foreseeable
future, the useful lives of those trademarks and trade names are indefinite and no amortization is recorded. Other
trade names are expected to be substantially discontinued and are amortized over their expected useful lives (note
10, Intangible assets). Management tests indefinite-lived intangible assets for impairment at least annually, and
considers at least annually or whenever events or circumstances indicate that the life of an indefinite-lived intangible
asset may be finite. The advertising contracts have limited lives and are amortized over their useful lives, estimated
to be between five to nine years. The estimated fair value of lease contract assets is amortized on a straight-line
basis over the remaining term of the lease into amortization expense.
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
150
(60)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
The major categories of intangible assets are amortized on a straight-line basis as follows:
Internally generated software
Customer relationships
Trade names
Leases
3 - 5 years
5 - 10 years
not amortized
Cineplex conducts a significant part of its operations in leased premises. In assessing whether a contract is, or
contains a lease, Cineplex applies the definition of a lease and related guidance set out in IFRS 16 for all lease
contracts entered into or modified. A contract is, or contains a lease if the contract conveys the right to control the
use of an identified asset for a period of time in exchange for consideration. Under the provisions of IFRS 16,
substantially all of Cineplex’s leases are recorded as lease obligations and right-of-use assets.
Lease payments included in the measurement of the lease obligation are comprised of the following:
Fixed lease payments, including in-substance fixed payments;
i.
ii. Variable lease payments that depend on an index or rate, initially measured using the index or rate at the
commencement date;
iii. Amounts expected to be payable under a residual value guarantee;
iv. The exercise price of purchase options that Cineplex is reasonably certain to exercise, lease payments in an
option renewal period if Cineplex is reasonably certain to exercise the extension option, and penalties for
early termination of the lease unless Cineplex is reasonably certain not to terminate early; and
v. Less any lease incentives receivable.
Variable payments for leases that do not depend on an index or rate are not included in the measurement of the lease
liability. The variable payments are recognized as an expense in the period in which they are incurred and are
included in the consolidated statement of operations.
Cineplex accounts for any lease and associated non-lease components separately, as opposed to a single
arrangement, which is permitted under IFRS 16. Cineplex records non-lease components such as common area
maintenance as an expense in the period in which they are incurred and are included in the consolidated statement of
operations.
Interest on the lease obligations is calculated using the effective interest method with rent payments reducing the
liability. The lease obligation is remeasured whenever a lease contract is modified and the lease modification is not
accounted for as a separate lease, or there is a change in the assessment of the exercise of an extension option. The
lease obligation is remeasured by discounting the revised lease payments using a revised discount rate resulting in a
corresponding adjustment to the right-of-use asset or is recorded in gain or loss if the carrying amount of the right-
of-use asset has been reduced to zero or the modification results in a reduction in the scope of the lease.
The right-of-use assets are depreciated on a straight-line basis from the date of commencement to the earlier of the
end of the useful life of the asset or the end of the lease term.
Under IFRS 16, right-of-use assets are tested for impairment in accordance with IAS 36, Impairment of Assets which
replaces the previous requirement to recognize a provision for onerous lease contracts under IAS 37, Provisions,
Contingent Liabilities and Contingent Assets.
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2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
151
(61)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
Borrowing costs
Borrowing costs attributable to the acquisition, construction or production of qualifying assets are added to the cost
of those assets, until such time as the assets are substantially ready for their intended use. All other borrowing costs
are recognized as interest expense in the consolidated statements of operations in the year in which they are incurred.
Employee benefits
Cineplex is the sponsor of a number of employee benefit plans. These plans include a defined benefit pension plan,
additional unfunded defined benefit obligations for former Famous Players employees, and a group registered
retirement savings plan.
i. Post-employment benefit obligations
For defined benefit plans, the level of benefit provided is based on the length of service and annual
earnings of the person entitled.
The cost of defined benefit plans is determined using the projected unit credit method. The related benefit
liability recognized in the consolidated balance sheets is the present value of the defined benefit
obligation at the consolidated balance sheet dates less the fair value of plan assets. The cost of the group
registered retirement savings plan is charged to expense as the contributions become payable.
Actuarial valuations for defined benefit plans are carried out periodically and considered at each annual
consolidated balance sheet date. The discount rate applied in arriving at the present value of the benefit
liability represents yields on high-quality corporate bonds that are denominated in Canadian dollars, the
currency in which the benefits will be paid, and that have terms to maturity approximating the terms of
the related benefit liability.
The net defined benefit liability (asset) is recognized on the balance sheet without any deferral of actuarial
gains and losses. Past service costs are recognized in net income when incurred. Post-employment
benefits expense includes the net interest on the net defined benefit liability (asset) calculated using a
discount rate based on market yields on high quality bonds. Remeasurements consisting of actuarial gains
and losses, the actual return on plan assets (excluding the net interest component) and any change in the
asset ceiling are recognized in other comprehensive income without recycling to the consolidated
statements of operations.
Employee benefits are classified as long-term employee benefits if payments are not expected to be made
within the next 12 months.
ii. Share-based compensation - options
Cineplex grants stock options to certain employees. Each tranche in an award is considered a separate
award with its own vesting period and grant date fair value. Until December 16, 2019 the options were
considered equity-settled, and fair value of each tranche was measured at the date of grant using the
Black-Scholes option pricing model. Compensation expense was based on the number of awards expected
to vest and was recognized over the tranche’s vesting period, included as employee benefits expense in
other costs. On December 16, 2019, the options were considered cash-settled, and the fair value of the
excess of outstanding options in excess of the exercise price was recognized as a current share-based
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2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
152
(62)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
compensation liability and reduction of contributed surplus. Any change in fair value is recognized in
income. The number of awards expected to vest is reviewed at least annually, with any impact being
recognized immediately.
iii. Share-based compensation - other plans
Cineplex has a number of other cash-settled share-based compensation plans. The obligation for these
plans is recorded at fair value on a percentage vested basis. Changes in the obligation are reflected in
employee benefits in other costs in the consolidated statements of operations.
Provisions
Provisions for asset retirement obligations, theatre shutdowns and legal claims, where applicable, are recognized
when Cineplex has a present legal or constructive obligation as a result of past events, it is more likely than not that
an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated.
Provisions are measured at management’s best estimate of the expenditure required to settle the obligation at the end
of the reporting period, and are discounted to present value where the effect is material. Cineplex performs
evaluations to identify onerous contracts and, where applicable, records provisions for such contracts. Provisions
are included in other liabilities on the consolidated balance sheets.
Income taxes
Income taxes comprise current and deferred income taxes. Income taxes are recognized in the consolidated
statements of operations, except to the extent that they relate to items recognized directly in equity or in OCI, in
which case, the income taxes are also recognized directly in equity or in OCI.
Current income taxes are the expected taxes payable on the taxable income for the year, using income tax rates
enacted or substantively enacted, at the end of the reporting period, and any adjustment to income taxes payable in
respect of previous years.
In general, deferred income taxes are recognized in respect of temporary differences arising between the income tax
bases of assets and liabilities and their carrying values in the consolidated financial statements. Deferred income
taxes are determined on a non-discounted basis using income tax rates and laws that have been enacted or
substantively enacted at the consolidated balance sheet dates and are expected to apply when the deferred income tax
asset or liability is settled. Deferred income tax assets are recognized to the extent that it is probable that the assets
can be recovered.
Deferred income taxes are provided on temporary differences arising on investments in subsidiaries and joint
ventures, except, in the case of subsidiaries, where the timing of the reversal of the temporary difference is
controlled by Cineplex and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred income tax assets and liabilities are presented as non-current.
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2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
153
(63)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
Share capital
Common shares are classified as equity. Incremental costs directly attributable to the issuance of common shares are
recognized as a deduction from equity.
Dividends
Dividends on common shares are recognized in the consolidated financial statements in the year in which the
dividends are approved by the Board of Directors of Cineplex.
Revenue
Film Entertainment and Content
Cineplex generates box office revenues from the sale of admission tickets for theatrical releases purchased by
customers in theatres, online at Cineplex.com or through the Cineplex mobile app. Revenue is recognized at the
time the obligation is satisfied which is when the movie for which the ticket purchased has played. Amounts
collected on advanced tickets sales are recorded as deferred revenue and recognized when the movie has played.
Cineplex also generates revenues from the sale of food service which is comprised of food and beverage sales.
Food service revenue is recognized when control of the food service has transferred, being at the point the customer
purchases the food service at the theatres. Payment of the transaction price is due immediately at the point the
customer purchases the concessions. When retail transactions include the issuance of SCENE points, Cineplex
records deferred revenue based on relative stand-alone selling price of the points issued. The liability associated
with the points redeemed is recognized as revenue when points are redeemed by customers or in accordance with
Cineplex’s accounting policy for breakage.
Cineplex sells gift cards directly to individual customers and vouchers to both wholesale resellers and directly to
individual customers. The transaction price received from the sales of gift cards and vouchers is due at the time of
sale and is recorded as deferred revenue. Revenues from gift cards and vouchers are recognized either on
redemption or in accordance with Cineplex's accounting policy for breakage. Breakage income is included in other
revenues and represents the estimated value of gift cards and vouchers that are not expected to be redeemed by
customers. It is estimated based on historical redemption patterns. The sale of a voucher creates a future obligation
from Cineplex to provide an admission ticket or a combination of admission ticket(s) and concessions. The
transaction price of the voucher is allocated between box office and concessions based on a relative stand-alone
selling price basis.
Media
The media segment principally generates revenue from providing advertising services, sales of digital hardware for
digital signage networks, installation of digital hardware, digital software services subscriptions, software
maintenance and support services, creative services, printing services and warranties. Products and services may be
sold separately or in bundled packages. For bundled packages, Cineplex determines whether individual products and
services are distinct (if a product or service is separately identifiable from other items in the bundled package and if
a customer can benefit from it). The consideration is allocated between separate products and service in a bundle
based on their relative stand-alone selling prices.
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2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
154
(64)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
Advertising Media
Media revenues consist primarily of advertising revenues generated from customers who advertise their products
and services through Cineplex’s media offerings which include onscreen, online, magazine, and digital out of home.
Revenue for advertising is recognized over time as services are delivered. The transaction price allocated to these
services is recognized as the media runs from the start to the end dates specified in the contracts with the customer.
The transaction price allocated to the distinct services to be provided is based on the stand-alone selling prices of the
distinct services. Amounts collected on advanced media sales are recorded as deferred revenue and recognized over
the period that the media is presented.
Each contract with a customer is also evaluated to determine whether Cineplex is the principal or agent in the
transaction. For transactions which Cineplex is the principal, revenues are recorded on a gross basis and for
transactions where Cineplex is the agent, revenues are recorded on a net basis.
Installation and Digital Hardware for digital signage network
Cineplex sells digital hardware, installation and other professional services for digital signage networks. The
installation and other professional services that Cineplex provides are not a significant integration service, does not
customize or modify the hardware and can be performed by another party. The installation and other professional
services are therefore accounted for as a separate performance obligation and the transaction price is allocated to
each performance obligation based on the stand-alone selling prices. Revenue for installation and other professional
services are recognized upon completion of the installation of the digital hardware at the individual site being
installed for the customer. If contracts include the purchase of hardware, revenue for the hardware is recognized at
the point in time when hardware is delivered to the customer. Delivery occurs when the hardware has been shipped
to the customer’s specific location, the legal title has passed and the customer has accepted the hardware.
Digital software services subscription
Cineplex sells software service subscriptions to customers which provides the functionality for the digital signage
network, the customer portal, the content management tool and media player software at the customer’s location.
Cineplex also sells maintenance and support services for the software service subscriptions. Software service
subscription and maintenance and support services are considered to represent a single performance obligation and
revenue is recognized over time over the life of the contract. For software service subscriptions, customers have
payment options of either equal monthly payments over the term of the contract or a single lump sum payment at the
inception of the contract. Amounts collected as advanced payments are recorded as deferred revenue and recognized
equally over the term of the contract unless the contract contains a renewal option with an embedded material right
which provides the customer a material right (such as a free or discounted good or service) and gives rise to a
separate performance obligation. If an embedded material right exists, revenue is recognized on a straight-line basis
over the term of the contract including the renewal period. Contracts are evaluated to determine whether renewal
options provide the customer with an embedded material right and whether a significant financing arrangement
exists. For maintenance and support services, the transaction price is paid monthly in equal payments over the term
of the contract as service is provided.
Creative Services
Cineplex provides creative services producing content to be run on customer’s digital display networks. For creative
services, revenue is recognized at a point in time when the project is completed and the customer has accepted the
final product. Creative services are based on an hourly rate and the transaction price recognized as revenue is the
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
155
(65)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
amount to which Cineplex has a right to invoice based on the amount of hours required to complete the project.
Payment of the transaction price is due at completion of the project.
Amusement and Leisure
The amusement and leisure segment principally generates revenue from route operations, the sale of amusement
gaming and vending equipment and from the sale of food services and entertainment at location based entertainment
venues.
Cineplex operates amusement, gaming and vending equipment at family entertainment centres (“FECs”) and non-
FECs which is referred to as route operations. The transaction price is the set price that the customer playing the
game is required to pay and revenue is recognized upon the customer playing the game. As it relates to gaming
revenues, the most significant judgment is determining whether Cineplex is the principal or agent in the route
operations. Cineplex is considered to be the principal in its route operations as it owns all of the equipment hosted at
sites, is responsible for the maintenance of the equipment, and has control over which equipment will be on site.
Revenues from route operations are recorded at the gross amount with the portion shared with the location hosting
the equipment recorded in other costs as venue revenue share. Cineplex also sells rechargeable cards to be used for
gameplay. IFRS 15 requires unused cash values on the rechargeable cards to be deferred. Revenue from the
rechargeable cards is recognized upon redemption or in accordance with Cineplex’s policy for breakage based on
historical redemption patterns.
For the sale of equipment to customers, revenue is recognized when control of the goods has transferred and title has
passed, being when the goods have been delivered to the customer’s specific location.
Food and beverage sales at location-based entertainment venues are recognized when control of the goods has
transferred, being at the point the customer purchases and receives the goods. Payment of the transaction price is due
at the point the customer purchases food and/or beverages.
Income per share
Basic EPS is calculated by dividing the net income for the year attributable to equity owners of Cineplex by the
weighted average number of common shares outstanding during the year.
Diluted EPS is calculated by adjusting the weighted average number of common shares outstanding for dilutive
instruments. The number of shares included with respect to options and similar instruments is computed using the
treasury stock method. Cineplex’s potentially dilutive common shares include stock options granted to employees
and the conversion feature of the convertible debentures.
Film rental costs
Film rental costs are recorded based on the terms of the respective film licence agreements. In some cases, the final
film cost is dependent on the ultimate duration of the film’s play and, until this is known, management uses its best
estimate of the final settlement of these film costs. Film costs and the related film costs payable are adjusted to the
final film settlement in the year Cineplex settles with the distributors. Actual settlement of these film costs could
differ from those estimates.
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2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
156
(66)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
Consideration received from vendors
Cineplex receives rebates from certain vendors with respect to the purchase of concession goods. In addition,
Cineplex receives payments from vendors for advertising undertaken by the theatres on behalf of the vendors.
Cineplex recognizes rebates earned for purchases of each vendor’s product as a reduction of concession costs and
recognizes payments received for services delivered to the vendor as media or other revenue.
Significant accounting judgments and estimation uncertainties
Critical accounting estimates and judgments
Cineplex makes estimates and assumptions concerning the future that may not equal actual results. The following
are the estimates and judgments applied by management that most significantly impact Cineplex’s consolidated
financial statements. These estimates and judgments have a significant risk of causing a material adjustment to the
carrying values of assets and liabilities within the next financial year.
a) Goodwill and recoverable amount of long lived assets
Recoverable amount
Cineplex tests at least annually whether goodwill suffered any impairment. Management makes key
assumptions and estimates in determining the recoverable amount of groups of CGUs’ goodwill,
including attendance and the related revenue growth rates, variable and fixed cash flows, operating
margins and discount rates (note 11, Goodwill and impairment of long-loved assets, goodwill and
investments).
b) Financial instruments
Fair value of over-the-counter derivatives
Cineplex’s over-the-counter derivatives include interest rate swaps used to economically hedge exposure
to variable cash flows associated with interest payments on Cineplex’s borrowings. Management
estimates the fair values of these derivatives as the present value of expected future cash flows to be
received or paid, based on available market data, which includes market yields and counterparty credit
spreads.
c)
Revenue recognition
Gift cards
Management estimates the value of gift cards that are not expected to be redeemed by customers, based
on the terms of the gift cards and historical redemption patterns, including industry data. The estimates
are reviewed annually, or when evidence indicates the existing estimate is not valid.
d) Income taxes
The timing of reversal of timing differences and the expected income allocation to various tax
jurisdictions within Canada affect the effective income tax rate used to compute the deferred income tax
asset. Management estimates the reversals and income allocation based on historical and budgeted
operating results and income tax laws existing at the consolidated balance sheet dates. In addition,
management occasionally estimates the current or future deductibility of certain expenditures, affecting
current or deferred income tax balances and expenses.
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2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
157
(67)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
e) Fair value of identifiable assets acquired and liabilities assumed in business combinations
Significant judgment is required in the identifying tangible and intangible assets and liabilities of the
acquired businesses, as well as determining their fair values.
f) Share-based compensation
Management is required to make certain assumptions and to estimate future financial performance to
estimate the fair value of share-based awards at each consolidated balance sheet date. Significant
estimates and assumptions relating to the option plan are disclosed in note 13, Share-based compensation.
The LTIP and Incentive Plan requires management to estimate future non-GAAP earnings measures,
future revenue growth relative to specified industry peers, and total shareholder return, both absolutely
and relative to specified industry peers. Future non-GAAP earnings are estimated based on current
projections, updated at least annually, taking into account actual performance since the grant of the award.
Future revenue growth relative to peers is based on historical performance and current projections,
updated at least annually for actual performance since the grant of the award by Cineplex and its peers.
Total shareholder return for Cineplex and its peers is updated at each consolidated balance sheet date
based on financial models, taking into account financial market observable inputs.
g) Lease terms
Some leases of property contain extension options exercisable by Cineplex up to one year before the end
of the non-cancellable contract period. Where practicable, Cineplex seeks to include extension options in
new leases to provide operational flexibility. In determining the lease term, Cineplex considers all facts
and circumstances that create an economic incentive to exercise an extension option, or not exercise a
termination option. The assessment is reviewed upon a trigger by a significant event or a significant
change in circumstances.
Accounting standards applied or adopted in the current year
Accounting for Government Subsidies
Cineplex recorded, presented, and disclosed the government subsidies received in Canada and the United States in
accordance with IAS 20, Accounting for Government Grants and Disclosure of Government Assistance. During the
year ended December 31, 2020, Cineplex recorded subsidies in the amount of $61,851 which have been offset in
other costs.
Accounting standards issued
IFRS 16, Leases (“IFRS 16”) - Amendment
In May 2020, the IASB issued an amendment to IFRS 16, which added a practical expedient to provide relief for
lessees from lease modification accounting for rent concessions related to COVID-19. The practical expedient is
only applicable to rent concessions provided as a direct result of the COVID-19 pandemic. In order to apply the
practical expedient, all of the following conditions must be met:
•
the change in lease payments results in revised consideration for the lease that is substantially the same as,
or less than, the consideration for the lease immediately preceding the change;
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2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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(68)
Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
•
•
the rent concession is for relief for payments that were originally due on or before June 30, 2021. Any
subsequent rental increases of amounts deferred can extend beyond June 30, 2021; and
there is no substantive change to other terms and conditions of the lease.
The practical expedient relieve lessees from assessing whether rent concessions are lease modifications and applying
the lease modification requirements to those concessions. A lessee applying the practical expedient would generally
account for forgiveness or waiver of lease payments as a variable lease payment which is recognized on the
Statement of Operations as a gain or loss with a corresponding adjustment to derecognize the portion of lease
liability which has been waived or forgiven. Lease payments that are deferred to other periods would result in a re-
measurement of the lease obligation using the original incremental borrowing rate with any difference related to the
change in timing of payments being recognized in gain or loss. Rent concessions can also incorporate both a
forgiveness or waiver of payments and a change in the timing of payments.
Cineplex will not apply the practical expedient to lease concessions.
Accounting standards issued but not yet applied
Management of Cineplex reviews all changes to IFRS when issued. The International Accounting Standards Board
(“IASB”) has issued the following standard, which has not yet been adopted by Cineplex. The following is a
description of the new standard:
IAS 1 Presentation of Financial Statements - Amendment
In January 2020, the IASB issued Classification of Liabilities as Current or Non-current, which amended IAS 1
Presentation of Financial Statements and clarified how to classify debt and other financial liabilities as current or
non-current in particular circumstances. The amendments are effective for annual reporting periods beginning on or
after January 1, 2023, with earlier application permitted.
Under the new amendment, an entity shall classify a liability as current when: (a) it expects to settle the liability in
its normal operating cycle: (b) it holds the liability primarily for the purpose of trading; (c ) the liability is due to be
settled within twelve months after the reporting period; or (d) it does not have the right at the end of the reporting
period to defer settlement of the liability for at least twelve months after the reporting period.
If Cineplex were to early adopt the amendment to IAS 1, the application would result in the long-term debt being
classified as current in the December 31, 2020 balance sheet due to the projected covenant breaches.
33. Comparative figures
Certain 2019 consolidated financial statement comparative figures have been reclassified to conform to the current
year’s presentation. The comparative operating segment note has been reclassified to include the Location-Based
Entertainment segment. These amounts were previously grouped with the Amusement and Leisure segment.
Typographical errors have been corrected in the consolidated statement of comprehensive income for the year ended
December 31, 2019.
34. Subsequent events
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Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
Subsequent to December 31, 2020, Cineplex completed a sale and leaseback transaction for its head office buildings
located at 1303 Yonge Street and 1257 Yonge Street, Toronto, Ontario for gross proceeds of $57,000. Fifty percent
of the net proceeds were used to permanently reduce Cineplex’s Revolving Credit Facilities to $591,668.
In January 2021, 165,146 stock options were cancelled as part Cineplex’s voluntary stock option cancellation
program for payment of $59. The cancelled stock options were returned to the pool available for future grants under
the Incentive Plan.
On February 8, 2021, Cineplex and Cineplex Entertainment Limited Partnership entered into the Third Credit
Agreement Amendment with The Bank of Nova Scotia providing Cineplex with certain financial covenant relief in
light of the COVID-19 pandemic and its effects on Cineplex’s business. The following is a summary of the key
terms of the Third Credit Agreement Amendment:
•
Allow the issuance by Cineplex of second lien secured notes (the “Second Lien Notes”) with the following
terms:
▪
▪
▪
a minimum of $200,000 and a maximum of $250,000 of notes may be issued on or prior to March
31, 2021;
tenor of at least five years;
secured second lien ranking, subordinate to the security granted for the obligations under the
Credit Facilities, and shall be subject to the terms of an intercreditor agreement that incorporates
certain agreed intercreditor principles and otherwise in form and substance satisfactory to the
agent under to the Credit Facilities; and
▪ mandatory repayment of the Credit Facilities from the issuance of Second Lien Notes, $100,000 of
which would constitute a permanent reduction.
•
The following amendments to the Credit Facilities would become effective upon the completion of the
issuance of at least $200,000 of Notes on or prior to March 31, 2021:
▪
▪
▪
▪
▪
▪
The suspension of financial covenant testing would be extended until the fourth quarter of 2021.
On resumption of financial covenant testing in the fourth quarter of 2021, testing will be based on
an annualized calculation of Adjusted EBITDA (as further adjusted per Credit Agreement
definitions) for the fourth quarter of 2021 and immediately following two fiscal quarters, and
thereafter on a trailing four fiscal quarter period;
The Total Leverage Ratio of 3.75x will apply when financial covenants are reinstated, and will be
reduced until the third quarter of 2022 at which point it will reach a level of 3.00x;
The liquidity covenant would continue and be amended and extended beginning in February 2021,
through to and including December 2021, requiring available liquidity as defined on a monthly
basis (November 1, 2020 through January 31, 2021 - $100,000; February 2021 - $75,000; March
2021 - $60,000; April 1, 2021 through December 31, 2020 - $100,000;
The addition of a Senior Leverage Ratio to be based on annualized Adjusted EBITDA and set at
1.0x lower than the Total Leverage Ratio. Senior Leverage Ratio to be defined as (i) Total Debt
less any Second Lien Notes to (ii) Adjusted EBITDA;
Effective with the fourth quarter of 2021, additional growth capital expenditures will be subject to
pro-forma leverage covenant of 2.75x (both prior to and immediately after giving effect to any
such growth capital expenditure) based on actual last twelve month EBITDA; and
Distributions continue to be blocked during the extended financial covenant suspension period and
only permitted when the leverage ratio is less than 2.75x (both prior to and immediately after
giving effect to any such distribution).
On February 8, 2021, Cineplex announced that it has entered into an engagement letter with BMO Capital Markets
and Scotiabank in connection with a proposed private placement offering (the “Note Offering”) of second lien
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CINEPLEX INC. 2020 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Cineplex Inc.
Cineplex Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For the years ended ended December 31, 2020 and 2019
For the years ended December 31, 2020 and 2019
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
(expressed in thousands of Canadian dollars, except per share amounts)
secured notes (the “Notes”), subject to market and other conditions, Cineplex intends to use the net proceeds from
the proposed Note Offering, if completed, to repay indebtedness under its Credit Facilities, in accordance with the
terms of the Third Amendment.
CINEPLEX INC.
2020 ANNUAL FINANCIAL STATEMENTS - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Cineplex Inc.
Investor Information
Cineplex Inc.
Investor Information
_____________________________________________________________________________________________
BOARD OF DIRECTORS
INVESTOR RELATIONS
Jordan Banks (4)
Corporate Director
Toronto, ON
Robert Bruce (5)
Executive Chair and Founding Partner
Mobile Klinik
Toronto, ON
Joan Dea (4)
Corporate Director
Ross, CA
Janice Fukakusa (3)
Corporate Director
Toronto, ON
Donna Hayes (5)
Corporate Director
Toronto, ON
Ellis Jacob, C.M.
President and Chief Executive Officer
Cineplex Inc.
Toronto, ON
Sarabjit (Sabi) Marwah (4)
Corporate Director
Toronto, ON
Nadir Mohamed (2)
Corporate Director
Toronto, ON
Phyllis Yaffe (1) (4)
Corporate Director
Toronto, ON
Gord Nelson
Chief Financial Officer
Cineplex Inc.
Melissa Pressacco
Senior Mgr, Communications & Investor Relations
Cineplex Inc.
Email: investorrelations@cineplex.com
Address: Cineplex Inc.
1303 Yonge Street
Toronto, ON M4T 2Y9
STOCK EXCHANGE LISTING
The Toronto Stock Exchange CGX
AUDITORS
PricewaterhouseCoopers LLP
Toronto, ON
TRANSFER AGENT
AST Trust Company (Canada)
Toronto, ON
416-682-3860
800-387-0825
Email: inquiries@astfinancial.com
www.astfinancial.com/ca-en
ANNUAL MEETING
Wednesday May 19, 2021
9:00AM EDT
Scotiabank Theatre Toronto
259 Richmond St. West
Toronto, ON
(1) Chair of the Board of Directors of Cineplex Inc.
(2) Chair of the Compensation, Nominating and Corporate Governance Committee
(3) Chair of the Audit Committee
(4) Member of the Compensation, Nominating and Corporate Governance Committee
(5) Member of the Audit Committee
CINEPLEX INC. 2020 ANNUAL REPORT
INVESTOR INFORMATION
162