2022
ANNUAL REPORT
Table of Contents
Chair of the Board of Directors' Letter to Shareholders
Chief Executive Officer's Letter to Shareholders
Management’s Discussion and Analysis
Overview of Cineplex
Business Strategy
Cineplex’s Businesses
Overview of Operations
Results of Operations
Balance Sheets
Liquidity and Capital Resources
Adjusted Free Cash Flow and Dividends
Share Activity
Seasonality and Quarterly Results
Related Party Transactions
Significant Accounting Judgments and Estimation Uncertainties
Accounting Policies
Risks and Uncertainties
Controls and Procedures
Outlook
Non-GAAP and Other Financial Measures
Financial Statements and Notes
Management’s Report to Shareholders
Independent Auditor’s Report
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Investor Information
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4
6
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26
47
49
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63
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167
Cineplex Inc.
Letter to Shareholders
Letter from the Chair of the Board
Dear fellow shareholders,
It is my pleasure to write to you today as the Chair of the Board of Directors of Cineplex Inc. I am honoured to be leading this
great group of Directors and to be part of an organization that I strongly support.
This year Cineplex will host a virtual Annual and Special Meeting (“AGM”).
Our meeting will be held Wednesday, May 24, 2023. Registered shareholders
and duly appointed proxyholders can participate via live webcast, which will
include voting on the motions put forward and the ability to ask questions.
During the past three years, the Board remained guided by our corporate
strategy and values. We took decisive financial and corporate action to ensure
the strength and vitality of our balance sheet, and we worked closely with our
advisors to navigate the recovery of the Cineworld judgment. At the same
time, we upheld our commitments to our employees, guests, shareholders, and
the communities in which we serve.
Improving Performance with Our Diversification Strategy
I am proud of all that Cineplex has accomplished during this past year. The
team reported encouraging results in many key performance metrics despite a
challenging year at the box office due to content supply limitations and
pandemic related restrictions in early 2022. Cineplex’s diversification strategy
proved to be successful as we saw record annual results in our Amusement &
Leisure businesses. Our team’s consistent discipline with capital, cost and
liquidity management has positioned us well as we continue to work our way
towards normalcy. We are confident the groundwork that has been laid will
benefit the business and its stakeholders for years to come.
Strength of the Board
As your Board, we are committed to promoting industry leading corporate governance. Throughout the past year, the Board
worked closely with senior management to ensure the financial health of the Corporation and to drive strategic initiatives geared
towards value creation for shareholders.
We have worked with senior management to integrate a renewed Environmental, Social, and Governance framework across the
organization with input from various internal and external stakeholder groups.
We are also proud to be one of the founding members of the “30% Club”, which requires a minimum of 30% women on boards.
Cineplex has met this standard for a number of years, in addition to supporting cultural diversity among our Board. The Board is
currently comprised of four women who together represent 44% of the Directors or 50% of the Independent Directors, and four
individuals (44% of Directors) from diverse background groups. Having a versatile Board with varied skills and experience is
central to ensuring we have the expertise to support Cineplex’s future strategic goals.
Path Forward: A Promising Future
The Company’s strategy and investment in diversification is providing value, and we continue to believe the diversified business
plan is the right way to create sustainable growth. As film content supply continues to improve, Cineplex is moving to the next
phase of its growth, and we are confident in a strong 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 to Cineplex. I look forward to sharing our vision of a strong future with you at our AGM. In the
meantime, should you wish to contact me directly, please email boardchair@cineplex.com.
Sincerely yours,
Phyllis Yaffe
Chair of the Board, Cineplex Inc.
boardchair@cineplex.com
CINEPLEX INC. 2022 ANNUAL REPORT
LETTER TO SHAREHOLDERS
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Cineplex Inc.
Letter to Shareholders
Letter from the CEO
Dear fellow shareholders,
I am pleased to share that 2022 marked another significant step in the resurgence of Cineplex and the theatrical exhibition
industry. The North American box office reached $7.4 billion this year, which was 64 per cent higher than 2021.
Sustained Demand for Movie-going
After multiple shutdowns and a host of restrictions since March 2020, we have seen the demand for movie-going increase
strongly since our theatres re-opened in early 2022. Looking back over the last year, there are numerous film releases that stand
out and demonstrate the resilience of movie-going.
Doctor Strange in the Multiverse of Madness delivered 75 per cent more domestic
box office revenue than the original release in 2016. Top Gun: Maverick become
the fifth highest domestic grossing film of all time after a remarkable 30 week run.
Minions: The Rise of Gru set a record for the largest fourth of July weekend in
box office history, and a few months later, Black Panther: Wakanda Forever
broke the record for highest grossing November weekend of all-time. Finally,
while negatively impacted by winter storms in North America during its opening
weekend, Avatar: The Way of Water is now the third highest grossing film of all
time, crossing the $2.3 billion mark in global box office.
These record-breaking results over the past year demonstrate that when there is
compelling content, consumer enthusiasm for theatrical movie-going is as strong
as ever. What is even more promising is the significant growth we are
experiencing in attendance for our premium offerings, even in the midst of
recessionary concerns.
During the fourth quarter, we delivered an all-time quarterly record box office
revenue per patron of $13.06, an increase of 6.3 percent from Q4 2021, and
concession revenue per patron of $8.93, an increase of 19.2 percent over the same
period. These results illustrate that our guests treat themselves to the full escape
our venues have to offer. Our investments in premium experiences continue to
deliver returns, as an impressive 50 per cent of box office revenues in the fourth
quarter were derived from premium formats - the highest percentage for any
exhibitor in North America.
Content Supply Challenges and Opportunities
Like our exhibition peers around the world, our business continues to be impacted by COVID-19-related production delays, and
content supply remains a near-term industry challenge. However, as we move forward, we have confidence in the ongoing
recovery of content supply as pandemic related production delays subside. Studios are clearly recognizing the promotional and
financial value of an exclusive theatrical release window. Exhibition continues to be the engine that drives the train, and we are
encouraged by recent commitments from non-traditional studios for a theatrical release of their films. These commitments
further validate the importance of the cinematic experience and the role theatrical exhibition plays in elevating content to its full
financial potential.
In response to supply limitations, Cineplex has developed a content broadening strategy. This has proven to be very successful as
we consistently take an industry leading market share in international film product, particularly with Bollywood titles. Pathaan,
the recent Bollywood feature released in January 2023, generated the highest ever opening weekend for a Bollywood title in
North America. Cineplex took the number one position in North America with 27 per cent of the market share for this film, and
we continue to gross more than three times the domestic average in our circuit. We also saw great success with The Wandering
Earth 2, which is now Cineplex’s number one opening for a Mandarin language film.
We are also broadening our content opportunities by expanding our distribution business, Cineplex Pictures. In January 2023, we
announced a Canadian theatrical distribution agreement with Lionsgate for its 2023 film slate, which will bring 11 titles to the big
screen. We are excited to bring these titles to Canadian audiences including exciting features such as John Wick: Chapter 4, Are
You There God? It’s Me Margaret, and Hunger Games: The Ballad of Songbirds and Snakes. This is in addition to our ongoing
successful efforts with alternative programming through Cineplex Events.
The bottom line is that we are focused on expanding our content offerings to appeal to wider audiences, maximize the yield from
our theatre footprint, and drive incremental attendance. While this doesn’t fully close the content gap resulting from production
delays, it gets us closer. This is particularly evident as Cineplex outperformed the fourth quarter North American box office
recovery as compared to 2019 levels by a notable 533 basis points.
CINEPLEX INC. 2022 ANNUAL REPORT
LETTER TO SHAREHOLDERS
4
Cineplex Inc.
Letter to Shareholders
Financial Results and Success of Diversification
Encouraging box office results together with the success of our diversification strategy led to a year-over-year revenue growth of
75 percent to $657 million despite Omicron related restrictions. We also generated positive net income as compared to a net loss
of $248.7 million the previous year. We continued our growth momentum as our diversified business strategy continues to
deliver strong results, including an all-time annual record adjusted EBITDAaL in the P1AG and LBE businesses, both exceeding
pre-pandemic levels. We remain encouraged by strong signs of recovery for Cineplex Media and Cineplex Digital Media, both
showing significant improvement in overall revenues for the year. With increasing on-screen content supply and mall traffic
recovery underway, we expect further momentum in these divisions moving forward.
In December, we were excited to share news of the grand opening of Cineplex Junxion Kildonan in Winnipeg, Manitoba, the first
location of our new ‘Junxion’ entertainment concept. Our second Junxion is expected to open in mid-2023. The Junxion concept
provides an expanded entertainment experience for our guests and generates additional revenue-per-square-foot by driving
incremental attendance and spend from expanded entertainment and food offerings.
Path Forward – The Future is Bright
As we move forward, we remain optimistic about the future of theatrical exhibition and the other businesses we operate. We are
confident in the ongoing recovery of box office and we are elated by the robust slate of blockbuster and international film product
in 2023. Our investment in diversification is paying off as we continue to see consistently strong results from our diversified
businesses. Our performance over the last year demonstrates that we can successfully manage the turbulent environment caused
by content and other supply chain disruptions, inflationary pressures, and labour shortages. Cineplex is in a stronger position now
than it was a year ago, and we expect this momentum to continue into 2023 and beyond.
I am extremely proud of the Cineplex team and want to thank them for their agility, resourcefulness, and willingness to make
sacrifices as we worked together to grow our business. I also want to thank our Board of Directors for their ongoing efforts and
sound advice during these unprecedented times. Finally, I want to thank our guests, partners, and investors for their continued
support of Cineplex.
Sincerely,
Ellis Jacob President and CEO, Cineplex Inc.
CINEPLEX INC. 2022 ANNUAL REPORT
LETTER TO SHAREHOLDERS
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Cineplex Inc.
Management’s Discussion and Analysis
MANAGEMENT’S DISCUSSION AND ANALYSIS
February 6, 2023
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, 2022 and all amounts are in
Canadian dollars.
Non-GAAP and Other Financial Measures
Cineplex reports on certain non-GAAP measures, non-GAAP ratios, supplementary financial measures and total
segments measures that are used by management to evaluate the performance of Cineplex. In addition, non-GAAP
measures are used in measuring compliance with debt covenants. Non-GAAP measures do not have standardized
meaning under GAAP and may not be comparable to similar measures provided by other issuers. Cineplex includes
these measures because management believes that they assist investors in assessing financial performance. The
definition, calculation and reconciliation of non-GAAP measures are provided in Section 17, Non-GAAP and other
financial 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 or operational
restrictions 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 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. 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 included, among other things, the introduction of vaccine passports or proof of
vaccination mandates, social distancing measures and restrictions including those on capacity.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
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Cineplex Inc.
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. 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 the litigation surrounding
the termination of the Cineworld transaction and Cineworld’s subsequent bankruptcy proceedings (described
below); and diversion of management time on litigation related to the Cineworld transaction and Cineworld’s
bankruptcy proceedings.
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,
Cineplex undertakes 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 (TSX:CGX) is a top-tier Canadian brand that operates in the Film Entertainment and Content, Amusement
and Leisure, and Media sectors. Cineplex offers a unique escape from the everyday to millions of guests through its
circuit of movie theatres and location-based entertainment venues. In addition to being Canada’s largest and most
innovative film exhibitor, the company operates Canada’s favourite destination for ‘Eats & Entertainment’ (The Rec
Room), complexes specially designed for teens and families (Playdium), and a newly launched entertainment
concept that brings movies, amusement gaming, dining, and live performances together under one roof (Cineplex
Junxion). It also operates successful businesses in digital commerce (CineplexStore.com), alternative programming
(Cineplex Events), motion picture distribution (Cineplex Pictures), cinema media (Cineplex Media), digital place-
based media (Cineplex Digital Media) and amusement solutions (Player One Amusement Group). Providing even
more value for its guests, Cineplex is a partner in Scene+, Canada’s largest entertainment and lifestyle loyalty
program.
As of December 31, 2022, Cineplex owned, leased or had a joint venture interest in 1,637 screens in 158 theatres
from coast to coast as well as 13 LBE venues in six provinces.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
7
Cineplex Inc.
Management’s Discussion and Analysis
Cineplex
Theatre locations and screens at December 31, 2022
Province
Ontario
Quebec
British Columbia
Alberta
Nova Scotia
Saskatchewan
Manitoba
New Brunswick
Newfoundland &
Labrador
Prince Edward Island
TOTALS
Percentage of
screens
Locations
(i)
3D Digital
Screens
Screens UltraAVX
IMAX
Screens (ii)
VIP
Auditoriums
D-BOX
Auditoriums
Recliner
Auditoriums
66
17
25
20
10
6
5
5
2
2
710
220
236
213
87
54
49
41
14
13
350
88
125
114
43
28
26
20
9
6
158
1,637
809
41
10
16
20
1
3
2
2
—
—
95
13
3
3
2
1
1
1
—
1
—
25
48
9
20
16
—
3
3
—
—
—
99
48
7
16
17
2
3
3
2
1
1
108
17
43
83
—
16
6
—
—
—
100
273
Other
Screens
(iii)
12
3
3
6
1
1
1
—
—
—
27
49 %
6 %
2 %
6 %
6 %
17 %
2 %
(i) Includes Junxion theatre in Manitoba.
(ii) All IMAX screens are 3D enabled. Total 3D screens including IMAX screens are 834 screens or 51% of the circuit.
(iii) Other screens includes 7 4DX screens, 5 Cineplex Clubhouse screens and 15 ScreenX screens.
Cineplex - Theatres, screens and premium offerings in the last eight quarters
2022
2021
Theatres
Screens
3D Digital Screens
UltraAVX Screens
IMAX Screens
VIP Auditoriums
D-BOX Auditoriums
Recliner Auditoriums
Other Screens
Q4
158
Q3
158
Q2
159
Q1
159
Q4
160
Q3
161
Q2
160
Q1
161
1,637
1,637
1,640
1,640
1,652
1,656
1,651
1,657
809
809
809
810
815
816
816
816
95
25
99
100
273
27
94
25
99
98
267
23
94
25
99
98
267
22
94
24
99
98
267
22
94
25
99
98
267
22
94
25
94
98
262
19
94
25
89
98
258
19
94
25
84
98
253
19
Cineplex - LBE - at December 31, 2022 and 2021
2022
2021
Province
Ontario
Alberta
Manitoba
Newfoundland & Labrador
British Columbia
Nova Scotia
TOTALS
The Rec Room
Playdium
The Rec Room
Playdium
4
3
1
1
1
—
10
2
—
—
—
—
1
3
4
3
1
1
1
—
10
2
—
—
—
—
1
3
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
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Cineplex Inc.
Management’s Discussion and Analysis
1.1 RECENT DEVELOPMENTS
Business impacts, risks and liquidity
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 (“WHO”). In response, Cineplex
immediately introduced enhanced cleaning protocols to ensure the safety of Cineplex’s employees and customers
and reduced theatre capacities to promote social distancing. By mid-March 2020, 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.
Beginning in mid-March 2020, Cineplex’s entire circuit of theatres, LBE venues and P1AG route locations were
continuously impacted by government mandated restrictions and temporary closures. During the second quarter of
2022, as COVID-19 cases declined across the country, restrictions relating to capacity limits, vaccine passports and
mask mandates were removed in all markets in which Cineplex operates theatres and LBE venues across Canada.
Cineplex is currently operating at full capacity but is continuously monitoring for any government directives on
operating capacities.
To mitigate the negative impact of COVID-19 and support its long-term stability, Cineplex has undertaken a variety
of measures including:
Liquidity measures:
•
•
•
•
•
•
•
January 2021: completed the sale and leaseback transaction of Cineplex’s head office buildings located at
1303 Yonge Street and 1257 Yonge Street, Toronto, Ontario for gross proceeds of $57.0 million;
January 2021: filed tax returns for the 2020 taxation year claiming a $62.6 million recovery of income taxes
paid in prior periods (all of which had been received by December 31, 2021);
February 2021: entered into the Third Credit Agreement Amendment providing further financial covenant
relief (Section 7.4, Long-term debt);
February 2021: issued 7.50% senior secured second lien notes due February 26, 2026 (the “Notes Payable”)
for net proceeds of $243.3 million (Section 7.4, Long-term debt);
December 2021: entered into the Fourth Credit Agreement Amendment providing further financial
covenant relief (Section 7.4, Long-term debt);
August 2022: entered into the Fifth Credit Agreement Amendment providing further financial covenant
relief (Section 7.4, Long-term debt); and
December 2022: entered into the Sixth Credit Agreement Amendment, extending the maturity date of the
credit facility from November 13, 2023 to November 13, 2024 (Section 7.4, Long-term debt).
Cost reduction and subsidy measures:
•
•
•
•
•
•
•
•
temporary layoffs of part-time employees beginning in December 2021 and further expanding into the first
quarter of 2022;
reviewed 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 cash payments in exchange for the sale of contractual rights or
negotiating rent relief, including abatements, reductions and deferrals;
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, including the Canada Emergency Wage Subsidy
(“CEWS”), Canada Emergency Rent Subsidy (“CERS”) and Tourism and Hospitality Recovery Program
(“THRP”) where available, as well as municipal and provincial property tax and energy rebates or
subsidies; and
continued the suspension of dividends.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
9
Cineplex Inc.
Management’s Discussion and Analysis
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 and LBE payroll and occupancy. Cineplex remains focused on identifying
opportunities to extract value under its existing lease agreements.
In June 2021, Cineplex introduced its VenueSafe program, which encompasses all of Cineplex’s health and safety
protocols, in accordance with Canada’s public health guidelines. With the VenueSafe seal of approval, Cineplex
believes that guests can feel confident in the company’s commitment to provide a safe and comfortable environment
to be entertained in both our theatres and other entertainment venues.
While the specific protocols will evolve over time, VenueSafe will remain across all of Cineplex’s venues as health
and safety remain a top priority and top of mind for our guests. For further details refer to www.cineplex.com/
Global/health-and-safety, www.therecroom.com/healthandsafety and www.playdium.com/healthandsafety.
The fourth quarter of 2022 experienced strong box office results with the release of Black Panther: Wakanda
Forever generating $181.3 million, during its North American opening weekend, becoming the highest grossing
November domestic opening weekend of all time and the second-highest in 2022 and earning $436.5 million in
North America since its release up to December 31, 2022. The highly anticipated Avatar: The Way of Water, which
is the sequel to the highest grossing film of all time, was released late in the fourth quarter and generated $134.1
million during its North American opening weekend and earning $401.0 million in North America and $1.5 billion
globally since its release up to December 31, 2022. Avatar: The Way of Water continues to perform strongly,
becoming the fourth highest worldwide grossing movie of all time since its release. Lastly, Top Gun: Maverick,
continued its success into the fourth quarter and since its release, became one of six films to exceed $700 million in
North America and the fifth largest domestic film of all-time, earning $1.5 billion globally up to December 31, 2022.
As at December 31, 2022, Cineplex had a cash balance of $34.7 million and $204.1 million available under its
Revolving Facility subject to the liquidity covenants set forth in the Credit Facilities as amended (Section 7.4, Long-
term debt). Combined with the continued focus on reducing costs and capital expenditures, management believes
that it has adequate liquidity to fund operations in the regions in which Cineplex operates.
Cineworld Transaction and Bankruptcy Filing
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 Inc. (“Cineplex”) 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 was acknowledged by Cineplex and
the Cineworld Transaction did not proceed. Cineplex vigorously denied Cineworld’s allegations.
On July 3, 2020, Cineplex announced that it had commenced an action in the Ontario Superior Court of Justice (the
“Court”) against Cineworld and 1232743 B.C. Ltd. seeking damages arising from what Cineplex claimed was a
wrongful repudiation of the Arrangement Agreement. The claim sought 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 loss to Cineplex of expected synergies, the failure of Cineworld to repay or refinance Cineplex’s
approximately $664.0 million in debt, and transaction expenses. Cineplex 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 INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
10
Cineplex Inc.
Management’s Discussion and Analysis
A trial of the action commenced before the Court on September 13, 2021 and continued until November 4, 2021.
On December 14, 2021, the Court released its decision in the action. The Court held that Cineplex did not breach
any of its covenants in the Arrangement Agreement, and that Cineworld had no basis for terminating the
Arrangement Agreement. The Court held that Cineworld breached the Arrangement Agreement and repudiated the
transaction to acquire Cineplex, which actions precluded Cineplex from seeking specific performance and entitled
Cineplex to monetary damages. The Court awarded damages for breach of contract to Cineplex in the amount of
$1.24 billion on account of lost synergies, and $5.5 million for transaction costs, exclusive of pre-judgment interest
(the “Judgment”). The Court also held that Cineplex’s shareholders did not have any rights under the Arrangement
Agreement to enforce the agreement or sue Cineworld for any breach. The Court also denied Cineworld’s
counterclaim against Cineplex.
On January 12, 2022, Cineworld filed a Notice of Appeal with the Court of Appeal for Ontario and on January 27,
2022, Cineplex filed its Notice of Cross Appeal (the “Appeal”). The Appeal was originally scheduled to be heard on
October 12 and 13, 2022. On September 7, 2022, Cineworld and certain of its subsidiaries (the “Cineworld Parties”)
filed a petition in the United States Bankruptcy Court for the Southern District of Texas, (the “U.S. Bankruptcy
Court”), commencing bankruptcy proceedings under Chapter 11 of the United States Bankruptcy Code (“Chapter
11”). On September 8, 2022, the U.S. Bankruptcy Court granted relief requested by the Cineworld Parties in the
Chapter 11 proceedings, including an order confirming and enforcing a worldwide stay of all enforcement
proceedings by Cineworld’s creditors. Cineworld took the position that the Appeal was therefore stayed. On
September 9, 2022, Cineplex filed an emergency motion with the U.S. Bankruptcy Court, seeking to lift the stay
with respect to the Appeal. Cineplex’s emergency motion was heard on September 28, 2022, at which time the U.S.
Bankruptcy Court declined Cineplex’s requested relief, without prejudice to Cineplex’s ability to seek such relief at
a later date. On September 30, 2022, on consent of counsel for Cineplex and Cineworld, the Court of Appeal for
Ontario adjourned the Appeal until a date to be determined. Accordingly, the hearing of Appeal has been delayed.
Cineplex continues to evaluate and advance all options to maximize and monetize the value of the Judgment. As part
of these ongoing efforts, Cineplex has engaged a leading global investment bank with significant expertise in these
areas, as financial advisors, and Goodmans LLP, as lead counsel. Cineplex has also been appointed as a member of
the unsecured creditors’ committee in the Cineworld Parties’ Chapter 11 proceedings.
While the Judgment and next steps are a key focus for Cineplex and its advisors, due to uncertainties inherent in
appeals and Cineworld’s insolvency proceedings, it is not possible for Cineplex to predict the timing or final
outcome of the Appeal. Further, even if the Appeal by Cineworld is not successful, Cineplex’s claim pursuant to the
Judgment is an unsecured claim and Cineworld has a significant amount of secured claims which rank in priority to
unsecured claims. Accordingly, Cineworld may not have the ability to pay all or any of the amount of any damages
or costs awarded by the Court. Therefore, no amount has been accrued as a receivable.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
11
Cineplex Inc.
Management’s Discussion and Analysis
1.2 FINANCIAL HIGHLIGHTS
Financial highlights
(in thousands of dollars, except theatre attendance in
thousands of patrons and per share and per patron
amounts)
Fourth Quarter
Full Year
2022
2021
Change (i)
2022
2021
Change (i)
Total revenues
Theatre attendance
Net income (loss) (ii)
$ 350,124
$ 299,951
16.7 % $ 1,268,562
$ 656,669
9,208
10,245
-10.1 %
38,045
20,080
$ 10,168
$ (21,778)
NM $
113
$ (248,722)
Net income (loss) as a percentage of sales (ii)
2.9 %
(7.3) %
10.2 %
— %
(37.9) %
Cash provided by operating activities
$ 59,622
$ 27,480
117.0 % $ 107,148
$ 61,004
Box office revenues per patron (“BPP”) (iii)
Concession revenues per patron (“CPP”) (iii)
Adjusted EBITDA (iv)
Adjusted EBITDAaL (ii) (iv)
Adjusted EBITDAaL margin (ii) (v)
Adjusted free cash flow (iv)
Adjusted free cash flow per share (v)
Earnings per share (“EPS”) - basic and diluted (ii)
$
$
13.06
8.93
$
$
12.29
7.49
6.3 % $
12.12
19.2 % $
8.72
$
$
11.77
7.93
$ 74,186
$ 58,328
27.2 % $ 251,694
$ 59,927
$ 31,197
$ 20,198
54.5 % $ 81,672
$ (84,295)
8.9 %
6.7 %
2.2 %
6.4 %
(12.8) %
$
$
$
1,672
0.026
0.16
$
$
$
(1,032)
(0.016)
(0.34)
NM $
NM $
NM $
3,339
0.053
$ (151,517)
(2.392)
$
—
$
(3.93)
93.2 %
89.5 %
NM
NM
75.6 %
3.0 %
10.0 %
320.0 %
NM
19.2 %
NM
NM
NM
(i) Throughout this MD&A, changes in percentage amounts are calculated as 2022 value less 2021 value.
(ii) 2022 includes expenses related to the Cineworld Transaction and associated litigation and claims recovery in the amount of $0.9 million
(2021 - $2.3 million) for the fourth quarter and $3.6 million (2021 - $11.4 million) for the full year.
(iii) Represents a supplementary financial measure. See Section 17, Non-GAAP and other financial measures.
(iv) Represents a non-GAAP financial measure. See Section 17, Non-GAAP and other financial measures.
(v) Represents a non-GAAP ratio. See Section 17, Non-GAAP and other financial measures.
Total revenues for the fourth quarter of 2022 increased by 16.7%, or $50.2 million to $350.1 million as compared to
the prior year period. Amusement revenues increased by 34.9% or $15.8 million to a fourth quarter record of
$60.8 million, primarily from continued strong P1AG route operations including family entertainment centres
(“FEC”) locations and theatres in the United States and Canada and the results from The Rec Room and Playdium
which contributed $17.6 million, also a fourth quarter record. Despite the release of highly anticipated films during
the fourth quarter of 2022 including Black Panther: Wakanda Forever and Avatar: The Way of Water, box office
revenues decreased 4.5% or $5.6 million to $120.2 million as a result of a 10.1% decrease in theatre attendance
which was partially offset by an all-time quarterly record BPP of $13.06. The decrease in theatre attendance was due
to less first run product caused by shifts in film releases due to production delays. Food service revenues increased
11.4% to $97.2 million in the fourth quarter of 2022, as compared to the prior year period. Theatre food service
revenues increased $5.5 million (7.2%) to $82.2 million as a result of an all-time quarterly CPP record of $8.93,
despite the decrease in attendance. LBE food service revenues increased $5.2 million (68.5%) to $12.7 million, an
all-time quarterly record. Media revenues of $44.6 million were mainly from cinema media and network
management and services. As a result of the growth in total revenue, adjusted EBITDAaL increased by $11.0
million (54.5%) to $31.2 million and adjusted free cash flow per share increased to a positive adjusted free cash flow
per share of $0.026 in the current period, compared to a loss in the prior year period of $0.016. Cineplex reported a a
net income of $10.2 million in the current period, compared to a net loss of $21.8 million in the prior year period,
with a net income per share of $0.16 in the current period, compared to a net loss per share of $0.34 in the prior year
period.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
12
Cineplex Inc.
Management’s Discussion and Analysis
Total revenues for the year ended December 31, 2022 increased by $611.9 million (93.2%) to $1.3 billion as
compared to the prior year. Cineplex’s entire circuit of theatres and LBE venues have operated without any capacity
restrictions since the third quarter of 2022, compared to the prior year period that experienced theatre closures,
government mandated capacity and operating restrictions. Box office revenues increased 95.2% or $225.0 million as
a result of a 89.5% increase in theatre attendance to 38.0 million and an annual record BPP of $12.12. Food service
revenues increased 104.0% to $381.4 million when compared to the prior year. Theatre food service revenues
increased $172.4 million (108.3%) to $331.6 million, as a result the increase in attendance and an annual CPP record
of $8.72. Media revenues increased $46.4 million or 71.0% to $111.7 million. Further contributing to the increase in
revenue was the increase in amusement revenues, which increased 83.4% or $112.1 million to $246.6 million, an
annual record. As a result, adjusted EBITDAaL for the year was $81.7 million as compared to a loss of $84.3
million in the prior year and adjusted free cash flow per share was $0.053 for the year, compared to a loss of $2.392
in the prior year. Cineplex reported a net income of $0.1 million in the current year compared to a net loss of
$248.7 million in the prior year and, with a nominal net income per share in the current period compared to a net
loss per share of $3.93 in the prior year.
1.3 KEY DEVELOPMENTS IN 2022
The following describes certain key business initiatives undertaken and results achieved during 2022 in each of
Cineplex’s core business areas:
FILM ENTERTAINMENT AND CONTENT
Theatre Exhibition
•
•
•
•
•
•
•
•
Reported annual box office revenues of $461.3 million, an increase of $225.0 million (95.2%) from $236.3
million due to a 89.5% increase in theatre attendance.
Reported an annual record BPP of $12.12, $0.35 or 3.0% higher than $11.77 reported during the prior year.
Starting in April 2022, Cineplex reopened its entire circuit of theatres and LBE venues without any
government mandated restrictions.
Introduced an online booking fee on June 15, 2022 that applies to tickets purchased through Cineplex’s
mobile app and website that will contribute to Cineplex’s further investment in its digital infrastructure.
Celebrated National Cinema Day on September 3, 2022, welcoming approximately 550,000 guests across
the theatre exhibition circuit, representing the largest attendance for a single day in 2022, and the third
largest attendance for a single day in the last five years, following Avengers: Endgame that opened in April
2019 and Avengers: Infinity War that opened in April 2018.
Opened four ScreenX auditoriums, including locations in British Columbia, Ontario and Quebec.
Opened Cineplex’s first-ever Junxion location at Cineplex Junxion Kildonan in Winnipeg, Manitoba on
December 9, 2022. Cineplex Junxion is an innovative entertainment destination that brings movies,
amusement gaming, dining and live performances together for the ultimate guest experience.
Opened British Columbia’s first 4DX auditorium at Cineplex Cinemas Metropolis on December 15, 2022.
Theatre Food Service
•
•
•
Reported annual theatre food service revenues of $331.6 million, an increase of $172.4 million (108.3%)
compared to the prior year period primarily due to a 89.5% increase in theatre attendance.
Reported an annual record CPP of $8.72, an increase of $0.79 or 10.0% when compared to the prior year.
Opened a streetfront Starbucks location in Cinéma Banque Scotia Montréal, in Montreal Quebec under a
licensing arrangement signed in 2022.
Alternative Programming
•
•
Alternative Programming (Cineplex Events) opened the Metropolitan Opera Live in HD season during the
fourth quarter, featuring three live operas Medea (Cherubini), La Traviata (Verdi) and The Hours (Kevin
Puts). Other top events included the season three premiere of the faith based series The Chosen and the
Coldplay broadcast live from Buenos Aires.
Cineplex Distribution (Cineplex Pictures) released feature films including Ella and the Little Sorcerer on
March 4, 2022, the horror thriller Prey for the Devil on October 28, 2022, anime feature One Piece Film
Red on November 4, 2022 and Bones and All on November 23, 2022.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
13
Cineplex Inc.
Management’s Discussion and Analysis
•
Featured numerous strong performing international films, including Babe Bhangra Paunde Ne (Punjabi),
Drishyam 2 (Hindi) and The Legend of Maula Jatt (Punjabi), of which Cineplex represented 80.5%, 48.2%
and 44.3%, respectively, of the total North American market share.
Digital Commerce
•
Total registered users for Cineplex Store increased 4% from the prior year, reaching approximately 2.3
million registered users.
MEDIA
•
Reported annual media revenues of $111.7 million, an increase of $46.4 million or 71.0% as compared to
the prior year period.
Cinema Media
•
•
Reported annual cinema media revenues of $72.3 million, an increase of $39.3 million or 119.3% over the
prior year period, due to increases in cinema advertising as a return by advertisers to cinema.
Entered into a partnership with TikTok to leverage new and innovative ways to engage moviegoers in
theatres, providing advertisers an unmatched opportunity to engage with audiences.
Digital Place-Based Media
•
Reported annual revenues of $39.5 million, an increase of $7.1 million or 21.9% due to increased
advertising at digital out of home networks and higher project installation revenues.
AMUSEMENT SOLUTIONS AND LBE
•
Reported all-time record annual revenues of $246.6 million, an increase of $112.1 million or 83.4%
compared to the prior year period.
Player One Amusement Group
•
Reported annual revenues of $165.7 million, an increase of $65.4 million or 65.2% compared to the prior
year period. Adjusted EBITDAaL for the full year was an annual record of $27.5 million, an increase of
$18.8 million or 215.4% compared to the prior year. The increase in revenues and adjusted EBITDAaL
were primarily due to increases in P1AG amusement revenues from US and Canada route locations at
FEC’s and theatres, along with an increase in distribution sales.
Location-based Entertainment
•
•
Reported all-time record annual revenues of $110.8 million, an increase of $66.1 million or 147.6%
compared to the prior year period.
Adjusted EBITDAaL for the full year was an annual record of $34.4 million, an increase of $24.9 million
or 263.9% compared to the prior year period. The increase in revenues and adjusted EBITDAaL were
primarily due to all LBE venues being open during the entire period compared to the prior year period that
was subject to capacity restrictions.
LOYALTY
•
• Membership in the Scene+ loyalty program increased to over 11 million members as at December 31, 2022.
• Welcomed Empire Company Limited as a co-owner of Scene+, providing members with increased
opportunities to earn and redeem points through Empire’s family of brands firstly in Atlantic Canada on
August 11, 2022, in Western Canada on September 22, 2022, and across Canada by early 2023.
Announced that Home Hardware Stores Limited will be joining Scene+ with a launch expected to take
place in the summer of 2023, providing members with additional opportunities to earn and redeem points.
Recognized a gain of $50.1 million on the disposition of its 1/6th ownership interest in Scene+ during the
third quarter of 2022, leaving a 1/3rd ownership interest in Scene+ with the satisfaction of specific non-
financial milestones related to the reorganization of Scene+.
•
CORPORATE
•
Celebrated Cineplex’s induction into the Hall of Fame for Canada’s Most Admired Corporate Cultures,
being recognized by Waterstone Human Capital as Best-in-Class Canadian Organization.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
14
Cineplex Inc.
Management’s Discussion and Analysis
•
•
•
Ellis Jacob, President & CEO, was awarded the 2022 National Association of Theatre Owners Marquee
Award, recognizing his unparalleled dedication, commitment and service to the motion picture theatre
industry.
Celebrated Community Day on November 19, 2022, by hosting a morning of free, family-friendly movies
with discounted concessions, where one dollar from every concession order of select items was donated to
BGC Canada (formerly Boys & Girls Clubs of Canada).
On December 22, 2022, Cineplex entered into the Sixth Credit Agreement Amendment, extending the
maturity date of the credit facility from November 13, 2023 to November 13, 2024 (Section 7.4, Long-term
debt).
2. CINEPLEX’S BUSINESS AND STRATEGY
Cineplex’s mission statement is “Passionately delivering exceptional experiences.” All of its efforts are focused on
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 growth 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 spending across all lines of business.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
15
Cineplex Inc.
Management’s Discussion and Analysis
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 and CineClub subscription programs, 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.
While box office revenues (which include alternative programming) typically account for the largest portion of
Cineplex’s revenues, Cineplex has diversified its revenue streams through expanded theatre food service offerings,
cinema media, digital place-based media, amusement and leisure, the Cineplex Store, promotions and other revenue
streams which have increased as a share of total revenues.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
16
Net income (loss) (millions)$77.0$28.9$(624.0)$(248.7)$0.120182019202020212022
Cineplex Inc.
Management’s Discussion and Analysis
(i) 2022 includes expenses related to the Cineworld Transaction and associated litigation in the amount of $3.6 million (2021 - $11.4 million).
3. CINEPLEX’S BUSINESSES
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 continues to
be a key channel for new motion picture releases and is the core business function of Cineplex.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
17
Net income (loss) as a % of sales4.8%1.7%(149.2)%(37.9)%—%20182019202020212022Adjusted EBITDAaL (millions) (i)$247.3$230.5$(182.8)$(84.3)$81.720182019202020212022Adjusted EBITDAaL Margin (i)15.3%13.8%(43.7)%(12.8)%6.4%20182019202020212022
Cineplex Inc.
Management’s Discussion and Analysis
Cineplex believes that the following are important factors in 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. 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. While studios have experimented with different release strategies through
secondary channels such as streaming, initial theatrical releases continue to be the most vital channel for
film success as evidenced by the successful box office releases of Top Gun: Maverick, Black Panther:
Wakanda Forever and Avatar: The Way of Water.
Continued supply of successful films. Studios are increasingly producing film franchises, such as the Marvel
& DC universes, Fast & Furious and Avatar among others. Additionally, new franchises continue to be
developed. 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 2023, the studios are currently planning to release a strong slate of films, including M3GAN,
Ant-Man and the Wasp: Quantumania, Cocaine Bear, Creed III, Scream 6, Shazam! Fury of the Gods,
John Wick: Chapter 4, The Super Mario Bros. Movie, Evil Dead Rise, Guardians of the Galaxy Vol. 3, Fast
X, The Little Mermaid, Spider-Man: Across the Spider-Verse, Transformers: Rise of the Beasts, The Flash,
Elemental, Indiana Jones and the Dial of Destiny, Mission: Impossible - Dead Reckoning - Part One,
Barbie, Oppenheimer, The Marvels, Teenage Mutant Ninja Turtles: Mutant Mayhem, Gran Turismo,
Haunted Mansion, The Equalizer 3, The Nun 2, Kraven the Hunter, Dune: Part Two, The Hunger Games:
The Ballad of Songbirds and Snakes, Wish, Wonka and Aquaman and the Lost Kingdom. In spite of
changing release models, Cineplex remains confident that traditional studios will continue to commit a
significant number of films with an exclusive theatrical window in addition to recent announcements by
streaming companies to release theatrical film product.
Convenient and affordable form of out-of-home entertainment. Cineplex’s BPP was $12.12 and $11.77 in
2022 and 2021, respectively. Excluding the impact of Cineplex’s premium-priced product, BPP was $10.35
and $10.25 in 2022 and 2021, respectively. The movie-going experience continues to provide value and
compares favourably 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. CineClub members also have benefits accessible
across Cineplex’s businesses nationwide including Cineplex theatres, the Cineplex Store and LBE venues.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
18
Source: Movie Theatre Association of Canada ("MTAC")Canadian Industry Box Office (in millions) $1,031.3$1,022.0$235.0$345.0$674.020182019202020212022
Cineplex Inc.
Management’s Discussion and Analysis
•
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 $15.95 in 2022, and accounted for 41.8% of total box office revenues in 2022. Recent
enhancements and offerings to the current circuit include the addition of one IMAX auditorium, one
ScreenX auditorium, one UltraAVX auditorium and six state-of-the-art auditoriums with all-recliner
seating, including one UltraAVX auditorium and D-BOX seats at Cineplex Junxion Kildonan, which
opened on December 9, 2022.
to
it
leading market position enables
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
improved supplier
best practices and negotiating
contracts. In addition, Cineplex continues to evaluate its
existing theatre portfolio on an ongoing basis.
Cineplex theatres are also 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.
Cineplex opened its first-ever Junxion location at Cineplex Junxion Kildonan in Winnipeg, Manitoba on December
9, 2022. Cineplex Junxion offers best-in-class guest experience by bringing together movies, amusement gaming,
dining and live performances in one venue.
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 and Melt. Certain Cineplex theatres also feature popular fast food retail branded outlets (“RBO’s”)
including Starbucks 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.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
19
Box Office Revenues (millions)$724.2$705.5$132.8$236.3$461.320182019202020212022Box Office Revenue per Patron$10.46$10.63$10.17$11.77$12.1220182019202020212022Theatre Attendance (millions)69.366.413.120.138.020182019202020212022
Cineplex Inc.
Management’s Discussion and Analysis
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, 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 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’s
production of Prima Facie, Metropolitan Opera productions including the live broadcast of Verdi’s Don Carlos and
screening select television content on the big screen. Cineplex offers the Classic Film Series and Family Favourites
programming at non-peak hours to enhance theatre utilization rates. As additional content becomes available,
Cineplex will continue to expand its alternative programming offerings.
Cineplex Pictures focuses on the acquisition of feature film rights for both theatrical release and in home viewing in
Canada. Cineplex Pictures distributed a limited number of films including the feature film Ella and the Little
Sorcerer on March 4, 2022 and One Piece Film Red on November 4, 2022.
On January 5, 2023, Cineplex Pictures entered into a theatrical distribution partnership with Lionsgate to distribute
their 2023 film slate in Canada. This includes John Wick: Chapter 4, Are You There God? It’s Me, Margaret, and
Hunger Games: The Ballad of Songbirds and Snakes.
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,
show-times 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 show-times, buy tickets as well as
find information relating to the latest movie choices and movie-related entertainment content in addition to
providing 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.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
20
Theatre Food Service Revenues (millions)$440.7$446.6$99.6$172.3$341.720182019202020212022Concession Revenue per Patron$6.36$6.73$6.99$7.93$8.7220182019202020212022
Cineplex Inc.
Management’s Discussion and Analysis
The Cineplex Store offers a catalog of over 11,000 titles in digital form (transactional video-on-demand (“TVOD”))
including Home Premiere offerings (premium video on demand (“PVOD”) and premium electronic sell through
(“PEST”)). 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.
(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. Cineplex’s media advertising
arrangements are impacted by theatre attendance levels which drive impressions and ultimately impact media
revenue generated by Cineplex.
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 high traffic areas featuring big, bold digital
signage; and
Online 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 also generates revenues from the sale of sponsorship and advertising at LBE venues.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
21
Media Revenues (millions) (i)$162.8$196.8$65.4$65.3$111.720182019202020212022
Cineplex Inc.
Management’s Discussion and Analysis
Digital Place-Based Media
Cineplex Digital Media is an end-to-end digital experience company that offers digital signage solutions and in-store
retail media networks for leading brands in shopping centers, restaurants, retailers, and entertainment destinations.
CDM is embracing its unique position in connection with Cineplex Media to shift its focus toward media-led
networks, like in its mall networks, to further monetize these networks and offer new value and business models to
clients.
Cineplex Digital Media is focused on providing its clients smart solutions including the utilization of Flex
SmartEngine, a data-driven machine learning software platform that optimizes digital signage to deliver the right
content, to the right audience at the right time. CDM has already proven high impact with CDM’s SmartEngine
rollout to 1,000 branch locations of a leading Canadian bank, improving their customer engagement.
Cineplex Digital Media’s project management, system design, network operations, and creative services teams,
combined with the support of Cineplex’s Media sales team 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.
AMUSEMENT SOLUTIONS AND LBE
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, P1AG, 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 third party locations such as family entertainment centres, arcades,
theatres, restaurants, bars and other locations;
Third party equipment sales; and
Operating family entertainment centres.
In addition to expanding Cineplex’s amusement and gaming presence outside of its theatres, the growth of P1AG
has allowed Cineplex to vertically integrate its gaming operations. Cineplex’s in-theatre gaming business features
Cineplex’s 44 XSCAPE Entertainment Centres as well as arcade games in select Cineplex theatres, LBE venues and
the newly opened Junxion location, with all of the games supplied 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 simulation, redemption, video, recreational gaming, attractions, 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 ten locations of The Rec Room.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
22
Cineplex Inc.
Management’s Discussion and Analysis
Playdium targets families and teens in mid-sized communities across Canada. Cineplex has three locations of
Playdium.
LOYALTY
During the third quarter of 2022, Cineplex and Scotiabank welcomed Empire Company Limited as a co-owner of the
Scene+ loyalty program, bringing together the full benefits of SCENE with Scotia Rewards and Empire’s family of
brands. The Scene+ loyalty program also provides Cineplex with significant data and a more comprehensive
understanding of the demographics and behaviors of its audience.
Scene+ is a customer loyalty program designed to offer members discounts and the opportunity to earn and redeem
points. Scene+ members can earn and redeem points for purchases at Cineplex’s theatres, at its location-based
entertainment establishments at the Cineplex Store as well as at locations operated by select program partners.
Scene+ members also can earn and redeem points at a wide variety of popular retailers, including Empire’s family of
brands and redeem 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, high engagement and
satisfaction levels of its program members. Management believes Scene+ will drive further growth and engagement,
expanding the membership base by providing members with more reward options and ways to earn and redeem
points. Through Scene+, Cineplex has gained a more thorough understanding of its customers, driven increased
customer frequency, increased overall customer spending across its businesses and provides Cineplex with the
targeted ability to communicate directly and regularly with customers.
The Scene+ customer database has allowed Cineplex to segment the 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+ 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 15 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+
will continue to build its strategic marketing partnerships with participating partners across Canada, providing
promotions and offerings.
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. Box office revenue represented 36.4% of revenue in
2022.
The following table presents the revenue mix for comparative years:
Revenue mix % by period
Box office
Food service
Media
Amusement
Other
Total
2022
36.4 %
30.1 %
8.8 %
19.4 %
5.3 %
2021
36.0 %
28.5 %
9.9 %
20.5 %
5.1 %
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 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
23
Cineplex Inc.
Management’s Discussion and Analysis
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 are
managed separately due to their distinct natures and are based on the information used by Cineplex’s chief operating
decision makers.
Revenue mix % by year
Film Entertainment and Content
Media
Amusement and Leisure
LBE
Total
Full Year
2022
69.5 %
8.7 %
13.1 %
8.7 %
2021
68.0 %
9.9 %
15.3 %
6.8 %
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. Cineplex’s share of the Canadian
theatre exhibition market based on Canadian industry box office revenues was approximately 76% for the quarter
and 74% for the year ended December 31, 2022.
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 available
premium priced product that increases BPP. While BPP is impacted by CineClub, the Cineplex Tuesdays program
and the Scene+ loyalty 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 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 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, discounts for CineClub members, and the Scene+ loyalty
program. CPP can fluctuate from quarter to quarter depending on the genre of film product playing. Cineplex
believes the Scene+ and CineClub programs drive 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. Cineplex’s media advertising arrangements are impacted by theatre attendance levels which
drive impressions and ultimately impact media revenue generated by Cineplex. 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 DOOH (in public spaces such as shopping malls
and office towers), quick service restaurants, financial institutions and retailers. Cineplex Digital Media revenue is
impacted by mall attendance which affect impressions and revenue generated.
Amusement revenues include amusement solutions revenues from P1AG, which supplies and services all 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 FECs.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
24
Cineplex Inc.
Management’s Discussion and Analysis
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, online booking fees, promotional activities, screenings,
private parties, corporate events and breakage on gift card sales and prepaid products.
Cost of Sales and Expenses
Film cost represents the film rental fees paid to distributors for films exhibited in Cineplex’s 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 a film, or estimated terms where a mutually agreed settlement is reached upon conclusion of
a 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 typically 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.
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.
Loss (gain) on disposal of assets represents the gain 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 accounted for as obligations or interest under IFRS 16, Leases.
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 and THRP) 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 which includes the cost of Scene+ points issued,
advertising, media, amusement and leisure (including P1AG and LBE), loyalty, digital commerce, supplies and
services, utilities and maintenance. To the extent these costs are variable, they can be managed 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 Cineplex’s Omnibus 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 and LBE portfolio and its
business activities.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
25
Cineplex Inc.
Management’s Discussion and Analysis
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).
Under IFRS 11, Cineplex’s 50% share of one IMAX auditorium in Ontario, its 78.2% interest in the Canadian
Digital Cinema Partnership (“CDCP”) up to December 16, 2022 (Section 5.2, Operating Results, Share of loss
(income) of joint ventures and associates), 50% interest in YoYo’s Yogurt Cafe (“YoYo’s”) and 33.3% interest in
Scene+ are classified as joint ventures or associates. Cineplex’s investment in YoYo’s is carried at nil value.
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 addition to the joint ventures which are equity accounted, Cineplex consolidates its 50% share of assets,
liabilities, revenues and expenses of its joint operation, which includes Scene GP, and up to December 12, 2021,
Scene LP.
As part of the ongoing reorganization of Scene GP (“SCENE”) which began in December 2020, Cineplex and its
loyalty partner launched Scene+ on December 13, 2021 and as a result, Cineplex began equity accounting for its
then 50% economic interest in Scene LP, the operator of the Scene+ loyalty program. Cineplex holds a 1/3rd
ownership interest in Scene LP as at December 31, 2022
In the fourth quarter of 2020, Cineplex announced that it had entered into an agreement with its existing partner
Scotiabank to enhance and expand the SCENE loyalty program. Cineplex received $60.0 million in December 2020
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 ownership in Scene+ was reduced to 33.3%. As a result of the
December 13, 2021 step in the reorganization, Cineplex equity accounts for its interest in Scene LP, and continues to
consolidate 50% of Scene GP which subsequent to December 12, 2021 holds the deferred revenue obligation for
SCENE points issued up to December 12, 2021. During the third quarter of 2022, Empire Company Limited became
a one-third partner of Scene+ and Cineplex continues to maintain a 33.3% interest in Scene+.
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):
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
26
Cineplex Inc.
Management’s Discussion and Analysis
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 on disposal of assets
Other costs (a)
Impairment of long-lived assets
Costs of operations
Net income (loss) from continuing operations
Net loss from discontinued operations
Net income (loss)
Adjusted EBITDA (i) (v)
Adjusted EBITDAaL (i) (v)
(a) Other costs include:
Theatre occupancy expenses
Other operating expenses
General and administrative expenses (v)
Total other costs
EPS from continuing operations - basic and diluted (v)
EPS from discontinued operations - basic and diluted
EPS - basic and diluted (v)
Total assets
Long-term debt (iv)
Shares outstanding at period end
Cash dividends declared per Share
Adjusted free cash flow per share (ii)
Box office revenue per patron (iii)
Concession revenue per patron (iii)
Film cost as a percentage of box office revenues
Theatre attendance (in thousands of patrons) (iii)
Theatre locations (at period end)
Theatre screens (at period end)
Year ended
December 31,
2022
Year ended
December 31,
2021
Year ended
December 31,
2020
$
461,272
$
236,320
$
381,386
111,728
246,601
67,575
1,268,562
238,897
87,702
95,517
105,197
(57,807)
687,738
—
1,157,244
113
—
113
251,694
81,672
62,378
560,898
64,462
687,738
—
—
—
2,150,454
824,888
63,375,400
—
0.053
12.12
8.72
51.8 %
38,045
158
1,637
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
186,998
65,330
134,473
33,548
656,669
114,674
41,683
102,247
113,042
(28,283)
439,554
3,717
786,634
(248,722)
—
(248,722) $
59,927
$
(84,295) $
40,945
339,313
59,296
439,554
$
(3.93) $
—
$
(3.93) $
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
375,690
(9.85)
(0.08)
(9.93)
2,114,838
739,211
$
$
63,344,298
23,338,700
725,271
63,333,238
—
$
(2.392) $
11.77
7.93
$
$
48.5 %
20,080
160
1,652
0.150
(2.556)
10.17
6.99
50.4 %
13,065
162
1,667
(i) Represents a non-GAAP financial measure. See Section 17, Non-GAAP and other financial measures.
(ii) Represents a non-GAAP ratio. See Section 17, Non-GAAP and other financial measures.
(iii) Represents a supplementary financial measure. See Section 17, Non-GAAP and other financial measures.
(iv) Represents the principal component as presented on the financial statements net of any equity component and unamortized costs of long-
term debt, Debentures, and Notes Payable. Excludes share-based compensation, lease obligations, fair value of interest rate swap agreements,
post-employment benefit obligations and other liabilities.
(v) 2022 includes expenses related to the Cineworld Transaction and associated litigation and claims recovery in the amount of $3.6 million
(2021 - $11.4 million).
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
27
Cineplex Inc.
Management’s Discussion and Analysis
5.2 OPERATING RESULTS FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 2022
Total revenues
Total revenues for the three months ended December 31, 2022 increased $50.2 million (16.7%) to $350.1 million as
compared to the prior year period. Total revenues for the year ended December 31, 2022 increased $611.9 million
(93.2%) to $1.3 billion as compared to the prior year period. A discussion of the factors affecting the changes in box
office, food service, media, amusement and other revenues for the period is provided below.
Non-GAAP and other financial 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 17,
Non-GAAP and other financial 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)
Fourth Quarter
Full Year
2022
2021
Change
2022
2021
Change
$ 120,248
9,208
13.06
10.64
$
$
$ 119,280
9,148
$ 125,890
10,245
12.29
10.40
$
$
$ 124,863
10,161
50.0 %
47.3 %
-4.5 % $ 461,272
38,045
-10.1 %
12.12
6.3 % $
10.35
2.3 % $
-4.5 % $ 454,580
-10.0 %
37,652
2.7 %
41.8 %
$ 236,320
20,080
11.77
10.25
$
$
$ 233,278
19,861
38.7 %
95.2 %
89.5 %
3.0 %
1.0 %
94.9 %
89.6 %
3.1 %
(i) Represents a supplementary financial measure. See Section 17, Non-GAAP and other financial measures.
Box office continuity
Fourth Quarter
Full Year
2021 as reported
Same theatre attendance change
Impact of same theatre BPP change
New and acquired theatres (i)
Disposed and closed theatres (i)
Scene+ points issued presented as marketing costs
2022 as reported
$
Box Office
125,890
(12,446)
5,810
531
(590)
1,053
$
120,248
Theatre
Attendance
10,245 $
(1,013)
—
32
(56)
—
9,208 $
Box Office
236,320
208,967
6,482
3,965
(315)
5,853
Theatre
Attendance
20,080
17,791
—
195
(21)
—
461,272
38,045
(i) See Section 17, Non-GAAP and other financial measures. Represents theatres opened, acquired, disposed or closed subsequent to the start of
the prior year comparative period and is used to report on Cineplex’s supplementary financial measures.
Fourth Quarter 2022 Top Cineplex Films
1 Avatar: The Way of Water
2 Black Panther: Wakanda Forever
3 Black Adam
4 Smile
5 Ticket to Paradise
3D % Box Fourth Quarter 2021 Top Cineplex Films
a 25.2 % 1 Spider-Man: No Way Home
a 19.9 % 2 No Time to Die
9.0 % 3 Dune
6.5 % 4 Venom: Let There Be Carnage
3.6 % 5 Eternals
3D % Box
a 23.7 %
a 13.4 %
a 11.4 %
a
8.4 %
a
8.3 %
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
28
Cineplex Inc.
Management’s Discussion and Analysis
Full Year 2022 Top Cineplex Films
1 Top Gun: Maverick
2 Avatar: The Way of Water
3 Doctor Strange In The Multiverse of Madness
4 Black Panther: Wakanda Forever
5 The Batman
3D % Box Full Year 2021 Top Cineplex Films
9.4 % 1 Spider-Man: No Way Home
6.8 % 2 Shang-Chi And The Legend Of The Ten Rings
5.8 % 3 No Time to Die
5.4 % 4 Dune
5.3 % 5 Venom: Let There Be Carnage
a
a
a
3D % Box
a 12.6 %
a
8.0 %
a
7.1 %
a
6.1 %
a
4.5 %
Fourth Quarter and Full Year
Box office revenues decreased $5.6 million to $120.2 million during the fourth quarter of 2022, compared to $125.9
million recorded in the same period in 2021. This decrease was due to a 1.0 million (10.1%) decrease in theatre
attendance from 10.2 million to 9.2 million. The decrease in theatre attendance was largely attributable to less first
run film product caused by shifts in film releases due to production delays resulting from the COVID-19 pandemic.
Attendance was also negatively impacted by winter weather systems and storms across Canada during the key
holiday period. In addition, both Christmas eve and New Year’s Eve fell on weekends in 2022, further negatively
impacting attendance. The impact of lower attendance was partially offset by an all-time quarterly record BPP of
$13.06.
BPP for the three months ended December 31, 2022 was $13.06, representing an all-time quarterly record for
Cineplex and an increase of $0.77 or 6.3% from $12.29 reported in the prior year period. The increase in BPP was
primarily due to the highly anticipated films, Black Panther: Wakanda Forever and Avatar: The Way of Water,
which drove guests to premium experiences, resulting in a fourth quarter record of premium priced products
accounting for 50% of the total box office. The launch of Scene+ in December 2021 resulted in the cost of Scene+
points issued being recognized as marketing costs, as opposed to reductions of revenue prior to this. This also
resulted in a change in revenue recognition and caused an increase in box office revenues during the quarter of $2.3
million and an increase in BPP of $0.25, with a corresponding increase in marketing costs of $2.3 million with
respect to Scene+ points issued on box office transactions.
For the year ended December 31, 2022, box office revenues increased $225.0 million to $461.3 million, compared to
$236.3 million recorded in the prior year period. This increase was primarily due to a 18.0 million (89.5%) increase
in theatre attendance from 20.1 million to 38.0 million as Cineplex’s theatre circuit was open for the majority of the
year, operating at full capacity, as compared to theatre closures and operating restrictions that materially impacted
the prior year.
Cineplex’s BPP for the year ended December 31, 2022 was an annual record of $12.12, which increased $0.35 or
3.0% from $11.77 reported in the prior year period. This increase was due to a higher percentage of box office
revenue from premium priced offerings, which accounted for 41.8% of Cineplex’s box office revenues in the year
ended December 31, 2022, as compared to 38.7% in the prior year. Contributing to the increase was the addition of
three VIP locations which opened in 2021 that completed their first full year of operations, as well as additional
Screen X and 4DX auditoriums. The reorganization of SCENE resulted in a change in revenue recognition leading
to higher box office revenues during the full year of $8.6 million, a BPP increase of $0.23, with a corresponding
increase in marketing costs of $8.6 million with respect to Scene+ points issued on box office transactions.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
29
Cineplex Inc.
Management’s Discussion and Analysis
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
Total food service revenues
Theatre attendance (i)
CPP (i) (ii)
Same theatre food service revenues (i)
Same theatre attendance (i)
Fourth Quarter
2022
2021
Change
2022
Full Year
2021
$
82,242 $
76,695
7.2 % $ 331,567 $ 159,201
2,201
12,725
2,999
7,550
-26.6 %
68.5 %
10,125
39,694
13,052
14,745
$
97,168 $
87,244
11.4 % $ 381,386 $ 186,998
$
$
$
9,208 $
10,245
-10.1 %
38,045
20,080
8.93 $
7.49
19.2 % $
8.72 $
7.93
81,248 $
75,872
7.1 % $ 324,925 $ 156,557
9,148
10,161
-10.0 %
37,652
19,861
Change
108.3 %
-22.4 %
169.2 %
104.0 %
89.5 %
10.0 %
107.5 %
89.6 %
(i) Represents a supplementary financial measure. See Section 17, Non-GAAP and other financial measures.
(ii) Food service revenue from LBE and delivery is not included in the CPP calculation.
Theatre food service revenue continuity
Fourth Quarter
Full Year
2021 as reported
Same theatre attendance change
Impact of same theatre CPP change
New and acquired theatres (i)
Disposed and closed theatres (i)
Scene+ points issued presented as marketing costs
Theatre Food
Service
Theatre
Attendance
Theatre Food
Service
Theatre
Attendance
$
76,695
(7,562)
11,967
516
(346)
972
10,245 $
(1,013)
—
32
(56)
—
159,201
140,241
22,636
3,971
26
5,492
20,080
17,791
—
195
(21)
—
2022 as reported
$
82,242
9,208 $
331,567
38,045
(i) See Section 17, Non-GAAP and other financial measures. Represents theatres opened, acquired, disposed or closed subsequent to the start of
the prior year comparative period and is used to report on Cineplex’s supplementary financial measures.
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 The Rec Room and Playdium.
Food service revenues increased by $9.9 million (11.4%) from $87.2 million to $97.2 million during the fourth
quarter due to both higher theatre and LBE food service revenues. Theatre food service revenues increased $5.5
million (7.2%) to $82.2 million as compared to the prior year period. The increase in theatre food services revenue
was due to a $1.44 or 19.2% increase to an all-time quarterly CPP record of $8.93 which offset the decrease in
theatre attendance. Cineplex’s theatre circuit operated without restrictions, compared to the prior year period where
operating restrictions were reinstated in December 2021, prohibiting food consumption in Ontario during the holiday
period which historically have higher consumer spend. The increase in food service revenues was also attributable to
a $5.2 million increase in LBE food service revenue to $12.7 million, an all-time quarterly record, due to higher
group and events bookings during the quarter.
The reorganization of SCENE resulted in a change in revenue recognition leading to higher concession revenues
during the quarter of $2.1 million, a CPP increase of $0.23 with a corresponding increase in marketing costs of $2.1
million, with respect to Scene+ points issued on concession transactions.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
30
Cineplex Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2022, food service revenues increased by $194.4 million (104.0%) from $187.0
million to $381.4 million, primarily due to a $172.4 million increase in theatre food service revenues. The increase
in theatre food service revenues is primarily due to increases in theatre attendance which increased by 18.0 million
to 38.0 million. LBE food service revenue also increased $24.9 million for the full year from $14.7 million to $39.7
million, representing an annual record, further contributing to the increase in food service revenue. The prior year
period was materially impacted by government mandated theatre and LBE venues closures, restrictions on indoor
dining and operating restrictions.
Cineplex’s CPP during the year ended December 31, 2022 was $8.72, an annual record which increased by $0.79 or
10.0%. Contributing to the increase in CPP was higher theatre food service revenues from VIP auditoriums which
have a higher average spend. The reorganization of SCENE resulted in a change in revenue recognition leading to
higher concession revenues during the full year of $8.3 million, a CPP increase of $0.22, with a corresponding
increase in marketing costs of $8.3 million, with respect to Scene+ points issued on concession transactions.
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
Total media revenues
Fourth Quarter and Full Year
Fourth Quarter
Full Year
2022
2021
Change
2022
2021
Change
$
30,229 $
22,007
37.4 % $
72,275 $
32,958
119.3 %
14,324
10,788
32.8 %
39,453
32,372
$
44,553 $
32,795
35.9 % $ 111,728 $
65,330
21.9 %
71.0 %
Total media revenues increased $11.8 million or 35.9% to $44.6 million during the fourth quarter of 2022 compared
to the prior year period. The increase during the fourth quarter was primarily due to the increase in cinema
advertising with increased advertising opportunities related to the release of highly anticipated movies, including
Black Panther: Wakanda Forever and Avatar: The Way of Water. The increase in total media revenues during the
fourth quarter is also attributable to the $3.5 million increase in digital placed-media revenues as a result of
increased advertising at DOOH networks.
For the year ended December 31, 2022, total media revenues increased $46.4 million or 71.0% to $111.7 million.
The increase during the annual period was primarily due to an increase in cinema media due to significant increases
in pre-show and show-time advertising revenues, resulting in an annual increase of $39.3 million. Cineplex’s cinema
media arrangements are impacted by theatre attendance levels which drive impressions and ultimately impact media
revenue generated by Cineplex. The prior year period was subject to capacity restrictions negatively impacting
media revenues, while the increase in cinema media revenue during the current annual period reflects an increase in
theatre attendance levels when compared to the prior year period. During the current annual period, digital placed-
based media revenues increased by $7.1 million compared to the prior year period as a result of digital advertising
on DOOH networks and higher project installation revenues.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
31
Cineplex Inc.
Management’s Discussion and Analysis
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
2022
2021
Change
2022
Full Year
2021
Project revenues (i)
Other revenues (ii)
$
5,023 $
9,301
3,502
7,286
43.4 % $
15,293 $
10,516
27.7 %
24,160
21,856
Total digital place-based media revenues
$
14,324 $
10,788
32.8 % $
39,453 $
32,372
Change
45.4 %
10.5 %
21.9 %
(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
2022
2021
Change
2022
2021
Change
Amusement - P1AG excluding Cineplex exhibition and
LBE (i)
Amusement - Cineplex exhibition (i)
Amusement - LBE
Total amusement revenues
$
40,204 $
31,804
26.4 % $ 165,681 $ 100,282
3,035
17,608
1,963
11,329
54.6 %
55.4 %
12,284
68,636
4,943
29,248
$
60,847 $
45,096
34.9 % $ 246,601 $ 134,473
65.2 %
148.5 %
134.7 %
83.4 %
(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 increased $15.8 million or 34.9% as compared to the prior year period to a fourth quarter
record of $60.8 million. The increase was primarily due to a $8.4 million increase in P1AG amusement revenues
from US and Canada route locations at FEC’s and theatres, along with an increase in distribution sales. The increase
is also attributable to a $6.3 million increase in LBE amusement revenues as a result of more groups and events
bookings during the holiday season, resulting in a fourth quarter record of $17.6 million. The prior year period was
impacted by operating restrictions including proof of vaccination requirements, negatively impacting amusement
revenues.
For the year ended December 31, 2022, amusement revenues increased $112.1 million or 83.4% to $246.6 million,
an annual record. The increase was primarily due to a $65.4 million increase in P1AG amusement revenues from US
and Canada route locations at FEC’s and theatres. Further contributing to the increase was a $39.4 million (134.7%)
increase in LBE amusement revenues from $29.2 million to $68.6 million, representing an annual record. The
increase is also attributable to increased operating activities during the current annual period, compared to the
government mandated closure requirements or capacity restrictions that remained in effect for a majority of the prior
year period.
The following table presents the adjusted EBITDAaL for the quarter and the full year for P1AG (in thousands of
dollars):
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
32
Cineplex Inc.
Management’s Discussion and Analysis
P1AG Summary
Amusement revenues
Operating expenses
Fourth Quarter
Full Year
2022
2021
Change
2022
2021
$ 40,204
$ 31,804
26.4 % $ 165,681
$ 100,282
33,762
26,940
25.3 % 134,155
87,579
Cash rent related to lease obligations (i)
1,075
913
17.7 %
4,055
3,994
Total
$ 34,837
$ 27,853
25.1 % $ 138,210
$ 91,573
P1AG adjusted EBITDAaL (ii)
$ 5,367
$ 3,951
35.8 % $ 27,471
$ 8,709
P1AG adjusted EBITDAaL Margin (iii)
(i) Cash rent that has been reallocated to offset the lease obligations.
13.3 %
12.4 %
0.9 %
16.6 %
8.7 %
(ii) Represents a non-GAAP financial measure. See Section 17, Non-GAAP and other financial measures.
(iii) Represents a non-GAAP ratio. See Section 17, Non-GAAP and other financial measures.
Change
65.2 %
53.2 %
1.5 %
50.9 %
215.4 %
7.9 %
When compared to the prior year period, P1AG’s amusement revenues increased by $8.4 million to $40.2 million
during the quarter and $65.4 million to $165.7 million during the annual period. The increase in revenues is
attributed to P1AG US and Canadian route locations at FEC’s and theatres operating without any government
mandated restrictions during the period, compared to the prior year period that was subject to capacity restrictions in
Canada, in some cases after months of extended closure periods. P1AG adjusted EBITDAaL margin was 13.3%
during the fourth quarter with P1AG adjusted EBITDAaL margin increasing from 8.7% to 16.6% during the annual
period. P1AG adjusted EBITDAaL during the fourth quarter was $5.4 million, a fourth quarter record, and was
$27.5 million during the annual period, an annual record, representing an increase of $1.4 million and $18.8 million,
respectively. Efficient management of operating expenses, despite the inflationary pressure, including realizing the
benefits of subsidy programs where available in the early months of 2022, allowed for the growth in margins for the
annual period when compared to the prior year period. Payroll costs were reduced by the CEWS and THRP wage
subsidy programs for the annual period by $0.8 million (2021 - $3.1 million).
The following table presents the LBE adjusted store level EBITDAaL for the quarter and the full year (in thousands
of dollars):
LBE Summary
Food service revenues
Amusement revenues
Media and other revenues
Total revenues
Cost of food service
Fourth Quarter
Full Year
2022
2021
Change
2022
2021
$ 12,725
$ 7,550
68.5 % $ 39,694
$ 14,745
17,608
11,329
55.4 % 68,636
29,248
1,293
522
147.8 %
2,502
769
$ 31,626
$ 19,401
63.0 % $ 110,832
$ 44,762
3,396
1,976
71.9 % 11,095
3,986
Operating expenses before adjustments (i)
16,224
10,357
56.6 % 54,681
23,482
Cash rent related to lease obligations (ii)
2,740
2,335
17.3 % 10,681
7,849
Total
$ 22,360
$ 14,668
52.4 % $ 76,457
$ 35,317
Change
169.2 %
134.7 %
225.3 %
147.6 %
178.4 %
132.9 %
36.1 %
116.5 %
Adjusted store level EBITDAaL (iii)
$ 9,266
$ 4,733
95.8 % $ 34,375
$ 9,445
263.9 %
Adjusted store level EBITDAaL Margin (iv)
29.3 %
24.4 %
4.9 %
31.0 %
21.1 %
9.9 %
(i) Includes operating costs of LBE. Pre-opening costs relating to LBE and overhead relating to management of LBE portfolio are not included
as they are non-recurring costs.
(ii) Cash rent that has been reallocated to offset the lease obligations.
(iii) Represents a non-GAAP financial measure. See Section 17, Non-GAAP and other financial measures.
(iv) Represents a non-GAAP ratio. See Section 17, Non-GAAP and other financial measures.
During the fourth quarter of 2022, revenues increased by $12.2 million (63.0%) to an all-time quarterly record of
$31.6 million when compared to the prior year period. Revenues for the annual period increased by $66.1 million
(147.6%) to an annual record of $110.8 million when compared to the prior year period. The increase in revenues
during both periods is due to increased operating levels as Cineplex operated during the entire period with no
government mandated restrictions, whereas the prior year period was subject to operating and capacity restrictions.
Additionally, the current period also includes the full-year operations of one additional Playdium location and two
additional The Rec Room locations that opened during prior year period, resulting in increased LBE amusement
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
33
Cineplex Inc.
Management’s Discussion and Analysis
revenues when compared to the prior year period. Lastly, LBE revenues also increased from higher groups and
events bookings in both the current quarter and annual period.
Adjusted EBITDAaL for the fourth quarter of 2022 was a fourth quarter record of $9.3 million and adjusted
EBITDAaL for the annual period was $34.4 million. Adjusted EBITDAaL for the fourth quarter of 2021 included
approximately $1.2 million of government subsidies. The increase in adjusted EBITDAaL is consistent with the
increase in amusement revenues, which have historically contributed the highest margin to LBE locations. During
the prior year period, Cineplex’s LBE venues were subject to capacity restrictions, in some cases after months of
extended closure periods leading to lower adjusted EBITDAaL. Management was able to reduce costs where
applicable including the receipt of funds under the CEWS and THRP wage subsidy programs, CERS rent subsidy
program, utility and realty tax subsidy programs for total cost reductions during annual period of $2.7 million (2021
- $7.6 million).
Other revenues
The following table highlights the other revenues which includes revenues from online booking fees, 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
2022
2021
Change
2022
2021
Change
Total other revenues
$
27,308 $
8,926
205.9 % $
67,575 $
33,548
101.4 %
Fourth Quarter and Full Year
The quarterly and annual increase in other revenues is primarily due to the implementation of an online booking fee
introduced on June 15, 2022 that applies to tickets purchased through Cineplex’s mobile app and website. This
online booking fee generated $5.2 million and $11.7 million during the fourth quarter and full year, respectively.
The increase in other revenues in both the quarter and full year is also attributed to breakage revenues related to gift
cards and other prepaid products.
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)
Fourth Quarter
Full Year
2022
2021
Change
2022
2021
Change
$ 63,567
$ 61,990
52.9 %
49.2 %
2.5 % $ 238,897
3.7 %
51.8 %
$ 114,674
48.5 %
108.3 %
3.3 %
(i) Represents a supplementary financial measure. See Section 17, Non-GAAP and other financial measures.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
34
Cineplex Inc.
Management’s Discussion and Analysis
Fourth Quarter and Full Year
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 which vary by title and
distributor.
The increase in film cost and film cost percentage during the fourth quarter and annual period over the prior year
periods is due to the release of first-run film product including Top Gun: Maverick, Black Panther: Wakanda
Forever and Avatar: The Way of Water. Film cost percentage increased 3.7% and 3.3% for the fourth quarter and
annual period, respectively, as compared to the prior year periods due to the top films in 2022 having higher
settlement rates and making up a larger percentage of box office revenues.
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
2022
2021
Change
2022
2021
Change
$ 19,275
$ 19,066
1.1 % $ 76,607
$ 37,697
3,396
1,976
71.9 %
11,095
3,986
$ 22,671
$ 21,042
7.7 % $ 87,702
$ 41,683
Theatre concession cost percentage (i)
LBE food cost percentage (i)
22.8 %
26.7 %
Theatre concession margin per patron (i)
$
6.89
$
23.9 %
26.2 %
5.70
-1.1 %
0.5 %
22.4 %
28.0 %
20.9 % $
6.76
$
21.9 %
27.0 %
6.19
(i) Represents a supplementary financial measure. See Section 17, Non-GAAP and other financial measures.
103.2 %
178.4 %
110.4 %
0.5 %
1.0 %
9.2 %
Fourth Quarter and Full Year
Cost of food service at the theatres varies primarily with theatre attendance, the cost of food and materials purchases
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 location as well as the quantity and mix between food and beverage items sold.
The quarterly and annual increase in cost of food service is positively correlated to the increase in food service
revenues recognized during the quarter and annual period as Cineplex’s theatre circuit and LBE businesses were
open and operating for the entire period, compared to closures or capacity restrictions that remained in effect for a
majority of the prior year periods. Theatre concession cost percentage for the fourth quarter decreased when
compared to the prior year period. The decrease is partly due to greater wastage from expired or damaged product in
the fourth quarter of 2021 resulting from operational disruptions in response to government restrictions. Theatre
concession cost percentage for the annual period increased when compared to the prior year period as a result of
food cost increases and sales mix, including a higher percentage of sales in VIP auditoriums which have lower
margins. LBE food cost percentage increased during both the fourth quarter and annual period when compared to the
prior year periods due to inflation on food costs from vendors.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
35
Cineplex Inc.
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
2022
2021
Change
2022
2021
Change
Depreciation of property, equipment and leaseholds
$
22,777 $
24,754
-8.0 % $
94,085 $ 102,277
Amortization of intangible assets and other
2,798
2,747
1.9 %
11,112
10,765
Sub-total - depreciation and amortization - other assets
$
25,575 $
27,501
-7.0 % $ 105,197 $ 113,042
Depreciation - right-of-use assets
Total depreciation and amortization
23,491
25,041
-6.2 %
95,517
102,247
$
49,066 $
52,542
-6.6 % $ 200,714 $ 215,289
-8.0 %
3.2 %
-6.9 %
-6.6 %
-6.8 %
Fourth Quarter and Full Year
Depreciation of property, equipment and leaseholds decreased by $2.0 million, or 8.0% during the quarter compared
to the prior year period, and by $8.2 million or 8.0% for the annual period compared to the prior year period. The
decrease was primarily due to fully depreciated property, equipment and leaseholds.
The quarterly and annual increase in amortization of intangible assets and other as compared to the prior year period
is due to software developments and additions.
Depreciation of right-of-use decreased by $1.6 million and $6.7 million during the quarter and annual period,
respectively. The decrease is primarily due to modifications to lease agreements as a result of COVID-19 which
reduced the corresponding right-of-use asset and related depreciation recognized.
Impairment of long-lived assets
The following table highlights the movement in impairment of long-lived assets during the quarter and the full year
(in thousands of dollars):
(Reversal) impairment of long-lived assets
Fourth Quarter
Full Year
2022
2021
Change
2022
2021
Change
(Reversal) impairment of property, equipment and
leaseholds, net
(Reversal) impairment of right-of-use assets
$
(10,204) $
(9,676)
943
2,774
NM $
(10,204) $
-448.8 %
(9,676)
943
2,774
NM
-448.8 %
(Reversal) impairment of long-lived assets
$
(19,880) $
3,717
-634.8 % $
(19,880) $
3,717
-634.8 %
Cineplex generally performs its annual test for impairment of goodwill and indefinite-lived intangible assets in the
fourth quarter, in accordance with the policy described in its annual consolidated financial statements. 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 triggering events and changes
in circumstances indicate that the carrying amount of the asset group may not be fully recoverable. In addition, for
assets other than goodwill and indefinite-lived intangible assets, indicators are assessed considering whether an
impairment loss previously recognized may no longer exist or may have decreased.
Fair value less cost to sell is determined using discounted cash flow models that incorporate significant key
assumptions relating to attendance and the related revenue growth rates, and discount rates. Further, other
assumptions are required pertaining to variable and fixed cash flows, and operating margins. Cineplex projects
revenue, operating margins and cash flows for a period of five years, and applies a perpetual long-term growth rate
thereafter.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
36
Cineplex Inc.
Management’s Discussion and Analysis
The attendance and revenue growth rates are derived from Cineplex’s Board approved budget which considers
projected attendance based on film releases, past experience, as well as economic, industry and market trends.
Discount rates applied to the groups of goodwill cash-generating units (“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 10.3% and 14.3% (2021 - between 8.0% and 13.6%), and perpetual
growth rates between 0.5% and 1.0% (2021 - between 0.5% and 1.0%), which are consistent with the observed long-
term average growth rates in the exhibition, amusement and leisure, and digital media industries. The higher
discount rates primarily reflect an increase in long-term risk-free rates. The impact of the increased discount rates on
Cineplex’s recoverable amounts were more than offset by the impact of higher cash flows over the forecasted
period.
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.
Based on Cineplex’s assessment of indicators of impairment for long-lived asset CGUs, two theatre location CGUs
were noted to have impairment indicators. Based on the results of the impairment tests for these CGUs, Cineplex
recognized non-cash impairment charges of $3.5 million to property, equipment and leaseholds and $0.4 million to
right-of-use assets for the year ended December 31, 2022.
Cineplex reviews previously impaired assets for indicators of impairment recovery at each balance sheet date.
During the current period, the renegotiation of a favourable rent arrangement at a location in its theatre operations
resulted in significantly higher cash flows, and the reversal of previously recognized impairment. The recovery of
the LBE portfolio has been significant, consistent with out-of-home dining and the amusement industry. As a result,
Cineplex has reversed previously recognized impairments. Based on the results, Cineplex recognized a reversal of
previously recognized impairment of $13.7 million to property, equipment and leaseholds and $10.1 million to right-
of-use assets for the year ended December 31, 2022.
Increasing concerns over the new highly transmissible Omicron COVID-19 variant and increased daily COVID-19
case counts led to shutdowns and restrictions in several provinces that materially affected operations representing a
triggering event requiring impairment testing for long-lived assets, indefinite-lived intangible assets and goodwill at
December 31, 2021. During the fourth quarter of 2021, government imposed restrictions were reinstituted in several
provinces reducing capacity limits to 50% and requiring temporary theatre closures in Quebec. Further government-
imposed restrictions were reinstated or modified subsequent to December 31, 2021 resulting in temporary theatre
closures in three additional provinces. Based on the results of the impairment tests, Cineplex recognized non-cash
impairment charges of $0.9 million to property, equipment and leaseholds and $2.8 million to right-of-use assets for
the year ended December 31, 2021.
At the end of each future reporting period Cineplex will assess whether there are indications that the impairment loss
recognized 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.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
37
Cineplex Inc.
Management’s Discussion and Analysis
(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
(Gain) loss on disposal of assets
Fourth Quarter and Full Year
Fourth Quarter
2022
$
(3,466) $
2021
1,576
Full Year
Change
2022
2021
Change
NM $
(57,807) $
(28,283)
104.4 %
The (gain) loss on disposal of assets recognized during the fourth quarter is primarily made up of a $3.8 million gain
recognized on the windup of Cineplex’s investment in CDCP which took place on December 16, 2022. The gain was
partially offset by nominal activity on the disposal of Cineplex’s assets.
The annual gain on disposal of assets is primarily due to the recognition of a $50.1 million gain related to the
reorganization of Scene LP as specific non-financial milestones were completed during the third quarter of 2022.
The prior year gain is primarily related to the sale of Cineplex’s head office buildings for gross proceeds of $57.0
million in the first quarter of 2021.
Other costs
Other costs include three main sub-categories of expenses: theatre occupancy expenses, which capture associated
occupancy costs for Cineplex’s theatre operations; other operating expenses, which include the costs related to
running Cineplex’s film entertainment and content, media, as well as amusement and leisure; and general and
administrative expenses, which includes 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
2022
2021
Change
2022
2021
Change
Theatre occupancy expenses
Other operating expenses
$
15,504 $
13,176
17.7 % $
62,378 $
40,945
155,930
129,023
20.9 %
560,898
339,313
General and administrative expenses
16,163
15,771
2.5 %
64,462
59,296
Total other costs
$ 187,597 $ 157,970
18.8 % $ 687,738 $ 439,554
52.3 %
65.3 %
8.7 %
56.5 %
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
38
Cineplex Inc.
Management’s Discussion and Analysis
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
2022
2021
Change
2022
2021
Change
Cash rent paid/payable (i)
Other occupancy
One-time items (ii)
$
37,168 $
32,415
14.7 % $ 147,797 $ 113,080
16,727
14,786
(1,543)
(863)
13.1 %
78.8 %
68,043
57,852
(3,839)
(4,690)
Total theatre occupancy including cash lease payments
$
52,352 $
46,338
13.0 % $ 212,001 $ 166,242
Cash rent paid/payable related to lease obligations (iii)
(36,848)
(33,162)
11.1 %
(149,623)
(125,297)
Theatre occupancy as reported
$
15,504 $
13,176
17.7 % $
62,378 $
40,945
30.7 %
17.6 %
-18.1 %
27.5 %
19.4 %
52.3 %
(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 including real estate taxes, business taxes and
common area maintenance. 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.
Theatre occupancy continuity
2021 as reported
Impact of new and acquired theatres
Impact of disposed theatres
Same store rent change (i)
One-time items
Decrease in subsidies
Other
Impact of IFRS 16:
Cash rent related to lease obligations
2022 as reported
Fourth Quarter
Occupancy
Full Year
Occupancy
$
13,176 $
170
(257)
3,769
(681)
1,590
1,424
40,945
1,038
934
23,681
850
16,728
2,528
$
(3,687)
15,504 $
(24,326)
62,378
(i) Represents a supplementary financial measure. See Section 17, Non-GAAP and other financial measures.
Fourth Quarter and Full Year
Theatre occupancy expenses increased $2.3 million or 17.7% during the fourth quarter of 2022 compared to the
prior year period. This increase was primarily due to the reduction in abatements and subsidies received as a result
of the reopening of Cineplex’s businesses. The increase was also attributable to higher theatre rent related expenses
including common area maintenance and taxes incurred as Cineplex’s theatres were open during the entire period.
During the prior year period, Cineplex recognized lower theatre occupancy expenses largely due to government
imposed capacity restrictions. Same-store rent increased $3.8 million primarily due to lower rent relief measures
negotiated with landlord partners which were $6.6 million higher in the prior year period.
For the year ended December 31, 2022, theatre occupancy expenses increased $21.4 million or 52.3% compared to
the prior year. This increase was primarily due to increased theatre rent related expenses, including common area
maintenance and taxes, as Cineplex’s theatres were permitted to operate during the entire period. During the prior
year period, Cineplex recognized lower theatre occupancy expenses as theatres were subject to capacity restrictions,
in some cases after months of extended closure periods. Same-store rent increased $23.7 million primarily due to
lower rent relief measures negotiated with landlord partners, which were $28.9 million higher in the prior year
period. Similarly, due to the reopening of Cineplex’s businesses, Cineplex received a lower amount of subsidy relief
when compared to the prior year period and recognized realty tax and rent subsidies of $7.2 million (2021 - $23.9
million).
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
39
Cineplex Inc.
Management’s Discussion and Analysis
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
2022
2021
Change
2022
2021
Change
Theatre payroll
Theatre operating expenses
Media
P1AG
LBE (i)
LBE pre-opening (ii)
SCENE
Marketing
Scene+ point issuance
$
35,928 $
30,766
16.8 % $ 126,311 $
63,818
28,779
15,153
34,837
18,964
—
10,578
3,315
4,347
27,146
13,146
27,853
12,692
—
8,641
5,211
—
6.0 %
106,037
15.3 %
50,301
25.1 %
138,210
49.4 %
65,362
66,188
37,263
91,573
31,331
22.4 %
36,277
-36.4 %
9,854
NM
16,920
29,019
10,710
—
NM
—
1,354
-100.0 %
97.9 %
60.2 %
35.0 %
50.9 %
108.6 %
25.0 %
-8.0 %
NM
20.4 %
62.7 %
8.8 %
65.3 %
Other (iii)
Other operating expenses including cash lease payments
9,201
7,605
$ 161,102 $ 133,060
21.0 %
24,676
29,709
21.1 % $ 578,981 $ 355,933
Cash rent paid/payable related to lease obligations (iv)
(5,172)
(4,037)
28.1 %
(18,083)
(16,620)
Total other operating expenses
$ 155,930 $ 129,023
20.9 % $ 560,898 $ 339,313
(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.
Other operating expenses continuity
2021 as reported
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
Scene+ point issuance change
Other
Impact of IFRS 16:
Cash rent related to lease obligations
2022 as reported
Fourth Quarter
Full Year
129,023 $
314
(438)
5,183
1,654
2,007
6,984
6,272
—
1,938
(1,897)
4,347
1,678
(1,135) $
155,930 $
339,313
2,769
(629)
61,053
39,315
13,038
46,637
34,031
(1,354)
7,258
(857)
16,920
4,868
(1,464)
560,898
$
$
(i) See Section 17, Non-GAAP and other financial measures. These are measures included as part of Cineplex’s supplementary financial
measure calculations.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
40
Cineplex Inc.
Management’s Discussion and Analysis
Fourth Quarter and Full Year
Other operating expenses increased $26.9 million or 20.9% during the fourth quarter of 2022 compared to the prior
year period. This increase is partly attributable to P1AG operating expenses of $34.8 million which increased by
$7.0 million compared to the prior year period as a result of increased sales. There were no government mandated
restrictions imposed during the fourth quarter, resulting in increased operating activities at P1AG US and Canadian
route locations at FEC’s and theatres. Similarly, LBE businesses operated without any government-imposed
restrictions, leading to a $6.3 million increase in LBE operating expenses compared to the prior year period.
Cineplex also recognized a $1.9 million increase in SCENE operating costs, and a $4.3 million increase in marketing
expenses relating to the presentation of the cost of issuance of Scene+ points. Cineplex recognized $8.9 million
payroll and other subsidies in the fourth quarter of 2021, and substantially none in the current quarter.
For the year ended December 31, 2022, the overall increase in other operating expenses from the prior year resulted
from operating without any government mandated restrictions at Cineplex’s theatres, LBE businesses and P1AG US
and Canada route locations at FEC’s and theatres as compared to the closure requirements and capacity restrictions
that remained in effect during the prior year period. The increase was primarily driven by increases in same theatre
payroll and theatre operating expenses of $61.1 million and $39.3 million, respectively, as Cineplex’s theatres
operated for the entire period without the government mandated restrictions and closures in the prior year. Similarly,
due to increased operating activities at P1AG US and Canadian route locations at FEC’s and theatres, Cineplex also
recognized P1AG operating expenses of $138.2 million, an increase of $46.6 million compared to the prior year.
LBE businesses operated without any government imposed restrictions, resulting in a $34.0 million increase in LBE
other operating expenses compared to the prior year. Cineplex also recognized a $7.3 million increase in SCENE
operating costs, and a $16.9 million increase in marketing expenses relating to the presentation of the cost of
issuance of Scene+ points. For the annual period, Cineplex received $22.1 million (2021 - $54.8 million) of
subsidies, comprised of $19.6 million (2021 - $48.4 million) of payroll subsidies of which $14.7 million (2021 -
$30.6 million) was offset against theatre payroll, and $2.4 million (2021 - $6.4 million) of non-theatre rent, realty
tax and utility subsidies.
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
2022
2021
Change
2022
2021
Change
G&A excluding the following items
$
14,874 $
12,597
18.1 % $
56,850 $
43,508
Restructuring
Transaction / Litigation costs
LTIP (i)
Option plan
128
857
566
321
133
2,275
800
523
-3.8 %
-62.3 %
-29.3 %
-38.6 %
1,939
3,592
2,834
1,563
731
11,395
4,065
1,903
G&A expenses including cash lease payments
$
16,746 $
16,328
2.6 % $
66,778 $
61,602
Cash rent paid/payable included as part of lease obligations
(ii)
(583)
(557)
4.7 %
(2,316)
(2,306)
G&A expenses as reported
$
16,163 $
15,771
2.5 % $
64,462 $
59,296
(i) LTIP includes the expense for RSUs and PSUs, as well as the expense for the executive and Board deferred share unit plans.
(ii) Cash rent paid/payable that has been reallocated to offset the lease obligations.
30.7 %
165.3 %
-68.5 %
-30.3 %
-17.9 %
8.4 %
0.4 %
8.7 %
Fourth Quarter and Full Year
G&A expenses increased $0.4 million during the fourth quarter of 2022 compared to the prior year period. Cineplex
recognized $0.8 million of labour subsidies in the fourth quarter of 2021, and an immaterial amount in the fourth
quarter of 2022. Cineplex incurred $0.9 million (2021 - $2.3 million) of expenses related to litigation and claims
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
41
Cineplex Inc.
Management’s Discussion and Analysis
recovery arising from the Cineworld Transaction during the quarter (Section 1.1, Cineworld Transaction and
Bankruptcy Filing).
G&A expenses for the annual period increased $5.2 million compared to the prior year. The change was primarily
due to a $4.5 million increase in payroll expenses and a $5.8 million decrease in labour subsidies received in the
current year as compared to the prior year period. Cineplex received $2.0 million of labour subsidies in 2022,
compared to $7.8 million received in 2021. Cineplex incurred annual costs relating to litigation and claims recovery
arising from the Cineworld Transaction of $3.6 million (2021 - $11.4 million) (Section 1.1, Cineworld Transaction
and Bankruptcy Filing)).
Share of loss (income) of joint ventures and associates
Cineplex’s joint ventures and associates include its 78.2% interest in CDCP up to December 16, 2022 (2021 -
78.2%), 33.3% interest in Scene+ (2021 - 50%), 50% interest in one IMAX screen in Ontario (2021 - 50%) and a
50% interest in YoYo’s (2021 - 50%). Cineplex’s investment in YoYo’s is carried at nil value.
The following table highlights the components of share of (income) loss of joint ventures and associates during the
quarter and the full year (in thousands of dollars):
Share of loss (income) of joint ventures and associates
Fourth Quarter
Full Year
2022
2021
Change
2022
2021
Change
Share of loss (income) of CDCP
Share of loss of Scene+
Share of (income) loss of other joint ventures and
associates
$
3 $
(2,439)
NM $
(489) $
2,254
794
183.9 %
3,095
(20)
(136)
-85.3 %
2
Total loss (income) of joint ventures and associates
$
2,237 $
(1,781)
NM $
2,608 $
(146)
794
234.9 %
289.8 %
107
755
-98.1 %
245.4 %
Fourth Quarter and Full Year
For the annual period, Cineplex recorded income from CDCP of $0.5 million. CDCP distributed its assets to its
partners during the fourth quarter of 2022, and Cineplex recognized a return of capital of $4.4 million under IAS 28,
Investments in Associates and Joint Ventures. Cineplex recorded a loss of $2.3 million and $3.1 million during the
quarter and full year, respectively, from Scene+.
Interest expense
The following table highlights the movement in interest expense during the quarter and the full year (in thousands of
dollars):
Interest expense
Interest expense on long-term debt
Lease interest expense (i)
Financing fees
Sub-total - cash interest expense
Fourth Quarter
Full Year
2022
2021
Change
2022
2021
Change
$
$
15,672 $
16,315
751
32,738 $
16,127
14,533
542
31,202
60,918
62,791 $
-2.8 % $
57,744
61,347
12.3 %
38.6 %
863
1,293
4.9 % $ 125,431 $ 119,525
Deferred financing fee accretion and other non-cash
interest, net
Accretion expense on Debentures and Notes Payable
Interest rate swap - non-cash
Sub-total - non-cash interest expense
Total interest expense
Total cash interest paid
(i) Represents total cash interest paid and accrued cash interest related to lease obligations.
172
4,845
(674)
4,343
37,081 $
32,698 $
148
4,164
(5,282)
(970)
30,232
42,379
$
$
16.2 %
16.4 %
-87.2 %
NM
960
632
15,973
18,677
(12,730)
(22,072)
4,203
(2,763)
22.7 % $ 122,668 $ 123,728
-22.8 % $ 127,807 $ 108,851
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
42
3.1 %
6.2 %
49.8 %
4.9 %
-34.2 %
16.9 %
73.4 %
NM
-0.9 %
17.4 %
Cineplex Inc.
Management’s Discussion and Analysis
Lease interest expense breakdown
Fourth Quarter
Full Year
Cash interest paid - lease obligation
Accrued cash interest - lease obligation
Total lease interest expense
Fourth Quarter and Full Year
2022
2021
Change
2022
2021
Change
$
16,091 $
14,581
10.4 % $
60,566 $
56,708
6.8 %
224
(48)
-566.7 %
781
1,036
-24.6 %
$
16,315 $
14,533
12.3 % $
61,347 $
57,744
6.2 %
Total interest expense increased $6.8 million for the quarter when compared to the prior year period. The increase
was caused by changes in the fair value of the interest rate swap resulting in a $4.6 million increase in non-cash
interest expense. Cash interest expense relating to the issuance of Notes Payable (Section 7.4, Long-term debt)
completed in the first quarter of 2021 and Debentures (Section 7.4, Long-term debt) during the third quarter of 2020,
resulted in Notes Payable cash interest expense of $4.7 million (2021 - $4.7 million) and Debentures cash interest of
$4.6 million (2021 - $4.6 million). Cineplex recognized accretion expense relating to the issuance of Notes Payable
and Debentures of $0.2 million (2021 - $0.2 million) and $4.6 million (2021 - $3.9 million), respectively.
For the year ended December 31, 2022, interest expense decreased $1.1 million compared to the prior year period.
The decrease was due to changes in the fair value of the interest rate swap resulting in a $9.3 million decrease in
non-cash interest expense. This was partially offset by a $3.0 million increase in cash interest expense primarily
relating to the issuance of Notes Payable (Section 7.4, Long-term debt) completed in the first quarter of 2021 and
Debentures (Section 7.4, Long-term debt) during the third quarter of 2020, resulting in a Notes Payable cash interest
expense of $18.8 million (2021 - $15.8 million) and a Debentures cash interest of $18.2 million (2021 - $18.2
million). Lease interest expense increased by $3.6 million when compared to the prior period as a result of higher
incremental borrowing rates due to lease modifications negotiated with landlord partners. Cineplex recognized an
accretion expense relating to the issuance of Notes Payable and Debentures of $1.1 million (2021 - $0.8 million) and
$17.6 million (2021 - $15.2 million), respectively.
Interest income
Interest income during the quarter and the full year was as follows (in thousands of dollars):
Interest income
Interest income
Foreign exchange
Fourth Quarter
Full Year
2022
2021
Change
2022
2021
Change
$
125 $
30
316.7 % $
277 $
232
19.4 %
The following table highlights the movement in foreign exchange during the quarter and the full year (in thousands
of dollars):
Foreign exchange
Foreign exchange loss (gain)
Fourth Quarter and Full Year
Fourth Quarter
2022
257 $
2021
(109)
Change
NM $
$
Full Year
2021
(43)
2022
(1,371) $
Change
NM
The movement in the foreign exchange during the quarter was due to the change in the CAD/USD foreign exchange
month end rate from 1.3707 at September 30, 2022 to 1.3544 at December 31, 2022.
For the year ended December 31, 2022, the movement in the foreign exchange was due to the increase in the CAD/
USD foreign exchange month end rate from 1.2678 at December 31, 2021 to 1.3544 at December 31, 2022.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
43
Cineplex Inc.
Management’s Discussion and Analysis
Change in fair value of financial instruments
The following table highlights the movement in change in fair value of financial instruments during the quarter and
the full year (in thousands of dollars):
Change in fair value of financial instruments
Fourth Quarter
Full Year
2022
2021
Change
2022
2021
Change
(Gain) loss on financial instruments recorded at fair value
$
(970) $
(5,420)
-82.1 % $
6,260 $
(8,790)
NM
Fourth Quarter and Full Year
For the year ended December 31, 2022, the loss on financial instruments recorded at fair value in the current period
was due to the revaluation of Cineplex’s call option relating to the Notes Payable that were issued in the first quarter
of 2021 (Section 7.4, Long-term debt).
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
Provision for income taxes
Fourth Quarter and Full Year
2022
1,921 $
2021
—
Change
100.0 % $
2022
1,197 $
2021
3,339
Change
-64.2 %
$
At December 31, 2020 the recoverability of the net deferred income tax assets in the normal course of business was
uncertain and accordingly the net deferred tax assets were derecognized. Cineplex will evaluate the likelihood of
recoverability in the ordinary course of business at each balance sheet date, and will recognize net deferred tax assets
when and if appropriate. Cineplex has not recognized any deferred tax assets and has not reversed any previously
derecognized deferred tax assets as at December 31, 2022.
The 2022 current tax provision is primarily due to higher taxable income in excess of available non-capital losses for
certain entities in the consolidated group. The 2021 current tax expense represents Ontario minimum tax paid on the
filings of 2020 tax returns as a result of losses carried back to offset taxable income. The minimum tax paid is
creditable against future Ontario income tax payable.
Cineplex’s combined statutory income tax rate at December 31, 2022 was 26.3% (2021 - 26.3%).
By Notice of Reassessment (“NOR”) dated January 22, 2019, the Canada Revenue Agency (“CRA”), disallowed the
deduction of $26.6 million of losses of AMC Ventures Inc. (“AMC”) that Cineplex had obtained on the acquisition
of AMC in 2012. The disallowance of the losses, which offset taxable income generated in 2014, increased taxes
and interest payable by approximately $8.6 million, 50% of which was required to be paid immediately (interest
continues to accrue on the unpaid amount). Cineplex disagrees with the CRA’s position, and has filed an appeal to
the Tax Court of Canada in respect of the NOR. On June 28, 2021, Cineplex received a response from the Attorney
General of Canada representing the CRA confirming its position with respect to the disallowance of the losses. The
appeal is currently proceeding through the pre-trial steps and Cineplex believes that it should prevail in defending its
original filing position, although no assurance can be given in this regard as the appeal process proceeds.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
44
Cineplex Inc.
Management’s Discussion and Analysis
Non-capital losses available for carry-forward expire as follows (in thousands of dollars):
2027
2028
2029
2030
2032
2034
2035
2036
2037
2038
2040
2041
2042
Indefinite
Losses denominated in US dollars are presented at the Canadian dollar equivalent using the
December 31, 2022 exchange rate.
$
$2,502
8,822
5,122
2,184
254
1,947
2,770
2,749
11,584
3,110
5,933
241,361
118,591
28,966
435,895
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
45
Cineplex Inc.
Management’s Discussion and Analysis
5.3 NET INCOME (LOSS), EBITDA AND ADJUSTED EBITDAaL (see Section 17, Non-GAAP and other
financial measures)
The following table presents net income (loss), EBITDA, adjusted EBITDA and adjusted EBITDAaL for the year
ended December 31, 2022 as compared to the prior year period (expressed in thousands of dollars, except adjusted
EBITDAaL margin):
NET INCOME (LOSS), EBITDA AND ADJUSTED
EBITDAaL
Fourth Quarter
Full Year
2022
2021
Change
2022
2021
Change
Net income (loss)
$ 10,168
$ (21,778)
NM $
113
$ (248,722)
Net income (loss) as a percentage of sales
2.9 %
(7.3) %
10.2 %
— %
(37.9) %
EBITDA
Adjusted EBITDA
Adjusted EBITDAaL
$ 98,111
$ 60,966
60.9 % $ 324,415
$ 93,402
$ 74,186
$ 58,328
27.2 % $ 251,694
$ 59,927
$ 31,197
$ 20,198
54.5 % $ 81,672
$ (84,295)
Adjusted EBITDAaL margin
8.9 %
6.7 %
2.2 %
6.4 %
(12.8) %
NM
37.9 %
247.3 %
320.0 %
NM
19.2 %
Fourth Quarter and Full Year
Net income and adjusted EBITDAaL for the fourth quarter of 2022 was $10.2 million and $31.2 million,
respectively, as compared to a net loss of $21.8 million and an adjusted EBITDAaL of $20.2 million, respectively,
in the prior year period. The removal of operating restrictions on Cineplex’s theatres and LBE venues across
Canada, along with greater available film product contributed to the movement in both net income (loss) and
adjusted EBITDAaL. Increases in amusement and food service revenues further contributed to the movement in net
income (loss) and adjusted EBITDAaL when compared to the prior year period. Cineplex also reversed previously
recognized non-cash impairments during the fourth quarter of 2022, contributing to the increase in net income (loss).
Net income and adjusted EBITDAaL for the year ended December 31, 2022 was $0.1 million and $81.7 million,
respectively, as compared to a net loss of $248.7 million and an adjusted EBITDAaL loss of $84.3 million,
respectively, in the prior year period. The movement in both net income (loss) and adjusted EBITDAaL was
primarily due to improved performance as a result of the removal of operating restrictions on Cineplex theatres and
LBE venues across Canada, compared to operating restrictions that remained in effect throughout the prior year
period.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
46
Cineplex Inc.
Management’s Discussion and Analysis
6. BALANCE SHEETS
The following sets out significant changes to Cineplex’s consolidated balance sheets during the year ended
December 31, 2022 as compared to December 31, 2021 (in thousands of dollars):
December 31, 2022
December 31, 2021
Change ($)
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
Non-current assets
Property, equipment and leaseholds
Right-of-use assets
Fair value of interest rate swap agreements
Interests in joint ventures
Intangible assets
Goodwill
Derivative financial instrument
Liabilities
Current liabilities
Accounts payable and accrued liabilities
Income taxes payable
Deferred revenue and other
Lease obligations
Fair value of interest rate swap agreements
Non-current liabilities
Share-based compensation
Long-term debt
Fair value of interest rate swap agreements
Lease obligations
Post-employment benefit obligations
Other liabilities
Shareholders’ deficit
Total shareholders’ deficit
$
34,674 $
107,088
2,033
36,916
15,659
8,993
205,363
449,495
772,978
2,426
650
80,428
636,134
2,980
26,938 $
80,679
1,984
24,899
13,365
—
147,865
464,439
768,675
—
7,423
81,651
635,545
9,240
$
$
2,150,454 $
2,114,838 $
195,296 $
157,950 $
3,736
220,527
96,093
—
515,652
3,752
824,888
—
1,004,546
6,970
6,460
1,945
293,206
101,058
8,063
562,222
4,940
739,211
6,160
1,004,465
9,973
7,590
2,362,268
2,334,561
$
(211,814)
2,150,454 $
(219,723)
2,114,838 $
7,736
26,409
49
12,017
2,294
8,993
57,498
(14,944)
4,303
2,426
(6,773)
(1,223)
589
(6,260)
35,616
37,346
1,791
(72,679)
(4,965)
(8,063)
(46,570)
(1,188)
85,677
(6,160)
81
(3,003)
(1,130)
27,707
7,909
35,616
28.7 %
32.7 %
2.5 %
48.3 %
17.2 %
NM
38.9 %
-3.2 %
0.6 %
NM
-91.2 %
-1.5 %
0.1 %
-67.7 %
1.7 %
23.6 %
92.1 %
-24.8 %
-4.9 %
-100.0 %
-8.3 %
-24.0 %
11.6 %
-100.0 %
— %
-30.1 %
-14.9 %
1.2 %
-3.6 %
1.7 %
Cash and cash equivalents. Cash and cash equivalents includes operations petty cash and outstanding deposits and
fluctuates with business activities.
Trade and other receivables. The increase in trade and other receivables is primarily due to timing of billing and
collection of trade receivable, particularity gift card resellers. December represents the highest volume month for gift
card and voucher sales.
Income taxes receivable. The increase in income taxes receivable is primarily due to exchange rates affecting
expected tax refunds resulting from loss carrybacks realized in 2021 to offset taxable income in prior years.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
47
Cineplex Inc.
Management’s Discussion and Analysis
Inventories. The increase in inventories is primarily due to higher amusement equipment related to distribution
sales as well as to higher business volumes resulting from the entire circuit of theatres and LBE venues operating at
full capacity without restrictions.
Prepaid expenses and other current assets. The increase in prepaid expenses and other current assets is primarily
due to technology service contracts extending into the next period.
Property, equipment and leaseholds. The decrease in property, equipment and leaseholds is due to amortization
expense ($94.1 million), asset dispositions ($0.6 million), and foreign exchange impact ($1.1 million). This was
offset by additions to new build and other capital expenditures ($43.6 million) and maintenance capital expenditures
($24.8 million). Cineplex recognized non-cash impairment charges of $3.5 million to property, equipment and
leaseholds and reversal of previously recognized impairments of $13.7 million.
Right-of-use assets. The increase in right-of-use assets is due to lease additions ($4.6 million), and lease extensions
and modifications ($85.4 million) and reversals of previously recognized impairments ($9.7 million), offset by
amortization expense ($95.5 million), asset dispositions ($0.1 million), and foreign exchange impact ($0.3 million).
Cineplex recognized non-cash impairment charges of $0.4 million to its right-of-use assets and reversal of
previously recognized impairments of $10.1 million.
Interests in joint ventures. The decrease in interest in joint ventures is primarily due to the windup of Cineplex’s
investment in CDCP during the fourth quarter of 2022 and $3.1 million loss realized from its investment in Scene
LP.
Intangible assets. The decrease in intangible assets is due to amortization expense ($11.1 million), partially offset
by the capitalization of software development costs ($9.8 million).
Derivative financial instrument. The decrease in derivative financial instrument is due to the change in fair value
of the Notes Payable prepayment option.
Accounts payable and accrued expenses. The increase in accounts payable and accrued liabilities is primarily due
to increased business volumes.
Share-based compensation. The decrease in share-based compensation is primarily due to the decrease in share
price, which was $8.05 per share at December 31, 2022 as compared to $13.61 at December 31, 2021 (see Section 9,
Share activity).
Income taxes payable. The increase in income taxes payable represents the liabilities for current income tax
expense relating to 2022 in excess of tax installments paid for certain taxable entities in the consolidated group.
Deferred revenue and other. The deferred revenue decrease is primarily due to the redemption of gift cards and
vouchers in excess of current period sales. In addition, as a result of the SCENE reorganization, Scene+ point
issuances are no longer proportionately consolidated as of December 2021. During the third quarter of 2022,
Cineplex recognized a gain of $50.1 million on the disposition of its 1/6th ownership interest in Scene+ with the
satisfaction of specific non-financial milestones related to the reorganization of Scene+.
Lease obligations. The increase in lease obligations is primarily due to additions and lease extensions and
modifications which was offset by the payment of lease obligations.
Fair value of interest rate swap agreements. Represents the fair values of Cineplex’s outstanding interest rate
swap agreements which have increased due to the increases in floating rates and expected rate yield curves (see
Section 7.4, Long-term debt).
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
48
Cineplex Inc.
Management’s Discussion and Analysis
Long-term debt. Long-term debt consists of the Credit Facilities, Debentures and Notes Payable. The increase in
long-term debt is primarily due to an increase in borrowings under the Credit Facilities and the accretion of the
Debentures and Notes Payable (Section 7.4, Long-term debt).
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, 2022 and 2021 (in thousands of dollars):
Cash flows provided by operating activities
Fourth Quarter
Full Year
2022
2021
Change
2022
2021
Change
Net income (loss) from operations
$
10,168 $
(21,778) $
31,946 $
113 $ (248,722) $ 248,835
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization of other assets (i)
Depreciation of right-of-use assets
Unrealized foreign exchange
25,575
23,491
204
27,501
25,041
78
Interest rate swap agreements - non-cash interest
(674)
(5,282)
Accretion of convertible debentures
Other non-cash interest (ii)
(Gain) loss on disposal of assets
Non-cash share-based compensation
(Reversal) impairment of long-lived assets
Change in fair value of financial instrument
Net change in interests in joint ventures and associates
Changes in operating assets and liabilities
4,845
172
(3,466)
1,267
(19,880)
(970)
2,983
15,907
4,164
148
1,576
1,228
3,717
(5,420)
(2,088)
(1,405)
(1,926)
105,197
(1,550)
95,517
113,042
102,247
(7,845)
(6,730)
(1,215)
(9,342)
2,704
(328)
(1,160)
55
(22,072)
(12,730)
18,677
15,973
632
960
(57,807)
6,382
(19,880)
6,260
1,394
(26,105)
(28,283)
4,292
3,717
(8,790)
1,805
117,438
(29,524)
2,090
(23,597)
15,050
(411)
(143,543)
126
4,608
681
24
(5,042)
39
(23,597)
4,450
5,071
17,312
Net cash provided by operating activities
$
59,622 $
27,480 $
32,142 $ 107,148 $
61,004 $
46,144
(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
Cash provided by operating activities during the fourth quarter of 2022 was $59.6 million as compared to $27.5
million in the prior year period. The movement was primarily due to improved operating results as Cineplex’s
theatres and LBE venues were operating at full capacity leading to improved operating results. Further contributing
to the movement was the increase in food service and amusement revenues, resulting in a quarterly record for
amusement revenues recognized.
Full Year
Cash provided by operating activities during the year ended December 31, 2022 was $107.1 million as compared to
$61.0 million in the prior year period. The increase was primarily due to significant increases in revenues from box
office and food service sales as a result of increased operations, compared to closures or operating restrictions that
remained in effect for a majority of the prior year comparative period, and working capital management in 2021,
including the extension of accounts payable and accrued liabilities and the receipt of approximately $65.7 million
income tax refunds in 2021.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
49
Cineplex Inc.
Management’s Discussion and Analysis
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, 2022 and 2021 (in thousands of dollars):
Cash flows (used in) provided by investing activities
Fourth Quarter
Full Year
2022
2021
Change
2022
2021
Change
Proceeds from disposal of assets, net
Purchases of property, equipment and leaseholds
Intangible assets additions
Tenant inducements
Net cash received from joint ventures and associates
$
21 $
(27,559)
(1,485)
7,063
62
68 $
(5,052)
(1,992)
1,044
1,995
(47) $
(22,507)
507
6,019
(1,933)
1,843 $
(64,317)
(9,904)
11,249
5,380
63,215 $
(23,627)
(9,200)
8,068
1,995
(61,372)
(40,690)
(704)
3,181
3,385
Net cash (used in) provided by investing activities
$
(21,898) $
(3,937) $
(17,961) $
(55,749) $
40,451 $
(96,200)
Fourth Quarter
Cash used in investing activities during the fourth quarter of 2022 was $21.9 million, as compared to $3.9 million in
the prior year period. The movement was primarily due to increased capital spend on previously committed projects.
Full Year
Cash used in investing activities during the year ended December 31, 2022 was $55.7 million as compared to cash
provided by investing activities of $40.5 million. The decrease was primarily due to increased capital spend on
previously committed projects and cash proceeds received in the prior year period from the sale of Cineplex’s head
office building.
Cineplex’s management continues to focus on managing capital expenditures and believes that it has adequate
liquidity to fund operations for the anticipated duration of the pandemic in the regions in which Cineplex operates.
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
2022
2021
Change
2022
2021
Change
27,559 $
(7,063)
20,496 $
5,052 $
(1,044)
4,008 $
22,507 $
(6,019)
16,488 $
64,317 $
(11,249)
53,068 $
23,627 $
(8,068)
15,559 $
40,690
(3,181)
37,509
8,678 $
(7,063)
406
3,103
2,481
12,734
157
20,496 $
2,525 $
(1,044)
2,647
399
6,153 $
(6,019)
(2,241)
2,704
25,557 $
(11,249)
3,694
6,417
13,110 $
(8,068)
4,238
258
12,447
(3,181)
(544)
6,159
445
5,335
(6,299)
4,008 $
2,036
7,399
6,456
16,488 $
3,448
24,811
390
53,068 $
1,133
6,937
(2,049)
15,559 $
2,315
17,874
2,439
37,509
$
$
$
$
(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.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
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Cineplex Inc.
Management’s Discussion and Analysis
7.3 FINANCING ACTIVITIES
The following table highlights the movements in cash from financing activities for the three months and year ended
December 31, 2022 and 2021 (in thousands of dollars):
Cash flows used in financing activities
Fourth Quarter
Full Year
2022
2021
Change
2022
2021
Change
(Repayments) borrowings under credit facility, net
Repayments of lease obligations - principal
Exercise of cash option
Issuance of notes payable, net
Financing fees
$
(5,000) $
(26,141)
1,000 $
(25,525)
—
—
(752)
—
—
(542)
(6,000)
(616)
—
—
(210)
67,000
(109,166)
113
—
(1,294)
(246,000) $ 313,000
(20,907)
(88,259)
113
(243,996)
(431)
—
243,996
(863)
Net cash used in financing activities
$
(31,893) $
(25,067) $
(6,826) $
(43,347) $
(91,126) $
47,779
Fourth Quarter
Cash flows used in financing activities were $31.9 million during the fourth quarter of 2022, as compared to $25.1
million in the prior year period. The movement was mainly due to greater repayments under the Credit Facilities and
lease obligations compared to the prior year period.
Full Year
Cash flows used in financing activities for the year ended December 31, 2022 were $43.3 million, as compared to
$91.1 million in the prior year period. The movement is due to increased borrowings under the Credit Facilities
which was offset by higher rent payments due to lower abatements received from landlords. In the prior year period,
financing activities mainly consisted of proceeds raised from Cineplex’s Notes Payable which were used to repay
the Credit Facilities ($100.0 million of which was a permanent repayment) and repayment of lease obligations.
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, COVID-19 business impacts, risks
and liquidity.
7.4 LONG-TERM DEBT
Credit facilities
Cineplex has bank facilities with a syndicate of lenders which includes a revolving facility (the “Revolving
Facility”) and non-revolving credit facility (the “Term Facility”, and together with the Revolving Facility, the
“Credit Facilities”) pursuant to a seventh amended and restated credit agreement dated November 13, 2018 between
Cineplex, Cineplex Entertainment Limited Partnership, the guarantors from time to time party thereto, and a
syndicate of lenders (as further amended from time to time, the “Credit Agreement”). The Term Facility was repaid
in full in the first quarter of 2021 and is no longer available for future borrowing.
At December 31, 2022, the Credit Facilities consisted of the following (in millions of dollars), subject to
amendments described below pursuant to the Credit Agreement Amendments described below:
Revolving Facility
Letters of credit outstanding at December 31, 2022 of $10.1 million are reserved against the Revolving Facility.
541.2 $
$
327.0 $
Available
Drawn
Reserved Remaining
204.1
10.1 $
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
51
Cineplex Inc.
Management’s Discussion and Analysis
The Credit Facilities bear interest at a floating rate based on the Canadian dollar prime rate, U.S. Base Rate, SOFR
(Secured Overnight Financing Rate) or bankers’ acceptances rates plus, in each case, an applicable margin to those
rates. The Revolving Facility matures in November 2024. Borrowings on the Revolving Facility can be made in
either Canadian or US dollars.
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. 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 Cash flows.
On June 29, 2020, Cineplex entered into the First Credit Agreement Amendment, following which, on November
12, 2020 Cineplex entered into the Second Credit Agreement Amendment, on February 8, 2021 Cineplex entered
into the Third Credit Agreement Amendment, on December 30, 2021 Cineplex entered into the Fourth Credit
Agreement Amendment, on August 10, 2022 Cineplex entered into the Fifth Credit Agreement Amendment, and on
December 22, 2022 Cineplex entered into the Sixth Credit Agreement Amendment. The amendments provided
certain financial covenant relief in light of the COVID-19 pandemic and its effects on Cineplex’s businesses, while
applying additional restrictive covenants and required repayments in certain circumstances.
On December 30, 2021, Cineplex entered into the Fourth Credit Agreement Amendment, which, among other
things, extended the suspension of financial covenant testing until the second quarter of 2022 and liquidity covenant
requirement until June 30, 2022. The following is a summary of the key terms of the Fourth Credit Agreement
Amendment that are updated from the First, Second and Third Credit Agreement Amendments (certain of which
have been modified further by the Fifth Credit Agreement Amendment and Sixth Credit Agreement Amendment
described below):
•
The suspension of financial covenant testing was extended until the second quarter of 2022. On
resumption of financial covenant testing in the second quarter of 2022:
•
•
•
for the second quarter of 2022, testing was based on an annualized calculation of
Adjusted EBITDA (as further adjusted in accordance with the Credit Agreement
definitions) based on the actual results for such quarter multiplied by 4;
for the quarter ending on September 30, 2022, testing will be based on an annualized
calculation of Adjusted EBITDA based on actual results for the second quarter of 2022
and the third quarter of 2022 multiplied by 2; and
for the quarter ending on December 31, 2022, testing will be based on an annualized
calculation of Adjusted EBITDA based on the actual results of the second quarter of
2022, the third quarter of 2022 and the fourth quarter of 2022 multiplied by 4/3.
Thereafter, testing will be based on an annualized calculation of the cumulative Adjusted EBITDA
on a trailing four fiscal quarter basis;
The Total Leverage Ratio of 3.75x will apply when financial covenants are reinstated, and will be
reduced quarterly by 0.25x until the first quarter of 2023 at which point it will reach a level of
3.00x;
The liquidity covenant will continue and be amended requiring available liquidity (as defined) to
be maintained at all times at no less than $100.0 million;
The Senior Leverage Ratio to be based on annualized Adjusted EBITDA and set at 1.0x lower
than the Total Leverage Ratio. Senior Leverage Ratio is defined as (i) Total Debt (as defined in the
Credit Agreement) less any Notes Payable to (ii) Adjusted EBITDA; and
From and after April 1, 2022, a fixed charge coverage ratio of greater than 1.25x will apply.
▪
▪
▪
▪
▪
On August 10, 2022 Cineplex entered into a fifth amending agreement to the Credit Agreement, (the “Fifth Credit
Agreement Amendment”), which among other things, extended the suspension of financial covenant testing until the
CINEPLEX INC. 2022 ANNUAL REPORT
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52
Cineplex Inc.
Management’s Discussion and Analysis
fourth quarter of 2022 and liquidity covenant requirement until March 2023. The following is a summary of the key
terms of the Fifth Credit Agreement Amendment:
•
The suspension of financial covenant testing was extended until the fourth quarter of 2022. On
resumption of financial covenant testing in the fourth quarter of 2022:
•
•
•
for the fourth quarter of 2022, testing was based on an annualized calculation of Adjusted
EBITDA (as further adjusted in accordance with the Credit Agreement definitions) based
on the actual results for the fourth quarter multiplied by 4;
for the quarter ending on March 31, 2023, testing will be based on an annualized
calculation of Adjusted EBITDA based on actual results for the fourth quarter of 2022
and the first quarter of 2023 multiplied by 2; and
for the quarter ending on June 30, 2023, testing will be based on an annualized
calculation of Adjusted EBITDA based on the actual results of the fourth quarter of 2022,
the first quarter of 2023 and the second quarter of 2023 multiplied by 4/3.
▪
▪
▪
▪
▪
Thereafter, testing will be based on an annualized calculation of the cumulative Adjusted EBITDA
on a trailing four fiscal quarter basis;
The Total Leverage Ratio of 3.75x will apply when financial covenants are reinstated, and will be
reduced quarterly by 0.25x until the third quarter of 2023 at which point it will reach a level of
3.00x;
The liquidity covenant will continue and be amended requiring available liquidity (as defined) to
be maintained at all times until March 31, 2023 at no less than $100.0 million;
The Senior Leverage Ratio to be based on annualized Adjusted EBITDA and set at 1.0x lower
than the Total Leverage Ratio. Senior Leverage Ratio is defined as (i) Total Debt (as defined in the
Credit Agreement) less any Notes Payable to (ii) Adjusted EBITDA; and
A fixed charge coverage ratio of greater than 1.25x will continue to apply.
On December 22, 2022 Cineplex entered into a sixth amending agreement to the Credit Agreement (the “Sixth
Credit Agreement Amendment”). The Sixth Credit Agreement Amendment extends the maturity date of the credit
facility from November 13, 2023 to November 13, 2024, amends the standard administrative provisions relating to
the potential replacement of benchmark rates, and makes certain other administrative amendments.
This summary of the Sixth Credit Agreement Amendment is qualified in its entirety by reference to the provisions of
the Credit Agreement which contains a complete statement of those terms and conditions.
The Credit Agreement and each of the First, Second, Third, Fourth, Fifth and Sixth Credit Agreement Amendment
were filed on SEDAR on June 30, 2020, November 13, 2020, February 8, 2021, January 4, 2022, August 10, 2022,
and December 22, 2022, respectively, for each of Credit Agreement Amendments.
During the first quarter of 2021, 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,
recognizing a gain of $30.1 million. Net proceeds from the sale, in addition to the net proceeds from the issuance of
the Notes Payable (discussed below) were used to repay the Credit Facilities, a portion of which was permanent. As
a result, Cineplex permanently repaid the remaining $50.0 million balance of its outstanding Term Facility.
Additional transactions focused on enhancing Cineplex’s liquidity included amendments to the Credit Facilities that
have provided Cineplex with financial covenant relief in light of the COVID-19 pandemic and its effects on
Cineplex’s businesses, and the issuance of Notes Payable for gross proceeds of $250.0 million. Cineplex used the
net proceeds from the issuance of the Notes Payable to permanently repay $50.0 million of its Revolving Facility
and $50.0 million of its Term Facility. Cineplex remains focused on exploring other measures to maintain adequate
liquidity for the duration of the pandemic and beyond.
CINEPLEX INC. 2022 ANNUAL REPORT
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Management’s Discussion and Analysis
One of the key financial covenants in the Credit Facilities is the Total Leverage Ratio which is 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 for the purposes of the Total Leverage
Ratio includes the Credit Facilities, financing leases and letters of credit but does not include Debentures, Notes
Payable, 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, excluded
subsidiaries and the annualized impact of new operating locations or acquisitions. As at December 31, 2022,
Cineplex’s Total Leverage Ratio was 3.69x, as compared to a covenant not to exceed 3.75x. Cineplex’s Senior
Leverage Ratio was 2.15x, as compared to a covenant not to exceed 2.75x. Cineplex’s fixed charge coverage ratio
was 1.29x, as compared to a minimum covenant requirement of 1.25x.
At December 31, 2022, Cineplex was subject to a margin of 3.00% (2021 - 3.00%) on the prime rate and 4.00%
(2021 - 4.00%) on the bankers’ acceptance rate, plus a 0.25% (2021 - 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 6.90% for
the year ended December 31, 2022 (2021 - 6.90%). 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,
2022 (2021 - 1.00%).
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, 2022:
Interest rate swap agreements
Notional amount
Inception date
Effective date
Maturity date
Fixed rate payable
Swap - 1
Swap - 2
Swap - 3
$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 13, 2025
2.945 %
2.830 %
2.898 %
The interest rate swaps are measured at fair market value at each reporting period with changes in fair market value
recorded in interest expense - other, in the consolidated statement of operations.
Despite the termination of the Arrangement Agreement, the swaps can only be re-designated on a prospective basis
for hedge accounting treatment.
Based on the Credit Agreement in effect at December 31, 2022 Cineplex’s effective cost of borrowing on the $450.0
million hedged borrowings was 6.904% (December 31, 2021 - $450.0 million hedged borrowings - 6.904%) before
considering rate mitigation through the above swaps. Cineplex will consider its interest rate exposure in conjunction
with its overall capital strategy.
Convertible debentures
On July 17, 2020, Cineplex issued $316.3 million aggregate principal amount of convertible unsecured subordinated
debentures (the “Debentures”), which mature 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 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 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
CINEPLEX INC. 2022 ANNUAL REPORT
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Management’s Discussion and Analysis
plus accrued and unpaid interest. Redemption may be in the form of 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. Conversion of outstanding Debentures will result in the issuance of shares from treasury.
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 Debentures. Cineplex recorded cash interest expense on the Debentures during the quarter and annual
period of $4.6 million (2021 - $4.6 million) and $18.2 million (2021 - $18.2 million), respectively. Furthermore,
Cineplex recorded accretion expense during the quarter and annual period of $4.6 million (2021 - $3.9 million) and
$17.6 million (2021 - $15.2 million), respectively, both of which are included as part of the interest expense in the
consolidated statement of operations. As at December 31, 2022, Cineplex has $316.3 million principal amount of
Debentures outstanding. The residual value was allocated to the equity component less the pro-rata portion of
transaction costs as prescribed by IFRS 9, Financial instruments and IAS 32, Financial instruments: Presentation.
The foregoing is a summary of the key terms of the Debentures. This summary is qualified in its entirety by
reference to the provisions of the Debentures trust indenture which contains a complete statement of those terms and
conditions. The Debenture trust indenture was filed on SEDAR on July 15, 2020.
Notes Payable
On February 26, 2021, Cineplex completed the $250.0 million Notes Payable offering. The Notes Payable mature on
February 26, 2026 and bear interest at a rate of 7.50% per annum, payable semi-annually in arrears on January 31
and July 31 of each year, commencing July 31, 2021. The Notes Payable are subordinate to the security granted for
the obligations under the Credit Facilities, and are subject to the terms of an intercreditor agreement with the agent
under the Credit Facilities.
Cineplex recorded cash interest expense on the Notes Payable during the quarter and annual period of $4.7 million
(2021 - $4.7 million) and $18.7 million (2021 - $15.8 million), respectively. Furthermore, Cineplex recorded
accretion expense during the quarter and annual period of $0.2 million (2021 $0.2 million) and $1.0 million (2021 -
$0.8 million), respectively, both of which are included as part of interest expense in the consolidated statement of
operations As at December 31, 2022, Cineplex has $250.0 million principal amount of Notes Payable outstanding.
Cineplex’s derivative financial instrument relates to the early prepayment option that fluctuates in value based on
market interest rates. The fair value of the embedded derivative was determined using an option pricing model with
observable market inputs and is consistent with accepted methods for valuing financial instruments. Cineplex has
estimated the fair value of this embedded derivative at $3.0 million as at December 31, 2022 (2021 - $9.2 million),
which is presented on the consolidated balance sheets as a derivative financial instrument.
The foregoing is a summary of the key terms of the Notes Payable. This summary is qualified in its entirety by
reference to the provisions of the Notes Payable trust indenture which contain a complete statement of those terms
and conditions. The Notes Payable trust indenture was filed on SEDAR on February 26, 2021.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
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Cineplex Inc.
Management’s Discussion and Analysis
7.5 FUTURE OBLIGATIONS
At December 31, 2022, 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
Accounts payable and accrued liabilities
$
Long-term debt
Interest on long-term debt
Equipment obligations
Deferred consideration - AMC
Convertible debentures
Convertible debentures interest
Notes payable
Notes payable interest
195,296
327,000
42,243
1,095
3,134
316,250
49,969
250,000
63,393
195,296
—
22,575
682
—
—
18,184
—
19,910
—
327,000
19,668
320
3,134
316,250
31,785
—
40,121
—
—
—
93
—
—
—
250,000
3,362
Total contractual obligations
$
1,236,961 $
256,647 $
738,278 $
253,455 $
The following table discloses the undiscounted cash flow for lease obligations as of December 31, 2022:
—
—
—
—
—
—
—
—
—
—
Less than one year
One to five years
More than five years
Total undiscounted lease obligations
$
$
170,438
640,795
705,012
1,516,245
Cineplex has aggregate gross capital commitments of $49.8 million ($41.4 million net of tenant inducements)
related to the completion of construction of four operating locations including both theatres and location-based
entertainment locations.
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 and believes that it has adequate liquidity to fund operations.
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.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
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Management’s Discussion and Analysis
8. ADJUSTED FREE CASH FLOW AND DIVIDENDS (see Section 17, Non-GAAP and other financial
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 stopped paying 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, the contractual restrictions imposed by the terms of its long-term debt agreements permit, and
liquidity has improved. 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 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 for the three months and year ended
December 31, 2022 and 2021 and measures relevant to the discussion of adjusted free cash flow per share
(expressed in thousands of dollars except shares outstanding):
Cash flows provided by operations
Net income (loss)
Standardized free cash flow (i)
Adjusted free cash flow (i)
$
$
$
$
Fourth Quarter
Full Year
2022
2021
Change
2022
2021
Change
59,622 $
27,480
117.0 % $ 107,148 $
61,004
75.6 %
10,168 $
(21,778)
NM $
113 $ (248,722)
32,084 $
22,495
42.6 % $
44,674 $
40,709
1,672 $
(1,032)
NM $
3,339 $ (151,517)
NM
9.7 %
NM
— %
NM
Average number of shares outstanding
63,366,796
63,343,223
— % 63,359,240
63,339,239
Adjusted free cash flow per share (i)
$
0.026 $
(0.016)
NM $
0.053 $
(2.392)
(i) Represents a non-GAAP financial measure. See Section 17, Non-GAAP and other financial measures.
Adjusted free cash flow per share for the fourth quarter of 2022 and full year period increased mainly due to
significantly improved operating results with the removal of COVID-19 restrictions on Cineplex’s theatres and LBE
businesses. During the current period, Cineplex’s businesses operated without any government mandated
restrictions, resulting in improved operating results across Cineplex’s business resulting in greater revenues and
improved net income (loss) when compared to the prior year.
8.2 DIVIDENDS
Cineplex has not paid any dividends after the dividend that was paid on February 28, 2020 and is currently restricted
from paying any dividends under the Credit Facilities.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
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Cineplex Inc.
Management’s Discussion and Analysis
9. SHARE ACTIVITY
Share capital balances at December 31, 2022 and 2021 and transactions during the periods are as follows: (expressed
in thousands of dollars except share amounts):
Balance - December 31, 2021
Issuance of shares on exercise of options
Issuance of shares on settlement of RSU/PSU units
Balance - December 31, 2022
Balance - December 31, 2020
Issuance of shares on exercise of options
Balance - December 31, 2021
Omnibus Incentive Plan
Shares
Number of common
shares issued and
outstanding
Common shares
63,344,298 $
852,465 $
20,009
11,093
196
36
Amount
Total
852,465
196
36
63,375,400 $
852,697 $
852,697
Shares
Number of common
shares issued and
outstanding
63,333,238 $
11,060
63,344,298 $
Common shares
852,379 $
86
852,465 $
Amount
Total
852,379
86
852,465
On November 12, 2020, the Board of Directors approved a new Omnibus Incentive Plan (the “Incentive Plan”). This
plan supersedes the former incentive plans (collectively, the “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 service period as determined by management at the time of
issuance. The aggregate number of Shares that may be issued under the Incentive Plan is 3,696,379 provided that no
more than 1,893,445 Shares may be issued in aggregate pursuant to the settlement of RSUs and PSUs. Options that
were issued under the Legacy Plan and are subsequently cancelled 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. 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, 2022, 1,605,373 Shares are available to be issued
under the Incentive Plan (2021 - 1,489,143).
Stock Options
Stock options issued under the Incentive Plan will be administered by the Board of Directors which 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 granted will be accounted for as equity-settled.
Cineplex recorded $1.6 million of employee benefits expense with respect to the options during the year ended
December 31, 2022 (2021 - $1.9 million). The intrinsic value of vested share options at December 31, 2022 is $nil
(2021 - $0.7 million), based on the closing Share price of $8.05 per share (2021 - $13.49). In the first quarter of
CINEPLEX INC. 2022 ANNUAL REPORT
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Management’s Discussion and Analysis
2021, 165,146 stock options issued under the Legacy Plan were cancelled for total consideration of $60 as part of a
voluntary stock option cancellation program that was initiated in the fourth quarter of 2020.
A summary of option activities for the year ended December 31, 2022 and 2021 is as follows:
2022
2021
Weighted
average
remaining
contractual life
(years)
7.44
Options outstanding - January 1
Granted
Cancelled
Forfeited
Exercised
Options outstanding – end of period
7.00
2,102,818 $
Weighted
average
exercise price
21.48
13.39
Number of
underlying
shares
2,198,805 $
223,578
—
(285,371)
(34,194)
—
35.75
8.25
18.90
Number of
underlying
shares
2,042,019
459,501
(188,303)
(87,049)
(27,363)
Weighted
average
exercise price
25.37
12.69
43.90
21.89
8.25
2,198,805 $
21.48
Upon cashless exercises, the options exercised in excess of Shares issued are cancelled and returned to the pool
available for future grants. At December 31, 2022, 608,738 options are available for grant (2021 - 532,760).
RSU and PSU awards
2022 LTIP awards granted in Q1 2022
2021 LTIP awards granted in Q2 2021
RSU
PSU share
equivalents
granted
177,973
167,546
RSU share
equivalents
granted
PSU share
equivalents
minimum payout
PSU share
equivalents
maximum payout
284,661
315,619
—
—
355,946
335,092
During the first quarter of 2022, Cineplex issued 284,661 equity settled RSUs with a fair value $13.39 per unit (total
fair value of $3,812 on issuance). The fair value was assessed based on Cineplex’s closing Share price on the grant
date. The RSU awards issued will vest in the fourth quarter of 2024.
A summary of RSU activities during the years ended December 31, 2022 and 2021 is as follows:
RSUs outstanding, January 1
Granted
Settled
Cancelled
RSUs outstanding, December 31
2022
536,374
284,661
(229,450)
(26,307)
565,278
2021
295,189
315,619
(44,014)
(30,420)
536,374
The RSUs associated with the 2020 LTIP were accounted for as equity-settled in 2022. The RSUs associated with
the 2019 LTIP were settled in 2021 for $0.6 million cash.
PSU
CINEPLEX INC. 2022 ANNUAL REPORT
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Cineplex Inc.
Management’s Discussion and Analysis
During the first quarter of 2022, Cineplex issued 177,973 equity settled PSUs with a fair value of $13.39 per unit
(total fair value of $2,383 on issuance). The fair value was assessed based on Cineplex’s closing Share price on the
grant date. The PSU awards issued will vest in the fourth quarter of 2024. Compensation expense is recorded based
on the number of units expected to vest, the current market price of Cineplex’s 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. Performance conditions are reflected in Cineplex’s estimate of the grant-date fair
value for equity instruments granted.
A summary of PSU activities during the years ended December 31, 2022 and 2021 is as follows:
PSUs outstanding, January 1
Granted
Settled
Cancelled
PSUs outstanding, December 31
2022
411,258
177,973
(232,773)
(24,926)
331,532
2021
333,908
167,546
(88,422)
(1,774)
411,258
The PSUs associated with the 2020 LTIP were accounted for as equity-settled in 2022 with a performance factor
resulting in 100,092 units settled. The PSUs associated with the 2019 LTIP were settled in 2021 for $0.1 million
cash.
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 to be nominal, based on historical
forfeiture rates. For the year ended December 31, 2022, Cineplex recognized compensation cost of $4.9 million
(2021 - $2.9 million) under the Incentive Plan relating to RSU and PSU. At December 31, 2022, $320 (2021 - $0.2
million) was included in current share-based compensation liability and $4.4 million in contributed surplus (2021 -
$2.8 million).
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, 2022, Cineplex recognized
compensation recovery of $(2.1) million (2021 expense - $1.2 million) associated with the deferred equity units. At
December 31, 2022, $3.4 million (2021 - $4.7 million) was included in share-based compensation liability.
CINEPLEX INC. 2022 ANNUAL REPORT
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Management’s Discussion and Analysis
10. SEASONALITY AND QUARTERLY RESULTS
Historically, Cineplex’s revenues have been seasonal, coinciding with the timing of major film releases as the most
marketable motion pictures were traditionally released during the summer and holiday seasons in Canada. This
caused changes from quarter to quarter in theatre attendance, affecting theatre exhibition and Cinema Media
revenues and operating cash flows. The seasonality of theatre attendance has become less pronounced as film
studios have trended to releasing content more evenly throughout the year, but the unexpected emergence of a hit
film can impact seasonality results. The timing, quantity, and quality of film releases can have a significant impact
on Cineplex’s results of operations, and the results of one period are not necessarily indicative of future results.
COVID-19 has also impacted the timing of major film releases due to unforeseen production delays related to
government imposed restrictions in different countries. Cineplex’s diversification into other businesses such as
digital media and amusement and leisure, which are not dependent on motion picture 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, which had $327.0 million drawn and
$204.1 million available as of December 31, 2022, subject to restrictions under the Credit Facilities including the
liquidity covenant described above (Section 7.4, Long-term debt). 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, Business impacts, risks and liquidity.
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Management’s Discussion and Analysis
Summary of Quarterly Results (in thousands of dollars except per share, per patron, theatre attendance and theatre
location and screen data, unless otherwise noted):
Revenues
Box office revenues
Food service revenues
Media revenues
Amusement revenues
Other revenues
Expenses and other income
Film cost
Cost of food service
2022
2021
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
$ 120,248
$ 124,700
$ 136,372
$ 79,952
$ 125,890
$ 94,114
$ 12,498
$ 3,818
97,168
105,193
110,637
68,388
87,244
79,971
13,258
44,553
25,224
26,406
15,545
32,795
14,060
9,401
6,525
9,074
60,847
69,607
65,723
50,424
45,096
53,319
22,184
13,874
27,308
15,113
10,740
14,414
8,926
8,916
7,585
8,121
350,124
339,837
349,878
228,723
299,951
250,380
64,926
41,412
63,567
66,356
69,958
39,016
61,990
45,838
22,671
24,839
25,335
14,857
21,042
16,362
5,611
2,867
1,235
1,412
Depreciation - right-of-use assets
23,491
23,277
24,486
24,263
25,041
25,151
25,737
26,318
Depreciation and amortization - other
25,575
26,079
26,651
26,892
27,501
28,297
27,735
29,509
(Gain) loss on disposal of assets
(3,466)
(49,848)
(4,650)
157
1,576
22
179
(30,060)
Other costs
187,597
185,048
176,741
138,352
157,970
139,527
73,352
68,705
(Reversal) impairment of long-lived
assets
(19,880)
—
—
—
3,717
—
—
—
299,555
275,751
318,521
243,537
298,837
255,197
135,481
97,119
Income (loss) before income taxes
$ 50,569
$ 64,086
$ 31,357
$ (14,814) $ 1,114
$ (4,817)
$ (70,555) $ (55,707)
Adjusted EBITDA (i)
$ 74,186
$ 63,094
$ 77,939
$ 36,475
$ 58,328
$ 48,606
$ (16,902) $ (30,105)
Adjusted EBITDAaL (i)
$ 31,197
$ 20,430
$ 35,764
$ (5,719)
$ 20,198
$ 10,762
$ (53,165) $ (62,090)
Net income (loss)
$ 10,168
$ 30,857
$ 1,313
$ (42,225) $ (21,778) $ (33,552) $ (103,704) $ (89,688)
EPS - basic
EPS - diluted
$ 0.16
$ 0.16
$
$
0.49
0.43
$
$
0.02
0.02
$
$
(0.67)
(0.67)
$
$
(0.34)
(0.34)
$
$
(0.53)
(0.53)
$
$
(1.64)
(1.64)
$
$
(1.42)
(1.42)
Cash provided by (used in) operating
activities
Cash (used in) provided by investing
activities
Cash (used in) provided by financing
activities
Effect of exchange rate differences on
cash
$ 59,622
$ 5,811
$ 47,152
$ (5,437)
$ 27,480
$ 52,023
$ 17,133
$ (35,632)
(21,898)
(14,523)
(8,132)
(11,196)
(3,937)
(2,374)
(1,761)
48,523
(31,893)
11,128
(36,349)
13,767
(25,067)
(50,191)
(6,086)
(9,782)
(11)
(146)
(181)
22
(9)
(189)
413
140
Net change in cash
$ 5,820
$ 2,270
$ 2,490
$ (2,844)
$ (1,533)
$
(731)
$ 9,699
$ 3,249
BPP (ii)
CPP (ii)
$ 13.06
$ 11.25
$ 12.29
$ 12.00
$ 12.29
$ 11.38
$ 10.89
$ 8.93
$
8.35
$
8.84
$
8.82
$
7.49
$
8.58
$
7.86
$
$
9.20
6.12
Film cost percentage (ii)
52.9 %
53.2 %
51.3 %
48.8 %
49.2 %
48.7 %
44.9 %
32.3 %
Theatre attendance (in thousands of
patrons) (ii)
9,208
11,084
11,092
6,661
10,245
Theatre locations (at period end)
Theatre screens (at period end)
158
1,637
158
1,637
159
1,640
159
1,640
160
1,652
8,272
161
1,656
1,148
160
1,651
415
161
1,657
(i) Represents a non-GAAP financial measure. See Section 17, Non-GAAP and other financial measures.
(ii) Represents a supplementary financial measure. See Section 17, Non-GAAP and other financial measures.
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Management’s Discussion and Analysis
Summary of adjusted free cash flow by quarter
Management calculates adjusted free cash flow per share as follows (see Section 17, Non-GAAP and other financial
measures, for a discussion of adjusted free cash flow) (in thousands of dollars except per share data and number of
shares outstanding):
2022
2021
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Cash provided by (used in) operating
activities
Less: Total capital expenditures net of
proceeds on sale of assets
$ 59,622 $
5,811 $ 47,152 $
(5,437) $ 27,480 $ 52,023 $ 17,133 $ (35,632)
(27,538)
(14,466)
(10,885)
(9,585)
(4,985)
(1,603)
(4,992)
(8,715)
Standardized free cash flow
32,084
(8,655)
36,267
(15,022)
22,495
50,420
12,141
(44,347)
Add/(Less):
Changes in operating assets and liabilities
(15,907)
25,815
1,120
15,077
1,405
(32,640)
(62,622)
(23,581)
Changes in operating assets and liabilities
of joint ventures
(746)
1,892
775
(707)
307
(31)
(524)
(802)
Principal component of lease obligations
(26,141)
(26,330)
(27,428)
(29,267)
(25,525)
(24,191)
(19,086)
(19,457)
Principal portion of cash rent paid not
pertaining to current period
(381)
(381)
(381)
Growth capital expenditures and other
14,804
9,727
6,078
1,143
7,054
(737)
(350)
Share of income of joint ventures, net of
non-cash depreciation
Net cash received from CDCP
(2,103)
(500)
62
—
95
5,318
(23)
—
(622)
1,995
—
736
(47)
—
(369)
4,511
1,106
8,461
2
—
(165)
—
Adjusted free cash flow (i)
$
1,672 $
1,568 $ 21,844 $ (21,745) $
(1,032) $
(5,753) $ (65,947) $ (78,785)
Average number of shares outstanding
63,366,796 63,362,713 63,360,746 63,346,444 63,343,223 63,342,557 63,339,618 63,334,317
Adjusted free cash flow per share (ii)
$
0.026 $
0.025 $
0.345 $
(0.343) $
(0.016) $
(0.091) $
(1.041) $
(1.244)
(i) Represents a non-GAAP financial measure. See Section 17, Non-GAAP and other financial measures.
(ii) Represents a non-GAAP ratio. See Section 17, Non-GAAP and other financial measures.
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.
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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Goodwill and long lived assets - recoverable amount
Cineplex tests at least annually whether goodwill suffered any impairment. 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 triggering events and changes in circumstances indicate
that the carrying amount of the asset group may not be fully recoverable. Management makes assumptions and
estimates in determining the recoverable amount of its long lived assets and groups of CGUs’ goodwill, including
significant key assumptions relating to attendance and the related revenue growth rates and discount rates. Further,
other assumptions are required pertaining to variable and fixed cash flows, and operating margins. (See note 11,
Impairment of long-lived assets in Cineplex’s consolidated annual financial statements).
At the end of each future reporting period Cineplex will assess whether there are indications that the impairment loss
recognized 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.
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. Cineplex also has a prepayment option on the
Notes Payable. The fair market value of prepayment option on Notes Payable was determined using an option
pricing model with observable market inputs consistent with accepted methods for valuing financial instruments.
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.
Revenue recognition - Scene+
The timing and number of points redeemed by Scene+ members affects the timing and amount of both revenue and
cost of redemptions recognized by Cineplex. If the number of points actually redeemed by members is lower than
Cineplex’s estimate of points expected to be redeemed, the estimate of average revenue per point will be
prospectively revised, and net income would be higher over time.
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 will assess
the recoverability of deferred tax assets as economic conditions improve. There are material uncertainties relating to
the recoverability of losses incurred in the current and prior years. Accordingly, no deferred tax assets were
recognized in the current period. 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 tangible and intangible assets and liabilities of the acquired
businesses, as well as determining their fair values.
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Management’s Discussion and Analysis
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.
13. ACCOUNTING POLICIES
Basis of preparation and measurement
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:
IAS 12, Deferred taxes related to assets and liabilities arising from a single transaction
In May 2021, the IASB issued deferred tax related to assets and liabilities arising from a single transaction. The
amendments narrowed the scope of the recognition exemption in paragraphs 15 and 24 of IAS 12 (recognition
exemption) so that it no longer applies to transactions that, on initial recognition, give rise to equal taxable and
deductible temporary differences. The amendments are effective for annual reporting periods beginning on or after
January 1, 2023, with earlier application permitted. Cineplex has not applied the accounting pronouncement issued.
IAS 1, Classification of liabilities as current or non-current
In December 2020 the IASB issued classification of liabilities as current or non-current (2020 amendments). The
2020 amendments clarified aspects of how entities classify liabilities as current or non-current. The amendments are
effective for annual reporting periods beginning on or after January 1, 2023, with earlier application permitted.
Cineplex has not applied the accounting pronouncement issued.
IAS 8, Definition of accounting estimates
In February 2021, the IASB issued definition of accounting estimates, which amended IAS 8, Accounting Policies,
Changes in Accounting Estimates and Errors. The amendments introduced the definition of accounting estimates
and included other amendments to IAS 8 to help entities distinguish changes in accounting estimates from changes
in accounting policies. The amendments are effective for annual reporting periods beginning on or after January 1,
2023, with earlier application permitted. Cineplex has not applied the accounting pronouncement issued.
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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, and is reported to the Board. The enterprise risk management
framework sets out principles and tools for identifying, evaluating, prioritizing and managing risk effectively and
consistently across Cineplex. On an annual basis, all members of senior management participate in a detailed review
of enterprise risk in four major categories: environment risks, process risks, information risks and business unit
risks. The results of such analysis are presented to the Audit Committee for their review and then reviewed with the
whole of the Board. 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 was provided by Canadian public health authorities and applicable government authorities.
Although restrictions on social gatherings were temporarily lifted in many of the markets in which Cineplex
operated over the summer and into the fall of 2020, social gathering restrictions were reinstituted in the late fall and
winter with the increased number of COVID-19 cases and the onset of a third wave in the latter half of the first
quarter of 2021, involving more transmissible variants. As of July 17, 2021, Cineplex had reopened its entire circuit
of theatres after months of extended closure periods, subject to capacity limitations. The reopening included
Cineplex’s then 161 theatre locations, encompassing 1,656 screens across Canada including 18 VIP Cinemas
locations. However, during the fourth quarter of 2021, capacity restrictions were reinstated in Ontario, Cineplex’s
largest market, limiting indoor capacity to 50% along with prohibiting the consumption of concessions in theatres
effective December 18, 2021. Theatres in Quebec were also mandated to temporarily close effective December 20,
2021. During the beginning of the first quarter of 2022, social gathering restrictions were further modified or
reinstituted in several key markets that Cineplex operates, resulting in theatre closures and prohibiting indoor dining
in Ontario, Newfoundland and New Brunswick. Effective January 29, 2022, January 31, 2022 and February 7, 2022,
theatres in New Brunswick, Ontario and Quebec were permitted to reopen at reduced capacity levels, respectively.
During the second quarter of 2022, all remaining operating restrictions were removed. The potential of future
government imposed mandatory closure requirements or restrictions will negatively impact Cineplex’s business
operations and delay Cineplex’s return to historical profitability levels.
Additional significant impacts on Cineplex’s business caused by the COVID-19 pandemic may include, among
others:
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•
•
•
•
•
•
•
•
•
•
lack of availability of films in the short or long-term, including as a result of (i) potential delays 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 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;
unavailability of employees and/or their inability or unwillingness to conduct work;
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 further 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, critical maintenance capital expenditures and
compensation and benefits payments);
Cineplex’s inability to service its existing and future indebtedness;
decreased attendance at Cineplex’s theatres and LBE locations after they reopen, including due to (i)
continued health and safety concerns or (ii) a change in consumer behaviour in favour of alternative forms
of entertainment; and
reduction of government support programs as the government phases out COVID-19 support measures.
The COVID-19 pandemic, including future outbreaks may continue to negatively impact Cineplex’s business,
financial conditions and results of operations. 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. If Canada experiences new outbreaks of COVID-19 or variants thereof, governmental officials may order new
closures, impose 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.
If there are further shutdowns, 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. 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. The events and circumstances resulting
from the COVID-19 and any future pandemics could have a material negative impact on its business, financial
condition and results of operations.
Litigation Arising Out of the Cineworld Transaction and Bankruptcy
Cineplex commenced an action against Cineworld as a result of Cineworld’s repudiation of the Arrangement
Agreement. Cineworld 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 (Section 1.1, Cineworld Transaction and
Bankruptcy Filing).
On December 14, 2021, the Court released its Decision. The Court held that Cineplex did not breach any of its
covenants in the Arrangement Agreement, and that Cineworld had no basis for terminating the Arrangement
Agreement. The Court held that Cineworld breached the Arrangement Agreement and repudiated the transaction to
acquire Cineplex, which actions precluded Cineplex from seeking specific performance and entitled Cineplex to
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monetary damages. The Court awarded damages for breach of contract to Cineplex in the amount of $1.24 billion on
account of lost synergies, and $5.5 million for transaction costs, exclusive of pre-judgment interest. The Court also
held that Cineplex’s shareholders did not have any rights under the Arrangement Agreement to enforce the
agreement or sue Cineworld for any breach. The Court also denied Cineworld’s counterclaim against Cineplex.
On January 12, 2022, Cineworld filed a Notice of Appeal with the Court of Appeal for Ontario and on January 27,
2022, Cineplex filed its Appeal. The Appeal was originally scheduled to be heard on October 12 and 13, 2022. On
September 7, 2022, the Cineworld Parties filed a petition, in the U.S. Bankruptcy Court, commencing bankruptcy
proceedings under Chapter 11. On September 8, 2022, the U.S. Bankruptcy Court granted relief requested by the
Cineworld Parties in the Chapter 11 proceedings, including an order confirming and enforcing a worldwide stay of
all enforcement proceedings by Cineworld’s creditors. Cineworld took the position that the Appeal was therefore
stayed. On September 9, 2022, Cineplex filed an emergency motion with the U.S. Bankruptcy Court, seeking to lift
the stay with respect to the Appeal. Cineplex’s emergency motion was heard on September 28, 2022, at which time
the U.S. Bankruptcy Court declined Cineplex’s requested relief, without prejudice to Cineplex’s ability to seek such
relief at a later date. On September 30, 2022, on consent of counsel for Cineplex and Cineworld, the Court of Appeal
for Ontario adjourned the Appeal on a sine die basis. Accordingly, the hearing of the Appeal has been delayed.
Cineplex continues to evaluate and advance all options to maximize and monetize the value of the Judgment. As part
of these ongoing efforts, Cineplex has engaged Moelis & Company, a leading global investment bank with
significant expertise in these areas, as financial advisors, and Goodmans LLP, as lead counsel. Cineplex has also
been appointed as a member of the unsecured creditors’ committee in the Cineworld Parties’ Chapter 11
proceedings.
While the Judgment and next steps are a key focus for Cineplex and its advisors, due to uncertainties inherent in
appeals and Cineworld’s insolvency proceedings, it is not possible for Cineplex to predict the timing or final
outcome of the Appeal. Further, even if the Appeal by Cineworld is not successful, Cineplex’s claim pursuant to the
Judgment is an unsecured claim and Cineworld has a significant amount of secured claims which rank in priority to
unsecured claims. Accordingly, Cineworld may not have the ability to pay all or any of the amount of any damages
or costs awarded by the Court. Therefore, no amount has been accrued as a receivable.
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.
Business Continuity Risk
Cineplex’s primary sources of revenues are derived from providing an out of home entertainment experience.
Business results could be significantly impacted by a terrorist threat, severe weather incidents, and have been by 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.
There is a risk that locations may 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, or at all, and meet its short and long-term
obligations.
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Management’s Discussion and Analysis
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. However, the COVID-19 pandemic has
created supply shortages and imbalances in the supply and demand of certain products causing commodity prices to
increase, escalating the risk of inflation to which consumers will be exposed. Significant price increases may deter
consumer spending on entertainment options to other alternatives which will negatively impact Cineplex’s business
operations. 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 CineClub membership, providing members with benefits accessible across
Cineplex’s businesses nationwide including Cineplex theatres, the Cineplex Store and LBE venues. Cineplex also
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 that customers may not be satisfied with the
offering or any change in offerings. 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 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 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.
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 in-home and on-the-go entertainment
offerings. Certain components of 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
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.
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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 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, reductions to the
exclusive theatrical release window, introduction of PVOD and redirection of a limited number of theatrical releases
to streaming services. Certain film studios have also launched their own streaming services resulting in a change in
release strategies.
Cineplex’s box office revenues depend upon movie production and its relationships with film distributors, including
a number of major Hollywood and Canadian distributors. In 2022, five major film distributors accounted for
approximately 88% 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, internet 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, show-times 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 increases in construction and real estate costs could 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 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, Junxion concept 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 and a reduction of advertising spending due to adverse economic conditions. This could result
in media customers electing to reduce their spending in cinemas and advertise through alternative channels.
Cineplex’s media advertising arrangements are impacted by theatre attendance levels which drive impressions and
ultimately impact media revenue generated by Cineplex.
Amusement and Leisure 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 inability to compete favourably in these markets could have a material adverse
effect on Cineplex’s business, results of operations and financial condition.
Any new Cineplex location-based entertainment locations may not meet or exceed the performance of its existing
locations or its performance targets. New locations may even operate at a loss, which could have a significant
adverse effect on the 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 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 generally 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.
Any future outbreaks of the COVID-19 pandemic or variants thereof could lead to a decrease in guests and corporate
events frequenting LBE locations. 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 sentiment
due to adverse economic conditions could have an adverse effect on Cineplex’s business, financial conditional and
results of operations.
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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 customer traffic in venues in which it
operates. The COVID-19 pandemic in North America resulted in extended closure periods of venues in which P1AG
operates gaming equipment which materially impacted its results of operations. Any reduction in traffic or
permanent shutdown of venues could have a material impact on its 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
entertainment 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 and PVOD 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 technology partners cease operations or have its technology platform rendered obsolete, Cineplex’s sales
of TVOD products could be jeopardized. Changes in release window for home entertainment product and film
product being made available to streaming platforms have reduced content available for TVOD platforms.
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.
Cyber Security and Information Management Risk
Cineplex needs 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. Cineplex is continually upgrading systems and infrastructure and implementing best practices to
meet business needs.
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.
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At select times during the normal course of business, Cineplex and its joint venture partners including Scene+, store
sensitive data, including intellectual property, point balances and gift card and certificate balances, proprietary
business information including data with respect to suppliers, employees and business partners, as well as some
personally identifiable information of their customers and employees. Further, Cineplex regularly works with third
party suppliers in the delivery of services to its 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 to safeguard non-financial data.
Cineplex recognizes that security breaches of the information systems of Cineplex, its joint venture partners
including Scene+, or any one of its third-party suppliers could compromise this information and expose Cineplex to
liability, which could cause its businesses or reputation 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 these risks, Cineplex has a team of
technology and cybersecurity professionals whose role is to monitor information technology and processes and
collaborate with joint venture partners and third-party suppliers to ensure appropriate security and controls are in
place. Cineplex continues to place an increased focus on its cybersecurity environment through analysis of internal
and external threats and alerting of suspicious incidents to its technology environment. Currently, as the majority of
Cineplex’s corporate employees have moved to a hybrid work place model, 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.
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 favourable 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. The negative economic
impact of the COVID-19 pandemic magnifies inflationary risks and consequently impacts Cineplex’s capital
expenditures to generate future economic benefits. The inflationary risks increases the costs to execute planned
capital investments and the timing of investments which will delay Cineplex’s return to profitability. 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 or renovating existing 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 property maintenance, 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
and/or capital contributions towards upgrades 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.
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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
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 a negative impact on Cineplex’s suppliers, and as a result, its
suppliers may not be able to sustain operations after the pandemic or be forced to increase costs to combat
inflationary risks associated with input materials. The COVID-19 pandemic has caused supply chain disruptions
across the globe substantially increasing production and transportation costs as well as delaying and curtailing the
production of products potentially effecting the procurement of services that are impacted by the delays. A reduction
in the number of suppliers, the loss of critical suppliers, or delays in supplier production may result in increased
costs or the inability to find satisfactory replacement goods and services in the short or long-term which will
negatively impact Cineplex’s operating margins and cash flows.
Human Resources Risk
Cineplex’s success 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 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 over 12,200 people, of whom approximately 81% are hourly workers
whose compensation is based on the prevailing provincial minimum wages with incremental adjustments as required
to match market conditions. Wage inflation and any increase in minimum wages will have an adverse effect on
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 and British Columbia.
Because of the small percentage of employees represented by unions, the impact of labour disruption nationally is
low.
There is a risk due to labour supply shortages that Cineplex may not be able to hire enough staff to maintain current
levels of operations.
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
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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.
There is a risk that concerns over health and safety as a result of COVID-19 will be long lasting and will have an
adverse impact on Cineplex’s business. In order to help mitigate these risks, Cineplex has made changes to its
operations including promoting cashless transactions where possible and by cleaning and disinfecting surfaces on a
regular basis.
Environment/Sustainability Risk
Cineplex’s approach to environmental, social and governance factors (“ESG”) has its foundation in three key pillars:
Good Governance, Environmental Sustainability and Business & Social Responsibility. Cineplex’s ESG practices
permit positive social, cultural and environmental changes at the national and local levels, benefiting Cineplex’s
employees, guests, partners and drives and creates value for shareholders.
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.
Financial and Markets Risk
Cineplex requires efficient access to capital in order to fund growth, execute strategies and generate future financial
returns. For this reason Cineplex entered into the Revolving Facility. Cineplex hedges interest rates up to $450.0
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 in November 2024, there is a risk that Cineplex may not be able to renegotiate
under favourable terms in the then current economic environment. Upon maturity of the Debentures and Notes
Payable, Cineplex may have insufficient liquidity to repay the principal balance owing, impacting its ability to
obtain additional funding at favourable terms.
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 represented
10.4% of Cineplex’s revenues in 2022. 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, Long-term debt. Cineplex will consider its
interest rate exposure in conjunction with its overall capital strategy.
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Cineplex is exposed to the risk of refinancing its debt obligations at higher interest rates, negatively impacting its
future cash flows.
Inflation Risk
The largest expenses either vary in relation to revenues, such as film cost, or are contractually fixed for set periods,
such as lease payments of interest and principal. The remainder of Cineplex’s fixed and variable operating costs are
exposed to inflation risk. Cineplex also considers the prices of its products and services in response to market
conditions including inflation and competition to provide fair pricing to its customers.
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.
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 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
Cineplex’s management 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, 2022 and has concluded that such disclosure controls and procedures are effective.
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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, 2022, 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.
16. 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.
FILM ENTERTAINMENT AND CONTENT
Theatre Exhibition
Although box office was negatively impacted by winter weather systems and storms across Canada during the key
holiday period, Cineplex reported an increase of $225.0 million to $461.3 million in annual box office revenue as
compared to the prior year. The fourth quarter of 2022 experienced strong box office results with the release of
Black Panther: Wakanda Forever generating $181.3 million during its North American opening weekend and
earning $436.5 million in North America since its release up to December 31, 2022. The highly anticipated Avatar:
The Way of Water, which is the sequel to the highest grossing film of all time, was released late in the fourth quarter
and generated $134.1 million during its North American opening weekend and earning $401.0 million in North
America and $1.5 billion globally since its release up to December 31, 2022. Avatar: The Way of Water continues to
perform strongly, becoming the fourth highest worldwide grossing movie of all time since its release. Lastly, Top
Gun: Maverick, continued its success into the fourth quarter and since its release, became one of only six films to
exceed $700 million in North America and the fifth largest domestic film of all-time, earning $1.5 billion globally
up to December 31, 2022. Looking forward to 2023, there is a strong slate of films scheduled for release including
M3GAN, Ant-Man and the Wasp: Quantumania, Cocaine Bear, Creed III, Scream 6, Shazam! Fury of the Gods,
John Wick: Chapter 4, The Super Mario Bros. Movie, Evil Dead Rise, Guardians of the Galaxy Vol. 3, Fast X, The
Little Mermaid, Spider-Man: Across the Spider-Verse, Transformers: Rise of the Beasts, The Flash, Elemental,
Indiana Jones and the Dial of Destiny, Mission: Impossible - Dead Reckoning - Part One, Barbie, Oppenheimer,
The Marvels, Teenage Mutant Ninja Turtles: Mutant Mayhem, Gran Turismo, Haunted Mansion, The Equalizer 3,
The Nun 2, Kraven the Hunter, Dune: Part Two, The Hunger Games: The Ballad of Songbirds and Snakes, Wish,
Wonka and Aquaman and the Lost Kingdom.
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Cineplex continues to focus on providing guests with a variety of premium viewing options through which to enjoy
the theatre experience. These premium-priced offerings, which include UltraAVX, VIP Cinemas, IMAX, D-BOX,
3D, 4DX, Cineplex Clubhouse and ScreenX generate higher revenues per patron and expand the customer base.
Cineplex believes that these premium formats provide an enhanced guest experience and will continue to charge a
ticket price premium for films and events presented in these formats. Cineplex offers CineClub membership,
providing members with benefits accessible across Cineplex’s businesses nationwide including Cineplex theatres,
the Cineplex Store and LBE venues.
Cineplex is also focused on providing guests with a variety of premium viewing options, including recliner seating,
through which to enjoy the theatre experience, and will continue to expand premium viewing options throughout its
circuit in 2023 and beyond. VIP Cinemas and other premium viewing options are a key component to Cineplex’s
theatre exhibition strategy, and have been well received by audiences.
Cineplex opened its first-ever Junxion location at Cineplex Junxion Kildonan in Winnipeg, Manitoba on December
9, 2022. Cineplex Junxion is a new entertainment concept which features a cinema with reclining seats, an open
lobby and stage for events and performances, amusement gaming and a expanded food offerings.
Cineplex will open its second Junxion location at the Erin Mills Town Centre in Mississauga, Ontario scheduled to
open during the second quarter of 2023. Cineplex plans to open a new Cineplex Cinema, Royalmount in Montreal,
Quebec which is expected to open in 2024.
Based on how the exhibition industry has historically performed during depressed economic environments, Cineplex
believes, but cannot guarantee, that the industry will continue to 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. The reopening of theatres and easing of restrictions has resulted in increases in box office revenues.
Cineplex remains confident that the slate of upcoming film releases for the year ahead, coupled with return to
movie-going will result in strong box office performance. The latter half of the third and the fourth quarters were
impacted by delays in film releases due to COVID-19 related production delays and these delays that could continue
into 2023.
Month
January
February
March
April
May
June
July
August
September
October
November
December
2019 Box office (i)
2022 Box office (i)
2022 as a percentage of 2019
$52,034
$41,892
$62,571
$63,759
$68,698
$56,914
$76,935
$56,537
$44,393
$54,528
$52,314
$74,946
$11,220
$25,054
$43,678
$35,994
$49,546
$50,832
$65,618
$36,060
$23,022
$33,907
$37,981
$48,360
22%
60%
70%
56%
72%
89%
85%
64%
52%
62%
73%
65%
(i) Amounts are in thousands of dollars.
Cineplex’s business could continue to be significantly negatively impacted by changes in consumer behaviors as a
result of further revisions to the theatrical release window. Further, the effects of global inflation and rising interest
rates on financial markets could significantly impact the ability to raise capital and increase the cost of borrowing.
There are limitations on Cineplex’s ability to mitigate the adverse financial impact of the foregoing.
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Theatre Food Service
Cineplex’s core focus is on operational execution, promotions and providing the optimal product mix to provide
further growth in this area. As part of this strategy, Cineplex continues to expand its product offering through its in-
house brands across the circuit, as well as leveraging digital menu board technologies which provide guests with
more interactive messaging during visits to the theatre food service locations, and expanding VIP cinema menu
offerings. Cineplex also leverages mobile technology to enhance the food service experience in its theatres and has
VIP in seat ordering, with plans to expand to traditional theatres in 2023. Cineplex continues to expand its home
delivery services of concessions in partnership with Uber Eats, Skip The Dishes and others.
Alternative Programming
Cineplex offers a wide variety of alternative programming, including international film programming, the popular
Metropolitan Opera live in HD series, sports programming and various concert performances by popular recording
artists. Cineplex continues to look for compelling content to offer as alternative content to attract a wider audience to
its locations, in addition to adding dedicated event screens. Cineplex Pictures focuses on the acquisition of feature
film rights for both theatrical release and in home release in Canada.
Digital Commerce
As at-home and on-the-go content distribution and consumption continues to evolve, Cineplex believes it is well
positioned to take advantage of this market with its transactional TVOD digital commerce platform, the Cineplex
Store, which offers thousands of movies and other content that can be rented or purchased digitally and viewed on
multiple devices. The Cineplex Store supports a wide range of devices in Canada on which to buy or rent digital
movies, and continues to add new transactional storefronts on connected devices. The wide range of device
integration and the breadth of our content offering provides exciting opportunities for Cineplex in this market.
MEDIA
Cinema Media
Cineplex believes that no other medium engages viewers like the cinema experience: engaged moviegoers enjoying
a shared experience, sitting in a darkened theatre, ready to be entertained and fully focused on the screen. Research
has shown that cinema media advertising reaches the most sought-after demographics, as well as Canada’s high-
income households and educated populations. In addition to its successful show-time and pre-show advertising
opportunities, Cineplex believes its cinema media business will continue to grow through its innovative media
opportunities within Cineplex’s theatres. Cineplex also sells media for Cineplex Digital Media clients and LBE.
Consistent with prior experience of box office declines, Cineplex Media revenues have lagged the return of
exhibition audiences but continue to grow as attendance returns and advertisers return to cinema.
Digital Place-Based Media
Cineplex’s digital place-based media business will continue to roll out its world-class solutions in quick service
restaurants, financial service and retail sectors as well as immersive DOOH media networks. Cineplex will continue
to explore opportunities outside of Canada, in order to better service its current customer base and to attract new
clients. Cineplex believes that the strengths of its digital place-based media business makes Cineplex a leader in the
indoor digital signage industry and will provide a platform for significant growth throughout Canada and the United
States. CDM manages and sells advertising in mall networks covering greater than 50% of mall traffic in Canada.
However, advertising revenues have lagged the return of mall traffic but continue to grow as mall traffic returns.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
79
Cineplex Inc.
Management’s Discussion and Analysis
AMUSEMENT SOLUTIONS AND LBE
Amusement Solutions
P1AG supplies and services all of the games in Cineplex’s theatre circuit and LBE venues, while also supplying
equipment to third party arcades, amusement centres, bowling alleys, amusement parks and theatre circuits, in
addition to owning and operating family entertainment centres. P1AG continues to expand its operations throughout
both Canada and the United States.
Cineplex’s amusement businesses have resumed operations at full capacity levels resulting in significant increases in
revenues, adjusted EBITDAaL and adjusted EBITDAaL margins that are consistent with or exceed 2019 pre-
pandemic levels, largely in part to the removal of government mandated restrictions and pent up consumer demand
for Cineplex’s entertainment offerings.
Location Based Entertainment
Cineplex’s LBE business features entertainment destination locations that cater to a wide range of guests. The Rec
Room a social entertainment destination targeting millennials featuring a wide range of entertainment options
including an attractions area featuring recreational gaming, a live entertainment venue and high definition screens
for watching a wide range of entertainment programming. This entertainment is complemented with an upscale
casual dining environment, as well as an expansive bar with a wide range of digital monitors and a large screen for
watching sporting events and bookings for corporate events. Cineplex plans to open new LBE locations in
Vancouver, British Columbia and Montreal, Quebec in 2024.
Playdium is an entertainment concept targeting families and teens, which has been rolled out in mid-sized
communities across Canada.
LOYALTY
Membership in the Scene+ loyalty program increased to over 11 million members as at December 31, 2022. During
the fourth quarter of 2021, Cineplex and Scotiabank launched Scene+ to bring together the full benefits of SCENE
with Scotia Rewards, Scotiabank’s flexible customer loyalty program. Cineplex welcomed Empire Company
Limited as a co-owner of Scene+ during the third quarter of 2022, providing members with increased opportunities
to earn and redeem points through Empire’s family of brands firstly in Atlantic Canada on August 11, 2022, in
Western Canada on September 22, 2022, in Ontario on November 3, 2022 and across the rest of Canada by early
2023. During the third quarter of 2022, Scene+ announced that Home Hardware Stores Limited will be joining
Scene+ with a launch expected to take place in the summer of 2023, providing members with additional
opportunities to earn and redeem points.
FINANCIAL OUTLOOK
Cineplex continues to evaluate and advance all options to maximize and monetize the value of the Judgment. As part
of these ongoing efforts, Cineplex has engaged a leading global investment bank with significant expertise in these
areas, as financial advisors, and Goodmans LLP, as lead counsel. While the Judgment and next steps are a key focus
for Cineplex and its advisors, due to uncertainties inherent in appeals and Cineworld’s insolvency proceedings, it is
not possible for Cineplex to predict the timing or final outcome of the Appeal. Further, even if the Appeal by
Cineworld is not successful, Cineplex’s claim pursuant to the Judgment is an unsecured claim and Cineworld has a
significant amount of secured claims which rank in priority to unsecured claims. Accordingly, Cineworld may not
have the ability to pay all or any amount of any damages or costs awarded by the Court.
If there are delays in the recovery of the exhibition industry, Cineplex’s costs may rise and Cineplex may be
required to obtain additional liquidity during periods of economic uncertainty. Cineplex’s management continues to
focus on managing capital expenditures and believes that it has adequate liquidity to fund operations.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
80
Cineplex Inc.
Management’s Discussion and Analysis
17. NON-GAAP AND OTHER FINANCIAL MEASURES
National Instrument 52-112, Non-GAAP and Other Financial Measures Disclosure (“NI 52-112”) imposes
obligations regarding disclosure of non-GAAP financial measures, non-GAAP ratios, and other financial measures.
Cineplex reports on certain non-GAAP measures, non-GAAP ratios, supplementary financial measures and total
segment measures that are used by management to evaluate Cineplex’s performance. 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. These non-GAAP and other financial measures are used
throughout this report and are defined below.
NON-GAAP FINANCIAL MEASURES
Non-GAAP financial measures are defined in 52-112 as a financial measure disclosed that (a) depicts the historical
or expected future financial performance, financial position or cash flow of an entity, (b) with respect to its
composition, excludes an amount that is included in, or includes an amount that is excluded from, the composition
of the most directly comparable financial measure disclosed in the primary financial statements of the entity, (c) is
not disclosed in the financial statements of the entity, and (d) is not a ratio, fraction, percentage or similar
representation.
NON-GAAP RATIOS
A non-GAAP ratio is defined by 52-112 as a financial measure disclosed that (a) is in the form of a ratio, fraction,
percentage or similar representation, (b) has a non-GAAP financial measure as one or more of its components, and
(c) is not disclosed in the financial statements.
The below are non-GAAP financial measures or non-GAAP ratios that are reported by Cineplex.
17.1 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 on disposal
of assets, foreign exchange, the equity income (loss) of CDCP, 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.
Subsequent to the adoption of IFRS 16, Leases, by Cineplex effective January 1, 2019, the calculation of EBITDA
no longer includes a charge for amounts paid or payable with respect to leased property and equipment. Given the
majority of Cineplex’s businesses are carried on in leased premises, Cineplex introduced the measure of adjusted
EBITDAaL which includes a deduction for cash rent paid/payable related to lease obligations. 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.
P1AG Adjusted EBITDAaL
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
81
Cineplex Inc.
Management’s Discussion and Analysis
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 the LBE which is calculated as total LBE
revenues from all locations less the total of 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.
The following represents management’s calculation of EBITDA, adjusted EBITDA, and adjusted EBITDAaL
(expressed in thousands of dollars):
Reconciliation of reported net income (loss) to adjusted EBITDAaL
Year ended December 31,
Net income (loss)
Depreciation and amortization - other
Depreciation - right-of-use assets
Interest expense - lease obligations
Interest expense - other
Interest income
Current income tax expense (recovery)
Deferred income tax recovery
EBITDA
Gain on disposal of assets
Loss (gain) on financial instruments recorded at fair value
CDCP equity (income) loss (i)
Foreign exchange (gain) loss
(Reversal) impairment of long-lived assets
Non-controlling interest adjusted EBITDA
Depreciation and amortization - joint ventures and associates (ii)
Taxes and interest of joint ventures and associates (ii)
Adjusted EBITDA
Cash rent paid/payable related to lease obligations (iii)
Adjusted EBITDAaL (iv)
$
2022
113 $
2021
(248,722) $
2020 (v)
(624,001)
105,197
95,517
61,842
60,826
(277)
1,197
—
113,042
102,247
58,590
65,138
(232)
3,339
—
124,846
128,393
61,483
49,085
(182)
(73,495)
(11,373)
$
324,415 $
93,402 $
(345,244)
(57,807)
6,260
(489)
(1,371)
(19,880)
—
517
49
(28,283)
(8,790)
(146)
(43)
3,717
—
25
45
(13,101)
—
7,279
57
294,863
5
73
202
$
$
251,694 $
59,927 $
(55,866)
(170,022)
(144,222)
(126,949)
81,672 $
(84,295) $
(182,815)
(i) CDCP equity (income) loss 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) The cash rent paid or payable includes negotiated lease obligation savings of $0.8 million (2021 - $29.7 million) through December 31,
2022. The negotiated lease obligation savings represent forgiveness of lease payments.
(iv) See Section 17, Non-GAAP and other financial measures.
(v) All amounts are from continuing operations.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
82
Cineplex Inc.
Management’s Discussion and Analysis
17.2 ADJUSTED FREE CASH FLOW
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 adjusts the amount of cash from operating activities to deduct
capital expenditures net of proceeds on sale of assets in ordinary business operations. 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. Adjusted free cash flow is also a non-GAAP measure used by Cineplex to
modify standardized free cash flow to exclude certain cash flow activities and to measure the amount available for
activities such as repayment of debt, dividends to owners and investments in future growth through acquisitions.
Adjusted free cash flow includes repayments of lease obligations that represented the principal portion of rent
expenses that were included in net income calculation prior to the adoption of accounting standard IFRS 16, Leases,
by Cineplex. Given that the materiality of the principal portion of the rent expenses and comparability of adjusted
free cash flow disclosure for comparative periods, adjusted free cash flow also adjusts standard free cash flow to
deduct principal amount of repayment of lease obligation.
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.
Management calculates adjusted free cash flow per share as follows (expressed in thousands of dollars except shares
outstanding and per share data):
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
83
Cineplex Inc.
Management’s Discussion and Analysis
Reconciliation of reported cash provided by operating activities to adjusted
free cash flow per share
Year ended December 31,
2022
2021
2020
Cash provided by operating activities
Less: Total capital expenditures net of proceeds on sale of assets
$
107,148 $
(62,474)
61,004 $
(20,295)
(106,314)
(73,411)
Standardized free cash flow
44,674
40,709
(179,725)
Add/(Less):
Changes in operating assets and liabilities (i)
Changes in operating assets and liabilities of joint ventures and associates (i)
Repayments of lease obligations - principal
Growth capital expenditures and other (ii)
Share of income of joint ventures and associates, net of non-cash depreciation
Non-controlling interests
Net cash received from CDCP (iii)
Adjusted free cash flow
Average number of shares outstanding
Adjusted free cash flow per share
Dividends declared
26,105
1,214
(109,166)
37,663
(2,531)
—
5,380
(117,438)
(1,050)
(88,259)
13,358
(832)
—
1,995
43,178
(4,469)
(91,946)
68,032
(855)
5
3,910
$
$
$
3,339 $
(151,517) $
(161,870)
63,359,240
63,339,239
63,333,238
0.053 $
— $
(2.392) $
— $
(2.556)
0.150
(i) Changes in operating assets and liabilities are not considered a source or use of adjusted free cash flow. Refer to Note 25 of Cineplex’s
2022 Annual Consolidated Financial Statements for further details.
(ii) 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.
(iii) Excludes the share of income or loss 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.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
84
Cineplex Inc.
Management’s Discussion and Analysis
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):
Reconciliation of reported net income (loss) to adjusted free cash flow
Year ended December 31,
Net income (loss)
Adjust for:
Depreciation and amortization - other
Depreciation - right-of-use assets
Change in fair value of financial instrument
(Gain) loss on disposal of assets
Non-cash interest (i)
Non-cash foreign exchange
(Reversal) impairment of long-lived assets
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
Repayments of lease obligations - principal
Net cash received from CDCP (ii)
Non-cash items:
Non-cash share-based compensation
2022
2021
2020 (iii)
$
113 $
(248,722) $
(624,001)
105,197
95,517
6,260
(57,807)
(2,763)
(1,160)
(19,880)
(489)
—
517
—
49
(24,811)
(109,166)
5,380
113,042
102,247
(8,790)
(28,283)
4,203
55
3,717
(146)
—
24
—
45
(6,937)
(88,259)
1,995
124,846
128,393
—
(13,101)
22,789
342
294,863
7,279
5
73
(11,373)
202
(5,379)
(91,946)
3,910
6,382
4,292
1,228
Adjusted free cash flow
$
3,339 $
(151,517) $
(161,870)
(i) Non-cash interest includes amortization of deferred financing costs on the long-term debt, accretion expense on the convertible debentures,
notes payable, and other non-cash interest expense items.
(ii) Excludes the share of income or loss 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.
(iii) All amounts are from continuing operations.
SUPPLEMENTARY FINANCIAL MEASURES
Supplementary financial measures are financial measures that are not (a) presented in the financial statements and
(b) is, or is intended to be, disclosed periodically to depict the historical or expected future financial performance,
financial position or cash flow, that is not a non-GAAP financial measure or a non-GAAP ratio as defined in the
instrument. The below are supplementary financial measures that Cineplex uses to depict its financial performance,
financial position or cash flows.
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 and other financial measure,
earnings is defined as net income or net loss attributable to Cineplex excluding the change in fair value of financial
instruments.
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.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
85
Cineplex Inc.
Management’s Discussion and Analysis
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.
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, 2022 the impact of two locations that have been opened or acquired and five locations that have been
closed or otherwise disposed of have been excluded, resulting in 151 theatres being included in the same theatre
metrics. For the year ended December 31, 2022 the impact of three locations that have been opened or acquired and
seven locations that have been closed or otherwise disposed of have been excluded, resulting in 148 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.
Lease-related cash saving
Quantified savings negotiated with landlords as a result of the COVID-19 disclosures.
CINEPLEX INC. 2022 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
86
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 6, 2023
Gord Nelson
Chief Financial Officer
87
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,
2022 and 2021, 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:
•
•
•
•
•
•
the consolidated balance sheets as at December 31, 2022 and 2021;
the consolidated statements of operations for the years then ended;
the consolidated statements of comprehensive income (loss) 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.
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.
88
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, 2022. 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.
Key audit matter
How our audit addressed the key audit matter
Impairment assessment of goodwill and
indefinite-lived intangible assets
Our approach to addressing the matter included
the following procedures, among others:
Refer to note 10 – Intangible assets, note 11 –
Impairment of long-lived assets and note 29 –
Significant accounting policies, judgments and
estimation uncertainty to the consolidated financial
statements.
● Evaluated how management determined the
recoverable amounts of goodwill and
indefinite-lived intangible assets groups of
CGUs, which included the following:
As at December 31, 2022, the Company had
$636 million of goodwill 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. 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).
A group of CGUs represents the lowest level
within the entity at which the goodwill is monitored
for internal management purposes.
An impairment loss, if estimated, is recognized for
the amount by which the CGU’s or group of
CGUs’ carrying value exceeds its recoverable
amount. The recoverable amounts were
determined based on the fair value less costs to
sell (the method) using discounted cash flow
models. The significant key assumptions applied
by management in estimating the recoverable
amounts of the groups of CGUs included
– Tested the appropriateness of the method
used and the mathematical accuracy of
the discounted cash flow models.
– Tested the reasonableness of the
significant key assumptions used by
management, including attendance and
the related revenue growth rates applied
by management by comparing them to the
budget, management’s strategic plans
approved by the Board of Directors and
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.
89
Key audit matter
How our audit addressed the key audit matter
attendance and the related revenue growth rates
and discount rates.
No impairment loss was required for goodwill and
indefinite-lived intangible assets.
We considered this a key audit matter due to the
significant judgment made by management in
determining the recoverable amounts of the
goodwill and indefinite-lived intangible assets
groups of CGUs, including the use of significant
key assumptions. This has resulted in a high
degree of subjectivity and audit effort in
performing audit procedures to test the significant
key assumptions used by management.
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.
Our opinion on the consolidated financial statements does not cover the other information and we do not
and will not express 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.
90
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:
•
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.
91
• 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.
The engagement partner on the audit resulting in this independent auditor’s report is Adam Boutros.
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Ontario
February 6, 2023
92
Cineplex Inc.
Consolidated Balance Sheets
—————————————————————————————————————————————
(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 27)
Non-current assets
Property, equipment and leaseholds (note 6)
Right-of-use assets (note 7)
Fair value of interest rate swap agreements (note 27)
Interests in joint ventures and associates (note 9)
Intangible assets (note 10)
Goodwill (note 11)
Derivative financial instrument (note 15)
Business impacts, risks and liquidity (note 2)
Commitments and contingencies (note 26)
December 31,
December 31,
2022
2021
$
34,674 $
107,088
2,033
36,916
15,659
8,993
26,938
80,679
1,984
24,899
13,365
—
205,363
147,865
449,495
772,978
2,426
650
80,428
636,134
2,980
464,439
768,675
—
7,423
81,651
635,545
9,240
$
2,150,454 $
2,114,838
The accompanying notes are an integral part of these consolidated financial statements.
CINEPLEX INC. 2022 ANNUAL REPORT
CONSOLIDATED BALANCE SHEETS
93
Cineplex Inc.
Consolidated Balance Sheets...continued
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars)
Liabilities
Current liabilities
Accounts payable and accrued liabilities (note 12)
$
195,296 $
157,950
December 31,
December 31,
2022
2021
Income taxes payable
Deferred revenue and other (note 19)
Lease obligations (note 14)
Fair value of interest rate swap agreements (note 27)
Non-current liabilities
Share-based compensation (note 13)
Long-term debt (note 15)
Fair value of interest rate swap agreements (note 27)
Lease obligations (note 14)
Post-employment benefit obligations (note 16)
Other liabilities (note 17)
Total liabilities
Shareholders’ deficit
Share capital (note 18)
Deficit
Hedging reserves and other
Contributed surplus
Cumulative translation adjustment
Total shareholders’ deficit
Approved by the Board of Directors
3,736
220,527
96,093
—
515,652
3,752
824,888
—
1,945
293,206
101,058
8,063
562,222
4,940
739,211
6,160
1,004,546
1,004,465
6,970
6,460
9,973
7,590
1,846,616
1,772,339
2,362,268
2,334,561
852,697
852,465
(1,148,970)
(1,151,394)
—
83,006
1,453
(131)
80,027
(690)
(211,814)
(219,723)
$
2,150,454 $
2,114,838
Director
Director
The accompanying notes are an integral part of these consolidated financial statements.
CINEPLEX INC. 2022 ANNUAL REPORT
CONSOLIDATED BALANCE SHEETS
94
Cineplex Inc.
Consolidated Statements of Operations
For the years ended December 31, 2022 and 2021
————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
Revenues (note 19)
Box office
Food service
Media
Amusement
Other
Expenses and other income
Film cost
Cost of food service
Depreciation - right-of-use assets
Depreciation and amortization - other assets
Gain on disposal of assets (notes 6, 9 and 19)
Other costs (note 20)
Share of loss of joint ventures and associates (note 9)
Interest expense - lease obligations (note 14)
Interest expense - other
Interest income
Foreign exchange
Loss (gain) on financial instruments recorded at fair value (note 15)
(Reversal) impairment of long-lived assets (note 11)
Income (loss) before income taxes
Income tax expense (note 8)
Current
Net income (loss)
Net income (loss) per share - basic and diluted (note 21)
2022
2021
$
461,272 $
381,386
111,728
246,601
67,575
236,320
186,998
65,330
134,473
33,548
1,268,562
656,669
238,897
87,702
95,517
105,197
(57,807)
687,738
2,608
61,842
60,826
(277)
(1,371)
6,260
(19,880)
114,674
41,683
102,247
113,042
(28,283)
439,554
755
58,590
65,138
(232)
(43)
(8,790)
3,717
1,267,252
902,052
1,310
(245,383)
1,197
3,339
113 $
(248,722)
— $
(3.93)
$
$
The accompanying notes are an integral part of these consolidated financial statements.
CINEPLEX INC. 2022 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF OPERATIONS
95
Cineplex Inc.
Consolidated Statements of Comprehensive Income (Loss)
For the years ended December 31, 2022 and 2021
————————————————————————————————————————————
(expressed in thousands of Canadian dollars)
Net income (loss)
Other comprehensive income
Items that will be reclassified subsequently to net income:
Foreign currency translation adjustment
Items that will not be reclassified to net income:
Actuarial income of post-employment benefit obligations
Other comprehensive income
Comprehensive income (loss)
2022
2021
$
113 $
(248,722)
2,143
2,311
4,454
(188)
722
534
$
4,567 $
(248,188)
The accompanying notes are an integral part of these consolidated financial statements.
CINEPLEX INC. 2022 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
96
Cineplex Inc.
Consolidated Statements of Changes in Equity
For the years ended December 31, 2022 and 2021
————————————————————————————————————————————
(expressed in thousands of Canadian dollars)
Share
capital
Contributed
surplus
Hedging
reserves and
other
Cumulative
translation
adjustment
Deficit
Total
January 1, 2022
Net income
Other comprehensive income (page 4)
Total comprehensive income
Share option expense
PSU/RSU expense
Settlement of vested PSU/RSU
Issuance of shares on exercise of
options
Reclassification of hedging reserves
and other
$
852,465 $
80,027 $
(131) $
(690) $ (1,151,394) $
(219,723)
—
—
—
—
—
36
196
—
—
—
—
1,563
4,820
(3,190)
(83)
(131)
—
—
—
—
—
—
—
131
—
2,143
2,143
—
—
—
—
—
113
2,311
2,424
—
—
—
—
—
113
4,454
4,567
1,563
4,820
(3,154)
113
—
December 31, 2022
$
852,697 $
83,006 $
— $
1,453 $ (1,148,970) $
(211,814)
January 1, 2021
$
852,379 $
75,882 $
(131) $
(502) $
(903,394) $
24,234
Net loss
Other comprehensive income (page 4)
Total comprehensive loss
Share option expense
PSU/RSU expense
Settlement for cancelled options
Issuance of shares on exercise of
options
—
—
—
—
—
—
86
—
—
—
1,903
2,388
(60)
(86)
—
—
—
—
—
—
—
—
(188)
(188)
—
—
—
—
(248,722)
(248,722)
722
534
(248,000)
(248,188)
—
—
—
—
1,903
2,388
(60)
—
December 31, 2021
$
852,465 $
80,027 $
(131) $
(690) $ (1,151,394) $
(219,723)
The accompanying notes are an integral part of these consolidated financial statements.
CINEPLEX INC. 2022 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
97
Cineplex Inc.
Consolidated Statements of Cash Flows
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars)
Cash provided by (used in)
Operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities
Depreciation and amortization - other assets
Depreciation - right-of-use assets
Unrealized foreign exchange
Interest rate swap agreements - non-cash interest
Accretion of convertible debentures and notes payable
Other non-cash interest
Gain on disposal of assets (notes 6, 9 and 19)
Non-cash share-based compensation
Change in fair value of financial instruments
(Reversal) impairment of long-lived assets (note 11)
Net change in interests in joint ventures and associates
Changes in operating assets and liabilities (note 25)
Net cash provided by operating activities
Investing activities
Proceeds from disposal of assets, net (notes 6 and 7)
Purchases of property, equipment and leaseholds (notes 6 and 25)
Intangible assets additions
Tenant inducements
Net cash received from CDCP
Net cash (used in) provided by investing activities
Financing activities
Borrowings (repayments) under credit facilities, net (note 15)
Repayments of lease obligations - principal
Exercise of cash option
Issuance of notes payable, net (note 15)
Financing fees
Net cash used in financing activities
Effect of exchange rate differences on cash
Increase in cash and cash equivalents
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 for income taxes, net
2022
2021
$
113 $
(248,722)
105,197
95,517
(1,160)
(22,072)
18,677
632
(57,807)
6,382
6,260
(19,880)
1,394
(26,105)
107,148
1,843
(64,317)
(9,904)
11,249
5,380
(55,749)
113,042
102,247
55
(12,730)
15,973
960
(28,283)
4,292
(8,790)
3,717
1,805
117,438
61,004
63,215
(23,627)
(9,200)
8,068
1,995
40,451
67,000
(109,166)
113
—
(1,294)
(246,000)
(88,259)
—
243,996
(863)
(43,347)
(91,126)
(316)
7,736
26,938
34,674 $
355
10,684
16,254
26,938
60,566 $
67,241 $
(703) $
56,708
52,143
(62,329)
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
CINEPLEX INC. 2022 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CASH FLOWS
98
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(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.
Cineworld Transaction and Bankruptcy Filing
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 Inc. (“Cineplex”) 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 was acknowledged by Cineplex and
the Cineworld Transaction did not proceed. Cineplex vigorously denied Cineworld’s allegations.
On July 3, 2020, Cineplex announced that it had commenced an action in the Ontario Superior Court of Justice (the
“Court”) against Cineworld and 1232743 B.C. Ltd. seeking damages arising from what Cineplex claimed was a
wrongful repudiation of the Arrangement Agreement. The claim sought 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 loss to Cineplex of expected synergies, the failure of Cineworld to repay or refinance Cineplex’s
approximately $664,000 in debt, and transaction expenses. Cineplex 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.
A trial of the action commenced before the Court on September 13, 2021 and continued until November 4, 2021.
On December 14, 2021, the Court released its decision in the action. The Court held that Cineplex did not breach
any of its covenants in the Arrangement Agreement, and that Cineworld had no basis for terminating the
Arrangement Agreement. The Court held that Cineworld breached the Arrangement Agreement and repudiated the
transaction to acquire Cineplex, which actions precluded Cineplex from seeking specific performance and entitled
Cineplex to monetary damages. The Court awarded damages for breach of contract to Cineplex in the amount of
$1,240,000 on account of lost synergies, and $5,500 for transaction costs, exclusive of pre-judgment interest (the
“Judgment”). The Court also held that Cineplex’s shareholders did not have any rights under the Arrangement
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
99
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
Agreement to enforce the agreement or sue Cineworld for any breach. The Court also denied Cineworld’s
counterclaim against Cineplex.
On January 12, 2022, Cineworld filed a Notice of Appeal with the Court of Appeal for Ontario and on January 27,
2022, Cineplex filed its Notice of Cross Appeal (the “Appeal”). The Appeal was originally scheduled to be heard on
October 12 and 13, 2022. On September 7, 2022, Cineworld and certain of its subsidiaries (the “Cineworld Parties”)
filed a petition in the United States Bankruptcy Court for the Southern District of Texas, (the “U.S. Bankruptcy
Court”), commencing bankruptcy proceedings under Chapter 11 of the United States Bankruptcy Code (“Chapter
11”). On September 8, 2022, the U.S. Bankruptcy Court granted relief requested by the Cineworld Parties in the
Chapter 11 proceedings, including an order confirming and enforcing a worldwide stay of all enforcement
proceedings by Cineworld’s creditors. Cineworld took the position that the Appeal was therefore stayed. On
September 9, 2022, Cineplex filed an emergency motion with the U.S. Bankruptcy Court, seeking to lift the stay
with respect to the Appeal. Cineplex’s emergency motion was heard on September 28, 2022, at which time the U.S.
Bankruptcy Court declined Cineplex’s requested relief, without prejudice to Cineplex’s ability to seek such relief at
a later date. On September 30, 2022, on consent of counsel for Cineplex and Cineworld, the Court of Appeal for
Ontario adjourned the Appeal until a date to be determined. Accordingly, the hearing of Appeal has been delayed.
Cineplex continues to evaluate and advance all options to maximize and monetize the value of the Judgment. As part
of these ongoing efforts, Cineplex has engaged a leading global investment bank with significant expertise in these
areas, as financial advisors, and Goodmans LLP, as lead counsel. Cineplex has also been appointed as a member of
the unsecured creditors’ committee in the Cineworld Parties’ Chapter 11 proceedings.
While the Judgment and next steps are a key focus for Cineplex and its advisors, due to uncertainties inherent in
appeals and Cineworld’s insolvency proceedings, it is not possible for Cineplex to predict the timing or final
outcome of the Appeal. Further, even if the Appeal by Cineworld is not successful, Cineplex’s claim pursuant to the
Judgment is an unsecured claim and Cineworld has a significant amount of secured claims which rank in priority to
unsecured claims. Accordingly, Cineworld may not have the ability to pay all or any of the amount of any damages
or costs awarded by the Court. Therefore, no amount has been accrued as a receivable.
The Board of Directors approved these consolidated financial statements on February 6, 2023.
2. Business impacts, risks and liquidity
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 (“WHO”). In response, Cineplex
immediately introduced enhanced cleaning protocols to ensure the safety of Cineplex’s employees and customers
and reduced theatre capacities to promote social distancing. By mid-March 2020, 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.
Beginning in mid-March 2020, Cineplex’s entire circuit of theatres, LBE venues and P1AG route locations were
continuously impacted by government mandated restrictions and temporary closures. During the second quarter of
2022, as COVID-19 cases declined across the country, restrictions relating to capacity limits, vaccine passports and
mask mandates were removed in all markets in which Cineplex operates theatres and LBE venues across Canada.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
100
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
Cineplex is currently operating at full capacity but is continuously monitoring for any government directives on
operating capacities.
Liquidity measures:
•
•
•
•
•
•
•
January 2021: completed the sale and leaseback of Cineplex’s head office buildings located at 1303 Yonge
Street and 1257 Yonge Street, Toronto, Ontario for gross proceeds of $57,000;
January 2021: filed tax returns for the 2020 taxation year claiming a $62,624 recovery of income taxes paid
in prior periods (all of which had been received by December 31, 2021);
February 2021: entered into the Third Credit Agreement Amendment providing further financial covenant
relief (note 15, Long-term debt);
February 2021: issued 7.50% senior secured second lien notes due February 26, 2026 (the “Notes Payable”)
for net proceeds of $243,266 (note 15, Long-term debt);
December 2021: entered into the Fourth Credit Agreement Amendment providing further financial
covenant relief (note 15, Long-term debt);
August 2022: entered into the Fifth Credit Agreement Amendment providing further financial covenant
relief (note 15, Long-term debt); and
December 2022: entered into the Sixth Credit Agreement Amendment, extending the maturity date of the
credit facility from November 13, 2023 to November 13, 2024 (note 15, Long-term debt).
Cost reduction and subsidy measures:
•
•
•
•
•
•
•
•
temporary layoffs of part-time employees beginning in December 2021 and further expanding into the first
quarter of 2022;
reviewed 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 cash payments in exchange for the sale of contractual rights or
negotiating rent relief, including abatements, reductions and deferrals;
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, including the Canada Emergency Wage Subsidy
(“CEWS”), Canada Emergency Rent Subsidy (“CERS”) and Tourism and Hospitality Recovery Program
(“THRP”) where available, as well as municipal and provincial property tax and energy rebates or
subsidies; and
continued the suspension of dividends.
In June 2021, Cineplex introduced its VenueSafe program, which encompasses all of Cineplex’s health and safety
protocols, in accordance with Canada’s public health guidelines.
As at December 31, 2022, Cineplex had a cash balance of $34,674 and $204,112 available under its Revolving
Facility subject to the liquidity covenants set forth in the Credit Facilities as amended (note 15, Long-term debt).
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
101
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(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
$
34,674 $
26,938
2022
2021
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
2022
84,220 $
22,868
107,088 $
2021
53,326
27,353
80,679
2022
10,961 $
20,155
5,800
2021
7,815
9,673
7,411
36,916 $
24,899
$
$
$
$
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
102
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
6. Property, Equipment, and Leaseholds
Property, equipment and leaseholds consist of:
At January 1, 2022
Cost
Accumulated depreciation
Net book value
Year ended December 31, 2022
Opening net book value
Additions, net of transfers
Disposals
Reversal of previously recognized impairment
(note 11)
Foreign exchange rate changes
Depreciation for the year
Closing net book value
At December 31, 2022
Cost
Accumulated amortization
Net book value
At January 1, 2021
Cost
Accumulated depreciation
Net book value
$
$
$
$
$
$
$
$
Buildings and
leasehold
improvements
Land
Equipment
Construction-
in-progress
Total
9,186
$
$
831,551
$
850,433
$
5,522 $
1,696,692
—
(552,530)
(679,723)
—
(1,232,253)
9,186
$
$
279,021
$
$
170,710
$
$
5,522 $
464,439
9,186
$
$
279,021
$
$
170,710
$
$
5,522 $
464,439
—
(162)
—
—
—
16,883
111
10,204
57
40,004
(428)
—
1,076
(39,169)
(54,916)
11,483
(87)
—
—
—
68,370
(566)
10,204
1,133
(94,085)
9,024
$
$
267,107
$
$
156,446
$
16,918 $
449,495
$
`
9,024
$
$
847,421
$
880,631
$
16,918 $
1,753,994
—
(580,314)
(724,185)
—
(1,304,499)
9,024
$
267,107
$
0
156,446
$
0
16,918 $
449,495
19,382
$
$
804,439
$
$
837,073
$
$
51,669 $
1,712,563
—
(520,436)
(636,787)
—
(1,157,223)
19,382
$
$
284,003
$
$
200,286
$
$
51,669 $
555,340
Year ended December 31, 2021
Opening net book value
Additions, net of transfers
Reclassification to interests in joint ventures and
associates
Disposals
Impairment (note 11)
Foreign exchange rate changes
Depreciation for the year
$
19,382
$
$
284,003
$
$
200,286
$
$
51,669 $
555,340
—
—
(10,196)
—
—
—
38,859
33,184
(45,554)
26,489
—
(1,666)
(943)
(7)
(25)
(1,430)
—
(253)
(41,225)
(61,052)
—
(593)
—
—
—
(25)
(13,885)
(943)
(260)
(102,277)
Closing net book value
$
9,186
$
$
279,021
$
2
1
170,710
$
5,522 $
464,439
In January 2021, Cineplex completed the sale and leaseback of its head office buildings located in Toronto, Ontario
for $57,000 gross proceeds, recognizing a gain of $30,061 on the derecognition of $11,870 of assets.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
103
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
7. Right-of-use-assets
The following tables present right-of-use assets for Cineplex for the year ended December 31, 2022 and 2021.
Right-of-use assets consists of:
At December 31, 2022
Cost
Accumulated depreciation
Net book value
Year ended December 31, 2022
Balance - December 31, 2021
Additions
Extensions and modifications
Disposals
Foreign exchange rate changes
Depreciation for the year
Property
Equipment
Total
$
1,201,773 $
24,020 $
1,225,793
(435,606)
(17,209)
(452,815)
$
$
766,167 $
6,811 $
772,978
757,197 $
4,212
86,822
(119)
256
11,478 $
395
(1,422)
—
—
768,675
4,607
85,400
(119)
256
(91,877)
(3,640)
(95,517)
Reversal of previously recognized impairment (note 11)
9,676
—
9,676
Closing net book value
$
766,167 $
6,811 $
772,978
At December 31, 2021
Cost
Accumulated depreciation
Net book value
Year ended December 31, 2021
Balance - December 31, 2020
Additions
Extensions and modifications
Disposals
Reclassification to interests in joint ventures and associates
Foreign exchange rate changes
Depreciation for the year
Impairment (note 11)
Closing net book value
Property
Equipment
Total
$
1,112,361 $
25,057 $
1,137,418
(355,164)
(13,579)
(368,743)
$
$
757,197 $
11,478 $
768,675
871,741 $
9,677 $
881,418
10,629
(24,534)
129
(225)
(39)
5,681
637
—
—
—
16,310
(23,897)
129
(225)
(39)
(97,730)
(2,774)
(4,517)
(102,247)
—
(2,774)
$
757,197 $
11,478 $
768,675
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
104
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
COVID-19 resulted in closures of substantially all leased properties and the suspension of the use of most equipment
for the first quarter of 2021 continuing into the second quarter of 2021. The rise of the Omicron variant in December
2021 resulted in theatre closures in Ontario and capacity and food service restrictions reinstated in other provinces
for a certain period of time during the first quarter of 2022. During the second quarter of 2022, all remaining
capacity restrictions were removed and proof of vaccination programs ended.
Beginning in the third quarter 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 $8,483 and $35,834 for the year ended December 31, 2022 and 2021, respectively.
In 2021, Cineplex disposed of certain protective rights on leased properties in exchange for $6,436 cash proceeds,
reducing right-of-use assets.
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:
2022
2021
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
Other
Total gross deferred income tax assets
Future deferred tax liabilities
Intangible assets
Interest rate swap agreements
Goodwill
Convertible debentures
Total gross deferred income tax liabilities
3,690 $
92,391
1,985
—
4,010
113,730
10,935
226,741
(10,208)
(3,121)
(32,460)
(23,976)
(69,765)
Net deferred income tax recognized
$
— $
11,653
93,663
15,929
3,614
3,789
81,844
8,909
219,401
(9,854)
—
(29,909)
(23,961)
(63,724)
—
At December 31, 2020 the recoverability of the net deferred income tax assets in the normal course of business was
uncertain and accordingly the net deferred tax assets were derecognized. Cineplex will evaluate the likelihood of
recoverability in the ordinary course of business at each balance sheet date, and will recognize net deferred tax assets
when and if appropriate.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
105
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
The 2022 current tax expense represents the taxes payable due to taxable income in excess of available non-capital
losses as compared to the prior year period for certain taxable entities in the consolidated group.
By Notice of Reassessment (“NOR”) dated January 22, 2019, the Canada Revenue Agency (“CRA”), disallowed the
deduction of $26,600 of losses of AMC Ventures Inc. (“AMC”) that Cineplex had obtained on the acquisition of
AMC in 2012. The disallowance of the losses, which offset taxable income generated in 2014, increased taxes and
interest payable by approximately $8,600, 50% of which was required to be paid immediately (interest continues to
accrue on the unpaid amount). Cineplex disagrees with the CRA’s position, and has filed an appeal to the Tax Court
of Canada in respect of the NOR. On June 28, 2021, Cineplex received a response from the Attorney General of
Canada representing the CRA confirming its position with respect to the disallowance of the losses. The appeal is
currently proceeding through the pre-trial steps and Cineplex believes that it should prevail in defending its original
filing position, although no assurance can be given in this regard as the appeal process proceeds.
Cineplex’s combined statutory income tax rate at December 31, 2022 was 26.3% (2021 - 26.3%).
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, 2022 and 2021 as follows:
Income (loss) before income taxes
Combined statutory income tax rates for the current year
Income taxes payable (recoverable) at statutory rate
Adjustments relating to prior periods
Other permanent differences
Derecognition of deferred income tax assets
Provision for income taxes
2022
1,310
26.27 %
344
(724)
(2,304)
3,881
1,197
2021
$
(245,383)
26.25 %
(64,425)
872
1,757
65,135
3,339
$
$
$
Adjustments relating to prior periods include differences between the prior year provision and the income tax returns
as filed.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
106
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
Non-capital losses available for carry-forward expire as follows (in thousands of dollars):
2027
2028
2029
2030
2032
2034
2035
2036
2037
2038
2040
2041
2042
Indefinite
$2,502
8,822
5,122
2,184
254
1,947
2,770
2,749
11,584
3,110
5,933
241,361
118,591
28,966
435,895
$
Losses denominated in US dollars are presented at the Canadian dollar equivalent using the December 31, 2022
exchange rate.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
107
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(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.
Canadian 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. On
December 16, 2022, CDCP distributed its assets to its partners and Cineplex recognized a return of capital of $4,443
and a gain of $3,789 (classified under gain (loss) on disposal of assets on the Consolidated Statement of Operations)
on wind-up.
As part of the ongoing reorganization of Scene GP (“SCENE”) which began in December 2020, Cineplex and its
loyalty partner launched Scene+ on December 13, 2021. As a result of the December 13, 2021 step in the
reorganization, Cineplex equity accounts for its interest in Scene LP (“Scene+”), and continues to consolidate 50%
of Scene GP which subsequent to December 12, 2021 holds the deferred revenue obligation for SCENE points
issued up to December 12, 2021. During the third quarter of 2022, Empire Company Limited became a one-third
partner of Scene+ and Cineplex continues to maintain a 33.3% interest in Scene+.
Other joint ventures include a 50% interest in a theatre operation (2021 - 50%), and a 50% interest in YoYo’s
Yogurt Cafe (“YoYo’s”) (2021 - 50%). Cineplex’s investment in YoYo’s is carried at nil value.
The joint ventures and associates are headquartered in Canada and the United States.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
108
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
The net interest in joint ventures is summarized as follows as at December 31, 2022 and 2021:
2022
Ownership percentage
Voting percentage
Equity (Deficit)
Economic interest
Accounts (payable) receivable
Net interest in joint ventures and associates
Interest at beginning of year
Investment
Distribution of cash
Distribution of other assets
Net change in receivable or payable
Share of net income (loss)
Gain on windup
Net interest in joint ventures and associates
2021
Ownership percentage
Voting percentage
Equity (Deficit)
Economic interest
Accounts (payable) receivable
Net interest in joint ventures and associates
Interest at beginning of year
Interest recognized on equity accounting
Investment
Dividends or distributions
Net change in receivable or payable
Share of net income (loss)
$
$
$
$
$
$
$
$
$
$
$
CDCP
78.2%
50.0%
Scene+
Other
Total
33.3 % 17.0%-50.0%
33.3 % 17.0%-50.0%
— $
9,387
78.2%
— $
—
— $
5,545 $
—
(5,380)
(4,443)
—
489
(3,789) $
3,789 $
— $
33.3%
3,126
(2,284)
842
2,002
1,935
—
—
—
(3,095)
842
—
842
$
$
$
$
$
$
$
(3,470) $
50%
(1,735) $
1,543 $
(192) $
(124) $
—
—
—
(66)
(2)
(192) $
—
(192) $
5,917
1,391
(741)
650
7,423
1,935
(5,380)
(4,443)
(66)
(2,608)
(3,139)
3,789
650
CDCP
78.2 %
50.0%
8,622
78.2%
6,742
(1,197)
5,545
8,639
—
—
(1,955)
(1,285)
146
Scene+
Other
Total
33.3 % 17.0%-50.0%
50.0% 17.0%-50.0%
$
$
$
$
$
$
$
$
4,001
50%
2,001
1
2,002
—
(6,705)
9,500
—
—
(793)
(3,232) $
50%
(1,616) $
1,492
(124) $
5 $
—
—
—
(21)
(108)
9,391
7,127
296
7,423
8,644
(6,705)
9,500
(1,955)
(1,306)
(755)
Net interest in joint ventures and associates
$
5,545
$
2,002
$
(124) $
7,423
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
109
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(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:
2022
CDCP
Scene+
Other
Total
Assets
Cash and cash equivalents
Receivables and other current assets
Equipment
Total assets
Liabilities
Accounts payable and accrued liabilities
$
$
$
Long-term debt
Lease obligations
Total liabilities
Equity (Deficit)
— $
—
—
—
— $
— $
—
—
—
—
—
6,221 $
32,986
39,207
3,743
42,950 $
33,265 $
33,265
—
298
33,563
— $
39
39
—
39 $
834 $
834
2,675
—
3,509
9,387
(3,470)
Total liabilities and equity
$
— $
42,950 $
39 $
6,221
33,025
39,246
3,743
42,989
34,099
34,099
2,675
298
37,072
5,917
42,989
2021
CDCP
Scene+
Other
Total
Assets
Cash and cash equivalents
Receivables and other current assets
Equipment
Total assets
Liabilities
Accounts payable and accrued liabilities
Deferred revenue
$
$
$
Long-term debt
Lease obligations
Total liabilities
Equity (Deficit)
1,423 $
4,601
6,024
3,121
4,561 $
12,354
16,915
1,844
9,145 $
18,759 $
365 $
158
523
—
—
14,381 $
—
14,381
—
377
523
14,758
1 $
59
60
—
60 $
753 $
—
753
2,539
—
3,292
8,622
4,001
(3,232)
Total liabilities and equity
$
9,145 $
18,759 $
60 $
5,985
17,014
22,999
4,965
27,964
15,499
158
15,657
2,539
377
18,573
9,391
27,964
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:
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
110
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
2022
Revenues
Depreciation and amortization
Other expenses
Total expenses
CDCP
Scene+
Other
Total
$
3,282 $
31,551 $
2,732 $
37,565
1,380
1,276
2,656
1,152
39,500
40,652
—
2,586
2,586
2,532
43,362
45,894
Net income (loss) and comprehensive income
(loss)
$
626 $
(9,101) $
146 $
(8,329)
2021
Revenues
Depreciation and amortization
Other expenses
Total expenses
CDCP
Scene+
Other
Total
$
10,728 $
890 $
1,422 $
13,040
7,001
3,540
10,541
73
4,011
4,084
—
1,348
1,348
7,074
8,899
15,973
Net income (loss) and comprehensive income
(loss)
$
187 $
(3,194) $
74 $
(2,933)
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, which includes SCENE, and up to December 12, 2021
Scene+.
In the fourth quarter of 2020, Cineplex announced that it had entered into an agreement with its existing partner
Scotiabank to enhance and expand the SCENE loyalty program. Cineplex received $60,000 in December 2020 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 ownership in Scene+ was reduced to 33.3%.
As a result of the December 13, 2021 step in the reorganization, Cineplex equity accounts for its interest in Scene
LP, and continues to consolidate 50% of Scene GP which subsequent to December 12, 2021 holds the deferred
revenue obligation for SCENE points issued up to December 12, 2021. During the third quarter of 2022, Empire
Company Limited became a one-third partner of Scene+ and Cineplex continues to maintain a 33.3% interest in
Scene+
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
111
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
The summarized balance sheets of SCENE at December 31 are as follows:
Assets
Cash and cash equivalents
Trade and other receivables
Prepaid expenses
Promissory notes receivable from partners
Total assets
Liabilities
Accounts payable and accrued liabilities
Deferred revenue
Total liabilities
Deficiency
The summarized combined results of operations of SCENE are as follows:
Revenues
Expenses
Net loss
$
$
$
2022
2021
15,848 $
3,118
2,230
21,196
19,000
40,196 $
32,656 $
44,889
77,545
(37,349)
9,957
1,268
196
11,421
19,000
30,421
9,798
95,993
105,791
(75,370)
$
40,196 $
30,421
2022
51,103 $
92,082
2021
42,778
84,502
(40,979) $
(41,724)
$
$
Cineplex and the other partner of SCENE contribute capital as required to fund SCENE’s future redemption costs.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
112
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
10. Intangible assets
Intangible assets consist of the following:
At January 1, 2022
Cost
Accumulated amortization
Net book value
Year ended December 31, 2022
Opening net book value
Additions
Foreign exchange rate changes
Amortization for the year
Closing net book value
At December 31, 2022
Cost
Accumulated amortization
Net book value
At January 1, 2021
Cost
Accumulated amortization
Net book value
Year ended December 31, 2021
Opening net book value
Additions
Disposals
Reclassification to interests in joint ventures and
associates
Foreign exchange rate changes
Amortization for the year
Customer
relationships
Software and
other
Trademarks
and
trade names
Total
$
$
$
$
$
$
$
$
$
32,706
$
$
60,502
$
$
63,599
$
$
156,807
(30,686)
(44,470)
—
(75,156)
2,020
$
$
16,032
$
$
63,599
$
$
81,651
2,020
$
$
16,032
$
$
63,599
$
$
81,651
—
64
(1,786)
9,825
—
(9,326)
—
—
—
9,825
64
(11,112)
298
$
$
16,531
$
$
63,599
$
$
`
80,428
33,494
$
$
70,328
$
$
63,599
$
$
167,421
(33,196)
(53,797)
— $
(86,993)
298
$
$
16,531
$
$
63,599
$
$
80,428
32,755
$
$
55,224
$
$
63,599
$
$
151,578
(28,936)
(37,720)
—
(66,656)
3,819
$
$
17,504
$
$
63,599
$
$
84,922
3,819
$
$
17,504
$
$
63,599
$
$
84,922
—
—
—
(36)
(1,763)
9,487
(1,348)
(609)
—
(9,002)
—
—
—
—
—
9,487
(1,348)
(609)
(36)
(10,765)
Closing net book value
$
2,020
$
$
16,032
$
$
63,599
$
$
81,651
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
113
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
11. Impairment of long-lived assets
Cineplex performs its annual test for impairment of goodwill and indefinite-lived intangible assets in the fourth
quarter, in accordance with its policy described in note 29, Significant accounting policies, judgments 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
triggering events and changes in circumstances indicate that the carrying amount of the asset group may not be fully
recoverable. In addition, for assets other than goodwill and indefinite-lived intangible assets, indicators are assessed
considering whether an impairment loss previously recognized may no longer exist or may have decreased.
Fair value less cost to sell is determined using discounted cash flow models that incorporate significant key
assumptions relating to attendance and the related revenue growth rates, and discount rates. Further, other
assumptions are required pertaining to variable and fixed cash flows, and operating margins. Cineplex projects
revenue, operating margins and cash flows for a period of five years, and applies a perpetual long-term growth rate
thereafter.
The attendance and revenue growth rates are derived from Cineplex’s Board approved budget which considers
projected attendance based on film releases, past experience, as well as economic, industry and market trends.
Discount rates applied to the groups of goodwill cash-generating units (“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 10.3% and 14.3% (2021 - between 8.0% and 13.6%), and perpetual
growth rates between 0.5% and 1.0% (2021 - between 0.5% and 1.0%), which are consistent with the observed long-
term average growth rates in the exhibition, amusement and leisure, and digital media industries. The higher
discount rates primarily reflect an increase in long-term risk-free rates. The impact of the increased discount rates on
Cineplex’s recoverable amounts were more than offset by the impact of higher cash flows over the forecasted
period.
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.
For the exhibition CGUs, a 10% and 15% change in forecasted attendance and related revenue growth rates would
result in an impairment loss for two groups of CGUs. For the CDM CGU, a 20% change in revenue growth rates or
a 3% change in the discount rate would result in a impairment loss. Cineplex determined that no other reasonable
change in assumptions would cause the recoverable amount of any of its CGUs to fall below its carrying value.
Based on Cineplex’s assessment of indicators of impairment for long-lived asset CGUs, two theatre location CGUs
were noted to have impairment indicators. Based on the results of the impairment tests for these CGUs, Cineplex
recognized non-cash impairment charges of $3,503 to property, equipment and leaseholds and $398 to right-of-use
assets for the year ended December 31, 2022.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
114
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
Cineplex reviews previously impaired assets for indicators of impairment recovery at each balance sheet date.
During the current period, the renegotiation of a favourable rent arrangement at a location in its theatre operations
resulted in significantly higher cash flows, and the reversal of previously recognized impairment. The recovery of
the LBE portfolio has been significant, consistent with out-of-home dining and the amusement industry. As a result,
Cineplex has reversed previously recognized impairments. Based on the results, Cineplex recognized a reversal of
previously recognized impairment of $13,707 to property, equipment and leaseholds and $10,074 to right-of-use
assets for the year ended December 31, 2022.
Increasing concerns over the new highly transmissible Omicron COVID-19 variant and increased daily COVID-19
case counts led to shutdowns and restrictions in several provinces that materially affected operations representing a
triggering event requiring impairment testing for long-lived assets, indefinite-lived intangible assets and goodwill at
December 31, 2021. During the fourth quarter of 2021, government imposed restrictions were reinstituted in several
provinces reducing capacity limits to 50% and requiring temporary theatre closures in Quebec. Further government-
imposed restrictions were reinstated or modified subsequent to December 31, 2021 resulting in temporary theatre
closures in three additional provinces. Based on the results of the impairment tests, Cineplex recognized non-cash
impairment charges of $943 to property, equipment and leaseholds and $2,774 to right-of-use assets for the year
ended December 31, 2021.
At the end of each future reporting period Cineplex will assess whether there are indications that the impairment loss
recognized 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.
(Reversal) impairment of long-lived assets for the year ended December 31, 2022 and 2021 were as follows:
(Reversal) impairment of property, equipment and leaseholds
(Reversal) impairment of right-of-use assets
(Reversal) impairment of long-lived assets
2022
(10,204) $
(9,676)
(19,880) $
$
$
2021
943
2,774
3,717
The following table discloses the change in goodwill for the years ended and December 31:
Balance - Beginning of year
Foreign exchange rate changes
Balance - End of year
2022
635,545
589
2021
635,582
(37)
$
636,134 $
635,545
For the purpose of impairment testing, goodwill has been allocated to CGUs or groups of CGUs. Total goodwill of
the reporting segments are as follows:
Exhibition
Media
Amusement and leisure
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
115
$
2022
413,915 $
206,385
15,834
2021
413,915
206,385
15,245
$
636,134 $
635,545
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
12. Accounts payable and accrued liabilities
Accounts payable and accrued liabilities consist of:
Accounts payable - trade
Film payables and accruals
Accrued salaries and benefits
Sales taxes payable
Accrued occupancy costs
Other payables and accrued liabilities
$
2022
91,533 $
33,991
26,977
13,358
3,794
25,643
2021
78,254
27,244
24,442
5,275
4,272
18,463
$
195,296 $
157,950
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
116
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
13. Share-based compensation
Omnibus Incentive Plan (“Incentive Plan”)
On November 12, 2020, the Board of Directors approved a new Omnibus Incentive Plan (the “Incentive Plan”). This
plan supersedes the former incentive plans (collectively, the “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 service period as determined by management at the time of
issuance. The aggregate number of Shares that may be issued under the Incentive Plan is 3,696,379 provided that no
more than 1,893,445 Shares may be issued in aggregate pursuant to the settlement of RSUs and PSUs. Options that
were issued under the Legacy Plan and are subsequently cancelled 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. 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, 2022, 1,605,373 Shares are available to be issued
under the Incentive Plan (2021 - 1,489,143).
Stock Options
Stock options issued under the Incentive Plan will be administered by the Board of Directors which 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 granted will be accounted for as equity-settled.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
117
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
Stock options have been granted as follows:
Grant date
Number of
options
granted
Exercise
price
Number of
employees
granted
options
Vesting period
Expiry
February 14, 2012
474,000
27.33
February 12, 2013
385,834
33.49
February 14, 2014
440,519
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
August 17, 2020
725,758
8.25
April 12, 2021
281,503
12.87
May 10, 2021
February 23, 2022
177,998
223,578
12.41
13.39
42
42
54
59
76
80
74
78
76
71
22
16
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 February 17, 2021,
2022, 2023 and 2024
One fourth on each successive
anniversary of the grant date
Fully vested on the first anniversary of
the grant date
One fourth on each successive
anniversary of the grant date
February 13, 2022
February 11, 2023
February 14, 2024
February 18, 2025
February 12, 2026
February 21, 2027
February 27, 2028
February 20, 2029
August 17, 2030
April 12, 2031
May 10, 2031
February 23, 2032
The exercise price was equal to the market price of Cineplex shares or units at the grant date.
Cineplex recorded $1,563 of employee benefits expense with respect to the options during the year ended December
31, 2022 (2021 - $1,903). The intrinsic value of vested share options at December 31, 2022 is $nil (2021 - $726),
based on the closing Share price of $8.05 per share (2021 - $13.49). In the first quarter of 2021, 165,146 stock
options issued under the Legacy Plan were cancelled for total consideration of $60 as part of a voluntary stock
option cancellation program that was initiated in the fourth quarter of 2020.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
118
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
A summary of option activities in 2022 and 2021 is as follows:
2022
2021
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
7.44
2,198,805 $
Granted
Cancelled
Forfeited
Exercised
223,578
—
(285,371)
(34,194)
21.48
13.39
—
35.75
8.25
2,042,019 $
459,501
(188,303)
(87,049)
(27,363)
25.37
12.69
43.90
21.89
8.25
Options outstanding, December 31
7.00
2,102,818 $
18.90
2,198,805 $
21.48
At December 31, 2022 and 2021, options are vested and exercisable as follows:
Options vested and exercisable at $12.41
Options vested and exercisable at $12.87
Options vested and exercisable at $8.25
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
2022
163,421
64,818
263,997
373,548
351,018
8,677
11,710
13,693
13,123
12,364
—
2021
—
—
135,393
266,236
302,496
45,828
51,812
49,723
43,391
23,144
2,563
1,276,369
920,586
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
119
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
The fair value of options granted in 2022 and 2021 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
$
$
2022
2021
223,578
459,501
13.39
13.39
4.0
49.39 %
— %
$12.41 - $12.87
$12.41 - $12.87
4.0
47.00 %
— %
1.58 %
0.68%-0.72%
$
5.33
$3.70 - $3.83
Upon cashless exercises, the options exercised in excess of Shares issued are cancelled and returned to the pool
available for future grants. At December 31, 2022, 608,738 options are available for grant (2021 - 532,760).
RSU and PSU awards
2022 LTIP awards granted in Q1 2022
2021 LTIP awards granted in Q2 2021
RSU
PSU Share
equivalents
granted
177,973
167,546
RSU Share
equivalents
granted
PSU Share
equivalents
minimum payout
PSU Share
equivalents
maximum payout
284,661
315,619
—
—
355,946
335,092
During the first quarter of 2022, Cineplex issued 284,661 equity settled RSUs with a fair value $13.39 per unit (total
fair value of $3,812 on issuance). The fair value was assessed based on Cineplex’s closing Share price on the grant
date. The RSU awards issued will vest in the fourth quarter of 2024.
A summary of RSU activities during the years ended December 31, 2022 and 2021 is as follows:
RSUs outstanding, January 1
Granted
Settled
Cancelled
RSUs outstanding, December 31
2022
536,374
284,661
(229,450)
(26,307)
565,278
2021
295,189
315,619
(44,014)
(30,420)
536,374
The RSUs associated with the 2020 LTIP were accounted for as equity-settled in 2022. The RSUs associated with
the 2019 LTIP were settled in 2021 for $586 cash.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
120
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
PSU
During the first quarter of 2022, Cineplex issued 177,973 equity settled PSUs with a fair value of $13.39 per unit
(total fair value of $2,383 on issuance). The fair value was assessed based on Cineplex’s closing Share price on the
grant date. The PSU awards issued will vest in the fourth quarter of 2024. Compensation expense is recorded based
on the number of units expected to vest, the current market price of Cineplex’s 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. Performance conditions are reflected in Cineplex’s estimate of the grant-date fair
value for equity instruments granted.
A summary of PSU activities during the years ended December 31, 2022 and 2021 is as follows:
PSUs outstanding, January 1
Granted
Settled
Cancelled
PSUs outstanding, December 31
2022
411,258
177,973
(232,773)
(24,926)
331,532
2021
333,908
167,546
(88,422)
(1,774)
411,258
The PSUs associated with the 2020 LTIP were accounted for as equity-settled in 2022 with a performance factor
resulting in 100,092 units settled. The PSUs associated with the 2019 LTIP were settled in 2021 for $100 cash.
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 to be nominal, based on historical
forfeiture rates. For the year ended December 31, 2022, Cineplex recognized compensation cost of $4,933 (2021 -
$2,881) under the Incentive Plan relating to RSU and PSU. At December 31, 2022, $320 (2021 - $207) was included
in current share-based compensation liability and $4,406 in contributed surplus (2021 - $2,776).
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, 2022, Cineplex recognized
compensation recovery of $2,099 (2021 expense - $1,184) associated with the deferred equity units. At December
31, 2022, $3,432 (2021 - $4,733) was included in share-based compensation liability.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
121
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
14. Lease obligations
The following table presents lease obligations for Cineplex for the year ended December 31, 2022 and 2021:
Year ended December 31, 2022
Opening balance
Additions
Extensions and modifications
Tenant inducement
Lease payment
Interest expense
Disposals
Foreign exchange rate changes
Closing lease obligations
Less: current portion
Property
Equipment
Total
$
1,092,674 $
12,849 $
1,105,523
4,212
88,178
11,698
395
(1,421)
—
4,607
86,757
11,698
(167,104)
(3,045)
(170,149)
61,263
9
352
579
—
—
61,842
9
352
$
1,091,282 $
9,357 $
1,100,639
91,869
4,224
96,093
Non-current portion of lease obligations
$
999,413 $
5,133 $
1,004,546
Year ended December 31, 2021
Opening balance
Additions
Extensions and modifications
Tenant inducement
Lease payment
Interest expense
Reclassification to interests in joint ventures and associates
Foreign exchange rate changes
Closing lease obligations
Less: current portion
Property
Equipment
Total
$
1,160,849 $
10,076 $
1,170,925
25,347
(18,007)
7,595
5,681
637
—
31,028
(17,370)
7,595
(141,067)
(3,900)
(144,967)
58,235
(226)
(52)
355
—
—
58,590
(226)
(52)
$
1,092,674 $
12,849 $
1,105,523
97,236
3,822
101,058
Non-current portion of lease obligations
$
995,438 $
9,027 $
1,004,465
Current portion of lease obligations are net of estimated tenant inducements.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
122
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
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
2022
$
170,438 $
640,795
705,012
2021
173,086
637,415
610,456
Total undiscounted lease obligations
$
1,516,245 $
1,420,957
The following table provides the lease amounts recognized in the statement of operations for the periods 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.
$
$
$
2022
95,517 $
61,842 $
2021
102,247
58,590
52,936 $
49,250
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 20, 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.
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, 2022 were not material.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
123
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
15. Long-term debt
Long-term debt consists of the following as at December 31, 2022 and 2021:
Credit Facilities
Convertible Debentures
Notes Payable
Total
Letters of credit reserved against Revolving Facility
Revolving Facility available
December 31, 2022 December 31, 2021
327,000
252,078
245,810
824,888 $
10,054 $
204,112 $
260,000
234,472
244,739
739,211
10,966
270,702
$
$
$
Cineplex has bank facilities with a syndicate of lenders which includes a revolving facility (the “Revolving
Facility”) and non-revolving credit facility (the “Term Facility”, and together with the Revolving Facility, the
“Credit Facilities”) pursuant to a seventh amended and restated credit agreement between Cineplex, Cineplex
Entertainment Limited Partnership, the guarantors from time to time party thereto, and a syndicate of lenders dated
November 13, 2018 (as further amended from time to time, the “Credit Agreement”). The Term Facility was repaid
in full in the first quarter of 2021 and is no longer available for future borrowing.
The Credit Facilities bear interest at a floating rate based on the Canadian dollar prime rate, U.S. Base Rate, SOFR
(Secured Overnight Financing Rate) or bankers’ acceptances rates plus, in each case, an applicable margin to those
rates. The Revolving Facility matures in November 2024. Borrowings on the Revolving Facility can be made in
either Canadian or US dollars.
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. 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 Cash flows.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
124
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
On June 29, 2020, Cineplex entered into the First Credit Agreement Amendment, following which, on November
12, 2020 Cineplex entered into the Second Credit Agreement Amendment, on February 8, 2021 Cineplex entered
into the Third Credit Agreement Amendment, on December 30, 2021 Cineplex entered into the Fourth Credit
Agreement Amendment, on August 10, 2022 Cineplex entered into the Fifth Credit Agreement Amendment, and on
December 22, 2022 Cineplex entered into the Sixth Credit Agreement Amendment. The amendments provided
certain financial covenant relief in light of the COVID-19 pandemic and its effects on Cineplex’s businesses, while
applying additional restrictive covenants and required repayments in certain circumstances.
On December 30, 2021, Cineplex entered into the Fourth Credit Agreement Amendment, which, among other
things, extended the suspension of financial covenant testing until the second quarter of 2022 and liquidity covenant
requirement until June 30, 2022. The following is a summary of the key terms of the Fourth Credit Agreement
Amendment that are updated from the First, Second and Third Credit Agreement Amendments (certain of which
have been modified further by the Fifth Credit Agreement Amendment and Sixth Credit Agreement Amendment
described below):
•
The suspension of financial covenant testing was extended until the second quarter of 2022. On
resumption of financial covenant testing in the second quarter of 2022:
•
•
•
for the second quarter of 2022, testing was based on an annualized calculation of
Adjusted EBITDA (as further adjusted in accordance with the Credit Agreement
definitions) based on the actual results for such quarter multiplied by 4;
for the quarter ending on September 30, 2022, testing will be based on an annualized
calculation of Adjusted EBITDA based on actual results for the second quarter of 2022
and the third quarter of 2022 multiplied by 2; and
for the quarter ending on December 31, 2022, testing will be based on an annualized
calculation of Adjusted EBITDA based on the actual results of the second quarter of
2022, the third quarter of 2022 and the fourth quarter of 2022 multiplied by 4/3.
Thereafter, testing will be based on an annualized calculation of the cumulative Adjusted EBITDA
on a trailing four fiscal quarter basis;
The Total Leverage Ratio of 3.75x will apply when financial covenants are reinstated, and will be
reduced quarterly by 0.25x until the first quarter of 2023 at which point it will reach a level of
3.00x;
The liquidity covenant will continue and be amended requiring available liquidity (as defined) to
be maintained at all times at no less than $100.0 million;
The Senior Leverage Ratio to be based on annualized Adjusted EBITDA and set at 1.0x lower
than the Total Leverage Ratio. Senior Leverage Ratio is defined as (i) Total Debt (as defined in the
Credit Agreement) less any Notes Payable to (ii) Adjusted EBITDA; and
From and after April 1, 2022, a fixed charge coverage ratio of greater than 1.25x will apply.
▪
▪
▪
▪
▪
On August 10, 2022 Cineplex entered into a fifth amending agreement to the Credit Agreement, (the “Fifth Credit
Agreement Amendment”), which among other things, extended the suspension of financial covenant testing until the
fourth quarter of 2022 and liquidity covenant requirement until March 2023. The following is a summary of the key
terms of the Fifth Credit Agreement Amendment:
•
The suspension of financial covenant testing was extended until the fourth quarter of 2022. On
resumption of financial covenant testing in the fourth quarter of 2022:
•
for the fourth quarter of 2022, testing was based on an annualized calculation of Adjusted
EBITDA (as further adjusted in accordance with the Credit Agreement definitions) based
on the actual results for the fourth quarter multiplied by 4;
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
125
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
•
•
for the quarter ending on March 31, 2023, testing will be based on an annualized
calculation of Adjusted EBITDA based on actual results for the fourth quarter of 2022
and the first quarter of 2023 multiplied by 2; and
for the quarter ending on June 30, 2023, testing will be based on an annualized
calculation of Adjusted EBITDA based on the actual results of the fourth quarter of 2022,
the first quarter of 2023 and the second quarter of 2023 multiplied by 4/3.
▪
▪
▪
▪
▪
Thereafter, testing will be based on an annualized calculation of the cumulative Adjusted EBITDA
on a trailing four fiscal quarter basis;
The Total Leverage Ratio of 3.75x will apply when financial covenants are reinstated, and will be
reduced quarterly by 0.25x until the third quarter of 2023 at which point it will reach a level of
3.00x;
The liquidity covenant will continue and be amended requiring available liquidity (as defined) to
be maintained at all times until March 31, 2023 at no less than $100.0 million;
The Senior Leverage Ratio to be based on annualized Adjusted EBITDA and set at 1.0x lower
than the Total Leverage Ratio. Senior Leverage Ratio is defined as (i) Total Debt (as defined in the
Credit Agreement) less any Notes Payable to (ii) Adjusted EBITDA; and
A fixed charge coverage ratio of greater than 1.25x will continue to apply.
As at December 31, 2022, Cineplex’s Total Leverage Ratio was 3.69x, as compared to a covenant not to exceed
3.75x. Cineplex’s Senior Leverage Ratio was 2.15x, as compared to a covenant not to exceed 2.75x. Cineplex’s
fixed charge coverage ratio was 1.29x, as compared to a minimum covenant requirement of 1.25x.
On December 22, 2022 Cineplex entered into a sixth amending agreement to the Credit Agreement (the “Sixth
Credit Agreement Amendment”). The Sixth Credit Agreement Amendment extends the maturity date of the credit
facility from November 13, 2023 to November 13, 2024, amends the standard administrative provisions relating to
the potential replacement of benchmark rates, and makes certain other administrative amendments.
This summary of the Sixth Credit Agreement Amendment is qualified in its entirety by reference to the provisions of
the Credit Agreement which contains a complete statement of those terms and conditions.
The Credit Agreement and each of the First, Second, Third, Fourth, Fifth and Sixth Credit Agreement Amendment
were filed on SEDAR on June 30, 2020, November 13, 2020, February 8, 2021, January 4, 2022, August 10, 2022,
and December 22, 2022, respectively, for each of Credit Agreement Amendments.
During the first quarter of 2021, 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, recognizing a
gain of $30,061. Net proceeds from the sale, in addition to net proceeds from the issuance of the Notes Payable
(discussed below) were used to repay the Credit Facilities, a portion of which was permanent. As a result, Cineplex
permanently repaid the remaining $50,000 balance of its outstanding Term Facility.
Following the Sixth Credit Agreement Amendment, including mandatory repayments, the Credit Facilities consist of
the following:
a) a five-year, $541,166 senior secured Revolving Facility; $327,000 that has been drawn; $10,054
reserved and $204,112 remaining available balance.
At December 31, 2022, Cineplex was subject to a margin of 3.00% (2021 - 3.00%) on the prime rate and 4.00%
(2021 - 4.00%) on the bankers’ acceptance rate, plus a 0.25% (2021 - 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 6.90% for
the year ended December 31, 2022 (2021 - 6.90%). Cineplex pays a commitment fee on the daily unadvanced
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
126
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
portion of the Revolving Facility, which will vary based on certain financial ratios and was 1.00% at December 31,
2022 (2021 - 1.00%).
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, 2022:
Interest rate swap agreements
Notional amount
Inception date
Effective date
Maturity date
Swap - 1
Swap - 2
Swap - 3
$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 13, 2025
Fixed rate
payable
2.945 %
2.830 %
2.898 %
The interest rate swaps are measured at fair market value at each reporting period with changes in fair market value
recorded in interest expense - other, in the consolidated statement of operations.
Despite the termination of the Arrangement Agreement, the swaps can only be re-designated on a prospective basis
for hedge accounting treatment.
Based on the Credit Agreement in effect at December 31, 2022 Cineplex’s effective cost of borrowing on the
$450,000 hedged borrowings was 6.904% (December 31, 2021 - $450,000 hedged borrowings - 6.904%) before
considering rate mitigation through the above swaps. Cineplex will consider its interest rate exposure in conjunction
with its overall capital strategy.
Convertible debentures
Convertible debentures consist of the following:
Face value of convertible debentures outstanding
Unaccreted deferred financing fees and discount
Convertible debentures
December 31, 2022 December 31, 2021
$
$
316,250 $
(64,172)
252,078 $
316,250
(81,778)
234,472
On July 17, 2020, Cineplex issued $316,260 aggregate principal amount of convertible unsecured subordinated
debentures, which mature 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.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
127
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
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 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. Redemption may be in the form of 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. Conversion of outstanding Debentures will result in the issuance of Shares from treasury.
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 Debentures. During the year ended December 31, 2022, Cineplex recorded accretion and cash
interest expense on the Debentures of $17,606 (2021 - $15,201) and $18,184 (2021 - $18,135), respectively, both of
which are included as part of the interest expense in the consolidated statement of operations. As at December 31,
2022, Cineplex has $316,250 principal amount of Debentures outstanding. The residual value was allocated to the
equity component less the pro-rata portion of transaction costs as prescribed by IFRS 9, Financial instruments and
IAS 32, Financial instruments: Presentation.
The foregoing is a summary of the key terms of the Debentures. This summary is qualified in its entirety by
reference to the provisions of the Debentures trust indenture which contains a complete statement of those terms and
conditions. The Debenture trust indenture was filed on SEDAR on July 15, 2020.
Notes payable
Notes Payable outstanding as of December 31, 2022 and 2021 are as follows:
Face value of Notes Payable
Unaccreted deferred financing fees and discount
Notes Payable
December 31, 2022 December 31, 2021
$
$
250,000 $
(4,190)
245,810 $
250,000
(5,261)
244,739
On February 26, 2021, Cineplex completed the $250,000 Notes Payable offering. The Notes Payable mature on
February 26, 2026 and bear interest at a rate of 7.50% per annum, payable semi-annually in arrears on January 31
and July 31 of each year, commencing July 31, 2021. The Notes Payable are subordinate to the security granted for
the obligations under the Credit Facilities, and are subject to the terms of an intercreditor agreement with the agent
under the Credit Facilities.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
128
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
During the year ended December 31, 2022, Cineplex recorded accretion and cash interest expense on the Notes
Payable of $1,071 (2021 - $772) and $18,750 (2021 - $15,822), respectively, both of which are included as part of
interest expense in the consolidated statement of operations. As at December 31, 2022, Cineplex has $250,000
principal amount of Notes Payable outstanding. Cineplex’s derivative financial instrument on the Notes Payable
relates to the early prepayment option that fluctuates in value based on market interest rates. The fair value of the
embedded derivative was determined using an option pricing model with observable market inputs and are
consistent with accepted methods for valuing financial instruments. Cineplex has estimated the fair value of this
embedded derivative at $2,980 as at December 31, 2022 (2021 - $9,240) which is presented on the consolidated
balance sheets as a derivative financial instrument.
The foregoing is a summary of the key terms of the Notes Payable. This summary is qualified in its entirety by
reference to the provisions of the Notes Payable trust indenture which contain a complete statement of those terms
and conditions. The Notes Payable trust indenture was filed on SEDAR on February 26, 2021.
16. Post-employment benefit obligations
Cineplex sponsors a defined benefit supplementary executive retirement plan (“DB SERP”). The DB SERP has a
defined benefit obligation of $7,784 at December 31, 2022 (December 31, 2021 - $10,054), which is substantially
unfunded. Annual benefits payable is $650 according to 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
2022
5,793 $
1,177
6,970 $
2021
8,490
1,483
9,973
$
$
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
129
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
Reconciliation of the net post-retirement benefit obligations
Accrued benefit obligations
Balance - Beginning of year
Past service cost - vested benefits
Interest cost
Benefits paid
Actuarial gains
Balance - End of year
Less: Fair value of plan assets
Net post-retirement benefit obligation
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
2022
2021
11,537 $
4
330
(123)
(2,787)
12,601
296
(142)
(1,218)
8,961 $
11,537
1,991 $
6,970 $
1,564
9,973
$
$
$
$
2022
2021
5.10% 2.70% - 2.90%
5.60 %
4.00 %
2041
5.72 %
4.00 %
2041
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
2022
2021
(780) $
(1,159)
905 $
1,370
$
$
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
130
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
17. Other liabilities
Other liabilities consist of the following:
Asset retirement obligations
Licensing obligations - non-current
Deferred consideration - AMC business acquisition
Other, including provisions
2022
2,730 $
402
3,134
194
6,460 $
2021
3,097
1,051
3,134
308
7,590
$
$
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
131
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
18. 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, 2022 and 2021 and transactions during the periods are as follows:
2022
Number of
common shares
issued and
outstanding Common shares
Amount
Total
Balance - December 31, 2021
Issuance of shares on exercise of options
Issuance of shares on settlement of RSU/PSU units
63,344,298 $
852,465 $
852,465
20,009
11,093
196
36
196
36
Balance - December 31, 2022
63,375,400 $
852,697 $
852,697
2021
Balance - December 31, 2020
Issuance of shares on exercise of options
Balance - December 31, 2021
19. Revenue
Number of
common shares
issued and
outstanding Common shares
Amount
Total
63,333,238 $
852,379 $
852,379
11,060
86 $
86
63,344,298 $
852,465 $
852,465
The following tables disclose the changes in deferred revenue and other for the year ended December 31, 2022 and
2021:
Gift cards
SCENE loyalty program
Advances, deposits and other
December 31,
2021
169,380 $
47,997
75,829
293,206 $
$
$
Additions
Recognized
78,653 $
—
22,116
100,769 $
75,418 $
25,552
72,478
173,448 $
December 31,
2022
172,615
22,445
25,467
220,527
SCENE loyalty program deferred revenue balance relates to SCENE point obligations issued up to December 12,
2021. New Scene+ points issued are recognized as advertising and promotion in other costs in the Consolidated
Statement of Operations.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
132
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
Gift cards
SCENE loyalty program
Advances, deposits and other
December 31,
2020
164,025 $
36,109
19,849
219,983 $
$
$
Additions
Recognized
38,264 $
33,241
67,410
138,915 $
32,909 $
21,353
11,430
65,692 $
December 31,
2021
169,380
47,997
75,829
293,206
In December 2020, Cineplex received $60,000 from its existing partner with respect to the agreement to reorganize
the program and reposition it for future growth. During the third quarter of 2022, Cineplex completed specific non-
financial milestones and as a result recognized a gain of $50,100 (classified under gain (loss) on disposal of assets
on the Consolidated Statement of Operations) related to the reorganization of Scene LP, realizing $50,500 of
advances, deposits and other. Approximately $5,100 remains in advances, deposits and other and will be recognized
as future performance obligations are completed. Approximately $2,500 remains in accounts payable and accrued
liabilities, and will be recognized as funding occurs. Recognition for both items is expected to occur in 2023.
The following tables provide the disaggregation of revenue into categories by nature for the three months and year
ended December 31, 2022 and 2021:
Year ended December 31,
2021
2022
$
461,272 $
236,320
Year ended December 31,
2021
2022
331,567 $
10,125
39,694
381,386 $
159,201
13,052
14,745
186,998
Year ended December 31,
2021
2022
72,275 $
39,453
111,728 $
32,958
32,372
65,330
$
$
$
$
Box revenues
Box office revenues
Food service revenues
Food service - theatres
Food delivery - theatres
Food service - location-based entertainment
Total food service revenues
Media revenues
Cinema media
Digital place-based media
Total media revenues
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
133
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
Amusement revenues
Amusement solutions excluding exhibition and LBE
Amusement solutions - exhibition
Amusement solutions - location based entertainment
Total amusement revenues
Other revenues
Other revenues
20. Other costs
Year ended December 31,
2021
2022
$
$
165,681 $
12,284
68,636
246,601 $
100,282
4,943
29,248
134,473
Year ended December 31,
2021
2022
$
67,575 $
33,548
Year ended December 31,
2022
2021
$
Employee wages, 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
Licenses and franchise fees
Insurance
Professional and consulting fees
Telecommunications and data
Bad debts
Equipment rental
Other costs
253,397 $
852
67,167
31,122
60,557
93,925
50,939
39,269
29,089
11,128
16,173
7,553
9,088
5,720
(239)
1,579
10,419
150,251
(12,978)
56,286
21,717
39,964
60,502
29,051
24,233
13,636
6,526
15,337
6,353
17,175
5,160
172
1,359
4,810
$
687,738 $
439,554
Cineplex operated at full capacity for a majority of the period, compared to the prior year period that was subject to
capacity restrictions, in some cases after months of extended closure periods. This resulted in an increase in other
costs during the current period. Cineplex recorded the following subsidies which have all been offset against their
related costs during the year ended December 31, 2022 and 2021:
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
134
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
Subsidies
Wage subsidy (CEWS and THRP)
Rent subsidy (CERS and THRP)
Realty tax subsidy
Utility subsidy
Total
21. Net income (loss) per share
Basic
Year ended December 31,
2022
2021
$
21,612 $
3,461
3,731
2,069
56,059
13,643
11,963
4,826
$
30,873 $
86,491
Basic earnings per share (“EPS”) is calculated by dividing the net income (loss) by the weighted average number of
shares outstanding during the period.
Net income (loss)
Weighted average number of shares outstanding
Basic EPS
Diluted
2022
2021
113 $
(248,722)
63,359,240
63,339,239
— $
(3.93)
$
$
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. For the year ended December 31, 2022, the options and debentures are anti-dilutive and the anti-dilutive
shares that have been excluded were 146,729 potential shares that would be issued under the treasury stock method
and 28,907,678 potential shares that would have been issued under the if-converted method relating to debenture
units outstanding. The options and debentures are anti-dilutive in 2021, as applicable.
Net income (loss)
Weighted average number of shares for diluted EPS
Diluted EPS
2022
2021
113 $
63,359,240
(248,722)
63,339,239
— $
(3.93)
$
$
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
135
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
22. Operating segments
Cineplex has four reportable segments; Film Entertainment and Content, Media, Amusement Solutions 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. Cineplex reports the total of its segments which is considered an other financial measure in accordance
with National Instrument 52-112 Non-GAAP and Other Financial Measures. The total segments measure includes a
non-GAAP measure, adjusted EBITDAaL and is described below.
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 businesses. Cinema media consists of all in-theatre advertising revenues and costs, including pre-
show, showtime 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 Solutions
Amusement Solutions is comprised of revenues and costs associated with operating and distributing amusement,
gaming and vending equipment.
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, loss (gain) on
disposal of assets, foreign exchange, the equity (income) loss of CDCP, 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.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
136
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
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.
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.
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, 2022 and 2021:
Year ended December 31, 2022
Major product and service lines
Box office
Food service
Media
Amusement
Other
Total revenues
Film
Entertainment
and Content
(i)
Amusement
Solutions
Location-
Based
Entertainment
Media (i)
Corporate and
other (iii)
Consolidated
$
461,272
$
341,692
$
—
—
—
110,674
—
—
—
12,284
66,127
—
—
165,681
—
$
— $
— $
39,694
1,054
68,636
1,448
—
—
—
—
461,272
381,386
111,728
246,601
67,575
$
881,375
$
110,674
$
165,681
$
110,832 $
— $
1,268,562
Primary geographical markets
Canada
$
881,375
$
102,515
$
54,687
$
110,832 $
United States and other countries
—
8,159
110,994
—
Total revenues
$
881,375
$
110,674
$
165,681
$
110,832 $
Timing of revenue recognition
Transferred at a point in time
$
881,375
$
15,037
$
165,681
$
110,832 $
Transferred over time
Total revenues
Adjusted EBITDAaL
—
$
$
881,375
26,976
$
$
95,637
110,674
60,393
—
$
$
165,681
27,471
$
$
—
110,832 $
— $
1,149,409
—
119,153
— $
1,268,562
— $
1,172,925
—
95,637
— $
1,268,562
31,294 $
(64,462) $
81,672
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
Provision for income taxes
(Reversal) impairment of long-lived assets
Net income
Other operating segment disclosures
(12,663)
(52,841)
105,197
60,826
(277)
1,197
(19,880)
$
113
Depreciation - right-of-use assets
$
86,711
Depreciation and amortization - other assets $
Interest expense - lease obligations
Goodwill balance
$
$
64,972
54,655
413,915
$
$
$
$
2,803
4,916
561
206,385
$
$
$
$
2,005
17,735
586
15,834
$
$
$
$
3,574 $
17,574 $
5,192 $
424 $
95,517
— $
105,197
848 $
61,842
— $
— $
636,134
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
137
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
Year ended December 31, 2021
Major product and service lines
Box office
Food service
Media
Amusement
Other
Film
Entertainment
and Content
(i)
$
236,320 $
172,253
—
4,943
33,258
Amusement
Solutions
Location-
Based
Entertainment
Media (i)
Corporate and
other (iii)
Consolidated
— $
—
64,852
—
—
— $
— $
— $
236,320
—
—
100,282
—
14,745
478
29,248
290
—
—
—
—
186,998
65,330
134,473
33,548
Total revenues
$
446,774 $
64,852 $
100,282 $
44,761 $
— $
656,669
Primary geographical markets
Canada
United States and other countries
Total revenues
Timing of revenue recognition
Transferred at a point in time
Transferred over time
Total revenues
Adjusted EBITDAaL
$
$
$
$
$
446,774 $
55,381 $
25,387 $
44,761 $
— $
572,303
—
9,471
74,895
—
—
84,366
446,774 $
64,852 $
100,282 $
44,761 $
— $
656,669
446,774 $
12,458 $
100,282 $
44,761 $
— $
604,275
—
52,394
—
—
—
52,394
446,774 $
64,852 $
100,282 $
44,761 $
— $
656,669
(64,769) $
27,588 $
8,709 $
5,778 $
(61,601) $
(84,295)
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:
16,617
(37,194)
113,042
65,138
(232)
3,339
3,717
$
(248,722)
Other adjustments (ii)
Depreciation and amortization - other assets
Interest expense - other
Interest income
Income taxes recovery
Impairment of long-lived assets
Net loss
Other operating segment disclosures
Depreciation - right-of-use assets
$
91,960 $
Depreciation and amortization - other assets $
69,140 $
Interest expense - lease obligations
Impairment of long-lived assets
Goodwill balance
$
$
$
51,778 $
3,717 $
2,803 $
4,674 $
367 $
— $
3,154 $
3,747 $
583 $
102,247
23,372 $
15,856 $
— $
113,042
519 $
— $
5,207 $
— $
— $
719 $
— $
— $
58,590
3,717
635,545
413,915 $
206,385 $
15,245 $
(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 change in fair value of financial instruments, loss (gain) on disposal of assets, CDCP equity (income) loss, 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 INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
138
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
23. Barter transactions
Cineplex occasionally enters into barter arrangements with other parties to exchange goods or services. During the
year ended December 31, 2022, Cineplex provided advertising and media services to third parties and recognized
advertising revenues of $1,276 (2021 - $941). Cineplex received sponsorship and advertising services in exchange,
recording marketing expenses of $936 (2021 - $1,311). 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.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
139
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
24. 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.
Joint ventures
Cineplex leased digital projection systems from CDCP up to April 2022, in the amount of $726 for the year ended
December 31, 2022 (2021 - $2,308).
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, 2022, Cineplex earned revenue of $602 for these
services (2021 - $402).
Cineplex incurred marketing expenses related to Scene+ point issuances from Scene LP in the amount of $16,933
for the year ended December 31, 2022 (2021 - $2,125).
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 compensation
2022
4,072 $
111
2,795
6,978 $
2021
4,051
73
2,487
6,611
$
$
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
140
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
25. 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
$
2022
2021
(25,414) $
(11,049)
(2,053)
41,562
1,861
(27,820)
(691)
(1,416)
(1,085)
(30,962)
(1,998)
(2,912)
76,097
65,705
13,416
(806)
881
(1,983)
$
(26,105) $
117,438
Property, equipment and leasehold purchases are included in accounts payable and accrued liabilities as at December
31, 2022, in the amount of $10,876 (2021 - $6,830).
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
141
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
26. Commitments and contingencies
Commitments
As of December 31, 2022, Cineplex has aggregate capital commitments as follows:
Capital commitments for operating locations to be completed or renovated during 2023 - 2026 (i)
Letters of credit
(i) The amounts are $32,362 for 2023 and $17,450 for 2024.
$
$
49,812
10,054
Other
Cineplex’s litigation with Cineworld including the damages awarded to Cineplex is discussed in detail in note 1 to
the financial statements. 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.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
142
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
27. Financial instruments
Fair value of financial instruments
The carrying value and fair value of Cineplex’s financial instruments at December 31, 2022 and 2021 are as follows:
Liability (Asset)
Convertible debentures
Notes payable
Bank debt
Other liabilities - equipment liabilities
Interest rate swap agreements, net
Deferred consideration - AMC
Embedded derivative on notes payable
2022
2021
Input
level
Carrying
value
Fair
value
Carrying
value
Fair
value
1
2
2
2
2
2
2
318,878
245,810
327,000
1,095
(11,419)
3,134
2,980
303,600
247,188
327,000
1,095
(11,419)
3,134
2,980
301,272
244,739
260,000
3,045
14,223
3,134
9,240
417,450
265,975
260,000
3,045
14,223
3,134
9,240
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 Sixth 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, Second, Third,
Fourth, Fifth and Sixth Credit Amendment Agreements. The bank debt is considered a Level 2 fair value
measurement. The carrying value of the bank debt reflects the fair value, as the debt bears floating interest at market
rates.
The equipment liabilities are recorded at amortized cost, as derived from expected cash outflows and Cineplex’s
estimated incremental borrowing rate at the date of entering into the lease arrangement, 5.1%. 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.
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 17, Other liabilities). There was no change in fair value of $3,134 for the year ended December 31, 2022.
The convertible debentures are publicly traded on the TSX, and are recorded at amortized cost (note 15, Long-term
debt).
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
143
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
The notes payable are publicly traded and are recorded at amortized cost based on Cineplex’s expected cash
outflows and reflects a monthly effective interest rate of 0.67% (note 15, Long-term debt).
The fair market value of the embedded derivative on notes payable was determined using an option pricing model
with observable market inputs consistent with accepted methods for valuing financial instruments (note 15, Long-
term debt).
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.
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 expected credit loss. 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 29, Significant accounting policies, judgments and estimation
uncertainty, for Cineplex’s policy on impairment of financial assets.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
144
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
The following schedule reflects the balance and age of trade receivables at December 31, 2022 and 2021:
Trade receivables carrying value
Percentage past due
Percentage outstanding more than 120 days
2022
2021
$
84,220
$
53,326
25 %
4 %
30 %
12 %
The following schedule reflects the changes in the expected credit loss for trade receivables during the years ended
December 31, 2022 and 2021:
Expected credit loss for trade receivables - Beginning of year
Expected credit loss (reversed) or recorded
Amounts written off
Expected credit loss for trade receivables - End of year
2022
1,230 $
(296)
(27)
907 $
2021
1,191
197
(158)
1,230
$
$
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.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
145
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
The table below reflects the contractual maturity of Cineplex’s undiscounted cash flows for its financial liabilities
and interest rate swap agreements:
Contractual obligations
Total
Within
1 year
2 - 3
years
4 - 5
years
After
5 years
2022
Payments due by period
Accounts payable and accrued liabilities
Long-term debt
Interest on long-term debt
Equipment obligations
Deferred consideration - AMC
Convertible debentures
Convertible debentures interest
Notes payable
Notes payable interest
— $
$ 195,296 $ 195,296 $
327,000
42,243
1,095
3,134
316,250
49,969
250,000
63,393
—
22,575
682
—
—
18,184
—
19,910
327,000
19,668
320
3,134
316,250
31,785
—
40,121
— $
—
—
93
—
—
—
250,000
3,362
Total contractual obligations
$ 1,248,380 $ 256,647 $ 738,278 $ 253,455 $
—
—
—
—
—
—
—
—
—
—
2021
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
Notes payable
Notes payable interest
$ 157,950 $ 157,950 $
— $
— $
14,223
260,000
33,539
3,045
3,134
316,250
68,154
250,000
78,083
8,063
—
17,950
1,963
—
—
18,184
—
18,750
5,081
260,000
15,589
829
3,134
—
36,369
—
37,552
1,079
—
—
160
—
316,250
13,601
250,000
21,781
Total contractual obligations
$ 1,184,378 $ 222,860 $ 358,554 $ 602,871 $
—
—
—
—
93
—
—
—
—
—
93
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
146
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
Existing lease commitments are disclosed in note 14, Lease obligations. Cineplex also has significant new theatre
and other capital commitments (note 26, Commitments and contingencies), as well as contingent obligations in the
form of letters of credit, guarantees and the Incentive Plan for options, RSUs, and PSUs.
New capital commitments not funded through cash flows from operations will be funded through Cineplex's
Revolving Facility. Management believes that Cineplex's cash flows from operations and the Revolving Facility will
be adequate to support all of its financial liabilities.
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 9.4% (2021 - 12.8%) 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, 2022 would have increased other comprehensive income by $2,658 and increased net income by $47.
An assumed decrease of 10% in exchange rates at December 31, 2022 would have decreased other comprehensive
income by $3,107 and decreased net income by $47.
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 Credit Facility, which bears interest at floating rates.
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, 2022, Cineplex recorded non-cash interest income of
$22,072 relating its interest rate swaps (2021 - interest income of $12,730).
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
147
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
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, 2022 and 2021 of a 1% change in interest rates management believes is reasonably
possible:
2022
Pre-tax effects on net income - increase (decrease)
1% decrease
in interest rates
1% increase
in interest rates
Financial liability (asset)
Carrying value of
financial liability
(asset)
Net income
Net income
Long-term debt
Interest rate swap agreements - net
$
327,000 $
(11,419)
$
3,351 $
(5,944)
(2,593) $
(3,351)
6,398
3,047
2021
Pre-tax effects on net income - increase (decrease)
1% decrease
in interest rates
1% increase
in interest rates
Financial liability
Carrying value of
financial liability
Net income
Net income
Long-term debt
Interest rate swap agreements - net
$
260,000 $
14,223
$
$
2,911
(9,772)
(6,861) $
(2,911)
9,461
6,550
The carrying value of the interest rate swaps asset was $11,419 at December 31, 2022. If interest rates changed plus
or minus 1% from existing estimates throughout the contract period, the carrying value would increase to $17,817 or
decrease to $5,475, primarily affecting interest expense.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
148
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
28. 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:
a) equity;
b) long-term debt, convertible debentures, notes payable and finance lease obligations, including the current
portion;
c) fair value of 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 Total 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.
Cineplex is subject to certain covenants on its credit facilities agreement, which defines certain non-GAAP terms
and measures. The Total Leverage Ratio may not exceed 3.75 to 1, and will be reduced over the course of 2023 each
quarter until it is at 3 to 1 for the third quarter of 2023. The addition of a Senior Leverage Ratio set at 1.0x lower
than the Total Leverage Ratio was included as part of the third amendment to the credit agreement. Growth capital
expenditures will be permitted subject to a pro forma Total 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. Management continues to focus on reducing its
cost of capital. During 2021, Cineplex completed the offering of Notes Payable for $250,000 aggregate principal
amount and repaid its Term Facility in full. In 2022 and 2021, Cineplex’s capital composition, objectives or
strategies all changed in response to the substantial business challenges of COVID-19.
29. 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 INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
149
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
Cineplex prepares its consolidated financial statements in accordance with International Financial Reporting
Standards (“IFRS”). 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 22, 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
and contingent liabilities assumed in a business combination are measured initially at their fair values at the
acquisition date. Cineplex recognizes any non-controlling interest in the acquiree at fair value of the recognized
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 recognized in profit or loss.
Any contingent consideration to be transferred by Cineplex is recognized 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
recognized 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.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
150
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
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 recognized
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 recognized directly in the statement of operations.
Inter-company transactions, balances and unrealized 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 recognized at cost, and the
carrying amount is increased or decreased to recognize 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 recognizes the amount in the statement of operations.
Profits and losses resulting from upstream and downstream transactions between Cineplex and its associate are
recognized in the group’s financial statements only to the extent of unrelated investor’s interests in the associates.
Unrealized 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.
Dilution gains and losses arising in investments in associates are recognized 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 recognized at cost and
adjusted thereafter to recognize 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 recognize further losses, unless it has incurred obligations or made payments on
behalf of the joint venture or associate.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
151
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
Unrealized 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. Unrealized 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 GP has been recognized in
Cineplex’s consolidated financial statements. Inter-company transactions between Cineplex and Scene GP are
eliminated to the extent of Cineplex’s interest. As part of the ongoing reorganization of Scene GP which began in
December 2020, Cineplex and its loyalty partner launched Scene+ on December 13, 2021 and as a result, Cineplex
began equity accounting for its then 50% economic interest in Scene LP, the operator of the Scene+ loyalty program.
Cineplex holds a 1/3rd ownership interest in Scene LP as at December 31, 2022
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.
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.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
152
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
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 recognized 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.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
153
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
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:
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.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
154
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
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, expected credit losses will be measured on either of the following bases:
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
credit loss 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, 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 on average cost methodology. 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 cost is
determined on a specific-item basis, and 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.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
155
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
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, if estimated, is recognized for the
amount by which the CGU’s carrying value exceeds its recoverable amount. Management makes assumptions and
estimates in determining the recoverable amount of its long lived assets and groups of CGUs’ goodwill, including
significant key assumptions relating to attendance and the related revenue growth rates and discount rates. Further,
other assumptions are required pertaining to variable and fixed cash flows, and operating margins. (See note 11,
Impairment of long-lived assets).
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.
Cineplex groups CGUs based on trade name in testing indefinite-lived trade names for impairment.
A reversal of impairment, if estimated, is recognized to a limit of increasing the carrying amount to the lower of the
recoverable amount and the carrying amount that would have been determined (net of depreciation) had no
impairment loss been recognized in prior periods.
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 INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
156
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
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.
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.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
157
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
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.
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.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
158
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
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 as a result of the terms of the Arrangement Agreement, 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 compensation liability, and changes in value were
reflected in the statement of operations. Stock options impacted by the termination of the Arrangement
Agreement were revalued and accounted for as equity-settled and any previously recognized share based
compensation liability was reclassified to contributed surplus. The accelerated recognition of unvested
options was reversed and is being recognized over their remaining vesting periods at the value determined
at March 31, 2020. Forfeitures are estimated to be nominal, based on historical forfeiture rates.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
159
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
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. Cineplex also issues RSUs
and PSUs that will be equity settled and will fully vest at the completion of the performance period
determined by management at the time of issuance.
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.
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.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
160
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
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. Until December 12, 2021, Cineplex recorded deferred revenue for Scene points issued with respect
to retail transaction, based on the relative stand-alone selling price of the points issued. The deferred revenue
associated with the points redeemed were recognized as revenue when points were redeemed by customers or in
accordance with Cineplex’s accounting policy for breakage. Beginning December 13, 2021, as a result of the the
launch of Scene+, Scene+ points issued in association with Cineplex revenue transactions are accounted for as
marketing expense.
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.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
161
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(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.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
162
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
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
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.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
163
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
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.
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. 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 triggering events and
changes in circumstances indicate that the carrying amount of the asset group may not be fully
recoverable. Management makes key assumptions and estimates in determining the recoverable amount
of its long lived assets and groups of CGUs’ goodwill, including attendance and the related revenue
growth rates, variable and fixed cash flows, operating margins and discount rates (note 11, Impairment of
long-lived assets).
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. Cineplex also has a prepayment option on the Notes Payable. The fair market value of
prepayment option on Notes Payable was determined using an option pricing model with observable
market inputs consistent with accepted methods for valuing financial instruments.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
164
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
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.
SCENE
The timing and number of points redeemed by Scene+ members affects the timing and amount of both
revenue and cost of redemptions recognized by Cineplex. If the number of points actually redeemed by
members is lower than Cineplex’s estimate of points expected to be redeemed, the estimate of average
revenue per point will be prospectively revised, and net income would be higher over time.
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 will assess the recoverability of deferred tax assets as economic conditions improve.
As described in note 2, Business impacts, risks and liquidity, there are material uncertainties relating to
the recoverability of losses incurred in the current year. Accordingly, no deferred tax assets were
recognized in the current period. 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.
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.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
165
Cineplex Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
—————————————————————————————————————————————
(expressed in thousands of Canadian dollars, except per share amounts)
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.
Amendments to existing accounting standards
The International Accounting Standards Board (“IASB”) has published a number of amendments to existing
accounting standards effective for years beginning on or after January 1, 2023. Cineplex continues to evaluate the
impact of the amended accounting standards on Cineplex’s consolidated financial statements and has not early
adopted any amendments to existing accounting standards.
The following amendments are currently being evaluated by Cineplex:
IAS 12, Deferred taxes related to assets and liabilities arising from a single transaction
In May 2021, the IASB issued deferred tax related to assets and liabilities arising from a single transaction. The
amendments narrowed the scope of the recognition exemption in paragraphs 15 and 24 of IAS 12 (recognition
exemption) so that it no longer applies to transactions that, on initial recognition, give rise to equal taxable and
deductible temporary differences.
IAS 1, Classification of liabilities as current or non-current
In December 2020 the IASB published classification of liabilities as current or non-current (2020 amendments). The
2020 amendments clarified aspects of how entities classify liabilities as current or non-current.
IAS 8, Definition of accounting estimates
In February 2021, the IASB issued definition of accounting estimates, which amended IAS 8, Accounting Policies,
Changes in Accounting Estimates and Errors. The amendments introduced the definition of accounting estimates
and included other amendments to IAS 8 to help entities distinguish changes in accounting estimates from changes
in accounting policies.
CINEPLEX INC. 2022 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
166
Cineplex Inc.
Investor Information
—————————————————————————————————————————————
BOARD OF DIRECTORS
INVESTOR RELATIONS
Gord Nelson
Chief Financial Officer
Cineplex Inc.
Mahsa Rejali
Vice President,
Corporate Development & 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
TSX Trust Company
Toronto, ON
416-682-3860
800-387-0825
Email: shareholderinquiries@tmx.com
www.tsxtrust.com
ANNUAL AND SPECIAL MEETING
Wednesday May 24, 2023
9:00AM EDT
Virtual
Jordan Banks (4)
Corporate Director
Toronto, ON
Robert Bruce (5)
Corporate Director
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
(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. 2022 ANNUAL REPORT
INVESTOR INFORMATION
167