Cineplex Entertainment Limited Partnership (CGX.UN) 2004年年度報告「TSX」.pdf

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1、2004 ANNUAL REPORTCINEPLEX GALAXY INCOME FUND We are proud of our cinema general managers and the role they play in leading our front line staff.They provide an exceptional movie-goingexperience for our guests in addition to contributing to and activelyparticipating in the communities where we opera

2、te.HIGHLIGHTS PEOPLE+COMMUNITIES53500+dedicated and passionate employeesEXPERIENCE+TECHNOLOGY7New technology to enhance the guest experienceENTERTAINMENT+DESTINATIONS932 million guests per yearGROWTH+MOMENTUM11Expanding and rebranding cinemas across CanadaACHIEVEMENTSCineplex Odeon Cinemas are locat

3、ed in major metropolitan markets and inprominent locations and high-traffic areas.Galaxy Cinemas are focused onproviding a premium entertainment destination within mid-sized communities.So whether its Vancouver or Montreal,Lethbridge or Orillia,Cineplex Galaxyhas created outstanding results that far

4、 exceed a simple one plus one.TWO CINEMA BRANDS ONE COMPANYOUTSTANDING RESULTS775 SCREENS86 CINEMAS32 MILLION GUESTSPER YEARTwo brands.Cineplex Odeon and Galaxy Cinemas.Now one company.An exceptional entertainment powerhouse.CINEPLEX GALAXYLETTER TO UNITHOLDERSIt is my pleasure to present the operat

5、ing results of theCineplex Galaxy Income Fund.This past year has beentremendously productive and exciting.It was just over a year ago that we merged Cineplex Odeon Cinemas and Galaxy Cinemas.Since that time,I am proud to say that ourachievements together have been numerous,which you will see later i

6、n the report.When we created the company in late 2003,we stated our planwas to“strategically expand the number of theatre locations,maximize unitholder value and provide an outstanding movie-going experience for all our guests.”In 2004,we did exactly that we opened three new theatres and expanded an

7、d rebranded two others.We have also announced future projects in othermarkets and will have more to announce in the coming months.In terms of unitholder value,we are very pleased with the unitsperformance since the IPO.The value of the units has increasedsubstantially and we have consistently delive

8、red our cash distributions on a monthly basis.For our more than 32 million moviegoers the results are equallypositive.We have invested in our theatres by upgrading themwhere required,enhancing and expanding our food service,adding new game areas and continuing to expand our specialtyprogramming opti

9、ons.Additionally,we continue to invest in our people,providing them with new and enhanced training and fostering an environment that enables them to be creativeand rewards them for providing exceptional guest service.We believe 2005 will be a great year,with the realization of manyof the new initiat

10、ives that were started this past year coming tofruition.We are particularly excited about the new digital pre-showadvertising network and our new point of sale system,believingthat they will dramatically impact our business moving forward.On a final note,I would like to thank our guests for their va

11、luedbusiness and our unitholders for their support.I would also like to thank our many employees and senior management teamfor making 2004 a year of substantial progress and growth.Sincerely yours,Ellis JacobSUCCESSFUL INTEGRATIONOF TWOCOMPANIES INTO ONEBill Soady,Executive Vice President,Film Dan M

12、cGrath,Executive Vice President Robert OBrien,Vice President,HumanResources/Payroll Ellis Jacob,President and ChiefExecutive Officer Jeffrey Kent,Chief TechnologyOfficer Gord Nelson,Chief FinancialOfficer 3“Ellis Jacob”CINEPLEX ODEONQUEENSWAY CINEMASTORONTO,ONTARIOPEOPLECINEPLEX ODEONMEADOWTOWN CENT

13、RE CINEMASPITT MEADOWS,BRITISH COLUMBIA5CINEPLEX GALAXY INCOME FUND 2004 ANNUAL REPORTAT CINEPLEX GALAXY,our goal is tocreate a company that offers ourguests the best entertainmentexperience while also giving our unitholders the best return on theirinvestment.Our commitment toachieving this goal is

14、reflected in our mission statement:PassionatelyDelivering an ExceptionalEntertainment Experience.OUR PEOPLE AND THE COMMUNITIESweserve are at the heart our continuedsuccess.The over 3,500 managers andstaff across the country deliver ourpromise of providing an exceptionalentertainment experience to m

15、orethan 32 million guests each year.Theyare active and responsible members of their communities who take pride insupporting local charity organizations,causes and non-profit groups.THEATRE MANAGEMENT AND STAFFare keycontributors to our profitability.Ourgeneral managersare entrepreneursrunning a busi

16、ness with monthly profitand loss responsibility for their cinemas.They are talented men and womenpassionate about what they do andcommitted to delivering an exceptionalentertainment experience.Our stafftraining and incentive programs aredesigned to maximize concession sales and motivate our staff to

17、 alwaysprovide excellent guest service.Everycinema staff member strives to dowhatever it takes to improve theexperience for our guests whatevertheir needs may be.OUR HEAD OFFICE AND REGIONAL STAFFare a dedicated group of people whoare focused on supporting the cinemateams to deliver the best service

18、 toour guests and the best return oninvestment to our unitholders.Ourleadership team is one of the finest in the North American exhibitionbusiness.Our executives are experts in their respective fields and collectively they are committed to making Cineplex Galaxy the bestmotion picture exhibitor in t

19、he country.1+1=3500+DEDICATEDAND PASSIONATE EMPLOYEES Corporately,we are committed tosupporting charitable causes bothlocally and nationally.In 2004,weraised$240,000 for Spotlight on the Cure,a fundraising initiative we created to support the CanadianBreast Cancer Foundation.We raisedmore than$100,0

20、00 for VarietyVillage the Childrens Charity.TheStarlight Film Festival,a program wecreated for teens,also raised over$100,000 for numerous United Waychapters across the country.Cineplex Galaxy is proud to be involvedin local charity fundraising.Each year,communities across the country raisethousands

21、 of dollars for various causeswith the help of their neighbourhoodCineplex Odeon or Galaxy Cinema.COMMUNITYGALAXY CINEMAS GUELPH GUELPH,ONTARIOEXPERIENCE 7CINEPLEX GALAXY INCOME FUND 2004 ANNUAL REPORTTODAYS MOVIE-GOING EXPERIENCEis verydifferent from 10 or 20 years ago.Improved cinema design,stadiu

22、mseating,digital sound systems,giantscreens,new speciality programming,a multitude of quality food choices andinnovative technology all contribute tothis enhanced experience.IN2004,PLANS FOR A NEWDigital Pre-Show Advertising Network were announced.Digital projectors at 215 cinemas across the Toronto

23、extended market area will enable us to provide a 20-minute pre-showbefore the feature film that combinesmovie-specific entertainment withpaid advertising.The same technologyenables us to show digital presentationson the big screen,including live pay-per-view events such as concerts,World Wrestling E

24、ntertainment,majorsporting events and console-basedvideo game tournaments.Innovativeprogramming combined with state-of-the-art technology expands theguest experience and increases ourrevenue growth.OUR INVESTMENT IN NEWpoint of sale(POS)technology provides us with the infrastructure to improve ourbu

25、siness processes and implement our new customer loyalty program,planned for roll out in 2005.Thistechnology will facilitate collectingand analyzing detailed informationabout our guests buying habits,which will make our business and staffing decisions more specific and effective.WE ARE COMMITTEDto in

26、vesting intechnology to continuously improveour business practices and the guest experience.1+1=NEW TECHNOLOGY TOENHANCE THE GUEST EXPERIENCE Our new online ticketing service,JUMP!allows guests to purchasemovie tickets online and collectthem from automated ticketmachines in the cinemas,providingfast

27、er service and the opportunityto avoid box office lineups.Soon,guests will be able to print theirtickets at home,therefore avoidingbox office lineups altogether.TECHNOLOGYCINEPLEX ODEONMEADOWTOWN CENTRE CINEMASPITT MEADOWS,BRITISH COLUMBIAENTERTAINMENT9CINEPLEX GALAXY INCOME FUND 2004 ANNUAL REPORTC

28、INEPLEX GALAXY CINEMASareentertainment destinations situated in prime locations within their localcommunities.They offer a wide rangeof entertainment choices,from thelatest Hollywood blockbusters andcritically acclaimed festival films tothe newest video game technology.Special events and alternative

29、programming are becoming almost standard offerings at manyneighbourhood Cineplex Odeon and Galaxy Cinemas.Whateverentertainment option you choose,we are committed to making sure we provide the best entertainmentexperience possible.In fact,we have tied this commitment to ourcorporate identity with th

30、e tag line:Experience Entertainment.FOOD CHOICES HAVE CHANGEDdramaticallyas well.In addition to the must-havetraditional fare of soft drinks,candyand popcorn,our cinemas feature a continually evolving and variedselection of hot foods such as pizza,fresh-cut French fries,hot dogs,sausages and chicken

31、 tenders.Many also feature Yogen Frz frozenyogurt,premium ice creams andspeciality coffees.Each of thesecontributes to increasing ourconcession revenues.MOST OF OUR CINEMASnow featureentertainment centres with the latest in electronic video games and interactive entertainment.Thisenhancement to our

32、business modelprovides entertainment to our guestsand new revenue streams for ourbottom line.Many cinemas alsofeature specially designed birthdayparty rooms offering special birthdaypackages.This year,we partnered with The Walt Disney Company to offerDisney-themed birthday party roomsfeaturing chara

33、cter-specific partypackages in selected Cineplex Odeoncinemas across the country.1+1=32 MILLIONGUESTS PER YEAROur cinemas are the ideal destinationfor parents wanting to provide their children with an extra-specialbirthday party experience.We havespecially designed birthday partyrooms in many of our

34、 cinemas thatfeature creative party packagesplanned to maximize fun for the kids and minimize stress for mom and dad.Before or after the party,kids of all ages can visit our gamecentres to experience the latest invideo and electronic games.DESTINATIONSGROWTHCINEPLEX ODEONMEADOWTOWN CENTRE CINEMASPIT

35、T MEADOWS,BRITISH COLUMBIAGALAXY CINEMAS ORILLIAORILLIA,ONTARIOGALAXY CINEMAS ORILLIAORILLIA,ONTARIOCINEPLEX ODEONMEADOWTOWN CENTRE CINEMASPITT MEADOWS,BRITISH COLUMBIAWe continue to focus on otherrevenue opportunities andanticipate increased revenuesfrom our new Digital Pre-ShowAdvertising Network

36、andadditional revenue from games,gift certificates and corporateticket sales.Last year,corporate discount ticketrevenues increased by 66%.We expect concession revenuesto continue to deliver strongreturns as we identify moreopportunities to market andpromote this key area of our business.11CINEPLEX G

37、ALAXY INCOME FUND 2004 ANNUAL REPORTOUR PLANis to strategically expand the number of cinema locations while maximizing unitholder value and provide an outstanding theatreexperience for all our guests.In 2004,Cineplex Galaxy opened three newcinemas and these included a 10screen Galaxy Cinema in Guelp

38、h,ON,a six-screen Galaxy Cinema in Orillia,ON,and our new prototype CineplexOdeon 10 screen cinema in PittMeadows,BC.We expanded and re-branded two cinemas:the Lethbridge,AB cinema to Galaxy Cinema Lethbridgeand the Sherbrooke,QC cinema toGalaxy Cinema Sherbrooke.STRATEGIC GROWTH IN2005will comefrom

39、 four main areas:1)opening newcinemas and refurbishing and addingnew screens to existing locations;2)increasing revenue generated perpatron 3)increasing attendancefrequency and 4)increasing ancillary revenues.CINEPLEX GALAXY IS THE ONLY EXHIBITORin Canada that is actively developingnew cinemas.Real

40、estate developerscontinue to work with us to anchortheir prime projects.We haveannounced plans to open newcinemas across the country,includingthe Ontario communities of Aurora,Barrhaven(outside Ottawa),Brockvilleand Oakville and also in Brossard,QC,on the south shore of Montreal.Wealso plan to expan

41、d the number ofscreens at certain cinemas that haveexceededour expectations.As part of our two-tier brand strategy,we willrebrand Cineplex Odeon Cinemas inBarrie,ON,Medicine Hat and GrandePrairie,AB,and Kamloops,BC.PROOF THAT OUR PLAN WORKS,last year,Cineplex Galaxy outperformed NorthAmerican and Ca

42、nadian box officereturns.With a strong team and solid plan in place,we will continue to identify opportunities to provide anexceptional entertainment experiencein markets across the country.1+1=EXPANDING AND REBRANDINGMOMENTUMCINEPLEX GALAXYMANAGEMENTS DISCUSSION AND ANALYSIS 2004 ANNUAL REPORT12Cin

43、eplex Galaxy Income Fund indirectly owns an approximate 42.1%interest in Cineplex Galaxy LimitedPartnership.Cineplex Galaxy Income Fund does not consolidate the results and operations of CineplexGalaxy Limited Partnership.For this reason we present audited financial statements with accompanyingnotes

44、 therein for both Cineplex Galaxy Income Fund and Cineplex Galaxy Limited Partnership.Thefollowing managements discussion and analysis of the Cineplex Galaxy Limited Partnership financialcondition and results of operations should be read together with the financial statements and related notes.This

45、discussion contains forward-looking statements.Forward-looking statements are subject by theirnature to risks and uncertainties,and actual results,actions or events could differ materially from thoseset forth in this discussion.The forward-looking information contained herein is current only as at t

46、he dateof this document.There should not be an expectation that such information will in all circumstances beupdated,supplemented or revised whether as a result of new information,changing circumstances,futureevents or otherwise.Additional information,including Cineplex Galaxy Income Funds Annual In

47、formationForm(AIF)can be found on SEDAR at .OVERVIEWCineplex Galaxy Limited Partnership(the“Partnership”)is Canadas second largest film exhibitioncompany with theatres in six provinces.The Partnerships theatre circuit is concentrated in majormetropolitan and mid-sized markets with principal geograph

48、ic areas being Toronto,Montreal,Vancouver,Calgary,Edmonton,Ottawa and Quebec City.As of December 31,2004,the Partnershipowned,operated or had an interest in 775 screens in 86 theatres including 57 screens in seven theatres held in joint ventures.The Partnership was formed on November 26,2003 to acqu

49、ire substantially all of the business assets of Cineplex Odeon Corporation(“COC”)and all of the shares of Galaxy Entertainment Inc.(“GEI”).The Partnerships investors include Cineplex Galaxy Trust(the“Trust”),Cineplex Galaxy GeneralPartner Corporation(the“General Partner”),certain Canadian subsidiari

50、es of Loews CineplexTheatres,Inc.(“LCT”),which were sold to an entity controlled by Onex Corporation(“Onex”)on July 30,2004,and former investors in GEI.The Trust is wholly owned by Cineplex GalaxyIncome Fund(the“Fund”).The Fund is an unincorporated,open-ended,limited purpose trust created on October

51、 2,2003 forthe express purpose of indirectly acquiring an interest in the Partnership.On November 26,2003the Fund issued 17.5 million units at$10.00 per unit and on December 24,2003 the underwritersexercised their over-allotment option to purchase an additional 1.9 million units at$10.00 per unit.Af

52、ter giving effect to the over-allotment,the Fund indirectly owned an approximate 40.8%interestin the Partnership.Under the provisions of an Exchange Agreement designed to facilitate the exchange of units of thePartnership into units of the Fund,the Fund issued 623,689 units during the year ended Dec

53、ember31,2004,in exchange for Notes and Units from the Trust and,as a result,an indirect increase in its ownership in the Partnership.As a result of the issuance of units by the Fund,in a one-for-oneexchange of Partnership units,as at December 31,2004,the Fund indirectly owned approximately42.1%of th

54、e Partnership.Managements Discussion and Analysis ofFinancial Condition and Results of OperationsCINEPLEX GALAXY 2004 ANNUAL REPORT MANAGEMENTS DISCUSSION AND ANALYSIS13BUSINESS STRATEGYThe Partnership business strategy is to continue to enhance its position as a leading film exhibitor inthe Canadia

55、n market by focusing on providing customers with a premium movie-going experience.Key elements of this strategy include:Leveraging Market Specific Operating FocusThe Partnership utilizes its distinct Cineplex Odeon and Galaxy brands and market specific operatingfocus to serve the widest range of mar

56、kets with a premium movie-going experience tailored to thespecific needs of each location.The Cineplex Odeon brand is among the oldest in the industry and is recognized for providing premium quality theatre experiences.Most Cineplex Odeon theatres arelocated in major metropolitan markets at prominen

57、t locations in high traffic areas.The Galaxy brand is focused on providing a premium movie-going experience in formerly underserved mid-sized marketsin order to become a primary entertainment destination within the community.The Partnershipsoperating strategy includes a concentrated local marketing

58、effort and community interaction in allmarkets.Management currently believes there is an opportunity to apply Galaxys market-specificoperating focus to a number of existing Cineplex Odeon theatres located in mid-sized markets.Maximizing Operating EfficienciesThe Partnerships prominent market positio

59、n enables it to effectively manage film,concession and other theatre-level costs,thereby maximizing operating efficiencies.The Partnership seeks to achieve incremental operating savings by,among other things,implementing best practices and negotiating improved supplier contracts.Capitalizing on Anci

60、llary Revenue OpportunitiesThe Partnership seeks to expand and further develop ancillary revenue opportunities,such asadvertising,promotions,games and special events.These activities generate attractive margins and involve limited incremental operating expense.The combination of Cineplex Odeon theat

61、resand Galaxy theatres gives the Partnership the ability to offer advertisers a larger number of screens,which increased advertising revenue for the Partnership.Management believes that thePartnerships size and market position allow it to exploit new ancillary revenue opportunities more quickly and

62、profitably than most of its competitors.Pursuing Selected Growth OpportunitiesThe Partnership seeks to enhance its competitive position by seeking selected complementarydevelopment opportunities,improving and refurbishing theatres and pursuing selective acquisitionopportunities.The Partnership only

63、pursues expansion opportunities that meet certain strategic and financial return criteria.The Partnerships new theatre strategy focuses on locations unserved by amodern multiplex theatre in expanding urban and suburban markets as well as mid-sized communities.Management believes that the Partnership

64、 has the financial strength,experience and flexibility topursue attractive development and acquisition opportunities that are accretive to the Fund.During2004,the Partnership opened three new theatres and expanded an existing theatre.The new theatres that were opened included locations in Guelph,Ont

65、ario(ten screens),Pitt Meadows,BritishColumbia(ten screens)and Orillia,Ontario(six screens).In addition,the Partnership added fourscreens to its existing theatre in Lethbridge,Alberta.The Partnership has announced its plans to openManagements Discussion and Analysis ofFinancial Condition and Results

66、 of OperationsCINEPLEX GALAXYMANAGEMENTS DISCUSSION AND ANALYSIS 2004 ANNUAL REPORT14in 2005 a ten screen theatre in Aurora,Ontario,a six screen theatre in Brockville,Ontario and a sevenscreen theatre in Barrhaven,Ontario.In addition,the Partnership plans to open a twelve screen theatrein the spring

67、 of 2006 in Burlington-Oakville,Ontario and a sixteen screen theatre in Montreal,Quebec.REVENUE AND EXPENSESRevenuesThe Partnership generates revenues primarily from box office and concession sales.These revenues are affected primarily by attendance levels and by changes in the average per patron ad

68、mission andaverage concession revenue per patron.The commercial appeal of the films released during the periodand the success of marketing and promotion for those films by film studios and distributors drivesattendance.Average admissions per patron are affected by the mix of film genres(e.g.,its app

69、eal to certain audiences,such as children,teens or young adults)and established ticket prices.Averageconcession revenue per patron is affected by concession product mix,concession prices and type offilm.In addition,the Partnership generates other revenues from screen advertising sales,promotionalact

70、ivities,game rooms,screenings,private parties,corporate events and theatre management fees.ExpensesFilm cost represents the film rental fees paid on films exhibited in the Partnerships theatres.Filmcosts are calculated as a percentage of box office revenue and vary directly with changes in boxoffice

71、 revenue.Film costs are accrued on the related box office receipts at either mutually agreed-upon terms,established prior to the opening of the film,or on a mutually agreed settlement uponconclusion of the films run,depending upon the film licensing arrangement.Cost of concessions represents the cos

72、t of concession items sold and vary directly with changes inconcession revenue.Occupancy costs include lease related expenses,property and business related taxes and insurance.Lease expenses are primarily a fixed cost at the theatre level because the Partnerships theatre leasesgenerally require a fi

73、xed monthly minimum rent payment.However,a number of the Partnershipstheatre leases also include a percentage rent clause whereby the landlord is paid an additionalamount of rent based primarily upon revenues over a specified threshold.Other theatre operating expenses consist of fixed and variable e

74、xpenses,including marketing andadvertising,salaries and wages,utilities and maintenance.Certain operating costs,such as salariesand wages,will vary directly with changes in revenues and attendance levels.Although theatresalaries and wages include a fixed cost component,these expenses vary in relatio

75、n to revenues astheatre staffing levels are adjusted to handle fluctuations in attendance.General and administrative expenses are primarily costs associated with executive and corporatemanagement and the overhead of the Partnerships business,which includes functions such as filmbuying,marketing and

76、promotions,operations and concession management,accounting and financialreporting,legal,treasury,construction and design,real estate development and administration andinformation systems.The Partnerships general and administrative costs primarily consist of payroll,occupancy costs related to its cor

77、porate office in Toronto,Ontario,professional fees(such as publicManagements Discussion and Analysis ofFinancial Condition and Results of OperationsCINEPLEX GALAXY 2004 ANNUAL REPORT MANAGEMENTS DISCUSSION AND ANALYSIS15accountant and legal fees)and travel and related costs.The Partnerships general

78、and administrativestaffing and associated costs are maintained at a level that it deems appropriate to manage andsupport the size and nature of its theatre portfolio and its business activities.Accounting for Joint VenturesThese financial statements incorporate the operating results of joint venture

79、s in which thePartnership has an interest using the proportionate consolidation method as required by generally accepted accounting principles in Canada(“GAAP”).RESULTS OF OPERATIONSThe following table presents summarized financial data for the Partnership for the three most recentlycompleted financ

80、ial years(expressed in thousands of dollars except per unit and per patron data).200420032002(ii)Total Revenue$353,738$335,752$325,287 Cost of Operations279,207274,955 271,813 Income from Operations74,53160,797 53,474 Amortization23,73620,113 17,765 Gain on disposal of theatre assets(111)(92)(7,253)

81、Interest on long-term debt8,280 4,020 2,612 Interest on loan from Cineplex Galaxy Trust14,000 1,381 0 Interest Income(473)(922)(370)Foreign exchange Gain0(3,696)14,420Income Taxes(1,149)366 429 Other-(374,881)(iv)Non-Controlling Interest-304 927 Net Income$30,248$39,323$399,825 Net income per unit,b

82、asic and fully diluted$0.6359 n/a(iii)n/a(iii)Total Assets$325,430$319,262$299,985 Total long term financial liabilities$225,512$210,067$35,121 Cash distributions declared per unit$1.1496$0.1118(i)-Box office Revenue per patron$7.40$7.24$6.93 Concession revenue per patron$3.00$2.88$2.76 Film Cost as

83、 a percentage of Box office Revenue51.5%52.1%52.7%Attendance31,81831,10731,772(i)Distribution declared in 2003 related to the period November 26 to December 31,2003(ii)For comparative purposes includes the twelve months ended December 31,2002 for Cineplex Odeon Corporation and Galaxy Entertainment I

84、nc.(iii)The formation of the Partnership was accounted for under the continuity of interests approach,as there was no substantive change in the ultimate ownership interests.Accordingly,the consolidated financial statements reflect the results of operations as if the Partnership has always carried on

85、 the businesses formerly carried on by COC and GEI.Net income per unit is presented for the Partnerships first full year since formation on November 26,2003.(iv)Other includes costs incurred during the period January 1 to March 31,2002 by Cineplex Odeon Corporation for restructuring charges,reorgani

86、zation costs and gain on settlement of liabilities subject to compromise.Managements Discussion and Analysis ofFinancial Condition and Results of OperationsCINEPLEX GALAXYMANAGEMENTS DISCUSSION AND ANALYSIS 2004 ANNUAL REPORT16Management calculates distributable cash flow per unit for the Partnershi

87、p as follows(expressed in thousands of dollars except per unit data):Year EndedNovember 26,2003 December 31,2004to December 31,2003Cash provided by operating activities$40,110$29,623Less:Changes in operating assets and liabilities(i)7,808(19,181)Total Capital expenditures(22,803)(962)Add:Interest on

88、 loan from Cineplex Galaxy Trust(ii)14,0001,381New theatre capital expenditures(iii)17,653653POS/Rebranding capital expenditures(iv)1,659-Distributable$58,427$11,514Number of units outstanding(fully diluted)47,566,97447,566,974Distributable cash per unit(fully diluted)$1.2283$0.2421(i)Changes in ope

89、rating assets and liabilities are not considered a source of distributable cash exclusive of$3 thousand arising during the period November 26 to December 31,2003 as a result of the retroactive application of CICA Handbook section 3110 Asset Retirement Obligations(ii)Subject to“Catch-up Payment”provi

90、sion and is considered part of distributable cash(iii)The total capital expenditures noted above includes new theatre and maintenance capital expenditures of which the new theatre capital expenditures are funded out of the Partnerships development loan facility and therefore are added back to calcul

91、ate distributable cash.(iv)Point-of-Sale(“POS”)and rebranding capital expenditures are funded out of a$5.5 million reserve fund established on November 26,2003.YEAR ENDED DECEMBER 31,2004 COMPARED TO THE YEAR ENDED DECEMBER 31,2003 FOR THE PARTNERSHIPTotal revenues.Total revenues for the year ended

92、December 31,2004 increased$18.0 million,or5.4%,to$353.7 million.A discussion of the factors affecting the changes in box office,concessionand other revenues for this period in comparison to the same period in 2003 is provided below.Box office revenues.Box office revenues for the year ended December

93、31,2004 increased$10.1 million,or 4.5%,to$235.4 million.This increase in box office revenues was due to additional revenue fromthe operation of new theatres($13.4 million),an improvement in average admission revenues perpatron($2.9 million)offset by decreased same store attendance levels($3.3 millio

94、n)and by theimpact of disposed theatres including theatres not transferred into the Partnership($2.9 million).The average ticket price increased$0.16 or 2.2%from$7.24 for the year ended December 31,2003to$7.40 for the year ended December 31,2004.Concession revenues.Concession revenues for the year e

95、nded December 31,2004 increased$5.9 million,or 6.6%,to$95.5 million.The increase in concession revenues was due to additional revenues from the operation of new theatres($5.8 million),an improvement in average concession revenues perpatron($2.4 million)offset by same store lower attendance levels($1

96、.3 million)and by the impact of disposed theatres including theatres not transferred into the Partnership on November 26,2003($1.0 million).The average concession revenue per patron increased$0.12 or 4.2%from$2.88 for the year ended December 31,2003 to$3.00 for the year ended December 31,2004.Manage

97、ments Discussion and Analysis ofFinancial Condition and Results of OperationsCINEPLEX GALAXY 2004 ANNUAL REPORT MANAGEMENTS DISCUSSION AND ANALYSIS17Other revenues.Other revenues for the year ended December 31,2004 increased$1.9 million,or 9.2%,to$22.8 million as a result of higher advertising and a

98、ncillary revenues.Other revenue is a key area of focus for the Partnership and additional sales staff were added in 2004.Film cost.Film cost for the year ended December 31,2004 increased$4.0 million,or 3.4%,to$121.3 million due to an increase in box office revenue.As a percentage of box office reven

99、ue,film cost decreased to 51.5%for the year ended December 31,2004 from 52.1%for the year ended December 31,2003.Cost of concessions.Cost of concessions for the year ended December 31,2004 increased$0.8 million,or 4.7%,to$19.0 million.This increase in cost of concessions was due primarily to the inc

100、rementalcosts associated with new theatres that were opened($1.0 million),increased purchase incidence($0.3 million)that was partially offset by decreased same store attendance($0.3 million)and theimpact of disposed theatres including theatres not transferred into the Partnership($0.2 million).As a

101、percentage of concession revenues,cost of concessions decreased from 20.3%in the year endedDecember 31,2003,to 19.9%in the year ended December 31,2004.Concession costs for 2004 and2003 have been adjusted to reflect the Partnerships retroactive adoption of the provisions of EIC-144(discussed in“Accou

102、nting Policies and Recent Developments Recent Accounting Developments”).Occupancy.Occupancy expense for the year ended December 31,2004 increased$1.7 million,or3.3%,to$53.2 million.The overall increase in occupancy expense was due to the incremental costsassociated with new theatres that were opened

103、($2.0 million),offset by the incremental impact of disposed theatres($0.3 million).Same store occupancy expense was relatively flat as any inflationaryor lease specific increases were offset by savings related to property tax appeals and percentage rent.Other theatre operating expenses.Other theatre

104、 operating expenses for the year ended December 31,2004 increased$5.9 million,or 9.1%,to$71.1 million.The overall increase in other theatre operatingexpenses was due to the incremental impact of costs associated with new theatres that were opened($3.4 million)and the impact of additional business ac

105、tivities and inflationary increases($3.8 million),which were offset by disposed theatres including theatres not transferred into the Partnership($1.3million).As a percentage of total revenues,other theatre operating expenses increased to 20.1%forthe year ended December 31,2004 from 19.4%for the year

106、 ended December 31,2003.General and administrative costs.General and administrative costs for the year ended December 31,2004 decreased 7.8%to$14.0 million primarily as a result of head count reductions on the integrationof COC and GEI.As a percentage of total revenues,general and administrative exp

107、enses declined to4.0%for the year ended December 31,2004 from 4.5%for the year ended December 31,2003.General and administrative costs for the year ended December 31,2004 includes a charge of$0.2million arising under the Partnerships Long Term Incentive Plan(“LTIP”).As the LTIP began onJanuary 1,200

108、4,no corresponding charge is included in the results for 2003.Management fee.The management fee,which was payable to LCT decreased to$0.7 million from$7.7 million for the years ended December 31,2004 and 2003 respectively.This decrease is primarilyManagements Discussion and Analysis ofFinancial Cond

109、ition and Results of OperationsCINEPLEX GALAXYMANAGEMENTS DISCUSSION AND ANALYSIS 2004 ANNUAL REPORT18due to the reduction in services covered under the management fee agreement.Effective November26,2003,the Partnership entered into a services agreement with COC under which managementinformation sys

110、tems(MIS)support is provided to the Partnership at a cost of US$500,000 perannum.Other than payments under this MIS support services agreement there is no longer amanagement fee payable to COC or LCT.The Partnership has given notice to terminate this servicesagreement effective in the second quarter

111、 of 2005.Accordingly,the Partnership has recruitedadditional staff and acquired additional hardware and software licenses to repatriate this MIS function.Income before undernoted.The Partnership reported income before undernoted for the year endedDecember 31,2004 of$74.5 million as compared to incom

112、e before undernoted of$60.8 million for the yearended December 31,2003.This change was due to the aggregate effect of the factors described above.Amortization costs.For the year ended December 31,2004 amortization costs increased$3.6 millionor 18.0%to$23.7 million.This increase was due primarily to

113、the incremental impact of new theatres.Gain on disposal of theatre assets.The gain on disposal of theatre assets represents the gains on theatre assetsthat were sold or otherwise disposed of.For the year ended December 31,2004 the Partnership recordeda gain of$111 thousand as compared to a gain of$9

114、2 thousand for the year ended December 31,2003.Interest on long-term debt:Interest on long-term debt for the year ended December 31,2004 increasedto$8.3 million from$4.0 million for the year ended December 31,2003.Interest expense is comprisedof the amortization of$1.0 million of deferred financing

115、fees and$7.3 million of interest on long-termdebt for the year ended December 31,2004.For the year ended December 31,2003 interest expenseincludes$0.2 million for the amortization of deferred financing fees and$3.8 million of interest onlong-term debt.The increase in interest expense was due primari

116、ly to a higher average outstandingdebt balance during 2004 versus 2003 as a result of the new capital structure of the Partnership.Interest on loan from Cineplex Galaxy Trust.Interest on the loan from the Trust represents interestat a rate of 14%on the$100 million loan from the Trust that was drawn

117、on November 26,2003.Interest income.Interest income for the year ended December 31,2004 was$0.5 million as comparedto$0.9 million for the year ended December 31,2003.The decrease in interest income is primarilydue to the decrease in cash and cash equivalents.Exchange gain.The Partnership reported an

118、 exchange gain of nil year ended December 31,2004 as compared to an exchange gain of$3.7 million for the year ended December 31,2003.ThePartnership has minimal foreign exchange exposure,as the Partnerships debt is no longerdenominated in US dollars.Income taxes.During the year ended December 31,2004

119、,the Partnership recorded a future taxincome tax recovery of$1.6 million(2003 nil)offset by current taxes of$0.4 million.Upon thecompletion of a year of operations by GEI under the capital structure implemented during theformation of the Partnership on November 26,2003,it was determined it was more

120、likely than not that the benefits arising from future tax assets would be realized by GEI resulting in the recovery.Managements Discussion and Analysis ofFinancial Condition and Results of OperationsCINEPLEX GALAXY 2004 ANNUAL REPORT MANAGEMENTS DISCUSSION AND ANALYSIS19Net income.Net income for the

121、 year ended December 31,2004 decreased to$30.2 million from$39.3 million for the year ended December 31,2003,primarily due to the net effect of all of theother factors described above.EBITDAEBITDA is defined as income before interest expense,income taxes and amortization expense.Adjusted EBITDA excl

122、udes from EBITDA the loss(gain)on disposal of theatre assets.Partnershipmanagement uses adjusted EBITDA to evaluate performance primarily because of the significanteffect certain unusual or non-recurring charges and other items have on EBITDA from period toperiod.EBITDA adjusted for various unusual

123、items is also used to define certain financial covenantsin the Partnerships credit facilities.EBITDA and adjusted EBITDA are not presentations made inaccordance with GAAP in Canada and are not measures of financial condition or profitability.While the Partnerships management uses these measures to r

124、emove non-cash items and non-operating charges in order to evaluate the performance of the business,they are not necessarilycomparable to other similarly titled captions of other companies due to differences in methods ofcalculation.For the periods ended December 31,2003,the calculations of EBITDA a

125、nd adjustedEBITDA are based on the combined financial statements and include the results of certain COCproperties that were not transferred into the Partnership and are shown below(expressed inthousands of dollars):Year EndedYear EndedDecember 31,2004December 31,2003Net income$30,248$39,323 Non-cont

126、rolling interest-304Amortization23,73620,113Interest on long-term debt8,2804,020Interest on loan from Cineplex Galaxy Trust14,0001,381Interest income(473)(922)Income tax expense(1,149)366EBITDA74,64264,585(Gain)/loss on disposal of theatre assets(111)(92)Foreign exchange gain-(3,696)Non-recurring ma

127、nagement fee(i)-7,664Adjusted EBITDA$74,531$68,461(i)Effective November 26,2003 the existing arrangement between COC and LCT was terminated.The Partnership entered into a services agreement with COC under which MIS support will be provided to the Partnership at a cost of US$500,000 per annum.The cos

128、t of this service has been included as an expense in the calculation of EBITDA for the years ended December 31,2004 and 2003.Managements Discussion and Analysis ofFinancial Condition and Results of OperationsCINEPLEX GALAXYMANAGEMENTS DISCUSSION AND ANALYSIS 2004 ANNUAL REPORT20SEASONALITY AND QUART

129、ERLY RESULTSHistorically,the Partnerships revenues have been seasonal,coinciding with the timing of major film releases by the major distributors.The most marketable motion pictures are generally releasedduring the summer and the late-November through December holiday season.This may causechanges,fr

130、om quarter to quarter,in attendance levels,theatre staffing levels and reported results.More recently,the seasonality of film exhibition has become less pronounced as film studios haveexpanded the historical summer and holiday release windows and increased the number of heavilymarketed films release

131、d during traditionally weaker periods.Summary of Quarterly Results(expressed in thousands of dollars except per unit data)20042003Q4Q3Q2Q1Q4Q3Q2Q1Total Revenue$85,643$95,613$93,443$79,039$91,897$90,195$78,323$75,337 Cost of Operations67,908 73,642 73,691 63,966 72,964 72,433 66,281 63,277 Income fro

132、m Operations17,735 21,971 19,752 15,073 18,933 17,762 12,042 12,060 Amortization6,535 6,159 5,607 5,435 6,496 4,755 4,548 4,314 Loss(Gain)on disposal of theatre assets3(72)(36)(6)(176)69 2 13 Interest on long-term debt2,307 2,068 1,904 2,0011,177 1,054 894 895 Interest on loan from Cineplex Galaxy T

133、rust3,500 3,500 3,500 3,500 1,381-Interest Income(118)(200)(61)(94)(17)(408)(166)(331)Foreign exchange Gain/Loss-83 10(1,594)(2,195)Income Taxes(1,320)74 61 36(1,109)630 340 505 Non-Controlling Interest-(418)506 68 148 Net Income$6,828$10,442$8,777$4,201$11,516$11,146$7,950$8,711 Net income per unit

134、,basic and fully diluted$0.1436$0.2195$0.1845$0.0883 n/an/an/an/aCash Flows from Operations$24,361$12,573$9,471$(6,295)$47,793$15,450$9,796$(3,008)Cash flows from investing activities(10,661)(10,760)(5,417)(3,449)(27,985)(9,452)(49,214)(6,759)Cash flows used in financing activities(877)(2,301)(6,509

135、)(5,000)(10,174)4,101 10,793 1,207 Net change in cash$12,823$(488)$(2,455)$(14,744)$9,634$10,099$(28,625)$(8,560)Managements Discussion and Analysis ofFinancial Condition and Results of OperationsCINEPLEX GALAXY 2004 ANNUAL REPORT MANAGEMENTS DISCUSSION AND ANALYSIS21Distributable CashManagement cal

136、culates distributable cash flow per unit for the Partnership as follows(expressed in thousands of dollars except per unit data):2004Nov 26 to Dec 31,2003Q4Q3Q2Q1Cash provided by(used in)operating activities$24,361$12,573$9,471$(6,295)$29,623 Less:Changes in operating asset and liabilities(i)(13,728)

137、2,801 3,802 14,933(19,181)Total Capital Expenditures(8,586)(8,759)(3,386)(2,072)(962)Add:Interest on loan from Cineplex Galaxy Trust(ii)3,500 3,500 3,500 3,500 1,381 New Theatre Capital Expenditures(iii)5,958 7,749 2,226 1,720 653 POS/Rebranding capital expenditures(iv)1,281 378-Distributable Cash$1

138、2,786$18,242$15,613$11,786$11,514 Number of Units outstanding47,566,974 47,566,974 47,566,974 47,566,974 47,566,974 Distributable cash per unit$0.2688$0.3835$0.3282$0.2478$0.2421(i)Changes in operating assets and liabilities are not considered a source of distributable cash exclusive of$3 thousand a

139、rising during the period November 26 to December 31,2003 as a result of the retroactive application of CICA Handbook section 3110 Asset Retirement Obligations(ii)Subject to“Catch-up Payment”provision and is considered part of distributable cash(iii)The total capital expenditures noted above includes

140、 new theatre and maintenance capital expenditures of which the new theatre capital expenditures are funded out of the Partnerships development loan facility and therefore are added back to calculate distributable cash.(iv)Point-of-Sale(“POS”)and rebranding capital expenditures are funded out of a$5.

141、5 million reserve fund established on November 26,2003.Operating Results for the Fourth QuarterThe following summarizes the results of operations for the three months ended December 31,2004as compared to the three months ended December 31,2003.Total revenues.Total revenues for the three months ended

142、 December 31,2004 decreased$6.3 million,or 6.8%,to$85.6 million from$91.9 million for the three months ended December 31,2003.Adiscussion of the factors affecting the changes in box office,concession and other revenues for thisperiod in comparison to the same period in 2003 is provided below.Box off

143、ice revenues.Box office revenues for the three months ended December 31,2004 decreased$5.9 million,or 9.6%,to$55.4 million.This decrease in box office revenues was due to decreasedattendance levels($7.3 million)and the impact of disposed theatres($0.1 million)offset by additionalrevenue from the ope

144、ration of new theatres($1.5 million).The average ticket price increased$0.04or 0.5%from$7.30 for the three months ended December 31,2003 to$7.34 for the three monthsended December 31,2004 however the impact on revenues for the quarter was minimal.Thedecrease in attendance is attributed to weaker fil

145、m product in the fourth quarter of 2004 ascompared to the prior year for the same period which included such strong releases as“The Lord of the Rings:The Return of the King”,“The Matrix Revolutions”and“Elf”.Managements Discussion and Analysis ofFinancial Condition and Results of OperationsCINEPLEX G

146、ALAXYMANAGEMENTS DISCUSSION AND ANALYSIS 2004 ANNUAL REPORT22Concession revenues.Concession revenues for the three months ended December 31,2004 decreased$1.9 million,or 7.5%,to$23.1 million.The decrease in concession revenues was due to decreasedattendance levels($3.0 million)offset by additional r

147、evenues from the operation of new theatres($0.8 million),and an improvement in average concession revenues per patron($0.3 million).Theaverage concession revenue per patron increased$0.08 or 2.8%from$2.98 for the three monthsended December 31,2003 to$3.06 for the three months ended December 31,2004.

148、Other revenues.Other revenues for the three months ended December 31,2004 increased$1.5 million,or 27.3%,to$7.1 million.Despite the weaker film products released in the fourth quarter of 2004 as compared to 2003,advertising revenue in the three months ended December 31,2004 increased$0.9 million ove

149、r the same period in 2003 as a result of an expanded sales force.Film cost.Film cost for the three months ended December 31,2004 decreased$4.1 million,or12.7%,to$28.3 million.As a percentage of box office revenue,film cost decreased to 51.0%for the three months ended December 31,2004 from 52.8%for t

150、he three months ended December31,2003 primarily as a result of the lack of significant product in the fourth quarter of 2004.Cost of concessions.Cost of concessions for the three months ended December 31,2004 decreased$0.8million,or 14.9%,to$4.5 million.This decrease in cost of concessions was due p

151、rimarily to the impactof reduced attendance and disposed theatres including theatres not transferred into the Partnership($1.0 million)offset by the incremental costs associated with new theatres that were opened($0.1million)and increased purchase incidence($0.1 million).As a percentage of concessio

152、n revenues,cost ofconcessions decreased from 21.3%in the three months ended December 31,2003,to 19.6%in the threemonths ended December 31,2004.Concession costs for the three months ended December 31,2004 and2003 have been adjusted to reflect the Partnerships retroactive adoption of the provisions of

153、 EIC-144(discussed in“Accounting Policies and Recent Developments Recent Accounting Developments”).Occupancy.Occupancy expense for the three months ended December 31,2004 decreased$0.6 million,or 4.7%,to$12.8 million.The overall decrease in occupancy expense was due a decrease inpercentage rental co

154、sts that are based primarily upon sales volume($0.4 million)and other costsavings including property tax appeals($0.4 million)offset by the incremental costs associated with new theatres that were opened($0.2 million).Other theatre operating expenses.Other theatre operating expenses for the three mo

155、nths ended December31,2004 increased$1.0 million,or 5.9%,to$18.6 million.The overall increase in other theatre operatingexpenses was due to the incremental impact of costs associated with new theatres that were opened($0.5 million)and the impact of additional business activities and inflationary inc

156、reases($0.6 million),which were offset by disposed theatres including theatres not transferred into the Partnership($0.1million).As a percentage of total revenues,other theatre operating expenses increased to 21.8%in thethree months ended December 31,2004 from 19.1%for the three months ended Decembe

157、r 31,2003.General and administrative costs.General and administrative costs for the three months endedDecember 31,2004 decreased$0.9 million to$3.5 million.As a percentage of total revenues,generaland administrative expenses declined to 4.1%for the three months ended December 31,2004 from4.8%for the

158、 three months ended December 31,2003.Managements Discussion and Analysis ofFinancial Condition and Results of OperationsCINEPLEX GALAXY 2004 ANNUAL REPORT MANAGEMENTS DISCUSSION AND ANALYSIS23Amortization costs.Amortization costs for the three months ended December 31,2004 increasednominally over th

159、e three months ended December 31,2003.Interest on long-term debt.Interest on long-term debt for the three months ended December 31,2004 increased to$2.3 million from$1.2 million for the three months ended December 31,2003.Interest expense is comprised of amortization of the$0.3 million of deferred f

160、inancing fees and$2.0 million of interest on long-term debt for the three months ended December 31,2004.For thethree months ended December 31,2003 interest expense includes$0.1 million for the amortizationof deferred financing fees and$1.1 million of interest on long-term debt.The increase in intere

161、stexpense was due primarily to a higher average outstanding debt balance during the three monthsended December 31,2004 versus 2003 as a result of the new capital structure of the Partnership.Interest income.Interest income represents interest earned on cash and cash equivalents.Interestincome for th

162、e three months ended December 31,2004 was$0.2 million as compared a nominalamount for the three months ended December 31,2003.Income taxes.During the three months ended December 31,2004,the Partnership recorded a futuretax income tax recovery of$1.6 million(2003 nil)offset by current taxes of$0.3 mi

163、llion.Upon the completion of a year of operations by GEI under the capital structure implemented during theformation of the Partnership on November 26,2003,it was determined it was more likely than notthat the benefits arising from future tax assets would be realized by GEI resulting in the recovery

164、.Distributable Cash.For the three months ending December 31,2004,Partnerships distributable cash flowper unit was$0.2688.The declared distribution per unit and interest on the Galaxy Note(discussed in“Liquidity and Capital Resources Credit Facilities”below)per unit for this period totaled$0.2874.BAL

165、ANCE SHEETAssetsAssets increased$6.1 million to$325.4 million as at December 31,2004.This increase is due primarily to an increase in accounts receivable($3.1 million),fixed assets($2.6 million)and restricted distributions on Support Theatre units($7.6 million)(discussed in“Liquidity and Capital Res

166、ources-Distributions”below)offset by a decrease in amounts due from related partiesand prepaid expenses($3.1 million).Accounts Receivable.Accounts receivable increased$3.1 million to$10.9 million as at December 31,2004 from$7.8 million as at December 31,2003.This increase is due to increased ancilla

167、ry revenueactivities in the fourth quarter and quarterly volume rebates on strong concession sales for the year.Fixed Assets.The increase in fixed assets from$232.3 million at December 31,2003 to$234.9 millionat December 31,2004 is due to the three new theatres and a theatre expansion opened during

168、theyear,net of annual amortization.Due from Related Parties.Due from related parties at December 31,2003 represented the formerinvestors of COC and GEIs share of the fund offering costs arising from the formation of thePartnership.These amounts were fully paid during 2004.Managements Discussion and

169、Analysis ofFinancial Condition and Results of Operations24Liabilities.Liabilities increased$16.8 million from$351.9 million as at December 31,2003 to$368.7as at December 31,2004.This increase is mainly due to an increase in distributions payable relatingto the restricted distributions on the Support

170、 theatre units(discussed in“Liquidity and CapitalResources-Distributions”below),deferred revenue($2.4 million),an increase in the long-term debt($15.4 million)(discussed in“Liquidity and Capital Resources Financing Activities”below)offsetby a decrease in accounts payable and accrued expenses($6.1 mi

171、llion).Accounts Payable and Accrued Expense.Accounts payable and accrued expenses decreased from$34.1 million as at December 31,2003 to$28.0 million as at December 31,2004.The decrease is due to the settlement of amounts accrued at December 31,2003 with respect to theatres under construction that ha

172、ve since been completed and opened and fees arising from the initial publicoffering of the Fund.Deferred Revenue.Deferred revenues increased$2.4 million to$13.6 million as at December 31,2004from$11.2 million as at December 31,2003.This was due primarily to an increase in gift certificatesales over

173、the prior year during the fourth quarter.Outstanding Units CGIFThe Fund had the following units issued for the years ended December 31(expressed in thousands of dollars):20042003Number of UnitsAmountNumber of UnitsAmountUnits beginning of period19,400,000$194,000-$-Initial Offering 17,500,000 175,00

174、0 Exercise of Over Allotment1,900,000 19,000 Issuance of Units under Exchange agreement623,689 7,477-20,023,689$201,477 19,400,000$194,000 Subject to certain restrictions,Class B LP units of the Partnership may be exchanged for units of the Fund.The following Class B LP Units have not been exchanged

175、 for Fund units:Number of Units20042003Class B Series 120,325,89320,949,582Class B Series 2-C2,086,9572,086,957Class B Series 2-G5,130,4355,130,43527,543,28528,166,974CINEPLEX GALAXYMANAGEMENTS DISCUSSION AND ANALYSIS 2004 ANNUAL REPORTManagements Discussion and Analysis ofFinancial Condition and Re

176、sults of Operations25LIQUIDITY AND CAPITAL RESOURCESOperating ActivitiesCash flow is generated primarily from the sale of admission tickets,concession sales and otherrevenues.Generally,this provides the Partnership with positive working capital,since cash revenuesare generally collected in advance o

177、f the payment of certain expenses.Operating revenue levels aredirectly related to the success and appeal of the film product produced and distributed by the studios.Cash provided by operating activities was$40.1 million for the year ended December 31,2004 ascompared to$70.0 million for the prior yea

178、r.The primary reason for the difference was due to changesin operating assets and liabilities,which was a use of$7.8 million in 2004 versus a source of$19.6million in 2003.The reason for this variation is that the Partnership was formed in November 2003and under normal supplier credit terms made min

179、imal payments in the month of December 2003.Investing ActivitiesCash used in investing activities for the year ended December 31,2004 of$30.3 million primarilyrelated to capital expenditures on new theatre builds and the transfer of funds to a restricted cashaccount for Support Theatre distributions

180、 described below.Cash used in investing activities for the year ended December 31,2003 of$93.4 million was primarilyrelated to the acquisition of the minority interest in GEI by the Partnership($17.3 million),capitalexpenditures on new theatre builds and approximately$29.4 million in advances by COC

181、 to LCT.The Partnership funds maintenance capital expenditures through internally generated cash flowand cash on hand.The Partnership funds new theatre capital expenditures through thedevelopment loan facility discussed below.In addition,for the year ended December 31,2004,the Partnership transferre

182、d$7.6 million to asegregated account representing distributions on the Class B Series 2 LP Units,the payment of whichis dependant on the annual cash flow from certain new theatres.For the year ended December 31,2004 the performance targets were met for the seven new theatres and,as a result,the Part

183、nershipwill pay the full amount of the withheld distributions to the holders Class B Series 2 LP Units.Financing ActivitiesCash used by financing activities for the year ended December 31,2004 of$14.7 million was dueprimarily to distribution payments of$33.6 million offset by borrowings of$15.5 mill

184、ion undernew credit facilities and tenant inducements received of$3.7 million.For the year ended December31,2003 cash provided by financing activities($5.9 million)was due primarily to borrowings undernew credit facilities,the issuance of Partnership units and the loan from the Trust.In addition,cas

185、h used in financing activities included a repayment of$31.5 million in GEI long-term debt.The Partnership believes that it will be able to meet its future cash obligations with its cash andcash equivalents,cash flows from operations and funds available under existing credit facilities.CINEPLEX GALAX

186、Y 2004 ANNUAL REPORT MANAGEMENTS DISCUSSION AND ANALYSISManagements Discussion and Analysis ofFinancial Condition and Results of Operations26Distributions Partnership distributions are made on a monthly basis to holders of record of Class A LP Units andClass B LP Units on the last business day of ea

187、ch month.For the year ended December 31,2004,Partnership distributable cash flow per unit was$1.2283.The declared distributions per unit andinterest on the Galaxy Note(discussed in“Liquidity and Capital Resources Credit Facilities”below)per unit for this period totaled$1.1496 per unit.Distributable

188、cash is a non-GAAP measure generallyused by Canadian open-ended trusts,as an indicator of financial performance and it should not be seenas a measure of liquidity or a substitute for comparable metrics prepared in accordance with GAAP.The Partnerships distributable cash may differ from similar calcu

189、lations as reported by other similarentities and accordingly may not be comparable to distributable cash as reported by such entities.As part of the support arrangements with certain limited partners,distributions for certain Class B Series2 LP Units were dependent on the annual cash flows from cert

190、ain new theatres.Amounts totaling$8.3million are included in the distribution amounts above and at December 31,2004,$7.6 million is beingheld in segregated accounts to be paid to certain Partnership unitholders.For the year ended December31,2004 the performance targets were met for the seven new the

191、atres and,as a result,the Partnershipwill pay the full amount of the withheld distributions to the holders of the Support Units.For the year ended December 31,2004,the Fund declared distributions totaling$1.1496 per unit.The Fund is entirely dependent on distributions from the Partnership and intere

192、st payments fromGEI to make its own distributions.Credit FacilitiesRevolving Facilities.On November 26,2003,the Partnership entered into two senior securedrevolving credit facilities,one in the principal amount of$20 million(the“Working CapitalFacility”)and the other in the principal amount of$40 mi

193、llion(the“Development Facility”).TheWorking Capital Facility is for general corporate purposes,including up to$10 million to stabilizemonthly cash distributions to be paid by the Partnership throughout the year.The DevelopmentFacility is to be used for the development or acquisition of theatre proje

194、cts approved by theTrustees of the Fund.Both facilities have a term of three years and are repayable in full at maturity.These revolving credit facilities bear interest at a floating rate based on the Canadian dollar primerate or on the bankers acceptance rates plus,in each case,an applicable margin

195、 to those rates.As at December 31,2004 the Partnership has borrowed$15.5 million under the Development Facility.No amounts were drawn under the Working Capital Facility as at December 31,2004.Term Facility.On November 26,2003,the Partnership entered into a senior secured term facility in the amount

196、of$110 million(the“Term Facility”).The Term Facility matures on November 25,2006 with no scheduled repayments of principal required prior to maturity.The Term Facility bears interest at a floating rate based on the Canadian dollar prime rate or on the bankersacceptance rates plus,in each case,an app

197、licable margin to those rates.The Term Facility was fully drawn as at December 31,2004.The above credit facilities are secured by all of the Partnerships assets and are guaranteed by the Trust.CINEPLEX GALAXYMANAGEMENTS DISCUSSION AND ANALYSIS 2004 ANNUAL REPORTManagements Discussion and Analysis of

198、Financial Condition and Results of Operations27Interest Rate Swap.As of December 31,2004,the Partnership had an interest rate swap agreementin place whereby the Partnership pays an interest rate of 4.29%and receives a floating rate.Theswap is for a term of three years,expiring November 26,2006 and t

199、he initial principal outstandingwas$44 million.The principal outstanding under the swap increased to$77 million on August 26,2004 and increases to$110 million on May 26,2005.The estimated fair market value of the swap is an unrealized loss of$2.4 million(loss of$1.5 million as at December 31,2003)th

200、at is not recognized on the balance sheet or statement of income in accordance with Canadian GAAP.Due to Cineplex Galaxy Trust.On November 26,2003,the Trust entered into an agreement withGEI,a wholly-owned subsidiary of the Partnership,whereby it loaned to GEI$100 million(the“Galaxy Notes”).The Gala

201、xy Notes bear interest at a rate of 14%per annum and have no scheduledrepayments prior to maturity.The Galaxy Notes mature on November 26,2028 at which time theyare payable in full.The Galaxy Notes are subordinated to the bank credit facilities discussed above.Future ObligationsAs of December 31,200

202、4,the Partnership has aggregate capital commitments of$23.3 primarilyrelated to the completion of construction of five theatre properties to comprise of 51 screens.ThePartnership expects to complete construction and to open these theatres throughout 2005 to 2006.As of December 31,2004,approximately$

203、4.3 million in cash remains of the$5.5 million reservefund that is to be used for point-of-sale upgrades and rebranding.As at December 31,2004 thePartnership had commitments of approximately$2.7 million related to point-of-sale upgrades and rebranding of which it had spent$1.2 million.During the yea

204、r,the Partnership announced its plans to move forward with the launch of a digitaladvertising network in its 21 Toronto extended market area theatres.Digital projectors will beinstalled in 215 theatre auditoriums during the first half of 2005.If the program is expandedoutside of the Toronto extended

205、 market area,the total expected cost is in the range of$7 million to$9 million over the next two years.During January 2005,the Partnership entered into commitmentsof$1.3 million for the digital advertising network.This project will be funded through theDevelopment Loan facility discussed above.The P

206、artnership conducts a significant part of its operations in leased premises.The Partnershipsleases generally provide for minimum rentals and a number of the leases also include percentagerentals based primarily upon sales volume.The Partnerships leases may also include escalationclauses,guarantees a

207、nd certain other restrictions,and generally require it to pay a portion of thereal 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 GALAXY 2004 ANNUAL RE

208、PORT MANAGEMENTS DISCUSSION AND ANALYSISManagements Discussion and Analysis ofFinancial Condition and Results of Operations28The Partnership had the following contractual commitments at December 31,2004(expressed in thousands of dollars):Payments Due by PeriodContractual ObligationsTotalWithin 1 yea

209、r2-3 years4-5 yearsAfter 5 yearsLong Term Debt$125,564$52$125,512$-$-New Theatre Construction23,329 9,872 13,457-Point-of-Sale Upgrade1,488 1,488-Operating Leases422,959 36,789 71,001 63,901 251,268 Total Contractual Obligations$573,340$48,201$209,970$63,901$251,268 Related Party TransactionsThe Fun

210、d has entered into transactions with parties to which it is related.During the year endedDecember 31,2004,distributions in the amount of$8.6 million respectively were received from thePartnership and the Fund had distributions receivable from the Partnership at December 31,2004 inthe amount of$0.8 m

211、illion.The Fund earned interest income in the amount of$14.0 million for the year ended December 31,2004 with respect to the Trusts$100 million loan to GEI.The Partnership has entered into transactions with certain parties to which it is related as summarized below.COC provided the Partnership with

212、management information systems support.For the year endedDecember 31,2004,the Partnership was charged$0.4 million for these services.As a result of thesale of LCT by Onex on July 30,2004,LCT,which is no longer a related party,provides these services to the Partnership.The Partnership has given notic

213、e to terminate this service agreementeffective in the second quarter of 2005.COC charged the Partnership$0.5 million for the year ended December 31,2004 for rent for thePartnerships head office.The Partnership charged COC$0.1 million for certain theatre managementservices during the year ended Decem

214、ber 31,2004.The Partnership has a payable to COC atDecember 31,2004 of$0.4 million arising from favorable property tax reassessments received by the Partnership relating to periods prior to the Partnerships formation.The partnership had a payable to COC of$3.7 million at December 31,2003 which inclu

215、ded the obligation for networking capital acquired by the Partnership.This obligation was paid in full during 2004.All payables and receivables with COC are due on demand and are non-interest bearing.LCT provided certain services to COC in 2003 relating to the following activities:finance,administra

216、tion and management information systems support.The net amount charged for theseservices for the year ended December 31,2003 was$7.7 million.For the years ended December 31,2004 and 2003 the Partnership incurred expenses for film rentaltotaling$25.8 million and$27.4 million respectively,to Alliance

217、Atlantis Communications Inc.(“Alliance”)and Motion Picture Distribution LP(“Motion Picture”).Alliance is a former shareholderCINEPLEX GALAXYMANAGEMENTS DISCUSSION AND ANALYSIS 2004 ANNUAL REPORTManagements Discussion and Analysis ofFinancial Condition and Results of Operations29of GEI and Ellis Jaco

218、b,Chief Executive Officer of the Partnership,is a member of the Board ofDirectors and Audit Committee of Alliance and the Board of Trustees of Motion Picture.A trustee of the Fund is the President and Chief Executive Officer of Riocan Real Estate InvestmentTrust(“Riocan”).The Partnership incurred re

219、ntal costs for theatres under lease commitments withRiocan in the amount of$7.8 million and$6.4 million for the years ended December 31,2004 and2003 respectively.During the year,the Partnership received$1.9 million(2003-$4.9 million)in tenant inducements from Riocan.Future minimum rental commitments

220、 at December 31,2004 under the Riocan operating leases are set forth as follows(expressed in millions of dollars):2005$7.420067.520077.620087.420097.2Thereafter58.3$95.4Ellis Jacob,Chief Executive Officer of the Partnership,exchanged 148,870 Class B LP units for148,870 Fund units under the provision

221、s of the Exchange Agreement.The exchange was recorded at the fair market value as required under EIC-151 discussed below.Stephen Brown,who at the time of the transaction was Chief Financial Officer of the Partnership,exchanged83,724 Class B LP units for 83,724 Fund units under the provisions of the

222、Exchange Agreement.The exchange was recorded at the fair market value as required under EIC-151 discussed below.Alliance exchanged 255,349 Class B LP units for 255,349 Fund units under the provisions of theExchange Agreement.The exchange was recorded at the fair market value as required under EIC-15

223、1 discussed below.During the year,the Partnership provided services to the Toronto Film Festival(the Festival)for which itreceived payment in the amount of$60 thousand.The Partnership incurred expenses of$35 thousand withrespect to its sponsorship of the Festival.A Trustee for the Fund is a member o

224、f the Board for the Festival.In April 2004,the Partnership acquired two theatres from COC for nominal consideration.Thetransaction has been recorded by the Partnership at$24 thousand,the amount for which the asset had been carried in the books of COC.The difference between COCs carrying value and th

225、e consideration paid by the Partnership has been credited to the Partners Equity in accordancewith Section 3840 of the Handbook.During 2004,the Partnership reimbursed Onex$74 thousand(2003-nil)for costs related to the formation of the Partnership.CINEPLEX GALAXY 2004 ANNUAL REPORT MANAGEMENTS DISCUS

226、SION AND ANALYSISManagements Discussion and Analysis ofFinancial Condition and Results of Operations30Distributions paid to related parties consist of(expressed in thousands of dollars):December 31December 3120042003Fund$9,056-Onex and its subsidiaries24,213-Alliance349-Other related parties215-Dist

227、ributions payable to related parties consist of(expressed in thousands of dollars):at December 31at December 3120042003Fund$752$788 Onex and its subsidiaries8,1162,866 Alliance781105 Other related parties71295 Excluding the transactions occurring under the provision of the Exchange Agreement and the

228、acquisition of theatre assets from COC,transactions noted above are in the normal course of business and unless otherwise noted are measured at the exchange amount,which is the amount of consideration established and agreed to by related parties.ACCOUNTING POLICIES AND RECENT DEVELOPMENTSCritical Ac

229、counting PoliciesThe Partnership prepares its financial statements in conformity with Canadian GAAP,whichrequires management to make estimates,judgments and assumptions that the Partnership believesare reasonable based upon the information available.These estimates,judgments and assumptionsaffect th

230、e reported amounts of assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of revenues and expenses duringthe reporting period.The policies which the Partnership believes are the most critical to aid in fullyunders

231、tanding and evaluating its reported financial results include the following:RevenuesBox office and concession revenues are recognized,net of applicable taxes,when admission andconcession sales are collected at the theatre.Amounts collected on advance ticket sales and long-term screen advertising agr

232、eements are deferred and recognized in the period earned.Amountscollected on the sale of gift certificates are deferred and recognized when redeemed by the patron.Film Rental CostsFilm rental costs are recorded based upon the terms of the respective film license agreements.In some cases the final fi

233、lm cost is dependent upon the ultimate duration of the film play and until this is known,management uses its best estimate of the ultimate settlement of these film costs.Film costsand the related film costs payable are adjusted to the final film settlement in the period the Partnershipsettles with t

234、he distributors.Actual settlement of these film costs could differ from those estimates.CINEPLEX GALAXYMANAGEMENTS DISCUSSION AND ANALYSIS 2004 ANNUAL REPORTManagements Discussion and Analysis ofFinancial Condition and Results of Operations31LeasesTenant inducements received are amortized into occup

235、ancy expenses over the term of the relatedlease agreement.Lease payments are recorded in occupancy expenses on a straight-line basis over theterm of the related lease.The unamortized portion of tenant inducements and the difference betweenthe straight-line rent expense and the payments,as stipulated

236、 under the lease agreement,are includedin other liabilities.Certain of the leases to which the Partnership is party require a portion of rent to be determined with respect to the volume of activity at the specific theatre.An estimate of theexpected expense is determined by management and recorded th

237、roughout the lease year.Income TaxesThe Partnership is not subject to income or capital taxes,as the income,if any,is taxed in the handsof the individual partners.Income taxes for the Partnerships subsidiary,GEI,are accounted for under the asset and liability method,whereby future tax assets and lia

238、bilities are recognized for the future tax consequences attributable todifferences between the financial statement carrying amounts of existing assets and liabilities and theirrespective tax base.Future tax assets and liabilities are measured using enacted or substantially enactedtax rates expected

239、to apply to taxable income in the years in which those temporary differences areexpected to be recovered or settled.The effect on future tax assets and liabilities of a change in tax ratesis recognized in income in the period that includes the enactment date.Future income tax assets arerecorded in t

240、he financial statements to the extent that realization of such benefits is more likely than not.Long-Lived AssetsThe Partnership continuously assesses the recoverability of its long-lived assets by determining whetherthe carrying value of these balances over the remaining life can be recovered throu

241、gh undiscountedprojected cash flows associated with these assets.Generally this is determined on a theatre-by-theatrebasis for theatre related assets.In making its assessment,the Partnership also considers the useful livesof its assets,the competitive landscape in which those assets operate,the intr

242、oduction of newtechnologies within the industry and other factors affecting the sustainability of asset cash flows.Recent Accounting DevelopmentsIn 2003,the Canadian Institute of Chartered Accountants(“CICA”)issued Handbook Section 3110,“Asset Retirement Obligations”,effective for annual and interim

243、 periods beginning on or after January1,2004.This standard requires that the fair value of a liability for an asset retirement obligation berecognized in the period in which it is incurred if a reasonable estimate of fair value can be made.Theimplementation of Section 3110,requiring retroactive rest

244、atement of the financial statements,has hadno material impact on the Partnerships financial position or results of operations.Details of the impactof this section are discussed in Note 2 to the Partnerships Consolidated Financial Statements.In September 2003,the CICA issued Accounting Guideline 15,“

245、Consolidation of variable interestentities”(the“Guideline”).In September 2003 the CICA amended the Guideline to make it effectivefor annual and interim periods beginning on or after November 1,2004.The Guideline addressesthe application of consolidation principles to entities that are subject to con

246、trol on a basis otherthan ownership of voting interests.Management is assessing the impact of this Guideline on theFund and the Partnership.CINEPLEX GALAXY 2004 ANNUAL REPORT MANAGEMENTS DISCUSSION AND ANALYSISManagements Discussion and Analysis ofFinancial Condition and Results of Operations32Effec

247、tive January 1,2004,the Partnership adopted CICA Accounting Guideline 13(“AcG 13”)“HedgingRelationships”.AcG 13 addresses the identification,designation,documentation and effectiveness ofhedging transactions for the purpose of applying hedge accounting.It also establishes conditions forapplying,and

248、the discontinuance of,hedge accounting and hedge effectiveness testing requirements.Under the new guideline,the Partnership is required to document its hedging transactions andexplicitly demonstrate that hedges are effective in order to continue hedge accounting for positionshedged with derivatives.

249、Any derivative financial instruments that fail to meet the hedging criteria willbe accounted for in accordance with EIC-128,“Accounting for Trading,Speculative or Non-HedgingDerivative Financial Instruments”.These instruments will be recorded on the balance sheet at fair value,and changes in fair va

250、lue will be recognized in income in the period in which the change occurs.In connection with the implementation of AcG 13,the Partnership considered its hedgingrelationships as at January 1,2004 and for the remainder of the period ending December 31,2004,and determined that its interest rate swap ag

251、reement on its Term Facility qualified for hedge accounting for Canadian GAAP purposes and,therefore,the estimated fair value of the swap is not recognized in the balance sheet.The Partnership receives rebates from certain vendors with respect to the purchase of concessiongoods.Payments received fro

252、m vendors are composed of amounts for purchases made by thePartnership from the vendor in addition to amounts paid in return for advertising undertaken by the theatres on behalf of the vendor.The Partnership previously recorded all rebates received as a reduction of concession costs.Under Emerging I

253、ssues(“EIC”)Abstract 144,Accounting By ACustomer(Including a Reseller)For Certain Consideration Received From a Vendor,the Partnershipcontinues to recognize rebates earned for purchases of a vendors product as a reduction of concessioncosts;however,it is required to recognize rebates received for se

254、rvices delivered to the vendor asrevenue.As a result,the Partnership has recorded rebates received with respect to advertising servicesperformed for the vendor as other revenue.As required by EIC-144,the Partnership has applied thischange retroactively resulting in an increase in other revenue and c

255、oncession costs for the year endedDecember 31,2004 of$2.0 million and$1.9 million for the year ended December 31,2003.The Fund implemented,on a retroactive basis with prior periods restated,the new EIC Abstract151,Exchangeable Securities Issued by Subsidiaries of Income Trusts,which is effective for

256、financial statements issued subsequent to January 19,2005.The standard addresses whether or not the exchangeable units should be recorded as equity in the Funds balance sheet.In addition,it provides guidance on the accounting treatment for the conversion of exchangeable securities that are not prese

257、nted as part of the Funds unitholders equity and it addresses how earnings per share should be calculated in the Funds financial statements.Certain Class B LP Units are exchangeable for units of the Fund.The Class B LP Units are not shownas part of the Funds unitholders equity in the balance sheet u

258、ntil they have been exchanged forfund units as there are no requirements for the Class B LP Units to be exchanged into Fund units.As such,the Class B LP Units are considered as part of the calculation of diluted earnings per shareusing the if-converted method.CINEPLEX GALAXYMANAGEMENTS DISCUSSION AN

259、D ANALYSIS 2004 ANNUAL REPORTManagements Discussion and Analysis ofFinancial Condition and Results of Operations33When Class B LP Units are converted into Fund units,the Fund accounts for the exchange of units atfair market value at the date of the exchange.The impact to the Funds share of the Partn

260、erships incomeas a result of the retroactive implementation of this new standard was immaterial;however it did resultin an increase in the investment in Class B LP Units and unitholders capital in the amount of$1,564.RISKS AND UNCERTAINTIESInvestment in the units is subject to a number of risk facto

261、rs.Cash distributions to unitholders aredependent upon the ability of the Partnership to generate income.The ability of the Partnership to generate income is susceptible to a number of risk factors which include,(i)the reliance on film production and film performance,(ii)alternative film delivery me

262、thods and other forms ofentertainment,(iii)increased capital expenditures resulting from the development of digitaltechnologies for film exhibition,(iv)reliance on key personnel,(v)the acquisition and developmentof new theatre sites,(vi)impact of new theatres,(vii)unauthorized copying of films,(viii

263、)risinginsurance and labour costs and(ix)the ability to generate additional ancillary revenue.See“RiskFactors”detailed in the Funds AIF for a more detailed description of risks facing the Partnership.Market RiskThe Partnership is exposed to financial market risks,including changes in interest rates

264、and otherrelevant market prices.As discussed in“Liquidity and Capital Resources Credit Facilities”thePartnership has entered into various interest rate swaps agreements.The estimated fair market valueof the swap is an unrealized loss of$2.4 million(loss of$1.5 million as at December 31,2003)that is

265、not recognized on the balance sheet or statement of income in accordance with Canadian GAAP.Interest Rate RiskAs of December 31,2004,the Partnership had long-term debt and amounts due to the Trust(including current maturities)of$225.6 million.Approximately$125.6 million of this debt isvariable rate

266、debt.An increase or decrease in interest rates would affect interest costs relating tothis debt.For comparative purposes,for every change of 0.125%in interest rates,the Partnershipsinterest costs would change by approximately$157 thousand per year.Offsetting this risk is theimpact of the interest ra

267、te swap referred to above.OtherThe Partnership is a defendant in various lawsuits arising in the ordinary course of business and is involved in certain environmental matters.From time to time,the Partnership is involved in disputes with landlords,contractors and other third parties.It is the opinion

268、 of management that any liability to the Partnership,which may arise as a result of these matters,will not have a material adverse effect on the Partnerships operating results,financial position or cash flows.OUTLOOKThe Partnership believes that its credit facilities and ongoing cash flow from opera

269、tions will be sufficientto allow it to meet ongoing requirements for capital expenditures,investments in working capital anddistributions.However,the Partnerships needs may change and in such event the Partnerships abilityto satisfy its obligations will be dependent upon future financial performance

270、,which in turn will besubject to financial,tax,business and other factors,including elements beyond the Partnerships control.January 21,2005CINEPLEX GALAXY 2004 ANNUAL REPORT MANAGEMENTS DISCUSSION AND ANALYSISManagements Discussion and Analysis ofFinancial Condition and Results of OperationsCINEPLE

271、X GALAXY INCOME FUND MANAGEMENTS REPORT TO UNITHOLDERS 2004 ANNUAL REPORT34Managements Report to UnitholdersManagement is responsible for the preparation of the accompanying consolidated financial statementsand all other information contained in this Annual Report.The consolidated financial statemen

272、tshave been prepared in conformity with Canadian generally accepted accounting principles,whichinvolve managements best estimates and judgements based on available information.Management maintains a system of internal accounting controls designed to provide reasonableassurance that transactions are

273、authorized,assets are safeguarded,and financial records are reliablefor preparing financial statements.The Board of Trustees of the Cineplex Galaxy Income Fund(“the Board”)is responsible for ensuringthat management fulfills its responsibilities for financial reporting and internal control.The Board

274、is assisted in exercising its responsibilities through the Audit Committee of the Board(“AuditCommittee”).The Audit Committee meets periodically with management and the independent auditors to satisfy itself that managements responsibilities are properly discharged and torecommend approval of the co

275、nsolidated financial statements to the Board.PricewaterhouseCoopers LLP serves as the Funds auditors.PricewaterhouseCoopers LLPs report onthe accompanying consolidated financial statements follows.Their report outlines the extent of theirexamination as well as an opinion on the consolidated financia

276、l statements.Ellis JacobGord NelsonChief Executive Officer ofChief Financial Officer ofCineplex Galaxy General Partner CorporationCineplex Galaxy General Partner CorporationToronto,OntarioJanuary 21,2005“Ellis Jacob”“Gord Nelson”CINEPLEX GALAXY INCOME FUND 2004 ANNUAL REPORT AUDITORS REPORT35January

277、 21,2005To the Trustees ofCineplex Galaxy Income FundWe have audited the consolidated balance sheets of Cineplex Galaxy Income Fund(the“Fund”)as at December 31,2004 and 2003 and the consolidated statements of earnings,unitholders equityand cash flows for the year ended December 31,2004 and the perio

278、d from October 2,2003 toDecember 31,2003.These financial statements are the responsibility of the Funds management.Our responsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with Canadian generally accepted auditing standards.T

279、hosestandards require that we plan and perform an audit to obtain reasonable assurance whether thefinancial statements are free of material misstatement.An audit includes examining,on a test basis,evidence supporting the amounts and disclosures in the financial statements.An audit also includesasses

280、sing the accounting principles used and significant estimates made by management,as well asevaluating the overall financial statement presentation.In our opinion,these consolidated financial statements present fairly,in all material respects,thefinancial position of the Fund as at December 31,2004 a

281、nd 2003 and the results of its operationsand its cash flows for the year ended December 31,2004 and the period from October 2,2003 toDecember 31,2003 in accordance with Canadian generally accepted accounting principles.Chartered AccountantsToronto,OntarioAuditors Report“PricewaterhouseCoopers LLP”CI

282、NEPLEX GALAXY INCOME FUND CONSOLIDATED BALANCE SHEETS 2004 ANNUAL REPORT36Cineplex Galaxy Income FundConsolidated Balance Sheets As at December 31,2004 and 2003(expressed in thousands of Canadian dollars)20042003AssetsCurrent assetsCash and cash equivalents$1,179$460Interest receivable from Galaxy E

283、ntertainment Inc.(note 4)-1,381Distributions receivable(note 4)7527881,9312,629Due from Galaxy Entertainment Inc.(notes 1 and 4)100,000100,000Investment in Cineplex Galaxy Limited Partnership(notes 1 and 2)98,04695,875Investment in Cineplex Galaxy General Partner Corporation(notes 1 and 2)22$199,979

284、$198,506LiabilitiesCurrent liabilitiesDistributions payable(note 8)$1,918$2,169Due to Cineplex Galaxy Limited Partnership(note 4)44601,9222,629Unitholders Equity198,057195,877$199,979$198,506Guarantees(note 9)The accompanying notes are an integral part of these consolidated financial statements.Appr

285、oved by the Board of TrusteesBRUCE BIRMINGHAMEDWARD SONSHINETrusteeTrusteeCINEPLEX GALAXY INCOME FUND 2004 ANNUAL REPORT CONSOLIDATED STATEMENTS OF EARNINGS37Period fromYear ended October 2,2003 toDecember 31,2004December 31,2003Share of income of Cineplex Galaxy Limited Partnership(note 5)$3,258$2,

286、665Interest income(note 4)14,0091,381Net earnings$17,267$4,046Basic earnings per unit$0.88$0.23Weighted average number of units outstanding used in computing basic earnings per unit19,612,28717,922,222Diluted earnings per unit$0.88$0.22Weighted average number of units outstanding used in computing d

287、iluted earnings per unit(note 7)47,566,97446,089,196The accompanying notes are an integral part of these consolidated financial statements.Cineplex Galaxy Income FundConsolidated Statements of Earnings(expressed in thousands of Canadian dollars,except per unit amounts)CINEPLEX GALAXY INCOME FUND CON

288、SOLIDATED STATEMENTS OF UNITHOLDERS EQUITY 2004 ANNUAL REPORT38Cineplex Galaxy Income FundConsolidated Statements of Unitholders Equity For the year ended December 31,2004(expressed in thousands of Canadian dollars)Unitholders Accumulated Accumulated capital(note 6)earningsdistributionsTotalBalance

289、as at December 31,2003$194,000$4,046$(2,169)$195,877Issuance of units under Exchange Agreement(note 6)7,477-7,477Distributions declared(note 8)-(22,564)(22,564)Net earnings for the year-17,267-17,267Balance as at December 31,2004$201,477$21,313$(24,733)$198,057For the period from October 2,2003 to D

290、ecember 31,2003Unitholders Accumulated Accumulated capital(note 6)earningsdistributionsTotalIssuance of units(notes 1 and 6)$194,000$-$-$194,000Distributions declared(note 8)-(2,169)(2,169)Net earnings for the period-4,046-4,046Balance as at December 31,2003$194,000$4,046$(2,169)$195,877The accompan

291、ying notes are an integral part of these consolidated financial statements.CINEPLEX GALAXY INCOME FUND 2004 ANNUAL REPORT-CONSOLIDATED STATEMENTS OF CASH FLOWS39Period fromYear endedOctober 2,2003 toDecember 31,2004December 31,2003Cash provided by(used in)Operating activitiesNet earnings for the per

292、iod$17,267$4,046Item not affecting cash and cash equivalentsShare of income from equity investee(note 5)(3,258)(2,665)Change in operating assets and liabilities Interest receivable from Galaxy Entertainment Inc.(note 4)1,381(1,381)15,390-Investing activitiesDistributions received from Cineplex Galax

293、y Limited Partnership(note 4)8,600-Investment in Cineplex Galaxy Limited Partnership(note 2)-(93,998)Investment in Galaxy Notes(notes 1 and 4)-(100,000)Investment in Cineplex Galaxy General Partner Corporation(note 1)-(2)8,600(194,000)Financing activitiesDistributions paid(22,815)-Issuance of units(

294、notes 1 and 6)-194,000Due to Cineplex Galaxy Limited Partnership(note 4)(456)460(23,271)194,460Increase in cash and cash equivalents during the period719460Cash and cash equivalents-Beginning of period460-Cash and cash equivalents-End of period$1,179$460Supplemental informationCash received for inte

295、rest$15,390$-Certain non-cash transactions occurred relating to exchanges of Class B LP units for Fund units(note 6).The accompanying notes are an integral part of these consolidated financial statements.Cineplex Galaxy Income FundConsolidated Statements of Cash Flows(expressed in thousands of Canad

296、ian dollars)CINEPLEX GALAXY INCOME FUND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2004 ANNUAL REPORT40Cineplex Galaxy Income FundNotes to Consolidated Financial StatementsDecember 31,2004 and 2003(expressed in thousands of Canadian dollars,except per unit amounts)1.DESCRIPTION OF THE FUNDCineplex G

297、alaxy Income Fund(the“Fund”)is an unincorporated,open-ended,limited purposetrust established under the laws of the Province of Ontario on October 2,2003 pursuant to the Fund Declaration of Trust.The Fund was established to invest,through Cineplex Galaxy Trust(the“Trust”),a newly constituted wholly o

298、wned trust,in partnership units of Cineplex Galaxy LimitedPartnership(the“Partnership”)and shares of Cineplex Galaxy General Partner Corporation(the“General Partner”),the general partner of the Partnership.The Partnership represents Canadas second largest film exhibition organization with theatres i

299、n six provinces and was formed onNovember 26,2003 to acquire substantially all of the theatre business assets and liabilities ofCineplex Odeon Corporation(“COC”)and all of the shares of Galaxy Entertainment Inc.(“GEI”).On November 26,2003,the Fund issued 17,500,000 million units at$10.00 per unit(th

300、e“Offering”)and used these funds to subscribe for units(the“Trust Units”)and Series 1 notes(the“Series 1Trust Notes”)of the Trust.The Trust subscribed for 17,500,000 Class A Partnership units(“Class ALP Units”)in the amount of$74,998,subscribed for 17,500,000 shares in the capital of the GeneralPart

301、ner in the amount of$2 and advanced$100,000(the“Galaxy Notes”)to GEI.The investments in the Partnership and the General Partner represented approximately 36.8%of the outstandingPartnership units and General Partner shares.The Partnership used the proceeds from the issuanceof Class A LP Units,the pro

302、ceeds from the Galaxy Notes,the$110,000 proceeds from its New CreditFacilities(note 9),together with the issuance of Series 1 Class B Partnership units,Series 2-C Class BPartnership units and Series 2-G Class B Partnership units(collectively,“Class B LP Units”),to fundthe acquisition of substantiall

303、y all of the theatre business assets and liabilities of COC,to acquire,through an acquisition company,all of the shares of GEI and to pay the expenses of the Offering.The underwriters fees and other Offering costs were reimbursed to the Fund pursuant to areimbursement agreement with the Partnership.

304、In addition,all administration costs incurred by the Fund are reimbursed to the Fund by the Partnership.On December 24,2003,the underwriters of the initial public offering of units of the Fund exercisedtheir over-allotment option to purchase 1,900,000 additional units at a purchase price of$10.00 pe

305、runit,for gross proceeds of$19,000(the“Over allotment”).The gross proceeds were used by the Fundto acquire an additional indirect interest of approximately 4.0%in the Partnership.After giving effectto the Over allotment,the Fund indirectly owned an approximate 40.8%interest in the Partnership.Under

306、the provisions of the Exchange Agreement,the Fund issued units during the year endedDecember 31,2004,in exchange for Notes and Units from the Trust(note 6),and as a resultindirectly increased its ownership in the Partnership to a 42.1%interest.The Partnerships investors are comprised of the Trust,th

307、e General Partner,COC,Cineplex Odeon(Quebec)Inc.,Onex Corporation and other former investors in GEI.CINEPLEX GALAXY INCOME FUND 2004 ANNUAL REPORT-NOTES TO CONSOLIDATED FINANCIAL STATEMENTS412.BUSINESS ACQUISITIONSFollowing the Offering and the exercise of the Over allotment,the Fund indirectly acqu

308、ired a 40.8%interest in the Partnership and the General Partner.The total consideration was$93,998 in cash forthe 40.8%interest in the Partnership and$2 in cash for the 40.8%interest in the General Partner.The investments are accounted for using the equity method and the results of the Partnership h

309、avebeen included in the Funds consolidated financial statements from the date of acquisition.The Funds share of the net book value of the underlying identifiable net liabilities,excluding goodwill,of the Partnership was$63,478 at the date of acquisition.The$93,998 cost of the Fundsinvestment in the

310、Partnership exceeded the$63,478 underlying carrying value of the net liabilitiesof the Partnership in the amount of$157,476.This excess has been allocated to property,equipmentand leaseholds in the amount of$4,898;advertising contracts for$5,180;and to trademarks in theamount of$16,151.The remaining

311、$131,247 represents equity method goodwill.Amounts allocatedto buildings,equipment and leaseholds are amortized over a period of approximately 12 years andto advertising contracts over approximately nine years.As the useful lives of trademarks andgoodwill are indefinite,no amortization is recorded o

312、n these assets.The Funds share of the Partnerships net income has been adjusted to reflect the Fundsproportionate share of the amortization of the excess purchase price over net assets acquired(note 5).The investment in the Partnership consists of the following:20042003Investment in 19,400,000 Class

313、 A LP Units$93,998$93,998Investment in 623,689 Class B LP Units(note 6)7,477-Accumulated share of Partnership income5,9232,665Less:Accumulated distributions received or receivable(note 4)9,352788$98,046$95,8753.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of presentation and consolidationThe Fund

314、 prepares its financial statements in accordance with Canadian generally accepted accountingprinciples(“GAAP”).The Funds consolidated financial statements include the accounts of theTrust.All intercompany transactions have been eliminated.Due to the limited amount of informationthat these consolidat

315、ed financial statements provide on the underlying operations of the Partnership,these consolidated financial statements should be read in conjunction with those of the Partnershipfor the years ended December 31,2004 and 2003.Cash and cash equivalentsThe Fund considers all operating funds held in fin

316、ancial institutions and all highly liquid investmentswith original maturities of three months or less when purchased to be cash and cash equivalents.Cineplex Galaxy Income FundNotes to Consolidated Financial StatementsCINEPLEX GALAXY INCOME FUND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2004 ANNUAL

317、 REPORT42Long-term investmentsAs the Fund has significant influence over the Partnership and the General Partner,its investmentsare accounted for using the equity method.Under the equity method,the cost of the investment is increased by the Funds proportionate share of earnings and reduced by any di

318、stributions paid or payable to the Fund by the Partnership and the General Partner and by the amortization ofproperty,equipment and leaseholds and certain intangible assets arising as a result of the purchaseprice allocation(note 2).As set out in the Cineplex Galaxy Limited Partnership Agreement,inc

319、omeand loss of the Partnership for accounting purposes are allocated to each partner in the sameproportion as the income or loss is allocated for tax purposes(note 5).The Funds investment in the Partnership is reviewed for impairment if conditions arise thatindicates the investment may be impaired.I

320、f there is a loss in the value of the investment that is other than a temporary decline,the investment is written down to recognize the loss.Income taxesThe Fund is a mutual fund trust for income tax purposes.As such,the Fund is only taxable on any amount not allocated to Unitholders.As substantiall

321、y all taxable income will be allocated to the Unitholders,no provision for income taxes on earnings has been made in these consolidatedfinancial statements.Income tax liabilities relating to distributions of the Fund are taxed in thehands of the Unitholders.Earnings per unitBasic earnings per unit a

322、re computed by dividing the net earnings available for Unitholders by the weighted average number of units outstanding during the year.Diluted earnings per unit arecomputed using the if-converted method,which assumes conversion of the Class B LP Units intounits of the Fund at the beginning of the re

323、porting period,or at the time of issuance,if later(note 7).Financial instrumentsa)Fair value of financial instrumentsCash and cash equivalents,due to and due from related parties,interest receivable,distributionsreceivable and distributions payable are reflected in the financial statements at carryi

324、ngvalues,which approximate fair value because of the short-term maturity of these financialinstruments.Financial instruments also include the Galaxy Notes that mature on November26,2028 and bear interest at 14%per annum.The fair value of the Galaxy Notes is notpracticable to determine given the many

325、 factors,terms and conditions that would influencesuch a determination.b)Interest rate riskThe Fund is exposed to interest rate risk as a result of its issuance of the$100,000 fixedrate Galaxy Notes(note 4).Interest rate risk is the risk that the fair value of a financialinstrument will fluctuate du

326、e to changes in market interest rates.Cineplex Galaxy Income FundNotes to Consolidated Financial StatementsCINEPLEX GALAXY INCOME FUND 2004 ANNUAL REPORT-NOTES TO CONSOLIDATED FINANCIAL STATEMENTS43Exchangeable securitiesThe Fund implemented,on a retroactive basis with prior periods restated,the new

327、 Emerging IssuesCommittee(“EIC”)Abstract 151,Exchangeable Securities Issued by Subsidiaries of Income Trusts,which is effective for financial statements issued subsequent to January 19,2005.The standardaddresses whether or not the exchangeable units should be recorded as equity in the Funds balances

328、heet.In addition,it provides guidance on the accounting treatment for the conversion of exchangeablesecurities that are not presented as part of the Funds unitholders equity and it addresses how earningsper share should be calculated in the Funds financial statements.Certain Class B LP Units are exc

329、hangeable for units of the Fund(note 6).The Class B LP Units are notshown as part of the Funds unitholders equity in the balance sheet until they have been exchangedfor Fund units as there are no requirements for the Class B LP Units to be exchanged into Fund units.As such,the Class B LP Units are c

330、onsidered as part of the calculation of diluted earnings per shareusing the if-converted method.When Class B LP Units are converted into Fund units,the Fund accounts for the exchange of units atfair value at the date of the exchange.As a result,the Funds proportionate share of the amortizationof the

331、 excess purchase price over the net assets acquired(note 5)would be adjusted,including anadjustment to equity method goodwill.The impact to the Funds share of the Partnerships income as a result of the retroactive implementation of this new standard was immaterial;however,it did resultin an increase

332、 in the investment in the Partnership and unitholders capital in the amount of$1,564.Use of estimatesThe preparation of financial statements in conformity with Canadian GAAP requires management tomake estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure

333、of contingent assets and liabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period.Actual results could differ from those estimates.4.RELATED PARTY TRANSACTIONSThe Partnership makes distributions on a monthly basis of its available cash to the maximum extentpossible to holders of record of Class A LP Units and Class B LP Units