Reading and Interpreting 12-4 a1, bi, ci, d Cineplex Inc. is the largest movie exhibition company in Canada. It operates theatres in 10 provinces across Canada. The company's financial statements are presented in Exhibits 12.13A to 12.13C. EXHIBIT 12.13A Cineplex Inc.'s 2016 Consolidated Balance Sheets CINEPLEX INC. Consolidated Balance Sheets (expressed in thousands of Canadian dollars) December 31, 2016 December 31, 2015 $ $ Assets Current assets Cash and cash equivalents (note 3) Trade and other receivables (note 4) Income taxes receivable (note 7) Inventories (note 5) Prepaid expenses and other current assets 35,713 121,398 33,553 115,903 463 21,412 10,856 182,187 19,691 10,025 186,827 533,192 6,517 Non-current assets Property, equipment and leaseholds (note 6) Deferred income taxes (note 7) Fair value of interest rate swap agreements (note 29) Interests in joint ventures (note 8) Intangible assets (note 9) Goodwill (note 10) 564,879 5,891 756 35,487 125,492 813,494 $1,728,186 35,288 132,140 807,953 $1,701,917 Business acquisitions (note 2) Commitments guarantees and contingencies (note 28) Liabilities Current liabilities Accounts payable and accrued liabilities (note 11) Share-based compensation (note 12) Dividends payable (note 13) Income taxes payable (note 7) Deferred revenue Current debt (note 14) Finance lease obligations (note 15) Fair value of interest rate swap agreements (note 29) $ 204,725 8,958 8,575 2,042 172,140 $ 209,657 9,742 8,238 30,464 159,568 3,737 2,957 1,414 425,777 3,180 2,419 402,039 continued December 31, 2016 December 31, 2015 2018 Non-current liabilities Share-based compensation (note 12) Long-term debt (note 14) Fair value of interest rate swap agreements (note 29) Finance lease obligations (note 15) Post-employment benefit obligations (note 16) Other liabilities (note 17) Deferred income taxes (note 7) Convertible debentures (note 18) 18,346 297,496 2,020 8,871 7,932 125,560 11,210 102,817 574,252 976,291 18,907 222,340 4,188 12,052 7,296 131,874 6,283 100,703 503,643 929,420 Total liabilities Equity Share capital (note 19) Deficit Hedging reserves and other Contributed surplus Cumulative translation adjustment Total equity attributable to owners of Cineplex Non-controlling interests Total equity 859,351 (108,342) (3,170) 81 1,175 749,095 2,800 751,895 $1,728,186 858,305 (86,296) (4,979) (491) 934 767,473 5,024 772,497 $1,701,917 EXHIBIT 12.13B Cineplex Inc.'s 2016 Consolidated Statements of Operations CINEPLEX INC. Consolidated Statements of Operations For the years ended December 31, 2016 and 2015 (expressed in thousands of Canadian dollars, except per share amounts) 2016 2015 Revenues Box office Food service Media Other (note 20) $ 712,446 423,920 170,792 171,168 1,478,326 $ 711,107 418,445 153,646 87,745 1,370,943 Expenses Film cost Cost of food service 389,602 96,059 379,103 90,530 Expenses Film cost Cost of food service Depreciation and amortization Loss on disposal of assets Gain on acquisition of business 389,602 96,059 105,941 1,570 379,103 90,530 89,339 3,236 (7,447) continued 2016 2015 Other costs (note 21) Share of income of joint ventures Interest expense Interest Income Change in fair value of financial instrument (note 29) 759,930 (2,706) 18,816 (204) 655,389 (3,556) 22.443 (186) (29,076) 1,199,775 171,168 1.369,008 109,318 Income before Income taxes Provision for (recovery of) income taxes Current (note) Deferred (note 7) 26,231 5,096 31,327 77,991 37,026 (107) 36,919 $ 134,249 $ Net Income Attributable to: Owners of Cineplex Non-controlling interests $ 79,713 (1,722) 77,991 S 134,697 (448) $ 134,249 Net Income $ EXHIBIT 12.13 Cineplex Inc. 2016 Consolidated Statements of Cash Flows CINEPLEX INC. Consolidated Statements of Cash Flows For the years ended December 31, 2016 and 2015 (expressed in thousands of Canadian dollars) 2016 2015 $ 77,991 $ 134,249 105,941 89,339 (10,618) (7,832) 407 4,947 Cash provided by (used in) Operating activities Net Income Depreciation and amortization of property equipment and leaseholds, and intangible assets Amortization of tenant Inducements, rent averaging liabilities and fair value lease contract liabilities Accretion of debt issuance costs and other non-cash Interest, net Loss on disposal of assets Gain on acquisition of business Deferred Income taxes Interest rate swap agreements - non-cash interest Non-cash share-based compensation Change in fair value of financial instrument (note 29) Accretion of convertible debentures Net change in interests in joint ventures 1.570 3.236 (7,447) (107) 362 5,096 239 1,618 2,114 (3,254) (29,076) 1,976 (4,860) continued 2016 4,920 (20,010) 166,014 2015 1,568 42.545 Tenant inducements Changes in operating assets and liabilities (note 26) Net cash provided by operating activities Investing activities Proceeds from sale of assets 230.594 108 108 (10,618) 11,832) 407 4,947 1,570 Amortization of terant iucements, relil averaging liabilities and fair value lease contract liabilities Accretion of debt issuance costs and other non-cash interest, net Loss on disposal of assets Gain on acquisition of business Deferred income taxes Interest rate swap agreements - non-cash interest Non-cash share-based compensation Change in fair value of financial instrument (note 29) Accretion of convertible debentures Net change in interests in joint ventures 5,096 239 3,236 (7,447) (107) 362 1,694 (29,076) 1,976 (4,860) 1,618 2,114 (3,254) continued 2015 2016 4,920 (20,010) 166,014 1,568 42,545 230,594 108 (104,189) (32,082) (1,931) 3,054 (135,040) 108 (95,979) (30,343) (694) 1,843 (125,065) Tenant inducements Changes in operating assets and liabilities (note 26) Net cash provided by operating activities Investing activities Proceeds from sale of assets Purchases of property, equipment and leaseholds Acquisition of businesses, net of cash acquired (note 2) Intangible assets additions Net cash received from CDCP Net cash (used in) investing activities Financing activities Dividends paid Borrowings under credit facilities, net Options exercised for cash Payments under finance leases Deferred financing fees Net cash (used in) in financing activities Effect of exchange rate differences on cash (Decrease) increase in cash and cash equivalents Cash and cash equivalents - Beginning of year Cash and cash equivalents - End of year Supplemental information Cash paid for interest Cash paid for income taxes, net (101,197) 72,634 (96,843) (6,932) 2,034 (2,670) (2,957) (1,426) (32,946) (188) (2,160) 35,713 $ 33,553 (104,411) 228 1,346 34,367 $ 35,713 $ 13,584 $ 54,842 $ 14,702 $ 16,458 Assess the company's operating effectiveness by calculating the activity ratios for Cineplex for 2016 and 2015. (Note: Use media and other revenues for the accounts receivable turnover ratio; use cost of food services as cost of goods sold.) (Round accounts receivable turnover, inventory turnover and accounts payable turnover to 2 decimal places, e.g. 15.75. Round average collection period, days to sell inventory and accounts payable payment period to 1 decimal place, e.g. 15.1. Use 365 days for calculation.) Ratio 2016 2015 Accounts receivable turnover times times Average collection period days days Inventory turnover times times Days to sell inventory days days Accounts payable turnover times times Accounts payable payment period days days LINK TO TEXT Assess the financial riskiness of the company by calculating the following ratios. (Round current ratio, quick ratio and debt to equity to 2 decimal places, e.g. 15.75 and interest coverage to 1 decimal place, e.g. 15.7.) 2016 2015 i. Current ratio ii. Quick ratio iii. Debt to equity iv. Interest coverage times times Based on those ratios, do you think the financial risk on the company has decreased in 2016? 7, the financial risk on the company has in 2016. LINK TO TEXT Calculate the company's profitability by determining the following ratios: (Round answers to 1 decimal place, e.g. 15.7%.) 2016 2015 i. Profit margin ii. Return on equity i. Return on assets LINK TO TEXT Determine the company's net free cash flow for 2016 and 2015. (Enter negative amounts using either a negative sign preceding the number e.g.-45 or parentheses e.g. (45).) 2016 2015 Net free cash flows Has this improved or worsened? The company's net free cash flow has in 2016