10-Q 1 edgartest.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 27, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ___________________ -------------- ------------------- Commission file number 1-8747 AMC ENTERTAINMENT INC. (Exact name of registrant as specified in its charter) Delaware 43-1304369 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 106 West 14th Street P.O. Box 219615 Kansas City, Missouri 64121-9615 (Address of principal executive offices) (Zip Code) (816) 221-4000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ____ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Number of Shares Title of Each Class of Common Stock Outstanding as of September 27, 2001 ----------------------------------- ------------------------------------ Common Stock, 66 2/3 cents par value 19,667,546 Class B Stock, 66 2/3 cents par value 3,801,545 AMC ENTERTAINMENT INC. AND SUBSIDIARIES INDEX Page Number PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Operations 3 Consolidated Balance Sheets 4 Consolidated Statements of Cash Flows 5 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 3. Quantitative and Qualitative Disclosures About Market Risk 23 PART II - OTHER INFORMATION Item 1. Legal Proceedings 24 Item 4. Submission of Matters To a Vote of Security Holders 24 Item 5. Other Information 25 Item 6. Exhibits and Reports on Form 8-K 26 Signatures 28 Item 1. Financial Statements AMC ENTERTAINMENT INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
Thirteen Twenty-six Weeks Ended Weeks Ended September 27, September 28, September 27, September 28, 2001 2000 2001 2000 ---- ---- ---- ---- (Unaudited) (Unaudited) Revenues Admissions $254,932 $220,554 $458,116 $414,095 Concessions 100,147 91,472 185,012 172,187 Other theatre 10,706 5,151 23,611 14,978 Other 11,358 14,425 19,889 21,586 ------- ------- ------- ------- Total revenues 377,143 331,602 686,628 622,846 Expenses Film exhibition costs 141,936 119,902 252,117 224,011 Concession costs 13,393 14,138 24,118 26,355 Theatre operating expense 85,085 76,347 164,478 152,156 Rent 58,887 57,862 117,733 113,841 Other 11,717 12,392 22,457 21,217 General and administrative 8,898 7,350 16,693 13,985 Preopening expense 537 875 1,806 2,483 Theatre and other closure expense 12 11,679 88 12,406 Depreciation and amortization 24,272 25,917 47,570 52,295 Impairment of long-lived assets - 3,813 - 3,813 (Gain) loss on disposition of assets (2,001) 5 (1,842) (1,635) ------- ------- ------- ------- Total costs and expenses 342,736 330,280 645,218 620,927 ------- ------- ------- ------- Operating income 34,407 1,322 41,410 1,919 Other expense (income) - (9,996) 3,754 (9,996) Interest expense Corporate borrowings 11,051 15,790 22,950 32,038 Capital and financing lease obligations 3,246 2,996 6,760 6,178 Investment (income) loss (299) 495 (581) (605) ------- ------- ------- ------- Earnings (loss) before income taxes and cumulative effect of an accounting change 20,409 (7,963) 8,527 (25,696) Income tax provision (benefit) 1,400 (2,500) 1,400 (9,100) ------- ------- ------- ------- Earnings (loss) before cumulative effect of an accounting change 19,009 (5,463) 7,127 (16,596) Cumulative effect of an accounting change (net of income tax benefit of $10,950) - - - (15,760) Net earnings (loss) $ 19,009 $ (5,463) $ 7,127 $ (32,356) ======= ======= ======= ======= Preferred dividends 10,399 - 12,797 - ------- ------- ------- ------- Net earnings (loss) for common shares $ 8,610 $ (5,463) $ (5,670) $ (32,356) ======= ======= ======= ======= Earnings (loss) per common share before cumulative effect of an accounting change: Basic $ .22 $ (.23) $ (.24) $ (.71) ======= ======= ======= ======= Diluted $ .22 $ (.23) $ (.24) $ (.71) ======= ======= ======= ======= Net earnings (loss) per common share: Basic $ .22 $ (.23) $ (.24) $ (1.38) ======= ======= ======= ======= Diluted $ .22 $ (.23) $ (.24) $ (1.38) ======= ======= ======= ======= See Notes to Consolidated Financial Statements.
AMC ENTERTAINMENT INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
September 27, March 29, 2001 2001 ---- ---- (Unaudited) ASSETS Current assets: Cash and equivalents $ 46,054 $ 34,075 Receivables, net of allowance for doubtful accounts of $1,175 as of September 27, 2001 and $1,137 as of March 29, 2001 17,196 14,231 Other current assets 43,080 45,075 --------- --------- Total current assets 106,330 93,381 Property, net 777,210 757,518 Intangible assets, net 6,672 7,639 Deferred income taxes 134,091 135,491 Other long-term assets 48,208 53,235 --------- --------- Total assets $1,072,511 $1,047,264 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable $ 81,835 $ 100,989 Accrued expenses and other liabilities 115,193 138,193 Current maturities of capital and financing lease obligations 2,709 2,718 --------- --------- Total current liabilities 199,737 241,900 Corporate borrowings 514,208 694,172 Capital and financing lease obligations 56,662 53,966 Other long-term liabilities 121,502 116,271 --------- --------- Total liabilities 892,109 1,106,309 Commitments and contingencies Stockholders' equity (deficit): Series A Convertible Preferred Stock, 66 2/3 cents par value; 253,375 shares issued and outstanding as of September 27, 2001 (aggregate liquidation preference of $257,650 as of September 27, 2001) 169 - Common Stock, 66 2/3 cents par value; 19,688,046 shares issued as of September 27, 2001 and 19,447,598 shares issued as of March 29, 2001 13,125 12,965 Convertible Class B Stock, 66 2/3 cents par value; 3,801,545 shares issued and outstanding as of September 27, 2001 and 4,041,993 shares issued and outstanding as of March 29, 2001 2,535 2,695 Additional paid-in capital 336,791 106,713 Accumulated other comprehensive income (12,780) (15,121) Accumulated deficit (148,920) (156,047) --------- --------- 190,920 (48,795) Less: Employee notes for Common Stock purchases 10,149 9,881 Common Stock in treasury, at cost, 20,500 shares as of September 27, 2001 and March 29, 2001 369 369 --------- --------- Total stockholders' equity (deficit) 180,402 (59,045) --------- --------- Total liabilities and stockholders' equity (deficit) $1,072,511 $1,047,264 ========= ========= See Notes to Consolidated Financial Statements.
AMC ENTERTAINMENT INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands, except per share data)
Twenty-six Weeks Ended September 27, September 28, 2001 2000 ---- ---- INCREASE (DECREASE) IN CASH AND EQUIVALENTS (Unaudited) Cash flows from operating activities: Net income (loss) $ 7,127 $ (32,356) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 47,570 52,295 Impairment of long-lived assets - 3,813 Deferred income taxes 1,400 (9,100) Gain on disposition of long-term assets (1,842) (1,635) Cumulative effect of an accounting change - 15,760 Change in assets and liabilities: Receivables (2,784) (3,774) Other current assets (512) 4,713 Accounts payable (18,246) (21,312) Accrued expenses and other liabilities (11,770) (12,865) Liabilities for theatre closure (6,993) 6,621 Other, net 494 2,065 ------- ------- Net cash provided by operating activities 14,444 4,225 ------- ------- Cash flows from investing activities: Capital expenditures (53,256) (56,662) Proceeds from sale/leasebacks 16,452 6 Purchase of leased furniture, fixtures and equipment (16,400) - Net proceeds from reimbursable construction advances 711 4,238 Proceeds from disposition of long-term assets 3,772 26,322 Other, net (1,706) (2,975) ------- ------- Net cash used in investing activities (50,427) (29,071) ------- ------- Cash flows from financing activities: Net proceeds from preferred stock issuance 230,035 - Net repayments under revolving Credit Facility (180,000) (20,000) Proceeds from financing lease obligations - 4,853 Principal payments under capital and financing lease obligations (1,398) (1,582) Change in cash overdrafts (1,622) 2,746 Change in construction payables 714 886 Other, net 395 - ------- ------- Net cash provided by (used in) financing activities 48,124 (13,097) ------- ------- Effect of exchange rate changes on cash and equivalents (162) (1,122) ------- ------- Net increase (decrease) in cash and equivalents 11,979 (39,065) Cash and equivalents at beginning of period 34,075 119,305 ------- ------- Cash and equivalents at end of period $ 46,054 $ 80,240 ======= =======
AMC ENTERTAINMENT INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Twenty-six Weeks Ended September 27, September 28, 2001 2000 ---- ---- (Unaudited) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest (net of amounts capitalized of $1,480 and $2,119) $ 31,683 $ 44,681 Income taxes paid (refunded) 60 (5,482) See Notes to Consolidated Financial Statements.
AMC ENTERTAINMENT INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 27, 2001 (Unaudited) NOTE 1 - BASIS OF PRESENTATION AMC Entertainment Inc. ("AMCE") is a holding company which, through its direct and indirect subsidiaries, including American Multi-Cinema, Inc. ("AMC"), AMC Theatres of Canada (a division of AMC Entertainment International, Inc.), AMC Entertainment International, Inc., National Cinema Network, Inc. ("NCN") and AMC Realty, Inc. (collectively with AMCE, unless the context otherwise requires, the "Company"), is principally involved in the theatrical exhibition business throughout North America and in China (Hong Kong SAR), Japan, France, Portugal, Spain and Sweden. The Company's North American theatrical exhibition business is conducted through AMC and AMC Theatres of Canada. The Company's International theatrical exhibition business is conducted through AMC Entertainment International, Inc. The Company is also involved in the business of providing on-screen advertising and other services to AMC and other theatre circuits through a wholly-owned subsidiary, National Cinema Network, Inc., and in miscellaneous ventures through AMC Realty, Inc. The accompanying unaudited consolidated financial statements have been prepared in response to the requirements of Form 10-Q and should be read in conjunction with the Company's annual report on Form 10-K for the year (52 weeks) ended March 29, 2001. In the opinion of management, these interim financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the Company's financial position and results of operations. Due to the seasonal nature of the Company's business, results for the twenty-six weeks ended September 27, 2001 are not necessarily indicative of the results to be expected for the fiscal year (52 weeks) ending March 28, 2002. The March 29, 2001 consolidated balance sheet data was derived from the audited balance sheet, but does not include all disclosures required by generally accepted accounting principles. Certain amounts have been reclassified from prior period consolidated financial statements to conform with the current year presentation. Prior period results of operations have been revised to reflect the adoption of Staff Accounting Bulletin No. 101 Revenue Recognition in Financial Statements. NOTE 2 - EARNINGS PER SHARE In April 2001, the Financial Accounting Standards Board's (the "FASB") Staff issued an announcement which was codified as EITF Topic No. D-95 Effect of Participating Convertible Securities on the Computation of Basic Earnings Per Share. Topic No. D-95 requires the inclusion of participating convertible securities in the computation of basic earnings per common share. Topic No. D-95 permits the use of either the "if-converted" or the "two-class" method: the Company has selected the "if-converted" method. The dilutive effect of the Company's Series A Convertible Preferred Stock (the "Series A Preferred") is considered in the computation of basic earnings per common share in accordance with Topic No. D-95. Under Topic No. D-95, the dilutive effect of the Series A Preferred on basic earnings per common share cannot be less than the amount that would result from the application of the "two-class" method of computing basic earnings per common share. The "two-class" method is an earnings allocation formula that determines earnings per share for the common stock and the participating Series A Preferred according to dividends declared and participating rights in the undistributed earnings as if all such earnings were distributed. If dividends are paid on the common stock in any fiscal period, the holders of Series A Preferred shares are entitled to receive dividends on an "as converted" basis, to the extent such dividends are greater than the face amount of Series A Preferred dividends otherwise payable in such fiscal period. For the thirteen weeks ended September 27, 2001, the "two-class" method resulted in a reduction of basic earnings per common share of $.10 per share. The retroactive application of Topic No. D-95 had no effect on previously reported earnings per common share. The following table sets forth the computation of basic and diluted earnings per common share:
Thirteen Weeks Ended Twenty-six Weeks Ended Sept 27, Sept 28, Sept 27, Sept 28, 2001 2000 2001 2000 ---- ---- ---- ---- (in thousands, except per share data) Numerator: Earnings (loss) for common shares before cumulative effect of an accounting change $ 8,610 $ (5,463) $ (5,670) $ (16,596) Dividends on Series A Preferred 10,399 - - - ------ ------ ------ ------ Earnings (loss) for common shares before cumulative effect of an accounting change and assumed conversion of Series A Preferred $19,009 $ (5,463) $ (5,670) $ (16,596) ====== ====== ====== ====== Denominator: Average common shares outstanding 23,469 23,469 23,469 23,469 Series A Preferred 35,422 - - - ------ ------ ------ ------ Shares for basic earnings per common share 58,891 23,469 23,469 23,469 Stock options 262 - - - Stock awards 132 - - - ------ ------ ------ ------ Shares for diluted earnings per common share 59,285 23,469 23,469 23,469 ====== ====== ====== ====== Earnings (loss) per common share before cumulative effect of an accounting change $ .32 $ (.23) $ (.24) $ (.71) Further dilution from applying the "two-class" method (.10) - - - ------ ------ ------ ------ Basic earnings (loss) per common share before cumulative effect of an accounting change $ .22 $ (.23) $ (.24) $ (.71) ====== ====== ====== ====== Diluted earnings (loss) per common share before cumulative effect of an accounting change $ .22 $ (.23) $ (.24) $ (.71) ====== ====== ====== ======
The following is a reconciliation of the basic and diluted loss per common share computations on loss before the cumulative effect of an accounting change to net loss.
Twenty-six Weeks Ended September 28, 2000 (Per share amounts) Basic Diluted ----- ------- Loss for common shares before cumulative effect of an accounting change $ (.71) $ (.71) Cumulative effect of an accounting change, net of income tax benefit (.67) (.67) ----- ----- Net loss for common shares $(1.38) $(1.38) ===== =====
During the twenty-six weeks ended September 27, 2001, 31,350,957 shares of Common Stock and $12,797,000 of dividends from the assumed conversion of Series A Preferred were excluded from basic and diluted earnings per common share because they were anti-dilutive. During the twenty-six weeks ended September 27, 2001, shares from stock awards and options to purchase 314,963 shares of Common Stock were excluded from diluted earnings per common share because they were anti-dilutive. During the thirteen and twenty-six weeks ended September 28, 2000, shares from stock options to purchase 71,672 and 126,051, shares of common stock respectively, were excluded from diluted earnings per common share because they were anti-dilutive. The Company has two classes of common stock outstanding which do not provide for different dividend rates or other preferences, other than voting rights, between the two classes of common stock. NOTE 3 - COMPREHENSIVE INCOME The components of comprehensive income are as follows:
Thirteen Weeks Ended Twenty-six Weeks Ended Sept 27, Sept 28, Sept 27, Sept 28, 2001 2000 2001 2000 ---- ---- ---- ---- (in thousands) Net earnings (loss) $ 19,009 $ (5,463) $ 7,127 $(32,356) Foreign currency translation adjustment 4,049 (5,297) 2,341 (6,335) Unrealized loss on marketable securities (net of income tax benefit of $161 and $62 in fiscal 2000, respectively) - (231) - (80) ------- ------- ------- ------- Comprehensive income (loss) $ 23,058 $(10,991) $ 9,468 $(38,771) ======= ======= ======= =======
NOTE 4 - OPERATING SEGMENTS Information about the Company's operations by operating segment is as follows:
Thirteen Weeks Ended Twenty-six Weeks Ended Sept 27, Sept 28, Sept 27, Sept 28, 2001 2000 2001 2000 ---- ---- ---- ---- Revenues (in thousands) North American theatrical exhibition $335,897 $292,951 $618,926 $560,702 International theatrical exhibition 29,888 24,226 47,813 40,558 NCN and other 11,358 14,425 19,889 21,586 ------- ------- ------- ------- Total revenues $377,143 $331,602 $686,628 $622,846 ======= ======= ======= ======= Thirteen Weeks Ended Twenty-six Weeks Ended Sept 27, Sept 28, Sept 27, Sept 28, 2001 2000 2001 2000 ---- ---- ---- ---- Adjusted EBITDA (1) (in thousands) North American theatrical exhibition $ 63,812 $ 52,117 $108,096 $ 89,716 International theatrical exhibition 2,672 (572) 197 (2,202) NCN and other (359) 2,033 (2,568) 369 ------- ------- ------- ------- Total segment Adjusted EBITDA 66,125 53,578 105,725 87,883 General and administrative 8,898 7,350 16,693 13,985 ------- ------- ------- ------- Total Adjusted EBITDA $ 57,227 $ 46,228 $ 89,032 $ 73,898 ======= ======= ======= ======= Sept 27, Sept 28, 2001 2000 ---- ---- Property (2) (in thousands) North American theatrical exhibition $1,099,038 $1,050,714 International theatrical exhibition 90,336 84,056 NCN and other 14,016 14,309 --------- --------- Total segment property 1,203,390 1,149,079 Construction in progress 48,827 41,885 Corporate 32,577 41,968 --------- --------- 1,284,794 1,232,932 Less-accumulated depreciation and amortization 507,584 414,695 --------- --------- Property, net $ 777,210 $ 818,237 ========= ========= (1) Represents earnings (loss) before cumulative effect of an accounting change plus interest, income taxes, depreciation and amortization and adjusted for preopening expense, theatre and other closure expense, impairment of long-lived assets, (gain) loss on disposition of assets, equity in earnings of unconsolidated affiliates and excludes one-time other income of $7,379 related to an accounting change and one-time other expense of $3,754 incurred in connection with the issuance of Preferred Stock. (2) Property is comprised of land, buildings and improvements, leasehold improvements and furniture, fixtures and equipment.
NOTE 5 - STOCKHOLDERS' EQUITY (DEFICIT) On April 19, 2001, the Company issued 92,000 shares of Series A Preferred and 158,000 shares of Series B Exchangeable Preferred Stock the "Series B Preferred" and collectively with the Series A Preferred, the "Preferred Stock") at a price of $1,000 per share. Net proceeds from the issuance were used to repay borrowings under the Credit Facility. Reference is made to Note 5, Stockholders' Equity (Deficit), of the Company's Annual Report on Form 10-K for the fiscal year ended March 29, 2001 for additional information concerning the Preferred Stock. On July 25, 2001, holders of Convertible Class B Stock converted 100,000 shares of Class B Stock into 100,000 shares of Common Stock. On August 20, 2001, holders of Convertible Class B Stock converted 140,448 shares of Class B Stock into 140,448 shares of Common Stock. As described in Part II Item 4. Submission of Matters to a Vote of Security Holders, on September 13, 2001 the number of authorized shares of Common Stock were increased from 45,000,000 to 200,000,000. Pursuant to the Certificate of Designations relating to the Preferred Stock, all shares of Series B Preferred were exchanged for an equal number of shares of Series A Preferred. Preferred Stock dividends paid in shares of Preferred Stock are based upon their fair value at the date of declaration. The Company records dividends on Series B Preferred Stock when the dividends are declared. The carrying value of Series A Preferred is accreted to its redemption price over ten years (the period from initial issuance until redemption first becomes available to the holder of the security) using the interest method. During the thirteen weeks ended June 28, 2001, the Company recorded dividends of 1,242 additional shares of Series A Preferred valued at $2,398,000 and during the thirteen weeks ended September 28, 2001 the Company recorded dividends of 6,408 additional shares of Series A Preferred valued at $10,399,000. The increase in the number of additional shares of Series A Preferred during the thirteen weeks ended September 27, 2001 compared to the thirteen weeks ended June 27, 2001 was due to the declaration of dividends on Series B Preferred on June 30, 2001, exchange of all Series B Preferred for Series A Preferred on September 13, 2001 and dividend accruals for a full fiscal quarter during the thirteen weeks ended September 27, 2001 compared with a partial fiscal quarter during the thirteen weeks ended June 28, 2001. NOTE 6 - INCOME TAXES The difference between the expected effective annual tax rate on earnings (loss) before income taxes and cumulative effect of an accounting change and the U.S. federal income tax statutory rate is as follows:
Twenty-six Weeks Ended September 27, 2001 September 28, 2000 ------------------ ------------------ Federal statutory rate 35.0% 35.0% Non-deductible expenses (11.3) - Valuation allowance (7.6) - State income taxes, net of federal tax benefit .3 3.4 Other, net - (3.0) ---- ---- Effective tax rate 16.4% 35.4% ==== ====
NOTE 7 - THEATRE AND OTHER CLOSURE AND DISPOSITION OF ASSETS A rollforward of reserves for theatre and other closure and the discontinuing operation of fast food restaurants is as follows: Twenty-six Weeks Ended September 27, 2001 ------------------ Beginning Balance $ 32,092 Theatre and other closure expense 88 Interest expense 2,495 Gain on disposition of assets (1,682) General and administrative expense 75 Transfer of deferred rent and capital lease obligations balances 5,331 Payments (13,403) ------- Ending Balance $ 24,996 ======= NOTE 8 - CONTINGENCIES The Company, in the normal course of business, is party to various legal actions. Except as described below, management believes that the potential exposure, if any, from such matters would not have a material adverse effect on the financial condition, cash flows or results of operations of the Company. The Company is the defendant in two coordinated cases now pending in California, Weaver v. AMC Entertainment Inc., (filed March 2000 in Superior Court of California, San Francisco County), and Geller v. AMC Entertainment Inc. (filed May 2000 in Superior Court of California, San Bernardino County). The litigation is based upon California Civil Code Section 1749.5, which provides that "on or after July 1, 1997, it is unlawful for any person or entity to sell a gift certificate to a purchaser containing an expiration date." Weaver is a purported class action on behalf of all persons in California who, on or after January 1, 1997, purchased or received an AMC Gift of Entertainment ("GOE") containing an expiration date. Geller is brought by a plaintiff who allegedly received an AMC discount ticket in California containing an expiration date and who purports to represent all California purchasers of these "gift certificates" purchased from any AMC theatre, store, location, web-site or other venue owned or controlled by AMC since January 1, 1997. Both complaints allege unfair competition and seek injunctive relief. Geller seeks restitution of all expired "gift certificates" purchased in California since January 1, 1997 and not redeemed. Weaver seeks disgorgement of all revenues and profits obtained since January 1997 from sales of "gift certificates" containing an expiration date, as well as actual and punitive damages. The Company has denied any liability, answering that GOEs and discount tickets are not a "gift certificate" under the statute and that, in any event, no damages have occurred. On May 11, 2001, following a special trial on the issue, the court ruled that the GOEs and discount tickets are "gift certificates." The Company intends to appeal this ruling and to continue defending the cases vigorously. Should the result of this litigation ultimately be adverse to the Company, it is presently unable to estimate the amount of the potential loss. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. This section contains certain "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally can be identified by use of statements that include words or phrases such as the Company or its management "believes," "expects," "anticipates," "intends," "plans," "foresees" or other words or phrases of similar import. Similarly, statements that describe the Company's objectives, plans or goals also are forward-looking statements. All such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those contemplated by the relevant forward-looking statement. Important factors that could cause actual results to differ materially from the expectations of the Company include, among others: (i) the Company's ability to enter into various financing programs; (ii) the performance of films licensed by the Company; (iii) competition; (iv) construction delays; (v) the ability to open or close theatres and screens as currently planned; (vi) general, political (including the impact on attendance of any future terrorist actions) and economic conditions (including adverse changes in inflation and prevailing interest rates); (vii) demographic changes; (viii) increases in the demand for real estate; (ix) changes in real estate, zoning and tax laws and (x) unforeseen changes in operating requirements. Readers are urged to consider these factors carefully in evaluating the forward-looking statements. The forward-looking statements included herein are made only as of the date of this Form 10-Q and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. Operating Results Set forth in the table below is a summary of revenues, costs and expenses attributable to the Company's North American and International theatrical exhibition operations and NCN and other businesses.
Thirteen Weeks Ended Twenty-six Weeks Ended Sept 27, Sept 28, Sept 27, Sept 28, 2001 2000 % Change 2001 2000 % Change ---- ---- -------- ---- ---- -------- (Dollars in thousands) Revenues North American theatrical exhibition Admissions $231,018 $201,260 14.8% $419,821 $381,637 10.0% Concessions 94,725 87,314 8.5 176,558 165,337 6.8 Other theatre 10,154 4,377 * 22,547 13,728 64.2 ------- ------- ---- ------- ------- ---- 335,897 292,951 14.7 618,926 560,702 10.4 International theatrical exhibition Admissions 23,914 19,294 23.9 38,295 32,458 18.0 Concessions 5,422 4,158 30.4 8,454 6,850 23.4 Other theatre 552 774 (28.7) 1,064 1,250 (14.9) ------- ------- ---- ------- ------- ---- 29,888 24,226 23.4 47,813 40,558 17.9 NCN and other 11,358 14,425 (21.3) 19,889 21,586 (7.9) ------- ------- ---- ------- ------- ---- Total revenues $377,143 $331,602 13.7% $686,628 $622,846 10.2% ======= ======= ==== ======= ======= ==== Costs of operations North American theatrical exhibition Film exhibition costs $128,935 $109,369 17.9% $231,891 $206,697 12.2% Concession costs 11,827 12,757 (7.3) 21,593 24,173 (10.7) Theatre operating expense 78,967 70,127 12.6 152,956 140,769 8.7 Rent 52,356 51,198 2.3 104,390 101,964 2.4 Preopening expense 486 317 53.3 1,747 1,659 5.3 Theatre and other closure expense 12 11,679 (99.9) 88 12,406 (99.3) ------- ------- ---- ------- ------- ---- 272,583 255,447 6.7 512,665 487,668 5.1 International theatrical exhibition Film exhibition costs 13,001 10,533 23.4 20,226 17,314 16.8 Concession costs 1,566 1,381 13.4 2,525 2,182 15.7 Theatre operating expense 6,118 6,220 (1.6) 11,522 11,387 1.2 Rent 6,531 6,664 (2.0) 13,343 11,877 12.3 Preopening expense 51 558 (90.9) 59 824 (92.8) ------- ------- ---- ------- ------- ---- 27,267 25,356 7.5 47,675 43,584 9.4 NCN and other 11,717 12,392 (5.4) 22,457 21,217 5.8 General and administrative 8,898 7,350 21.1 16,693 13,985 19.4 Depreciation and amortization 24,272 25,917 (6.3) 47,570 52,295 (9.0) Impairment of long-lived assets - 3,813 * - 3,813 * (Gain) loss on disposition of assets (2,001) 5 * (1,842) (1,635) 12.7 ------- ------- ---- ------- ------- ---- Total costs and expenses $342,736 $330,280 3.8% $645,218 $620,927 3.9% ======= ======= ==== ======= ======= ==== *Percentage change in excess of 100%.
Thirteen weeks ended September 27, 2001 and September 28, 2000. Revenues. Total revenues increased 13.7% during the thirteen weeks ended September 27, 2001 compared to the thirteen weeks ended September 28, 2000. North American theatrical exhibition revenues increased 14.7% from the prior year. Admissions revenues increased 14.8% due to a 7.8% increase in attendance and a 6.5% increase in average ticket price. Attendance increased due to increased popularity of film product and the addition of 5 new theatres with 92 screens added since September 28, 2000 offset by the closure or sale of 20 older or under performing theatres with 139 screens since September 28, 2000. Attendance at comparable theatres (theatres opened before the second quarter of fiscal 2001) increased 7.5% due to the increased popularity of film product. The increase in average ticket prices was due primarily to the Company's practice of periodically reviewing ticket prices and making selective adjustments based upon such factors as general inflationary trends and conditions in local markets. Concessions revenues increased 8.5% due primarily to the increase in attendance. International theatrical exhibition revenues increased 23.4% from the prior year. Admissions revenues increased 23.9% due primarily to a 26.4% increase in attendance. The increase in attendance was due to the increased popularity of film product and the addition of 1 new theatre with 18 screens since September 28, 2000. Attendance at comparable theatres increased 18.6% due to the increased popularity of film product. Concession revenues increased 30.4% due primarily to the increase in total attendance. International revenues were negatively impacted by a stronger U.S. dollar, although this did not contribute materially to consolidated net income. Revenues from NCN and other decreased 21.3% from the prior year due primarily to a decrease in advertising revenues at NCN related to conditions in the general economy that have lead to a reduction in spending by advertisers. Costs and expenses. Total costs and expenses increased 3.8% during the thirteen weeks ended September 27, 2001 compared to the thirteen weeks ended September 28, 2000. North American theatrical exhibition costs and expenses increased 6.7% from the prior year. Film exhibition costs increased 17.9% due to higher admissions revenues and an increase in the percentage of admissions paid to film distributors. As a percentage of admissions revenues, film exhibition costs were 55.8% in the current year as compared with 54.3% in the prior year. This increase occurred because more popular films released during the thirteen weeks ended September 27, 2001 were licensed from distributors that generally have higher film rental terms and because of the concentration of attendance in the early weeks of several films which typically results in higher film exhibition costs. Concession costs decreased 7.3% due to additional marketing incentives from vendors under renegotiated contract terms and the Company's initiative to consolidate purchasing to obtain more favorable pricing, offset by the increase in concessions revenues. As a percentage of concessions revenues, concession costs were 12.5% in the current year compared with 14.6% in the prior year. As a percentage of revenues, theatre operating expense was 23.5% in the current year as compared to 23.9% in the prior year. Rent expense increased 2.3% due to the growing number of megaplexes (theatres with predominantly stadium seating) in the Company's theatre circuit, which generally have higher rent per screen than multiplexes (theatres generally without stadium seating). During the thirteen weeks ended September 27, 2001, the Company incurred $12,000 of theatre closure expense comprised primarily of accruals for expected payments to landlords to terminate the leases related to 3 theatres with 20 screens closed during the current period offset by the favorable settlement of lease obligations on three theatres closed in prior periods. During the thirteen weeks ended September 28, 2000, the Company incurred $11,679,000 of theatre closure expense comprised primarily of accruals for expected payments to landlords to terminate the leases related to 21 theatres with 135 screens. International theatrical exhibition costs and expenses increased 7.5% from the prior year. Film exhibition costs increased 23.4% primarily due to higher admission revenues. Rent expense decreased 2.0% and theatre operating expense decreased 1.6% from the prior year primarily due to currency exchange rate differences, offset by the addition of one theatre with 18 screens since September 28, 2000. International theatrical exhibition costs and expenses were positively impacted by a stronger U.S. dollar, although this did not contribute materially to consolidated net income. Costs and expenses from NCN and other decreased 5.4% due primarily to a decrease in expenses at NCN related to lower levels of revenue. General and administrative expenses increased 21.1% during the thirteen weeks ended September 27, 2001 primarily due to an increase in incentive compensation expense. As a percentage of total revenues, general and administrative expenses increased from 2.2% in the prior year to 2.4% in the current year. Depreciation and amortization decreased 6.3%, or $1,645,000, during the thirteen weeks ended September 27, 2001. This decrease was primarily caused by a decrease in depreciation of $1,611,000 related to impairment losses recorded in previous periods which reduced the carrying value of theatre assets. During the thirteen weeks ended September 28, 2000, the Company recognized a non-cash impairment loss of $3,813,000. The prior year charge was primarily related to discontinued development of a theatre in Taiwan and to 29 North American multiplex theatres with 180 screens in 12 states (primarily Florida, California, Texas, Michigan and Arizona), including a loss of $1,521,000 associated with 20 theatres that were included in impairment losses in previous periods. All of the 29 North American multiplex theatres have been closed. Gain on disposition of assets increased from a loss of $5,000 in the prior year to a gain of $2,001,000 during the current year. Current year and prior year results include the sale of real estate held for investment. The current year also includes a $1,682,000 gain on the favorable settlement of a capital lease obligation. Other Income. During the thirteen weeks ended September 28, 2000, the Company recognized non-cash income of $9,996,000 related to the extinguishment of gift certificate liabilities for multiple years of sales. The extinguishment of gift certificate liabilities related to the most recent year of sales resulted in other income of $2,617,000 and the extinguishment of gift certificate liabilities for sales in prior periods resulted in one-time other income of $7,379,000. Interest Expense. Interest expense decreased 23.9% during the thirteen weeks ended September 27, 2001 compared to the prior year, primarily due to a decrease in average outstanding borrowings and a decrease in interest rates. Income Tax Provision. The provision for income taxes increased to an expense of $1,400,000 during the current year from a benefit of $2,500,000 in the prior year. The effective tax rate was 6.9% for the thirteen weeks ended September 27, 2001 compared to 31.4% for the thirteen weeks ended September 28, 2000. The Company adjusts its expected annual tax rate on a quarterly basis based on current projections of non-deductible expenses and pre-tax earnings or losses for its domestic and foreign subsidiaries. Net Earnings (Loss) for Common Shares. Net earnings for common shares increased during the thirteen weeks ended September 27, 2001 to $8,610,000 from a loss of $5,463,000 in the prior year. Basic earnings per common share was $.22 compared to a loss of $.23 in the prior year. Diluted earnings per common share was $.22 for the thirteen weeks ended September 27, 2001 compared to a loss per common share of $.23 in the prior year. Preferred Stock dividends of 6,408 additional shares of Preferred Stock valued at $10,399,000 were recorded during the thirteen weeks ended September 27, 2001. Twenty-six weeks ended September 27, 2001 and September 28, 2000. Revenues. Total revenues increased 10.2% during the twenty-six weeks ended September 27, 2001 compared to the twenty-six weeks ended September 28, 2000. North American theatrical exhibition revenues increased 10.4% from the prior year. Admissions revenues increased 10.0% due to a 5.9% increase in average ticket price and a 3.9% increase in attendance. The increase in average ticket prices was due primarily to the Company's practice of periodically reviewing ticket prices and making selective adjustments based upon such factors as general inflationary trends and conditions in local markets. Attendance increased primarily due to 5 new theatres with 92 screens added since September 28, 2000. Attendance at comparable theatres (theatres opened before fiscal 2001) increased 3.2% due to increased popularity of film product. Concessions revenues increased 6.8% due to the increase in attendance and a 2.8% increase in average concessions per patron. The increase in average concessions per patron was attributable primarily to increased attendance at children's films during the first quarter of fiscal 2002 where concession spending per patron is generally higher. International theatrical exhibition revenues increased 17.9% from the prior year. Admissions revenues increased 18.0% due primarily to a 21.3% increase in attendance. The increase in attendance was due to the increased popularity of film product and the addition of 1 new theatre with 18 screens since September 28, 2000. Attendance at comparable theatres increased 11.2% due to the increased popularity of film product. Concession revenues increased 23.4% due to the increase in total attendance and a 1.7% increase in concessions per patron. International revenues were negatively impacted by a stronger U.S. dollar, although this did not contribute materially to consolidated net loss. Revenues from NCN and other decreased 7.9% from the prior year due primarily to a decrease in advertising revenues at NCN related to conditions in the general economy that have lead to a reduction in spending by advertisers. Costs and expenses. Total costs and expenses increased 3.9% during the twenty-six weeks ended September 27, 2001 compared to the twenty- six weeks ended September 28, 2000. North American theatrical exhibition costs and expenses increased 5.1% from the prior year. Film exhibition costs increased 12.2% due to the increase in admissions revenues and an increase in the percentage of admissions paid to film distributors. As a percentage of admissions revenues, film exhibition costs were 55.2% in the current year as compared with 54.2% in the prior year. This increase occurred because more popular films were licensed from distributors that generally have higher film rental terms and because of the concentration of attendance in the early weeks of several films released during the thirteen weeks ended September 27, 2001, which typically results in higher film exhibition costs. Concession costs decreased 10.7% due to additional marketing incentives from vendors under renegotiated contract terms and the Company's initiative to consolidate purchasing to obtain more favorable pricing, offset by the increase in concessions revenues. As a percentage of concessions revenues, concession costs were 12.2% in the current year compared with 14.6% in the prior year. As a percentage of revenues, theatre operating expense was 24.7% in the current year as compared to 25.1% in the prior year. Rent expense increased 2.4% due to the growing number of megaplexes in the company's theatre circuit, which generally have higher rent per screen than multiplexes. During the twenty-six weeks ended September 27, 2001, the Company incurred $88,000 of theatre closure expense comprised primarily of accruals for expected payments to landlords to terminate the leases related to 6 theatres with 38 screens closed during the current year offset by a favorable lease renegotiation for vacant restaurant space related to a terminated joint venture and the favorable settlement of lease obligations on three closed theatres. During the twenty-six weeks ended September 28, 2000, the Company incurred $12,406,000 of theatre closure expense comprised primarily of accruals for expected payments to landlords to terminate the leases related to 23 theatres with 147 screens. International theatrical exhibition costs and expenses increased 9.4% from the prior year. Film exhibition costs increased 16.8% primarily due to higher admission revenues. Rent expense increased 12.3% and theatre operating expense increased 1.2% from the prior year, primarily due to the addition of 1 new theatre with 18 screens since September 28, 2000. International theatrical exhibition costs and expenses were positively impacted by a stronger U.S. dollar, although this did not contribute materially to consolidated net loss. Costs and expenses from NCN and other increased 5.8% primarily due to an increase in expenses at NCN related to lower levels of revenues. General and administrative expenses increased 19.4% during the twenty-six weeks ended September 27, 2001 due to an increase in incentive compensation expense. As a percentage of total revenues, general and administrative expenses increased from 2.2% in the prior year to 2.4% in the current year. Depreciation and amortization decreased 9.0%, or $4,725,000, during the twenty-six weeks ended September 27, 2001. This decrease was primarily caused by a decrease in depreciation of $3,084,000 related to impairment losses recorded in previous periods which reduced the carrying value of the theatre assets. During the twenty-six weeks ended September 28, 2000, the Company recognized a non-cash impairment loss of $3,813,000. The prior year charge was primarily related to discontinued development of a theatre in Taiwan and to 29 North American multiplex theatres with 180 screens in 12 states (primarily Florida, California, Texas, Michigan and Arizona), including a loss of $1,521,000 associated with 20 theatres that were included in impairment losses in previous periods. All of the 29 North American multiplex theatres have been closed. Gain on disposition of assets increased from a gain of $1,635,000 in the prior year to a gain of $1,842,000 during the current year. Current year and prior year results include gains related to the sales of real estate held for investment during the twenty-six weeks ended September 27, 2001 and September 28, 2000. The current and prior year results also include gains of $1,682,000 and $72,000, respectively, on the favorable settlements of capital lease obligations. Other Expense (Income). During the twenty-six weeks ended September 27, 2001, the Company recognized $3,754,000 of one-time transaction expenses incurred in connection with the issuance of Preferred Stock. During the twenty-six weeks ended September 28, 2000, the Company recognized non-cash income of $9,996,000 related to the extinguishment of gift certificate liabilities for multiple years of sales. The extinguishment of gift certificate liabilities related to the most recent year of sales resulted in other income of $2,617,000 and the extinguishment of gift certificate liabilities for sales in prior periods resulted in one-time other income of $7,379,000. Interest Expense. Interest expense decreased 22.3% during the twenty-six weeks ended September 27, 2001 compared to the prior year, primarily due to a decrease in average outstanding borrowings and a decrease in interest rates. Income Tax Provision. The provision for income taxes increased to an expense of $1,400,000 during the current year from a benefit of $9,100,000 in the prior year. The effective tax rate was 16.4% for the current year compared to 35.4% for the previous year. The Company adjusts its expected annual tax rate on a quarterly basis based on current projections of non-deductible expenses and pre-tax earnings or losses for its domestic and foreign subsidiaries. Net Loss for Common Shares. Net loss for common shares decreased during the twenty-six weeks ended September 27, 2001 to a loss of $5,670,000 from a loss of $32,356,000 in the prior year. Basic loss per common share was $.24 compared to a loss of $1.38 in the prior year. Prior year results include the cumulative effect of an accounting change of $15,760,000 (net of income tax benefit of $10,950,000) which increased loss per common share by $.67 for the twenty-six weeks ended September 28, 2000. Diluted loss per common share was $.24 for the twenty-six weeks ended September 27, 2001 compared to a loss per common share of $1.38 in the prior year. Preferred Stock dividends of 7,650 additional shares of Preferred Stock valued at $12,797,000 were recorded during the twenty-six weeks ended September 27, 2001. LIQUIDITY AND CAPITAL RESOURCES The Company's revenues are collected in cash, principally through box office admissions and theatre concessions sales. The Company has an operating "float" which partially finances its operations and which generally permits the Company to maintain a smaller amount of working capital capacity. This float exists because admissions revenues are received in cash, while exhibition costs (primarily film rentals) are ordinarily paid to distributors from 30 to 45 days following receipt of box office admissions revenues. The Company is only occasionally required to make advance or early payments or non-refundable guaranties of film rentals. Film distributors generally release during the summer and holiday seasons the films which they anticipate will be the most successful. Consequently, the Company typically generates higher revenues during such periods. Cash flows from operating activities, as reflected in the Consolidated Statements of Cash Flows, increased $10,219,000 from $4,225,000 during the twenty-six weeks ended September 28, 2000 to $14,444,000 during the twenty-six weeks ended September 27, 2001, primarily due to increased adjusted EBITDA, a decrease in interest payments and a decrease in payments on accounts payable offset by an increase in theatre closure payments, a decrease in income tax refunds and an increase in Preferred Stock transaction costs. The Company's working capital deficit decreased from $148,519,000 as of March 29, 2001 to $93,407,000 as of September 27, 2001 due primarily to decreases in accounts payable, deferred income, accrued theatre closure expense and an increase in cash and equivalents. The working capital deficit is not expected to negatively impact the Company's ability to fund operations or planned capital expenditures for the next 12 months. The Company borrows against its Credit Facility to meet obligations as they come due and had approximately $301,000,000 and $150,000,000 available on its Credit Facility to meet these obligations as of September 27, 2001 and March 29, 2001, respectively. The Company continues to expand its North American and International theatre circuits. During the current fiscal year, the Company opened 3 theatres with 60 screens. In addition, the Company closed 9 theatres with 56 screens resulting in a circuit total of 174 theatres with 2,772 screens as of September 27, 2001. The costs of constructing new theatres are funded by the Company through internally generated cash flow or borrowed funds. The Company generally leases its theatres pursuant to long-term non-cancelable operating leases which require the developer, who owns the property, to reimburse the Company for a portion of the construction costs. However, the Company may decide to own the real estate assets of new theatres and, following construction, sell and leaseback the real estate assets pursuant to long-term non-cancelable operating leases. During the twenty-six weeks ended September 27, 2001, the Company leased 3 new theatres with 60 screens from developers. The Company also sold and subsequently leased back the land at one of its theatres to Entertainment Properties Trust ("EPT"), a real estate investment trust, for approximately $7,500,000. Until November 2002, EPT has a right of first refusal and first offer to purchase and leaseback to the Company the real estate assets associated with any megaplex theatre and related entertainment property owned or ground-leased by the Company, exercisable upon the Company's intended disposition of such property. As of September 27, 2001, the Company had 5 open megaplexes that would be subject to EPT's right of first refusal and first offer to purchase should the Company seek to dispose of such megaplexes. Historically, the Company has either paid for or leased the equipment used in a theatre. The Company may purchase leased equipment from lessors, if prevailing market conditions are favorable. During the twenty-six weeks ended September 27, 2001, the Company purchased the leased furniture, fixtures and equipment at 4 theatres with 108 screens for a total of $16,400,000. Subsequent to September 27, 2001, the Company purchased an additional $7,600,000 of leased furniture fixtures and equipment at 2 theatres with 48 screens. The Company expects that the net cash requirements for purchases of leased furniture, fixtures and equipment will approximate $24,000,000 to $31,000,000 in fiscal 2002. As of September 27, 2001, the Company had construction in progress of $48,827,000 and reimbursable construction advances (amounts due from developers on leased theatres) of $952,000. The Company had 5 theatres in the U.S. with a total of 88 screens, one theatre in the United Kingdom with 16 screens and two theatres in Spain with 38 screens under construction on September 27, 2001. During the twenty-six weeks ended September 27, 2001, the Company had net capital expenditures (capital expenditures less proceeds from sale and leaseback transactions) of $36,804,000. The Company expects that the net cash requirements for capital expenditures will approximate $75,000,000 in fiscal 2002. The Company's Credit Facility permits borrowings at interest rates based on either the bank's base rate or LIBOR and requires an annual commitment fee based on margin ratios that could result in a rate of .375% or .500% on the unused portion of the commitment. The Credit Facility matures on April 10, 2004. The commitment thereunder will be reduced by $25,000,000 on each of December 31, 2002, March 31, 2003, June 30, 2003 and September 30, 2003 and by $50,000,000 on December 31, 2003. The total commitment under the Credit Facility is $425,000,000, but the facility contains covenants that limit the Company's ability to incur debt (whether under the Credit Facility or from other sources). As of September 27, 2001, the Company had outstanding borrowings of $90,000,000 under the Credit Facility at an average interest rate of 4.7% per annum, and approximately $301,000,000 was available for borrowing under the Credit Facility. Covenants under the Credit Facility impose limitations on indebtedness, creation of liens, change of control, transactions with affiliates, mergers, investments, guaranties, asset sales, dividends, business activities and pledges. In addition, the Credit Facility contains certain financial covenants. Covenants under the Indentures relating to the Company's $225,000,000 aggregate principal amount of 9 1/2% Senior Subordinated Notes due 2011 (the "Notes due 2011") and $200,000,000 aggregate principal amount of 9 1/2% Senior Subordinated Notes due 2009 (the "Notes due 2009") are substantially the same and impose limitations on the incurrence of indebtedness, dividends, purchases or redemptions of stock, transactions with affiliates, and mergers and sales of assets, and require the Company to make an offer to purchase the Notes upon the occurrence of a change in control, as defined in the Indentures. Upon a change of control, the Company will be required to make an offer to repurchase each holder's Notes due 2009 and Notes due 2011 at a price equal to 101% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase. The Indentures relating to the Notes due 2009 and 2011 (collectively, the "Notes") also contain provisions subordinating the obligations of the Company under the Notes to its obligations under the Credit Facility and other senior indebtedness. These include a provision that applies if there is a payment default under the Credit Facility or other senior indebtedness and one that applies if there is a non-payment default that permits acceleration of indebtedness under the Credit Facility. If there is a payment default under the Credit Facility or other senior indebtedness, generally no payment may be made on the Notes until such payment default has been cured or waived or such senior indebtedness had been discharged or paid in full. If there is a non-payment default under the Credit Facility that would permit the lenders to accelerate the maturity date of the Credit Facility, no payment may be made on the Notes for a period (the "Payment Blockage Period") commencing upon the receipt by the Indenture trustees for the Notes of notice of such default and ending up to 179 days thereafter. Not more than one Payment Blockage Period may be commenced during any period of 365 consecutive days. Failure of the Company to make payment on either series of Notes when due or within any applicable grace period, whether or not occurring under a Payment Blockage Period, will be an event of default with respect to such Notes. As of September 27, 2001, the Company was in compliance with all financial covenants relating to the Credit Facility, the Notes due 2009 and the Notes due 2011. On April 19, 2001, the Company issued shares of Series A Preferred Stock and Series B Preferred Stock for an aggregate purchase price of $250,000,000. Net proceeds from the sale (including transaction expenses) of approximately $225,000,000 were used to reduce outstanding indebtedness under the Company's Credit Facility. As described in Note 5 to the Company's Notes to Consolidated Financial Statements included in Part I Item 8. of its Form 10-K for the year ended March 29, 2001, dividends on the Preferred Stock are payable in additional shares of Preferred Stock until April 2004. Thereafter, at the Company's option, dividends on Series B Preferred Stock may be paid in additional shares of Series B Preferred Stock until April 2006 and dividends on Series A Preferred Stock may be paid in additional shares of Series A Preferred Stock until April 2008. Reference is made to such Note 5 for information describing circumstances in which holders of Preferred Stock may be entitled to special in-kind dividends and other circumstances under which holders of Preferred Stock may be required to receive payments-in-kind in lieu of cash and shares of Series B Preferred Stock instead of Series A Preferred Stock. Reference is also made to such Note 5 for information relating to conversion rights, exchange obligations, the Company's redemption option, the holders' redemption option, voting rights, election of directors and liquidation preferences of the Preferred Stock. On September 13, 2001, pursuant to the Certificate of Designations relating to the Preferred Stock, all shares of Series B Preferred were exchanged for an equal number of shares of Series A Preferred. The Company believes that cash generated from operations, existing cash and equivalents, expected reimbursements from developers and the available commitment amount under its Credit Facility will be sufficient to fund operations, including amounts due under credit agreements, and planned capital expenditures for the next 12 months and enable the Company to maintain compliance with covenants related to the Credit Facility and the Notes. However, the performance of films licensed by the Company and unforeseen changes in operating requirements could affect the Company's ability to continue its business strategy as well as comply with certain financial covenants. Euro Conversion In January 1999, certain member countries of the European Union established irrevocable, fixed conversion rates between their existing currencies and the European Union's common currency (the "Euro"). The introduction of the Euro is scheduled to be phased in over a period ending January 1, 2002, when Euro notes and coins will come into circulation. The existing currencies are due to be completely removed from circulation on February 28, 2002. The Company currently operates one theatre in France, one theatre in Portugal and two theatres in Spain. These countries are member countries that adopted the Euro as of January 1, 1999. The Company is implementing necessary changes to accounting, operational, and payment systems to accommodate the introduction of the Euro. The Company does not anticipate that the conversion will have a material impact on its consolidated financial position, results of operations or cash flows. New Accounting Pronouncements In July 2001, the FASB issued two new standards; Statement of Financial Accounting Standards ("SFAS") No. 141 Business Combinations and SFAS No. 142 Goodwill and Other Intangible Assets. SFAS No. 141 requires that all business combinations be accounted for using one method (the purchase method) and prescribes criteria for the initial recognition and measurement of goodwill and other intangible assets. SFAS No. 141 is effective for all business combinations completed after June 30, 2001. SFAS No. 142 establishes new guidelines for accounting for goodwill and other intangible assets. The provisions of SFAS No. 142 state that goodwill and indefinite-lived intangible assets will no longer be amortized and that goodwill and indefinite-lived intangible assets will be tested for impairment at least annually. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. SFAS No. 142 will become effective for the Company in fiscal 2003. Adoption of SFAS No. 142 is not expected to have a material impact on the Company's consolidated financial position, results of operations or cash flows. In August 2001, the FASB issued SFAS No. 143 Accounting for Asset Retirement Obligations. SFAS No. 143 addresses the recognition and remeasurement of obligations associated with the retirement of a tangible long-lived asset. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. SFAS No. 143 will become effective for the Company in fiscal 2004. Adoption of SFAS No. 143 is not expected to have a material impact on the Company's consolidated financial position, results of operations or cash flows. In October 2001, the FASB issued SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 applies to all long-lived assets (excluding goodwill) and discontinued operations and it develops one accounting model for long-lived assets that are to be disposed of by sale. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. SFAS No. 144 will become effective for the Company in fiscal 2003. The Company is currently reviewing SFAS No. 144 to determine its impact, if any, on the Company's future consolidated financial position, results of operations or cash flows. In July 2001 the Securities and Exchange Commission (the "SEC") issued an SEC Staff Announcement which was codified as EITF Topic No. D-98 Classification and Measurement of Redeemable Securities. Topic No. D-98 provides additional guidance about determining when an equity security is redeemable at the option of the holder or upon the occurrence of an event that is solely within the control of the issuer. Topic No. D-98 is to be applied retroactively in the first fiscal quarter ending after December 15, 2001 by restating the financial statements of prior periods. The Company believes that adoption of Topic No. D-98 will not require a restatement of financial statements until such time, if ever, that (i) the holders of its Preferred Stock either (a) are entitled to elect a majority of the Board of Directors or (b) could convert a portion of their Preferred Stock into a sufficient number of shares of Common Stock to gain control of the Board of Directors and (ii) the Company's optional right to redeem the Preferred Stock is unconditional. Such circumstances do not presently exist and management believes should not exist prior to 2006, if then. Item 3. Quantitative and Qualitative Disclosures About Market Risk. The Company is exposed to various market risks including interest rate risk and foreign currency exchange rate risk. The Company does not hold any derivative financial instruments. Market risk on variable rate financial instruments. The Company maintains a $425 million credit facility (the "Credit Facility"), which permits borrowings at interest rates based on either the bank's base rate or LIBOR. Increases in market interest rates would cause interest expense to increase and earnings before income taxes to decrease. The change in interest expense and earnings before income taxes would be dependent upon the weighted average outstanding borrowings during the reporting period following an increase in market interest rates. Based on the Company's current outstanding borrowings under the Credit Facility at an average interest rate of 4.7% per annum, a 100 basis point increase in market interest rates would increase annual interest expense and decrease earnings before income taxes by approximately $.9 million. Market risk on fixed-rate financial instruments. Included in long-term debt are $200 million of 9 1/2% Senior Subordinated Notes due 2009 and $225 million of 9 1/2% Senior Subordinated Notes due 2011. Increases in market interest rates would generally cause a decrease in the fair value of the Notes due 2009 and the Notes due 2011 and a decrease in market interest rates would generally cause an increase in fair value of the Notes due 2009 and the Notes due 2011. Foreign currency exchange rates. The Company currently operates theatres in China (Hong Kong SAR), Japan, France, Portugal, Spain, Sweden and Canada and is currently developing theatres in the United Kingdom. As a result of these operations, the Company has assets, liabilities, revenues and expenses denominated in foreign currencies. The strengthening of the U.S. dollar against the respective currencies causes a decrease in the carrying values of assets, liabilities, revenues and expenses denominated in such foreign currencies and the weakening of the U.S. dollar against the respective currencies causes an increase in the carrying values of these items. The increases and decreases in assets, liabilities, revenues and expenses are included in accumulated other comprehensive income. Changes in foreign currency exchange rates also impact the comparability of earnings in these countries on a year-to-year basis. As the U.S. dollar strengthens, comparative translated earnings decrease, and as the U.S. dollar weakens comparative translated earnings from foreign operations increase. Although the Company does not currently hedge against foreign currency exchange rate risk, it does not intend to repatriate funds from the operations of its international theatres but instead intends to use them to fund current and future operations. A 10% fluctuation in the value of the U.S. dollar against all foreign currencies of countries where the Company currently operates theatres would either increase or decrease earnings before income taxes and accumulated other comprehensive income by approximately $1.4 million and $12.0 million, respectively. PART II - OTHER INFORMATION Item 1. Legal Proceedings. Reference is made to Item 3. Legal Proceedings of the Company's Annual Report on Form 10-K for the fiscal year ended March 29, 2001 for information on certain litigation to which the Company is a party. The Company is party to various other legal proceedings in the ordinary course of business, none of which is expected to have a material adverse effect on the Company. Item 4. Submission of Matters To a Vote of Security Holders. (a) The Company held its Annual Meeting of Stockholders on September 13, 2001. (b) At the meeting, the following matters were voted upon by the stockholders: (i) The election of Directors for the upcoming year. (ii) A proposal to amend Article FOURTH of the Company's Restated and Amended Certificate of Incorporation to increase the number of authorized shares of Common Stock from 45,000,000 to 200,000,000. (iii) A proposal to ratify the appointment of PricewaterhouseCoopers LLP as independent accountants for the Company for the fiscal year ending March 28, 2002. The Board of Directors of the Company is composed of eight (8) members. Three (3) of the directors are elected by the holders of Class B Stock, voting as a class, two (2) of the directors are elected by the holders of Common Stock, voting as a class and three (3) of the directors are elected by the Apollo Purchasers, as defined in that certain Investment Agreement dated April 19, 2001 among the Company, the Apollo Purchasers and certain other parties, holding shares of Series A Preferred Stock and Series B Preferred Stock, voting as a class. The following were the nominees of management voted upon and elected by the holders of the Company's Class B Stock, Common Stock and eligible Preferred Stock as of the record date: Class B Stock Common Stock Preferred Stock ------------- ------------ --------------- Peter C. Brown W. Thomas Grant, II Leon D. Black Charles J. Egan, Jr. Paul E. Vardeman Marc J. Rowan Charles S. Paul Laurence M. Berg All of the shares of Class B Stock were voted for the Class B nominees shown above. In the election of directors by the holders of Common Stock, there were 16,912,715 votes "for" W. Thomas Grant, II and 1,727,328 votes "against" and 16,917,912 votes "for" Paul E. Vardeman and 1,722,131 votes "against". All of the shares of Series A Preferred Stock and Series B Preferred Stock held by the Apollo Purchasers were voted for the Preferred Stock nominees shown above. The total votes cast concerning the proposal to amend Article FOURTH of the Company's Restated and Amended Certificate of Incorporation were as follows: 57,019,752 (16,827,795 Common Stock, 39,419,930 Class B Stock and 5,520 shares of Series A Preferred Stock having 772,027 votes on an "as converted" basis) voted "for" and 1,812,248 (1,800,615 against plus 11,633 abstentions counted as votes against) voted "against". In addition, the favorable votes of a majority of outstanding Common Stock were required to approve this proposal. The number of shares of Common Stock outstanding as of the record date were 19,527,098 and the proposal received 16,827,795 shares of Common Stock voted in favor of the proposal, or 86% of the Common Stock outstanding. The total votes cast concerning the ratification of the appointment of PricewaterhouseCoopers LLP were as follows: 58,755,296 (18,563,339 Common Stock, 39,419,930 Class B Stock and 772,027 shares of Common Stock on an "as converted" basis) voted "for", 74,665 voted "against" and 2,039 "abstentions". Item 5. Other Information. As a result of adopting and applying the provisions of Topic No. D- 95, the Company reports a revision of basic and diluted earnings per common share and average shares outstanding for basic earnings per common share included in a press release dated October 23, 2001 and included in Form 8-K under Item 9. As discussed in Note 2 to this Form 10-Q, the Company reduced its basic earnings per common share from $.37 to $.22 and its diluted earnings per common share from $.32 to $.22 for the thirteen weeks ended September 27, 2001. Additionally, the Company increased its average shares outstanding from 23,469,000 shares to 58,891,000 shares. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION -------------- ----------- 3.1 Amended and Restated Certificate of Incorporation of AMC Entertainment Inc. (as amended on December 2, 1997) (Incorporated by reference from Exhibit 3.1 to AMCE's Form 10-K (File No. 1-8747) dated March 29, 2001). 3.2 Bylaws of AMC Entertainment Inc. (Incorporated by reference from Exhibit 3.2 to AMCE's Form 10-K (File No. 1-8747) dated March 29, 2001). 4.1 Certificate of Designations of Series A Convertible Preferred Stock and Series B Exchangeable Preferred Stock of AMC Entertainment Inc. (Incorporated by reference from Exhibit 4.6 to the Company's Form 8-K (File No. 1-8747) filed on April 20, 2001). 4.2 Investment Agreement entered into April 19, 2001 by and among AMC Entertainment Inc. and Apollo Investment Fund IV, L.P., Apollo Overseas Partners IV, L.P., Apollo Investment Fund V, L.P., Apollo Overseas Partners V, L.P., Apollo Management IV, L.P. and Apollo Management V, L.P. (Incorporated by reference from Exhibit 4.7 to the Company's Form 8-K (File No. 1-8747) filed on April 20, 2001). 4.3 Standstill Agreement by and among AMC Entertainment Inc., and Apollo Investment Fund IV, L.P., Apollo Overseas Partners IV, L.P., Apollo Investment Fund V, L.P., Apollo Overseas Partners V, L.P., Apollo Mangement IV, L.P. and Apollo Management V, L.P., dated as of April 19, 2001. (Incorporated by reference from Exhibit 4.8 to the Company's Form 8-K (File No. 1-8747) filed on April 20, 2001). 4.4 Registration Rights Agreement dated April 19, 2001 by and among AMC Entertainment Inc. and Apollo Investment Fund IV, L.P., Apollo Overseas Partners IV, L.P., Apollo Investment Fund V, L.P., Apollo Overseas Partners V, L.P. (Incorporated by reference from Exhibit 4.9 to the Company's Form 8-K (File No. 1-8747) filed on April 20, 2001). 4.5 Securities Purchase Agreement dated June 29, 2001 by and among Apollo Investment Fund IV, L.P., Apollo Overseas Partners IV, L.P., Apollo Investment Fund V, L.P., Apollo Overseas Partners V, L.P., Apollo Management IV, L.P., Apollo Management V, L.P., AMC Entertainment Inc., Sandler Capital Partners V, L.P., Sandler Capital Partners V FTE, L.P. and Sandler Capital Partners V Germany, L.P. (b) Reports on Form 8-K On July 12, 2001, the Company filed a Form 8-K reporting under Item 9. the date of its first quarter earnings conference call and webcast for fiscal year 2002. On July 17, 2001, the Company filed a Form 8-K reporting under Item 9. its first quarter operating results for fiscal year 2002. On October 18, 2001, the Company filed a Form 8-K reporting under Item 9. the date of its second quarter earnings conference call and webcast for fiscal year 2002. On October 23, 2001, the Company filed a Form 8-K reporting under Item 9. its second quarter operating results for fiscal year 2002. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMC ENTERTAINMENT INC. Date: November 9, 2001 /s/ Peter C. Brown ------------------ Peter C. Brown Chairman of the Board, Chief Executive Officer and President Date: November 9, 2001 /s/Craig R. Ramsey ------------------ Craig R. Ramsey Senior Vice President, Finance, Chief Financial Officer and Chief Accounting Officer