-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ih/HPbX5mL5KkJXo5jKMUHFnMEG6iYQOynSBhJzmNXcC3bjyC88GrFhvNw9oGtwI iJYoSZSaDL7Y+Mod+Scusw== 0000722077-99-000025.txt : 19991115 0000722077-99-000025.hdr.sgml : 19991115 ACCESSION NUMBER: 0000722077-99-000025 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMC ENTERTAINMENT INC CENTRAL INDEX KEY: 0000722077 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE THEATERS [7830] IRS NUMBER: 431304369 STATE OF INCORPORATION: DE FISCAL YEAR END: 0401 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08747 FILM NUMBER: 99750970 BUSINESS ADDRESS: STREET 1: 106 W 14TH ST STREET 2: P O BOX 419615 CITY: KANSAS CITY STATE: MO ZIP: 64105-1977 BUSINESS PHONE: 8162214000 10-Q 1 1 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 30, 1999 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 30, 1999 Common Stock, 66 2/3 cents par value 19,427,098 Class B Stock, 66 2/3 cents par value 4,041,993 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 11 Item 3.Quantitative and Qualitative Disclosures About Market Risk 21 PART II - OTHER INFORMATION Item 1.Legal Proceedings 22 Item 6.Exhibits and Reports on Form 8-K 24 Signatures 26 AMC ENTERTAINMENT INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
Thirteen Twenty-six Weeks Ended Weeks Ended September 30,October 1, September 30, October 1, 1999 1998 1999 1998 ---- ---- ---- ---- (Unaudited) (Unaudited) Revenues Admissions $219,749 $188,739 $407,631 $343,759 Concessions 95,499 88,745 179,212 162,562 Other theatre 6,849 4,689 11,938 9,051 Other 11,588 8,023 21,464 14,940 -------- -------- -------- -------- Total revenues 333,685 290,196 620,245 530,312 Costs and expenses Film exhibition costs 121,545 104,196 231,093 189,404 Concession costs 14,898 13,693 27,589 25,143 Theatre operating expense 71,123 65,078 138,132 129,185 Rent 48,636 39,450 96,513 77,402 Other 11,794 6,997 22,489 13,363 General and administrative 12,284 14,136 25,495 27,281 Preopening expense 2,024 388 3,297 773 Theatre closure expense 2,046 2,801 11,692 2,801 Restructuring charge 12,000 - 12,000 - Depreciation and amortization 23,029 21,030 43,686 41,372 -------- -------- -------- -------- Total costs and expenses 319,379 267,769 611,986 506,724 -------- -------- -------- -------- Operating income 14,306 22,427 8,259 23,588 Other expense (income) Interest expense Corporate borrowings 12,530 6,188 24,158 12,574 Capital and financing lease obligations 1,871 2,134 3,714 4,294 Investment (income) loss 386 (365) (100) (651) (Gain) loss on disposition of assets (144) 35 (327) (1,358) -------- -------- ------- -------- Earnings (loss) before income taxes and cumulative effect of an accounting change (337) 14,435 (19,186) 8,729 Income tax provision (135) 6,550 (7,835) 3,900 -------- -------- -------- -------- Earnings (loss) before cumulative effect of an accounting change (202) 7,885 (11,351) 4,829 Cumulative effect of an accounting change(net of income tax benefit of $4,095) - - (5,840) - -------- -------- -------- -------- Net earnings (loss) $ (202) $ 7,885 $(17,191) $ 4,829 ======== ======== ======== ======== Net earnings (loss) per share before cumulative effect of an accounting change: Basic $(.01) $ .34 $ (.48) $ .21 ======== ======== ======== ======== Diluted $(.01) $ .33 $ (.48) $ .21 ======== ======== ======== ======== Net earnings (loss) per share: Basic $(.01) $ .34 $ (.73) $ .21 ======== ======== ======== ======== Diluted $(.01) $ .33 $ (.73) $ .21 ======== ======== ======= ======== See Notes to Consolidated Financial Statements.
AMC ENTERTAINMENT INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
September 30,April 1, 1999 1999 ---- ---- (Unaudited) ASSETS Current assets: Cash and equivalents $ 10,377$ 13,239 Receivables, net of allowance for doubtful accounts of $713 as of September 30, 1999 and $540 as of April 1, 1999 26,184 18,325 Reimbursable construction advances 21,183 22,317 Other current assets 44,160 48,707 -------- -------- Total current assets 101,904 102,588 Property, net 847,279 726,025 Intangible assets, net 17,885 18,723 Other long-term assets 126,663 128,394 --------- ------- Total assets $1,093,731 $ 975,730 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 79,151 $ 69,381 Construction payables 10,955 24,354 Accrued expenses and other liabilities 100,708 77,304 Current maturities of capital and financing lease obligations 3,446 18,017 --------- ------- Total current liabilities 194,260 189,056 Corporate borrowings 651,075 547,045 Capital and financing lease obligations 49,169 44,558 Other long-term liabilities 98,570 79,606 --------- ------- Total liabilities 993,074 860,265 Stockholders' equity: Common Stock, 66 2/3 par value; 19,447,598 Shares issued as of September 30, 1999 and April 1, 1999 12,965 12,965 Convertible Class B Stock, 66 2/3 par value; 4,041,993 shares issued and outstanding as of September 30, 1999 and April 1, 1999 2,695 2,695 Additional paid-in capital 106,713 106,713 Accumulated other comprehensive income (69) (2,690) Retained earnings (deficit) (12,165) 5,026 ---------- ------ 110,139 124,709 Less: Employee notes for Common Stock purchases 9,113 8,875 Common Stock in treasury, at cost, 20,500 shares as of September 30, 1999 and April 1, 1999 369 369 --------- ------- Total stockholders' equity 100,657 115,465 --------- ------- Total liabilities and stockholders' equity $1,093,731 $975,730 ========= ======= 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 30, October 1, 1999 1998 ---- ---- INCREASE (DECREASE) IN CASH AND EQUIVALENTS (Unaudited) Cash flows from operating activities: Net earnings (loss) $ (17,191) $ 4,829 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Restructuring charge 12,000 - Depreciation and amortization 43,686 41,372 Deferred income taxes (5,475) - Gain on disposition of long-term assets (327) (1,358) Cumulative effect of an accounting change 5,840 - Change in assets and liabilities: Receivables (7,859) (2,354) Other current assets 4,547 (1,832) Accounts payable (12,628) (11,855) Accrued expenses and other liabilities 7,083 4,351 Liabilities for theatre closure 10,746 2,801 Other, net 717 401 -------- -------- Net cash provided by operating activities 41,139 36,355 -------- -------- Cash flows from investing activities: Capital expenditures (177,299) (116,130) Proceeds from sale/leasebacks 2,940 - Net proceeds from reimbursable construction advances 9,556 33,038 Proceeds from disposition of long-term assets 3,591 8,712 Other, net 11,526 (8,351) -------- -------- Net cash used in investing activities (149,686) (82,731) -------- -------- Cash flows from financing activities: Net borrowings under revolving Credit Facility 104,000 82,000 Principal payments under corporate borrowings (14,000) - Proceeds from financing lease obligation 8,197 - Principal payments under capital and financing lease obligations (1,639) (4,166) Change in cash overdrafts 22,398 259 Change in construction payables (13,399) (13,740) Funding of employee notes for Common Stock purchase, net - (8,579) Other, net (241) (98) -------- -------- Net cash provided by financing activities 105,316 55,676 -------- -------- Effect of exchange rate changes on cash and equivalents 369 451 -------- -------- Net increase (decrease) in cash and equivalents (2,862) 9,751 Cash and equivalents at beginning of period 13,239 9,881 -------- -------- Cash and equivalents at end of period $ 10,377 $ 19,632 ======== ========
AMC ENTERTAINMENT INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Twenty-six Weeks Ended September 30, October 1, 1999 1998 ---- ---- (Unaudited) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest (net of amounts capitalized of $4,276 and $3,509) $31,384 $19,805 Income taxes paid (refunded) (7,509) 2,859 Schedule of non-cash investing activities: Receivable from sale/leasebacks included in reimbursable construction advances $8,422 $ - See Notes to Consolidated Financial Statements.
AMC ENTERTAINMENT INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 (Unaudited) NOTE 1 - BASIS OF PRESENTATION AMC Entertainment Inc. ("AMCE" or the "Company") is a holding company which, through its direct and indirect subsidiaries is principally involved in the theatrical exhibition business throughout North America and in Japan, Portugal, Spain and China (Hong Kong). The Company is also involved in the business of providing on-screen advertising through a wholly-owned subsidiary, National Cinema Network, Inc., and in miscellaneous ventures through other wholly-owned subsidiaries. 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 April 1, 1999. In the opinion of management, these interim financial statements reflect all adjustments (consisting primarily 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 30, 1999 are not necessarily indicative of the results to be expected for the fiscal year (52 weeks) ending March 30, 2000. The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. General and administrative expenses of the Company's on-screen advertising business have been combined with certain other costs and expenses of the on-screen advertising business on the consolidated statements of operations. Certain amounts have been reclassified from prior period consolidated financial statements to conform with the current year presentation. NOTE 2 - EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
Thirteen Weeks Ended Twenty-six Weeks Ended September 30,October 1 September 30,October 1, 1999 1998 1999 1998 ---- ---- ---- ---- (in thousands, except per share data) Numerator: Earnings (loss) before cumulative effect of an accounting change for basic and diluted earnings per share$ (202)$ 7,885 $(11,351) $ 4,829 ======== ======== ========= ======= Denominator: Shares for basic earnings per share - average shares outstanding 23,469 23,469 23,469 23,287 Stock options - 150 - 178 ------ -------- -------- -------- Shares for diluted earnings per share 23,469 23,619 23,469 23,465 ======== ======== ======== ======== Basic earnings (loss) per share before cumulative effect of an accounting change $(.01) $ .34 $ (.48) $ .21 ======== ======== ======== ======== Diluted earnings (loss) per share before cumulative effect of an accounting change $(.01) $ .33 $ (.48) $ .21 ======== ======== ======== ========
During the thirteen and twenty-six weeks ended September 30, 1999, shares from options to purchase shares of Common Stock were excluded from the diluted earnings per share calculation because they were anti-dilutive. NOTE 3 - COMPREHENSIVE INCOME The components of comprehensive income are as follows:
Thirteen Weeks Ended Twenty-six Weeks Ended September 30, October 1, September 30, October 1, 1999 1998 1999 1998 ---- ---- ---- ---- (in thousands) Net earnings (loss) $ (202) $ 7,885 $(17,191) $ 4,829 Foreign currency translation adjustment 4,319 1,152 2,621 1,228 -------- -------- -------- -------- Comprehensive income $ 4,117 $ 9,037 $(14,570) $ 6,057 ======== ======== ======== ========
NOTE 4 - ACCOUNTING FOR START-UP ACTIVITIES On April 2, 1999, the Company adopted Statement of Position 98-5 ("SOP 98-5"), Reporting on the Costs of Start-up Activities. SOP 98-5 requires start-up activities to be expensed when incurred. The Company's practice had been to capitalize such costs and amortize them over a two-year period. The adoption of this new accounting pronouncement resulted in a one-time non-cash charge to the Company's results of operations for the twenty-six weeks ended September 30, 1999 of $5,840,000 (net of income tax benefit of $4,095,000) or $.25 per share. NOTE 5 - OPERATING SEGMENTS In connection with a corporate restructuring on September 30, 1999, the Company reorganized its U.S. and International theatrical exhibition segments into North America and International theatrical exhibition. Information about the operations of the Company's Canadian theatres were reported within the International theatrical exhibition segment prior to September 30, 1999. Information about the Company's operations by operating segment is as follows:
Thirteen Weeks Ended Twenty-six Weeks Ended Revenues September 30,October 1, September 30, October 1, 1999 1998 1999 1998 ---- ---- ---- ---- (in thousands) North America theatrical exhibition $305,591 $273,747 $571,543 $500,115 International theatrical exhibition 16,506 8,426 27,238 15,257 On-screen advertising and other 11,588 8,023 21,464 14,940 -------- -------- -------- -------- Total revenues $333,685 $290,196 $620,245 $530,312 ======== ======== ======== ======== Thirteen Weeks Ended Twenty-six Weeks Ended Adjusted EBITDA (1) September 30, October 1, September 30, October 1, 1999 1998 1999 1998 ---- ---- ---- ---- (in thousands) North America theatrical exhibition $65,192 $58,556 $105,357 $92,247 International theatrical exhibition 703 1,200 97 1,991 On-screen advertising and other (206) 1,026 (1,025) 1,577 -------- -------- -------- -------- Total segment Adjusted EBITDA 65,689 60,782 104,429 95,815 General and administrative12,284 14,136 25,495 27,281 -------- -------- -------- -------- Total Adjusted EBITDA $53,405 $46,646 $ 78,934 $68,534 ======== ======== ======== ======== Property (2) September 30, October 1, 1999 1998 ---- ---- (in thousands) North America theatrical exhibition $1,021,691 $823,855 International theatrical exhibition 61,915 18,501 On-screen advertising and other 12,107 10,334 -------- -------- Total segment property 1,095,713 852,690 Construction in progress 108,663 111,965 Corporate 43,596 35,312 -------- -------- 1,247,972 999,967 Less-accumulated depreciation and amortization 400,693 361,091 -------- -------- Property, net $ 847,279 $638,876 ======== ======== (1)Represents earnings before interest, income taxes, depreciation and amorti zation and adjusted for, restructuring charge, preopening expense, theatre closure expense, gain on disposition of assets, equity in earnings of unconsolidated affiliates and cumulative effect of an accounting change. (2) Property is comprised of land, buildings and improvements, leasehold imp rovements and furniture, fixtures and equipment.
NOTE 6 - RESTRUCTURING CHARGE On September 30, 1999, the Company recorded a restructuring charge of $12,000,000 ($7,200,000 after tax or $.31 per share) related to the consolidation of its three U.S. divisional operations offices into its corporate headquarters and a decision to discontinue direct involvement with pre-development activities associated with certain retail/entertainment projects conducted through its wholly-owned subsidiary, Centertainment, Inc. Included in this total are severance and other employee related costs of $5,200,000, lease termination costs of $700,000 and the write-down of property of $6,100,000. As of September 30, 1999, the Company has recorded $7,200,000 in accrued expenses and other liabilities related to these charges. The Company anticipates that all of the remaining restructuring costs will be paid in fiscal 2000. The severance and other employee related costs provide for a reduction of approximately 130 employees primarily at the Company's divisional offices and at its corporate headquarters. Lease termination costs were incurred in connection with the closure of the three divisional operations offices prior to their lease expiration dates. The charge for property relates to the write-off of capitalized pre-development costs for certain retail/entertainment projects. 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 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 America and International theatrical exhibition operations and the Company's on-screen advertising and other businesses.
Thirteen Weeks Ended Twenty-six Weeks Ended Sept 30, Oct 1, Sept 30, Oct 1, 1999 1998 % Change 1999 1998 %Change ---- ---- ---- ---- ---- ---- (Dollars in thousands) Revenues North America theatrical exhibition Admissions $206,274 $181,933 13.4% $385,441 $331,402 16.3% Concessions 92,636 87,226 6.2 174,655 159,807 9.3 Other theatre 6,681 4,588 45.6 11,447 8,906 28.5 ---------- ------ ---- ------ ------ ---- 305,591 273,747 11.6 571,543 500,115 14.3 International theatrical exhibition Admissions 13,475 6,806 98.0 22,190 12,357 79.6 Concessions 2,863 1,519 88.5 4,557 2,755 65.4 Other theatre 168 101 66.3 491 145 * -------- -------- ---- -------- ------ ----- 16,506 8,426 95.9 27,238 15,257 78.5 On-screen advertising and other 11,588 8,023 44.4 21,464 14,940 43.7 -------- -------- ---- -------- ------ ----- Total revenues $333,685 $290,196 15.0% $620,245 $530,312 17.0% ======== ======= ===== ========= ======= ==== Costs and Expenses North America theatrical exhibition Film exhibition costs $114,494 $100,461 14.0% $219,635 $182,791 20.2% Concession costs 13,987 13,241 5.6 26,156 24,312 7.6 Theatre operating expense 67,008 63,354 5.8 130,798 125,989 3.8 Rent 44,910 38,135 17.8 89,597 74,776 19.8 Preopening expense 1,640 388 * 2,650 773 * Theatre closure expense 2,046 2,801 (27.0) 11,692 2,801 * -------- -------- ---- -------- ------ ----- 244,085 218,380 11.8 480,528 411,442 16.8 International theatrical exhibition Film exhibition costs 7,051 3,735 88.8 11,458 6,613 73.3 Concession costs 911 452 * 1,433 831 72.4 Theatre operating expense 4,115 1,724 * 7,334 3,196 * Rent 3,726 1,315 * 6,916 2,626 * Preopening expense 384 - * 647 - * -------- -------- ---- -------- ------ ----- 16,187 7,226 * 27,788 13,266 * On-screen advertising and other 11,794 6,997 68.6 22,489 13,363 68.3 General and administrative 12,284 14,136 (13.1) 25,495 27,281 (6.5) Restructuring charge 12,000 - * 12,000 - * Depreciation and amortization 23,029 21,030 9.5 43,686 41,372 5.6 -------- -------- ---- ------ ------ ----- Total costs and expenses $319,379 $267,769 19.3%$611,986 $506,724 20.8% ======== ======= ===== ======== ======= ==== *Percentage change in excess of 100%.
Thirteen weeks ended September 30, 1999 and October 1, 1998. Revenues. Total revenues increased 15.0% during the thirteen weeks ended September 30, 1999 compared to the thirteen weeks ended October 1, 1998. North America theatrical exhibition revenues increased 11.6% from the prior year. Admissions revenues increased 13.4% due to a 12.2% increase in average ticket price and a 1.0% increase in attendance. The increase in average ticket prices was due to the first phase of a strategic initiative implemented by the Company during the thirteen weeks ended July 1, 1999 to selectively increase ticket and concession prices at megaplexes and multiplexes and to the growing number of megaplexes in the Company's theatre circuit, which yield higher average ticket prices than multiplexes. Attendance at multiplexes (theatres generally without stadium-style seating) decreased due to a 14.8% decrease in attendance at comparable multiplexes (theatres opened before the second quarter of fiscal 1999) and the closure or sale of 39 multiplexes with 240 screens since October 1, 1998. The decline in attendance at comparable multiplexes was related primarily to certain multiplexes experiencing competition from new megaplexes operated by the Company and other competing theatre circuits, a trend the Company generally anticipates will continue. Attendance at megaplexes (theatres with predominantly stadium-style seating) increased as a result of the addition of 17 new megaplexes with 396 screens since October 1, 1998. Attendance at comparable megaplexes increased 0.2%. Concessions revenues increased 6.2% due to a 5.1% increase in average concessions per patron and the increase in total attendance. The increase in average concessions per patron was attributable to the selective price increases discussed above and the increasing number of megaplexes in the Company's theatre circuit, where concession spending per patron is higher than in multiplexes. International theatrical exhibition revenues increased $8,080,000 from the prior year. Admissions revenues increased $6,669,000 due primarily to an increase in attendance from the addition of four new megaplexes with a total of 69 screens since October 1, 1998. Attendance at comparable megaplexes decreased 15.0% due primarily to a decline in the popularity of film product in Japan during the thirteen weeks ended September 30, 1999 as compared with the prior year and competition from new theatrical exhibitors in Japan. Concession revenues increased $1,344,000 due primarily to the increase in total attendance. On-screen advertising and other revenues increased 44.4% from the prior year due primarily to a new advertising product at the Company's on- screen advertising business. Costs and expenses. Total costs and expenses increased 19.3% during the thirteen weeks ended September 30, 1999 compared to the thirteen weeks ended October 1, 1998. North America theatrical exhibition costs and expenses increased 11.8% from the prior year. Film exhibition costs increased 14.0% due to higher admissions revenues and a nominal increase in the percentage of admissions paid to film distributors. As a percentage of admissions revenues, film exhibition costs were 55.5% in the current year as compared with 55.2% in the prior year. Concession costs increased 5.6% due to the increase in concessions revenues offset by a decrease in concession costs as a percentage of concessions revenues. As a percentage of concessions revenues, concession costs were 15.1% in the current year compared with 15.2% in the prior year. As a percentage of revenues, theatre operating expense was 21.9% in the current year as compared to 23.1% in the prior year. Rent expense increased 17.8% due to the higher number of screens in operation and the growing number of megaplexes in the Company's theatre circuit, which generally have higher rent per screen than multiplexes. During the thirteen weeks ended September 30, 1999, the Company incurred $2,046,000 of theatre closure expense primarily related to the closure of 9 multiplexes with 53 screens as compared with $2,801,000 in the prior year related to other multiplex closures. These expenses are primarily comprised of expected payments to landlords to terminate leases. International theatrical exhibition costs and expenses increased $8,961,000 from the prior year. Film exhibition costs increased $3,316,000 primarily due to higher admission revenues, offset by a decrease in the percentage of admissions paid to film distributors. Rent expense increased $2,411,000 and theatre operating expense increased $2,391,000 from the prior year, primarily due to the increased number of screens in operation. International theatrical exhibition costs and expenses were negatively impacted by a weaker U.S. dollar, although this did not contribute materially to consolidated net loss. On-screen advertising and other costs and expenses increased 68.6% due primarily to an increase in fixed costs associated with the new advertising product at the Company's on-screen advertising business. The Company anticipates that these fixed costs as a percentage of the related advertising revenues will decline as revenues from the new advertising product continue to grow. General and administrative expenses decreased 13.1% during the thirteen weeks ended September 30, 1999 as compared with the thirteen weeks ended October 1, 1998 due primarily to declines in administrative salaries expense. As a percentage of total revenues, general and administrative expenses declined from 4.9% in the prior year to 3.7% in the current year. On September 30, 1999, the Company recorded a restructuring charge of $12,000,000 ($7,200,000 after tax or $.31 per share) related to the consolidation of its three U.S. divisional operations offices into its corporate headquarters and a decision to discontinue direct involvement with pre-development activities associated with certain retail/entertainment projects conducted through its wholly-owned subsidiary, Centertainment, Inc. Included in this total are severance and other employee related costs of $5,200,000, lease termination costs of $700,000 and the write-off of capitalized pre-development costs of $6,100,000. The Company anticipates as a result of the restructuring it will realize on-going annual general and administrative expense reductions of approximately $20 million. Unforeseen changes in operating requirements and other factors referred to in the first paragraph of this Item 2. could cause actual general and administrative expense reductions to differ materially from anticipated reductions. Depreciation and amortization increased 9.5%, or $1,999,000, during the thirteen weeks ended September 30, 1999. This increase was primarily caused by an increase in depreciation of $3,380,000 related to the Company's new theatres, which was partially offset by a $2,154,000 decrease in amortization due to a change in accounting for start-up activities. Interest Expense. Interest expense increased 73.0% during the thirteen weeks ended September 30, 1999 compared to the prior year, primarily due to an increase in average outstanding borrowings and interest rates. The increase in interest rates was primarily due to the issuance of $225,000,000 of 9 1/2% Senior Subordinated Notes due 2011 on January 27, 1999. Gain on Disposition of Assets. Gain on disposition of assets increased from a loss of $35,000 in the prior year to a gain of $144,000 during the current year. Current year results include a gain related to one of the Company's multiplexes closed during the thirteen weeks ended September 30, 1999. Income Tax Provision. The provision for income taxes decreased to a benefit of $135,000 during the current year from an expense of $6,550,000 in the prior year. The effective tax rate was 40.1% for the current year compared to 45.4% for the previous year. The Company adjusts its expected annual effective tax rate on a quarterly basis based on current projections of non-deductible expenses and pre-tax earnings or losses. Net Earnings. Net earnings decreased during the thirteen weeks ended September 30, 1999 to a loss of $202,000 from earnings of $7,885,000 in the prior year. Net loss per share was $.01 compared to earnings of $.34 in the prior year. Current period results include a restructuring charge of $12,000,000 ($7,200,000 net of income tax benefit of $4,800,000) which reduced earnings per share by $.31 for the thirteen weeks ended September 30, 1999. Twenty-six weeks ended September 30, 1999 and October 1, 1998. Revenues. Total revenues increased 17.0% during the twenty-six weeks ended September 30, 1999 compared to the twenty-six weeks ended October 1, 1998. North America theatrical exhibition revenues increased 14.3% from the prior year. Admissions revenues increased 16.3% due to a 12.9% increase in average ticket price and a 3.1% increase in attendance. The increase in average ticket prices was due to the first phase of a strategic initiative implemented by the Company during the thirteen weeks ended July 1, 1999 to selectively increase ticket and concession prices at megaplexes and multiplexes and the growing number of megaplexes in the Company's theatre circuit, which yield higher average ticket prices than multiplexes. Attendance at megaplexes increased as a result of the addition of 17 new megaplexes with 396 screens since October 1, 1998, and a 2.7% increase in attendance at comparable megaplexes (theatres opened before the first quarter of fiscal 1999). Admissions revenues at multiplexes decreased due to a 14.5% decrease in attendance at comparable multiplexes and the closure or sale of 39 multiplexes with 240 screens since October 1, 1998. The decline in attendance at comparable multiplexes was related primarily to certain multiplexes experiencing competition from new megaplexes operated by the Company and other competing theatre circuits, a trend the Company generally anticipates will continue. Concessions revenues increased 9.3% due to a 6.1% increase in average concessions per patron and the increase in total attendance. The increase in average concessions per patron was attributable to the selective price increases discussed above and the increasing number of megaplexes in the Company's theatre circuit, where concession spending per patron is higher than in multiplexes. International theatrical exhibition revenues increased $11,981,000 from the prior year. Admissions revenues increased $9,833,000 due primarily to an increase in attendance from the addition of four new megaplexes with a total of 69 screens since October 1, 1998. Attendance at the Company's comparable megaplexes decreased 17.5% due primarily to the popularity of Titanic in Japan during the twenty-six weeks ended October 1, 1998 and competition from new theatrical exhibitors in Japan. Concession revenues increased $1,802,000 due primarily to the increase in total attendance. International theatrical exhibition revenues were positively impacted by a weaker U.S. dollar, although this did not contribute materially to consolidated net loss. On-screen advertising and other revenues increased 43.7% from the prior year due primarily to a new advertising product at the Company's on- screen advertising business. Costs and expenses. Total costs and expenses increased 20.8% during the twenty-six weeks ended September 30, 1999 compared to the twenty-six weeks ended October 1, 1998. North America theatrical exhibition costs and expenses increased 16.8% from the prior year. Film exhibition costs increased 20.2% 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 57.0% in the current year as compared with 55.2% in the prior year. The increase in film exhibition costs as a percentage of admissions revenues was primarily due to Star Wars Episode I: The Phantom Menace, a film whose audience appeal led to higher than normal film rental terms. The Company anticipates that for fiscal 2000 film exhibition costs as a percentage of admissions revenues will be more comparable to the prior year as admissions revenues on this film decline as a percentage of total admissions revenues. Concession costs increased 7.6% due to the increase in concessions revenues offset by a decrease in concession costs as a percentage of concessions revenues. As a percentage of concessions revenues, concession costs were 15.0% in the current year compared with 15.2% in the prior year. Theatre operating expense as a percentage of revenues was 22.9% in the current year as compared with 25.2% in the prior year. Rent expense increased 19.8% due to the higher number of screens in operation and 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 30, 1999, the Company incurred $11,692,000 of theatre closure expense related to the closure of 28 multiplexes with 184 screens as compared with $2,801,000 in the prior year related to other multiplex closures. These expenses are primarily comprised of expected payments to landlords to terminate leases. The Company anticipates that it will incur a total of $15-16 million of costs related to the closure of approximately 40 multiplexes with 270 screens in fiscal 2000. International theatrical exhibition costs and expenses increased $14,522,000 from the prior year. Film exhibition costs increased $4,845,000 due to higher admissions revenues offset by a decrease in the percentage of admissions paid to film distributors. Rent expense increased $4,290,000 and theatre operating expense increased $4,138,000 from the prior year, primarily due to the increased number of screens in operation. International theatrical exhibition costs and expenses were negatively impacted by a weaker U.S. dollar, although this did not contribute materially to consolidated net loss. Other costs and expenses increased 68.3% due primarily to an increase in fixed costs associated with the new advertising product at the Company's on-screen advertising business. The Company anticipates that these fixed costs as a percentage of the related advertising revenues will decline as revenues from the new advertising product continue to grow. General and administrative expenses decreased 6.5% during the twenty- six weeks ended September 30, 1999 as compared with the twenty-six weeks ended October 1, 1998 due primarily to declines in administrative salaries expense. As a percentage of total revenues, general and administrative expenses declined from 5.1% in the prior year to 4.1% in the current year. On September 30, 1999, the Company recorded a restructuring charge of $12,000,000 ($7,200,000 after tax or $.31 per share) related to the consolidation of its three U.S. divisional operations offices into its corporate headquarters and a decision to discontinue direct involvement with pre-development activities associated with certain retail/entertainment projects conducted through its wholly-owned subsidiary, Centertainment, Inc. Included in this total are severance and other employee related costs of $5,200,000, lease termination costs of $700,000 and the write-off of capitalized pre-development costs of $6,100,000. The Company anticipates as a result of the restructuring it will realize on-going annual general and administrative expense reductions of approximately $20 million. Unforeseen changes in operating requirements and other factors referred to in the first paragraph of this Item 2. could cause actual general and administrative expense reductions to differ materially from anticipated reductions. Depreciation and amortization increased 5.6%, or $2,314,000,during the twenty-six weeks ended September 30, 1999. This increase was primarily caused by an increase in depreciation of $5,494,000 related to the Company's new theatres, which was partially offset by a $4,157,000 decrease in amortization due to a change in accounting for start-up activities. Interest Expense. Interest expense increased 65.2% during the twenty- six weeks ended September 30, 1999 compared to the prior year, primarily due to an increase in average outstanding borrowings and interest rates. The increase in interest rates was primarily due to the issuance of $225,000,000 of 9 1/2% Senior Subordinated Notes due 2011 on January 27, 1999. Gain on Disposition of Assets. Gain on disposition of assets decreased from a gain of $1,358,000 in the prior year to a gain of $327,000 during the current year. The prior year results include the sales of real estate associated with two of the Company's multiplexes. Current year results include the sale of a real estate property held for investment and a gain on one of the Company's multiplex theatres closed during the twenty- six weeks ended September 30, 1999. Income Tax Provision. The provision for income taxes decreased to a benefit of $7,835,000 during the current year from an expense of $3,900,000 in the prior year. The effective tax rate was 40.8% for the current year compared to 44.7% for the previous year. The Company adjusts its expected annual effective tax rate on a quarterly basis based on current projections of non-deductible expenses and pre-tax earnings or losses. Net Earnings. Net earnings decreased during the twenty-six weeks ended September 30, 1999 to a loss of $17,191,000 from earnings of $4,829,000 in the prior year. Net loss per share was $.73 compared to earnings of $.21 in the prior year. Current year results include the cumulative effect of an accounting change of $5,840,000 (net of income tax benefit of $4,095,000) and a restructuring charge of $12,000,000 ($7,200,000 net of income tax benefit of $4,800,000), which reduced earnings per share by $.25 and $.31, respectively, for the twenty-six weeks ended September 30, 1999. 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 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, were $41,139,000 and $36,355,000 for the twenty- six weeks ended September 30, 1999 and October 1, 1998, respectively. The Company continues to expand its North America and International theatre circuits. During the current fiscal year, the Company opened 10 megaplexes with 218 screens and began operating one theatre with 30 screens pursuant to a joint venture agreement. In addition, the Company closed 30 multiplexes with 194 screens and returned 3 screens to the landlord of an existing megaplex for conversion to alternative use, resulting in a circuit total of 71 megaplexes with 1,580 screens and 143 multiplexes with 1,206 screens as of September 30, 1999. 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 may 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 30, 1999, eight new theatres with 170 screens were leased from developers. Typically, the Company owns and pays for the equipment necessary to fixture a theatre. As of September 30, 1999, the Company had construction in progress of $108,663,000 and reimbursable construction advances (amounts due from developers on leased theatres) of $21,183,000. The Company had 9 megaplexes with 211 screens under construction on September 30, 1999. During the twenty-six weeks ended September 30, 1999, the Company had capital expenditures of $177,299,000. The Company expects that the net cash requirements for capital expenditures in fiscal year 2000 will approximate $200-225 million. Included in these amounts are projections of capital expenditures which are reduced by expected proceeds from the sale of real estate assets which the Company plans to place into sale and leaseback or other comparable financing programs and expected reimbursements from developers. The Company's $425 million revolving credit facility (the "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 million on each of December 31, 2002, March 31, 2003, June 30, 2003 and September 30, 2003 and by $50 million on December 31, 2003. The total commitment under the Credit Facility is $425 million, 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 30, 1999, the Company had outstanding borrowings of $227,000,000 under the Credit Facility at an average interest rate of 9.58% per annum, and approximately $106,000,000 was available for borrowing under the Credit Facility. The average interest rate on outstanding borrowings under the Credit Facility was 7.3% during the twenty- six weeks ended September 30, 1999. 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. As of September 30, 1999, the Company was in compliance with all financial covenants relating to the Credit Facility. The Company believes that cash generated from operations, existing cash and equivalents, amounts received from sale and lease back transactions, expected reimbursements from developers and the available commitment amount under its Credit Facility will be sufficient to fund operations and planned capital expenditures for the next 12 months. Year 2000 Potential Impact on Company. The failure of information technology ("IT?) and embedded, or (?non-IT?) systems, because of the Year 2000 issue or otherwise, could adversely affect the Company's operations. If not corrected, many computer-based systems and theatre equipment, such as air conditioning systems and fire and sprinkler systems, could encounter difficulty differentiating between the year 1900 and the year 2000 and interpreting other dates, resulting in system malfunctions, corruption of data or system failure. Additionally, the Company relies upon outside third parties ("business partners") to supply many of the products and services that it needs in its business. Such products include films which it exhibits and concessions products which it sells. Attendance at the Company's theatres could be severely impacted if one or more film producers are unable to produce new films because of Year 2000 issues. The Company could suffer other business disruptions and loss of revenues if any other types of material business partners fail to supply the goods or services necessary for the Company's operations. IT Systems. The Company utilizes a weighted methodology to evaluate the readiness of its corporate and theatre level IT systems. For this purpose, corporate and theatre system types include commercial off-the- shelf software, custom in-house developed software, ticketing system software, concession system software and hardware systems such as workstations and servers. The Company has weighted each corporate and theatre system based on its overall importance to the organization. The Company's readiness is evaluated in terms of a five-phase process utilized in the Year 2000 strategic plan (the "Plan") with appropriate weighting given to each phase based on its relative importance to IT system Year 2000 readiness. The phases may generally be described as follows: (i) develop company-wide awareness; (ii) inventory and assess internal systems and business partners, and develop contingency plans for systems that cannot be renovated; (iii) renovate critical systems and contact material business partners; (iv) validate and test critical systems, analyze responses from critical business partners and develop contingency plans for non-compliant partners; and (v) implement renovated systems and contingency plans. The Company has placed a high level of importance on its corporate and theatre software systems and a lesser degree of importance on its hardware systems when evaluating Year 2000 readiness. Additionally, the Company believes that the assessment, validation and testing and implementation phases are the most important phases in its Plan. Based on the weighting methodology described above, the Company has assessed 100% of its corporate IT systems and as of September 30, 1999 has renovated 96% of those systems that require renovation as a result of the Year 2000 issue. Of the renovated systems, 74% have been tested, verified and implemented on a company-wide basis. In the aggregate, as of September 30, 1999, 83% of the Company's corporate IT systems have been tested and verified as being Year 2000 ready. The percentage of corporate IT systems that have been tested and verified as being Year 2000 ready assumes that a significant component of commercial-off-the-shelf software, the recently installed Oracle financial applications, is Year 2000 ready. This system was marketed as Year 2000 ready when purchased. The Company is currently testing and verifying the Oracle financial applications to validate that the implementation is in fact Year 2000 ready and it does not believe that it has a significant risk with respect to the Oracle financial applications. Based on the weighting methodology described above, the Company has assessed 100% of its theatre IT systems and as of September 30, 1999 has renovated 100% of those systems that require renovation as a result of the Year 2000 issue. Of the renovated systems, 38% have been tested, verified and implemented on a company-wide basis. In the aggregate, as of September 30, 1999, 100% of the Company's theatre IT systems have been tested and verified as being Year 2000 ready. Overall, the Company has assessed its Plan with respect to IT systems as being 87% complete as of September 30, 1999. Although, no assurance can be given, the Company does not believe that it has material exposure to the Year 2000 issue with respect to its internal IT systems. Non-IT Systems. As of September 30, 1999, assessment, testing and remediation of the Company's critical non-IT systems were complete. Third Parties. The Company has identified and assessed potential Year 2000 readiness risks associated with its material outside business partners and continues to monitor their progress in achieving Year 2000 readiness. Evaluation of material business partners' responses and their state of Year 2000 readiness was underway and ongoing as of September 30, 1999. Contingency Planning. The Company has instituted an ongoing process to develop necessary contingency plans as the results of systems testing, systems remediation, and business partners' Year 2000 readiness assessments become known. The Company's contingency plans for critical systems and material business partners were essentially complete as of September 30, 1999. Changes to approved contingency plans will be implemented as necessary in response to additional data gathered via testing, remediation, and business partner contacts. Costs. Presently management does not expect costs associated with required modifications to be material to the Company's results of operations, liquidity or financial condition. The total amount expended from July 1, 1996 through September 30, 1999 was approximately $500,000. Based on information presently known, the total amount expected to be expended on the Year 2000 effort for IT systems is approximately $700,000 primarily comprised of software upgrades and replacement costs, internal personnel hours and consulting costs. To date, the Year 2000 effort has been funded primarily from the IT budget. Readers are cautioned that forward looking statements contained in this section should be read in conjunction with the Company's disclosures under the heading ?forward looking statements". In addition to the factors listed therein which could cause actual results to be different from those anticipated, the following special factors could affect the Company's ability to be Year 2000 ready: (i) the Company's ability to implement the Plan, (ii) cooperation and participation by business partners, (iii) the availability and cost of trained personnel and the ability to recruit and retain them and (iv) the ability to locate all system coding requiring correction. Euro Conversion A single currency called the euro was introduced in Europe on January 1, 1999. Certain member countries of the European Union adopted the euro as their common legal currency on that date. Fixed conversion rates between these participating countries' existing currencies (the "legacy currencies") and the euro were established as of that date. The transition period for the introduction of the Euro is scheduled to phase in over a period ending January 1, 2002, with the legacy currencies being completely removed from circulation no later than July 1, 2002. During this transition period, parties may pay for items using either the euro or a participating country's legacy currency. The Company currently operates one theatre in Portugal and one theatre in Spain. Both countries are member countries that adopted the euro as of January 1, 1999. The Company has implemented 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 During fiscal 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), Accounting for Derivative Instruments and Hedging Activities. The statement requires companies to recognize all derivatives as either assets or liabilities, with the instruments measured at fair value. The accounting for changes in fair value of a derivative depends on the intended use of the derivative and the resulting designation. The statement is effective for all fiscal years beginning after June 15, 2000. The statement will become effective for the Company in fiscal 2002. Adoption of this statement is not expected to have a material impact on the Company's consolidated financial position, results of operations or cash flows. 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 9.58% per annum, a 100 basis point increase in market interest rates would increase interest expense and decrease earnings before income taxes by approximately $2.3 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 Portugal, Japan, Spain, China (Hong Kong) and Canada and is currently developing theatres in other international markets. 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 Japanese and European theatres but instead intends to use them to fund additional expansion. 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 $1.1 million and $12 million, respectively. PART II - OTHER INFORMATION Item 1. Legal Proceedings. On January 29, 1999, the Department of Justice ("DOJ") filed suit against the Company in the United States District Court for the Central District of California, United States of America v. AMC Entertainment Inc. and American Multi-Cinema, Inc. The complaint alleges that the Company has designed, constructed and operated two of its motion picture theatres in the Los Angeles area and unidentified theatres elsewhere that have stadium- style seating in violation of DOJ regulations implementing Title III of the ADA and related "Standards for Accessible Design" (the "Standards"). The complaint alleges various types of non-compliance with the DOJ's Standards, but relates primarily to issues relating to lines of sight. The DOJ seeks declaratory and injunctive relief regarding existing and future theatres with stadium-style seating, compensatory damages and a civil penalty. The current DOJ position appears to be that theatres must provide wheelchair seating locations and transfer seats with viewing angles to the screen that are at the median or better, counting all seats in the auditorium. Heretofore, the Company has attempted to conform to the evolving standards imposed by the DOJ and believes its theatres are in substantial compliance with the ADA. However, the Company believes that the DOJ's current position has no basis in the ADA or related regulations and is an attempt to amend the ADA regulations without complying with the Administrative Procedures Act. The Company has filed an answer denying the allegations and asserting that the DOJ is engaging in unlawful rulemaking. A similar claim has been made by another exhibitor, Cinemark USA, Inc. v. United States Department of Justice, United States District Court for the Northern District of Texas, Case No. 399CV0183-L. Although no assurances can be given, based on existing precedent involving stadiums or stadium seating, the Company believes that an adverse decision in this matter is not likely to have a material adverse effect on its financial condition, liquidity or results of operations. However, there have been only a few cases involving stadiums or stadium seating. On November 30, 1998, Cyndi Soto filed suit in the United States District Court for the Central District of California, Cyndi Soto v. American Multi-Cinema, Inc. and JANSS/TYS Long Beach Associates, CV989547SLRNBX, alleging that one of the Company's theatres violated the ADA and California law by failing to remove certain barriers to access. The suit seeks an unspecified amount of general, special and punitive damages under California law and an injunction requiring the Company remove the alleged barriers. The Company has filed an answer denying the allegations in the Soto suit. On March 4, 1999, William P. Storrs filed a purported class action lawsuit in the United States District Court for the Southern District of Texas, William P. Storrs v. AMC Entertainment, Inc., Case No. H-99-061, alleging that sight lines at a Houston area megaplex violate the Americans with Disabilities Act and Chapter 121 of the Texas Human Resources Code. The suit seeks injunctive, declaratory and monetary relief. The Court has stayed the suit pending resolution of the Department of Justice litigation filed in California referred to above. Two cases, Nonoy Mendoza, et al. v. AMC Entertainment Inc., American Multi-Cinema, Inc., Neil Katcher, Michael Johannes, Susan Navarro, Nancy Garcia, and Matt Quinn filed on July 1, 1999 in the Probate Court of Dallas County, Texas ("Mendoza"), and Mabayoje Erinkitola, et al. v. AMC Entertainment Inc., American Multi-Cinema, Inc., Neil Katcher, Michael Johannes, Susan Navarro, Nancy Garcia, and Matt Quinn filed on July 15, 1999 in the Probate Court of Dallas County, Texas, arise out of the murders of two patrons, Roxanne Mendoza and Foluke Erinkitola, in the parking lot of the Grand Theatre in Dallas, Texas on August 13, 1997. The defendants are being sued on various theories related to allegations of improper or inadequate security. Each complaint seeks the recovery of damages for wrongful death, survival damages and exemplary damages, although neither complaint states specific monetary demands. A plaintiff in the Mendoza lawsuit also seeks abatement of the theatre as a public nuisance. The Company has answered both lawsuits and has removed both cases to the United States District Court, of Texas, Dallas Division, as of August 13, 1999, where the two cases have been combined. Reference is also made to Item 3. Legal Proceedings of the Company's Annual Report on Form 10-K for the fiscal year ended April 1, 1999 and Item 1. Legal Proceedings of the Company's Quarterly Report on Form 10-Q for the thirteen weeks ended July 1, 1999 for information on another legal proceeding to which the Company is a party, Drexler Technology Corp. v. Sony Corp. et. al. The Company is a 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 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-Q (File No. 1-8747) dated January 1, 1998). 3.2 Bylaws of AMC Entertainment Inc. (Incorporated by reference from Exhibit 3.3 to AMCE's Form 10-Q (File No. 0-12429) for the quarter ended December 26, 1996). 4.1(a) Amended and Restated Credit Agreement dated as of April 10, 1997, among AMC Entertainment Inc., as the Borrower, The Bank of Nova Scotia, as Administrative Agent, and Bank of America National Trust and Savings Association, as Documentation Agent, and Various Financial Institutions, as Lenders, together with the following exhibits thereto: significant subsidiary guarantee, form of notes, form of pledge agreement and form of subsidiary pledge agreement (Incorporated by reference from Exhibit 4.3 to the Company's Registration Statement on Form S-4 (File No. 333- 25755) filed April 24, 1997). 4.1(b) Second Amendment, dated January 16, 1998, to Amended and Restated Credit Agreement dated as of April 10, 1997 (Incorporated by Reference from Exhibit 4.2 to the Company's Form 10-Q (File No. 1-8747) for the quarter ended January 1, 1998). 4.1(c) Third Amendment, dated March 15, 1999, to amended and Restated Credit Agreement dated as of April 10, 1997 (Incorporated by reference from Exhibit 4 to the Company's Form 8-K (File No. 1-8747) dated March 25, 1999). 4.2(a) Indenture dated March 19, 1997, respecting AMC Entertainment Inc.'s 9 1/2% Senior Subordinated Notes due 2009 (Incorporated by reference from Exhibit 4.1 to the Company's Form 8-K (File No. 1-8747) dated March 19, 1997). 4.2(b) First Supplemental Indenture respecting AMC Entertainment Inc.'s 9 1/2% Senior Subordinated Notes due 2009 (Incorporated by reference from Exhibit 4.4(b) to Amendment No. 2. to the Company's Registration Statement on Form S-4 (File No.333-29155) filed August 4, 1997). 4.3 Indenture, dated January 27, 1999, respecting AMC Entertainment Inc's 9 1/2% Senior Subordinated Notes due 2011 (Incorporated by reference from Exhibit 4.3 to the Company's 10-Q (File No. 1-8747) for the quarter ended December 31, 1998. 4.4 Registration Rights Agreement, dated January 27, 1999, respecting AMC Entertainment Inc.'s 9 1/2% Senior Subordinated notes due 2011 (Incorporated by reference from Exhibit 4.4 to the Company's 10-Q (File No. 1-8747) for the quarter ended December 31, 1998) 4.5 In accordance with Item 601(b)(4)(iii)(A) of Regulation S- K, certain instruments respecting long- term debt of the Registrant have been omitted but will be furnished to the Commission upon request. 10.1 Non-Qualified (Non-ISO) Stock Option Agreement used in June 18, 1999 option grants to Mr. Richard M. Fay and Mr. Richard T. Walsh. (Incorporated by reference from Exhibit 10.1 to the Company's 10-Q (File No. 1-8747) for the quarter ended July 1, 1999. *10.2 Retainer agreement with Raymond F. Beagle, Jr. *27 Financial Data Schedule _______ - ------- * Filed herewith (b) Reports on Form 8-K No reports on Form 8-K were filed or required to be filed during the thirteen weeks ended September 30, 1999. 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 12, 1999 ------------------------- Peter C. Brown Chairman of the Board, Chief Executive Officer and President Date: November 12, 1999 ------------------------- Craig R. Ramsey Senior Vice President, Finance and Chief Accounting Officer EX-27 2
5 The schedule contains summary financial information extracted from the Consolidated Financial Statements of AMC Entertainment Inc. as of and for the twenty-six weeks ended September 30, 1999 submitted in response to the requirements to Form 10-Q and is qualified in its entirety by reference to such financial statements. 6-MOS MAR-30-2000 SEP-30-1999 10,377 0 48,080 713 0 101,904 1,247,972 400,693 1,093,731 194,260 700,244 0 0 15,660 84,997 1,093,731 179,212 620,245 27,589 519,113 67,378 0 27,872 (19,186) (7,835) (11,351) 0 0 (5,840) (17,191) (.73) (.73)
EX-10.2 3 RETAINER AGREEMENT This Retainer Agreement ("Agreement") is entered into as of October 1, 1999 by and between AMC ENTERTAINMENT INC., its subsidiaries and affiliated companies (collectively "AMC"), and RAYMOND F. BEAGLE, JR. ("RFB"). In consideration of the mutual promises and covenants contained herein, the parties agree as follows: 1.Engagement. AMC hereby engages RFB to serve as AMC's General Counsel. AMC agrees that, in addition to this engagement, RFB will continue in the active practice of law. 2.Term. The term of this Agreement shall commence as of October 1, 1999 and shall terminate on October 1, 2002 or sooner as provided herein. On each October 1 hereafter, commencing in 2000, one year shall be added to the Term of this engagement, so that as of each October 1 the Term of this engagement shall be three (3) years. 3.Retainer Fee. Effective October 1, 1999, AMC agrees to pay RFB at the annual retainer rate of Three Hundred Sixty Thousand Dollars ($360,000), payable monthly. In addition, the Chairman of the Board may, at his sole discretion, determine additional payments or bonuses to RFB. 4.Deferred Compensation. Prior to May 19, 1997 AMC agreed to pay as deferred compensation $12,000 monthly to RFB for a period of years following his retirement or termination as General Counsel. In consideration of more than thirty years of legal services which were critical to AMC's growth and success and in further consideration of continued deferrals of compensation, AMC, on May 19, 1997 instituted and agreed to maintain a deferred compensation trust for the purpose of making deferred compensation payments to RFB, or his estate or other designated beneficiary(ies) on the basis described herein. The deferred compensation payments shall commence upon the termination of this Agreement or RFB's position as General Counsel, or RFB's voluntary termination, death or disability, or a change of control as provided in paragraph 5(c) below, and shall be paid in substantially equal monthly installments for a period of twelve (12) years. Based on the trust assets as of September 30, 1999, and assuming an interest rate of 9.00%, such monthly payments would have been $28,285 had they commenced as of such date. Actual payments will be based on the actual amount of the trust at the commencement of payment, which will increase as follows: (A)by the amount of any bonus payable as determined by AMC which shall be deferred and paid hereunder; and (B)by the accrual of simple annual interest at the prime rate plus 1%, but averaging such rates for the last day of each calendar quarter during the fiscal year, credited annually based on the aggregate unpaid amount of RFB's deferred compensation account, and as calculated thereafter, whether or not payments to RFB under the Agreement have commenced. Such interest shall be credited as of the last day of each fiscal year and any bonus attributable to the prior fiscal year shall be credited as of the first day of the following fiscal year. However, if the deferred payments are commenced during the fiscal year, as provided above, the accrued interest of the preceding quarter or quarters shall be averaged and applied as a fraction of the four quarters of the fiscal year and any bonus that was awarded and not theretofore credited shall be credited as of the date immediately prior to the date such deferred payments commence. Upon commencement of payments over said twelve-year period, AMC, in consultation with its compensation consultant or pension plan actuary, shall calculate, based on the accumulated amount of RFB's deferred compensation and a reasonable projected interest rate for the payment period, a substantially equal monthly amount, with any adjustment necessary to be made in the final (144th) payment. This paragraph 4 will continue in full force and effect until all payments have been made hereunder, irrespective of the termination of any other or all provisions of this Agreement. 5.Termination; Severance. (a)Termination Without Severance. The engagement of RFB as General Counsel shall terminate without severance upon RFB's (i) resignation; (ii) death; or (iii) disability which renders him unable to perform his usual and customary duties for a period of 180 consecutive days. (b)Termination With Severance. (i)RFB may be terminated as General Counsel with severance at any time by the Chairman of the Board with the approval of the Board of Directors of AMC Entertainment Inc. ("AMCE"). (ii)In the event of such termination, RFB shall receive a lump sum cash payment equal to three (3) times the annual retainer, one- half (50%) to be paid in cash and one-half (50%) to be paid to the Deferred Compensation Trust described in paragraph 4 above. (c)Change of Control. (i)For the purposes of this Agreement, a "Change of Control" means a merger of AMCE with, or a sale or other transfer of all or substantially all of AMCE's assets to, any person or entity which is not controlled by AMCE, provided, that such transaction has been approved by the holders of a majority of the shares of AMCE's Common Stock then outstanding. (ii)In the event of a Change of Control, RFB shall receive a lump sum cash payment equal to three (3) times the annual retainer, one- half (50%) to be paid in cash and one-half (50%) to be paid to the Deferred Compensation Trust described in paragraph 4 above. 6.Notices. All notices, requests, demand or other communications under this Agreement shall be in writing addressed as follows: (a)If to RFB: Raymond F. Beagle, Jr. Lathrop & Gage L.C. 2345 Grand Boulevard Kansas City, Missouri 64108 (b)If to AMC: Peter C. Brown AMC Entertainment Inc. 106 West 14th Street P.O. Box 419615 Kansas City, Missouri 64141-6615 Any such notice, request, demand or other communication shall be effective as of the date of actual delivery thereof. Either party may change such notice address by written notice as provided herein. 7.Additional Potential Compensation. Nothing in this Agreement shall prohibit AMC from awarding additional compensation to RFB if it is determined that such compensation is warranted based on RFB's performance. 8.Other Provisions. This Agreement shall be governed by the laws of the State of Missouri. This Agreement represents the entire agreement of the parties hereto and shall not be amended except by a written agreement signed by all the parties hereto. This Agreement supersedes any prior oral or written agreements or understandings between AMC or any affiliate of AMC and RFB. This Agreement shall not be assignable by one party without the prior written consent of the other party. In the event one or more of the provisions contained in this Agreement or any application thereof shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provision of this Agreement or any other application thereof shall not in any way be affected or impaired thereby. Section headings herein have no legal significance. 9.Arbitration. Any legal dispute, controversy or claim related to this Agreement or breach thereof, shall, in lieu of being submitted to a court of law, be submitted to arbitration, in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The award of the arbitrators shall be final and binding upon the parties. The parties hereto agree that (i) three arbitrators shall be selected pursuant to the rules and procedures of the American Arbitration Association, (ii) at least one arbitrator shall be a licensed attorney, (iii) the arbitrators shall have the power to award injunctive relief or to direct specific performance, (iv) the arbitrators will not have the authority to award punitive damages, (v) each of the parties shall bear its own attorneys' fees, costs and expenses and an equal share of the arbitrators' and administrative fees of arbitration, (vi) the arbitrators will not have the authority to award attorneys' fees other than to direct or confirm in the award that each party shall pay its own fees, and (vii) the arbitrators shall award to the prevailing party a sum equal to that party's share of the arbitrators' and administrative fees of arbitration. Nothing in this Section shall be construed as providing RFB a cause of action, remedy or procedure that RFB would not otherwise have under this Agreement or the law. THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES. IN WITNESS WHEREOF, the parties have executed this Retainer Agreement as of the day and year first above written. AMC ENTERTAINMENT INC., a Delaware corporation By:/s/ Peter C. Brown Peter C. Brown, Chairman of the Board and President /s/ Raymond F. Beagle, Jr. RAYMOND F. BEAGLE, JR. -----END PRIVACY-ENHANCED MESSAGE-----