UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date of Report: February 2, 1998
Entertainment Properties Trust
(Exact name of registrant as specified in its charter)
Maryland 1-13561 43-179877
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1200 Main, Suite 3250 Kansas City, Missouri 64105
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (816) 472-1700
N/A
(Former name or former address, if changed since last report.)
Item 2 Acquisition or Disposition of Assets
As part of the Formation Transactions described in the
Company's Registration Statement on Form S-11, Registration No.
33-35281 (the "Registration Statement"), the Company has
acquired the megaplex theatre properties described in the
following table (the "Properties") from subsidiaries of AMC
Entertainment, Inc. ("AMCE"), including American Multi-Cinema,
Inc. and its subsidiaries ("AMC"). The Properties constitute all
but one of the Initial Properties and one of the Option
Properties described in the Registration Statement. All of the
Properties are megaplex movie theatres and were purchased for
cash with the proceeds of the Company's initial public offering.
The Company elected to purchase the Option Property known as
Gulfpointe 30 prior to acquiring the last of the Initial
Properties (known as South Barrington 30, located in Chicago,
Illinois) in light of the relative construction schedules of
those two Properties.
<PAGE>
INITIAL PROPERTIES
Description Location Opening Screens Seats
Grand 24 /1/ Dallas, TX 5/1/95 24 5,067
Mission Valley
20 /2/ San Diego, CA 12/1/95 20 4,361
Promenade
16 /1/ Los Angeles, CA 3/1/96 16 2,860
Ontario Mills
30 /1/ Los Angeles, CA 12/1/96 30 5,469
Lennox 24 /2/ Columbus, OH 12/1/96 24 4,412
West Olive
16 /1/ St. Louis, MO 5/1/97 16 2,817
Studio 30 /1/ Houston, TX 5/1/97 30 6,032
Huebner Oaks
24 /1/ San Antonio, TX 6/1/97 24 4,400
First Colony
24 /2/ Houston, TX 12/19/97 24 5,098
Oakview
24 /2/ Omaha, NE 12/19/97 24 5,098
Leawood Town
Centre /1/ Kansas City, MO 12/19/97 20 2,995
Ann.
Gross Cost Acq. Rent
Description Sq.Ft. (1,000's) Date (1,000's)
Grand 24 /1/ 98,175 18,600 11/24/97 1,953
Mission Valley
20 /2/ 84,352 16,300 11/24/97 1,711
Promenade
16 /1/ 129,822 28,500 11/24/97 2,992
Ontario Mills
30 /1/ 131,534 25,300 11/24/97 2,656
Lennox 24 /2/ 98,261 12,900 11/24/97 1,354
West Olive
16 /1/ 60,418 17,800 11/24/97 1,869
Studio 30 /1/ 136,154 26,400 11/24/97 2,772
Huebner Oaks
24 /1/ 96,004 16,900 12/22/97 1,774
First Colony
24 /2/ 107,690 19,100 12/22/97 2,005
Oakview 24/2/ 107,402 16,700 12/22/97 1,753
Leawood Town
Centre /1/ 75,224 15,800 12/22/97 1,659
OPTION PROPERTY
Description Location Opening Screens Seats
Gulfpoint
30 /1//3/ Houston, TX 12/19/97 30 6,008
Ann.
Gross Cost Acq. Rent
Description Sq.Ft. (1,000's) Date (1,000's)
Gulfpoint
30/1//3/ 130,891 25,800 2/02/98 2,709
/1/ Fee simple title acquired.
/2/ Third party ground leased Property. Although the Company is
the tenant under the ground leases and has assumed
responsibility for performing the obligations thereunder,
pursuant to the terms of the Leases with AMC, AMC is
responsible for performing the Company's obligations under
such ground leases.
3/ Three undeveloped pad sites with an aggregate cost of
$1,766,000 were also purchased with this Property.
<PAGE>
It is currently anticipated that the remaining Initial
Property(South Barrington 30) will be acquired in March 1998
consistent with the construction schedule for that Property.
Each Property has been leased back to AMC in accordance with
the terms of a triple net lease at the annual rental rate listed
above for each Property.
The Leases have initial terms ranging from 13 to 15 years
and may be extended upon the same terms and conditions for four
additional five-year terms at the option of AMC. Each Lease is
referred to as a triple net lease in that it requires AMC to pay
substantially all expenses associated with the operation of the
Properties, such as taxes and other governmental charges,
insurance, utilities, service, maintenance and any ground lease
payments. Each Lease requires that, for a specified period, AMC
shall operate the Property only as a movie theatre and activities
incidental thereto. AMC's performance of its obligations under
each Lease has been guaranteed by AMCE.
Peter C. Brown, Chairman of the Board of the Company, is the
President, Chief Financial Officer and a director of AMCE. Mr.
Brown is also Executive Vice President, Chief Financial Officer
and a director of AMC. Robert C. Harris, President, Chief
Development Officer and a trustee of the Company, is the former
Senior Vice President of AMC in charge of its international
affairs.
The purchase price for each Property was determined by the
management of both AMCE and the Company as the cost of developing
and constructing such Property.
The Lease payment obligations with respect to each Property
were determined by the management of AMCE and the Company and
were not negotiated on an arms-length basis. The Lease payments
are based on an initial capitalization rate of 10.5%, which the
Company believes reflects the fair market value of the Properties
to the Company based on rates for comparable triple net lease
transactions.
The Properties will be operated by AMC as megaplex movie
theatres under the terms of each Lease.
The cost of the undeveloped land parcels purchased as part
of the Gulf Pointe 30 acquisition was determined by the
management of both AMCE and the Company based on the estimated
market value for such parcels less estimated marketing and
selling costs. It is the Company's intention that the pad sites
be developed as restaurant locations and leased to restaurant
operators.
The description of the Properties and underlying Lease terms
contained in the Prospectus which is a part of the Registration
Statement under the captions "Business of the Company and its
Properties," "Leases" and "The Formation Transactions" is
incorporated by reference in this Report.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
WITH THE EXCEPTION OF HISTORICAL INFORMATION, THIS REPORT ON
FORM 8-K CONTAINS FORWARD-LOOKING STATEMENTS AS DEFINED IN THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND IDENTIFIED
BY SUCH WORDS AS "WILL BE," "INTENDED," "CONTINUE," "BELIEVE,"
"MAY," "EXPECT," "HOPE," "ANTICIPATE," "GOAL," "FORECAST" OR
OTHER COMPARABLE TERMS. THE COMPANY'S ACTUAL FINANCIAL
CONDITION, RESULTS OF OPERATIONS OR BUSINESS MAY VARY MATERIALLY
FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING <PAGE> STATEMENTS AND
INVOLVE VARIOUS RISKS AND UNCERTAINTIES, INCLUDING BUT NOT
LIMITED TO THE FOLLOWING:
. The Company's initial dependence on a single
tenant and lease guarantor for its lease revenues
and ability to make distributions to its
shareholders
. Potential conflicts of interest involving the
Company and its initial tenant and lease guarantor
. Competition from other entities providing capital
to the entertainment industry
. Dependence on key personnel
. Operating risks in the entertainment industry that
may affect the operations of the Company's tenants
. Tax risks arising from the Company's intention to
qualify as a REIT
. Interest rates and availability of debt financing
. General real estate investment risks
. Other risks and uncertainties
INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH
FORWARD-LOOKING STATEMENTS, AND ARE ENCOURAGED TO REVIEW THE RISK
FACTORS IDENTIFIED IN THE COMPANY'S PROSPECTUS CONTAINED IN THE
REGISTRATION STATEMENT ON FORM S-11.
Item 7 Financial Statements and Exhibits
(a) Financial statements of business acquired. The Company
will not operate any of the Properties, but is instead
leasing the Properties to AMC in accordance with triple
net Leases guaranteed by AMCE. Each Property is being
used entirely by AMC in its business pursuant to a net
Lease from the Company and is not being used in any
significant way for rental to third parties.
Accordingly, consolidated financial statements of AMCE,
as guarantor of the Leases, have been provided in lieu
of operating statements for each of the Properties.
For information with respect to the financial condition
and results of operations of AMCE and subsidiaries
(including AMC), reference is made to the unaudited
Condensed Pro Forma Financial Statements and notes
thereto of AMC Entertainment, Inc. and subsidiaries for
the twenty-six week period ended October 2, 1997 and
the year (53 weeks) ended April 3, 1997; the unaudited
Financial Statements and notes thereto of AMC
Entertainment, Inc. and subsidiaries as of October 2,
1997 and April 3, 1997 and for the twenty-six weeks
ended <PAGE> October 2, 1997 and September 26, 1996; and the
Consolidated Financial Statements of AMC Entertainment,
Inc. and subsidiaries and report thereon of independent
accountants for the year (53 weeks) ended April 3, 1997
and years (52 weeks) ended March 28, 1996 and March 30,
1995 contained in the Registration Statement and
incorporated by reference into this Report.
(b) Pro forma financial information - For forecast
financial information reflecting the acquisition of the
Initial Properties reference is made to "The Company's
Selected Financial Information" contained in the
Registration Statement and incorporated by reference in
this Report. In accordance with instruction b.3 to
Form 8-K, the forecast financial information contained
in the Registration Statement is deemed to be
substantially the same as that which would be provided
in reflecting the acquisition of the Initial Properties
discussed in this Report.
(c) Exhibits
EXHIBIT NO. DESCRIPTION
10.1 Form of Agreement of Sale and Purchase
between the Company and American Multi-
Cinema, Inc. (incorporated by reference
to Exhibit 10.1 to the Registration
Statement)
10.2 Form of Option Agreement between the
Company and American Multi-Cinema, Inc.
(incorporated by reference to Exhibit
10.2 to the Registration Statement)
10.3 Form of Option Agreement between the
Company and Clip Funding, Limited
(incorporated by reference to Exhibit
10.3 to the Registration Statement)
10.5 Form of Lease entered into between the
Company and American Multi-Cinema, Inc.
(incorporated by reference to Exhibit
10.5 to the Registration Statement)
10.6 Form of Guaranty of Lease between the
Company and AMC Entertainment, Inc.
(incorporated by reference to Exhibit
10.6 to the Registration Statement)
<PAGE>
EXHIBIT NO. DESCRIPTION
99 Sections of the Prospectus contained in
the Registration Statement and entitled
"The Company's Selected Financial
Information," "Business of the Company
and its Properties," Leases" and "The
Formation Transactions," and the
financial statements of AMCE and
subsidiaries identified in Item 7(a).
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 hereunto duly authorized.
ENTERTAINMENT PROPERTIES TRUST
Date: February 17, 1998 By /s/ Scottt Christian
Scott Christian, Treasurer
<PAGE>
EXHIBIT INDEX
Exhibit Description
99 Sections of the Prospectus contained in the
Registration Statement and entitled "The
Company's Selected Financial Information,"
"Business of the Company and its Properties,"
Leases" and "The Formation Transactions," and
the financial statements of AMCE and
subsidiaries identified in Item 7(a).
THE COMPANY'S SELECTED FINANCIAL INFORMATION
The following table sets forth selected historical, pro
forma and forecast financial information for the Company as of
September 30, 1997 and August 29, 1997 and for the twelve months
ending November 30, 1998. The pro forma balance sheet information
is presented as if the Formation Transactions had occurred on
September 30, 1997 and therefore incorporates certain assumptions
that are set forth in the Company's Pro Forma Balance Sheet. The
pro forma information does not purport to represent what the
Company's financial position actually would have been had the
Formation Transactions, in fact, occurred on such date, or to
project the Company's financial position at any future date. The
forecast operating information is presented as if the Formation
Transactions had occurred as of December 1, 1997 and therefore
incorporates certain assumptions that are set forth in the
Company's Forecast Statement of Operations. The historical
financial information set forth below is qualified in its
entirety by reference to the Company's Financial Statements and
the Notes thereto included elsewhere in this Prospectus. The
historical, pro forma and forecast information set forth below
should be read in conjunction with "The Company's Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
Forecast Twelve
Months Ending
November 30, 1998
(In thousands, except
per Share data)
STATEMENT OF OPERATIONS DATA:
Rental income/1/ $25,382
General and administrative expenses/2/ 2,209
Depreciation/3/ 5,239
Interest expense, net 829
Net earnings $17,105
Net earnings per Share $1.23
Distributions declared and paid $22,176
Distributions declared and paid per Share $1.60
Weighted average Shares outstanding/4/ 13,860
Pro Forma Historical
September 30, 1997 August 29, 1997
(In thousands)
Balance Sheet Data:
Real estate owned, at cost $249,856 $--
Total assets 252,450 2
Debt outstanding under the
Bank Credit Facility --- --
Total shareholders' equity 252,450 2
<PAGE>
Forecast
Twelve Months
Ending
November 30, 1998
OTHER FINANCIAL DATA:
Net earnings $17,105
Add: Depreciation 5,239
Funds from Operations/5/ 22,344
Add: Amortization 605
Cash Available for Distribution/6/ $22,949
_______
/1/ Represents forecast rental income from AMC recorded in
accordance with the terms of the Leases as if the Initial
Properties are leased commencing with the beginning of the
period or, if later, the anticipated opening date. The
Company will lease the Initial Properties to AMC under
operating leases guaranteed by AMCE.
/2/ Represents management's estimates of general and
administrative expenses.
/3/ Represents depreciation of the Initial Properties using the
straight-line method over a 40-year period commencing with
the beginning of the period or, if later, the anticipated
opening date.
/4/ Weighted average Shares outstanding include Shares sold in
the Offering and restricted Shares granted pursuant to the
Company's Restricted Share Program as if such Shares were
outstanding for the entire period.
/5 The Company believes that Funds from Operations is helpful
to investors as a measure of the performance of an equity
REIT because, along with cash flows from operating
activities, investing activities and financing activities,
it provides investors with an understanding of the ability
of the Company to incur and service debt and make capital
expenditures. Funds from Operations is calculated as
forecast net earnings plus depreciation. The Company
computes Funds from Operations in accordance with standards
established by the White Paper on Funds from Operations
approved by the NAREIT Board of Governors in March 1995,
which may differ from the methodology for calculating Funds
from Operations utilized by other equity REITs, and,
accordingly, the Company's Funds from Operations may not be
comparable to the Funds from Operations of such other REITs.
See "The Company's Management's Discussion and Analysis of
Financial Condition and Results of Operations--Funds from
Operations." Funds from Operations should not be considered
as an alternative to net earnings (computed in accordance
with GAAP) as an indication of the Company's financial
performance or to cash flows from operating activities
(computed in accordance with GAAP) as a measure of the
Company's liquidity, nor is it indicative of funds available
to fund the Company's cash needs, including its ability to
make distributions.
/6/ Cash Available for Distribution is forecast net earnings
plus depreciation and amortization and minus capital
expenditures and principal payments on indebtedness. No
capital expenditures or principal payments on indebtedness
are included for the periods indicated.
<PAGE>
BUSINESS OF THE COMPANY AND ITS PROPERTIES
OVERVIEW
The Company will enter into a purchase agreement to acquire
the Initial Properties from subsidiaries of AMCE for an aggregate
purchase price of approximately $248.8 million, and option
agreements to purchase any or all of the Option Properties from
subsidiaries of AMCE or the current owner/lessor thereof for an
aggregate estimated purchase price of $138.5 million that may be
exercised by the Company, with respect to each Property, at any
time during the 90-day period following the actual opening date
of the megaplex theatre on such Option Property, with up to an
additional 90-day period to close such acquisition. One of the
Initial Properties and three of the Option Properties have
adjacent land parcels that, if not under contract for sale or
sold at the time of the related theatre acquisition, may be
purchased by the Company for an aggregate purchase price of
$9.6 million. The Initial Properties and the Option Properties
represent all of the AMC-owned (or ground-leased) megaplex
theatres with the exception of one property that is not readily
transferrable to the Company. Each of the Properties is located
in a large metropolitan market and has been constructed since
May 1995 or is currently under construction. AMCE generally
selected the theatre sites on the bases of retail concentration,
access to surface transportation and favorable demographic trends
identified by reference to census figures and other statistical
sources. Four of the Initial Properties are among the thirteen
highest grossing theatres in the United States and each of the
eight operating Initial Properties is the highest grossing
theatre in the local geographic area in which it operates. In
addition, the Company will have a right of first refusal and
first offer to purchase any megaplex theatre and related
entertainment property acquired or developed and owned (or
ground-leased) by AMCE or its subsidiaries, exercisable for a
period of five years following the closing of the Offering upon
AMCE's intended disposition of such property. The Company will
acquire a 100% interest in each of the Properties (or related
ground leases, as applicable) purchased.
THE PROPERTIES
The Properties are all state-of-the-art megaplex theatres
with predominantly stadium-style seating (seating with an
elevation between rows to provide unobstructed viewing). Most are
equipped with SONY Dynamic Digital Sound [Trademark]
(SDDS[Trademark]) and AMC LoveSeat[Trademark] style seating
(plush, high-backed seats with retractable armrests). Other
amenities may include auditoriums with TORUS[Trademark] Compound
Curved Screens and High Impact Theatre Systems[Trademark]
(HITS[Trademark]), which enhance picture and sound quality,
respectively. All of such equipment and amenities will be owned,
or leased from third parties, by AMC following the Formation
Transactions.
<PAGE>
THE INITIAL PROPERTIES
Certain information regarding each of the Initial Properties
is set forth below:
Theatre Metropolitan No. of No. of
Name Area Screens Seats
Grand 24 Dallas, TX 24 5,067
Mission Valley 20/2/ San Diego, CA 20 4,361
Promenade 16/3/ Los Angeles, CA 16 2,860
Ontario Mills 30 Los Angeles, CA 30 5,496
Lennox 24/2/ Columbus, OH 24 4,412
West Olive 16 St. Louis, MO 16 2,817
Studio 30 Houston, TX 30 6,032
Huebner Oaks 24 San Antonio, TX 24 4,400
First Colony 24/2/ Houston, TX 24 5,098/4/
Oak View 24/2/ Omaha, NE 24 5,098/4/
Leawood Town Center 20 Kansas City, MO/KS 20 2,995/4/
South Barrington 30/6/ Chicago, IL 30 6,210/4/
282 54,846
Building Anticipated
Theatre (gross Opening Ranking Lease
Name sq. ft.) Date /1/ Expiration
Grand 24 98,175 5/95 6 12/2010
Mission Valley
20/2/ 84,352 12/95 4 12/2010
Promenade 16/3/ 129,822 3/96 37 12/2010
Ontario Mills 30 131,534 12/96 11 12/2010
Lennox 24/2/ 98,261 12/96 13 12/2011
West Olive 16 60,418 4/97 N/A 12/2011
Studio 30 136,154 5/97 N/A 12/2011
Huebner Oaks 24 96,004 6/97 N/A 12/2011
First Colony 24/2/ 107,690 12/97/5/ N/A 12/2012
Oak View 24/2/ 107,402 12/97/5/ N/A 12/2012
Leawood Town
Center 20 75,224 1/98/5/ N/A 1/2013
South Barrington
30/6/ 130,891 2/98/5/ N/A 2/2013
1,255,927
/1/ Among United States theatres based on ticket revenues for
the period from January 1 through October 16, 1997 according
to Entertainment Data Incorporated. No ranking is provided
for those theatres that were not operational during the
entire period.
/2/ Third party ground leased Property. Although the Company
will become the tenant under the ground leases and assume
responsibility for performing the obligations thereunder in
the Formation Transactions, pursuant to the Leases AMC will
have responsibility for performing the Company's obligations
under such ground leases.
/3/ The theatre occupies 60,000 square feet. See "--Initial
Property Descriptions--Promenade 16."
/4/ Estimate based on construction plans.
/5/ Anticipated opening date. The Company will pay the purchase
price and AMC will commence paying rent under the applicable
Lease with the Company on the date the Property is acquired
by the Company, which will occur on the earlier of the
actual opening date of the megaplex theatre and the first
day of the month following the anticipated opening date
indicated.
/6/ The Company will acquire one land parcel totaling
approximately 2.1 acres adjacent to this theatre if such
parcel is not under contract for sale or sold by AMC at the
time of the Formation Transactions. See "--Land Parcels."
The Company will not have the right to acquire other land
parcels adjacent to this theatre because of the uncertainty
of sewer capacity to serve such parcels.
The Initial Properties will be purchased from subsidiaries
of AMCE for an aggregate purchase price of approximately
$248.8 million in cash. The Company will lease the Initial
Properties to AMC pursuant to the Leases with initial terms
ranging from 13 to 15 years with aggregate initial annual rents
of approximately $26.1 million. Throughout the terms of the
Leases, annual rents will escalate by the Base Rent Escalation,
and Annual Percentage Rent on revenues in excess of a baseline
amount will be payable by AMC. The Leases may be extended upon
the same terms for four additional periods of five years at the
option of AMC. The initial annual rent for each Initial Property
will be (a) Grand 24 -- $2.0 million; (b) Mission Valley 20 --
$1.7 million; (c) Promenade 16 -- $3.0 million; (d) Ontario
Mills 30 -- <PAGE> $2.7 million; (e) Lennox 24 -- $1.4 million; (f) West
Olive 16 -- $1.9 million; (g) Studio 30 -- $2.8 million;
(h) Huebner Oaks 24 -- $1.8 million; (i) First Colony 24 --
$2.0 million; (j) Oak View 24 -- $1.8 million; (k) Leawood Town
Center 20 -- $1.7 million; and (l) South Barrington 30 --
$3.6 million. Total initial annual rent for the Initial
Properties will be approximately $26.1 million.
The purchase price for each Initial Property will equal the
cost to AMCE of developing and constructing such Property. See
"Risk Factors--Conflicts of Interest--Purchase Price of the
Properties." It is possible that if the Company were to have
obtained independent valuations or appraisals, the sum of the
values of the Initial Properties might have been greater or lower
than the sum of the values determined by the management of AMCE
and of the Company.
INITIAL PROPERTY DESCRIPTIONS
Set forth below are descriptions of the Initial Properties.
GRAND 24. The Grand 24 was the first megaplex theatre opened
by AMC in May 1995. It is a free-standing theatre located on a
21.2 acre site at 10110 Technology Boulevard East (in the
Stemmons Crossroads development, at the intersection of I-35 and
Northwest Highway) in Dallas, Texas. The theatre has 98,175
square feet and 5,067 seats. The theatre site includes a
2,600-space free parking area and tram service is provided to the
theatre. Its box office has 12 stations, and there are three
concessions stands with 21 total stations. Theatre amenities
include stadium AMC LoveSeat[Trademark] style seating, 46-inch
spacing between rows, SDDS[Trademark], TORUS[Trademark] Compound
Curved Screens, HITS[Trademark] and advance ticket purchase by
TeleTicket[Trademark]. Eight restaurants and clubs are located
near the theatre site. From January 1 through October 16, 1997,
the Grand 24 was the sixth highest grossing theatre in the United
States.
Based on the 1990 U.S. Census, there are approximately
460,000 people residing within seven miles of the Grand 24. The
Grand 24 site is subject to standard and customary utility and
other easements, certain covenants and restrictions and certain
reciprocal easements regarding access and the construction of a
pedestrian bridge linking the Grand 24 site to adjoining
properties.
MISSION VALLEY 20 . The Mission Valley 20 opened in
December 1995. It is located in the Mission Valley Center
shopping complex, on Interstate 8 at the Mission Center Road exit
in San Diego, California. The ground lease is for 77,000 square
feet, and the theatre has 84,352 square feet and 4,361 seats.
Free parking for patrons is available throughout the shopping
complex, including under the theatre and on the south side of the
shopping center. The theatre box office has 15 stations, and
there are two concessions stands with 34 total stations. Other
amenities include stadium AMC LoveSeat[Trademark] style seating,
46-inch spacing between rows, SDDS[Trademark], advance ticket
purchase by TeleTicket[Trademark], TORUS[Trademark] Compound
Curved Screens and HITS[Trademark]. From January 1 through
October 16, 1997, the Mission Valley 20 was the fourth highest
grossing theatre in the United States. The Company believes that
this theatre may be operated by AMC under the "Planet Movies by
AMC" name in the future.
The Mission Valley Center is a one-level outdoor mall with
1.3 million square feet on 48.1 acres. The Mission Valley Center
opened in 1961 with 100 shops, including the May Company and
Montgomery Wards Department Store. In 1975, the Mission Valley
Center expanded by adding Bullock's and 44,000 square feet of
specialty shops. In 1983, the Mission Valley Center also added 50
more specialty shops. Based on the 1990 U.S. Census, there are
approximately 490,000 people residing within five miles of the
Mission Valley 20. The ground-leased parcel for the Mission
Valley 20 site is subject to various reciprocal easements,
restrictions, covenants and other agreements for the operation of
the Mission Valley Center.
The Mission Valley 20 ground lease was entered into in 1994
and has a 30-year initial term expiring in March 2024, with two,
ten-year extension options exercisable by the tenant. Minimum
rent is $10 per square foot ($764,850 per annum) through year 11
of the lease, increasing by an amount equal to $2 per square foot
in year 12 and each five-year period thereafter to $18 per square
foot in year 27 of the ground lease. Minimum rent in the first
option period is $20 per square foot, and increases by an amount
equal <PAGE> to $2 per square foot at the commencement of each
successive option period. The ground lease also requires
percentage rent, commencing in year seven (2001), of 10% of gross
sales over specified breakpoints. During the first ten years of
the ground lease, the property may only operate as a theatre;
thereafter, with the consent of the landlord and the major
tenants of the shopping center, up to 25,000 square feet of the
property may be used to operate up to two retail businesses. The
tenant under the ground lease must obtain the landlord's consent
to its assignment of the ground lease to the Company and the
sublease back to AMC. Such ground lease will be assigned to the
Company as part of the Formation Transactions, and the Company
will assume responsibility for performing the obligations
thereunder. Pursuant to the Leases, all of the Company's
obligations under the ground lease, including rent payment
obligations, will be the responsibility of AMC.
PROMENADE 16. The Promenade 16 opened in March 1996. It is
located on a 6.2 acre site in The Promenade at Woodland Hills
shopping complex, at the intersection of 101 Freeway and Topanga
Canyon Boulevard in Woodland Hills, California. The building has
129,822 square feet, including the theatre that has 60,000 square
feet and 2,860 seats. Free parking is available in the shopping
complex parking lots located around the theatre and the mall. The
theatre box office has eight stations; in addition, there are
four self-service box offices outside the box office where
purchasers may purchase ticket or pick up "will-call" tickets.
The theatre has three concessions stands with 26 total stations.
Some concessions stations include pass-through concessions
service. Amenities include stadium AMC LoveSeat[Trademark] style
seating, 46-inch spacing between rows, SDDS[Trademark], advance
ticket purchase by TeleTicket[Trademark], TORUS[Trademark]
Compound Curved Screens and HITS[Trademark]. From January 1
through October 16, 1997, the Promenade 16 was the 37th highest
grossing theatre in the United States. The Company believes that
this theatre may be operated by AMC under the "Planet Movies by
AMC" name in the future. The Promenade 16 will represent
approximately 11.5% of the Company's pro forma total assets and
rental revenues. The Company expects that its federal tax basis
in the buildings and improvements on this property will be
$22.5 million, which will be depreciated using the straight-line
method over a 39-year period. The realty tax rate on this
property is 1.109% of assessed value, which amounted to realty
taxes for 1997 of $258,518.
The Promenade at Woodland Hills shopping complex is a
two-level, enclosed mall having 600,000 square feet of gross
leaseable area on 34 acres. The shopping complex opened in 1973
and was fully renovated in 1992. In addition to the AMC Promenade
16 theatre, the Promenade at Woodland Hills shopping complex is
anchored by a Macy's and Macy's Men's and Children's stores and
features 80 specialty shops and restaurants. Based on the 1990
U.S. Census, there are approximately 450,000 people residing
within seven miles of the Promenade 16. The Promenade 16 site is
subject to various reciprocal easements, restrictions, covenants
and other agreements for operation of the Promenade shopping
complex. An agreement with the developer of the shopping complex
contains a covenant to operate the theatre facility only as a
theatre for a period of 10 years, certain restrictions on the use
of the retail portions of the property and restrictions on the
transfer of the theatre facility. It further grants to the
developer of the shopping complex an option to purchase the
theatre facility if at least 35,000 square feet (or 10 screens)
of the facility is not operated as a theatre. AMC is currently
negotiating a renewal of its expired temporary certificate of
occupancy for this Property. The Promenade 16 site includes a
20,000 square foot food court, which includes 5,000 square feet
available for lease of which 3,700 square feet currently is
leased to six tenants. There is also 40,000 square feet of retail
space below the theatre that is currently vacant. AMC will lease
the entire site from the Company.
ONTARIO MILLS 30. The Ontario Mills 30 opened in
December 1996. It is located on a 14.7 acre site at the
intersection of 4th Street and Milliken Avenue in the Ontario
Mills Mall in Ontario, California. The theatre has 131,534 square
feet and 5,496 seats. Free parking is available to patrons in the
7,500-space Ontario Mills parking lots around the theatre and the
mall. The theatre has three box offices with a total of 15
stations, as well as two automated ticket dispensers for pick up
of TeleTicket[Trademark] purchases. There are three concessions
stands with a total of 42 stations, all of which feature
pass-through concessions <PAGE> service. Amenities include stadium AMC
LoveSeat[Trademark] style seating, 46-inch spacing between rows,
SDDS[Trademark], TORUS[Trademark] Compound Curved Screens,
HITS[Trademark], advance ticket purchase by
TeleTicket[Trademark], an Image Video Entertainment Wall which
plays continuous digitized images of coming attractions and
current releases, two arcade areas and a private room for party
rentals and events. From January 1 through October 16, 1997, the
Ontario Mills 30 was the eleventh highest grossing theatre in the
United States. The Company believes that this theatre may be
operated by AMC under the "Planet Movies by AMC" name in the
future. The Ontario Mills 30 will represent approximately 10.2%
of the Company's pro forma total assets and rental revenues. The
Company expects that its federal tax basis in the buildings and
improvements on this property will be $19.8 million, which will
be depreciated using the straight-line method over a 39-year
period. The realty tax rate on this property is 1.021% of
assessed value plus certain assessments, which amounted to realty
taxes for 1997 of $358,366.
The Ontario Mills Mall is a 1.7 million square foot mall
located on the northwest corner of the intersection of the
Interstate 10 and Interstate 15 freeways and is one of
California's largest outlet malls. The Ontario Mills 30 is the
Ontario Mills Mall's key entertainment anchor of a total of 13
anchors including Clearinghouse by Saks Fifth Avenue, J.C. Penney
Outlet, Sports Authority, Marshall's, Burlington Coat Factory and
Bed, Bath and Beyond. Other entertainment stores and attractions
include Sega Gameworks, Wolfgang Puck Cafe, Virgin Megastore and
the Warner Bros. Studio Store Outlet. Based on the 1990 U.S.
Census, there are approximately 470,000 people residing within
seven miles of the Ontario Mills 30. The Ontario Mills 30 site is
subject to standard and customary utility and other easements and
certain reciprocal easements, covenants, conditions and
restrictions regarding access, parking, passage, signs and
utility lines over, and the construction of the common areas of
the Ontario Mills Mall. An agreement with the developer contains
a covenant in favor of the developer of the Ontario Mills Mall
and its successors and assigns to operate the AMC facility only
as a theatre for a period of 10 years (subject to limited
exceptions) and provides to such developer an option to purchase
the property if it is not used as a theatre for a term of 40
years after the expiration of the initial 10 year operating
covenant period. For 15 years from the date AMC acquired the
property, the developer has a right of first offer and a right of
first refusal with respect to any future sale or lease by the
Company of substantially all of the property. The price to be
paid for the property pursuant to such purchase option is its
fair market value as determined by the procedure set forth in
such agreement.
LENNOX 24. The Lennox 24 opened in December 1996. It is
located on a 10.6 acre ground leased site in the Lennox Town
Center shopping complex on Olentangy River Road and Route 315 in
Columbus, Ohio. The theatre has 98,261 square feet and 4,412
seats. Approximately 800 parking spaces are allocated
specifically for AMC's patrons, and an additional 662 spaces are
available within the Lennox Town Center; 1,000 additional spaces
will be available when the Lennox Town Center is completely
finished. Theatre box offices feature a total of 14 stations, and
there are two "will-call" stations for advance ticket sales and
pickups. A guest services kiosk allows patrons to make special
arrangements, as well as purchase gift certificates and offers
other services to moviegoers. The theatre has three concessions
stands with 38 total stations, some of which feature pass-through
concessions service. Amenities include stadium AMC
LoveSeat[Trademark] style seating, 46-inch spacing between rows,
SDDS[Trademark], advance ticket purchase by
TeleTicket[Trademark], TORUS[Trademark] Compound Curved Screens
and HITS[Trademark]. From January 1 through October 16, 1997, the
Lennox 24 was the thirteenth highest grossing theatre in the
United States.
The Lennox Town Center is a regional shopping center with
320,000 square feet of leaseable area on 37.5 acres. It is
located approximately four miles northeast of downtown Columbus,
and is near Ohio State University which is just across the
Olentangy River to the east. Lennox Town Center's anchor tenants
include Target and Barnes and Noble. Based on the 1990 U.S.
Census, there are approximately 525,000 people residing within
seven miles of the Lennox 24. The Lennox 24 is subject to
standard and customary utility and other easements.
<PAGE>
The Lennox 24 ground lease was entered into in 1995 and has
a 25-year initial term ending in the year 2020, with ten,
five-year renewal options exercisable by the tenant. Annual
minimum rent is $537,578 through year five of the ground lease,
increasing by $50,000 per annum in year six, $55,000 per annum in
year 11, $61,000 per annum in year 16 and $66,000 per annum in
year 21. Annual rentals during the option periods commence at
$805,860 during the first period and increase to $1,900,000 per
annum in the tenth option period. During the initial term, there
is also percentage rent due in an amount per annum equal to two
percent of gross sales over a specified breakpoint in each lease
year. The property must be operated as a theatre through year
five of the ground lease, but thereafter may be operated for any
lawful retail, service or entertainment use (subject to rights of
exclusivity granted other tenants). Such ground lease will be
assigned to the Company as part of the Formation Transactions,
and the Company will assume responsibility for performing the
obligations thereunder. Pursuant to the Leases, all of the
Company's obligations under the ground lease, including rent
payment obligations, will be the responsibility of AMC.
WEST OLIVE 16. The West Olive 16 opened in April 1997. It
is a free-standing theatre located on an 8.02 acre site in a
multi-use development at the intersection of Olive and Interstate
270 in St. Louis, Missouri. The theatre has 60,418 square feet
and 2,817 seats. Free parking is available around the theatre in
1,850 spaces. The theatre has two box offices with a total of
eight stations and two concessions stands with a total of 24
stations. Some concessions stations include pass-through
concessions service. Other amenities include stadium AMC
LoveSeat[Trademark] style seating, 46-inch spacing between rows,
SDDS[Trademark], TORUS[Trademark] Compound Curved Screens and
HITS[Trademark]. For the period through October 16, 1997 that the
West Olive 16 has been open, it was the 93rd highest grossing
theatre in the United States. Based on the 1990 U.S. Census,
there are approximately 330,000 people residing within seven
miles of the West Olive 16. The West Olive 16 is subject to
standard and customary utility and other easements.
STUDIO 30. The Studio 30 opened in May 1997. It is a
free-standing theatre located on a 21.56 acre site adjacent to a
Wal-Mart and a Sam's Club store located on the southeast corner
of Westheimer and Dunvale in Houston, Texas. The theatre has
136,154 square feet and 6,032 seats. Free parking is available to
patrons on the project site in 2,000 spaces around the theatre.
The theatre has three box offices with a total of 15 stations and
three concessions stands with a total of 45 stations. All of the
concessions stands include pass-through concessions service.
Other amenities include stadium AMC LoveSeat[Trademark] style
seating, 46-inch spacing between rows, SDDS[Trademark],
TORUS[Trademark] Compound Curved Screens and HITS[Trademark]. For
the period through October 16, 1997 that the Studio 30 has been
open, it was the 86th highest grossing theatre in the United
States. The Company believes that this theatre may be operated by
AMC under the "Planet Movies by AMC" name in the future. The
Studio 30 will represent approximately 10.6% of the Company's pro
forma total assets and rental revenues. The Company expects that
its federal tax basis in the buildings and improvements on this
property will be $20.4 million, which will be depreciated using
the straight-line method over a 39-year period. The realty tax
rate (including certain assessments) on this property is 2.738%
of assessed value, which amounted to realty taxes for 1997 of
$413,762. Based on the 1990 U.S. Census, there are approximately
760,000 people residing within seven miles of the Studio 30. The
Studio 30 site is subject to standard utility easements and City
of Houston general ordinances with respect to platting and
building set-back lines.
HUEBNER OAKS 24. The Huebner Oaks 24 opened in June 1997.
It is a free-standing theatre on a 13.56 acre site and serves as
an anchor in a strip shopping center having other national
tenants including Bed, Bath and Beyond, Old Navy, Pier 1 Imports
and Borders Books. The site is located at the intersection of
Huebner Road and Interstate 10 in San Antonio, Texas. The theatre
has 96,004 square feet and 4,400 seats. Parking for patrons is
available in over 2,000 spaces located around the theatre
building and 1,000 spaces in the shopping mall adjacent to the
theatre property pursuant to a reciprocal easement agreement. The
theatre has three box offices with a total of 15 stations and
three concessions stands with a total of 43 stations. All of the
concessions stands include pass-through concessions service.
Other theatre amenities include stadium AMC LoveSeat[Trademark]
style seating, 46-inch spacing <PAGE> between rows, SDDS[Trademark],
TORUS[Trademark] Compound Curved Screens and HITS[Trademark]. For
the period through October 16, 1997 that the Huebner Oaks 24 has
been open, it was the 83rd highest grossing theatre in the United
States. Based on the 1990 U.S. Census, there are approximately
440,000 people residing within seven miles of the Huebner Oaks
24. The Huebner Oaks 24 is subject to standard and customary
utility and other easements.
FIRST COLONY 24. The First Colony 24 is expected to open in
December 1997. The free-standing theatre will be located on a
26.5 acre ground-leased site across the ring road from the First
Colony Mall in Suger Land, Texas, a suburb of Houston. The
theatre will have 107,690 square feet and 5,098 seats. The site
will include 2,200 parking spaces. The theatre will have two box
offices with a total of 16 stations. There will be three
concessions stands with a total of 40 stations, all of which will
feature pass-through concessions service. Other amenities will
include stadium AMC LoveSeat[Trademark] style seating, 46-inch
spacing between rows, SDDS[Trademark], TORUS[Trademark] Compound
Curved Screens and HITS[Trademark].
The First Colony Mall is a regional mall with more than
one million square feet of retail space located at the Southwest
(US 59) and South Beltway 6 freeways. The mall is anchored by
Foley's, Dillard's, J.C. Penney and Mervyn's. Based on the 1990
U.S. Census, there are approximately 270,000 people residing
within seven miles of the First Colony 24. The First Colony 24
will be subject to standard and customary utility and other
easements.
The First Colony 24 ground lease was entered into in 1996
and has a 20-year initial term expiring in 2016, with six,
five-year renewal options exercisable by the tenant. Annual
minimum rent is $501,870 through year 10 of the ground lease,
$552,057 for years 11 through 15 of the ground lease and $607,263
for years 16 through 20 of the ground lease. Annual minimum rent
for each of the six, five-year renewal options is $667,989,
$734,788, $808,267, $889,094, $978,003 and $1,075,803,
respectively. In addition, there is also percentage rent due in
an amount per annum equal to three percent of gross receipts over
a specified breakpoint in each lease year. The property must be
operated as a theatre through year 10 of the ground lease, but
thereafter may be operated for any retail or entertainment use
(subject to limited exceptions). Such ground lease will be
assigned to the Company as part of the Formation Transactions and
the Company will assume responsibility for performing the
obligations thereunder. Pursuant to the Leases, all of the
Company's obligations under the ground lease, including rent
payment obligations, will be the responsibility of AMC.
Upon the occurrence of certain events, the ground lessor has
the right to repurchase the First Colony theatre in certain
events by paying to AMC its fair market value as determined by
the appraisal procedure set forth in the ground lease. Those
events include: tenant's request for a change in the use of the
premises, tenant's ceasing to operate in the premises for more
than 18 consecutive months, or entry by AMC into a "major
sublease" as defined in the ground lease after the expiration of
the operating covenant. Generally, the ground lessor may in its
sole discretion withhold consent to a subletting or assignment of
the ground lease except to an eligible transferee. The Company
believes that it and AMC are eligible transferees with respect to
the assignment and sublease of the ground lease but nevertheless
intends to seek consent from the ground lessor to such assignment
and sublease.
OAK VIEW 24. The Oak View 24 is anticipated to open in
December 1997. It will be a free-standing facility located on a
20.4 acre ground-leased parcel in the Oak View Plaza shopping
center at 144th and West Center Road, in Omaha, Nebraska. The
theatre will have 107,402 square feet and 5,098 seats. Free
parking will be available in 1,350 shopping center spaces. The
theatre will have three box offices with a total of 14 stations
and three concessions stands with a total of 40 stations. Some
concessions stations will include pass-through concessions
service. Other theatre amenities will include stadium AMC
LoveSeat[Trademark] style seating, 46-inch spacing between rows
and SDDS[Trademark]. Some auditoriums will feature
TORUS[Trademark] Compound Curved Screens and HITS[Trademark].
Oak View Plaza is a regional shopping complex located across
the street from Oak View Mall. Oak View Plaza's anchor tenants
include Kohl's, Barnes & Noble and Linens 'N' Things. Oak View
Mall's <PAGE> anchor tenants include Yonkers, DiIlard's, J.C. Penney and
Sears. Based on the 1990 U.S. Census, there are approximately
260,000 people residing within seven miles of the Oak View 24.
AMC's interest under its ground lease in the Oak View 24 property
is subject to standard and customary utility and other easements.
The Oak View 24 ground lease was entered into in 1996 and
has a 20-year initial term expiring in October 2016, with six,
five-year renewal options exercisable by the tenant. Fixed rental
under the lease is $425,000 annually through the third year,
increasing to $525,000 per annum in years four and five, then
increasing in increments of $50,000 per annum in years six, 11
and 16. Rent during the option periods is $675,000 per annum,
adjusted by changes in the consumer price index over the prior
term. There is no percentage rent. The premises may be used for a
theatre or any other lawful purpose. The tenant under the ground
lease has an option to purchase the land commencing in year four
of the ground lease at a price of $5,000,000, which purchase
price increases in increments of $500,000 in years six, 11 and 16
of the ground lease. Such ground lease will be assigned to the
Company as part of the Formation Transactions and the Company
will assume responsibility for performing the obligations under
the ground lease. Pursuant to the Leases, all of the Company's
obligations under the ground lease, including rent payment
obligations, will be the responsibility of AMC.
LEAWOOD TOWN CENTER 20. The Leawood Town Center 20 is
expected to open in January 1998. The free-standing theatre will
be located on an 8.4 acre site in the Leawood Town Center Plaza
shopping center in a Kansas suburb of Kansas City, Missouri. The
theatre will have 75,224 square feet and 2,995 seats. Parking
will be available in 3,300 parking spaces in lots around the mall
and on-site. The theatre will have one box office with a total of
12 stations as well as two automated ticket dispensers for
pick-up of TeleTicket[Trademark] purchases. There will be three
concessions stands with a total of 32 stations, all of which will
feature pass-through concessions service. Other amenities will
include stadium AMC LoveSeat[Trademark] style seating, 46-inch
spacing between rows, SDDS[Trademark], TORUS[Trademark] Compound
Curved Screens and HITS[Trademark].
The Leawood Town Center Plaza shopping center is located at
119th Street and Roe in Leawood, Kansas and is anchored by a
Jacobson's department store, a Galyans sporting goods store and
the AMC theatre. It also features other retailers such as
Williams Sonoma, Barnes & Noble, Pottery Barn, The Gap, Gap Kids
and The Limited. There are also 10 restaurants, including On The
Border and Houlihan's, located at the shopping center. Based on
the 1990 U.S. Census, there are approximately 310,000 people
residing within seven miles of the Leawood Town Center 20. The
Leawood Town Center 20 will be subject to standard and customary
utility and other easements.
SOUTH BARRINGTON 30. The South Barrington 30 is expected to
open in February 1998. It will be a free-standing theatre located
on a 25.3 acre site at the intersection of Interstate 90 and
Barrington Road in South Barrington, Illinois, a suburb of
Chicago. The theatre will have 130,891 square feet and 6,210
seats. The site will include 2,800 parking spaces. The theatre
will have two box offices with a total of 18 stations. There will
be three concessions stands with a total of 44 stations, all of
which will feature pass-through concessions service. Other
amenities will include stadium AMC LoveSeat[Trademark] style
seating, 46-inch spacing between rows, SDDS[Trademark],
TORUS[Trademark] Compound Curved Screens and HITS[Trademark]. The
South Barrington 30 will represent approximately 13.5% of the
Company's pro forma total assets and rental revenues. The
Company expects that its federal tax basis in the buildings and
improvements on this property will be $30.2 million, which will
be depreciated using the straight-line method over a 39-year
period. The realty tax rate on this property is 5.912%, which
will be multiplied by the assessed value of this property to
compute the annual realty taxes. Based on the 1990 U.S. Census,
there are approximately 400,000 people residing within seven
miles of the South Barrington 30. The South Barrington 30 will be
subject to standard and customary utility and other easements.
<PAGE>
THE OPTION PROPERTIES
Certain information regarding each of the Option Properties,
including the purchase price payable by the Company therefor, is
set forth below:
Estimated
Theatre Metropolitan No. of No. of
Name Area Screens Seats
Gulf Pointe 30/3//4/ Houston, TX 30 6,008
Cantera 30 /4/ Chicago, IL 30 6,210
Mesquite 30/3//4/ Dallas, TX 30 6,008
Hampton Town
Center 24/3/ Norfolk, VA 24 5,098
Livonia 20 Detroit, MI 20 4,056
134 27,380
Estimated
Building Anticipated Purchase
Theatre (gross Opening Price (in
Name sq. ft.) Date/1/ thousands)/2/
Gulf Pointe 30/3//4/ 130,891 12/97 $27,000
Cantera 30 /4/ 130,757 2/98 34,400
Mesquite 30/3//4/ 130,891 3/98 23,500
Hampton Town
Center 24/3/ 107,396 4/98 26,100
Livonia 20 85,688 8/98 27,500
585,623 $138,500
_______
/1/ If the Company acquires an Option Property, the Company will
pay the purchase price and AMC will commence paying rent
under the applicable Lease with the Company on the date such
Option Property is acquired by the Company, which will not
occur prior to the actual opening date of the megaplex
theatre.
/2/ Purchase prices are estimated but are not expected to
materially change. The actual purchase price for each Option
Property will equal the cost to AMC of developing and
constructing such Property at the time of acquisition by the
Company.
/3/ AMC currently leases such Properties from a third party
owner/lessor. The Company will have an option to acquire
such Properties from the owner/lessor. Such properties will
be acquired without representation or warranty by, or
recourse to, the owner/lessor and the Company will be
responsible for all transaction costs.
/4/ The Company will have the option to acquire the land parcels
adjacent to this theatre if such land parcels are not under
contract for sale or sold at the time of the related theatre
acquisition. See "--Land Parcels."
The Company will have options to purchase each Option
Property that may be exercised at any time during the 90-day
period following the actual opening date of the megaplex theatre
on such Option Property. After exercise of the option, the
Company is required to close the acquisition within the following
90 days. The exercise and closing dates may not be later than
October 20, and December 20, 1998, respectively, with respect to
the Option Properties currently leased from a third party
owner/lessor. The purchase price of each Option Property will be
equal to the cost to AMC of developing and constructing such
Property. The Company will lease to AMC the Option Properties, if
acquired, pursuant to Leases on substantially the same terms and
conditions as the Leases for the Initial Properties, including
the Base Rent Escalation and the Annual Percentage Rent. The
initial annual rental rate for each Option Property will be equal
to 10.5% of the purchase price. Using the 10.5% lease rate
calculation and the estimated purchase prices, the Company
believes that the initial annual rent for each Option Property,
if acquired, will be: (a) Gulf Pointe 30--$2.8 million;
(b) Cantera 30--$3.6 million; (c) Mesquite 30--$2.5 million;
(d) Hampton Town Center 24--$2.7 million; and (e) Livonia 20--
$2.9 million. Total initial annual rent for the Option
Properties, if acquired, will be approximately $14.5 million.
Because the Option Properties are currently under
construction by AMC, the cash consideration to be paid by the
Company for each of the Option Properties will equal the cost to
AMC of developing and constructing such Property. Independent
valuations were not obtained to determine the purchase price of
the Option Properties. See "Risk Factors--Conflicts of Interest--
Purchase Price of the Properties."
<PAGE>
OPTION PROPERTY DESCRIPTIONS
Set forth below are descriptions of the Option Properties.
GULF POINTE 30. The Gulf Pointe 30 is expected to open in
December 1997. It will be a free-standing theatre located on a 34
acre site at the Interstate 45 and South Beltway 8 freeways in
Houston, Texas. The theatre will have 130,891 square feet and
6,008 seats. The site will include 3,000 parking spaces. The
theatre will have two box offices with a total of 18 stations.
There will be three concessions stands with a total of 44
stations, all of which will feature pass-through concessions
service. Other amenities will include stadium AMC
LoveSeat[Trademark] style seating, 46-inch spacing between rows,
SDDS[Trademark], TORUS[Trademark] Compound Curved Screens and
HITS[Trademark].
AMC currently leases the Gulf Pointe 30 from a third party
owner/lessor. The Company's option to acquire such property will
be with the owner/lessor. Based on the 1990 U.S. Census, there
are approximately 295,000 people residing within seven miles of
the Gulf Pointe 30. The Gulf Pointe 30 will be subject to
standard and customary utility and other easements.
CANTERA 30. The Cantera 30 is expected to open in
February 1998. It will be a free-standing theatre located on a
42.3 acre site in Warrenville, Illinois, a suburb of Chicago. The
theatre will have 130,757 square feet and 6,210 seats. The site
will include 3,000 parking spaces. The theatre will have two box
offices with a total of 18 stations. There will be three
concessions stands with a total of 44 stations, all of which will
feature pass-through concessions service. Other amenities will
include stadium AMC LoveSeat[Trademark] style seating, 46-inch
spacing between rows, SDDS[Trademark], TORUS[Trademark] Compound
Curved Screens and HITS[Trademark].
The Cantera 30 will be part of a larger multi-use
development that will eventually consist of 4.7 million square
feet of office space, 3 million square feet of light industrial
space, 500 multi-family residential units, retail, hotel and
recreational areas. Based on the 1990 U.S. Census, there are
approximately 310,000 people residing within seven miles of the
Cantera 30. The Cantera 30 will be subject to standard and
customary utility and other easements.
MESQUITE 30. The Mesquite 30 is expected to open in
March 1998. It will be a free-standing theatre located on a 23.6
acre site at the intersection of Interstate 635 and US 80
freeways in Mesquite, Texas, a suburb of Dallas. The theatre will
have 130,891 square feet and 6,008 seats. The site will include
2,000 parking spaces. The theatre will have two box offices with
a total of 18 stations. There will be three concessions stands
with a total of 44 stations, all of which will feature
pass-through concessions service. Other amenities will include
stadium AMC LoveSeat[Trademark] style seating, 46-inch spacing
between rows, SDDS[Trademark], TORUS[Trademark] Compound Curved
Screens and HITS[Trademark].
AMC currently leases the Mesquite 30 from a third party
owner/lessor. The Company's option to acquire such property will
be with the owner/lessor. Based on the 1990 U.S. Census, there
are approximately 410,000 people residing within seven miles of
the Mesquite 30. The Mesquite 30 will be subject to standard and
customary utility and other easements.
HAMPTON TOWN CENTER 24. The Hampton Town Center 24 is
expected to open in April 1998. It will be a free-standing
theatre located on a 25 acre site in a shopping center at
Interstate 64 East, Big Bethel Road and Hampton Roads Center
Parkway in Hampton, Virginia, a suburb of Norfolk. The theatre
will have 107,396 square feet and 5,098 seats. The site will
include 2,400 parking spaces. The theatre will have two box
offices with a total of 16 stations. There will be three
concessions stands with a total of 40 stations, all of which will
feature pass-through concessions service. Other amenities will
include stadium AMC LoveSeat[Trademark] style seating, 46-inch
spacing between rows, SDDS[Trademark], TORUS[Trademark] Compound
Curved Screens and HITS[Trademark].
AMC currently leases the Hampton Town Center 24 from a third
party owner/lessor. The Company's option to acquire such property
will be with the owner/lessor. The shopping center adjacent to
the <PAGE> Hampton Town Center 24 will have a grocery store and large
local retailer as well as several restaurant and retail pads.
Based on the 1990 U.S. Census, there are approximately 260,000
people residing within seven miles of the Hampton Town Center 24.
The Hampton Town Center 24 will be subject to standard and
customary utility and other easements. The building permit for
the Hampton Town Center 24 may not have been issued in compliance
with local zoning regulations. AMC is in discussions with the
municipality to obtain a rezoning but no assurance can be made
that AMC will be successful in its efforts.
LIVONIA 20. The Livonia 20 is expected to open in
August 1998. It will be a free-standing theatre located on a 35.3
acre condominium subdivision developed as a shopping center in
Livonia, Michigan, a suburb of Detroit. The theatre will have
85,688 square feet and 4,056 seats. The site will include 2,200
parking spaces. The theatre will have one box office with a total
of 12 stations as well as two automated ticket dispensers for
pick-up of TeleTicket[Trademark] purchases. There will be three
concessions stands with a total of 28 stations, all of which will
feature pass-through concessions service. Other amenities will
include stadium AMC LoveSeat[Trademark] style seating, 46-inch
spacing between rows, SDDS[Trademark], TORUS[Trademark] Compound
Curved Screens and HITS[Trademark].
The shopping center will have three other anchor retailers
plus several restaurant/retail pads. It will be located at
Haggerty Road and Seven Mile Road, just off of Interstate 275/96.
Based on the 1990 U.S. Census, there are approximately 400,000
people residing within seven miles of the Livonia 20. The Livonia
20 will be subject to standard and customary utility and other
easements.
LAND PARCELS
Certain information regarding the land parcels adjacent to
certain of the Properties, including the purchase price payable
by the Company therefor, is set forth below:
Theatre Name Pad Land Purchase Price
(sq. ft.) (in thousands)
South Barrington 30(1) E 93,218 $1,056
Gulf Pointe 30(2) A 52,141 511
B 51,531 511
C 96,485 744
D/3/ 61,158 465
Mesquite 30(2) A-1 103,281 810
A-2 100,188 674
B 133,468 674
Cantera 30(2 B 77,101 1,012
C 54,014 1,100
D/3/ 65,340 1,012
E 85,813 1,056
973,738 $9,625
_______
/1/ Indicates land parcel is adjacent to this Initial Property.
/2/ Indicated land parcels are adjacent to this Option Property.
/3/ Indicates land parcels under contract to be sold. If such
land parcel is no longer under contract at the time of the
exercise by the Company of its option to purchase the
related theatre, the Company will have the option to
purchase such land parcel.
<PAGE>
At the time the Company exercises its option to acquire an
Option Property, it will have the option to acquire not less than
all of the land parcels adjacent to the theatre at such Property
that are not under contract for sale or sold for the purchase
prices indicated in the table above. The purchase price for each
land parcel was determined by management of both AMCE and the
Company based on an estimated market value for such parcel less
estimated marketing and selling costs. Independent valuations
were not obtained to determine the purchase price of the land
parcels. See "Risk Factors--Conflicts of Interest--Purchase Price
of the Properties." The Company's initial focus with respect to
the land parcels will be ground lease or build-to-suit
opportunities with entertainment and entertainment-related
operators that have significant market presence (primarily
restaurants). The Company does not anticipate leasing any of the
land parcels, if acquired, to AMCE or any of its subsidiaries or
to Planet Movies. AMCE may market and negotiate to sell any or
all of the land parcels relating to the Option Properties prior
to the exercise by the Company of its options to purchase the
Option Properties.
SOUTH BARRINGTON 30 LAND PARCEL. There is one adjacent land
parcel northeast of the South Barrington 30 totaling
approximately 2.1 acres that, if acquired, may be developed and
leased by the Company or sold to third parties for development as
a restaurant or retail site. The site plan includes a pedestrian
pathway linking the restaurant or retail store and the megaplex
theatre. There are additional land parcels adjacent to this
theatre that the Company will not have the right to acquire
because of the uncertainty of sewer capacity to serve such
parcels.
GULF POINTE 30 LAND PARCELS. There are four adjacent land
parcels east of the proposed site for the Gulf Pointe 30 totaling
approximately 6.0 acres that AMCE is expected to acquire. If
acquired by the Company, such parcels may be developed and leased
by the Company or sold to third parties for development as
restaurant or retail sites. AMC has entered into a contract to
sell one of the land parcels located at the proposed site, with a
pad of 9,200 square feet and 67 parking spaces, to Outback
Steakhouse. The land parcels will be subject to customary
reciprocal easements for ingress, egress and parking between each
of the land parcels and between the land parcels and the theatre
parcel, and restrictions relating to certain uses.
MESQUITE 30 LAND PARCELS. There are three adjacent land
parcels south of the proposed site for the Mesquite 30 totaling
approximately 7.7 acres that may be developed and leased by the
Company or sold to third parties for development as restaurant or
retail sites. AMC has entered into a contract to sell one of the
land parcels located at the proposed site. The land parcels will
be subject to customary reciprocal easements for ingress, egress
and parking between each of the land parcels and between the land
parcels and the theatre parcel, and restrictions relating to
certain uses.
CANTERA 30 LAND PARCELS. There are four adjacent land
parcels south of the proposed site for the Cantera 30 totaling
approximately 6.5 acres that may be developed and leased by the
Company or sold to third parties for development as restaurant or
retail sites. AMC has entered into a contract to sell one of the
land parcels located at the proposed site. The land parcels will
be subject to customary reciprocal easements for ingress, egress
and parking between each of the land parcels and between the land
parcels and the theatre parcel, and restrictions relating to
certain uses.
<PAGE>
LEASES
The following summary of the Leases between the Company and
AMC does not purport to be complete and is subject to and
qualified in its entirety by reference to the Leases, a form of
which is filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. Concurrently with the
conveyance by subsidiaries of AMCE of the Initial Properties to
the Company, the Company will lease each such property to AMC
pursuant to a Lease. The Company will lease to AMC the Option
Properties, if acquired, pursuant to Leases on substantially the
same terms and conditions as the Leases for the Initial
Properties, including the Base Rent Escalation and the Annual
Percentage Rent. The land parcels related to the Properties, if
acquired, and any additional properties acquired (other than the
Initial Properties and, if acquired, the Option Properties) would
be leased pursuant to such terms and conditions as may be agreed
upon between the Company and a lessee at the time of such
acquisitions, and such terms and conditions may vary from the
terms and conditions of the Leases described herein.
The Company's interest in each Property includes the land,
buildings and improvements, related easements and rights and
fixtures thereon. The Company will not own or lease any personal
property, furniture or equipment at any Property following the
Formation Transactions, all of which will be owned, or leased
from third parties, by AMC.
AMCE will guarantee AMC's obligations under each Lease. The
Company will have general recourse to AMC under the Leases and to
AMCE under its guarantee of AMC's obligations under the Leases,
but AMC's payment obligations under such Leases and AMCE's
obligations under its guarantee will not be secured by any assets
of AMC or AMCE other than as described under "--Assignment and
Subletting." Because AMCE's Credit Facility may be secured by a
pledge of the stock of AMC and other subsidiaries and of notes
evidencing intercompany debt of such subsidiaries to AMCE, in the
event of bankruptcy or other winding up of AMCE, the assets of
such subsidiaries or proceeds from the sale of stock of such
subsidiaries may first be applied to AMCE's obligations under the
AMCE Credit Facility before being available to satisfy its
obligations under its guarantee of the Leases.
LEASE TERM. Each Property will be leased to AMC under a
Lease that will have a Fixed Term ranging from 13 to 15 years. In
addition, AMC will have options to extend the term of each Lease
for four five-year Extended Terms.
USE OF THE PROPERTIES. Each Lease generally will require
the Property to be continuously operated, until the 10th
anniversary of the commencement of the Lease, only as a theatre
and auditorium for presentation of motion pictures, telecasts and
other audio-visual presentations, and for meetings and other
public presentations and entertainment and other activities
customarily associated with or incidental to the operation of a
movie theatre, including operation of games and other amusement
devices, sale or rental of entertainment-related merchandise and
sale of food, beverages and other goods and wares. Following the
10th anniversary of the commencement of the Lease, AMC or any
permitted assignee will be permitted to operate each Property for
any lawful purpose, provided that AMC or such assignee must
obtain the Company's prior approval if such use would have the
effect of causing all or a portion of the amount received or
accrued by the Company from such Property to be treated as other
than "rents from real property" within the meaning of Section
856(d) of the Code. The Leases will generally require that AMC or
any permitted assignee operate the Properties in an efficient and
professional manner.
AMOUNTS PAYABLE UNDER THE LEASES; NET PROVISIONS. During
the Fixed Term and the Extended Terms, AMC will pay annual base
rent ("Annual Base Rent"), which will be payable in monthly
installments. Annual Base Rent for each Property will be
increased each year by the annual percentage increase in the CPI,
not to exceed 2%, times the Annual Base Rent applicable to that
Property for the preceding year. In addition, AMC will pay
percentage rent equal to the sum of 6% (the "Annual Percentage
Rate") of Gross Receipts in excess of a baseline amount ("Annual
Percentage Rent"). "Gross Receipts" with respect to a particular
Property generally means the receipts from the sale of theatre
admission tickets and concessions received by AMC in or from the
Property during each lease year, with certain deductions and
exceptions. The baseline amount is generally an amount equal to
the <PAGE> quotient obtained by dividing the Annual Base Rent payable
for a lease year by the Annual Percentage Rate. The Company does
not anticipate receiving any Annual Percentage Rent under the
Leases for at least five years following the Formation
Transactions.
Notwithstanding the foregoing, the Leases provide for a
recalculation of Percentage Rent and a redefinition of Gross
Receipts during any period that a Property is not used for
theatre uses to reflect a market percentage rent based on such
use.
Each Lease is what is commonly referred to as a "triple net"
lease, under which AMC is required to pay thereunder Annual Base
Rent, Annual Percentage Rent and substantially all expenses
associated with operation of the Properties. Such expenses
include all taxes, assessments and levies, excises, fees, and all
other governmental charges with respect to each Property, and all
charges for insurance, utilities, service and maintenance,
including, without limitation, electricity, telephone, trash
disposal, gas, oil, water, sewer, communication and all other
utilities used in each Property, and any ground lease payments.
AMC will generally be obligated to comply with all laws,
contracts, covenants and restrictions affecting a Property and to
perform all of the Company's obligations under any ground lease
affecting a Property.
AMC'S RIGHT OF FIRST REFUSAL AND FIRST OFFER. Pursuant to
each Lease, AMC will have a right of first refusal in the event
the Company obtains an acceptable third party offer to acquire
any interest in any Property or in any entertainment or
entertainment-related property acquired or developed by the
Company and operated by AMC following the Formation Transactions
(each a "Future Property"). Pursuant to such right, prior to
selling any interest in any Property or Future Property, the
Company must first offer to sell such Property or Future Property
to AMC on the same terms and conditions contained in such third
party offer. Such right of first refusal must be exercised at
least 5 days prior to the date the offer by the potential third
party purchaser expires, but not less than 10 business days after
the Company notifies AMC of the terms of such potential sale. If
AMC declines to purchase such Property or Future Property on such
terms and conditions, the Company will be free to sell such
Property or Future Property for a specified period of time at a
price at least equal to the price offered to AMC and on terms and
conditions substantially consistent with those offered to AMC.
Pursuant to each Lease, AMC will also have a right of first
offer, which provides that if the Company desires to sell any
interest in any Property, the Company must notify AMC and AMC
will have the right to make an offer to acquire such property
within a specified period of time. If AMC declines to make an
offer, the Company will be free to sell such Property for a
specified period of time. If AMC makes an offer but the Company
declines to sell such Property to AMC on the terms and conditions
contained in such offer, the Company will be restricted from
selling such Property for a specified period of time except upon
terms and conditions and at a price more favorable to the Company
than those offered by AMC. AMC will have a similar right of first
offer if, upon expiration of the Fixed Term and any Extended
Term, the Company seeks to lease a Property for use as a theatre
at a rate less than the amount then payable under the Lease.
MAINTENANCE, MODIFICATION AND CAPITAL ADDITIONS. AMC will,
at its sole cost and expense, maintain each Property in good
order, repair and appearance and will make structural and
non-structural, interior and exterior, foreseen and unforeseen,
and ordinary and extraordinary repairs which may be necessary and
appropriate to keep such Property in good order, repair and
appearance (excluding ordinary wear and tear). The Company
generally will not be required to build or rebuild any
improvements to any Property, or to make any repairs,
replacements, alterations, restorations or renewals to any
Property, except in connection with certain uninsured losses or
takings. In the event that the Company elects to make capital
improvements on a Property, the Company will generally condition
such election on an increase in Annual Base Rent under the Lease
with respect to such Property to reflect such expenditures.
AMC, at its sole cost and expense, may make certain
alterations, additions, changes and/or improvements to each
Property without the prior written consent of the Company,
provided that the value and primary intended use of such Property
is not impaired. All machinery, equipment, furniture, <PAGE> furnishings
and other personal property installed at the expense of AMC on
any Property, will remain the property of AMC and may be removed
by AMC at the expiration or earlier termination of the Lease.
INSURANCE. Each Lease provides that AMC will maintain
insurance on each Property under AMC's insurance policies
providing for the following coverages in such amounts as are or
shall customarily be insured against with respect to properties
similar to the Properties, including: (i) fire, vandalism and
malicious mischief, extended coverage perils and all physical
loss perils, (ii) commercial general public liability (including
personal injury and property damage), (iii) flood (when the
Property is located in whole or in material part in a designated
flood plain area), earthquake and other similar hazards as may be
customary for comparable properties in the area, (iv) worker's
compensation and (v) such other insurance as the Company or any
holder of a mortgage, deed of trust or other security agreement
on such Property (a "Company Mortgagee") may reasonably require,
which at the time is usual and commonly obtained on commercially
reasonable terms in connection with properties similar in type of
building size and use to the Property and located in the
geographic area where the Property is located. The foregoing
insurance policies will name the Company and any Company
Mortgagee as additional insureds or loss payees, as applicable.
The deductibles for such insurance will be in such amounts as are
common to properties similar to the Properties. The amount of
such insurance with respect to any Property that is self-retained
by AMC will not exceed 1% of AMCE's consolidated net worth.
ASSIGNMENT AND SUBLETTING. The Leases provide that AMC may,
without the prior written consent of the Company, assign any
Lease or sublease any Property in whole or in part; provided that
each sublease or assignment shall expressly be made subject and
subordinate to the provisions of such Lease; and, provided that,
such assignee or sublessee assumes all of AMC's obligations under
the Lease; and, provided further that, no assignment or sublease
shall impose any obligations on the Company, or modify or limit
any right or power of the Company under the Lease. The Leases
further provide that no assignment will in any way impair the
continuing primary liability of AMC under, or AMCE as guarantor
of AMC's obligations under, the Leases. Notwithstanding the
previous sentence, AMC will be released of its primary liability
under, and AMCE will be released as the guarantor of AMC's
obligations under, a particular Lease (i) if the Company so
consents or (ii) following the fifth anniversary of the
commencement of such Lease, the assignee of a Lease has a minimum
net book value of at least $100 million and other specified
conditions are met, including the requirement that the assignee
assumes all of AMC's obligations under the Lease or (iii) upon
the occurrence of certain conditions following the renewal of a
Lease.
AMC will, without the Company's prior approval, be permitted
to sublease portions of any Property to concessionaires or
licensees to: (i) operate games or other amusement devices;
(ii) sell food, beverages and refreshments; (iii) sell or rent
video cassettes and discs; (iv) sell records, compact discs,
books, magazines, toys and novelties related to the movie
industry; and (v) sell other goods, wares, merchandise and
services customarily associated with or incidental to the
operation of each Property. Each sublease will be subject and
subordinate to the provisions of the Lease relating to the
subject Property. The sublease will not affect or reduce any of
the obligations of AMC under, or AMCE as guarantor of AMC's
obligations under, the relevant Lease, nor will the sublease
impose any additional obligations on the Company. AMC will,
within 10 days after the execution and delivery of any sublease,
deliver a duplicate original thereof to the Company. AMC will
need the Company's prior approval before entering into any
sublease, license agreement or other arrangement which would have
the effect of causing all or a portion of the amount received or
accrued by the Company under the Leases to be treated as other
than "rents from real property" within the meaning of Section
856(d) of the Code.
As security for performance of its obligations under each
Lease, AMC grants, conveys and assigns to the Company all right,
title and interest of AMC in and to all subleases entered into
for any or all of any Property, and all extensions, modifications
and renewals thereof and all rents, issues and profits therefrom.
The Company grants AMC a license to collect and enjoy all rents
and other sums of money payable under any such sublease;
provided, however, that the Company will have the absolute right
at <PAGE> any time after the occurrence of an Event of Default (as
hereinafter defined) upon notice to AMC and any subtenants to
revoke said sublease or license and to collect such rents and
sums of money and to retain the same.
DAMAGE TO, OR CONDEMNATION OF, A PROPERTY. In the event of
any insurable damage or destruction to any Property, AMC has the
obligation to repair or restore the same at AMC's expense (to the
extent then permitted by law and to the extent of available
insurance proceeds plus any deductible and self insured amounts),
with the Annual Base Rent, real estate taxes and other
impositions on the particular Property being proportionately
abated during the time of restoration, but only to the extent of
any rental interruption insurance proceeds actually received by
the Company. The Company has the obligation to make all insurance
proceeds available as a result of such damage or destruction to
AMC for restoration. If any Property is damaged by an insurable
event to such an extent that the cost of restoration would exceed
50% of the cost to completely replace the theatre building on
such Property at the time of such damage, and if AMC has fully
complied with the insurance obligations with respect to such
Property (including maintaining insurance against loss of rents),
AMC may terminate the Lease of that Property. With respect to an
insurable event, AMC will be obligated to turn over all insurance
proceeds to the Company with respect to such Property, together
with an amount equal to the difference, if any, between the
amount of such insurance proceeds and the net book value of the
damaged property, as reflected on the Company's financial
statements on the date of damage. Under certain other
circumstances following damage to a Property AMC may terminate
the Lease with respect to that Property.
In the event of any uninsurable damage or destruction to any
Property, AMC may have, under certain circumstances, a right to
terminate the respective Lease and, alternatively, the Company
may have a duty to restore the Property.
In the event of a condemnation or taking of a material part
of any Property (meaning any material part of the theatre
building or a specified percentage of parking spaces servicing
such Property) AMC shall have the option of terminating the Lease
with respect to such Property if exercised within a specified
time period following such taking. In such event, the total
condemnation award shall be payable to the Company, except that
AMC may recover the value of its property, if taken, so long as
the amount of the award paid to the Company is equal to the net
book value of the Property taken, as reflected on the Company's
financial statements on the date of the condemnation.
INDEMNIFICATION GENERALLY. Under each Lease, AMC
indemnifies, and is obligated to save harmless, the Company
generally from and against liabilities, costs and expenses
(including reasonable attorneys' fees and expenses) and actual or
consequential damages imposed upon or asserted against the
Company as owner of the applicable Property on account of, among
other things, (i) accident, injury to or death of a person or
loss of or damage to property on or about the Property (unless
caused by the willful or negligent act or omission by the
Company), (ii) use, misuse, non-use, condition, maintenance or
repair by or on behalf of AMC of the Property, (iii) impositions
(which are the obligations of AMC to pay pursuant to the
applicable provisions of such Lease or any sublease),
(iv) failure on the part of AMC to perform or comply with any of
the terms of the Lease or any sublease, (v) liability the Company
may incur or suffer as a result of any permitted contest by AMC
under any Lease and (vi) failure by AMC to comply with any laws
(including the ADA) affecting the Property. Under each Lease, the
Company indemnifies, and is obligated to save harmless, AMC
generally from and against liabilities, costs and expenses
(including reasonable attorneys' fees) imposed upon or asserted
against AMC as a result of the Company's willful or negligent act
or omission.
ENVIRONMENTAL MATTERS. Each Lease provides for various
representations and warranties by AMC relating to environmental
matters with respect to each Property. Each Lease requires
(i) AMC to indemnify and hold harmless the Company and any holder
of a mortgage, deed of trust or other security agreement on a
Property from and against all liabilities, costs and expenses
imposed upon or asserted against the Company or the Property on
account of any federal, state or local law, ordinance,
regulation, <PAGE> order or decree relating to the protection of human
health or the environment in respect of the Property which
liability arises as a result of any event or occurrence during
the period when AMC or any of its affiliates was an owner of the
Property or a tenant pursuant to a ground lease or is an obligor
under the Lease and which does not arise as a result of the
actions or negligence of the Company or its agents or invitees,
and (ii) the Company to indemnify and hold AMC harmless from and
against all liabilities, costs and expenses imposed upon or
asserted against AMC or the Property on account of any federal,
state or local law, ordinance, regulation, order or decree
relating to the protection of human health or the environment in
respect of the Property which liability arises as a result of the
actions or negligence of the Company or its agents or invitees.
EVENTS OF DEFAULT. An "Event of Default" will be deemed to
have occurred under a Lease if AMC fails to perform any
non-monetary covenant and does not diligently undertake to cure
the same after 30 days' notice from the Company; if the interest
of AMC in any Property is levied upon or attached and such levy
or attachment is not discharged in a specified period of time; or
if any representation or warranty of AMC is materially incorrect.
An "Event of Default" also will be deemed to have occurred under
any of the Leases and, prior to the Cross-Default Termination
Date, all of the Leases if AMC fails to pay any rent within 15
days after written notice of non-payment from the Company, if any
bankruptcy or insolvency proceedings are instituted by or against
AMCE or AMC and, if against AMCE or AMC, they are not dismissed
within 90 days or if AMC fails to continuously operate a Property
for a permitted use. "Cross-Default Termination Date" means the
earlier to occur of (i) the date AMCE's senior long-term debt
obligations are rated, or AMCE's corporate credit rating is,
investment grade by either Standard & Poor's Corporation or
Moody's Investors Service, Inc., (ii) AMC's rent payments
represent less than 50% of the Company's rental income for any
fiscal quarter or (iii) the expiration of a Fixed Term with
respect to a Lease. The Company's right to exercise its remedies
in the event of certain non-monetary and non-bankruptcy related
defaults may be stayed if AMC disputes any such default.
In the event of any Event of Default referable to a specific
Property, the Company may evict AMC from such Property and either
terminate the Lease or re-let the Property. In either event, AMC
shall remain responsible for the rents for such Property for the
remainder period of the term in excess of rents received by the
Company from any successor occupant. In addition, the Company may
exercise any other rights that it may have under law or under the
Leases.
TERMINATION BY AMC. The Leases grant to AMC certain limited
rights to terminate the Lease with respect to a particular
Property or Properties upon a determination by AMC, reasonably
exercised, that such Property has become economically obsolete
due to competition or circumstances relating to the property
adjacent to such Property. Upon such termination, AMC will be
obligated to pay the Company the greater of its net book value
and its appraised value based on the capitalized value of AMC's
remaining rental payments under the Leases, assuming the Leases
remained in place during the applicable Fixed Term or Extended
Term. The appraised value of such Property shall be determined by
an independent appraiser selected by AMC and the Company as more
fully described in the Lease. The Leases also grant to AMC
certain limited rights to terminate the Lease with respect to a
certain Property if any law prohibits the use of AMC's theatre
facility as permitted under the Leases.
LIMITS ON COMPETITION BY THE COMPANY. Under the Leases, AMC
is entitled to a reduction in rent in certain circumstances in
the event the Company owns a theatre property within 500 feet of
the AMC-leased property. Further, the Company is generally
prohibited from selling certain items sold in theatre concession
stands within 150 feet of the AMC-leased property.
Each Lease will be governed by and construed in accordance
with the law of the state in which the related Property is
situated (but not including such state's conflict of laws rules).
None of the agreements entered into by AMC in connection with the
Formation Transactions prohibits or otherwise restricts the
Company's ability to lease properties to parties (domestic or
foreign) other than AMC.
<PAGE>
THE FORMATION TRANSACTIONS
Following the closing of the Offering, the Company and AMCE
will engage in the Formation Transactions, which are designed to
consolidate the ownership interests in the Initial Properties in
the Company, to facilitate the Offering and to enable the Company
to qualify as a REIT for federal income tax purposes commencing
with its taxable year ending December 31, 1997. None of such
transactions is expected to occur unless all such transactions
occur. These transactions include the following:
. The Company, which was formed as a Maryland real estate
investment trust on August 22, 1997, will sell
13,800,000 Shares in the Offering (including 120,000
Shares to certain executive officers of the Company)
for net proceeds of approximately $254.8 million after
deduction of the estimated underwriting discount and
offering expenses (assuming an initial public offering
price of $20.00 per Share);
. The Company will use the net proceeds of the Offering
to acquire the Initial Properties from AMC for an
aggregate purchase price of approximately
$248.8 million payable in cash;
. The Company will lease the Initial Properties to AMC,
pursuant to the Leases, for initial terms ranging from
13 to 15 years. Each Lease may be extended upon the
same terms and conditions for four five-year renewal
terms each at the option of AMC. Pursuant to the
Leases, the Company will grant to AMC a right of first
refusal and first offer to acquire any Property or any
interest in an entertainment or entertainment-related
property acquired or developed by the Company and
operated by AMC;
. The Company will enter into the Option Agreements with
AMCE and certain of its subsidiaries and the current
owner/lessor of certain Properties pursuant to which
the Company will be granted the option to acquire any
or all of the Option Properties for an aggregate
estimated purchase price of $138.5 million for a period
of 90 days following the actual opening date of the
megaplex theatre on such Option Properties. If
acquired, the Option Properties will be leased to AMC
pursuant to Leases on substantially the same terms and
conditions as the Leases to the Initial Properties.
. The Company will acquire a land parcel adjacent to one
of the Initial Properties and will have options to
acquire land parcels adjacent to three of the Option
Properties, if not under contract for sale or sold at
the time of the related theatre acquisition, for an
aggregate purchase price of $9.6 million.
. The Company will enter into the AMCE Right to Purchase
Agreement pursuant to which AMCE will grant the Company
a right of first refusal and first offer to purchase
and lease back to AMC, any megaplex theatre property
acquired or developed and owned (or ground-leased) by
AMCE or its subsidiaries, exercisable for a period of
five years following the closing of the Offering upon
AMCE's intended disposition of such property. The
purchase price and the initial annual rental rate for
properties acquired will be determined through the
right of first refusal and first offer process at the
time of such acquisition and lease back;
. The Company will enter into the $200 million Bank
Credit Facility following the Formation Transactions;
and
. The Company will enter into employment agreements with
certain of the Company's executive officers, including
Robert L. Harris, the President and Chief Development
Officer of the Company, and David M. Brain, the Chief
Financial Officer of the Company.
BENEFITS TO THE COMPANY AND ITS OFFICERS AND TRUSTEES
The benefits of the Formation Transactions to the Company
and its officers and trustees include:
. The ability to access public capital markets;
<PAGE>
. The creation of an entity which, through its
distributions to shareholders, is able to reduce or
avoid the incurrence of federal income tax, allowing
its shareholders to participate in real estate
investments without the "double taxation" of income
that generally results from an investment in a regular
corporation;
. The ability of the Company to take advantage of
acquisition and development opportunities through its
strong capital base;
. The Company will enter into employment agreements with
Robert L. Harris and David M. Brain providing for
annual initial compensation of $225,000 and $175,000,
respectively, and signing bonuses upon consummation of
the Formation Transactions of $40,000 and $30,000,
respectively;
. Robert L. Harris, the President and Chief Development
Officer of the Company, will purchase 80,000 Shares at
the initial public offering price pursuant to the Share
Purchase Program and will be granted 40,000 restricted
Shares pursuant to the Restricted Share Program and
options to purchase 40,000 Shares pursuant to the Share
Option Program. David M. Brain, the Chief Financial
Officer of the Company, will purchase 40,000 Shares at
the initial public offering price pursuant to the Share
Purchase Program and will be granted 20,000 restricted
Shares pursuant to the Restricted Share Program and
options to purchase 20,000 Shares pursuant to the Share
Option Program; and
. Each Non-Employee Trustee (other than the Chairman of
the Board of Trustees) will receive options to acquire
10,000 Shares at the initial public offering price.
Such options will vest immediately upon the date of
grant.
BENEFITS TO AMCE
The benefits of the Formation Transactions to AMCE and its
subsidiaries include:
. AMCE will receive approximately $248.8 million in cash
in exchange for the Initial Properties to be sold to
the Company.
. In the event the Company determines to exercise the
Company's option to purchase all of the Option
Properties that are owned or leased by subsidiaries of
AMCE, AMCE could receive up to approximately
$61.9 million in cash;
. In the event subsidiaries of AMCE have not contracted
to sell or sold the land parcels and the Company
exercises its options to acquire such land parcels,
AMCE would receive up to approximately $9.6 million in
cash;
. AMCE will have the proceeds of the sale of the Initial
Properties available to discharge certain indebtedness
under the AMCE Credit Facility, which will become
available for reborrowing; and
. AMCE will expand its marketing opportunities through
increased access to capital.
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONDENSED PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
The following unaudited Condensed Pro Forma Consolidated
Statements of Operations and Balance Sheet have been prepared
giving effect to the Formation Transactions. The Condensed Pro
Forma Consolidated Statements of Operations for the twenty-six
weeks ended October 2, 1997 and the year (53 weeks) ended
April 3, 1997 assume that the Formation Transactions occurred on
March 29, 1996. The Condensed Pro Forma Consolidated Balance
Sheet assumes that the Formation Transactions occurred on
October 2, 1997.
The unaudited Condensed Pro Forma Financial Statements do
not purport to represent AMCE's financial position or results of
operations had the Formation Transactions in fact occurred on
such dates. In addition, the unaudited Condensed Pro Forma
Financial Statements are not intended to be indicative of AMCE's
future financial position or results of operations.
The unaudited Condensed Pro Forma Financial Statements
should be read in conjunction with AMCE's historical financial
statements and "AMCE's Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere
herein.
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
Condensed Pro Forma Consolidated Statement Of Operations
Twenty-six Weeks Ended October 2, 1997
(In thousands, except per share amounts)
(Unaudited)
Pro Forma
Actual/1/ Adjustments Pro Forma
Revenues $414,051 $ -- $414,051
Cost of operations 330,139 7,617/2/ 337,756
General and administrative 26,852 -- 26,852
Depreciation and
amortization 32,889 (2,185)/3/ 30,704
Impairment of long-lived
assets 46,998 -- 46,998
Operating loss (22,827) (5,432) (28,259)
Interest expense 17,650 (4,648)/4/ 13,002
Other income, net 3,177 -- 3,177
Loss before income taxes (37,300) (784) (38,084)
Income tax provision (15,100) (318)/5/ (15,418)
Net loss $(22,200) $ (466) $(22,666)
Preferred dividends 2,651 2,651
Net loss for common shares $(24,851) $(25,317)
Loss per share:
Primary $ (1.37) $(1.39)
Fully diluted $ (1.37) $(1.39)
Weighted average number of
shares outstanding:
Primary 18,194 18,194
Fully diluted 18,194 18,194
See Notes to Condensed Pro Forma Financial Statements.
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
Condensed Pro Forma Consolidated Statement Of Operations
Year (53 Weeks) Ended April 3, 1997
(In thousands, except per share amounts)
(Unaudited)
Pro Forma
Actual/1/ Adjustments Pro Forma
Revenues $749,597 $ -- $749,597
Cost of operations 580,002 7,580/2/ 587,582
General and administrative 56,647 -- 56,647
Depreciation and
amortization 59,803 (2,296)/3/ 57,507
Operating income 53,145 (5,284) 47,861
Interest expense 22,022 (4,592)/4/ 17,430
Other income, net 772 -- 772
Earnings before
income taxes 31,895 (692) 31,203
Income tax provision 12,900 (280)/5/ 12,620
Net earnings $18,995 $ (412) $18,583
Preferred dividends 5,907 5,907
Net earnings for
common shares $13,088 $12,676
Earnings per share:
Primary $0.74 $0.72
Fully diluted $0.73 $0.71
Weighted average number
of shares outstanding:
Primary 17,726 17,726
Fully diluted 17,940 17,940
See Notes to Condensed Pro Forma Financial Statements.
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
Condensed Pro Forma Consolidated Balance Sheet
October 2, 1997
(In thousands)
(Unaudited)
Pro Forma
Actual(1) Adjustments Pro Forma
ASSETS
Current assets $126,873 $ -- $126,873
Property, net 647,270 (155,833)/6 / 491,437
Intangible assets, net 23,761 -- 23,761
Other long-term assets 87,144 3,335/8/ 90,479
Total assets $885,048 $(152,498) $732,550
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $157,684 $ 3,335/8/ $161,019
Corporate borrowings 479,464 (160,424)/7/ 319,040
Capital lease obligations 52,490 -- 52,490
Other long-term liabilities 50,987 4,591/8/ 55,578
740,625 (152,498) 588,127
Stockholders' equity 144,423 -- 144,423
$885,048 $(152,498) $732,550
See Notes to Condensed Pro Forma Financial Statements.
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
Notes To Condensed Pro Forma Financial Statements
(Unaudited)
/1/ The amounts presented hereunder were taken from AMCE's
October 2, 1997 and April 3, 1997 Consolidated Financial
Statements.
/2/ Represents rent expense of $7,787,000 and $7,838,000 for the
twenty-six weeks ended October 2, 1997 and the year (53
weeks) ended April 3, 1997, respectively, for the periods
the completed Initial Properties were in operation, net of
amortized gain of $170,000 and $258,000 for the twenty-six
weeks ended October 2, 1997 and the year (53 weeks) ended
April 3, 1997, respectively, from the sale of the completed
Initial Properties. The deferral of the gain on the sale of
the completed Initial Properties is being amortized to rent
expense over the lease term of the related Property.
/3/ Represents the elimination of historical depreciation on the
completed Initial Properties.
/4/ Represents the reduction of interest expense associated with
the reduction of outstanding indebtedness under the AMCE
Credit Facility (at an average interest rate of
approximately 6.2%) with the net proceeds from the sale of
the completed Initial Properties to the Company in the
Formation Transactions.
/5/ Represents the adjustment to income taxes to the expected
effective tax rate of 40.5% and 40.4% for the
twenty-six weeks ended October 2, 1997 and the year (53
weeks) ended April 3, 1997, respectively.
/6/ Represents the net book value of the completed Initial
Properties as of October 2, 1997.
/7/ Represents the paydown of the AMCE Credit Facility with the
net proceeds from the sale of the completed Initial
Properties to the Company in the Formation Transactions.
/8/ Represents the deferral of the gain of $5,091,000 on sale of
the completed Initial Properties (Grand 24, Mission Valley
20, Promenade 16, Ontario Mills 30, Lennox 24, West Olive
16, Studio 30 and Huebner Oaks 24), which equals the
accumulated depreciation on such properties, net of expenses
of $500,000, and the related current and deferred income tax
effect of $3,335,000.
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Twenty-six
Weeks Ended
October 2, September 26,
1997 1996
(Unaudited)
Revenues
Admissions $270,717 $240,111
Concessions 125,427 111,771
Other 17,907 12,481
Total revenues 414,051 364,363
Expenses
Film exhibition costs 151,980 130,269
Concession costs 19,907 18,080
Other 158,252 140,065
Total cost of operations 330,139 288,414
General and administrative 26,852 24,672
Depreciation and amortization 32,889 24,414
Impairment of long-lived assets 46,998 --
Total expenses 436,878 337,500
Operating income (22,827) 26,863
Other expense (income)
Interest expense
Corporate borrowings 12,961 4,613
Capital lease obligations 4,689 5,148
Investment income (681) (321)
Loss (gain) on disposition
of assets (2,496) 31
Earnings (loss) before income taxes (37,300) 17,392
Income tax provision (15,100) 7,000
Net earnings (loss) $(22,200) $10,392
Preferred dividends 2,651 3,000
Net earnings (loss)
for common shares $(24,851) $ 7,392
Earnings (loss) per share:
Primary $(1.37) $.42
Fully diluted $(1.37) $.42
See Notes to Consolidated Financial Statements.
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
October 2, April 3,
1997 1997
(Unaudited)
ASSETS
Current assets:
Cash and equivalents $ 25,563 $ 24,715
Receivables, net of allowance
for doubtful accounts of
$777 as of October 2, 1997
and $704 as of April 3, 1997 83,416 42,188
Other current assets 17,894 16,769
Total current assets 126,873 83,672
Property, net 647,270 543,058
Intangible assets, net 23,761 28,679
Other long-term assets 87,144 62,804
Total assets $885,048 $718,213
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $105,113 $ 88,367
Accrued expenses and other
liabilities 48,793 42,459
Current maturities of corporate
borrowings and capital lease
obligations 3,778 3,441
Total current liabilities 157,684 134,267
Corporate borrowings 479,464 315,046
Capital lease obligations 52,490 55,237
Other long-term liabilities 50,987 43,651
Total liabilities 740,625 548,201
Stockholders' equity:
$1.75 Cumulative Convertible
Preferred Stock, 66 2/3 cents par
value; 2,919,100 shares issued and
outstanding as of October 2, 1997
and 3,303,600 shares issued and
outstanding as of April 3, 1997
(aggregate liquidation preference
of $72,977 as of October 2, 1997
and $82,590 as of April 3, 1997) 1,946 2,202
Common Stock, 66 2/3 cents
par value; 13,408,684 shares
issued as of October 2, 1997
and 6,604,469 shares issued as
of April 3, 1997 8,939 4,403
Convertible Class B Stock,66 2/3
cents par value; 5,015,657 shares
issued and outstanding as of
October 2, 1997 and 11,157,000
shares issued and outstanding as
of April 3, 1997 3,344 7,438
Additional paid-in capital 107,595 107,781
Foreign currency translation
adjustment (2,764) (2,048)
Retained earnings 25,732 50,605
144,792 170,381
Less--Common Stock in treasury,
at cost, 20,500 shares as of
October 2, 1997 and April 3, 1997 369 369
Total stockholders' equity 144,423 170,012
Total liabilities and
stockholders' equity $885,048 $718,213
See Notes to Consolidated Financial Statements.
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Twenty-six Weeks Ended
October 2, September 26,
1997 1996
(Unaudited)
INCREASE (DECREASE) IN CASH AND EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (22,200) $ 10,392
Adjustments to reconcile net
earnings (loss) to net cash
provided by operating activities:
Impairment of long-lived assets 46,998 --
Depreciation and amortization 32,889 24,414
Deferred income taxes (19,270) --
Loss (gain) on sale of
long-term assets (2,496) 31
Change in assets and liabilities:
Receivables (1,964) 374
Other current assets (1,125) 581
Accounts payable 8,700 (7,269)
Accrued expenses and other
liabilities 10,991 (3,965)
Other, net (352) 527
Total adjustments 74,371 22,623
Net cash provided by operating
activities 52,171 33,015
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (173,811) (92,082)
Net change in refundable
construction advances (39,162) (2,966)
Proceeds from disposition of
long-term assets 3,446 180
Other, net (9,634) (6,546)
Net cash used in investing
activities (219,161) (101,414)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving
credit facility 165,000 67,000
Principal payments under capital
lease obligations and other (1,741) (1,208)
Cash overdrafts 8,046 3,602
Proceeds from exercise of stock
options -- 141
Dividends paid on preferred stock 2,673) (3,085)
Deferred financing costs and
other (682) --
Net cash provided by financing
activities 167,950 66,450
Effect of exchange rate changes
on cash and equivalents (112) 291
NET INCREASE (DECREASE) IN CASH
AND EQUIVALENTS 848 (1,658)
CASH AND EQUIVALENTS AT
BEGINNING OF PERIOD 24,715 10,795
CASH AND EQUIVALENTS AT
END OF PERIOD $25,563 $ 9,137
Cash paid during the period for:
Interest (net of amounts
capitalized of $3,572 and $999) $20,226 $10,620
Income taxes paid (refunded) 6,384 (1,617)
See Notes to Consolidated Financial Statements.
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 2, 1997
(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") and its subsidiaries (collectively
with AMCE, unless the context otherwise requires, the "Company"),
is principally involved in the operation of motion picture
theatres throughout the United States and in Japan and Portugal.
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. ("NCN").
Prior to fiscal 1998, NCN was consolidated with the Company
as of a fiscal period end that was one month earlier than the
Company' fiscal period end. Beginning in fiscal year 1998, this
one-month reporting lag was eliminated and NCN year to date
results include activity for seven months.
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 (53 weeks) ended April 3, 1997.
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 thirteen and
twenty-six weeks ended October 2, 1997 are not necessarily
indicative of the results to be expected for the fiscal year (52
weeks) ending April 2, 1998.
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.
Certain amounts have been reclassified from prior period
consolidated financial statements to conform with the current
year presentation.
NOTE 2--EARNINGS PER SHARE
Primary earnings per share is computed by dividing net
earnings less preferred dividends by the sum of the weighted
average number of common shares outstanding and outstanding stock
options, when their effect is dilutive. The average shares used
in the computations were 18,382,000 and 18,194,000 for the
thirteen and twenty-six weeks ended October 2, 1997,
respectively, and 17,943,000 and 17,534,000 for the thirteen and
twenty-six weeks ended September 26, 1996, respectively. On a
fully diluted basis, net earnings and shares outstanding are
adjusted to assume conversion of the $1.75 Cumulative Convertible
Preferred Stock, if dilutive. The average shares used in the
computations were 18,382,000 and 18,194,000 for the thirteen and
twenty-six weeks ended October 2, 1997, respectively, and
23,866,000 and 17,726,000 for the thirteen and twenty-six weeks
ended September 26, 1996, respectively.
NOTE 3--MERGER WITH PARENT
Effective August 15, 1997, the Company completed a merger
with its majority stockholder, Durwood, Inc. ("DI"), with the
Company remaining as the surviving entity (the "Merger"). In
connection with the Merger, 2,641,951 shares of the Company's
Common Stock and 11,157,000 shares of the Company's Class B Stock
owned by DI were canceled and the Company issued 8,783,289 shares
of its Common Stock and 5,015,657 shares of its Class B Stock to
the DI stockholders. The Merger was <PAGE> accounted for as a corporate
reorganization and the recorded balances for consolidated assets,
liabilities, total stockholders' equity and results of operations
were not affected.
In connection with the Merger, the DI stockholders granted a
proxy to the Company to vote their shares of the Company's Common
Stock for each candidate for the Company's Board of Directors in
the same proportion as the aggregate votes cast in such elections
by all other holders of the Company's Common Stock not affiliated
with the Company, its directors and officers. The proxy will
remain in effect for a period of three years commencing on the
date of the Merger.
NOTE 4--IMPAIRMENT OF LONG-LIVED ASSETS
The summer of 1997 was the first summer film season,
generally the highest grossing period for the film industry, that
a significant number of megaplexes of the Company and its
competitors were operating (the first megaplex, Grand 24, was
opened by the Company in May 1995). During this period, the
financial results of certain multiplexes of the Company were
significantly less than anticipated at the beginning of fiscal
1998 due primarily to competition from the newer megaplex
theatres. As a result, the Company initiated a review of its
portfolio of theatres to identify those theatres which are not
expected to provide an adequate financial return in the future.
The Company anticipates that many of its multiplexes may be
disposed of in the intermediate term but continues to evaluate
its future plans for such theatres.
As a result of this review, the Company evaluated its
theatre assets and related intangibles for impairment in
accordance with the provisions of Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed Of.
The expected future cash flows of certain theatres, undiscounted
and without interest charges, were less than the carrying value
of the theatre assets. As a result, the Company recognized a
non-cash impairment loss of $46,998,000 ($27,728,000 after tax,
or $1.51 per share) on 59 multiplex theatres with 412 screens in
14 states (primarily California, Texas, Missouri, Arizona and
Florida) including a loss of $523,000 associated with 10 theatres
that were included in impairment losses recognized in previous
periods. The impairment loss represents the amount by which the
carrying value of the multiplex assets, including intangibles,
exceeded the estimated fair value of those assets. The estimated
fair value of assets was determined as either the expected
selling price less selling costs or the present value of
estimated expected future cash flows.
The reduced carrying amount of the impaired assets will
result in reduced depreciation and amortization in future
periods. For fiscal 1998, such charge is expected to be reduced
by approximately $10,500,000 which includes a $3,500,000
reduction in depreciation and amortization for the thirteen weeks
ended October 2, 1997.
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AND REPORT OF INDEPENDENT ACCOUNTANTS
Year (53 Weeks) Ended April 3, 1997
and Years (52 Weeks) Ended March 28, 1996
and March 30, 1995
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of AMC Entertainment
Inc., Kansas City, Missouri
We have audited the accompanying consolidated balance sheets
of AMC Entertainment Inc. and subsidiaries as of April 3, 1997
and March 28, 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year
(53 weeks) ended April 3, 1997 and the years (52 weeks) ended
March 28, 1996 and March 30, 1995. These financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of AMC Entertainment Inc. and subsidiaries as
of April 3, 1997 and March 28, 1996, and the consolidated results
of their operations and their cash flows for the year (53 weeks)
ended April 3, 1997 and the years (52 weeks) ended March 28, 1996
and March 30, 1995, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Kansas City, Missouri
May 16, 1997
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year (53 Weeks) Ended April 3, 1997 and
Years (52 Weeks) Ended March 28, 1996 and March 30, 1995
(In thousands, except per share amounts)
1997 1996 1995
Revenues
Admissions $492,951 $431,361 $371,145
Concessions 225,167 196,645 169,120
Other 31,479 27,966 23,079
Total revenues 749,597 655,972 563,344
Expenses
Film rentals 247,199 215,099 182,669
Concession costs 36,748 30,417 24,383
Other 296,055 245,842 225,711
Total cost of operations 580,002 491,358 432,763
General and administrative 56,647 52,059 41,639
Depreciation and amortization 59,803 43,886 37,913
Total expenses 696,452 587,303 512,315
Operating income 53,145 68,669 51,029
Other expense (income)
Interest expense
Cororate borrowings 12,016 18,099 24,502
Capital lease obligations 10,006 10,729 11,406
Investment income (856) (7,052) (10,013)
Loss on disposition of assets 84 222 156
Earnings before income taxes and
extraordinary item 31,895 46,671 24,978
Income tax provision 12,900 19,300 (9,000)
Earnings before extraordinary
item 18,995 27,371 33,978
Extraordinary item -- Loss on
extinguishment of debt
(net of income tax benefit
of $13,400) -- (19,350) --
Net earnings $ 18,995 $ 8,021 $ 33,978
Preferred dividends 5,907 7,000 7,000
Net earnings for common shares $ 13,088 $ 1,021 $ 26,978
Earnings per share before
extraordinary item:
Primary $.74 $1.21 $1.63
Fully diluted $.73 $1.20 $1.45
Earnings per share:
Primary $.74 $.06 $1.63
Fully diluted $.73 $.06 $1.45
See Notes to Consolidated Financial Statements.
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 3, 1997 and March 28, 1996
(In thousands, except share amounts)
1997 1996
ASSETS
Current assets:
Cash and equivalents $ 24,715 $ 10,795
Receivables, net of allowance for
doubtful accounts of $704 as of
April 3, 1997 and $801 as of
March 28, 1996 42,188 20,503
Other current assets 16,769 15,179
Total current assets 83,672 46,477
Property, net 543,058 355,485
Intangible assets, net 28,679 36,483
Other long-term assets 62,804 45,013
Total assets $718,213 $483,458
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 88,367 $ 59,353
Accrued expenses and other liabilities 42,459 43,319
Current maturities of corporate
borrowings and capital lease
obligations 3,441 2,904
Total current liabilities 134,267 105,576
Corporate borrowings 315,046 126,127
Capital lease obligations 55,237 59,141
Other long-term liabilities 43,651 33,696
Total liabilities 548,201 324,540
Commitments and contingencies
Stockholders' equity:
$1.75 Cumulative Convertible Preferred
Stock, 66 2/3 cents par value; 3,303,600
and 4,000,000 shares issued and
outstanding as of April 3, 1997, and
March 28, 1996, respectively (aggregate
liquidation preference of $82,590 and
$100,000 as of April 3, 1997 and
March 28, 1996, respectively) 2,202 2,667
Common Stock,66 2/3 cents par value;
6,604,469 and 5,388,880 shares issued
as of April 3, 1997, and March 28,
1996, respectively 4,403 3,593
Convertible Class B Stock,66 2/3 cents
par value; 11,157,000 shares issued and
outstanding 7,438 7,438
Additional paid-in capital 107,781 107,986
Foreign currency translation adjustment (2,048) --
Retained earnings 50,605 37,603
170,381 159,287
Less--Common Stock in treasury, at cost,
20,500 shares as of April 3, 1997 and
March 28, 1996 369 369
Total stockholders' equity 170,012 158,918
Total liabilities and
stockholders' equity $718,213 $483,458
See Notes to Consolidated Financial Statements.
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year (53 Weeks) Ended April 3, 1997 and Years (52 Weeks)
Ended March 28, 1996 and March 30, 1995
(In thousands)
1997 1996 1995
INCREASE (DECREASE) IN
CASH AND EQUIVALENTS
Cash flows from operating activities:
Net earnings $ 18,995 $ 8,021 $ 33,978
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization 59,803 43,886 37,913
Deferred income taxes (2,476) (1,328) (21,285)
Gain on sale of available
for sale investments -- -- (1,407)
Extraordinary item -- 19,350 --
Loss on sale of long-term
assets 84 222 156
Change in assets and liabilities:
Receivables (609) (1,537) 807
Other current assets 1,578 10,167 (578)
Accounts payable 41,486 7,458 341
Accrued expenses and other
liabilities 12,441 7,640 (5,763)
Other, net 2,772 2,968 204
Total adjustments 115,079 88,826 10,388
Net cash provided by operating
activities 134,074 96,847 44,366
Cash flows from investing activities:
Capital expenditures (253,380)(120,796) (56,403)
Purchase of real estate
investment (7,692) -- --
Acquisition of minority interest (7,400) -- --
Purchases of available for
sale investments -- (424,134) (314,368)
Proceeds from maturities of
available for sale investments -- 493,278 364,374
Proceeds from sales of available
for sale investments -- -- 11,689
Proceeds from disposition of
long-term assets 15,054 2,243 70
Net change in refundable
construction advances (21,076) (10,394) (182)
Other, net (9,423) (7,045) (1,516)
Net cash provided by (used in)
investing activities (283,917) (66,848) 3,664
Cash flows from financing activities:
Net borrowings (repayments) under
revolving credit facility (10,000) 120,000 --
Proceeds from issuance of 9 1/2%
Senior Subordinated Notes 198,938 -- --
Principal payments under capital
lease obligations (2,835) (2,455) (2,088)
Repurchase of 11 7/8% Senior
and 12 5/8% Senior Subordinated
Notes -- (220,734) --
Cash overdrafts (11,673) 22,848 --
Other repayments -- (404) (34)
Proceeds from exercise of
stock options 140 878 239
Dividends paid on
preferred stock (5,993) (7,000) (7,233)
Deferred financing costs
and other (4,595) (3,570) --
Net cash provided by (used in)
financing activities 163,982 (90,437) (9,116)
Effect of exchange rate changes
on cash and equivalents (219) -- --
Net increase (decrease) in
cash and equivalents 13,920 (60,438) 38,914
Cash and equivalents at
beginning of year 10,795 71,233 32,319
Cash and equivalents at
end of year $ 24,715 $10,795 $71,233
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year (53 Weeks) Ended April 3, 1997 and Years (52 Weeks)
Ended March 28, 1996 and March 30, 1995
(In thousands)
Supplemental Schedule of Noncash Investing and Financing
Activities:
During 1995, capital lease obligations of $1,363 were incurred
in connection with property acquired.
Supplemental Disclosures of Cash Flow Information:
1997 1996 1995
Cash paid during the period for:
Interest (net of amounts
capitalized of $3,344,
$3,003 and $870) $24,188 $34,775 $35,878
Income taxes, net 6,285 9,787 14,822
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share and per share amounts)
<CAPTION>
Preferred Stock Common Stock Class B Stock
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balance,
April 1,
1994 4,000,000 $ 2,667 5,266,830 $3,511 11,157,000 $7,438
Net earnings -- -- -- -- -- --
Exercise of
options on
Common Stock -- -- 39,550 27 -- --
Dividends declared:
$1.75 Preferred
Stock -- -- -- -- -- --
Balance,
March 30,
1995 4,000,000 2,667 5,306,380 3,538 11,157,000 7,438
Net earnings -- -- -- -- -- --
Exercise of
options on
Common Stock -- -- 82,500 55 -- --
Dividends declared:
$1.75 Preferred
Stock -- -- -- -- -- --
Acquisition of
Common Stock
in Treasury -- -- -- -- -- --
<PAGE>
Balance,
March 28,
1996 4,000,000 2,667 5,388,880 3,593 11,157,000 7,438
Net earnings -- -- -- -- -- --
Exercise of
options on
Common Stock -- -- 15,000 10 -- --
Preferred Stock
conversions (696,400) (465) 1,200,589 800 -- --
Dividends declared:
$1.75 Preferred
Stock -- -- -- -- -- --
Foreign currency
translation
adjustment -- -- -- -- -- --
Balance,
April 3,
1997 3,303,600 $2,202 6,604,469 $4,403 11,157,000 $7,438
</TABLE>
<TABLE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share and per share amounts)
<CAPTION>
Foreign
Additional Currency Common Stock Total
Paid-in Translation Retained n Treasury Stockholders'
Capital Adjustment Earnings Shares Amount Equity
<S> <C> <C> <C> <C> <C> <C>
Balance,
April 1,
1994 $106,951 $ -- $ 9,837 -- $ -- $ 130,404
Net earnings -- -- 33,978 -- -- 33,978
Exercise of
options on
Common Stock 212 -- -- -- -- 239
Dividends declared:
$1.75 Preferred
Stock -- -- (7,233) -- -- (7,233)
Balance,
March 30,
1995 107,163 -- 36,582 -- -- 157,388
Net earnings -- -- 8,021 -- -- 8,021
Exercise of
options on
Common Stock 823 -- -- -- -- 878
Dividends declared:
$1.75 Preferred
Stock -- -- (7,000) -- -- (7,000)
Acquisition of
Common Stock
in Treasury -- -- -- 20,500 (369) (369)
Balance,
March 28,
1996 107,986 -- 37,603 20,500 (369) 158,918
Net earnings -- -- 18,995 -- -- 18,995
Exercise of
options on
Common Stock 130 -- -- -- -- 140
Preferred Stock
conversions (335) -- -- -- -- --
Dividends declared:
$1.75 Preferred
Stock -- -- (5,993) -- -- (5,993)
Foreign currency
translation
adjustment -- (2,048) -- -- -- (2,048)
Balance,
April 3,
1997 $107,781 $(2,048) $ 50,605 20,500 $ (369) $ 170,012
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year (53 Weeks) Ended April 3, 1997 and Years (52 Weeks) Ended
March 28, 1996 and March 30, 1995
NOTE 1--THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
AMC Entertainment Inc. ("AMCE") is a holding company which,
through its direct and indirect subsidiaries, including American
Multi-Cinema, Inc. ("AMC") and its subsidiaries (collectively
with AMCE, unless the context otherwise requires, the "Company"),
is principally involved in the operation of motion picture
theatres throughout the United States and in Japan and Portugal.
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.
Approximately 78% of AMCE's outstanding voting securities
are owned by Durwood, Inc. ("DI"). See Note 12 for further
description of AMCE's transactions with DI.
USE OF ESTIMATES: The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying
notes. Although these estimates are based on management's
knowledge of current events and actions it may undertake in the
future, they may ultimately differ from actual results.
PRINCIPLES OF CONSOLIDATION: The consolidated financial
statements include the accounts of AMCE and all subsidiaries. All
significant intercompany balances and transactions have been
eliminated.
FISCAL YEAR: The Company has a 52/53 week fiscal year
ending on the Thursday closest to the last day of March. The 1997
fiscal year reflects a 53 week period, fiscal years 1996 and 1995
each reflect a 52 week period. Fiscal year 1998 will reflect a 52
week period.
REVENUES AND FILM RENTAL COSTS: Revenues are recognized
when admissions and concessions sales are received at the
theatres. Film rental costs are recognized based on the
applicable box office receipts and the terms of the film
licenses.
CASH AND EQUIVALENTS: Cash and equivalents consists of cash
on hand and temporary cash investments with original maturities
of less than thirty days. The Company invests excess cash in
deposits with major banks and in temporary cash investments. Such
investments are made only in instruments issued or enhanced by
high quality financial institutions (investment grade or better).
Amounts invested in a single institution are limited to minimize
risk. Under the Company's cash management system, checks issued
but not presented to banks frequently result in overdraft
balances for accounting purposes and are classified within
accounts payable in the balance sheet. The amount of these checks
included in accounts payable as of April 3, 1997 and March 28,
1996 was $11,175,000 and $22,848,000, respectively.
INVESTMENTS: For purposes of determining gross realized
gains and losses, the cost of investment securities sold is
determined upon specific identification. Proceeds and gross
realized gains from the sales in 1995 of equity securities
classified as other long-term assets as of March 31, 1994 were
$11,689,000 and $1,407,000, respectively.
REFUNDABLE CONSTRUCTION ADVANCES: Included in receivables
as of April 3, 1997 and March 28, 1996 is $33,193,000 and
$12,117,000, respectively, due from developers to fund a portion
of the <PAGE> construction costs of new theatres that are to be operated
by the Company pursuant to lease agreements. These amounts are
repaid by the developers either during construction or shortly
after completion.
PROPERTY: Property is recorded at cost. The Company uses
the straight-line method in computing depreciation and
amortization for financial reporting purposes and accelerated
methods, with respect to certain assets, for income tax purposes.
The estimated useful lives are generally as follows:
Buildings and improvements 20 to 40 years
Leasehold improvements 5 to 25 years
Furniture, fixtures and equipment 3 to 10 years
Expenditures for additions (including interest during
construction), major renewals and betterments are capitalized,
and expenditures for maintenance and repairs are charged to
expense as incurred. The cost of assets retired or otherwise
disposed of and the related accumulated depreciation are
eliminated from the accounts in the year of disposal. Gains or
losses resulting from property disposals are credited or charged
to operations currently.
INTANGIBLE ASSETS: Intangible assets are recorded at cost
and are comprised of lease rights, which are amounts assigned to
theatre leases assumed under favorable terms, and location
premiums on acquired theatres which are being amortized on a
straight-line basis over the estimated remaining useful life of
the theatre. Accumulated amortization on intangible assets was
approximately $41,690,000 and $36,035,000 as of April 3, 1997 and
March 28, 1996, respectively.
Effective December 30, 1994, the Company reduced the
estimated lives of lease rights and location premiums on certain
smaller theatres to correspond to the base terms of the theatre
leases. This change in accounting estimate was made to better
match the estimated life of the intangible assets with the life
of the theatre due to the Company's strategic plans to primarily
own and operate larger theatres. The effect of this change in
estimate was to increase amortization expense in 1995 by
$1,542,000 and decrease net earnings by $876,000, or $.05 per
share.
OTHER LONG-TERM ASSETS: Other long-term assets are
comprised principally of costs incurred in connection with the
issuance of debt securities which are being amortized over the
respective life of the issue; investments in real estate;
investments in partnerships and corporate joint ventures
accounted for under the equity method; preopening costs relating
to new theatres which are being amortized over two years; and
long-term deferred income taxes.
FOREIGN CURRENCY TRANSLATION: The financial statements of
subsidiaries outside the United States are generally measured
using the local currency as the functional currency. Assets and
liabilities of these subsidiaries are translated at the rates of
exchange at the balance sheet date. Income and expense items are
translated at average rates of exchange. The resultant
translation adjustments are included in foreign currency
translation adjustment, a separate component of stockholders'
equity. Gains and losses from foreign currency transactions of
these subsidiaries are included in net earnings and have not been
material.
<PAGE>
INCOME TAXES: Income taxes are calculated in accordance
with Statement of Financial Accounting Standards No. 109 ("SFAS
109"), Accounting for Income Taxes. The statement requires that
deferred income taxes reflect the impact of temporary differences
between the amount of assets and liabilities for financial
reporting purposes and such amounts as measured by tax laws and
regulations.
EARNINGS PER SHARE: Primary earnings per share is computed
by dividing net earnings for common shares by the sum of the
weighted average number of common shares outstanding and
outstanding stock options, when their effect is dilutive. The
average shares used in the computations were 17,726,000 in 1997,
16,795,000 in 1996 and 16,593,000 in 1995. On a fully diluted
basis, both net earnings and shares outstanding are adjusted to
assume the conversion of $1.75 Cumulative Convertible Preferred
Stock, if dilutive. The average shares used in the computations
were 17,940,000 in 1997, 17,031,000 in 1996 and 23,509,000 in
1995.
CHANGES IN ACCOUNTING PRINCIPLES: During fiscal 1996, the
Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation. The Statement allows companies to
measure compensation cost in connection with employee stock
compensation plans using a fair value based method or to continue
to use an intrinsic value based method to account for stock
options and awards. The Company has chosen to continue using the
intrinsic value based method while adopting the disclosure- only
provisions of the pronouncement.
During the fourth quarter of fiscal 1996, the Company
adopted Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed Of ("SFAS 121"). This Statement
establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill related to
those assets to be held and used. In connection with the adoption
of this Statement, the Company reviewed the assets and related
intangibles of its motion picture theatres for impairment on a
disaggregated basis. The expected future cash flows of certain
theatres, undiscounted and without interest charges, were less
than the carrying value of the assets. As a result, the Company
recognized an impairment loss of $1,799,000. The impairment loss
represents the amount by which the carrying value of the theatre
assets, including intangibles, exceeded the estimated fair value
of those assets. The estimated fair value of assets was
determined as the present value of estimated expected future cash
flows. The loss is included in depreciation and amortization in
the Consolidated Statements of Operations.
During fiscal 1997, the Company continued to review the
assets and related intangibles of its motion picture theatres for
impairment in accordance with the provisions of SFAS 121. As a
result of expected declines in future cash flows of certain
theatres the Company recognized an impairment loss of $7,231,000
which is included in depreciation and amortization in the
Consolidated Statements of Operations.
During fiscal 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128 ("SFAS
128"), Earnings per Share. SFAS 128 eliminates the presentation
of primary and fully diluted earnings per share ("EPS") and
requires presentation of basic and diluted EPS. The principal
difference between primary and basic EPS is that common stock
equivalents are not included with the weighted average number of
shares outstanding used in the computation of basic <PAGE> EPS. Diluted
EPS is computed similarly to fully diluted EPS. SFAS 128 is
effective for periods ending after December 15, 1997, including
interim periods, and requires restatement of all prior-period EPS
data. Early adoption is not permitted. Management has not yet
determined the impact that this statement will have on the
Company.
PRESENTATION: Certain amounts have been reclassified from
prior period consolidated financial statements to conform with
the current year presentation.
NOTE 2--ACQUISITION
On January 10, 1997, the Company purchased the 20% minority
interest in the common stock of AMC Philadelphia, Inc., an 80%
owned subsidiary, for $7,400,000 in cash. The acquisition has
been accounted for using the purchase method of accounting. The
excess of the purchase price over the fair value of the assets
acquired is being amortized on a straight-line basis over the
estimated useful life of the assets acquired.
NOTE 3--PROPERTY
A summary of property is as follows (in thousands):
1997 1996
Property owned:
Land $ 60,090 $ 35,610
Buildings and improvements 221,396 146,061
Furniture, fixtures and equipment 264,619 205,761
Leasehold improvements 211,720 146,152
757,825 533,584
Less--accumulated depreciation and
amortization 246,476 213,654
511,349 319,930
Property leased under capital leases:
Buildings 66,074 67,274
Less--accumulated amortization 34,365 31,719
31,709 35,555
$543,058 $355,485
Included in property is $83,558,000 and $35,289,000 of
construction in progress as of April 3, 1997 and March 28, 1996,
respectively.
<PAGE>
NOTE 4--OTHER ASSETS AND LIABILITIES
Other assets and liabilities consist of the following (in
thousands):
1997 1996
Other current assets:
Prepaid rent $ 7,366 $ 6,412
Prepaid income taxes -- 3,074
Deferred income taxes 6,376 3,207
Other 3,027 2,486
$16,769 $15,179
Other long-term assets:
Investments in real estate $15,329 $ 6,922
Investments in partnerships
and corporate joint ventures 733 1,121
Deferred charges, net 12,147 6,203
Deferred income taxes 23,813 24,506
Preopening costs 6,519 2,636
Other 4,263 3,625
$62,804 $45,013
Accrued expenses and other liabilities:
Taxes other than income $10,030 $ 7,110
Income taxes 6,017 --
Interest 1,512 841
Payroll and vacation 4,982 6,149
Casualty claims and premiums 4,655 2,034
Deferred income 8,911 11,634
Accrued bonus 3,974 7,634
Other 2,378 7,917
$42,459 $43,319
<PAGE>
NOTE 5--CORPORATE BORROWINGS AND CAPITAL LEASE OBLIGATIONS
A summary of corporate borrowings and capital lease
obligations is as follows (in thousands):
1997 1996
$425 million revolving Credit Facility
due 2004 $110,000 $120,000
11 7/8% Senior Notes due 2000 615 614
9 1/2% Senior Subordinated Notes
due 2009 198,940 --
12 5/8% Senior Subordinated Notes
due 2002 4,882 4,878
Capital lease obligations,
interest ranging from 7 1/4% to 20% 58,652 62,022
Other indebtedness 635 658
Total 373,724 188,172
Less-current maturities 3,441 2,904
$370,283 $185,268
On December 28, 1995, the Company completed the redemption
of $99,383,000 of its outstanding 11 7/8% Senior Notes due 2000
at a price of $1,117.90 per $1,000 principal amount and
$95,096,000 of its outstanding 12 5/8% Senior Subordinated Notes
due 2002 at a price of $1,144.95 per $1,000 principal amount. In
addition, the terms of the Indentures governing the remaining
Senior and Senior Subordinated Notes were amended to eliminate
certain restrictive covenants. Sources of funds for the
redemption were cash and investments on hand and borrowings on a
credit facility. Premiums paid to redeem the Senior and Senior
Subordinated Notes, together with the write-off of unamortized
debt issue costs and other costs directly related to the debt
redemptions, resulted in an extraordinary loss of $19,350,000,
net of income tax benefit of $13,400,000. The extraordinary loss
reduced earnings per share by $1.15 for the year (52 weeks) ended
March 28, 1996.
As a part of the refinancing plan, the Company entered into
a $425 million credit facility (the "Credit Facility"), which was
amended and restated as of April 10, 1997. 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 .1875% to .375% on
the unused portion of the commitment. The Credit Facility matures
in 2004. The commitment thereunder will reduce 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. As of
April 3, 1997, the Company had outstanding borrowings of
$110,000,000 under the Credit Facility at an average interest
rate of 6.4% per annum.
Covenants of the Credit Facility impose limitations on the
incurrence of additional indebtedness, creation of liens, change
of control, transactions with affiliates, mergers, investments,
guaranties, asset sales, business activities and pledges. The
Company is also required to maintain certain financial covenants,
as defined in the Credit Facility. As of April 3, 1997, the
Company was in compliance with all financial covenants relating
to the Credit Facility.
Prior to its April 10, 1997 amendment and restatement, the
Credit Facility contained a covenant that generally limited the
Company's capital expenditures. This covenant has been
eliminated.
<PAGE>
Costs related to the establishment of the Credit Facility
were capitalized and are charged to interest expense over the
life of the Credit Facility. Unamortized issuance costs of
$2,821,000 as of April 3, 1997 are included in other long-term
assets.
On March 19, 1997, the Company sold $200 million of Senior
Subordinated Notes due 2009 (the "Notes"). The Notes bear
interest at the rate of 9 1/2% per annum, payable in March and
September. The Notes are redeemable at the option of the Company,
in whole or in part, at any time on or after March 15, 2002 at
104.75% of the principal amount thereof, declining ratably to
100% of the principal amount thereof on or after March 15, 2006,
plus in each case interest accrued to the redemption date. Upon a
change of control (as defined in the Note Indenture), each holder
of the Notes will have the right to require the Company to
repurchase such holder's Notes at a price equal to 101% of the
principal amount thereof plus accrued and unpaid interest to the
date of repurchase. The Notes are subordinated to all existing
and future senior indebtedness (as defined in the Note Indenture)
of the Company.
The Note Indenture contains certain covenants that, among
other things, restrict the ability of the Company and its
subsidiaries to incur additional indebtedness and pay dividends
or make distributions in respect of their capital stock. If the
Notes attain "investment grade status" (as defined in the Note
Indenture), the covenants in the Note Indenture limiting the
Company's ability to incur additional indebtedness and pay
dividends will cease to apply. As of April 3, 1997, the Company
was in compliance with all financial covenants relating to the
Note Indenture.
The Note Indenture also requires the Company to use its best
efforts to consummate a registered offer to exchange the Notes
(the "Exchange Offer") for notes of AMCE with terms identical in
all material respects to the Notes or cause a shelf registration
statement with respect to the Notes to become effective. In the
event that certain filing deadlines as specified in the Note
Indenture are not met, the interest rate borne by the Notes could
increase as much as 1.0% per annum. The Company anticipates
meeting its filing deadlines.
The discount on the Notes is being amortized to interest
expense following the interest method of amortization. Costs
related to the issuance of the Notes were capitalized and are
charged to interest expense, following the interest method, over
the life of the securities. Unamortized issuance costs of
$4,572,000 as of April 3, 1997 are included in other long-term
assets.
<PAGE>
Minimum annual payments required under existing capital
lease obligations (net present value thereof) and maturities of
corporate borrowings as of April 3, 1997, are as follows (in
thousands):
Capital Lease Obligations
Minimum Net
Lease Less Present Corporate
Payments Interest Value Borrowings Total
1998 $ 12,795 $ 9,380 $ 3,415 $ 26 $ 3,441
1999 12,800 8,715 4,085 30 4,115
2000 12,211 8,026 4,185 34 4,219
2001 11,939 7,294 4,645 653 5,298
2002 11,110 6,529 4,581 43 4,624
Thereafter 70,161 32,420 37,741 314,286 352,027
Total $131,016 $72,364 $58,652 $315,072 $373,724
The Company maintains a letter of credit in the normal
course of its business. The unused portion of the letter of
credit was $2,378,000 as of April 3, 1997.
NOTE 6--STOCKHOLDERS' EQUITY
The authorized Common Stock of AMCE consists of two classes
of stock. Except for the election of directors, each holder of
Common Stock (66 2/3 cents par value; 45,000,000 shares
authorized) is entitled to one vote per share, and each holder of
Class B Stock (66 2/3 cents par value; 30,000,000 shares
authorized) is entitled to 10 votes per share. Common
stockholders voting as a class are presently entitled to elect
two of the seven members of AMCE's Board of Directors with
Class B stockholders electing the remainder.
Holders of the Company's stock have no pre-emptive or
subscription rights and there are no restrictions with respect to
transferability. Holders of the Common Stock have no conversion
rights, but holders of Class B Stock may elect to convert at any
time on a share-for-share basis into Common Stock.
The Company has authorized 10,000,000 shares of Preferred
Stock (66 2/3 cents par value), of which 3,303,600 shares of
$1.75 Cumulative Convertible Preferred Stock (66 2/3 cents par
value)(the "Convertible Preferred Stock") are issued and
outstanding. Dividends are payable quarterly at an annual rate of
$1.75 per share. The Convertible Preferred Stock has preference
in liquidation in the amount of $25 per share plus accrued and
unpaid dividends. The Convertible Preferred Stock is convertible
at the option of the holder into shares of Common Stock at a
conversion price of $14.50 per share of Common Stock, subject to
change in certain events. In lieu of conversion the Company may,
at its option, pay to the holder cash equal to the then market
value of the Common Stock. The Company may redeem in whole or in
part the Convertible Preferred Stock at a redemption price
beginning at $26.00 per share, declining ratably to $25.00 per
share after March 15, 2001.
<PAGE>
During 1997, various holders of the Company's Convertible
Preferred Stock converted 696,400 shares into 1,200,589 shares of
Common Stock at a conversion rate of 1.724 shares of Common Stock
for each share of Convertible Preferred Stock.
STOCK-BASED COMPENSATION PLANS
In June 1983, AMCE adopted a stock option plan (the "1983
Plan") for selected employees. This plan provided for the grant
of rights to purchase shares of Common Stock under both incentive
and non-incentive stock option agreements. The number of shares
which could be sold under the plan could not exceed 750,000
shares. The 1983 Plan provided that the exercise price could not
be less than the fair market value of the stock at the date of
grant and unexercised options expired no later than ten years
after date of grant. Pursuant to the terms of the 1983 Plan, no
further options may be granted under this plan.
In September 1984, AMCE adopted a non-qualified stock option
plan (the "1984 Plan"). This plan provided for the grant of
rights to purchase shares of Common Stock under non-qualified
stock option agreements. The number of shares which could be sold
under the plan could not exceed 750,000 shares. The 1984 Plan
provided that the exercise price would be determined by the
Company's Stock Option Committee and that the options expired no
later than ten years after date of grant. Pursuant to the terms
of the 1984 Plan, no further options may be granted under this
plan.
In November 1994, AMCE adopted a stock option and incentive
plan (the "1994 Plan"). This plan provides for three basic types
of awards: (i) grants of stock options which are either incentive
or non-qualified stock options, (ii) grants of stock awards,
which may be either performance or restricted stock awards, and
(iii) performance unit awards. The number of shares of Common
Stock which may be sold or granted under the plan may not exceed
1,000,000 shares. The 1994 Plan provides that the exercise price
for stock options may not be less than the fair market value of
the stock at the date of grant and unexercised options expire no
later than ten years after date of grant. Options issued under
the 1994 Plan vest over two years from the date of issuance.
The Company has adopted the disclosure-only provisions of
SFAS 123. As permitted by SFAS 123, the Company has chosen to
continue to account for stock-based compensation using the
intrinsic value method. Accordingly, no compensation expense has
been recognized for the Company's stock-based compensation plans
other than for performance-based stock awards. In 1997 and 1996,
the Company granted to certain individuals stock awards which are
issuable at the end of a performance period ending April 2, 1998
based on certain performance criteria. The number of shares which
may be issued at the end of the performance period ranges from
zero to 216,000. The Company recognized compensation expense for
performance stock awards of $586,000 and $772,000 in 1997 and
1996, respectively. Had compensation expense for the Company's
plans been determined based on the fair value at the grant dates
for stock options and awards granted in 1997 and 1996, the
Company's net earnings and net earnings for common shares would
have been different.
<PAGE>
The pro forma amounts under SFAS 123 are indicated below (in
thousands except per share amounts):
1997 1996
Net earnings
As reported $18,995 $8,021
Pro forma $18,664 $8,210
Net earnings per common share
As reported $ .74 $ .06
Pro forma $ .72 $ .07
The following table reflects the weighted average fair value
per option granted during the year, as well as the significant
weighted average assumptions used in determining fair value using
the Black-Scholes option-pricing model:
1997 1996
Fair value on grant date $11.63 $ 6.96
Risk-free interest rate 6.24% 5.64%
Expected life (years) 5 5
Expected volatility 42.9% 46.0%
Expected dividend yield -- --
<PAGE>
A summary of stock option activity under all plans is as
follows:
1997 1996 1995
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Number Price Number Price Number Price
of Per of Per of Per
Shares Share Shares Share Shares Share
Outstanding
at beginning
of year 487,500 $ 9.67 776,500 $9.57 813,300 $9.29
Granted 103,250 $24.80 23,250 $14.50 36,500 $11.75
Canceled (17,250) $10.04 (229,750) $9.46 (33,750) $9.38
Exercised (15,000) $9.375 (82,500) $10.65 (39,550) $6.01
Outstanding
at end
of year 558,500 $12.47 487,500 $9.67 776,500 $9.57
Exercisable
at end
of year 365,875 $10.51 233,250 $9.45 230,000 $9.79
Available
for grant
at end
of year 630,500 746,500 817,500
The following table summarizes information about stock
options as of April 3, 1997:
Exercisable
Outstanding Stock Options Stock Options
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise of Contractual Exercise of Exercise
Prices Shares Life Price Shares Price
$9.25 to
$11.75 436,500 6.3 years $ 9.46 335,250 $ 9.51
$14.50 to
$18.50 29,250 8.7 years $15.94 9,375 $14.50
$24.50 to
$26.375 92,750 9.1 years $25.52 21,250 $24.50
$9.25 to
$26.375 558,500 6.9 years $12.47 365,875 $10.51
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year (53 Weeks) Ended April 3, 1997 and Years (52 Weeks) Ended
March 28, 1996 and March 30, 1995
NOTE 7--INCOME TAXES
Income taxes reflected in the Consolidated Statements of
Operations for the three years ended April 3, 1997 are as follows
(in thousands):
1997 1996 1995
Current:
Federal $11,418 $ 5,134 $ 7,738
State 3,958 2,094 4,547
Total current 15,376 7,228 12,285
Deferred:
Federal (2,114) (1,121) (1,238)
State (362) (207) (255)
Change in valuation allowance -- -- (19,792)
Total deferred (2,476) (1,328) (21,285)
Total provision 12,900 5,900 (9,000)
Tax benefit of extraordinary
item--extinguishment of debt -- 13,400 --
Total provision before
extraordinary item $12,900 $19,300 $(9,000)
The effective tax rate on income before extraordinary items
was 40.4%, 41.4%, and (36.0%) in 1997, 1996 and 1995,
respectively. The difference between the effective rate and the
U.S. federal income tax statutory rate of 35% is accounted for as
follows (in thousands):
1997 1996 1995
Tax on earnings before
provision for income
tax and extraordinary
item at statutory rates $11,163 $16,335 $ 8,742
Add (subtract) tax effect of:
State income taxes, net of
federal tax benefit 2,258 3,163 2,973
Change in valuation allowance -- -- (19,792)
Other, net (521) (198) (923)
Income tax provision $12,900 $19,300 $(9,000)
<PAGE>
The significant components of deferred income tax assets and
liabilities as of April 3, 1997 and March 28, 1996 are as follows
(in thousands):
1997 1996
Deferred Income Deferred Income
Tax Tax
Assets Liabilities Assets Liabilities
Accrued reserves
and liabilities $ 9,189 $ 179 $ 5,323 $ 343
Investments in
partnerships -- 495 -- 419
Capital lease
obligations 11,464 -- 10,852 --
Depreciation 5,587 -- 7,842 --
Deferred rents 6,254 -- 5,266 --
Other 550 2,181 683 1,491
Total 33,044 2,855 29,966 2,253
Less: Current deferred
income taxes 6,586 210 3,702 495
Total noncurrent
deferred income
taxes $26,458 $2,645 $26,264 $1,758
Net noncurrent
deferred income
taxes $23,813 $24,506
SFAS 109 requires that a valuation allowance be provided
against deferred tax assets if, based on the weight of available
evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized. Based upon positive
earnings in recent years and the expectation that taxable income
will continue for the foreseeable future, management believes it
is more likely than not that the Company will realize its
deferred tax assets and, accordingly, no valuation allowance has
been provided as of April 3, 1997 and March 28, 1996.
NOTE 8--LEASES
The majority of the Company's operations are conducted in
premises occupied under lease agreements with base terms ranging
generally from 15 to 25 years, with certain leases containing
options to extend the leases for up to an additional 20 years.
The leases provide for fixed rentals and/or rentals based on
revenues with a guaranteed minimum. The Company also leases
certain equipment under leases expiring at various dates. The
majority of the leases provide that the Company will pay all, or
substantially all, taxes, maintenance, insurance and certain
other operating expenses. Assets held under capital lease
obligations are included in property. Performance under some
leases has been guaranteed by DI.
<PAGE>
Following is a schedule, by year, of future minimum rental
payments required under existing operating leases that have
initial or remaining non-cancellable terms in excess of one year
as of April 3, 1997 (in thousands):
1998 $ 68,551
1999 69,070
2000 68,406
2001 66,388
2002 63,748
Thereafter 722,341
Total minimum payments required $ 1,058,504
The Company has entered into agreements to lease space for
the operation of theatres not yet fully constructed. The
scheduled completion of construction and theatre openings are at
various dates during fiscal 1998. The future minimum rental
payments required under the terms of these leases total
approximately $429 million.
In addition, the Company entered into a master lease
agreement during fiscal 1997 for three theatres with an expected
cost of approximately $81 million. Rental amounts will be based
on the final construction costs of the theatres and the lessor's
cost of funds and will be finalized as the theatres open. The
initial lease term under the agreement will be three years. The
master lease agreement provides for a substantial residual value
guarantee by the Company and includes purchase and renewal
options. The Company expects these leases to be classified as
operating leases.
The Company records rent expense on a straight-line basis
over the term of the lease. Included in long-term liabilities as
of April 3, 1997 and March 28, 1996 is $16,278,000 and
$12,858,000, respectively, of deferred rent representing pro rata
future minimum rental payments for leases with scheduled rent
increases.
Rent expense is summarized as follows (in thousands):
1997 1996 1995
Minimum rentals $80,670 $64,657 $59,790
Percentage rentals
based on revenues 2,008 2,354 1,970
$82,678 $67,011 $61,760
NOTE 9--EMPLOYEE BENEFIT PLANS
The Company sponsors a non-contributory defined benefit
pension plan covering, after a minimum of one year of employment,
all employees age 21 or older, who have completed 1,000 hours of
service in their first twelve months of employment or in a
calendar year and who are not covered by a collective bargaining
agreement.
<PAGE>
The plan calls for benefits to be paid to eligible employees
at retirement based primarily upon years of credited service with
the Company (not exceeding thirty-five) and the employee's
highest five year average compensation. Contributions to the plan
reflect benefits attributed to employees' services to date, as
well as services expected to be earned in the future. Plan assets
are invested in a group annuity contract with an insurance
company pursuant to which the plan's benefits are paid to retired
and terminated employees and the beneficiaries of deceased
employees.
The following table sets forth the plan's funded status as
of December 31, 1996 and 1995 (plan valuation dates) and the
amounts included in the Consolidated Balance Sheets as of
April 3, 1997 and March 28, 1996 (in thousands):
1997 1996
Actuarial present value of accumulated
benefit obligation, including vested
benefits of $11,139 and $10,041 $ 11,309 $ 10,205
Projected benefit obligation for
service rendered to date $ 18,489 $ 17,051
Plan assets at fair value (10,857) (9,580)
Projected benefit obligation in
excess of plan assets 7,632 7,471
Unrecognized net loss from past
experience different from that
assumed and effects of changes
in assumptions (686) (1,509)
Unrecognized net obligation upon
adoption being recognized over
15 years (1,411) (1,588)
Pension liability $ 5,535 $ 4,374
Net pension expense includes the following components (in
thousands):
1997 1996 1995
Service cost $1,191 $ 855 $1,261
Interest cost 1,188 966 971
Actual return on plan assets (1,218) (1,630) 55
Net amortization and deferral 563 1,096 (190)
Net pension expense $1,724 $1,287 $2,097
The Company also sponsors a non-contributory Supplemental
Executive Retirement Plan (the "SERP") which provides certain
employees additional pension benefits. The actuarial present
value of accumulated plan benefits related to the SERP was
$569,000 and $379,000 as of April 3, 1997 and March 28, 1996,
respectively, which is reflected in the Consolidated Balance
Sheets.
The weighted average discount rate used to measure the
plans' projected benefit obligations was 7.0% for 1997 and 1996
and 7.75% in 1995. The rate of increase in future compensation
levels was 6.0% for 1997, 1996 and 1995 and the expected
long-term rate of return on assets was 8.5% for 1997, 1996 and
1995. A limited number of employees are covered by collective
bargaining agreements under which payments are made to a
union-administered fund.
<PAGE>
The Company sponsors a voluntary thrift savings plan
covering the same employees eligible for the pension plan. Since
inception of the savings plan, the Company has matched 50% of
each eligible employee's elective contributions, limited to 3% of
the employee's salary.
The Company's expense under the thrift savings plan was
$1,270,000, $1,032,000 and $1,015,000 for 1997, 1996 and 1995,
respectively.
The Company currently offers eligible retirees the
opportunity to participate in a health plan (medical and dental)
and a life insurance plan. Substantially all employees may become
eligible for these benefits provided that the employee must be at
least 55 years of age and have 15 years of credited service at
retirement. The health plan is contributory, with retiree
contributions adjusted annually; the life insurance plan is
noncontributory. The accounting for the health plan anticipates
future modifications to the cost-sharing provisions to provide
for retiree premium contributions of approximately 20% of total
premiums, increases in deductibles and co-insurance at the
medical inflation rate and coordination with Medicare. Retiree
health and life insurance plans are not funded. The Company is
amortizing the transition obligation on the straight-line method
over a period of 20 years.
The following table sets forth the plans' accumulated
postretirement benefit obligation reconciled with the amounts
included in the Consolidated Balance Sheets as of April 3, 1997
and March 28, 1996 (in thousands):
1997 1996
Accumulated postretirement benefit
obligation:
Retirees $ 618 $ 557
Fully eligible active
plan participants 513 438
Other active plan participants 1,777 1,292
Accumulated postretirement
benefit obligation 2,908 2,287
Unrecognized net obligation upon
adoption being recognized over 20 years (697) (747)
Unrecognized gain (loss) (190) 105
Postretirement benefit liability $2,021 $1,645
Postretirement expense includes the following components (in
thousands):
1997 1996 1995
Service cost $199 $192 $188
Interest cost 172 208 202
Net amortization and deferral 50 66 66
Postretirement expense $421 $466 $456
For measurement purposes, the annual rate of increase in the
per capita cost of covered health care benefits assumed for 1997
was 7.5% for medical and 4.75% for dental. The rates were assumed
to decrease gradually to 5.0% for medical and 3.0% for dental at
2020 and remain at that level thereafter. The health care cost
trend rate assumption has a significant effect on the amounts
reported. Increasing <PAGE> the assumed health care cost trend rates by
one percentage point in each year would increase the accumulated
postretirement benefit obligation as of April 3, 1997 by $862,000
and the aggregate of the service and interest cost components of
postretirement expense for 1997 by $164,000. The weighted-average
discount rate used in determining the accumulated postretirement
benefit obligation was 7.0% for 1997 and 1996 and 7.75% for 1995.
NOTE 10--CONTINGENCIES
The Company, in the normal course of business, is party to
various legal actions. 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.
NOTE 11--FUTURE DISPOSITION OF ASSETS
The Company has provided reserves for estimated losses from
discontinuing the operation of fast food restaurants, for
theatres which have been or are expected to be closed and for
other future dispositions of assets.
In conjunction with the opening of certain new theatres in
fiscal 1986 through 1988, the Company expanded its food services
by leasing additional space adjacent to those theatres to operate
specialty fast food restaurants. The Company discontinued
operating the restaurants due to unprofitability. The Company
continues to sub-lease or to convert to other uses the space
leased for these restaurants. The Company is obligated under
long-term lease commitments with remaining terms of up to eleven
years. As of April 3, 1997, the base rents aggregate
approximately $779,000 annually, and $7,150,000 over the
remaining term of the leases. As of April 3, 1997, the Company
has subleased approximately 55% of the space with remaining terms
ranging from 2 months to 68 months. Non-cancellable subleases
currently aggregate approximately $496,000 annually, and
$4,216,000 over the remaining term of the subleases.
NOTE 12--TRANSACTIONS WITH DURWOOD, INC.
The Company and DI maintain intercompany accounts. Charges
to the intercompany accounts include the allocation of AMC
general and administrative expense of $116,000 in 1996 and 1995
and payments made by AMC on behalf of DI. There were no general
and administrative allocations in 1997. DI and non-AMCE
subsidiaries owed the Company $181,000 and $795,000 as of
April 3, 1997 and March 28, 1996, respectively.
The Board of Directors has approved an agreement (the
"Merger Agreement") providing for the Merger of the Company and
DI, with the Company remaining as the surviving entity. The
Merger has been sought by members of the Durwood family so that
they may hold their interests in the Company directly instead of
indirectly through DI and a related entity. In the Merger,
stockholders of DI would exchange their shares of DI stock for
shares of the Company's stock. Although the outstanding shares of
the Company's Common Stock will increase and the outstanding
shares of its Class B Stock will decrease if the Merger is
effected, no aggregate increase in total outstanding shares will
occur because the shares of the Company owned by DI will be
canceled and the shares of the Company held by other stockholders
would not be exchanged in the Merger. A condition to the Merger
is that the Merger <PAGE> Agreement receive approval of the holders of a
majority of the shares of Common Stock other than DI, the Durwood
family, their spouses and children and officers and directors of
the Company.
DI is primarily a holding company with no significant
operations or assets other than its equity interest in the
Company. Management expects that the Merger will be accounted for
as a corporate reorganization and that, accordingly, the recorded
balances for consolidated assets, liabilities, total
stockholders' equity and results of operations of the Company
would not be affected. If the Merger occurs, the Company will be
responsible for paying 50% of its costs in connection with the
Merger; the aggregate merger costs for both the Company and DI
are estimated to be approximately $2 million. Management does not
believe that the transaction will have a significant effect on
the Company's financial condition, liquidity or capital
resources.
NOTE 13--FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate
the fair value of each class of financial instruments for which
it was practicable to estimate that value.
The carrying value of cash and equivalents and investments
in debt securities approximates fair value because of the short
duration of those instruments. The fair value of publicly held
corporate borrowings was based upon quoted market prices. For
other corporate borrowings, the fair value was based upon rates
available to the Company from bank loan agreements or rates based
upon the estimated premium over U.S. treasury notes with similar
average maturities.
The estimated fair values of the Company's financial
instruments are as follows (in thousands):
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial assets:
Cash and equivalents $24,715 $24,715 $10,795 $10,795
Financial liabilities:
Cash overdrafts $11,175 $11,175 $22,848 $22,848
Corporate borrowings 315,072 315,804 126,150 126,992
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS BY QUARTER
(In thousands, except per share amounts)
(Unaudited)
June 27, June 29, Sept. 26, Sept. 28, Dec. 26, Dec. 28,
1996 1995 1996 1995 1996 1995
Total revenues $161,927 $153,409 $202,436 $184,482 $163,192 $154,970
Total cost of
operations 132,821 118,738 155,593 135,497 130,464 118,252
General and
administrative 13,025 11,085 11,647 14,497 13,910 11,437
Depreciation and
amortization 11,674 9,972 12,740 10,471 13,129 10,399
Operating income 4,407 13,614 22,456 24,017 5,689 14,882
Interest expense 4,909 8,309 4,852 8,318 5,275 7,883
Investment income 182 2,226 139 2,440 343 1,958
Gain (loss) on
disposition of
assets 18 (15) (49) (123) (53) 159
Earnings (loss)
before income
taxes and
extraordinary
item (302) 7,516 17,694 18,016 704 9,116
Income tax
provision (125) 3,100 7,125 7,400 285 3,800
Earnings (loss)
before
extraordinary
item (177) 4,416 10,569 10,616 419 5,316
Extraordinary
item--Loss on
extinguishment
of debt (net of
income tax benefit
of $13,400) -- -- -- -- -- (19,350)
Net earnings
(loss) $ (177) $ 4,416 $ 10,569 $ 10,616 $ 419 $(14,034)
Preferred
dividends 1,546 1,750 1,454 1,750 1,454 1,750
Net earnings
(loss) for
common shares $ (1,723)$ 2,666 $ 9,115 $ 8,866 $(1,035) $(15,784)
Earnings (loss)
per share before
extraordinary item:
Primary $ (.10) $ .16 $ .51 $ .53 $ (.06) $ .21
Fully diluted$ (.10) $ .16 $ .44 $ .45 $ (.06) $ .21
Earnings (loss)
per share:
Primary $ (.10) $ .16 $ .51 $ .53 $ (.06) $ (.93)
Fully diluted$ (.10) $ .16 $ .44 $ .45 $ (.06) $ (.93)
April 3, March 28, Fiscal Year
1997/3/ 1996 1997/3/ 1996
Total revenues $222,042 $163,111 $749,597 $655,972
Total cost of
operations 161,124 118,871 580,002 491,358
General and
administrative 18,065 15,040 56,647 52,059
Depreciation and
amortization 22,260/2/ 13,044/1/ 59,803 43,886
Operating income 20,593 16,156 53,145 68,669
Interest expense 6,986 4,318 22,022 28,828
Investment income 192 428 856 7,052
Gain (loss) on
disposition of
assets -- (243) (84) (222)
Earnings (loss)
before income
taxes and
extraordinary
item 13,799 12,023 31,895 46,671
Income tax
provision 5,615 5,000 12,900 19,300
Earnings (loss)
before
extraordinary
item 8,184 7,023 18,995 27,371
Extraordinary item--
Loss on
extinguishment of
debt (net of
income tax benefit
of $13,400) -- -- -- (19,350)
Net earnings (loss) $ 8,184 $ 7,023 $ 18,995 $ 8,021
Preferred dividends 1,453 1,750 5,907 7,000
Net earnings (loss)
for common shares $ 6,731 $ 5,273 $ 13,088 $ 1,021
Earnings (loss)
per share before
extraordinary
item:
Primary $ .38 $ .31 $ .74 $ 1.21
Fully diluted $ .34 $ .29 $ .73 $ 1.20
Earnings (loss)
per share:
Primary $ .38 $ .31 $ .74 $ .06
Fully diluted $ .34 $ .29 $ .73 $ .06
_______
/1/ During the fourth quarter of 1996, the Company adopted
Statement of Financial Accounting Standards No. 121 ("SFAS
121"), Accounting for the Impairment of Long-lived Assets
and for Long-lived Assets to be Disposed Of. As a result,
the Company recognized an impairment loss under SFAS 121 of
$1,799.
/2/ During the fourth quarter of 1997, the Company recognized an
impairment loss under SFAS 121 of $7,231.
/3/ Fiscal year 1997 consists of 53 weeks and the fiscal quarter
ended April 3, 1997 consists of 14 weeks.
