<PAGE>
RULE 424(B)(1)
REGISTRATION NO. 33-51693
4,000,000 SHARES
PROSPECTUS
FEBRUARY 24, 1994
[LOGO]
AMC ENTERTAINMENT INC.
$1.75 CUMULATIVE CONVERTIBLE PREFERRED STOCK
The shares of $1.75 Cumulative Convertible Preferred Stock, par value
66 2/3 CENTS per share (the "Convertible Preferred"), of AMC Entertainment Inc.
(the "Company") offered hereby (the "Offering") are convertible at the option of
the holder at any time, unless previously redeemed, into shares of the Company's
Common Stock, par value 66 2/3 CENTS per share (the "Common Stock"), at a
conversion price equal to $14.50 per share of Common Stock (equivalent to a
conversion rate of 1.724 shares of Common Stock for each share of Convertible
Preferred), subject to adjustment under certain conditions. Upon surrender of
any shares of Convertible Preferred for conversion, the Company may, at its
option, pay to the holder of such shares an amount of cash per share of
Convertible Preferred equal to the then Market Value (as defined herein) of the
number of shares of Common Stock into which such shares of Convertible Preferred
are then convertible. On February 23, 1994, the last reported sale price of the
Common Stock on the American Stock Exchange was $12 1/4 per share. Dividends on
the Convertible Preferred will be cumulative and payable quarterly, commencing
June 15, 1994. The liquidation preference of the Convertible Preferred is $25.00
per share, plus accrued and unpaid dividends. The Convertible Preferred will be
redeemable at the option of the Company, in whole or in part, from time to time
after March 15, 1997, at the redemption prices set forth herein, plus accrued
and unpaid dividends.
The Convertible Preferred has been approved for listing on the American
Stock Exchange, subject to official notice of issuance.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE CONVERTIBLE PREFERRED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC (1) COMMISSIONS (2) COMPANY (3)
<S> <C> <C> <C>
Per Share................................. $25.00 $0.875 $24.125
Total (4)................................. $100,000,000 $3,500,000 $96,500,000
<FN>
(1) PLUS ACCRUED DIVIDENDS, IF ANY, FROM THE DATE OF ISSUANCE.
(2) SEE "UNDERWRITING" FOR INDEMNIFICATION ARRANGEMENTS WITH THE UNDERWRITERS.
(3) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY, ESTIMATED AT $900,000.
(4) THE COMPANY HAS GRANTED TO THE UNDERWRITERS AN OPTION, EXERCISABLE AT ANY
TIME WITHIN 30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO 600,000 ADDITIONAL
SHARES SOLELY TO COVER OVER-ALLOTMENTS, IF ANY. IF THE OPTION IS EXERCISED
IN FULL, THE TOTAL PRICE TO THE PUBLIC, UNDERWRITING DISCOUNTS AND
COMMISSIONS AND PROCEEDS TO THE COMPANY WILL BE $115,000,000, $4,025,000 AND
$110,975,000, RESPECTIVELY. SEE "UNDERWRITING."
</TABLE>
The Convertible Preferred is offered by the several Underwriters, subject to
prior sale, when, as and if issued to and accepted by them, and subject to
certain other conditions, including the right to reject orders in whole or in
part. It is expected that delivery of the Convertible Preferred will be made
against payment therefor in New York, New York on or about March 3, 1994.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BEAR, STEARNS & CO. INC.
SMITH BARNEY SHEARSON INC.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE CONVERTIBLE
PREFERRED AND THE OUTSTANDING COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE
AMERICAN STOCK EXCHANGE, THE PACIFIC STOCK EXCHANGE, THE OVER-THE-COUNTER MARKET
OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. AS USED HEREIN, THE TERM "COMPANY" MEANS
AMC ENTERTAINMENT INC. ("AMCE") AND, UNLESS THE CONTEXT OTHERWISE REQUIRES, ITS
WHOLLY-OWNED SUBSIDIARY, AMERICAN MULTI-CINEMA, INC. ("AMC"), AND ITS
SUBSIDIARIES. REFERENCES HEREIN TO THEATRES OPERATED BY THE COMPANY PRIOR TO MAY
28, 1993 INCLUDE THOSE OWNED BY EXHIBITION ENTERPRISES PARTNERSHIP ("EEP") BUT
MANAGED BY THE COMPANY PRIOR TO SUCH DATE WHEN THE COMPANY ACQUIRED 100%
OWNERSHIP OF EEP.
THE COMPANY
The Company is the third largest motion picture exhibitor in the United
States based on the number of theatre screens operated. Since 1968, when the
Company operated 12 theatres with 22 screens, the Company has expanded its
operations to include 239 theatres with 1,614 screens located in 22 states and
the District of Columbia. Nearly one-half of the screens operated by the Company
are located in Florida, California, Pennsylvania and Texas and approximately 70%
of the Company's screens are located in areas among the 20 largest Areas of
Dominant Influence (television market areas as defined by Arbitron Company).
The Company's revenues are generated primarily from box office admissions
and theatre concession sales, which accounted for 66% and 28%, respectively, of
fiscal 1993 revenues. The balance of the Company's revenues are generated
primarily by on-screen advertising programs and video games located in theatre
lobbies. The Company believes that attendance, revenue and cash flow per screen
at its theatres are among the highest in the industry due to its attractive,
strategically located multi-screen theatres and innovative marketing programs.
The Company is an industry leader in the development and operation of
multi-screen theatres, primarily in large metropolitan markets. This strategy of
establishing multi-screen theatre complexes enhances attendance and concession
sales by enabling the Company to exhibit concurrently a variety of motion
pictures attractive to different segments of the movie-going public. It also
allows the Company to match a particular motion picture's attendance patterns to
the appropriate auditorium size, thereby extending the run of a motion picture
and maximizing profit. In addition, multi-screen theatre complexes realize
economies of scale by serving more patrons from common support facilities,
thereby enabling the Company to spread costs over a higher revenue base. During
the fiscal year ended April 1, 1993, theatres with ten or more screens had per
patron theatre operating income (theatre revenues less cost of operations and
cash payments under theatre leases) of $1.18 compared to $1.02 at theatres with
less than ten screens (excluding "dollar houses"). As of December 30, 1993,
approximately 28% of the Company's screens were in theatre complexes with ten or
more screens and approximately 87% were located in theatre complexes with six or
more screens. The average number of screens per theatre operated by the Company
is 6.8, which is the highest of the five largest theatre chains in North America
and higher than the industry average of 4.5.
Substantially all of the Company's theatres are leased. The Company
continually upgrades its theatre circuit by opening new theatres, refurbishing
and adding new screens to existing theatres and selectively closing unprofitable
theatres. Since March 1988, approximately 38 of the Company's theatres with 325
screens, representing 20% of its screens, have been opened and approximately $43
million has been spent to modernize and remodel its theatres. The Company
believes that this strategy of maintaining modern multi-screen theatre complexes
enhances its ability to license commercially popular motion pictures.
The Company continually introduces new programs and amenities at its
theatres. The following are examples of developments that are being implemented
in the Company's theatre circuit. MovieWatcher-R- is a frequent moviegoer
program that rewards loyal customers for patronizing AMC theatres nationwide.
Teleticketing allows customers to order tickets in advance by telephone and
purchase them with credit cards. AMC's proprietary High Impact Theatre System
provides clear picture and dynamic sound throughout the auditorium. Computerized
box offices maintain attendance records by title and show time, allowing the
Company to make informed staffing, marketing and motion picture exhibition
decisions.
3
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Motion picture theatres are the primary initial distribution channel for new
motion picture releases and the Company believes that the theatrical success of
a motion picture is the critical factor in establishing the value of the motion
picture in cable television, videocassette or other ancillary markets. The total
dollars spent on all types of motion picture entertainment in the United States,
including box office admissions, increased from $17.5 billion in 1987 to $26.0
billion in 1992. From 1980 to 1992, domestic box office admissions have
increased from $2.7 billion to $4.9 billion, primarily due to an increase in
average ticket prices throughout this period.
Prior to May 28, 1993, 60 of the Company's theatres containing 452 screens
were managed by the Company but owned by EEP, a general partnership in which the
Company had a 50% partnership interest. On May 28, 1993, the Company acquired
the remaining partnership interest in EEP for a purchase price aggregating $17.5
million and the payment of $37 million of EEP bank indebtedness. As a result of
the acquisition and the consolidation of EEP, reported revenues and EBITDA for
the thirty-nine week period ended December 30, 1993 were $122.0 million and
$18.7 million higher, respectively, than they would have been had the Company
retained only a 50% interest in EEP. See Notes 4 and 14 of the Company's "Notes
to Consolidated Financial Statements for the fiscal year ended April 1, 1993"
and Note 2 of the Company's "Notes to Consolidated Financial Statements for the
thirty-nine weeks ended December 30, 1993."
The Company intends to use the proceeds of the Offering: (i) to continue to
expand and improve its domestic theatre circuit, (ii) to finance the
construction or acquisition of theatres in foreign markets, (iii) to repurchase
and retire a portion of the Company's outstanding 11 7/8% Senior Notes Due 2000
and 12 5/8% Senior Subordinated Notes Due 2002 (collectively, the "Notes")
pursuant to open market or privately negotiated purchases or otherwise and (iv)
for general corporate purposes.
The Company's predecessor was founded in Kansas City, Missouri in 1920 by
the father of Mr. Stanley H. Durwood, the current Chairman of the Board and
Chief Executive Officer of AMCE. Durwood, Inc. ("DI"), all of whose stock is
beneficially owned by Mr. Stanley H. Durwood and his children, owns 100% of the
Company's Class B Stock and 50.2% of its Common Stock, representing
approximately 98% of the voting power of outstanding securities in matters other
than the election of directors. The Class B Stock is entitled to elect 75% of
AMCE's Board of Directors. See "Security Ownership of Certain Beneficial Owners
and Management."
AMCE is a Delaware corporation with its principal executive offices located
at 106 West 14th Street, Kansas City, Missouri 64105. Its telephone number at
such address is (816) 221-4000.
4
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THE OFFERING
<TABLE>
<S> <C>
Securities Offered...................... 4,000,000 shares of $1.75 Cumulative Convertible Preferred Stock (the
"Convertible Preferred") (4,600,000 shares if the Underwriters' over-allotment
option is exercised in full).
Dividends............................... Cumulative from the date of issuance at the annual rate of $1.75 per share,
payable quarterly on March 15, June 15, September 15 and December 15 of each
year, commencing June 15, 1994, out of funds legally available therefor, when,
as and if declared by the Board of Directors of the Company.
Conversion Rights....................... The Convertible Preferred will be convertible at the option of the holder at any
time, unless previously redeemed, into shares of Common Stock at a conversion
price of $14.50 per share of Common Stock (equivalent to a conversion rate of
1.724 shares of Common Stock per share of Convertible Preferred), subject to
adjustment in certain events including a Change of Control or Fundamental Change
(each as defined herein). Upon the surrender of any shares of Convertible
Preferred for conversion, the Company may, at its option, pay to the holder of
such shares an amount in cash equal to the then Market Value (as defined here-
in) of the number of shares of Common Stock into which such shares of
Convertible Preferred are then convertible.
Special Conversion Rights............... The conversion price of the Convertible Preferred will be reduced for a limited
period in certain circumstances. In general, the reduction will occur if a
Fundamental Change or Change of Control occurs (at a per share value) below the
then prevailing conversion price. The minimum conversion price will be 80% of
the last reported sale price of the Common Stock as set forth on the cover page
of this Prospectus (subject to certain adjustments). No adjustment will occur if
a majority of the consideration received by the holders of the Common Stock in
any transaction consists of Marketable Stock (as defined herein) of a successor
corporation or if the holders of Voting Stock (as defined herein) of the Com-
pany hold a majority of the Voting Stock of such successor corporation. See
"Description of Capital Stock -- Convertible Preferred -- Special Conversion
Rights."
Optional Redemption..................... The Convertible Preferred is redeemable for cash at any time after March 15,
1997 at the option of the Company, in whole or in part, at a redemption price
initially of $26.00 per share, declining ratably immediately after March 15 of
each year thereafter to a redemption price of $25.00 per share after March 15,
2001, plus, in each case, any accrued and unpaid dividends.
Ranking................................. The Convertible Preferred will rank, with respect to dividend rights and rights
upon liquidation, winding up or dissolution, senior to all classes of the
Company's common stock (including, without limitation, the Common Stock and
Class B Stock) and junior to any other series of preferred stock that may
hereafter be created that ranks senior to the Convertible Preferred.
</TABLE>
5
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<TABLE>
<S> <C>
Voting Rights........................... Except as required by law or with respect to an amendment of the Certificate of
Incorporation of the Company adversely affecting the rights of the Convertible
Preferred, the holders of the Convertible Preferred will not be entitled to any
voting rights (i) unless the equivalent of six quarterly dividends payable on
the Convertible Preferred are in arrears, in which case the number of directors
of the Company will be increased by two and the holders of the Convertible
Preferred, voting separately as a class with the holders of shares of any other
series of parity preferred stock upon which like voting rights have been
conferred and are exercisable, will be entitled to elect two directors, who
shall serve until all dividends in arrears have been paid or declared and set
apart for payment, and (ii) except with respect to the creation, authorization
or issuance of capital stock ranking senior to or on parity with (in certain
respects) the Convertible Preferred.
Federal Income Tax Consequences......... There are certain federal income tax consequences associated with purchasing,
holding and disposing of the Convertible Preferred, including the fact that a
redemption of shares of Convertible Preferred for cash will be a taxable
transaction. See "Certain Federal Income Tax Consequences."
Use of Proceeds......................... The Company intends to use the net proceeds of the Offering: (i) to improve its
domestic theatre circuit through the construction of new theatres, the addition
of screens at, or remodeling of, existing theatres and the acquisition of
existing theatres from other circuits, (ii) to finance the construction or
acquisition of theatres in foreign markets, (iii) to repurchase and retire a
portion of the Notes pursuant to open market or privately negotiated purchases
or otherwise and (iv) for general corporate purposes.
AMEX Symbol for Common Stock............ AEN
AMEX Symbol for Convertible
Preferred.............................. AEN.Pr
</TABLE>
6
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SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
ACTUAL (1)
----------------------------------------------------------------
THIRTY-NINE WEEKS ENDED FISCAL YEAR ENDED
------------------------------- ------------------------------
DECEMBER 30, DECEMBER 31, APRIL 1, APRIL 2, MARCH 28,
1993 1992 1993 1992 1991
-------------- -------------- -------- --------- ---------
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Total revenues (2).............................. $ 447,958 $ 306,130 $404,465 $ 406,964 $ 446,351
Depreciation and amortization................... 29,151 21,086 28,175 31,385 32,572
Operating income................................ 45,462 21,106 26,670 8,793 18,377
Gain (loss) on disposition of assets (3) (79) 9,640 9,638 8,721 6,649
Earnings (loss) before extraordinary items
(4)............................................ 12,519 9,070 7,746 (5,519) 567
Net earnings (loss)............................. 12,519 2,587 1,263 (5,519) 1,067
Earnings (loss) per share....................... 0.76 0.14 0.06 (0.39) 0.02
Ratio of earnings to fixed charges and preferred
stock dividends (5)............................ 1.50 1.36 1.25 -- 1.01
BALANCE SHEET DATA
Cash, cash equivalents and investments.......... $ 58,518 $ 50,373 $ 50,106 $ 36,823 $ 46,554
Total debt (including capitalized lease
obligations)................................... 268,810 253,888 255,302 240,231 263,160
Stockholders' equity............................ 31,966 19,495 18,171 39,869 46,088
Total assets.................................... 407,611 379,112 374,102 377,699 439,488
OTHER DATA
EBITDA (6)...................................... $ 74,613 $ 44,692 $ 57,345 $ 43,178 $ 53,049
Property acquisitions (excluding capitalized
lease obligations)............................. 6,707 7,200 8,821 21,520 20,227
<CAPTION>
PRO FORMA (7)
------------------------------------------
FISCAL
YEAR
THIRTY-NINE WEEKS ENDED ENDED
------------------------------- --------
DECEMBER 30, DECEMBER 31, APRIL 1,
1993 1992 1993
-------------- -------------- --------
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE
DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Total revenues.................................. $ 447,958 $ 412,177 $543,340
Depreciation and amortization................... 28,825 29,203 38,597
Operating income................................ 45,834 31,112 39,316
Gain (loss) on disposition of assets (3) (79) 9,590 9,590
Earnings before extraordinary items............. 11,602 9,211 7,862
Net earnings.................................... 11,602 2,728 1,379
Earnings per share.............................. 0.71 0.15 0.07
Ratio of earnings to fixed charges and preferred
stock dividends (5)............................ 1.47 1.35 1.24
OTHER DATA
EBITDA (6)...................................... $ 74,659 $ 62,815 $ 80,413
Property acquisitions (excluding capitalized
lease obligations)............................. 8,757 10,910 13,249
</TABLE>
FOOTNOTES ON NEXT PAGE
7
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<TABLE>
<S> <C> <C> <C> <C> <C>
<FN>
(1) Effective at the beginning of fiscal 1990 (i.e., the fiscal year ended March
29, 1990), the Company adopted a 52/53 week year. The fiscal year ended
April 2, 1992 consisted of 53 weeks, while the fiscal years ended April 1,
1993 and March 28, 1991 consisted of 52 weeks.
(2) During fiscal 1989, the Company sold 55 theatres with 375 screens to TPI
Entertainment, Inc. ("TPIE"). During fiscal 1992, the Company acquired a 50%
general partnership interest in the screens previously sold to TPIE. During
fiscal 1994, the Company acquired the remaining 50% interest in the
partnership.
(3) Includes the following gains upon the disposition of assets: (i) $8,200,000
in fiscal 1992 from the sale of eight theatres to Carmike Cinemas, Inc., and
(ii) $9,900,000 in fiscal 1993 from the sale of five theatres to Carmike
Cinemas, Inc. In addition, the Company sold a total of 56 theatres in fiscal
1989 and fiscal 1991 to TPIE and, because of the Company's relationship with
TPIE and other factors, the net gain of approximately $70,000,000 was
deferred. Prior to the acquisition of a 50% partnership interest in the
theatres sold to TPIE, the deferred gain was being amortized on the
straight-line method over an average life of approximately 11 years.
Following the Company's acquisition of a 50% partnership interest in EEP,
one-half of the then unamortized deferred gain was applied as a reduction in
the Company's investment in the partnership. After the Company acquired the
remaining partnership interest in EEP, the then unamortized deferred gain
was applied as a reduction to the property and intangible assets acquired.
(4) During fiscal 1993, the Company incurred extraordinary charges, due to a
debt restructuring, in the amount of $10,283,000 before an associated income
tax benefit of $3,800,000. For fiscal 1991, the Company recognized an income
tax benefit of $500,000 upon the utilization of a net operating loss
carryforward.
(5) The Company had a deficiency of earnings to fixed charges and preferred
stock dividends for fiscal 1992 of $3,632,000. For purposes of computing
this ratio, earnings consist of income (loss) before taxes, plus fixed
charges (excluding capitalized interest). Fixed charges consist of interest
expense, amortization of debt issuance costs, and one-third of fixed minimum
rental expense on operating leases treated as representative of the interest
factor attributable to rental expense. For fiscal 1992 and 1993, fixed
charges include $7,439,000 and $7,731,000, respectively, for the Company's
share (50%) of the fixed charges of EEP.
(6) Represents operating income plus depreciation and amortization plus
estimated loss on future disposition of assets. EBITDA is a financial
measure commonly used in the Company's industry and should not be construed
as an alternative to operating income (as determined in accordance with
generally accepted accounting principles ("GAAP"), an indicator of operating
performance, an alternative to cash flows from operating activities (as
determined in accordance with GAAP) or a measure of liquidity.
(7) The pro forma Statement of Operations Data for the fiscal year ended April
1, 1993 and the thirty-nine week periods ended December 30, 1993 and
December 31, 1992 give effect to the acquisition of EEP as if the
acquisition had occurred at the beginning of the period. The pro forma
adjustments are based upon available information and certain assumptions
that management of the Company believes are reasonable. See Note 1 to
"Selected Financial Data" for a discussion of the pro forma adjustments to
the historical data.
</TABLE>
8
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RISK FACTORS
In considering whether to purchase the Convertible Preferred offered hereby,
prospective investors should consider the following:
AVAILABILITY OF MOTION PICTURES
The ability of the Company to operate successfully depends upon a number of
factors, the most important of which is the availability of marketable motion
pictures and the performance of such motion pictures in the Company's markets.
Poor performance of, or disruption in the production of or access to, motion
pictures by the major studios and/or independent producers can adversely affect
the Company's business, and the Company has no control over the operations of
such suppliers. In addition, were the Company to experience poor relationships
with one or more distributors, its business could be adversely affected.
THEATRE DEVELOPMENT
The Company's growth strategy involves the development of new theatres and
may involve acquisitions of existing theatres and theatre circuits. There is
significant competition in the United States for site locations from both
theatre companies and other real estate uses and significant competition among
theatre companies for theatre acquisition opportunities. Further, the Company's
expansion programs may require financing in addition to the net proceeds from
the Offering and internally generated funds. In addition, the development of new
theatre locations involves significant risks and investments of time and is also
likely to have an initial negative impact on earnings. For example, it typically
takes the Company 18 to 24 months from the time a site is identified until a
theatre is opened on the site. Moreover, the availability of attractive site
locations can be affected by changes in the national, regional and local
economic climate, local conditions such as scarcity of space or an increase in
demand for real estate in the area, demographic changes, competition from other
available space and changes in real estate, zoning and tax laws. As a result of
the foregoing, there can be no assurance that the Company will be able to
acquire attractive site locations or existing theatres or theatre circuits on
terms it considers acceptable, that the Company will be able to acquire
financing for such theatres on acceptable terms or that the Company's strategy
will result in improvements to the business, financial condition or
profitability of the Company. See "Business -- Growth Strategy."
FOREIGN OPERATIONS
The Company is investigating opportunities for operating multi-screen
theatre complexes in Europe, Canada, Mexico and Asia but currently does not own,
lease or operate any theatres outside of the United States. There are
significant differences between the exhibition industry in the United States and
in foreign markets. Regulatory barriers affecting such matters as the size of
theatre complexes, the issuance of licenses and the ownership of land may
restrict market entry. Vertical integration of production and exhibition
companies in foreign markets may also have an adverse effect on the Company's
ability to license motion pictures for international exhibition. Quota systems
used by some countries to protect their domestic film industry may adversely
affect revenues from theatres that the Company might develop in such markets.
Such differences in industry structure and regulatory and trade practices may
adversely affect the Company's ability to expand internationally or to operate
at a profit following such expansion.
SIGNIFICANT OUTSTANDING INDEBTEDNESS
The Company had significant amounts of outstanding indebtedness as of
December 30, 1993, including $100 million principal amount of 11 7/8% Senior
Notes due 2000, $100 million principal amount of 12 5/8% Senior Subordinated
Notes due 2002 (collectively, the "Notes") and $68.4 million in capital lease
obligations. In addition, the Company has a $40 million credit facility (the
"Credit Facility"), under which there were no borrowings at December 30, 1993.
Indebtedness of the Company could have important consequences to holders of the
Convertible Preferred, including the following: (i) the Company's ability to
obtain additional financing in the future for working capital, capital
expenditures, acquisitions, general corporate
9
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purposes or other purposes may be impaired and (ii) a substantial portion of the
Company's cash flow from operations will be dedicated to the payment of interest
on its indebtedness, thereby reducing the funds available to the Company for its
operations, payment of dividends and any future business opportunities.
The Company will require substantial cash flow to make scheduled payments on
existing indebtedness and dividend payments on the Convertible Preferred. The
ability of the Company to make dividend payments on the Convertible Preferred
will be dependent on its future performance and liquidity, which in turn are
subject to financial, economic and other factors affecting the Company, many of
which are beyond its control.
DIVIDEND POLICY; DEPENDENCE ON SUBSIDIARIES; RESTRICTIONS ON DIVIDENDS
Holders of Convertible Preferred will be entitled to receive cumulative cash
dividends in the amounts specified on the cover page of this Prospectus when, as
and if declared by the Board of Directors of AMCE out of funds at the time
legally available therefor. Payment of dividends is subject to declaration by
the Board of Directors and, if not declared, dividends will accumulate from
quarter to quarter without interest until declared and paid. AMCE currently does
not pay regular cash dividends on its Common Stock (into which the Convertible
Preferred is convertible) and does not anticipate paying such dividends in the
foreseeable future.
All of the Company's interest in its theatres is owned by AMC or its
subsidiaries. Therefore, the Company's ability to service its debt and pay
dividends is dependent upon the earnings of its subsidiaries and distribution of
those earnings to the Company or upon other payments of funds by the
subsidiaries to the Company.
The Company's ability to pay dividends on the Convertible Preferred (as well
as the Common Stock) and to make other "restricted payments" is limited under
the Indentures governing the Notes (the "Indentures") to the sum of (i) 25% of
the Company's consolidated cash flow, as defined in the Indentures, from the
date of issuance of the Notes, (ii) net proceeds from the sale of capital stock
since the issuance of the Notes (including this Offering) and (iii) returns on
certain investments. Such amount available under the Indentures aggregated
approximately $9.8 million as of December 30, 1993 and will increase by
approximately $96 million as a result of this Offering.
FINANCIAL LOSSES
The Company has reported losses in each of fiscal years 1989, 1990 and 1992.
Cumulative losses of the Company for the period commencing with the beginning of
fiscal 1989 through the end of fiscal 1993 were approximately $27 million.
However, during this five-year period the Company's cumulative cash flow from
operations was approximately $88 million. The Company believes that statutory
surplus and net profits and cash available to it from future operations will be
sufficient to enable it to meet dividend and debt service requirements of the
Convertible Preferred and existing indebtedness. However, if the Company again
experiences such losses, it may be unable to meet such obligations while
attempting to withstand competitive pressures or adverse economic conditions. In
such circumstances, the value of the Convertible Preferred could be adversely
affected.
CREDIT FACILITY
The Credit Facility contains significant financial and other restrictive
covenants which limit the Company's operating flexibility. Under the Credit
Facility, which expires by its terms in August 1995, the Company and its
subsidiaries generally may not, among other matters, pay cash dividends during
its term in excess of the lesser of (i) $10 million or (ii) $5 million plus 25%
of cash flow, as defined in the Credit Facility, over the term of the Credit
Facility, in each case less capital expenditures outside of the United States.
The Company has made only one borrowing under the Credit Facility, which was in
connection with the acquisition of EEP, and the amount borrowed has been repaid.
The Company does not anticipate any need for borrowing under the Credit
Facility, and if the Company is unable to negotiate satisfactory amendments to
the Credit Facility to permit payment of dividends on the Convertible Preferred,
the Company intends to terminate the Credit Facility. The Company may attempt to
negotiate a new credit facility, but there can be no assurance that it will be
successful in doing so.
10
<PAGE>
CONTROLLING STOCKHOLDER
Voting control of AMCE is vested in the holders of Class B Stock, subject to
the right of holders of the Common Stock to elect one-fourth of the members of
the Board of Directors and the rights of the holders of preferred stock to elect
directors in certain circumstances. Mr. Stanley H. Durwood, primarily through
DI, beneficially owns all of the Class B Stock and 2,642,101 shares of the
Common Stock (approximately 50.2% of the issued and outstanding shares of Common
Stock), which in the aggregate represent approximately 98% of the combined
voting power of the Company's outstanding voting securities on all matters other
than the election of directors. As long as DI holds a majority of the Common
Stock, it will be able to elect or remove all of the Company's Board of
Directors.
ANTI-TAKEOVER MATTERS
Certain provisions of the Credit Facility and the Indentures may have the
effect of delaying or preventing transactions involving a "change of control" of
the Company, including transactions in which stockholders might otherwise
receive a possible substantial premium for their shares over then current market
prices, and may limit the ability of stockholders to approve transactions that
they may deem to be in their best interest.
A "change of control" would require the Company to refinance substantial
amounts of its indebtedness and would impose other significant obligations on
the Company. Generally, the acquisition by any person or persons other than Mr.
Stanley H. Durwood, his spouse, lineal descendants and their spouses (the
"Durwood Family"), any affiliate controlled by the Durwood Family or any trust
solely for the benefit of one or more members of the Durwood Family of
beneficial ownership of capital stock of the Company representing a majority of
the voting power of the Company's capital stock ordinarily having the right to
vote in the election of directors would constitute a "change of control" under
the Credit Facility and under the Indentures. A "change of control" will be an
event of default under the Credit Facility. In addition, upon the occurrence of
a "change of control," the Company would be required to make an offer to
purchase all the Notes; however, the Credit Facility prohibits the purchase of
the Notes by the Company in the event of a "change of control." The inability to
repay indebtedness under the Credit Facility, if accelerated, or to purchase all
of the tendered Notes, would also constitute an event of default under the
Indentures, which would have certain adverse consequences to the Company and
holders of the Convertible Preferred.
A Change of Control of, or a Fundamental Change (each as defined herein) to,
the Company would also give holders of the Convertible Preferred a right to
convert their shares into a greater number of shares of Common Stock. See
"Description of Capital Stock -- Convertible Preferred -- Special Conversion
Rights."
Under AMCE's Certificate of Incorporation, holders of Class B Stock and
Common Stock generally vote as a class, with each share of Common Stock being
entitled to one vote per share and each share of Class B Stock being entitled to
ten votes per share. As a result of the provisions of the Certificate of
Incorporation and the ownership of the Company, no change of control requiring
stockholder approval is possible without the consent of DI, which owns all the
Class B Stock, and Mr. Stanley H. Durwood, who controls DI.
MARKET FOR CONVERTIBLE PREFERRED STOCK
There has been no public market for the Convertible Preferred prior to this
Offering. Due to the absence of any prior public market for the Convertible
Preferred, there can be no assurance that the initial public offering price will
correspond to the price at which the Convertible Preferred will trade in the
public market subsequent to this Offering. Application has been made to list the
Convertible Preferred on the American Stock Exchange (the "AMEX"). Prices for
the Convertible Preferred will be determined in the marketplace and may be
influenced by many factors, including the liquidity of the market for the
Convertible Preferred, investor perceptions of the Company, the market price of
the Common Stock and general industry and economic conditions. The Common Stock
into which the Convertible Preferred is convertible is listed and traded on the
AMEX and the Pacific Stock Exchange.
11
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this Offering, AMCE will have approximately 5,262,830
shares of Common Stock outstanding and 11,157,000 shares of Class B Stock
outstanding, which are convertible into a like number of shares of Common Stock.
Of the shares of Common Stock outstanding or issuable upon conversion of the
Class B Stock, approximately 2,573,151 are freely tradeable without restriction
or registration under the Securities Act of 1933, as amended (the "Securities
Act"). All of the remaining shares of Common Stock are either held by affiliates
or are "restricted securities," as that term is defined in Rule 144 promulgated
under the Securities Act, all of which are presently eligible for sale (subject
to any applicable volume restrictions of Rule 144). Additional shares of Common
Stock, including shares issuable upon exercise of options and warrants, will
also become eligible for sale in the public market from time to time. However,
holders of substantially all of the restricted shares have agreed not to sell
any of their shares of Common Stock for a period of 90 days from the date of
this Prospectus without the prior written consent of the Underwriters. Following
this Offering, sales of substantial amounts of AMCE's Common Stock in the public
market pursuant to Rule 144 or otherwise, or even the potential of such sales,
could adversely affect the prevailing market price of the Common Stock and
impair AMCE's ability to raise additional capital through the sale of equity
securities.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Convertible Preferred
are estimated to be $95.6 million (assuming the Underwriters' over-allotment
option is not exercised). The Company intends to use such proceeds (i) to
improve its domestic theatre circuit through the construction of new theatres,
the addition of screens at, or remodeling of, existing theatres and the
acquisition of existing theatres from other circuits, (ii) to finance the
construction or acquisition of theatres in foreign markets, (iii) to repurchase
and retire a portion of the Notes pursuant to open market or privately
negotiated purchases or otherwise and (iv) for general corporate purposes. Such
new theatres and screens may be acquired pursuant to lease agreements or through
acquisition of fee ownership and may be constructed by the Company on a stand-
alone basis or through partnerships or other arrangements with third parties.
The Company's determination to acquire Notes will depend on many factors,
including factors beyond its control such as prevailing market prices for the
Notes, and may be subject to limitations in the Indentures and other debt
instruments to which it is a party. The Company has made no determination as to
the amount of proceeds that will be allocated to any of the foregoing purposes.
However, the Company expects that no more than a nominal amount, if any, of the
proceeds would be used for general corporate purposes and that substantially all
of the proceeds will be used for the other purposes identified above.
The actual number of screens the Company may build or acquire with proceeds
of the Offering or otherwise will depend on a number of factors, including
geographic location, whether the Company acquires fee, as opposed to leasehold,
interests in the theatres and theatre sites and the availability of development
partners or other outside financing sources. Presently the Company is not
engaged in discussions with any person respecting the possible acquisition of
existing theatres or theatre circuits, and there can be no assurances that any
acquisition will occur. Pending their use for the purposes set forth above, the
Company will invest the net proceeds of the Offering in interest-bearing
instruments or other securities.
12
<PAGE>
DIVIDENDS AND PRICE RANGE OF COMMON STOCK
AMCE's Common Stock is listed on the American and Pacific Stock Exchanges
under the symbol AEN. The Convertible Preferred has been approved for listing on
the AMEX, subject to official notice of issuance, under the symbol AEN.Pr. The
table below sets forth, for the periods indicated, the high and low closing
prices of the Common Stock as reported on the AMEX composite tape.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
--------------------
HIGH LOW
--------- ---------
<S> <C> <C>
Year Ended April 2, 1992:
1st Quarter............................................................................ $ 6 3/4 $ 5 1/4
2nd Quarter............................................................................ 6 5
3rd Quarter............................................................................ 5 1/8 4
4th Quarter............................................................................ 5 4 1/8
Year Ended April 1, 1993:
1st Quarter............................................................................ $ 7 1/4 $ 4 3/8
2nd Quarter............................................................................ 7 1/8 4 5/8
3rd Quarter............................................................................ 6 1/2 4 1/8
4th Quarter............................................................................ 8 3/4 5 7/8
Year Ending March 31, 1994:
1st Quarter............................................................................ $ 9 3/4 $ 7 3/8
2nd Quarter............................................................................ 13 9 1/4
3rd Quarter............................................................................ 14 7/8 12 3/8
4th Quarter through February 23, 1994.................................................. 13 1/2 12 1/4
</TABLE>
On February 23, 1994, the reported last sale price of the Common Stock on
the AMEX was $12 1/4. As of February 1, 1994, there were 484 holders of record
of Common Stock.
AMCE's Certificate of Incorporation provides that holders of Common Stock
and Class B Stock shall receive, pro rata per share, such cash dividends as may
be declared from time to time by the Board of Directors. Except for a $1.14 per
share dividend declared in connection with a recapitalization that occurred in
August 1992, AMCE has not declared a dividend on shares of Common Stock since
fiscal 1989. Any payment of cash dividends on the Common Stock in the future
will be at the discretion of the Board of Directors and will depend upon such
factors as earnings levels, capital requirements, the Company's financial
condition and other factors deemed relevant by its Board of Directors.
Currently, AMCE does not contemplate declaring or paying any dividends on the
Common Stock.
AMCE's ability to pay cash dividends on the Common Stock, Class B Stock and
Convertible Preferred is restricted under both the terms of the Credit Facility
and the Indentures. The Credit Facility limits the amount of cash dividends
which AMCE may pay during its term to the lesser of (i) $10 million or (ii) $5
million plus 25% of cash flow, as defined in the Credit Facility, over the term
of the Credit Facility, in each case less capital expenditures outside of the
United States. If AMCE is unable to amend its Credit Facility to permit the
payment of dividends on the Convertible Preferred, it will terminate the Credit
Facility. The terms of the Indentures restrict AMCE's ability to pay cash
dividends by requiring that such dividends and other "restricted payments"
(which term includes, as long as the Company's Senior Notes due 2000 are
outstanding, any repurchase prior to maturity of the Company's Senior
Subordinated Notes due 2002) generally not exceed the sum of 25% of cash flow
plus net proceeds of certain capital contributions and sales of capital stock
received, after August 12, 1992. The amount available under the restriction on
payments of cash dividends under the Indentures was approximately $9.8 million
as of December 30, 1993. After giving effect to the Offering, such amount would
be increased by approximately $96 million.
13
<PAGE>
CAPITALIZATION
The following table sets forth the total capitalization of the Company
(including short-term debt) as of December 30, 1993 and as adjusted to reflect
the Offering (assuming no exercise of the Underwriters' over-allotment option
and assuming none of the proceeds are used to purchase Notes). This table should
be read in conjunction with the Company's Consolidated Financial Statements
included elsewhere in the Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 30, 1993(1)
--------------------------
AS
ACTUAL ADJUSTED
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt (including current portion of
long-term debt).................................. $ 2,519 $ 2,519
Long-term debt.................................... 266,291 266,291
Stockholders' equity
Convertible Preferred Stock, par value
66 2/3 CENTS per share, 10,000,000 shares
authorized at December 30, 1993; 0 shares
issued at December 30, 1993; 4,000,000 shares
issued as adjusted (aggregate liquidation value
of $100,000,000)............................... -- 2,667
Common Stock, par value 66 2/3 CENTS per share,
45,000,000 shares authorized at December 30,
1993; 4,684,130 shares issued and outstanding
(2)(3)......................................... 3,123 3,123
Class B Stock, par value 66 2/3 CENTS per share,
30,000,000 shares authorized at December 30,
1993; 11,730,000 shares issued and outstanding
(3)............................................ 7,820 7,820
Additional paid-in capital...................... 13,979 106,912
Retained earnings............................... 7,044 7,044
---------- ----------
Total stockholders' equity.................... 31,966 127,566
---------- ----------
Total capitalization.......................... $ 300,776 $ 396,376
---------- ----------
---------- ----------
<FN>
- ------------------------
(1) For information concerning the Company's commitments and contingencies, see
"Business -- Legal Proceedings" and Note 11 of the Company's "Notes to
Consolidated Financial Statements for the Fiscal Year ended April 1, 1993"
and Note 5 of the Company's "Notes to Consolidated Financial Statements for
the thirty-nine weeks ended December 30, 1993" included elsewhere in this
Prospectus.
(2) Does not include shares of Common Stock issuable upon the conversion of
Convertible Preferred or 11,730,000 shares reserved for issuance upon
conversion of the Class B Stock or 823,000 shares reserved for issuance upon
the exercise of outstanding employee stock options.
(3) On January 24, 1994, DI converted 573,000 shares of Class B Stock for a like
number of shares of Common Stock.
</TABLE>
14
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected data regarding the Company's five
most recent fiscal years and the interim periods ended December 30, 1993 and
December 31, 1992. The historical financial information for each of the fiscal
years specified below has been derived from the Company's consolidated financial
statements for such periods. The consolidated financial statements for the
fiscal year ended April 1, 1993 have been audited by Coopers & Lybrand, and
those for fiscal years ended April 2, 1992 and March 28, 1991 have been audited
by Deloitte & Touche, each independent certified public accountants, as
indicated in their respective reports thereon which appear elsewhere herein. The
unaudited pro forma financial information of the Company as of and for the
fiscal year ended April 1, 1993 and for the interim periods ended December 30,
1993 and December 31, 1992 has been adjusted to give effect to the acquisition
of EEP as set forth below in footnote 1. Such pro forma information does not
purport to represent what the Company's results of operations would have been
had the acquisition of EEP occurred on the dates presented or to project the
Company's financial position or results of operations for any future period. The
historical financial data set forth below is qualified in its entirety by
reference to the Company's Consolidated Financial Statements and the Notes
thereto included elsewhere in this Prospectus. The historical and pro forma
financial data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements and the Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED(2)
----------------------------------------------------------------
PRO FORMA(1) ACTUAL
------------------------------ ------------------------------
DECEMBER 30, DECEMBER 31, DECEMBER 30, DECEMBER 31,
1993 1992 1993 1992
------------- ------------- ------------- -------------
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Total revenues (3)........................................ $ 447,958 $ 412,177 $ 447,958 $ 306,130
Total cost of operations.................................. 345,342 323,082 345,388 235,350
Depreciation and amortization............................. 28,825 29,203 29,151 21,086
General and administrative expenses....................... 27,957 26,280 27,957 26,088
Estimated loss on future dispositions..................... -- 2,500 -- 2,500
------------- ------------- ------------- -------------
Operating income.......................................... 45,834 31,112 45,462 21,106
Interest expense (4)...................................... 27,546 26,579 27,616 23,161
Investment income (5)..................................... 1,493 88 3,252 6,485
Gain (loss) on disposition of assets (6).................. (79) 9,590 (79) 9,640
Income tax provision (7).................................. 8,100 5,000 8,500 5,000
------------- ------------- ------------- -------------
Earnings before extraordinary items....................... 11,602 9,211 12,519 9,070
Extraordinary items (8)................................... -- (6,483) -- (6,483)
------------- ------------- ------------- -------------
Net earnings.............................................. $ 11,602 $ 2,728 $ 12,519 $ 2,587
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Earnings per share........................................ $ 0.71 $ 0.15 $ 0.76 $ 0.14
Common dividends per share (9)............................ -- 1.14 -- 1.14
Weighted average number of shares outstanding............. 16,452 16,195 16,452 16,195
Ratio of earnings to fixed charges and preferred stock 1.47 1.35 1.50 1.36
dividends (10)...........................................
BALANCE SHEET DATA
Cash, cash equivalents and investments.................... N/A N/A $ 58,518 $ 50,373
Total debt (including capitalized lease obligations)...... N/A N/A 268,810 253,888
Stockholders' equity...................................... N/A N/A 31,966 19,495
Total assets.............................................. N/A N/A 407,611 379,112
OTHER DATA
EBITDA (11)............................................... $ 74,659 $ 62,815 $ 74,613 $ 44,692
Property acquisitions (excluding property under 8,757 10,910 6,707 7,200
capitalized lease obligations)...........................
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED (2)
--------------------------------------------------------------------------
PRO FORMA
APRIL 1, APRIL 1, APRIL 2, MARCH 28, MARCH 29, MARCH 31,
1993(1) 1993 1992 1991 1990 1989
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Total revenues (3).............................. $543,340 $ 404,465 $ 406,964 $ 446,351 $ 416,994 $ 457,508
Total cost of operations........................ 426,012 310,835 325,901 358,770 335,829 382,074
Depreciation and amortization................... 38,597 28,175 31,385 32,572 31,532 38,360
General and administrative expenses............. 36,915 36,285 37,885 34,532 30,406 29,001
Estimated loss on future dispositions of 2,500 2,500 3,000 2,100 1,600 1,100
assets.........................................
--------- --------- --------- --------- --------- ---------
Operating income................................ 39,316 26,670 8,793 18,377 17,627 7,964
Interest expense (4)............................ 35,969 31,401 30,035 35,940 48,502 45,769
Investment income (5)........................... 325 8,239 8,502 13,441 8,159 3,087
Gain (loss) on disposition of assets (6)........ 9,590 9,638 8,721 6,649 14,628 24,670
Income tax provision (7)........................ 5,400 5,400 1,500 1,960 9,050 (3,709)
--------- --------- --------- --------- --------- ---------
Earnings (loss) before extraordinary items...... 7,862 7,746 (5,519) 567 (17,138) (6,339)
Extraordinary items (8)......................... (6,483) (6,483) -- 500 -- --
--------- --------- --------- --------- --------- ---------
Net earnings (loss)............................. $ 1,379 $ 1,263 $ (5,519) $ 1,067 $ (17,138) $ (6,339)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Earnings (loss) per share....................... $ 0.07 $ 0.06 $ (0.39) $ 0.02 $ (1.11) $ (0.55)
Common dividends per share (9).................. 1.14 1.14 -- -- -- 0.03
Weighted average number of shares outstanding... 16,217 16,217 16,088 16,129 16,001 15,896
Ratio of earnings to fixed charges and preferred 1.24 1.25 -- 1.01 -- --
stock dividends (10)...........................
BALANCE SHEET DATA
Cash, cash equivalents and investments.......... N/A $ 50,106 $ 36,823 $ 46,554 $ 41,911 $ 31,937
Total debt (including capitalized lease N/A 255,302 240,231 263,160 258,373 258,535
obligations)...................................
Stockholders' equity............................ N/A 18,171 39,869 46,088 45,581 62,782
Total assets.................................... N/A 374,102 377,699 439,488 457,736 466,154
OTHER DATA
EBITDA (11)..................................... $ 80,413 $ 57,345 $ 43,178 $ 53,049 $ 50,759 $ 46,433
Property acquisitions (excluding property under 13,249 8,821 21,520 20,227 18,075 78,832
capitalized lease obligations).................
<FN>
- ------------------------
(1) The pro forma Statement of Operations Data for the fiscal year ended April
1, 1993, and the thirty-nine week periods ended December 30, 1993 and
December 31, 1992 give effect to the acquisition of EEP as if the
acquisition had occurred at the beginning of the period. The pro forma
adjustments are based upon available information and certain assumptions
that management believes are reasonable. The adjustments to the historical
data are as follows:
(a) Property and intangible assets of EEP were reduced for pro forma
purposes to reflect the push down of the carrying value of EEP with
depreciation and amortization expense similarly reduced.
(b) Financing costs of the $30,000,000 borrowed for the EEP acquisition was
assumed for pro forma purposes at an annual interest rate of 7.25%.
(c) Interest income was reduced upon the use of $24,500,000 in cash at an
assumed annual rate of 4.42%.
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
<FN>
(2) Effective at the beginning of fiscal 1990 (i.e., the fiscal year ended March
29, 1990), the Company adopted a 52/53 week year. The fiscal year ended
April 2, 1992 consisted of 53 weeks, while the fiscal years ended April 1,
1993, March 28, 1991 and March 29, 1990 consisted of 52 weeks.
(3) During fiscal 1989, the Company sold 55 theatres with 375 screens to TPIE
and sold its theatres in the United Kingdom. These operations contributed
approximately $105,000,000 to total revenues in fiscal 1989. During fiscal
1992, the Company acquired a 50% general partnership interest in the screens
previously sold to TPIE. During fiscal 1994, the Company acquired the
remaining 50% interest in the partnership.
(4) Interest expense for fiscal 1990 includes $14,331,000 of interest with
respect to an IRS settlement.
(5) Includes interest income consisting of interest (plus accretion of original
issue discount) on the subordinated notes of a partnership in which the
Company had a 50% interest from April 19, 1991 until May 28, 1993 and
interest on cash deposits and cash equivalents. Investment income also
includes, for various periods, dividend income, equity in earnings of
partnerships and income (loss) from sale of securities.
(6) Includes the following gains upon the disposition of assets: (i)
approximately $25,000,000 in fiscal 1989 from the sale of the Company's
United Kingdom operations; (ii) $7,300,000 in fiscal 1990 from the sale of
five theatres to Act III Inner Loop Theatres, Inc.; (iii) $8,200,000 in
fiscal 1992 from the sale of eight theatres to Carmike Cinemas, Inc. and
(iv) $9,900,000 in fiscal 1993 from the sale of five theatres to Carmike
Cinemas, Inc. In addition, the Company sold a total of 56 theatres in fiscal
1989 and fiscal 1991 to TPIE and, because of the Company's relationship with
TPIE and other factors, the net gain of approximately $70,000,000 was
deferred. Prior to the Company's acquisition of a partnership interest in
the theatres sold to TPIE, the deferred gain was being amortized on the
straight-line method over an average life of approximately 11 years.
Following the Company's acquisition of a 50% partnership interest in EEP,
one-half of the then unamortized deferred gain was applied as a reduction in
the Company's investment in the partnership. After the Company acquired the
remaining partnership interest in EEP, the then unamortized deferred gain
was applied as a reduction to the property and intangible assets acquired.
(7) As of April 1, 1993, the Company had an investment tax credit carryforward
of $2,038,000 available, which expires in 2003. See Note 7 of the Company's
"Notes to Consolidated Financial Statements for the Fiscal Year ended April
1, 1993."
(8) During fiscal 1993, the Company incurred extraordinary charges, due to a
debt restructuring, in the amount of $10,283,000 before an associated income
tax benefit of $3,800,000. From fiscal 1991, the Company recognized an
income tax benefit of $500,000 upon the utilization of a net operating loss
carryforward.
(9) The dividend of $1.14 per share was a special dividend paid in connection
with a recapitalization of the Company which occurred in August 1992. See
Note 6 of the Company's "Notes to Consolidated Financial Statements for the
Fiscal Year ended April 1, 1993."
(10) The Company had a deficiency of earnings to fixed charges and preferred
stock dividends for each of fiscal years 1989, 1990 and 1992 of $13,492,000,
$8,078,000 and $3,632,000, respectively. For purposes of computing this
ratio, earnings consist of income (loss) before taxes, plus fixed charges
(excluding capitalized interest). Fixed charges consist of interest expense,
amortization of debt issuance costs, and one-third of fixed minimum rental
expense on operating leases, estimated by the Company to be representative
of the interest factor attributable to rental expense. For the fiscal years
ended April 2, 1992 and April 1, 1993, fixed charges include $7,439,000 and
$7,731,000, respectively, for the Company's share (50%) of the fixed charges
of EEP.
(11) Represents operating income plus depreciation and amortization plus
estimated loss on future disposition of assets. EBITDA is a financial
measure commonly used in the Company's industry and should not be construed
as an alternative to operating income (as determined in accordance with
GAAP), an indicator of operating performance, an alternative to cash flows
from operating activities (as determined in accordance with GAAP) or a
measure of liquidity. EBITDA for fiscal 1989 includes the results from the
Company's theatre circuit in the United Kingdom which was sold in fiscal
1989. Excluding such theatres from the calculation of EBITDA in fiscal 1989
results in an EBITDA of $53,489,000 for that year.
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's revenues are derived principally from box office admissions
and theatre concession sales. Additional revenues are derived from other sources
such as on-screen advertising and license fees from electronic video games in
theatre lobbies. The Company's principal costs of operations are film rentals
and advertising costs, payroll, costs of concessions, occupancy costs, such as
theatre rentals and utilities, and other expenses such as insurance.
Set forth below is a summary of operating revenues and expenses for the
thirty-nine week periods ended December 30, 1993 and December 31, 1992. In
addition, revenues and expenses are presented on a pro forma basis as if EEP
were consolidated for the thirty-nine week periods ended December 30, 1993 and
December 31, 1992.
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED THIRTY-NINE WEEKS ENDED
DECEMBER 30, 1993 DECEMBER 31, 1992
--------------------------------------------- ---------------------------------------------
PRO % OF TOTAL % OF TOTAL PRO % OF TOTAL % OF TOTAL
FORMA REVENUES ACTUAL REVENUES FORMA REVENUES ACTUAL REVENUES
-------- ---------- -------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Admissions....................... $297,647 67% $297,647 67% $277,865 68% $201,652 66%
Concessions...................... 134,773 30 134,773 30 121,006 29 87,117 29
Management fee income............ 210 -- 210 -- 193 -- 7,183 2
Other............................ 15,328 3 15,328 3 13,113 3 10,178 3
-------- --- -------- --- -------- --- -------- ---
TOTAL.......................... $447,958 100% $447,958 100% $412,177 100% $306,130 100%
-------- --- -------- --- -------- --- -------- ---
-------- --- -------- --- -------- --- -------- ---
COST OF OPERATIONS
Film rentals..................... $154,910 35% $154,910 35% $146,578 35% $105,793 35%
Advertising...................... 13,912 3 13,912 3 13,486 3 9,705 3
Payroll & related expenses....... 61,247 14 61,247 14 58,184 14 43,703 14
Occupancy costs.................. 66,226 15 66,226 15 61,860 15 44,120 14
Concession merchandise........... 20,004 4 20,004 4 18,945 5 13,813 5
Other............................ 29,043 6 29,089 6 24,029 6 18,216 6
-------- --- -------- --- -------- --- -------- ---
TOTAL.......................... $345,342 77% $345,388 77% $323,082 78% $235,350 77%
-------- --- -------- --- -------- --- -------- ---
-------- --- -------- --- -------- --- -------- ---
</TABLE>
18
<PAGE>
Set forth below is a summary of operating revenues and expenses for the last
three fiscal years. In addition, revenues and expenses are presented on a pro
forma basis as if EEP were consolidated for fiscal 1993.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED
FISCAL YEAR ENDED APRIL 1, 1993 APRIL 2, 1992 MARCH 28, 1991
--------------------------------------------- --------------------- ---------------------
PRO % OF TOTAL % OF TOTAL % OF TOTAL % OF TOTAL
FORMA REVENUES ACTUAL REVENUES ACTUAL REVENUES ACTUAL REVENUES
-------- ---------- -------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Admissions............... $365,906 69% $265,766 66% $272,960 67% $303,324 68%
Concessions.............. 159,089 29 114,809 28 114,207 28 121,495 27
Management fee income.... 478 -- 9,342 2 6,502 2 7,633 2
Other.................... 17,867 3 14,548 4 13,295 3 13,899 3
-------- --- -------- --- -------- --- -------- ---
TOTAL.................. $543,340 100% $404,465 100% $406,964 100% $446,351 100%
-------- --- -------- --- -------- --- -------- ---
-------- --- -------- --- -------- --- -------- ---
COST OF OPERATIONS
Film rentals............. $190,136 35% $137,613 34% $138,511 34% $163,311 37%
Advertising.............. 17,860 3 12,786 3 17,123 4 18,065 4
Payroll & related
expenses................ 76,447 14 57,497 14 62,532 15 65,116 14
Occupancy costs.......... 83,028 15 58,878 15 59,438 15 59,253 13
Concession merchandise... 24,046 5 17,522 4 18,288 5 20,368 5
Other.................... 34,495 6 26,539 7 30,009 7 32,657 7
-------- --- -------- --- -------- --- -------- ---
TOTAL.................. $426,012 78% $310,835 77% $325,901 80% $358,770 80%
-------- --- -------- --- -------- --- -------- ---
-------- --- -------- --- -------- --- -------- ---
</TABLE>
OPERATING RESULTS
THIRTY-NINE WEEKS ENDED DECEMBER 30, 1993 COMPARED TO THIRTY-NINE WEEKS
ENDED DECEMBER 31, 1992.
Total revenues for the thirty-nine weeks ended December 30, 1993 increased
$141,828,000, or 46.3%, from $306,130,000 for the prior period ended December
31, 1992 to $447,958,000 in the current period. After giving pro forma effect to
the consolidation of EEP for the prior period, total revenues increased by
$35,781,000, or 8.9%, from $412,177,000. Revenue increases after the pro forma
effect of EEP for the first three quarters of fiscal 1993 included increases in
admissions of $19,782,000, concessions of $13,767,000, and management fees and
other of $2,232,000. Compared to the prior period including EEP theatre
operations, attendance increased approximately 8.5%, the average ticket price
decreased 1.3%, or $.05, and concession revenues per patron increased 2.5%, or
$.04.
Cost of operations increased by $110,038,000, or 46.8%, in the thirty-nine
weeks ended December 30, 1993 from $235,350,000 in the comparable period of the
prior fiscal year to $345,388,000 in the current period. After giving pro forma
effect to the consolidation of EEP for the prior period, total cost of
operations increased by $22,023,000, or 6.8%, from $323,365,000. Including EEP
theatres for the prior period, film rental expense increased $8,332,000 in the
current period, $10,436,000 due to higher volumes offset by a decrease in
expense of $2,104,000 due to a decrease in the percentage of admissions paid to
distributors. Concession costs increased $1,059,000, or 5.6%, in the current
period after including EEP operations for the prior year. Payroll and related
costs increased 5.3%, or $3,063,000 for the thirty-nine weeks ended December 30,
1993 compared to the prior period (including EEP operations).
The Company's operating income for the first three quarters of fiscal 1994
increased $24,356,000 to $45,462,000 from $21,106,000 for the comparable period
in the prior year. After giving pro forma effect to the consolidation of EEP for
the prior period, operating income increased by approximately $15,814,000 from
$29,648,000. The increase in operating income is due primarily to increased
attendance and to a decrease in "direct operating expenses" (cost of operations
excluding film rentals, theatre rentals and taxes, license fees and insurance)
per patron. On a per patron basis, direct operating expenses decreased 2.5% from
$1.58 in the prior year to $1.54 at December 30, 1993.
19
<PAGE>
Substantially all of the management fee income earned in fiscal 1993 was
from the Company's management agreement with EEP. For fiscal 1994, the Company
does not report management fees from EEP theatres in its Consolidated Financial
Statements.
General and administrative expenses increased $1,869,000 in the thirty-nine
weeks ended December 30, 1993 to $27,957,000 from $26,088,000. This increase was
primarily the result of the provision for bonuses to corporate, division and
film office associates under a management incentive program, together with an
increase of $1,686,000 in connection with the Company's exploration of
international opportunities which began in September 1992. Increases in general
and administrative expenses would have been higher but for a charge recorded in
the first quarter of the prior fiscal year of $750,000 in connection with the
consolidation of two operating divisions and savings realized in fiscal 1994
from the division consolidation, in addition to other corporate office expense
reductions, primarily legal and professional expenses.
Interest expense was $27,616,000 in the first three quarters of fiscal 1994,
an increase of $4,455,000, or 19.2%, from the comparable period of fiscal 1993.
The increase consisted of a $2,601,000 increase in interest expense associated
with corporate borrowings and a $1,854,000 increase in capitalized lease
interest. Excluding the effect of the EEP acquisition in fiscal 1994, interest
expense increased by $2,000,000, primarily as the result of the debt
restructuring in the second quarter of fiscal 1993.
Investment income decreased $4,832,000 to 1,653,000 in the first three
quarters of fiscal 1994 from $6,485,000 in the previous fiscal year. Fiscal 1993
included equity in earnings of EEP of $1,676,000. For fiscal 1994, EEP revenues
and expenses are consolidated as of the beginning of the fiscal year. Interest
income decreased $3,747,000 to $1,388,000 in the first two quarters of fiscal
1994 from the comparable period of fiscal 1993, primarily due to the elimination
of interest income from EEP.
Minority interest reported in the first three quarters of fiscal 1994 in the
amount of $1,599,000 represents TPIE's share of the EEP operating loss from
April 2, 1993 to May 27, 1993, prior to the Company's acquisition of TPIE's
partnership interest. Included in the results for fiscal 1993 is a net gain on
the disposition of assets of $9,640,000, primarily from the sale of five
theatres with 32 screens to Carmike Cinemas, Inc.
Due to the debt restructuring in the second quarter of fiscal 1993, the
Company incurred extraordinary charges in the amount of $10,283,000, before tax.
These charges included redemption premiums on then outstanding debentures and
the write-off of deferred charges relating to such debentures and a prior credit
facility. The income tax benefit derived from this charge was $3,800,000,
resulting in a net extraordinary item charge of $6,483,000, or $.40 per share.
For the thirty-nine weeks ended December 30, 1993, the Company recorded
earnings before income taxes and extraordinary item of $21,019,000, in
comparison to earnings of $14,070,000 in the comparable period of the prior
year. After income taxes and extraordinary items, the Company recorded earnings
of $12,519,000, or $.76 per share, compared to earnings of $2,587,000, or $.14
per share, for the thirty-nine weeks ended December 31, 1992. Excluding gains
and losses on disposition of assets, the Company recorded earnings prior to
income taxes and extraordinary item of $21,098,000 for the thirty-nine weeks
ended December 30, 1993, compared to earnings in the previous year of
$4,430,000. The improved earnings of the Company are primarily due to increased
attendance and the acquisition of the remaining one-half share of EEP on May 28,
1993.
Total revenues for the thirteen weeks ended December 30, 1993 increased
25.7% to $132,589,000, compared to $105,492,000 in the prior year. Earnings for
the thirteen weeks decreased 74.7% to $772,000 from $3,054,000 for the prior
year. After giving pro forma effect to the consolidation of EEP for the thirteen
weeks ended December 31, 1992, admissions decreased $8,517,000, or 8.9%, while
concessions decreased $1,985,000, or 4.87%. The decrease in the third quarter is
largely due to decreased attendance and a decrease in the average ticket price
resulting in a decline in admissions of $6,078,000 and $2,439,000, respectively.
20
<PAGE>
FISCAL YEAR ENDED APRIL 1, 1993 (FISCAL 1993) COMPARED TO FISCAL YEAR ENDED
APRIL 2, 1992 (FISCAL 1992).
Total revenues of the Company for fiscal 1993 were approximately
$404,465,000, representing a decline from fiscal 1992 of $2,499,000, or 0.6%.
Fiscal 1992 included 53 weeks versus 52 weeks in fiscal 1993. Excluding revenues
produced in the fifty-third week of fiscal 1992, total revenues increased in the
1993 fiscal year $5,386,000, or 1.3%. Theatre revenues per screen from owned
theatres increased 2.2%, or $7,399, in fiscal 1993 in spite of a decrease in the
average ticket price of $.03. Concession revenue increased in fiscal 1993 $.03
per patron to $1.59 versus $1.56 in the prior period.
Substantially all of the management fees earned in fiscal 1993 were from the
Company's management agreement with EEP. Management fee income increased 43.7%
in fiscal 1993, or $2,840,000, to $9,342,000 from $6,502,000. The incentive
management fee (see Note 4 of the Company's "Notes to Consolidated Financial
Statements for the Fiscal Year ended April 1, 1993") was earned in fiscal 1993,
producing $1,830,000 in additional revenues. In the prior fiscal year, the
required level of earnings was not met to earn the incentive fee. The remainder
of the increase in management fee income was the result of improved revenues at
EEP theatre locations.
Cost of operations decreased $15,066,000, or 4.6%, in fiscal 1993 to
$310,835,000 from $325,901,000 in the prior period. The major areas of
improvement were in advertising expense and payroll related expenses. The
decline in expense is primarily due to a cost cutting effort implemented in the
third quarter of fiscal 1992. Direct operating expense decreased 9.0%, from
$1.99 to $1.81 per patron in fiscal 1993.
General and administrative expenses decreased $1,600,000, or 4.2%, from
$37,885,000 in fiscal 1992 to $36,285,000 in fiscal 1993. This decrease occurred
notwithstanding the fact that the Company assumed the responsibilities of AMC
Entertainment International, Inc., effective September 4, 1992, which resulted
in expenses of approximately $1,582,000 in fiscal 1993. In addition, during
fiscal year 1992, the Company incurred a one-time charge in the amount of
$750,000 relating to the consolidation of two divisions. Excluding the expenses
referred to above, general and administrative expense decreased $3,932,000, or
10.4%. This improvement is the result of a cost reduction program which resulted
in decreased legal and professional fees of approximately $1,200,000, decreased
research and development costs of $650,000 and miscellaneous other reductions.
Interest expense increased $1,366,000, or 4.5%, in fiscal 1993 from
$30,035,000 in fiscal 1992 to $31,401,000. Interest relating to corporate
borrowings increased $1,795,000, which was offset by a decrease in capital lease
interest of $429,000. The increase in interest expense associated with corporate
borrowings is the result of a recapitalization that was completed in the second
quarter of fiscal 1993 which raised outstanding debt by approximately
$40,000,000. The recapitalization was completed to improve the Company's future
liquidity by increasing the average maturity of its funded debt from 5.1 years
to 9.0 years (as of April 2, 1992).
Investment income decreased $263,000 from $8,502,000 in fiscal 1992 to
$8,239,000 in fiscal 1993. Included in investment income is the Company's equity
in net income of EEP. In fiscal 1993, this amount increased by $1,339,000 to
$1,743,000. Included in fiscal 1992 was a gain of $1,234,000 relating to the
sale of stock held for investment.
Included in the results for fiscal 1993 and fiscal 1992 are gains on
disposition of assets in the amount of $9,638,000 and $8,721,000, respectively.
These gains are primarily the result of theatre sales to Carmike Cinemas, Inc.
In fiscal 1993 and fiscal 1992, the Company recorded $2,500,000 and $3,000,000,
respectively, for estimated losses on future disposition of assets.
Earnings before taxes and extraordinary items were $13,146,000 in fiscal
1993 compared to a loss in fiscal 1992 of $4,019,000. After income taxes and
extraordinary items, net earnings were $1,263,000, or $.06 per share, versus a
loss in the previous year of $5,519,000, or $.39 per share. The improvement in
earnings in fiscal 1993 occurred notwithstanding an extraordinary charge
recorded in the second quarter ended October 1, 1992. The extraordinary charge
in the amount of $10,283,000, before tax, was the result of debt restructuring.
The charge consisted of redemption premiums on the then outstanding debentures
and the
21
<PAGE>
write-off of deferred charges relating to such debentures and a prior credit
facility. The income tax benefit derived from this charge was $3,800,000,
resulting in a net extraordinary item of $6,483,000, or $.40 per share.
FISCAL YEAR ENDED APRIL 2, 1992 (FISCAL 1992) COMPARED TO FISCAL YEAR ENDED
MARCH 28, 1991 (FISCAL 1991).
Total revenues of the Company for fiscal 1992 were approximately
$406,964,000, representing a decline from fiscal 1991 of $39,387,000 or 8.8%.
Fiscal 1992 included 53 weeks versus 52 weeks in fiscal 1991. On a comparable 52
week basis, total revenues decreased by $47,415,000, or 10.6%, from fiscal 1992
to fiscal 1991. This reduction was due primarily to the industry-wide lack of
commercially successful motion pictures. Revenues per screen from owned theatres
in fiscal 1992 were $341,400, compared with $360,491 in fiscal 1991, primarily
because attendance per screen was 5.0% less (or a decrease of 3,258 patrons per
screen) than the comparable period in fiscal 1991. In addition, average ticket
prices fell $.11, or 2.9%, although concession expenditures per patron rose
$.02, or 1.4%, in fiscal 1992 compared to fiscal 1991. The decline in average
ticket prices was due in part to higher percentage attendance at "dollar houses"
and also due to an effort initiated in the fall of 1991 to stimulate attendance
through the selective reduction of ticket prices during non-peak periods (i.e.,
afternoon matinees and "twilite" hours) and revised starting times of movies.
Substantially all of the management fees earned in fiscal 1992 were from the
Company's management agreement with EEP. The Company earned management fees of
$6,502,000 for fiscal 1992, down 14.8% from $7,633,000 in fiscal 1991. The
decrease in management fees is due to lower revenues generated by the managed
theatres.
Cost of operations declined by $32,869,000, or 9.2%, in fiscal 1992 from
$358,770,000 in fiscal 1991. Cost of operations remained fairly constant at
approximately 80% of total revenues during fiscal 1992 and fiscal 1991, despite
decreases in film rent as a percentage of admissions revenue and concession
expense as a percentage of concession revenue in fiscal 1992. These decreases
were offset by increases in occupancy costs, payroll and advertising expenses as
a percentage of total revenues in fiscal 1992.
General and administrative expenses increased by $3,353,000 in fiscal 1992
to $37,885,000, or 9.3% of fiscal 1992 total revenues, from $34,532,000, or 7.7%
of total revenues, in fiscal 1991. The increase can be attributed to legal fees
associated with ongoing legal matters, settlement of a lawsuit and a charge of
approximately $872,000 relating to severance pay upon the resignation of an
executive officer of the Company. General and administrative expenses for the 14
weeks ended April 2, 1992 were $9,463,000 compared to $9,985,000 for the 13 week
period a year earlier, due to the implementation of expense controls during the
third quarter of fiscal 1992. This decrease of $522,000, or 5.2%, occurred
notwithstanding that the fourth quarter of fiscal 1992 exceeded that of fiscal
1991 by one week.
Interest expense was $30,035,000 in fiscal 1992, down by $5,905,000, or
16.4%, from fiscal 1991. The decrease was due primarily to lower rates of
interest on a revolving credit agreement and a reduction in the average
outstanding balance thereunder from $71,000,000 in fiscal 1991 to $53,000,000 in
fiscal 1992. In addition, fiscal 1991 interest expense included a charge of
$1,801,000 of estimated interest relating to an IRS settlement.
Investment income fell by $4,939,000, or 36.7%, to $8,502,000 in fiscal 1992
from $13,441,000 in fiscal 1991 due to lower rates of interest and a reduced
amount of invested funds. Included in both fiscal years was interest income of
approximately $5,000,000 from the EEP subordinated notes. Fiscal 1991 investment
income included approximately $2,400,000 in interest income arising out of the
settlement of litigation concerning the sale of the Company's United Kingdom
assets in fiscal 1989.
Included in results for fiscal 1992 are net gains on disposition of assets
of $8,721,000, primarily from the sale of theatres to Carmike Cinemas, Inc. In
addition, the Company recorded $3,000,000 of estimated losses on future
disposition of assets in fiscal 1992, primarily relating to future lease
obligations, net of subleases, at discontinued fast food locations and closed
theatres, estimated losses on anticipated theatre closings and computer
equipment sold.
22
<PAGE>
For fiscal 1992, the Company recorded a loss before income taxes of
$4,019,000 in comparison to earnings before income taxes of $2,527,000 in fiscal
1991. After income taxes, the Company recorded a net loss of $5,519,000 for
fiscal 1992, compared with net earnings after income taxes and extraordinary
item of $1,067,000 for fiscal 1991. Excluding gains and losses from disposition
of assets, the Company's pre-tax loss from operations was $9,740,000 in fiscal
1992, compared with a loss in fiscal 1991 of $2,022,000.
The accounting treatment accorded the 1989 sale of theatres to TPIE provided
for gain recognition over approximately 11 years. Because of the acquisition in
April 1991 of these same theatres by EEP, in which the Company held a 50%
interest, approximately one-half of the unamortized deferred gain arising from
the 1989 transaction was applied as a reduction in the Company's investment in
EEP, and further periodic recognition of the remaining gain was suspended. For
fiscal 1992, the amount of recognized gain from the 1989 sale was $1,407,000,
compared to recognized gain of $6,585,000 in fiscal 1991. (See Notes 4 and 14 of
the Company's "Notes to Consolidated Financial Statements for the Fiscal Year
ended April 1, 1993".)
In March 1992, AMC entered into a ten-year agreement with Digital Equipment
Corporation ("Digital"), whereby Digital will provide data processing services
for AMC. The cost of Digital's services is $1,200,000 a year, increased by five
percent of the then current annual cost for each year after the first year. As
part of the agreement, Digital purchased all of AMC's existing computer
equipment (except its personal computers) for $600,000. The net book value of
such equipment was approximately $1,100,000; AMC therefore had a charge against
earnings in fiscal 1992 of approximately $500,000 as a result of the sale.
LIQUIDITY, CAPITAL STRUCTURE AND RESOURCES
The Company's revenues are collected in cash, principally through box office
admissions and theatre concession sales. Cash flow from operating activities, as
reflected in the Consolidated Statement of Cash Flows, was $29,062,000,
$18,441,000, and $18,743,000 in fiscal years 1993, 1992 and 1991, respectively,
and $62,125,000 in the first thirty-nine weeks of fiscal 1994, compared with
$26,795,000 in the comparable period of fiscal 1993. The Company has an
operating "float" which partially finances its operations and which permits the
Company to maintain a small amount of working capital capacity. This "float"
exists because admissions revenues are received in cash, while exhibition costs
(primarily film rentals) are ordinarily paid to distributors from 30 to 45 days
following receipt of box office admission revenues and the Company is only
occasionally required to make advance payments or non-refundable guarantees of
film rentals.
In addition to cash and cash equivalents of $58,518,000 at December 30,
1993, the Company had available to it at such date the total commitment amount
under its $40,000,000 Credit Facility. In connection with the acquisition of EEP
on May 28, 1993, the Company borrowed $30,000,000 under the Credit Facility,
which amount was repaid from cash flow from operations by July 28, 1993. Except
for this borrowing, the Company has not utilized the Credit Facility and does
not anticipate that it will need to do so. The Company is required to reduce any
amount outstanding under the Credit Facility to zero for a 60-day consecutive
period each year. The Company has satisfied this requirement for the second
anniversary of the Credit Facility by having no borrowings thereunder during 60
consecutive days following August 10, 1993. As a result, subject to other loan
covenants, any borrowings before August 10, 1994 would not be required to be
paid until June 10, 1995. Under the Credit Facility, the Company and its
subsidiaries generally may not, among other matters, pay cash dividends during
its term in excess of the lesser of (i) $10,000,000 and (ii) $5,000,000 plus 25%
of cash flow, as defined in the Credit Facility, over the term of the Credit
Facility, in each case less capital expenditures outside of the United States.
If the Company is unable to negotiate satisfactory amendments to the Credit
Facility which will permit payment of dividends on the Convertible Preferred, it
intends to terminate the Credit Facility and seek new credit arrangements. The
Credit Facility expires by its terms on August 10, 1995.
The Company estimates that total capital expenditures will be approximately
$15,000,000 in fiscal 1994 (excluding property under capital lease obligations).
Such expenditures include normal maintenance capital expenditures of
approximately 1.5% of revenues and capital expenditures for expansion of the
theatre circuit. Total property acquisitions, including those for refurbishment
of existing theatres and property under capital lease obligations, were
$9,985,000 for the thirty-nine weeks ended December 30, 1993.
23
<PAGE>
The Company believes that opportunities for new theatre openings exist
throughout the United States in areas that are, in the Company's judgment,
inadequately screened. The Company's practice has been to construct new theatres
and screens pursuant to lease agreements. In an effort to reduce costs
associated with leased property, management is exploring the feasibility of
owning versus leasing new theatres. Certain theatres operating under lease
agreements may be purchased if favorable terms can be reached.
An expansion of eight screens at an existing location was completed during
the first thirty-nine weeks of fiscal 1994. Four theatres with twelve screens
were closed in the first thirty-nine weeks of fiscal 1994. The Company has
signed lease agreements for five new theatres with 78 screens and the expansion
of 17 screens at three existing locations scheduled to open at various dates
through the third quarter of fiscal 1997. The estimated minimum rental payments
that may be required over the life of the leases (averaging 20 years) for the
theatres under construction total approximately $94,000,000.
The Company continually monitors the performance of its portfolio of
theatres to determine the best strategy given local and industry-wide
conditions. If an individual theatre's operating margins are unsatisfactory,
management may decide, among other options, to convert the theatre to a "dollar
house," to sell the property (or the lease rights thereto) or to close the
theatre. The closure of a theatre may be coordinated with the opening of a new,
modern AMC theatre complex where the operating margins are expected to be
superior to those of the replaced theatre. The decision to sell or close a
theatre may result in a loss when the carrying value of the property exceeds the
sales price or when a theatre is closed with a remaining lease commitment.
The Indentures contain numerous restrictive covenants that, among other
things, restrict the type and amount of debt that the Company may incur and
impose limitations on the creation of liens, a change of control, transactions
with affiliates, mergers and investments. The Company does not anticipate that
these covenants will materially impede the operation of the Company.
IMPACT OF INFLATION
Historically, the principal impact of inflation and changing prices upon the
Company has been with respect to the construction of new theatres, the purchase
of theatre equipment and the utility and labor costs incurred in connection with
continuing theatre operations. Film rental fees, which are the largest operating
expense incurred by the Company, are customarily paid as a percentage of box
office admission revenues and hence, while the film rental fees may increase on
an absolute basis, the percentages are not directly affected by inflation.
Except as set forth above, for the three years ended April 1, 1993 inflation and
changing prices have not had a significant impact on the Company's total
revenues and results of operations.
24
<PAGE>
BUSINESS
GENERAL
The Company is the third largest motion picture exhibitor in the United
States based on the number of theatre screens operated. Since 1968, when the
Company operated 12 theatres with 22 screens, the Company has expanded its
operations to include 239 theatres with 1,614 screens located in 22 states and
the District of Columbia. Nearly one-half of the screens operated by the Company
are located in Florida, California, Pennsylvania and Texas and approximately 70%
of the Company's screens are located in areas among the 20 largest Areas of
Dominant Influence (television market areas as defined by Arbitron Company).
The Company's revenues are generated primarily from box office admissions
and theatre concession sales, which accounted for 66% and 28%, respectively, of
fiscal 1993 revenues. The balance of the Company's revenues are generated
primarily by on-screen advertising programs and video games located in theatre
lobbies. The Company believes that attendance, revenue and cash flow per screen
at its theatres are among the highest in the industry due to its attractive,
strategically located, multi-screen theatres and innovative marketing programs.
The Company is an industry leader in the development and operation of
multi-screen theatres, primarily in large metropolitan markets. This strategy of
establishing multi-screen theatre complexes enhances attendance and concession
sales by enabling the Company to exhibit concurrently a variety of motion
pictures attractive to different segments of the movie-going public. It also
allows the Company to match a particular motion picture's attendance patterns to
the appropriate auditorium size, thereby extending the run of a motion picture
and maximizing profit. In addition, multi-screen theatre complexes realize
economies of scale by serving more patrons from common support facilities,
thereby enabling the Company to spread costs over a higher revenue base. During
the fiscal year ended April 1, 1993, theatres with ten or more screens had per
patron theatre operating income of $1.18 compared to $1.02 at theatres with less
than ten screens (excluding "dollar houses"). At December 30, 1993,
approximately 28% of the Company's screens were in theatre complexes with ten or
more screens and approximately 87% were located in theatre complexes with six or
more screens. The average number of screens per theatre operated by the Company
is 6.8, which is the highest of the five largest theatre chains in North America
and higher than the industry average of 4.5 based on the most recent data
reported in the National Association of Theatre Owners 1993-1994 Encyclopedia of
Exhibition.
Substantially all of the Company's theatres are leased. The Company
continually upgrades its theatre circuit by opening new theatres, refurbishing
and adding new screens to existing theatres and selectively closing unprofitable
theatres. Since March 1988, approximately 38 of the Company's theatres with 325
screens, representing 20% of its screens, have been opened and approximately $43
million has been spent to modernize and remodel its theatres. The Company
believes that this strategy of maintaining modern multi-screen theatre complexes
enhances its ability to license commercially popular motion pictures.
The Company continually introduces new programs and amenities at its
theatres. The following are examples of developments that are being implemented
in the Company's theatre circuit. MovieWatcher-R- is a frequent moviegoer
program that rewards loyal customers for patronizing AMC theatres nationwide.
Teleticketing allows customers to order tickets in advance by telephone and
purchase them with credit cards. AMC's proprietary High Impact Theatre System
provides a clearer picture and more dynamic sound throughout the auditorium.
Computerized box offices maintain attendance records by title and show time,
allowing the Company to make informed staffing, marketing and motion picture
exhibition decisions.
Motion picture theatres are the primary initial distribution channel for new
motion picture releases and the Company believes that the theatrical success of
a motion picture is the critical factor in establishing the value of the motion
picture in the cable television, videocassette or other ancillary markets.
According to Motion Picture Associates of America, Inc. ("MPAA"), the total
dollars spent on all types of motion picture entertainment in the United States,
including box office admissions, increased from $17.5 billion in 1987 to $26.0
billion in 1992. From 1980 to 1992, domestic box office admissions have
increased from $2.7 billion to $4.9 billion, primarily due to an increase in
average ticket prices throughout this period.
25
<PAGE>
Annual domestic theatre attendance has averaged approximately one billion
persons since the early 1960's. In 1992, annual domestic attendance was 964
million. This stability in attendance has occurred despite substantial growth in
the cable television and videocassette sales and rental businesses. The Company
believes that motion picture theatre attendance has remained stable because
alternative motion picture delivery systems do not provide an experience
comparable to attending a movie in a theatre and variances in year-to-year
attendance are primarily related to the overall popularity and supply of motion
pictures.
Prior to May 28, 1993, 60 of the Company's theatres containing 452 screens
were managed by the Company but owned by EEP, a general partnership in which the
Company had a 50% partnership interest. On May 28, 1993, the Company acquired
the remaining partnership interest in EEP for a purchase price aggregating $17.5
million in cash and the payment of $37 million of bank indebtedness. As a result
of the acquisition and the consolidation of EEP, revenues and EBITDA for the
thirty-nine week period ended December 30, 1993, were $122.0 million and $18.7
million higher, respectively, than they would have been had the Company retained
only a 50% interest in EEP. See Notes 4 and 14 of the Company's "Notes to
Consolidated Financial Statements for the Fiscal Year ended April 1, 1993" and
Note 2 of the Company's "Notes to Consolidated Financial Statements for the
thirty-nine weeks ended December 30, 1993."
GROWTH STRATEGY
The Company intends to expand its domestic theatre circuit by developing new
theatres, increasing the number of screens at existing theatres and possibly by
acquiring existing theatres or circuits from competitors. In addition, the
Company will continue to explore international theatre development in specific
markets.
The Company believes that numerous opportunities for new theatre openings
exist throughout the United States, both in areas of population growth and in
areas of stable population which, in the Company's judgment, are inadequately
served. These markets are attractive either due to a lack of screens relative to
their population or because the existing theatres are not representative of
today's standard multiplex facility design. The Company believes that the best
operating economies are achieved, and the optimal experience for the movie-going
patron is provided, by large theatre facilities of typically 50,000 to 100,000
square feet containing at least 12 screens. A theatre facility of this size
attracts patrons from a larger geographic area and competes effectively against
smaller, less efficient movie theatre complexes that may already exist in a
given market. Although a market may have a sufficient absolute number of screens
based on current population, their scattered configuration and out-dated design
may result in the market being, in the Company's judgment, inadequately served.
Another advantage of the large multiplex facility is that it provides the
Company additional opportunities for prime locations because it can replace a
department store as anchor tenant in a substantial shopping center development.
The Company intends to develop these state-of-the-art theatres at locations
based on retail concentration, access to surface transportation and specific
demographic statistics and trends.
Traditionally, the Company has leased its theatres from real estate
developers. The Company assists the developer in facility design and provides
the developer with a long-term lease to facilitate financing of the project. In
recent years, real estate developers have limited new property development,
primarily due to their financial condition and the availability of financing.
Although the Company believes that most of its new domestic theatres will be
developed through lease arrangements, it will consider developing and owning a
theatre location if it is unable to identify a developer for a specific new
project. In addition to facilitating the development of attractive theatres,
ownership of theatres will allow the Company to obtain the specific sites it
desires and maintain greater control over the development of the projects.
The Company is currently reviewing over 70 potential domestic theatre
locations, and has begun negotiations on 30 sites representing approximately 400
screens. Presently, the Company anticipates that approximately 300 new screens
will be opened or under construction by the end of fiscal 1995, including
approximately 70 screens at 12 existing theatres. However, there can be no
assurance that the Company will finalize negotiations on any of these sites. If
a theatre is operated under a conventional lease arrangement, the Company
typically owns the furniture, fixtures and equipment. The cost per screen to the
Company of a
26
<PAGE>
leased theatre is approximately $150,000, or $3,600,000 for a 24-screen modern
multiplex theatre. If the Company decides to own a theatre in fee, the estimated
cost for a 24-screen modern multiplex theatre will be between $12,000,000 and
$15,000,000, plus the cost of land.
In connection with the development of new theatres and screens, the Company
may participate in the development of "entertainment centers," which would be
destination entertainment complexes anchored by a large multiplex theatre and
containing related leisure time facilities such as casual dining facilities,
sports bars, game rooms, food courts, virtual reality centers, traditional
retail and other similar facilities. The Company anticipates that ultimately it
would retain a minority interest in any such center and would participate in the
initial development and ownership of the center primarily to obtain favorable
theatre lease or acquisition terms.
The United States motion picture exhibition industry is currently
consolidating, with the top ten exhibitors now accounting for approximately 50%
of total screens. However, there remain over 350 participants in the industry
and the Company believes that the trend towards consolidation will afford the
Company the opportunity to acquire both specific theatres or entire circuits.
The Company will consider such acquisitions in order to complement an existing
presence within a market or to enter a new market.
The Company also believes that a significant growth opportunity exists for
the development of multiplex theatres in foreign markets. Many urban areas in
Canada, Mexico, Europe and Asia are substantially under-screened, both in terms
of the absolute number of screens and in the adoption of the multiple screen
theatre format. In addition, the production and distribution of feature films
and the demand for American motion pictures is increasing in many foreign
countries. The Company intends to utilize its experience in the development of
multiplex theatres, as well as its existing relationships with the domestic
motion picture production industry, to enter selected foreign markets. The
Company has opened offices in Toronto, Paris, Mexico City and Hong Kong and is
actively seeking local real estate partners or developers to participate in the
development of these international markets, either through traditional lease
structures, outright fee ownership or the development of entertainment centers.
THEATRE DEVELOPMENT
The following table sets forth information concerning additions and
dispositions of domestic theatres and screens during, and the number of domestic
theatres operated by the Company at the end of, the last five fiscal years and
the thirty-nine weeks ended December 30, 1993.
<TABLE>
<CAPTION>
CHANGES IN THEATRES OPERATED
DURING PERIOD (1)
-----------------------------------------------
TOTAL
ADDITIONS DISPOSITIONS THEATRES OPERATED
---------------------- ---------------------- -----------------------
NUMBER OF NUMBER OF NUMBER OF NUMBER OF NUMBER OF NUMBER OF
PERIOD ENDED THEATRES SCREENS THEATRES SCREENS THEATRES SCREENS
- ------------------------------------------------------- --------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
March 31, 1989....................................... 32 218 6 25 289 1,690
March 29, 1990....................................... 4 36 17 81 276 1,645
March 28, 1991....................................... 4 47 19 70 261 1,622
April 2, 1992........................................ 7 73 15 78 253 1,617
April 1, 1993........................................ 6 72 16 72 243 1,617
December 30, 1993.................................... 2 15 6 18 239 1,614
-- --
--- ---
Total.............................................. 55 461 79 344
-- --
-- --
--- ---
--- ---
<FN>
- ------------------------
(1) Excludes theatres sold to TPIE in fiscal years 1989 and 1991 referred to
below, all of which the Company continued to manage.
</TABLE>
27
<PAGE>
The Company adds and disposes of theatres based on industry conditions and
its business strategy. Since the beginning of fiscal 1989, the Company has
constructed 38 new theatres having 325 screens, added 54 screens to existing
theatres, closed 54 theatres with 189 screens and sold 24 theatres with 153
screens. An additional 56 theatres with 383 screens were sold to TPIE in fiscal
1989 and fiscal 1991. These sales enabled the Company to strengthen its
financial condition. The theatres sold to TPIE were subsequently acquired by
EEP, which was acquired by the Company in May 1993.
The following table provides greater detail with respect to the Company's
theatre circuit as of December 30, 1993.
<TABLE>
<CAPTION>
SCREENS PER
THEATRE
TOTAL TOTAL ----------------
STATE SCREENS THEATRES 1-5 6-9 10 +
- --------------------------------------- ------- -------- --- --- ----
<S> <C> <C> <C> <C> <C>
Florida................................ 298 40 6 26 8
California............................. 251 35 6 20 9
Texas.................................. 169 23 5 14 4
Pennsylvania........................... 128 25 15 9 1
Michigan............................... 117 20 10 6 4
Missouri............................... 87 12 1 8 3
Arizona................................ 80 12 3 6 3
Colorado............................... 69 10 2 6 2
Virginia............................... 63 9 3 4 2
Ohio................................... 56 8 2 5 1
New Jersey............................. 52 9 4 4 1
Maryland............................... 48 6 0 4 2
Georgia................................ 42 5 0 4 1
Oklahoma............................... 22 3 0 3 0
New York............................... 22 3 0 3 0
Illinois............................... 20 3 0 3 0
Louisiana.............................. 20 3 0 3 0
Washington............................. 20 3 0 3 0
Kansas................................. 18 3 0 3 0
Massachusetts.......................... 10 2 1 1 0
District of Columbia................... 9 1 0 1 0
Nebraska............................... 8 2 1 1 0
Delaware............................... 5 2 2 0 0
------- --- --- --- ----
Total................................ 1,614 239 61 137 41
------- --- --- --- ----
------- --- --- --- ----
</TABLE>
THEATRE OPERATIONS
The Company uses a decentralized structure to operate its business on a
day-to-day basis. Each location is viewed as a discrete profit center and a
portion of theatre level management's compensation is linked to the operating
results of each unit. All theatre level personnel complete formal training
programs to maximize both customer service and the efficiency of the Company's
operations. Theatre management additionally attends a four to six-week training
academy focusing on operations management, administration, marketing and
supervisory management during their first 12 to 24 months with the Company.
Four division offices, each headed by a Vice President, supervise theatre
operations and personnel within their respective regions. The regional Vice
Presidents are also responsible within their markets for real estate activity,
marketing, facilities (design and maintenance) and profit center auditing. The
division offices are located in Los Angeles, California; Kansas City, Missouri;
Clearwater, Florida; and Voorhees, New Jersey.
Policy development, strategic planning, finance and accounting are
centralized at the corporate office. Additionally, the corporate office acts as
a service bureau to both the division offices and theatres regarding
28
<PAGE>
management information systems, benefits, administration and operations
services. Film licensing activity primarily occurs in Los Angeles utilizing a
structure that facilitates interaction between theatre managers, division
managers and motion picture buyers.
The Company has improved the profitability of certain of its older theatres
by converting them to "dollar houses," which display second-run movies and
charge lower admission prices (ranging from $1.00 to $2.00). The Company
operated 28 such theatres with 147 screens at December 30, 1993 (9.1% of the
Company's total screens).
The Company primarily relies upon advertisements and movie schedules
published in newspapers to inform its patrons of motion picture titles and show
times. Radio, television and full page newspaper advertisements are used on a
regular basis to promote new releases and special events. These expenses
generally are paid for by the distributors; however, the Company occasionally
shares the expense of such advertisements. The Company pays for "stack"
advertisements which display information on motion pictures at the Company's
theatres within a geographic area. The Company also exhibits "Now Playing" and
"Coming Soon" spots to promote motion pictures currently playing on the
Company's screens or motion pictures not yet released.
FILM LICENSING
The Company licenses motion pictures from distributors on a film-by-film and
theatre-by-theatre basis. The Company obtains these licenses either by
negotiating directly with, or by submitting bids to, distributors. Negotiations
with distributors are based on several factors, including theatre location,
competition, season and motion picture content. Rental fees paid by the Company
under a negotiated license generally are adjusted subsequent to the exhibition
of a motion picture in a process known as "settlement." Factors taken into
account in the settlement process include the commercial success of a motion
picture relative to original expectations and an exhibitor's commitment to the
motion picture. When motion pictures are licensed through a bidding process, the
bids for new releases are made, at the discretion of the distributor, subject to
the requirements of state law, either on a previewed basis or a non-previewed
("blind-bid") basis. In most cases, the Company licenses its motion pictures on
a previewed basis.
Licenses entered into in either a negotiated or bidding process typically
specify rental fees based on the higher of a gross receipts formula or a theatre
admissions revenue sharing formula. Under a gross receipts formula, the
distributor receives a specified percentage of box office receipts, with the
percentages declining over the term of the run. First-run motion picture rental
usually begins at 70% of box office admissions and gradually declines to as low
as 30% over a period of four to seven weeks. Second-run motion picture rental
typically begins at 35% of box office admissions and often declines to 30% after
the first week. Under a theatre admissions revenue sharing formula (commonly
known as a "90/10" clause), the distributor receives a specified percentage
(i.e., 90%) of the excess of box office receipts over a negotiated allowance for
theatre expenses.
The Company may pay non-refundable guarantees of film rentals or make
advance payments of film rentals, or both, in order to obtain a license in a
negotiated or bid process, subject, in some cases, to a per capita minimum
license fee. Because of the settlement process, negotiated licenses typically
are more favorable to theatre operators with respect to the percentage of
revenue paid to license a motion picture. In the past two years, bidding has
been used less frequently than previously.
The Company's film buyers evaluate the prospects for upcoming motion
pictures prior to the time that distributors solicit bids. Criteria considered
for each motion picture include cast, director, plot, performance of similar
motion pictures, estimated motion picture rental costs and expected MPAA rating.
Successful licensing depends greatly upon knowledge of the tastes of the
residents in markets served by each theatre and insight into the trends in those
tastes, as well as the availability of commercially popular motion pictures.
The Company licenses film through division level film buyers located in Los
Angeles, California and Voorhees, New Jersey. Division level licensing enables
the Company to capitalize on local trends and to take
29
<PAGE>
into account actions of local competitors in its bidding and licensing
strategies. The Company at no time licenses any one motion picture for all its
theatre complexes, which minimizes its risk with respect to any single motion
picture.
A decentralized film licensing strategy is an important ingredient in the
Company's formula for penetration of local markets. In essence, the Company's
business is dependent upon the availability of marketable motion pictures. There
are seven distributors which provide a substantial portion of quality first-run
motion pictures to the exhibition industry. They consist of Buena Vista Pictures
(Disney), Warner Bros. Distribution, Columbia Pictures, Tri-Star Pictures,
Twentieth Century Fox, Universal Film Exchanges, Inc. and Paramount Pictures.
There are numerous smaller distributors and no single distributor dominates the
market. Poor relationships with distributors, poor performance of motion
pictures or disruption in the production of motion pictures by the major studios
and/or independent producers may have an adverse effect upon the business of the
Company. In fiscal 1993, no single distributor accounted for more than 15% of
the motion pictures licensed by the Company or more than 21% of the Company's
box office admissions. From fiscal year to fiscal year the Company's revenues
attributable to individual distributors may vary significantly depending upon
the commercial success of such distributor's motion pictures in any given year.
The Company predominantly licenses "first-run" motion pictures. During the
period January 1, 1982 to December 31, 1992, the number of new first-run motion
pictures released each year by distributors in the United States has ranged from
a low of 361 to a high of 487. In 1992, domestic distributors released 431 new
first-run motion pictures. If a motion picture has substantial potential
following its first run, the Company may license it for a "sub-run." Although
average daily sub-run attendance is often less than average daily first-run
attendance, sub-run film rentals are also generally less than first-run film
rentals. Sub-runs enable the Company to exhibit a variety of motion pictures
during periods in which there are few new film releases.
CONCESSIONS
Concession sales are the second largest source of revenue for the Company
after box office admissions. Concession items include popcorn, soft drinks,
candy and other items. The Company's strategy emphasizes prominent and appealing
concession counters designed for rapid service and efficiency. The Company is
continuing its efforts to increase concession sales through optimizing product
mix, introducing new products and intensive staff training.
COMPETITION
The Company's theatres are subject to varying degrees of competition in the
geographic areas in which they operate. Competition is often intense with
respect to licensing motion pictures, attracting patrons and finding new theatre
sites. Theatres operated by national and regional circuits and by smaller
independent exhibitors compete aggressively with the Company's theatres. The
Company believes that the principal competitive factors with respect to film
licensing include licensing terms (including guarantees), seating capacity and
location of an exhibitor's theatres, the quality of projection and sound
equipment at the theatres, and the exhibitor's ability and willingness to
promote the motion pictures. The competition for patrons is dependent upon
factors such as the availability of popular motion pictures, the location of
theatres, the comfort and quality of theatres and ticket prices.
There are over 350 participants in the domestic motion picture exhibition
industry. Industry participants vary substantially in size, from small
independent operators of a single theatre with a single screen to large national
chains of multi-screen theatres affiliated with entertainment conglomerates. At
the end of 1992, the ten largest motion picture exhibition companies operated
approximately one-half of the total number of screens.
Certain of the Company's competitors are seeking to expand their theatres
and screens in operation. Such expansion has caused certain local marketing
areas or portions thereof to become overscreened.
The Company's theatres face competition from a number of motion picture
exhibition delivery systems, such as pay television, pay per view and home video
systems. While the future impact of such delivery systems on the motion picture
exhibition industry is difficult to determine precisely, there can be no
30
<PAGE>
assurance that such delivery systems will not have an adverse impact on
attendance at the Company's theatres. The Company's theatres also face
competition from other forms of entertainment competing for the public's leisure
time and disposable income.
REGULATORY ENVIRONMENT
The distribution of motion pictures is in large part regulated by federal
and state antitrust laws and has been the subject of numerous antitrust cases.
The consent decrees resulting from one of those cases, to which the Company was
not a party, have a material impact on the Company. Those consent decrees bind
certain major motion picture distributors and require the motion pictures of
such distributors to be offered and licensed to exhibitors, including the
Company, on a theatre-by-theatre basis. Consequently, the Company cannot assure
itself of a supply of motion pictures by entering into long-term arrangements
with major distributors, but must compete for its licenses on a film-by-film and
theatre-by-theatre basis.
Bids for new motion picture releases are made, at the discretion of the
distributor, subject to state law requirements, either on a previewed basis or
blind-bid basis. Certain states have enacted laws regulating the practice of
blind-bidding. Management believes that it may be able to make better business
decisions with respect to film licensing if it is able to preview motion
pictures prior to bidding for them, and accordingly believes that it may be less
able to capitalize on its expertise in those states which do not regulate blind-
bidding.
Under the Americans with Disabilities Act of 1990 (the "ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. The Company is implementing modifications to
its theatre design which will satisfy the ADA's requirements. The Company
presently estimates that the cost of such compliance for the current fiscal year
will be approximately $1.3 million, all of which is included in the Company's
$15 million budget for capital expenditures for fiscal 1994.
There are significant differences between the regulatory environment in the
United States and foreign markets. These include certain regulatory barriers and
quota systems as well as unregulated vertical integration of production and
exhibition companies. See "Risk Factors -- Foreign Operations."
EMPLOYEES
As of December 30, 1993, the Company had approximately 1,500 full-time and
6,900 part-time employees. Approximately 11% of the part-time employees were
minors whose wages do not exceed minimum wage.
Fewer than one percent of the Company's employees, consisting primarily of
motion picture projectionists, are represented by the International Alliance of
Theatrical Stagehand Employees and Motion Picture Machine Operators. The
Company's expansion into new markets may increase the number of employees
represented by this union. The Company believes that its relationship with this
union is satisfactory.
As an employer covered by the ADA, the Company must make reasonable
accommodations to the limitations of employees and qualified applicants with
disabilities, provided that such reasonable accommodations do not pose an undue
hardship on the operation of the Company's business. In addition, many of the
Company's employees are covered by various government employment regulations,
including minimum wage, overtime and working condition regulations.
PROPERTIES
Substantially all of the Company's real properties, including its central
offices, are leased. The majority of the Company's theatres are subject to lease
agreements with original terms generally ranging from 15 to 25 years and, in
most cases, renewal options for up to an additional 20 years. The renewal
options generally provide for increased rent. Property leases provide for
minimum annual rentals and may, under certain conditions, require additional
rental payments based on a percentage of revenues. The majority of the
concession, projection, seating and other equipment required for each of the
Company's theatres is owned.
In some cases, the Company's rights as tenant are subject and subordinate to
the mortgage loans of lenders to its lessors so that if a mortgage were to be
foreclosed, the Company could lose its lease. Historically, this has never
occurred.
31
<PAGE>
LEGAL PROCEEDINGS
The following paragraphs summarize significant litigation and proceedings to
which the Company is a party.
INCOME TAX LITIGATION. The Company has been in litigation with the Internal
Revenue Service ("IRS") primarily concerning the Company's method, for the years
1975 and 1978 to 1987, inclusive, of reporting, for income tax purposes, film
rental deductions in the year paid (cash method) rather than in the year the
related film was exhibited (accrual method). These and other issues, including
the determination of various credit and loss carrybacks, and issues related to
certain capital gains, the dividends received deduction, and the understatement
penalty, were the subject of two United States Tax Court cases (DURWOOD, INC. V.
COMMISSIONER OF INTERNAL REVENUE, Docket No. 3706-88 filed February 23, 1988 and
DURWOOD, INC. V. COMMISSIONER OF INTERNAL REVENUE, Docket No. 3322-91 filed
February 22, 1991).
Settlements have been reached with respect to all issues in each of the tax
court cases. Through September 30, 1993, the Company has recorded provisions
totaling approximately $23 million, representing the estimated federal and state
income taxes and interest resulting from the IRS litigation. Through September
30, 1993, the Company has made payments totaling approximately $20 million to
federal and state tax authorities associated with the tax court settlements.
Management believes that adequate amounts have been reserved with respect to
these income tax matters.
SALES TAX LITIGATION. On August 13, 1991, the Florida Department of Revenue
assessed the Company $1,670,000 in taxes, penalties and interest for popcorn
sales in theatres that occurred during the period commencing January 1, 1986 and
ending December 31, 1988. Because the regulation relied on by the Department did
not become effective until December 1987, the Department issued a revised
assessment to the Company in the amount of $388,000, which is based on the
Company's 1988 popcorn sales in Florida. Because the Company's Florida legal
counsel failed to file a petition to contest the assessment within the required
time, the Department has taken the position that the Company owes $388,000 in
taxes plus penalties and interest.
The Company and the Department have agreed to be bound by the final judicial
resolution of another Florida sales tax case currently pending in the Florida
First District Court of Appeals, which presents substantially the same issues.
If the taxpayer prevails in this case, the Company will pay nothing to the
Department. If the Department prevails in this case, the Company will pay the
$388,000 in assessed taxes plus interest, but no penalties. In any event, the
Company will also pursue all available remedies against its former legal
counsel.
SCOTT C. WALLACE, DERIVATIVELY ON BEHALF OF NOMINAL DEFENDANT AMC
ENTERTAINMENT INC. V. STANLEY H. DURWOOD, ET AL., Chancery Court for New Castle
County, Delaware (Civil Action No. 12855). On January 27, 1993, plaintiff filed
a derivative action on behalf of AMCE against four of its directors, Messrs.
Stanley H. Durwood, Edward D. Durwood, Paul E. Vardeman and Charles J. Egan, Jr.
(the "Wallace litigation"). AMCE was named as a nominal defendant. The lawsuit
alleges breach of fiduciary duties of care, loyalty and candor, mismanagement
and waste of assets in connection with the provision of film licensing,
accounting and financial services by American Associated Enterprises, a
partnership beneficially owned by Mr. Stanley H. Durwood and members of his
family, to the Company, certain other transactions with affiliates of the
Company, termination payments to a former officer of the Company and other
transactions. The lawsuit seeks unspecified money damages and equitable relief
and costs, including reasonable attorneys' fees.
JAMES M. BIRD, DERIVATIVELY ON BEHALF OF NOMINAL DEFENDANT AMC ENTERTAINMENT
INC. V. STANLEY H. DURWOOD, ET AL., Chancery Court for New Castle County,
Delaware (Civil Action No. 12939). On April 16, 1993, plaintiff filed a
derivative action on behalf of AMCE against four of its directors, Messrs.
Stanley H. Durwood, Edward D. Durwood, Paul E. Vardeman and Charles J. Egan,
Jr., and one of its former directors, Philip E. Cohen (the "Bird litigation").
AMCE was named as a nominal defendant. The lawsuit alleges many of the same
claims that are alleged in the Wallace litigation, as well as claims involving
certain transactions
32
<PAGE>
with National Cinema Supply Corporation and a fee paid by a subsidiary of the
Company to Mr. Cohen in connection with a transaction between the Company and
TPI Entertainment, Inc. The lawsuit seeks unspecified money damages and
equitable relief and costs, including reasonable attorneys' fees.
On August 20, 1993, the defendants filed motions to dismiss both the Wallace
litigation and the Bird litigation. On September 10, 1993, such defendants filed
motions to stay discovery pending the court's resolution of defendants' motions
to dismiss. On November 1, 1993, the court ordered that discovery be stayed in
the Wallace litigation and the Bird litigation pending resolution of the motions
to dismiss, except for discovery concerning the fitness of Mr. Wallace to serve
as a derivative plaintiff.
The Company is named as a defendant in a number of other lawsuits arising in
the normal course of its business. Management does not expect that any actions
to which the Company is a party will result in a material loss to the Company.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Directors and Executive Officers of the Company are as follows:
<TABLE>
<CAPTION>
YEARS ASSOCIATED
NAME AGE(1) POSITION WITH COMPANY
- ---------------------------------------- ----------- -------------------------------------- ------------------
<S> <C> <C> <C>
Stanley H. Durwood 73 Chairman of the Board, Chief Executive 48(2)
Officer and Director (AMCE and AMC)
Charles J. Egan, Jr. 61 Director (AMCE and AMC) 7
Paul E. Vardeman 63 Director (AMCE and AMC) 11
Edward D. Durwood 44 President, Vice Chairman of the Board 18
and Director (AMCE and AMC)
Peter C. Brown 35 Senior Vice President, Chief Financial 2
Officer, Treasurer and Director (AMCE
and AMC)
Philip M. Singleton 47 Senior Vice President, Chief Operating 19
Officer and Director (AMCE and AMC)
Donald P. Harris 43 President -- AMC Film Marketing, Inc. 16
Earl C. Voelker, Jr. 48 Senior Vice President (AMC) 21
Richard J. King 44 Vice President (AMC) 21
Gregory S. Rutkowski 45 Vice President (AMC) 18
Frank T. Stryjewski 37 Vice President (AMC) 15
Richard T. Walsh 40 Vice President (AMC) 18
Richard L. Obert 54 Vice President and Chief Accounting 4
Officer (AMCE and AMC)
<FN>
- ------------------------
(1) As of December 30, 1993.
(2) Includes years with the predecessor of the Company.
</TABLE>
33
<PAGE>
With the exception of Mr. Egan, who became a director on October 30, 1986,
and Messrs. Brown and Singleton, who each became a director on November 12,
1992, all other directors have served as such since AMCE's formation in 1983.
All directors are elected annually, and each holds office until his
successor has been duly elected and qualified or his earlier resignation or
removal. There are no family relationships between any Director and any
Executive Officer of the Company, except that Mr. Edward D. Durwood is the son
of Mr. Stanley H. Durwood. All directors of AMCE also serve as directors of AMC.
All current Executive Officers of the Company hold such offices at the
pleasure of the Board of Directors, subject, in the case of Mr. Peter C. Brown,
Senior Vice President, Chief Financial Officer, Treasurer and a Director of AMCE
and AMC, and Mr. Donald P. Harris, President of AMC Film Marketing, Inc., a
wholly owned subsidiary of AMC, to rights under their respective employment
agreements.
Mr. Stanley H. Durwood has served as a Director of AMCE from its
organization on June 14, 1983 and of AMC since August 2, 1968. In February 1986,
he became Chairman of the Board of AMCE and AMC. Mr. Durwood served as President
of AMCE from June 1983 through February 20, 1986 and from May 1988 through June
1989. Mr. Durwood has served as Chief Executive Officer of AMCE since June 1983
and of AMC since February 20, 1986. He also served as President of AMC from
August 2, 1968 through February 20, 1986 and from May 13, 1988 through November
8, 1990. Mr. Durwood is a graduate of Harvard University.
Mr. Edward D. Durwood became President and Vice Chairman of the Board of
AMCE on June 29, 1989 and of AMC on November 8, 1990. Mr. Durwood has served as
a Director of AMCE since June 14, 1983 and of AMC since November 26, 1980. Mr.
Durwood served as Vice President of AMCE from June 14, 1983 through February 6,
1989, and of AMC from May 5, 1981 through February 6, 1989, at which time Mr.
Durwood became Executive Vice President of both companies. Mr. Durwood holds
undergraduate and M.B.A. degrees from the University of Kansas.
Mr. Peter C. Brown has served as Senior Vice President and Chief Financial
Officer of AMCE and AMC since November 14, 1991 and was elected a Director of
AMCE and AMC on November 12, 1992. Mr. Brown has served as Treasurer of AMCE and
AMC since September 28, 1992. Prior to November 14, 1991, he served as a
consultant to AMCE from October 1990 to October 1991, and as Vice President of
DJS Inverness & Co., an investment banking firm located in New York City, from
November 1987 to October 1990. Mr. Brown is a graduate of the University of
Kansas.
Mr. Philip M. Singleton has served as Senior Vice President and Chief
Operating Officer of AMCE and AMC since November 14, 1991 and was elected a
Director of AMCE and AMC on November 12, 1992. Prior to November 14, 1991, Mr.
Singleton served as Vice President in charge of operations for the Southeast
Division of AMC since May 10, 1982. Mr. Singleton holds an undergraduate degree
from California State University, Sacramento and an M.B.A. degree from the
University of South Florida.
Mr. Charles J. Egan, Jr. has served as a Director of AMCE and AMC since
October 30, 1986. Mr. Egan is Vice President and General Counsel of Hallmark
Cards, Incorporated, which is primarily engaged in the business of social
expressions and related products (including greeting cards, gifts, party goods,
crayons, etc.) and cable television. Mr. Egan holds an A.B. degree from Harvard
University and an LL.B. degree from Columbia University.
Mr. Paul E. Vardeman has served as a Director of AMCE since June 14, 1983
and of AMC since September 28, 1982. Mr. Vardeman has been a member of the law
firm of Polsinelli, White, Vardeman & Shalton, Kansas City, Missouri, since
1982. Prior thereto, Mr. Vardeman served as a Judge of the Circuit Court of
Jackson County, Missouri. Mr. Vardeman holds undergraduate and J.D. degrees from
the University of Missouri, Kansas City.
Mr. Donald P. Harris has served as President of AMC Film Marketing, Inc., a
wholly owned subsidiary of AMC, since April 18, 1989, and prior thereto served
as Vice President of AMC Film Marketing, Inc. from November 26, 1980.
34
<PAGE>
Mr. Earl C. Voelker, Jr. was appointed Senior Vice President in charge of
operations for the Northeast Division of AMC on June 10, 1992. Previously, Mr.
Voelker had been Vice President in charge of operations for the Northeast
Division of AMC since April 30, 1979.
Mr. Richard J. King was appointed Vice President in charge of operations for
the Northeast Division of AMC on June 10, 1992. Previously, Mr. King served as
Vice President in charge of operations for the Southwest Division of AMC since
October 30, 1986, and as Division Operations Manager of AMC since May 7, 1986.
Mr. Gregory S. Rutkowski has served as Vice President in charge of
operations for the West Division of AMC since May 5, 1981.
Mr. Frank T. Stryjewski has served as Vice President in charge of operations
for the Southeast Division of AMC since December 9, 1991. Mr. Stryjewski served
as Vice President -- Operations Resources of AMC from December 1990 to December
1991, and as Vice President -- Human Resources of AMC from December 1988 to
December 1990. Prior to December 1988, Mr. Stryjewski served as National
Training Director of AMC.
Mr. Richard T. Walsh was appointed Vice President in charge of operations
for the Central Division of AMC on June 10, 1992. Previously Mr. Walsh had been
Vice President in charge of operations for the Midwest Division of AMC since
December 1, 1988 and prior thereto served as Division Operations Manager of AMC
from November 23, 1987 through December 1, 1988, and Assistant Division
Operations Manager of AMC since 1984.
Mr. Richard L. Obert has served as Vice President and Chief Accounting
Officer of AMCE and AMC since January 9, 1989. Mr. Obert served as President and
a Director of Franklin Financial Concepts, Inc. from November 1986 through
December 1988.
COMPENSATION OF DIRECTORS
For fiscal 1993, Messrs. Charles J. Egan, Jr. and Paul E. Vardeman were each
paid annual compensation of $2,500 and fees of $2,700 and $2,100, respectively,
for attendance at Board of Directors meetings. Messrs. Egan and Vardeman were
each paid $2,000 per month as compensation for their services as members of the
Audit Committee.
Beginning in fiscal 1994, the Executive Committee of the Board of Directors
of AMCE approved revised compensation arrangements for Messrs. Egan and
Vardeman. The annual cash compensation to be paid to Messrs. Egan and Vardeman
will be $20,000 each for their services as members of the Boards of Directors of
AMCE and AMC and $24,000 each for their services as members of the Audit
Committees of the Company and AMC. Messrs. Egan and Vardeman will each be paid
$900 per hour for attending meetings of (i) any board of directors of AMCE or
its subsidiaries on which he serves, (ii) the Audit Committee after the twelfth
meeting during the fiscal year and (iii) any other committee of the Board of
Directors of AMCE or its subsidiaries on which he serves.
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer and each of the four other most highly compensated
Executive Officers of the Company (determined as of the end of the last fiscal
year and hereafter referred to as the "named Executive Officers") for the last
three fiscal years ended April 1, 1993, April 2, 1992 and March 28, 1991.
35
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------------------
FISCAL OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) COMPENSATION(1)(2)
- ---------------------------------------------- --------- ---------- ---------- ---------------- -------------------
<S> <C> <C> <C> <C> <C>
Stanley H. Durwood 1993 $ 420,004 $ 141,800 N/A $ 0
Chief Executive Officer 1992 420,004 -- N/A N/A
1991 420,004 -- N/A N/A
Edward D. Durwood 1993 269,742 122,900 N/A 6,626
President 1992 266,357 -- N/A N/A
1991 250,016 37,500 N/A N/A
Donald P. Harris 1993 272,931 66,000 N/A 5,661
President -- AMC Film Marketing, Inc. 1992 245,550 20,000 N/A N/A
1991 229,996 60,000 N/A N/A
Philip M. Singleton 1993 244,466 100,000 N/A 45,249
Chief Operating Officer 1992 202,433 -- N/A N/A
1991 169,988 42,500 N/A N/A
Peter C. Brown 1993 199,331 107,200 N/A 13,579
Chief Financial Officer 1992 128,471 -- N/A N/A
1991 -- -- N/A N/A
<FN>
- ------------------------
(1) N/A denotes not applicable. For fiscal 1993, perquisites and other
personal benefits did not exceed the lesser of $50,000 or 10% of total
annual salary and bonus. In accordance with the transitional provisions of
the revised rules for executive compensation adopted by the Securities and
Exchange Commission (the "Commission"), amounts of Other Annual
Compensation and All Other Compensation are excluded for fiscal 1992 and
1991.
(2) Includes the Company's contributions to a 401(k) defined contribution
savings plan in the amount of $6,626 for Mr. Edward D. Durwood, $5,661 for
Mr. Donald P. Harris, $6,414 for Mr. Philip M. Singleton and $5,129 for
Mr. Peter C. Brown. In addition, moving expense is included in the amount
of $38,835 for Mr. Singleton and $6,320 for Mr. Brown and medical
continuation coverage payments to a previous employer for Mr. Brown in the
amount of $2,130.
</TABLE>
OPTION EXERCISES AND HOLDINGS. The following table provides information,
with respect to the named Executive Officers, concerning the exercise of options
during the last fiscal year and unexercised options held as of the fiscal year
ended April 1, 1993:
OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR END VALUES
<TABLE>
<CAPTION>
UNEXERCISED OPTIONS VALUE OF
AT FISCAL YEAR UNEXERCISED
END(1) IN-THE-MONEY
SHARES ACQUIRED ON -------------------- OPTIONS AT
NAME EXERCISE VALUE REALIZED SHARES PRICE FISCAL YEAR END
- -------------------------------------- ------------------- ---------------- --------- --------- -----------------
<S> <C> <C> <C> <C> <C>
Stanley H. Durwood.................... -- -- -- -- --
Edward D. Durwood..................... -- -- -- -- --
Donald P. Harris...................... -- -- 15,000 $ 4.67 $ 49,950
-- -- 7,500 9.00 --
Philip M. Singleton................... 15,000 $ 16,200 7,500 9.00 --
Peter C. Brown........................ -- -- -- -- --
<FN>
- ------------------------
(1) All stock options granted are exercisable.
</TABLE>
36
<PAGE>
401(K) PLAN. AMC sponsors a defined contribution savings plan (the "401(k)
Plan") whereby employees of AMC or its subsidiaries may (under current
administrative rules) elect to contribute, in whole percentages from 1% to 16%
of compensation, provided no employee's elective contributions shall exceed the
amount permitted under Section 402(g) of the Internal Revenue Code ($8,994 in
1993). A matching contribution is made by AMC at 50% of an employee's elective
contribution of up to 6% of the employee's compensation. AMC may increase the
50% matching contribution to 100%. Employees have full and immediate vesting
rights to their elective contributions and AMC's matching contributions and
related earnings. AMC's contributions to the accounts of the named Executive
Officers are included in the Summary Compensation Table.
DEFINED BENEFIT RETIREMENT PLAN. AMC sponsors a defined benefit retirement
plan (the "Retirement Plan") which provides benefits to certain employees of AMC
and its subsidiaries based upon years of credited service and the highest
consecutive five-year average annual remuneration. For purposes of calculating
benefits, average annual compensation is limited by Section 401(a)(17) of the
Internal Revenue Code, and is based upon wages, salaries and other amounts paid
to the employee for personal services, excluding certain special compensation. A
participant earns a vested right to an accrued benefit upon completion of five
years of vesting service.
The following table shows the total estimated annual pension benefits
(without regard to minimum benefits) payable to a covered participant under
AMC's Retirement Plan, assuming retirement in calendar 1993 at age 65, payable
in the form of a single life annuity. The benefits are not subject to any
deduction for Social Security or other offset amounts.
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
HIGHEST CONSECUTIVE FIVE-YEAR -----------------------------------------------------
AVERAGE ANNUAL COMPENSATION 15 20 25 30 35
- ----------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$125,000................................................... $ 17,895 $ 23,860 $ 29,825 $ 35,790 $ 41,755
150,000................................................... 21,645 28,860 36,075 43,290 50,505
175,000................................................... 25,395 33,860 42,325 50,790 59,255
200,000................................................... 29,145 38,860 48,575 58,290 68,005
225,000................................................... 32,895 43,860 54,825 65,790 76,755
235,000................................................... 34,395 45,860 57,325 68,790 80,255
</TABLE>
At April 1, 1993, the years of credited service under the Retirement Plan
for each of the named Executive Officers were: Mr. Edward D. Durwood, 17 years;
Mr. Donald P. Harris, 15 years; Mr. Philip M. Singleton, 18 years; and Mr. Peter
C. Brown, 1 year. Because Mr. Stanley H. Durwood is age 73, he is receiving
minimum required distributions under this Plan pursuant to I.R.C. 401(a)(9),
even though he is an active employee. The amount distributed in fiscal 1993 was
$33,990 and is not included in the Summary Compensation Table.
EXECUTIVE INCENTIVE PROGRAM. On November 15, 1993, the Compensation
Committee of the Company's Board of Directors approved the Executive Incentive
Program (the "EIP") for corporate and field executive and senior management,
including executive officers. The EIP will be in effect for the current fiscal
year. Participants must be employed at year-end to be eligible for an award.
Awards are pro-rated per complete quarter of employment.
Maximum awards under the EIP range from 50% of salary for executive
corporate management participants to 30% of salary for senior field management
participants. Awards are based on up to three performance components: division,
company and personal. The division component, which applies to division and film
office participants, is based on each division's performance relative to a
division operating income quota. For purposes of determining this component,
"division operating income" is defined as operating income less general and
administrative expenses and extraordinary expenses ("DOI"). The company
component, which applies to all eligible participants, is based on the Company's
performance relative to an EBITDA (earnings before interest, taxes, depreciation
and amortization) quota. For division level participants, "EBITDA" is defined as
DOI less national film, home office and international general and administrative
expenses plus capitalized lease adjustments. The personal component of an award
is based upon predetermined individual goals and a supervisor's year-end
performance appraisal, and payment is
37
<PAGE>
subject to the recommendation of the supervisor and approval of the Executive
Committee. The Compensation Committee of the Board of Directors approves the
annual DOI and EBITDA quotas and approves the personal component of awards for
participants who are members of the Executive Committee.
The division and company components are scaled, based on the Company's
performance, as follows: if 80% or less of a DOI or EBITDA quota, respectively,
is met, no amount is awarded with respect to a component based on that quota; if
more than 80% (up to 100%) of a quota is met, each 1% increase (above 80%) in
the percentage of the quota that is met will result in a 5% increase in award
for the respective component; and if 100% to 110% of a quota is met, each 1%
increase in quota (above 100%) will result in a 10% increase in award for the
respective component. For example, if 100% of a quota is met, 100% of the
related award may be paid, whereas if 110% of a quota is met, 200% of the
related award may be paid. The personal component of an award, which is
contingent on the Company achieving a minimum 80% of the EBITDA quota, can be up
to 15% of an individual's salary (but the aggregate amount of all such awards
may not exceed 10% of the salaries of all participants). The Company's Executive
Committee has discretion to defer payment for up to one year of some or all of
the division and company awards.
OTHER EXECUTIVE BENEFIT PLANS. The Executive Medical Reimbursement Plan
covers active employees who are officers of the Company and provides up to
$2,500 a month for the following medical expenses: (i) routine physicals, (ii)
vision care, (iii) well baby care, (iv) hospital room and board charges in
excess of the semi-private room and board rate, (v) expenses in excess of usual
and customary charges, subject to 80% co-insurance, (vi) 50% of mental and
nervous benefits in excess of the basic medical plan's $1,500 calendar year
maximum, to a lifetime maximum of $50,000, (vii) dental reimbursement, subject
to 80% co-insurance and a $3,000 calendar year maximum and (viii) an additional
$2,000 orthodontia lifetime maximum. Supplemental Accidental Death and
Dismemberment coverage in the amount of $250,000 is also provided to active
officers of the Company.
The Executive Savings Plan (the "Savings Plan") covers certain highly
compensated employees (as defined in Section 414(q) of the Internal Revenue
Code) whose elective contributions under the 401(k) Plan have been limited in
order for the 401(k) Plan to satisfy the average deferral percentage
nondiscrimination tests in Section 401(k) of the Internal Revenue Code and/or
whose coverage under the group term life insurance provided by AMC is at the
maximum amount. The Savings Plan provides a three percent increase in pay to all
eligible employees who agree to make a four percent of pay contribution on a
monthly basis to an AMC-approved individual universal life insurance policy
which is owned by the employee. The eligible employees can select, within
certain parameters, the portion of their after-tax premiums that is allocated to
life insurance protection versus the investment element of the universal life
insurance policy. Such benefit amounts for the named Executive Officers are
included in the Summary Compensation Table.
Effective January 1, 1994, the Company adopted the "AMC Nonqualified
Deferred Compensation Plan" (the "Deferred Compensation Plan"), an unfunded
deferred compensation arrangement designed to permit eligible employees of the
Company and certain affiliates to offset the adverse impact of a change in the
tax law made by the Omnibus Budget Reconciliation Act of 1993 (the "Act"), which
reduced the amount of compensation which can be taken into account in a
qualified retirement plan from $235,840 (in 1993) to $150,000 (in 1994).
Under the Deferred Compensation Plan, participants in the Company's 401(k)
Plan who are making the maximum deferral thereunder and whose estimated annual
compensation will exceed $100,000 in 1994 may elect, in advance and irrevocably
for each year, to reduce their compensation and to defer under the Deferred
Compensation Plan such additional portion of their W-2 compensation as they may
determine. Such participants whose annual compensation in 1994 exceeds $150,000
will have elective Deferred Compensation Plan deferrals of up to 4% of their
compensation matched by the Company at the rate of 50%, but only to the extent
affected by the change in the law. For example, an employee who will earn
$180,000 in 1994 and who elects to defer 4% of his compensation would have a
match equal to the lesser of (a) 2% of the difference between the limit set
forth in Section 401(a)(17) of the Internal Revenue Code of 1986 (the "Code")
and $180,000 and (b) 50% of the difference between the maximum permissive
elective deferral under Section 402(g) of the Code ($9,240 in 1994) and the
amount of his elective deferral under the 401(k) Plan for the year. The old
limit, the new limit and the Deferred Compensation Plan's minimum eligibility
38
<PAGE>
criteria (compensation over $100,000 to make deferrals and over $150,000 to be
credited with a match) are subject to periodic cost-of-living adjustments. The
Company's maximum obligation under the Deferred Compensation Plan for any one
participant for 1994 is $1,620.
Elective deferrals and matching credits, if any, will be credited to a
deferral account maintained by or at the direction of the Company and remain
subject to the claims of the Company's creditors. Upon the earlier of a
participant's normal retirement age (65) or other termination of employment, the
participant will receive the amounts credited to his deferral account, adjusted
for earnings and losses, in a lump sum or in installments over ten years, as
elected by the participant prior to making the deferrals. Both the participant's
deferrals and the match, if applicable, are fully vested at all times.
OTHER COMPENSATION PLANS. On February 2, 1977, the Board of Directors of
AMC authorized the continued payment to Mr. Stanley H. Durwood, in the event of
his disability, of 80% of his then current salary and bonuses for a period of up
to two years, such salary payment to be reduced, if necessary, so that such
payments, together with disability compensation under AMC's group insurance
policy, do not exceed 100% of his then current salary and bonus.
Messrs. Peter C. Brown and Donald P. Harris each have employment agreements
with the Company providing for base annual salaries of no less than $180,000 and
$220,000, respectively, an automobile, and bonuses at the sole discretion of the
Chief Executive Officer of the Company. Messrs. Brown and Harris have current
base salaries of $220,000 and $263,900, respectively. The Company may terminate
Mr. Brown's employment agreement at any time upon at least 270 days prior
notice. Mr. Harris' employment agreement terminates on July 31, 1994, upon his
death, upon his disability as defined in his employment agreement, or upon the
Company's good faith determination that cause for termination as described in
his employment agreement exists. In the event Mr. Stanley H. Durwood ceases to
control the management of the Company for any reason, then the Company and each
of the foregoing named employees has the option to terminate his employment
agreement. In such event, the Company shall pay $135,000 in cash to Mr. Brown,
and an amount in cash to Mr. Harris equal to the aggregate cash compensation,
exclusive of bonus, to the end of the term of his employment under his
employment agreement, after discounting such amount to its then present value
using a discount rate equal to the lesser of one-half of the then announced
prime rate of interest or 10% per annum. The aggregate amount payable under
these agreements, assuming termination by reason of a change in control at
December 30, 1993, was $287,000.
On December 30, 1986, the Company, through its majority owned subsidiary,
AMC Philadelphia, Inc. ("AMCP"), acquired all the outstanding capital stock of
Budco Theatres, Inc. ("Budco"), which operated a chain of 35 theatres with 104
screens in the Philadelphia area. AMCP was formed prior to the Budco acquisition
by AMC and Mr. H. Donald Busch, who was then a stockholder and President of
Budco. AMC owns 80% of the capital stock of AMCP and Mr. Busch owns the
remaining 20%. As of December 30, 1993, AMCP and its subsidiaries operated 33
theatres with 163 screens.
Pursuant to the Stockholders' Agreement entered into between AMCP, AMC and
Mr. Busch in connection with the formation of AMCP, Mr. Busch has the right to
require AMCP to purchase all of his shares of AMCP stock upon his death, after
the expiration of a ten-year period (ending December 30, 1996), if AMC dismisses
Mr. Busch other than for cause, if AMC sells a majority of its shares of AMCP
stock or upon the occurrence of certain other events. Upon Mr. Busch's death,
his attempt to transfer his shares of AMCP stock, his resignation as an officer
and employee of AMCP, his termination as an employee for cause or certain other
events, AMC has an option to purchase all of Mr. Busch's shares of AMCP stock.
In the case of Mr. Busch's exercise of his put option or AMC's exercise of its
purchase option as described above, the purchase price for Mr. Busch's shares of
AMCP stock shall be their book value (or a higher value under certain
circumstances) but in no event shall Mr. Busch receive less than $5 million for
his 20% stock interest in AMCP. At the time of the acquisition of Budco, Mr.
Busch also entered into a ten-year employment agreement with AMCP as its
President and Chief Executive Officer at an annual salary of $250,000. AMC has
guaranteed the monetary obligations of AMCP to Mr. Busch under both the
Stockholders' Agreement and the employment agreement.
CERTAIN TRANSACTIONS
Since its formation, the Company has been a member of an affiliated group of
companies (the "DI affiliated group") beneficially owned by Mr. Stanley H.
Durwood and members of his family. Mr. Stanley H. Durwood is President,
Treasurer and a Director of DI and Chairman of the Board, Chief Executive
Officer
39
<PAGE>
and a Director of AMCE and AMC. There have been a number of transactions
involving AMCE or AMC with the DI affiliated group in prior years. The Company
intends to ensure that all transactions with DI or other related parties are
fair, reasonable and in the best interest of the Company. In that regard, the
Audit Committees of the Boards of Directors of AMCE and AMC review all material
proposed transactions between AMCE and DI or other related parties to determine
that, in their best business judgment, such transactions meet that standard. The
Audit Committees consist of Messrs. Vardeman and Egan, neither of whom are
officers or employees of the Company nor stockholders, directors, officers or
employees of DI. Set forth below is a description of significant transactions
which have occurred since April 3, 1992, or involve receivables that remain
outstanding at December 30, 1993. There may in the future be other transactions
between AMCE or AMC and such DI affiliated group members and individuals.
Certain corporate departments of AMC perform general and administrative
services for DI and its subsidiaries. AMC charged DI and its subsidiaries
$225,000 for such services for fiscal 1993.
Periodically, AMC and DI reconcile any accounts owed by one company to the
other, which are kept on a non-interest bearing basis. Charges to the
intercompany account have included the allocation of AMC's general and
administrative expenses and payments made by AMC on behalf of DI. In fiscal
1993, the largest balance owed by DI and its subsidiaries to the Company was
$1.8 million. Of this amount, $843,000 consisted of AMC payments to DI under the
federal income tax sharing agreement which DI does not have to repay until the
consolidated group is able to realize the Company's tax benefit in the future or
until such amount is used to offset future tax sharing liabilities of the
Company. As of December 30, 1993, DI and its subsidiaries owed the Company $1.3
million. See "Tax Sharing Agreement."
In July 1992, Mr. Jeffery W. Journagan, a son-in-law of Mr. Stanley H.
Durwood, was employed by a subsidiary of the Company. Mr. Journagan's current
salary is $68,640.
AMC loaned $200,000 to Mr. Donald P. Harris, President -- AMC Film
Marketing, Inc., in January 1987. This loan was evidenced by a promissory note
bearing interest at the rate of 6% per annum, provided for the payment of all
principal at maturity and was secured by a Second Deed of Trust on Mr. Harris'
residence in Los Angeles County, California. The loan was made to Mr. Harris in
connection with the purchase of his principal residence. Principal on the note
was due on January 1, 1992, but the note has been extended to January 16, 1997.
In connection with the extension, the interest rate on the note was increased to
7.5%. The largest aggregate amount outstanding on the note for fiscal 1993 was
$200,000. Interest is payable on the note annually and the principal amount
outstanding on the note as of December 30, 1993 was $200,000.
For a description of certain employment agreements between the Company and
Messrs. Peter C. Brown and Donald P. Harris, see "Other Compensation Plans."
TAX SHARING AGREEMENT
DI and the Company are permitted to file consolidated federal income tax
returns because DI owns Company stock that possesses at least 80% of the total
voting power of all Company stock and that has a value equal to at least 80% of
the total value of all Company stock. DI and the Company currently file
consolidated federal income tax returns and DI has informed the Company that it
will continue to file consolidated federal income tax returns with the Company
as long as it owns the requisite amount of Company stock.
DI and the Company entered into an agreement dated July 1, 1983 pursuant to
which, so long as DI and the Company file a consolidated federal income tax
return, the Company will pay to DI the amount of tax that would be payable
calculated as if the Company filed a separate consolidated federal income tax
return for such period and all prior taxable periods; provided, however, that if
such return would have reflected a refund due to the Company, DI will pay the
Company an amount equal to such refund when and if the consolidated group is
able to realize the Company's tax benefit in the future.
It is anticipated that the issuance of the Convertible Preferred will cause
DI and the Company to cease to be eligible to file consolidated federal income
tax returns on the date on which the Convertible Preferred is issued. This event
will accelerate the payment of approximately $5 million of federal income tax on
intercompany gains which have been deferred for income tax purposes.
40
<PAGE>
SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of February 1, 1994,
with respect to beneficial owners of five percent or more of any class of the
Company's capital stock:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES
TITLE OF CLASS BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
- ---------------------------------------- ----------------------------------------------- ------------------ -----------------
<S> <C> <C> <C>
Common Stock............................ Durwood, Inc. (1) 2,641,951(2) 50.2%(2)
106 West 14th Street
Kansas City, MO 64105
Wells Fargo Institutional 268,947(3) 5.1(4)
Trust Company, N.A. (3)
45 Fremont Street
17th Floor
San Francisco, CA 94105
David L. Babson & Company, Inc. (5) 417,500(5) 7.9(6)
One Memorial Drive
Cambridge, MA 02142
Class B Stock (7)....................... Durwood, Inc. (1) 11,157,000(2) 100.0(2)
106 West 14th Street
Kansas City, MO 64105
<FN>
- ------------------------
(1) A revocable inter-vivos trust established by Mr. Stanley H. Durwood for
the benefit of Mr. Stanley H. Durwood holds approximately 75% of the
voting power of the outstanding capital stock of DI. American Associated
Enterprises, a Missouri limited partnership of which Mr. Stanley H.
Durwood is the limited partner and his children are the general partners
(on whose behalf Mr. Edward D. Durwood has voting authority), holds
approximately 25% of the voting power of DI's outstanding capital stock.
Mr. Stanley H. Durwood is Chairman of the Board, Chief Executive Officer
and a Director of AMCE and AMC, and Mr. Edward D. Durwood is President,
Vice Chairman of the Board and a Director of AMCE and AMC.
(2) Class B Stock is convertible into Common Stock on a share-for-share basis.
The stated percentage has been computed without giving effect to the
conversion option. Were all shares of Class B Stock converted there would
be 16,419,830 shares of Common Stock outstanding, of which DI would hold
13,798,951 shares, or 84% of the outstanding Common Stock.
(3) As reported by Wells Fargo Institutional Trust Company, N.A. on Schedule
13G dated February 11, 1993.
(4) Because the number of outstanding shares of Common Stock has increased
since February 11, 1993, the number of shares of Common Stock disclosed in
such Schedule 13G constitutes 5.1% of the outstanding shares of Common
Stock as of February 1, 1994.
(5) As reported by David L. Babson & Company, Inc. on Schedule 13G dated
January 25, 1994.
(6) Because the number of outstanding shares of Common Stock has increased
since the date of the information in such Schedule 13G, the number of
shares of Common Stock disclosed therein constitutes 7.9% of the
outstanding shares of Common Stock as of February 1, 1994.
(7) In the election of Directors, holders of Class B Stock are entitled to
elect four of the Company's six Directors. On other matters, holders of
Class B Stock vote as a class with holders of Common Stock, with each
share of Class B Stock being entitled to ten votes per share.
</TABLE>
41
<PAGE>
BENEFICIAL OWNERSHIP BY DIRECTORS AND OFFICERS
The following table sets forth certain information as of February 1, 1993
with respect to beneficial ownership by Directors and Executive Officers of the
Company's Common Stock and Class B Common Stock. The amounts set forth below
include 695,000 shares of Common Stock subject to options under the Company's
1984 Stock Option Plan held by executive officers which are not exercisable
until June 1994.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
TITLE OF CLASS NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ---------------------------------------- -------------------------------------------- --------------------- ----------------
<S> <C> <C> <C>
Common Stock............................ Stanley H. Durwood 2,642,101(1) 50.2%
Edward D. Durwood 200,000(2) 3.6
Paul E. Vardeman 300 *
Philip M. Singleton 170,000(2) 3.1
Peter C. Brown 150,000(2) 2.8
Donald P. Harris 59,808(2) 1.1
All Directors and Executive Officers as a
group (13 persons, including the individuals
named above) 3,396,689(2) 56.9
Class B Stock........................... Stanley H. Durwood 11,157,000(1) 100.0
<FN>
- ------------------------
*Less than one percent.
(1) See Notes 1 and 2 under "-- Principal Stockholders." Mr. Stanley H. Durwood
also directly owns 150 shares of AMCE's Common Stock.
(2) Includes shares subject to options to purchase Common Stock under the
Company's 1984 Stock Option Plan, as follows: Edward D. Durwood -- 200,000
shares; Philip M. Singleton -- 150,000 shares; Peter C. Brown -- 150,000
shares; Donald P. Harris -- 57,000 shares; and all executive officers as a
group -- 707,000 shares.
</TABLE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 45,000,000 shares of
Common Stock, par value 66 2/3 CENTS per share, of which 4,684,130 shares were
outstanding as of December 30, 1993 (5,262,830 at February 1, 1994), 30,000,000
shares of Class B Stock, par value 66 2/3 CENTS per share, of which 11,730,000
shares were outstanding as of December 30, 1993 (11,157,000 at February 1,
1994), and 10,000,000 shares of Preferred Stock, par value 66 2/3 CENTS per
share, of which 4,000,000 shares of Convertible Preferred will be outstanding
following completion of this Offering (4,600,000 shares if the Underwriters'
over-allotment option is exercised in full). As used under this caption, the
term "Company" refers only to AMCE and not to its subsidiaries.
CONVERTIBLE PREFERRED
GENERAL. When issued, the Convertible Preferred will be fully paid and
nonassessable. The holders of the Convertible Preferred will have no preemptive
rights with respect to any shares of capital stock of the Company or any other
securities of the Company convertible into, or carrying rights or options to
purchase, any such shares. The Convertible Preferred will not be subject to any
sinking fund or other obligation of the Company to redeem or retire the
Convertible Preferred. Unless redeemed by the Company or converted, the
Convertible Preferred will be perpetual. United Missouri Bank, N.A., is the
registrar, transfer agent, conversion agent and dividend disbursing agent for
the Convertible Preferred. The following summary description of the terms of the
Convertible Preferred does not purport to be complete and is qualified in its
entirety by reference to the Certificate of Designations for the Convertible
Preferred, a copy of which is filed as an exhibit to the Registration Statement
(as defined herein) of which this Prospectus forms a part. Upon
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request, the Transfer Agent for the Convertible Preferred will furnish holders a
copy of the Certificate of Designations. The Convertible Preferred has been
approved for listing on the AMEX, subject to official notice of issuance.
RANKING. The Convertible Preferred will rank, with respect to dividend
rights and rights on liquidation, winding-up and dissolution, (i) senior to all
classes of common stock of the Company (including, without limitation, the
Common Stock and Class B Stock) and each other class of capital stock or series
of preferred stock established after the Offering by the Board of Directors of
the Company which does not expressly provide that it ranks senior to or on a
parity with the Convertible Preferred as to dividend rights and rights on
liquidation, winding-up and dissolution (collectively referred to with the
common stock of the Company as "Junior Securities"), (ii) on a parity with each
other class of capital stock or series of preferred stock established after the
Offering by the Board of Directors of the Company which expressly provides that
such series will rank on a parity with the Convertible Preferred as to dividend
rights and rights on liquidation, winding-up and dissolution (collectively
referred to as "Parity Securities") and (iii) junior to each other class of
capital stock or series of preferred stock established after the Offering by the
Board of Directors of the Company which expressly provides that such series will
rank senior to the Convertible Preferred as to dividend rights and rights on
liquidation, winding-up and dissolution (collectively referred to as "Senior
Securities"). While any shares of Convertible Preferred are outstanding, the
Company may not issue, authorize or increase the authorized amount of, or issue
or authorize or increase any obligation or security convertible into or
evidencing a right to purchase any additional class or series of (x) Senior
Securities, without the vote or consent of the holders of two-thirds of the
outstanding shares of Convertible Preferred and any Parity Securities, voting as
a single class without regard to series, or (y) Parity Securities, without the
vote or consent of the holders of a majority of the outstanding shares of
Convertible Preferred and any Parity Securities, voting as a single class
without regard to series. However, the Company may create additional classes of
Junior Securities, increase the authorized number of shares of any Junior
Security or issue any Junior Securities without the consent of any holder of the
Convertible Preferred. See "-- Voting Rights."
DIVIDENDS. Holders of shares of the Convertible Preferred will be entitled
to receive, when, as and if declared by the Board of Directors of the Company
out of funds of the Company legally available for payment, cash dividends at an
annual rate of $1.75 per share of Convertible Preferred, payable in arrears on
March 15, June 15, September 15 and December 15 of each year, commencing June
15, 1994 (and, in the case of any accrued but unpaid dividends, at such
additional times and for such interim periods, if any, as determined by the
Board of Directors), except that if any such date is a Saturday, Sunday or legal
holiday, then such dividend shall be payable on the next day that is not a
Saturday, Sunday or legal holiday. Each dividend will be payable to holders of
record as they appear in the stock register of the Company on a record date
fixed by the Board of Directors which shall be not more than 60 nor less than
ten days before the payment date. Dividends will be cumulative from the date of
original issuance of the Convertible Preferred. Dividends payable on the
Convertible Preferred for each full dividend period will be computed by
annualizing the dividend rate and dividing by four. Dividends payable for any
period less than a full dividend period or for that portion of any period
greater than a full dividend period will be computed on the basis of a 360-day
year consisting of twelve 30-day months. The Convertible Preferred will not be
entitled to any dividend, whether payable in cash, property or stock, in excess
of full cumulative dividends. No interest, or sum of money in lieu of interest,
will be payable in respect of any accrued and unpaid dividends.
No full dividends may be declared or paid or funds set apart for the payment
of dividends on any Parity Securities for any period unless full cumulative
dividends shall have been paid or set apart for such payment on the Convertible
Preferred. If full cumulative dividends are not paid in full, or declared in
full and sums set apart for the payment thereof, upon the Convertible Preferred
and upon any other Parity Securities, all dividends declared upon shares of
Convertible Preferred and any such Parity Securities will be declared and paid
pro rata so that in all cases the amount of dividends declared per share on the
Convertible Preferred and on such other Parity Securities will bear to each
other the same ratio that accrued and unpaid dividends per share on the shares
of Convertible Preferred and such other Parity Securities bear to each other. No
dividends may be paid or set apart for such payment on Junior Securities (except
dividends on Junior Securities payable in additional shares of Junior Securities
or rights to acquire Junior Securities) and no
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Junior Securities may be repurchased, redeemed or otherwise retired, nor may
funds be set apart for payment with respect thereto, if full dividends for all
prior periods have not been paid on the Convertible Preferred. Accumulated
unpaid dividends will not bear interest.
Under Delaware law, the Company may declare and pay dividends on its capital
stock only out of surplus, as defined in the Delaware General Corporation Law
(the "DGCL") or, if there is no such surplus, out of its net profits for the
fiscal year in which the dividend is declared and/or the preceding fiscal year.
Surplus under the DGCL is generally defined to mean the excess, at any given
time, of the net assets of a corporation over the amount of the corporation's
capital. No dividends or distributions may be declared, paid or made if the
Company is or would be rendered insolvent by virtue of such dividend or
distribution, or if such declaration, payment or distribution would contravene
the Certificate of Incorporation.
LIQUIDATION RIGHTS. In the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the Company, before any payment or
distribution of assets is made on any Junior Securities, including, without
limitation, the Common Stock and Class B Stock of the Company, but after payment
or provision for payment of the Company's debts and other liabilities, the
holders of the Convertible Preferred shall receive a liquidation preference of
$25.00 per share and shall be entitled to receive all accrued and unpaid
dividends through the date of distribution, and the holders of any Parity
Securities shall be entitled to receive the full respective liquidation
preferences (including any premium) to which they are entitled and shall receive
all accrued and unpaid dividends with respect to their respective shares through
and including the date of distribution. If, upon such a voluntary or involuntary
liquidation, dissolution or winding-up of the Company, the assets of the Company
are insufficient to pay in full the amounts described above as payable with
respect to the Convertible Preferred and any Parity Securities, the holders of
the Convertible Preferred and such Parity Securities will share ratably in any
such distribution of assets of the Company, first in proportion to their
respective liquidation preferences, until such preferences are paid in full, and
then in proportion to their respective amounts of accrued but unpaid dividends.
After payment of any such liquidating preference and accrued dividends, the
shares of Convertible Preferred will not be entitled to any further
participation in any distribution of assets by the Company. Neither the sale or
transfer of all or substantially all the assets of the Company, nor the merger
or consolidation of the Company into or with any other corporation or a merger
of any other corporation with or into the Company, nor any dissolution,
liquidation, winding up, or reorganization of the Company immediately followed
by reincorporation of another corporation, will be deemed to be a liquidation,
dissolution or winding-up of the Company.
OPTIONAL REDEMPTION. Shares of the Convertible Preferred are not subject to
any mandatory redemption, sinking fund or other similar provision and may not be
redeemed at the option of the Company on or prior to March 15, 1997. After March
15, 1997, the Convertible Preferred will be redeemable at the option of the
Company upon notice at any time, in whole or in part, at the following
redemption prices per share (expressed as a percentage of the $25.00 liquidation
preference thereof), plus accrued and unpaid dividends, if any, up to but
excluding the date fixed for redemption, if redeemed during the twelve-month
period commencing immediately after March 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ----------------------------------------------------------- ----------------
<S> <C>
1997....................................................... 104%
1998....................................................... 103
1999....................................................... 102
2000....................................................... 101
2001 and thereafter........................................ 100
</TABLE>
If fewer than all of the outstanding shares of the Convertible Preferred are
to be redeemed, the shares to be redeemed will be determined pro rata or by lot.
In the event that any quarterly dividends payable on the Convertible Preferred
are in arrears, the Convertible Preferred may not be redeemed unless all
outstanding shares of Convertible Preferred are simultaneously redeemed or the
outstanding shares of the Convertible Preferred are redeemed on a pro rata
basis.
Notice of redemption will be given by first class mail, not less than 30
days nor more than 60 days prior to the date fixed for redemption thereof, to
each record holder of the shares of Convertible Preferred to be
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redeemed at the address of such holder in the stock register of the Company. If
a notice of redemption has been given, from and after the specified redemption
date (unless the Company defaults in making payment of the redemption price),
dividends on the Convertible Preferred so called for redemption will cease to
accrue, such shares will no longer be deemed to be outstanding, and all rights
of the holders thereof as stockholders of the Company (except the right to
receive the redemption price) will cease.
The ability of the Company to redeem shares of Convertible Preferred is
restricted under the terms of the Credit Facility and the Notes.
VOTING RIGHTS. Except as indicated below or as expressly required by
applicable law, the holders of the Convertible Preferred will have no voting
rights. If the equivalent of six full quarterly dividends payable on the
Convertible Preferred are in arrears, the authorized number of directors of the
Company will be increased by two and the holders of the Convertible Preferred,
voting separately as a class with the holders of shares of any Parity Securities
upon which like voting rights have been conferred and are exercisable, will be
entitled to elect two directors, either by written consent or at any meeting at
which directors are to be elected, until all dividends in arrears on the
Convertible Preferred have been paid or declared and set apart for payment. Upon
payment or declaration and setting apart of funds for payment of all such
dividends in arrears, the term of office of each director elected will
immediately terminate and the number of directors constituting the entire Board
of Directors will be reduced by the number of directors elected by the holders
of the Convertible Preferred and any Parity Securities.
The vote or consent of the holders of two-thirds of the outstanding shares
of Convertible Preferred and any Parity Securities, voting together as a single
class without regard to series, will be required to issue, authorize or increase
the authorized amount of, or issue or authorize or increase any obligation or
security convertible into or evidencing a right to purchase, any additional
class or series of Senior Securities. Furthermore, the vote or consent of the
holders of a majority of the outstanding shares of Convertible Preferred and any
Parity Securities, voting together as a single class without regard to series,
will be required to issue, authorize or increase the authorized amount of, or
issue or authorize or increase any obligation or security convertible into or
evidencing a right to purchase, any additional class or series of Parity
Securities. However, the Company may create additional classes of Junior
Securities, increase the authorized number of shares of any Junior Security or
issue any Junior Securities without the consent of any holder of the Convertible
Preferred. No such vote or consent of the holders of the Convertible Preferred
is required if, at or prior to the time when the issuance of any such Senior or
Parity Securities is to be made or any such change is to take effect, as the
case may be, provision is made for the redemption of all of the Convertible
Preferred at the time outstanding pursuant to the terms of the Convertible
Preferred.
The vote or consent of the holders of two-thirds of the outstanding shares
of Convertible Preferred, voting as a class, will be required to authorize an
amendment to the Certificate of Incorporation, whether or not such holders are
entitled to vote thereon by the Certificate of Incorporation, if the amendment
would increase or decrease the aggregate number of authorized shares of such
class, increase the par value of the shares of such class, or alter or change
the powers, preferences or special rights of the shares of such class so as to
affect them adversely.
CONVERSION. Shares of the Convertible Preferred will be convertible at any
time at the option of the holder thereof into such number of whole shares of
Common Stock as is equal to the aggregate liquidation preference of the shares
of Convertible Preferred surrendered for conversion divided by the initial
conversion price as set forth on the cover page of this Prospectus, subject to
adjustment as described below. Upon the surrender of any shares of Convertible
Preferred for conversion, in lieu of issuing the Common Stock issuable upon
conversion of the Convertible Preferred, the Company may, at its option, pay to
the holder of such shares of Convertible Preferred an amount in cash equal to
the then Market Value (as defined below) of the number of shares of Common Stock
into which such shares of Convertible Preferred are then convertible.
Notwithstanding the foregoing, the Company's ability to redeem for cash the
Convertible Preferred surrendered for conversion is restricted under the terms
of the Company's Credit Facility and Notes. Holders of the Convertible Preferred
will not be entitled to any payment or adjustment on account of
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<PAGE>
accrued and unpaid dividends upon conversion of the Convertible Preferred.
Shares of Convertible Preferred surrendered for conversion during the period
after any dividend payment record date and prior to the corresponding dividend
payment date must be accompanied by payment of an amount equal to the dividend
payable on such shares on such dividend payment date. Dividends with respect to
shares of Convertible Preferred that are called for redemption on a redemption
date during the period after any dividend payment record date and prior to the
corresponding dividend payment date shall be payable notwithstanding conversion
of such shares after such record date and prior to such dividend payment date,
and the holder converting such shares need not include payment of such dividend
amount upon surrender of such shares for conversion. Shares of Convertible
Preferred called for redemption will not be convertible after the close of
business on the business day preceding the date fixed for redemption unless the
Company defaults in payment of the redemption price. No fractional shares of
Common Stock will be issued as a result of conversion, but, in lieu thereof, an
amount equal to Market Value of such fractional interest will be paid in cash by
the Company.
The initial conversion price per share of Common Stock is subject to
adjustment (under formulae set forth in the Certificate of Designations for the
Convertible Preferred) in certain events, including: (i) the issuance of Common
Stock as a dividend or distribution on the Common Stock of the Company, (ii)
certain subdivisions and combinations of the Common Stock, (iii) the issuance to
all holders of Common Stock of certain rights or warrants to purchase Common
Stock at a price per share less than the then current market price per share and
(iv) the distribution to all holders of Common Stock of evidences of
indebtedness of the Company, shares of capital stock of the Company (other than
Common Stock), cash or other assets (excluding those rights, warrants, dividends
and distributions referred to above and dividends and distributions in
connection with the liquidation, dissolution or winding-up of the Company or
paid in cash out of the current or retained earnings of the Company). No
adjustment of the conversion price will be made until cumulative adjustments
amount to one percent or more of the conversion price as last adjusted, but any
such adjustment that would otherwise be required to be made shall be carried
forward and taken into account in any subsequent adjustment.
The Company from time to time may decrease the conversion price by any
amount for any period of at least 20 days, in which case the Company shall give
at least 15 days' notice of such decrease. At its option, the Company also may
make such other reduction in the conversion price as the Board of Directors
deems advisable to avoid or diminish any income tax to holders of Common Stock
resulting from any dividend or distribution of stock (or rights to acquire
stock) or from any event treated as such for income tax purposes. See "Certain
Federal Income Tax Consequences."
In the event of (i) any recapitalization or reclassification of shares of
Common Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value, as a result of a subdivision or
combination of the Common Stock), (ii) any consolidation or merger of the
Company with or into another person or any merger of another person into the
Company (other than a merger that does not result in a reclassification,
conversion, exchange or cancellation of Common Stock), (iii) any sale or
transfer of all or substantially all of the assets of the Company or (iv) any
compulsory share exchange, pursuant to which any holders of Common Stock shall
be entitled to receive other securities, cash or other property, the holder of
each share of Convertible Preferred then outstanding shall have the right
thereafter to convert such share only into the kind and amount of the
securities, cash or other property that would have been receivable upon such
recapitalization, reclassification, consolidation, merger, sale, transfer or
share exchange by a holder of the number of shares of Common Stock issuable upon
conversion of such share of Convertible Preferred immediately prior to such
recapitalization, reclassification, consolidation, merger, sale, transfer or
share exchange. The company formed by such consolidation or resulting from such
merger or that acquires such assets or that acquires the Company's shares, as
the case may be, shall make provisions in its certificate or articles of
incorporation or other constituent document to establish such right. Such
certificate or articles of incorporation or other constituent document shall
provide for adjustments that, for events subsequent to the effective date of
such certificate or articles of incorporation or other constituent documents,
shall be as nearly equivalent as may be practicable to the relevant adjustments
provided for in the preceding two paragraphs and in this paragraph.
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Holders of shares of Convertible Preferred desiring to convert the same into
Common Stock must surrender the shares being converted free of any adverse
interest, accompanied by a written notice of conversion specifying the number
(in whole shares) of shares of Convertible Preferred to be converted and the
name or names in which such holder wishes the certficate or certificates for
Common Stock to be issued. Each conversion will be deemed to have been effected
immediately prior to the close of business on the date on which the Company
receives such shares of Convertible Preferred and notice. Such conversion shall
be at the conversion price in effect on such conversion date. Each holder of
Common Stock issuable upon the conversion of the Convertible Preferred will be
deemed a holder of record of Common Stock at the close of business on such date
of conversion unless (x) the stock transfer books of the Company shall be closed
on that date, in which event at the close of business on the next succeeding day
on which such stock transfer books are open or (y) within ten days of receipt of
such conversion notice or as promptly after such receipt as practicable the
Company delivers to the holder written notice of the Company's election to pay
cash in lieu of delivering Common Stock and a check in payment for such shares
of Common Stock in an amount equal to their Market Value (as defined below).
SPECIAL CONVERSION RIGHTS. The Convertible Preferred has a special
conversion right that becomes effective upon the occurrence of certain types of
significant transactions affecting ownership or control of the Company or the
market for the Common Stock. The purpose of the special conversion right is to
provide (subject to certain exceptions) partial loss protection upon the
occurrence of a Change of Control or a Fundamental Change (each as defined
below) at a time when the Market Value of the Common Stock issuable upon
conversion by a holder is less than the then prevailing conversion price. In
such situations, the special conversion right would, for a limited period,
reduce the then prevailing conversion price to the higher of the Market Value of
the Common Stock or a minimum conversion price equal to 80% of the last reported
sale price of the Common Stock as reflected on the cover page of this
Prospectus, subject to certain adjustments (and increase the equivalent
conversion ratio accordingly). Consequently, to the extent that the Market Value
of the Common Stock is less than the minimum conversion price, a holder will
have a lesser degree of protection from loss upon exercise of a special
conversion right.
The special conversion right is intended to provide limited loss protection
to investors in certain circumstances, while not giving holders a veto power
over significant transactions affecting ownership or control of the Company.
Although the special conversion right may render more costly or otherwise
inhibit certain proposed transactions, its purpose is not to inhibit or
discourage takeovers or other business combinations.
Each holder of the Convertible Preferred will be entitled to a special
conversion right if a Change of Control or Fundamental Change occurs. However,
if the majority of the value of the consideration received in a transaction by
holders of Common Stock is Marketable Stock (as defined below) or if the holders
of Voting Stock (as defined below) of the Company hold a majority of the Voting
Stock of the Company's successor, the transaction will not be a Fundamental
Change, and holders of the Convertible Preferred will not have special
conversion rights as the result of that transaction.
A special conversion right will permit a holder of the Convertible
Preferred, at the holder's option during the 30-day period described in the
following paragraph, to convert all, but not less than all, the holder's
Convertible Preferred at a conversion price equal to the Special Conversion
Price (as defined below). A holder exercising a special conversion right will
receive Common Stock if a Change of Control occurs and, if a Fundamental Change
occurs, will receive the same consideration received for the number of shares of
Common Stock into which the holder's Convertible Preferred would have been
convertible at the Special Conversion Price. In either case, however, the
Company or its successor may, at its option, elect to pay the holder cash equal
to the Market Value of the number of shares of Common Stock into which the
holder's Convertible Preferred is convertible at the Special Conversion Price.
The Company will mail to each registered holder of the Convertible Preferred
a notice setting forth details of any special conversion right occasioned by a
Change of Control or Fundamental Change within 30 days after the event occurs. A
special conversion right may be exercised only within the 30-day period after
the notice is mailed and will expire at the end of that period. Exercise of a
special conversion right, to the
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<PAGE>
extent permitted by law, is irrevocable, and all the Convertible Preferred
surrendered for conversion will be converted at the end of the 30-day period
mentioned in the preceding sentence. The Company, in taking any action in
connection with any Change of Control, Fundamental Change or related special
conversion right, will undertake to comply with all applicable federal
securities regulations including, to the extent applicable, Rules 13e-4 and
14e-1 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
The shares of Convertible Preferred that are not converted pursuant to a
special conversion right will continue to be convertible pursuant to the general
conversion rights described under the caption "-- Conversion" above.
The special conversion right is not intended to, and does not, protect
holders of the Convertible Preferred in all circumstances that might affect
ownership or control of the Company or the market for the Common Stock or that
might otherwise adversely affect the value of an investment in the Convertible
Preferred. The ability to control the Company may be obtained by a person even
if that person does not, as is required to constitute a Change of Control,
acquire more than 50% of the Company's voting power. The Company and the market
for the Common Stock may be affected by various transactions that do not
constitute a Fundamental Change. In particular, transactions involving the
transfer of substantially less than all of the Company's assets or the transfer
or conversion of less than 50% of the voting power may have a significant effect
on the Company and the market for the Common Stock, as could transactions in
which holders of Common Stock receive primarily Marketable Stock or in which
holders of Voting Stock (presently the Class B Stock) of the Company continue to
own a majority of the Voting Stock of the successor to the Company. In addition,
if the special conversion right does arise as the result of a Fundamental
Change, the special conversion right will allow a holder exercising a special
conversion right to receive the same type of consideration received by the
holders of Common Stock and, thus, the degree of protection afforded by the
special conversion right may be affected by the type of consideration received.
As used herein, a "Change of Control" with respect to the Company shall be
deemed to have occurred at the first time after the issuance of the Convertible
Preferred that (i) a majority of the Board of Directors of the Company, over a
two-year period, is replaced from the directors who constituted the Board of
Directors of the Company at the beginning of such period, which replacement
shall not have been approved by the Board of Directors of the Company (or
replacement directors approved by the Board of Directors of the Company), as
constituted at the beginning of such period, or (ii) a person or entity or group
of persons or entities acting in concert as a partnership or other group (other
than the DI affiliates (as defined below), any subsidiary of the Company, any
employee stock purchase plan, stock option plan or other stock incentive plan or
program, retirement plan or automatic reinvestment plan or any substantially
similar plan of the Company or any subsidiary of the Company or any person
holding securities of the Company for or pursuant to the terms of any such
employee benefit plan) shall, as a result of a tender or exchange offer, open
market purchases, privately negotiated purchases or otherwise, have become the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of
securities of the Company representing 50% or more of the combined voting power
of the then outstanding securities of the Company ordinarily (and apart from
rights accruing under special circumstances) having the right to vote in the
election of directors.
As used herein, the term "DI affiliates" means (i) Mr. Stanley H. Durwood,
his spouse and any of his lineal descendants and their respective spouses
(collectively the "Durwood Family"), (ii) any controlled affiliate of any member
of the Durwood Family and (iii) any trust for the benefit of one or more members
of the Durwood Family (whether or not any member of the Durwood Family is a
trustee of such trust) and no other person other than one or more charitable
organizations.
As used herein, a "Fundamental Change" with respect to the Company means (i)
the occurrence of any transaction or event in connection with which (a) 66 2/3%
or more of the outstanding Common Stock or (b) securities of the Company
representing 50% or more of the combined voting power of the then outstanding
securities of the Company ordinarily (and apart from rights accruing under
special circumstances) having the right to vote in the election of directors is
exchanged for, converted into, acquired for or constitutes solely the right to
receive cash, securities, property or other assets (whether by means of an
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exchange offer, liquidation, tender offer, consolidation, merger, combination,
reclassification, recapitalization or otherwise) or (ii) the conveyance, sale,
lease, assignment, transfer or other disposal of all or substantially all of the
Company's property, business or assets; provided, however, that a Fundamental
Change will not be deemed to have occurred with respect to either of the
following transactions or events: (a) any transaction or event in which more
than 50% (by value as determined in good faith by the Board of Directors) of the
consideration received by holders of Common Stock consists of Marketable Stock
or (b) any consolidation or merger of the Company in which the holders of Voting
Stock of the Company immediately prior to such transaction own, directly or
indirectly, 50% or more of the Voting Stock of the sole surviving corporation
(or of the ultimate parent of such sole surviving corporation) outstanding at
the time immediately after such consolidation or merger. There is no established
meaning of what constitutes a sale of "all or substantially all" of a company's
property, business or assets. This uncertainty may make it difficult for a
holder to determine whether or not a Fundamental Change has occurred, and thus,
whether he is entitled to a special conversion right respecting the shares of
Convertible Preferred held by him.
As used herein, "Voting Stock" means, with respect to any person, capital
stock of such person, having general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees of
such person (irrespective of whether or not at the time capital stock of any
other class or classes shall have or might have voting power by reason of the
happening of any contingency). Because holders of Class B Stock presently are
entitled to elect more than 50% of the Company's Board of Directors, the Class B
Stock is presently the only Voting Stock of the Company for purposes of this
definition.
As used herein, "Special Conversion Price" means the higher of (i) the
Market Value of the Common Stock or (ii) $9.80 per share (which amount will,
each time the conversion price is adjusted, be adjusted so that the ratio of
such amount to the conversion price, after giving effect to any such adjustment,
shall always be the same as the ratio of $9.80 to the initial conversion price,
without giving effect to any such adjustment). As used herein, "Market Value" of
the Common Stock or any other Marketable Stock is the average of the last
reported sales prices of the Common Stock or such other Marketable Stock, as the
case may be, for the five trading days ending on the last trading day preceding
the date of the Fundamental Change, Change of Control or conversion, as
applicable.
As used herein, the term "Marketable Stock" means the Common Stock or common
stock of any corporation that is the successor to all or substantially all of
the business or assets of the Company as a result of a Fundamental Change or of
the ultimate parent of such successor, which is (or will, upon distribution
thereof, be) listed or quoted on the New York Stock Exchange, the American Stock
Exchange, the Nasdaq National Market or any similar system of automated
dissemination of quotations of securities prices in the United States.
COMMON STOCK AND CLASS B STOCK
VOTING RIGHTS. The holders of Common Stock are entitled to one vote per
share and, except for the election of directors, vote together as a single class
with the Class B Stock, subject to the right to vote as a separate class on
certain charter amendments affecting the Common Stock and as required by law.
The holders of Class B Stock are entitled to ten votes per share and, except
for the election of directors, vote together with the Common Stock as a single
class, subject to the right to vote as a separate class on certain charter
amendments affecting the Class B Stock and as required by law.
Holders of Common Stock, voting separately as a class, with each share
having one vote for such purpose, generally have the right to elect 25% of the
Board of Directors. So long as any shares of Class B Stock remain outstanding,
holders of Class B Stock, voting separately as a single class, with each share
of Class B Stock having one vote for such purpose, generally have the right to
elect 75% of the Board of Directors. If the total number of shares of Class B
Stock outstanding becomes less than 12 1/2% of the aggregate number of shares of
Common Stock and Class B Stock outstanding, then so long as shares of Common
Stock are listed on the AMEX, the 75% of the Board of Directors otherwise
elected by holders of Class B Stock will be elected by holders of Common Stock
and Class B Stock voting together as a single class,
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with each share of Common Stock having one vote per share and each share of
Class B Stock having ten votes per share. In the event that no shares of Class B
Stock remain outstanding, the holders of Common Stock may elect all of the Board
of Directors, with each share having one vote for such purpose. Holders of
Common Stock and Class B Stock do not have cumulative voting rights in elections
of directors.
CONVERSION RIGHTS. Each holder of Class B Stock is entitled to convert all
or any portion of such holder's shares of Class B Stock into the same number of
shares of Common Stock. Upon approval of the holders of a majority of the
outstanding shares of Class B Stock, a pro rata percentage of shares of Class B
Stock of each holder of record will be automatically converted into the same
number of shares of Common Stock. The Company's Certificate of Incorporation
requires the Company to reserve and keep available a sufficient number of
authorized but unissued shares of Common Stock to permit conversion of all
outstanding shares of Class B Stock.
PREEMPTIVE RIGHTS. Holders of Common Stock and Class B Stock have no
preemptive rights.
DIVIDEND AND LIQUIDATION RIGHTS. Holders of Common Stock and Class B Stock
are entitled to receive, pro rata per share, such dividends as the Board of
Directors may from time to time declare out of funds of the Company legally
available for the payment of dividends, subject to the prior rights of holders
of any then outstanding Preferred Stock. Upon any liquidation, dissolution or
winding-up of the Company, holders of Common Stock and Class B Stock are
entitled to receive, pro rata per share, any remaining assets of the Company
available for distribution to stockholders, subject to the prior rights of
holders of any then outstanding Preferred Stock.
CERTAIN STOCK TRANSACTIONS. No stock dividend, stock split, subscription
right, combination, subdivision or exchange may be paid or issued by the Company
to holders of Common Stock or Class B Stock except in shares of (or a right to
subscribe to shares of) the same class and only if such action is taken at the
same time with respect to the other class so that the number of shares of each
class outstanding (or subject to a subscription right) is increased or decreased
in like proportion. The Company may not merge or consolidate unless the terms
and conditions of the merger or consolidation provide that holders of Common
Stock and Class B Stock then outstanding receive, pro rata per share,
consideration of equal value.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW
DIRECTOR LIABILITY. The DGCL permits a corporation to include in its
certificate of incorporation provisions eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for such director's breach of fiduciary duty, provided that such
provisions may not eliminate or limit a director's liability (i) for a breach of
his or her duty of loyalty to the corporation or its stockholders; (ii) for acts
or omissions not in good faith or involving intentional misconduct or a knowing
violation of law; (iii) for unlawful payments of dividends, certain stock
repurchases or redemptions; or (iv) for any transaction from which the director
derived an improper personal benefit. These provisions generally protect a
corporation's directors from personal liability for breaches of their duty of
care, including liability for grossly negligent business decisions. The
Company's Certificate of Incorporation includes provisions which eliminate the
personal liability of directors for breach of fiduciary duty to the full extent
permitted by the DGCL.
REQUISITE VOTING PERCENTAGE. The DGCL generally provides that the
affirmative vote of a majority of the shares represented and entitled to vote at
a stockholders' meeting at which a quorum is present (either in person or by
proxy) is required for routine stockholder action other than the election of
directors. For mergers, consolidations and transactions involving the
disposition of substantially all of a corporation's assets, the affirmative vote
of a majority of outstanding shares is required by the DGCL. The DGCL permits a
corporation to require a greater vote in its certificate of incorporation or its
by-laws. The Company's Certificate of Incorporation and By-Laws do not provide
for any greater voting requirement. However, the Certificate of Designations
respecting the Convertible Preferred requires the approval of the holders of
two-thirds of the outstanding shares of Convertible Preferred and any Parity
Securities, voting as a class, for the issuance, authorization or increase of
any class of Senior Securities. See "-- Convertible Preferred -- Voting Rights".
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TRANSACTIONS WITH INTERESTED STOCKHOLDERS. Under the DGCL, a corporation
may not engage in any business combination (hereinafter defined) with an
Interested Stockholder (hereinafter defined) for a period of three years
following the date that such stockholder became an Interested Stockholder (the
"Interested Stockholder Date") unless: (i) prior to the Interested Stockholder
Date, the board of directors of the corporation approves the business
combination; (ii) upon consummation of the business combination the Interested
Stockholder owns at least 85% of the voting stock of the corporation outstanding
at the time the transaction commenced; or (iii) on or subsequent to the
Interested Stockholder Date, the business combination is approved by the board
of directors and is authorized at a meeting of stockholders by the affirmative
vote, and not by written consent, of at least two-thirds of the outstanding
voting stock which is not owned by the Interested Stockholder.
As used in the preceding paragraph, (i) an "Interested Stockholder" is any
person (other than the corporation or its subsidiaries) that, with certain
exceptions, (A) is the owner of 15% or more of the outstanding voting stock of
the corporation, or (B) is an affiliate or associate of the corporation and was
the owner of 15% or more of the outstanding voting stock of the corporation at
any time within the three year period immediately prior to the Interested
Stockholder Date; and (ii) a "business combination" is (A) a merger or
consolidation; (B) a sale, lease, exchange, mortgage, pledge, transfer or other
disposition of a corporation's assets having an aggregate market value equal to
ten percent or more of the aggregate market value of all of the corporation's
assets, determined on a consolidated basis, or having an aggregate market value
equal to ten percent or more of the aggregate market value of all of the
corporation's outstanding stock; (C) the issuance or transfer of any stock to an
Interested Stockholder, other than issuances pursuant to the exercise of certain
convertible securities outstanding prior to the Interested Stockholder Date,
certain issuances or transfers made on the same terms to all stockholders, or
issuances or transfers which do not increase the proportionate interest of an
Interested Stockholder, (D) a transaction which increases an Interested
Stockholder's proportionate share of the stock of any class or series; and (E)
any receipt by an Interested Stockholder of loans, advances, guarantees, pledges
or other financial benefits from the corporation.
INDEMNIFICATION. The DGCL provides that indemnification of a person who was
or is a party, or is threatened to be made a party, to a legal proceeding by
reason of the fact that such person was or is a director, officer or agent of a
corporation, or is or was serving as a director, officer, employee or agent of
another corporation or other firm at the request of a corporation, against
expenses, judgments, fines and amounts paid in settlement, is mandatory under
certain circumstances (generally respecting expenses, including attorneys' fees,
incurred by an indemnified party who is successful on the merits of the
proceedings giving rise to the claim for indemnification) and permissive in
others. Under the DGCL, permissive indemnification is subject to authorization
(i) by a majority vote of a quorum consisting of directors who were not parties
to such legal proceeding, or (ii) if such quorum is not obtainable, or even if
obtainable a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (iii) by the corporation's stockholders. The
standard of conduct required by the DGCL requires that a person seeking
indemnification shall have acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to criminal proceedings, had no reason to believe his or her
conduct was unlawful. For actions or suits brought by or in the name of the
corporation, the DGCL provides that a director, employee, officer or agent of a
corporation may be indemnified against expenses by such person in connection
with such proceeding, except if such person is adjudged to be liable to the
corporation, in which case such person can be indemnified if and only to the
extent that a court shall determine that, despite the adjudication of liability,
in view of all of the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses as the court shall deem
proper.
The Company's Certificate of Incorporation contains provisions requiring
indemnification to the full extent permitted by the DGCL. In certain
circumstances, the Company's Certificate of Incorporation also provides for
mandatory advance payment of indemnifiable expenses by the Company.
TRANSFER AGENT. United Missouri Bank, N.A., Kansas City, Missouri, is the
transfer agent and registrar for the Common Stock and will be the transfer agent
for the Convertible Preferred.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
INTRODUCTION
The discussion set forth below is a summary of the material tax
considerations relevant to original investors with respect to the purchase,
ownership, and disposition of Convertible Preferred, but does not purport to be
a complete analysis of all of the potential tax effects of such purchase,
ownership, and disposition. The discussion is limited to United States federal
income tax matters. The discussion is based upon the Code, Treasury regulations,
Internal Revenue Service ("IRS") rulings, and judicial decisions now in effect,
all of which are subject to change at any time, possibly with retroactive
effect, by legislative, judicial, or administrative action. Except as otherwise
indicated, references in this section to Common Stock are to the Common Stock
issuable upon conversion of the Convertible Preferred.
The discussion is applicable only to investors who will hold the Convertible
Preferred and the Common Stock as "capital assets" (generally, property held for
investment) within the meaning of Section 1221 of the Code. In addition, the
discussion does not address the tax consequences of purchasing, owning, or
disposing of Convertible Preferred to taxpayers which are subject to special
rules that do not apply to taxpayers generally, such as life insurance
companies, tax-exempt organizations, regulated investment companies, S
corporations, financial institutions, broker-dealers, foreign entities, and
nonresident alien individuals.
Gage & Tucker, counsel to the Company, has given an opinion that the
discussion, insofar as it expresses conclusions of law, is accurate in all
material respects. The Company has not sought, nor does it intend to seek, a
ruling from the IRS as to any of the matters covered by the discussion. There
can be no assurance that the IRS will not challenge, perhaps successfully,
certain of the conclusions reached in the discussion.
THE TAX CONSEQUENCES OF PURCHASING, OWNING, AND DISPOSING OF CONVERTIBLE
PREFERRED MAY VARY DEPENDING ON A HOLDER'S PARTICULAR SITUATION. PROSPECTIVE
INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE TAX
CONSEQUENCES TO THEM OF AN INVESTMENT IN THE CONVERTIBLE PREFERRED, INCLUDING
BUT NOT LIMITED TO THE APPLICATION TO THEM OF FEDERAL ESTATE AND GIFT, STATE,
LOCAL, FOREIGN, AND OTHER TAX LAWS.
DIVIDENDS ON CONVERTIBLE PREFERRED
Distributions made by the Company with respect to the Convertible Preferred
will be characterized as dividends taxable as ordinary income to the extent that
the Company has current or accumulated earnings and profits as computed for
federal income tax purposes. A distribution made to a holder of Convertible
Preferred with respect to such stock that exceeds the holder's allocable share
of the Company's current or accumulated earnings and profits as computed for
federal income tax purposes will be treated as follows. First, the distribution
will be applied against and reduce the holder's adjusted basis in the holder's
Convertible Preferred. Then, to the extent that the distribution exceeds the
holder's adjusted basis in the Convertible Preferred, the distribution will be
taxed as a capital gain. The capital gain will be long-term capital gain if the
holder's holding period for the Convertible Preferred is more than one year.
The Company believes that it has accumulated earnings and profits as
computed for federal income tax purposes, but no definitive earnings and profits
studies have been conducted and the amount of such earnings and profits, if any,
is unknown. While no assurance can be given, the Company believes that it will
have current earnings and profits as computed for federal income tax purposes
for 1994. It is not possible to predict whether the Company will have current or
accumulated earnings and profits in subsequent years. Thus, there can be no
assurance that all or any portion of any distribution made with respect to the
Convertible Preferred will be characterized as a dividend for federal income tax
purposes.
CORPORATE HOLDERS -- DEDUCTION FOR DIVIDENDS RECEIVED
A corporate holder of Convertible Preferred will generally be entitled, in
computing its taxable income, to a deduction in an amount equal to 70 percent of
any distributions received by it with respect to such stock that are treated as
dividends. This deduction is subject to several limitations, as described in the
following paragraphs.
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The dividends received deduction will be available only for dividends
received on shares of Convertible Preferred that the corporate holder has held
for at least 46 days, or at least 91 days in the case of dividends attributable
to a period or periods aggregating more than 366 days. A holder's holding period
for these purposes generally will be reduced by periods during which: (i) the
holder has an option to sell, is under a contractual obligation to sell, or has
made (but not closed) a short sale of substantially identical stock or
securities; (ii) the holder is the grantor of an option to purchase
substantially identical stock or securities; or (iii) the holder's risk of loss
with respect to the shares is considered diminished by reason of the holding of
one or more positions in substantially similar or related property.
In addition to the foregoing, no dividends received deduction will be
allowed to a corporate holder of the Convertible Preferred for dividends
received by such holder with respect to such stock to the extent that the holder
is obligated (whether pursuant to a short sale or otherwise) to make related
payments with respect to positions in substantially similar or related property.
The dividends received deduction allowed to a corporate holder of Convertible
Preferred with respect to all dividends received by such holder, and not simply
those paid with respect to the Convertible Preferred, will be limited to a
specified proportion of the holder's adjusted taxable income. Also, the
dividends received deduction allowed to a corporate holder may be reduced or
eliminated in accordance with the rules set forth in Section 246A of the Code,
if the holder has indebtedness that is directly attributable to its investment
in portfolio stock, such as the Convertible Preferred.
Special rules may apply to a corporate holder of the Convertible Preferred
who receives a dividend with respect to such stock that is considered to be an
"extraordinary dividend" within the meaning of Section 1059 of the Code. If a
corporate holder receives such an extraordinary dividend with respect to
Convertible Preferred, and if the holder has not held such stock for more than
two years before the Company declares, announces, or agrees to the amount or
payment of such dividend, whichever is earliest, then the holder's basis in the
stock will be reduced (but not below zero) by any nontaxed portion of the
dividend, which generally is the amount of the dividends received deduction. For
purposes of determining if Convertible Preferred has been held for more than two
years, rules similar to those that are applicable to determining how long such
stock has been held for purposes of the dividends received deduction will apply.
Upon the sale or disposition of Convertible Preferred, any part of the nontaxed
portion of an extraordinary dividend that has not been applied to reduce basis
because of the limitation on reducing basis below zero will be treated as gain
from the sale or exchange of such stock.
An "extraordinary dividend" on the Convertible Preferred generally will
include a dividend received by a holder that: (i) equals or exceeds five percent
of the holder's adjusted basis in the stock, treating all dividends having
ex-dividend dates within an 85-day period as one dividend; or (ii) exceeds 20
percent of the holder's adjusted basis in the stock (determined without regard
to any reduction for the nontaxed portion of other extraordinary dividends),
treating all dividends having ex-dividend dates within a 365-day period as one
dividend. A holder may elect to use the fair market value of the stock, rather
than its adjusted basis, for purposes of applying the five percent and 20
percent limitations, if the holder is able to establish such fair market value
to the satisfaction of the IRS. An "extraordinary dividend" will also include
any amount treated as a dividend upon a redemption of Convertible Preferred that
is either part of a partial liquidation of the Company under Section 302(e) of
the Code or not pro rata as to all shareholders, and the basis reduction and
gain recognition rules described in the preceding paragraph will apply to such
an extraordinary dividend without regard to the period the holder held the
stock.
A dividend on the Convertible Preferred received by a holder generally will
be a "qualified preferred dividend" if: (i) the stock was not in arrears as to
dividends when acquired by the holder; and (ii) the holder's actual rate of
return on such stock, as determined under Section 1059(e)(3) of the Code, does
not exceed 15 percent. Where a qualified preferred dividend received with
respect to the Convertible Preferred would otherwise be treated as an
extraordinary dividend: (i) the basis reduction rules generally applicable to
extraordinary dividends will not apply if the holder holds the stock for more
than five years; and (ii) if the holder disposes of the stock before it has been
held for more than five years, the aggregate reduction in basis under such basis
reduction rules will not exceed the excess of the qualified preferred dividends
paid on such stock during the period held by the taxpayer over the qualified
preferred dividends which would have been
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paid during such period on the basis of the stated rate of return on such stock
as determined under Section 1059(e)(3) of the Code. For purposes of determining
if Convertible Preferred has been held for more than five years, rules similar
to those that are applicable to determining how long such stock has been held
for purposes of the dividends received deduction will apply.
In addition to the foregoing rules which limit the dividends received
deduction, a corporate holder of Convertible Preferred in general may, for
purposes of computing its alternative minimum tax liability, be required to
include in its alternative minimum taxable income the amount of any dividends
received deduction allowed in computing regular taxable income.
ADJUSTMENT OF CONVERSION PRICE
Holders of Convertible Preferred may be deemed to have received a
constructive distribution of stock that is taxable as a dividend if, among other
things, the conversion price of the Convertible Preferred is adjusted to reflect
a cash or property distribution with respect to the Common Stock. However, an
adjustment to the conversion price made pursuant to a bona fide reasonable
adjustment formula which has the effect of preventing the dilution of the
interests of the holders generally will not be considered to result in a
constructive stock dividend. Certain of the possible adjustments in the
conversion price that might occur as a result of the provisions in the
Certificate of Designations respecting the Convertible Preferred (including,
without limitation, the provisions respecting adjustments that might occur in
the event of a Change of Control or a Fundamental Change and the provisions that
relate to action taken by the Board of Directors to reduce the conversion price
to avoid or diminish income tax to the holders of Common Stock or for any other
purpose) may not qualify as being pursuant to a bona fide reasonable adjustment
formula. If a nonqualifying adjustment were made, the holders of Convertible
Preferred, as indicated above, might be deemed to have received a taxable stock
dividend.
Any such constructive dividends may constitute (and cause other dividends to
constitute) "extraordinary dividends" to corporate holders. Any such
extraordinary dividends would be subject to the rules relating to such dividends
described above.
REDEMPTION PREMIUM
With respect to preferred stock, such as the Convertible Preferred, that is
callable but is neither puttable by holders nor subject to a mandatory
redemption by the issuer (whether expressly or by other arrangements), if the
redemption price of such preferred stock exceeds its issue price, and if such
excess is not considered to be a reasonable redemption premium, the entire
amount of the redemption premium will be treated as being distributed to the
holder of such stock, on an economic accrual basis, over the period of time
beginning with the issuance of such stock and ending when the stock is first
redeemable. In this respect, the income tax regulations provide that a
redemption premium not in excess of 10 percent of the issue price on stock which
is not redeemable for five years from the date of issue will be considered to be
reasonable. Even if this test is not satisfied, however, a redemption premium
will be considered to be reasonable if it is in the nature of a penalty for a
premature redemption of the preferred stock and it does not exceed the amount
the issuer would be required to pay for the right to make such premature
redemption under the market conditions existing at the time of issuance.
The Company believes that the premium which it would be required to pay in
order to call the Convertible Preferred is equivalent to premium rates presently
payable on newly-issued comparable stock paying comparable dividends. However,
there can be no assurance that redemption premiums will not be treated as
constructive dividends in accordance with the general rules stated above.
CONVERSION OF CONVERTIBLE PREFERRED INTO COMMON STOCK
A holder of Convertible Preferred may elect to convert such stock at any
time, and the Company will then determine whether the conversion will be made
into shares of Common Stock or into cash, all as described under "Description of
Capital Stock -- Convertible Preferred." The consequences of a conversion of
Convertible Preferred into Common Stock are discussed in the following
paragraph. The consequences of a conversion of Convertible Preferred into cash
are discussed below in this section under "Redemption of Convertible Preferred
for Cash."
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No gain or loss will be recognized upon the conversion of Convertible
Preferred solely into shares of Common Stock. However, gain realized upon the
receipt of cash paid in lieu of fractional shares of Common Stock will be taxed
immediately. Except to the extent that basis is utilized when cash is paid in
lieu of fractional shares of Common Stock, the adjusted basis for the shares of
Common Stock received upon the conversion will be equal to the adjusted basis of
the Convertible Preferred converted, and the holding period of the shares of
Common Stock will include the holding period of the Convertible Preferred
converted.
REDEMPTION OF CONVERTIBLE PREFERRED FOR CASH
A redemption of the Convertible Preferred for cash will be treated as a sale
or exchange of such stock by the holder thereof (except to the extent of any
declared but unpaid dividends) if the redemption either: (i) is a complete
redemption of all stock of the Company owned by the holder under Section
302(b)(3) of the Code; (ii) is "substantially disproportionate" with respect to
the holder under Section 302(b)(2) of the Code; or (iii) is "not essentially
equivalent to a dividend" under Section 302(b)(1) of the Code. In determining
whether any of the Section 302(b) tests are met, Common Stock and any other
stock of the Company will be taken into account, along with Convertible
Preferred. Also in making such determination, stock that is constructively owned
under Section 318 of the Code, as well as stock that is actually owned, will be
taken into account.
Generally, a redemption by a holder is substantially disproportionate if the
holder's percentage ownership of both all voting stock and all common stock,
including the Class B Stock, considered separately, immediately after the
redemption is less than 80 percent of such percentage ownership immediately
before the redemption. Whether a redemption by a holder is not essentially
equivalent to a dividend depends on the holder's facts and circumstances, but
generally requires a meaningful reduction in the holder's proportionate interest
in the Company.
If any of the Section 302(b) tests described above is satisfied, so that a
redemption of Convertible Preferred IS treated as a sale or exchange of such
stock, then the redemption will result in taxable gain or loss equal to the
difference between the amount of cash received and the holder's adjusted basis
in the redeemed shares. Any such gain or loss will be capital gain or loss and
will be long-term capital gain or loss if the holder's holding period exceeds
one year.
If none of the Section 302(b) tests described above is satisfied, so that a
redemption of Convertible Preferred is NOT treated as a sale or exchange of such
stock, then the redemption will be treated as a distribution taxable as a
dividend to the extent of the Company's current and accumulated earnings and
profits. The holder's basis in the redeemed Convertible Preferred would, in such
case, generally be transferred to the holder's remaining shares of Company
stock, if any. As described above, the amount of cash received that is treated
as a dividend will constitute an "extraordinary dividend," and the basis
reduction and gain recognition rules applicable to such a dividend will apply
irrespective of the period of time that the holder has held the Convertible
Preferred, if such redemption is not pro rata as to all shareholders.
OTHER DISPOSITION OF CONVERTIBLE PREFERRED
Upon the sale or exchange of shares of Convertible Preferred, or of shares
of Common Stock, to or with a person other than the Company, a holder will
recognize capital gain or loss equal to the difference between the amount
realized on such sale or exchange and the holder's adjusted basis in such stock.
Any capital gain or loss recognized will generally be treated as long-term
capital gain or loss if the holder held such stock for more than one year. For
this purpose, the period for which the Convertible Preferred was held would be
included in the holding period of the Common Stock received upon conversion.
BACKUP WITHHOLDING
Under Section 3406 of the Code and applicable regulations thereunder, a
holder of Convertible Preferred or Common Stock may be subject to backup
withholding at the rate of 31 percent with respect to dividends paid on, or the
proceeds of a sale, exchange, or redemption of, the Convertible Preferred or
Common Stock. If: (i) the holder ("payee") fails to furnish or certify a
taxpayer identification number to the payor; (ii) the IRS notifies the payor
that the taxpayer identification number furnished by the payee is incorrect;
(iii) there has been a "notified payee underreporting" described in Section
3406(c) of the Code; or
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(iv) there has been a "payee certification failure" described in Section 3406(d)
of the Code, then the Company generally will be required to withhold an amount
equal to 31 percent of any dividend or redemption payment made with respect to
the Convertible Preferred or Common Stock. Any amounts withheld under the backup
withholding rules from a payment to a holder will be allowed as a credit against
the holder's federal income tax liability or as a refund.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this Offering, the Company will have approximately
5,262,830 shares of Common Stock outstanding and 11,157,000 shares of Class B
Stock outstanding, which are convertible into a like number of shares of Common
Stock. Of the shares of Common Stock outstanding or issuable upon conversion of
the Class B Stock, approximately 2,573,151 are freely tradeable without
restriction or registration under the Securities Act. All of the remaining
shares of Common Stock are either held by affiliates or are "restricted
securities" as that term is defined in Rule 144 promulgated under the Securities
Act, all of which are presently eligible for sale (subject to any applicable
volume restrictions of Rule 144). Additional shares of Common Stock, including
shares issuable upon exercise of options, will also become eligible for sale in
the public market from time to time. However, holders of substantially all of
the restricted shares have agreed not to sell any of their shares of Common
Stock for a period of 90 days from the date of this Prospectus without the prior
written consent of the Underwriters. Following this offering, sales of
substantial amounts of the Company's Common Stock in the public market pursuant
to Rule 144 or otherwise, even the potential of such sales, could adversely
affect the prevailing market price for the Common Stock and impair the Company's
ability to raise additional capital through the sale of equity securities.
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement (the
"Underwriting Agreement"), the Underwriters named below, for whom Donaldson,
Lufkin & Jenrette Securities Corporation, Bear, Stearns & Co. Inc. and Smith
Barney Shearson Inc. are acting as representatives (the "Representatives"), have
severally agreed to purchase from the Company, and the Company has agreed to
sell to the several Underwriters, the number of shares of Convertible Preferred
set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.............................. 1,333,334
Bear, Stearns & Co. Inc.......................................................... 1,333,333
Smith Barney Shearson Inc........................................................ 1,333,333
----------
Total........................................................................ 4,000,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the Underwriters' obligations are
subject to certain conditions and that the Underwriters must purchase all of the
shares of Convertible Preferred if any are purchased.
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Convertible Preferred to the public initially at the
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $0.52 per share
of Convertible Preferred. The Underwriters may allow and such dealers may
reallow further concessions, not in excess of $0.10 per share, to certain other
dealers. After the shares of Convertible Preferred are released for sale to the
public, the public offering price, concessions and discounts to dealers may be
changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable at any
time within 30 days after the date of this Prospectus, to purchase from the
Company up to 600,000 additional shares of Convertible Preferred at the public
offering price less the underwriting discount set forth on the cover page of
this Prospectus. The Underwriters may exercise the option solely for the purpose
of covering over-allotments made in connection with the sale of the 4,000,000
shares of Convertible Preferred offered hereby.
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The Company has agreed to indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act and to contribute to
payments the Underwriters may be required to make in respect of those
liabilities where indemnification is unavailable.
The Company and its directors, certain executive officers, principal
shareholders and other affiliates have agreed that for a period of 90 days from
the date of this Prospectus, they will not offer, sell, contract to sell, grant
any option to purchase or otherwise transfer or dispose of shares of Common
Stock or any other equity security of the Company or securities convertible into
or evidencing the right to acquire such Common Stock or other equity security,
without the prior written consent of the Underwriters, except for the issuance
of shares upon the exercise of outstanding stock options and the grant of
employee stock options under existing stock option plans.
LEGAL MATTERS
The validity of the issuance of the Convertible Preferred offered hereby and
the descriptions given under "Certain Federal Income Tax Consequences" have been
passed upon for the Company by Gage & Tucker, Kansas City, Missouri. Certain
legal matters related to this Offering will be passed upon for the Underwriters
by Skadden, Arps, Slate, Meagher & Flom, Chicago, Illinois. Raymond F. Beagle,
Jr., a partner in Gage & Tucker, is general counsel of the Company.
EXPERTS
The consolidated financial statements and schedules of the Company as of and
for the year ended April 1, 1993, appearing in this Prospectus and Registration
Statement have been audited by Coopers & Lybrand, independent auditors, to the
extent and for the periods indicated in their reports also appearing herein and
in the Registration Statement. These financial statements have been included in
reliance upon such reports given upon the authority of such firm as experts in
auditing and accounting.
The consolidated financial statements and the related financial statement
schedules of the Company as of April 2, 1992 and for each year in the two-year
period ended April 2, 1992 included and incorporated by reference in this
prospectus have been audited by Deloitte & Touche, independent auditors, as
stated in their reports, which are included and incorporated by reference
herein, and have been so included and incorporated in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
The financial statements of EEP included in this Prospectus have been
audited by Deloitte & Touche, independent auditors, as stated in their report
appearing in the Registration Statement and are included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
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AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-2 (the "Registration Statement," which term shall encompass all amendments,
exhibits, annexes and schedules thereto), pursuant to the Securities Act and the
rules and regulations promulgated thereunder, covering the shares being offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission, and to which reference is hereby
made. Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved.
The Company files periodic reports, proxy statements and other information
with the Commission under the Exchange Act. The Registration Statement, as well
as such reports, proxy statements and other information filed by the Company
with the Commission, may be inspected at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and should also be available for inspection and
copying at the regional offices of the Commission located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
The Company's Common Stock is listed on the AMEX and the Pacific Stock
Exchange. The Company's periodic reports and proxy statements filed under the
Exchange Act as well as other information concerning the Company can be
requested at the AMEX, 86 Trinity Place, New York, New York 10086 and at the
Pacific Stock Exchange, 301 Pine Street, Suite 1104, San Francisco, California
94104.
------------------------
INCORPORATION BY REFERENCE
The following documents filed by the Company with the Commission (File no.
01-12429) are incorporated in this Prospectus by reference and hereby made a
part hereof:
1. The Company's Annual Report on Form 10-K for the fiscal year ended April 1,
1993;
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended July 1,
1993, September 30, 1993 and December 30, 1993; and
3. The Company's Current Report on Form 8-K dated June 10, 1993, as amended
August 2, 1993.
Any statement contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of any such person,
a copy of any or all of the documents incorporated herein by reference, other
than exhibits to such documents. Requests should be directed to AMC
Entertainment Inc., Attention: Nancy L. Gallagher, Corporate Secretary, 106 West
14th Street, Kansas City, Missouri 64105 (telephone: (816) 221-4000).
58
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AMC ENTERTAINMENT INC.
UNAUDITED FINANCIAL STATEMENTS:
Unaudited Consolidated Statement of Operations for the Thirty-nine week periods ended December 30, 1993
and December 31, 1992 and pro forma Consolidated Statement of Operations for the Thirty-nine week
periods ended December 30, 1993 and December 31, 1992................................................. F-2
Unaudited Consolidated Balance Sheets at December 30, 1993 and December 31, 1992....................... F-3
Unaudited Consolidated Statements of Cash Flows for the Thirty-nine week periods ended December 30,
1993 and December 31, 1992............................................................................ F-4
Unaudited Consolidated Statements of Stockholders' Equity for the Thirty-nine weeks ended December 30,
1993 and December 31, 1992............................................................................ F-6
Notes to Unaudited Consolidated Financial Statements................................................... F-7
INDEPENDENT AUDITORS' REPORTS............................................................................ F-11
AUDITED FINANCIAL STATEMENTS:
Consolidated Statements of Operations for the Fifty-two weeks ended April 1, 1993, the Fifty-three
weeks ended April 2, 1992 and the Fifty-two weeks ended March 28, 1991, and pro forma Consolidated
Statement of Operations for the Fifty-two weeks ended April 1, 1993................................... F-13
Consolidated Balance Sheets at April 1, 1993 and April 2, 1992......................................... F-14
Consolidated Statements of Cash Flows for the Fifty-two weeks ended April 1, 1993, the Fifty-three
weeks ended April 2, 1992 and the Fifty-two weeks ended March 28, 1991................................ F-15
Consolidated Statements of Stockholders' Equity for the Fifty-two weeks ended April 1, 1993, the
Fifty-three weeks ended April 2, 1992 and the Fifty-two weeks ended March 28, 1991.................... F-17
Notes to Consolidated Financial Statements............................................................. F-18
EXHIBITION ENTERPRISES PARTNERSHIP
INDEPENDENT AUDITORS' REPORT............................................................................. F-41
FINANCIAL STATEMENTS:
Statement of Operations for the Fifty-three week period ended December 31, 1992........................ F-42
Balance Sheet at December 31, 1992..................................................................... F-43
Statement of Cash Flows for the Fifty-three week period ended December 31, 1992........................ F-44
Statement of Changes in Partners' Capital.............................................................. F-46
Notes to Financial Statements.......................................................................... F-47
</TABLE>
F-1
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(UNAUDITED)
THIRTY-NINE WEEKS ENDED
----------------------------------------------
PRO FORMA ACTUAL
---------------------- ----------------------
12/30/93 12/31/92 12/30/93 12/31/92
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues
Admissions..................................................... $ 297,647 $ 277,865 $ 297,647 $ 201,652
Concessions.................................................... 134,773 121,006 134,773 87,117
Management fee income.......................................... 210 193 210 7,183
Other.......................................................... 15,328 13,113 15,328 10,178
---------- ---------- ---------- ----------
Total revenues............................................... 447,958 412,177 447,958 306,130
Expenses
Film rentals................................................... 154,910 146,578 154,910 105,793
Advertising.................................................... 13,912 13,486 13,912 9,705
Payroll & related expenses..................................... 61,247 58,184 61,247 43,703
Occupancy costs................................................ 66,226 61,860 66,226 44,120
Concession merchandise......................................... 20,004 18,945 20,004 13,813
Other.......................................................... 29,043 24,029 29,089 18,216
---------- ---------- ---------- ----------
Total cost of operations..................................... 345,342 323,082 345,388 235,350
Depreciation and amortization.................................. 28,825 29,203 29,151 21,086
General & administrative expenses.............................. 27,957 26,280 27,957 26,088
Estimated loss on future disposition of assets................. -- 2,500 -- 2,500
---------- ---------- ---------- ----------
Total expenses............................................... 402,124 381,065 402,496 285,024
---------- ---------- ---------- ----------
Operating income............................................. 45,834 31,112 45,462 21,106
Other expense (income)
Interest expense
Corporate borrowings......................................... 19,115 18,132 19,185 16,584
Capitalized leases........................................... 8,431 8,447 8,431 6,577
Investment income.............................................. (1,493) (88) (1,653) (6,485)
Minority interest.............................................. -- -- (1,599) --
Loss (gain) on disposition of assets........................... 79 (9,590) 79 (9,640)
---------- ---------- ---------- ----------
Earnings before income taxes and extraordinary item.............. 19,702 14,211 21,019 14,070
Income tax provision............................................. 8,100 5,000 8,500 5,000
---------- ---------- ---------- ----------
Net earnings before extraordinary item........................... 11,602 9,211 12,519 9,070
Extraordinary item-loss on extinguishment of debt (net of income
tax benefit of $3,800).......................................... -- (6,483) -- (6,483)
---------- ---------- ---------- ----------
Net earnings..................................................... $ 11,602 $ 2,728 $ 12,519 $ 2,587
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings per share before extraordinary item..................... $ .71 $ .55 $ .76 $ .54
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings per share............................................... $ .71 $ .15 $ .76 $ .14
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average number of shares outstanding.................... 16,452 16,195 16,452 16,195
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
F-2
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
(UNAUDITED)
12/30/93 12/31/92
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents.................................................................... $ 58,518 $ 24,538
Investments............................................................................. -- 25,835
Receivables, net of allowance for doubtful accounts of $596 at December 30, 1993 and
$663 at December 31, 1992.............................................................. 8,349 10,035
Prepaid film rentals.................................................................... 290 300
Other current assets.................................................................... 8,515 7,476
---------- ----------
Total current assets.................................................................. 75,672 68,184
Investment in TPI Enterprises, Inc........................................................ 8,682 8,682
Investment in and advances to partnership................................................. -- 40,052
Property, net............................................................................. 263,562 226,353
Other long-term assets.................................................................... 59,695 35,841
---------- ----------
Total assets.......................................................................... $ 407,611 $ 379,112
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Film rentals payable.................................................................... $ 27,509 $ 17,297
Accrued expenses and other liabilities.................................................. 49,036 37,639
Estimated IRS settlement................................................................ 3,146 4,796
Other accounts payable, including related parties of $178 at December 31, 1992.......... 7,907 3,384
Current maturities of borrowings and capital lease obligations.......................... 2,519 2,464
---------- ----------
Total current liabilities............................................................. 90,117 65,580
Corporate borrowings...................................................................... 200,126 200,914
Capital lease obligations................................................................. 66,165 50,510
Other long-term liabilities............................................................... 19,237 15,621
---------- ----------
Total liabilities..................................................................... 375,645 332,625
---------- ----------
Deferred gain on sale of assets........................................................... -- 26,992
Commitments and contingencies.............................................................
Stockholders' equity
Common stock; 4,684,130 shares issued and outstanding at December 30, 1993 and 4,539,380
shares at December 31, 1992.............................................................. 3,123 3,026
Class B stock; 11,730,000 shares issued and outstanding................................... 7,820 7,820
Additional paid-in capital................................................................ 13,979 12,800
Retained earnings (accumulated deficit)................................................... 7,044 (4,151)
---------- ----------
Total stockholders' equity............................................................ 31,966 19,495
---------- ----------
Total liabilities and stockholders' equity............................................ $ 407,611 $ 379,112
---------- ----------
---------- ----------
</TABLE>
F-3
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
THIRTY-NINE
WEEKS ENDED
----------------------
12/30/93 12/31/92
---------- ----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings............................................................................ $ 12,519 $ 2,587
---------- ----------
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization -- property............................................. 22,157 18,024
other long-term assets.................................. 5,081 3,062
Loss (gain) on sale of long-term assets................................................. 79 (9,640)
Change in certain assets and liabilities, net of effects from acquisitions and
investments:
Receivables........................................................................... (1,995) (2,228)
Other current assets.................................................................. 1,135 592
Film rentals, net..................................................................... 8,940 3,252
Accrued expenses, other liabilities and other accounts payable........................ 13,650 8,005
Estimated IRS settlement.............................................................. (1,650) --
Other, net............................................................................ 2,209 3,141
---------- ----------
Total adjustments................................................................... 49,606 24,208
---------- ----------
Net cash provided by operating activities............................................... 62,125 26,795
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property acquisitions................................................................... (6,707) (7,200)
Sales (investments) in money market instruments, short-term commercial paper and
corporate bonds, net................................................................... 26,109 (375)
Purchase of partnership interest, net of cash acquired.................................. (8,486) --
Proceeds from disposition of property................................................... 511 14,768
Other, net.............................................................................. (143) (290)
---------- ----------
Net cash provided by investing activities............................................... 11,284 6,903
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit agreements.............................................. 30,000 3,000
Repayments under line of credit agreements.............................................. (30,000) (57,000)
Principal payments under capital leases................................................. (1,314) (672)
Proceeds from issuance of debt securities............................................... -- 198,654
Repurchase of debentures................................................................ -- (125,000)
Repayment of acquired subsidiary indebtedness........................................... (37,000) --
Other repayments........................................................................ (1,400) (6,124)
Proceeds from issuance of common stock.................................................. 1,276 845
Redemption of preferred stock........................................................... -- (5,000)
Dividends paid on preferred stock....................................................... -- (2,531)
Dividends paid on common stock.......................................................... -- (18,550)
Deferred financing costs................................................................ (450) (8,145)
---------- ----------
Net cash used in financing activities................................................... (38,888) (20,523)
---------- ----------
NET INCREASE IN CASH AND EQUIVALENTS...................................................... 34,521 13,175
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD............................................... 23,997 11,363
---------- ----------
CASH AND EQUIVALENTS AT END OF PERIOD..................................................... $ 58,518 $ 24,538
---------- ----------
---------- ----------
</TABLE>
F-4
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT NARRATIVES)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
<TABLE>
<CAPTION>
(UNAUDITED)
THIRTY-NINE
WEEKS ENDED
------------------------
12/30/93 12/31/92
----------- -----------
<S> <C> <C>
Capital lease obligations incurred in connection with property acquired............. $ 3,278 $ 811
</TABLE>
On May 28, 1993, Cinema Enterprises II, Inc. ("CENI II"), a wholly-owned
subsidiary of American Multi-Cinema, Inc. ("AMC"), acquired a 50% partnership
interest in Exhibition Enterprises Partnership ("EEP") from TPI Entertainment,
Inc. Together with the 50% partnership interest already owned by Cinema
Enterprises, Inc. ("CENI"), EEP became wholly-owned by subsidiaries of AMC. Cash
and equivalents held by EEP at May 28, 1993 totaled $9,014,000. Liabilities
assumed from the May 28, 1993 transaction are as follows:
<TABLE>
<S> <C> <C>
Fair value of assets acquired (including cash and equivalents)............... $ 70,170
Cash paid.................................................................... (17,500)
---------
Liabilities assumed.......................................................... $ 52,670
---------
---------
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
(UNAUDITED)
THIRTY-NINE WEEKS
ENDED
--------------------
12/30/93 12/31/92
--------- ---------
<S> <C> <C>
Cash paid during the period for:
Interest (net of amounts capitalized)........................................... $ 20,123 $ 18,947
Income taxes.................................................................... 5,425 887
Income taxes resulting from IRS settlement...................................... 1,650 --
Cash received during the period for:
Interest and dividend income.................................................... 1,342 5,290
Income tax refunds.............................................................. 106 82
</TABLE>
F-5
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
(UNAUDITED)
PREFERRED STOCK COMMON STOCK CLASS B STOCK ADDITIONAL RETAINED TOTAL
--------------- ------------------ -------------------- PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
------ ------ --------- ------ ----------- ------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, April 2, 1992........ 5 $ 1 4,358,380 $2,906 11,730,000 $7,820 $ 26,599 $ 2,543 $ 39,869
Net earnings for the
thirty-nine weeks ended
December 31, 1992............ -- -- -- -- -- -- -- 2,587 2,587
Net proceeds from sale of
Common Stock................. -- -- 181,000 120 -- -- 725 -- 845
Redemption of Preferred
Stock........................ (5) (1) -- -- -- -- (4,999 ) -- (5,000 )
Dividends declared:
14% Preferred Stock......... -- -- -- -- -- -- -- (256 ) (256 )
Common and Class B.......... -- -- -- -- -- -- (9,525 ) (9,025 ) (18,550 )
------ ------ --------- ------ ----------- ------ ---------- -------- ------------
Balance, December 31, 1992.... -- -- 4,539,380 3,026 11,730,000 7,820 12,800 (4,151 ) 19,495
Net loss for the thirteen
weeks ended April 1, 1993.... -- -- -- -- -- -- -- (1,324 ) (1,324 )
------ ------ --------- ------ ----------- ------ ---------- -------- ------------
Balance, April 1, 1993........ -- -- 4,539,380 3,026 11,730,000 7,820 12,800 (5,475 ) 18,171
Net earnings for the
thirty-nine weeks ended
December 30, 1993............ -- -- -- -- -- -- -- 12,519 12,519
Net proceeds from sale of
Common Stock................. -- -- 144,750 97 -- -- 1,179 -- 1,276
------ ------ --------- ------ ----------- ------ ---------- -------- ------------
Balance, December 30, 1993.... -- $-- 4,684,130 $3,123 11,730,000 $7,820 $ 13,979 $ 7,044 $ 31,966
------ ------ --------- ------ ----------- ------ ---------- -------- ------------
------ ------ --------- ------ ----------- ------ ---------- -------- ------------
</TABLE>
F-6
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 1993
(UNAUDITED)
NOTE 1 -- THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
AMC Entertainment Inc. ("AMCE"), through American Multi-Cinema, Inc. ("AMC")
and its Subsidiaries (collectively with AMCE, unless the context otherwise
requires, the Company), is principally involved in the operation and management
of multi-screen motion picture theatres.
In the opinion of management, the accompanying consolidated financial data
contains all adjustments (which comprise only normal recurring accruals)
necessary to present fairly its financial position as of December 30, 1993 and
December 31, 1992 and the results of operations and cash flows.
The interim consolidated financial data should be read in conjunction with
AMCE's notes to the consolidated financial statements for the fiscal year ended
April 1, 1993 appearing elsewhere herein.
Due to the seasonal nature of the Company's business, results for the
thirty-nine weeks ended December 30, 1993 are not necessarily indicative of the
results to be expected for the entire year.
FISCAL YEAR
The Company has a 52/53 week fiscal year ending on the Thursday closest to
the last day of March (March 31, 1994 for the current year, which includes
fifty-two weeks and April 1, 1993 for the prior year, which included fifty-two
weeks).
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is computed based upon net earnings (loss) for the
period less preferred stock dividends divided by the weighted average number of
common shares outstanding and outstanding stock options when their effect is
dilutive.
PRESENTATION
Certain amounts have been reclassified from prior period consolidated
financial statements to conform with the current year presentation. Such amounts
were not material.
PRO FORMA INFORMATION
On May 28, 1993, the Company acquired the other 50% interest in Exhibition
Enterprises Partnership ("EEP" or the "Partnership") (See Note 2). The unaudited
pro forma information combines the operating results of EEP for the twenty-six
weeks ended September 30, 1993 and October 1, 1992 with that of the Company for
the same periods. Certain intercompany balances and transactions were
eliminated. The unaudited pro forma Statement of Operations gives effect to the
EEP acquisition as though it had occurred at the beginning of these periods. For
pro forma purposes, the financing costs of the $30,000,000 borrowed for the
acquisition were estimated at an annual interest rate of 7.25% and interest
income was reduced due to the use of $24,500,000 in cash at an annual interest
rate of 4.42%. Recorded property and intangible assets of EEP were reduced by
$27,730,000 for pro forma purposes to reflect the excess of the net assets of
EEP over the Company's basis in these net assets, with depreciation and
amortization similarly reduced.
NOTE 2 -- TRANSACTIONS WITH TPI ENTERPRISES, INC.
INVESTMENT IN TPI ENTERPRISES, INC.
The Company owns 1,475,144 shares of Common Stock of TPI Enterprises, Inc.
("TPI"), representing approximately seven percent of TPI's outstanding stock. On
April 19, 1991, AMC granted a ten year purchase option for the shares that
includes an irrevocable proxy to vote the option shares. The purchase price
under the option is $6.00 per share for a period of three years following April
19, 1991 and thereafter the purchase price will increase by $.50 per share for
each successive year under the option agreement. The Company accounts for this
investment on the cost method.
F-7
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 1993
(UNAUDITED)
NOTE 2 -- TRANSACTIONS WITH TPI ENTERPRISES, INC. (CONTINUED)
INVESTMENT IN AND ADVANCES TO PARTNERSHIP
Prior to May 28, 1993, EEP was 50% owned by Cinema Enterprises, Inc.
("CENI"), a wholly-owned subsidiary of AMC, and 50% owned by TPI Entertainment,
Inc. ("TPIE"), a wholly-owned subsidiary of TPI. On April 19, 1991, the
Partnership acquired the ownership interest in 57 movie theatres (56 theatres
previously purchased by TPIE from AMC and 1 theatre constructed by TPIE),
subject to obligations under notes, loans and capital leases. From inception
through April 1, 1993, the Company accounted for its investment in EEP on the
equity method.
At December 31, 1992, investment in and advances to partnership included a
12% Subordinated Promissory Note due from EEP of $42,364,000 principal amount,
discounted for an effective yield of 14%, plus a note receivable in the amount
of $710,000 from the April 25, 1991 sale of a theatre.
On May 28, 1993, the Company completed the acquisition of TPIE's partnership
interest in EEP for $17,500,000 in cash. The acquisition also required the
repayment of $37,000,000 in EEP bank indebtedness which was funded by borrowings
under a revolving line of credit of $30,000,000 together with cash on hand. The
acquisition was accounted for under the purchase method of accounting and EEP
was consolidated, for financial reporting purposes, as a wholly-owned
subsidiary. The unamortized deferred gain arising from the 1989 and 1990 sales
of theatres to TPIE ($26,992,000) was applied as a reduction to the carrying
value of the EEP assets. On a pro forma basis, the effect of the acquisition on
the Company's fiscal 1993 results would have been an increase in earnings of
approximately $116,000.
For fiscal 1994, the Company is accounting for its investment in EEP on a
consolidated basis by including EEP's assets and liabilities, as adjusted for
the purchase, in the Consolidated Balance Sheet, and by including EEP's revenues
and expenses in the Consolidated Statement of Operations beginning April 2,
1993. One-half of the Partnership's net loss for the period April 2, 1993
through May 27, 1993 attributable to TPIE ($1,599,000) has been recorded as
minority interest.
NOTE 3 -- BORROWINGS
LOAN AGREEMENT
Effective August 10, 1992, AMC entered into a loan agreement with two banks
to provide a revolving line of credit of up to $40,000,000 for working capital
and other general corporate purposes (the "Credit Facility"). The Credit
Facility terminates on the third anniversary of the agreement date. The Company
has the option to borrow at rates based on either the bank's base rate, CD rates
or LIBOR and is required to pay an annual commitment fee of 3/8 of 1% on the
unused amount of the commitment. At December 30, 1993, AMC had no borrowings on
the Credit Facility.
The Credit Facility includes several financial covenants. The Company is
required to maintain a maximum net debt to consolidated EBITDA ratio and a
minimum fixed charge coverage ratio. The required net debt to consolidated
EBITDA ratio is 4.00 to 1 for fiscal 1994 and 3.50 to 1 thereafter. The required
fixed charge coverage ratio is 1.35 to 1 for fiscal 1994 and 1.50 to 1
thereafter. In addition, the covenants contained in the Credit Facility limit
the Company's capital expenditures to $25,000,000 per year, of which the Company
may allocate to capital expenditures outside of the United States the lesser of
$10,000,000 or $5,000,000 plus 25% of cash flow (minus 100% of cash flow, if
negative), in each case less the amount of permitted dividends paid or declared
by the Company. As of December 30, 1993, the Company has satisfied all financial
covenants relating to the Credit Facility.
F-8
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 1993
(UNAUDITED)
NOTE 3 -- BORROWINGS (CONTINUED)
The Credit Facility stipulates that there shall be a period of at least 60
consecutive days during each twelve month period following the agreement date
when there are no loans outstanding under the Credit Facility. The Company has
satisfied this stipulation for the second anniversary of the loan agreement by
not borrowing funds for 60 consecutive days following August 10, 1993.
NOTE 4 -- PROPERTY
A summary of property follows (in thousands):
<TABLE>
<CAPTION>
(UNAUDITED)
----------------------
12/30/93 12/31/92
---------- ----------
<S> <C> <C>
Property owned:
Land.................................................................................... $ 20,239 $ 20,239
Buildings and improvements.............................................................. 86,283 82,991
Furniture, fixtures and equipment....................................................... 164,099 128,921
Leasehold improvements.................................................................. 119,124 91,821
---------- ----------
389,745 323,972
Less -- accumulated depreciation and amortization....................................... 170,231 132,557
---------- ----------
219,514 191,415
---------- ----------
Property leased under capitalized leases:
Buildings............................................................................... 68,313 54,668
Less -- accumulated amortization........................................................ 24,265 19,730
---------- ----------
44,048 34,938
---------- ----------
Net property.............................................................................. $ 263,562 $ 226,353
---------- ----------
---------- ----------
</TABLE>
NOTE 5 -- 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 Company. The following
paragraphs summarize significant litigation and proceedings to which the Company
is a party.
EL CAJON CINEMAS, INC. V. AMERICAN MULTI-CINEMA, INC., UNITED STATES
DISTRICT COURT, SOUTHERN DISTRICT OF CALIFORNIA (CASE NO. 90 0710B (IEG)). On
May 30, 1990, El Cajon Cinemas, Inc. (El Cajon) instituted this suit against AMC
(the San Diego litigation). On August 31, 1990, El Cajon filed its first amended
complaint against AMC alleging violations of Section 1 of the Sherman Act,
applicable California statutes prohibiting state antitrust violations and unfair
competition and tortious interference. The amended complaint sought unspecified
damages and attorneys' fees. On November 21, 1990, AMC answered the amended
complaint and filed a counterclaim against El Cajon and George E. Krikorian (El
Cajon's sole stockholder and President), seeking relief for violations of
Section 1 of the Sherman Act, for violations of applicable California statutes
prohibiting state antitrust violations and unfair competition, and for tortious
interference with contractual relations/prospective advantage. AMC's
counterclaim sought unspecified damages and attorneys' fees.
In December 1993, the parties agreed to a full settlement of the San Diego
litigation. AMC paid El Cajon $75,000 and the court dismissed El Cajon's
complaint and AMC's counterclaim with prejudice.
INCOME TAX LITIGATION. The Company has been in litigation with the Internal
Revenue Service (IRS) primarily concerning the Company's method, for the years
1975 and 1978 to 1987, inclusive, of reporting, for income tax purposes, film
rentals and deductions in the year paid (cash method) rather than in the year
the
F-9
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 1993
(UNAUDITED)
NOTE 5 -- CONTINGENCIES (CONTINUED)
related film was exhibited (accrual method). These and other issues, including
issues relating to certain capital gains, the dividends received deduction and
the understatement penalty, were the subject of two United States Tax Court
cases (Durwood, Inc. v. Commissioner of Internal Revenue, Docket No. 3706-88
filed February 23, 1988 and Durwood, Inc. v. Commissioner of Internal Revenue,
Docket No. 3322-91 filed February 22, 1991).
Settlements have been reached with respect to all issues in each of the tax
court cases. Through September 30, 1993, the Company has recorded provisions
totaling $22,951,000 representing the estimated additional federal and state
income taxes and interest resulting from the IRS litigation. Through December
30, 1993, the Company has made payments totaling $19,805,000 to federal and
state tax authorities associated with the tax court settlements. Management
believes that adequate amounts have been reserved with respect to these income
tax matters.
SALES TAX LITIGATION. On August 13, 1991, the Florida Department of Revenue
assessed the Company $1,670,000 in taxes, penalties and interest for popcorn
sales in theatres that occurred during the period commencing January 1, 1986,
and ending December 31, 1988. Because the regulation relied on by the Department
did not become effective until December 1987, the Department issued a revised
assessment to the Company in the amount of $388,000, which is based on the
Company's 1988 popcorn sales in Florida. Because the Company's Florida legal
counsel failed to file a petition to contest the assessment, within the required
time, the Department has taken the position that the Company owes $388,000 in
taxes plus penalties and interest.
The Company and the Department have agreed to be bound by the final judicial
resolution of another Florida sales tax case currently pending in the Florida
First District Court of Appeals, which presents substantially the same issues.
If the taxpayer prevails in this case, the Company will pay nothing to the
Department. If the Department prevails, the Company will pay the $388,000 in
assessed taxes plus interest, but no penalties. In any event the Company will
also pursue all available remedies against its former legal counsel.
NOTE 6 -- INCOME TAXES
The Company records deferred income taxes using enacted tax laws and rates
for the years in which the taxes are expected to be paid. Effective in fiscal
1993, the Company adopted Statement of Financial Accounting Standards No. 109
(SFAS 109), "Accounting for Income Taxes." The effect of adopting SFAS 109 was
not material.
Upon the adoption of SFAS 109 on April 3, 1992, the Company recorded a
valuation allowance of $16,562,000 against deferred tax assets based on the lack
of sufficient evidence required under SFAS 109 to support the realizability of
the deferred tax assets. At December 30, 1993, the valuation allowance amounted
to approximately $13,000,000. Based on increasing positive evidence supporting
the potential realizability of the deferred tax assets, it is possible that this
valuation allowance may be decreased in future periods. A reduction in the
valuation allowance will increase net income in the period of adjustment.
NOTE 7 -- COMMITMENTS
The Company has entered into agreements to lease space for the operation of
theatres not yet fully constructed. Of the total number of anticipated openings,
leases for five new theatres with 78 screens and leases for the expansion of 17
screens at three existing locations have been finalized. The scheduled
completion of construction and theatre openings are at various dates through the
third quarter of fiscal 1997. The estimated minimum rental payments that may be
required under the terms of the leases total approximately $94,000,000.
F-10
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of AMC Entertainment Inc.
Kansas City, Missouri
We have audited the consolidated balance sheet of AMC Entertainment Inc. and
subsidiaries as of April 1, 1993, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year (Fifty-two weeks)
then ended. 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 audit. We did not audit the financial statements of
Exhibition Enterprises Partnership, a joint venture partnership, which is
recorded using the equity method of accounting (see Note 4). The investment in
and advances to this partnership represent 11 percent of consolidated assets as
of April 1, 1993 and the equity in its earnings represents 23 percent of
consolidated earnings before extraordinary items for the year (Fifty-two weeks)
ended April 1, 1993. Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to the
amounts included for Exhibition Enterprises Partnership, is based solely on the
report of the other auditors. The financial statements of AMC Entertainment Inc.
and subsidiaries as of April 2, 1992 and for the year (Fifty-three weeks) ended
April 2, 1992 and the year (Fifty-two weeks) ended March 28, 1991 were audited
by other auditors whose report, dated May 21, 1992, except as to the information
presented in Note 2, for which the date is June 21, 1993, expressed an
unqualified opinion on those statements.
We conducted our audit 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 statement presentation.
We believe that our audit and the report of the other auditors provides a
reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of AMC Entertainment Inc. and
subsidiaries as of April 1, 1993, and the results of their operations and their
cash flows for the year (Fifty-two weeks) then ended, in conformity with
generally accepted accounting principles.
As discussed in Note 7 to the financial statements, the Company changed its
method of accounting for income taxes to conform with Statement of Financial
Accounting Standards No. 109.
/s/ Coopers & Lybrand
Kansas City, Missouri
June 21, 1993
F-11
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of AMC Entertainment Inc.
Kansas City, Missouri
We have audited the accompanying consolidated balance sheet of AMC
Entertainment Inc. and subsidiaries as of April 2, 1992 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year (Fifty-three weeks) ended April 2, 1992 and the year (Fifty-two weeks)
ended March 28, 1991. 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 statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of AMC Entertainment Inc. and
subsidiaries as of April 2, 1992, and the results of their operations and their
cash flows for the year (Fifty-three weeks) ended April 2, 1992 and the year
(Fifty-two weeks) ended March 28, 1991 in conformity with generally accepted
accounting principles.
As discussed in Note 2, the 1992 and 1991 financial statements have been
restated.
/s/ Deloitte & Touche
Kansas City, Missouri
May 21, 1992
(June 21, 1993 as to Note 2)
F-12
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
UNAUDITED FIFTY-TWO FIFTY-THREE FIFTY-TWO
PRO FORMA WEEKS ENDED WEEKS ENDED WEEKS ENDED
4/1/93 4/1/93 4/2/92 3/28/91
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Admissions.............................................. $ 365,906 $ 265,766 $ 272,960 $ 303,324
Concessions............................................. 159,089 114,809 114,207 121,495
Management fee income (Note 4).......................... 478 9,342 6,502 7,633
Other................................................... 17,867 14,548 13,295 13,899
----------- ------------ ------------ ------------
Total revenues...................................... 543,340 404,465 406,964 446,351
Expenses
Film rentals............................................ 190,136 137,613 138,511 163,311
Advertising............................................. 17,860 12,786 17,123 18,065
Payroll & related expenses.............................. 76,447 57,497 62,532 65,116
Occupancy costs......................................... 83,028 58,878 59,438 59,253
Concession merchandise.................................. 24,046 17,522 18,288 20,368
Other................................................... 34,495 26,539 30,009 32,657
----------- ------------ ------------ ------------
Total cost of operations............................ 426,012 310,835 325,901 358,770
Depreciation and amortization........................... 38,597 28,175 31,385 32,572
General & administrative expenses....................... 36,915 36,285 37,885 34,532
Estimated loss on future disposition of assets (Note
13).................................................... 2,500 2,500 3,000 2,100
----------- ------------ ------------ ------------
Total expenses...................................... 504,024 377,795 398,171 427,974
----------- ------------ ------------ ------------
Operating income.................................... 39,316 26,670 8,793 18,377
Other expense (income)
Interest expense
Corporate borrowings.................................. 24,924 22,828 21,033 26,149
Capitalized leases.................................... 11,045 8,573 9,002 9,791
Investment income (Note 4).............................. (325) (8,239) (8,502) (13,441)
Gain on disposition of assets (Note 14)................. (9,590) (9,638) (8,721) (6,649)
----------- ------------ ------------ ------------
Earnings (loss) before income taxes and extraordinary
items.................................................... 13,262 13,146 (4,019) 2,527
Income tax provision (Note 7)............................. 5,400 5,400 1,500 1,960
----------- ------------ ------------ ------------
Earnings (loss) before extraordinary items................ 7,862 7,746 (5,519) 567
Extraordinary items
Loss on extinguishment of debt (net of income tax
benefit of $3,800) (Note 6)............................ (6,483) (6,483) -- --
Utilization of net operating loss carryforward.......... -- -- -- 500
----------- ------------ ------------ ------------
Net earnings (loss) (Note 2).............................. $ 1,379 $ 1,263 $ (5,519 ) $ 1,067
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
Earnings (loss) per share before extraordinary item....... $ .47 $ .46 $ (.39 ) $ (.01 )
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
Earnings (loss) per share................................. $ .07 $ .06 $ (.39 ) $ .02
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
Weighted average number of shares outstanding............. 16,217 16,217 16,088 16,129
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
</TABLE>
F-13
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT NARRATIVE)
<TABLE>
<CAPTION>
4/1/93 4/2/92
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents.................................................................... $ 23,997 $ 11,363
Investments............................................................................. 26,109 25,460
Receivables, net of allowance for doubtful accounts of $611,000 at April 1, 1993 and
$900,000 at April 2, 1992.............................................................. 8,704 7,807
Prepaid film rentals.................................................................... 188 843
Other current assets (Note 9)........................................................... 7,374 8,068
---------- ----------
Total current assets.................................................................. 66,372 53,541
Investment in TPI Enterprises, Inc. (Note 4).............................................. 8,682 8,682
Investment in and advances to partnership (Note 4)........................................ 40,187 38,185
Property, net (Notes 6, 8 and 14)......................................................... 223,981 244,473
Other long-term assets (Notes 6 and 9).................................................... 34,880 32,818
---------- ----------
Total assets.......................................................................... $ 374,102 $ 377,699
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Film rentals payable.................................................................... $ 12,090 $ 14,588
Accrued expenses and other liabilities (Notes 9, 11 and 13)............................. 35,871 31,220
Estimated IRS settlement (Notes 2 and 7)................................................ 4,796 4,796
Other accounts payable, including related parties of $126,000 at April 1, 1993, and
$730,000 at April 2, 1992.............................................................. 3,976 4,700
Current maturities of borrowings and capital lease obligations (Note 6)................. 2,618 7,406
---------- ----------
Total current liabilities............................................................. 59,351 62,710
Corporate borrowings (Note 6)............................................................. 200,633 182,164
Capital lease obligations (Note 6)........................................................ 52,051 50,661
Other long-term liabilities (Note 10)..................................................... 16,904 15,303
---------- ----------
Total liabilities..................................................................... 328,939 310,838
---------- ----------
Deferred gain on sale of assets (Note 14)................................................. 26,992 26,992
Commitments and contingencies (Notes 6, 10 and 12)
Stockholders' equity (Notes 2, 3 and 6)
Preferred stock; 5 shares issued and outstanding at April 2, 1992....................... -- 1
Common stock; 4,539,380 and 4,358,380 shares issued and outstanding at April 1, 1993 and
April 2, 1992, respectively............................................................ 3,026 2,906
Class B stock; 11,730,000 shares issued and outstanding................................. 7,820 7,820
Additional paid-in capital.............................................................. 12,800 26,599
Retained earnings (accumulated deficit)................................................. (5,475) 2,543
---------- ----------
Total stockholders' equity............................................................ 18,171 39,869
---------- ----------
Total liabilities and stockholders' equity............................................ $ 374,102 $ 377,699
---------- ----------
---------- ----------
</TABLE>
F-14
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FIFTY-TWO FIFTY-THREE FIFTY-TWO
WEEKS ENDED WEEKS ENDED WEEKS ENDED
4/1/93 4/2/92 3/28/91
------------ ------------ ------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss).................................................. $ 1,263 $ (5,519) $ 1,067
------------ ------------ ------------
Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities:
Depreciation and amortization -- property.......................... 23,869 25,829 26,341
-- other long-term assets................ 4,306 5,556 6,231
-- deferred gain......................... -- (1,407) (6,585)
Gain on sale of other long-term assets............................. (9,638) (7,314) --
Change in assets and liabilities:
Receivables...................................................... (897) 4,065 770
Other current assets............................................. 694 (1,969) (526)
Film rentals, net................................................ (1,843) (6,555) 3,386
Accrued expenses, other liabilities and other
accounts payable................................................ 8,131 3,996 4,407
Estimated IRS settlement......................................... -- -- (16,698)
Other, net....................................................... 3,177 1,759 350
------------ ------------ ------------
Total adjustments.............................................. 27,799 23,960 17,676
------------ ------------ ------------
Net cash provided by operating activities............................ 29,062 18,441 18,743
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property acquisitions................................................ (8,786) (21,045) (20,227)
Investments in money market instruments, short-term commercial paper
and corporate bonds, net............................................ (649) (2,085) (1,941)
Investment in Exhibition Enterprises Partnership..................... -- (2,423) --
Proceeds from sale of TPI Enterprises, Inc. common stock............. -- 5,385 --
Proceeds from disposition of property................................ 14,768 11,623 1,797
Other, net........................................................... (739) (622) (666)
------------ ------------ ------------
Net cash provided by (used in) investing activities.................. 4,594 (9,167) (21,037)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit agreements........................... 3,000 25,000 88,000
Repayments under line of credit agreements........................... (57,000) (41,000) (29,000)
Principal payments under capital leases.............................. (885) (1,653) (1,186)
Proceeds from issuance of debt securities............................ 198,654 -- --
Repurchase of debentures............................................. (125,000) -- --
Other repayments..................................................... (6,400) (2,574) (52,146)
Proceeds from issuance of common stock............................... 845 -- --
Redemption of preferred stock........................................ (5,000) -- --
Dividends paid on preferred stock.................................... (2,531) -- --
Dividends paid on common stock....................................... (18,550) -- --
Deferred financing costs............................................. (8,155) (493) (672)
------------ ------------ ------------
Net cash provided by (used in) financing activities.................. (21,022) (20,720) 4,996
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS........................ 12,634 (11,446) 2,702
CASH AND EQUIVALENTS AT BEGINNING OF YEAR.............................. 11,363 22,809 20,107
------------ ------------ ------------
CASH AND EQUIVALENTS AT END OF YEAR.................................... $ 23,997 $ 11,363 $ 22,809
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-15
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT NARRATIVE)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
<TABLE>
<CAPTION>
FIFTY-TWO FIFTY-THREE FIFTY-TWO
WEEKS ENDED WEEKS ENDED WEEKS ENDED
4/1/93 4/2/92 3/28/91
------------ ------------ ------------
<S> <C> <C> <C>
Capital lease obligations incurred in connection with
property acquired........................................... $3,931 -- $1,781
Borrowings incurred in connection with property acquired..... 35 $ 475 --
</TABLE>
In connection with the April 19, 1991 capital contribution to Exhibition
Enterprises Partnership ("EEP"), the Company exchanged 3.8 million common shares
of TPI Enterprises, Inc. ("TPI") for a 50% ownership interest in the
partnership. The TPI shares had a book carrying value of $22,364,000 and a fair
market value of $24,225,000.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
FIFTY-TWO FIFTY-THREE FIFTY-TWO
WEEKS ENDED WEEKS ENDED WEEKS ENDED
4/1/93 4/2/92 3/28/91
------------ ------------ ------------
<S> <C> <C> <C>
Cash paid during the period for:
Interest (net of amounts capitalized)...................... $ 32,697 $ 29,752 $ 34,937
Income taxes............................................... 1,343 635 2,273
Interest on proposed IRS settlement........................ -- -- 9,896
Income taxes on proposed IRS settlement.................... -- -- 8,259
Cash received during the period for:
Interest and dividend income............................... 7,182 9,078 12,021
Income tax refunds......................................... 133 493 455
</TABLE>
F-16
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK CLASS B STOCK ADDITIONAL RETAINED TOTAL
--------------- ------------------ ------------------- PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
------ ------ --------- ------ ---------- ------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 29, 1990, as
previously reported......... 5 $ 1 4,328,380 $2,886 11,730,000 $7,820 $ 26,479 $11,385 $ 48,571
Effect of restatement (Note
2).......................... -- -- -- -- -- -- -- (2,990 ) (2,990 )
------ ------ --------- ------ ---------- ------ ---------- -------- ------------
Balance, March 29, 1990,
as restated................. 5 1 4,328,380 2,886 11,730,000 7,820 26,479 8,395 45,581
Net earnings............... -- -- -- -- -- -- -- 1,067 1,067
Net proceeds from sale of
Common Stock.............. -- -- 30,000 20 -- -- 120 -- 140
Dividends declared:
14% Preferred stock...... -- -- -- -- -- -- -- (700 ) (700 )
------ ------ --------- ------ ---------- ------ ---------- -------- ------------
Balance, March 28, 1991,
as restated................. 5 1 4,358,380 2,906 11,730,000 7,820 26,599 8,762 46,088
Net loss................... -- -- -- -- -- -- -- (5,519 ) (5,519 )
Dividends declared:
14% Preferred stock...... -- -- -- -- -- -- -- (700 ) (700 )
------ ------ --------- ------ ---------- ------ ---------- -------- ------------
Balance, April 2, 1992, as
restated.................... 5 1 4,358,380 2,906 11,730,000 7,820 26,599 2,543 39,869
Net earnings............... -- -- -- -- -- -- -- 1,263 1,263
Net proceeds from sale of
Common Stock.............. -- -- 181,000 120 -- -- 725 -- 845
Redemption of Preferred
Stock..................... (5 ) (1 ) -- -- -- -- (4,999 ) -- (5,000 )
Dividends declared:
14% Preferred Stock...... -- -- -- -- -- -- -- (256 ) (256 )
Common and Class B....... -- -- -- -- -- -- (9,525 ) (9,025 ) (18,550 )
------ ------ --------- ------ ---------- ------ ---------- -------- ------------
Balance, April 1, 1993....... -- -- 4,539,380 $3,026 11,730,000 $7,820 $ 12,800 $(5,475 ) $ 18,171
------ ------ --------- ------ ---------- ------ ---------- -------- ------------
------ ------ --------- ------ ---------- ------ ---------- -------- ------------
</TABLE>
F-17
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS (52 WEEKS) ENDED APRIL 1, 1993
(53 WEEKS) ENDED APRIL 2, 1992
AND (52 WEEKS) ENDED MARCH 28, 1991
NOTE 1 -- THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
AMC Entertainment Inc. ("AMCE"), through American Multi-Cinema, Inc. ("AMC")
and its subsidiaries (collectively with AMCE, unless the context otherwise
requires, the "Company") is principally involved in the operation and management
of multi-screen motion picture theatres.
AMCE is 84.8% owned by Durwood, Inc. ("DI"). See Note 5 for further
description of AMCE's related party transactions.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of AMCE and its
subsidiaries, all of which are wholly owned, except AMC Philadelphia, Inc.
("AMCP"), which is 80% owned. At April 1, 1993 and April 2, 1992, the minority
interest in AMCP amounted to $1,771,000 and $1,085,000, respectively, and is
included in other long-term liabilities. 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 current year ended April 1, 1993, included fifty-two
weeks. The year ended April 2, 1992, included fifty-three weeks and the year
ended March 28, 1991, included fifty-two weeks.
CASH AND EQUIVALENTS
This balance is comprised of cash on hand and temporary cash investments
with original maturities of less than thirty days.
INVESTMENTS
Investments are comprised principally of money market instruments,
short-term commercial paper and corporate bonds at April 1, 1993 and are carried
at cost which approximates market.
CONCENTRATION OF CREDIT RISK
The Company invests excess cash in deposits with major banks and in high
quality short-term liquid money instruments. 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.
PREPAID FILM RENTALS
The Company is occasionally required to advance or guarantee film rentals to
secure the right to exhibit certain films. Such advances and guarantees are
charged to expense as the films are exhibited, based on the distributor's
proportionate share of admissions revenue.
REFUNDABLE CONSTRUCTION ADVANCES
Included in receivables at April 1, 1993 is $320,000 ($1,920,000 at April 2,
1992) advanced to developers to fund a portion of the construction costs of new
theatres that are to be operated by AMC pursuant to lease agreements. These
advances are refunded by the developers either during or shortly after
completion of construction.
F-18
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS (52 WEEKS) ENDED APRIL 1, 1993
(53 WEEKS) ENDED APRIL 2, 1992
AND (52 WEEKS) ENDED MARCH 28, 1991 (CONTINUED)
NOTE 1 -- THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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:
<TABLE>
<S> <C>
Buildings and improvements 20 to 40 years
Leasehold improvements 5 to 25 years
Furniture, fixtures and equipment 3 to 10 years
</TABLE>
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.
Interest capitalized aggregated $90,000 for the year ended April 1, 1993
($141,000 and $174,000 for the years ended April 2, 1992 and March 28, 1991,
respectively).
OTHER LONG-TERM ASSETS
Other long-term assets are comprised principally of:
- amounts assigned to theatre leases assumed under favorable terms
which are being amortized on a straight-line basis over the
remaining terms of the leases including all renewal options;
- costs incurred in connection with the issuance of debt
securities which are being amortized over the respective life of
the issue on the effective interest method;
- investments in partnerships and corporate joint ventures
accounted for under the cost or equity methods; and
- deferred preopening, and design costs relating to new theatres
which are being amortized over two years.
INCOME TAXES
The Company, pursuant to a tax sharing agreement, joins with DI in filing a
consolidated federal income tax return. The Company's provision for income tax
expense is computed as if it filed a separate consolidated return. Included in
other current assets at April 1, 1993 and April 2, 1992 was $563,000 and
$1,931,000, respectively, of prepaid or recoverable federal and state income
taxes. Investment tax credits are accounted for under the flow-through method.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is computed based upon net earnings (loss) for the
period less preferred stock dividends divided by the weighted average number of
common shares outstanding and outstanding stock options when their effect is
dilutive.
ACCOUNTING CHANGE
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109 (SFAS 109) - "Accounting for Income
Taxes." This new standard changes the accounting
F-19
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS (52 WEEKS) ENDED APRIL 1, 1993
(53 WEEKS) ENDED APRIL 2, 1992
AND (52 WEEKS) ENDED MARCH 28, 1991 (CONTINUED)
NOTE 1 -- THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
for deferred income taxes. The Company has adopted SFAS 109 for fiscal 1993. The
effect of adopting SFAS 109 was not material. Prior to 1993, the Company
accounted for income taxes in accordance with the Accounting Principles Board
Opinion No. 11 (APB 11) -- "Accounting for Income Taxes."
Effective during fiscal year 1992, the Company adopted the provisions of
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 106, -- "Employers' Accounting for Postretirement Benefits Other Than
Pensions". This statement provides that the obligation to provide benefits
arises as employees render the services necessary to earn the benefits such that
the cost of providing the benefits should be recognized over those employee
service periods. The impact of this change on the fiscal 1992 operations was not
material.
PRESENTATION
Certain amounts have been reclassified from prior period consolidated
financial statements to conform with the current year presentation. Such amounts
were not material.
PRO FORMA INFORMATION
On May 28, 1993 the Company acquired the other 50% interest in Exhibition
Enterprises Partnership ("EEP" or the "Partnership") (See Note 4). The unaudited
pro forma information combines the operating results of EEP for the fifty-three
weeks ended April 1, 1993 with that of the Company for the fifty-two weeks ended
April 1, 1993. Certain intercompany balances and transactions were eliminated.
The unaudited pro forma Statement of Operations gives effect to the EEP
acquisition as though it had occurred at the beginning of the year. For pro
forma purposes, the financing costs of the $30,000,000 borrowed for the
acquisition were estimated at an annual interest rate of 7.25% and interest
income was reduced due to the use of $24,500,000 in cash at an annual interest
rate of 4.42%. Recorded property and intangible assets of EEP were reduced by
$27,730,000 for pro forma purposes to reflect the excess of the net assets of
EEP over the Company's basis in these net assets, with depreciation and
amortization similarly reduced.
NOTE 2 -- ACCOUNTING CHANGE AND RESTATEMENT OF RESULTS
FASB Technical Bulletin No. 85-3, "Accounting for Operating Leases with
Scheduled Rent Increases" was issued November 14, 1985. It requires scheduled
rent increases, which are included in minimum lease payments, to be recognized
on a straight-line basis over the lease term. The Company did not implement this
accounting standard when it was issued. The accompanying financial statements
have been restated to implement this standard and account for operating leases
with scheduled rent increases on a straight-line basis.
In fiscal 1991, based upon computations in support of the prepayment to the
Internal Revenue Service ("IRS") relating to a settlement of tax accounting
issues, the Company concluded that adequate amounts had been reserved to settle
state and federal liabilities associated with fiscal years 1978 through 1987. In
fiscal 1993, an error was discovered in the computations supporting the adequacy
of the estimated IRS settlement. The accompanying financial statements have been
restated to report the corrected liability in fiscal 1991 and in subsequent
periods.
F-20
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS (52 WEEKS) ENDED APRIL 1, 1993
(53 WEEKS) ENDED APRIL 2, 1992
AND (52 WEEKS) ENDED MARCH 28, 1991 (CONTINUED)
NOTE 2 -- ACCOUNTING CHANGE AND RESTATEMENT OF RESULTS (CONTINUED)
The effect of the restatement on previously reported net earnings (loss)
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1992 1991
--------- ---------
<S> <C> <C>
Net earnings (loss), as previously reported........................................ $ (3,959) $ 4,334
Effect of restatement.............................................................. (1,560) (3,267)
--------- ---------
Net earnings (loss), as restated................................................... $ (5,519) $ 1,067
--------- ---------
--------- ---------
Earnings (loss) per share before extraordinary item, as restated................... $ (.39) $ (.01)
--------- ---------
--------- ---------
Earnings (loss) per share, as restated............................................. $ (.39) $ .02
--------- ---------
--------- ---------
</TABLE>
The effect of the restatement on the current and prior years quarterly
financial results follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------
07/02/92 10/01/92 12/31/92
----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Net earnings (loss), as previously reported.............................. $ 9,359 $ (9,719) $ 3,246
Effect of restatement.................................................... 85 (192) (192)
----------- --------- -----------
Net earnings (loss), as restated......................................... $ 9,444 $ (9,911) $ 3,054
----------- --------- -----------
----------- --------- -----------
Earnings (loss) per share before extraordinary item, as restated......... $ .57 $ (.22) $ .19
----------- --------- -----------
----------- --------- -----------
Earnings (loss) per share, as restated................................... $ .57 $ (.62) $ .19
----------- --------- -----------
----------- --------- -----------
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED (UNAUDITED)
---------------------------------------------- FISCAL
06/27/91 09/26/91 12/26/91 04/02/92 1992
----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net earnings (loss), as previously reported........ $ 537 $ (1,411) $ (3,079) $ (6) $ (3,959)
Effect of restatement.............................. (390) (390) (390) (390) (1,560)
----------- --------- --------- ----- ---------
Net earnings (loss), as restated................... $ 147 $ (1,801) $ (3,469) $ (396) $ (5,519)
----------- --------- --------- ----- ---------
----------- --------- --------- ----- ---------
Earnings (loss) per share, as restated............. -- $ (.12) $ (.23) $ (.04 ) $ (.39)
----------- --------- --------- ----- ---------
----------- --------- --------- ----- ---------
</TABLE>
NOTE 3 -- STOCKHOLDERS' EQUITY
CAPITAL STOCK
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 authorized common stock of AMCE consists of two classes of stock. 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.
Presently holders of Common Stock, voting as a class, are entitled to elect 33%
of AMCE's Board of Directors with Class B stockholders electing the remainder.
CUMULATIVE PREFERRED STOCK
The Company has authorized 10,000,000 shares of Preferred Stock, without par
value.
F-21
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS (52 WEEKS) ENDED APRIL 1, 1993
(53 WEEKS) ENDED APRIL 2, 1992
AND (52 WEEKS) ENDED MARCH 28, 1991 (CONTINUED)
NOTE 3 -- STOCKHOLDERS' EQUITY (CONTINUED)
On June 23, 1988, DI purchased twenty-five shares of Preferred Stock with an
assigned value of 66 2/3 CENTS per share. The purchase price was $1,000,000 per
share and the series of Preferred Stock, which was unregistered, was designated
as the "Cumulative Preferred Stock 14% Series of 1988". The Cumulative Preferred
Stock had preference in liquidation in the amount of $1,000,000 per share plus
accrued and unpaid dividends.
On February 24, 1989, the Company redeemed twenty shares of the Cumulative
Preferred Stock owned by DI in the amount of $20,000,000. On August 12, 1992,
the Company redeemed the remaining five shares of Cumulative Preferred Stock
owned by DI in the amount of $7,531,000, including accrued and unpaid dividends.
STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS
1983 PLAN In June 1983, AMCE adopted a stock option plan ("1983 Plan") for
selected employees. This plan provides 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 may be sold under the plan may not exceed
750,000 shares. The 1983 Plan provides that the exercise price 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.
1984 PLAN In September 1984, AMCE adopted a non-qualified stock option plan
("1984 Plan"). This plan provides for the grant of rights to purchase shares of
Common Stock under non-qualified stock option agreements. The number of shares
which may be sold under the plan may not exceed 750,000 shares. The 1984 Plan
provides that the exercise price will be determined by the Company's Stock
Option Committee and that the options expire no later than ten years after date
of grant.
Pertinent information covering the two plans follows:
<TABLE>
<CAPTION>
1993 1992
--------------------------- ---------------------------
NUMBER OF OPTION PRICE NUMBER OF OPTION PRICE
SHARES PER SHARE SHARES PER SHARE
---------- --------------- ----------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year............... 453,750 $4.67-$11.13 453,750 $4.67-$11.13
Cancelled...................................... (30,000) $9.00 --
Exercised...................................... (181,000) $4.67 --
---------- -----------
Outstanding at end of year..................... 242,750 $4.67-$11.13 453,750 $4.67-$11.13
---------- -----------
---------- -----------
Exercisable at end of year..................... 242,750 $4.67-$11.13 453,750 $4.67-$11.13
---------- -----------
---------- -----------
Available for grant at end of year............. 977,529 947,529
---------- -----------
---------- -----------
</TABLE>
Expiration dates for outstanding stock options at April 1, 1993 are as
follows:
<TABLE>
<CAPTION>
OPTION PRICE
FISCAL YEAR NUMBER OF SHARES PER SHARE
- ---------------------------- ----------------- -------------
<S> <C> <C>
1994 138,750 $ 9.00
1995 44,000 4.67
1996 60,000 11.13
-------
Total options outstanding 242,750
-------
-------
</TABLE>
F-22
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS (52 WEEKS) ENDED APRIL 1, 1993
(53 WEEKS) ENDED APRIL 2, 1992
AND (52 WEEKS) ENDED MARCH 28, 1991 (CONTINUED)
NOTE 4 -- TRANSACTIONS WITH TPI ENTERPRISES, INC.
ACQUISITION AND DISPOSITION OF STOCK
In August 1987, the Company purchased 6,275,144 shares of Common Stock of
TPI Enterprises, Inc. ("TPI"), at a cost of $37,651,000 or $6.00 per share.
Prior to April 19, 1991, this investment was accounted for by the equity method
on a one calendar quarter lag basis.
On April 19, 1991, Cinema Enterprises, Inc. ("CENI"), a wholly-owned
subsidiary of AMC, contributed 3.8 million shares of TPI Common Stock for an
interest in a partnership. Subsequently, these shares were distributed to TPI.
See the following discussion titled "Partnership Transaction and Related
Agreements."
Also on April 19, 1991, the Company sold one million shares of TPI Common
Stock for $5,500,000 and granted a purchase option on an additional 1,475,144
shares to a limited partnership of which Stephen R. Cohen, the Chairman of the
Board and Chief Executive Officer of TPI, is the general partner. The purchase
price under the option is $6.00 per share for a period of three years following
April 19, 1991, and thereafter the purchase price will increase by $.50 per
share for each successive year throughout the balance of the ten-year term of
the Option Agreement. In the Option Agreement, AMC granted an irrevocable proxy
to the limited partnership to vote the option shares during the term of the
option.
The Company recognized a net gain of approximately $854,000 resulting from
the TPI Common Stock transactions which was included in investment income in
fiscal 1992. After April 19, 1991, the Company's ownership percentage in TPI
fell to approximately eight percent. Consequently, the Company began accounting
for this investment on the cost method.
DISPOSITION OF THEATRES
On February 24, 1989, the Company sold 55 theatres with 375 screens and on
May 17, 1990, the Company sold one theatre with eight screens to TPI
Entertainment, Inc. ("TPIE"), a wholly-owned subsidiary of TPI, under the terms
of the Asset Purchase Agreement dated August 24, 1988, as amended.
Due to (1) substantial continuing involvement with the properties and risk
related thereto, (2) the Company's approximate 27% ownership (at the date of
original sale) of TPI and (3) the TPIE purchase money notes that were received
as part of the proceeds in this transaction, the estimated gain (aggregating
approximately $70,352,000) was deferred for financial reporting purposes to be
recognized in future periods. Prior to the Company's acquisition of a
partnership interest in the theatres sold to TPIE, the deferred gain was being
amortized on the straight-line method over an average life of approximately 11
years.
PARTNERSHIP TRANSACTION AND RELATED AGREEMENTS
On March 4, 1991, CENI entered into a general partnership agreement (the
"Partnership Agreement") with TPIE, forming EEP.
On April 19, 1991, pursuant to the Partnership Agreement, TPIE contributed
to EEP its interest in the assets (subject to certain exclusions) relating to
the 57 movie theatres (56 theatres purchased from AMC and one theatre
constructed by TPIE) owned and operated by TPIE and other leasehold interests,
subject to obligations under notes, loans and capital leases. Also, CENI
contributed to EEP 3.8 million Common Shares (the "Shares") of TPI. Following
the capital contributions, EEP distributed the Shares to TPIE. In addition, EEP
was obligated to pay to TPIE an amount of cash, determined in accordance with
the Partnership Agreement, which was the sum of $800,000 plus additions to gross
theatre property and principal payments on the Merchants Bank loan held by TPIE
from September 27, 1990 to April 19, 1991. Such obligations aggregating
$4,724,000, including interest, were paid in August, 1991.
F-23
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS (52 WEEKS) ENDED APRIL 1, 1993
(53 WEEKS) ENDED APRIL 2, 1992
AND (52 WEEKS) ENDED MARCH 28, 1991 (CONTINUED)
NOTE 4 -- TRANSACTIONS WITH TPI ENTERPRISES, INC. (CONTINUED)
Prior to May 28, 1993, CENI and TPIE each had a 50% interest in EEP. Under
the Partnership Agreement, net income and net losses generally were allocable to
the partners in accordance with their partnership interests; however, during the
first and second fiscal years of the Partnership, 70% and 60%, respectively, of
the depreciation expense was allocated to TPIE. Thereafter, the depreciation
expense was allocated in accordance with each partner's respective partnership
interest. The Company's aggregate cost (fair market value of the stock
contributed plus transaction fees) of the EEP investment was $26,141,000 and the
Company's opening partnership capital was $9,872,000. In accounting for the
investment in EEP, approximately $28,755,000 of unamortized deferred gain
arising from the 1989 sale of theatres to TPIE was applied as a reduction to the
Company's investment in the Partnership. The excess of the Company's opening
partnership capital over the Company's net investment in EEP was amortized to
investment income on the straight-line method over 18 years, which approximated
the remaining lives of the leases.
The Partnership was managed by a Board of Managers consisting of two
representatives of CENI and two representatives of TPIE. The theatres are
managed by AMC under the provisions of a management agreement. The Partnership
pays AMC a management fee equal to 5% of theatre revenues. An additional
management fee of up to 1% of theatre revenues may be earned by AMC if theatre
level cash flow exceeds a specified amount in a fiscal year.
AMC had pledged the capital stock of CENI to secure third party indebtedness
of EEP, which aggregated $37 million as of April 1, 1993.
Included in receivables at April 1, 1993 and April 2, 1992 are amounts due
from EEP for approximately $1,168,000 and $582,000, respectively. These
receivables consist primarily of management fees and other operating expenses
incurred by AMC on behalf of EEP.
Investment in and advances to partnership as of April 1, 1993 includes a 12%
Subordinated Promissory Note due from EEP of $42,364,000 principal amount,
discounted by $2,485,000 (for an effective yield of 14%) plus a note receivable
in the amount of $710,000 from the April 25, 1991 sale of a theatre. At April 2,
1992, the carrying value of the notes receivable balance was $40,331,000.
The investment in EEP was accounted for by the equity method as the Company
did not have a controlling ownership interest or a majority representation on
the Partnership's Board of Managers. The Company's equity in earnings of EEP
(included in investment income) totaled $1,743,000 and $404,000 in fiscal years
ended April 1, 1993 and April 2, 1992, respectively.
F-24
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS (52 WEEKS) ENDED APRIL 1, 1993
(53 WEEKS) ENDED APRIL 2, 1992
AND (52 WEEKS) ENDED MARCH 28, 1991 (CONTINUED)
NOTE 4 -- TRANSACTIONS WITH TPI ENTERPRISES, INC. (CONTINUED)
The following is a summary of financial information of EEP at December 31,
1992 and December 26, 1991 and for the periods then ended (in thousands):
<TABLE>
<CAPTION>
12/31/92 12/26/91
------------ ------------
<S> <C> <C>
Current assets:
Cash and equivalents..................................................... $ 8,707 $ 4,126
Receivables.............................................................. 1,997 802
Other current assets..................................................... 2,256 936
------------ ------------
Total current assets................................................. 12,960 5,864
Property, net............................................................ 61,123 64,835
Intangible assets, net................................................... 48,252 52,628
Other long-term assets................................................... 1,368 372
------------ ------------
Total assets......................................................... $ 123,703 $ 123,699
------------ ------------
------------ ------------
Current liabilities:
Film rentals, net........................................................ $ 5,906 $ 7,201
Accrued expenses and other liabilities................................... 6,012 5,019
Other accounts payable................................................... 901 1,418
Current maturities of borrowings and capital lease obligations........... 4,481 4,401
------------ ------------
Total current liabilities............................................ 17,300 18,039
Borrowings............................................................... 78,074 77,074
Capital lease obligations................................................ 12,771 13,252
------------ ------------
Total liabilities.................................................... 108,145 108,365
Partners' capital........................................................ 15,558 15,334
------------ ------------
Total liabilities and partners' capital.............................. $ 123,703 $ 123,699
------------ ------------
------------ ------------
<CAPTION>
53 WEEKS 36 WEEKS
ENDED ENDED
12/31/92 12/26/91
------------ ------------
<S> <C> <C>
Total theatre revenues..................................................... $ 148,397 $ 88,975
Cost of operations......................................................... 116,104 72,848
Management fee expense..................................................... 9,246 4,700
General and administrative................................................. 235 107
Interest expense........................................................... 10,185 7,734
Other income............................................................... (95) (282)
------------ ------------
Earnings before depreciation............................................... 12,722 3,868
Depreciation............................................................... 12,498 8,278
------------ ------------
Net earnings (loss)........................................................ $ 224 $ (4,410)
------------ ------------
------------ ------------
</TABLE>
On May 28, 1993, the Company completed the acquisition of TPIE's partnership
interest of EEP with the payment of $17,500,000. The acquisition required the
repayment of $37,000,000 in EEP bank indebtedness which was funded by borrowings
of $30,000,000 from the New Credit Facility together with cash on hand. On a pro
forma basis, the effect of the acquisition on the Company's fiscal 1993 results
would have
F-25
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS (52 WEEKS) ENDED APRIL 1, 1993
(53 WEEKS) ENDED APRIL 2, 1992
AND (52 WEEKS) ENDED MARCH 28, 1991 (CONTINUED)
NOTE 4 -- TRANSACTIONS WITH TPI ENTERPRISES, INC. (CONTINUED)
been an increase in earnings of approximately $116,000. For pro forma purposes,
the unamortized deferred gain arising from 1989 and 1990 sales of theatres to
TPIE ($26,992,000 at April 1, 1993) was applied as a reduction to the carrying
value of the EEP assets.
NOTE 5 -- TRANSACTIONS WITH RELATED PARTIES
American Associated Enterprises ("Enterprises") is a Missouri limited
partnership formed by Mr. Stanley H. Durwood, Chairman of the Board, Chief
Executive Officer and a Director of the Company, and his children, one of whom
is Mr. Edward D. Durwood, President, Vice Chairman of the Board and a Director
of the Company. Enterprises and the Chief Executive Officer of the Company own
DI. Prior to December 26, 1991, when the agreement was terminated, the Company
engaged Enterprises for the purpose of executing film license contracts and
providing related accounting and financial management services. The Company paid
Enterprises for rentals associated with films exhibited in the Company's
theatres and Enterprises in turn disbursed such funds to film distributors for
such rentals. Enterprises billed the Company approximately $1,000,000 for
services provided in the fiscal years ended April 2, 1992 and March 28, 1991.
The Company and DI maintain inter-company accounts which are kept on a
non-interest bearing basis. Charges to the inter-company accounts include the
allocation of AMC general and administrative expense and payments made by AMC on
behalf of DI. At April 1, 1993, DI and non-AMCE subsidiaries owed the Company
approximately $717,000 ($1,410,000 at April 2, 1992), including prepaid federal
income taxes of $843,000 ($1,920,000 at April 2, 1992) which are due from DI
upon the receipt of refunds from tax authorities or which may be used to offset
future taxes payable to DI under a tax sharing agreement.
Phillip E. Cohen, a former director of the Company and the former Chairman
of the Finance Committee of its Board of Directors, is also the sole beneficial
owner of Morgan Schiff & Co., Inc., an investment banking firm. In connection
with the sale of TPI Enterprises, Inc. common stock to C&C Investment Holdings,
L.P., the Company paid a fee of approximately $297,000 to Morgan Schiff & Co.,
Inc. as a commission on this transaction. (See Note 4.)
NOTE 6 -- BORROWINGS AND CAPITAL LEASE OBLIGATIONS
RECAPITALIZATION
As part of a recapitalization plan, on August 12, 1992, AMCE issued $200
million of Debt Securities consisting of $100 million of 11 7/8% Senior Notes,
due August 1, 2000, priced at 99.36 to yield 12%, and $100 million of 12 5/8%
Senior Subordinated Notes, due August 1, 2002, priced at 99.294 to yield
12 3/4%. The net proceeds from the offering of the Debt Securities, together
with cash on hand, were used as follows: (i) to redeem all of the AMCE 13.6%
Debentures at an aggregate price of $52,720,000 (representing 105.44% of the
principal amount thereof), plus accrued and unpaid interest thereon; (ii) to
redeem all of the AMCE 11 7/8% Debentures at an aggregate price of $78,563,000
(representing 104.75% of the principal amount thereof), plus accrued and unpaid
interest thereon; (iii) to repay all of AMC's outstanding indebtedness under a
credit facility ($36,000,000 in aggregate principal amount outstanding on August
12, 1992); (iv) to redeem all of AMCE's outstanding shares of Cumulative
Preferred Stock 14% Series of 1988 at an aggregate price of approximately
$7,531,000 (representing the liquidation preference value thereof, plus accrued
and unpaid dividends thereon); and (v) to pay a special cash dividend of
approximately $18,550,000 in the aggregate ($1.14 per share) in respect of the
Common Stock and the Class B Stock on a pro rata basis.
The terms of the Indentures respecting the Senior Notes and the Senior
Subordinated Notes issued in the recapitalization restrict the Company's ability
to pay cash dividends by requiring that such dividends and other "restricted
payments" generally not exceed the sum of 25% of cash flow plus net proceeds of
certain
F-26
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS (52 WEEKS) ENDED APRIL 1, 1993
(53 WEEKS) ENDED APRIL 2, 1992
AND (52 WEEKS) ENDED MARCH 28, 1991 (CONTINUED)
NOTE 6 -- BORROWINGS AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
capital contributions and sales of capital stock received after August 12, 1992.
The Debt Securities are unsecured and unconditionally guaranteed by AMC and
significant subsidiaries. The Indentures provide conditions and limitations upon
the sale of assets, change in control, permitted investments, additional
indebtedness, and other limitations. After August 1, 1997, the Company may
redeem the Debt Securities at various call premiums as specified in the
Indentures.
The discounts on the Debt Securities are being amortized to interest expense
following the interest method of amortization. Costs related to the issuance of
the Debt Securities were capitalized and are charged to amortization expense,
following the interest method, over the life of the respective securities.
Unamortized issuance costs of $7,245,000 at April 1, 1993 are included in other
long-term assets.
Premiums paid to redeem the Debentures 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 $6,483,000 ($.40 per share),
net of income tax benefit of $3,800,000.
LOAN AGREEMENT
In connection with the recapitalization, effective August 10, 1992, AMC
entered into a three year loan agreement with two banks to provide a revolving
line of credit of up to $40,000,000 for working capital and other general
corporate purposes (the "New Credit Facility"). The Company has the option to
borrow at rates based on either the bank's base rate, CD rates or LIBOR and is
required to pay an annual commitment fee of 3/8 of 1% on the unused amount of
the commitment. At April 1, 1993, AMC had no borrowings on the New Credit
Facility but could borrow up to $40,000,000 as provided in the loan agreement.
The New Credit Facility includes several financial covenants. The Company is
required to maintain a maximum net debt to consolidated EBITDA ratio and a
minimum fixed charge coverage ratio. The required net debt to consolidated
EBITDA ratio is 4.00 to 1 for fiscal 1994 and 3.50 to 1 thereafter. The required
fixed charge coverage ratio is 1.35 to 1 for fiscal 1994 and 1.50 to 1
thereafter. In addition, the covenants contained in the New Credit Facility
limit the Company's capital expenditures to $25,000,000 per year, of which the
Company may allocate to capital expenditures outside of the United States the
lesser of $10,000,000 or $5,000,000 plus 25% of cash flow (minus 100% of cash
flow, if negative), in each case less the amount of permitted dividends paid or
declared by the Company, as described below. These and other provisions of the
New Credit Facility may have the effect of limiting the amount of assets held by
the Company.
The New Credit Facility limits the amount of dividends that the Company and
its subsidiary, American Multi-Cinema, Inc., may pay during its term to the
lesser of $10,000,000 or $5,000,000 plus 25% of cash flow (minus 100% of cash
flow if negative) over the term of the New Credit Facility, in each case less
capital expenditures outside the United States. In addition, AMC will be
permitted to pay, in any six-month period, dividends in an amount equal to the
aggregate scheduled payments of interest on the Senior Subordinated Notes for
such period, unless payments on such securities would not then be permitted by
the subordination provisions of such securities. The New Credit Facility
stipulates that there shall be a period of at least 60 consecutive days during
each twelve month period following the agreement date when there are no loans
outstanding under the New Credit Facility. The Company has satisfied this
stipulation for the first twelve month period by not borrowing funds during the
first 60 days of the loan agreement.
COLLATERALIZED DEBT
Certain notes payable which total $1,556,000 at April 1, 1993 have been
collateralized by a pledge of property with a net book value of $2,341,000 at
April 1, 1993.
F-27
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS (52 WEEKS) ENDED APRIL 1, 1993
(53 WEEKS) ENDED APRIL 2, 1992
AND (52 WEEKS) ENDED MARCH 28, 1991 (CONTINUED)
NOTE 6 -- BORROWINGS AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
DIVIDEND RESTRICTIONS
As discussed above, the amount of cash dividends payable by the Company is
limited by covenants to the Indentures governing the Senior Notes, Senior
Subordinated Notes and covenants to the New Credit Facility. As of April 1,
1993, according to the most restrictive terms of the covenants, the Company
could pay a cash dividend of approximately $1,800,000.
SUMMARY OF BORROWINGS
The Company is obligated under bonds, notes and other indebtedness as
follows (in thousands):
<TABLE>
<CAPTION>
TOTALS
--------------------
RATES OF APRIL 1, APRIL 2,
INTEREST MATURITY DATES DUE IN 1994 1993 1992
------------- -------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
SENIOR DEBT
- -----------------------------------------------------
Senior notes......................................... 11.875% August, 2000 -- $ 99,394 --
Revolving credit agreement........................... Various April, 1993 -- -- $ 54,000
Serially to
Equipment installment notes.......................... 8% to 12.58% 2009 $ 1,115 2,478 8,405
Industrial revenue bonds............................. 12% August, 1992 -- -- 310
Serially to
Capital lease obligations............................ 7.25% to 20% 2025 1,292 53,343 51,597
Other indebtedness................................... Various Various 211 768 919
----------- --------- ---------
Total senior debt.................................. 2,618 155,983 115,231
----------- --------- ---------
SUBORDINATED DEBT
- -----------------------------------------------------
Senior subordinated notes............................ 12.625% August, 2002 -- 99,319 --
Senior subordinated debentures....................... 13.60% December, 2000 -- -- 50,000
11.875% July, 2001 -- -- 75,000
----------- --------- ---------
Total subordinated debt............................ -- 99,319 125,000
----------- --------- ---------
Total borrowings................................... $ 2,618 $ 255,302 $ 240,231
----------- --------- ---------
----------- --------- ---------
</TABLE>
Minimum annual payments required under existing capital lease obligations,
present value thereof and maturities of total indebtedness at April 1, 1993 are
as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL LEASE OBLIGATIONS
--------------------------------
MINIMUM NET
LEASE LESS PRESENT
PAYMENTS INTEREST VALUE OTHER DEBT TOTAL
---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1994......................................... $ 10,133 $ 8,841 $ 1,292 $ 1,326 $ 2,618
1995......................................... 10,322 8,588 1,734 170 1,904
1996......................................... 10,310 8,280 2,030 78 2,108
1997......................................... 10,369 7,906 2,463 76 2,539
1998......................................... 10,460 7,440 3,020 85 3,105
Thereafter................................... 91,345 48,541 42,804 200,224 243,028
---------- --------- --------- ---------- ----------
Total...................................... $ 142,939 $ 89,596 $ 53,343 $ 201,959 $ 255,302
---------- --------- --------- ---------- ----------
---------- --------- --------- ---------- ----------
</TABLE>
NOTE 7 -- INCOME TAXES
The Company records deferred income taxes using enacted tax laws and rates
for the years in which the taxes are expected to be paid. Effective in the
fourth quarter of fiscal year 1993, the Company adopted
F-28
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS (52 WEEKS) ENDED APRIL 1, 1993
(53 WEEKS) ENDED APRIL 2, 1992
AND (52 WEEKS) ENDED MARCH 28, 1991 (CONTINUED)
NOTE 7 -- INCOME TAXES (CONTINUED)
Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for
Income Taxes," retroactive to April 3, 1992. Previously issued 1993 unaudited
interim financial statements were restated for the effects of SFAS 109. Prior to
1993, the Company accounted for income taxes under Accounting Principles Board
Opinion No. 11 (APB 11), "Accounting for Income Taxes." The effect of adopting
SFAS 109 was not material.
Income taxes reflected in the consolidated statements of operations for the
three years ended April 1, 1993 are as follows (in thousands):
<TABLE>
<CAPTION>
1993
------------------
(LIABILITY METHOD)
1992 1991
------ ------
(DEFERRED METHOD)
<S> <C> <C> <C>
Current:
Federal............................... $ 2,077 $ 900 $ 797
State................................. 600 600 663
------- ------ ------
Total current....................... 2,677 1,500 1,460
------- ------ ------
Deferred:
Federal............................... (3,145) -- --
State................................. (785) -- --
Net operating loss carryforwards...... 3,670 -- --
Change in valuation allowance......... (817) -- --
------- ------ ------
Total deferred...................... (1,077) -- --
------- ------ ------
Total provision......................... 1,600 1,500 1,460
Tax benefit of extinguishment of debt... 3,800 -- --
Tax effect of loss carryforwards........ -- -- 500
------- ------ ------
Total provision before extraordinary
items.................................. $ 5,400 $1,500 $1,960
------- ------ ------
------- ------ ------
</TABLE>
The effective tax rate on income before extraordinary items was 41% in 1993,
(37%) in 1992 and 78% in 1991. The difference between the effective rate and the
U.S. federal income tax statutory rate of 34% in 1993, 1992 and 1991 are
accounted for as follows (in thousands):
<TABLE>
<CAPTION>
1993(1) 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Tax on earnings (loss) before provision for income tax and extraordinary
items at statutory rates................................................. $ 4,470 $ (1,366) $ 859
Add (subtract) tax effect of:
Federal benefit not available(2)........................................ N/A 1,366 --
Installment sale........................................................ 463 637 637
State income tax, net of federal benefit................................ 600 600 663
Change in valuation allowance(3)........................................ (817) N/A N/A
Other, net.............................................................. 684 263 (199)
--------- --------- ---------
Income tax expense before extraordinary items............................. $ 5,400 $ 1,500 $ 1,960
--------- --------- ---------
--------- --------- ---------
<FN>
- ------------------------
(1) As calculated under SFAS 109.
(2) The N/A denotes items which do not apply to SFAS 109.
(3) The N/A denotes items which do not apply to APB11.
</TABLE>
F-29
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS (52 WEEKS) ENDED APRIL 1, 1993
(53 WEEKS) ENDED APRIL 2, 1992
AND (52 WEEKS) ENDED MARCH 28, 1991 (CONTINUED)
NOTE 7 -- INCOME TAXES (CONTINUED)
Deferred income taxes for 1993 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. These "temporary
differences" are determined in accordance with SFAS 109 and are more inclusive
in nature than "timing differences" as determined under APB 11. Deferred income
taxes for 1992 and 1991 have not been restated. The significant components of
deferred income tax assets and liabilities at April 1, 1993 are as follows (in
thousands):
<TABLE>
<CAPTION>
DEFERRED INCOME TAX
----------------------
ASSETS LIABILITIES
--------- -----------
<S> <C> <C>
Accrued reserves and liabilities.................................................. $ 2,798 $ 141
Investments in partnerships....................................................... 10,723 --
Capital lease obligations......................................................... 6,711 --
Deferred gains on installment sales............................................... 10,797 7,649
Depreciation...................................................................... -- 12,075
Deferred rents.................................................................... 2,953 --
Investment tax credit carryforward................................................ 2,038 --
Other............................................................................. 1,145 478
--------- -----------
Total............................................................................. 37,165 20,343
Less: Valuation allowance....................................................... 15,745 --
--------- -----------
Net............................................................................. 21,420 20,343
Less: Current deferred income taxes............................................. 1,077 --
--------- -----------
Total noncurrent deferred income taxes............................................ $ 20,343 $ 20,343
--------- -----------
--------- -----------
Net noncurrent deferred income taxes.............................................. $ 0
---------
---------
</TABLE>
SFAS 109 requires a valuation allowance 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. The Company believes
that uncertainty exists with respect to the future realization of investment tax
credit carryforwards and certain future income tax deductions. Therefore, the
Company established a valuation allowance relating to such items of $15,745,000
and $16,562,000 as of April 1, 1993 and April 2, 1992, respectively.
As of April 1, 1993, the Company has investment tax credit carryforwards of
$2,038,000, which expire in 2003.
The Company settled litigation with the Internal Revenue Service ("IRS")
primarily concerning the Company's method, for the years 1978 through 1987, of
reporting for income tax purposes, film rentals and deductions in the year paid
(cash method) rather than in the year the related film was exhibited (accrual
method). In July 1990, the Company made a prepayment to the IRS in the amount of
$18,155,000. Included in the Consolidated Balance Sheet at April 1, 1993 is
$4,796,000 in estimated state and federal taxes and interest payable related to
the above settlement. (See Note 12.)
F-30
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS (52 WEEKS) ENDED APRIL 1, 1993
(53 WEEKS) ENDED APRIL 2, 1992
AND (52 WEEKS) ENDED MARCH 28, 1991 (CONTINUED)
NOTE 8 -- PROPERTY
A summary of property follows (in thousands):
<TABLE>
<CAPTION>
APRIL 1, APRIL 2,
1993 1992
---------- ----------
<S> <C> <C>
Property owned:
Land.......................................................................... $ 20,239 $ 23,180
Buildings and improvements.................................................... 83,028 77,547
Furniture, fixtures and equipment............................................. 129,297 134,329
Leasehold improvements........................................................ 92,118 97,636
---------- ----------
324,682 332,692
Less -- accumulated depreciation and amortization............................. 137,266 124,521
---------- ----------
187,416 208,171
---------- ----------
Property leased under capitalized leases:
Buildings..................................................................... 56,569 54,669
Less -- accumulated amortization.............................................. 20,004 18,367
---------- ----------
36,565 36,302
---------- ----------
Net property.................................................................... $ 223,981 $ 244,473
---------- ----------
---------- ----------
</TABLE>
NOTE 9 -- OTHER ASSETS AND LIABILITIES
Other assets and liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
APRIL 1, APRIL 2,
1993 1992
--------- ---------
<S> <C> <C>
Other current assets:
Prepaid rent.................................................................... $ 4,089 $ 4,406
Prepaid income taxes............................................................ 563 1,931
Deferred income taxes........................................................... 1,077 --
Other........................................................................... 1,645 1,731
--------- ---------
$ 7,374 $ 8,068
--------- ---------
--------- ---------
Other long-term assets:
Investments, at cost............................................................ $ 5,738 $ 4,033
Investments in partnerships and corporate joint ventures........................ 1,676 2,685
Lease rights and location premiums, net......................................... 17,577 20,004
Deferred charges, net........................................................... 8,228 4,715
Other........................................................................... 1,661 1,381
--------- ---------
$ 34,880 $ 32,818
--------- ---------
--------- ---------
</TABLE>
F-31
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS (52 WEEKS) ENDED APRIL 1, 1993
(53 WEEKS) ENDED APRIL 2, 1992
AND (52 WEEKS) ENDED MARCH 28, 1991 (CONTINUED)
NOTE 9 -- OTHER ASSETS AND LIABILITIES (CONTINUED)
<TABLE>
<CAPTION>
APRIL 1, APRIL 2,
1993 1992
--------- ---------
<S> <C> <C>
Accrued expenses and other liabilities:
Taxes other than income......................................................... $ 3,832 $ 3,293
Interest........................................................................ 4,756 6,052
Payroll and vacation............................................................ 6,445 4,389
Casualty claims and premiums.................................................... 2,408 2,615
Reserve for future disposition.................................................. 3,653 3,013
Deferred income................................................................. 8,413 4,340
Other........................................................................... 6,364 7,518
--------- ---------
$ 35,871 $ 31,220
--------- ---------
--------- ---------
</TABLE>
NOTE 10 -- LEASES
DESCRIPTION OF LEASING AGREEMENTS
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, the taxes, maintenance,
insurance and certain other operating expenses. Assets held under capital leases
are included in property. Performance under some leases has been guaranteed by
DI.
OPERATING LEASES
The Company has entered into agreements to lease space for the operation of
theatres not yet fully constructed. Of the total number of anticipated openings,
leases for two new theatres with 22 screens and four screens at an existing
location have been finalized. Construction is scheduled for completion, and
theatres for opening, at various dates through the fourth quarter of fiscal
1994. The estimated minimum rental payments that may be required under the terms
of these operating leases total approximately $45 million.
Following is a schedule, by year, of future minimum rental payments required
under these leases and existing operating leases that have initial or remaining
non-cancellable terms in excess of one year at April 1, 1993 (in thousands):
<TABLE>
<S> <C>
Fiscal year ended:
1994.................................................... $ 32,347
1995.................................................... 33,667
1996.................................................... 32,893
1997.................................................... 31,736
1998.................................................... 30,247
Thereafter.............................................. 290,983
---------
Total minimum payments required........................... $ 451,873
---------
---------
</TABLE>
The Company records rent expense on a straight-line basis over the term of
the lease. Included in long-term liabilities at April 1, 1993 and April 2, 1992
is $7,382,000 and $6,854,000, respectively, of deferred rent representing pro
rata future minimum rental payments for leases with scheduled rent increases.
F-32
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS (52 WEEKS) ENDED APRIL 1, 1993
(53 WEEKS) ENDED APRIL 2, 1992
AND (52 WEEKS) ENDED MARCH 28, 1991 (CONTINUED)
NOTE 10 -- LEASES (CONTINUED)
Rent expense is summarized as follows for the years ended (in thousands):
<TABLE>
<CAPTION>
APRIL 1, APRIL 2, MARCH 28,
1993 1992 1991
--------- --------- -----------
<S> <C> <C> <C>
Theatre premises:
Minimum rentals:
Paid to related parties (1)....................................... -- -- $ 112
Paid to others.................................................... $ 37,466 $ 36,749 35,535
Percentage rentals based on revenues................................ 1,722 1,518 3,501
Equipment rentals................................................... 778 927 474
--------- --------- -----------
$ 39,966 $ 39,194 $ 39,622
--------- --------- -----------
--------- --------- -----------
<FN>
- ------------------------
(1) Related party interest to theatre property was sold to an unrelated party
in June 1990.
</TABLE>
On May 28, 1993 the Company completed the acquisition of TPIE's partnership
interest of EEP. The minimum rental payments required under the leases,
associated with the EEP theatres, that have initial or remaining noncancelable
terms in excess of one year at December 31, 1992, are reflected in the table
below (in thousands):
<TABLE>
<S> <C>
Fiscal year ended:
1993.................................................... $ 14,038
1994.................................................... 15,177
1995.................................................... 15,322
1996.................................................... 15,134
1997.................................................... 14,944
Thereafter.............................................. 163,470
---------
Total minimum payments required........................... $ 238,085
---------
---------
</TABLE>
NOTE 11 -- EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PLAN
Effective during fiscal year 1991, the Company adopted the provisions of
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 87 (SFAS 87) -- "Employers' Accounting for Pensions". The adoption of SFAS
87 was not material to the consolidated financial statements for fiscal 1991,
the year of adoption, or in previous periods for which the Statement was
applicable.
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.
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.
F-33
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS (52 WEEKS) ENDED APRIL 1, 1993
(53 WEEKS) ENDED APRIL 2, 1992
AND (52 WEEKS) ENDED MARCH 28, 1991 (CONTINUED)
NOTE 11 -- EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table sets forth the plan's funded status as of December 31,
1992 and 1991 (Plan valuation dates) and the amounts included in the
consolidated balance sheets as of April 1, 1993 and April 2, 1992 (in
thousands):
<TABLE>
<CAPTION>
APRIL 1, APRIL 2,
1993 1992
--------- ---------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation, including vested
benefits of $7,191 and $5,440.................................................... $ 7,631 $ 5,912
--------- ---------
--------- ---------
Projected benefit obligation for service rendered to date......................... $ 13,173 $ 10,260
Less: Plan assets at fair value................................................. 6,388 5,312
--------- ---------
Projected benefit obligation in excess of plan assets............................. 6,785 4,948
Less: Unrecognized net loss from past experience different from that assumed and
effects of changes in assumptions........................................... 2,662 915
Less: Unrecognized net obligation upon adoption being recognized over 15 years,
net of amortization......................................................... 2,709 2,934
Less: Plan contributions from measurement date to end of fiscal year............ 201 110
--------- ---------
Pension liability included in consolidated balance sheet.......................... $ 1,213 $ 989
--------- ---------
--------- ---------
</TABLE>
Net pension expense includes the following components for the years ended
(in thousands):
<TABLE>
<CAPTION>
APRIL 1, APRIL 2, MARCH 28,
1993 1992 1991
--------- --------- -----------
<S> <C> <C> <C>
Service cost benefits earned during the period........................... $ 936 $ 761 $ 715
Interest cost on the projected benefit obligation........................ 714 586 504
Actual return on plan assets............................................. (471) (942) (35)
Net amortization and deferral............................................ 203 810 (62)
--------- --------- -----------
Net pension expense...................................................... $ 1,382 $ 1,215 $ 1,122
--------- --------- -----------
--------- --------- -----------
</TABLE>
The weighted average discount rates used to measure the projected benefit
obligation were 6.5%, 7.0% and 7.25% for the years ended December 31, 1992, 1991
and 1990, respectively. The rate of increase in future compensation levels was
6.50% for the three years and the expected long-term rate of return on assets
was 8.0% for December 31, 1992 and 8.5% for December 31, 1991 and December 31,
1990. The Company uses the straight-line method of amortization for prior
service cost and unrecognized gains and losses over the average remaining
service period of 15 years.
A limited number of employees are covered by collective bargaining
agreements under which payments are made to a union-administered fund.
401(K) PLAN
The Company sponsors a voluntary thrift savings plan ("401(k) 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 share of expense under the thrift savings plan was $777,000
for the year ended April 1, 1993 ($868,000 and $844,000 for the fiscal years
ended April 2, 1992 and March 28, 1991, respectively).
F-34
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS (52 WEEKS) ENDED APRIL 1, 1993
(53 WEEKS) ENDED APRIL 2, 1992
AND (52 WEEKS) ENDED MARCH 28, 1991 (CONTINUED)
NOTE 11 -- EMPLOYEE BENEFIT PLANS (CONTINUED)
OTHER RETIREMENT BENEFITS
Effective during fiscal year 1992, the Company adopted the provisions of
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 106 (SFAS 106) -- "Employers' Accounting for Postretirement Benefits Other
Than Pensions." SFAS 106 requires employers to accrue the cost of postretirement
benefits other than pensions over the term of employment. Prior to adoption of
SFAS 106, the Company accounted for postretirement benefits other than pensions
as an expense when the benefits were paid. The adoption of SFAS 106 was not
material to the consolidated financial statements for the year (53 weeks) ended
April 2, 1992.
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 amount included in the consolidated balance
sheets as of April 1, 1993 and April 2, 1992 (in thousands):
<TABLE>
<CAPTION>
APRIL 1, APRIL 2,
1993 1992
--------- ---------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................................. $ 297 $ 367
Fully eligible active plan participants.................................. 183 117
Other active plan participants........................................... 810 688
--------- ---------
Accumulated postretirement benefit obligation.............................. 1,290 1,172
Unrecognized transition obligation......................................... (897) (947)
Unrecognized gains......................................................... 3 --
--------- ---------
Accrued postretirement benefit cost in the balance sheet................... $ 396 $ 225
--------- ---------
--------- ---------
</TABLE>
Postretirement expense includes the following components for the years ended
(in thousands):
<TABLE>
<CAPTION>
APRIL 1, APRIL 2,
1993 1992
----------- -----------
<S> <C> <C>
Service cost............................................................... $ 138 $ 128
Interest cost on accumulated postretirement benefit obligation............. 91 85
Amortization of transition obligation over 20 years........................ 49 50
----- -----
Postretirement expense..................................................... $ 278 $ 263
----- -----
----- -----
</TABLE>
For measurement purposes, the annual rate of increase in the per capita cost
of covered health care benefits assumed for fiscal 1993 was 14% for pre-65
medical, 12% for post-65 medical and 8% for dental. The rates were assumed to
decrease gradually to 6% for medical and 4% for dental at 2020 and remain at
that level thereafter. The health care cost trend rate assumption has a
significant effect on the amounts
F-35
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS (52 WEEKS) ENDED APRIL 1, 1993
(53 WEEKS) ENDED APRIL 2, 1992
AND (52 WEEKS) ENDED MARCH 28, 1991 (CONTINUED)
NOTE 11 -- EMPLOYEE BENEFIT PLANS (CONTINUED)
reported. Increasing the assumed health care cost trend rates by one percentage
point in each year would increase the accumulated postretirement benefit
obligation as of April 1, 1993 by $208,000 and the aggregate of the service and
interest cost components of postretirement expense for the year (52 weeks) then
ended by $48,000. The weighted-average discount rate used in determining the
accumulated postretirement benefit obligation was 8.5%.
NOTE 12 -- 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 Company. The following
paragraphs summarize significant litigation and proceedings to which the Company
is a party.
EL CAJON CINEMAS, INC. V. AMERICAN MULTI-CINEMA, INC., United States
District Court, Southern District of California (Case No. 90 0710B (IEG)). On
May 30, 1990, El Cajon Cinemas, Inc. ("El Cajon") instituted this suit against
AMC (the "San Diego litigation"). On August 31, 1990, El Cajon filed its first
amended complaint against AMC alleging violations of Section 1 of the Sherman
Act, applicable California statutes prohibiting state antitrust violations and
unfair competition and tortious interference. The amended complaint sought
unspecified damages and attorneys' fees. On November 21, 1990, AMC answered the
amended complaint, and filed a counterclaim against El Cajon and George E.
Krikorian (El Cajon's sole stockholder and President), seeking relief for
violations of Section 1 of the Sherman Act, for applicable California statutes
prohibiting state antitrust violations and unfair competition, and tortious
interference with contractual relations/prospective advantage. AMC's
counterclaim seeks unspecified damages and attorneys' fees. On July 20, 1992, El
Cajon filed a motion for partial summary judgment on its complaint against AMC
and an application for a preliminary injunction, which alleged that the San
Diego litigation involves $6 million in treble damages. On October 23, 1992, the
court denied El Cajon's motion for summary judgment and its application for a
preliminary injunction. The court also granted in part AMC's motions for partial
summary judgment and dismissed El Cajon's claims under California statutes
prohibiting unfair competition and portions of El Cajon's claims under Section 1
of the Sherman Act. AMC voluntarily dismissed its claim against El Cajon for
violating the California unfair competition and antitrust statutes. El Cajon
voluntarily dismissed its claims for violation of the California antitrust
statutes. On November 30, 1992, the court denied AMC's motion for partial
summary judgment on the remaining antitrust claims.
On January 11, 1993, El Cajon filed a supplemental/second amended complaint
against AMC, which alleges violations of Section 1 of the Sherman Act. The only
claims remaining for trial are for violations of Section 1 of the Sherman Act.
On April 23, 1993, El Cajon filed (1) a motion for partial summary judgment on
AMC's Section 1 claims against El Cajon and (2) a motion for reconsideration of
the court's granting portions of AMC's motion for partial summary judgment on El
Cajon's Section 1 claims. Trial of the San Diego litigation has been set for
September 7, 1993.
INCOME TAX LITIGATION. The Company has been in litigation with the Internal
Revenue Service ("IRS") primarily concerning the Company's method, for the years
1975 and 1978 to 1987, inclusive, of reporting, for income tax purposes, film
rentals and deductions in the year paid (cash method) rather than in the year
the related film was exhibited (accrual method). These and other issues were the
subject of two United States Tax Court cases (DURWOOD, INC. V. COMMISSIONER OF
INTERNAL REVENUE, Docket No. 3706-88 filed February 23, 1988 and DURWOOD, INC.
V. COMMISSIONER OF INTERNAL REVENUE, Docket No. 3322-91 filed February 22,
1991).
F-36
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS (52 WEEKS) ENDED APRIL 1, 1993
(53 WEEKS) ENDED APRIL 2, 1992
AND (52 WEEKS) ENDED MARCH 28, 1991 (CONTINUED)
NOTE 12 -- CONTINGENCIES (CONTINUED)
Through April 1, 1993, the Company has recorded provisions totaling $22,951,000
representing the estimated additional federal and state income taxes and
interest resulting from the IRS litigation. In July 1990, the Company made a
prepayment to the IRS of $18,155,000.
Settlements have been reached with respect to all issues in each of the Tax
Court cases. On or about November 5, 1991, the Company and the Commissioner of
Internal Revenue entered into a closing agreement of final determination
providing for the resolution of film rent and interest income issues with
respect to the taxable years December 31, 1980 through March 31, 1988. The
agreement resulted in a liability which approximates the amount previously
accrued by the Company and affects the net operating loss carryforwards into
future years.
On September 2, 1992, the Company and the Commissioner of Internal Revenue
filed with the United States Tax Court a Second Supplemental Stipulation of
Partial Settlement in DURWOOD, INC. V. COMMISSIONER OF INTERNAL REVENUE, Docket
No. 3322-91, which Stipulation resolved all remaining issues, including issues
relating to certain capital gains, the dividends received deduction, and the
understatement penalty. Management believes that adequate amounts have been
reserved with respect to these income tax matters.
SALES TAX LITIGATION. On August 13, 1991, the Florida Department of Revenue
assessed the Company $1,670,000 in taxes, penalties and interest for popcorn
sales in theatres that occurred during the period commencing January 1, 1986,
and ending December 31, 1988. The Company protested the assessment relying in
part on a regulation which exempted certain popcorn sales from sales tax and
which remained in effect until January 2, 1989. Because the conflicting
regulation relied on by the Department when it assessed the Company did not
become effective until December 1987, the Department issued a revised assessment
to the Company in the amount of $388,000, which is based on the Company's 1988
popcorn sales in Florida. The Company intended to contest this assessment and
instructed its Florida legal counsel to file a petition seeking an
administrative hearing with the Department. However, the Company's Florida legal
counsel failed to file the petition and the time period to file the petition has
expired. Accordingly, the Department has taken the position the Company owes
$388,000 in taxes plus penalties and interest.
The Company has discharged its Florida legal counsel and has demanded that
its former counsel pay all amounts due the Department, which demand has been
refused. The Company intends to seek relief from the Department. If rejected,
the Company is prepared to pay the $388,000 in assessed taxes and simultaneously
apply for a refund of that amount based on the negligence of its former legal
counsel. If the Department would deny the claim for a refund, the Company will
pursue all available remedies against its former legal counsel.
NOTE 13 -- FUTURE DISPOSITION OF ASSETS
The Company has provided reserves for expected losses arising from the
discontinuation of the operation of fast food restaurants, for theatres which
have been or are anticipated 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 and used such space 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 eighteen years. At April 1, 1993
the base rent aggregates approximately $1,206,000 annually, and $16,302,000
F-37
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS (52 WEEKS) ENDED APRIL 1, 1993
(53 WEEKS) ENDED APRIL 2, 1992
AND (52 WEEKS) ENDED MARCH 28, 1991 (CONTINUED)
NOTE 13 -- FUTURE DISPOSITION OF ASSETS (CONTINUED)
over the remaining term of the leases. As of April 1, 1993, the Company has
subleased approximately 82% of the space with remaining terms ranging from 2
months to 213 months. Non-cancellable subleases currently aggregate
approximately $1,060,000 annually, and $6,742,000 over the remaining term of the
subleases.
As of April 1, 1993, the Company remains obligated under lease commitments
for four closed theatres and for office space at two locations with remaining
terms of up to six years. The current leasing costs of these closed locations
approximates $382,000 annually, and $1,247,000 over the remaining term of the
leases. Non-cancellable subleases currently aggregate approximately $58,000
annually, and $257,000 over the remaining term of the subleases. The Company has
been in negotiation with certain landlords and believes the ultimate cost of
settling the leases will be less than the full amount of the lease obligations.
The following represents the activity in the estimated reserve for the
disposition of assets which is included in accrued expenses and other
liabilities in the consolidated balance sheets (in thousands):
<TABLE>
<S> <C>
Balance, March 29, 1990.................................... $ 763
Provision for loss on asset disposition.................... 2,100
Charge offs................................................ (1,268)
---------
Balance, March 28, 1991.................................... 1,595
Provision for loss on asset disposition.................... 3,000
Charge offs................................................ (1,582)
---------
Balance, April 2, 1992..................................... 3,013
Provision for division restructuring....................... 750
Provision for loss on asset disposition.................... 2,500
Charge offs................................................ (2,610)
---------
Balance, April 1, 1993..................................... $ 3,653
---------
---------
</TABLE>
NOTE 14 -- DISPOSITION OF ASSETS
Gain on disposition of assets for the years ended April 1, 1993, April 2,
1992 and March 28, 1991 are as follows (in thousands):
<TABLE>
<CAPTION>
APRIL 1, APRIL 2, MARCH 28,
1993 1992 1991
--------- --------- -----------
<S> <C> <C> <C>
Sale of theatres to Carmike Cinemas, Inc................................. $ 9,903 $ 8,169 --
Amortization of deferred gain............................................ -- 1,407 $ 6,585
Other, net............................................................... (265) (855) 64
--------- --------- -----------
$ 9,638 $ 8,721 $ 6,649
--------- --------- -----------
--------- --------- -----------
</TABLE>
DISPOSITION OF THEATRES
On February 24, 1989, the Company sold 55 theatres with 375 screens and on
May 17, 1990, the Company sold one theatre with 8 screens to TPIE. The gain,
aggregating approximately $70,352,000, was deferred from income, due to
continuing involvement with the properties, substantial ownership of TPI (at the
date of original sale) and the TPIE purchase money notes that were received as
part of the proceeds in this transaction. Prior to the Company's acquisition of
a partnership interest in the theatres sold to TPIE, the deferred gain was being
amortized on the straight-line method over an average life of approximately 11
F-38
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS (52 WEEKS) ENDED APRIL 1, 1993
(53 WEEKS) ENDED APRIL 2, 1992
AND (52 WEEKS) ENDED MARCH 28, 1991 (CONTINUED)
NOTE 14 -- DISPOSITION OF ASSETS (CONTINUED)
years. Approximately one half of the deferred gain from the 1989 sale of
theatres to TPIE has been applied as a reduction to the Company's investment in
EEP. Further income recognition of the remaining deferred gain balance has been
suspended. (See Note 4.)
On May 16, 1991, the Company sold eight theatres with 45 screens to Carmike
Cinemas, Inc. for $9,416,000 with a recognized gain of $8,169,000.
On May 21, 1992, the Company sold five theatres with 32 screens to Carmike
Cinemas, Inc. for $12,132,000 with a recognized gain of $9,903,000.
NOTE 15 -- 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 is practicable to estimate
that value.
The carrying value of cash and equivalents approximates fair value because
of the short maturity of those instruments. Investments in corporate bonds were
valued based on quoted market prices. The fair value of the investment in TPI
Enterprises, Inc. is based on the lower of the quoted market price of this
common stock investment or the exercise price specified in a purchase option
agreement. The fair value of the subordinated promissory note receivable from
EEP was determined by reference to the estimated premium paid for the AMCE
Senior Subordinated Notes over U.S. treasury notes with similar average
maturities. For other notes receivable, the fair value was based upon a premium
over bank prime lending rates. The fair value of stock investments and 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 at April 1,
1993 follows (in thousands):
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
---------- ----------
<S> <C> <C>
Financial assets:
Cash and equivalents...................................... $ 23,997 $ 23,997
Investments............................................... 26,109 26,225
Investment in TPI Enterprises, Inc........................ 8,682 8,851
Subordinated note receivable.............................. 39,879 42,837
Other notes receivable.................................... 726 746
Stock investments......................................... 1,600 3,701
Financial liabilities:
Corporate borrowings...................................... 201,959 218,391
</TABLE>
F-39
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS BY QUARTER
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR
------------------
07/02/92 06/27/91 10/01/92 09/26/91 12/31/92 12/26/91 04/01/93 04/02/92 1993 1992
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues................. $99,888 $90,582 $100,750 $112,469 $105,492 $87,828 $98,335 $116,085 $404,465 $406,964
Total cost of operations....... 77,980 76,435 78,701 88,918 78,669 69,955 75,485 90,593 310,835 325,901
Depreciation and amortization.. 7,191 8,071 6,981 7,688 6,914 7,781 7,089 7,845 28,175 31,385
General & administrative
expenses...................... 8,717 9,490 9,393 10,281 7,978 8,651 10,197 9,463 36,285 37,885
Estimated loss on future
disposition of assets......... -- -- -- 600 2,500 -- -- 2,400 2,500 3,000
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income (loss)........ 6,000 (3,414 ) 5,675 4,982 9,431 1,441 5,564 5,784 26,670 8,793
Interest expense............... 6,871 7,947 7,668 7,097 8,622 7,356 8,240 7,635 31,401 30,035
Investment income.............. 1,814 3,206 1,956 1,819 2,715 1,829 1,754 1,648 8,239 8,502
Gain (loss) on disposition of
assets........................ 9,851 8,677 (141 ) (1,130 ) (70 ) 992 (2 ) 182 9,638 8,721
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Earnings (loss) before income
taxes & extraordinary item.... 10,794 522 (178 ) (1,426 ) 3,454 (3,094 ) (924 ) (21 ) 13,146 (4,019)
Income tax provision........... 1,350 375 3,250 375 400 375 400 375 5,400 1,500
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Earnings (loss) before
extraordinary item............ 9,444 147 (3,428 ) (1,801 ) 3,054 (3,469 ) (1,324 ) (396 ) 7,746 (5,519)
Extraordinary item............. -- -- (6,483 ) -- -- -- -- -- (6,483) --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net earnings (loss)............ $ 9,444 $ 147 $(9,911 ) $(1,801 ) $ 3,054 $(3,469 ) $(1,324 ) $ (396 ) $ 1,263 $ (5,519)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Earnings (loss) per share
before extraordinary item..... $ 0.57 $ -- $ (0.22 ) $ (0.12 ) $ 0.19 $ (0.23 ) $ (0.08 ) $ (0.04 ) $ 0.46 $ (0.39)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Earnings (loss) per share...... $ 0.57 $ -- $ (0.62 ) $ (0.12 ) $ 0.19 $ (0.23 ) $ (0.08 ) $ (0.04 ) $ 0.06 $ (0.39)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
Quarterly results of operations for fiscal 1993 and 1992 have been restated
to reflect a change in accounting for operating leases. See Note 2 to the
Consolidated Financial Statements.
F-40
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Managers of
Exhibition Enterprises Partnership
Kansas City, Missouri
We have audited the accompanying balance sheets of Exhibition Enterprises
Partnership, (a partnership operated by Cinema Enterprises, Inc. and TPI
Entertainment, Inc.) as of December 31, 1992, and the related statements of
operations, partners' capital and cash flows for the year (53 weeks) then ended.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Partnership as of December 31, 1992, and
the results of its operations and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche
Kansas City, Missouri
February 5, 1993
F-41
<PAGE>
EXHIBITION ENTERPRISES PARTNERSHIP
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FIFTY-THREE
WEEKS ENDED
DECEMBER 31, 1992
-----------------
<S> <C>
Revenues.......................................................................................
Admissions................................................................................... $ 101,038
Concessions.................................................................................. 44,117
Other (Note 9)............................................................................... 3,242
--------
Total revenues............................................................................... 148,397
Expenses
Cost of operations........................................................................... 116,104
Depreciation and amortization................................................................ 12,626
--------
Total cost of operations..................................................................... 128,730
General & administrative expenses (Note 3)................................................... 9,481
--------
Total operating expenses................................................................... 138,211
--------
Operating income........................................................................... 10,186
--------
Other expense (income)
Interest expense
Borrowings................................................................................. 7,705
Capitalized leases......................................................................... 2,480
Investment and other income, net............................................................. (223)
--------
Net earnings................................................................................... $ 224
--------
--------
</TABLE>
See Notes to Financial Statements
F-42
<PAGE>
EXHIBITION ENTERPRISES PARTNERSHIP
BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1992
-----------------
<S> <C>
ASSETS
Current assets:
Cash and equivalents......................................................................... $ 8,707
Receivables (Note 9)......................................................................... 1,997
Other current assets......................................................................... 2,256
--------
Total current assets....................................................................... 12,960
Property, net (Notes 4 and 5).................................................................. 61,123
Intangible assets, net (Note 6)................................................................ 48,252
Other long-term assets......................................................................... 1,368
--------
$ 123,703
--------
--------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Film rentals payable......................................................................... $ 5,906
Accrued expenses and other liabilities (Note 3).............................................. 6,012
Other accounts payable....................................................................... 901
Current maturities of borrowings and capital lease obligations (Note 4)...................... 4,481
--------
Total current liabilities................................................................ 17,300
Borrowings (Note 4)............................................................................ 78,074
Capital lease obligations (Note 4)............................................................. 12,771
--------
Total liabilities........................................................................ 108,145
--------
Commitments and contingencies (Notes 7 and 8)..................................................
Partners' capital.............................................................................. 15,558
--------
$ 123,703
--------
--------
</TABLE>
See Notes to Financial Statements
F-43
<PAGE>
EXHIBITION ENTERPRISES PARTNERSHIP
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FIFTY-THREE
WEEKS ENDED
DECEMBER 31, 1992
-----------------
<S> <C>
INCREASE (DECREASE) IN CASH AND EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 224
-------
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depreciation and amortization -- property................................................ 8,379
-- intangible assets........................................... 4,247
Loss on sale of assets................................................................... 13
Change in assets and liabilities:
Receivables............................................................................ (477)
Other current assets................................................................... (1,320)
Film rentals, net...................................................................... (1,295)
Accrued expenses, other liabilities and other accounts payable......................... 476
Other, net............................................................................... 350
-------
Total adjustments...................................................................... 10,373
-------
Net cash provided by operating activities.................................................... 10,597
-------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property acquisitions........................................................................ (5,408)
Proceeds from disposition of assets.......................................................... 147
Other long-term assets....................................................................... (1,354)
-------
Net cash used in investing activities........................................................ (6,615)
-------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit agreement.................................................... 8,400
Repayments under line of credit agreement.................................................... (3,400)
Repayment on term loan....................................................................... (4,000)
Principal payments under capital leases...................................................... (401)
-------
Net cash provided by financing activities.................................................... 599
-------
NET INCREASE IN CASH AND EQUIVALENTS........................................................... 4,581
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD.................................................... 4,126
-------
CASH AND EQUIVALENTS AT END OF PERIOD.......................................................... $ 8,707
-------
-------
</TABLE>
See Notes to Financial Statements
F-44
<PAGE>
EXHIBITION ENTERPRISES PARTNERSHIP
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In connection with the April 19, 1991 partners' capital contributions,
liabilities were assumed as follows:
<TABLE>
<S> <C>
Book value of assets provided by partners............................... $ 122,096
Liabilities assumed..................................................... 102,352
---------
Opening partners' capital............................................... $ 19,744
---------
---------
</TABLE>
In connection with the April 25, 1991 acquisition of the Tri-City Theatre,
the Partnership issued a subordinated promissory note payable to AMC in the
amount of $710,000.
SUPPLEMENTAL CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
FIFTY-THREE
WEEKS ENDED
DECEMBER 31, 1992
-----------------
<S> <C>
Interest paid (net of amounts capitalized)..................................................... $ 11,531
</TABLE>
See Notes to Financial Statements
F-45
<PAGE>
EXHIBITION ENTERPRISES PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(IN THOUSANDS)
<TABLE>
<S> <C>
Partners' capital at December 26, 1991............................................. $ 15,334
Net earnings....................................................................... 224
---------
Partners' capital at December 31, 1992............................................. $ 15,558
---------
---------
</TABLE>
See Notes to Financial Statements
F-46
<PAGE>
EXHIBITION ENTERPRISES PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
YEAR (53 WEEKS) ENDED DECEMBER 31, 1992
NOTE 1 -- THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
Exhibition Enterprises Partnership ("EEP" or "the Partnership") is owned by
two general partners, Cinema Enterprises, Inc. ("CENI"), a wholly owned
subsidiary of American Multi-Cinema, Inc. ("AMC"), and TPI Entertainment, Inc.
("TPIE"), a wholly owned subsidiary of TPI Enterprises, Inc. ("TPI"), each with
a fifty percent ownership interest. The Partnership is engaged in the operation
of multi-screen motion picture theatres which generate revenues from box office
admissions and theatre concession sales. At December 31, 1992, the Partnership
operated 444 screens in 60 theatres. The Partnership's theatres are managed by
AMC and use the AMC name and logo in the operation of the theatres.
FISCAL YEAR
The Partnership commenced operations on April 19, 1991 with its first fiscal
period (36 weeks) ending on December 26, 1991. The Partnership is on a 52/53
week accounting period with its fiscal year ending on the last Thursday in
December.
CASH AND EQUIVALENTS
This balance is comprised of cash on hand, deposits in banks and temporary
cash investments with original maturities of less than thirty days.
PROPERTY
Property is recorded at cost. The Partnership uses the straight-line method
in computing depreciation and amortization for financial reporting purposes. The
estimated useful lives are generally as follows:
<TABLE>
<S> <C>
Furniture and fixtures 3 to 10 years
Leasehold improvements 5 to 25 years
Buildings and improvements 10 to 40 years
</TABLE>
Leasehold improvements are amortized over the shorter of the lives of the
applicable leases or the estimated useful lives of the assets.
Buildings under capital leases are amortized over the term of the applicable
lease, excluding renewal options.
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.
Interest capitalized aggregated $42,000 for the fifty-three weeks ended
December 31, 1992.
INTANGIBLE ASSETS
Intangible assets are comprised principally of:
- goodwill which is being amortized on a straight-line basis over
twenty-four years.
- amounts assigned to theatre leases assumed under favorable terms
which are being amortized on a straight-line basis over the
remaining terms of the leases excluding renewal options.
- amounts assigned to location premium which are being amortized
on a straight-line basis over the remaining terms of the leases
including all renewal options.
- costs incurred in obtaining financing which are being amortized
on a straight-line basis over the term of the loan.
F-47
<PAGE>
EXHIBITION ENTERPRISES PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
YEAR (53 WEEKS) ENDED DECEMBER 31, 1992
NOTE 1 -- THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER ASSETS
Other current assets include amounts for prepaid expenses and merchandise
inventory. Other long-term assets include amounts for deposits, and deferred
preopening, start-up and design costs relating to new theatres which are being
amortized over two years.
COST OF OPERATIONS
Cost of operations is summarized as follows (in thousands):
<TABLE>
<CAPTION>
FIFTY-THREE
WEEKS ENDED
DECEMBER 31, 1992
-----------------
<S> <C>
Film rentals............................................... $ 53,802
Advertising................................................ 5,093
Wages and payroll taxes.................................... 18,960
Occupancy costs............................................ 23,749
Concession merchandise..................................... 6,618
Other...................................................... 7,882
--------
$ 116,104
--------
--------
</TABLE>
INCOME TAXES
The Partnership is not liable for income taxes. Each partner must report on
their corporate income tax returns their respective share of partnership income
or loss as determined by the partnership for income tax purposes.
RECLASSIFICATION
Certain amounts have been reclassified from prior period financial
statements to conform with the current year presentation.
NOTE 2 -- PARTNERSHIP FORMATION
On February 24, 1989, AMC sold 55 theatres with 375 screens to TPIE. AMC
also entered into a management agreement with TPIE to manage the theatres for a
fee based upon a specified percentage of revenues of the managed theatres. At
the time of the sale, AMC held 6,275,144 shares of Common stock of TPI.
On May 17, 1990, an additional eight-screen theatre owned by AMC was sold to
TPIE. Since that date and prior to the formation of the Partnership, TPIE
completed the construction of one theatre with eight screens.
The Partnership was formed on March 4, 1991 when TPIE entered into a general
partnership agreement with CENI.
On April 19, 1991, pursuant to the Partnership Agreement, TPIE contributed
to EEP its interest in the assets (subject to certain exclusions) relating to
the 57 movie theatres owned and operated by TPIE and other leasehold interests,
subject to obligations under notes, loans and capital leases, and CENI
contributed to EEP 3.8 million Common Shares of TPI (the "Shares")
(collectively, the "Initial Capital Contributions"). Following the Initial
Capital Contributions, EEP distributed the Shares to TPIE. In addition, EEP was
obligated to pay to TPIE an amount of cash, determined in accordance with the
Partnership Agreement,
F-48
<PAGE>
EXHIBITION ENTERPRISES PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
YEAR (53 WEEKS) ENDED DECEMBER 31, 1992
NOTE 2 -- PARTNERSHIP FORMATION (CONTINUED)
which was the sum of $800,000 plus additions to gross theatre property and
principal payments on the Merchants Bank loan held by TPIE from September 27,
1990 to April 19, 1991. Such obligations aggregating $4,724,000, including
interest, were paid in August, 1991.
CENI and TPIE each have a 50% interest in EEP. The Partnership will have a
term of ten years (unless earlier terminated or extended in accordance with the
Partnership Agreement). During the first and second fiscal years of the
Partnership, 70% and 60%, respectively, of the depreciation expense was
allocated to TPIE. Thereafter, the depreciation expense will be allocated in
accordance with each partner's respective partnership interest. Depreciation
subject to the special allocation includes all depreciation and amortization of
property and intangible assets, excluding the amortization of deferred finance
charges. The Partnership is managed by a Board of Managers consisting of two
representatives of CENI and two representatives of TPIE. The theatres continue
to be managed by AMC under the Amended and Restated Management Agreement dated
March 4, 1991. AMC has the authority to manage the day-to-day affairs of the
Partnership's business. In addition, CENI has the exclusive right to represent
the Partnership with respect to the sale or purchase of Partnership assets and
certain other types of transactions.
In the event that CENI causes EEP to enter into one of the transactions
referred to above over the objection of TPIE, TPIE will have the option to
require CENI to purchase TPIE's entire partnership interest at a price based
upon a formula contained in the Partnership Agreement. The Partnership Agreement
provides that with respect to the sale of assets (and certain other transactions
specified in the Partnership Agreement) such purchase price is payable with the
New Purchase Money Notes, issued by the partnership to replace the Purchase
Money Notes delivered to AMC in connection with the purchase of the theatres
from AMC by TPIE. The purchase price will otherwise be payable in cash.
TPIE has the option to require CENI to purchase TPIE's partnership interest
at a price based upon a formula contained in the Partnership Agreement (payable
in part with the New Purchase Money Notes) in 1995 and 1999. At the end of the
term of the Partnership, CENI will have the right to buy, and TPIE will have the
right to require CENI to buy, TPIE's partnership interest at fair market value
(payable in cash). In the event of a change in control of CENI, as defined in
the Partnership Agreement, TPIE will have the option to require CENI to buy
TPIE's partnership interest at fair market value. In the event that either
partner wishes to transfer a partnership interest to an unaffiliated third
party, each partner's interest is subject to a right of first refusal in favor
of the other partner, with the consideration payable in the same form as offered
by the third party.
CENI and TPIE may be required to make additional cash contributions to the
extent that Available Funds, as defined in the Partnership Agreement, are
insufficient to fully fund certain expenses. Failure of a partner to make a
capital contribution could result in liability of that partner to EEP or the
dilution of such partner's partnership interest. Should a partner's interest
fall below 20%, such partner will only have one representative on the Board of
Managers.
NOTE 3 -- TRANSACTIONS WITH RELATED PARTIES
The Partnership pays a management fee to AMC (as operator) equal to 5% of
theatre revenues, as defined in the Amended and Restated Management Agreement.
In addition, the operator may be entitled to an additional management fee if
theatre level cash flow in a fiscal year exceeds a specified amount. The
additional fee is equal to the lesser of one percent of theatre revenues for the
fiscal year or theatre level cash flow in excess of a base amount. For 1992, AMC
earned the full 1% additional management fee.
The Partnership pays an administrative fee to TPIE on a quarterly basis
equal to 1/4 of 1% of theatre revenues.
F-49
<PAGE>
EXHIBITION ENTERPRISES PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
YEAR (53 WEEKS) ENDED DECEMBER 31, 1992
NOTE 3 -- TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
Included in accrued expenses and other liabilities are the following amounts
payable to related parties (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1992
-----------------
<S> <C>
Accrued management fee payable to AMC.............................................. $ 2,311
Accrued administrative fee payable to TPIE......................................... 97
</TABLE>
Expenses with related parties were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1992
-----------------
<S> <C>
Management fee to AMC.............................................................. $ 8,876
Administrative fee to TPIE......................................................... 370
Interest expense on AMC subordinated notes......................................... 5,084
</TABLE>
NOTE 4 -- BORROWINGS AND CAPITAL LEASE OBLIGATIONS
The Partnership is obligated under notes and other indebtedness as follows
(in thousands):
<TABLE>
<CAPTION>
BALANCE
RATES OF MATURITY DUE IN DECEMBER 31,
INTEREST DATES 1993 1992
---------------------- ----------------- --------- ------------
<S> <C> <C> <C> <C>
Merchants Bank term loan..................... 1% above base rate February, 1994 $ 4,000 $ 34,000
Merchants Bank revolving credit loan......... 1% above base rate February, 1994 -- 5,000
Subordinated note............................ 12% August, 2000 -- 42,364
Tri-City note................................ See below See below -- 710
--------- ------------
Total borrowings........................... 4,000 82,074
Capital lease obligations.................... Various Serially to 2011 481 13,252
--------- ------------
Total borrowings and capital lease
obligations............................... $ 4,481 $ 95,326
--------- ------------
--------- ------------
</TABLE>
Minimum annual payments required under existing capital lease obligations,
the present value thereof and maturities of total indebtedness at December 31,
1992 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL LEASE OBLIGATIONS
---------------------------------
MINIMUM NET
LEASE LESS PRESENT OTHER
PAYMENTS INTEREST VALUE DEBT TOTAL
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1993.................................. $ 2,892 $ 2,411 $ 481 $ 4,000 $ 4,481
1994.................................. 2,892 2,315 577 35,000 35,577
1995.................................. 2,896 2,198 698 -- 698
1996.................................. 2,874 2,057 817 -- 817
1997.................................. 2,861 1,897 964 10,591 11,555
Thereafter............................ 17,272 7,557 9,715 32,483 42,198
----------- --------- --------- --------- ---------
Total............................. $ 31,687 $ 18,435 $ 13,252 $ 82,074 $ 95,326
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
</TABLE>
In connection with the 1989 purchase of theatres from AMC, TPIE entered into
a term loan with The Merchants Bank, ("the Bank") and executed 12% subordinated
promissory notes to AMC. The Partnership
F-50
<PAGE>
EXHIBITION ENTERPRISES PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
YEAR (53 WEEKS) ENDED DECEMBER 31, 1992
NOTE 4 -- BORROWINGS AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
assumed the debt of the term loan, with the consent of the Bank. The Partnership
issued a 12% Subordinated Promissory Note to AMC in exchange for the notes
executed by TPIE, under substantially the same terms as the replaced notes.
The term loan is payable in $1,000,000 quarterly principal installments with
interest payable monthly. Certain covenants restrict the Partnership's ability
to make additional acquisitions, incur additional indebtedness, encumber any of
its assets, make payments to its affiliates, dispose of a substantial portion of
its assets, make investments, or enter into certain other transactions without
the prior approval of the Bank. The Partnership had borrowings under this
agreement in the amount of $34,000,000 at December 31, 1992. The Bank has also
made available a revolving credit line in the maximum principal amount of
$5,000,000. As of December 31, 1992, the Partnership had $5,000,000 of
borrowings under this line of credit. The term loan and revolving credit line
agreement is renewable, at the option of the Partnership, for an additional
three years to an extended maturity date of February 24, 1997. The renewal is
conditioned upon the timely payments of principal and interest and that no event
of default is continuing. The term loan has a debt coverage requirement based
upon the Net Cash Flow (as defined in the loan agreement). The Partnership has
exceeded the debt coverage requirement for each quarterly period from inception
to December 31, 1992.
The 12% Subordinated Promissory Note due to AMC is payable in three
installments of $10,591,000 on August 31, 1997, 1998 and 1999, and a fourth
installment in the amount of the remaining principal balance on August 31, 2000.
Interest on the 12% Subordinated Promissory Note is payable quarterly.
On April 25, 1991, the Partnership purchased the Tri-City theatre from AMC
in exchange for a subordinated promissory note in the amount of $710,000. The
note bears interest (determined annually) equal to the lesser of 50% of theatre
level cash flow or the prime rate plus one percent. Anytime the theatre level
cash flow for a fiscal year is negative, AMC is required to pay the Partnership
the amount of the deficiency. For fiscal 1992, the cash flow deficiency of the
Tri-City theatre was $3,000. The Partnership has the right to require AMC to
repurchase the theatre (upon 30 days notice) in consideration for the
cancellation of the note.
NOTE 5 -- PROPERTY
A summary of property follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1992
------------
<S> <C>
Property owned:
Buildings and improvements........................................................................ $ 3,155
Furniture, fixtures and equipment............................................................... 38,725
Leasehold improvements.......................................................................... 23,094
------------
64,974
Less -- Accumulated depreciation and amortization............................................... 12,221
------------
52,753
------------
Property leased under capitalized leases:
Buildings....................................................................................... 9,682
Less -- Accumulated amortization................................................................ 1,312
------------
8,370
------------
Net property........................................................................................ $ 61,123
------------
------------
</TABLE>
F-51
<PAGE>
EXHIBITION ENTERPRISES PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
YEAR (53 WEEKS) ENDED DECEMBER 31, 1992
NOTE 6 -- INTANGIBLE ASSETS
A summary of intangible assets follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1992
------------
<S> <C>
Goodwill............................................................................................ $ 11,897
Lease rights........................................................................................ 13,741
Location premium.................................................................................... 29,621
Deferred finance charges............................................................................ 365
------------
55,624
Less -- Accumulated amortization.................................................................... 7,372
------------
Net intangible assets............................................................................... $ 48,252
------------
------------
</TABLE>
NOTE 7 -- LEASES
DESCRIPTION OF LEASING AGREEMENTS
The majority of the Partnership's operations are conducted in premises
occupied under lease agreements with original terms generally ranging from 15 to
25 years and, in most cases, renewal options for up to an additional 25 years.
The renewal options generally provide for increased rent. The property leases
provide for minimum annual rentals and under certain conditions may require
additional rental payments based on a percentage of revenues. The majority of
the leases provide that the Partnership will pay all, or substantially all, the
taxes, maintenance, insurance and certain other operating expenses. Assets held
under capital leases are included in property.
OPERATING LEASES
The Partnership has entered into agreements to lease space for the operation
of theatres not yet fully constructed. Of the total number of anticipated
openings, leases for one new theatre with 14 screens and 16 screens at two
existing locations have been finalized. Construction is scheduled for
completion, and theatres for opening, at various dates through the second
quarter of 1994. The estimated minimum rental payments that may be required
under the terms of these operating leases total approximately $28 million.
Following is a schedule of future minimum rental payments required under
these leases and existing operating leases that have initial or remaining
non-cancellable terms in excess of one year at December 31, 1992 (in thousands):
<TABLE>
<S> <C>
Year ended:
1993........................................................... $ 14,038
1994........................................................... 15,177
1995........................................................... 15,322
1996........................................................... 15,134
1997........................................................... 14,944
Thereafter..................................................... 163,470
---------
Total minimum payments required................................ $ 238,085
---------
---------
</TABLE>
F-52
<PAGE>
EXHIBITION ENTERPRISES PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
YEAR (53 WEEKS) ENDED DECEMBER 31, 1992
NOTE 7 -- LEASES (CONTINUED)
Rent expense is summarized as follows (in thousands):
<TABLE>
<CAPTION>
FIFTY-THREE
WEEKS ENDED
DECEMBER 31, 1992
-----------------
<S> <C>
Minimum rentals........................................................ $ 15,382
Percentage rentals based on revenues................................... 550
-------
$ 15,932
-------
-------
</TABLE>
NOTE 8 -- CONTINGENCIES
The Partnership, in the normal course of business, is party to various legal
actions. Management believes that potential exposure, if any, of these actions
would not have a material adverse effect on the Partnership.
NOTE 9 -- CASUALTY INSURANCE CLAIMS
On August 23, 1992, the Miami, Florida area was struck by hurricane Andrew.
The hurricane destroyed one theatre with eight screens and temporarily suspended
the operation of eleven theatres.
The theatres are fully insured for both property damages and business
interruption. The insurance recovery for the destroyed theatre is expected to
sufficiently cover the book value of the property and the obligations under an
operating lease.
Included in other revenues for the year (53 weeks) ended December 31, 1992,
is $1,316,000 of recoveries from insurance carriers for business interruption.
Recoveries for repairs and other expenses were applied against the related
expense account. Included in accounts receivable at December 31, 1992, is
$1,184,000 in claims for repairs, business interruption and reconstruction costs
to be collected from insurance carriers. Such amount has subsequently been
received.
NOTE 10 -- SUBSEQUENT EVENT (UNAUDITED)
On May 28, 1993, Cinema Enterprises II, Inc. ("CENI II"), a wholly owned
subsidiary of American Multi-Cinema, Inc. ("AMC"), acquired a 50% partnership
interest in Exhibition Enterprises Partnership ("EEP") from TPI Entertainment,
Inc. Together with the 50% partnership interest already owned by Cinema
Enterprises, Inc. ("CENI"), EEP became wholly owned by subsidiaries of AMC. The
acquisition required the repayment of $37,000,000 in EEP bank indebtedness which
was funded by a capital contribution of $27,000,000 by CENI II together with
cash on hand. CENI II's capital investment in EEP will result in an adjustment
in the carrying value of certain EEP assets and liabilities.
F-53
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR BY THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THESE SECURITIES IN
ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT
IMPLY THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PROSPECTUS SUMMARY...................................................... 3
RISK FACTORS............................................................ 9
USE OF PROCEEDS......................................................... 12
DIVIDENDS AND PRICE RANGE OF COMMON STOCK............................... 13
CAPITALIZATION.......................................................... 14
SELECTED FINANCIAL DATA................................................. 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.......................................................... 18
BUSINESS................................................................ 25
MANAGEMENT.............................................................. 33
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......... 41
DESCRIPTION OF CAPITAL STOCK............................................ 42
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................. 52
SHARES ELIGIBLE FOR FUTURE SALE......................................... 56
UNDERWRITING............................................................ 56
LEGAL MATTERS........................................................... 57
EXPERTS................................................................. 57
AVAILABLE INFORMATION................................................... 58
INCORPORATION BY REFERENCE.............................................. 58
INDEX TO FINANCIAL STATEMENTS........................................... F-1
</TABLE>
4,000,000 SHARES
[LOGO]
AMC ENTERTAINMENT INC.
$1.75 CUMULATIVE CONVERTIBLE
PREFERRED STOCK
-----------------
P R O S P E C T U S
-----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BEAR, STEARNS & CO. INC.
SMITH BARNEY SHEARSON INC.
FEBRUARY 24, 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
APPENDIX A TO PROSPECTUS
DESCRIPTION OF OMITTED GRAPHIC MATERIAL
1. The inside front cover of this Prospectus contains 11 photographs of the
interiors and exteriors of certain of the Company's theatres.
2. The inside back cover of this Prospectus contains a map of the United
States identifying the location and number of screens of those theatres
of the Company which are located in its major markets as set forth below.
Number of
Major Market Screens
FLORIDA
Gainesville.................................. 10
Jacksonville................................. 22
Miami........................................ 86
Orlando...................................... 56
Tampa........................................ 94
W. Palm Beach................................ 16
CALIFORNIA
Bakersfield.................................. 6
Los Angeles.................................. 159
San Diego.................................... 20
San Francisco................................ 32
San Jose..................................... 23
TEXAS
Dallas....................................... 76
Houston...................................... 85
San Antonio.................................. 9
PENNSYLVANIA
Harrisburg................................... 32
Philadelphia................................. 140
MICHIGAN
Detroit...................................... 95
Lansing...................................... 22
MISSOURI & KANSAS
Kansas City.................................. 62
St. Louis.................................... 47
ARIZONA
Phoenix...................................... 66
Tucson....................................... 14
COLORADO
Colorado Springs............................. 6
Denver....................................... 63
VIRGINIA
Norfolk...................................... 33
OHIO
Columbus..................................... 34
Toledo....................................... 22
GEORGIA
Atlanta...................................... 42
OKLAHOMA
Oklahoma City................................ 22
NEW YORK
Buffalo...................................... 22
New York..................................... 22
ILLINOIS
Carbondale................................... 8
Chicago...................................... 12
LOUISIANA
New Orleans.................................. 8
Shreveport................................... 12
WASHINGTON
Seattle-Tacoma............................... 20
MASSACHUSETTS
Springfield.................................. 10
DISTRICT OF COLUMBIA........................... 87
NEBRASKA
Omaha........................................ 8
