UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended December 30, 1993
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to ____________
Commission File Number 01-12429
AMC ENTERTAINMENT INC.
(Exact name of registrant as specified in its charter)
Delaware 43-1304369
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
106 West 14th Street
Kansas City, Missouri 64105-1977
(Address of principal executive offices) (Zip Code)
(816) 221-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ___X___ No ______
Title of Each Class of Common Stock Outstanding at December 30, 1993
Common Stock, 66 2/3c par value 4,684,130
Class B Stock, 66 2/3c par value 11,730,000 <PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
PERIODS (39 AND 13 WEEKS) ENDED DECEMBER 30, 1993, DECEMBER 31, 1992
AND YEAR (52 WEEKS) ENDED APRIL 1, 1993
INDEX
Page Number
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED STATEMENTS OF OPERATIONS 3
CONSOLIDATED BALANCE SHEETS 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5-6
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8 - 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION 13 - 17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT 11 - STATEMENT REGARDING COMPUTATION
OF PER SHARE EARNINGS 18
NO REPORTS ON FORM 8-K WERE FILED OR REQUIRED
TO BE FILED FOR THE THIRTEEN WEEKS ENDED
DECEMBER 30, 1993
SIGNATURES 19
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AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited) (Unaudited)
Thirteen Thirty-nine Fifty-two
Weeks Ended Weeks Ended Weeks Ended
12/30/93 12/31/92 12/30/93 12/31/92 4/1/93
Revenues
Admissions $ 87,465 $ 69,037 $297,647 $201,652 $265,766
Concessions 39,455 29,381 134,773 87,117 114,809
Management fee income 62 3,002 210 7,183 9,342
Other 5,607 4,072 15,328 10,178 14,548
Total revenues 132,589 105,492 447,958 306,130 404,465
Expenses
Film rentals 43,737 36,807 154,910 105,793 137,613
Advertising 4,213 2,893 13,912 9,705 12,786
Payroll & related expenses 19,459 13,661 61,247 43,703 57,497
Occupancy costs 21,311 14,362 66,226 44,120 58,878
Concession merchandise 5,725 4,961 20,004 13,813 17,522
Other 9,052 5,985 29,089 18,216 26,539
Total cost of operations 103,497 78,669 345,388 235,350 310,835
Depreciation and amortization 9,729 6,914 29,151 21,086 28,175
General & administrative
expenses 9,508 7,978 27,957 26,088 36,285
Estimated loss on future
disposition of assets - 2,500 - 2,500 2,500
Total expenses 122,734 96,061 402,496 285,024 377,795
Operating income 9,855 9,431 45,462 21,106 26,670
Other expense (income)
Interest expense
Corporate borrowings 6,211 6,411 19,185 16,584 22,828
Capitalized leases 2,890 2,211 8,431 6,577 8,573
Investment income (619) (2,715) (1,653) (6,485) (8,239)
Minority interest - - (1,599) - -
Loss (gain) on disposition
of assets 1 70 79 (9,640) (9,638)
Earnings before income taxes
and extraordinary item 1,372 3,454 21,019 14,070 13,146
Income tax provision 600 400 8,500 5,000 5,400
Net earnings before
extraordinary item 772 3,054 12,519 9,070 7,746
Extraordinary item-loss
on extinguishment of debt
(net of income tax benefit
of $3,800) - - - (6,483) (6,483)
Net earnings $772 $3,054 $12,519 $2,587 $1,263
Earnings per share before
extraordinary item $.05 $.19 $.76 $.54 $.46
3
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Earnings per share $.05 $.19 $.76 $.14 $.06
Weighted average number of
shares outstanding 16,667 16,277 16,452 16,195 16,217
4
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AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
ASSETS
(Unaudited)
12/30/93 12/31/92 4/1/93
Current assets:
Cash and equivalents $58,518 $24,538 $23,997
Investments - 25,835 26,109
Receivables, net of allowance for
doubtful accounts of $596 at
December 30, 1993, $663 at
December 31, 1992 and $611 at April 1, 1993 8,349 10,035 8,704
Prepaid film rentals 290 300 188
Other current assets 8,515 7,476 7,374
Total current assets 75,672 68,184 66,372
Investment in TPI Enterprises, Inc. 8,682 8,682 8,682
Investment in and advances to partnership - 40,052 40,187
Property, net 263,562 226,353 223,981
Other long-term assets 59,695 35,841 34,880
Total assets $407,611 $379,112 $374,102
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Film rentals payable $27,509 $17,297 $12,090
Accrued expenses and other liabilities 49,036 37,639 35,871
Estimated IRS settlement 3,146 4,796 4,796
Other accounts payable,
including related parties of $178 at
December 31, 1992 and $126 at April 1,1993 7,907 3,384 3,976
Current maturities of borrowings
and capital lease obligations 2,519 2,464 2,618
Total current liabilities 90,117 65,580 59,351
Corporate borrowings 200,126 200,914 200,633
Capital lease obligations 66,165 50,510 52,051
Other long-term liabilities 19,237 15,621 16,904
Total liabilities 375,645 332,625 328,939
Deferred gain on sale of assets - 26,992 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 and April 1, 1993 3,123 3,026 3,026
Class B stock; 11,730,000 shares
issued and outstanding 7,820 7,820 7,820
Additional paid-in capital 13,979 12,800 12,800
Retained earnings (accumulated deficit) 7,044 (4,151) (5,475)
5
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Total stockholders' equity 31,966 19,495 18,171
Total liabilities and stockholders' equity $407,611 $379,112 $374,102
6
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AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Thirty-nine Fifty-two
Weeks Ended Weeks Ended
INCREASE (DECREASE) IN CASH AND EQUIVALENTS 12/30/93 12/31/92 4/1/93
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $12,519 $2,587 $1,263
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization - property 22,157 18,024 23,869
- other long-term assets 5,081 3,062 4,306
Loss (gain) on sale of long-term assets 79 (9,640) (9,638)
Change in certain assets and liabilities,
net of effects from acquisitions and investments:
Receivables (1,995) (2,228) (897)
Other current assets 1,135 592 694
Film rentals, net 8,940 3,252 (1,843)
Accrued expenses, other liabilities
and other accounts payable 13,650 8,005 8,131
Estimated IRS settlement (1,650) - -
Other, net 2,209 3,141 3,177
Total adjustments 49,606 24,208 27,799
Net cash provided by operating activities 62,125 26,795 29,062
CASH FLOWS FROM INVESTING ACTIVITIES:
Property acquisitions (6,707) (7,200) (8,786)
Sales (investments) in money market
instruments, short-term commercial
paper and corporate bonds, net 26,109 (375) (649)
Purchase of partnership interest,
net of cash acquired (8,486) - -
Proceeds from disposition of property 511 14,768 14,768
Other, net (143) (290) (739)
Net cash provided by investing activities 11,284 6,903 4,594
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit agreements 30,000 3,000 3,000
Repayments under line of credit agreements (30,000) (57,000) (57,000)
Principal payments under capital leases (1,314) (672) (885)
Proceeds from issuance of debt securities - 198,654 198,654
Repurchase of debentures - (125,000) (125,000)
Repayment of acquired subsidiary indebtedness (37,000) - -
Other repayments (1,400) (6,124) (6,400)
Proceeds from issuance of common stock 1,276 845 845
Redemption of preferred stock - (5,000) (5,000)
Dividends paid on preferred stock - (2,531) (2,531)
Dividends paid on common stock - (18,550) (18,550)
Deferred financing costs (450) (8,145) (8,155)
Net cash used in financing activities (38,888) (20,523) (21,022)
NET INCREASE IN CASH AND EQUIVALENTS 34,521 13,175 12,634
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 23,997 11,363 11,363
CASH AND EQUIVALENTS AT END OF PERIOD $58,518 $24,538 $23,997
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AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except narratives)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
(Unaudited)
Thirty-nine Fifty-two
Weeks Ended Weeks Ended
12/30/93 12/31/92 4/1/93
Capital lease obligations incurred in
connection with property acquired $3,278 $811 $3,931
Borrowings incurred in connection with
property acquired - - 35
On May 28, 1993, Cinema Enterprises II, Inc. ("CENI II"), a wholly-owned
subsidiary of American Multi-Cinema, Inc. ("AMC"), acquired a fifty percent
partnership interest in Exhibition Enterprises Partnership ("EEP") from TPI
Entertainment, Inc. Together with the fifty percent 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 follow:
Fair value of assets acquired
(including cash and equivalents) $ 70,170
Cash paid (17,500)
Liabilities assumed $ 52,670
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
(Unaudited)
Thirty-nine Fifty-two
Weeks Ended Weeks Ended
12/30/93 12/31/92 4/1/93
Cash paid during the period for:
Interest (net of amounts
capitalized) $ 20,123 $ 18,947 $ 32,697
Income taxes 5,425 887 1,343
Income taxes resulting from
IRS settlement 1,650 - -
Cash received during the period for:
Interest and dividend income 1,342 5,290 7,182
Income tax refunds 106 82 133
8
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AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share amounts)
(Unaudited)
Preferred Stock Common Stock Class B Stock
Shares Amount Shares Amount Shares Amount
Balance, April 2, 1992 5 $1 4,358,380 $2,906 11,730,000 $7,820
Net earnings for the
thirty-nine
weeks ended
December 31, 1992 - - - - - -
Net proceeds from sale
of Common Stock - - 181,000 120 - -
Redemption of Preferred
Stock (5) (1) - - - -
Dividends declared:
14% Preferred Stock - - - - - -
Common and Class B - - - - - -
Balance, December 31, 1992 - - 4,539,380 3,026 11,730,000 7,820
Net loss for the
thirteen weeks ended
April 1, 1993 - - - - - -
Balance, April 1, 1993 - - 4,539,380 3,026 11,730,000 7,820
Net earnings for
the thirty-nine
weeks ended
December 30, 1993 - - - - - -
Net proceeds from sale
of Common Stock - - 144,750 97 - -
Balance, December 30, 1993 - $- 4,684,130 $3,123 11,730,000 $7,820
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share amounts)
(Unaudited)
Additional Retained Total
Paid-in Earnings Stockholders'
Capital (Deficit) Equity
Balance, April 2, 1992 $ 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 725 - 845
Redemption of Preferred
Stock (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 12,800 (4,151) 19,495
Net loss for the thirteen
weeks ended April 1, 1993 - (1,324) (1,324)
Balance, April 1, 1993 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 1,179 - 1,276
<PAGE>
Balance, December 30, 1993 $13,979 $7,044 $31,966
<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 is submitted in response to the
requirements of Form 10-Q and should be read in conjunction with the notes to
the consolidated financial statements appearing in the Company's 1993 annual
report.
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 Per Share
Earnings per share is computed based upon net earnings 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.
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 until April 19, 1994 at which time 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.
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Investment In and Advances To Partnership
Prior to May 28, 1993, Exhibition Enterprises Partnership ("EEP" or the
"Partnership") 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 April 1, 1993 and 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. Presented below is
selected unaudited pro forma operating statement data of the Company for the
thirty-nine weeks ended December 30, 1993, December 31, 1992 and the
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fifty-two weeks ended April 1, 1993, assuming the acquisition occurred at the
beginning of the respective fiscal year (in thousands):
Pro Forma (Unaudited)
Thirty-nine Fifty-two
Weeks Ended Weeks Ended
12/30/93 12/31/92 4/1/93
-------- -------- ------
Total revenues $447,958 $412,177 $543,340
Cost of operations 345,342 323,082 426,012
Depreciation and amortization 28,825 29,203 38,597
General & administrative 27,957 26,280 36,915
Estimated loss on future dispositions - 2,500 2,500
------- ------- -------
Operating income 45,834 31,112 39,316
Interest expense 27,546 26,579 35,969
Investment income 1,493 88 325
Gain (loss) on disposition of assets (79) 9,590 9,590
Income tax provision 8,100 5,000 5,400
------- ------ ------
Earnings before extraordinary item 11,602 9,211 7,862
Extraordinary item - (6,483) (6,483)
------ ------ -------
Net earnings $11,602 $2,728 $1,379
Earnings per share $.71 $.15 $.07
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
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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.
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):
(Unaudited)
12/30/93 12/31/92 4/1/93
Property owned:
Land $ 20,239 $ 20,239 $ 20,239
Buildings and improvements 86,283 82,991 83,028
Furniture, fixtures and equipment 164,099 128,921 129,297
Leasehold improvements 119,124 91,821 92,118
389,745 323,972 324,682
Less - accumulated depreciation and
amortization 170,231 132,557 137,266
219,514 191,415 187,416
Property leased under capitalized leases:
Buildings 68,313 54,668 56,569
Less - accumulated amortization 24,265 19,730 20,004
44,048 34,938 36,565
Net property $263,562 $226,353 $223,981
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),
11
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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 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 December 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.
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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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
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.
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Set forth below is a summary of operating revenues for the thirteen and
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 periods ended December 31, 1992. (Dollars in
thousands):
Per Report Per Report Pro Forma with EEP
13 Weeks Ended 13 Weeks Ended 13 Weeks Ended
% of Total % of Total % of Total
12/30/93 Revenues 12/31/92 Revenues 12/31/92 Revenues
Revenues
Admissions $ 87,465 66% $ 69,037 65% $ 95,982 67%
Concessions 39,455 30 29,381 28 41,440 29
Management fee
income 62 - 3,002 3 78 -
Other 5,607 4 4,072 4 5,900 4
Total $132,589 100% $105,492 100% $143,400 100%
Cost of Operations
Film rental $ 43,737 33% $ 36,807 35% $ 51,423 36%
Advertising 4,213 3 2,893 3 4,255 3
Payroll & related
expenses 19,459 15 13,661 13 18,617 13
Occupancy costs 21,311 16 14,362 14 20,315 14
Concession
merchandise 5,725 4 4,961 5 6,884 5
Other 9,052 7 5,985 5 7,737 5
Total $103,497 78% $ 78,669 75% $109,231 76%
Per Report Per Report Pro Forma with EEP
39 Weeks Ended 39 Weeks Ended 39 Weeks Ended
% of Total % of Total % of Total
12/30/93 Revenues 12/31/92 Revenues 12/31/92 Revenues
Revenues
Admissions $297,647 67% $201,652 66% $277,865 68%
Concessions 134,773 30 87,117 29 121,006 29
Management fee
income 210 - 7,183 2 193 -
Other 15,328 3 10,178 3 13,113 3
Total $447,958 100% $306,130 100% $412,177 100%
Cost of Operations
Film rental $154,910 35% $105,793 35% $146,578 35%
Advertising 13,912 3 9,705 3 13,486 3
Payroll &
related expenses 61,247 14 43,703 14 58,184 14
Occupancy costs 66,226 15 44,120 14 61,860 15
Concession
merchandise 20,004 4 13,813 5 18,945 5
Other 29,089 6 18,216 6 24,029 6
Total $345,388 77% $235,350 77% $323,082 78%
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Operating Results
Total revenues for the thirty-nine weeks ended December 30, 1993 increased
$141,828,000, or 46.3%. After giving pro forma effect to the consolidation
of EEP for the prior period, total revenues increased $35,781,000, or 8.7%.
The pro forma increase in total revenues is the result of an increase in
attendance that created additional admission and concession revenues of
$23,737,000 and $10,337,000, respectively. The admission revenue increase is
partially offset by a decrease in the average ticket price of 1.3%, from the
previous year lowering revenues by $3,955,000. The concession revenue
increase was due in part to a 2.5% rise in concession revenue per patron
which contributed $3,430,000 in additional revenues. The increase in
attendance for the first three quarters of fiscal 1994 was the result of
strong summer product which produced a 31.2% increase in patrons during the
thirteen weeks ended September 30, 1993 compared to the previous year.
Cost of operations increased $110,038,000, or 46.8%, from $235,350,000 in
the prior period to $345,388,000 currently. On a pro forma basis, including
EEP operations in the prior period, cost of operations increased $22,306,000
or 6.9% during the thirty-nine weeks ended December 30, 1993. Including EEP
theatres for the prior period, film rental expense increased $8,332,000, or
5,7%, of which $10,436,000 in additional expense was due to higher volumes
less $2,104,000 due to a small decrease in the percentage paid to
distributors. Other increases on a pro forma basis include payroll and
related costs of $3,063,000, or 5.3%, and occupancy costs of $4,366,000, or
7.1%. Although payroll expense increased 5.3% over the prior period, the
expense actually decreased as a percentage of admission and concession
revenues. The increase in occupancy costs on a pro forma basis is the
result of increased rent expense associated with expansions and new theatre
openings in addition to an increase in utilities expense.
Substantially all of the management fee income earned in fiscal 1993 was
generated from the Company's management agreement with EEP. Because it
acquired 100% ownership of the EEP theatres, in the current period the
Company has no management fee income from EEP theatres in its Consolidated
Financial Statements for the thirty-nine weeks ended December 30, 1993.
Operating income increased during the thirty-nine weeks ended December 30,
1993 by $24,356,000, or 115.4% to $45,462,000 from $21,106,000 in the prior
period. On a pro forma basis, including EEP operations in the previous year,
operating income increased $14,350,000, or 46.1%, in the current period. The
pro forma increase on a thirty-nine week basis is the result of increases in
the first and second quarter of $3,658,000 and $14,845,000, respectively,
offset by a decrease in the third quarter of $4,153,000.
General and administrative expense increased $1,869,000, or 7.2,% to
$27,957,000 in the current period from $26,088,000 for the thirty-nine weeks
ended December 31, 1992. The increase is primarily the result of the
provision for bonuses to corporate, division and film 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. These increases are partially offset by a
charge in the first quarter of fiscal 1993 associated with the consolidation
of two operating divisions and the related savings of this consolidation in
the current period.
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Interest expense increased $4,455,000, or 19.2%, to $27,616,000 during the
thirty-nine weeks ended December 30, 1993. The increase consisted of a
$2,601,000 rise in interest expense related to corporate borrowings and
$1,854,000 of additional interest expense associated with capitalized
leases. The increase in corporate borrowings occurred during the first
thirteen weeks of the current fiscal year when borrowings outstanding were
approximately $200,000,000 versus $175,000,000 in the first quarter of fiscal
1993. Excluding the effect of the EEP acquisition in fiscal 1994, interest
expense increased by approximately $2,000,000, primarily as the result of the
debt restructuring in the second quarter of fiscal 1993.
Investment income decreased $4,832,000, or 74.5% from $6,485,000 for the
thirty-nine weeks ended December 31, 1992 to $1,653,000 currently. This
decrease is the result of the elimination of equity in earnings of EEP and
interest income from EEP notes in the current period, the effect of which was
partially offset by an increase in other investment income in the current
period. For the thirty-nine weeks ended December 31, 1992, equity in
earnings of EEP and interest income from EEP notes amounted to $1,676,000 and
$4,004,000, respectively.
During the thirty-nine weeks ended December 31, 1992 the Company recorded a
provision for potential theatre closings of $2,500,000 and recorded a gain in
the amount of $9,640,000 primarily relating to the sale of theatres to
Carmike Cinemas, Inc. Income from minority interest in the amount of
$1,599,000 was recorded in the thirty-nine weeks ended December 30, 1993
relating to TPIE's share of the EEP operating loss from April 2, 1993 through
May 27, 1993, prior to the Company's acquisition of TPIE's partnership
interest.
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 include redemption premiums on then outstanding
debentures and the write-off of deferred charges relating to such debentures
and the credit facility. The income tax benefit derived from these charges
was $3,800,000, resulting in a net extraordinary charge of $6,483,000, or
$.40 per share in fiscal 1993.
For the thirty-nine weeks ended December 30, 1993 the Company recorded
earnings prior to taxes and extraordinary charges of $21,019,000, an increase
of $6,949,000, or 49.4%, compared to earnings of $14,070,000 in the
comparable period of the prior year. After taxes and extraordinary items,
net earnings were $12,519,000, or $.76 per share in the current period
compared to $2,587,000, or $.14 per share for the thirty-nine weeks ended
December 31, 1992. Excluding gains and losses from the disposition of
assets, the Company recorded earnings prior to income taxes and extraordinary
items of $21,098,000 for the thirty-nine weeks ended December 30, 1993
compared to earnings of $6,930,000 in the prior period. The improved
earnings of the Company was primarily due to increased attendance during the
second quarter of fiscal 1994 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
$27,097,000, or 25.7%, from $105,492,000 in the prior fiscal year to
$132,589,000in the current fiscal year On a pro forma basis including EEP
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revenues for the prior period, total revenues in the current period decreased
$10,811,000, or 7.5%. The decrease is largely due to decreased attendance
and a decrease in the average ticket price resulting in declines in admission
revenues of $6,078,000 and $2,439,000, respectively. Attendance for the
current quarter declined 6.6% from the prior year. Net earnings for the
quarter ended December 30, 1993 decreased $2,282,000, from $3,054,000 or $.19
per share in the prior period to $772,000 or $.05 per share currently.
Liquidity, Capital Structure and Resources
The Company's revenues are collected in cash, principally through box office
admissions and theatre concession sales. The Company has an operating
"float" which partially finances its operations and which permits the Company
to maintain a small amount of working capital. 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.
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 half of fiscal 1994. Four theatres with twelve screens were closed
during the thirty-nine weeks ended December 30, 1993. 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 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 theatres. 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.
Cash flow from operating activities, as reflected in the Consolidated
Statement of Cash Flows, was $62,125,000 in the thirty-nine weeks ended
December 30, 1993 compared with cash flow of $26,795,000 in the comparable
period of fiscal 1993. 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.
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The Company estimates that total capital expenditures for the fiscal year
ending March 31, 1994 will be approximately $15,000,000 (excluding property
under capital lease obligations). Such expenditures include normal
maintenance capital expenditures of approximately 1-1/2% of revenues and
capital expenditures for expansion of the theatre circuit.
Indentures to AMCE's Senior Notes and the Senior Subordinated Notes 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.
As discussed in Note 3 to the Consolidated Financial Statements, the Credit
Facility's total loan commitment amount is $40,000,000. As of December 30,
1993, AMC had no borrowings under the Credit Facility. The Company is
required to reduce the 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 loan agreement by having no
borrowings under the credit line during 60 consecutive days following August
10, 1993. As a result, subject to other loan covenants, future borrowings
before August 10, 1994 would not be required to be repaid until June 10,
1995.
On December 23, 1993, the Company filed with the Securities and Exchange
Commission a registration statement for the sale of $100 million of
Convertible Preferred Stock (the "Offering"). If the sale is completed, the
Company intends to use the net proceeds of the Offering: (1) to improve and
expand its domestic theatre circuit; (2) to finance the construction or
acquisition of theatres in foreign markets; (3) to repurchase and retire a
portion of AMCE's Senior Notes and Senior Subordinated Notes pursuant to open
market or privately negotiated purchases or otherwise; and (4) for general
corporate purposes. Any 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. Should
the sale not be completed, the Company believes that its current cash flows
and existing sources of financing will support its growth plans at a reduced
level.
PART II. OTHER INFORMATION
ITEM I. LEGAL PROCEEDINGS
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,
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plaintiff filed a derivative action on behalf of AMC Entertainment Inc.
against four of its directors, Stanley H. Durwood, Edward D. Durwood, Paul E.
Vardeman and Charles J. Egan, Jr. (the "Wallace litigation"). AMC
Entertainment Inc. was named as a nominal defendant. The lawsuit alleges
breach of fiduciary duty, 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 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 AMC Entertainment Inc. against four of its
directors, 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"). AMC Entertainment Inc. 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 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 (other than the nominal defendant) filed
a motion to dismiss both actions. On September 10, 1993, such defendants
filed a motion to stay discovery pending the court's resolution of
defendants' motion to dismiss. On November 1, 1993, the court ordered that
discovery be stayed in the Wallace litigation and the Bird litigation pending
a ruling on the motion to dismiss, except for discovery concerning the
fitness of Mr. Wallace to serve as a derivative plaintiff.
For additional information relative to legal proceedings, see Note 5 of
Notes to Consolidated Financial Statements.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 11
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per share amounts)
(Unaudited)
Thirty-nine Weeks Ended
12/30/93 12/31/92
Net earnings before extraordinary items $12,519 $9,070
Preferred dividends declared - (256)
Net earnings applicable to common stock
before extraordinary items for primary
and fully diluted earnings per share $12,519 $8,814
Net earnings $12,519 $2,587
Preferred dividends declared - (256)
Net earning applicable to common stock for
primary and fully diluted earnings per share $12,519 $2,331
Average shares for primary earnings per share:
Weighted average number of shares outstanding 16,340 16,186
Stock options outstanding whose effect is
dilutive 112 9
Total shares outstanding 16,452 16,195
Average shares for fully diluted earnings per share:
Weighted average number of shares outstanding 16,340 16,186
Stock options outstanding whose effect is
dilutive 144 9
Total shares outstanding 16,484 16,195
Primary earnings per share before
extraordinary items $.76 $.54
Primary earnings per share $.76 $.14
Fully diluted earnings per share before
extraordinary items $.76 $.54
Fully diluted earning per share $.76 $.14
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMC ENTERTAINMENT INC.
Date: February, 4, 1994 /s/ Peter C. Brown
Peter C. Brown
Senior Vice President,
Chief Financial Officer and
Treasurer
Date: February 4, 1994 /s/ Richard L. Obert
Richard L. Obert
Vice President and
Chief Accounting Officer
21
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