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 July 2, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ......... to ...........
Commission File Number 1-8747
AMC ENTERTAINMENT INC.
(Exact name of registrant as specified in its charter)
Delaware 43-1304369
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
106 West 14th Street
P.O. Box 419615
Kansas City, Missouri 64141-6615
(Address of principal executive offices) (Zip Code)
(816) 221-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes x No ________
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date.
Number of Shares
Title of Each Class of Common Stock Outstanding as of July 2, 1998
Common Stock, 66 2/3 cents par value 18,453,434
Class B Stock, 66 2/3 cents par value 5,015,657
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
INDEX
Page Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 20
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<CAPTION>
Thirteen
Weeks Ended
July 2, July 3,
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
Revenues
Admissions $155,020 $125,998
Concessions 73,817 59,072
Other 10,213 9,392
-------- ---------
Total revenues 239,050 194,462
Expenses
Film exhibition costs 85,208 71,142
Concession costs 11,450 10,056
Other 106,288 78,472
------- --------
Total cost of operations 202,946 159,670
General and administrative 14,601 14,755
Depreciation and amortization 20,342 16,367
------- --------
Total expenses 237,889 190,792
------- -------
Operating income 1,161 3,670
Other expense (income)
Interest expense
Corporate borrowings 6,386 5,899
Capital lease obligations 2,160 2,346
Investment income (286) (172)
Gain on disposition of assets (1,393) (1,178)
-------- --------
Loss before income taxes (5,706) (3,225)
Income tax provision (2,650) (1,386)
-------- --------
Net loss $ (3,056) $(1,839)
======== ========
Preferred dividends - 1,369
-------- ---------
Net loss for common shares $ (3,056) $(3,208)
======== ========
Loss per share:
Basic $ (0.13) $ (0.18)
======== ========
Diluted $ (0.13) $ (0.18)
======== ========
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<CAPTION>
July 2, April 2,
1998 1998
---- ----
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents $ 34,767 $ 9,881
Receivables, net of allowance for
doubtful accounts of
$741 as of July 2, 1998 and $706 as
of April 2, 1998 15,818 13,018
Reimbursable construction advances 25,571 58,488
Other current assets 29,197 25,736
-------- --------
Total current assets 105,353 107,123
Property, net 598,422 562,158
Intangible assets, net 21,646 22,066
Other long-term assets 102,480 104,433
-------- --------
Total assets $827,901 $795,780
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 86,083 $ 72,633
Construction payables 17,440 24,588
Accrued expenses and other liabilities 78,419 72,598
Current maturities of corporate borrowings and
capital lease obligations 4,039 4,017
-------- --------
Total current liabilities 185,981 173,836
Corporate borrowings 375,500 348,990
Capital lease obligations 49,534 50,605
Other long-term liabilities 80,509 82,894
-------- --------
Total liabilities 691,524 656,325
Stockholders' equity:
$1.75 Cumulative Convertible Preferred Stock,
66 2/3 cents par value;
0 shares issued and outstanding as of
July 2, 1998 and
1,800,331 shares issued and outstanding as
of April 2, 1998
(aggregate liquidation preference of $0 and
$45,008 as of July 2, 1998
and April 2, 1998, respectively) - 1,200
Common Stock, 66 2/3 cents par value; 18,473,934
and 15,376,811 shares
issued as of July 2, 1998 and April 2, 1998,
respectively 12,316 10,251
Convertible Class B Stock, 66 2/3 cents par value;
5,015,657 shares issued
and outstanding as of July 2, 1998 and
April 2, 1998 3,344 3,344
Additional paid-in capital 106,713 107,676
Foreign currency translation adjustment (3,613) (3,689)
Retained earnings 17,986 21,042
-------- --------
136,746 139,824
Less - Common Stock in treasury, at cost,
20,500 shares as of July 2, 1998
and April 2, 1998 (369) (369)
-------- --------
Total stockholders' equity 136,377 139,455
-------- --------
Total liabilities and stockholders' equity $827,901 $795,780
======== ========
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share data)
<CAPTION>
Thirteen
Weeks Ended
July 2, July 3,
1998 1997
---- ----
INCREASE (DECREASE) IN CASH AND EQUIVALENTS (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,056) $(1,839)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 20,342 16,367
Gain on disposition of long-term assets (1,393) (1,178)
Change in assets and liabilities:
Receivables (2,800) (1,040)
Other current assets (3,461) (1,824)
Accounts payable 9,238 (512)
Accrued expenses and other liabilities 7,391 9,713
Other, net 155 (213)
-------- --------
Net cash provided by operating activities 26,416 19,474
-------- --------
Cash flows from investing activities:
Capital expenditures (63,082) (94,162)
Proceeds from sale/leasebacks - -
Net change in reimbursable construction advances 32,917 (26,912)
Proceeds from disposition of long-term assets 8,354 2,446
Other, net (2,463) (7,934)
-------- --------
Net cash used in investing activities (24,274) (126,562)
-------- --------
Cash flows from financing activities:
Net borrowings under revolving Credit Facility 26,500 90,000
Principal payments under capital lease obligations (1,049) (877)
Change in cash overdrafts 4,212 8,032
Change in construction payables (7,148) 11,756
Dividends paid on $1.75 Preferred Stock - (1,389)
Other, net (98) (635)
-------- --------
Net cash provided by financing activities 22,417 106,887
-------- --------
Effect of exchange rate changes on cash
and equivalents 327 (269)
-------- --------
Net increase (decrease) in cash and equivalents 24,886 (470)
-------- --------
Cash and equivalents at beginning of period 9,881 24,715
-------- --------
Cash and equivalents at end of period $ 34,767 $ 24,245
======== ========
</TABLE>
<PAGE>
<TABLE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
Thirteen
Weeks Ended
July 2, July 3,
1998 1997
-------- --------
(Unaudited)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<S> <C> <C>
Cash paid during the period for:
Interest (net of amounts capitalized
of $1,509 and $1,859) $ 5,118 $ 4,795
Income taxes paid 2,146 4,994
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 2, 1998
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
AMC Entertainment Inc. ("AMCE") is a holding company which, through
its direct and indirect subsidiaries, including American Multi-Cinema, Inc.
("AMC") (collectively with AMCE, unless the context otherwise requires, the
"Company"), is principally involved in the operation of motion picture
theatres throughout the United States and in Japan and Portugal. The
Company is also involved in the business of providing on-screen advertising
and other services to AMC and other theatre circuits through a wholly-owned
subsidiary, National Cinema Network, Inc. ("NCN").
Prior to fiscal 1998, NCN was consolidated with the Company as of a
fiscal period end that was one period earlier than the Company' fiscal
period end. Beginning in fiscal year 1998, this one-period reporting lag
was eliminated and NCN results for 1998 include activity for eighteen
weeks.
The accompanying unaudited consolidated financial statements have been
prepared in response to the requirements of Form 10-Q and should be read in
conjunction with the Company's annual report on Form 10-K for the year (52
weeks) ended April 2, 1998. In the opinion of management, these interim
financial statements reflect all adjustments (consisting primarily of
normal recurring adjustments) necessary for a fair presentation of the
Company's financial position and results of operations. Due to the
seasonal nature of the Company's business, results for the thirteen weeks
ended July 2, 1998 are not necessarily indicative of the results to be
expected for the fiscal year (52 weeks) ending April 1, 1999.
The year-end consolidated balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles.
Certain amounts have been reclassified from prior period consolidated
financial statements to conform with the current year presentation.
NOTE 2 - STOCKHOLDERS' EQUITY
During the thirteen weeks ended July 2, 1998, various holders of the
Company's Convertible Preferred Stock converted 1,796,485 shares into
3,097,113 shares of Common Stock at a conversion rate of 1.724 shares of
Common Stock for each share of Convertible Preferred Stock. On April 14,
1998, the Company redeemed the remaining 3,846 shares of Convertible
Preferred Stock at a redemption price of $25.75 per share plus accrued and
unpaid dividends.
<TABLE>
NOTE 3 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<CAPTION>
Thirteen Weeks Ended
July 2, July 3,
1998 1997
-------- --------
(in thousands, except per share data)
<S> <C> <C>
Numerator:
Net loss $ (3,056) $ (1,839)
Less: Preferred dividends - 1,369
-------- --------
Net loss for basic and diluted
earnings per share $ (3,056) $ (3,208)
======== ========
Denominator:
Shares for basic and diluted earnings
per share - average shares outstanding 23,105 18,006
======== ========
Basic earnings per share $ (.13) $ (.18)
======== ========
Diluted earnings per share $ (.13) $ (.18)
======== ========
</TABLE>
During the thirteen weeks ended July 2, 1998, all outstanding shares
of the Convertible Preferred Stock were either converted or redeemed.
During the thirteen weeks ended July 3, 1997, dividends and shares from
conversion of Convertible Preferred Stock were excluded from the diluted
earnings per share calculation because they were anti-dilutive. During the
thirteen weeks ended July 2, 1998 and July 3, 1997, shares from options to
purchase shares of Common Stock were excluded from the diluted earnings per
share calculation because they were anti-dilutive. During the thirteen
weeks ended July 3, 1997, contingently issuable shares were excluded from
the diluted earnings per share calculation because the conditions necessary
for their issuance were not satisfied.
NOTE 4 - COMPREHENSIVE INCOME
During the thirteen weeks ended July 2, 1998, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 130 ("SFAS
130"), Reporting Comprehensive Income. The adoption of this statement had
no impact on the Company's consolidated financial position, results of
operations or cash flows. SFAS 130 requires disclosure of comprehensive
income and its components in a company's financial statements. SFAS 130
requires foreign currency translation adjustments to be included in other
comprehensive income.
<TABLE>
The components of comprehensive income for the thirteen weeks ended
July 2, 1998 and July 3, 1997 are as follows:
<CAPTION>
Thirteen Weeks Ended
July 2, July 3,
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Net loss $ (3,056) $ (1,839)
Foreign currency translation adjustment 76 (247)
-------- --------
Comprehensive income $ (2,980) $ (2,086)
======== ========
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This section contains certain "forward-looking statements" intended to
qualify for the safe harbor from liability established by the Private
Securities Litigation Reform Act of 1995. These forward-looking statements
generally can be identified by use of statements that include words or
phrases such as the Company or its management "believes," "expects,"
"anticipates," "intends," "plans," "foresees" or other words or phrases of
similar import. Similarly, statements that describe the Company's
objectives, plans or goals also are forward-looking statements. All such
forward-looking statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from those
contemplated by the relevant forward-looking statement. Important factors
that could cause actual results to differ materially from the expectations
of the Company include, among others: (i) the Company's ability to enter
into various financing programs; (ii) the performance of films licensed by
the Company; (iii) competition; (iv) construction delays; (v) the ability
to open new theatres and screens as currently planned; (vi) general
economic conditions, including adverse changes in inflation and prevailing
interest rates; (vii) demographic changes; (viii) increases in the demand
for real estate; and (ix) changes in real estate, zoning and tax laws.
Readers are urged to consider these factors carefully in evaluating the
forward-looking statements. The forward-looking statements included herein
are made only as of the date of this Form 10-Q and the Company undertakes
no obligation to publicly update such forward-looking statements to reflect
subsequent events or circumstances.
<TABLE>
Operating Results
Set forth in the table below is a summary of revenues, cost of
operations, general and administrative, and depreciation and amortization
expenses attributable to the Company's domestic and international
theatrical exhibition operations and the Company's on-screen advertising
business.
<CAPTION>
Thirteen Weeks Ended
July 2, July 3,
1998 1997 % Change
---- ---- --------
(Dollars in thousands)
<S> <C> <C> <C>
Revenues
Domestic
Admissions $149,469 $121,312 23.2%
Concessions 72,581 58,086 25.0
Other 4,311 3,434 25.5
226,361 182,832 23.8
International
Admissions 5,551 4,686 18.5
Concessions 1,236 986 25.4
Other 3 47 (93.6)
6,790 5,719 18.7
On-screen advertising and other 5,899 5,911 (.2)
Total revenues $239,050 $194,462 22.9%
======= ======= =====
Cost of Operations
Domestic
Film exhibition costs $ 82,330 $ 68,660 19.9%
Concession costs 11,071 9,642 14.8
Rent 36,641 20,980 74.6
Other 62,972 50,125 25.6
-------- -------- ------
193,014 149,407 29.2
International
Film exhibition costs 2,878 2,482 16.0
Concession costs 379 414 (8.5)
Rent 1,311 1,474 (11.1)
Other 1,472 1,504 (2.1)
6,040 5,874 2.8
On-screen advertising and other 3,892 4,389 (11.3)
--------- --------- -----
Total cost of operations $202,946 $159,670 27.1%
======== ======== ======
General and Administrative
Corporate and domestic $ 12,143 $ 11,626 4.4%
International 1,357 1,478 (8.2)
On-screen advertising
and other 1,101 1,651 (33.3)%
Total general and
administrative $ 14,601 $ 14,755 (1.0)%
======== ======== ======
Depreciation and Amortization
Corporate and domestic $ 19,252 $ 15,146 27.1%
International 531 616 (13.8)
On-screen advertising and other 559 605 (7.6)
Total depreciation and
amortization $ 20,342 $ 16,367 24.3%
======== ======== ======
</TABLE>
Thirteen weeks ended July 2, 1998 and July 3, 1997.
Revenues. Total revenues increased 22.9%, or $44,588,000, during the
thirteen weeks ended July 2, 1998 compared to the thirteen weeks ended July
3, 1997.
Total domestic revenues increased 23.8%, or $43,529,000, from the
prior year. Admissions revenues increased 23.2%, or $28,157,000, due to a
20.2% increase in attendance, which contributed $24,546,000 of the
increase, and a 2.5% increase in average ticket prices, which contributed
$3,611,000 of the increase. Attendance at megaplexes (theatres with
predominantly stadium-style seating) increased as a result of the addition
of 22 new megaplexes with 532 screens since July 3, 1997. Attendance at
multiplexes (theatres generally without stadium-style seating) decreased
due to a 7.1% decrease in attendance at comparable multiplexes (theatres
opened before the first quarter of fiscal year 1998) and the closure or
sale of 22 multiplexes with 118 screens since July 3, 1997. The decline in
attendance at comparable multiplexes was related primarily to certain
multiplexes experiencing competition from new megaplexes operated by the
Company and other competing theatre circuits, a trend the Company generally
anticipates will continue. The increase in average ticket prices was due to
price increases and the growing number of megaplexes in the Company's
theatre circuit, which yield higher average ticket prices than multiplexes.
Concessions revenues increased 25.0%, or $14,495,000, due to the increase
in total attendance, which contributed $11,753,000 of the increase, and a
3.9% increase in average concessions per patron, which contributed
$2,742,000 of the increase. The increase in average concessions per patron
was attributable to the increasing number of megaplexes in the Company's
theatre circuit, where concession spending per patron is higher than in
multiplexes.
Total international revenues increased 18.7%, or $1,071,000, from the
prior year. Admissions revenues increased 18.5%, or $865,000, due
primarily to an increase in attendance of 27.5% produced in the aggregate
by the Arrabida 20 in Portugal and the Canal City 13 in Japan for the
thirteen weeks ended July 2, 1998 compared to the thirteen weeks ended July
3, 1997. Concessions revenues increased $250,000, due primarily to the
increase in total attendance. International revenues were negatively
impacted by the strengthening of the U.S. dollar. The stronger U.S. dollar
did not have a material impact to net earnings.
On-screen advertising and other revenues decreased 0.2%, or $12,000,
from the prior year due primarily to a difference in the number of periods
included in the prior year's results of operations from the Company's on-
screen advertising business compared to the current year.
Cost of Operations. Total cost of operations increased 27.1%, or
$43,276,000, during the thirteen weeks ended July 2, 1998 compared to the
thirteen weeks ended July 3, 1997.
Total domestic cost of operations increased 29.2%, or $43,607,000,
from the prior year. Film exhibition costs increased 19.9%, or
$13,670,000, due to higher attendance, which contributed $15,936,000 of the
increase, offset by a decrease in the percentage of admissions paid to film
distributors which reduced film exhibition costs by $2,266,000. As a
percentage of admissions revenues, film exhibition costs were 55.1% in the
current year compared with 56.6% in the prior year. Film exhibition costs
in the prior year included the effects of a change in attendance patterns
and the popularity of films released during that period which had higher
film exhibition terms. Attendance was more concentrated in the early weeks
for the films released during the prior period, which typically results in
higher film exhibition costs. During the thirteen weeks ended July 2, 1998,
attendance patterns were not as concentrated in the early weeks after
release and the popularity of films released during that period had typical
film exhibition terms. Concession costs increased 14.8%, or $1,429,000, due
to the increase in concessions revenues, which contributed $2,406,000 of
the increase, offset by a decrease in concession costs as a percentage of
concessions revenues which produced a decline in concession costs of
$977,000. As a percentage of concessions revenues, concession costs were
15.3% in the current year compared with 16.6% in the prior year. Rent
expense increased 74.6%, or $15,661,000, due to the higher number of
screens in operation, the growing number of megaplexes in the Company's
theatre circuit, which generally have higher rent per screen than
multiplexes, and the sale and lease back during the second half of the
prior year of the real estate assets associated with 13 megaplexes,
including seven theatres opened during fiscal 1998, to Entertainment
Properties Trust ("EPT"), a real estate investment trust (the "Sale and
Lease Back Transaction"). Other cost of operations increased 25.6%, or
$12,847,000, from the prior year due to the higher number of screens in
operation. As a percentage of revenues, other cost of operations was 27.8%
during the current year as compared with 27.4% in the prior year.
Total international cost of operations increased 2.8%, or $166,000,
from the prior year. Film exhibition costs increased 16.0%, or $396,000,
due to higher attendance, offset by a decrease in the percentage of
admissions paid to film distributors. Rent expense decreased 11.1%, or
$163,000, and other cost of operations decreased 2.1%, or $32,000, from the
prior year. International cost of operations were positively impacted by
the strengthening of the U.S. dollar. The stronger U.S. dollar did not
have a material impact to net earnings.
On-screen advertising and other cost of operations decreased 11.3%, or
$497,000, primarily as a result of the change in the number of periods
included in the results of operations of the Company's on-screen
advertising business.
General and Administrative. General and administrative expenses
decreased 1.0%, or $154,000, during the thirteen weeks ended July 2, 1998.
Corporate and domestic general and administrative expenses increased
4.4%, or $517,000. International general and administrative expenses
decreased 8.2%, or $121,000, and on-screen advertising and other general
and administrative expenses decreased 33.3%, or $550,000, primarily due to
a change in the number of periods included in the prior year's results of
operations of the Company's on-screen advertising business.
Depreciation and Amortization. Depreciation and amortization
increased 24.3%, or $3,975,000, during the thirteen weeks ended July 2,
1998. This increase was caused by an increase in employed theatre assets
resulting from the Company's expansion plan, which was partially offset by
lower depreciation and amortization as a result of reduced carrying amounts
of impaired multiplex assets.
Interest Expense. Interest expense increased 3.7%, or $301,000,
during the thirteen weeks ended July 2, 1998 compared to the prior year.
The increase in interest expense resulted primarily from an increase in
average outstanding borrowings related to the Company's expansion plan.
Gain on Disposition of Assets. Gain on disposition of assets
increased 18.3%, or $215,000, during the thirteen weeks ended July 2, 1998
and includes the sale of two of the Company's multiplexes during the
current year and the sale of one multiplex in the prior year.
Income Tax Provision. The provision for income taxes decreased
$1,264,000 to a benefit of $2,650,000 during the thirteen weeks ended July
2, 1998 from a benefit of $1,386,000 in the prior year. The effective tax
rate was 46.4% for the thirteen weeks ended July 2, 1998 compared to 43.0%
for the thirteen weeks ended July 3, 1997. The change in the effective tax
rate is primarily due to an increase in estimated non-deductible expenses
as a percentage of estimated pre-tax earnings.
Net Earnings. Net earnings decreased $1,217,000 during the
thirteen weeks ended July 2, 1998 to a loss of $3,056,000 from a loss
of $1,839,000 in the prior year. Net loss per common share, after
deducting preferred dividends, was $.13 compared to a loss of $.18
in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's revenues are collected in cash, principally through box
office admissions and theatre concessions sales. The Company has an
operating "float" which partially finances its operations and which
generally permits the Company to maintain a smaller amount of working
capital capacity. This float exists because admissions revenues are
received in cash, while exhibition costs (primarily film rentals) are
ordinarily paid to distributors from 30 to 45 days following receipt of box
office admissions revenues. The Company is only occasionally required to
make advance payments or non-refundable guaranties of film rentals. Film
distributors generally release during the summer and holiday seasons the
films which they anticipate will be the most successful. Consequently, the
Company typically generates higher revenues during such periods. Cash
flows from operating activities, as reflected in the Consolidated
Statements of Cash Flows, were $26,416,000, and $19,474,000 for the
thirteen weeks ended July 2, 1998 and July 3, 1997, respectively.
The Company is currently expanding its domestic theatre circuit and
entering select international markets. During the current fiscal year, the
Company opened 2 megaplexes with 42 screens and acquired one multiplex with
5 screens. The Company plans to continue this expansion by opening 309
screens, including 95 in international markets, in 13 megaplexes during the
remainder of fiscal 1999. In addition, the Company sold 2 multiplexes with
13 screens and discontinued operating one managed theatre with one screen
resulting in a circuit total of 46 megaplexes with 1,029 screens and 183
multiplexes with 1,446 screens as of July 2, 1998.
The costs of constructing new theatres are funded by the Company
through internally generated cash flow or borrowed funds. The Company
generally leases its theatres pursuant to long-term non-cancelable
operating leases which require the developer, who owns the property, to
reimburse the Company for a portion of the construction costs. However,
the Company may decide to own the real estate assets of new theatres and,
following construction, sell and leaseback the real estate assets pursuant
to long-term non-cancelable operating leases. Historically, the Company
has owned and paid for the equipment necessary to fixture a theatre;
however, it is considering other methods of providing for its equipment
needs, including operating leases. During fiscal 1999, 3 new theatres and
47 screens were leased from developers. As of July 2, 1998, the Company
had construction in progress of $79,419,000 and reimbursable construction
advances (amounts due from developers on leased theatres) of $25,571,000.
The Company had 13 megaplexes with 309 screens under construction on July
2, 1998.
During the thirteen weeks ended July 2, 1998, the Company had capital
expenditures of $63,082,000 and estimates that total capital expenditures
for 1999 will aggregate approximately $280 million. Included in these
amounts are assets which the Company may place into sale and leaseback or
other comparable financing programs, which will have the effect of reducing
the Company's net cash outlays.
The Company's Credit Facility permits borrowings at interest rates
based on either the bank's base rate or LIBOR and requires an annual
commitment fee based on margin ratios that could result in a rate of .1875%
to .375% on the unused portion of the commitment. The Credit Facility
matures on April 10, 2004. The commitment thereunder will be reduced by $25
million on each of December 31, 2002, March 31, 2003, June 30, 2003 and
September 30, 2003 and by $50 million on December 31, 2003. As of July 2,
1998, the Company had outstanding borrowings of $176,500,000 under the
Credit Facility at an average interest rate of 6.6% per annum, and
$248,500,000 was available for borrowing under the Credit Facility.
Covenants under the Credit Facility impose limitations on
indebtedness, creation of liens, change of control, transactions with
affiliates, mergers, investments, guaranties, asset sales, dividends,
business activities and pledges. In addition, the Credit Facility contains
certain financial covenants. As of July 2, 1998, the Company was in
compliance with all financial covenants relating to the Credit Facility.
During fiscal 1998, the Company sold the real estate assets associated
with 13 megaplex theatres, including seven theatres opened during fiscal
1998, to EPT for an aggregate purchase price of $283,800,000. Proceeds
from the Sale and Lease Back Transaction were applied to reduce
indebtedness under the Company's Credit Facility. The Company leased the
real estate assets associated with the theatres from EPT pursuant to non-
cancelable operating leases with terms ranging from 13 to 15 years at an
initial lease rate of 10.5% with options to extend for up to an additional
20 years.
The Company has granted an option to EPT to acquire a theatre under
construction for the cost to the Company of developing and constructing
such property. In addition, for a period of five years subsequent to
November 1997, EPT will have a right of first refusal and first offer to
purchase and lease back to the Company the real estate assets associated
with any megaplex theatre and related entertainment property owned or
ground-leased by the Company, exercisable upon the Company's intended
disposition of such property. As of July 2, 1998, the Company had one
megaplex under construction that would be subject to EPT's right of first
refusal and first offer to purchase should the Company seek to dispose of
such megaplex. The leases are triple net leases that require the Company
to pay substantially all expenses associated with the operation of the
theatres, such as taxes and other governmental charges, insurance,
utilities, service, maintenance and any ground lease payments.
The Company believes that cash generated from operations, existing
cash and equivalents, amounts received from sale and lease back
transactions and the unused commitment amount under its Credit Facility
will be sufficient to fund operations and planned capital expenditures for
the next twelve months. The Company may require additional financing after
fiscal 1999 to continue its expansion program.
During the thirteen weeks ended July 2, 1998, various holders of the
Company's Convertible Preferred Stock converted 1,796,485 shares into
3,097,113 shares of Common Stock at a conversion rate of 1.724 shares of
Common Stock for each share of Convertible Preferred Stock. On April 14,
1998, the Company redeemed the remaining 3,846 shares of Convertible
Preferred Stock at a redemption price of $25.75 per share plus accrued and
unpaid dividends. Preferred Stock dividend payments decreased $1,389,000
during the thirteen weeks ended July 2, 1998 compared to the prior year as
a result of the conversions.
Year 2000
The Company has performed a review of its computer applications
related to their continuing functionality for the year 2000 and beyond.
Certain of the Company's existing systems have been upgraded and the
Company expects that its remaining systems will be upgraded through
modification or replacement by the end of fiscal 1999. As a result, the
Company does not believe that it has material exposure to the year 2000
issue with respect to its own computer applications. The Company does not
expect that the cost of the modifications will cause reported financial
information not to be indicative of future operating results or financial
condition. The year 2000 issue may impact the operations of the Company
indirectly by affecting the operations of its suppliers, business partners,
customers and other parties that provide significant services to the
Company. The Company expects to complete during fiscal 1999 a review of
potential year 2000 issues with these parties. The Company is currently
unable to predict the extent that the year 2000 will have on these parties
and, consequently, the Company.
New Accounting Pronouncements
During fiscal 1999, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133")
Accounting for Derivative Instruments and Hedging Activities. The statement
requires companies to recognize all derivatives as either assets or
liabilities, with the instruments measured at fair value. The accounting
for changes in fair value of a derivative depends on the intended use of
the derivative and the resulting designation. The statement is effective
for all fiscal years beginning after June 15, 1999. The statement will
become effective for the Company in fiscal 2001. Adoption of this statement
is not expected to have a material impact on the Company's consolidated
financial position, results of operations or cash flows.
During fiscal 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131 ("SFAS 131"),
Disclosures About Segments of an Enterprise and Related Information and
Statement of Financial Accounting Standards No. 132 ("SFAS 132"),
Employers' Disclosures about Pensions and Other Postretirement Benefits.
SFAS 131 requires new disclosures of segment information in a company's
financial statements and is effective for fiscal years beginning after
December 15, 1997. SFAS 132 requires disclosures about pension and other
postretirement benefit plans in a company's financial statements and is
effective for fiscal years beginning after December 15, 1997. These
statements will become effective for the Company in fiscal 1999. Adoption
of these statements will not impact the Company's consolidated financial
position, results of operations or cash flows.
During fiscal 1999, the American Institute of Certified Public
Accountants issued Statement of Position 98-5 ("SOP 98-5"), Reporting on
the Costs of Start-up Activities. SOP 98-5 requires costs of start-up
activities to be expensed when incurred. The Company currently capitalizes
such costs and amortizes them over a two-year period. SOP 98-5 is
effective for fiscal years beginning after December 15, 1998. The Company
will adopt this statement in fiscal 2000, which will result in a cumulative
effect adjustment to the Company's results of operations and financial
position based on balances as of April 1, 1999. Had the Company adopted
SOP 98-5 at the beginning of fiscal 1999, such adjustment would have been
approximately $10.6 million, before taxes.
During fiscal 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-1 ("SOP 98-1"), Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use. SOP
98-1 requires companies to capitalize certain internal-use software costs
once certain criteria are met. SOP 98-1 is effective for fiscal years
beginning after December 15, 1998. Adoption of this statement is not
expected to have a material impact on the Company's consolidated financial
position, results of operations or cash flows.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is party to various legal proceedings in the ordinary
course of business, none of which is expected to have a material adverse
effect on the Company.
On June 9, 1998, the Civil Rights Division of the Department of
Justice advised the Company that a lawsuit has been authorized against the
Company to remedy an alleged pattern or practice of violations of Title III
of the ADA at the Company's newly constructed and renovated motion picture
theatres having stadium-style seating. The threat of litigation followed
an investigation of private complaints initially involving two megaplexes,
during which the Company voluntarily provided the Justice Department with
information on and access to other theatres. Based on its investigation,
the Department of Justice alleges that the Company has violated Section 303
of the ADA at newly constructed and renovated theatres by failing to comply
with published "Standards for Accessible Design" involving lines of sight
and other matters, and is operating theatres in violation of Section 302 of
the ADA because persons whose disabilities prevent them from climbing
stairs are denied access to stadium-style seating. The Company has had
preliminary discussions with the Department of Justice concerning this
matter and is reviewing the Department's allegations. Although no
assurance can be given, the Company believes that the Department's
allegations can be resolved in a manner which will not materially adversely
affect the Company's financial condition, liquidity or results of
operations.
In an unrelated action filed on March 5, 1998 in the United States
District Court for the District of Arizona, Howard Bell v. AMC 24 Theatres,
CIV 98 0390, a private plaintiff is alleging that the Company has violated
the ADA for not dispersing accessible seating or providing accessible
signage at a megaplex located in Phoenix, Arizona. The plaintiff seeks an
injunction against continued operation of the megaplex in violation of the
ADA. The Company has filed an answer denying the plaintiff's allegations.
On July 27, 1998, in the United States District Court for the Northern
District of California, Drexler Technology Corporation filed an action
against each of Sony Corporation and its affiliated companies and Dolby
Laboratories, Inc., and has included as defendants various motion picture
distributors and exhibitors, including AMC, Drexler Technology Corp. v.
Sony corp. et al, C98-02936, and Drexler Technology Corp. v. Dolby Labs. et
al, C98-02935. These actions allege infringement of two patents relating
to optical data storage and retrieval systems, which are allegedly
infringed by the encoding of digital sound on motion picture films. These
infringement allegations are based on the production, distribution and
exhibition of film with Sony Dynamic Digital Sound (SDDS) or Dolby Digital
technology. Plaintiff seeks an injunction against continued use of this
technology and also seeks damages.
AMC currently utilizes SDDS systems with respect to 2,338 of its
screens and owns 136 portable systems employing Dolby Digital technology.
Pursuant to AMC's contractual arrangements with Sony Cinema Products
Corporation ("Sony Cinema"), a subsidiary of Sony Corporation of America,
Sony Cinema is obligated to indemnify, defend and hold harmless AMC from
and against any and all liabilities, damages, losses, costs and expenses
(including attorneys' fees) suffered or incurred by AMC in connection with
any third party claim for alleged infringement of any patent, trademark or
similar right relating to the SDDS systems. The agreement with Sony Cinema
provides that Sony Cinema at its expense and option, shall (i) settle or
defend against such a claim, (ii) procure for AMC the right to use the SDDS
systems in a manner that will cause them to perform as originally intended
under the agreement between AMC and Sony Cinema; (iii) replace or modify
the SDDS systems to avoid infringement; or (iv) remove the SDDS systems
from AMC's facilities (at such time and in such manner as to not disrupt
AMC's business operations) and refund to AMC the purchase price less
depreciation. The Company does not have similar contractual rights with
respect to the Dolby systems, however, these systems represent only
approximately 6% of the digital sound systems used by the Company. As a
result, although no assurance can be given, the Company believes that these
actions will not have a material adverse effect on the Company's financial
condition, liquidity or results of operations.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
3.1 Amended and Restated Certificate of Incorporation of AMC
Entertainment Inc. (as amended on December 2, 1997)
(Incorporated by reference from Exhibit 3.1 to AMCE's Form
10-Q (File No. 1-8747) dated January 1, 1998).
3.2 Bylaws of AMC Entertainment Inc. (Incorporated by reference
from Exhibit 3.3 to AMCE's Form 10-Q (File No. 0-12429) for
the quarter ended December 26, 1996).
4.1(a) Amended and Restated Credit Agreement dated as of April 10,
1997, among AMC Entertainment Inc., as the Borrower, The
Bank of Nova Scotia, as Administrative Agent, and Bank of
America National Trust and Savings Association, as
Documentation Agent, and Various Financial Institutions, as
Lenders, together with the following exhibits thereto:
significant subsidiary guarantee, form of notes, form of
pledge agreement and form of subsidiary pledge agreement
(Incorporated by reference from Exhibit 4.3 to the
Company's Registration Statement on Form S-4 (File No. 333-
25755) filed April 24, 1997).
4.1(b) Second Amendment, dated January 16, 1998, to Amended and
Restated Credit Agreement dated as of April 10, 1997
(Incorporated by Reference from Exhibit 4.2 to the
Company's Form 10-Q (File No. 1-8747) for the quarter ended
January 1, 1998).
4.2(a) Indenture dated March 19, 1997, respecting AMC
Entertainment Inc.'s 9 1/2% Senior Subordinated Notes due
2009 (Incorporated by reference from Exhibit 4.1 to the
Company's Form 8-K (File No. 1-8747) dated March 19, 1997).
4.2(b) First Supplemental Indenture respecting AMC Entertainment
Inc.'s 9 1/2% Senior Subordinated Notes due 2009
(Incorporated by reference from Exhibit 4.4(b) to Amendment
No. 2. to the Company's Registration Statement on Form S-4
(File No.333-29155) filed August 4, 1997).
4.3 In accordance with Item 601(b)(4)(iii)(A) of Regulation S-
K, certain instruments respecting long term debt of the
Registrant have been omitted but will be furnished to the
Commission upon request.
*27 Financial Data Schedule
_______
* Filed herewith
(b) Reports on Form 8-K
On July 16, 1998, the Company filed a Form 8-K reporting under Item
5(a) the earnings for the first quarter of fiscal 1999 and under Item 5(b)
the Company's unaudited Consolidated Statements of Operations for the
thirteen weeks ended July 2, 1998 and July 3, 1997 and the unaudited
Consolidated Balance Sheets as of July 2, 1998 and April 2, 1998.
<PAGE>
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: August 12, 1998 /s/ Peter C. Brown
Peter C. Brown
Co-Chairman of the Board,
President and Chief Financial
Officer
Date: August 12, 1998 /s/ Richard L. Obert
Richard L. Obert
Senior Vice President-
Chief Accounting and
Information Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
Consolidated Financial Statements of AMC Entertainment Inc. as of and for the
thirteen weeks ended July 2, 1998, submitted in response to the requirements to
Form 10-Q and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> APR-01-1999
<PERIOD-END> JUL-02-1998
<CASH> 34,767
<SECURITIES> 0
<RECEIVABLES> 42,130
<ALLOWANCES> 741
<INVENTORY> 0
<CURRENT-ASSETS> 105,353
<PP&E> 943,740
<DEPRECIATION> 345,318
<TOTAL-ASSETS> 827,901
<CURRENT-LIABILITIES> 185,981
<BONDS> 425,034
0
0
<COMMON> 15,660
<OTHER-SE> 120,717
<TOTAL-LIABILITY-AND-EQUITY> 827,901
<SALES> 73,817
<TOTAL-REVENUES> 239,050
<CGS> 11,450
<TOTAL-COSTS> 202,946
<OTHER-EXPENSES> 20,342
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,546
<INCOME-PRETAX> (5,706)
<INCOME-TAX> (2,650)
<INCOME-CONTINUING> (3,056)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,056)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
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