1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ......... to ...........
Commission File Number 1-8747
AMC ENTERTAINMENT INC.
(Exact name of registrant as specified in its charter)
Delaware 43-1304369
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
106 West 14th Street
P.O. Box 219615
Kansas City, Missouri 64121-9615
(Address of principal executive offices) (Zip Code)
(816) 221-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes x No
--- ----
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date.
Number of Shares
Title of Each Class of Common Stock Outstanding as of
September 30, 1999
Common Stock, 66 2/3 cents par value 19,427,098
Class B Stock, 66 2/3 cents par value 4,041,993
<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 11
Item 3.Quantitative and Qualitative Disclosures
About Market Risk 21
PART II - OTHER INFORMATION
Item 1.Legal Proceedings 22
Item 6.Exhibits and Reports on Form 8-K 24
Signatures 26
<PAGE>
<TABLE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<CAPTION>
Thirteen Twenty-six
Weeks Ended Weeks Ended
September 30,October 1, September 30, October 1,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
(Unaudited) (Unaudited)
Revenues
Admissions $219,749 $188,739 $407,631 $343,759
Concessions 95,499 88,745 179,212 162,562
Other theatre 6,849 4,689 11,938 9,051
Other 11,588 8,023 21,464 14,940
-------- -------- -------- --------
Total revenues 333,685 290,196 620,245 530,312
Costs and expenses
Film exhibition costs 121,545 104,196 231,093 189,404
Concession costs 14,898 13,693 27,589 25,143
Theatre operating expense 71,123 65,078 138,132 129,185
Rent 48,636 39,450 96,513 77,402
Other 11,794 6,997 22,489 13,363
General and administrative 12,284 14,136 25,495 27,281
Preopening expense 2,024 388 3,297 773
Theatre closure expense 2,046 2,801 11,692 2,801
Restructuring charge 12,000 - 12,000 -
Depreciation and
amortization 23,029 21,030 43,686 41,372
-------- -------- -------- --------
Total costs and expenses 319,379 267,769 611,986 506,724
-------- -------- -------- --------
Operating income 14,306 22,427 8,259 23,588
Other expense (income)
Interest expense
Corporate borrowings 12,530 6,188 24,158 12,574
Capital and financing
lease obligations 1,871 2,134 3,714 4,294
Investment (income) loss 386 (365) (100) (651)
(Gain) loss on
disposition of assets (144) 35 (327) (1,358)
-------- -------- ------- --------
Earnings (loss) before
income taxes and cumulative
effect of an accounting
change (337) 14,435 (19,186) 8,729
Income tax provision (135) 6,550 (7,835) 3,900
-------- -------- -------- --------
Earnings (loss) before
cumulative effect of an
accounting change (202) 7,885 (11,351) 4,829
Cumulative effect of an
accounting change(net of
income tax benefit of $4,095) - - (5,840) -
-------- -------- -------- --------
Net earnings (loss) $ (202) $ 7,885 $(17,191) $ 4,829
======== ======== ======== ========
Net earnings (loss) per share before
cumulative effect of an accounting change:
Basic $(.01) $ .34 $ (.48) $ .21
======== ======== ======== ========
Diluted $(.01) $ .33 $ (.48) $ .21
======== ======== ======== ========
Net earnings (loss) per share:
Basic $(.01) $ .34 $ (.73) $ .21
======== ======== ======== ========
Diluted $(.01) $ .33 $ (.73) $ .21
======== ======== ======= ========
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
AMC ENTERTAINMENT INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<CAPTION>
September 30,April 1,
1999 1999
---- ----
<S> <C> <C>
(Unaudited)
ASSETS
Current assets:
Cash and equivalents $ 10,377$ 13,239
Receivables, net of allowance for doubtful
accounts of $713 as of September 30, 1999
and $540 as of April 1, 1999 26,184 18,325
Reimbursable construction advances 21,183 22,317
Other current assets 44,160 48,707
-------- --------
Total current assets 101,904 102,588
Property, net 847,279 726,025
Intangible assets, net 17,885 18,723
Other long-term assets 126,663 128,394
--------- -------
Total assets $1,093,731 $ 975,730
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 79,151 $ 69,381
Construction payables 10,955 24,354
Accrued expenses and other liabilities 100,708 77,304
Current maturities of capital and financing
lease obligations 3,446 18,017
--------- -------
Total current liabilities 194,260 189,056
Corporate borrowings 651,075 547,045
Capital and financing lease obligations 49,169 44,558
Other long-term liabilities 98,570 79,606
--------- -------
Total liabilities 993,074 860,265
Stockholders' equity:
Common Stock, 66 2/3 par value; 19,447,598
Shares issued as of September 30, 1999 and
April 1, 1999 12,965 12,965
Convertible Class B Stock, 66 2/3 par value;
4,041,993 shares issued and outstanding as of
September 30, 1999 and April 1, 1999 2,695 2,695
Additional paid-in capital 106,713 106,713
Accumulated other comprehensive income (69) (2,690)
Retained earnings (deficit) (12,165) 5,026
---------- ------
110,139 124,709
Less:
Employee notes for Common Stock purchases 9,113 8,875
Common Stock in treasury, at cost, 20,500
shares as of September 30, 1999 and April 1, 1999 369 369
--------- -------
Total stockholders' equity 100,657 115,465
--------- -------
Total liabilities and stockholders' equity $1,093,731 $975,730
========= =======
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share data)
<CAPTION>
Twenty-six
Weeks Ended
September 30, October 1,
1999 1998
---- ----
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND EQUIVALENTS (Unaudited)
Cash flows from operating activities:
Net earnings (loss) $ (17,191) $ 4,829
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Restructuring charge 12,000 -
Depreciation and amortization 43,686 41,372
Deferred income taxes (5,475) -
Gain on disposition of long-term assets (327) (1,358)
Cumulative effect of an accounting change 5,840 -
Change in assets and liabilities:
Receivables (7,859) (2,354)
Other current assets 4,547 (1,832)
Accounts payable (12,628) (11,855)
Accrued expenses and other liabilities 7,083 4,351
Liabilities for theatre closure 10,746 2,801
Other, net 717 401
-------- --------
Net cash provided by operating activities 41,139 36,355
-------- --------
Cash flows from investing activities:
Capital expenditures (177,299) (116,130)
Proceeds from sale/leasebacks 2,940 -
Net proceeds from reimbursable construction advances 9,556 33,038
Proceeds from disposition of long-term assets 3,591 8,712
Other, net 11,526 (8,351)
-------- --------
Net cash used in investing activities (149,686) (82,731)
-------- --------
Cash flows from financing activities:
Net borrowings under revolving Credit Facility 104,000 82,000
Principal payments under corporate borrowings (14,000) -
Proceeds from financing lease obligation 8,197 -
Principal payments under capital and financing
lease obligations (1,639) (4,166)
Change in cash overdrafts 22,398 259
Change in construction payables (13,399) (13,740)
Funding of employee notes for Common Stock
purchase, net - (8,579)
Other, net (241) (98)
-------- --------
Net cash provided by financing activities 105,316 55,676
-------- --------
Effect of exchange rate changes on cash and
equivalents 369 451
-------- --------
Net increase (decrease) in cash and equivalents (2,862) 9,751
Cash and equivalents at beginning of period 13,239 9,881
-------- --------
Cash and equivalents at end of period $ 10,377 $ 19,632
======== ========
</TABLE>
<PAGE>
<TABLE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
Twenty-six
Weeks Ended
September 30, October 1,
1999 1998
---- ----
<S> <C> <C>
(Unaudited)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of amounts capitalized of $4,276
and $3,509) $31,384 $19,805
Income taxes paid (refunded) (7,509) 2,859
Schedule of non-cash investing activities:
Receivable from sale/leasebacks included
in reimbursable construction advances $8,422 $ -
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
AMC Entertainment Inc. ("AMCE" or the "Company") is a holding company
which, through its direct and indirect subsidiaries is principally involved
in the theatrical exhibition business throughout North America and in
Japan, Portugal, Spain and China (Hong Kong). The Company is also involved
in the business of providing on-screen advertising through a wholly-owned
subsidiary, National Cinema Network, Inc., and in miscellaneous ventures
through other wholly-owned subsidiaries.
The accompanying unaudited consolidated financial statements have been
prepared in response to the requirements of Form 10-Q and should be read in
conjunction with the Company's annual report on Form 10-K for the year (52
weeks) ended April 1, 1999. In the opinion of management, these interim
financial statements reflect all adjustments (consisting primarily of
normal recurring adjustments) necessary for a fair presentation of the
Company's financial position and results of operations. Due to the
seasonal nature of the Company's business, results for the twenty-six weeks
ended September 30, 1999 are not necessarily indicative of the results to
be expected for the fiscal year (52 weeks) ending March 30, 2000.
The year-end consolidated balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles.
General and administrative expenses of the Company's on-screen
advertising business have been combined with certain other costs and
expenses of the on-screen advertising business on the consolidated
statements of operations.
Certain amounts have been reclassified from prior period consolidated
financial statements to conform with the current year presentation.
NOTE 2 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
September 30,October 1 September 30,October 1,
1999 1998 1999 1998
---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Numerator:
Earnings (loss) before cumulative
effect of
an accounting change for basic
and diluted earnings per share$ (202)$ 7,885 $(11,351) $ 4,829
======== ======== ========= =======
Denominator:
Shares for basic earnings
per share -
average shares outstanding 23,469 23,469 23,469 23,287
Stock options - 150 - 178
------ -------- -------- --------
Shares for diluted earnings
per share 23,469 23,619 23,469 23,465
======== ======== ======== ========
Basic earnings (loss) per
share before
cumulative effect of an
accounting change $(.01) $ .34 $ (.48) $ .21
======== ======== ======== ========
Diluted earnings (loss) per
share before
cumulative effect of an
accounting change $(.01) $ .33 $ (.48) $ .21
======== ======== ======== ========
</TABLE>
During the thirteen and twenty-six weeks ended September 30, 1999,
shares from options to purchase shares of Common Stock were excluded from
the diluted earnings per share calculation because they were anti-dilutive.
NOTE 3 - COMPREHENSIVE INCOME
The components of comprehensive income are as follows:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
September 30, October 1, September 30, October 1,
1999 1998 1999 1998
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Net earnings (loss) $ (202) $ 7,885 $(17,191) $ 4,829
Foreign currency
translation adjustment 4,319 1,152 2,621 1,228
-------- -------- -------- --------
Comprehensive income $ 4,117 $ 9,037 $(14,570) $ 6,057
======== ======== ======== ========
</TABLE>
NOTE 4 - ACCOUNTING FOR START-UP ACTIVITIES
On April 2, 1999, the Company adopted Statement of Position 98-5 ("SOP
98-5"), Reporting on the Costs of Start-up Activities. SOP 98-5 requires
start-up activities to be expensed when incurred. The Company's practice
had been to capitalize such costs and amortize them over a two-year period.
The adoption of this new accounting pronouncement resulted in a one-time
non-cash charge to the Company's results of operations for the twenty-six
weeks ended September 30, 1999 of $5,840,000 (net of income tax benefit of
$4,095,000) or $.25 per share.
NOTE 5 - OPERATING SEGMENTS
In connection with a corporate restructuring on September 30, 1999,
the Company reorganized its U.S. and International theatrical exhibition
segments into North America and International theatrical exhibition.
Information about the operations of the Company's Canadian theatres were
reported within the International theatrical exhibition segment prior to
September 30, 1999.
Information about the Company's operations by operating segment is as
follows:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
Revenues September 30,October 1, September 30, October 1,
1999 1998 1999 1998
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
North America theatrical
exhibition $305,591 $273,747 $571,543 $500,115
International theatrical
exhibition 16,506 8,426 27,238 15,257
On-screen advertising
and other 11,588 8,023 21,464 14,940
-------- -------- -------- --------
Total revenues $333,685 $290,196 $620,245 $530,312
======== ======== ======== ========
Thirteen Weeks Ended Twenty-six Weeks Ended
Adjusted EBITDA (1) September 30, October 1, September 30, October 1,
1999 1998 1999 1998
---- ---- ---- ----
(in thousands)
North America theatrical
exhibition $65,192 $58,556 $105,357 $92,247
International theatrical
exhibition 703 1,200 97 1,991
On-screen advertising
and other (206) 1,026 (1,025) 1,577
-------- -------- -------- --------
Total segment Adjusted
EBITDA 65,689 60,782 104,429 95,815
General and administrative12,284 14,136 25,495 27,281
-------- -------- -------- --------
Total Adjusted EBITDA $53,405 $46,646 $ 78,934 $68,534
======== ======== ======== ========
Property (2) September 30, October 1,
1999 1998
---- ----
(in thousands)
North America theatrical
exhibition $1,021,691 $823,855
International theatrical
exhibition 61,915 18,501
On-screen advertising
and other 12,107 10,334
-------- --------
Total segment property 1,095,713 852,690
Construction in progress 108,663 111,965
Corporate 43,596 35,312
-------- --------
1,247,972 999,967
Less-accumulated
depreciation
and amortization 400,693 361,091
-------- --------
Property, net $ 847,279 $638,876
======== ========
(1)Represents earnings before interest, income taxes, depreciation and amorti
zation and adjusted for, restructuring charge, preopening expense, theatre
closure expense, gain on disposition of assets, equity in earnings of
unconsolidated affiliates and cumulative effect of an accounting change.
(2) Property is comprised of land, buildings and improvements, leasehold imp
rovements and furniture, fixtures and equipment.
</TABLE>
NOTE 6 - RESTRUCTURING CHARGE
On September 30, 1999, the Company recorded a restructuring charge of
$12,000,000 ($7,200,000 after tax or $.31 per share) related to the
consolidation of its three U.S. divisional operations offices into its
corporate headquarters and a decision to discontinue direct involvement
with pre-development activities associated with certain
retail/entertainment projects conducted through its wholly-owned
subsidiary, Centertainment, Inc. Included in this total are severance and
other employee related costs of $5,200,000, lease termination costs of
$700,000 and the write-down of property of $6,100,000. As of September 30,
1999, the Company has recorded $7,200,000 in accrued expenses and other
liabilities related to these charges. The Company anticipates that all of
the remaining restructuring costs will be paid in fiscal 2000.
The severance and other employee related costs provide for a reduction
of approximately 130 employees primarily at the Company's divisional
offices and at its corporate headquarters. Lease termination costs were
incurred in connection with the closure of the three divisional operations
offices prior to their lease expiration dates. The charge for property
relates to the write-off of capitalized pre-development costs for certain
retail/entertainment projects.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This section contains certain "forward-looking statements" intended to
qualify for the safe harbor from liability established by the Private
Securities Litigation Reform Act of 1995. These forward-looking statements
generally can be identified by use of statements that include words or
phrases such as the Company or its management "believes," "expects,"
"anticipates," "intends," "plans," "foresees" or other words or phrases of
similar import. Similarly, statements that describe the Company's
objectives, plans or goals also are forward-looking statements. All such
forward-looking statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from those
contemplated by the relevant forward-looking statement. Important factors
that could cause actual results to differ materially from the expectations
of the Company include, among others: (i) the Company's ability to enter
into various financing programs; (ii) the performance of films licensed by
the Company; (iii) competition; (iv) construction delays; (v) the ability
to open or close theatres and screens as currently planned; (vi) general
economic conditions, including adverse changes in inflation and prevailing
interest rates; (vii) demographic changes; (viii) increases in the demand
for real estate; (ix) changes in real estate, zoning and tax laws; and (x)
unforeseen changes in operating requirements. Readers are urged to
consider these factors carefully in evaluating the forward-looking
statements. The forward-looking statements included herein are made only as
of the date of this Form 10-Q and the Company undertakes no obligation to
publicly update such forward-looking statements to reflect subsequent
events or circumstances.
Operating Results
Set forth in the table below is a summary of revenues, costs and
expenses attributable to the Company's North America and International
theatrical exhibition operations and the Company's on-screen advertising
and other businesses.
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
Sept 30, Oct 1, Sept 30, Oct 1,
1999 1998 % Change 1999 1998 %Change
---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues
North America theatrical exhibition
Admissions $206,274 $181,933 13.4% $385,441 $331,402 16.3%
Concessions 92,636 87,226 6.2 174,655 159,807 9.3
Other theatre 6,681 4,588 45.6 11,447 8,906 28.5
---------- ------ ---- ------ ------ ----
305,591 273,747 11.6 571,543 500,115 14.3
International theatrical exhibition
Admissions 13,475 6,806 98.0 22,190 12,357 79.6
Concessions 2,863 1,519 88.5 4,557 2,755 65.4
Other theatre 168 101 66.3 491 145 *
-------- -------- ---- -------- ------ -----
16,506 8,426 95.9 27,238 15,257 78.5
On-screen advertising
and other 11,588 8,023 44.4 21,464 14,940 43.7
-------- -------- ---- -------- ------ -----
Total revenues $333,685 $290,196 15.0% $620,245 $530,312 17.0%
======== ======= ===== ========= ======= ====
Costs and Expenses
North America theatrical exhibition
Film exhibition
costs $114,494 $100,461 14.0% $219,635 $182,791 20.2%
Concession costs 13,987 13,241 5.6 26,156 24,312 7.6
Theatre operating
expense 67,008 63,354 5.8 130,798 125,989 3.8
Rent 44,910 38,135 17.8 89,597 74,776 19.8
Preopening expense 1,640 388 * 2,650 773 *
Theatre closure expense 2,046 2,801 (27.0) 11,692 2,801 *
-------- -------- ---- -------- ------ -----
244,085 218,380 11.8 480,528 411,442 16.8
International theatrical exhibition
Film exhibition costs 7,051 3,735 88.8 11,458 6,613 73.3
Concession costs 911 452 * 1,433 831 72.4
Theatre operating
expense 4,115 1,724 * 7,334 3,196 *
Rent 3,726 1,315 * 6,916 2,626 *
Preopening expense 384 - * 647 - *
-------- -------- ---- -------- ------ -----
16,187 7,226 * 27,788 13,266 *
On-screen advertising
and other 11,794 6,997 68.6 22,489 13,363 68.3
General and
administrative 12,284 14,136 (13.1) 25,495 27,281 (6.5)
Restructuring charge 12,000 - * 12,000 - *
Depreciation and
amortization 23,029 21,030 9.5 43,686 41,372 5.6
-------- -------- ---- ------ ------ -----
Total costs
and expenses $319,379 $267,769 19.3%$611,986 $506,724 20.8%
======== ======= ===== ======== ======= ====
*Percentage change in excess of 100%.
</TABLE>
Thirteen weeks ended September 30, 1999 and October 1, 1998.
Revenues. Total revenues increased 15.0% during the thirteen weeks
ended September 30, 1999 compared to the thirteen weeks ended October 1,
1998.
North America theatrical exhibition revenues increased 11.6% from the
prior year. Admissions revenues increased 13.4% due to a 12.2% increase in
average ticket price and a 1.0% increase in attendance. The increase in
average ticket prices was due to the first phase of a strategic initiative
implemented by the Company during the thirteen weeks ended July 1, 1999 to
selectively increase ticket and concession prices at megaplexes and
multiplexes and to the growing number of megaplexes in the Company's
theatre circuit, which yield higher average ticket prices than multiplexes.
Attendance at multiplexes (theatres generally without stadium-style
seating) decreased due to a 14.8% decrease in attendance at comparable
multiplexes (theatres opened before the second quarter of fiscal 1999) and
the closure or sale of 39 multiplexes with 240 screens since October 1,
1998. The decline in attendance at comparable multiplexes was related
primarily to certain multiplexes experiencing competition from new
megaplexes operated by the Company and other competing theatre circuits, a
trend the Company generally anticipates will continue. Attendance at
megaplexes (theatres with predominantly stadium-style seating) increased as
a result of the addition of 17 new megaplexes with 396 screens since
October 1, 1998. Attendance at comparable megaplexes increased 0.2%.
Concessions revenues increased 6.2% due to a 5.1% increase in average
concessions per patron and the increase in total attendance. The increase
in average concessions per patron was attributable to the selective price
increases discussed above and the increasing number of megaplexes in the
Company's theatre circuit, where concession spending per patron is higher
than in multiplexes.
International theatrical exhibition revenues increased $8,080,000 from the
prior year. Admissions revenues increased $6,669,000 due primarily to
an increase in attendance from the addition of four new megaplexes with a
total of 69 screens since October 1, 1998. Attendance at comparable
megaplexes decreased 15.0% due primarily to a decline in the popularity of
film product in Japan during the thirteen weeks ended September 30, 1999 as
compared with the prior year and competition from new theatrical exhibitors
in Japan. Concession revenues increased $1,344,000 due primarily to the
increase in total attendance.
On-screen advertising and other revenues increased 44.4% from the
prior year due primarily to a new advertising product at the Company's on-
screen advertising business.
Costs and expenses. Total costs and expenses increased 19.3% during
the thirteen weeks ended September 30, 1999 compared to the thirteen weeks
ended October 1, 1998.
North America theatrical exhibition costs and expenses increased 11.8%
from the prior year. Film exhibition costs increased 14.0% due to higher
admissions revenues and a nominal increase in the percentage of admissions
paid to film distributors. As a percentage of admissions revenues, film
exhibition costs were 55.5% in the current year as compared with 55.2% in
the prior year. Concession costs increased 5.6% due to the increase in
concessions revenues offset by a decrease in concession costs as a
percentage of concessions revenues. As a percentage of concessions
revenues, concession costs were 15.1% in the current year compared with
15.2% in the prior year. As a percentage of revenues, theatre operating
expense was 21.9% in the current year as compared to 23.1% in the prior
year. Rent expense increased 17.8% due to the higher number of screens in
operation and the growing number of megaplexes in the Company's theatre
circuit, which generally have higher rent per screen than multiplexes.
During the thirteen weeks ended September 30, 1999, the Company incurred
$2,046,000 of theatre closure expense primarily related to the closure of 9
multiplexes with 53 screens as compared with $2,801,000 in the prior year
related to other multiplex closures. These expenses are primarily comprised
of expected payments to landlords to terminate leases.
International theatrical exhibition costs and expenses increased
$8,961,000 from the prior year. Film exhibition costs increased $3,316,000
primarily due to higher admission revenues, offset by a decrease in the
percentage of admissions paid to film distributors. Rent expense increased
$2,411,000 and theatre operating expense increased $2,391,000 from the prior
year, primarily due to the increased number of screens in operation.
International theatrical exhibition costs and expenses were
negatively impacted by a weaker U.S. dollar, although this did not
contribute materially to consolidated net loss.
On-screen advertising and other costs and expenses increased 68.6% due
primarily to an increase in fixed costs associated with the new advertising
product at the Company's on-screen advertising business. The Company
anticipates that these fixed costs as a percentage of the related
advertising revenues will decline as revenues from the new advertising product
continue to grow.
General and administrative expenses decreased 13.1% during the
thirteen weeks ended September 30, 1999 as compared with the thirteen weeks
ended October 1, 1998 due primarily to declines in administrative salaries
expense. As a percentage of total revenues, general and administrative
expenses declined from 4.9% in the prior year to 3.7% in the current year.
On September 30, 1999, the Company recorded a restructuring charge of
$12,000,000 ($7,200,000 after tax or $.31 per share) related to the
consolidation of its three U.S. divisional operations offices into its
corporate headquarters and a decision to discontinue direct involvement
with pre-development activities associated with certain
retail/entertainment projects conducted through its wholly-owned
subsidiary, Centertainment, Inc. Included in this total are severance and
other employee related costs of $5,200,000, lease termination costs of
$700,000 and the write-off of capitalized pre-development costs of
$6,100,000. The Company anticipates as a result of the restructuring it
will realize on-going annual general and administrative expense reductions
of approximately $20 million. Unforeseen changes in operating requirements
and other factors referred to in the first paragraph of this Item 2. could
cause actual general and administrative expense reductions to differ
materially from anticipated reductions.
Depreciation and amortization increased 9.5%, or $1,999,000, during the
thirteen weeks ended September 30, 1999. This increase was primarily
caused by an increase in depreciation of $3,380,000 related to the
Company's new theatres, which was partially offset by a $2,154,000 decrease
in amortization due to a change in accounting for start-up activities.
Interest Expense. Interest expense increased 73.0% during the
thirteen weeks ended September 30, 1999 compared to the prior year,
primarily due to an increase in average outstanding borrowings and interest
rates. The increase in interest rates was primarily due to the issuance of
$225,000,000 of 9 1/2% Senior Subordinated Notes due 2011 on January 27,
1999.
Gain on Disposition of Assets. Gain on disposition of assets
increased from a loss of $35,000 in the prior year to a gain of $144,000
during the current year. Current year results include a gain related to
one of the Company's multiplexes closed during the thirteen weeks ended
September 30, 1999.
Income Tax Provision. The provision for income taxes decreased to a
benefit of $135,000 during the current year from an expense of $6,550,000
in the prior year. The effective tax rate was 40.1% for the current year
compared to 45.4% for the previous year. The Company adjusts its expected
annual effective tax rate on a quarterly basis based on current projections
of non-deductible expenses and pre-tax earnings or losses.
Net Earnings. Net earnings decreased during the thirteen weeks ended
September 30, 1999 to a loss of $202,000 from earnings of $7,885,000 in
the prior year. Net loss per share was $.01 compared to earnings of $.34
in the prior year. Current period results include a restructuring charge
of $12,000,000 ($7,200,000 net of income tax benefit of $4,800,000) which
reduced earnings per share by $.31 for the thirteen weeks ended September
30, 1999.
Twenty-six weeks ended September 30, 1999 and October 1, 1998.
Revenues. Total revenues increased 17.0% during the twenty-six weeks
ended September 30, 1999 compared to the twenty-six weeks ended October 1,
1998.
North America theatrical exhibition revenues increased 14.3% from the
prior year. Admissions revenues increased 16.3% due to a 12.9% increase in
average ticket price and a 3.1% increase in attendance. The increase in
average ticket prices was due to the first phase of a strategic initiative
implemented by the Company during the thirteen weeks ended July 1, 1999 to
selectively increase ticket and concession prices at megaplexes and
multiplexes and the growing number of megaplexes in the Company's theatre
circuit, which yield higher average ticket prices than multiplexes.
Attendance at megaplexes increased as a result of the addition of 17 new
megaplexes with 396 screens since October 1, 1998, and a 2.7% increase in
attendance at comparable megaplexes (theatres opened before the first
quarter of fiscal 1999). Admissions revenues at multiplexes decreased due
to a 14.5% decrease in attendance at comparable multiplexes and the closure
or sale of 39 multiplexes with 240 screens since October 1, 1998. The
decline in attendance at comparable multiplexes was related primarily to
certain multiplexes experiencing competition from new megaplexes operated
by the Company and other competing theatre circuits, a trend the Company
generally anticipates will continue. Concessions revenues increased 9.3%
due to a 6.1% increase in average concessions per patron and the increase
in total attendance. The increase in average concessions per patron was
attributable to the selective price increases discussed above and the
increasing number of megaplexes in the Company's theatre circuit, where
concession spending per patron is higher than in multiplexes.
International theatrical exhibition revenues increased $11,981,000 from
the prior year. Admissions revenues increased $9,833,000 due primarily
to an increase in attendance from the addition of four new megaplexes
with a total of 69 screens since October 1, 1998. Attendance at the
Company's comparable megaplexes decreased 17.5% due primarily to the
popularity of Titanic in Japan during the twenty-six weeks ended
October 1, 1998 and competition from new theatrical exhibitors in Japan.
Concession revenues increased $1,802,000 due primarily to the increase
in total attendance. International theatrical exhibition revenues were
positively impacted by a weaker U.S. dollar, although this did not
contribute materially to consolidated net loss.
On-screen advertising and other revenues increased 43.7% from the
prior year due primarily to a new advertising product at the Company's on-
screen advertising business.
Costs and expenses. Total costs and expenses increased 20.8% during
the twenty-six weeks ended September 30, 1999 compared to the twenty-six
weeks ended October 1, 1998.
North America theatrical exhibition costs and expenses increased 16.8%
from the prior year. Film exhibition costs increased 20.2% due to higher
admissions revenues and an increase in the percentage of admissions paid to
film distributors. As a percentage of admissions revenues, film exhibition
costs were 57.0% in the current year as compared with 55.2% in the prior
year. The increase in film exhibition costs as a percentage of admissions
revenues was primarily due to Star Wars Episode I: The Phantom Menace, a
film whose audience appeal led to higher than normal film rental terms.
The Company anticipates that for fiscal 2000 film exhibition costs as a
percentage of admissions revenues will be more comparable to the prior year
as admissions revenues on this film decline as a percentage of total
admissions revenues. Concession costs increased 7.6% due to the increase
in concessions revenues offset by a decrease in concession costs as a
percentage of concessions revenues. As a percentage of concessions
revenues, concession costs were 15.0% in the current year compared with
15.2% in the prior year. Theatre operating expense as a percentage of
revenues was 22.9% in the current year as compared with 25.2% in the prior
year. Rent expense increased 19.8% due to the higher number of screens in
operation and the growing number of megaplexes in the Company's theatre
circuit, which generally have higher rent per screen than multiplexes.
During the twenty-six weeks ended September 30, 1999, the Company incurred
$11,692,000 of theatre closure expense related to the closure of 28
multiplexes with 184 screens as compared with $2,801,000 in the prior year
related to other multiplex closures. These expenses are primarily comprised
of expected payments to landlords to terminate leases. The Company
anticipates that it will incur a total of $15-16 million of costs related
to the closure of approximately 40 multiplexes with 270 screens in
fiscal 2000.
International theatrical exhibition costs and expenses increased
$14,522,000 from the prior year. Film exhibition costs increased $4,845,000
due to higher admissions revenues offset by a decrease in the percentage of
admissions paid to film distributors. Rent expense increased $4,290,000 and
theatre operating expense increased $4,138,000 from the prior
year, primarily due to the increased number of screens in operation.
International theatrical exhibition costs and expenses were negatively
impacted by a weaker U.S. dollar, although this did not contribute
materially to consolidated net loss.
Other costs and expenses increased 68.3% due primarily to an increase
in fixed costs associated with the new advertising product at the Company's
on-screen advertising business. The Company anticipates that these fixed
costs as a percentage of the related advertising revenues will decline as
revenues from the new advertising product continue to grow.
General and administrative expenses decreased 6.5% during the twenty-
six weeks ended September 30, 1999 as compared with the twenty-six weeks
ended October 1, 1998 due primarily to declines in administrative salaries
expense. As a percentage of total revenues, general and administrative
expenses declined from 5.1% in the prior year to 4.1% in the current year.
On September 30, 1999, the Company recorded a restructuring charge of
$12,000,000 ($7,200,000 after tax or $.31 per share) related to the
consolidation of its three U.S. divisional operations offices into its
corporate headquarters and a decision to discontinue direct involvement
with pre-development activities associated with certain
retail/entertainment projects conducted through its wholly-owned
subsidiary, Centertainment, Inc. Included in this total are severance and
other employee related costs of $5,200,000, lease termination costs of
$700,000 and the write-off of capitalized pre-development costs of
$6,100,000. The Company anticipates as a result of the restructuring it
will realize on-going annual general and administrative expense reductions
of approximately $20 million. Unforeseen changes in operating requirements
and other factors referred to in the first paragraph of this Item 2. could
cause actual general and administrative expense reductions to differ
materially from anticipated reductions.
Depreciation and amortization increased 5.6%, or $2,314,000,during
the twenty-six weeks ended September 30, 1999. This increase was primarily
caused by an increase in depreciation of $5,494,000 related to the Company's
new theatres, which was partially offset by a $4,157,000 decrease in
amortization due to a change in accounting for start-up activities.
Interest Expense. Interest expense increased 65.2% during the twenty-
six weeks ended September 30, 1999 compared to the prior year, primarily
due to an increase in average outstanding borrowings and interest rates.
The increase in interest rates was primarily due to the issuance of
$225,000,000 of 9 1/2% Senior Subordinated Notes due 2011 on January 27,
1999.
Gain on Disposition of Assets. Gain on disposition of assets
decreased from a gain of $1,358,000 in the prior year to a gain of $327,000
during the current year. The prior year results include the sales of real
estate associated with two of the Company's multiplexes. Current year
results include the sale of a real estate property held for investment and
a gain on one of the Company's multiplex theatres closed during the twenty-
six weeks ended September 30, 1999.
Income Tax Provision. The provision for income taxes decreased to a
benefit of $7,835,000 during the current year from an expense of $3,900,000
in the prior year. The effective tax rate was 40.8% for the current year
compared to 44.7% for the previous year. The Company adjusts its expected
annual effective tax rate on a quarterly basis based on current projections
of non-deductible expenses and pre-tax earnings or losses.
Net Earnings. Net earnings decreased during the twenty-six weeks
ended September 30, 1999 to a loss of $17,191,000 from earnings of
$4,829,000 in the prior year. Net loss per share was $.73 compared to
earnings of $.21 in the prior year. Current year results include the
cumulative effect of an accounting change of $5,840,000 (net of income tax
benefit of $4,095,000) and a restructuring charge of $12,000,000
($7,200,000 net of income tax benefit of $4,800,000), which reduced
earnings per share by $.25 and $.31, respectively, for the twenty-six weeks
ended September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's revenues are collected in cash, principally through box
office admissions and theatre concessions sales. The Company has an
operating "float" which partially finances its operations and which
generally permits the Company to maintain a smaller amount of working
capital capacity. This float exists because admissions revenues are
received in cash, while exhibition costs (primarily film rentals) are
ordinarily paid to distributors from 30 to 45 days following receipt of box
office admissions revenues. The Company is only occasionally required to
make advance payments or non-refundable guaranties of film rentals. Film
distributors generally release during the summer and holiday seasons the
films which they anticipate will be the most successful. Consequently, the
Company typically generates higher revenues during such periods. Cash
flows from operating activities, as reflected in the Consolidated
Statements of Cash Flows, were $41,139,000 and $36,355,000 for the twenty-
six weeks ended September 30, 1999 and October 1, 1998, respectively.
The Company continues to expand its North America and International
theatre circuits. During the current fiscal year, the Company opened 10
megaplexes with 218 screens and began operating one theatre with 30 screens
pursuant to a joint venture agreement. In addition, the Company closed 30
multiplexes with 194 screens and returned 3 screens to the landlord of an
existing megaplex for conversion to alternative use, resulting in a circuit
total of 71 megaplexes with 1,580 screens and 143 multiplexes with 1,206
screens as of September 30, 1999.
The costs of constructing new theatres are funded by the Company
through internally generated cash flow or borrowed funds. The Company
generally leases its theatres pursuant to long-term non-cancelable
operating leases which may require the developer, who owns the property, to
reimburse the Company for a portion of the construction costs. However,
the Company may decide to own the real estate assets of new theatres and,
following construction, sell and leaseback the real estate assets pursuant
to long-term non-cancelable operating leases. During the twenty-six weeks
ended September 30, 1999, eight new theatres with 170 screens were leased
from developers. Typically, the Company owns and pays for the equipment
necessary to fixture a theatre. As of September 30, 1999, the Company had
construction in progress of $108,663,000 and reimbursable construction
advances (amounts due from developers on leased theatres) of $21,183,000.
The Company had 9 megaplexes with 211 screens under construction on
September 30, 1999. During the twenty-six weeks ended September 30, 1999,
the Company had capital expenditures of $177,299,000.
The Company expects that the net cash requirements for capital
expenditures in fiscal year 2000 will approximate $200-225 million.
Included in these amounts are projections of capital expenditures which are
reduced by expected proceeds from the sale of real estate assets which the
Company plans to place into sale and leaseback or other comparable
financing programs and expected reimbursements from developers.
The Company's $425 million revolving credit facility (the "Credit
Facility") permits borrowings at interest rates based on either the bank's
base rate or LIBOR and requires an annual commitment fee based on margin
ratios that could result in a rate of .375% or .500% on the unused portion
of the commitment. The Credit Facility matures on April 10, 2004. The
commitment thereunder will be reduced by $25 million on each of December
31, 2002, March 31, 2003, June 30, 2003 and September 30, 2003 and by $50
million on December 31, 2003. The total commitment under the Credit
Facility is $425 million, but the facility contains covenants that limit
the Company's ability to incur debt (whether under the Credit Facility or
from other sources). As of September 30, 1999, the Company had outstanding
borrowings of $227,000,000 under the Credit Facility at an average interest
rate of 9.58% per annum, and approximately $106,000,000 was available for
borrowing under the Credit Facility. The average interest rate on
outstanding borrowings under the Credit Facility was 7.3% during the twenty-
six weeks ended September 30, 1999.
Covenants under the Credit Facility impose limitations on
indebtedness, creation of liens, change of control, transactions with
affiliates, mergers, investments, guaranties, asset sales, dividends,
business activities and pledges. In addition, the Credit Facility contains
certain financial covenants. As of September 30, 1999, the Company was in
compliance with all financial covenants relating to the Credit Facility.
The Company believes that cash generated from operations, existing
cash and equivalents, amounts received from sale and lease back
transactions, expected reimbursements from developers and the available
commitment amount under its Credit Facility will be sufficient to fund
operations and planned capital expenditures for the next 12 months.
Year 2000
Potential Impact on Company. The failure of information technology
("IT?) and embedded, or (?non-IT?) systems, because of the Year 2000 issue
or otherwise, could adversely affect the Company's operations. If not
corrected, many computer-based systems and theatre equipment, such as air
conditioning systems and fire and sprinkler systems, could encounter
difficulty differentiating between the year 1900 and the year 2000 and
interpreting other dates, resulting in system malfunctions, corruption of
data or system failure. Additionally, the Company relies upon outside
third parties ("business partners") to supply many of the products and
services that it needs in its business. Such products include films which
it exhibits and concessions products which it sells. Attendance at the
Company's theatres could be severely impacted if one or more film producers
are unable to produce new films because of Year 2000 issues. The Company
could suffer other business disruptions and loss of revenues if any other
types of material business partners fail to supply the goods or services
necessary for the Company's operations.
IT Systems. The Company utilizes a weighted methodology to evaluate
the readiness of its corporate and theatre level IT systems. For this
purpose, corporate and theatre system types include commercial off-the-
shelf software, custom in-house developed software, ticketing system
software, concession system software and hardware systems such as
workstations and servers. The Company has weighted each corporate and
theatre system based on its overall importance to the organization. The
Company's readiness is evaluated in terms of a five-phase process utilized
in the Year 2000 strategic plan (the "Plan") with appropriate weighting
given to each phase based on its relative importance to IT system Year 2000
readiness. The phases may generally be described as follows: (i) develop
company-wide awareness; (ii) inventory and assess internal systems and
business partners, and develop contingency plans for systems that cannot be
renovated; (iii) renovate critical systems and contact material business
partners; (iv) validate and test critical systems, analyze responses from
critical business partners and develop contingency plans for non-compliant
partners; and (v) implement renovated systems and contingency plans. The
Company has placed a high level of importance on its corporate and theatre
software systems and a lesser degree of importance on its hardware systems
when evaluating Year 2000 readiness. Additionally, the Company believes
that the assessment, validation and testing and implementation phases are
the most important phases in its Plan.
Based on the weighting methodology described above, the Company has
assessed 100% of its corporate IT systems and as of September 30, 1999 has
renovated 96% of those systems that require renovation as a result of the
Year 2000 issue. Of the renovated systems, 74% have been tested, verified
and implemented on a company-wide basis. In the aggregate, as of September
30, 1999, 83% of the Company's corporate IT systems have been tested and
verified as being Year 2000 ready. The percentage of corporate IT systems
that have been tested and verified as being Year 2000 ready assumes that a
significant component of commercial-off-the-shelf software, the recently
installed Oracle financial applications, is Year 2000 ready. This system
was marketed as Year 2000 ready when purchased. The Company is currently
testing and verifying the Oracle financial applications to validate that
the implementation is in fact Year 2000 ready and it does not believe that
it has a significant risk with respect to the Oracle financial
applications.
Based on the weighting methodology described above, the Company has
assessed 100% of its theatre IT systems and as of September 30, 1999 has
renovated 100% of those systems that require renovation as a result of the
Year 2000 issue. Of the renovated systems, 38% have been tested, verified
and implemented on a company-wide basis. In the aggregate, as of September
30, 1999, 100% of the Company's theatre IT systems have been tested and
verified as being Year 2000 ready.
Overall, the Company has assessed its Plan with respect to IT systems
as being 87% complete as of September 30, 1999. Although, no assurance can
be given, the Company does not believe that it has material exposure to the
Year 2000 issue with respect to its internal IT systems.
Non-IT Systems. As of September 30, 1999, assessment, testing and
remediation of the Company's critical non-IT systems were complete.
Third Parties. The Company has identified and assessed potential Year
2000 readiness risks associated with its material outside business partners
and continues to monitor their progress in achieving Year 2000 readiness.
Evaluation of material business partners' responses and their state of Year
2000 readiness was underway and ongoing as of September 30, 1999.
Contingency Planning. The Company has instituted an ongoing process
to develop necessary contingency plans as the results of systems testing,
systems remediation, and business partners' Year 2000 readiness assessments
become known.
The Company's contingency plans for critical systems and material
business partners were essentially complete as of September 30, 1999.
Changes to approved contingency plans will be implemented as necessary in
response to additional data gathered via testing, remediation, and business
partner contacts.
Costs. Presently management does not expect costs associated with
required modifications to be material to the Company's results of
operations, liquidity or financial condition. The total amount expended
from July 1, 1996 through September 30, 1999 was approximately $500,000.
Based on information presently known, the total amount expected to be
expended on the Year 2000 effort for IT systems is approximately $700,000
primarily comprised of software upgrades and replacement costs, internal
personnel hours and consulting costs. To date, the Year 2000 effort has
been funded primarily from the IT budget.
Readers are cautioned that forward looking statements contained in
this section should be read in conjunction with the Company's disclosures
under the heading ?forward looking statements". In addition to the factors
listed therein which could cause actual results to be different from those
anticipated, the following special factors could affect the Company's
ability to be Year 2000 ready: (i) the Company's ability to implement the
Plan, (ii) cooperation and participation by business partners, (iii) the
availability and cost of trained personnel and the ability to recruit and
retain them and (iv) the ability to locate all system coding requiring
correction.
Euro Conversion
A single currency called the euro was introduced in Europe on January
1, 1999. Certain member countries of the European Union adopted the euro
as their common legal currency on that date. Fixed conversion rates
between these participating countries' existing currencies (the "legacy
currencies") and the euro were established as of that date. The transition
period for the introduction of the Euro is scheduled to phase in over a
period ending January 1, 2002, with the legacy currencies being completely
removed from circulation no later than July 1, 2002. During this
transition period, parties may pay for items using either the euro or a
participating country's legacy currency.
The Company currently operates one theatre in Portugal and one theatre
in Spain. Both countries are member countries that adopted the euro as of
January 1, 1999. The Company has implemented necessary changes to
accounting, operational, and payment systems to accommodate the
introduction of the euro. The Company does not anticipate that the
conversion will have a material impact on its consolidated financial
position, results of operations or cash flows.
New Accounting Pronouncements
During fiscal 1999, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
Accounting for Derivative Instruments and Hedging Activities. The statement
requires companies to recognize all derivatives as either assets or
liabilities, with the instruments measured at fair value. The accounting
for changes in fair value of a derivative depends on the intended use of
the derivative and the resulting designation. The statement is effective
for all fiscal years beginning after June 15, 2000. The statement will
become effective for the Company in fiscal 2002. Adoption of this statement
is not expected to have a material impact on the Company's consolidated
financial position, results of operations or cash flows.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to various market risks including interest rate
risk and foreign currency exchange rate risk. The Company does not hold
any derivative financial instruments.
Market risk on variable rate financial instruments. The Company
maintains a $425 million credit facility (the "Credit Facility"), which
permits borrowings at interest rates based on either the bank's base rate
or LIBOR. Increases in market interest rates would cause interest expense
to increase and earnings before income taxes to decrease. The change in
interest expense and earnings before income taxes would be dependent upon
the weighted average outstanding borrowings during the reporting period
following an increase in market interest rates. Based on the Company's
current outstanding borrowings under the Credit Facility at an average
interest rate of 9.58% per annum, a 100 basis point increase in market
interest rates would increase interest expense and decrease earnings before
income taxes by approximately $2.3 million.
Market risk on fixed-rate financial instruments. Included in long-term
debt are $200 million of 9 1/2% Senior Subordinated Notes due 2009 and $225
million of 9 1/2% Senior Subordinated Notes due 2011. Increases in market
interest rates would generally cause a decrease in the fair value of the
Notes due 2009 and the Notes due 2011 and a decrease in market interest
rates would generally cause an increase in fair value of the Notes due 2009
and the Notes due 2011.
Foreign currency exchange rates. The Company currently operates
theatres in Portugal, Japan, Spain, China (Hong Kong) and Canada and is
currently developing theatres in other international markets. As a result
of these operations, the Company has assets, liabilities, revenues and
expenses denominated in foreign currencies. The strengthening of the U.S.
dollar against the respective currencies causes a decrease in the carrying
values of assets, liabilities, revenues and expenses denominated in such
foreign currencies and the weakening of the U.S. dollar against the
respective currencies causes an increase in the carrying values of these
items. The increases and decreases in assets, liabilities, revenues and
expenses are included in accumulated other comprehensive income. Changes
in foreign currency exchange rates also impact the comparability of
earnings in these countries on a year-to-year basis. As the U.S. dollar
strengthens, comparative translated earnings decrease, and as the U.S.
dollar weakens comparative translated earnings from foreign operations
increase. Although the Company does not currently hedge against foreign
currency exchange rate risk, it does not intend to repatriate funds from
the operations of its Japanese and European theatres but instead intends to
use them to fund additional expansion. A 10% fluctuation in the value of
the U.S. dollar against all foreign currencies of countries where the
Company currently operates theatres would either increase or decrease
earnings before income taxes and accumulated other comprehensive income by
approximately $1.1 million and $12 million, respectively.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On January 29, 1999, the Department of Justice ("DOJ") filed suit
against the Company in the United States District Court for the Central
District of California, United States of America v. AMC Entertainment Inc.
and American Multi-Cinema, Inc. The complaint alleges that the Company has
designed, constructed and operated two of its motion picture theatres in
the Los Angeles area and unidentified theatres elsewhere that have stadium-
style seating in violation of DOJ regulations implementing Title III of the
ADA and related "Standards for Accessible Design" (the "Standards"). The
complaint alleges various types of non-compliance with the DOJ's Standards,
but relates primarily to issues relating to lines of sight. The DOJ seeks
declaratory and injunctive relief regarding existing and future theatres
with stadium-style seating, compensatory damages and a civil penalty.
The current DOJ position appears to be that theatres must provide
wheelchair seating locations and transfer seats with viewing angles to the
screen that are at the median or better, counting all seats in the
auditorium. Heretofore, the Company has attempted to conform to the
evolving standards imposed by the DOJ and believes its theatres are in
substantial compliance with the ADA. However, the Company believes that
the DOJ's current position has no basis in the ADA or related regulations
and is an attempt to amend the ADA regulations without complying with the
Administrative Procedures Act. The Company has filed an answer denying the
allegations and asserting that the DOJ is engaging in unlawful rulemaking.
A similar claim has been made by another exhibitor, Cinemark USA, Inc. v.
United States Department of Justice, United States District Court for the
Northern District of Texas, Case No. 399CV0183-L. Although no assurances
can be given, based on existing precedent involving stadiums or stadium
seating, the Company believes that an adverse decision in this matter is
not likely to have a material adverse effect on its financial condition,
liquidity or results of operations. However, there have been only a few
cases involving stadiums or stadium seating.
On November 30, 1998, Cyndi Soto filed suit in the United States
District Court for the Central District of California, Cyndi Soto v.
American Multi-Cinema, Inc. and JANSS/TYS Long Beach Associates,
CV989547SLRNBX, alleging that one of the Company's theatres violated the
ADA and California law by failing to remove certain barriers to access.
The suit seeks an unspecified amount of general, special and punitive
damages under California law and an injunction requiring the Company remove
the alleged barriers. The Company has filed an answer denying the
allegations in the Soto suit. On March 4, 1999, William P. Storrs filed a
purported class action lawsuit in the United States District Court for the
Southern District of Texas, William P. Storrs v. AMC Entertainment, Inc.,
Case No. H-99-061, alleging that sight lines at a Houston area megaplex
violate the Americans with Disabilities Act and Chapter 121 of the Texas
Human Resources Code. The suit seeks injunctive, declaratory and monetary
relief. The Court has stayed the suit pending resolution of the Department
of Justice litigation filed in California referred to above.
Two cases, Nonoy Mendoza, et al. v. AMC Entertainment Inc., American
Multi-Cinema, Inc., Neil Katcher, Michael Johannes, Susan Navarro, Nancy
Garcia, and Matt Quinn filed on July 1, 1999 in the Probate Court of Dallas
County, Texas ("Mendoza"), and Mabayoje Erinkitola, et al. v. AMC
Entertainment Inc., American Multi-Cinema, Inc., Neil Katcher, Michael
Johannes, Susan Navarro, Nancy Garcia, and Matt Quinn filed on July 15,
1999 in the Probate Court of Dallas County, Texas, arise out of the murders
of two patrons, Roxanne Mendoza and Foluke Erinkitola, in the parking lot
of the Grand Theatre in Dallas, Texas on August 13, 1997. The defendants
are being sued on various theories related to allegations of improper or
inadequate security. Each complaint seeks the recovery of damages for
wrongful death, survival damages and exemplary damages, although neither
complaint states specific monetary demands. A plaintiff in the Mendoza
lawsuit also seeks abatement of the theatre as a public nuisance. The
Company has answered both lawsuits and has removed both cases to the United
States District Court, of Texas, Dallas Division, as of August 13, 1999,
where the two cases have been combined.
Reference is also made to Item 3. Legal Proceedings of the Company's
Annual Report on Form 10-K for the fiscal year ended April 1, 1999 and Item
1. Legal Proceedings of the Company's Quarterly Report on Form 10-Q for the
thirteen weeks ended July 1, 1999 for information on another legal
proceeding to which the Company is a party, Drexler Technology Corp. v.
Sony Corp. et. al.
The Company is a party to various other legal proceedings in the
ordinary course of business, none of which is expected to have a material
adverse effect on the Company.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
- -------------- --------------------------------------------------
3.1 Amended and Restated Certificate of Incorporation of AMC
Entertainment Inc. (as amended on December 2, 1997)
(Incorporated by reference from Exhibit 3.1 to AMCE's Form
10-Q (File No. 1-8747) dated January 1, 1998).
3.2 Bylaws of AMC Entertainment Inc. (Incorporated by reference
from Exhibit 3.3 to AMCE's Form 10-Q (File No. 0-12429) for
the quarter ended December 26, 1996).
4.1(a) Amended and Restated Credit Agreement dated as of April 10,
1997, among AMC Entertainment Inc., as the Borrower, The
Bank of Nova Scotia, as Administrative Agent, and Bank of
America National Trust and Savings Association, as
Documentation Agent, and Various Financial Institutions, as
Lenders, together with the following exhibits thereto:
significant subsidiary guarantee, form of notes, form of
pledge agreement and form of subsidiary pledge agreement
(Incorporated by reference from Exhibit 4.3 to the
Company's Registration Statement on Form S-4 (File No. 333-
25755) filed April 24, 1997).
4.1(b) Second Amendment, dated January 16, 1998, to Amended and
Restated Credit Agreement dated as of April 10, 1997
(Incorporated by Reference from Exhibit 4.2 to the
Company's Form 10-Q (File No. 1-8747) for the quarter ended
January 1, 1998).
4.1(c) Third Amendment, dated March 15, 1999, to amended and
Restated Credit Agreement dated as of April 10, 1997
(Incorporated by reference from Exhibit 4 to the Company's
Form 8-K (File No. 1-8747) dated March 25, 1999).
4.2(a) Indenture dated March 19, 1997, respecting AMC
Entertainment Inc.'s 9 1/2% Senior Subordinated Notes due
2009 (Incorporated by reference from Exhibit 4.1 to the
Company's Form 8-K (File No. 1-8747) dated March 19, 1997).
4.2(b) First Supplemental Indenture respecting AMC Entertainment
Inc.'s 9 1/2% Senior Subordinated Notes due 2009
(Incorporated by reference from Exhibit 4.4(b) to Amendment
No. 2. to the Company's Registration Statement on Form S-4
(File No.333-29155) filed August 4, 1997).
4.3 Indenture, dated January 27, 1999, respecting AMC
Entertainment Inc's
9 1/2% Senior Subordinated Notes due 2011 (Incorporated by
reference from Exhibit 4.3 to the Company's 10-Q
(File No. 1-8747) for the quarter ended December 31, 1998.
4.4 Registration Rights Agreement, dated January 27, 1999,
respecting AMC
Entertainment Inc.'s 9 1/2% Senior Subordinated notes due 2011
(Incorporated by reference from Exhibit 4.4 to the Company's
10-Q (File No. 1-8747) for the quarter ended December 31, 1998)
4.5 In accordance with Item 601(b)(4)(iii)(A) of Regulation S-
K, certain instruments respecting long- term debt of the
Registrant have been omitted but will be furnished to the
Commission upon request.
10.1 Non-Qualified (Non-ISO) Stock Option Agreement used in June
18, 1999 option grants to Mr. Richard M. Fay and Mr.
Richard T. Walsh. (Incorporated by reference from Exhibit
10.1 to the Company's 10-Q (File No. 1-8747) for the
quarter ended July 1, 1999.
*10.2 Retainer agreement with Raymond F. Beagle, Jr.
*27 Financial Data Schedule
_______
- -------
* Filed herewith
(b) Reports on Form 8-K
No reports on Form 8-K were filed or required to be filed during
the thirteen weeks ended September 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
AMC ENTERTAINMENT INC.
Date: November 12, 1999
-------------------------
Peter C. Brown
Chairman of the Board,
Chief Executive Officer and
President
Date: November 12, 1999
-------------------------
Craig R. Ramsey
Senior Vice President, Finance
and Chief Accounting Officer
<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
twenty-six weeks ended September 30, 1999 submitted in response to the requirements to
Form 10-Q and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-30-2000
<PERIOD-END> SEP-30-1999
<CASH> 10,377
<SECURITIES> 0
<RECEIVABLES> 48,080
<ALLOWANCES> 713
<INVENTORY> 0
<CURRENT-ASSETS> 101,904
<PP&E> 1,247,972
<DEPRECIATION> 400,693
<TOTAL-ASSETS> 1,093,731
<CURRENT-LIABILITIES> 194,260
<BONDS> 700,244
0
0
<COMMON> 15,660
<OTHER-SE> 84,997
<TOTAL-LIABILITY-AND-EQUITY> 1,093,731
<SALES> 179,212
<TOTAL-REVENUES> 620,245
<CGS> 27,589
<TOTAL-COSTS> 519,113
<OTHER-EXPENSES> 67,378
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,872
<INCOME-PRETAX> (19,186)
<INCOME-TAX> (7,835)
<INCOME-CONTINUING> (11,351)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (5,840)
<NET-INCOME> (17,191)
<EPS-BASIC> (.73)
<EPS-DILUTED> (.73)
</TABLE>
RETAINER AGREEMENT
This Retainer Agreement ("Agreement") is entered into as of October 1,
1999 by and between AMC ENTERTAINMENT INC., its subsidiaries and affiliated
companies (collectively "AMC"), and RAYMOND F. BEAGLE, JR. ("RFB"). In
consideration of the mutual promises and covenants contained herein, the
parties agree as follows:
1.Engagement. AMC hereby engages RFB to serve as AMC's General
Counsel. AMC agrees that, in addition to this engagement, RFB will continue
in the active practice of law.
2.Term. The term of this Agreement shall commence as of October 1,
1999 and shall terminate on October 1, 2002 or sooner as provided herein. On
each October 1 hereafter, commencing in 2000, one year shall be added to the
Term of this engagement, so that as of each October 1 the Term of this
engagement shall be three (3) years.
3.Retainer Fee. Effective October 1, 1999, AMC agrees to pay RFB
at the annual retainer rate of Three Hundred Sixty Thousand Dollars
($360,000), payable monthly. In addition, the Chairman of the Board may, at
his sole discretion, determine additional payments or bonuses to RFB.
4.Deferred Compensation. Prior to May 19, 1997 AMC agreed to pay as
deferred compensation $12,000 monthly to RFB for a period of years following
his retirement or termination as General Counsel. In consideration of more
than thirty years of legal services which were critical to AMC's growth and
success and in further consideration of continued deferrals of compensation,
AMC, on May 19, 1997 instituted and agreed to maintain a deferred
compensation trust for the purpose of making deferred compensation payments
to RFB, or his estate or other designated beneficiary(ies) on the basis
described herein. The deferred compensation payments shall commence upon the
termination of this Agreement or RFB's position as General Counsel, or RFB's
voluntary termination, death or disability, or a change of control as provided
in paragraph 5(c) below, and shall be paid in substantially equal monthly
installments for a period of twelve (12) years. Based on the trust assets as
of September 30, 1999, and assuming an interest rate of 9.00%, such monthly
payments would have been $28,285 had they commenced as of such date.
Actual payments will be based on the actual amount of the trust at the
commencement of payment, which will increase as follows:
(A)by the amount of any bonus payable as determined by AMC
which shall be deferred and paid hereunder; and
(B)by the accrual of simple annual interest at the prime
rate plus 1%, but averaging such rates for the last day of each
calendar quarter during the fiscal year, credited annually based on
the aggregate unpaid amount of RFB's deferred compensation account,
and as calculated thereafter, whether or not payments to RFB under
the Agreement have commenced. Such interest shall be credited as
of the last day of each fiscal year and any bonus attributable to
the prior fiscal year shall be credited as of the first day of the
following fiscal year. However, if the deferred payments are
commenced during the fiscal year, as provided above, the accrued
interest of the preceding quarter or quarters shall be averaged and
applied as a fraction of the four quarters of the fiscal year and
any bonus that was awarded and not theretofore credited shall be
credited as of the date immediately prior to the date such deferred
payments commence.
Upon commencement of payments over said twelve-year period,
AMC, in consultation with its compensation consultant or pension
plan actuary, shall calculate, based on the accumulated amount of
RFB's deferred compensation and a reasonable projected interest rate
for the payment period, a substantially equal monthly amount, with
any adjustment necessary to be made in the final (144th) payment.
This paragraph 4 will continue in full force and effect until all
payments have been made hereunder, irrespective of the termination of any
other or all provisions of this Agreement.
5.Termination; Severance.
(a)Termination Without Severance. The engagement of RFB as
General Counsel shall terminate without severance upon RFB's
(i) resignation; (ii) death; or (iii) disability which renders
him unable to perform his usual and customary duties for a
period of 180 consecutive days.
(b)Termination With Severance.
(i)RFB may be terminated as General Counsel with severance
at any time by the Chairman of the Board with the approval of the Board of
Directors of AMC Entertainment Inc. ("AMCE").
(ii)In the event of such termination, RFB shall receive a
lump sum cash payment equal to three (3) times the annual retainer, one-
half (50%) to be paid in cash and one-half (50%) to be paid to the Deferred
Compensation Trust described in paragraph 4 above.
(c)Change of Control.
(i)For the purposes of this Agreement, a "Change of Control"
means a merger of AMCE with, or a sale or other transfer of all or
substantially all of AMCE's assets to, any person or entity which is not
controlled by AMCE, provided, that such transaction has been approved by
the holders of a majority of the shares of AMCE's Common Stock then
outstanding.
(ii)In the event of a Change of Control, RFB shall receive
a lump sum cash payment equal to three (3) times the annual retainer, one-
half (50%) to be paid in cash and one-half (50%) to be paid to the Deferred
Compensation Trust described in paragraph 4 above.
6.Notices. All notices, requests, demand or other communications
under this Agreement shall be in writing addressed as follows:
(a)If to RFB:
Raymond F. Beagle, Jr.
Lathrop & Gage L.C.
2345 Grand Boulevard
Kansas City, Missouri 64108
(b)If to AMC:
Peter C. Brown
AMC Entertainment Inc.
106 West 14th Street
P.O. Box 419615
Kansas City, Missouri 64141-6615
Any such notice, request, demand or other communication shall be
effective as of the date of actual delivery thereof. Either party may
change such notice address by written notice as provided herein.
7.Additional Potential Compensation. Nothing in this Agreement
shall prohibit AMC from awarding additional compensation to RFB if it is
determined that such compensation is warranted based on RFB's performance.
8.Other Provisions. This Agreement shall be governed by the laws
of the State of Missouri. This Agreement represents the entire agreement of
the parties hereto and shall not be amended except by a written agreement
signed by all the parties hereto. This Agreement supersedes any prior oral
or written agreements or understandings between AMC or any affiliate of AMC
and RFB. This Agreement shall not be assignable by one party without the
prior written consent of the other party. In the event one or more of the
provisions contained in this Agreement or any application thereof shall be
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provision of this Agreement or any other
application thereof shall not in any way be affected or impaired thereby.
Section headings herein have no legal significance.
9.Arbitration. Any legal dispute, controversy or claim related to
this Agreement or breach thereof, shall, in lieu of being submitted to a court
of law, be submitted to arbitration, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. The award of the
arbitrators shall be final and binding upon the parties.
The parties hereto agree that (i) three arbitrators shall be selected
pursuant to the rules and procedures of the American Arbitration Association,
(ii) at least one arbitrator shall be a licensed attorney, (iii) the
arbitrators shall have the power to award injunctive relief or to direct
specific performance, (iv) the arbitrators will not have the authority to
award punitive damages, (v) each of the parties shall bear its own attorneys'
fees, costs and expenses and an equal share of the arbitrators' and
administrative fees of arbitration, (vi) the arbitrators will not have the
authority to award attorneys' fees other than to direct or confirm in the
award that each party shall pay its own fees, and (vii) the arbitrators shall
award to the prevailing party a sum equal to that party's share of the
arbitrators' and administrative fees of arbitration.
Nothing in this Section shall be construed as providing RFB a cause of
action, remedy or procedure that RFB would not otherwise have under this
Agreement or the law.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
IN WITNESS WHEREOF, the parties have executed this Retainer Agreement as
of the day and year first above written.
AMC ENTERTAINMENT INC.,
a Delaware corporation
By:/s/ Peter C. Brown
Peter C. Brown, Chairman of the
Board and President
/s/ Raymond F. Beagle, Jr.
RAYMOND F. BEAGLE, JR.
