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 28, 2000
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 28, 2000
----------------------------------- ---------------------
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 10
Item 3.Quantitative and Qualitative Disclosures
About Market Risk 19
PART II - OTHER INFORMATION
Item 1.Legal Proceedings 20
Item 6.Exhibits and Reports on Form 8-K 22
Signatures 24
<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
Sept. 28, Sept. 30, Sept. 28, Sept.30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
(Unaudited) (Unaudited)
Revenues
Admissions $220,554 $219,749 $414,095 $407,631
Concessions 91,472 95,499 172,187 179,212
Other theatre 6,813 6,849 13,535 11,938
Other 14,425 11,588 21,586 21,464
------- ------- ------- -------
Total revenues 333,264 333,685 621,403 620,245
Expenses
Film exhibition costs 119,902 121,545 224,011 231,093
Concession costs 14,138 14,898 26,355 27,589
Theatre operating expense 76,347 71,123 152,156 138,132
Rent 57,862 48,636 113,841 96,513
Other 12,392 11,794 21,217 22,489
General and administrative 7,350 12,284 13,985 25,495
Preopening expense 875 2,024 2,483 3,297
Theatre closure expense 11,679 2,046 12,406 11,692
Restructuring charge - 12,000 - 12,000
Depreciation and
amortization 25,917 23,029 52,295 43,686
Impairment of long-lived
assets 3,813 - 3,813 -
(Gain) loss on disposition
of assets 5 (144) (1,635) (327)
------- ------- ------- -------
Total costs and
expenses 330,280 319,235 620,927 611,659
------- ------- ------- -------
Operating income 2,984 14,450 476 8,586
Other expense (income)
Interest expense
Corporate borrowings 15,790 12,530 32,038 24,158
Capital and financing
lease obligations
and other 2,996 1,871 6,178 3,714
Investment (income) loss 495 386 (605) (100)
------- ------- ------- -------
Loss before income taxes
and cumulative effect
of an accounting change (16,297) (337) (37,135) (19,186)
Income tax provision (5,900) (135) (13,800) (7,835)
------- ------- ------- -------
Loss before cumulative
effect of an
accounting change (10,397) (202) (23,335) (11,351)
Cumulative effect of an
accounting change
(net of income tax
benefit of $4,095) - - - (5,840)
------- ------- ------- -------
Net loss $(10,397)$ (202) $ (23,335) $ (17,191)
======== ======== ======== ========
Net loss per share before
cumulative effect of
an accounting change:
Basic $ (.44)$ (.01) $ (.99) $ (.48)
======== ======== ======== ========
Diluted $ (.44)$ (.01) $ (.99) $ (.48)
======== ======== ======== ========
Net loss per share:
Basic $ (.44)$ (.01) $ (.99) $ (.73)
======== ======== ======== ========
Diluted $ (.44)$ (.01) $ (.99) $ (.73)
======== ======== ======== ========
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
AMC ENTERTAINMENT INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<CAPTION>
September 28,March 30,
2000 2000
---- ----
<S> <C> <C>
(Unaudited)
ASSETS
Current assets:
Cash and equivalents $ 80,240 $ 119,305
Receivables, net of allowance for doubtful
accounts of $4,006 as of September 28, 2000
and $3,576 as of March 30, 2000 22,242 18,468
Reimbursable construction advances 1,858 10,955
Other current assets 40,562 45,275
------- -------
Total current assets 144,902 194,003
Property, net 818,237 822,295
Intangible assets, net 13,532 15,289
Other long-term assets 148,812 157,218
------- -------
Total assets $1,125,483 $1,188,805
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 80,900 $ 99,466
Construction payables 7,783 6,897
Accrued expenses and other liabilities 122,635 114,037
Current maturities of capital and financing
lease obligations 2,442 3,205
------- -------
Total current liabilities 213,760 223,605
Corporate borrowings 734,138 754,105
Capital and financing lease obligations 56,382 65,301
Other long-term liabilities 92,538 87,125
------- -------
Total liabilities 1,096,818 1,130,136
Stockholders' equity:
Common Stock, 66 2/3 cents par value; 19,447,598
shares issued as of September 28, 2000
and March 30, 2000 12,965 12,965
Convertible Class B Stock, 66 2/3 cents par value;
4,041,993 shares issued and outstanding as
of September 28, 2000 and March 30, 2000 2,695 2,695
Additional paid-in capital 106,713 106,713
Accumulated other comprehensive income (10,227) (3,812)
Accumulated deficit (73,496) (50,161)
------- -------
38,650 68,400
Less:
Employee notes for Common Stock purchases 9,616 9,362
Common Stock in treasury, at cost, 20,500
shares as of September 28, 2000 and
March 30, 2000 369 369
------- -------
Total stockholders' equity 28,665 58,669
------- -------
Total liabilities and stockholders' equity $1,125,483$1,188,805
======== ========
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 28, September 30,
2000 1999
---- ----
<C> <C>
INCREASE (DECREASE) IN CASH AND EQUIVALENTS (Unaudited)
Cash flows from operating activities:
Net loss $ (23,335) $ (17,191)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Restructuring charge - 12,000
Depreciation and amortization 52,295 43,686
Impairment of long-lived assets 3,813 -
Deferred income taxes (13,800) (5,475)
Gain on disposition of long-term assets (1,635) (327)
Cumulative effect of an accounting change - 5,840
Change in assets and liabilities:
Receivables (3,774) (7,859)
Other current assets 4,713 4,547
Accounts payable (21,312) (12,628)
Accrued expenses and other liabilities (1,426) 10,497
Liabilities for theatre closure 6,621 7,332
Other, net 2,065 717
------- -------
Net cash provided by operating activities 4,225 41,139
------- -------
Cash flows from investing activities:
Capital expenditures (56,662) (177,299)
Proceeds from sale/leasebacks 6 2,940
Net proceeds from reimbursable construction advances 6,559 9,556
Proceeds from disposition of long-term assets 26,322 3,591
Other, net (2,975) 11,526
------- -------
Net cash used in investing activities (26,750) (149,686)
------- -------
Cash flows from financing activities:
Net borrowings (repayments) under revolving
Credit Facility (20,000) 104,000
Principal payments under corporate borrowings - (14,000)
Proceeds from financing lease obligations 2,532 8,197
Principal payments under capital and financing
lease obligations (1,582) (1,639)
Change in cash overdrafts 2,746 22,398
Change in construction payables 886 (13,399)
Other, net - (241)
------- -------
Net cash provided by (used in) financing
activities (15,418) 105,316
------- -------
Effect of exchange rate changes on cash
and equivalents (1,122) 369
------- -------
Net decrease in cash and equivalents (39,065) (2,862)
Cash and equivalents at beginning of period 119,305 13,239
------- -------
Cash and equivalents at end of period $ 80,240 $ 10,377
======== ========
</TABLE>
<PAGE>
<TABLE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
Twenty-six
Weeks Ended
Sept. 28, Sept. 30,
2000 1999
---- ----
<C> <C>
(Unaudited)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of amounts capitalized
of $2,119 and $4,276) $44,681 $31,384
Income taxes refunded (5,482) (7,509)
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 28, 2000
(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 Portugal, Spain, France, Japan and China (Hong Kong). The Company also
provides on-screen advertising through a wholly-owned subsidiary, National
Cinema Network, Inc., and is involved 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 March 30, 2000. 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 28, 2000 are not necessarily indicative of the results to
be expected for the fiscal year (52 weeks) ending March 29, 2001.
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.
<PAGE>
NOTE 2 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Thirteen Weeks Twenty-six Weeks
Ended Ended
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
2000 1999 2000 1999
---- ---- ---- ----
(in thousands, except per share data)
<C> <C> <C> <C>
Numerator:
Loss before cumulative
effect of an accounting
change for basic and
diluted earnings
per share $ (10,397) $ (202) $(23,335) $ (11,351)
======== ======== ======== ========
Denominator:
Shares for basic earnings
per share -
average shares outstanding 23,469 23,469 23,469 23,469
======== ======== ======== =======
Basic loss per share before
cumulative effect of an
accounting change $ (.44) $ (.01) $ (.99) $ (.48)
======== ======== ======== ========
Diluted loss per share before
cumulative effect of an
accounting change $ (.44)$ (.01) $ (.99) $ (.48)
======== ======== ======== ========
</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
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
2000 1999 2000 1999
---- ---- ---- ----
(in thousands)
<C> <C> <C> <C>
Net loss $ (10,397) $ (202) $(23,335) $(17,191)
Foreign currency
translation adjustment (5,297) 4,319 (6,335) 2,621
Unrealized loss on
marketable securities
(net of income tax
benefit of $161
and $62, respectively) (231) - (80) -
------- ------- ------- -------
Comprehensive income
(loss) $(15,925) $ 4,117 $(29,750) $(14,570)
======== ======== ======== ========
</TABLE>
NOTE 4 - OPERATING SEGMENTS
Information about the Company's operations by operating segment is as
follows:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
Revenues Sept. 28, Sept. 30, Sept. 28, Sept. 30,
2000 1999 2000 1999
---- ---- ---- ----
<C> <C> <C> <C>
(in thousands)
North America
theatrical
exhibition $294,613 $305,591 $559,259 $571,543
International
theatrical exhibition 24,226 16,506 40,558 27,238
On-screen advertising
and other 14,425 11,588 21,586 21,464
------- ------- ------- -------
Total revenues $333,264 $333,685 $621,403 $620,245
======== ======== ======== ========
Thirteen Weeks Ended Twenty-six Weeks Ended
Adjusted EBITDA (1) Sept. 28, Sept. 30, Sept. 28, Sept. 30,
2000 1999 2000 1999
---- ---- ---- ----
(in thousands)
North America
theatrical
exhibition $51,162 $65,192 $ 85,656 $105,357
International
theatrical exhibition (572) 703 (2,202) 97
On-screen advertising
and other 2,033 (206) 369 (1,025)
------- ------- ------- -------
Total segment
Adjusted EBITDA 52,623 65,689 83,823 104,429
General and
administrative 7,350 12,284 13,985 25,495
------- ------- ------- -------
Total Adjusted EBITDA $45,273 $53,405 $ 69,838 $ 78,934
======== ======== ======== ========
Property (2) Sept. 28, Sept. 30,
2000 1999
---- ----
(in thousands)
North America
theatrical
exhibition $1,050,714 $1,021,691
International
theatrical
exhibition 84,056 61,915
On-screen advertising
and other 14,309 12,107
------- -------
Total segment property 1,149,079 1,095,713
Construction in progress 41,885 108,663
Corporate 41,968 43,596
------- -------
1,232,932 1,247,972
Less-accumulated
depreciation
and amortization 414,695 400,693
------- -------
Property, net $ 818,237$ 847,279
======== ========
(1)Represents net loss before income taxes, cumulative effect of an accountin
g change, interest, depreciation and amortization and adjusted for
impairment losses, restructuring charge, preopening expense, theatre
closure expense, gain/loss on disposition of assets and equity in earnings
of unconsolidated affiliates.
(2) Property is comprised of land, buildings and improvements, leasehold imp
rovements and furniture, fixtures and equipment.
</TABLE>
NOTE 5 - IMPAIRMENT OF LONG-LIVED ASSETS
During the twenty-six weeks ended September 28, 2000, the Company
recognized a non-cash impairment loss of $3,813,000 ($2,250,000 after tax,
or $.10 per share). The charge was primarily related to discontinued
development of a theatre in Taiwan and on 29 North America multiplex
theatres with 180 screens. The Company closed 22 of these theatres with 139
screens during the thirteen weeks ended September 28, 2000. The Company
continues to operate seven of the impaired theatres with 41 screens and
expects the future cash flows to decline as they face competition from
newer megaplexes and plans to close these theatres during fiscal 2001.
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 and operating data 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. 28, Sept. 30, Sept. 28, Sept. 30,
2000 1999 % Change 2000 1999 % Change
---- ---- ---- ---- ---- ----
(Dollars in thousands)
<C> <C> <C> <C> <C> <C>
Revenues
North America
theatrical exhibition
Admissions $201,260 $206,274 (2.4)% $381,637 $385,441(1.0)%
Concessions 87,314 92,636 (5.7) 165,337 174,655(5.3)
Other theatre 6,039 6,681 (9.6) 12,285 11,447 7.3
------- ------- ---- ------- ------- ----
294,613 305,591 (3.6) 559,259 571,543(2.1)
International
theatrical exhibition
Admissions 19,294 13,475 43.2 32,458 22,190 46.3
Concessions 4,158 2,863 45.2 6,850 4,557 50.3
Other theatre 774 168 * 1,250 491 *
------- ------- ---- ------- ------- ----
24,226 16,506 46.8 40,558 27,238 48.9
On-screen advertising
and other 14,425 11,588 24.5 21,586 21,464 0.6
------- ------- ---- ------- ------- ----
Total revenues $333,264 $333,685 (.1)%$621,403 $620,245 0.2%
================= ======= ================== =====
Costs of operations
North America
theatrical exhibition
Film exhibition
costs $109,369 $114,494 (4.5)% $206,697 $219,635 (5.9)%
Concession costs 12,757 13,987 (8.8) 24,173 26,156 (7.6)
Theatre operating
expense 70,127 67,008 4.7 140,769 130,798 7.6
Rent 51,198 44,910 14.0 101,964 89,597 13.8
Preopening expense 317 1,640 (80.7) 1,659 2,650 (37.4)
Theatre closure
expense 11,679 2,046 * 12,406 11,692 6.1
------- ------- ---- ------- ------- ----
255,447 244,085 4.7 487,668 480,528 1.5
International
theatrical exhibition
Film exhibition costs 10,533 7,051 49.4 17,314 11,458 51.1
Concession costs 1,381 911 51.6 2,182 1,433 52.3
Theatre operating
expense 6,220 4,115 51.2 11,387 7,334 55.3
Rent 6,664 3,726 78.9 11,877 6,916 71.7
Preopening expense 558 384 45.3 824 647 27.4
------- ------- ---- ------- ------- ----
25,356 16,187 56.6 43,584 27,788 56.8
On-screen advertising
and other 12,392 11,794 5.1 21,217 22,489 (5.7)
General and administrative7,350 12,284 (40.2) 13,985 25,495 (45.1)
Restructuring charge - 12,000 * - 12,000 *
Depreciation and
amortization 25,917 23,029 12.5 52,295 43,686 19.7
Impairment of longlived
assets 3,813 - * 3,813 - *
(Gain) loss on
disposition of assets 5 (144) * (1,635) (327) *
------- ------- ---- ------- ------- ----
Total costs and
expenses $330,280 $319,235 3.5% $620,927 $611,659 1.5%
========= ======== ======= ======== ======== =====
*Percentage change in excess of 100%.
Thirteen Weeks Ended Twenty-six Weeks Ended
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
2000 1999 2000 1999
---- ---- ---- ----
Operating data
North America
theatrical exhibition
Attendance (in thousands)
Megaplexes 26,088 25,519 49,505 47,562
Multiplexes 12,069 16,854 23,204 31,820
Average Screens
Megaplexes 1,628 1,372 1,619 1,326
Multiplexes 1,067 1,233 1,084 1,268
Number of
megaplexes operated
(end of period) - - 73 65
Number of
megaplex screens
operated
(end of period) - - 1,669 1,478
Number of
multiplexes operated
(end of period) - - 106 143
Number of multiplex
screens operated
(end of period) - - 960 1,206
Screens per theatre
(end of period) - - 14.7 12.9
International theatrical
exhibition
Attendance -
Megaplexes
(in thousands) 2,836 1,984 4,949 3,415
Average screens -
Megaplexes 177 100 169 92
Number of
megaplexes operated
(end of period) - - 10 6
Number of megaplex
screens operated
(end of period) - - 178 102
Screens per theatre
(end of period) - - 17.8 17.0
</TABLE>
Thirteen weeks ended September 28, 2000 and September 30, 1999.
Revenues. Total revenues decreased .1% during the thirteen weeks
ended September 28, 2000 compared to the thirteen weeks ended September 30,
1999.
North America theatrical exhibition revenues decreased 3.6% from the
prior year. Admissions revenues decreased 2.4% due to a 9.9% decrease in
attendance offset by a 8.3% increase in average ticket prices. The increase
in average ticket prices was due to a strategic initiative implemented by
the Company to selectively increase ticket and concession prices 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 22.2%
decrease in attendance at comparable multiplexes (theatres opened before
the second quarter of fiscal 2000) and the closure or sale of 37
multiplexes with 246 screens since September 30, 1999. 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, and a decline in the overall box office
performance of films during the thirteen weeks ended September 28, 2000 as
compared with the same period in the prior year. Attendance at megaplexes
(theatres with predominantly stadium-style seating) increased as a result
of the addition of 8 new megaplexes with 191 screens since September 30,
1999. Attendance at comparable megaplexes decreased 10.7% primarily due to
a decline in overall box office performance of films during the thirteen
weeks ended September 28, 2000 as compared with the same period in the
prior year. Concessions revenues decreased 5.7% due to the decrease in
total attendance offset by a 4.7% increase in average concessions per
patron.
International theatrical exhibition revenues increased 46.8% from the
prior year. Admissions revenues increased 43.2% due primarily to an
increase in attendance from the addition of 4 new megaplexes with a total
of 76 screens since September 30, 1999. Attendance at comparable megaplexes
increased 1.3%. Concession revenues increased 45.2% due primarily to the
increase in total attendance. International revenues were negatively
impacted by a stronger U.S. dollar, although this did not contribute
materially to consolidated net loss.
On-screen advertising and other revenues increased 24.5% from the
prior year due primarily to an increase in rolling stock advertising
(filmed pre-show commercials) at the Company's on-screen advertising
business.
Costs and expenses. Total costs and expenses increased 3.5% during
the thirteen weeks ended September 28, 2000 compared to the thirteen weeks
ended September 30, 1999.
North America theatrical exhibition costs and expenses increased 4.7%
from the prior year. Film exhibition costs decreased 4.5% due to lower
admissions revenues and a decrease in the percentage of admissions paid to
film distributors. As a percentage of admissions revenues, film exhibition
costs were 54.3% in the current year as compared with 55.5% in the prior
year. Concession costs decreased 8.8% due to the decrease in concessions
revenues and a decrease in concession costs as a percentage of concessions
revenues. As a percentage of concessions revenues, concession costs were
14.6% in the current year compared with 15.1% in the prior year. As a
percentage of revenues, theatre operating expense was 23.8% in the current
year as compared to 21.9% in the prior year primarily due to an increase in
fixed costs associated with the increase in the number of screens operated
and the decrease in attendance and revenues. Rent expense increased 14.0%
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
28, 2000, the Company incurred $11,679,000 of theatre closure expense
comprised primarily of expected payments to landlords to terminate the
leases related to 21 multiplexes with 135 screens.
International theatrical exhibition costs and expenses increased 56.6%
from the prior year. Film exhibition costs increased 49.4% primarily due
to higher admission revenues. Rent expense increased 78.9% and theatre
operating expense increased 51.2% from the prior year, primarily due to the
increased number of screens in operation. International theatrical
exhibition costs and expenses were positively impacted by a stronger U.S.
dollar, although this did not contribute materially to consolidated net
loss.
On-screen advertising and other costs and expenses increased 5.1% due
primarily to $1,319,000 of professional and consulting fees associated with
other ventures, offset by a decrease in advertising costs at the Company's
on-screen advertising business.
General and administrative expenses decreased 40.2% during the
thirteen weeks ended September 28, 2000 due primarily to the September 30,
1999 consolidation of the Company's three U.S. divisional operations
offices into its corporate headquarters and a decrease in incentive
compensation expense. As a percentage of total revenues, general and
administrative expenses declined from 3.7% in the prior year to 2.2% 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 $5,300,000, lease termination costs of
$700,000 and the write-off of capitalized pre-development costs of
$6,000,000.
Depreciation and amortization increased 12.5%, or $2,888,000, during
the thirteen weeks ended September 28, 2000. This increase was primarily
caused by an increase in depreciation of $3,005,000 related to the
Company's new theatres.
During the thirteen weeks ended September 28, 2000, the Company
recognized a non-cash impairment loss of $3,813,000 ($2,250,000 after tax,
or $.10 per share). The charge was primarily related to discontinued
development of a theatre in Taiwan and on 29 North America multiplex
theatres with 180 screens in 12 states (primarily Florida, California,
Texas, Michigan and Arizona) including a loss of $1,521,000 associated with
20 theatres that were included in impairment losses in previous periods.
The Company closed 22 of these theatres with 139 screens during the
thirteen weeks ended September 28, 2000. The Company continues to operate
seven of the impaired theatres with 41 screens and expects the future cash
flows to decline as they face competition from newer megaplexes and plans
to close these theatres during fiscal 2001.
Interest Expense. Interest expense increased 30.4% during the
thirteen weeks ended September 28, 2000 compared to the prior year,
primarily due to an increase in average outstanding borrowings and interest
rates.
Income Tax Provision. The provision for income taxes decreased to a
benefit of $5,900,000 during the current year from a benefit of $135,000 in
the prior year. The effective tax rate was 36.2% for the current year
compared to 40.1% for the previous year. The Company adjusts its expected
annual 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 28, 2000 to a loss of $10,397,000 from a loss of $202,000 in the
prior year. Net loss per share was $.44 compared to a loss of $.01 in the
prior year. Current year results include a non-cash impairment loss of
$3,813,000 ($2,250,000 after tax) which reduced earnings per share by $.10
for the thirteen weeks ended September 28, 2000. Prior year 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 28, 2000 and September 30, 1999.
Revenues. Total revenues increased .2% during the twenty-six weeks
ended September 28, 2000 compared to the twenty-six weeks ended September
30, 1999.
North America theatrical exhibition revenues decreased 2.1% from the
prior year. Admissions revenues decreased 1.0% due to an 8.4% decrease in
attendance offset by a 8.1% increase in average ticket prices. The increase
in average ticket prices was due to a strategic initiative implemented by
the Company to selectively increase ticket and concession prices 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 20.5%
decrease in attendance at comparable multiplexes (theatres opened before
the first quarter of fiscal 2000) and the closure or sale of 37 multiplexes
with 246 screens since September 30, 1999. 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, and a decline in the overall box office performance of films
during the twenty-six weeks ended September 28, 2000 as compared with the
same period in the prior year. Attendance at megaplexes increased as a
result of the addition of 8 new megaplexes with 191 screens since September
30, 1999. Attendance at comparable megaplexes decreased 10.3% primarily
due to a decline in the overall box office performance of films during the
twenty-six weeks ended September 28, 2000 as compared with the same period
in the prior year. Concessions revenues decreased 5.3% due to the decrease
in total attendance offset by a 3.4% increase in average concessions per
patron.
International theatrical exhibition revenues increased 48.9% from the
prior year. Admissions revenues increased 46.3% due primarily to an
increase in attendance from the addition of 4 new megaplexes with a total
of 76 screens since September 30, 1999. Attendance at comparable megaplexes
increased 2.9%. Concession revenues increased 50.3% due primarily to the
increase in total attendance. International revenues were negatively
impacted by a stronger U.S. dollar, although this did not contribute
materially to consolidated net loss.
On-screen advertising and other revenues increased .6% from the prior
year due primarily to an increase in rolling stock advertising at the
Company's on-screen advertising business.
Costs and expenses. Total costs and expenses increased 1.5% during
the twenty-six weeks ended September 28, 2000 compared to the twenty-six
weeks ended September 30, 1999.
North America theatrical exhibition costs and expenses increased 1.5%
from the prior year. Film exhibition costs decreased 5.9% due to a
decrease in the percentage of admissions paid to film distributors and the
decrease in admissions revenues. As a percentage of admissions revenues,
film exhibition costs were 54.2% in the current year as compared with 57.0%
in the prior year. The decrease 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 during the twenty-six weeks ended September 30, 1999. Concession
costs decreased 7.6% due to the decrease in concessions revenues and a
decrease in concession costs as a percentage of concessions revenues. As a
percentage of concessions revenues, concession costs were 14.6% in the
current year compared with 15.0% in the prior year. As a percentage of
revenues, theatre operating expense was 25.2% in the current year as
compared to 22.9% in the prior year primarily due to an increase in fixed
costs associated with the increase in the number of screens operated and
the decrease in attendance and revenues. Rent expense increased 13.8% 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 28, 2000, the Company incurred $12,406,000 of theatre closure
expense comprised primarily of expected payments to landlords to
terminate the leases related to 23 multiplexes with 147 screens.
International theatrical exhibition costs and expenses increased 56.8%
from the prior year. Film exhibition costs increased 51.1% primarily due
to higher admission revenues. Rent expense increased 71.7% and theatre
operating expense increased 55.3% from the prior year, primarily due to the
increased number of screens in operation. International theatrical
exhibition costs and expenses were positively impacted by a stronger U.S.
dollar, although this did not contribute materially to consolidated net
loss.
On-screen advertising and other costs and expenses decreased 5.7% due
primarily to a decrease in advertising costs at the Company's on-screen
advertising business offset by $1,319,000 of professional and consulting
fees associated with other ventures.
General and administrative expenses decreased 45.1% during the twenty-
six weeks ended September 28, 2000 due primarily to the September 30, 1999
consolidation of the Company's three U.S. divisional operations offices
into its corporate headquarters and a decrease in incentive compensation
expense. As a percentage of total revenues, general and administrative
expenses declined from 4.1% in the prior year to 2.3% 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 $5,300,000, lease termination costs of
$700,000 and the write-off of capitalized pre-development costs of
$6,000,000.
Depreciation and amortization increased 19.7%, or $8,609,000, during
the twenty-six weeks ended September 28, 2000. This increase was
primarily caused by an increase in depreciation of $6,250,000 related to
the Company's new theatres.
During the twenty-six weeks ended September 28, 2000, the Company
recognized a non-cash impairment loss of $3,813,000 ($2,250,000 after tax,
or $.10 per share). The charge was primarily related to discontinued
development of a theatre in Taiwan and on 29 North America multiplex
theatres with 180 screens in 12 states (primarily Florida, California,
Texas, Michigan and Arizona) including a loss of $1,521,000 associated with
20 theatres that were included in impairment losses in previous periods.
The Company closed 22 of these theatres with 139 screens during the
thirteen weeks ended September 28, 2000. The Company continues to operate
seven of the impaired theatres with 41 screens and expects the future cash
flows to decline as they face competition from newer megaplexes and plans
to close these theatres during fiscal 2001.
Gain on disposition of assets increased from a gain of $327,000 in the
prior year to a gain of $1,635,000 during the current year. Current year
and prior year results include gains related to the sales of real estate
properties held for investment and multiplexes closed during the twenty-six
weeks ended September 28, 2000 and September 30, 1999.
Interest Expense. Interest expense increased 37.1% during the twenty-
six weeks ended September 28, 2000 compared to the prior year, primarily
due to an increase in average outstanding borrowings and interest rates.
Income Tax Provision. The provision for income taxes decreased to a
benefit of $13,800,000 during the current year from a benefit of $7,835,000
in the prior year. The effective tax rate was 37.2% for the current year
compared to 40.8% for the previous year. The Company adjusts its expected
annual 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 28, 2000 to a loss of $23,335,000 from a loss of
$17,191,000 in the prior year. Net loss per share was $.99 compared to a
loss of $.73 in the prior year. Current year results include a non-cash
impairment loss of $3,813,000 ($2,250,000 after tax) which reduced earnings
per share by $.10 for the twenty-six weeks ended September 28, 2000. Prior
year results include a restructuring charge of $12,000,000 ($7,200,000 net
of income tax benefit of $4,800,000) and the cumulative effect of an
accounting change of $5,840,000 (net of income tax benefit of $4,095,000),
which reduced earnings per share by $.31 and $.25 for the twenty-six weeks
ended September 30, 1999, respectively.
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 $4,225,000 and $41,139,000 for the twenty-six weeks ended
September 28, 2000 and September 30, 1999, respectively. The decrease in
operating cash flows during the period is primarily due to increased
competition, the decline in the performance of films and an increase in
rent, interest, and theatre closure payments.
The Company continues to upgrade its North America and International
theatre circuits. During the current fiscal year, the Company opened three
megaplexes with 65 screens. The Company and its competitors continue to
close older multiplexes in response to competition from new megaplexes, a
trend the Company generally anticipates will continue in the theatrical
exhibition industry. As a result, the Company closed 25 multiplexes with
161 screens, resulting in a circuit total of 83 megaplexes with 1,847
screens and 106 multiplexes with 960 screens as of September 28, 2000.
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 28, 2000, three new theatres with 65 screens were leased
from developers.
As of September 28, 2000, the Company had construction in progress of
$41,885,000 and reimbursable construction advances (amounts due from
developers and lessors on leased theatres) of $1,858,000, a decline from
$108,663,000 and $21,183,000, respectively, as of September 30, 1999. The
Company had six megaplexes with 104 screens under construction on September
28, 2000. During the twenty-six weeks ended September 28, 2000, the Company
had capital expenditures of $56,662,000 compared with $177,299,000 during
the same period in the prior year. The Company expects capital
expenditures in fiscal year 2001 will approximate $125 million, down from
$275 million for the fiscal year ended March 30, 2000. The Company expects
proceeds from sale and leaseback transactions of up to $10 million for
fiscal 2001. Consummation of sale and leaseback or other comparable
financing programs are dependent upon favorable market conditions.
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 28, 2000, the Company had outstanding
borrowings of $310,000,000 under the Credit Facility at an average interest
rate of 9.3% per annum, and approximately $38,000,000 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. The most restrictive of these covenants are
the Total Leverage Ratio and Cash Flow Coverage Ratio, as defined in the
Credit Facility. The Total Leverage Ratio requires a maximum ratio of
6.0:1 through (and including) March 29, 2001, 5.5:1 from March 30, 2001
through (and including) March 28, 2002 and 5.0:1 each fiscal quarter
thereafter. The Cash Flow Coverage Ratio requires a minimum ratio of
1.40:1. As of September 28, 2000 the Company's Total Leverage Ratio and
Cash Flow Coverage Ratio complied with the covenants imposed by the Credit
Facility.
Covenants under the Indentures relating to the Company's 9 1/2% Senior
Subordinated Notes due 2009 and the Company's 9 1/2% Senior Subordinated
Notes due 2011 are substantially the same and impose limitations on the
incurrence of indebtedness, dividends, purchases or redemptions of stock,
transactions with affiliates, and mergers and sales of assets. As of
September 28, 2000, the Company was in compliance with all financial
covenants relating to the Notes due 2009 and the Notes due 2011. However,
as of such date, under provisions of the Notes due 2009 and the Notes due
2011, the Company is currently prohibited from incurring additional
indebtedness other than additional borrowings under the Credit Facility and
other permitted indebtedness, as defined in the Indentures, and paying
dividends or making distributions in respect of its capital stock.
The Company believes that cash generated from operations, existing
cash and equivalents, amounts received from sale and leaseback
transactions, expected reimbursements from developers and the available
commitment amount under its Credit Facility will be sufficient to fund
operations, planned capital expenditures and payments to landlords to
terminate leases on closed theatres for the next 12 months. However, the
performance of films licensed by the Company, increased competition and
unforeseen changes in operating requirements could affect the Company's
ability to continue to upgrade its circuit as well as comply with certain
financial covenants in the Credit Facility.
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 September 30, 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, two theatres
in Spain and one in France. These 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 which was
amended by Statement of Financial Accounting Standards No. 138 issued in
June 2000. 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.
In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition
in Financial Statements. SAB 101 draws upon the existing accounting rules
and explains those rules, by analogy, to other transactions that the
existing rules do not specifically address. The Company has reviewed its
revenue recognition policies and will make a final evaluation of the
impact, if any, of SAB 101 after additional guidance recently made public
by the SEC staff is evaluated.
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 9.3% per annum, a 100 basis point increase in market
interest rates would increase annual interest expense and decrease earnings
before income taxes by approximately $3.1 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 Canada, Portugal, Spain, France, Japan, and China (Hong Kong)
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 international 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 $1.3 million and $14.8 million, respectively.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
A purported class action has been filed against the Company and Loews
Cineplex Entertainment Corporation ("Loews") in the United States District
Court for the District of Columbia, Case No. 1:00CV00867, on behalf of all
deaf individuals who desire to attend first run movies with captioning and
interpretative aids at theatres in the United States which are owned,
operated or controlled by the Company or Loews, alleging that the Company
and Loews had violated the ADA by failing to reasonably accommodate
plaintiffs by implementing captioning and other interpretative aids. The
suit seeks injunctive relief requiring the Company and Loews to implement
captioning and other interpretative aids, attorneys' fees and costs.
The Company has entered its appearance and filed a motion to dismiss
the complaint which is pending before the Court. The Company intends to
deny the claim.
As previously reported, 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 filed an answer denying the
allegations and asserting that the DOJ was engaging in unlawful rulemaking.
A similar claim was 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.
In Lara v. Cinemark USA, Inc., No. 99-50204, the United States Court
of Appeals for the Fifth Circuit rejected the DOJ's current position, which
the court characterized as merely a litigation position and held that the
regulations under the ADA do not impose a viewing angle requirement for
wheelchair locations. Based upon the Fifth Circuit's decision, the United
States District Court of the Central District of California has dismissed
the Company's claim asserting that the DOJ had engaged in unlawful
rulemaking. The similar claim made by Cinemark USA, Inc. in the United
States District Court for the Northern District of Texas was dismissed on
the same ground.
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.
As previously reported, on July 27, 1998, in the United States
District Court for the Northern District of California, Drexler Technology
Corporation filed actions 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. AMC currently utilizes SDDS
systems with respect to 2,300 of its screens and owns 159 portable systems
employing Dolby Digital technology. Plaintiff seeks an injunction against
continued use of this technology and also seeks damages. AMC has filed
counter claims alleging that plaintiff's patents are invalid. The court
has ordered that the issues of liability and damages be tried separately.
AMC is the beneficiary of indemnification arrangements with respect to
these actions. 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. Dolby Laboratories has agreed (i) to
defend, indemnify and hold AMC harmless from any losses arising out of the
Drexler v. Dolby Labs. action and (ii) in the event the Dolby Digital
technology is found to infringe on one or more of the Drexler patents, to
procure for AMC at Dolby's expense the right to make, use and sell the
Dolby Digital technology or to modify it so that it is non-infringing. 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.
On August 18, 2000, the United States District Court for the Northern
District of California granted summary judgment dismissing Drexler
Technology Corporation's claim for patent infringement in the Sony Corp.
suit. The Court found both that Drexler Technology Corporation's patent
was invalid and that Sony Corp.'s SDDS system did not infringe the patent.
Drexler Technology Corporation may appeal the decision.
As previously reported, two cases, Nonoy Mendoza, et al. v. AMC
Entertainment Inc., American Multi-Cinema, Inc., et al.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.,
et al. 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. Discovery
in the combined case has been completed, and the court has set a trial date
of February, 2001.
For information on other legal proceedings to which the Company is a
party, reference is also made to Item 3. Legal Proceedings of the
Company's Annual Report on Form 10-K for the fiscal year ended March 30,
2000.
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.
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).
4.1(d) Fourth Amendment, dated March 29, 2000, to Amended and
Restated Credit Agreement dated as of April 10, 1997.
(Incorporated by reference from Exhibit 4.1(d) to the
Company's Form 10-K (file 1-8747) for the fiscal year ended
March 30, 2000).
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).
*4.2(c) Agreement of Resignation, Appointment and Acceptance, dated
August 30, 2000, among the Company, The Bank of New York
and HSBC Bank USA respecting AMC Entertainment Inc.'s 9
1/2% Senior Subordinated Notes due 2009.
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.
*4.3(a) Agreement of Resignation, Appointment and Acceptance, dated
August 30, 2000, among the Company, The Bank of New York
and HSBC Bank USA respecting AMC Entertainment Inc.'s 9
1/2% Senior Subordinated Notes due 2011.
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.
*27 Financial Data Schedule
______
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* 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 28, 2000.
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 6, 2000 /s/ Peter C. Brown
----------------------------
Peter C. Brown
Chairman of the Board,
Chief Executive Officer and
President
Date: November 6, 2000 /s/ Craig R. Ramsey
----------------------------
Senior Vice President,
Finance,
Chief Financial Officer and
Chief Accounting Officer
