<PAGE> 1
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 0-14993
-------
CARMIKE CINEMAS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
DELAWARE 58-1469127
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1301 FIRST AVENUE, COLUMBUS, GEORGIA 31901-2109
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
(706) 576-3400
(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.
Class A Common Stock, $.03 par value --
9,948,487 shares outstanding as of November 1, 1999
Class B Common Stock, $.03 par value --
l,420,700 shares outstanding as of November 1, 1999
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CARMIKE CINEMAS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
(000's omitted)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,180 $ 17,771
Short-term investments 936 801
Accounts and notes receivable 4,691 522
Inventories 4,257 3,851
Prepaid expenses 17,027 5,886
------------- ------------
TOTAL CURRENT ASSETS 32,091 28,831
OTHER ASSETS 40,129 38,146
PROPERTY AND EQUIPMENT - Net of accumulated
depreciation and amortization 684,752 573,612
EXCESS OF COST OVER FAIR
VALUE OF TANGIBLE ASSETS
ACQUIRED 55,598 56,954
------------- ------------
$ 812,570 $ 697,543
============= ============
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------- -------------
(Unaudited)
(000's omitted)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 70,033 $ 45,533
Accrued expenses 34,222 37,842
Current maturities of long-term debt
and capital lease obligations 2,033 1,290
-------------- -------------
TOTAL CURRENT LIABILITIES 106,288 84,665
LONG-TERM LIABILITIES
Long-term debt - less current maturities - Note B 397,476 232,013
Senior notes 0 79,870
Capital lease obligations - less current maturities 53,024 38,587
Restructuring reserve - less current portion 24,933 30,099
Other 2,969 6,000
-------------- -------------
TOTAL LONG-TERM LIABILITIES 478,402 386,569
SHAREHOLDERS' EQUITY
5.5% Series A Senior Cumulative Convertible Exchangeable Preferred Stock,
$1.00 par value, four votes per share, authorized 1,000,000 shares,
issued and outstanding 550,000
shares; involuntary liquidation value of $55,000,000 550 550
Class A Common Stock, $.03 par value, one vote per
share, authorized 22,500,000 shares, issued and outstanding
9,956,487 and 9,942,487 shares, respectively 299 298
Class B Common Stock, $.03 par value, ten votes per
share, authorized 5,000,000 shares, issued and outstanding
1,420,700 shares 43 43
Treasury Stock, 11,800 shares at cost (154) 0
Paid-in capital 158,772 158,543
Retained earnings 68,370 66,875
-------------- -------------
227,880 226,309
-------------- -------------
$ 812,570 $ 697,543
============== =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
CARMIKE CINEMAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
-------- -------- --------- --------
(000's omitted except per share data)
<S> <C> <C> <C> <C>
REVENUES
Admissions $101,159 $ 92,126 $ 255,227 $248,777
Concessions and other 43,671 42,594 112,592 113,783
-------- -------- --------- --------
144,830 134,720 367,819 362,560
COSTS AND EXPENSES
Film exhibition costs 50,910 47,027 135,025 132,128
Concession costs 6,027 5,445 14,730 15,056
Cost of operations 51,913 49,738 142,532 141,795
General and administrative 1,877 1,820 5,530 5,319
Depreciation and amortization 10,735 9,769 30,287 27,843
Change in estimated restructuring costs (Note C) 0 0 (2,671) 0
-------- -------- --------- --------
121,462 113,799 325,433 322,141
-------- -------- --------- --------
OPERATING INCOME 23,368 20,921 42,386 40,419
Interest expense 9,665 6,792 26,166 19,586
-------- -------- --------- --------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 13,703 14,129 16,220 20,833
Income tax expense 5,207 5,369 6,164 7,917
-------- -------- --------- --------
NET INCOME BEFORE EXTRAORDINARY ITEM 8,496 8,760 10,056 12,916
Extraordinary item (net of income tax benefit
of $3,856) - (Note D) 0 0 (6,291) 0
-------- -------- --------- --------
NET INCOME 8,496 8,760 3,765 12,916
Preferred stock dividends 757 0 2,269 0
-------- -------- --------- --------
NET INCOME AVAILABLE FOR
COMMON SHARES $ 7,739 $ 8,760 $ 1,496 $ 12,916
======== ======== ========= ========
Earnings per common share before
Extraordinary item
Basic $ .68 $ .77 $ .68 $ 1.14
Diluted $ .68 $ .77 $ .68 $ 1.13
Earnings per common share
Basic $ .68 $ .77 $ .13 $ 1.14
Diluted $ .68 $ .77 $ .13 $ 1.13
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
CARMIKE CINEMAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
--------- -----------
(000's omitted)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,765 $ 12,916
Items which did not use cash:
Depreciation and amortization 30,287 27,843
Deferred income taxes 3,400 2,000
Gain on sale of assets (2,019) (1,257)
Changes in other assets and liabilities (10,179) 0
Changes in operating assets and liabilities:
Accounts and notes receivable and inventories (4,575) (3,095)
Prepaid expenses (11,141) (461)
Accounts payable 24,500 (5,159)
Accrued expenses (856) 4,604
--------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 33,182 37,391
INVESTING ACTIVITIES
Purchases of property and equipment (141,920) (107,841)
Disposals of property and equipment 3,867 1,682
Decrease (increase) in:
Short-term investments (135) 2,242
Other 700 519
--------- -----------
NET CASH USED IN INVESTING ACTIVITIES (137,488) (103,398)
FINANCING ACTIVITIES
Debt and other liabilities:
Borrowings under revolving credit line 322,300 2,317,500
Repayments of revolving credit line (430,500) (2,246,000)
Borrowings under other long-term agreements 289,995 0
Payments of other long term borrowings (81,022) (18,710)
Debt issuance cost (8,905) 0
Issuance of Class A Common Stock 1 415
Purchase of Treasury Stock (154) 0
Due from lessor under capital leases 0 2,100
--------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 91,715 55,305
--------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS (12,591) (10,702)
Cash and cash equivalents at beginning of period 17,771 16,545
--------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 5,180 $ 5,843
========= ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
CARMIKE CINEMAS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1999
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Carmike Cinemas, Inc. ("Carmike" or the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine-month periods ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
NOTE B -- INDEBTEDNESS
Long-term debt and senior notes consists of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------- -------------
<S> <C> <C>
Revolving Credit Facility $ 121,800 $ 230,000
9 3/8% Senior Subordinated Notes due 2009 200,000 0
Term Loan B which matures March 31, 2005 74,625 0
Industrial Revenue Bonds; payable in equal
installments through May 2006, with
interest rates ranging from 3.90% to 5.98% 2,080 2,285
Senior notes 0 79,870
-------------- -------------
398,505 312,155
Less current maturities (1,029) (272)
-------------- -------------
$ 397,476 $ 311,883
============== =============
</TABLE>
In February 1999, the Company completed a private offering of $200.0 million of
9 3/8% Senior Subordinated Notes due 2009 (the "Subordinated Notes"). The
unregistered Subordinated Notes were subsequently exchanged for registered
Subordinated Notes in July, 1999. The Company's wholly-owned subsidiaries have
fully, unconditionally, jointly and severally guaranteed the Subordinated Notes.
Additionally, on January 29, 1999 the Company amended and restated its 1997
credit agreement (as amended and restated, the "Revolving Credit Facility"). The
Revolving Credit Facility provides for revolving credit availability of $200.0
million and matures November 10, 2002. The interest rate and commitment fees on
the Revolving Credit Facility vary based on certain financial ratios as set
forth in the Revolving Credit Facility Agreement. The aggregate effective
interest rate on the Revolving Credit Facility was 7.6% at September 30, 1999.
6
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
CARMIKE CINEMAS, INC. and SUBSIDIARIES
NOTE B - INDEBTEDNESS (CONTINUED)
The Revolving Credit Facility allowed for the February 25, 1999 issuance of a
separate $75.0 million Term Loan B Facility (the "Term Loan B"). The Term Loan B
will mature March 30, 2005 and bears interest at LIBOR plus 2.75%. The Company
used the net proceeds from the issuance of the Subordinated Notes, approximately
$193.7 million, to redeem its then outstanding Senior Notes and to reduce the
amounts outstanding under the Revolving Credit Facility. Interest accrues on the
Term Loan B at a floating rate per annum initially equal to, at Carmike's
option, either: (1) the Base Rate, as defined, plus 1.75%, or (2) the Adjusted
LIBOR Rate plus 2.75%. The applicable margins over the index used to determine
the interest rate are adjustable from time to time following the fiscal quarter
ended June 30, 1999 based upon certain financial ratios as set forth in the Term
Loan B Agreement. The aggregate effective interest rate on the Term Loan B was
8.1% at September 30, 1999.
In addition, the Revolving Credit Facility and Term Loan B contain certain
restrictive provisions which, among other things, limit additional indebtedness
of the Company, limit dividends and other restricted payments, require that
certain debt to capitalization ratios be maintained and require minimum levels
of cash flows.
Carmike is required to make prepayments of the Revolving Credit Facility and
Term Loan B, on a pro rata basis, with the net cash proceeds of asset sales,
excess cash flows, as defined, or the sale of any new equity securities. The
maximum available borrowings under the Revolving Credit Facility will be reduced
by the amount of any such prepayments, but in no event below $150.0 million. The
Revolving Credit Facility and the Term Loan B rank pari passu.
INTEREST RATE SWAPS: The Company has entered into interest rate swap agreements
to modify the interest characteristics of a portion of its outstanding debt. The
agreements involve the exchange of amounts based on a variable interest rate for
amounts based on a fixed interest rate over the life of the agreements without
an exchange of the notional amounts upon which the payments are based. The
Company specifically designates interest rate swaps as hedges of debt
instruments and recognizes interest differentials as adjustments to interest
expense in the period they occur. The differential to be paid or received as
interest rates change is accrued and recognized as an adjustment of interest
expense related to the debt (the accrual accounting method). The related amount
payable to, or receivable from, counter-parties is included in other liabilities
or assets. The fair value of the swap agreements is not recognized in the
financial statements. If, in the future, an interest rate swap agreement were
terminated, any resulting gain or loss would be deferred and amortized to
interest expense over the remaining life of the hedge debt instrument. In the
event of early extinguishment of a designated debt obligation, any realized or
unrealized gain or loss from the swap would be recognized in income coincident
with the extinguishment.
The interest rate swap agreements changed floating interest rate expense on
amounts outstanding under the Revolving Credit Facility. Under one interest rate
swap agreement, the Company has fixed $50.0 million of its floating rate debt
through February 7, 2003. This swap agreement was amended effective August 9,
1999. Under the amended agreement the effective rate at September 30, 1999 was
7.455%, equal to a fixed rate of 5.205% plus the margin the Company pays over
LIBOR (2.25% at September 30, 1999). Under another interest rate swap agreement,
the Company has fixed $20.0 million of its floating rate debt through February
7, 2001 at a fixed rate of 5.503% plus the margin the Company pays over LIBOR
(2.25% at September 30, 1999) for a total effective rate of 7.753%.
7
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
CARMIKE CINEMAS, INC. and SUBSIDIARIES
NOTE B - INDEBTEDNESS (CONTINUED)
The Company is exposed to credit losses in the event of non-performance by
counter-parties on interest rate swap agreements. The Company does not believe
there is a significant risk of non-performance by any of the counter-parties to
these instruments and the Company monitors the financial stability of such
parties on a periodic basis.
NOTE C - RESTRUCTURING COSTS
During June 1999, the Company revised its estimate of the total costs to be
incurred for its restructuring plan approved in December 1998. The $2.7 million
decrease in estimated costs (approximately $1.7 million after income taxes or
$.15 per diluted share) was the result of a lessor initiated early buyout of a
lease included in the restructuring plan. The early lease termination provides
savings for the lease payments, utilities and other associated lease costs which
were expected to be incurred over the remaining lease period at December 31,
1998.
NOTE D - EXTRAORDINARY CHARGE
In connection with the restructuring of indebtedness discussed in Note B -
Indebtedness, the Company retired its then outstanding senior notes totaling
$79.9 million. The Company recognized an extraordinary charge of $6.3 million
($10.1 million less applicable income taxes) for (a) a prepayment premium ($9.2
million) paid in connection with the redemption of the senior notes, and (b) the
elimination of deferred debt costs ($.9 million) on retired indebtedness.
NOTE E -- EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average shares
outstanding
Basic 11,389 11,362 11,378 11,355
Effect of dilutive securities -
Employee stock options 14 53 25 70
---------- ---------- ---------- ----------
Diluted 11,403 11,415 11,403 11,425
========== ========== ========== ==========
Earnings per common share
before extraordinary item
Basic $ .68 $ .77 $ .68 $ 1.14
Diluted $ .68 $ .77 $ .68 $ 1.13
Earnings per common share
Basic $ .68 $ .77 $ .13 $ 1.14
Diluted $ .68 $ .77 $ .13 $ 1.13
</TABLE>
8
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
CARMIKE CINEMAS, INC. and SUBSIDIARIES
NOTE F - CONDENSED COMBINED FINANCIAL DATA FOR GUARANTOR SUBSIDIARIES
The Company's principal operating subsidiaries fully, unconditionally, jointly
and severally guarantee the Company's $200 million 9 3/8% Senior Subordinated
Notes (see Note B - Indebtedness).
The guarantor subsidiaries are direct, wholly owned U.S. subsidiaries of the
Company. The Company and the guarantor subsidiaries conduct substantially all of
the operations of the Company and its subsidiaries on a consolidated basis.
Separate financial statements of the guarantor subsidiaries are not presented
because, in the opinion of management, such financial statements are not
material to investors. The Company also has a partially owned subsidiary and
several unconsolidated affiliates which are not guarantors and are
inconsequential to the Company on a consolidated basis.
Following is summarized condensed combined financial information (in accordance
with Rule 1-02(bb) of Regulation S-X) at September 30, 1999 and for the nine
month period then ended for the guarantor subsidiaries of the Company (in
thousands):
<TABLE>
<CAPTION>
September 30, 1999
------------------
<S> <C>
Current assets $ 13,829
Current liabilities 14,713
Noncurrent assets 566,154
Noncurrent liabilities 361,722
</TABLE>
<TABLE>
<CAPTION>
Nine months ended
September 30
1999 1998
-------------- -------------
<S> <C> <C>
Revenues $ 292,996 $ 291,825
Operating income 15,680 13,487
Net income (loss) (1,437) 471
</TABLE>
9
<PAGE> 10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the financial information included
herein and the Company's annual report on Form 10-K for the fiscal year ended
December 31, 1998 (the "1998 Form 10-K"), as filed with the Securities and
Exchange Commission (the "SEC"). Except for the historical information contained
herein, the following discussion contains forward-looking statements that
involve a number of risks and uncertainties. Factors which could cause the
Company's actual results in future periods to differ materially include, but are
not limited to, the availability of suitable motion pictures for exhibition in
the Company's markets, and the performance of films licensed by the Company;
competitive pressures in the motion picture exhibition industry, including the
increasing development of megaplexes and stadium-style theatres by some
exhibitors; the availability of opportunities for expansion; the Company's
substantial leverage, and the availability of financial resources and financing
programs; demographic changes; and general economic conditions, including
adverse changes in inflation and prevailing interest rates; as well as those
discussed or identified from time to time in the Company's filings with the SEC,
including, but not limited to, the Company's 1998 Form 10-K.
COMPARISON OF THREE MONTHS AND NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
RESULTS OF OPERATIONS
Total revenues for the quarter ended September 30, 1999 increased 7.5% to $144.8
million from $134.7 million for the quarter ended September 30, 1998. This
increase consists of a $9.0 million increase in admissions and a $1.1 million
increase in concessions and other. For the quarter ended September 30, 1999, the
Company's average admission price was $4.69, its average concession sale per
patron was $1.89 and the attendance per average screen was relatively flat at
7,936 compared to 7,956 for the quarter ended September 30, 1998. These factors
contributed to increasing revenue per average screen 8.8% to $53,246. For the
quarter ended September 30, 1998, the Company's average admission price was
$4.21, its average concession sale per patron was $1.79 and the revenue per
average screen was $48,936. The increases are attributed to additional revenues
generated from increased ticket and concession sales per patron and improved
facilities resulting from the Company's expansion and re-screening projects.
Costs of operations (film exhibition costs, concession costs and other theatre
operating costs) increased 6.5% from $102.2 million for the quarter ended
September 30, 1998 to $108.9 million for the quarter ended September 30, 1999.
This dollar increase is due to higher admissions revenue which forced film
exhibition costs up accordingly. Concessions costs were up slightly at $6.0
million for the quarter ended September 30, 1999, compared to $5.4 million for
the quarter ended September 30, 1998. Other theatre costs for the quarter ended
September 30, 1999 increased 4.4% to $51.9 million from $49.7 million for the
same period in 1998. This increase was the result of individually immaterial
increases in salaries, supplies and utilities related to higher attendance. As a
percentage of total revenues, cost of operations decreased to 75.2% of total
revenues in the quarter ended September 30, 1999 from 75.9% for the quarter
ended September 30, 1998, largely due to the amount of fixed costs which do not
fluctuate with changes in revenues or attendance.
10
<PAGE> 11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
COMPARISON OF THREE MONTHS AND NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
Total revenues for the nine months ended September 30, 1999 increased 1.4% to
$367.8 million from $362.6 million for the nine months ended September 30, 1998.
This increase consists of a $6.5 million increase in admissions and a $1.2
million decrease in concessions and other. The increases in admissions are
primarily attributable to an increase in admission pricing as well as the mix of
tickets sold in the various pricing categories (adults, children and matinee).
These increases are partially offset by a 3.1% reduction in attendance to 56.7
million patrons for the nine months ended September 30, 1999 versus 58.5 million
patrons during the same period in 1998. The major declines in attendance
occurred in the first four months of 1999, when attendance was down 12.5% over
1998 levels. For the nine months ended September 30, 1999, the Company's average
admission price was $4.50, its average concession sale per patron was $1.81 and
revenue per average screen was $134,732. For the nine months ended September 30,
1998, the Company's average admission price was $4.25, its average concession
sale per patron was $1.78 and revenue per average screen was $132,612.
Costs of operations for the nine months ended September 30, 1999 increased 1.1%
from $289.0 million for the nine months ended September 30, 1998 to $292.3
million. This increase is directly related to higher revenue generation. Film
exhibition costs were $135.0 million, or 52.9% of admissions, as compared to
$132.1 million, or 53.1% of admissions in 1998. Concession costs decreased to
$14.7 million for the nine months ended September 30, 1999 from $15.1 million
for the same period in 1998. This decrease is due to the lower attendance during
the first four months of 1999. Other theatre costs for the nine months ended
September 30, 1999 were relatively flat at $142.5 million compared to $141.8
million for the nine months ended September 30, 1998. There were no individually
material changes in salaries, supplies and utilities which would require
itemized disclosure. As a percentage of total revenues, cost of operations
decreased to 79.5% in the first nine months of 1999 from 79.7% in the first nine
months of 1998.
Depreciation and amortization increased 9.2% from $9.8 million for the quarter
ended September 30, 1998 to $10.7 million for the quarter ended September 30,
1999. This increase is due to the newer theatres brought on line through the
period, partially offset by the reduced depreciation expense from the reduction
in asset values as a result of the impairment charge recognized in 1998.
Depreciation and amortization for the nine months ended September 30, 1999
increased 9.0% to $30.3 million from $27.8 million for the nine months ended
September 30, 1998. This increase is also due to the reasons enumerated above.
Interest expense for the quarter ended September 30, 1999 increased 42.6% to
$9.7 million from $6.8 million for the quarter ended September 30, 1998. This
increase is due to higher levels of average indebtedness outstanding and to a
higher aggregate cost of debt of 8.5% versus the aggregate cost of debt of 6.6%
in the quarter ended September 30, 1998. Interest expense for the nine months
ended September 30, 1999 increased 33.7% to $26.2 million from $19.6 million for
the nine months ended September 30, 1998 for the reasons stated above.
During the quarter ended June 30, 1999, the Company recorded a decrease in the
estimated restructuring costs reported in the fourth quarter of 1998 (see the
Company's 1998 Annual Report and the 1998 Form 10-K). This credit was the result
of a lessor initiated early buyout of a lease on one of the properties included
in the restructuring plan. The amount of this credit was $2.7 million, or $1.7
million net of income taxes.
11
<PAGE> 12
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
During the period ended March 31, 1999, the Company recognized an extraordinary
charge of $10.1 million ($6.3 million net of income tax benefit, or $.55 per
diluted share) for the prepayment premiums paid in connection with the
redemption of senior notes and the elimination of certain deferred debt costs
related to indebtedness which was retired in February 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's revenues are collected in cash, principally through box office
admissions and theatre concessions. Because its revenues are received in cash
prior to the payment of related expenses, the Company has an operating "float"
which partially finances its operations. The Company had working capital
deficits of $74.2 million and $55.8 million at September 30, 1999 and December
31, 1998, respectively. These deficits are financed through the operating
"float" and through borrowing availability under the Revolving Credit Facility.
At September 30, 1999, the Company had approximately $5.2 million in cash and
short-term investments on hand and approximately $78.2 million was available
under the Company's Revolving Credit Facility.
The Company's credit facilities contain certain restrictive provisions which,
among other things, limit additional indebtedness of the Company, limit the
payment of dividends and other defined restricted payments, require that certain
debt to capitalization ratios be maintained and require minimum levels of cash
flows.
On August 13, 1999, the Board of Directors of the Company authorized a stock
repurchase program for the repurchase, from time to time, of approximately $4.0
million of Class A Common Stock to be held as treasury stock. As of September
30, 1999, the Company has purchased 11,800 shares of Class A Common Stock at an
average purchase price of $13.05 per share.
The Company's capital expenditures arise principally in connection with the
development of new theatres, renovation and expansion of existing theatres and
theatre acquisitions. During the first nine months of 1999, such capital
expenditures totaled $141.9 million. The Company estimates that total capital
expenditures for 1999 will be approximately $155.0 million. The Company's
expansion plans for 1999 continue to focus on small to mid-sized communities
ranging in population size from 75,000 to 250,000 which can support the
development of multiplex theatres. The Company's prototype multiplex theatre can
be adapted and sized to fit varying populations and is designed to support a
community base of 40,000 people per screen.
Cash provided by operating activities was $33.2 million for the nine months
ended September 30, 1999, compared to cash provided by operating activities of
$37.4 million for the nine months ended September 30, 1998. The decrease in cash
flow from operating activities was primarily due to an increase in accounts
receivable and prepaid expenses which was partially offset by an increase in
accounts payable. Net cash used in investing activities was $137.5 million for
the nine months ended September 30, 1999 as compared to $103.4 million in the
prior year period. This increase in cash used in investing activities was
primarily due to the increased level of capital expenditures. For the nine month
periods ended September 30, 1999 and 1998, cash provided by financing activities
was $91.7 million and $55.3 million, respectively. The increase in cash provided
by financing activities was primarily due to the sale of $200.0 million
aggregate principal amount of the Company's 9 3/8% Senior Subordinated Notes and
borrowings of $75.0 million under the new Term Loan B facility, net of
repayments on the Revolving Credit Facility.
The Company believes that its presently anticipated capital needs for theatre
construction, renovation, stock repurchase and possible acquisitions will be
satisfied by the cash and cash equivalents and short-term investments on hand,
borrowings under the revolving credit line (see Note B of the Notes to Condensed
12
<PAGE> 13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Consolidated Financial Item Statements (Unaudited) herein), additional sale of
debt and/or equity securities, additional bank financings and other forms of
long-term debt, internally generated cash flow and, where appropriate, future
lease financings or sale/leasebacks of theatre properties. On October 31, 1999,
the Company had approximately $7.1 million in cash and short term investments on
hand and approximately $45 million was available under the Company's revolving
credit line. No assurance can be given that the Company's business will generate
sufficient cash flows from operations, that currently anticipated revenue growth
and operating improvements will be realized or that future capital will be
available to the Company in an amount sufficient to enable the Company to pay
its indebtedness or to fund its other liquidity needs.
YEAR 2000
The Year 2000 issue refers generally to the data structure and processing
problem that may prevent systems from properly recognizing dates after the year
1999. The Year 2000 issue affects information technology ("IT") systems, such as
computer programs and various types of electronic equipment that process date
information by using only two digits rather than four digits to define the
applicable year, and thus may recognize a date using "00" as the year 1900
rather than the year 2000. The issue also affects some non-IT systems, such as
devices which rely on a microcontroller to process the date information. The
Year 2000 issue could result in system failures or miscalculations, causing
disruptions of a company's operations. Moreover, even if a company's systems are
Year 2000 compliant, a problem may exist to the extent that the data that such
systems process is not.
Carmike implemented a Year 2000 compliance program designed to ensure that
Carmike's computer systems and applications will function properly beyond 1999.
Carmike's Year 2000 compliance program has three phases: (1) identification, (2)
remediation (including modification, upgrading and replacement) and (3) testing.
Carmike's Year 2000 compliance program is an ongoing process involving continual
evaluation and may be subject to a change in response to new developments.
Carmike has three material internal IT systems: (1) its accounting system, (2)
its proprietary IQ-Zero point-of-sale system and (3) a film system through which
Carmike manages the booking of the films shown in its theatres. Carmike has
completed the identification, remediation and testing phases with respect to all
three of these systems. Carmike has conducted a survey of its theatres and has
not identified any non-IT systems the failure of which to be Year 2000 compliant
would have a material adverse effect on Carmike's business, operating results or
financial condition. Carmike has surveyed its material vendors and suppliers
(including concession, technical and film suppliers) and the financial
institutions with whom it has material relationships. Based on such survey,
Carmike is not aware of any material third-party Year 2000 risks.
The cost of remediation of problems related to Year 2000 issues was less than
$50,000. This cost includes the cost of upgrading the Company's film system. As
of September 30, 1999, this plan has been completed and all components are in
compliance with Year 2000 issues.
If Carmike's internal IT systems do not function properly beyond 1999, Carmike
plans to operate such systems manually until any Year 2000 issues are
remediated. Such remediation may result in loss of data and information and
increased costs of operations. In addition, if the IQ-Zero system failed to
operate properly due to Year 2000 problems, local management staff may not be
able to focus their attention on their customers and theatre needs. Carmike
expects to maintain close contact with the third parties with whom Carmike has
material
13
<PAGE> 14
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
relationships, such as vendors, suppliers and financial institutions, to ensure
that such third parties' Year 2000 issues do not affect Carmike's operations.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's fixed interest rate risk for long-term debt is limited to the
Company's $200 million 9 3/8% senior subordinated notes. As of September 30,
1999 the market value of these notes has decreased approximately 7% since their
issuance in February 1999.
There have been no material changes in the interest rates for the Company's
floating rate debt from those rates effective when the Company restructured its
outstanding indebtedness (See Note B of the Notes to Consolidated Financial
Statements (Unaudited)).
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 5. Exhibits and Reports on Form 8-K.
(a) Exhibits
27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K on August 13, 1999,
reporting under Item 5 the authorization of a stock repurchase plan
as well as second quarter financial results.
15
<PAGE> 16
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.
CARMIKE CINEMAS, INC.
(Registrant)
Date: November 8, 1999 By: /s/ Michael W. Patrick
------------------------ -------------------------------
Michael W. Patrick - President
(Chief Executive Officer)
Date: November 8, 1999 By: /s/ Martin A. Durant
------------------------ -------------------------------
Martin A. Durant - Senior Vice
President-Finance
Treasurer (Chief Financial
Officer)
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CARMIKE CINEMAS, INC. FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 5,180
<SECURITIES> 936
<RECEIVABLES> 4,691
<ALLOWANCES> 0
<INVENTORY> 4,257
<CURRENT-ASSETS> 32,091
<PP&E> 870,896
<DEPRECIATION> 186,144
<TOTAL-ASSETS> 812,570
<CURRENT-LIABILITIES> 106,288
<BONDS> 256,109
0
550
<COMMON> 342
<OTHER-SE> 226,988
<TOTAL-LIABILITY-AND-EQUITY> 812,570
<SALES> 112,592
<TOTAL-REVENUES> 367,819
<CGS> 14,730
<TOTAL-COSTS> 292,287
<OTHER-EXPENSES> 33,146<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,166
<INCOME-PRETAX> 16,220
<INCOME-TAX> 6,164
<INCOME-CONTINUING> 10,056
<DISCONTINUED> 0
<EXTRAORDINARY> (6,291)<F1>
<CHANGES> 0
<NET-INCOME> 1,496
<EPS-BASIC> .13
<EPS-DILUTED> .13
<FN>
<F1>Extraordinary item - In connection with the restructuring indebtedness the
Company recognized a charge of $6.3 million ($10.1 million less applicable
income taxes) for (a) a prepayment premium (9.2 million) paid in connection
with the redemption of the senior notes, and (b) the elimination of deferred
debt costs ($.9 million) on retired indebtedness.
<F2>Other expenses - The Company revised its estimate of the total costs to be
incurred for its restructuring plan approved in December 1998. The $2.7
million decrease in estimated costs (approximately $1.7 million after income
taxes or $.15 per diluted share) was the result of a lessor initiated early
buyout of a lease included in the restructuring plan.
</FN>
</TABLE>
