<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, 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 0-11604
-------
CARMIKE CINEMAS, INC.
Debtor-In-Possession
(Exact name of registrant as specified in its charter)
DELAWARE 58-1469127
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1301 FIRST AVENUE, COLUMBUS, GEORGIA 31901-2109
(Address of Principal Executive Offices) (Zip Code)
(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 [ ] No [X]
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 --
10,018,287 shares outstanding as of November 1, 2000
Class B Common Stock, $.03 par value --
1,370,700 shares outstanding as of November 1, 2000
<PAGE> 2
PART I
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 60,484 $ 9,761
Accounts and notes receivable 716 1,459
Inventories 4,788 4,240
Recoverable construction allowances -- Note 5 7,700 15,259
Recoverable income taxes -0- 5,775
Prepaid expenses 10,302 10,257
--------- ---------
TOTAL CURRENT ASSETS 83,990 46,751
OTHER ASSETS
Investments in and advances to partnerships 10,784 14,270
Deferred income taxes -- Note 4 -0- 21,038
Other 3,081 10,542
--------- ---------
13,865 45,850
PROPERTY AND EQUIPMENT -- Note 6
Land 65,946 71,239
Buildings and improvements 217,116 247,283
Leasehold improvements 293,690 262,310
Leasehold interests 18,017 18,185
Equipment 252,659 250,323
--------- ---------
847,428 849,340
Accumulated depreciation and amortization (189,615) (183,100)
--------- ---------
657,813 666,240
EXCESS OF PURCHASE PRICE OVER NET
ASSETS OF BUSINESSES ACQUIRED 48,248 49,551
--------- ---------
$ 803,916 $ 808,392
========= =========
</TABLE>
See accompanying notes
2
<PAGE> 3
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 48,377 $ 56,677
Accrued expenses 25,220 46,159
Current maturities of long-term indebtedness and
capital lease obligations 2,894 4,008
--------- ---------
TOTAL CURRENT LIABILITIES 76,491 106,844
LONG-TERM LIABILITIES
Long-term debt, less $1,843 in current maturities and $463,273
classified as subject to compromise -0- 413,688
Capital lease obligations, less current maturities 49,456 52,639
Deferred income taxes - Note 4 1,927 -0-
Restructuring reserve, less current portion -0- 24,615
Other -0- 6,409
--------- ---------
51,383 497,351
LIABILITIES SUBJECT TO COMPROMISE - Note 3 522,995 -0-
SHAREHOLDERS' EQUITY
5.5% Series A Senior Cumulative Convertible
Exchangeable Preferred Stock, $1.00 par value,
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 10,018,287 shares and 9,968,287
shares, respectively 301 299
Class B Common Stock, $.03 par value, ten votes per
share, authorized 5,000,000 shares, issued and
outstanding 1,370,700 shares and 1,420,700 shares,
respectively 41 43
Treasury Stock, at cost, 44,800 shares (441) (441)
Paid-in capital 158,772 158,772
Retained earnings (deficit) (6,176) 44,974
--------- ---------
153,047 204,197
--------- ---------
$ 803,916 $ 808,392
========= =========
</TABLE>
See accompanying notes
3
<PAGE> 4
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Admissions $ 86,521 $ 101,159 $ 232,294 $ 255,227
Concessions and other 41,337 43,671 109,826 112,592
--------- --------- --------- ---------
Total Revenues 127,858 144,830 342,120 367,819
Costs and expenses:
Film exhibition costs 52,093 50,910 132,579 135,025
Concession costs 5,949 6,027 15,016 14,730
Other theatre operating costs 51,863 51,913 151,645 142,532
General and administrative expenses 1,563 1,877 5,014 5,530
Depreciation and amortization expenses 10,646 10,735 32,513 30,287
Decrease in estimated Restructuring Costs -0- -0- -0- (2,671)
--------- --------- --------- ---------
Total Costs and Expenses 122,114 121,462 336,767 325,433
--------- --------- --------- ---------
OPERATING INCOME 5,744 23,368 5,353 42,386
Interest expense (Contractual interest for the three
months and nine months ended September 30, 2000
was $13,757 and $36,537, respectively) 6,184 9,665 28,964 26,166
--------- --------- --------- ---------
INCOME (LOSS) BEFORE REORGANIZATION
COSTS, INCOME TAXES AND
EXTRAORDINARY ITEM (440) 13,703 (23,611) 16,220
Reorganization costs - Note 2 1,218 -0- 1,218 -0-
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME
TAXES AND EXTRAORDINARY ITEM (1,658) 13,703 (24,829) 16,220
Income taxes -- Note 4 411 5,207 24,809 6,164
--------- --------- --------- ---------
NET INCOME (LOSS) before
Extraordinary item (2,069) 8,496 (49,638) 10,056
Extraordinary item (net of income taxes) -- Note 7 -0- -0- -0- (6,291)
--------- --------- --------- ---------
NET INCOME (LOSS) (2,069) 8,496 (49,638) 3,765
Preferred stock dividends -0- 757 1,512 2,269
--------- --------- --------- ---------
NET INCOME (LOSS) AVAILABLE FOR
COMMON STOCK $ (2,069) $ 7,739 $ (51,150) $ 1,496
========= ========= ========= =========
Weighted average shares outstanding:
Basic 11,344 11,389 11,344 11,378
========= ========= ========= =========
Diluted 11,344 11,403 11,344 11,403
========= ========= ========= =========
Earnings (loss) per common share before extraordinary
item:
Basic and diluted $ (0.18) $ 0.68 $ (4.51) $ 0.68
========= ========= ========= =========
Earnings (loss) per common share:
Basic and diluted $ (0.18) $ 0.68 $ (4.51) $ 0.13
========= ========= ========= =========
</TABLE>
See accompanying notes
4
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (49,638) $ 3,765
Adjustments to reconcile net income (loss) to net cash
provided by (used by) operating activities:
Depreciation and amortization 32,513 30,287
State and local tax provision 411 -0-
Deferred income taxes 22,965 3,400
Recoverable income taxes 5,775 -0-
Gain on sales of property and equipment (674) (2,019)
Changes in other assets and liabilities (7,214) (10,179)
Changes in operating assets and liabilities:
Accounts and notes receivable and inventories 195 (4,575)
Prepaid expenses (45) (11,141)
Accounts payable 902 24,500
Accrued expenses and other liabilities 12,254 (856)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES BEFORE
REORGANIZATION ITEMS 17,444 33,182
Reorganization Items (1,357) -0-
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 16,087 33,182
INVESTING ACTIVITIES
Purchases of property and equipment (46,540) (141,920)
Proceeds from sales of property and equipment 641 3,867
Proceeds from sale/leaseback transaction-- Note 6 23,283 -0-
Decrease (increase) in:
Short-term investments -0- (135)
Other 3,486 700
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (19,130) (137,488)
FINANCING ACTIVITIES
Debt:
Additional borrowings 281,471 612,295
Repayments (233,752) (511,522)
Payment of preferred dividends (1,512) -0-
Other debt issuance cost -0- (8,905)
Issuance of Class A Common Stock -0- 1
Purchase of Treasury Stock -0- (154)
Recoverable construction allowances under capital leases 7,559 -0-
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 53,766 91,715
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 50,723 (12,591)
Cash and cash equivalents at beginning of period 9,761 17,771
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 60,484 $ 5,180
========= =========
</TABLE>
See accompanying notes
5
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSESSION)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Carmike Cinemas, Inc. ("Carmike") and its subsidiaries (collectively, the
"Company") have been prepared in accordance with generally accepted accounting
principles applicable to a going concern which contemplates continuity of
operations and realization of assets and liquidation of liabilities in the
normal course of business. As discussed in Note 2 - Proceedings Under Chapter
11, on August 8, 2000 (the "Petition Date"), Carmike and its subsidiaries,
Eastwynn Theatres, Inc. ("Eastwynn"), Wooden Nickel Pub, Inc. ("Wooden Nickel")
and Military Services, Inc. (collectively with Carmike, the "Debtors") filed
voluntary petitions for relief under chapter 11 (the "Chapter 11 Cases") of
title 11 of the U.S. Code (the "Bankruptcy Code") in the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). The
Chapter 11 Cases are being jointly administered for procedural purposes only.
The Debtors are operating their respective businesses as debtors-in-possession.
On August 23, 2000, the Office of the United States Trustee for the District of
Delaware (the "U.S. Trustee") appointed an Official Committee of Unsecured
Creditors.
As a result of the Company's recurring losses, the Chapter 11 Cases and
circumstances relating to this event, including the Company's debt structure and
current economic conditions, realization of assets and liquidation of
liabilities are subject to significant uncertainty. These matters, among others,
raise substantial doubt about the Company's ability to continue as a going
concern. In the event a plan of reorganization is developed and is approved by
the Bankruptcy Court, continuation of the Company's business thereafter will be
dependent on the Company's ability to achieve successful future operations.
Management intends to develop a plan of reorganization.
In connection with the Chapter 11 Cases, the Company is required to report in
accordance with Statement of Position 90-7 "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code" ("SOP 90-7") for financial statements
for the period beginning August 8, 2000 and thereafter. SOP 90-7 requires that
pre-petition liabilities that are subject to compromise be segregated in the
Company's consolidated balance sheet as liabilities subject to compromise and
the identification of all transactions and events that are directly associated
with the reorganization of the Company in the consolidated statement of
operations. The liabilities are recorded in the amounts reflected on the
Debtors' books and records and are not necessarily the amount that the
liabilities will ultimately be allowed by the Bankruptcy Court. Due to the
Company's Chapter 11 Cases, the value of certain of the Company's long-lived
assets has been impaired (see Note 2 - Proceedings under Chapter 11). As
additional leases are approved for rejection by the Bankruptcy Court additional
long-lived asset impairments may be taken. Also, the amounts reported on the
consolidated condensed balance sheet could materially change as a result of a
plan of reorganization, as such reported amounts currently do not give effect to
adjustments to the carrying value of the underlying assets or amounts of
liabilities that may ultimately result.
6
<PAGE> 7
Further, the Company's accompanying unaudited condensed consolidated financial
statements 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 and bankruptcy related
items) considered necessary for a fair presentation have been included.
Operating results for the nine month period ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000. For further information, refer to the consolidated financial
statements and footnotes thereto included in Carmike's Annual Report on Form
10-K for the year ended December 31, 1999.
RECLASSIFICATIONS: Certain amounts in the accompanying consolidated financial
statements have been reclassified to conform to the September 30, 2000
presentation.
NOTE 2 -- PROCEEDINGS UNDER CHAPTER 11
As previously noted (see Note 1 - Basis of Presentation), the Debtors have
operated under chapter 11 of the Bankruptcy Code since August 8, 2000.
In the Chapter 11 Cases, substantially all liabilities as of the Petition Date
are subject to compromise or other treatment under a plan of reorganization to
be confirmed by the Bankruptcy Court after submission to any required vote by
affected parties. Generally, actions to enforce or otherwise effect repayment of
all pre-chapter 11 liabilities as well as all pending litigation against the
Debtors are stayed while the Debtors continue their business operations as
debtors-in-possession. On September 19, 2000, Wooden Nickel and Military
Services, Inc., filed their bankruptcy schedules with the Bankruptcy Court.
Carmike and Eastwynn filed their schedules on October 18, 2000. The schedules
set forth the assets and liabilities of the Debtors as of the Petition Date as
reflected in the Debtors' accounting records and the schedules may be amended by
the Debtors. Differences between the amounts reflected in such schedules and
claims filed by creditors will be investigated and may be either amicably
resolved or adjudicated before the Bankruptcy Court. The ultimate amount and
settlement terms for such liabilities are subject to an approved plan of
reorganization and accordingly are not presently determinable.
Under the Bankruptcy Code, the Debtors may elect to assume or reject real estate
leases, employment contracts, personal property leases, service contracts and
other executory prepetition contracts, subject to Bankruptcy Court approval. The
Debtors have already received approval from the Bankruptcy Court to reject
leases relating to 111 theatre locations of the Debtors. The Debtors are
continuing to review their market strategy, geographic positions and theatre
level profitability. As a result of this continuing review, the Debtors may
consider rejecting additional leases for theatres that do not fall within the
Debtors' market strategy or geographic positioning or that do not perform at or
above the Company's expected theatre profitability level. The Debtors cannot
presently determine or reasonably estimate the ultimate liability that may
result from rejecting leases or from the filing of claims for any rejected
contracts, and no provisions have yet been made for these items in the financial
statements.
7
<PAGE> 8
The Company is currently evaluating whether the Master Lease (as defined in
Note 3 - Liabilities Subject to Compromise) is a financing or a true lease for
bankruptcy law purposes. If the Master Lease is determined to be a true lease,
the Company would be required to make full rent payments, as provided for in the
Master Lease, during the pendency of the Chapter 11 Cases. If the Master Lease
is determined to be a financing, the Debtors would not be required to make rent
payments as provided for under the Master Lease during the pendency of the
Chapter 11 Cases. However, the Company may be required to make "adequate
protection" payments to compensate the landlord under the Master Lease for any
diminution in value of the properties during the pendency of the Chapter 11
Cases. The Company is not currently making monthly payments under the Master
Lease.
The Company has received approval from the Bankruptcy Court to pay prepetition
and postpetition employee wages, salaries, benefits and other employee
obligations. The Bankruptcy Court also approved orders granting authority, among
other things, to pay prepetition claims of certain critical vendors, film
distributors and utilities. All other prepetition liabilities at September 30,
2000 are classified in the condensed consolidated balance sheet as liabilities
subject to compromise (see Note 3 - Liabilities Subject to Compromise). The
Company has been and intends to continue to pay postpetition claims of all
vendors, film distributors and other suppliers in the ordinary course of
business.
As a result of the Chapter 11 Cases, no principal or interest payments will be
made on unsecured prepetition debt. Payments may be required to be made on
secured prepetition debt subject to Bankruptcy Court approval.
On October 27, 2000, the Debtors' received Bankruptcy Court approval to make
debt service payments for the loan related to Industrial Revenue Bonds issued by
the Downtown Development Authority of Columbus, Georgia. The amount outstanding
under these bonds, $1.8 million at September 30, 2000, are classified as current
maturities of long-term indebtedness in the condensed consolidated balance
sheets.
Additionally, after the Petition Date, the Company cannot declare dividends for
its 5.5% Series A Senior Cumulative Convertible Exchangeable Preferred Stock
(the "Preferred Stock"). Preferred Stock dividends of $757,000 are in arrears at
September 30, 2000. The terms of the Preferred Stock provide, with respect to
dividend arrearages, that the dividend accrued rate increases to 8.5% and that
the failure to make two scheduled dividend payments will entitle the holders of
the Preferred Stock to elect two additional directors to Carmike's Board of
Directors.
Reorganization costs are directly associated with the Company's Chapter 11 Cases
reorganization proceedings. Included in such costs are approximately $955,000 of
asset impairments (primarily leasehold improvements) related to the 111 theatres
for which the Bankruptcy Court has approved lease rejections. Further asset
impairments may occur as the Company rejects additional leases and when the plan
of reorganization is approved.
8
<PAGE> 9
Reorganization costs for the period of August 8, 2000 through September 30, 2000
are as follow (in thousands):
<TABLE>
<S> <C>
Professional fees $ 458
Asset impairments 955
Other 343
Interest income (538)
------
$1,218
======
</TABLE>
NOTE 3 -- LIABILITIES SUBJECT TO COMPROMISE
The principal categories of obligations classified as liabilities subject to
compromise under the Chapter 11 Cases are identified below. The amounts in total
may vary significantly from the stated amounts of proofs of claims that
ultimately will be filed with the Bankruptcy Court, and may be subject to future
adjustments depending on Bankruptcy Court action, further developments with
respect to potential disputed claims, and determination as to the value of any
collateral securing claims or other events. Additional claims may arise from the
rejection of executory contracts and unexpired leases by the Debtors.
A summary of the principal categories of claims classified as liabilities
subject to compromise at September 30, 2000 are as follows (in thousands):
<TABLE>
<S> <C>
Accounts payable $ 35,576
Accrued expenses 4,304
Restructuring reserves 25,699
Other liabilities 2,429
Revolving Credit Facility 192,000
Term Loan B 71,273
Subordinated Notes 191,714
---------
$ 522,995
=========
</TABLE>
The 9 3/8% Senior Subordinated Notes due 2009 (the "Subordinated Notes") were
issued by Carmike in the principal amount of $200,000,000 and are guaranteed by
Eastwynn and Wooden Nickel. The Subordinated Notes bear interest at a rate of 9
3/8% per annum, and mature on February 1, 2009. The amount shown above for
Subordinated Notes is shown net of deferred debt costs.
Prior to the Petition Date, the Company was in technical default of certain
financial ratio covenants contained in (a) the Amended and Restated Credit
Agreement among Carmike, certain banks and Wachovia Bank, N.A., as agent, dated
as of January 29, 1999, as amended (the "Revolving Credit Agreement"), (b) the
Term Loan Credit Agreement among Carmike, certain lenders, Wachovia Bank, N.A.,
as administrative agent, Goldman Sachs Credit Partners L.P., as syndication
agent, and First Union National Bank, as documentation agent, dated as of
February 25, 1999, as amended (the "Term Loan B" and together with the Revolving
Credit Agreement, the "Bank Facilities") and (c) the Amended and Restated Master
Lease between
9
<PAGE> 10
Movieplex Realty Leasing L.L.C. as landlord and Carmike as tenant dated January
29, 1999 (the "Master Lease" and, together with the Bank Facilities, the "Credit
Facilities"). On July 25, 2000, the agents under the Bank Facilities delivered a
notice of default to Carmike that declared an event of default under the Bank
Facilities based upon such technical noncompliance with financial covenants. The
notice expressly reserved the banks' rights and remedies under the Bank
Facilities. Thereafter, on July 28, 2000, the agents under the Bank Facilities
also issued a Payment Blockage Notice to Carmike and the indenture trustee for
the Subordinated Notes prohibiting payment by Carmike of the semi-annual
interest payment in the amount of $9,375,000 due to the holders of the
Subordinated Notes on August 1, 2000. Also, the Chapter 11 Cases constitute a
default under the Subordinated Notes and Credit Facilities agreements.
Amounts outstanding under the Bank Facilities and the Subordinated Notes at the
petition date are classified as liabilities subject to compromise in the
accompanying financial statements until a plan of reorganization is approved and
implemented. Certain provisions of the Bankruptcy Code may relieve the Company
from its obligation to pay interest after the Petition Date. In accordance with
SOP 90-7, interest on secured claims will be accrued only to the extent that the
value of the underlying collateral exceeds the principal amount of the secured
claim. It has not been determined whether the collateral exceeds the principal
amount of any secured claim. Thus, under certain conditions, interest on
unsecured claims may not be required to be accrued. After the Petition Date, the
Company is prohibited from making contractual payments on its outstanding
long-term debt obligations absent a Bankruptcy Court order or until conclusion
of the Chapter 11 Cases and implementation of a plan of reorganization allowing
for such payments.
As a result of the Chapter 11 Cases, the agents under the Bank Facilities
terminated the Company's interest rate swap agreements. The gain of
approximately $897,000 resulting from the termination of these interest rate
swap agreements is held by Wachovia Bank, N.A. and First Union Bank as cash
collateral for the outstanding indebtedness under the Bank Facilities.
NOTE 4 -- INCOME TAXES
The Company accounts for income taxes in accordance with FASB Statement No. 109,
Accounting for Income Taxes. Under Statement No. 109, the liability method is
used in accounting for income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax rate
and laws that will be in effect when the differences are expected to reverse.
In periods prior to June 30, 2000, the Company has recognized deferred income
tax assets based on its ability to implement certain tax planning strategies
that would, if necessary, be implemented to accelerate taxable amounts to offset
deductible temporary differences. These tax planning strategies primarily
involved the Company's ability to sell property to generate taxable gains. As a
result of (i) the Company's default on its Bank Facilities, (ii) changes in the
Company's projections of future operating results, and (iii) the limited market
for theatre sale-leaseback transactions, the Company no longer has the ability
to implement the tax planning strategies that would allow it to continue to
recognize certain of its deferred income tax assets.
10
<PAGE> 11
Thus, the Company increased its valuation allowances by approximately $.9 and
$33.7 million, respectively during the three and nine month periods ended
September 30, 2000.
Significant components of the Company's deferred tax liabilities (assets) and
valuation reserves are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
Alternative minimum tax credit
carryforwards $ (6,041) $ (4,700)
Net operating loss carryforwards (11,606) (900)
Financial statement bases of property and
equipment over (under) tax bases
(4,472) (5,241)
Restructuring reserve (9,270) (10,078)
Deferred rent (2,536) (2,312)
------------- ------------
(33,925) (23,231)
Valuation reserves 33,691 -0-
Other deferred tax credits 2,161 2,193
------------- ------------
$ 1,927 $ (21,038)
============= ============
</TABLE>
NOTE 5 -- RECOVERABLE CONSTRUCTION ALLOWANCES
Carmike, under contractual agreements with certain lessors, is entitled to
reimbursement of certain theatre construction related costs. Collection of these
amounts, $7.7 million at September 30, 2000, are based on the occurrence of
certain defined events. Certain lessors may dispute the requirements to
reimburse the Debtors' for such amounts. Amounts collected after the Petition
Date may be subject to liens and security interests granted to the banks under
the Credit Facilities.
NOTE 6 -- SALE/LEASEBACK TRANSACTION
During the period ended March 31, 2000, Carmike sold three theatres, with a net
book value of $22.6 million, for $23.3 million. The theatres were leased back
from the purchaser under a 20-year operating lease agreement. Gains realized
from a sale/leaseback transaction are recognized over the life of the leases.
The leases contain renewal options and generally provide that Carmike will pay
property taxes, common area maintenance, insurance and repairs. The net proceeds
from this transaction were used to reduce outstanding bank indebtedness and for
operations.
NOTE 7 -- EXTRAORDINARY CHARGE
During the period ended March 31, 1999, Carmike retired its then outstanding
senior notes totaling $79.9 million. Carmike recognized an extraordinary charge
of $6.3 million ($10.1 million less applicable income taxes) for (a) a
prepayment premium ($9.2 million) paid in
11
<PAGE> 12
connection with the redemption of the senior notes, and (b) the elimination of
deferred debt costs ($.9 million) on retired indebtedness.
NOTE 8 -- EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
------- ------ ------ ------
<S> <C> <C> <C> <C>
Weighted average shares outstanding (in
thousands):
Basic 11,344 11,389 11,344 11,378
Effect of dilutive securities - employee stock
options -0- 14 -0- 25
------- ------ ------ ------
Diluted 11,344 11,403 11,344 11,403
======= ====== ====== ======
Earnings (loss) per common share before
extraordinary item:
Basic and diluted $ (0.18) $ 0.68 $(4.51) $ 0.68
======= ====== ====== ======
Earnings (loss) per common share:
Basic and diluted $ (0.18) $ 0.68 $(4.51) $ 0.13
======= ====== ====== ======
</TABLE>
NOTE 9 -- CONDENSED COMBINED FINANCIAL DATA FOR GUARANTOR SUBSIDIARIES
Carmike's principal operating subsidiaries, Eastwynn and Wooden Nickel, fully,
unconditionally, jointly and severally guarantee Carmike's $200 million
principal amount of Subordinated Notes (see Note 3 - Liabilities Subject to
Compromise).
Eastwynn and Wooden Nickel are direct, wholly owned U.S. subsidiaries of
Carmike. Carmike and the guarantor subsidiaries conduct substantially all of the
operations of Carmike 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. Carmike also has a partially owned subsidiary and several
unconsolidated affiliates which are not guarantors and are inconsequential to
Carmike on a consolidated basis.
12
<PAGE> 13
Following is summarized condensed combined financial information (in accordance
with Rule 1-02(bb) of Regulation S-X) for the guarantor subsidiaries of Carmike
(in thousands) (unaudited):
<TABLE>
<CAPTION>
SEPTEMBER 30,
2000
-------------
<S> <C>
Current assets $ 14,713
Current liabilities 20,895
Noncurrent assets 551,472
Noncurrent liabilities 361,301
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
---------- ---------
<S> <C> <C>
Revenues $ 276,109 $ 292,996
Operating income (loss) (21,129) 15,680
Net loss (32,457) (1,437)
</TABLE>
Operating income (loss) includes intercompany management fees of approximately
$16.1 million and $22.9 million for the nine months ended September 30, 2000 and
1999, respectively. As previously noted (see Note 1 - Basis of Presentation and
Note 2 - Proceedings Under Chapter 11), the guarantor subsidiaries also filed
petitions to reorganize under chapter 11 of the Bankruptcy Code on August 8,
2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RISK FACTORS AND CAUTIONARY STATEMENTS
The following discussion and analysis should be read in conjunction with
financial statements and the notes thereto of Carmike Cinemas, Inc. ("Carmike")
and its subsidiaries (collectively, the "Company") included herein and in the
annual report on Form 10-K for the fiscal year ended December 31, 1999.
This Report includes "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), including, in particular, forward-looking statements under the headings
"Item 1. Financial Statements" and "Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations." These statements appear in a
number of places in this Report and include statements regarding the Company's
intent, belief or current expectations with respect to (i) its financing plans,
(ii) trends affecting its financial condition or results of operations, (iii)
the impact of competition, and (iv) the impact of the Chapter 11 Cases (as
defined below). The words "expect," "anticipate," "intend," "plan," "believe,"
"seek," "estimate," and similar expressions are intended to identify such
forward-looking statements; however, this Report also contains other
forward-looking statements in addition to historical information.
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<PAGE> 14
The Company cautions that any forward-looking statements made by the Company are
not guarantees of future performance and that there are various important
factors that could cause actual results to differ materially from those
indicated in the forward-looking statements; accordingly, there can be no
assurance that such indicated results will be realized. Factors which could
cause the Company's actual results in future periods to differ materially
include, but are not limited to, the following:
- there can be no assurance that the cash and cash
equivalents on hand at September 30, 2000 and cash
generated by the Company from operations and from
debtor-in-possession financing, if any, will be
sufficient to fund the operations of the Company
until such time as the Company is able to propose a
plan of reorganization that will be acceptable to
creditors and other parties in interest and confirmed
by the Bankruptcy Court;
- there can be no assurance regarding any adverse
actions which may be taken by creditors or landlords
of the Company that may have the effect of preventing
or unduly delaying confirmation of a plan of
reorganization in connection with the Chapter 11
Cases;
- there can be no assurance that the Bankruptcy Court
will confirm the Company's plan of reorganization;
- there can be no assurance as to the overall viability
of the Company's long-term operational reorganization
and financial restructuring plan;
- there can be no assurance as to the Company's being
able to obtain sufficient financing sources to meet
future obligations;
- the Company may have difficulty in attracting patrons
or labor as a result of the Chapter 11 Cases;
- the Company may have difficulty in maintaining or
creating new relationships with suppliers or vendors
as a result of the Chapter 11 Cases;
- an adverse determination in a legal proceeding,
whether currently asserted or arising in the future,
may have a material adverse effect on the Company's
financial position;
- there can be no assurance regarding the availability
of suitable motion pictures for exhibition in the
Company's markets;
- the Company faces significant competitive pressures;
- business conditions in the movie industry may not be
favorable;
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<PAGE> 15
- there can be no assurance as to the Company's ability
to achieve satisfactory levels of profitability and
cash flow from operations;
- there may not be available sufficient capital to
service the Company's debt obligations and to finance
the Company's business plans on terms satisfactory to
the Company;
- there can be no assurance as to the success of the
Company's marketing of certain assets and pursuit of
financing alternatives;
and the other factors detailed from time to time in Carmike's filings with the
Securities and Exchange Commission, including Carmike's Annual Report on Form
10-K for the year ended December 31, 1999.
In addition, the Chapter 11 Cases may disrupt the Company's operations and may
result in a number of other operational difficulties, including the following:
- the Company's ability to access capital markets will
likely be limited;
- the Company's senior management may be required to
expend a substantial amount of time and effort
structuring a plan of reorganization, which could
have a disruptive impact on management's ability to
focus on the operation of the Company's business;
- the Company may be unable to retain top management
and other key personnel; and
- suppliers to the Company may stop providing supplies
or services to the Company or provide such supplies
or services only on "cash on delivery," "cash on
order" or other terms that could have an adverse
impact on the Company's cash flow.
By making these forward-looking statements, the Company does not undertake to
update them in any manner except as may be required by its disclosure
obligations in filings it makes with the Securities and Exchange Commission
under the Federal securities laws.
THE INDUSTRY
The movie exhibition industry is currently facing significant challenges,
largely due to the effects of too many screens and relatively flat box office
receipts. The number of screens in the United States has increased dramatically,
growing from approximately 31,640 screens in 1997 to approximately 37,185
screens in 1999. Megaplexes, theatres with anywhere from 14 to 30 screens in a
single theatre, have became the industry standard in most major markets. The
megaplex format provides numerous benefits for theatre operators, including
allowing facilities (concession stands and restrooms) and operating costs (lease
rentals, utilities and personnel) to be allocated over a larger base of screens
and patrons. The megaplex theatres also contain
15
<PAGE> 16
increasingly costly improvements, such as stadium seating, state-of-the-art
projection and sound systems and other expensive amenities. These megaplexes are
not only competing with each other but have quickly rendered many older
multiplexes obsolete, and exhibitors have not been able to dispose of or close
their older facilities quickly enough.
Audience figures have not increased on a level with the unprecedented growth in
screens. Attendance has been relatively flat in 2000, with no blockbuster films
thus far and a disappointing performance by the summer's movies. Box office
revenues have increased due to increased ticket prices, but the increase in
revenue has been diminished by the higher costs of operating so many screens in
addition to movie studios getting a larger portion of box office receipts due to
shorter run times. The significant decay of older theatres and the
underperformance of many new builds have put pressure on industry-wide operating
results, operating margins, certain covenant requirements under bank facilities
and the market price of Carmike's and other exhibitors' stock.
CHAPTER 11 CASES
On August 8, 2000 (the "Petition Date"), Carmike and its subsidiaries Eastwynn
Theatres, Inc. ("Eastwynn"), Wooden Nickel Pub, Inc. ("Wooden Nickel"), and
Military Services, Inc. (collectively with Carmike, the "Debtors") filed
voluntary petitions to reorganize their business under chapter 11 of title 11 of
the U.S. Code (the "Bankruptcy Code"). The filings ("Chapter 11 Cases") were
made in the United States Bankruptcy Court for the District of Delaware (the
"Bankruptcy Court"). The Chapter 11 Cases are being jointly administered for
procedural purposes.
Subsequent to the commencement of the Chapter 11 Cases, the Debtors sought and
obtained several orders from the Bankruptcy Court which were intended to
stabilize their business and enable the Debtors to continue business operations
as debtors-in-possession. The most significant of these orders (i) permitted the
Debtors to operate their consolidated cash management system during the Chapter
11 Cases in substantially the same manner as it was operated prior to the
commencement of the Chapter 11 Cases, (ii) authorized payment of pre-petition
wages, vacation pay and employee benefits and reimbursement of employee business
expenses, (iii) authorized payment of pre-petition sales and use taxes owed by
the Debtors, and (iv) authorized the Debtors to pay up to $1,750,000 of
pre-petition obligations to critical vendors to aid the Debtors in maintaining
operation of their theatres and approximately $37 million to film distributors
as set forth below.
On August 23, 2000, a statutory committee of unsecured creditors (the
"Creditors' Committee") was appointed by the Office of the United States Trustee
to represent the interests of the Debtors' unsecured creditors in the Chapter 11
Cases. The Creditors' Committee has the right to review and object to certain
business transactions and may participate in the formulation of the Company's
long-term business plan and a plan or plans of reorganization. The Debtors are
required to reimburse certain fees and expenses of the Creditors' Committee,
including fees for attorneys and other professionals, to the extent allowed by
the Bankruptcy Court.
16
<PAGE> 17
As debtors-in possession, the Debtors have the right, subject to Bankruptcy
Court approval and certain other limitations, to assume or reject executory
contracts and unexpired leases. In this context, "assumption" means that the
Debtors agree to perform their obligations and cure all existing defaults under
the contract or lease, and "rejection" means that the Debtors are relieved from
their obligations to perform further under the contract or lease but are subject
to a claim for damages for the breach thereof. Any damages resulting from
rejection of executory contracts and unexpired leases are treated as general
unsecured claims in the Chapter 11 Cases. The Debtors have already received
approval from the Bankruptcy Court to reject leases relating to 111 theatre
locations of the Debtors. The 111 theatres approved for rejection generated
approximately $11.1 million and $4.9 million in theatre-level cash flow losses
for the nine month periods ended September 30, 2000 and 1999, respectively. Such
losses are measured by subtracting revenues generated at such theatre locations
from cost of operations (film exhibition costs, concession costs and other
theatre operating costs) for such theatres. The Debtors are continuing to review
their market strategy, geographic positions and theatre level profitability. As
a result of this continuing review, the Debtors may consider rejecting
additional leases for theatres that do not fall within the Debtors' market
strategy or geographic positioning or that do not perform at or above the
Company's expected theatre profitability level. The Debtors cannot presently
determine or reasonably estimate the ultimate liability that may result from
rejecting leases or from the filing of claims for any rejected contracts, and no
provisions have yet been made for these items.
The Bankruptcy Code provides that the Debtors have an exclusive period during
which only they may propose and file and solicit acceptances of a plan of
reorganization. The exclusive period of the Debtors to propose a plan for
reorganization currently expires on December 6, 2000. The Debtors, however,
intend to request that the Bankruptcy Court grant an extension of the exclusive
period. The Debtors subject to Bankruptcy Court approval have retained a
financial advisory firm to assist it in, among other things, developing the
business plan and plan of reorganization. If the Debtors fail to obtain an
extension of the exclusive period or to file a plan of reorganization during the
exclusive period, as extended, or, after such plan has been filed, if the
Debtors fail to obtain acceptance of such plan from the requisite impaired
classes of creditors and equity security holders during the exclusive
solicitation period, any party in interest, including a creditor, an equity
security holder, a committee of creditors or equity security holders, or an
indenture trustee, may file their own plan of reorganization for the Debtors.
After a plan of reorganization has been filed with the Bankruptcy Court, the
plan, along with a disclosure statement approved by the Bankruptcy Court, will
be sent to impaired creditors and equity security holders who are entitled to
vote. Following the solicitation period, the Bankruptcy Court will consider
whether to confirm the plan. In order to confirm a plan of reorganization, the
Bankruptcy Court, among other things, is required to find that (i) with respect
to each impaired class of creditors and equity security holders, each holder in
such class will, pursuant to the plan, receive at least as much as such holder
would receive in a liquidation, (ii) each impaired class of creditors and equity
security holders has accepted the plan by the requisite vote (except as provided
in the following sentence), and (iii) confirmation of the plan is not likely to
be followed by a liquidation or a need for further financial reorganization of
the Debtors or any successors to the Debtors unless the plan proposes such
liquidation or reorganization. If any impaired class of creditors or equity
security holders does not accept a
17
<PAGE> 18
plan and assuming that all of the other requirements of the Bankruptcy Code are
met, the proponent of the plan may invoke the "cram down" provisions of the
Bankruptcy Code. Under these provisions, the Bankruptcy Court may confirm a plan
notwithstanding the non-acceptance of the plan by an impaired class of creditors
or equity security holders if certain requirements of the Bankruptcy Code are
met. These requirements may, among other things, necessitate payment in full for
senior classes of creditors before payment to a junior class can be made. A
"cram down" as well as other potential plans of reorganization could also result
in holders of the Company's capital stock receiving no value for their
interests. Because of such possibilities, the value of the Company's capital
stock, including but not limited to its Class A Common Stock, is highly
speculative.
Since the Petition Date, the Debtors have continued to conduct business in the
ordinary course as debtors-in-possession under the protection of the Bankruptcy
Court. Management is in the process of stabilizing the business of the Debtors
and evaluating their operations before beginning the development of a
reorganization plan. Until a reorganization plan is confirmed by the Bankruptcy
Court, payments of prepetition liabilities are limited to those approved by the
Bankruptcy Court.
In the Chapter 11 Cases, the Debtors may, with Bankruptcy Court approval, sell
assets and settle liabilities, including for amounts other than those reflected
in the financial statements. The administrative and reorganization expense
resulting from the Chapter 11 Cases will unfavorably affect results. Moreover,
future results may be adversely affected by other claims and factors resulting
from the Chapter 11 Cases.
As of the Petition Date, the trade creditors of the Debtors holding the largest
unpaid claims were the film distributors, with claims aggregating approximately
$37 million. After the Debtors commenced their Chapter 11 Cases, several
distributors elected to cease supplying the Debtors with new film product until
their claims against Debtors for prepetition film exhibition fees were paid in
full. The Company has negotiated an agreement with each of its principal film
distributors to repay their prepetition claims for film exhibition fees in full
as critical vendors in 17 weekly installments ending no later than December 26,
2000, calculated as if such payments began on September 5, 2000, subject to and
beginning upon the approval of the Bankruptcy Court (collectively, the "Motion
Picture Distributor Agreements"). The Bankruptcy Court approved each of the
Motion Picture Distributor Agreements at a hearing held on September 14, 2000.
Based on the Motion Picture Distributor Agreements, the film distributors have
begun to supply the Debtors with new film product again. Payments under the
Motion Picture Distributor Agreements began on September 18, 2000 and will be
concluded by December 31, 2000. Each of the principal film distributors has
agreed to the terms of the Motion Picture Distributor Agreements, which include
provisions relating to the payment of prepetition claims as well as payments
during the Chapter 11 Cases. A refusal by one or more of the film distributors
to supply the Debtors with films is likely to have a material adverse effect on
the Debtors.
18
<PAGE> 19
COMPARISON OF THREE MONTHS AND
NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
RESULTS OF OPERATIONS
Total revenues for the quarter ended September 30, 2000 decreased 11.7% to
$127.9 million from $144.8 million for the quarter ended September 30, 1999.
This decrease consists of a $14.6 million decrease in admissions and a $2.3
million decrease in concessions and other. For the quarter ended September 30,
2000, the Company's average admission price was $4.69, its average concession
sale per patron was $1.98 and the attendance per average screen was 5,672. 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 7,936. The decrease in attendance, partially offset by per
patron increases in admissions and concessions, resulted in a decrease of
revenue per average screen of 13.4% to $32,200 from $37,191 for the quarter
ended September 30, 1999.
Costs of operations (film exhibition costs, concession costs and other theatre
operating costs) increased 1% from $108.9 million for the quarter ended
September 30, 1999 to $109.9 million for the quarter ended September 30, 2000.
Film exhibition costs increased to $52.1 million from $50.9 million for the
quarter ended September 30, 2000 due to higher film rental charges relating to
the Company's filing for reorganization which was partially offset by decreased
admissions and concessions associated with decreased attendance. Concessions
costs decreased to $5.9 million from $6.0 million for the quarters ended
September 30, 2000 and September 30, 1999, respectively. Other theatre operating
costs, consisting primarily of occupancy costs, salaries, supplies and
utilities, were relatively flat at $51.9 million for the quarters ended
September 30, 2000 and 1999. As a percentage of total revenues, cost of
operations increased to 86.0% of total revenues in the quarter ended September
30, 2000 from 75.2% for the quarter ended September 30, 1999, largely due to the
amount of fixed costs which do not fluctuate with changes in revenues or
attendance.
Total revenues for the nine months ended September 30, 2000 decreased 7.0% to
$342.1 million from $367.8 million for the nine months ended September 30, 1999.
This decrease consists of a $22.9 million decrease in admissions and a $2.8
million decrease in concessions and other. For the nine months ended September
30, 2000, the Company's average admission price was $4.59, its average
concession sale per patron was $1.97 and the attendance per average screen was
18,611. 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
the attendance per average screen was 20,758. This decrease in attendance,
partially offset by per patron increases in admissions and concessions, resulted
in a decrease of revenue per average screen of 5.8% to $127,324 from $135,228
for the nine months ended September 30, 1999.
Costs of operations for the nine months ended September 30, 2000 increased 2.4%
from $292.3 million for the nine months ended September 30, 1999 to $299.2
million. Film exhibition costs decreased to $132.6 million from $135.0 million
for the nine months ended September 30,
19
<PAGE> 20
1999 due to decreased admissions and concessions associated with decreased
attendance, partially offset by higher film rental charges relating to the
Company's filing for reorganization Chapter 11 Cases. Concession costs were
$15.0 million for the nine months ended September 30, 2000 compared to $14.7
million for the nine months ended September 30, 1999. Other theatre costs for
the nine months ended September 30, 2000 increased 6.4% to $151.6 million from
$142.5 million for the same period in 1999. This increase was the result of a
16.9% increase in occupancy costs and individually immaterial increases in
salaries, supplies and utilities. As a percentage of total revenues, cost of
operations increased to 87.5% of total revenues in the nine months ended
September 30, 2000 from 79.5% for the nine months ended September 30, 1999,
largely due to the amount of fixed costs which do not fluctuate with changes in
revenues or attendance.
Depreciation and amortization decreased 1.0% from $10.7 million for the quarter
ended September 30, 1999 to $10.6 million for the quarter ended September 30,
2000. This decrease is the result of increased depreciation due to the Company's
1999 theatre expansion offset by the reduced depreciation expense from the
reduction in asset values as a result of the impairment charge recognized during
the fourth quarter of 1999 and the sale/leaseback transaction completed during
the first quarter of 2000.
Interest expense for the quarter ended September 30, 2000 decreased 36.1% to
$6.2 million from $9.7 million for the quarter ended September 30, 1999. The
Company stopped recording interest expense relating to substantially all of its
debt facilities effective August 8, 2000 in accordance with the requirements of
Statement of Position 90-7 "Financial Reporting by Entities in Reorganization
under the Bankruptcy Code" ("SOP 90-7").
Income tax expense for the three and nine months ended September 30, 2000 was
$.4 million and $24.8 million, respectively. This represents a decrease of $4.8
million and an increase of $18.6 million over the same periods in 1999. The
increase for the nine month period ended September 30, 2000 is primarily the
result of the Company's establishment of approximately $25.7 million of
valuation reserves for certain deferred income tax assets based on i) its
projections of future operating results and ii) its ability to implement certain
tax planning strategies. As a result of i) changes in the Company's projections
of future operating result, ii) the Company's default on its Bank Facilities and
iii) the limited market for sale-leaseback transactions, the Company, during the
quarter ended June 30, 2000, established $32.7 million of valuation reserves as
it does not currently have the ability to implement its tax planning strategies.
Income tax expense of $.4 million for the three month period ended September 30,
2000 related primarily to state and local income taxes.
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.
As of September 30, 2000, on a consolidated basis, the Company's books and
records reflected assets totaling approximately $803.9 million with current
liabilities totaling approximately
20
<PAGE> 21
$76.5 million, long-term liabilities of $51.4 million and liabilities subject to
compromise of $523.0 million.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
The Company's revenues are collected in cash and credit cards, principally
through 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
of $7.5 million as of September 30, 2000, compared to a working capital deficit
of $60.1 million at December 31, 1999. The improved working capital recorded as
of September 30, 2000 reflects $39.9 million in current liabilities reported as
"Liabilities Subject to Compromise". Including this amount, the working capital
deficit at September 30, 2000 would have been $32.4 million. These deficits were
financed through the operating "float" and, prior to the commencement of the
Chapter 11 Cases, through borrowing availability under Carmike's $200 million
Revolving Credit Facility (the "Revolving Credit Facility"). At September 30,
2000, the Company had approximately $60.5 million in cash and cash equivalents
and short-term investments on hand. No further amounts were available for
borrowings under Carmike's Revolving Credit Facility. As of November 10, 2000,
the Company had approximately $30.5 million in cash and cash equivalents and
short-term investments on hand.
The Company is currently in discussions with several potential lenders,
including certain of the existing prepetition lenders, to provide a
debtor-in-possession ("DIP") lending facility. While the Company believes such a
facility can be negotiated with a lender, there can be no assurances that such
facility will be available to the Company under terms and conditions that are
satisfactory.
Carmike'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 2000, such capital
expenditures totaled $46.5 million. The Company had two theatres under
construction on September 30, 2000. Capital expenditures to complete these
theatres will amount to approximately $2.0 million.
Cash provided by operating activities was $16.1 million for the nine months
ended September 30, 2000, compared to cash provided by operating activities of
$33.2 million for the nine months ended September 30, 1999. The decrease in cash
flow from operating activities was primarily due to the reduction in net income,
partially offset by changes in operating assets and liabilities. Net cash used
in investing activities was $19.1 million for the nine months ended September
30, 2000 as compared to $137.5 million in the prior year period. This decrease
in cash used in investing activities was primarily due to the decreased level of
capital expenditures and receipt of proceeds from a sale and leaseback
transaction. For the nine month periods ended September 30, 2000 and 1999, cash
provided by financing activities was $53.8 million and $91.7 million,
respectively. The decrease was primarily due to reduced borrowings under the
Revolving Credit Facility.
21
<PAGE> 22
FINANCIAL COVENANT COMPLIANCE CONCERNS; CHAPTER 11 CASES
Carmike's credit and leasing 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 defined cash flows. As previously reported, effective March 31, 2000, Carmike
amended each of the Revolving Credit Facility, its $75 million term loan ("Term
Loan B and, together with the Revolving Credit Facility, the "Bank Facilities")
and a master lease facility with Movieplex Reality Leasing, L.L.C. (the "Master
Lease" and, together with the Bank Facilities, the "Credit Facilities") to,
among other things, adjust certain financial ratios relative to past and future
operating performance and to add a new covenant as to the ratio of Carmike's
funded debt plus rental expense to Carmike's cash flow plus rental expense. In
connection with these amendments, the interest rates under the Bank Facilities
were increased, the base rent payable under the Master Lease was increased and
Carmike is required to permanently prepay the loans under the Bank Facilities in
an amount equal to 75% of annual excess cash flow, as defined. In addition, the
amendments reduced the amount of investments Carmike can make to $10 million in
the aggregate and limited Carmike's net capital expenditures to $25 million in
2000 and $35 million in 2001 and 2002. In order to obtain these amendments,
Carmike agreed to secure the Credit Facilities with mortgages on its owned
theatres and leasehold mortgages on certain of its leased theatres, to the
extent it can obtain the landlord's consent to such a leasehold mortgage.
Carmike had not, as of the Petition Date, delivered any of the mortgages
required by the Credit Facilities.
During the second quarter of 2000, a shortfall in revenue and operating profits
caused a default of certain financial ratio covenants contained in the Credit
Facilities (as discussed in Note 3 of the Notes to the Consolidated Financial
Statements). On July 25, 2000, the agents under the Bank Facilities delivered a
notice of default to Carmike that declared an event of default under the Bank
Facilities based upon such technical noncompliance with financial covenants. The
notice expressly reserved the banks' rights and remedies under the Bank
Facilities. Thereafter, on July 28, 2000, the agents under the Bank Facilities
also issued a Payment Blockage Notice to Carmike and the indenture trustee for
Carmike's 9 3/8% Senior Subordinated Notes due 2009 (the "Subordinated Notes")
prohibiting payment by Carmike of the semi-annual interest payment in the amount
of $9,375,000 due to the holders of the Subordinated Notes on August 1, 2000.
Carmike engaged in active discussions with its lead bank lender beginning in
June 2000 to obtain a waiver of the covenant noncompliance and renegotiate the
Credit Facilities to provide terms that would allow the Company to achieve
current and future compliance and allow the payment of semiannual interest to
holders of the Subordinated Notes. Carmike was unable to successfully negotiate
satisfactory covenant relief. As a result and in the circumstances confronting
Carmike, including the nonpayment of the interest payment due to the
Subordinated Note holders and operating shortfalls, on August 8, 2000, Carmike
and its subsidiaries filed voluntary petitions to reorganize their business
under chapter 11 of the Bankruptcy Code.
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<PAGE> 23
The Debtors are operating their businesses as debtors-in-possession under
chapter 11, and continuation of the Company as a going concern is contingent
upon its ability, among other things, to generate sufficient cash from
operations and obtain financing sources to meet future obligations. In
connection with the formulation of a plan of reorganization, management will be
reviewing the performance of each of the Company's operations. Under the
Bankruptcy Code, the Debtors may elect to assume or reject real estate leases,
employment contracts, personal property leases, service contracts and other
executory prepetition contracts, subject to Bankruptcy Court approval. As
previously discussed, to date the Debtors have received
approval to reject 111 theatre leases.
The Company is currently evaluating whether the Master Lease is a financing or a
true lease for bankruptcy law purposes. If the Master Lease is determined to be
a true lease, the Company would be required to make full rent payments, as
provided for in the Master Lease, during the pendency of the Chapter 11 Cases.
If the Master Lease is determined to be a financing, the Debtors would not be
required to make rent payments as provided for under the Master Lease during the
pendency of the Chapter 11 Cases. The Company may, however, be required to make
"adequate protection" payments to compensate the landlord under the Master Lease
for any diminution in value of the properties during the pendency of the Chapter
11 Cases.
The Company anticipates that it will incur significant professional fees and
other restructuring costs, including additional impairments of long-lived
assets, in connection with the Chapter 11 Cases and the ongoing restructuring of
its business operations throughout the remainder of fiscal year 2000 and during
fiscal year 2001.
Both before and after the commencement of the Chapter 11 Cases, Carmike has
taken steps to restructure its operations and to improve profitability. These
steps include but are not limited to elimination of new movie theatre
development, curtailment of renovation and expansion of existing theatres,
increased management control over expenditures, aggressive marketing of surplus
assets and evaluations of capital sources and debt restructurings.
The Company expects that cash and cash equivalents on hand and cash flow from
operations, together with any DIP financing, should provide it with sufficient
liquidity to conduct its operations while the Chapter 11 Cases are pending. The
Company is in discussions with several lenders with respect to the provision of
DIP financing and expects to seek Bankruptcy Court approval of the financing in
early 2001. Based on the Company's current plans and projections this timing
would be in advance of the projected need for such operating capital. There can
be no assurance that DIP financing will be available to the Company on
satisfactory terms and conditions, if at all. Carmike's long-term liquidity and
the adequacy of Carmike's capital resources cannot be determined until a plan of
reorganization has been developed and confirmed by the Bankruptcy Court in
connection with the Chapter 11 Cases.
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<PAGE> 24
IMPACT OF YEAR 2000
In prior years, Carmike discussed the nature and progress of its plans to become
Year 2000 compliant. In late 1999, Carmike completed its remediation and testing
of systems. As a result of those planning and implementation efforts, Carmike
has experienced no significant disruptions in mission critical information
technology and non-information technology systems and Carmike believes those
systems successfully responded to the Year 2000 date change. Expenses incurred
to remediate our systems were not material. Carmike is not aware of any material
problems resulting from Year 2000 issues, either with its products, its internal
systems, or the products and services of third parties. Carmike will continue to
monitor its mission critical computer applications and those of its suppliers
and vendors throughout the year 2000 to ensure matters that may arise are
addressed promptly.
SEASONALITY
The Company's revenues are usually seasonal, coinciding with the timing of
releases of motion pictures by the major distributors. Generally, the most
marketable motion pictures are released during the summer and the Thanksgiving
through year-end holiday season. The unexpected emergence of a hit film during
other periods can alter the traditional trend. The timing of movie releases can
have a significant effect on the Company's results of operations, and the
results of one quarter are not necessarily indicative of results for the next
quarter.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Notes 2 and 3 of the Notes to Consolidated Financial Statements for a
discussion of interest rates and expenses for the Company while operating under
the Bankruptcy Code.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 8, 2000, the Debtors filed voluntary petitions in the Bankruptcy Court
for protection under chapter 11 of the Bankruptcy Code (See Part I, Item 2
herein). The Debtors are presently operating their businesses as
debtors-in-possession.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
On July 25, 2000, the agent under the Company's Bank Facilities delivered a
notice of default to the Company declaring an event of default under the Bank
Facilities based upon technical noncompliance with certain formula-based
financial covenants which require that certain specified ratios be maintained.
These covenants are included in each of the Company's Credit Facilities. The
notice expressly reserved the lenders' respective rights and remedies but did
not accelerate the maturity of the Company's debt obligations under the Bank
Facilities. In addition, on July 28, 2000, the agent under the Bank Facilities
delivered Payment Blockage Notices to the
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Company and to the indenture trustee of the Company's Subordinated Notes
prohibiting the payment by Carmike of the semi-annual interest payment due to
the holders of the Subordinated Notes. The failure of the Company to make such
semi-annual interest payment on the Subordinated Notes as a result of the
Payment Blockage Notices caused an event of default to exist under the indenture
governing the Subordinated Notes.
On August 8, 2000, the Debtors filed voluntary petitions for protection under
chapter 11 of the Bankruptcy Code.
ITEM 5. OTHER INFORMATION
See Notes 2 and 3 of Notes to Consolidated Financial Statements.
By letter dated October 11, 2000, Carmike received notice from the New York
Stock Exchange (the "NYSE") that it had determined that Carmike was "below
criteria" under the NYSE continued listing standards. In order to retain its
listing, Carmike initially must submit a plan to the NYSE within 45 days of the
October 11 letter, showing how Carmike intends to regain compliance with the
standards. While Carmike intends to submit a plan to the NYSE, acceptance of the
plan is subject to the discretion of the NYSE and Carmike can give no assurances
that trading in its securities on the NYSE will not again be halted or that its
securities will not ultimately be delisted by the NYSE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Listing of Exhibits
Number Description
27.1 Financial Data Schedule (for SEC use only)
27.2 Restated 1999 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CARMIKE CINEMAS, INC.
(Registrant)
Date: November 14, 2000 By: /s/ Michael W. Patrick
--------------------------------------
Michael W. Patrick --
President, Chief Executive Officer
Date: November 14, 2000 By: /s/ Martin A. Durant
--------------------------------------
Martin A. Durant
Senior Vice President -- Finance
Treasurer and Chief Financial Officer
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