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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 29, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to __________
----------- --------
Commission file number 1-8747
AMC ENTERTAINMENT INC.
(Exact name of registrant as specified in its charter)
Delaware 43-1304369
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer
Identification No.)
106 West 14th Street
P. O. Box 219615
Kansas City, Missouri 64121-9615
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (816) 221-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, 66 2/3 cents par value American Stock
Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None.
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 by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ X ]
The aggregate market value of the registrant's voting and non-voting
common equity held by non-affiliates as of June 5, 2001, computed by
reference to the closing price for such stock on the American Stock
Exchange on such date, was $202,789,614.
Number of shares
Title of each class of common stock Outstanding as of
May 11, 2001
Common Stock, 66 2/3 cents par value 19,427,098
Class B Stock, 66 2/3 cents par value 4,041,993
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for use in connection with
the 2001 Annual Meeting of Stockholders to be filed are incorporated
by reference into Part III of this report, to the extent set forth
therein.
PART I
Item 1. Business.
(a) General Development of Business
AMC Entertainment Inc. ("AMCE") is a holding company. AMCE's
principal subsidiaries are American Multi-Cinema, Inc. ("AMC"), AMC
Theatres of Canada (a division of AMC Entertainment International,
Inc.), AMC Entertainment International, Inc., National Cinema Network,
Inc. and AMC Realty, Inc. Unless the context otherwise requires,
references to "AMCE" or the "Company" refer to AMC Entertainment Inc.
and its subsidiaries. The Company's North American theatrical
exhibition business is conducted through AMC and AMC Theatres of
Canada. The Company is developing theatres outside North America
through AMC Entertainment International, Inc. and its subsidiaries.
The Company engages in advertising services through National Cinema
Network, Inc. ("NCN").
The Company's predecessor was founded in Kansas City, Missouri in
1920. AMCE was incorporated under the laws of the state of Delaware
on June 13, 1983 and maintains its principal executive offices at 106
West 14th Street, P.O. Box 219615, Kansas City, Missouri 64121-9615.
Its telephone number at such address is (816) 221-4000.
(b) Financial Information about Industry Segments
For information about the Company's operating segments and
geographic areas, see Note 14 to the Consolidated Financial Statements
on page 48.
(c) Narrative Description of Business
Company Overview and Theatre Circuit
The Company is one of the leading theatrical exhibition
companies in the world, based on revenues. As of March 29, 2001
(the Company's fiscal year end) the Company operated 180 theatres
with a total of 2,768 screens located in 21 states and the District
of Columbia in the U.S., Portugal, Japan, Spain, China (Hong Kong),
France, Sweden and Canada. Approximately 83% of the Company's U.S.
theatre circuit screens are in the top 25 "Designated Market Areas"
as defined by Nielson Media Research.
The Company is the industry leader in the development and
operation of "megaplex" theatres, theatres generally with 14 or more
screens with amenities to enhance the movie-going experience such as
stadium seating (seating with an elevation between rows to provide
unobstructed viewing), digital sound and enhanced seat design. The
megaplex increases the number of film choices as well as starting
times, making it more convenient for patrons. In addition to a
superior entertainment experience, megaplexes generally realize
economies of scale by serving more patrons from common support
facilities.
The Company introduced the megaplex theatre format in the United
States in May of 1995. The Company believes that the introduction of
the megaplex created the current industry replacement cycle that has
accelerated the obsolescence of older, smaller theatres by setting new
standards for moviegoers.
As of March 29, 2001, the total screens per theatre for the
Company was 15.4. The average number of screens per theatre for all
North American theatrical exhibition companies was 6.9, based on the
listing of exhibitors in the National Association of Theatre Owners
2000-01 Encyclopedia of Exhibition, as of June 1, 2000.
The Company continually upgrades the quality of its theatre
circuit by adding new screens through new builds, acquisitions and
expansions and disposing of older screens through closures and
sales. From April 1995 through March 29, 2001, the Company opened
90 new theatres with 1,902 screens and added 86 screens to existing
theatres, representing 72% of its screens as of March 29, 2001,
acquired four theatres with 29 screens and closed or disposed of 146
theatres with 879 screens.
The following table sets forth information concerning additions (new
builds, expansions and acquisitions), dispositions and end of period
theatres and screens operated for the last six fiscal years.
Changes in Theatres Operated
Additions Dispositions Total Theatres Operated
--------- ----------- -----------------------
Number Number Number Number Number Number
Fiscal Year of of of of of of
Ended Theatres Screens Theatres Screens Theatres Screens
------- ------ ------- ------- ------- -------
March 28, 1996 7 150 13 61 226 1,719
April 3, 1997 17 314 15 76 228 1,957
April 2, 1998 24 608 23 123 229 2,442
April 1, 1999 20 380 16 87 233 2,735
March 30, 2000 20 450 42 282 211 2,903
March 29, 2001 6 115 37 250 180 2,768
-- ----- --- ---
Total 94 2,017 146 879
As of March 29, 2001, the Company had 8 theatres with a total of
150 screens under construction.
The following table provides detail with respect to the
geographic location of the Company's theatre circuit as of March
29, 2001.
Total Total
North America Screens Theatres
------------- ------- --------
Florida. 461 34
California 437 28
Texas 347 17
Arizona 138 7
Georgia 132 9
Missouri 121 10
Pennsylvania 115 12
Michigan 88 7
Ohio 80 4
Virginia 67 5
Illinois 60 2
Colorado 58 3
Kansas 50 3
New Jersey 50 5
North Carolina 46 2
Oklahoma 44 2
Maryland 42 5
Washington 40 4
New York 33 2
Nebraska 24 1
District of Columbia 9 1
Louisiana 8 1
---- -----
Total
United States 2,450 164
----- -----
Canada 122 5
----- -----
Total
North America 2,572 169
----- -----
International
-------------
Japan 79 5
Spain 48 2
Portugal 20 1
France 20 1
Sweden 18 1
China (Hong Kong) 11 1
----- -----
Total International 196 11
----- -----
Total Theatre
Circuit 2,768 180
===== =====
Revenues for the Company are generated primarily from box office
admissions and theatre concessions sales which accounted for 67% and
28%, respectively, of the Company's fiscal 2001 revenues. The balance
of the Company's revenues are generated by advertising, video games
located in theatre lobbies and the rental of theatre auditoriums.
The Company believes there are opportunities to increase
ancillary revenues by offering additional programming and
entertainment options closely aligned with its current line of
business and utilizing available capacity within its current
facilities. Where appropriate, the Company may consider partnerships
or joint ventures to share risk and resources. In fiscal 2000, the
Company was a founding shareholder in MovieTickets.com, Inc., an
Internet ticketing venture. MovieTickets.com, Inc. generates revenues
from advertising, sponsorship and ticketing fees of which the Company
presently owns an approximate 30% equity interest.
Film Licensing
The Company predominantly licenses "first-run" motion pictures
from distributors owned by major film production companies and from
independent distributors. Films are licensed on a film-by-film and
theatre-by-theatre basis. The Company obtains these licenses based on
several factors, including theatre location, competition, season of the
year and motion picture content. Rental fees are paid by the Company
under a negotiated license.
North American film distributors typically establish geographic
film licensing zones and generally allocate available film to one
theatre within that zone. Film zones generally encompass a radius of
three to five miles in metropolitan and suburban markets, depending
primarily upon population density. In film zones where the Company is
the sole exhibitor, the Company obtains film licenses by selecting a
film from among those offered and negotiating directly with the
distributor. In film zones where there is competition, a distributor
will allocate its films among the exhibitors in the zone. As of March
29, 2001, approximately 77% of the Company's screens were located in
non-competitive film zones.
When motion pictures are licensed through a bidding process, the
distributor decides whether to accept bids on a previewed basis or a
non-previewed ("blind-bid") basis, subject to certain state law
requirements. In most cases, the Company licenses its motion pictures on
a previewed basis. When a film is bid on a previewed basis, exhibitors
are permitted to review the film before bidding, whereas they are not
permitted to do so when films are licensed on a non-previewed or
"blind-bid" basis. In the past few years, bidding has been used less
frequently by the industry. Presently, the Company licenses
substantially all of its films on a negotiated basis.
Licenses entered into through both negotiated and bid processes
typically state that rental fees shall be based on the higher of a gross
receipts formula or a theatre admissions revenue sharing formula. Under
a gross receipts formula, the distributor receives a specified
percentage of box office receipts, with the percentages declining over
the term of the run. Under a theatre admissions revenue formula, the
distributor receives a specified percentage of the excess of admissions
revenues over a negotiated allowance for theatre expenses. First-run
motion picture rental fees are generally the greater of (i) 70% of box
office admissions, gradually declining to as low as 30% over a period of
four to seven weeks, and (ii) a specified percentage (i.e., 90%) of the
excess of box office receipts over a negotiated allowance for theatre
expenses (commonly known as a "90/10" clause). The Company may pay
non-refundable guarantees of film rentals or make advance payments of
film rentals, or both, in order to obtain a license in a negotiated or
bid process, subject, in some cases, to a per capita minimum license
fee.
There are several distributors which provide a substantial portion
of quality first-run motion pictures to the exhibition industry. These
include Buena Vista Pictures (Disney), Paramount Pictures, Universal
Pictures, Warner Bros. Distribution, New Line Cinema, SONY Pictures
Releasing (Columbia Pictures and Tri-Star Pictures), Miramax, MGM/United
Artists, USA Pictures, Twentieth Century Fox, Sony Classics and
Dreamworks. According to information sourced from ACNielson EDI, Inc.,
these distributors accounted for 96% of industry admissions revenues
from January 2, 2001 through May 6, 2001. The Company's revenues
attributable to individual distributors may vary significantly from year
to year depending upon the commercial success of each distributor's
motion pictures in any given year. In fiscal 2001, no single distributor
accounted for more than 9% of the motion pictures licensed by the
Company or for more than 14% of the Company's box office admissions.
During the period from January 1, 1990 to December 31, 2000, the
annual number of first-run motion pictures released by distributors in
the United States ranged from a low of 370 in 1995 to a high of 490 in
1998, according to the Motion Picture Association of America.
Concessions
Concessions sales are the second largest source of revenue for the
Company after box office admissions. Concessions items include popcorn,
soft drinks, candy and other products. The Company's strategy emphasizes
prominent and appealing concessions counters designed for rapid service
and efficiency.
The Company's primary concessions products are various sizes of
popcorn, soft drinks, candy and hot dogs, all of which the Company sells
at each of its theatres. However, different varieties of candy and soft
drinks are offered at theatres based on preferences in that particular
geographic region. The Company has also implemented "combo-meals" for
patrons which offer a pre-selected assortment of concessions products.
Megaplex theatres are designed to have more concession capacity to
make it easier to serve larger numbers of customers. In addition, they
generally feature the "pass-through" concept, which enables the
concessionist serving patrons to simply sell concessions items instead
of also preparing them, thus providing more rapid service to customers.
Strategic placement of large concessions stands within theatres
heightens their visibility, aids in reducing the length of lines, allows
flexibility to introduce new concepts and improves traffic flow around
the concessions stands.
The Company negotiates prices for its concessions products and
supplies directly with concessions vendors on a national or regional
basis to obtain high volume discounts or bulk rates and marketing
incentives.
Theatrical Exhibition Industry and Competition
Motion picture theatres are the primary initial distribution
channel for new motion picture releases and the Company believes that
the theatrical success of a motion picture is often the most important
factor in establishing its value in the cable television,
videocassette/DVD and other ancillary markets. The Company further
believes that the emergence of alternative motion picture distribution
channels has not adversely affected attendance at theatres and that
these distribution channels do not provide an experience comparable to
the out-of-home entertainment experience offered by moviegoing. The
Company believes that alternative motion picture distribution channels
have provided additional revenue sources for filmed entertainment
product which have stimulated production. The Company believes that the
public will continue to recognize the value of viewing a movie on a
large screen with superior audio and visual quality, while enjoying a
variety of concessions and sharing the experience with a larger
audience.
Annual industry attendance has averaged approximately one billion
persons since the early 1960s. Since 1995, attendance for the industry
has increased at a compound annual growth rate of 2.4%. Since 1995,
industry attendance per screen declined from 46,900 to 38,700,
primarily because the number of industry indoor screens has increased
at a compound annual growth rate of 6.4%, according to information
obtained from the Motion Picture Association of America. Variances in
year-to-year attendance are primarily related to the overall
popularity and supply of motion pictures while the increase in
industry screens is due primarily to excess capacity within the
theatrical exhibition industry.
The following table represents information obtained from the Motion
Picture Association of America for the most recent six years.
Attendance per
Box
Attendance Indoor Screen Average Office Sales
Year (in millions) Screens (in thousands) Ticket Price (in millions)
- ----- ----------- ------ ------------- ------------ ----------
1995 1,263 26,958 46.9 $4.35 $5,493
1996 1,339 28,864 46.4 $4.41 $5,911
1997 1,388 30,825 45.0 $4.59 $6,366
1998 1,481 33,440 44.3 $4.69 $6,949
1999 1,465 36,448 40.2 $5.08 $7,448
2000 1,421 36,679 38.7 $5.39 $7,661
There are over 500 companies competing in the North American
theatrical exhibition industry, approximately 300 of which operate
four or more screens. Industry participants vary substantially in
size, from small independent operators to large international chains.
Based on the June 1, 2000 listing of exhibitors in the National
Association of Theatre Owners 2000-01 Encyclopedia of Exhibition, the
Company believes that the ten largest exhibitors (in terms of number
of screens) operated approximately 60% of the indoor screens in 2000.
The following table presents the ten largest North American
theatrical exhibition companies by box office revenues:
North American Box
Office North North
Revenues American American
Company (millions)(1) Screens (2) Theatres (2)
- ---------------------------------------------------------------------
Regal Cinemas, Inc. $814.0 4,449 424
AMC Entertainment Inc. $748.0 2,736 197
Loews Cineplex
Entertainment Corp. $641.8 2,726 359
Cinemark USA, Inc. $375.8 2,227 192
United Artists Theatre
Company $367.7 1,858 257
Carmike Cinemas $321.3 2,821 447
National Amusements, Inc. $310.4 1,076 107
Edwards Theatres
Circuit, Inc. $238.1 743 70
GC Companies, Inc. $233.9 1,060 133
Hoyts Cinemas Corporation $174.1 967 113
(1)Source: AC Nielson EDI, Inc. data for the twelve months ended March
29, 2001 for exhibitors other than AMC Entertainment, Inc. AMC
Entertainment Inc. revenues are based on actual North American
admissions revenues for the year ended March 29, 2001.
(2)Source: Listing of U.S. and Canadian Exhibitors (as of June 1, 2000)
in the National Association of Theatre Owners 2000-01 Encyclopedia of
Exhibition.
The Company's theatres are subject to varying degrees of competition
in the geographic areas in which they operate. Competition is often
intense with respect to attracting patrons, licensing motion pictures
and finding new theatre sites.
The theatrical exhibition industry faces competition from other
distribution channels for filmed entertainment, such as cable
television, pay per view and home video systems, as well as from all
other forms of entertainment.
Regulatory Environment
The distribution of motion pictures is in large part regulated by
federal and state antitrust laws and has been the subject of numerous
antitrust cases. The consent decrees resulting from one of those cases,
to which the Company was not a party, have a material impact on the
industry and the Company. Those consent decrees bind certain major
motion picture distributors and require the motion pictures of such
distributors to be offered and licensed to exhibitors, including the
Company, on a film-by-film and theatre-by-theatre basis. Consequently,
the Company cannot assure itself of a supply of motion pictures by
entering into long-term arrangements with major distributors, but must
compete for its licenses on a film-by-film and theatre-by-theatre basis.
The Company's theatres must comply with Title III of the
Americans with Disabilities Act of 1990 (the "ADA"). Compliance with
the ADA requires that public accommodations "reasonably accommodate"
individuals with disabilities and that new construction or alterations
made to "commercial facilities" conform to accessibility guidelines
unless "structurally impracticable" for new construction or
technically infeasible for alterations. Non-compliance with the ADA
could result in the imposition of injunctive relief, fines, awards of
damages to private litigants or additional capital expenditures to
remedy such noncompliance. Although the Company believes that its
theatres are in substantial compliance with the ADA, in January 1999,
the Civil Rights Division of the Department of Justice filed suit
against the Company alleging that certain of its theatres with
stadium-style seating violate the ADA. See Item 3. Legal Proceedings
on page 8.
As an employer covered by the ADA, the Company must make
reasonable accommodations to the limitations of employees and qualified
applicants with disabilities, provided that such reasonable
accommodations do not pose an undue hardship on the operation of the
Company's business. In addition, many of the Company's employees are
covered by various government employment regulations, including minimum
wage, overtime and working conditions regulations.
Seasonality
The Company's theatre business is seasonal in nature, with the
highest attendance and revenues generally occurring during the summer
months and holiday seasons. See Statements of Operations by Quarter
(Unaudited) on page 52.
Employees
As of March 29, 2001, the Company had approximately 1,900
full-time and 12,000 part-time employees. Approximately 4% of the
part-time employees were minors paid the minimum wage.
Fewer than one percent of the Company's employees, consisting
primarily of motion picture projectionists, are represented by a union,
the International Alliance of Theatrical Stagehand Employees and Motion
Picture Machine Operators. The Company believes that its relationship
with this union is satisfactory.
Item 2. Properties.
The following tables set forth the general character and holding
classification of the Company's theatre circuit as of March 29, 2001:
Total Total
Owner/Lessee Theatres Screens
- ------------ -------- -------
American Multi-Cinema, Inc. 163 2,442
AMC Entertainment International, Inc.
and subsidiaries 16 318
Third party (managed by American
Multi-Cinema, Inc.) 1 8
--- -----
Total 180 2,768
=== =====
Total Total
Property Holding Classification Theatres Screens
- ------------------------------- -------- -------
Owned 9 144
Leased pursuant to ground leases 8 109
Leased pursuant to building leases 162 2,507
Managed 1 8
--- -----
Total 180 2,768
=== =====
The Company's leases generally have initial terms ranging from 13
to 25 years, with options to extend the lease for up to 20 additional
years. The leases typically require escalating minimum annual rent
payments and additional rent payments based on a percentage of the
leased theatre's revenue above a base amount and require the Company to
pay for property taxes, maintenance, insurance and certain other
property-related expenses.
In some cases, the Company's rights as tenant are subject and
subordinate to the mortgage loans of lenders to its lessors, so that if
a mortgage were to be foreclosed, the Company could lose its lease.
Historically, this has never occurred.
The majority of the concessions, projection, seating and other
equipment required for each of the Company's theatres is owned.
The Company leases its corporate headquarters, located in Kansas
City, Missouri and a film licensing office is leased in Woodland Hills,
California (Los Angeles).
Item 3. Legal Proceedings.
On January 29, 1999, the Department of Justice ("DOJ") filed suit
against the Company in the United States District Court for the
Central District of California, United States of America v. AMC
Entertainment Inc. and American Multi-Cinema, Inc. The complaint
alleges that the Company has designed, constructed and operated two of
its motion picture theatres in the Los Angeles area and unidentified
theatres elsewhere that have stadium-style seating in violation of DOJ
regulations implementing Title III of the ADA and related "Standards
for Accessible Design" (the "Standards"). The complaint alleges
various types of non-compliance with the DOJ's Standards, but relates
primarily to issues relating to lines of sight. The DOJ seeks
declaratory and injunctive relief regarding existing and future
theatres with stadium-style seating, compensatory damages and a civil
penalty.
The current DOJ position appears to be that theatres must provide
wheelchair seating locations and transfer seats with viewing angles to
the screen that are at the median or better, counting all seats in the
auditorium. Heretofore, the Company has attempted to conform to the
evolving standards imposed by the DOJ and believes its theatres are in
substantial compliance with the ADA. However, the Company believes
that the DOJ's current position has no basis in the ADA or related
regulations and is an attempt to amend the ADA regulations without
complying with the Administrative Procedures Act. The Company has
filed an answer denying the allegations and asserting that the DOJ is
engaging in unlawful rulemaking. A similar claim has been made by
another exhibitor, Cinemark USA, Inc. v. United States Department of
Justice, United States District Court for the Northern District of
Texas, Case No. 399CV0183-L. Although no assurances can be given,
based on existing precedent involving stadiums or stadium seating, the
Company believes that an adverse decision in this matter is not likely
to have a material adverse effect on its financial condition,
liquidity or results of operations. However, there have been only a
few cases involving stadiums or stadium seating.
The Company is the defendant in two coordinated cases now pending
in California, Weaver v. AMC Entertainment Inc., (No. 310364, filed
March 2000 in Superior Court of California, San Francisco County), and
Geller v. AMC Entertainment Inc. (No. RCV047566, filed May 2000 in
Superior Court of California, San Bernardino County). The litigation
is based upon California Civil Code Section 1749.5, which provides
that "on or after July 1, 1997, it is unlawful for any person or
entity to sell a gift certificate to a purchaser containing an
expiration date." Weaver is a purported class action on behalf of all
persons in California who, on or after January 1, 1997, purchased or
received an AMC Gift of Entertainment ("GOE") containing an expiration
date. Geller is brought by a plaintiff who allegedly received an AMC
discount ticket in California containing an expiration date and who
purports to represent all California purchasers of these "gift
certificates" purchased from any AMC theatre, store, location, web-
site or other venue owned or controlled by AMC since January 1, 1997.
Both complaints allege unfair competition and seek injunctive relief.
Geller seeks restitution of all expired "gift certificates" purchased
in California since January 1, 1997 and not redeemed. Weaver seeks
disgorgement of all revenues and profits obtained since January 1997
from sales of "gift certificates" containing an expiration date, as
well as actual and punitive damages. The Company has denied any
liability, answering that GOEs and discount tickets are not a "gift
certificate" under the statute and that, in any event, no damages have
occurred. On May 11, 2001, following a special trial on the issue,
the court ruled that the GOEs and discount tickets are "gift
certificates." The Company intends to appeal this ruling and to
continue defending the cases vigorously. Should the result of this
litigation ultimately be adverse to the Company, it is presently
unable to estimate the amount of the potential loss.
The Company is party to various legal proceedings in the ordinary
course of business, none of which is expected to have a material
adverse effect on the Company except as noted above.
Item 4. Submission of Matters to a Vote of Security Holders.
There has been no submission of matters to a vote of security holders
during the thirteen weeks ended March 29, 2001.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
AMC Entertainment Inc. Common Stock is traded on the American
Stock Exchange under the symbol AEN. There is no established public
trading market for Class B Stock.
The table below sets forth, for the periods indicated, the high
and low closing prices of the Common Stock as reported on the American
Stock Exchange composite tape.
Fiscal 2001 Fiscal 2000
-------------- --------------
High Low High Low
---- ---- ---- ----
First Quarter $ 6.06 $ 3.63 $19.25 $ 14.00
Second Quarter 4.13 1.63 19.00 12.19
Third Quarter 3.63 1.00 13.94 8.56
Fourth Quarter 7.00 2.94 11.31 5.00
Common Stock
On May 11, 2001, there were 478 stockholders of record of Common
Stock and one stockholder of record (the 1992 Durwood, Inc. Voting
Trust dated December 12, 1992) of Class B Stock.
The Company's Certificate of Incorporation provides that holders
of Common Stock and Class B Stock shall receive, pro rata per share,
such cash dividends as may be declared from time to time by the Board of
Directors. Certain provisions of the Indentures respecting the Company's
9 1/2% Senior Subordinated Notes due 2009, the Company's 9 1/2% Senior
Subordinated Notes due 2011 and the Company's $425 million revolving
credit facility (the "Credit Facility") restrict the Company's ability
to declare or pay dividends on and purchase capital stock. As of March
29, 2001, under these provisions of the Notes due 2009 and the Notes due
2011, the Company is prohibited from paying cash dividends or purchasing
capital stock. Under an Investment Agreement dated April 19, 2001 (the
"Investment Agreement") with the Apollo Purchasers (as defined below)
the Company may not pay dividends on Common Stock except with the
consent of Apollo (as defined below) acting at the direction of the
Apollo Purchasers. Such approval right continues for so long as the
Apollo Purchasers continue to beneficially own 50% of the aggregate
number of shares of Series A Convertible Preferred Stock, par value of
66 2/3 cents per share (the "Series A Preferred") and the Series B
Exchangeable Preferred Stock, par value of 66 2/3 cents per share (the
"Series B Preferred" and collectively with the Series A Preferred, the
"Preferred Stock") issued pursuant to the Investment Agreement unless
either, Apollo is terminated as investment manager of the Apollo
Purchasers or an Apollo affiliate is removed as the general partner of
the Apollo Purchasers and, in either case, is not replaced by another
Apollo affiliate.
The Company has not declared a dividend on shares of Common Stock
or Class B Stock since fiscal 1989. Any payment of cash dividends on
Common Stock or Class B Stock in the future will be at the discretion of
the Board and will depend upon such factors as compliance with debt
covenants, earnings levels, capital requirements, the Company's
financial condition and other factors deemed relevant by the Board.
Currently, the Company does not contemplate declaring or paying any
dividends in respect of its Common Stock or Class B Stock.
Preferred Stock
On April 19, 2001, the Company entered into the Investment
Agreement with Apollo Investment Fund IV, L.P., Apollo Overseas
Partners IV, L.P., Apollo Investment Fund V, Apollo Overseas Partners
V, L.P. (collectively, with any other partnership or entity affiliated
with and managed by Apollo over which Apollo exercises investment
authority, the "Apollo Purchasers"), Apollo Management IV, L.P., and
Apollo Management V, L.P. (together with their affiliates, "Apollo").
Pursuant to the Investment Agreement, the Company sold 92,000 shares
of Series A Preferred at a price of $1,000 per share and 158,000
shares of Series B Preferred at a price of $1,000 per share. The sale
was a negotiated transaction exempt from registration under Section 4(2)
of the Securities Act of 1933, as amended. Each of the Apollo
Purchasers represented to the Company that it is an accredited investor
and that it was acquiring the shares of Preferred Stock for investment
and not with a view to or for the sale or distribution thereof. The
aggregate purchase price for the Preferred Stock was $250 million. Net
proceeds to the Company after fees to Apollo of $8.75 million,
reimbursement of issuance costs incurred by Apollo of $3.75 million and
financial advisory and other issuance costs were approximately $225
million. The terms upon which the Series A Preferred is convertible
into Common Stock and the terms upon which the Series B Preferred are
exchangeable for Series A Preferred are summarized in Note 5 of the
Company's Notes to Consolidated Financial Statements included in Part I
Item 8. of this Form 10-K and incorporated herein by reference.
Item 6. Selected Financial Data.
Years Ended (1)(5)
------------------------------------
March 29, March 30, April 1, April 2, April 3,
(In thousands, except per
share and operating data) 2001 2000 1999 1998 1997
- -------------------------- -------------------------------------------------------
Statement of Operations Data:
Total revenues $1,214,801 $1,166,942 $1,023,456 $850,750 $751,664
Film exhibition costs 432,351 417,736 358,437 299,926 258,809
Concession costs 46,455 50,726 48,687 42,062 36,748
Theatre operating expense 300,773 290,072 260,145 219,593 189,908
Rent 229,314 198,762 165,370 106,383 80,061
Other 42,610 44,619 30,899 25,782 18,354
General and administrative 32,499 47,407 52,321 47,860 52,422
Preopening expense 3,808 6,795 2,265 2,243 2,414
Theatre and other closure
expense (3) 24,169 16,661 2,801 - -
Restructuring charge - 12,000 - - -
Depreciation and
amortization 105,260 95,974 89,221 70,117 52,572
Impairment of long-lived
assets 68,776 5,897 4,935 46,998 7,231
(Gain) loss on disposition
of assets (664) (944) (2,369) (3,704) 84
------ ------ ------ ------ ------
Total costs and expenses 1,285,351 1,185,705 1,012,712 857,260 698,603
Operating income (loss) (70,550) (18,763) 10,744 (6,510) 53,061
Other income 9,996 - - - -
Interest expense 77,000 62,703 38,628 35,679 22,022
Investment income 1,728 219 1,368 1,090 856
------ ------ ------ ------ ------
Earnings (loss) before
income taxes and
cumulative effect
of accounting changes (135,826) (81,247) (26,516) (41,099) 31,895
Income tax provision (45,700) (31,900) (10,500) (16,600) 12,900
------ ------ ------ ------ ------
Earnings (loss) before
cumulative effect of
accounting changes (90,126) (49,347) (16,016) (24,499) 18,995
Cumulative effect of
accounting changes (2) (15,760) (5,840) - - -
------ ------ ------ ------ ------
Net earnings (loss) $ (105,886) $ (55,187) $ (16,016) $ (24,499) $ 18,995
====== ====== ====== ====== ======
Preferred dividends - - - 4,846 5,907
------ ------ ------ ------ ------
Net earnings (loss) for
common shares $ (105,886) $ (55,187) $ (16,016) $ (29,345) $ 13,088
======== ====== ====== ====== ======
Earnings (loss) per share
before cumulative
effect of accounting changes:
Basic $ (3.84) $ (2.10) $ (.69) $ (1.59) $ .75
Diluted (3.84) (2.10) (.69) (1.59) .74
Net earnings (loss) per share:
Basic $ (4.51)(2)$ (2.35)(2)$ (.69) $(1.59) $ .75
Diluted (4.51)(2) (2.35)(2) (.69) (1.59) .74
Pro forma amounts assuming
SAB No. 101 accounting change
had been in effect in fiscal
2000, 1999, 1998 and 1997:
Earnings (loss) for common
shares before cumulative
effect of accounting
changes: $ (51,715) $ (17,726) $ (28,784) $ 11,025
Basic (2.20) (.76) (1.55) .63
Diluted (2.20) (.76) (1.55) .62
Net earnings (loss) for common shares:$ (70,297) $ (28,839) $ (40,458) $ 1,414
Basic (3.00) (1.23) (2.19) .08
Diluted (3.00) (1.23) (2.19) .08
Average shares outstanding:
Basic 23,469 23,469 23,378 18,477 17,489
Diluted 23,469 23,469 23,378 18,477 17,784
Balance Sheet Data
(at period end):
Cash, equivalents and
investments $34,075 $119,305 $ 13,239 $ 9,881 $ 24,715
Total assets 1,047,264 1,188,805 975,730 795,780 719,055
Corporate borrowings 694,172 754,105 561,045 348,990 315,072
Capital and financing
lease obligations 56,684 68,506 48,575 54,622 58,652
Stockholders'
equity (deficit) (59,045) 58,669 115,465 139,455 170,012
Years Ended (1)(5)
---------------------------------------------------
March 29, March 30, April 1, April 2, April 3,
(In thousands, except per
share and operating data) 2001 2000 1999 1998 1997
- -------------------------- ------------------------------------------------------
Other Financial Data:
Capital expenditures $ 120,881 $ 274,932 $260,813 $389,217 $253,380
Proceeds from sale/leasebacks
and financing
lease obligations 11,226 98,313 - 283,800 -
Net cash provided by operating
activities 43,458 89,027 67,167 91,322 109,339
Net cash used in investing
activities (84,018) (198,392) (239,317) (133,737) (283,917)
Net cash (used in) provided
by financing activities (43,199) 215,102 175,068 27,703 188,717
Adjusted EBITDA (4) 140,795 117,620 107,597 109,144 115,362
Operating Data (at period end):
Screen additions 115 450 380 608 314
Screen dispositions 250 282 87 123 76
Average screens 2,818 2,754 2,560 2,097 1,818
Attendance (in thousands) 151,171 152,943 150,378 130,021 121,391
Number of screens operated 2,768 2,903 2,735 2,442 1,957
Number of theatres operated 180 211 233 229 228
Screens per theatre 15.4 13.8 11.7 10.7 8.6
(1)Fiscal 1997 consists of 53 weeks. All other fiscal years have 52
weeks.
(2)Fiscal 2001 includes a $15,760 cumulative effect of an accounting
change related to revenue recognition for gift certificates and
discounted theatre tickets (net of income tax benefit of $10,950)
which reduced earnings per share by $.67 per common share. Fiscal
2000 includes a $5,840 cumulative effect of an accounting change for
preopening expenses (net of income tax benefit of $4,095) which
reduced earnings per share by $.25 per common share.
(3)Theatre and other closure expense relates to actual and estimated
lease exit costs on older theatres and vacant restaurant space
related to a terminated joint venture.
(4)Represents net earnings (loss) before cumulative effect of
accounting changes plus interest, income taxes, depreciation and
amortization and adjusted for restructuring charge, impairment
losses, preopening expense, theatre and other closure expense, gain
(loss) on disposition of assets and equity in earnings of
unconsolidated affiliates. Management of the Company has included
Adjusted EBITDA because it believes that Adjusted EBITDA provides
lenders and stockholders additional information for estimating the
Company's value and evaluating its ability to service debt.
Management of the Company believes that Adjusted EBITDA is a
financial measure commonly used in the Company's industry and should
not be construed as an alternative to operating income (as
determined in accordance with GAAP). Adjusted EBITDA as determined
by the Company may not be comparable to EBITDA as reported by other
companies. In addition, Adjusted EBITDA is not intended to
represent cash flow (as determined in accordance with GAAP) and does
not represent the measure of cash available for discretionary uses.
(5) There were no cash dividends declared on Common Stock during the
last five fiscal years.
(/table>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
This section contains certain "forward-looking statements"
intended to qualify for the safe harbor from liability established by
the Private Securities Litigation Reform Act of 1995. These forward-
looking statements generally can be identified by use of statements
that include words or phrases such as the Company or its management
"believes," "expects," "anticipates," "intends," "plans," "foresees"
or other words or phrases of similar import. Similarly, statements
that describe the Company's objectives, plans or goals also are
forward-looking statements. All such forward-looking statements are
subject to certain risks and uncertainties that could cause actual
results to differ materially from those contemplated by the relevant
forward-looking statement. Important factors that could cause actual
results to differ materially from the expectations of the Company
include, among others: (i) the Company's ability to enter into various
financing programs; (ii) the performance of films licensed by the
Company; (iii) potential work stoppage within the film industry that
could adversely impact the quality and quantity of films licensed by
the Company; (iv) competition; (v) construction delays; (vi) the
ability to open or close theatres and screens as currently planned;
(vii) general economic conditions, including adverse changes in
inflation and prevailing interest rates; (viii) demographic changes;
(ix) increases in the demand for real estate; (x) changes in real
estate, zoning and tax laws and (xi) unforeseen changes in operating
requirements. Readers are urged to consider these factors carefully
in evaluating the forward-looking statements. The forward-looking
statements included herein are made only as of the date of this Form
10-K and the Company undertakes no obligation to publicly update such
forward-looking statements to reflect subsequent events or
circumstances.
OPERATING RESULTS
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
March 29, March 30, April 1,
(Dollars in thousands) 2001 2000 1999
- ----------------------------------------------------------------------
Revenues
North American theatrical
exhibition
Admissions $ 747,958 $ 714,340 $ 630,242
Concessions 320,866 319,725 300,374
Other theatre 23,680 28,709 20,841
-------------------------------------
1,092,504 1,062,774 951,457
International theatrical exhibition
Admissions 63,110 48,743 31,919
Concessions 13,358 10,130 6,973
Other theatre 2,372 1,304 925
----------------------------------
78,840 60,177 39,817
NCN and other 43,457 43,991 32,182
----------------------------------
Total revenues $1,214,801 $1,166,942 $1,023,456
==================================
Cost of Operations
North American theatrical
exhibition
Film exhibition costs $399,467 $ 392,414 $ 341,523
Concession costs 42,309 47,218 46,434
Theatre operating expense 277,338 272,886 249,916
Rent 204,310 183,214 157,282
Preopening expense 2,648 5,392 1,783
Theatre and other closure
expense 24,169 16,661 2,801
----------------------------------
950,241 917,785 799,739
International theatrical
exhibition
Film exhibition costs 32,884 25,322 16,914
Concession costs 4,146 3,508 2,253
Theatre operating 23,435 17,186 10,229
Rent 25,004 15,548 8,088
Preopening expense 1,160 1,403 482
----------------------------------
86,629 62,967 37,966
NCN and other 42,610 44,619 30,899
General and administrative 32,499 47,407 52,321
Restructuring charge - 12,000 -
Depreciation and amortization 105,260 95,974 89,221
Impairment of long-lived assets 68,776 5,897 4,935
Gain on disposition of assets (664) (944) (2,369)
----------------------------------
Total costs and expenses $,285,351 $1,185,705 $1,012,712
========= ============= =============
Years Ended March 29, 2001 and March 30, 2000
Revenues. Total revenues increased 4.1% during the year ended
March 29, 2001 compared to the year ended March 30, 2000.
North American theatrical exhibition revenues increased 2.8% from
the prior year. Admissions revenues increased 4.7% due to a 7.8%
increase in average ticket price offset by a 2.9% decrease in
attendance. The increase in average ticket prices was due primarily to
a strategic initiative implemented by the Company during fiscal 2000
and 2001 to selectively increase ticket and concession prices.
Attendance decreased due to a 6.8% decrease in attendance at
comparable theatres (theatres opened before fiscal 2000), the closure
or sale of 36 theatres with 244 screens since March 30, 2000 offset by
attendance increases from 4 new theatres with 75 screens added since
March 30, 2000. The decline in attendance at comparable theatres was
related to certain older multiplexes (theatres generally without
stadium seating) experiencing competition from megaplexes (theatres
with predominantly stadium seating) operated by the Company and other
competing theatre circuits, a trend the Company generally anticipates
will continue, and a decline in the popularity of film product,
primarily in the summer, during the year ended March 29, 2001 as
compared with the prior year. Concessions revenues increased 0.4% due
to a 3.3% increase in average concessions per patron offset by the
decrease in attendance. The increase in average concessions per patron
was attributable primarily to selective price increases.
International theatrical exhibition revenues increased 31.0% from
the prior year. Admissions revenues increased 29.5% due to an
increase in attendance from the addition of 2 new theatres with a
total of 34 screens since March 30, 2000. Attendance at comparable
theatres decreased 1.7%. Concession revenues increased 31.9% due
primarily to the increase in total attendance. International revenues
were negatively impacted by a stronger U.S. dollar, although this did
not contribute materially to consolidated net loss.
Revenues from NCN and other decreased 1.2% from the prior year due
to a decline in revenues at NCN.
Costs and expenses. Total costs and expenses increased 8.4% during
the year ended March 29, 2001 compared to the year ended March 30, 2000.
North American theatrical exhibition costs and expenses increased
3.5% from the prior year. Film exhibition costs increased 1.8% due to
higher admissions revenues offset by a decrease in the percentage of
admissions paid to film distributors. As a percentage of admissions
revenues, film exhibition costs were 53.4% in the current year as
compared with 54.9% in the prior year. The decrease in film
exhibition costs as a percentage of admissions revenues was impacted
primarily by Star Wars Episode I: The Phantom Menace, a film whose
audience appeal led to higher than normal film rental terms during the
prior year. Concession costs decreased 10.4% due to additional
marketing incentives from vendors under renegotiated contract terms
and the Company's initiative to consolidate purchasing to obtain more
favorable pricing. As a percentage of concessions revenues,
concession costs were 13.2% in the current year compared with 14.8% in
the prior year. As a percentage of revenues, theatre operating
expense was 25.4% in the current year as compared to 25.7% in the
prior year. Rent expense increased 11.5% due to the higher number of
screens in operation and the growing number of megaplexes in the
Company's theatre circuit, which generally have higher rent per screen
than multiplexes. During the year, the Company incurred $24,169,000 of
theatre and other closure expenses primarily comprised of expected
payments to landlords to terminate leases related to the closure of 34
multiplexes with 211 screens and vacant restaurant space related to a
terminated joint venture. The Company closed these theatres as a
result of negative operating cash flows which were not expected to
improve in the future. The Company anticipates that it will incur
approximately $5,000,000 of costs related to the closure of
approximately 75 multiplex screens in fiscal 2002 and $6,000,000 of
costs related to the closure of approximately 75 multiplex screens in
fiscal 2003.
International theatrical exhibition costs and expenses increased
37.6% from the prior year. Film exhibition costs increased 29.9%
primarily due to higher admission revenues. Rent expense increased
60.8% and theatre operating expense increased 36.4% from the prior
year, due to the increased number of screens in operation.
International theatrical exhibition costs and expenses were positively
impacted by a stronger U.S. dollar, although this did not contribute
materially to consolidated net loss.
Costs and expenses from NCN and other decreased 4.5% due
primarily to a decrease in costs at NCN.
General and administrative expenses decreased 31.4% from the prior
year due to cost savings associated with the consolidation of the
Company's divisional operations. As a percentage of total revenues,
recurring general and administrative expenses declined from 3.8% in the
prior year to 2.7% in the current year. On September 30, 1999, the
Company recorded a restructuring charge of $12,000,000 ($7,200,000 net
of income tax benefit or $.31 per share) related to the consolidation
of its three U.S. divisional operations offices into its corporate
headquarters and a decision to discontinue direct involvement with
pre-development activities associated with certain
retail/entertainment projects conducted through its wholly-owned
subsidiary, Centertainment, Inc. As a result of the restructuring, the
Company realized general and administrative expense reductions of
approximately $15,000,000 in fiscal 2001.
Depreciation and amortization increased 9.7%, or $9,286,000,
during the year ended March 29, 2001. This increase was primarily
caused by an increase in depreciation of $10,514,000 related to the
Company's new megaplexes.
During fiscal 2001, the Company recognized a non-cash impairment
loss of $68,776,000 ($40,576,000 net of income tax benefit, or $1.73
per share) on 76 theatres with 719 screens. The Company recognized an
impairment loss of $35,263,000 on 5 Canadian theatres with 122
screens, $19,762,000 on 17 U.S. theatres with 202 screens, (primarily
in Arizona, Texas, Florida, California and Maryland) including 2
theatres with 44 screens opened since 1995, $4,891,000 on one French
theatre with 20 screens, $3,592,000 on 34 U.S. theatres with 222
screens (primarily in Texas, Florida and Michigan) that were closed
during fiscal 2001, $3,476,000 on 19 U.S. theatres with 153 screens
(primarily in Georgia, Florida and Missouri) that are expected to be
closed in the near future, $1,042,000 on the discontinued development
of a theatre in Taiwan and $750,000 related to real estate held for
sale. Included in these losses, is an impairment of $3,855,000 on 41
theatres with 317 screens that were included in impairment losses
recognized in previous periods. The estimated future cash flows of
these theatres, undiscounted and without interest charges, were less
than the carrying value of the theatre assets. The Company is
evaluating its future plans for many of its theatres, which may
include selling theatres, subleasing properties to other exhibitors or
for other uses, or closing theatres and terminating the leases. The
Company expects to close approximately 150 screens in fiscal 2002 and
2003. Prior to and including fiscal 2001, $8,608,000 of impairment
charges have been taken on these expected closures and the economic
life of these theatre assets have been revised to reflect management's
best estimate of the economic life of the theatre assets for purposes
of recording depreciation. Closure or other dispositions of certain
theatres will result in expenses which are primarily comprised of
expected payments to landlords to terminate leases and will be
recorded as theatre and other closure expense.
During the fourth quarter of fiscal 2000, the Company recognized
a non-cash impairment loss of $5,897,000 ($3,479,000 net of income tax
benefit, or $.15 per share) on 13 theatres with 111 screens in 6
states (primarily Florida, Michigan and Louisiana) including a loss of
$690,000 associated with one theatre that was included in impairment
losses recognized in previous periods.
Gain on disposition of assets decreased from a gain of $944,000
in the prior year to a gain of $664,000 during the current year.
Current year results include a gain on the sale of real estate held
for investment offset by the loss on the sale of furniture, fixtures
and equipment. Prior year results include a gain on the sale of real
estate held for investment and gains related to the sales of the real
estate assets associated with two theatres.
Other Income. During fiscal 2001, the Company recognized non-
cash income of $9,996,000 ($5,898,000 net of income tax benefit, or
$.25 per share) related to the extinguishment of gift certificate
liabilities.
Interest Expense. Interest expense increased 22.8% during the
year ended March 29, 2001 compared to the prior year, due to an
increase in average outstanding borrowings and interest rates.
Income Tax Provision. The provision for income taxes decreased
to a benefit of $45,700,000 during the current year from a benefit of
$31,900,000 in the prior year. The effective tax rate was 33.6% for
the current year compared to 39.3% for the previous year. The
decline in effective rate was primarily due to a $5,200,000
increase in valuation allowance for state and foreign net operating
loss carryforwards. Management believes that it is more likely
than not that these net operating loss carryforwards will not be
realized due to uncertainties as to the timing and amounts of
future taxable income.
Net Loss. Net loss increased during the year ended March 29,
2001 to a loss of $105,886,000 from a loss of $55,187,000 in the
prior year due primarily to the impairment loss and the cumulative
effect of an accounting change recorded in the current year. Net
loss per share was $4.51 compared to a loss of $2.35 in the prior
year. Current year results include the cumulative effect of an
accounting change of $15,760,000 (net of income tax benefit of
$10,950,000) and an impairment loss of $68,776,000 ($40,576,000 net
of income tax benefit) which reduced earnings per share by $.67 and
$1.73, respectively, for the year ended March 29, 2001. Prior year
results include the cumulative effect of an accounting change of
$5,840,000 (net of income tax benefit of $4,095,000) and a
restructuring charge of $12,000,000 ($7,200,000 net of income tax
benefit of $4,800,000), which reduced earnings per share by $.25
and $.31, respectively, for the year ended March 30, 2000.
Years Ended March 30, 2000 and April 1, 1999
Revenues. Total revenues increased 14.0% during the year ended
March 30, 2000 compared to the year ended April 1, 1999.
North American theatrical exhibition revenues increased 11.7%
from the prior year. Admissions revenues increased 13.3% due to a
13.4% increase in average ticket price. The increase in average
ticket prices was due primarily to a strategic initiative
implemented by the Company to selectively increase ticket and
concession prices. Attendance decreased due to the closure or sale
of 42 theatres with 279 screens since April 1, 1999 and a 7.6%
decrease in attendance at comparable theatres (theatres opened
before fiscal 1999) offset by attendance increases from 15 new
theatres with 342 screens added since April 1, 1999. The decline in
attendance at comparable theatres was related to certain older
multiplexes experiencing competition from new megaplexes operated by
the Company and other competing theatre circuits, a trend the
Company generally anticipates will continue, and a decline in the
popularity of film product during the year ended March 30, 2000 as
compared with the prior year. Concessions revenues increased 6.4%
due to a 6.5% increase in average concessions per patron. The
increase in average concessions per patron was attributable
primarily to selective price increases.
International theatrical exhibition revenues increased 51.1%
from the prior year. Admissions revenues increased 52.7% due to an
increase in attendance from the addition of 4 new theatres with a
total of 78 screens since April 1, 1999. Attendance at comparable
theatres decreased 11.4% due to a decline in the popularity of film
product in Japan and competition from new theatrical exhibitors in
Japan. Concession revenues increased 45.3% due primarily to the
increase in total attendance. International revenues were positively
impacted by a weaker U.S. dollar, although this did not contribute
materially to consolidated net loss.
Revenues from NCN and other increased 36.7% from the prior year
due to increased sales of rolling stock advertising at NCN.
Costs and expenses. Total costs and expenses increased 17.1% during
the year ended March 30, 2000 compared to the year ended April 1, 1999.
North American theatrical exhibition costs and expenses increased
14.8% from the prior year. Film exhibition costs increased 14.9% due
to higher admissions revenues and an increase in the percentage of
admissions paid to film distributors. As a percentage of admissions
revenues, film exhibition costs were 54.9% in the current year as
compared with 54.2% in the prior year. The increase in film
exhibition costs as a percentage of admissions revenues was primarily
due to Star Wars Episode I: The Phantom Menace, a film whose audience
appeal led to higher than normal film rental terms. Concession costs
increased 1.7% due to the increase in concessions revenues offset by a
decrease in concession costs as a percentage of concessions revenues.
As a percentage of concessions revenues, concession costs were 14.8%
in the current year compared with 15.5% in the prior year, due to the
concession price increases. As a percentage of revenues, theatre
operating expense was 25.7% in the current year as compared to 26.3%
in the prior year. Rent expense increased 16.5% due to the higher
number of screens in operation and the growing number of megaplexes in
the Company's theatre circuit, which generally have higher rent per
screen than multiplexes. During the year, the Company incurred
$16,661,000 of theatre closure expenses primarily comprised of
expected payments to landlords to terminate leases related to the
closure of 35 multiplexes with 242 screens. The Company closed these
theatres as a result of negative operating cash flows which were not
expected to improve in the future.
International theatrical exhibition costs and expenses increased
65.9% from the prior year. Film exhibition costs increased 49.7%
primarily due to higher admission revenues, offset by a decrease in the
percentage of admissions paid to film distributors. Rent expense
increased 92.2% and theatre operating expense increased 68.0% from the
prior year, due to the increased number of screens in operation.
International theatrical exhibition costs and expenses were negatively
impacted by a weaker U.S. dollar, although this did not contribute
materially to consolidated net loss.
Costs and expenses from NCN and other increased 44.4% due
primarily to an increase in costs associated with the increased sales
of rolling stock advertising at NCN.
General and administrative expenses decreased 9.4% from the prior
year due to cost savings associated with the consolidation of the
Company's divisional operations as discussed below. The Company also
incurred $2,500,000 of non-recurring relocation costs related to this
consolidation. As a percentage of total revenues, recurring general and
administrative expenses declined from 5.1% in the prior year to 3.8% in
the current year.
On September 30, 1999, the Company recorded a restructuring
charge of $12,000,000 ($7,200,000 net of income tax benefit or $.31
per share) related to the consolidation of its three U.S. divisional
operations offices into its corporate headquarters and a decision to
discontinue direct involvement with pre-development activities
associated with certain retail/entertainment projects conducted
through its wholly-owned subsidiary, Centertainment, Inc. Included in
this total are severance and other employee related costs of
$5,300,000, lease termination costs of $700,000 and the write-off of
capitalized pre-development costs of $6,000,000. As a result of the
restructuring, the Company realized general and administrative expense
reductions of approximately $5,500,000 in fiscal 2000.
Depreciation and amortization increased 7.6%, or $6,753,000,
during the year ended March 30, 2000. This increase was caused by an
increase in depreciation of $12,930,000 related to the Company's new
megaplexes, which was partially offset by a $8,728,000 decrease in
amortization due to a change in accounting for start-up activities.
During the fourth quarter of the current year, the Company
recognized a non-cash impairment loss of $5,897,000 ($3,479,000 net of
income tax benefit, or $.15 per share) on 13 theatres with 111 screens
in 6 states (primarily Florida, Michigan and Louisiana) including a
loss of $690,000 associated with one theatre that was included in
impairment losses recognized in previous periods. The estimated
future cash flows of these theatres, undiscounted and without interest
charges, were less than the carrying value of the theatre assets.
During the fourth quarter of fiscal 1999, the Company recognized
a non-cash impairment loss of $4,935,000 ($2,912,000 net of income tax
benefit, or $.13 per share) on 24 theatres with 186 screens in 11
states (primarily Georgia, Ohio, Texas and Colorado) including a loss
of $937,000 associated with 7 theatres that were included in
impairment losses recognized in previous periods.
Gain on disposition of assets decreased from a gain of $2,369,000
in the prior year to a gain of $944,000 during the current year.
Current year results include a gain on the sale of real estate held
for investment and gains related to the sales of the real estate
assets associated with two theatres. Prior year results include gains
related to the sales of real estate assets associated with three
theatres.
Interest Expense. Interest expense increased 62.3% during the
year ended March 30, 2000 compared to the prior year, due to an increase
in average outstanding borrowings and interest rates. The increase in
average interest rates was primarily due to the issuance of $225,000,000
of 9 1/2% Senior Subordinated Notes due 2011 on January 27, 1999.
Income Tax Provision. The provision for income taxes decreased
to a benefit of $31,900,000 during the current year from a benefit of
$10,500,000 in the prior year. The effective tax rate was 39.3% for
the current year compared to 39.6% for the previous year.
Net Loss. Net loss increased during the year ended March 30, 2000
to a loss of $55,187,000 from a loss of $16,016,000 in the prior year.
Net loss per share was $2.35 compared to a loss of $.69 in the prior
year. Current year results include the cumulative effect of an
accounting change of $5,840,000 (net of income tax benefit of
$4,095,000) and a restructuring charge of $12,000,000 ($7,200,000 net of
income tax benefit of $4,800,000), which reduced earnings per share by
$.25 and $.31, respectively, for the year ended March 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's revenues are collected in cash, principally
through box office admissions and theatre concessions sales. The
Company has an operating "float" which partially finances its
operations and which generally permits the Company to maintain a
smaller amount of working capital capacity. This float exists
because admissions revenues are received in cash, while exhibition
costs (primarily film rentals) are ordinarily paid to distributors
from 30 to 45 days following receipt of box office admissions
revenues. The Company is only occasionally required to make
advance or early payments or non-refundable guaranties of film
rentals. Film distributors generally release during the summer and
holiday seasons the films which they anticipate will be the most
successful. Consequently, the Company typically generates higher
revenues during such periods. Cash flows from operating
activities, as reflected in the Consolidated Statements of Cash
Flows, were $43,458,000, $89,027,000 and $67,167,000 in fiscal
years 2001, 2000 and 1999, respectively. The decrease in operating
cash flows from fiscal year 2000 to fiscal year 2001 is primarily
due to increased competition, the decline in the performance of
films and an increase in rent, interest and theatre closure
payments. The Company had a net working capital deficit as of
March 29, 2001 and March 30, 2000 of $148,519,000 and $29,602,000,
respectively. The increase in working capital deficit is attributed
primarily to a decrease in temporary cash investments of
$82,000,000, a $15,000,000 increase in deferred income and a
$14,000,000 increase in theatre and other closure reserves which
management classifies as current based on its intention to
negotiate termination of the related lease obligations within one
year. The increase in working capital deficit is not expected to
negatively impact the Company's ability to fund operations or
planned capital expenditures for the next 12 months. The Company
borrows against its Credit Facility to meet obligations as they
come due and had approximately $150,000,000 and $85,000,000
available on its Credit Facility to meet these obligations as of
March 29, 2001 and March 30, 2000, respectively.
The Company continues to expand its North American and
International theatre circuits. During the current fiscal year, the
Company opened 6 theatres with 109 screens and added 6 screens to
an existing theatre. In addition, the Company closed 37 theatres
with 250 screens resulting in a circuit total of 180 theatres with
2,768 screens as of March 29, 2001.
The costs of constructing new theatres are funded by the Company
through internally generated cash flow or borrowed funds. The
Company generally leases its theatres pursuant to long-term non-
cancelable operating leases which require the developer, who owns the
property, to reimburse the Company for a portion of the construction
costs. However, the Company may decide to own the real estate assets
of new theatres and, following construction, sell and leaseback the
real estate assets pursuant to long-term non-cancelable operating
leases. During fiscal 2001, the Company leased 5 new theatres with 97
screens from developers and leased one theatre with 12 screens
pursuant to a ground lease. The Company has granted an option to
Entertainment Properties Trust ("EPT"), a real estate investment
trust, to acquire the land at one megaplex theatre for the cost to
the Company. In addition, for a period of five years subsequent to
November 1997, EPT will have a right of first refusal and first offer
to purchase and leaseback to the Company the real estate assets
associated with any megaplex theatre and related entertainment
property owned or ground-leased by the Company, exercisable upon the
Company's intended disposition of such property. As of March 29,
2001, the Company had 4 open megaplexes that would be subject to
EPT's right of first refusal and first offer to purchase should the
Company seek to dispose of such megaplexes. Historically, the
Company has owned and paid for the equipment necessary to fixture a
theatre. However, the Company entered into master lease agreements
in fiscal 2000 and 1999 in the amount of $21,200,000 and $25,000,000,
respectively, for equipment necessary to fixture certain theatres.
The master lease agreements have an initial term of six years and
include early termination and purchase options. The Company
classifies these leases as operating leases.
As of March 29, 2001, the Company had construction in progress
of $58,858,000 and reimbursable construction advances (amounts due
from developers on leased theatres) of $733,000. The Company had
four theatres in the U.S. with a total of 74 screens, two theatres
in Canada with 38 screens and two theatres in Spain with 38 screens
under construction on March 29, 2001. During the fifty-two weeks
ended March 29, 2001, the Company had capital expenditures of
$120,881,000. The Company expects that the net cash requirements for
capital expenditures, giving effect to proceeds of $7,500,000 on an
anticipated sale and leaseback transaction, will approximate
$85,000,000 in fiscal 2002.
The Company's Credit Facility permits borrowings at interest rates
based on either the bank's base rate or LIBOR and requires an annual
commitment fee based on margin ratios that could result in a rate of .375%
or .500% on the unused portion of the commitment. The Credit Facility
matures on April 10, 2004. The commitment thereunder will be reduced by
$25,000,000 on each of December 31, 2002, March 31, 2003, June 30,
2003 and September 30, 2003 and by $50,000,000 on December 31,
2003. The total commitment under the Credit Facility is
$425,000,000, but the facility contains covenants that limit the
Company's ability to incur debt (whether under the Credit Facility
or from other sources). As of March 29, 2001, the Company had
outstanding borrowings of $270,000,000 under the Credit Facility at an
average interest rate of 7.7% per annum, and approximately $150,000,000
was available for borrowing under the Credit Facility. On April 19,
2001, the Company issued Preferred Stock for an aggregate purchase
price of $250,000,000. Net proceeds from the sale of approximately
$225,000,000 were used to reduce outstanding indebtedness under the
Credit Facility and increase available borrowing amounts under the
Credit Facility.
Covenants under the Credit Facility impose limitations on
indebtedness, creation of liens, change of control, transactions with
affiliates, mergers, investments, guaranties, asset sales, dividends,
business activities and pledges. In addition, the Credit Facility
contains certain financial covenants. Covenants under the Indentures
relating to the Company's $225,000,000 aggregate principal amount of 9
1/2% Senior Subordinated Notes due 2011 (the "Notes due 2011") and
$200,000,000 aggregate principal amount of 9 1/2% Senior Subordinated
Notes due 2009 (the "Notes due 2009") are substantially the same and
impose limitations on the incurrence of indebtedness, dividends,
purchases or redemptions of stock, transactions with affiliates, and
mergers and sales of assets, and require the Company to make an offer
to purchase the Notes upon the occurrence of a change in control, as
defined in the Indentures. Upon a change of control, the Company will
be required to make an offer to repurchase each holder's Notes due
2009 and Notes due 2011 at a price equal to 101% of the principal
amount thereof plus accrued and unpaid interest to the date of
repurchase. As of March 29, 2001, the Company was in compliance with
all financial covenants relating to the Credit Facility, the Notes due
2009 and the Notes due 2011. However, as of such date, under
provisions of the Indentures related to the Notes due 2009 and the
Notes due 2011, the Company is currently prohibited from incurring
additional indebtedness other than additional borrowings under the
Credit Facility and other permitted indebtedness, as defined in the
Indentures, and paying cash dividends or making distributions in
respect of its capital stock.
The Indentures relating to the Notes due 2009 and 2011
(collectively, the "Notes") contain certain provisions subordinating
the obligations of the Company under the Notes to its obligations
under the Credit Facility and other senior indebtedness. These
include a provision that applies if there is a payment default under
the Credit Facility or other senior indebtedness and one that applies
if there is a non-payment default that permits acceleration of
indebtedness under the Credit Facility. If there is a payment
default under the Credit Facility or other senior indebtedness,
generally no payment may be made on the Notes until such payment
default has been cured or waived or such senior indebtedness had been
discharged or paid in full. If there is a non-payment default under
the Credit Facility that would permit the lenders to accelerate the
maturity date of the Credit Facility, no payment may be made on the
Notes for a period (the "Payment Blockage Period") commencing upon the
receipt by the Indenture trustees for the Notes of notice of such
default and ending up to 179 days thereafter. Not more than one
Payment Blockage Period may be commenced during any period of 365
consecutive days. Failure of the Company to make payment on either
series of Notes when due or within any applicable grace period,
whether or not occurring under a Payment Blockage Period, will be an
event of default with respect to such Notes. As of March 29, 2001,
the Company was in compliance with all financial covenants relating to
the Credit Facility and the Notes.
On April 19, 2001, the Company issued shares of Series A
Preferred Stock and Series B Preferred Stock for an aggregate purchase
price of $250,000,000. Net proceeds from the sale of approximately
$225,000,000 were used to reduce outstanding indebtedness under the
Company's Credit Facility. As described in Note 5 to the Company's
Notes to Consolidated Financial Statements included in Part I Item 8.
of this Form 10-K, dividends on the Preferred Stock are payable in
additional shares of Preferred Stock until April 2004. Thereafter, at
the Company's option, dividends on Series B Preferred Stock may be
paid in additional shares of Series B Preferred Stock until April 2006
and dividends on Series A Preferred Stock may be paid in additional
shares of Series A Preferred Stock until April 2008. Reference is made
to Note 5 for information describing circumstances in which holders of
Preferred Stock may be entitled to special in-kind dividends and other
circumstances under which holders of Preferred Stock may be required
to receive payments-in-kind in lieu of cash and shares of Series B
Preferred Stock instead of Series A Preferred Stock. Reference is
also made to Note 5 for information relating to conversion rights,
exchange obligations, the Company's redemption option, the holders'
redemption option, voting rights, election of directors and
liquidation preferences of the Preferred Stock.
The Company believes that cash generated from operations,
existing cash and equivalents, expected reimbursements from developers
and the available commitment amount under its Credit Facility will be
sufficient to fund operations, including amounts due under credit
agreements, and planned capital expenditures for the next 12 months
and enable the Company to maintain compliance with covenants related
to the Credit Facility and the Notes. However, the performance of
films licensed by the Company and unforeseen changes in operating
requirements could affect the Company's ability to continue its
business strategy as well as comply with certain financial covenants.
Certain Factors That May Affect Future Results and Financial Condition
The Company's ability to operate successfully depends upon a
number of factors, the most important of which are the availability
and appeal of motion pictures, the Company's ability to license motion
pictures and the performance of such motion pictures in its markets.
The Company predominantly licenses first-run motion pictures. Poor
relationships with distributors, poor performance of motion pictures or
disruption in the production of motion pictures by the major studios
and/or independent producers may have an adverse effect upon the
business of the Company. Because film distributors usually release
films that they anticipate will be the most successful during the
summer and holiday seasons, poor performance of these films or
disruption in the release of films during such periods could adversely
impact the Company's results of operations for those particular
periods or for any fiscal year.
The Screen Actors Guild ("SAG") has a contract with the Alliance
of Motion Picture and Television Producers ("AMPTP"). The SAG
contract with AMPTP will expire on June 30, 2001. The SAG is currently
negotiating a new contract with AMPTP; however, failure to
successfully negotiate and execute a new contract could result in work
stoppage within the film industry that could adversely impact the
quality and quantity of films licensed by the Company.
As discussed in Part I Item 1. "Theatrical Exhibition Industry
and Competition", the annual growth rate for indoor screens has
exceeded the annual growth rate for attendance from 1995-2000.
Management believes that the industry is rationalizing the excess
capacity of screens as many theatrical exhibitors appear to be
curtailing expansion plans and are expected to accelerate the closure
of underperforming screens. If excess capacity in the industry does
not subside, the Company is at risk for increased erosion of its
theatre base and continued declines in comparable theatre attendance.
As the Company expands internationally, it becomes subject to
regulation by foreign governments. There are significant differences
between the theatrical exhibition industry regulatory environment in the
United States and in international markets. Regulatory barriers
affecting such matters as the size of theatres, the issuance of licenses
and the ownership of land may restrict market entry. Vertical
integration of production and exhibition companies in international
markets may also have an adverse effect on the Company's ability to
license motion pictures for international exhibition. Quota systems used
by some countries to protect their domestic film industry may adversely
affect revenues from theatres that the Company develops in such markets.
Such differences in industry structure and regulatory and trade
practices may adversely affect the Company's ability to expand
internationally or to operate at a profit following such expansion.
Contingencies that may affect future results and financial
condition are summarized in Note 10 of the Company's Notes to
Consolidated Financial Statements included in Part I Item 8. of this
Form 10-K and incorporated herein by reference.
Deferred Tax Assets
Readers are cautioned that forward looking statements contained
in this section should be read in conjunction with the Company's
disclosures under the heading "forward looking statements". The
following special factors could particularly affect the Company's
ability to achieve the required level of future taxable income to
enable it to realize its deferred tax assets: (i) competition; (ii)
the ability to open or close screens as currently planned; (iii) the
performance of films licensed by the Company; and (iv) future theatre
attendance levels.
The Company has recorded net current and non-current deferred
tax assets in accordance with Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes, of approximately
$150,000,000 as of March 29, 2001, and estimates that it must
generate at least $385,000,000 of future taxable income to realize
those deferred tax assets. To achieve this level of future taxable
income, the Company intends to pursue its current business strategy
that includes expansion of its theatre circuit and closing less
profitable theatres, reduction of Credit Facility borrowings and
related interest expense with the net proceeds from the sale of
Preferred Stock and company-wide cost control initiatives. The
theatrical exhibition industry is cyclical and the Company believes
that it is capable of generating future taxable income once the
current industry replacement cycle is completed.
Management believes it is more likely than not that the Company
will realize future taxable income sufficient to utilize its deferred
tax assets except as follows. As of March 29, 2001, management
believed it was more likely than not that certain deferred tax assets
related to state tax net operating loss carryforwards, a net operating
loss carryforward of its French subsidiary in the amount of $3,500,000
(expiring in 2003 through 2006) and other deferred tax assets of its
French subsidiary totaling $1,600,000 will not be realized due to
uncertainties as to the timing and amounts of related future taxable
income, accordingly, a valuation allowance of $5,561,000 was
established.
While management believes it is more likely than not that the
Company will realize future taxable income sufficient to realize its
net current and non-current deferred tax asset of $150,000,000, it is
possible that these deferred taxes may not be realized in the future.
The table below reconciles loss before income taxes and
cumulative effect of an accounting change for financial statement
purposes with taxable loss for income tax purposes:
(estimated)
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended
March 29, March 30, April 1,
(Dollars in thousands) 2001 2000 1999
- --------------------------------------------------------------------------------
Loss before income taxes and
Cumulative effect of an
accounting change $(135,826) $(81,247) $(26,516)
Cumulative effect of an
accounting change 26,710 (9,935) -
Reserve for future dispositions 13,810 15,364 (421)
Depreciation and amortization (16,600) (3,740) (17,790)
Gain on disposition of assets (1,358) (16,000) (1,247)
Impairment of long-lived assets 50,961 (5,896) 3,542
Foreign corporation activity (640) 5,779 4,274
Other (24,180) 32,517 4,807
------- ------------------ -------------
Taxable loss before special
deductions and net operating
loss carrybacks $ (87,123) $(63,158) $ (33,351)
======== =============== ==============
The Company's foreign subsidiaries have net operating loss
carryforwards in Portugal, Spain and the United Kingdom aggregating
$8,000,000, $417,000 of which may be carried forward indefinitely and
the balance of which expires from 2003 through 2008. The Company's
Federal income tax loss carryforward of $147,000,000 expires in 2020
and 2021 and will be limited to approximately $8,500,000 annually due
to the sale of Preferred Stock to the Apollo Purchasers. The Company's
state income tax loss carryforwards of $52,000,000, net of valuation
allowance, may be used over various periods ranging from 5 to 20
years.
The Company anticipates that net temporary differences should
reverse and become available as tax deductions as follows:
2002 $ 55,000,000
2003 33,000,000
2004 20,000,000
2005 38,000,000
2006 8,000,000
Thereafter 231,000,000
------------
Total $385,000,000
============
Euro Conversion
In January 1999, certain member countries of the European Union
established irrevocable, fixed conversion rates between their existing
currencies and the European Union's common currency (the "Euro"). The
introduction of the Euro is scheduled to be phased in over a period
ending January 1, 2002, when Euro notes and coins will come into
circulation. The existing currencies are due to be completely removed
from circulation on February 28, 2002.
The Company currently operates one theatre in Portugal, two
theatres in Spain and one in France. These countries are member
countries that adopted the Euro as of January 1, 1999. The Company is
implementing necessary changes to accounting, operational, and payment
systems to accommodate the introduction of the Euro. The Company does
not anticipate that the conversion will have a material impact on its
consolidated financial position, results of operations or cash flows.
Impact of Inflation
Historically, the principal impact of inflation and changing
prices upon the Company has been to increase the costs of the
construction of new theatres, the purchase of theatre equipment and
the utility and labor costs incurred in connection with continuing
theatre operations. Film exhibition costs, the largest cost of
operations of the Company, is customarily paid as a percentage of
admissions revenues and hence, while the film exhibition costs may
increase on an absolute basis, the percentage of admissions revenues
represented by such expense is not directly affected by inflation.
Except as set forth above, inflation and changing prices have not had
a significant impact on the Company's total revenues and results of
operations.
New Accounting Pronouncements
During fiscal 1999, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 133 ("SFAS
133"), Accounting for Derivative Instruments and Hedging Activities
which was amended by Statement of Financial Accounting Standards No.
138 issued in June 2000. The statement requires companies to recognize
all derivatives as either assets or liabilities, with the instruments
measured at fair value. The accounting for changes in fair value of a
derivative depends on the intended use of the derivative and the
resulting designation. The statement is effective for all fiscal years
beginning after June 15, 2000. The statement will become effective for
the Company in fiscal 2002. Adoption of this statement is not expected
to have a material impact on the Company's consolidated financial
position, results of operations or cash flows.
In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue
Recognition in Financial Statements. SAB 101 draws upon the existing
accounting rules and explains those rules, by analogy, to other
transactions that the existing rules do not specifically address. The
Company adopted SAB 101, as required, retroactive to the beginning of
fiscal year 2001. The impact of adopting SAB 101 on the Company's
consolidated financial position and results of operations is
summarized in Note 1 of the Company's Notes to Consolidated Financial
Statements included in Part I Item 8. of this Form 10-K and
incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to various market risks including interest
rate risk and foreign currency exchange rate risk. The Company does
not hold any significant derivative financial instruments.
Market risk on variable-rate financial instruments. The Company
maintains a $425,000,000 credit facility (the "Credit Facility"),
which permits borrowings at interest rates based on either the bank's
base rate or LIBOR. Increases in market interest rates would cause
interest expense to increase and earnings before income taxes to
decrease. The change in interest expense and earnings before income
taxes would be dependent upon the weighted average outstanding
borrowings during the reporting period following an increase in market
interest rates. Based on the Company's outstanding borrowings under
the Credit Facility as of March 29, 2001 at an average interest rate
of 7.7% per annum, a 100 basis point increase in market interest rates
would increase annual interest expense and decrease earnings before
income taxes by approximately $2,700,000.
Market risk on fixed-rate financial instruments. Included in long-
term debt are $200,000,000 of 9 1/2% Senior Subordinated Notes due 2009
and $225,000,000 of 9 1/2% Senior Subordinated Notes due 2011. Increases
in market interest rates would generally cause a decrease in the fair
value of the Notes due 2009 and the Notes due 2011 and a decrease in
market interest rates would generally cause an increase in fair value of
the Notes due 2009 and the Notes due 2011.
Foreign currency exchange rates. The Company currently operates
theatres in Canada, Portugal, Spain, France, Japan, Sweden, and China
(Hong Kong) and is currently developing theatres in the United
Kingdom. As a result of these operations, the Company has assets,
liabilities, revenues and expenses denominated in foreign currencies.
The strengthening of the U.S. dollar against the respective currencies
causes a decrease in the carrying values of assets, liabilities,
revenues and expenses denominated in such foreign currencies and the
weakening of the U.S. dollar against the respective currencies causes
an increase in the carrying values of these items. The increases and
decreases in assets, liabilities, revenues and expenses are included
in accumulated other comprehensive income. Changes in foreign
currency exchange rates also impact the comparability of earnings in
these countries on a year-to-year basis. As the U.S. dollar
strengthens, comparative translated earnings decrease, and as the U.S.
dollar weakens comparative translated earnings from foreign operations
increase. Although the Company does not currently hedge against
foreign currency exchange rate risk, it does not intend to repatriate
funds from the operations of its international theatres but instead
intends to use them to fund current and future operations. A 10%
fluctuation in the value of the U.S. dollar against all foreign
currencies of countries where the Company currently operates theatres
would either increase or decrease earnings before income taxes and
accumulated other comprehensive income by approximately $2,300,000 and
$14,300,000, respectively.
Item 8. Financial Statements and Supplementary Data.
RESPONSIBILITY FOR PREPARATION
OF FINANCIAL STATEMENTS
AMC Entertainment Inc.
TO THE STOCKHOLDERS OF AMC ENTERTAINMENT INC.
The accompanying consolidated financial statements and related notes of AMC
Entertainment Inc. and subsidiaries were prepared by management in
conformity with accounting principles generally accepted in the United
States of America appropriate in the circumstances. In preparing the
financial statements, management has made judgments and estimates based on
currently available information. Management is responsible for the
information; representations contained elsewhere in this Annual Report are
consistent with the financial statements.
The Company has a formalized system of internal accounting controls
designed to provide reasonable assurance that assets are safeguarded and
that its financial records are reliable. Management monitors the system
for compliance to measure its effectiveness and recommends possible
improvements. In addition, as part of their audit of the consolidated
financial statements, the Company's independent accountants review and test
the internal accounting controls on a selected basis to establish a basis
of reliance in determining the nature, extent and timing of audit tests to
be applied.
The Audit Committee of the Board of Directors (consisting solely of
Directors from outside the Company) reviews the process involved in the
preparation of the Company's annual audited financial statements, and in
this regard meets (jointly and separately) with the independent
accountants, management and internal auditors to review matters relating to
financial reporting and accounting procedures and policies, the adequacy of
internal controls and the scope and results of the audit performed by the
independent accountants.
/s/ Craig R. Ramsey
Senior Vice President, Finance
Chief Financial Officer and
Chief Accounting Officer
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF AMC ENTERTAINMENT INC.
KANSAS CITY, MISSOURI
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity
(deficit) and cash flows present fairly, in all material respects, the
financial position of AMC Entertainment Inc. and subsidiaries (the
"Company") at March 29, 2001 and March 30, 2000, and the results of
their operations and their cash flows for each of the three fiscal
years in the period ended March 29, 2001 in conformity with accounting
principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally
accepted in the United States of America which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the financial statements, the Company
adopted Staff Accounting Bulletin No. 101, Revenue Recognition in
Financial Statements, retroactive to the beginning of fiscal year 2001
and adopted the American Institute of Certified Public Accountants
Statement of Position 98-5, Reporting on the Costs of Start-up
Activities, during fiscal year 2000.
/s/ PricewaterhouseCoopers LLP
Kansas City, Missouri
May 21, 2001
AMC Entertainment Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended
March 29, March 30, April 1,
(In thousands, except per share data) 2001 2000 1999
- ----------------------------------------------------------------------------------------
Revenues
Admissions $ 811,068 $ 763,083 $ 662,161
Concessions 334,224 329,855 307,347
Other theatre 26,052 30,013 21,766
Other 43,457 43,991 32,182
----------------------------------------------
Total revenues 1,214,801 1,166,942 1,023,456
Expenses
Film exhibition costs 432,351 417,736 358,437
Concession costs 46,455 50,726 48,687
Theatre operating expense 300,773 290,072 260,145
Rent 229,314 198,762 165,370
Other 42,610 44,619 30,899
General and administrative 32,499 47,407 52,321
Preopening expense 3,808 6,795 2,265
Theatre and other closure expense 24,169 16,661 2,801
Restructuring charge - 12,000 -
Depreciation and amortization 105,260 95,974 89,221
Impairment of long-lived assets 68,776 5,897 4,935
Gain on disposition of assets (664) (944) (2,369)
----------------------------------------------
Total costs and expenses 1,285,351 1,185,705 1,012,712
----------------------------------------------
Operating income (loss) (70,550) (18,763) 10,744
Other expense (income)
Other income (9,996) - -
Interest expense
Corporate borrowings 64,347 54,088 30,195
Capital and financing lease obligations 12,653 8,615 8,433
Investment income (1,728) (219) (1,368)
---------------------------------------------
Loss before income taxes and
cumulative effect of accounting changes (135,826) (81,247) (26,516)
Income tax provision (45,700) (31,900) (10,500)
---------------------------------------------
Loss before cumulative effect of
accounting changes (90,126) (49,347) (16,016)
Cumulative effect of accounting changes
(net of income tax benefit of $10,950
and $4,095
in 2001 and 2000, respectively) (15,760) (5,840) -
---------------------------------------------
Net loss $(105,886) $ (55,187) $ (16,016)
=============================================
Loss per share before cumulative effect
of an accounting change:
Basic $ (3.84) $ (2.10) $ (0.69)
=============================================
Diluted $ (3.84) $ (2.10) $ (0.69)
=============================================
Loss per share
Basic $ (4.51) $ (2.35) $ (0.69)
=============================================
Diluted $ (4.51) $ (2.35) $ (0.69)
=============================================
Pro forma amounts assuming SAB No. 101
accounting change had been in effect
in fiscal 2000 and 1999:
Loss before cumulative effect
of accounting changes $ (51,715) $ (17,726)
======= =======
Basic (2.20) (.76)
====== ======
Diluted (2.20) (.76)
====== ======
Net Loss $ (70,297) $ (28,839)
======= =======
Basic (3.00) (1.23)
======= =======
Diluted (3.00) (1.23)
======= =======
See Notes to Consolidated Financial Statements.
AMC Entertainment Inc.
CONSOLIDATED BALANCE SHEETS
March 29, March 30,
(In thousands, except share data) 2001 2000
- ----------------------------------------------------------------------
Assets
Current assets:
Cash and equivalents $ 34,075 $ 119,305
Receivables, net of allowance for doubtful
accounts of $1,137 as of March 29, 2001
and $3,576 as of March 30, 2000 13,498 18,468
Reimbursable construction advances 733 10,955
Other current assets 45,075 45,275
--------------------
Total current assets 93,381 194,003
Property, net 757,518 822,295
Intangible assets, net 7,639 15,289
Deferred income taxes 135,491 81,955
Other long-term assets 53,235 75,263
--------------------
Total assets $1,047,264 $1,188,805
====================
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable $ 92,276 $ 99,466
Construction payables 8,713 6,897
Accrued expenses and other liabilities 138,193 114,037
Current maturities of corporate borrowings
and capital and
financing lease obligations 2,718 3,205
--------------------
Total current liabilities 241,900 223,605
Corporate borrowings 694,172 754,105
Capital and financing lease obligations 53,966 65,301
Other long-term liabilities 116,271 87,125
--------------------
Total liabilities 1,106,309 1,130,136
Commitments and contingencies
Stockholders' equity (deficit):
Common Stock, 66 2/3 cents par value;
19,447,598 shares
issued and outstanding
as of March 29, 2001 and March 30, 2000 12,965 12,965
Convertible Class B Stock, 66 2/3 cents
par value; 4,041,993 shares
issued and outstanding as of March 29, 2001
and March 30, 2000 2,695 2,695
Additional paid-in capital 106,713 106,713
Accumulated other comprehensive loss (15,121) (3,812)
Accumulated deficit (156,047) (50,161)
--------------------
(48,795) 68,400
Less:
Employee notes for Common Stock purchases 9,881 9,362
Common Stock in treasury, at cost, 20,500
shares as of
March 29, 2001 and March 30, 2000 369 369
--------------------
Total stockholders' equity (deficit) (59,045) 58,669
--------------------
Total liabilities and stockholders'
equity (deficit) $1,047,264 $1,188,805
======================
See Notes to Consolidated Financial Statements.
AMC Entertainment Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
March 29, March 30, April 1,
(In thousands) 2001 2000 1999
- ---------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS
Cash flows from operating activities:
Net loss $(105,886) $(55,187) $(16,016)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Restructuring charge - 5,629 -
Depreciation and amortization 105,260 95,974 89,221
Impairment of long-lived assets 68,776 5,897 4,935
Deferred income taxes (41,909) (28,090) 2,562
Gain on disposition of long-term assets (664) (944) (2,369)
Cumulative effect of accounting changes 15,760 5,840 -
Change in assets and liabilities:
Receivables 6,047 (1,999) (5,307)
Other current assets (1,295) 4,839 (19,694)
Accounts payable (14,591) 15,798 (1,736)
Accrued expenses and other liabilities 5,954 26,993 15,118
Liabilities for theatre closure 5,275 8,804 -
Other, net 731 5,473 453
--------------------------------------
Net cash provided by operating activities 43,458 89,027 67,167
--------------------------------------
Cash flows from investing activities:
Capital expenditures (120,881) (274,932) (260,813)
Proceeds from sale/leasebacks 6 69,647 -
Investments in real estate - - (8,935)
Change in reimbursable construction advances 7,684 13,984 36,171
Preopening expenditures - - (8,049)
Proceeds from disposition of long-term assets 29,594 6,862 10,255
Other, net (421) (13,953) (7,946)
--------------------------------------
Net cash used in investing activities (84,018) (198,392) (239,317)
--------------------------------------
Cash flows from financing activities:
Net borrowings (repayments) under Credit
Facility (60,000) 207,000 (27,000)
Principal payments under corporate borrowings - (14,000) -
Proceeds from issuance of 9 1/2% Senior
Subordinated Notes due 2011 - - 225,000
Proceeds from financing lease obligations 11,220 28,666 -
Principal payments under capital and
financing lease obligations
and other (2,755) (3,146) (6,047)
Change in cash overdrafts 6,520 14,287 (1,516)
Change in construction payables 1,816 (17,457) (234)
Funding of employee notes for Common
Stock purchases, net - - (8,579)
Deferred financing costs and other - (248) (6,556)
--------------------------------------
Net cash (used in) provided by financing
activities (43,199) 215,102 175,068
--------------------------------------
Effect of exchange rate changes on
cash and equivalents (1,471) 329 440
--------------------------------------
Net increase (decrease) in cash and equivalents(85,230) 106,066 3,358
Cash and equivalents at beginning of year 119,305 13,239 9,881
--------------------------------------
Cash and equivalents at end of year $ 34,075 $119,305 $ 13,239
======================================
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
March 29, March 30, April 1,
(In thousands) 2001 2000 1999
- -----------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (refunded) during the period for:
Interest (net of amounts capitalized of
$4,186, $7,899 and $7,040) $85,261 $ 62,642 $ 40,928
Income taxes, net (6,583) (9,531) 3,267
Schedule of non-cash investing and financing
activities:
Mortgage note incurred directly for
Investments in real estate $ - $ - $ 14,000
Receivable from sale/leaseback included
in reimbursable construction advances - 2,622 -
See Notes to Consolidated Financial Statements.
AMC Entertainment Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Employee
Accumulated Retained Notes for
$1.75 Cumulative Convertible Additional Other Earnings Common Common Stock Total
Preferred Stock Common Stock Class B Stock Paid-in Comprehensive (Accumulated Stock in Treasury Stockholders'
Shares Amount Shares Amount Shares Amount Capital Loss Deficit) Purchases Shares Amount Equity(Deficit)
(In thousands,
except share and per
share data)
- ------------------------------------------------------------------------------------------------------------------------
Balance,
April 3, 1998 1,800,331 $1,200 15,376,821 $10,251 5,015,657 $ 3,344 $107,676 $(3,689) $21,042 $ - 20,500 $ (369) $139,455
Comprehensive Loss:
Net loss - - - - - - - - (16,016) - - - (16,016)
Foreign currency
translation
adjustment - - - - - - - 999 - - - - 999
--------
Comprehensive Loss (15,017)
--------
$1.75 Preferred
Stock conversions(1,800,331) (1,200) 3,097,113 2,065 - - (963) - - - -- (98)
Class B Stock conversions - - 973,664 649 (973,664) (649) - - - - -- -
Issuance of employee
notes for
Common Stock purchases - - - - - - - - - (8,875) -- (8,875)
- ------------------------------------------------------------------------------------------------------------
Balance, April 1, 1999 - - 19,447,598 12,965 4,041,993 2,695 106,713 (2,690) 5,026 (8,875) 20,500 (369) 115,465
Comprehensive Loss:
Net loss - - - - - - - - (55,187) - - - (55,187)
Foreign currency
translation adjustment- - - - - - - (1,059) - - - - (1,059)
Unrealized loss on
marketable securities
(net of income tax
benefit of $44) - - - - - - - (63) - - - - (63)
-----
Comprehensive Loss (56,309)
-----
Accrued interest on employee
notes
Common Stock purchases - - - - - - - - - (487) - - (487)
- ------------------------------------------------------------------------------------------------------------------
Balance, March 30, 2000 - - 19,447,598 12,965 4,041,993 2,695 106,713 (3,812) (50,161)(9,362) 20,500 (369) 58,669
Comprehensive Loss:
Net loss - - - - - - - - (105,886) - - - (105,886)
Foreign currency
translation adjustment - - - - - - - (10,899) - - - - (10,899)
Unrealized loss on
marketable securities
(net of income tax
benefit of $145) - - - - - - - (209) - - - - (209)
Additional minimum
pension liability - - - - - - - (201) - - - - (201)
-------
Comprehensive Loss (117,195)
-------
Accrued interest on
employee notes
for Common Stock
purchases - - - - - - - - - (519) - - (519)
- -------------------------------------------------------------------------------------------------------------------
Balance,
March 29, 2001 - $ - 19,447,598 $12,965 4,041,993 $2,695 $106,713 $(15,121) $(156,047) $(9,881) 20,500 $(369) $(59,045)
=======================================================================================================================
See Notes to Consolidated Financial Statements
AMC Entertainment Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended March 29, 2001, March 30, 2000 and
April 1, 1999
NOTE 1 - THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
AMC Entertainment Inc. ("AMCE") is a holding company which, through
its direct and indirect subsidiaries, including American Multi-Cinema,
Inc. ("AMC"), AMC Theatres of Canada (a division of AMC Entertainment
International, Inc.), AMC Entertainment International, Inc., National
Cinema Network, Inc. ("NCN") and AMC Realty, Inc. (collectively with
AMCE, unless the context otherwise requires, the "Company"), is
principally involved in the theatrical exhibition business throughout
North America and in Portugal, Spain, France, Japan, Sweden, and China
(Hong Kong). The Company's North American theatrical exhibition
business is conducted through AMC and AMC Theatres of Canada. The
Company's International theatrical exhibition business is conducted
through AMC Entertainment International, Inc. The Company is also
involved in the business of providing on-screen advertising and other
services to AMC and other theatre circuits through a wholly-owned