AMC ENTERTAINMENT INC - 10-Q Quarterly Report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

[ ] 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.)

920 Main Kansas City, Missouri		64105
(Address of principal executive offices)		(Zip Code)

(816) 221-4000
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ____

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)

Yes x No ____

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

		Number of Shares
Title of Each Class of Common Stock		Outstanding as of September 30, 2004
Common Stock, 66 2/3 ¢ par value		34,019,474
Class B Stock, 66 2/3 ¢ par value		3,051,597

AMC ENTERTAINMENT INC. AND SUBSIDIARIES

INDEX

			Page Number
		PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements. (unaudited)			3

	Consolidated Statements of Operations			5

	Consolidated Balance Sheets			6

	Consolidated Statements of Cash Flows			7

	Notes to Consolidated Financial Statements			8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.			21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.			33

Item 4.	Controls and Procedures.			34

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings.			34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.			36

Item 5.	Other Information.			36

Item 6.	Exhibits.			37

	Signatures			39

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements. (unaudited)

As discussed in its Annual Report on Form 10-K for the fifty-two weeks ended April 1, 2004, in connection with the fiscal 2004 annual audit of the AMC Entertainment Inc. consolidated financial statements, the Company, with the concurrence of its independent registered public accounting firm, determined that its financial statements for the thirteen and twenty-six weeks ended October 2, 2003 as previously filed needed to be restated for the following items:

Foreign deferred tax assets: The Company had previously recorded valuation allowances against deferred tax assets in foreign jurisdictions when it became clear, based on theatre impairments or other factors, that it would not be profitable in those jurisdictions. The Company has now determined that full valuation allowances should be recorded against deferred tax assets in all foreign jurisdictions when it is more likely than not that the deferred tax assets will not be realized.

The Company had historically evaluated the recoverability of its deferred tax assets for both domestic and foreign jurisdictions based on the weight of available positive evidence (evidence indicating that deferred taxes would be recoverable) and negative evidence (evidence indicating that deferred taxes would not be recoverable). The Company believed it was following the guidance in paragraph 17(e) of Statement of Financial Accounting Standards No. 109 Accounting for Income Taxes and recorded valuation allowances for its domestic and foreign jurisdictions when the negative evidence outweighed the positive evidence, which the Company believed to be consistent with the "more likely than not" criteria in paragraph 17(e).

Consideration and appropriate weighting of positive and negative evidence is an inherently subjective process. The Company historically applied the more likely than not criteria with respect to foreign jurisdictions by recording valuation allowances against deferred income tax assets when it became clear, based on theatre impairments or other factors, that it would not be profitable in those jurisdictions. Under this model the Company recorded a valuation allowance in France during fiscal 2001 when the theatre was impaired and in Sweden during fiscal 2002 when that theatre was impaired.

In consultation with its independent registered public accounting firm in connection with the annual audit of its 2004 financial statements, the company determined that it should have given greater weight (than it originally had) to the objectively verifiable negative evidence in its foreign jurisdiction (e.g., start up losses). With this greater weighting of the negative evidence, the Company concluded that it was "more likely than not" that the deferred income tax assets would not be realized. As a result, the Company determined that its operations in foreign tax jurisdictions constituted "start-up" operations and therefore it was appropriate to record full valuation allowances on the results of operations until the "start-up" operations became profitable and therefore would provide a basis for increased weighting of positive future taxable income and reduced weighting of negative ev idence relating to losses.

Accordingly, the Company has restated its financial statements for the thirteen and twenty-six weeks ended October 2, 2003 to reflect additional valuation allowances on foreign deferred tax assets. The effects of such adjustments are summarized as follows:

	Thirteen Weeks Ended	Twenty-six Weeks Ended
	October 2, 2003	October 2, 2003
Increase in income tax provision and net loss	$ 0.95 million	$ 2.2 million

Straight-line contingent rentals: Rent expense for leases with rent escalation clauses are required to be recorded on a straight-line method under certain circumstances. The Company recently determined that it has one lease that has a clause for contingent rents in which case the contingency was virtually certain to occur. Rent expense for this lease should have been recorded on the straight-line method. Accordingly, the Company has restated its financial statements for the thirteen and twenty-six weeks ended October 2, 2003 to reflect the straight-line method of recording the contingent portion of rent expense for this one lease. The effects of such adjustments are summarized as follows:

	Thirteen Weeks Ended	Twenty-six Weeks Ended
	October 2, 2003	October 2, 2003
Increase in net loss	$ 0.061 million	$ 0.122 million

Additionally, amounts previously reported in Form 10-Q for the thirteen and twenty-six weeks ended October 2, 2003 have been retroactively restated for comparative purposes to reflect the reclassification of the results of operations for certain assets which the Company sold on December 4, 2003 that met the criteria for discontinued operations and other reclassifications to conform to its Form 10-Q for the period ended January 1, 2004. See the Company's Form 10-K - "Reconciliation of Summary Quarterly Data (unaudited) as previously reported in Form 10-Q as restated in Form 10-K" for additional information.

The following table sets forth the previously reported amounts and the restated amounts reflected in the accompanying Consolidated Financial Statements:

	Thirteen Weeks Ended			Twenty-six Weeks Ended
	October 2, 2003			October 2, 2003
	As			As
	Previously	As		Previously	As
(in thousands except per share data)	Reported	Restated		Reported	Restated
Statement of Operations Data:
Rent	$ 78,113	$ 78,224		$156,264	$156,486
Total costs and expenses	407,619	407,730	840,418		840,640
Earnings from continuing operations before income
taxes	10,499	10,388		31,901	31,679
Income tax provision	4,630	5,530		13,900	16,000
Earnings from continuing operations	5,869	4,858		18,001	15,679
Loss from discontinued operations	(260)	(260)		(590)	(590)
Net earnings	5,609	4,598		17,411	15,089
Loss for shares of common stock	(4,053)	(5,064)		(42)	(2,364)
Basic and diluted earnings (loss) per share:
Earnings (loss) from continuing operations	$ (0.10)	$ (0.13)		$ 0.01	$ (0.05)
Loss from discontinued operations	(0.01)	(0.01)		(0.01)	(0.01)
Loss per share	$ (0.11)	$ (0.14)		$ -	$ (0.06)

All previously reported amounts affected by the restatement that appear elsewhere in these consolidated financial statements have also been restated.

AMC ENTERTAINMENT INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)

	Thirteen Weeks Ended			Twenty-six Weeks Ended
	September 30,	October 2,		September 30,	October 2,
	2004	2003		2004	2003
		(restated)			(restated)
	(Unaudited)			(Unaudited)
Revenues
Admissions	$ 317,776		$ 299,853	$ 650,628		$ 621,016
Concessions	116,575		112,086	245,250		236,383
Other theatre	15,120		12,564	30,079		24,982
NCN and other	12,429		12,144	24,576		26,115
Total revenues	461,900		436,647	950,533		908,496
Costs and Expenses
Film exhibition costs	169,467		161,988	349,347		339,948
Concession costs	13,162		12,476	28,611		26,810
Theatre operating expense	109,239		103,898	214,127		211,693
Rent	83,417		78,224	166,695		156,486
NCN and other	10,430		10,387	21,338		22,708
General and administrative:
Stock-based compensation	2,709		876	5,345		1,169
Other	14,627		11,580	29,427		23,403
Preopening expense	548		389	981		1,431
Theatre and other closure expense	10,540		1,116	10,321		1,734
Depreciation and amortization	30,987		28,752	62,352		57,214
Disposition of assets and other gains	(100)		(1,956)	(2,395)		(1,956)
Total costs and expenses	445,026		407,730	886,149		840,640
Other expense (income)
Interest expense (income)
Corporate borrowings	22,890		16,435	38,897		31,929
Capital and financing lease obligations	2,499		2,705	5,005		5,510
Investment income	(2,207)		(611)	(2,998)		(1,262)
Total other expense	23,182		18,529	40,904		36,177
Earnings (loss) from continuing operations before
income taxes	(6,308)		10,388	23,480		31,679
Income tax provision	400		5,530	14,300		16,000
Earnings (loss) from continuing operations	(6,708)		4,858	9,180		15,679
Loss from discontinued operations, net of income tax
benefit	-		(260)	-		(590)
Net earnings (loss)	$ (6,708)		$ 4,598	$ 9,180		$ 15,089
Preferred dividends and allocation of
undistributed earnings	5,661		9,662	12,720		17,453
Loss for shares of common stock	$ (12,369)		$ (5,064)	$ (3,540)		$ (2,364)
Basic and diluted earnings (loss) per share:
Loss from continuing operations	$ (0.33)		$ (0.13)	$ (0.10)		$ (0.05)
Loss from discontinued operations	$ -		$ (0.01)	$ -		$ (0.01)
Loss per share	$ (0.33)		$ (0.14)	$ (0.10)		$ (0.06)
Average shares outstanding:
Basic and diluted	37,071		36,744	37,002		36,586

See Notes to Consolidated Financial Statements.

AMC ENTERTAINMENT INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data)

	September 30,		April 1,
	2004		2004
	(Unaudited)
ASSETS
Current assets
Cash and equivalents	$ 377,665	$ 333,248
Restricted cash	625,812	-
Receivables, net of allowance for doubtful accounts of $1,216
as of September 30, 2004 and $1,118 as of April 1, 2004	32,108	39,812
Other current assets	62,243	62,676
Total current assets	1,097,828	435,736

Property, net	771,758	777,277
Intangible assets, net	21,909	23,918
Goodwill	71,727	71,727
Deferred income taxes	134,066	143,944
Other long-term assets	69,264	53,932

Total assets	$2,166,552	$1,506,534

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$ 120,385	$ 107,234
Accrued expenses and other liabilities	134,565	112,386
Deferred revenues and income	63,910	76,131
Current maturities of corporate borrowings and capital
and financing lease obligations	630,152	2,748
Total current liabilities	949,012	298,499

Corporate borrowings	686,568	686,431
Capital and financing lease obligations	58,434	58,533
Other long-term liabilities	183,268	182,467
Total liabilities	1,877,282	1,225,930

Commitments and contingencies

Stockholders’ equity:
Series A Convertible Preferred Stock, 66 2/3¢ par value; 305,548
shares issued and outstanding as of September 30, 2004 and 299,477
shares issued and outstanding as of April 1, 2004 (aggregate liquidation
preference of $305,548 as of September 30, 2004 and $304,525
as of April 1, 2004)	204	200
Common Stock, 66 2/3¢ par value; 34,119,831 shares issued as
of September 30, 2004 and 33,889,753 shares issued as of
April 1, 2004	22,743	22,593
Convertible Class B Stock, 66 2/3¢ par value; 3,051,597 shares
issued and outstanding as of September 30, 2004 and April 1, 2004	2,035	2,035
Additional paid-in capital	470,021	469,498
Accumulated other comprehensive loss	(2,851)	(1,993)
Accumulated deficit	(201,536)		(210,716)
Common Stock in treasury, at cost, 100,357 shares as of
September 30, 2004 and 77,997 shares as of April 1, 2004	(1,346)	(1,013)

Total stockholders’ equity	289,270	280,604

Total liabilities and stockholders’ equity	$2,166,552	$1,506,534

See Notes to Consolidated Financial Statements.

AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)


	Twenty-six Weeks Ended
	September 30,			October 2,
	2004			2003
	(Unaudited)
INCREASE IN CASH AND EQUIVALENTS
Cash flows from operating activities:
Net earnings	$ 9,180					$ 15,089
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	62,352					57,214
Non-cash portion of stock-based compensation	5,345					1,169
Non-cash portion of pension and postretirement expense	3,608					3,015
Deferred income taxes	9,889					1,390
Disposition of assets and other (gains) losses	26					(1,956)
Change in assets and liabilities:
Receivables	927					(422)
Other assets	433					(3,757)
Accounts payable	(16,526)					(4,253)
Accrued expenses and other liabilities	(4,265)					(13,174)
Other, net	4,495					3,241
Net cash provided by operating activities	75,464					57,556

Cash flows from investing activities:
Capital expenditures		(51,913)			(43,274)
Increase in restricted cash		(625,812)			-
Proceeds from disposition of long-term assets		83			1,017
Other, net		4,059			(8,167)
Net cash used in investing activities		(673,583)			(50,424)

Cash flows from financing activities:
Proceeds from issuance of 8 5/8% Senior Unsecured Fixed Rate Notes due 2012			250,000		-
Proceeds from issuance of Senior Unsecured Floating Rate Notes due 2010			205,000		-
Proceeds from issuance of 12% Senior Discount Notes due 2014			169,918