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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
|X| Annualreport pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended DECEMBER 31, 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 000-14993
CARMIKE CINEMAS, INC.
(Exact Name Of Registrant As Specified in Its Charter)
DELAWARE 58-1469127
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
1301 FIRST AVENUE, COLUMBUS, GEORGIA 31901
(Address of Principal Executive Offices) (Zip Code)
(706) 576-3400
(Registrant's Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.03 PER SHARE
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 |_|
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes |X| No |_|
As of March 15, 2002, approximately 9,000,000 shares of Common Stock,
par value $.03 per share, were outstanding and the aggregate market value of the
shares of the Common Stock held by non-affiliates of the registrant was
approximately $21,688,967.40.
DOCUMENTS INCORPORATED BY REFERENCE
Specified portions of Carmike Cinemas, Inc.'s Proxy Statement relating
to the 2002 Annual Meeting of Stockholders are incorporated by reference into
Part III.
TABLE OF CONTENTS
PAGE
NUMBER
------
PART I
ITEM 1. BUSINESS..................................................................................3
ITEM 2. PROPERTIES...............................................................................17
ITEM 3. LEGAL PROCEEDINGS........................................................................18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS..................................................................................18
EXECUTIVE OFFICERS OF THE REGISTRANT.....................................................19
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS..............................................................20
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA....................................................22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS...............................................................................24
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK........................................................................48
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..............................................48
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.....49
*PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT .....................................49
ITEM 11. EXECUTIVE COMPENSATION...................................................................49
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...........................49
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...........................................49
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K..........................50
*Incorporated by reference from 2002 Proxy Statement.
2
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), including, in particular, forward-looking statements under the
headings "Item 1. Business" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations." The words "expect,"
"anticipate," "intend," "plan," "believe," "seek," "estimate," "slate" and
similar expressions are intended to identify such forward-looking statements;
however, this Report also contains other forward-looking statements in addition
to historical information. Carmike cautions that there are various important
factors that could cause actual results to differ materially from those
indicated in the forward-looking statements; accordingly, there can be no
assurance that such indicated results will be realized. Among the important
factors that could cause actual results to differ materially from those
indicated by such forward-looking statements are the factors set forth below in
"Item 1. Business -- Factors That May Affect Future Performance." By making
these forward-looking statements, Carmike does not undertake to update them in
any manner except as may be required by its disclosure obligations in filings it
makes with the Securities and Exchange Commission (the "Commission") under the
Federal securities laws.
In this Report, the words "Company," "Carmike," "we," "our," "ours,"
and "us" refer to Carmike Cinemas, Inc. and its subsidiaries.
PART I
ITEM 1. BUSINESS.
OVERVIEW
Carmike Cinemas, Inc. ("Carmike" or the "Company") is a premiere motion
picture exhibitor in the United States. As of December 31, 2001, the Company
operated 323 theatres with an aggregate of 2,333 screens located in 35 states.
Carmike's theatres are primarily located in small to mid-sized communities
ranging in population size from approximately 8,000 to 500,000. As of December
31, 2001, management believes that Carmike was the sole exhibitor in
approximately 70% of its free film licensing zones.
Carmike was organized as a Delaware corporation in April 1982 in
connection with the leveraged buy-out of its predecessor, the Martin Theatres
circuit, by present management of Carmike. The principal executive offices of
Carmike are located at 1301 First Avenue, Columbus, Georgia 31901, and the
telephone number is (706) 576-3400.
RECENT DEVELOPMENTS
Proceedings Under Chapter 11 of the Bankruptcy Code
From August 8, 2000 to January 31, 2002, Carmike operated its business
and managed its properties under the protection of the reorganization provisions
of chapter 11 of title 11 of the U.S. Code (the "Bankruptcy Code"). On August 8,
2000 (the "Petition Date") Carmike and its subsidiaries Eastwynn Theatres, Inc.,
Wooden Nickel Pub, Inc. and Military Services, Inc.
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(collectively, the "Debtors") filed voluntary petitions for relief under chapter
11 (the "Chapter 11 Cases") of the Bankruptcy Code. On January 4, 2002, the
United States Bankruptcy Court for the District of Delaware entered an order
confirming the Debtors' Amended Joint Plan of Reorganization Under Chapter 11 of
the Bankruptcy Code, dated as of November 14, 2001 (the "Plan"). The Plan became
effective on January 31, 2002 (the "Effective Date") and, on the Effective Date,
Carmike filed with the Secretary of State for the State of Delaware the Amended
and Restated Certificate of Incorporation (the "Restated Certificate"), which
cancelled all then existing Class A and Class B Common Stock and Preferred Stock
and established authorized capital stock of twenty million (20,000,000) shares
of reorganized Carmike Common Stock, par value $.03 per share, and one million
(1,000,000) shares of reorganized Carmike Preferred Stock, par value $1.00 per
share. The Company currently has only reorganized Carmike Common Stock
outstanding and has approximately nine million (9,000,000) shares of such stock
outstanding.
Material features of the Plan are:
- The Plan provides for the issuance or reservation for future
issuance of ten million (10,000,000) shares of reorganized
Carmike Common Stock in the aggregate.
- The holders of Carmike's cancelled Class A and Class B Common
Stock received in the aggregate 22.2% of the ten million
(10,000,000) shares of reorganized Carmike Common Stock.
- The holders of Carmike's cancelled 5.5% Series A Senior
Cumulative Convertible Exchangeable Preferred Stock (the
"Series A Preferred Stock") received in the aggregate 41.2% of
the ten million (10,000,000) shares of reorganized Carmike
Common Stock.
- Certain holders of $45,685,000 in aggregate principal amount
of the cancelled 9-3/8% Senior Subordinated Notes due 2009
issued by Carmike prior to the Chapter 11 Cases (the "Original
Senior Subordinated Notes") received in the aggregate 26.6% of
the ten million (10,000,000) shares of reorganized Carmike
Common Stock.
- Carmike reserved one million (1,000,000) shares of the
reorganized Carmike Common Stock for issuance under a new
management incentive plan (the "2002 Stock Plan").
- The holders of Bank Claims (as defined below) in the Chapter
11 Cases received New Bank Debt (as defined below) and cash in
the amount of approximately $35 million plus accrued and
unpaid post-petition interest on the Bank Claims from January
15, 2002 to the Effective Date. "Bank Claims" consisted of
claims of certain banks arising under: (i) the Amended and
Restated Credit Agreement among the Company, the banks party
thereto and Wachovia Bank, N.A., as agent, dated as of January
29, 1999, and amended as of March 31, 2000 and (ii) the Term
Loan Credit Agreement among the Company, the banks party
thereto, Wachovia Bank, NA., as administrative agent, Goldman
Sachs Credit Partners, L.P., as syndication agent, and First
Union National Bank, as documentation agent, dated as of
February 25, 1999, as amended as of July 13, 1999, and further
amended as of March 31, 2000, and certain related documents.
"New Bank Debt"
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consists of approximately $254 million and bears interest, at
the greater of: (a) at the option of Carmike, (i) a specified
base rate plus 3.5% or (ii) LIBOR plus 4.5%; and (b) 7.75% per
annum.
- Carmike issued $154,315,000 of its new 10-3/8% Senior
Subordinated Notes due 2009 (the "New Senior Subordinated
Notes") in exchange for $154,315,000 aggregate principal
amount of the claims in the Chapter 11 Cases concerning the
Original Senior Subordinated Notes.
- Certain of Carmike's underperforming theatres were closed.
Lease terminations and settlement agreements are being
negotiated for the resolution of lease termination claims, and
the restructuring or other disposition of lease obligations.
- General unsecured creditors will receive, cash and notes in
the aggregate of approximately $40,000,000 to $50,000,000 with
an annual interest rate of 9.4% in resolution of their allowed
claims under the Chapter 11 Cases.
Also on the Effective Date, the Company closed on a Revolving Credit
Agreement (the "Revolving Credit Agreement") totaling $50 million. The proceeds
of advances made under the Revolving Credit Agreement will be used to provide
working capital financing to the Company and its subsidiaries and for funds for
other general corporate purposes of the Company. The Company, on the Effective
Date, borrowed $20 million of the Revolving Credit Agreement in partial
repayment of its obligations under the Plan owing to the holders of the Bank
Claims. The terms of the $50 million Revolving Credit Agreement are set forth in
a Credit Agreement, dated as of January 31, 2002, among the Company, Eastwynn
Theatres, Inc., the various subsidiaries from time to time parties to the
agreement as credit parties, General Electric Capital Corporation as agent and
lender, the various banks or other financial institutions from time to time
parties to the agreement as lenders, and GECC Capital Markets Group, Inc. as
lead arranger.
The Company's Amended and Restated Bylaws provide that the Board of
Directors consists of ten (10) individuals. The Company has entered into a
stockholders agreement, dated as of January 31, 2002 (the "Stockholders'
Agreement"), with the following persons: Michael W. Patrick; GS Capital Partners
III, L.P.; GS Capital Partners III Offshore, L.P.; Goldman Sachs & Co.
Verwaltungs Gmbh; Bridge Street Fund 1998; Stone Street Fund 1998; The Jordan
Trust; TJT(B); TJT(B) (Bermuda) Investment Company LTD.; David W. Zalaznick and
Barbara Zalaznick, JT TEN; Leucadia Investors, Inc. and Leucadia National
Corporation (collectively, the "Signing Stockholders"). Based on all shares of
the Company's Common Stock outstanding as of the Effective Date, under the Plan,
the Signing Stockholders own (a) approximately 83.2% of the approximately nine
million (9,000,000) shares of Common Stock issued and outstanding on the
Effective Date and (b) approximately 82.7% if the calculation is made on a fully
diluted basis assuming that an additional one million (1,000,000) shares of the
Common Stock have been issued under the 2002 Stock Plan. The stockholders that
signed the Stockholders' Agreement have agreed to vote their shares of
reorganized Carmike Common Stock in favor of certain matters, such as certain
nominees to the Board of Directors and the 2002 Stock Plan, if they are
presented to the stockholders of the Company for approval. The Signing
Stockholders further agreed to certain transfer restrictions regarding their
shares of reorganized Carmike Common Stock. The parties to the Stockholders'
Agreement also signed a registration rights
5
agreement with the Company with provisions concerning demand registration for
resale of their shares of reorganized Carmike Common Stock under applicable
provisions of the Securities Act of 1933, as amended.
In connection with Carmike's reorganization, the Company reached an
agreement with MoviePlex Realty Leasing, L.L.C. ("MoviePlex") to restructure the
Amended and Restated Master Lease dated January 29, 1999 between Movieplex
Realty Leasing L.L.C. as landlord and Carmike as tenant (the "Original Master
Lease") and entered into the Second Amended and Restated Master Lease, dated as
of September 1, 2001 (the "New Master Lease"). Under the New Master Lease,
Carmike has entered into a new 15-year lease for the six MoviePlex properties
with an option to extend the term for an additional five years. The Original
Master Lease was terminated and pre-Chapter 11 Cases defaults under the Original
Master Lease were cured up to a maximum amount of $493,680. The initial first
twelve months base rent for the six theatres is an aggregate of $5.4 million per
annum ($450,000 per month), subject to periodic increases thereafter and certain
additional rent obligations such as percentage rent.
Over-the-Counter Bulletin Board Trading
In January, 2001, the Company's Class A Common Stock was delisted from
the New York Stock Exchange for failure to meet the continued listing
requirements concerning average global market capitalization and average share
price. The Class A Common Stock subsequently traded on the NASD's
over-the-counter Bulletin Board under the ticker symbol "CKECQ" from January 17,
2001 to the Effective Date. On the Effective Date, the Class A Common Stock was
cancelled and extinguished, and the reorganized Carmike Common Stock began
trading under the symbol "CMKC" on the NASD's over-the-counter Bulletin Board.
6
THEATRE OPERATIONS
Carmike's revenues are generated primarily from admissions and
concession sales. Additional revenues, which are not material, are generated
from video game arcade areas, family entertainment centers and on-screen
advertising. The following table sets forth, certain information regarding the
323 theatres and 2,333 screens operated by Carmike as of December 31, 2001:
STATE THEATRES SCREENS STATE THEATRES SCREENS
- ----- -------- ------- ----- -------- -------
Alabama................18 163 New Mexico..............1 2
Arkansas...............11 95 New York................1 8
Colorado................9 57 North Carolina.........41 311
Delaware................1 14 North Dakota............7 40
Florida................10 80 Ohio....................6 39
Georgia................27 218 Oklahoma...............11 56
Idaho...................4 17 Pennsylvania...........25 189
Illinois................2 6 South Carolina.........15 105
Iowa...................12 99 South Dakota............5 35
Kansas..................1 12 Tennessee..............30 230
Kentucky...............10 51 Texas..................13 95
Louisiana...............3 22 Utah....................6 47
Maryland................1 8 Virginia...............12 73
Michigan................1 5 Washington..............1 12
Minnesota..............10 80 West Virginia...........4 28
Missouri................1 8 Wisconsin...............2 18
Montana................14 78 Wyoming.................3 13
Nebraska................5 19
323 2,333
From time to time, Carmike converts marginally profitable theatres to
"Discount Theatres" for the exhibition of films that have previously been shown
on a first-run basis. Carmike also operates certain theatres for the exhibition
of first-run films at a reduced admission price. These theatres are typically in
smaller markets where Carmike is the only exhibitor in the market. At December
31, 2001, Carmike operated 39 theatres with 154 screens as Discount Theatres.
As of December 31, 2001, Carmike owned 77 of its theatres and leased
242 of its theatres. An additional four theatres were operated by Carmike under
shared ownership. The total number of leases has decreased to 230, as of March
15, 2002, due to theatre lease rejections in the Chapter 11 Cases and lease
maturities.
Carmike's theatre operations are under the supervision of its Chief
Operating Officer and four division managers. The division managers are
responsible for implementing Company operating policies and supervising
Carmike's eighteen operating districts. Each operating district has a district
manager who is responsible for overseeing the day-to-day operations of Carmike's
theatres. Corporate policy development, strategic planning, site selection and
lease negotiation, theatre design and construction, concession purchasing, film
licensing, advertising, and financial and accounting activities are centralized
at Carmike's corporate headquarters.
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Carmike has an incentive bonus program for theatre level management,
which provides for bonuses based on incremental improvements in theatre
profitability, including concession sales. As part of this program, Carmike
evaluates "mystery shopper" reports on the quality of service, cleanliness and
film presentation at individual theatres.
THEATRE DEVELOPMENT
Prior to the Chapter 11 Cases, Carmike's growth strategy primarily
involved the development of new theatres and the addition of screens and other
improvements to existing theatres, as well as selective acquisitions of theatres
as available. During 2001, Carmike opened one theatre with 16 screens. Capital
expenditures during 2001 aggregated approximately $9.2 million, net of lease
financings.
The Company's Chapter 11 filing and the excessive number of screens due
to the industry's overbuilding of theatres in the last few years have been
significant influences on the Company's current growth strategy. Carmike is
committed to start construction of two theatres in 2002 if the legal issues
concerning two leases are resolved by the Company and the landlords. If
opportunities exist where new construction will be profitable to the Company, we
will consider building additional theatres in future periods. Since the Petition
Date, Carmike has closed approximately 26% of its theatres and is analyzing the
remaining theatres and evaluating approaches to optimize its portfolio.
FILM LICENSING
Carmike obtains licenses to exhibit films by directly negotiating with
or, in rare circumstances, submitting bids to film distributors. Carmike
licenses films through its booking office located in Columbus, Georgia.
Carmike's Senior Vice President-- Film, in consultation with Carmike's
President, directs Carmike's motion picture bookings.
Prior to negotiating or bidding for a film license, Carmike's Senior
Vice President-- Film and film-booking personnel evaluate the prospects for
upcoming films. The criteria considered for each film include cast, director,
plot, performance of similar films, estimated film rental costs and expected
MPAA rating. Successful licensing depends greatly upon the availability of
commercially popular motion pictures, knowledge of the tastes of residents in
markets served by each theatre and insight into the trends in those tastes.
Carmike maintains a database that includes revenue information on films
previously exhibited in its markets. This historical information is then
utilized by Carmike to match new films with particular markets so as to maximize
revenues.
The major film distributors generally release during the summer and
holiday seasons, primarily Thanksgiving and Christmas, those films, which they
anticipate to be the most successful. Consequently, Carmike has historically
generated higher revenues during such periods.
Film Rental Fees
Film licenses typically specify rental fees based on the higher of a
gross box office receipts formula or an adjusted gross box office receipts
formula. Under a gross box office receipts formula, the distributor receives a
specified percentage of box office receipts, with the
8
percentage declining over the term of the run. Carmike's film rental fees
typically begin at 60% of admission revenues and gradually decline to as low as
30% over a period of four to eight weeks. Under an adjusted gross box office
receipts formula (commonly known as a "90/10" clause), the distributor receives
a specified percentage (i.e., 90%) of the excess of box office receipts over a
negotiated amount for house expenses. In addition, Carmike is occasionally
required to pay non-refundable guarantees of film rentals, to make advance
payments of film rentals, or both, in order to obtain a license for a film.
Although not specifically contemplated by the provisions of film licenses, the
terms of film licenses generally (with the exception of Universal, Fox, Sony and
DreamWorks) are adjusted or re-negotiated subsequent to exhibition of the film
in relation to its success.
Film Licensing Zones
Film licensing zones are geographic areas (generally encompassing a
radius of three to five miles) established by film distributors where any given
film is allocated to only one theatre within that area. In film licensing zones
where Carmike has little or no competition, Carmike obtains film licenses by
selecting a film from among those offered and negotiating directly with the
distributor. In competitive film licensing zones, a distributor will either
require the exhibitors in the zone to bid for a film or will allocate its films
among the exhibitors in the zone. When films are licensed under the allocation
process, a distributor will choose which exhibitor is offered a movie and then
that exhibitor will negotiate film rental terms directly with the distributor
for the film. Carmike currently does not bid for films in any of its film
licensing zones.
First-Run Films
Carmike predominantly licenses "first-run" films. If a film has
substantial remaining potential following its first-run, Carmike may license it
for a subsequent run (a "sub-run"). Although average daily sub-run attendance is
often less than average daily first-run attendance, sub-run film cost is
generally less than first-run film cost. Additionally, sub-runs enable Carmike
to exhibit a variety of films during periods in which there are few new
releases. The table below depicts the Industry's top 10 films for 2001 compared
to Carmike's top 10 films for 2001:
Industry Carmike Cinemas
-------- ---------------
1. Harry Potter Sorcerer's Stone 1. Rush Hour 2
2. Shrek 2. Harry Potter Sorcerer's Stone
3. Monsters, Inc. 3. Monsters, Inc.
4. Rush Hour 2 4. Shrek
5. Lord of the Rings: Fellowship of the Rings 5. Pearl Harbor
6. The Mummy Returns 6. Jurassic Park 3
7. Pearl Harbor 7. The Mummy Returns
8. Jurassic Park 3 8. Planet of the Apes
9. Planet of the Apes 9. Hannibal
10. Hannibal 10. The Fast and the Furious
Relationship with Distributors
Carmike depends on, among other things, the quality, quantity,
availability and acceptance by movie-going customers of the motion pictures
produced by the motion picture
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production companies and licensed for exhibition to the motion picture
exhibitors by distribution companies. Disruption in the production of motion
pictures by the major studios and/or independent producers or poor performance
of motion pictures could have an adverse effect on the business of Carmike. The
motion picture production and distribution industry in the United States is led
by a few major movie studios and their distribution operations, but no single
distributor dominates the market. Accordingly, Carmike's business is dependent
upon the availability of marketable pictures and its relationships with
distributors.
While there are numerous distributors which provide quality first-run
movies to the motion picture exhibition industry, the following ten major
distributors accounted for approximately 97.3% of Carmike's admission revenues
during the year ended December 31, 2001: Buena Vista, DreamWorks, Fox, MGM/UA,
Miramax, New Line Cinema, Paramount, Sony, Universal and Warner Brothers.
As of the Petition Date, film distributors held claims against Carmike
aggregating approximately $37 million. After the Debtors commenced their Chapter
11 Cases, several distributors elected to cease supplying the Debtors with new
film product until their claims against the Debtors for pre-petition film
exhibition fees were paid in full. Carmike negotiated an agreement with each of
its principal film distributors to repay their pre-petition claims for film
exhibition fees in full in 17 weekly installments. Based on these Motion Picture
Distributor Agreements, the film distributors began to supply the Debtors with
new film product again. Carmike's payments under the Motion Picture Distributor
Agreements began on September 18, 2000 and were concluded by December 26, 2000.
Carmike believes its relationship with the studios has returned to normal.
CONCESSIONS
Concession sales are Carmike's second largest revenue source after box
office admissions, constituting approximately 31.8% of total revenues for 2001.
Carmike's strategy emphasizes quick and efficient service built around a limited
menu primarily focused on higher margin items such as popcorn, candy and soft
drinks. In addition, Carmike has introduced a limited number of new products,
such as bottled water, frozen drinks, coffee, ice cream, pizza, hot dogs and
pretzels, at certain theatre locations. Carmike actively seeks to promote
concession sales through the design and appearance of its concession stands, the
introduction of special promotions from time to time, and the training of its
employees to up-sell products. In addition, Carmike's management incentive bonus
program includes concession results as a component of determining the bonus
awards.
Carmike negotiates prices for its concessions supplies directly with
concession vendors on a national or regional basis to obtain high volume
discounts or bulk rates. The Company receives a majority of its concessions
supplies from the following two vendors: ShowTime Concession Supply Inc. and The
Coca-Cola(R)Company.
MANAGEMENT INFORMATION SYSTEMS
Carmike has a significant commitment to its major operating systems,
some of which have been developed internally. Carmike's proprietary computer
system, IQ-Zero and IQ-2000, which are installed in all of its theatres, allows
Carmike to centralize most theatre-level
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administrative functions at its corporate headquarters, creating significant
operating leverage. IQ-Zero allows corporate management to monitor ticket and
concession sales and box office and concession staffing on a daily basis.
Carmike's integrated management information system, centered around IQ-Zero,
also coordinates payroll, tracks theatre invoices and generates operating
reports analyzing film performance and theatre profitability. IQ-2000 is our
enhancement of the IQ-Zero system. IQ-2000 facilitates new services such as
advanced ticket sales and Internet ticket sales. Its expanded capacity will
allow for future growth and more detailed data tracking and trend analysis.
IQ-2000 is the management information system in Carmike's theatres built since
1999. There is active communication between the theatres and corporate
headquarters, which allows senior management to react to vital profit and
staffing information on a daily basis and perform the majority of the
theatre-level administrative functions, thereby enabling the theatre manager to
focus on the day-to-day operations of the theatre.
ADDITIONAL REVENUE STREAMS
Carmike actively engages in efforts to develop revenue streams in
addition to admissions and concessions revenues. Certain Carmike theatres
include electronic video games located in or adjacent to the lobby and on-screen
advertising is provided on a number of Carmike's screens, each of which provides
additional revenues to Carmike. Carmike operates two family entertainment
centers under the name Hollywood Connection(R)which feature multiplex theatres
and other forms of family entertainment.
COMPETITION
The motion picture exhibition industry is fragmented and highly
competitive. In markets where it is not the sole exhibitor, Carmike competes
against regional and independent operators as well as the larger theatre circuit
operators.
Carmike's operations are subject to varying degrees of competition with
respect to film licensing, attracting customers, obtaining new theatre sites or
acquiring theatre circuits. In those areas where real estate is readily
available, there are few barriers preventing competing companies from opening
theatres near one of Carmike's existing theatres, which may have a material
adverse effect on our theatres. Competitors have built or are planning to build
theatres in certain areas in which Carmike operates, which have resulted and may
continue to result in excess capacity in such areas which adversely affects
attendance and pricing at Carmike's theatres in such areas. During the Chapter
11 Cases, the Debtors received approval from the Bankruptcy Court to reject
theatre leases relating to 136 theatre locations of the Debtors. See Part II,
Item 7 of this form 10-K Report under the caption "Chapter 11 Cases".
In the past few years, the movie exhibition industry has faced
significant challenges, largely due to the effects of too many screens and a
relatively flat box office. The number of screens in the United States had
increased dramatically, growing from approximately 31,640 screens in 1997 to
approximately 37,396 screens in 2000. The industry did experience a modest
reduction in the total number of screens in the U.S. in 2001 to 36,764, a
decrease of approximately 1.7%. The total number of theatres in the U.S. however
has not dramatically increased, in 1997 there were 7,480 compared to 7,421 in
2000. The total number of theatres in
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the U.S. did decrease significantly in 2001 to 7,070, a decrease of
approximately 4.7%. See Part I, Item 7 of this Form 10-K Report under the
caption "The Industry".
The opening of large multiplexes and theatres with stadium seating by
Carmike and certain of its competitors has tended to, and is expected to
continue to, draw audiences away from certain older theatres, including theatres
operated by us. In addition, demographic changes and competitive pressures can
lead to a theatre location becoming impaired.
In addition to competition with other motion picture exhibitors,
Carmike's theatres face competition from a number of alternative motion picture
exhibition delivery systems, such as cable television, satellite and
pay-per-view services and home video systems. The expansion of such delivery
systems could have a material adverse effect upon Carmike's business and results
of operations. Carmike also competes for the public's leisure time and
disposable income with all forms of entertainment, including sporting events,
concerts, live theatre and restaurants.
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. Certain consent decrees resulting from such cases bind certain major
motion picture distributors and require the motion pictures of such distributors
to be offered and licensed to exhibitors, including Carmike, on a
theatre-by-theatre basis. Consequently, exhibitors such as Carmike cannot assure
themselves of a supply of motion pictures by entering into long-term
arrangements with major distributors but must compete for licenses on a
film-by-film and theatre-by-theatre basis.
The Americans with Disabilities Act (the "ADA"), which became effective
in 1992, and certain state statutes and local ordinances, among other things,
require that places of public accommodation, including theatres (both existing
and newly constructed), be accessible to patrons with disabilities. The ADA
requires that theatres be constructed to permit persons with disabilities full
use of a theatre and its facilities. Also, the ADA may require certain
modifications be made to existing theatres in order to make them accessible to
patrons and employees who are disabled. For example, Carmike is aware of several
lawsuits that have been filed against other exhibitors by disabled moviegoers
alleging that certain stadium seating designs violate the ADA.
On June 30, 1998, Carmike executed a Settlement Agreement with the U.S.
Department of Justice under Title III of the ADA. Under the Settlement
Agreement, Carmike agreed to complete the readily achievable removal of barriers
to accessibility, or alternatives to barrier removal, at two theatres in Des
Moines, Iowa and to distribute to all of its theatres a questionnaire designed
to assist its management in the identification of existing and potential
barriers and a threshold determination of what steps might be available for
removal of such existing and potential barriers. Carmike is continuing to assess
the impact of such questionnaires on its theatres. Carmike constructs new
theatres to be accessible to the disabled and believes it is otherwise in
substantial compliance with applicable regulations relating to accommodating the
needs of the disabled. Carmike has a Director of ADA Compliance to monitor its
ADA requirements.
12
Carmike's theatre operations are also subject to federal, state and
local laws governing such matters as construction, renovation and operation of
its theatres, as well as wages, working conditions, citizenship, and health and
sanitation requirements and licensing. Carmike believes that its theatres are in
material compliance with such requirements. At December 31, 2001, approximately
55% of Carmike's employees were paid at the federal minimum wage and,
accordingly, the minimum wage largely determines our labor costs for those
employees.
Carmike owns, manages and/or operates theatres and other properties
which may be subject to certain U.S. federal, state and local laws and
regulations relating to environmental protection, including those governing past
or present releases of hazardous substances. Certain of these laws and
regulations may impose joint and several liability on certain statutory classes
of persons for the costs of investigation or remediation of such contamination,
regardless of fault or the legality of original disposal. These persons include
the present or former owner or operator of a contaminated property, and
companies that generated, disposed of or arranged for the disposal of hazardous
substances found at the property. Additionally, in the course of maintaining and
renovating its theatres and other properties, Carmike periodically encounters
asbestos containing materials ("ACMs") that must be handled and disposed of in
accordance with federal, state and local laws, regulations and ordinances. Such
laws may impose liability for release of ACMs and may entitle third parties to
seek recovery from owners or operators of real properties for personal injury
associated with ACMs.
TRADEMARKS AND TRADENAMES
Carmike owns or has rights to trademarks or trade names that it uses in
conjunction with the operation of its theatres. Carmike owns the Carmike
Cinemas(R)trademark.
EMPLOYEES
As of December 31, 2001, Carmike had approximately 9,059 employees, of
which 47 are covered by collective bargaining agreements. In order to combat
uncertainties that may have stemmed from the Chapter 11 Cases, to reward key
employees for shouldering any additional burdens that had been imposed by the
Chapter 11 Cases and to maintain employee morale, the Company implemented, with
the approval of the Bankruptcy Court, the Carmike Cinemas, Inc. Employee
Retention and Severance Plan. The Employee Retention and Severance Plan is one
component of the Company's comprehensive program designed to provide incentives
to management and other critical employees to remain in the Debtors' employment
and to work toward a successful reorganization of the Debtors' business. The
other components include the continuance of the Company's annual bonus plan in
the ordinary course of business to the extent that bonus objectives can be met
during the fiscal year.
FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
In addition to other factors and matters discussed elsewhere herein,
factors that, in the view of Carmike, could cause actual results to differ
materially from those discussed in forward-looking statements are set forth
below. All forward-looking statements attributable to Carmike or persons acting
on our behalf are expressly qualified in their entirety by the following
cautionary statements.
13
Ability to Service Debt
After the Effective Date, our ability to service our indebtedness will
require a significant amount of cash. Our ability to generate cash depends on
many factors beyond our control. Our ability to make scheduled payments of
principal, to pay the interest on, to refinance our indebtedness, or to fund
planned capital expenditures for theatre construction, expansion or renovation
will depend on our future performance. Our future performance is, to a certain
extent, subject to general industry economic, financial, competitive,
legislative, regulatory and other factors that are beyond our control. Based
upon our current level of operations and the closing of certain underperforming
theatres, we believe that cash flow from operations, available cash, borrowings
under the Revolving Credit Agreement, and sales of surplus assets will be
adequate to meet our future liquidity needs.
We cannot assure you, however, that our business will generate
sufficient cash flow from operations, that currently anticipated revenue growth
and operating improvements will be realized or that future capital will be
available to us from the sale of debt or equity securities, additional bank
financings, other long-term debt or lease financings in an amount sufficient to
enable us to pay our indebtedness or to fund our other liquidity needs. We may
need to refinance all or a portion of our indebtedness on or before maturity. We
cannot assure you that we will be able to refinance any of our indebtedness, or
raise additional capital through other means, on commercially reasonable terms
or at all.
Seasonality
Our revenues are dependent upon the timing of motion picture releases
by distributors. Our business is generally seasonal, with higher revenues
generated during the summer and holiday seasons. While motion picture
distributors have begun to release major motion pictures evenly throughout the
year, the most marketable motion pictures are usually released during the summer
and the year-end holiday periods. Additionally, the unexpected emergence of a
hit film may occur in these or other periods. As a result, the timing of motion
picture releases affects our results of operations, which may vary significantly
from quarter to quarter and year to year. Moreover, to the extent that certain
"event" films are distributed more widely than in the past, our margins may be
hurt as a result of the higher film licensing fees payable during the early
period of a film's run.
Dependence upon Motion Picture Production and Performance
Our business will be adversely affected if there is a decline in the
quality and number of motion pictures available for screening. Our business to a
substantial degree depends on the availability of suitable motion pictures for
screening in our theatres and the appeal of such motion pictures in our theatre
markets. Our results of operations will vary from period to period based upon
the quantity and quality of the motion pictures we show in our theatres. A
disruption in the production of motion pictures, lack of motion pictures or poor
performance of motion pictures in theatres will likely adversely affect our
business and results of operations.
Dependence on Relationships with Motion Picture Distributors
Our business depends to a significant degree on maintaining good
relations with the major film distributors that license films to our theatres.
While there are numerous motion
14
picture distributors that provide quality first-run movies to the motion picture
exhibition industry, the following ten distributors accounted for approximately
97.3% of our admission revenues for the fiscal year ended December 31, 2001:
Buena Vista, DreamWorks, Fox, MGM/UA, Miramax, New Line Cinema, Paramount, Sony,
Universal and Warner Brothers. No single distributor dominates the market. A
deterioration in our relationships with any of the major film distributors could
adversely affect our access to commercially successful films and adversely
affect our business and results of operations.
Government Regulation
Like others in our industry, we are subject to certain federal, state
and local laws and regulations which limit the manner in which we may conduct
our business. 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. As a result of these laws and cases, we cannot ensure a supply of motion
pictures by entering into long term arrangements with major distributors.
Instead, we must compete for film licenses on a film by film and theatre by
theatre basis.
Our theatre operations are also subject to federal, state and local
laws governing matters such as construction, renovation and operation of our
theatres, as well as wages, working conditions, citizenship, and health and
sanitation requirements and licensing. We believe that our theatres are in
material compliance with these requirements. At December 31, 2001, approximately
55% of our employees were paid at the federal minimum wage and, accordingly, the
minimum wage largely determines our labor costs for those employees.
The ADA and certain state statutes and local ordinances, among other
things, require that places of public accommodation, including both existing and
newly constructed theatres, be accessible to customers with disabilities. The
ADA may require that certain modifications be made to existing theatres in order
to make them accessible to patrons and employees who are disabled. The ADA
requires that theatres be constructed to permit persons with disabilities full
use of a theatre and its facilities. We are aware of several lawsuits that have
been filed against other exhibitors by disabled moviegoers alleging that certain
stadium seating designs violated the ADA. We have established a program to
review and evaluate our theatres and to make changes that may be required by
law. Although we believe that the cost of complying with the ADA will not
adversely affect our business and results of operations, we cannot predict the
extent to which the ADA or any future laws or regulations regarding the needs of
the disabled will impact our operations.
Competition
Our business is subject to significant competitive pressures. The
opening of large multiplexes and theatres with stadium seating by us and certain
of our competitors has tended to, and is expected to continue to, draw audiences
away from certain older theatres, including theatres operated by us. In
addition, demographic changes and competitive pressures can lead to the
impairment of a theatre. Further, we have closed certain theatres since the
commencement of the Chapter 11 Cases and our competitors or smaller,
entrepreneurial developers may purchase or lease the abandoned buildings and
reopen them as theatres in competition with us. In addition to competition from
other motion picture exhibitors, we face competition from other forms of
entertainment. We face varying degrees of competition with respect to licensing
films, attracting
15
customers, obtaining new theatre sites and acquiring theatre circuits. There
have been a number of consolidations in the movie theatre industry, and the
impact of these consolidations could have an adverse effect on our business.
Even where we are the only exhibitor in a film licensing zone, we may still
experience competition for moviegoers from theatres in a neighboring zone. In
addition, our theatres compete with a number of other types of motion picture
delivery systems, such as pay television, pay-per-view, satellite and home video
systems. While the impact of these delivery systems on the motion picture
industry is difficult to determine precisely, there is a risk that they could
adversely affect attendance at motion pictures shown in theatres. Movie theatres
also face competition from a variety of other forms of entertainment competing
for the public's leisure time and disposable income, including sporting events,
concerts, live theatre and restaurants. Because our theatres depend upon
discretionary consumer spending, they may be adversely affected by a downturn in
the economy.
Expansion Plans
Although greatly reduced, we have continued to expand our operations
through the development of new theatres and the expansion of existing theatres.
Developing new theatres poses a number of risks. Construction of new theatres
may result in cost overruns, delays or unanticipated expenses related to zoning
or tax law considerations. Desirable sites for new theatres may be unavailable
or expensive, and the market locations for new theatres may deteriorate over
time. Additionally, the market potential of new theatre sites cannot be
precisely determined, and our theatres may face competition in new markets from
unexpected sources. Newly constructed theatres may not perform up to
management's expectations.
We face significant competition for potential theatre locations and for
opportunities to acquire existing theatres and theatre circuits. Because of this
competition, Carmike may be unable to add to its theatre portfolio on terms we
consider acceptable.
Future Capital Requirements
The availability of capital will continue to be extremely limited since
the Company emerged from bankruptcy. New sources of financing are questionable
and numerous uncertainties will continue to exist. Traditional sources of
financing new theatres through landlords may be unavailable for a number of
years.
Like others in our industry, we are required to recognize charges
associated with the write-down and closing of underperforming theatres primarily
as a result of the emergence of new competition in the marketplace. The opening
of large multiplexes by our competitors and the opening of newer theatres with
stadium seating in certain of our markets have led us to reassess a number of
our theatre locations to determine whether to renovate or to dispose of
underperforming locations. In the year 2002 we anticipate retrofitting
approximately 10 screens to strengthen our position in certain markets. We will
lose revenue from those screens while they are being renovated. Further advances
in theatre design may also require us to make substantial capital expenditures
in the future, or to close older theatres that cannot be economically renovated,
to compete with new developments in theatre design.
We cannot assure you that our business will generate sufficient cash
flow from operations, that currently anticipated revenue growth and operating
improvements will be
16
realized or that future capital will be available to us to enable us to fund our
capital expenditure needs.
Accounting for Impairment of Assets
The opening of large multiplexes and theatres with stadium seating by
us and certain of our competitors has tended to, and is expected to continue to,
draw audiences away from certain older theatres, including theatres operated by
us. In addition, demographic changes and competitive pressures can lead to the
impairment of a theatre. Whenever events or changes in circumstances indicate
that the carrying amount of an asset or a group of assets may not be
recoverable, we review for impairment of long-lived assets and goodwill related
to those assets to be held and used in the business. We also periodically review
and monitor our internal management reports and the competition in our markets
for indicators of impairment of individual theatres. If we determine that assets
are impaired, we are required to recognize a charge to earnings.
In the fourth quarters of 2001, 2000 and 1999, the Company identified
impairments of asset values for certain theatres and a joint venture investment
in three movie theatre-entertainment complexes. As a result, we recognized a
non-cash impairment charge of approximately $132.2 million, $21.2 million and
$33.0 million, respectively, in the fourth quarters of 2001, 2000 and 1999.
These impairment charges reduce the carrying value of approximately 287 theatres
with 2,126 screens for 2001, approximately 18 theatres with 130 screens for 2000
and approximately 82 theatres with 432 screens for 1999. The impairment charges
additionally reduce the carrying value of a joint venture which operated three
movie theatre-entertainment complexes and equipment removed from theatres that
were closed or rejected during the Chapter 11 Cases. The impairment charge
recognized for 2001 was significantly larger than in prior years due to the
write-off of leasehold improvements on rejected theatres, the impact of closing
owned theatres, the diminished value of our entertainment centers and the
write-down of surplus equipment removed from closed theatres. Additionally, in
2001 the Company included the equipment in the theatre valuation calculations
based on the reduced capital building program in the future as well as the
excess supply of equipment in inventory.
Dependence Upon Senior Management
We believe that our success is due to our experienced management team.
We depend in large part on the continued contribution of our senior management,
including Michael W. Patrick, Carmike's President and Chief Executive Officer.
Losing the services of one or more members of our senior management could
adversely affect our business and results of operations. We have a new five-year
employment agreement with Michael W. Patrick as Chief Executive Officer, the
term of which extends for one year each December 31, provided that neither
Carmike nor Mr. Patrick chooses not to so extend the agreement and we maintain
key man life insurance covering him. Our success partially depends on our
ability to attract and retain key personnel.
ITEM 2. PROPERTIES.
As of December 31, 2001, Carmike owned 77 of its theatres and leased
242 of its theatres. An additional four theatres were operated by Carmike under
shared ownership.
17
Carmike's leases are generally entered into on a long-term basis. The
theatre leases generally provide for the payment of fixed monthly rentals,
contingent rentals based on a percentage of revenue over a specified amount, and
the payment of property taxes, common area maintenance, insurance and repairs.
Carmike, at its option, can renew a substantial portion of its theatre leases,
at the then fair rental rate for various periods with the maximum renewal period
totaling 10 years. During the pendency of the Chapter 11 Cases, the Company had
the right to reject unexpired leases of real property, of which those rejected
leases total 136.
Carmike owns its headquarters building, which has approximately 48,500
square feet, in Columbus, Georgia. Pursuant to the terms of industrial revenue
bonds which were issued in connection with the construction of the corporate
office, Carmike's interest in the building is encumbered by a Deed to Secure
Debt and Security Agreement in favor of the Downtown Development Authority of
Columbus, Georgia.
ITEM 3. LEGAL PROCEEDINGS.
CHAPTER 11 CASES
On August 8, 2000, the Company and its subsidiaries Eastwynn Theatres,
Inc., Wooden Nickel Pub, Inc. and Military Services, Inc. filed voluntary
petitions for protection under chapter 11 of the Bankruptcy Code. On November
14, 2001, the Company filed its Plan with the Bankruptcy Court. On January 3,
2002, the Bankruptcy Court approved the Company's Plan and an order was entered
confirming the Plan on January 4, 2002. The Effective Date for the Company's
emergence from the Chapter 11 Cases was January 31, 2002. Additional information
relating to the Chapter 11 Cases is set forth in Part I, Item 1 of this Form
10-K Report under the caption "Proceedings Under Chapter 11 of the Bankruptcy
Code" and in Notes 2 and 3 of the Notes to the Consolidated Financial
Statements. Such information is incorporated herein by reference.
OTHER PROCEEDINGS
From time to time, Carmike is involved in routine litigation and legal
proceedings in the ordinary course of its business, such as personal injury
claims, employment matters, contractual disputes and claims alleging ADA
violations. Currently, Carmike does not have pending any litigation or
proceedings that management believes will have a material adverse effect, either
individually or in the aggregate, upon Carmike.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during
the last quarter of the year ended December 31, 2001.
18
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information as of March 15, 2002
regarding the executive officers of Carmike. For purposes of this section,
references to Carmike include Carmike's predecessor, Martin Theatres, Inc.
NAME AGE TITLE
- ---- --- -----
Michael W. Patrick...................51 President, Chief Executive Officer and Chairman of the
Board of Directors
Fred W. Van Noy......................45 Senior Vice President, Chief Operating Officer
Martin A. Durant.....................53 Senior Vice President - Finance,
Treasurer and Chief Financial Officer
Anthony J. Rhead.....................60 Senior Vice President-- Film and Secretary
P. Lamar Fields......................47 Senior Vice President-- Real Estate
H. Madison Shirley...................50 Senior Vice President-- Concessions and
Assistant Secretary
Marilyn B. Grant.....................54 Vice President-- Advertising
Philip A. Smitley....................43 Assistant Vice President and Controller
MICHAEL W. PATRICK has served as President of Carmike since October
1981, as a director of Carmike since April 1982, as Chief Executive Officer
since March 1989 and Chairman of the Board of Directors since January 2002. He
joined Carmike in 1970 and served in a number of operational and film booking
and buying capacities prior to becoming President. Mr. Patrick serves as a
director of Columbus Bank & Trust Company and the Will Rogers Institute, and he
is a member of the Board of Trustees of Columbus State University Foundation,
Inc.
FRED W. VAN NOY joined Carmike in 1975. He served as a District Manager
from 1984 to 1985 and as Western Division Manager from 1985 to 1988, when he
became Vice President-- General Manager. In December 1997, he was elected to the
position of Senior Vice President -- Operations. In November 2000, he was
elected to his present position as Senior Vice President - Chief Operating
Officer.
MARTIN A. DURANT joined Carmike in July 1999 as Senior Vice President -
Finance, Treasurer and Chief Financial Officer. Prior to joining Carmike, Mr.
Durant was Senior Vice President - Corporate Services for AFLAC Incorporated, a
Columbus, Georgia based international holding company, for a period of ten
years. Prior to his position with AFLAC he was President of a venture capital
firm located in Florida. Mr. Durant began his career with KPMG Peat Marwick and
is a licensed Certified Public Accountant.
19
ANTHONY J. RHEAD joined Carmike in June 1981 as manager of the booking
office in Charlotte, North Carolina. In July 1983, Mr. Rhead became Vice
President-- Film of Carmike and in December 1997 was elected Senior Vice
President-- Film. He was elected Secretary in January 2002. Prior to joining
Carmike, he worked as a film booker for Plitt Theatres, Inc. from 1973 to 1981.
P. LAMAR FIELDS joined Carmike in January 1983 as Director of Real
Estate. He served in this position until 1985 when he became Vice President--
Development. In December 1997 he was elected to his present position of Senior
Vice President-- Real Estate.
H. MADISON SHIRLEY joined Carmike in 1976 as a theatre manager. He
served as a District Manager from 1983 to 1987 and as Director of Concessions
from 1987 until 1990. He became Vice President-- Concessions in 1990 and Senior
Vice President-- Concessions and Assistant Secretary in December 1997.
MARILYN B. GRANT joined Carmike in 1975 as a bookkeeper. She served as
Advertising Coordinator from 1984 to 1985 and became the Director of Advertising
in 1985. In August 1990, she was elected to her present position as Vice
President-- Advertising.
PHILIP A. SMITLEY joined Carmike in April 1997 as Controller. In
January 1998, he was elected to his present position of Assistant Vice President
and Controller. In March 1999, he assumed the duties of interim Chief Financial
Officer pending the appointment of Martin A. Durant in July 1999. Prior to
joining Carmike, Mr. Smitley was Divisional Controller-- Transportation of
Burnham Service Corporation, a trucking company.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Since January 31, 2002, the Company's Common Stock has traded on the
NASD's over-the-counter Bulletin Board (the "OTCBB") under the symbol "CMKC".
Carmike's pre-reorganization Class A Common Stock traded on the OTCBB under the
symbol "CKECQ" from January 17, 2001 until January 30, 2002. The Class A Common
Stock previously traded on the New York Stock Exchange under the symbol "CKE"
until trading in the Company's stock on the New York Stock Exchange was
suspended prior to trading on January 12, 2001 because the Company had fallen
below certain Exchange criteria for continued listing.
20
The following table sets forth the high and low sales prices of the Class A
Common Stock as reported by the OTCBB for the periods indicated in 2001
(beginning January 17, 2001) and by the New York Stock Exchange for the periods
indicated in 2000.
HIGH LOW
--------- ---------
2001
First Quarter.............. $ 0.75 $ 0.20
Second Quarter............. 0.67 0.33
Third Quarter.............. 0.57 0.34
Fourth Quarter............. 3.41 0.37
2000
First Quarter.............. $ 7 15/16 $ 5 7/16
Second Quarter............. 6 1/16 3 7/16
Third Quarter.............. 4 1/16 1 1/16
Fourth Quarter............. 7/8 5/16
One share of pre-reorganization Class A or Class B Common Stock of
Carmike is equal to 0.194925 of one share of reorganized Carmike Common Stock.
On March 15, 2002, the last reported sale price of the reorganized Common Stock
on the over-the-counter Bulletin Board was $15.90 per share. As of March 15,
2002, there were approximately 128 holders of record of Carmike's reorganized
Common Stock. Letters of Transmittal are still outstanding, once they are
received and processed by the Company's transfer agent the number of holders of
record will increase.
Prior to the reorganization on January 31, 2002, Carmike had 550,000
shares of Series A Preferred Stock, all of which were held by certain affiliates
of Goldman, Sachs & Co. Each share of the Series A Preferred Stock was
convertible into four shares of the pre-reorganization Class A Common Stock.
Series A Preferred Stock dividends of $7.0 million were in arrears at December
31, 2001. In view of the Company's having ceased making scheduled dividend
payments on the Preferred Stock after the Petition Date, the holders of the
Series A Preferred Stock on March 31, 2001 designated two additional directors
to the Company's Board of Directors. Upon the reorganization on January 31,
2002, the holders of the pre-reorganization Carmike Series A Preferred Stock
received 41.2% of the ten million (10,000,000) shares of reorganized Carmike
Common Stock on a fully diluted basis.
During fiscal year 2001, the Company did not make any sales of its
unregistered equity securities.
Carmike never declared or paid any cash dividends on its Class A or
Class B Common Stock. Additionally, Carmike could not declare dividends on any
of its stock including the Series A Preferred Stock during the pendency of the
Chapter 11 Cases without Bankruptcy Court approval. Carmike currently intends to
retain future earnings for use in the expansion and operation of its business
and, therefore, does not anticipate paying dividends on its reorganized Common
Stock in the foreseeable future. The payment of dividends, if any, in the future
is within the discretion of Carmike's board of directors and will depend on
Carmike's earnings, capital requirements, financial condition and other relevant
factors. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
Notes 10 and 12 of Notes to Consolidated Financial Statements regarding
restrictions in Carmike's debt instruments on Carmike's ability to pay
dividends.
21
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA.
The selected consolidated Statements of Operations and Balance Sheet
data set forth below were derived from the consolidated financial statements of
Carmike. This information should be read in conjunction with "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Carmike's Consolidated Financial Statements and related Notes
thereto.
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1997 1998 1999 2000 2001
(1) (2) (2)(3) (2)(4) (4)
--------- --------- --------- --------- ---------
(IN MILLIONS EXCEPT PERCENTAGES, RATIOS AND OPERATING DATA)
STATEMENT OF OPERATIONS:
Revenues:
Admissions ............................................ $ 319.2 $ 330.5 $ 336.0 $ 315.4 $ 311.8
Concessions and other ................................. 139.4 151.1 150.9 146.9 145.1
--------- --------- --------- --------- ---------
Total revenues ................................... 458.6 481.6 486.9 462.3 456.9
Costs and expenses:
Film exhibition costs ................................. 169.7 177.8 181.5 185.2 171.2
Concession costs ...................................... 18.3 19.9 19.0 21.0 20.2
Other theatre operating costs ......................... 175.1 187.9 191.1 194.8 182.0
General and administrative ............................ 6.4 7.1 7.3 6.9 8.8
Depreciation and amortization ......................... 33.4 37.5 41.2 43.2 42.2
Impairment of long-lived assets (5) .................. -- 38.3 33.0 21.2 132.2
Restructuring charge (5) .............................. -- 34.7 (2.7) -0- -0-
--------- --------- --------- --------- ---------
402.9 503.2 470.4 472.3 556.6
--------- --------- --------- --------- ---------
Operating income (loss) ................................... 55.7 (21.6) 16.5 (10.0) (99.7)
Interest expense .......................................... 23.1 27.2 36.8 31.0 6.1
--------- --------- --------- --------- ---------
Income (loss) before reorganization costs, income
taxes and extraordinary item .......................... 32.6 (48.8) (20.3) (41.0) (105.8)
Reorganization costs ..................................... -0- -0- -0- 7.0 19.6
--------- --------- --------- --------- ---------
Income (loss) before income taxes and extraordinary
item .................................................. 32.6 (48.8) (20.3) (48.0) (125.4)
Income tax expense (benefit) .............................. 12.4 (18.2) (7.7) 25.6 -0-
--------- --------- --------- --------- ---------
Net income (loss) before extraordinary item
$ 20.2 $ (30.6) $ (12.6) $ (73.6) $ (125.4)
========= ========= ========= ========= =========
Weighted average common Shares outstanding:
Basic ..................................................... 11,277 11,356 11,375 11,344 11,344
========= ========= ========= ========= =========
Diluted ................................................... 11,366 11,356 11,375 11,344 11,344
========= ========= ========= ========= =========
Earnings (loss) per common share before extraordinary item:
Basic ..................................................... $ 1.79 $ (2.73) $ (1.37) $ (6.62) $ (11.05)
========= ========= ========= ========= =========
Diluted ................................................... $ 1.78 $ (2.73) $ (1.37) $ (6.62) $ (11.05)
========= ========= ========= ========= =========
22
AS OF DECEMBER 31,
-------------------------------------------------------------
1997 1998 1999 2000 2001
(4) (4)
--------- --------- --------- --------- ---------
(in millions, except operating data)
BALANCE SHEET DATA:
Cash and cash equivalents ................................. $ 2.5 $ 3.8 $ (4.2) $ 52.5 $ 94.2
Property and equipment, net (5) ........................... 497.1 573.6 666.2 621.2 460.1
Total assets .............................................. 606.0 683.5 794.4 761.3 617.8
Total long-term obligations, including
current maturities (6) ................................ 360.7 351.8 470.3 52.0 49.7
Total shareholders' equity ................................ 202.9 226.3 204.2 129.1 3.7
OPERATING DATA:
Theatre locations (7) ..................................... 520 468 458 352 323
Screens (7) ............................................... 2,720 2,658 2,848 2,438 2,333
Average screens per location .............................. 5.2 5.7 6.2 6.9 7.2
Total attendance (in thousands) ........................... 75,336 77,763 74,518 67,804 64,621
Total average screens in operation ........................ 2,644 2,733 2,800 2,643 2,386
Average ticket price ...................................... $ 4.24 $ 4.25 $ 4.51 $ 4.65 $ 4.83
Average concession per patron ............................. $ 1.68 $ 1.79 $ 1.84 $ 1.98 $ 2.10
(1) On May 23, 1997, the Company acquired certain theatres (19 theatres,
104 screens) from First International Theatres for approximately $17
million. The First International Theatres acquisition purchase price
included 128,986 shares of the Company's Class A Common Stock with a
fair market value of approximately $4.25 million at the date of
acquisition.
(2) Preferred Stock dividends on the Series A Preferred Stock totaled
$332,000, $3,025,000 and $1,513,000 for the years ended December 31,
1998, 1999 and 2000, respectively. See Notes 2 and 10 of Notes to
Consolidated Financial Statements.
(3) Excludes an extraordinary charge of $6,291,000 (net of income taxes) or
$0.56 per diluted share.
(4) See Notes 1, 2 and 3 with respect to the Company's bankruptcy and
financial reporting in accordance with Statement of Position 90-7
"Financial Reporting by Entities in Reorganization under the Bankruptcy
Code". See Note 3 of Notes to Consolidated Financial Statements with
respect to reorganization costs incurred while in bankruptcy. See Note
11 for income taxes relative to valuation allowances for deferred
income tax debits.
(5) See Notes 2, 3 and 4 of Notes to Consolidated Financial Statements with
respect to impairments of long-lived assets and restructuring charges.
(6) Excludes long-term restructuring reserves and deferred income tax
liabilities; includes current maturities of long-term indebtedness and
capital lease obligations.
23
(7) Excludes 28 theatres with 116 screens at December 31, 1998, which were
closed by Carmike during 1999 in accordance with its restructuring
plan. Excludes 84 theatres and 394 screens at December 31, 2000, which
were closed by Carmike upon approval of the Bankruptcy Court of the
rejection of certain leases. Excludes 17 theatres and 81 screens at
December 31, 2001, which were closed by Carmike upon approval of the
Bankruptcy Court of the rejection of certain leases.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion of Carmike's financial condition and operating
results should be read in conjunction with "Item 6. Selected Financial and
Operating Data" and Carmike's Consolidated Financial Statements and Notes.
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve a number of risks
and uncertainties. Carmike cautions that any forward-looking statements made by
the Company are not guarantees of future performance and that there are various
important factors that could cause actual results to differ materially from
those indicated in the forward-looking statements; accordingly, there can be no
assurance that such indicated results will be realized. Factors which could
cause Carmike's actual results in future periods to differ materially include,
but are not limited to, the availability of suitable motion pictures for
exhibition in Carmike's markets, the availability of opportunities for
expansion, the effect of consolidations in the movie exhibition industry,
competition with other forms of entertainment and other factors including, but
not limited to, the following:
- there can be no assurance that the cash and cash equivalents
on hand at December 31, 2001, cash generated by the Company
from operations and cash available under the Revolving Credit
Agreement will be sufficient to fund the operations of the
Company;
- there can be no assurance as to the overall viability of the
Company's long-term operational reorganization and financial
restructuring plan;
- there can be no assurance as to the Company's being able to
obtain sufficient financing sources to meet future
obligations;
- the Company may have difficulty in attracting patrons or labor
as a result of the Chapter 11 Cases;
- the Company may continue to have difficulty in maintaining or
creating new relationships with suppliers or vendors as a
result of the Chapter 11 Cases;
- an adverse determination in a legal proceeding, whether
currently asserted or arising in the future, may have a
material adverse effect on the Company's financial position;
24
- there can be no assurance regarding the availability of
suitable motion pictures for exhibition in the Company's
markets;
- the Company faces significant competitive pressures;
- economic and/or business conditions generally, and in the
movie industry, in particular, may not be favorable such that
the Company's revenues and results of operation are adversely
affected;
- acts of war, terrorism, catastrophe and other events beyond
the control of the Company which may adversely affect business
conditions or the Company's rights;
- there can be no assurance as to the Company's ability to
achieve satisfactory levels of profitability and cash flow
from operations;
- there may not be available sufficient capital to service the
Company's debt obligations and to finance the Company's
business plans on terms satisfactory to the Company;
- there can be no assurance as to the success of the Company's
marketing of certain assets and pursuit of financing
alternatives;
and the other factors set forth in "Item 1 Business--Factors that May Affect
Future Performance," as well as other factors detailed from time to time in
Carmike's filings with the Securities and Exchange Commission.
In addition, the Chapter 11 Cases may disrupt the Company's operations
and may result in a number of other operational difficulties, including the
following:
- the Company's ability to access capital markets will likely be
limited;
- the Company, notwithstanding its Employee Retention and
Severance Plan, may be unable to retain top management and
other key personnel;
- relationships with film suppliers; and
- suppliers to the Company may stop providing supplies or
services to the Company or provide such supplies or services
only on "cash on delivery," "cash on order" or other terms
that could have an adverse impact on the Company's cash flow.
By making these forward-looking statements, the Company does not
undertake to update them in any manner except as may be required by its
disclosure obligations in filings it makes with the Securities and Exchange
Commission under the Federal securities laws.
25
THE INDUSTRY
In the past few years, the movie exhibition industry has faced
significant challenges, largely due to the effects of too many screens and a
relatively flat box office. The number of screens in the United States had
increased dramatically, growing from approximately 31,640 screens in 1997 to
approximately 37,396 screens in 2000. The industry did experience a modest
reduction in the total number of screens in the U.S. in 2001 to 36,764, a
decrease of approximately 1.7%. The total number of theatres in the U.S. however
has not dramatically increased, in 1997 there were 7,480 compared to 7,421 in
2000. The total number of theatres in the U.S. did decrease significantly in
2001 to 7,070, a decrease of approximately 4.7%. Megaplexes, theatres with
anywhere from 14 to 30 screens in a single theatre, have became the industry
standard in most major markets. The megaplex format provides numerous benefits
for theatre operators, including allowing facilities (concession stands and
restrooms) and operating costs (lease rentals, utilities and personnel) to be
allocated over a larger base of screens and patrons. The megaplex theatres also
contain increasingly costly improvements, such as stadium seating,
state-of-the-art projection and sound systems and other expensive amenities.
These megaplexes are not only competing with each other but have quickly
rendered many older multiplexes obsolete, and exhibitors have not been able to
dispose of or close their older facilities quickly enough.
Box office revenues have increased due to increased ticket prices, but
the increase in revenue has been diminished by the higher costs of operating so
many screens in addition to movie studios getting a larger portion of box office
receipts due to shorter film run times. The significant decay of older theatres
and the underperformance of many new builds have put pressure on industry-wide
operating results, operating margins, certain covenant requirements under bank
facilities and the market price of Carmike's and other exhibitors' stock.
Carmike has seen several of its competitors consolidate throughout 2001
and 2002. Regal Cinemas Inc., United Artists Theatre Co. and Edwards Theatres,
Inc., all of which had been operating under bankruptcy protection, were taken
over by Philip Anschutz. The new parent company for the three exhibitors is
Regal Entertainment Group. AMC Entertainment Inc. has received approval from the
U.S. Bankruptcy Court in Delaware to buy General Cinemas as part of General
Cinemas' Chapter 11 reorganization plan. Loews Cineplex Entertainment Corp., as
part of its confirmed Chapter 11 reorganization plan, will no longer be publicly
held. Under the terms of the plan, Onex Corp. and Oaktree Capital Management LLC
will privately hold 100% of the equity of the company. Smaller, independent
operators, in some markets, have reopened theatres that have been abandoned due
to Chapter 11 lease rejections.
CHAPTER 11 CASES
On August 8, 2000 (the "Petition Date") Carmike and its subsidiaries
Eastwynn Theatres, Inc., Wooden Nickel Pub, Inc. and Military Services, Inc.
(collectively, the "Debtors") filed voluntary petitions for relief under chapter
11 (the "Chapter 11 Cases") of title 11 of the U.S. Code. On January 4, 2002,
the United States Bankruptcy Court for the District of Delaware entered an order
confirming the Debtors' Amended Joint Plan of Reorganization Under Chapter 11 of
the Bankruptcy Code, dated as of November 14, 2001 (the "Plan"). The Plan became
effective on January 31, 2002 (the "Effective Date").
26
In the Chapter 11 Cases, substantially all unsecured and partially
secured liabilities as of the Petition Date were subject to compromise or other
treatment until a plan of reorganization was confirmed by the Bankruptcy Court.
Generally, actions to enforce or otherwise effect repayment of all pre-chapter
11 liabilities as well as all pending litigation against the Debtors were stayed
while the Debtors continued their business operations as debtors-in-possession.
The Chapter 11 Cases resulted from a sequence of events and the
unforeseen effect that these events would have in the aggregate on the Company.
Surprisingly weak film performance during the summer of 2000 contributed to the
Company's revenues for the summer of 2000 significantly underachieving the
Company's internal projections. Like its competitors, the Company had ramped up
its costs by expending significant funds in building megaplexes and in making
improvements to existing theatres in order to attract and accommodate larger
audiences. Consequently, the effect of poor summer returns was substantial on
the Company in its efforts to comply with the financial covenants under its then
$200 million Revolving Credit Facility and $75 million Term Loan Credit
Agreement (the "Pre-Reorganization Bank Facilities"). On June 30, 2000, the
Company was in technical default of certain financial covenants contained in the
Pre-Reorganization Bank Facilities and was unable to negotiate amendments with
the lenders to resolve these compliance issues, as the Company had been able to
do in the past. On July 28, 2000, the agents under the Pre-Reorganization Bank
Facilities issued a Payment Blockage Notice to Carmike and the indenture trustee
for the 9-3/8% Senior Subordinated Notes due 2009 (the "Original Senior
Subordinated Notes") prohibiting payment by Carmike of the semi-annual interest
payment in the amount of $9,375,000 due to the holders of the Original Senior
Subordinated Notes on August 1, 2000. Faced with significant operating
shortfalls, unavailability of credit and problems dealing with the Company's
lenders, among other things, the Company filed for bankruptcy in order to
continue its business.
The Company could not pay pre-petition debts without prior Bankruptcy
Court approval during the Chapter 11 Cases. Immediately after the commencement
of the Chapter 11 Cases, the Debtors sought and obtained several orders from the
Bankruptcy Court which were intended to stabilize their business and enable the
Debtors to continue operations as debtors-in-possession. The most significant of
these orders: (i) permitted the Debtors to operate their consolidated cash
management system during the Chapter 11 Cases in substantially the same manner
as it was operated prior to the commencement of the Chapter 11 Cases; (ii)
authorized payment of pre-petition wages, vacation pay and employee benefits and
reimbursement of employee business expenses; (iii) authorized payment of
pre-petition sales and use taxes owed by the Debtors; (iv) authorized the
Debtors to pay up to $2,250,000 of pre-petition obligations to critical vendors,
common carriers and workers' compensation insurance to aid the Debtors in
maintaining operation of their theatres and approximately $37 million to film
distributors as set forth below; and (v) authorized debt service payments for
the loan related to Industrial Revenue Bonds issued by the Downtown Development
Authority of Columbus, Georgia.
As debtors-in-possession, the Debtors had the right, subject to
Bankruptcy Court approval and certain other limitations, to assume or reject
executory contracts and unexpired leases during the Chapter 11 Cases. In this
context, "assumption" means that the Debtors agree to perform their obligations
and cure all existing defaults under the contract or lease, and "rejection"
means that the Debtors are relieved from their obligations to perform further
under the contract or lease but are subject to a claim for damages for the
breach thereof. Any damages resulting from rejection of executory contracts and
unexpired leases were treated as general
27
unsecured claims in the Chapter 11 Cases. During the Chapter 11 Cases, the
Debtors received approval from the Bankruptcy Court to reject theatre leases
relating to 136 theatre locations of the Debtors. The 136 theatres approved for
rejection generated approximately $2.0 million and $13.5 million in
theatre-level cash flow losses for the years ended December 31, 2001 and 2000,
respectively. Such losses are measured by subtracting revenues generated at such
theatre locations from costs of operations (film exhibition costs, concession
costs and other theatre operating costs) for such theatres. The Debtors cannot
presently determine or reasonably estimate the ultimate liability that may
result from rejecting leases or from the filing of claims for any rejected
contracts, and no provisions have yet been made for these items.
As of the Petition Date, the trade creditors of the Debtors holding the
largest unpaid claims were the film distributors, with claims aggregating
approximately $37 million. After the Debtors commenced their Chapter 11 Cases,
several distributors elected to cease supplying the Debtors with new film
product until their claims against the Debtors for pre-petition film exhibition
fees were paid in full. The Company negotiated an agreement with each of its
principal film distributors to repay their pre-petition claims for film
exhibition fees in full as critical vendors in 17 weekly installments ending
December 26, 2000, (collectively, the "Motion Picture Distributor Agreements").
The Bankruptcy Court approved each of the Motion Picture Distributor Agreements
at a hearing held on September 14, 2000. Based on the Motion Picture Distributor
Agreements, the film distributors have supplied the Debtors with new film
product again. Each of the principal film distributors agreed to the terms of
the Motion Picture Distributor Agreements, which include provisions relating to
the payment of pre-petition claims as well as payments during the Chapter 11
Cases.
Also, during the Chapter 11 Cases, Carmike reached an agreement to
restructure its master lease facility with MoviePlex Realty Leasing, L.L.C.
("MoviePlex") and entered into the Second Amended and Restated Master Lease,
dated as of September 1, 2001 (the "New Master Lease"). Under the New Master
Lease, Carmike has entered into a new 15-year lease for the six MoviePlex
properties with an option to extend the term for an additional five years. The
Original MoviePlex Lease was terminated and prepetition defaults under the
Original MoviePlex Lease were cured up to a maximum amount of $493,680. The
initial first twelve months base rent for the six theatres is an aggregate of
$5.4 million per annum ($450,000 per month), subject to periodic increases
thereafter and certain additional rent obligations such as percentage rent.
Percentage rent is an amount equal to 12% of all revenue made in, from or at the
leased premises in excess of the Annual Breakpoint made by Carmike in the leased
premises during any lease year, and "Annual Breakpoint" is the amount which is
50% of the quotient obtained by dividing the base rent by 10%.
All past due rent, additional rent, and/or other sums due to MoviePlex
under the terms of the New Master Lease bears interest from the date which is
five days from the due date until paid by Carmike at the rate of 2% above the
published prime rate of Wachovia Bank, N.A., or its successor, not to exceed the
maximum rate of interest allowed by New York state law. Under the New Master
Lease, Carmike pays all real estate taxes with respect to the leased premises.
Carmike agrees, that upon the request of MoviePlex, it will subordinate its
rights under the New Master Lease to the interest of any ground lessor of the
land upon which one of the six properties is located to the lien of any mortgage
or deed of trust now or thereafter in force against the land and building of
which the leased premises are a part, except that Carmike's peaceable possession
of the leased premises will not be disturbed and its obligations under the New
Master Lease will
28
remain unchanged. Carmike agrees to indemnify MoviePlex against any claims,
demands, actions against MoviePlex arising out of Carmike's failure to perform
its obligations or observe any covenants under the repairs and maintenance
article of the New Master Lease, except arising from MoviePlex's negligence or
willful misconduct. Each of the Debtor subsidiaries has guaranteed Carmike's
payment of rents, charges and additional sums coming due under the New Master
Lease and performance of covenants and agreements contained in the New Master
Lease.
When the Plan became effective on January 31, 2002, Carmike filed with
the Secretary of State for the State of Delaware the Amended and Restated
Certificate of Incorporation (the "Restated Certificate"), which cancelled all
then existing Class A and Class B Common Stock and Preferred Stock and
established authorized capital stock of twenty million (20,000,000) shares of
reorganized Carmike Common Stock, par value $.03 per share, and one million
(1,000,000) shares of reorganized Carmike Preferred Stock, par value $1.00 per
share. The Company currently has only reorganized Carmike Common Stock
outstanding and has approximately nine million (9,000,000) shares of such stock
outstanding.
Material features of the Plan are:
- - The Plan provides for the issuance or reservation for future issuance
of ten million (10,000,000) shares of reorganized Carmike Common Stock
in the aggregate.
- - The holders of Carmike's cancelled Class A and Class B Common Stock
received in the aggregate 22.2% of the ten million (10,000,000) shares
of reorganized Carmike Common Stock.
- - The holders of Carmike's cancelled Series A Preferred Stock received
in the aggregate 41.2% of the ten million (10,000,000) shares of
reorganized Carmike Common Stock.
- - Certain holders of $45,685,000 in aggregate principal amount of the
cancelled 9-3/8% Senior Subordinated Notes due 2009 issued by Carmike
prior to the Chapter 11 Cases (the "Original Senior Subordinated
Notes") received in the aggregate 26.6% of the ten million
(10,000,000) shares of reorganized Carmike Common Stock.
- - Carmike reserved one million (1,000,000) shares of the reorganized
Carmike Common Stock for issuance under a new management incentive
plan (the "2002 Stock Plan") and 780,000 shares under the 2002 Stock
Plan have been issued to Michael W. Patrick pursuant to his new
employment agreement as Chief Executive Officer of the Company.
- - The holders of Bank Claims (as defined below) in the Chapter 11 Cases
received New Bank Debt (as defined below) and cash in the amount of
approximately $35 million plus accrued and unpaid post-petition
interest on the Bank Claims from January 15, 2002 to the Effective
Date. "Bank Claims" consisted of claims of certain banks arising
under: (i) the Amended and Restated Credit Agreement among the
Company, the banks party thereto and Wachovia Bank, N.A., as agent,
dated as of January 29, 1999, and amended as of March 31, 2000 and
(ii) the Term Loan Credit Agreement among the Company, the banks party
thereto, Wachovia Bank, NA., as administrative agent, Goldman Sachs
Credit Partners, L.P., as syndication agent, and First Union National
Bank, as
29
documentation agent, dated as of February 25, 1999, as amended as of
July 13, 1999, and further amended as of March 31, 2000, and certain
related documents. "New Bank Debt" consists of approximately $254
million and bears interest, at the greater of: (a) at the option of
Carmike, (i) a specified base rate plus 3.5% or (ii) LIBOR plus 4.5%;
and (b) 7.75% per annum.
- - Carmike issued $154,315,000 of its new 10-3/8% Senior Subordinated
Notes due 2009 (the "New Senior Subordinated Notes") in exchange for
$154,315,000 aggregate principal amount of the claims in the Chapter
11 Cases concerning the Original Senior Subordinated Notes.
- - 136 of Carmike's underperforming theatres were closed. Lease
terminations and settlement agreements are being negotiated for the
resolution of lease termination claims, and the restructuring or other
disposition of lease obligations.
- - General unsecured creditors will receive, cash and notes in the
aggregate of approximately $40,000,000 to $50,000,000 with an annual
interest rate of 9.4% in resolution of their allowed claims under the
Chapter 11 Cases.
On the Effective Date, the Company entered into a new Term Loan Credit
Agreement (the "Post-Confirmation Credit Agreement"), which governs the terms of
the New Bank Debt. The Company's subsidiaries have guaranteed the Company's
obligations under the Post-Confirmation Credit Agreement. The lenders under the
Post-Confirmation Credit Agreement have (i) a second priority, perfected lien on
owned real property and, to the extent landlord approval was obtained or not
required, leased real property of the Company and its subsidiaries; (ii) a
second priority, perfected security interest in the capital stock of all Company
subsidiaries; and (iii) a second priority, security interest in substantially
all personal property owned by the Company and its subsidiaries. All of the
security interests and liens that secure the New Bank Debt under the
Post-Confirmation Credit Agreement are junior and subordinate to the liens and
security interests of the collateral agent under the Revolving Credit Agreement
described below.
The final maturity date of the New Bank Debt loans under the
Post-Confirmation Credit Agreement is January 31, 2007. The principal payment
dates are June 30 and December 31 of each year, beginning June 30, 2002 and
ending June 30, 2006. In addition, the Post-Confirmation Credit Agreement
contains covenants that require the Company, among other things, to meet certain
financial ratios and that prohibit the Company from taking certain actions and
entering into certain transactions. There are also provisions in the
Post-Confirmation Credit Agreement as to when the Company must prepay portions
of the loans. See "Financial Covenant Compliance" below.
Also on the Effective Date, the Company closed on a Revolving Credit
Agreement (the "Revolving Credit Agreement") totaling $50 million. The proceeds
of advances under the Revolving Credit Agreement will be used to provide working
capital financing to the Company and its subsidiaries and for funds for other
general corporate purposes of the Company. The Company, on the Effective Date,
borrowed $20 million of the Revolving Credit Agreement in partial repayment of
its obligations owing to the banks under the Post-Confirmation Credit Agreement.
The terms of the Revolving Credit Agreement are set forth in a Credit Agreement,
30
dated as of January 31, 2002, among the Company, Eastwynn Theatres, Inc.,
General Electric Capital Corporation as agent and lender, GECC Capital Markets
Group, Inc. as lead arranger, the various subsidiaries from time to time parties
to the agreement as credit parties, and the various banks or other financial
institutions from time to time parties to the agreement as lenders.
The interest rate for borrowings under the Revolving Credit Agreement
is set from time to time at the Company's option (subject to certain conditions
set forth in the Credit Agreement) at either: (i) the Index Rate (as defined in
the Revolving Credit Agreement) plus 1.75% per annum or (ii) the applicable
LIBOR Rate (as defined in the Revolving Credit Agreement) plus 3.25% per annum,
based on the aggregate Revolving Credit Advances (as defined in the Revolving
Credit Agreement) outstanding from time to time. Borrowings under the Revolving
Credit Agreement are secured by first priority security interests in
substantially all tangible or intangible property of the Company (but does not
include certain equipment or real estate constituting premises subject to the
master leasing agreement with MoviePlex Realty Leasing, L.L.C.). The Company and
its subsidiary Eastwynn Theatres, Inc. (each a "Borrower") have guaranteed the
other's obligations under the Revolving Credit Agreement, and Company
subsidiaries Wooden Nickel Pub, Inc. and Military Services, Inc. also have
guaranteed the obligations under the Revolving Credit Agreement. Further, the
Revolving Credit Agreement contains covenants that, among other things, prohibit
the Company from taking certain actions and entering into certain transactions.
There are also provisions in the Revolving Credit Agreement as to when the
Company must prepay portions of the loans. See "Financial Covenant Compliance"
below.
In addition, on the Effective Date and pursuant to the Plan, the
Company issued $154,315,000 10-3/8% Senior Subordinated Notes due 2009 (the "New
Senior Subordinated Notes"), in exchange for $154,315,000 aggregate principal
amount of the Original Senior Subordinated Note Claims in the Company's
bankruptcy case relating to the Company's former 9-3/8% Senior Subordinated
Notes due 2009 (the "Original Senior Subordinated Notes"); the remaining
$45,685,000 in aggregate principal amount of the Original Notes were exchanged
under the Plan for shares of reorganized Company Common Stock, as previously
reported. The New Senior Subordinated Notes were issued pursuant to an
Indenture, dated as of January 31, 2002, among the Company, the subsidiary
guarantors named therein and Wilmington Trust Company, as Trustee (the
"Indenture"). The Company subsidiary guarantees of the New Senior Subordinated
Notes are junior and subordinated on the same basis as the New Senior
Subordinated Notes are junior and subordinated to the Company's Senior Debt (as
defined in the Indenture and includes the debt described above under the
Post-Confirmation and Revolving Credit Agreements). Interest at 10-3/8% per
annum from the issue date to maturity is payable on the New Senior Subordinated
Notes each February 1 and August 1, with the first interest payment date being
February 1, 2002. The New Senior Subordinated Notes are redeemable at the
Company's option under certain conditions on or after February 1, 2004. Further,
the Indenture contains covenants that, among other things, restricts the Company
in connection with the incurrence of additional indebtedness not including the
debt incurred under the Post-Confirmation and Revolving Credit Agreement as
described above, asset sales, changes of control and transactions with
affiliates.
The Company's Amended and Restated Bylaws, which became effective on
January 31, 2002, provide that the Board of Directors consists of ten (10)
individuals. The Company has entered into a stockholders agreement, dated as of
January 31, 2002 (the "Stockholders'
31
Agreement"), with the following persons: Michael W. Patrick; GS Capital Partners
III, L.P.; GS Capital Partners III Offshore, L.P.; Goldman Sachs & Co.
Verwaltungs Gmbh; Bridge Street Fund 1998; Stone Street Fund 1998; The Jordan
Trust; TJT(B); TJT(B) (Bermuda) Investment Company LTD.; David W. Zalaznick and
Barbara Zalaznick, JT TEN; Leucadia Investors, Inc. and Leucadia National
Corporation (collectively, the "Signing Stockholders"). Based on all shares of
the Company's Common Stock outstanding as of the Effective Date, under the Plan,
the Signing Stockholders own (a) approximately 83.2% of the approximately nine
million (9,000,000) shares of Common Stock issued and outstanding on the
Effective Date and (b) approximately 82.7% if the calculation is made on a fully
diluted basis assuming that an additional one million (1,000,000) shares of the
Common Stock have been issued under the new management incentive plan.
Pursuant to the Stockholders' Agreement, the Signing Stockholders
agreed to vote their shares of capital stock of the Company, during the term of
the agreement (as described below), in a manner necessary to elect the following
individuals to the Company's Board of Directors: (a) the Chief Executive Officer
("CEO") of the Company; (b) Carl Patrick, Jr., subject to certain conditions;
(c) three members designated by Jordan/Zalaznick Advisers, Inc., provided that
at least one of such designees is an Independent Director (as defined below);
(d) four members designated by GS Capital Partners III, L.P., provided that at
least one of such designees is an Independent Director; and (e) an individual
designated by the CEO and approved by a majority of the members of the Company's
board of directors who, if elected, will qualify as an Independent Director. In
the Stockholders' Agreement, an "Independent Director" means a person that (a)
holds less than 5% of the capital stock of the Company and (b) is not an
Affiliate (as defined therein) of a person who holds 5% or more of the capital
stock of the Company and (c) is not an officer or employee of the Company. The
term of the Stockholders' Agreement expires on the twenty-fifth month of the
Effective Date unless earlier terminated by a written agreement executed by the
Signing Stockholders (and/or their permitted transferees that have agreed to be
bound by the terms of the Stockholders' Agreement) holding at least 66.67% of
the shares of capital stock of the Company owned by all of the Signing
Stockholders (and any permitted transferees) at such time.
Also pursuant to the Stockholders' Agreement, the Signing Stockholders
agreed to vote their shares of capital stock of the Company in a manner
necessary to approve the Carmike Cinemas, Inc. 2002 Stock Plan at an annual or
special meeting of the Company's stockholders held within twelve months of the
Effective Date, and to support affirmative action with respect to and, if
presented for vote before the Company's stockholders, to vote for the Employment
Agreement between the Company and Michael W. Patrick as CEO.
In addition, the Signing Stockholders agreed that for twenty-five
months commencing on the Effective Date, they will not, directly or indirectly,
sell, offer to sell, grant any option to purchase or otherwise transfer or
dispose of any interest in the capital stock of the Company other than (a)
pursuant to an Extraordinary Transaction (as defined therein) such as the sale
of all or substantially all of the assets of the Company or a sale, merger,
consolidation or other transaction as a result of which the holders of the
voting stock of the Company immediately prior to such transaction would hold
less than 50% of the outstanding voting rights of the successor entity; (b) to a
parent company of the Signing Stockholder; (c) to a wholly owned subsidiary of
the Signing Stockholder or a wholly owned subsidiary of the parent company of
the Signing Stockholder; or (d) in the case of an individual Signing
Stockholder, to a family member;
32
provided, that with respect to each of the foregoing (b), (c) and (d), the
transferee agrees to become bound by the terms and conditions of the
Stockholders' Agreement.
Further pursuant to a registration rights agreement, dated as of
January 31, 2002, among the Company and the Signing Stockholders (the
"Registration Rights Agreement"), subject to certain exceptions, holders of
restricted shares of Common Stock (the "Registrable Securities") who are
signatories to the Registration Rights Agreement ("Holders") have the right to
require the Company to register under the Securities Act of 1933, as amended,
all or a part of the Registrable Securities held by such requesting Holders,
provided that the number of shares sought to be included in such registration
equals or exceeds, in the aggregate, 10% or more of the shares of Common Stock
then issued and outstanding (calculated on a fully diluted basis). Holders are
entitled to an unlimited number of such demand registrations provided that the
10% requirement described in the foregoing sentence can be satisfied. In
addition, subject to certain exceptions, Holders have the right to demand (an
unlimited number of times) inclusion of Registrable Securities that such Holders
beneficially own in registrations by the Company of securities either for its
own account or the account of a selling security holder.
Carmike believes the motion picture exhibition industry has stabilized
during the last eighteen months. All of the major exhibitors have experienced
some form of financial restructuring, capitalization change or downsizing. The
explosive growth of new theatre construction has slowed and numerous screens
have been taken out of the marketplace. Carmike's business plan and operations
strategy will center on slow focused growth through very selective theatre
construction, the addition of screens in markets where we already have a theatre
and the continuation of cost controls and inventory management that will ensure
maximum cash flow from operations. Additionally, the Company will focus on the
reduction of debt through required periodic amortization, sales of surplus real
estate and operating cash.
CRITICAL ACCOUNTING POLICIES
Carmike's Part II, Item 7. Management's Discussion and Analysis of
Financial Condition and Results of operations discusses Consolidated Financial
Statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the period. On an on-going basis,
management evaluates its estimates and judgements, including those related to
impairment of long-lived assets including goodwill, leasing transactions,
depreciation of property and equipment, income taxes and contingencies and
litigation. Management bases its estimates and judgements on historical
experience and on various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying value of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions and conditions.
Management believes the following critical accounting policies, among
others, affect its more significant judgements and estimates used in the
preparation of its consolidated financial statements.
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Bankruptcy Matters
In connection with the Chapter 11 Cases, the Company is required to
report in accordance with Statement of Position 90-7 Financial Reporting by
Entities in Reorganization under the Bankruptcy Code ("SOP 90-7"). SOP 90-7
requires, among other things, (i) that pre-petition liabilities that are subject
to compromise be segregated in the Company's consolidated balance sheet as
liabilities subject to compromise and (ii) the identification of all
transactions and events that are directly associated with the reorganization of
the company in the Consolidated Statement of Operations.
As debtors-in-possession, the Debtors had the right, subject to
Bankruptcy Court approval and certain other limitations, to assume or reject
executory contracts and unexpired leases during the Chapter 11 Cases. Any
damages resulting from rejection of executory contracts or unexpired leases were
treated as general unsecured claims in the Chapter 11 Cases. During the Chapter
11 Cases, the Debtors received approval from the Bankruptcy Court to reject
theatre lease relating to 136 theatre locations of the Debtors. The Debtors
cannot presently determine or reasonably estimate the ultimate liability that
may result from rejecting leases or from the filing for any rejected contracts,
and no provisions have yet been made for these items.
See Note 2 of Notes to Consolidated Financial Statements for additional
information regarding proceedings under Chapter 11.
Property and Equipment
Property and equipment are carried at cost. Assets held for disposal
are reported at the lower of the asset's carrying amount or its fair value less
costs to sell. Amortization of assets recorded under capital leases is included
with depreciation expense in the accompanying consolidated statements of
operations. The Company uses accelerated methods of depreciation for income tax
purposes. For financial reporting purposes, depreciation is computed on a
straight-line basis as follows:
Building and improvements 20-30 years
Leasehold improvements 15-30 years
Leasehold interests 15-30 years
Equipment 5-15 years
Impairment of Long Lived Assets, including Goodwill
The Company accounts for its long-lived assets in accordance with the
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of
("SFAS No. 121"). The Company reviews its long-lived assets including goodwill
related to those assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company periodically reviews and monitors its internal
management reports and the competition in its markets for indicators of
impairment of individual theatres. The Company considers a trend of operating
results that are not in line with management's expectations to be its primary
indicator of potential impairment. An additional impairment indicator used by
management is the existence of competition in a market, either from third
parties or from the
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Company's own expansion. For purposes of SFAS No. 121, assets are evaluated for
impairment at the