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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended April 3, 2003
OR

For the transition period from                                  to                                 

Commission file number 1-8747

AMC ENTERTAINMENT INC.

(Exact name of registrant as specified in its charter)

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

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None.

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        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. ý

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ý    No o

        The approximate aggregate market value of the registrant's common stock held by non-affiliates as of September 26, 2002 based on the closing sale price on the American Stock Exchange on September 26, 2002 was approximately $248,563,616.

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of our Proxy Statement for use in connection with the 2003 Annual Meeting of Stockholders to be filed are incorporated by reference into Part III of this report, to the extent set forth therein.

AMC ENTERTAINMENT INC.

FORM 10-K

FOR THE FISCAL YEAR ENDED APRIL 3, 2003

INDEX

Forward Looking Statements

        This report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included in this report and located elsewhere in this Form 10-K regarding the prospects of our industry and our prospects, plans, financial position and business strategy may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "estimate," "anticipate," "plan," "foresee," "believe" or "continue" or the negatives of these terms or variations of them or similar terminology. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. All such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those contemplated by the relevant forward- looking statement. Important factors that could cause actual results to differ materially from our expectations include, among others: (i) our

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ability to enter into various financing programs; (ii) the cost and availability of films and the performance of films licensed by us; (iii) competition; (iv) construction delays; (v) the ability to open or close theatres and screens as currently planned; (vi) domestic and international political, social and economic conditions; (vii) demographic changes; (viii) increases in the demand for real estate; (ix) changes in real estate, zoning and tax laws; (x) unforeseen changes in operating requirements; (xi) our ability to identify suitable acquisition candidates and successfully integrate acquisitions into our operations and (xii) results of significant litigation. Readers are urged to consider these factors carefully in evaluating the forward-looking statements.

        All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements included herein are made only as of the date of this Form 10-K, and we do not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

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PART I

Item 1. Business.

(a)   General Development of Business

        We are organized as a holding company. Our principal directly owned subsidiaries are American Multi-Cinema, Inc., AMC Entertainment International, Inc. ("AMCEI") and National Cinema Network, Inc. ("NCN"). We conduct our North American theatrical exhibition business through AMC and its subsidiaries and AMCEI. We are developing theatres outside the United States through AMCEI and its subsidiaries. We engage in advertising services through NCN.

        Our predecessor was founded in Kansas City, Missouri in 1920. We were incorporated under the laws of the state of Delaware on June 13, 1983 and maintain our principal executive offices at 920 Main, Kansas City, Missouri 64105. Our telephone number at such address is (816) 221-4000.

        On March 15, 2002, we acquired the operations and related assets of Gulf States Theatres for a cash purchase price of approximately $46 million. The acquisition included five theatres with 68 screens in the New Orleans, Louisiana area. Operating results of the acquired theatres are included in our Consolidated Statements of Operations from March 15, 2002.

        On March 29, 2002, we acquired GC Companies, Inc. ("GC Companies"), pursuant to a plan of reorganization of GC Companies which we sponsored, for a purchase price of approximately $169 million (net of $6.5 million from the sale of GC Companies' portfolio of venture capital investments on the effective date of the plan of reorganization). The acquisition included 66 theatres with 621 screens throughout the United States and a 50% interest in a joint venture that operates 17 theatres with 160 screens in Argentina, Chile, Brazil and Uruguay. Operating results of the acquired theatres are included in our consolidated statements of operations from March 29, 2002.

        Our purchase price for GC Companies includes estimated cash payments of $70.7 million, the issuance of $72.9 million of our 9¹/2% senior subordinated notes due 2011 with a fair value of $71.8 million and the issuance of $33.2 million of our common stock, or 2.4 million shares based on a fair value of $13.64 per share (the closing price per share on the effective date of the plan of reorganization). We used (or will use) available cash for the cash payments under the plan of reorganization. See Note 2 to the Consolidated Financial Statements under Part II Item 8. of this Annual Report on Form 10-K for additional information regarding these acquisitions and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources" for additional information on payments that we might make under the plan of reorganization.

(b)   Financial Information about Segments

        For information about our operating segments, see Note 14 to the Consolidated Financial Statements under Part II Item 8. of this Annual Report on Form 10-K.

(c)   Narrative Description of Business

        We are one of the world's leading theatrical exhibition companies. As of April 3, 2003, we operated 239 theatres with a total of 3,524 screens, with 93%, or 3,280, of our screens in North America, and 7%, or 244, of our screens in China (Hong Kong), Japan, France, Portugal, Spain, Sweden and the United Kingdom. For the year ended April 3, 2003, we had revenues of $1.8 billion, a net loss of $20.3 million and net cash provided by operating activities of $128.7 million.

        Our revenues are generated primarily from box office admissions and theatre concession sales, which represented approximately 67% to 68% and 26% to 27%, respectively, of our revenues for each of the last three fiscal years. The balance of our revenues are generated from ancillary sources, including on-screen

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advertising, rental of theatre auditoriums, fees and other revenues generated from the sale of gift certificates and theatre tickets and arcade games located in theatre lobbies.

        Key characteristics of our business that we believe differentiate us from and give us a competitive advantage over many other theatrical exhibition companies include our modern theatre circuit, our highly productive theatres and our broad major market coverage with prime theatre locations.

        Modern Theatre Circuit.    We are an industry leader in the development and operation of megaplex theatres, typically defined as having 14 or more screens and offering amenities to enhance the movie-going experience, such as stadium seating providing unobstructed viewing, digital sound and enhanced seat design. We believe that the megaplex format provides the operator with enhanced revenue opportunities and better asset utilization while creating convenience for patrons by increasing film choice and the number of film starting times. We believe that the introduction of the megaplex by us in 1995 has led to the current industry replacement cycle, which has accelerated the obsolescence of older, smaller theatres by setting new standards for moviegoers. We continually upgrade the quality of our theatre circuit by adding new screens through new builds (including expansions) and acquisitions and by disposing of older screens through closures and sales. From April 1995 through April 3, 2003, we added 104 theatres with 2,229 new screens, acquired 77 theatres with 738 screens and disposed of 174 theatres with 1,073 screens. As of April 3, 2003, approximately 70%, or 2,453, of our screens were located in megaplex theatres. As of April 3, 2003, our average number of screens per theatre was 14.7, which we believe was the highest among the major North America theatre exhibitors, compared with 5.8 for all North America theatrical exhibition companies, according to the National Association of Theatre Operators.

        Highly Productive Theatres.    Our theatres are generally the most productive in the markets where they operate. As measured by AC Nielsen EDI, Inc. ("EDI"), we operated 26 of the top 50 theatres in the United States in terms of box office revenues for the 53 weeks ended April 3, 2003. Our next closest competitor operated seven. Our theatre circuit in North America also produces the highest box office revenues per screen that are approximately 30% higher than the industry average, as measured by EDI.

        Broad Major Market Coverage with Prime Theatre Locations.    In addition to our asset quality and the high levels of productivity of our theatres, our theatres are generally located in large, urban markets, giving us a breadth of market coverage that places us in most major markets in the United States. We operate in 88% of the Top 25 and 72% of the Top 50 "Designated Market Areas", or "DMAs" (television market areas as defined by EDI). Our theatres are usually located near or within developments that include retail stores, restaurants and other activities that complement the movie-going experience.

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        The following table provides detail with respect to the geographic location of our theatre circuit as of April 3, 2003:

*

Excludes 17 theatres with 160 screens in South America operated through a 50% owned unconsolidated joint venture.

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        The following table sets forth information concerning new builds (including expansions), acquisitions and dispositions and end of period theatres and screens operated.

Changes in Our Theatres Operated

*

Excludes 17 theatres with 160 screens in South America operated through a 50% owned unconsolidated joint venture.

Our Strategy

        Our strategic plan has three principal elements.

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Maximizing operating efficiencies by focusing on the fundamentals of our business.



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Optimizing our theatre portfolio through selective new builds, acquisitions and disposition of underperforming theatres.



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Enhancing and extending our business and brands and in doing so, growing our ancillary revenues.

        Maximizing Operating Efficiencies.    We believe the fundamentals of our business include maximizing revenues and managing our costs. For example since fiscal 1999, among other things, we have implemented key initiatives in each of these areas, which have resulted in the following.

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Theatre revenues per patron increased 11.4% in fiscal 2000, 5.6% in fiscal 2001, 5.7% in fiscal 2002 and 7.0% in fiscal 2003, which resulted in a per patron increase of greater than $2.00 over this period.



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General and administrative expenses declined from 5.1% of revenues in fiscal 1999 to 3.8% in fiscal 2003, the result of centralizing divisional operational structure and reducing staffing above the theatre by approximately 30%.

        We continue to evaluate opportunities for further revenue and cost savings in these and other areas.

        Optimizing Our Theatre Portfolio.    Asset quality is a function of our selective new build, acquisition and theatre disposition strategies.

        As a recognized leader in the development and operation of megaplex theatres and based upon our financial resources, we believe that we will continue to have attractive new build opportunities presented to us by real estate developers and others. We intend to selectively pursue new build opportunities where the characteristics of the location and the overall market meet our strategic and financial return criteria. As of April 3, 2003, we had six theatres with 96 screens under construction. Since fiscal 1995, we have added 2,229 screens in high performing state-of-the-art theatres.

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        We believe that a major factor that has further differentiated us from our competitors and has contributed to our overall theatre portfolio quality has been our proactive efforts to close older, underperforming theatres. Since fiscal 1995, our last fiscal year before the first megaplex theatre opened, we have disposed of 1,073 screens. In order to maintain a modern, high quality theatre circuit, we will continue to evaluate our theatre portfolio and, where appropriate, dispose of theatres through closures, lease terminations, lease buyouts, sales or subleases.

        There are over 600 theatrical exhibitors in North America and the top five exhibitors account for approximately 50% of the industry's screens. This statistic is up from 31% in 1999 and evidence that the theatrical exhibition business in North America has been consolidating. We have played a key role in this consolidation process in 2002 by acquiring two domestic theatre operators with a total of 689 screens.

        Enhancing and Extending Our Business and Brands.    We believe there are opportunities to increase our core and ancillary revenues and build brand equity through enhancements of our business, new product offerings and strategic marketing. Examples of this include the following.

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We provide on-screen advertising and lobby marketing to over 8,000 screens through our wholly-owned subsidiary NCN, one of the nation's leading cinema advertising companies.



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Our MovieWatcher® frequent moviegoer loyalty program is the largest program in the industry with over three million members.



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We are a founding partner and own approximately 27% of MovieTickets.com, an Internet ticketing venture representing over 6,000 screens, including our own.



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We are currently installing a digital projection technology developed by NCN into our theatres. The Digital Theatre Distribution System™ streamlines the delivery of in-theatre advertising and is also suitable for alternative content.



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During fiscal 2003, we introduced the AMC Entertainment Card, the first stored value gift certificate sold circuit wide in our industry. Through several marketing alliances, the card is also sold at approximately 3,800 retail outlets throughout North America.

Film Licensing

        We predominantly license "first-run" motion pictures from distributors owned by major film production companies and from independent distributors. We license films on a film-by-film and theatre-by-theatre basis. We obtain these licenses based on several factors, including number of seats and screens available for a particular picture, revenue potential and the location and condition of our theatres. We pay rental fees on a negotiated basis.

        North American film distributors typically establish geographic film licensing zones and generally allocate available film to one theatre within that zone. Film zones generally encompass a radius of three to five miles in metropolitan and suburban markets, depending primarily upon population density. In film zones where we are the sole exhibitor, we obtain film licenses by selecting a film from among those offered and negotiating directly with the distributor. In film zones where there is competition, a distributor generally will allocate its films among the exhibitors in the zone. As of April 3, 2003, approximately 80% of our screens in the United States were located in non-competitive film zones.

        Licenses that we enter into typically state that rental fees are based on either firm terms established prior to the opening of the picture or on a mutually agreed settlement upon the conclusion of the picture run. Under a firm terms formula, we pay the distributor a specified percentage of box office receipts, with the percentages declining over the term of the run. Firm term film rental fees are generally the greater of (i) 70% of box office admissions, gradually declining to as low as 30% over a period of four to seven weeks versus (ii) a specified percentage (i.e. 90%) of the excess of box office receipts over a negotiated allowance for theatre expenses (commonly known as a 90-10 clause). The settlement process allows for negotiation

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based upon how a film actually performs. A firm term agreement could result in lower than anticipated film rent if the film outperforms expectations, especially in regards to length of run, and, conversely, there is a downside risk when the film under performs.

        There are several distributors which provide a substantial portion of quality first-run motion pictures to the exhibition industry. These include Buena Vista Pictures (Disney), Paramount Pictures, Universal Pictures, Warner Bros. Distribution, New Line Cinema, SONY Pictures Releasing, Miramax, MGM, Twentieth Century Fox and DreamWorks. Films licensed from these distributors accounted for approximately 94% of our North American admissions revenues during fiscal 2003. Our revenues attributable to individual distributors may vary significantly from year to year depending upon the commercial success of each distributor's motion pictures in any given year. In fiscal 2003, no single distributor accounted for more than 8% of the motion pictures that we licensed or for more than 16% of our box office admissions.

        During the period from 1990 to 2002, the annual number of first-run motion pictures released by distributors in the United States ranged from a low of 370 in 1995 to a high of 490 in 1998, according to the Motion Picture Association of America. During 2002, 449 first-run motion pictures were released by distributors in the United States.

Concessions

        Concessions sales are our second largest source of revenue after box office admissions. Concessions items include popcorn, soft drinks, candy, hot dogs and other products. Different varieties of candy and soft drinks are offered at our theatres based on preferences in that particular geographic region. We have also implemented "combo-meals" for patrons which offer a pre-selected assortment of concessions products and offer co-branded and private label products that are unique to us.

        Our strategy emphasizes prominent and appealing concessions counters designed for rapid service and efficiency. We design megaplex theatres to have more concessions capacity to make it easier to serve larger numbers of customers. In addition, our megaplexes generally feature the "pass-through" concept, which enables the concessionist serving patrons to simply sell concessions items instead of also preparing them. Strategic placement of large concessions stands within theatres heightens their visibility, aids in reducing the length of lines, allows flexibility to introduce new concepts and improves traffic flow around the concessions stands.

        We negotiate prices for our concessions products and supplies directly with concessions vendors on a national or regional basis to obtain high volume discounts or bulk rates and marketing incentives.

Theatre Management and Support

        We use a centralized structure for policy development, strategic planning, asset management, marketing, human resources, finance, accounting and information systems. These systems are managed at our corporate office located in Kansas City, Missouri. All United States film licensing activity occurs in Woodland Hills, California.

        We staff our theatres with personnel capable of making day-to-day operating decisions. A portion of management's compensation at each theatre is linked to the operating results of each theatre. All theatre level personnel complete formal training programs to maximize both customer service and the efficiency of our operations. Theatre managers receive market-based training within their first 18 months with us which focuses on operations administration, marketing and information systems interpretation.

        Theatre staffing varies depending on the size and configuration of the theatre and levels of attendance. For example, a typical ten-screen movie theatre may have four managers with 50 associates while a megaplex theatre may have eight managers and 125 associates. We are committed to developing the strongest possible management teams and seek college graduates for career management positions.

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Employees

        As of April 3, 2003, we had approximately 1,300 full-time and 17,000 part-time employees. Approximately 2% of our part-time employees were minors that were paid the minimum wage.

        Fewer than 1% of our employees, consisting primarily of motion picture projectionists, are represented by a union, the International Alliance of Theatrical Stagehand Employees and Motion Picture Machine Operators (and affiliated local unions). We believe that our relationship with this union is satisfactory.

Theatrical Exhibition Industry and Competition

        Motion picture theatres are the primary initial distribution channel for new motion picture releases and we believe that the theatrical success of a motion picture is often the most important factor in establishing its value in the DVD/videocassette, cable television and other ancillary markets. We believe that the emergence of alternative motion picture distribution channels has not adversely affected attendance at theatres and that these distribution channels do not provide an experience comparable to the out-of-home entertainment experience offered by moviegoing. We believe that the public will continue to recognize the value of viewing a movie on a large screen with superior audio and visual quality, while enjoying a variety of concessions and sharing the experience with a larger audience.

        Moviegoing has demonstrated steady growth, with North American box office revenues increasing by a 6% compound annual growth rate ("CAGR") over the last 30 years. Since the introduction of the megaplex in 1995, these positive growth trends have become more pronounced, with box office revenues growing by an 8% CAGR from 1995 to 2002. In 2002, industry box office revenues were $9.5 billion, an increase of 13% over the prior year, and attendance was 1.6 billion, an increase of 10% over the prior year and the highest attendance level in 43 years.

        As a result of the economic appeal of megaplex theatres and exhibitors' development of new megaplexes without a corresponding closure of older multiplexes, from 1995 to 1999 the industry's indoor screen count grew by a CAGR of 8%, from 27,000 to 36,500 screens. However, attendance per screen declined during this period by a CAGR of 4%. We believe that this decline reflects the industry's excess screen capacity, in which older multiplexes or less competitively positioned theatres were effectively rendered obsolete by newer megaplexes, resulting in declining profitability.

        In 2002, there were approximately 1,300 fewer screens than in 1999, as many of our competitors closed older multiplexes. As a result, from 1999 to 2002 the industry's screen count decreased by a CAGR of 1% and attendance per screen increased during this period by a CAGR of 5%.

        The following table represents information about the exhibition industry obtained from the National Association of Theatre Owners.

        There are over 600 companies competing in the North American theatrical exhibition industry, approximately 300 of which operate four or more screens. Industry participants vary substantially in size,

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from small independent operators to large international chains. Based on information obtained from the National Association of Theatre Owners 2002-03 Encyclopedia of Exhibition, we believe that the ten largest exhibitors (in terms of number of screens) operated approximately 63% of the indoor screens in 2002.

        Our theatres are subject to varying degrees of competition in the geographic areas in which they operate. Competition is often intense with respect to attracting patrons, licensing motion pictures and finding new theatre sites. Where real estate is readily available, there are few barriers preventing another company from opening a theatre near one of our theatres, which may adversely effect operations at our theatre.

        The theatrical exhibition industry faces competition from other forms of out-of-home entertainment, such as concerts, amusement parks and sporting events, and from other distribution channels for filmed entertainment, such as cable television, pay per view and home video systems, as well as from all other forms of entertainment.

Regulatory Environment

        The distribution of motion pictures is in large part regulated by federal and state antitrust laws and has been the subject of numerous antitrust cases. The consent decrees resulting from one of those cases, to which we were not a party, have a material impact on the industry and us. Those consent decrees bind certain major motion picture distributors and require the motion pictures of such distributors to be offered and licensed to exhibitors, including us, on a film-by-film and theatre-by-theatre basis. Consequently, we cannot assure ourselves of a supply of motion pictures by entering into long-term arrangements with major distributors, but must compete for our licenses on a film-by-film and theatre-by-theatre basis.

        Our theatres must comply with Title III of the Americans with Disabilities Act of 1990 (the "ADA"). Compliance with the ADA requires that public accommodations "reasonably accommodate" individuals with disabilities and that new construction or alterations made to "commercial facilities" conform to accessibility guidelines unless "structurally impracticable" for new construction or technically infeasible for alterations. Non-compliance with the ADA could result in the imposition of injunctive relief, fines, awards of damages to private litigants or additional capital expenditures to remedy such noncompliance. Although we believe that our theatres are in substantial compliance with the ADA, in January 1999, the Civil Rights Division of the Department of Justice filed suit against us alleging that certain of our theatres with stadium-style seating violate the ADA. See Item 3. Legal Proceedings.

        As an employer covered by the ADA, we must make reasonable accommodations to the limitations of employees and qualified applicants with disabilities, provided that such reasonable accommodations do not pose an undue hardship on the operation of our business. In addition, many of our employees are covered by various government employment regulations, including minimum wage, overtime and working conditions regulations.

        Our operations also are subject to federal, state and local laws regulating such matters as construction, renovation and operation of theatres as well as wages and working conditions, citizenship, health and sanitation requirements and licensing. We believe our theatres are in material compliance with such requirements.

        We also own and operate theatres and other properties which may be subject to federal, state and local laws and regulations relating to environmental protection. 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 contamination, regardless of fault or the legality of original disposal. We believe our theatres are in material compliance with such requirements.

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Seasonality

        Our revenues are dependent upon the timing of motion picture releases by distributors. The most marketable motion pictures are usually released during the summer and the year-end holiday seasons. Therefore, our business can be seasonal, with higher attendance and revenues generally occurring during the summer months and holiday seasons. Our results of operations may vary significantly from quarter to quarter.

(d)   Financial Information About Geographic Areas.

        For information about the geographic areas in which we operate, see Note 14 to the Consolidated Financial Statements under Part II Item 8. of this Annual Report on Form 10-K. During fiscal 2003, revenues from our theatre operations outside the United States accounted for 8% of our total revenues. We also have a 50% equity interest in a joint venture which operates theatres in Argentina, Brazil, Chile and Uruguay. There are significant differences between the theatrical exhibition industry in the United States and in these international markets, including:

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Fluctuating currency values.  For information about our exposure to foreign currency exchange rates, see Quantitative and Qualitative Disclosures About Market Risk under Part II Item 7A. of this Annual Report on Form 10-K.



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Consumer preferences; insufficient foreign language films.  Consumers in foreign markets may be less inclined to spend their leisure time attending movies than consumers in the United States. In addition, there is generally a smaller market for local language films and the overall supply of these films may not be adequate to generate a sufficient attendance level at our international theatres. As a result of such factors, attendance levels at some of our foreign theatres may not be sufficient to permit us to operate them profitably or on a positive cash flow basis.



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Inability to obtain film product.  Because of existing relationships between distributors and other theatre owners, we sometimes have been unable to obtain the films we want for our theatres in certain foreign markets.



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Uncertain political and economic environments.  Certain of our theatres are located in areas with unstable economic or political environments which could negatively impact attendance and the financial results of our theatres. For example, in January, 2002 the government of Argentina announced the adoption of a currency system allowing the peso to float freely rather than pegging it to the U.S. dollar, which resulted in a significant devaluation of the peso. This could adversely impact our South American joint ventures' Argentine subsidiary's ability to repay its U.S. dollar denominated debt. Because of such considerations, we attribute little or no value to our investment in the South American joint venture and participation interest in the joint venture's loans.

(e)   Available Information.

        We make available on our web site (www.amctheatres.com) under "Investor Relations—SEC Filings", free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such material with the Securities and Exchange Commission.

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Item 2. Properties.

        The following table sets forth the general character and holding classification of our theatre circuit as of April 3, 2003:

        Our theatre leases generally have initial terms ranging from 10 to 25 years, with options to extend the lease for up to 20 additional years. The leases typically require escalating minimum annual rent payments and additional rent payments based on a percentage of the leased theatre's revenue above a base amount and require us to pay for property taxes, maintenance, insurance and certain other property-related expenses. In some cases, our rights as tenant are subject and subordinate to the mortgage loans of lenders to our lessors, so that if a mortgage were to be foreclosed, we could lose our lease. Historically, this has never occurred.

        We lease our corporate headquarters in Kansas City, Missouri, our film licensing office in Woodland Hills, California (Los Angeles) and our administrative offices in Paris, France and Tokyo, Japan.

        The majority of the concessions, projection, seating and other equipment required for each of our theatres is owned.

Item 3. Legal Proceedings.

        United States of America v. AMC Entertainment Inc. and American Multi-Cinema, Inc.     (No. 99-01034 FMC (SHx), filed in the United States District Court for the Central District of California). On January 29, 1999 the Department of Justice (the "Department") filed suit alleging that our stadium-style theaters violate the ADA and related regulations. The Department alleges that we have failed to provide persons in wheelchairs seating arrangements with lines of sight comparable to the general public. The Department alleges various non-line of sight violations as well. The Department seeks declaratory and injunctive relief regarding existing and future theatres with stadium-style seating, compensatory damages in the approximate amount of $75,000 and a civil penalty of $110,000.

        On November 20, 2002 the trial court entered summary judgment in favor of the Department on the line of sight aspects of the case. The trial court ruled that wheelchair spaces located solely on the sloped floor portion of the stadium-style auditoriums fail to provide lines of sight comparable to the general public. The trial court did not address specific changes which might be required of our existing stadium-style auditoriums, holding that per se rules are simply not possible because the requirements of comparable lines of sight will vary based on theatre layout. We filed a request for interlocutory appeal on January 23, 2003. The trial court denied our request but postponed any further line of sight proceedings pending the Ninth Circuit Court of Appeals' ruling in a case with similar facts and issues, Oregon Paralyzed Veterans of America v. Regal Cinemas, Inc. In Regal, the Oregon District Court held that the exhibitor had provided comparable lines of sight to its wheelchair-bound patrons. A decision from the Ninth Circuit is expected in the next few months.

        On January 21, 2003, the trial court entered summary judgment in favor of the Department on non-line of sight aspects of the case, which involve such matters as parking areas, signage, ramps, location of toilets, counter heights, ramp slopes, companion seating and the location and size of handrails. In its non-line of sight decision, the trial court concluded that we have violated numerous sections of the ADA

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and engaged in a pattern and practice of violating the ADA. As was the case with its line of sight decision, the trial court's non-line of sight decision did not address specific changes that we might be required to make, reserving this for the remedies stage of the litigation. We are engaged in settlement discussions with the Department for the non-line of sight issues in this case.

        Shareholder derivative litigation.    We are parties to three shareholder derivative lawsuits filed on our behalf against all of the members of our board of directors. Two of the lawsuits, captioned Krajewski et al. v. Laurence M. Berg, et al. (Case No.02-CV-221038) (the "Krajewski Action") and Lamb v. Laurence M. Berg, et al. (Case No. 02-CV-222236) (the "Lamb Action"), were filed on July 31 and August 14, 2002, respectively, in the Circuit Court of Jackson County, Kansas City, Missouri (collectively, the "Missouri Actions"). On December 30, 2002, another shareholder derivative lawsuit, captioned Malone v. Brown et al, (Case No. 20103-NC), was filed in the Delaware Chancery Court (the "Malone Action").

        The complaints generally allege that our board violated its fiduciary duties of loyalty and good faith and wasted corporate assets by causing us to improperly forgive loans to our Chief Executive Officer, Peter C. Brown, and Executive Vice President, Philip M. Singleton, without adequate consideration. The complaint in the Malone Action also generally alleges that the individual defendants violated provisions of our 1999 Stock Option and Incentive Plan and our executive compensation policy as adopted by our compensation committee. The plaintiffs seek unspecified damages on our behalf together with their costs, fees and expenses. The defendants believe there is no merit to the allegations of wrongdoing.

        On May 6, 2003, counsel for the parties jointly filed a Stipulation of Settlement in the Circuit Court of Jackson County, Kansas City, Missouri. Among other things, the settlement provides that 1) the board will adopt a compensation committee charter with specified terms, 2) the compensation committee will retain a compensation consultant for fiscal year 2005, 3) we will pay plaintiffs' counsel fees and expenses of $450,000 and 4) Peter C. Brown and Philip M. Singleton will extend existing lock-up agreements by three (3) months to March 6, 2004. A notice of settlement describing the terms was mailed to shareholders of record as of May 6, 2003. A hearing to determine the fairness of the settlement was held June 24, 2003. Shareholders that objected to the terms of the settlement were given the opportunity to state their objections. The circuit court held that the settlement was reasonable and fair and accordingly approved the settlement. As a result, the actions will be dismissed as soon as practical.

        Weaver v. AMC Entertainment Inc.    (No. 310364, filed March 2000 in Superior Court of California, San Francisco County) and Geller v. AMC Entertainment Inc. (No. RCV047566, filed May 2000 in Superior Court of California, San Bernardino County). We are the defendant in these two coordinated class-action cases now pending in California before the San Francisco County Superior Court. Plaintiffs allege that AMC sold discount tickets and Gifts of Entertainment in violation of California law making it "unlawful for any person or entity to sell a gift certificate to a purchaser containing an expiration date." In both cases, plaintiffs allege unfair competition and seek injunctive relief. Geller seeks restitution of all expired "gift certificates" purchased in California since January 1, 1997 and not redeemed. Weaver seeks disgorgement of all revenues and profits obtained since January 1997 from sales of "gift certificates" containing an expiration date, as well as actual and punitive damages.

        In May 2001, following a special trial on the issue, the court ruled that our Gifts of Entertainment and discount tickets are "gift certificates." Subsequently, the court certified a plaintiff class consisting of holders of Gifts of Entertainment or discount tickets which did not contain expiration dates or disclaimers. On April 28, 2003, the parties entered a settlement agreement providing for our payment of approximately $600,000 in cash and $900,000 in Gifts of Entertainment. The settlement agreement received preliminary court approval in accordance with California procedures on June 19, 2003. At the preliminary hearing the court held that the settlement was within the range of possible approval. The court will finally determine the fairness and adequacy of the settlement at a hearing on December 3, 2003. The class members will be notified of the hearing and have an opportunity to attend and state their objections.

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        Rob Todd v. AMC Entertainment International, Inc. et. al.    (Case No. H-02-1944, United States District Court for the Southern District of Texas). On May 23, 2002, plaintiff filed a purported class action on behalf of his son and all deaf and severely hearing-impaired individuals against AMC, four other exhibitors and nine movie production companies. The complaint alleges that the production company defendants have violated the ADA by failing to produce enough closed-captioned films (an emerging film technology sometimes referred to as rear window captioning where a film's dialogue is displayed on a device affixed to the armrest). The complaint further alleges that the exhibition defendants have violated the ADA by failing to show a sufficient number of closed-captioned movies. The production company defendants have been dismissed from the case. Plaintiff now seeks declaratory and injunctive relief that would require exhibitors to show more films with open captioning, which displays the dialogue on the screen, or a substitute system to permit deaf and severely hearing-impaired individuals to attend movies. Plaintiff has not identified a specific substitute system.

        A similar class action suit, Kevin Ball, et al. v. AMC Entertainment Inc. and Loews Cineplex Entertainment Corp. (Case No.1:00CV00867, United States District Court for the District of Columbia), involves only theatres in the District of Columbia area. The Ball suit seeks to have AMC install closed-captioning in several screens at several theatres in the D.C. area which we estimate would cost approximately $16,000 per screen. We are engaged in settlement discussions to resolve this case. Any settlement would be subject to court approval and class notice and objection provisions.

        American Multi-Cinema, Inc. v. Midwest Drywall Company, Inc., Haskell Constructors, Ltd. et al.    (Case No. 00CV84908, Circuit Court of Platte County, Missouri) and American Multi-Cinema, Inc. v. Bovis Construction Corp. et al. (Civil Action No. 0207139, Court of Common Pleas of Bucks County, Pennsylvania). We are plaintiffs in these and related suits in which we seek to recover damages from the construction manager, the architect, certain fireproofing applicators and other parties to correct the defective application of certain fireproofing materials at 23 theatres. We currently estimate our claim for repair costs at these theatres will aggregate approximately $37.1 million, of which we have expended approximately $20.4 million through the end of fiscal 2003. The remainder is for projected costs of repairs yet to be performed. We also are seeking additional damages for lost profits, interest and legal and other expenses incurred. Certain parties to the Missouri litigation have filed counterclaims against us, including Ammon Painting Company, Inc. which asserts claims to recover monies for services provided in an amount not specified in the pleadings but which it has expressed in discovery to aggregate approximately $950,000. We currently estimate our claim against Ammon is for approximately $6 million. Based on presently available information, we do not believe such matters will have a material adverse effect on our results of operations, financial condition or liquidity.

        LaSpesa v. AMC Entertainment Inc., (No. 03CH03572, filed in the Chancery Division of the Circuit Court of Cook County, Illinois).    On February 25, 2003, Barbara LaSpesa filed a putative class action case against us alleging violations of the Illinois Consumer Protection Act for unfair and deceptive trade practice. Ms. LaSpesa, on behalf of a purported class consisting of all of our United States patrons, alleges that our policies and practices result in the showing of non-movie preview advertising after the advertised movie start time and claims damages in the amount of $75.00 per putative class member. A motion to certify the class has yet to be formally presented to the Chancery Court. We have denied the allegations and filed a motion for summary judgment to dismiss all claims.

        We are a party to various other legal proceedings in the ordinary course of business, none of which is expected to have a material adverse effect on us.

Item 4. Submission of Matters to a Vote of Security Holders.

        There has been no submission of matters to a vote of security holders during the fourteen weeks ended April 3, 2003.

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PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

        Our Common equity consists of Common Stock and Class B Stock. Our Common Stock is traded on the American Stock Exchange under the symbol AEN. There is no established public trading market for Class B Stock.

        The table below sets forth, for the periods indicated, the high and low closing prices of our Common Stock as reported on the American Stock Exchange composite tape.

Common Stock

        On May 9, 2003, there were 2,033 stockholders of record of Common Stock and one stockholder of record (the 1992 Durwood, Inc. Voting Trust dated December 12, 1992) of Class B Stock.

        Our Certificate of Incorporation provides that holders of Common Stock and Class B Stock shall receive, pro rata per share, such cash dividends as may be declared from time to time by the Board of Directors. Under an Investment Agreement dated April 19, 2001 (the "Investment Agreement") with the initial purchasers of our Preferred Stock, we may not pay dividends on Common Stock except with the consent of the initial purchasers for so long as they continue to beneficially own 50% of the aggregate number of shares of Preferred Stock issued pursuant to the Investment Agreement, subject to certain limited exceptions.

        We have not declared a dividend on shares of Common Stock or Class B Stock since fiscal 1989. Any payment of cash dividends on Common Stock or Class B Stock in the future will be at the discretion of the Board and will depend upon such factors as compliance with debt covenants, earnings levels, capital requirements, our financial condition and other factors deemed relevant by the Board.

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Item 6. Selected Financial Data.

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⁽¹⁾

There were no cash dividends declared on common stock during the last five fiscal years.

⁽²⁾

Fiscal 2001 includes a $15,760 cumulative effect of an accounting change related to revenue recognition for gift certificates and discounted theatre tickets (net of income tax benefit of $10,950), which reduced earnings per share by $0.67 per share of common stock. Fiscal 2000 includes a $5,840 cumulative effect of an accounting change for preopening expenses (net of income tax benefit of $4,095), which reduced earnings per share by $0.25 per share of common stock.

⁽³⁾

Fiscal 2003 includes 53 weeks. All other years have 52 weeks.

⁽⁴⁾

We acquired Gulf States Theatres on March 15, 2002 and GC Companies, Inc. on March 29, 2002, which significantly increased our size. In the Gulf States Theatres acquisition, we acquired 5 theatres with 68 screens in the New Orleans area. In the GC Companies acquisition, we acquired 66 theatres with 621 screens throughout the United States. Accordingly, results of operations for the fifty-three weeks ended April 3, 2003 are not comparable to our results for the prior fiscal years.

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

General

        AMC Entertainment Inc. is a leader in the theatrical exhibition industry. Through its circuit of AMC Theatres, the Company operates 239 theatres with 3,524 screens in the United States, Canada, France, China (Hong Kong), Japan, Portugal, Spain, Sweden and the United Kingdom.

        We acquired Gulf States Theatres on March 15, 2002 and GC Companies, Inc. on March 29, 2002 (collectively, the "Acquisitions"), which significantly increased our size. In the Gulf States Theatres acquisition, we acquired 5 theatres with 68 screens in the New Orleans area. In the GC Companies acquisition, we acquired 66 theatres with 621 screens throughout the United States. Accordingly, results of operations for the fifty-three weeks ended April 3, 2003, which include a full fifty-three weeks of operations of the businesses we acquired, are not comparable to our results for the fifty-two weeks ended March 28, 2002. For information about our Acquisitions, see Note 2 to the Consolidated Financial Statements under Part II Item 8. of this Annual Report on Form 10-K.

        We intend for this discussion to provide you with information that will assist you in understanding our financial statements, the changes in certain key items in those financial statements from year to year and the primary factors that accounted for those changes, as well as how certain accounting principles affect our financial statements. This discussion should be read in conjunction with our Consolidated Financial Statements as of April 3, 2003 and the year then ended and the Notes to Consolidated Financial Statements included under Part II Item 8. of this Annual Report on Form 10-K.

        Fiscal year 2003 includes 53 weeks. Fiscal years 2002 and 2001 include 52 weeks.

CRITICAL ACCOUNTING POLICIES

        The accounting policies identified below are critical to our business operations and the understanding of our results of operations. The impact of, and any associated risks related to, these policies on our business operations are discussed throughout Management's Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see Notes to the Consolidated Financial Statements under Part II Item 8. of this Annual Report on Form 10-K. The methods, estimates and judgments we use in applying our accounting policies have a significant impact on the results we report in our financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Our most critical accounting estimates include the assessment of recoverability of long-lived assets, including intangibles, which impacts impairment of long-lived assets when we impair assets or accelerate their depreciation; recoverability of goodwill, which creates the potential for write-offs of goodwill; recognition and measurement of current and deferred income tax assets and liabilities, which impact our tax provision; recognition and measurement of our remaining lease obligations to landlords on our closed theatres and other vacant space, which impacts theatre and other closure expense; estimation of self-insurance reserves which impacts theatre operating and general and administrative expenses; and recognition and measurement of net periodic benefit costs for our pension and other defined benefit programs, which impacts general and administrative expense. Below, we discuss these policies further, as well as the estimates and judgments involved.

        Impairments.    We review long-lived assets, including intangibles, for impairment as part of our annual budgeting process and whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. We review internal management reports on a quarterly basis as well as monitor current and potential future competition in film markets for indicators of triggering events or circumstances that indicate impairment of individual theatre assets. We evaluate theatres using historical and projected data of theatre level cash flow as our primary indicator of potential impairment and consider

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the seasonality of our business when evaluating theatres for impairment. Because Christmas and New Years holiday results comprise a significant portion of our operating cash flow, the actual results from this period, which are available during the fourth quarter of each fiscal year, are an integral part of our impairment analysis. As a result of these analyses, if the sum of the estimated future cash flows, undiscounted and without interest charges, are less than the carrying amount of the asset, an impairment loss is recognized in the amount by which the carrying value of the asset exceeds its estimated fair value. Assets are evaluated for impairment on an individual theatre basis, which we believe is the lowest level for which there are identifiable cash flows. The impairment evaluation is based on the estimated cash flows from continuing use until the expected disposal date plus the expected fair value of furniture, fixtures and equipment. The expected disposal date does not exceed the remaining lease period and is often less than the remaining lease period when we do not expect to operate the theatre to the end of its lease term. The fair value of assets is determined as either the expected selling price less selling costs (where appropriate) or the present value of the estimated future cash flows plus the fair value of furniture, fixtures and equipment. The fair value of furniture, fixtures and equipment has been determined using similar asset sales and in some instances independent third party valuation studies. The discount rate used in determining the present value of the estimated future cash flows is based on management's expected return on assets and ranged from 14% to 20% during fiscal 2003, 2002 and 2001. There is considerable management judgment necessary to determine the future cash flows, fair value and the expected operating period of a theatre, and accordingly, actual results could vary significantly from such estimates. We have recorded impairments of long-lived assets of $19.6 million, $4.7 million and $68.8 million during fiscal 2003, 2002 and 2001, respectively and in each of the previous five fiscal years.

        Goodwill.    Our recorded goodwill was $61 million as of April 3, 2003. We evaluate goodwill for impairment annually during the fourth fiscal quarter and any time an event occurs or circumstances change that would more likely than not reduce the fair value for a reporting unit below its carrying amount. We consider our North American theatrical exhibition operating segment to be the reporting unit for purposes of evaluating our recorded goodwill for impairment. If the carrying value of the reporting unit exceeds its fair value we are required to reallocate the fair value of the reporting unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. We determine fair value by considering the market price of our common stock as well as multiples applied to cash flow estimates less net indebtedness which we believe is an appropriate method to determine fair value. There is considerable management judgment with respect to cash flow estimates and appropriate multiples to be used in determining fair value and the market value of our common stock could be volatile.

        Income taxes.    In determining income for financial statement purposes, we must make certain estimates and judgments. These estimates and judgments occur in the calculation of certain tax liabilities and in the determination of the recoverability of certain of the deferred tax assets, which arise from temporary differences between the tax and financial statement recognition of revenue and expense as well as operating loss carryforwards. We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we must increase our income tax provision by recording a reserve, in the form of a valuation allowance, for the deferred tax assets that we estimate will not ultimately be recoverable. As of April 3, 2003, we had recorded approximately $187 million of deferred tax assets (net of valuation allowances of $9 million) related to the estimated future tax benefits of temporary differences between the tax bases of assets and liabilities and amounts reported in the accompanying consolidated balance sheets, as well as operating loss carryforwards. The recoverability of this asset is dependent upon our ability to generate future taxable income. Projections of future taxable income require considerable management judgment about future attendance levels, revenues and expenses. See "Liquidity and Capital Resources- Deferred Tax Assets" for additional information about our income taxes.

        Theatre and Other Closure Expense.    Theatre and other closure expense is primarily related to payments made or expected to be made to landlords to terminate leases on certain of our closed theatres,

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other vacant space and theatres where development has been discontinued. Theatre and other closure expense is recognized at the time the theatre closes, space becomes vacant or development is discontinued. Expected payments to landlords are based on actual or discounted contractual amounts. We estimate theatre closure expense based on contractual lease terms and our estimates of taxes and utilities. The discount rate we use to estimate theatre and other closure expense is based on estimates of our borrowing costs at the time of closing. Our discount rates range from 11.0% to 21.0%. We have recorded theatre and other closure expense of $5.4 million, $2.1 million and $24.2 million in fiscal 2003, 2002 and 2001, respectively. Accretion expense for exit activities initiated after December 31, 2002 is included as a component of theatre and other closure expense.

        Casualty Insurance.    We are self-insured for general liability up to $400,000 per occurrence and carry a $250,000 deductible limit per occurrence for workers compensation claims. We utilize actuarial projections of our ultimate losses that we will be responsible for paying and as a result there is considerable judgment necessary to determine our casualty insurance reserves. The actuarial method that we use includes an allowance for adverse developments on known claims and an allowance for claims which have been incurred but which have not been reported. As of April 3, 2003 and March 28, 2002, we had recorded casualty insurance reserves of $19.8 million and $23.3 million, respectively. We have recorded expense related to general liability and workers compensation claims of $6.8 million, $10.3 million and $6.7 million in fiscal 2003, 2002 and 2001, respectively.

        Pension and Postretirement Assumptions.    Pension and postretirement benefit obligations and the related effects on operations are calculated using actuarial models. Two critical assumptions, discount rate and expected return on assets, are important elements of plan expense and/or liability measurement. We evaluate these critical assumptions at least annually. Other assumptions involve demographic factors such as retirement, expected increases in compensation, mortality and turnover. These assumptions are evaluated periodically and are updated to reflect our experience. Actual results in any given year will often differ from actuarial assumptions because of economic and other factors.

        The discount rate enables us to state expected future cash flows at a present value on the measurement date. We have little latitude in selecting this rate, as it is required to represent the market rate for high-quality fixed income investments. A lower discount rate increases the present value of benefit obligations and increases pension and postretirement expense. For our principal pension plans, a 50 basis point decrease in the discount rate would increase pension expense by approximately $1 million. For our postretirement plan, a 50 basis point decrease in the discount rate would increase postretirement expense by approximately $230,000. We reduced our discount rate from 7¹/4% to 6³/4% for fiscal 2004 to reflect market interest rate conditions. We have recorded expenses for our pension and postretirement plans of $3.5 million, $3.0 million and $2.2 million in fiscal 2003, 2003 and 2001, respectively. We expect that our total pension and postretirement expense will increase by approximately $2.6 million from fiscal 2003 to fiscal 2004. Our unrecognized net actuarial loss for pension and postretirement plans was $17.8 million as of April 3, 2003.

        To determine the expected long-term rate of return on pension plan assets, we consider the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets obtained from our investment portfolio manager. A 50 basis point decrease in the expected return on assets of our principal plans would increase pension expense on our principal plans by approximately $175,000 per year. Note 10 to the Consolidated Financial Statements under Part II Item 8. of this Annual Report on Form 10-K includes disclosure of our pension plan and postretirement plan assumptions and information about our pension plan assets.

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OPERATING RESULTS

Years Ended April 3, 2003 and March 28, 2002

        Revenues.    Total revenues increased 33.4%, or $449,038,000, during the year ended April 3, 2003 compared to the year ended March 28, 2002. Of this increase approximately $338,000,000 resulted from the Acquisitions and the opening of five new theatres and 95 screens since March 28, 2002.

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        North American theatrical exhibition revenues increased 35.4% from the prior year. Admissions revenues increased 37.7% due to a 26.4% increase in attendance and a 9.0% increase in average ticket price. Attendance increased due to the addition of 75 new theatres with 764 screens since March 28, 2002, including the Acquisitions. Attendance at comparable theatres (theatres opened before fiscal 2002) was essentially unchanged from the prior year. The increase in average ticket prices was due to our practice of periodically reviewing ticket prices and the discounts we offer and making selective adjustments based upon such factors as general inflationary trends and conditions in local markets. Concessions revenues increased 31.6% due to the increase in attendance and a 4.1% increase in average concessions per patron.

        International theatrical exhibition revenues increased 9.6% from the prior year. Admissions revenues increased 6.8% due to a 5.2% increase in attendance and a 1.5% increase in average ticket price. The increase in attendance was due to the addition of a new theatre in Spain with 20 screens since March 28, 2002. Attendance at comparable theatres decreased 6.5%, primarily at our theatres in China (Hong Kong) and Japan due to a decline in the popularity of local language film product. Concession revenues increased 18.3% due to the increase in total attendance and a 12.5% increase in concessions per patron. International revenues were positively impacted by a weaker U.S. dollar, although this did not contribute materially to consolidated net loss.

        Revenues from NCN and other increased 33.3% from the prior year due to an increase in advertising revenues at NCN. We believe the increase is related to conditions in the general economy that have lead to an increase in spending by advertisers.

        Costs and expenses.    Total costs and expenses increased 34.6%, or $446,108,000, during the year ended April 3, 2003 compared to the year ended March 28, 2002. Of this increase, approximately $306,000,000 resulted from the Acquisitions and the opening of five new theatres and 95 screens since March 28, 2002.

        North American theatrical exhibition costs and expenses increased 34.8% from the prior year. Film exhibition costs increased 39.0% due to the increase in admissions revenues and an increase in the percentage of admissions paid to film distributors. As a percentage of admissions revenues, film exhibition costs were 54.7% in the current year as compared with 54.2% in the prior year. The increase in film exhibition costs as a percentage of admissions revenues was impacted primarily by Star Wars Episode II: Attack of the Clones and Spider-man, films whose audience appeal led to higher than normal film rental terms. Concession costs increased 30.4% due to the increase in concession revenues. As a percentage of concessions revenues, concession costs were 11.7% in the current year compared with 11.8% in the prior year. As a percentage of revenues, theatre operating expense was 25.1% in the current year as compared to 25.3% in the prior year. Rent expense increased 28.6% due to the Acquisitions and the opening of theatres and screens since March 28, 2002. During fiscal 2003, we recognized $1,968,000 of theatre and other closure expense related primarily to the closure of seven theatres with 50 screens. During fiscal 2002, we incurred $2,124,000 of theatre and other closure expense related primarily to the closure of ten theatres with 74 screens offset by a favorable lease renegotiation for vacant restaurant space related to a terminated joint venture and the favorable settlement of lease obligations on two closed theatres. We have currently identified 31 underperforming multiplex theatres with 243 screens that we may close over the next two to five years due to expiration of leases or early lease terminations. Theatres closed prior to their lease expiration may require payments to the landlords to terminate the leases, which we estimate could approximate $6 million, in total.

        International theatrical exhibition costs and expenses increased 16.5% from the prior year. Film exhibition costs increased 4.4% due to higher admission revenues. Concession costs increased 9.4% due to the increase in concessions revenues. Theatre operating expense increased 23.1% and rent expense increased 20.9% due primarily to the addition of one new theatre in the United Kingdom, which was opened during the fourth quarter of fiscal 2002, and one new theatre in Spain, which was opened during the third quarter of fiscal 2003. During fiscal 2003, we ceased operating six of the existing 20 screens at our theatre in France and negotiated a lease modification with the landlord at this theatre, which is expected to

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reduce our rent and operating costs. The terms of the modification included a payment to the landlord of approximately $8,000,000 and a reduction in future minimum rentals of approximately $1,200,000 annually over the remaining term of the lease (17 years). We recorded a charge for theatre closure of $3,405,000 during fiscal 2003 related to the lease renegotiation and screen closures. To date we have incurred costs related to the closure of six screens at one of our international theatres in France. We continually monitor the performance of our international theatres and factors such as an inability to obtain film product, changing consumer preferences for filmed entertainment in international markets and an inability to sublease vacant retail space could negatively impact operating results and result in future closures, dispositions and charges prior to expiration of underlying lease agreements. International theatrical exhibition costs and expenses were negatively impacted by a weaker U.S. dollar, although this did not contribute materially to consolidated net loss.

        Costs and expenses from NCN and other increased 16.0% due to an increase in advertising revenues at NCN.

        General and Administrative.    General and administrative expenses increased $30,456,000 due primarily to $19,250,000 of special compensation expense related to forgiveness of loans to executive officers, increases in stock-based compensation expense and costs associated with the integration of the Acquisitions.

        Depreciation and Amortization.    Depreciation and amortization increased 27.3%, or $27,278,000. The increase was primarily caused by an increase in depreciation of $18,874,000 related to the Acquisitions and new theatres that we have opened and increased amortization of intangible assets of $4,719,000 related primarily to the Acquisitions.

        Impairment of Long-Lived Assets.    During fiscal 2003, we recognized a non-cash impairment loss of $19,563,000 on five theatres with 77 screens including vacant retail space adjacent to one of the theatres. We recognized an impairment loss of $5,522,000 on one theatre in China (Hong Kong) with 11 screens, $4,998,000 on one theatre in Japan with 16 screens, $4,960,000 on one theatre in the United Kingdom with 16 screens including vacant retail space adjacent to the theatre, $3,195,000 on one Canadian theatre with 22 screens and $888,000 on one U.S. theatre with 12 screens. Our impairment loss included $19,402,000 of property and $161,000 of intangible assets. The estimated future cash flows of these theatres, undiscounted and without interest charges, were less than the carrying value of the theatre assets. We are evaluating the future plans for certain of our theatres, which may include selling theatres or closing theatres and terminating the leases. We have identified 31 underperforming multiplex theatres with 243 screens that we may close over the next two to five years due to expiration of leases or early lease terminations. Prior to and including fiscal 2003, $13,314,000 of impairment charges have been taken on these theatre assets and the economic life of these theatre assets have been revised to reflect management's best estimate of the economic life of the theatre assets for purposes of recording depreciation. During fiscal 2002, we recognized a non-cash impairment loss of $4,668,000 on property, on our theatre in Sweden with 18 screens. The estimated future cash flows of this theatre, undiscounted and without interest charges, was less than the carrying value of the theatre assets.

        Gain on Disposition of Assets.    Gain on disposition of assets decreased from a gain of $1,821,000 during the prior year to a gain of $1,385,000 during the current year. The current and prior year results include gains of $1,420,000 and $1,682,000, respectively, on the favorable settlements of capital lease obligations and gains related to the sales of real estate held for investment.

        Interest Expense.    Interest expense increased 28.0% during the year ended April 3, 2003 compared to the prior year due to an increase in average outstanding borrowings and interest rates. We issued $175,000,000 of 9⁷/8% of Senior Subordinated Notes due 2012 on January 16, 2002 and $72,880,000 of 9¹/2% Senior Subordinated Notes due 2011 on March 29, 2002.

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        Income Tax Provision.    The provision for income taxes was $500,000 in fiscal 2003 and $600,000 in fiscal 2002. The effective tax rate was (2.5)% for fiscal 2003 compared to (5.5)% for fiscal 2002. The increase in effective rate from the statutory rate of 35% during fiscal 2003 was primarily due to $19,250,000 of non-deductible special compensation expense and $3,977,000 of foreign net operating loss carryforwards for which we have provided a valuation allowance, partially offset by $6,660,000 of deductible costs related to the Acquisitions. The increase in effective rate from the statutory rate of 35% during fiscal 2002 was primarily due to foreign net operating loss carryforwards for which we provided a valuation allowance and non-deductible preferred stock issuance costs.

        Net Loss for Shares of Common Stock.    Net loss for shares of common stock increased during the year ended April 3, 2003 to a loss of $47,467,000 from a loss of $40,889,000 in the prior year. Basic and diluted loss per share of common stock was $1.31 compared to a loss of $1.73 per share of common stock in the prior year. Preferred Stock dividends of 18,422 shares of Preferred Stock valued at $27,165,000 were recorded in fiscal 2003 compared to Preferred Stock dividends of 16,406 shares of Preferred Stock valued at $29,421,000 in fiscal 2002.

Years Ended March 28, 2002 and March 29, 2001

        Revenues.    Total revenues increased 10.4% during the year ended March 28, 2002 compared to the year ended March 29, 2001.

        North American theatrical exhibition revenues increased 10.0% from the prior year. Admissions revenues increased 10.1% due to a 6.2% increase in average ticket price and a 3.7% increase in attendance. The increase in average ticket prices was due to our practice of periodically reviewing ticket prices and making selective adjustments based upon such factors as general inflationary trends and conditions in local markets. Attendance increased due to the addition of 11 new theatres with 180 screens since March 29, 2001. Attendance at comparable theatres (theatres opened before fiscal 2001) increased 1.6% from the prior year. Concessions revenues increased 6.3% due to a 2.6% increase in average concessions per patron and the increase in attendance.

        International theatrical exhibition revenues increased 24.7% from the prior year. Admissions revenues increased 24.1% due to a 25.1% increase in attendance. The increase in attendance was due to an increase in the performance of film product at our theatres and the addition of 2 new theatres with 34 screens since March 29, 2001. Attendance at comparable theatres increased 12.4%, primarily at our theatres in Japan. Concession revenues increased 33.4% due to the increase in total attendance and a 6.6% increase in concessions per patron. International revenues were negatively impacted by a stronger U.S. dollar, although this did not contribute materially to consolidated net loss.

        Revenues from NCN and other decreased 3.9% from the prior year due to a decrease in advertising revenues at NCN. We believe the decrease is related to conditions in the general economy that have lead to a reduction in spending by advertisers.

        Costs and expenses.    Total costs and expenses increased 0.4% during the year ended March 28, 2002 compared to the year ended March 29, 2001.

        North American theatrical exhibition costs and expenses increased 5.6% from the prior year. Film exhibition costs increased 11.6% due to the increase in admissions revenues and an increase in the percentage of admissions paid to film distributors. As a percentage of admissions revenues, film exhibition costs were 54.2% as compared with 53.4% in the prior year. This increase occurred because more popular films were licensed from distributors that generally have higher film rental terms and because of the concentration of attendance in the early weeks of several films released during the thirteen weeks ended September 27, 2001, which typically results in higher film exhibition costs. Concession costs decreased 4.5% due to additional marketing incentives from vendors under renegotiated contract terms and our initiative to consolidate purchasing to obtain more favorable pricing, offset by the increase in concessions

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revenues. As a percentage of concessions revenues, concession costs were 11.8% compared with 13.2% in the prior year. As a percentage of revenues, theatre operating expense was 25.3% as compared to 25.4% in the prior year. Rent expense increased 2.1% due to the growing number of megaplexes (theatres with predominately stadium seating) in our theatre circuit, which generally have higher rent per screen than multiplexes (theatres generally without stadium seating). During fiscal 2002, we incurred $2,124,000 of theatre and other closure expense related primarily to the closure of ten theatres with 74 screens offset by a favorable lease renegotiation for vacant restaurant space related to a terminated joint venture and the favorable settlement of lease obligations on two closed theatres. During fiscal 2001, we incurred $24,169,000 of theatre and other closure expense related primarily to the closure of 31 multiplexes with 211 screens and vacant restaurant space related to a terminated joint venture.

        International theatrical exhibition costs and expenses increased 16.1% from the prior year. Film exhibition costs increased 26.6% due to higher admission revenues. Rent expense increased 13.1% and theatre operating expense increased 2.1% from the prior year due to the addition of 2 new theatres with 34 screens since March 29, 2001. International theatrical exhibition costs and expenses were positively impacted by a stronger U.S. dollar, although this did not contribute materially to consolidated net loss.

        Costs and expenses from NCN and other increased 6.2% due to an increase in direct selling expense at NCN.

        General and Administrative.    General and administrative expenses increased 16.3% during the year ended March 28, 2002 due to an increase in incentive compensation expense and overall cost increases.

        Depreciation and Amortization.    Depreciation and amortization decreased 5.2%, or $5,518,000, during fiscal 2002 compared to fiscal 2001. This decrease was caused by a decrease in depreciation of $7,023,000 related to impairment losses recorded in previous periods which reduced the carrying value of the theatre assets.

        Impairment of Long-Lived Assets.    During fiscal 2002, we recognized a non-cash impairment loss on property of $4,668,000 on our theatre in Sweden with 18 screens. The estimated future cash flows of this theatre, undiscounted and without interest charges, was less than the carrying value of the theatre assets. During fiscal 2001, we recognized a non-cash impairment loss of $68,776,000 on 76 theatres with 719 screens. We recognized an impairment loss of $35,263,000 on five Canadian theatres with 122 screens, $19,762,000 on 17 U.S. theatres with 202 screens, including two theatres with 44 screens opened since 1995, $4,891,000 on one French theatre with 20 screens, $3,592,000 on 34 U.S. theatres with 222 screens that were closed during fiscal 2001, $3,476,000 on 19 U.S. theatres with 153 screens that are expected to be closed in the near future, $1,042,000 on the discontinued development of a theatre in Taiwan and $750,000 related to real estate held for sale. The estimated future cash flows of these theatres, undiscounted and without interest charges, were less than the carrying value of the theatres assets. Our impairment loss during fiscal 2001 included $63,547,000 of property, $4,397,000 of intangible assets and $832,000 of other long-term assets.

        Gain on Disposition of Assets.    Gain on disposition of assets increased from a gain of $664,000 in the prior year to a gain of $1,821,000 during the current year. The current and prior year results also include gains of $1,682,000 and $72,000, respectively, on the favorable settlements of capital lease obligations and gains related to the sales of real estate held for investment. The prior year results include a $1,109,000 loss on the sale of furniture, fixtures and equipment.

        Other Expense (Income).    During fiscal 2002, we recognized $3,754,000 of transaction expenses incurred in connection with the issuance of Preferred Stock. During fiscal 2001, we recognized non-cash income of $9,996,000 related to the extinguishment of gift certificate liabilities for multiple years of sales. The extinguishment of gift certificate liabilities related to calendar year 1994 sales resulted in other income of $2,617,000 and the extinguishment of gift certificate liabilities for sales in calendar year 1993 and prior years resulted in one-time other income of $7,379,000.

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        Interest Expense.    Interest expense decreased 21.1% during fiscal 2002 compared to the prior year due to a decrease in average outstanding borrowings and interest rates.

        Income Tax Provision.    The provision for income taxes was $600,000 in fiscal 2002 and a benefit of $45,700,000 in fiscal 2001. The effective tax rate was (5.5)% for fiscal 2002 compared to 33.6% for fiscal 2001. The income tax rate for fiscal 2002 was impacted by a $2,200,000 increase in valuation allowance for foreign net operating loss carryforwards and $3,754,000 of non-deductible Preferred Stock transaction expenses.

        Net Loss for Shares of Common Stock.    Net loss for shares of common stock decreased during the year ended March 28, 2002 to a loss of $40,889,000 from a loss of $105,886,000 in the prior year. Basic and diluted loss per share of common stock was $1.73 compared to a loss of $4.51 per share of common stock in the prior year. Prior year results include the cumulative effect of an accounting change of $15,760,000 (net of income tax benefit of $10,950,000) which increased loss per share of common stock by $.67. Preferred Stock dividends of 16,406 shares of Preferred Stock valued at $29,421,000 were recorded during fiscal 2002.

LIQUIDITY AND CAPITAL RESOURCES

        Our revenues are primarily collected in cash, principally through box office admissions and theatre concessions sales. We have an operating "float" which partially finances our operations and which generally permits us to maintain a smaller amount of working capital capacity. This float exists because admissions revenues are received in cash, while exhibition costs (primarily film rentals) are ordinarily paid to distributors from 20 to 45 days following receipt of box office admissions revenues. Film distributors generally release the films which they anticipate will be the most successful during the summer and holiday seasons. Consequently, we typically generate higher revenues during such periods.

        Cash flows from operating activities, as reflected in the Consolidated Statements of Cash Flows, were $128,747,000, $101,091,000 and $43,458,000 in fiscal years 2003, 2002 and 2001, respectively. The increase in operating cash flows from fiscal year 2002 to fiscal year 2003 is primarily due to increased attendance and higher ticket prices. We had a net working capital surplus as of April 3, 2003 and March 28, 2002 of $24,462,000 and $42,227,000, respectively. We have the ability to borrow against our credit facility to meet obligations as they come due and had approximately $363,000,000 and $413,000,000 available on our credit facility to meet these obligations as of April 3, 2003 and March 28, 2002, respectively.

        We continue to expand our North American and international theatre circuits. During fiscal 2003, we opened 5 theatres with 93 screens, opened 2 screens at an existing theatre, acquired 69 theatres with 641 screens (including three managed theatres with 20 screens) and closed 16 theatres with 111 screens resulting in a circuit total of 239 theatres with 3,524 screens as of April 3, 2003.

        We fund the costs of constructing new theatres through existing cash balances, cash generated from operations or borrowed funds, as necessary. We generally lease our theatres pursuant to long-term non-cancelable operating leases which may require the developer, who owns the property, to reimburse us for a portion of the construction costs. We may decide to own the real estate assets of new theatres and, following construction, sell and leaseback the real estate assets pursuant to long-term non-cancelable operating leases. During fiscal 2003, we leased 5 new theatres with 93 screens from developers.

        Historically, we have either paid for or leased the equipment used in a theatre. We may purchase leased equipment from lessors if prevailing market conditions are favorable. During fiscal 2003, we purchased certain leased furniture, fixtures and equipment for a total of $7,052,000.

        We lease certain of our theatre properties from Entertainment Properties Trust. Mr. Peter C. Brown, Chairman of the Board, Chief Executive Officer and President of AMCE, served as Chairman of the Board of Trustees of Entertainment Properties Trust until May 2003, at which time his term expired and he did not stand for reelection to the Board of Trustees of Entertainment Properties Trust. Because of the

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various agreements between Entertainment Properties Trust and us, situations may have arisen where we had differing interests from Entertainment Properties Trust. For information about related party transactions see Note 15 to the Consolidated Financial Statements under Part II Item 8. of this Annual Report on Form 10-K.

        As of April 3, 2003, we had construction in progress of $69,968,000 and reimbursable construction advances (amounts due from developers on leased theatres) of $2,628,000. We had 5 theatres in the U.S. with a total of 84 screens and one theatre in the United Kingdom with 12 screens under construction as of April 3, 2003. During fiscal 2003, 2002 and 2001, we incurred cash outflows for investing activities of $137,201,000, $144,510,000 and $91,933,000, respectively. Cash outflows for investing activities include capital expenditures of $100,932,000, $82,762,000 and $101,932,000 during fiscal 2003, 2002 and 2001, respectively and proceeds from sale/leasebacks of $43,665,000, $7,486,000 and $682,000 during fiscal 2003, 2002 and 2001, respectively. We expect that our capital expenditures in fiscal 2004 will be approximately $124,000,000 to $134,000,000 and our proceeds from sale/leasebacks will be approximately $59,000,000 from two anticipated sale and leaseback transactions. During fiscal 2003, we sold and leased back the real estate assets associated with 2 theatres for an aggregate purchase price of $43,665,000 and then leased the real estate assets associated with these theatres pursuant to non-cancelable operating leases with terms of 20 years at an initial lease rate of 11% with options to extend for up to an additional 15 years.

        Our credit facility permits borrowings at interest rates based on either the bank's base rate or LIBOR, plus applicable margins ranging from 0.0% to 1.5% on base rate loans and from 0.75% to 2.50% on LIBOR loans, and requires an annual commitment fee based on margin ratios that could result in a rate of 0.375% or 0.500% on the unused portion of the commitment. The credit facility matures on April 10, 2004. The lender's commitments under the credit facility will be reduced by $25 million on each of June 30, 2003 and September 30, 2003 and by $50 million on December 31, 2003. The total commitment under the credit facility is $375 million, but the credit facility contains covenants that limit our ability to incur debt (whether under the credit facility or from other sources). As of April 3, 2003 and March 28, 2002, we had no outstanding borrowings under the credit facility and borrowing capacity under the credit facility of approximately $363 million and $413 million, respectively.

        The credit facility includes several financial covenants. We are required to maintain (i) a maximum net indebtedness to annualized EBITDA ratio, as defined in the credit facility (generally, the ratio of the principal amount of outstanding indebtedness (less cash and equivalents) as of the last day of the most recent quarter to earnings for the most recent four quarters before interest, taxes, depreciation, amortization and other noncash charges, theatre closing or disposition costs, theatre opening costs, and gains or losses from asset sales, and including an annualized EBITDA calculation for any permanently closed, disposed of or acquired theatre on a pro forma basis as if such closure, disposition or acquisition occurred on the first day of the calculation period), of 5.0 to 1 as of April 3, 2003, (ii) a minimum cash flow coverage ratio, as defined in the credit facility (generally, the ratio of annualized EBITDA for the most recent four quarters to the sum of (A) consolidated interest expense for such period, (B) amounts paid as cash dividends, for the optional repurchase or redemption of subordinated debt or capital stock, or with respect to the principal amount of capitalized lease obligations during such period, plus (C) the current portion of debt with an original maturity exceeding one year as of the last day of the most recent quarter), of 1.40 to 1, and (iii) a maximum net senior indebtedness to annualized EBITDA ratio, as defined in the credit facility, of 3.50 to 1 as of April 3, 2003. The credit facility also generally imposes limitations on investments, the incurrence of additional indebtedness, creation of liens, changes of control, transactions with affiliates, dividends, mergers, investments, guarantees, asset sales, business activities and pledges.

        Covenants under the credit facility limit our ability to incur additional debt. The credit facility allows us to incur any amount of debt which qualifies as subordinated debt thereunder. If not qualified as subordinated debt under the credit facility, generally we are limited to no more than $75 million of new debt, subject to meeting our financial covenants.

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        Each of our significant subsidiaries (as defined in the credit facility), has guaranteed the credit facility. If at any time the ratio of our net senior indebtedness to annualized EBITDA exceeds 3.50 to 1, we and each of our subsidiaries that is a guarantor is obligated to pledge to the lenders under the credit facility all the capital stock of any subsidiary owned by such person and all of our and our subsidiaries' indebtedness owed to such person.

        On March 19, 1997, we sold $200 million aggregate principal amount of 9¹/2% senior subordinated notes due 2009. We used the net proceeds from the issuance of the notes due 2009 (approximately $194 million) to reduce borrowings under our credit facility. Interest on the notes due 2009 is payable on March 15 and September 15 of each year. The notes due 2009 are redeemable at our option, in whole or in part, at any time on or after March 15, 2002 at 104.75% of the principal amount thereof, declining ratably to 100% of the principal amount thereof on or after March 15, 2006, plus in each case interest accrued to the redemption date. The notes due 2009 are unsecured and are subordinated to all our existing and future senior indebtedness (as defined in the note indenture for the notes due 2009).

        On January 27, 1999, we sold $225 million aggregate principal amount of 9¹/2% senior subordinated notes due 2011. Net proceeds from the issuance of the notes due 2011 (approximately $219 million) were used to reduce borrowings under our credit facility. On March 29, 2002, we issued an additional $72.9 million aggregate principal amount of 9¹/2% senior subordinated notes due 2011 (with a fair value of $71.8 million) as part of our acquisition of GC Companies, Inc. The notes due 2011 bear interest at the rate of 9¹/2% per annum, payable February and August of each year. The notes due 2011 are redeemable at our option, in whole or in part, at any time on or after February 1, 2004 at 104.75% of the principal amount thereof, declining ratably to 100% of the principal amount thereof on or after February 1, 2007, plus in each case interest accrued to the redemption date. The notes due 2011 are unsecured and are subordinated to all our existing and future senior indebtedness (as defined in the note indenture for the notes due 2011). The notes due 2011 rank equally with our 9¹/2% senior subordinated notes due 2009.

        On January 16, 2002, we sold $175 million aggregate principal amount of 9⁷/8% senior subordinated notes due 2012. Net proceeds from the issuance of the notes due 2012 (approximately $168 million) were used to reduce borrowings under our credit facility, to pursue our current business strategy, including the acquisition of GC Companies, and for general corporate purposes. The notes due 2012 bear interest at the rate of 9⁷/8% per annum, payable in February and August of each year. The notes due 2012 are redeemable at our option, in whole or in part, at any time on or after February 1, 2007 at 104.938% of the principal amount thereof, declining ratably to 100% of the principal amount thereof on or after February 1, 2010, plus in each case interest accrued to the redemption date. The notes due 2012 are unsecured and are subordinated to all our existing and future senior indebtedness (as defined in the note indenture for the notes due 2012). The notes due 2012 rank equally with our 9¹/2% senior subordinated notes due 2009 and our 9¹/2% senior subordinated notes due 2011.

        The indentures relating to the notes allow us to incur all permitted indebtedness (as defined therein) without restriction, which includes all amounts borrowed under our credit facility. The indentures also allow us to incur any amount of additional debt as long as we can satisfy the coverage ratio of each indenture, both at the time of the event (under the indentures for the notes due 2009 and 2011) and after giving effect thereto on a pro forma basis (under each of the indentures). Under the indenture relating to the notes due 2009, the most restrictive of the indentures, we could borrow approximately $337 million as of April 3, 2003 in addition to permitted indebtedness (assuming an interest rate of 10% per annum on the additional borrowings). If we cannot satisfy the coverage ratios of the indentures, generally we can incur, in addition to amounts borrowed under the credit facility, no more than $75 million of new "permitted indebtedness" under the terms of the indenture relating to the notes due 2009, the most restrictive of the indentures.

        The indentures relating to the notes also contain covenants limiting dividends, purchases or redemptions of stock, transactions with affiliates, and mergers and sales of assets, and require us to make an offer

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to purchase the notes upon the occurrence of a change in control, as defined in the indentures. Upon a change of control, we would be required to make an offer to repurchase each holder's notes due 2009, notes due 2011 and notes due 2012 at a price equal to 101% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase. For additional information relating to covenants contained in the indentures governing the notes, see Note 5 in the Notes to Consolidated Financial Statements included in Part II Item 8. of this Form 10-K.

        As of April 3, 2003, we were in compliance with all financial covenants relating to the credit facility, the notes due 2009, 2011 and 2012.

        On April 19, 2001, we issued shares of Series A Convertible Preferred Stock and Series B Exchangeable Preferred Stock for an aggregate purchase price of $250 million. Net proceeds from the sale (including transaction expenses) of approximately $225 million were used to reduce outstanding indebtedness under our credit facility. On September 13, 2001, pursuant to the certificate of designations relating to the Preferred Stock, all shares of Series B Exchangeable Preferred Stock were exchanged for an equal number of shares of Series A Convertible Preferred Stock. Dividends on the Series A Convertible Preferred Stock accumulate at an annual rate of 6.75% and are payable in additional shares of Series A Convertible Preferred Stock until April 2004. At our option, dividends on Series A Convertible Preferred Stock may be paid in cash or additional shares of Series A Convertible Preferred Stock from April 2004 until April 2008. Thereafter, dividends must be paid in cash unless prohibited by the Indentures for the Notes due 2009 and the Notes due 2011, in which case such dividends are payable in additional Series A Preferred Shares. Reference is made to Note 6 to the Consolidated Financial Statements included under Part II Item 8. of this Annual Report on Form 10-K for information describing circumstances in which holders of Series A Convertible Preferred Stock may be entitled to special in-kind dividends and other circumstances under which holders of Series A Convertible Preferred Stock may be required to receive payments-in-kind in lieu of cash and Series B Exchangeable Preferred Stock instead of Series A Convertible Preferred Stock. Our investment agreement with the Apollo Purchasers generally requires that we obtain their consent before we issue stock, pay cash dividends or incur indebtedness (other than ordinary course borrowings under our credit facility and certain other permitted debt) as long as they continue to hold a majority of the shares of Preferred Stock that they purchased. In addition, the certificate of designations for our Preferred Stock prohibits us from incurring any debt that would restrict our ability to pay dividends on the Preferred Stock in the manner required under the certificate of designations without the consent of the holder or holders of a majority of the shares of outstanding Preferred Stock (currently the Apollo Purchasers).

        On March 19, 2002, we completed a public offering of 9,000,000 shares of Common Stock at a public offering price of $10.50 per share and granted the underwriters a 30 day option to purchase an additional 1,350,000 shares of Common Stock at $10.50 per share to cover over-allotments. On March 28, 2002, the underwriters exercised their option to purchase these shares. Net proceeds from the offering of the shares of Common Stock of $100.8 million were used to fund the acquisition of GC Companies and will be used to pursue our current business strategy, including acquisitions of other theatres and theatre circuits.

        On March 29, 2002, we acquired GC Companies pursuant to a stock purchase agreement and a plan of reorganization that was confirmed by the bankruptcy court on March 18, 2002. Our purchase price of $169.2 million (net of $6.5 million from the sale of GC Companies' portfolio of venture capital investments on the effective date) includes anticipated cash payments of $70.7 million, the issuance of $72.9 million aggregate principal amount of 9¹/2% Senior Subordinated Notes due 2011 with a fair value of $71.8 million and the issuance of 2.4 million shares of common stock with an aggregate fair value of $33.2 million based on a fair value of $13.64 per share (the closing price per share on the effective date of the plan). We used (or will use) available cash from our sales of senior subordinated notes and common stock in fiscal 2002 for the cash payments under the plan of reorganization.

        The purchase price for GC Companies is based on current estimates of the amount of "deduction claims" under the plan. The exact purchase price will not be determinable until all creditor claims disputed

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by the GC Companies post-confirmation unsecured creditors committee are consensually resolved or are determined by the bankruptcy court, and that process is ongoing. Through April 3, 2003, we have issued $72.9 million aggregate principal amount of our senior subordinated notes due 2011 and 2.4 million shares of our common stock and paid approximately $64 million in cash to creditors of GC Companies. Under the plan, an increase in the amount of deduction claims, which are paid in cash, will reduce the amount of common stock we issue to unsecured creditors, and vice versa. Although the purchase price should not change materially as a result of the resolution of disputed claims, the ultimate amount of cash and common stock components may vary from our current estimates. Under the plan of reorganization, reorganized GC Companies and its reorganized subsidiaries retained liability for certain trade payables and other current liabilities not discharged in the bankruptcy. Reorganized GC Companies continues to have certain obligations to retirees and certain of GC Companies' executory contracts and unexpired leases were assumed by reorganized GC Companies or one of its reorganized subsidiaries.

        Minimum annual cash payments required under existing capital and financing lease obligations, maturities of corporate borrowings, future minimum rental payments under existing operating leases, FF&E and leasehold purchase provisions and National Cinema Network ("NCN") exhibitor share commitments that have initial or remaining non-cancelable terms in excess of one year as of April 3, 2003 are as follows:

        We believe that cash generated from operations, existing cash and equivalents, expected reimbursements from developers and the available commitment amount under our credit facility will be sufficient to fund operations and planned capital expenditures for at least the next twelve months and enable us to maintain compliance with covenants related to the credit facility and the notes. However, the performance of films licensed by us and unforeseen changes in operating requirements could affect the ability to continue our business strategy as well as comply with certain financial covenants.

Deferred Tax Assets

        We have recorded net current and non-current deferred tax assets in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, of approximately $187 million (net of valuation allowance of $9.1 million) as of April 3, 2003, and estimate that we must generate at least $476 million of future taxable income to realize those deferred tax assets. To achieve this level of future taxable income, we intend to pursue our current business strategy that includes expansion of our theatre circuit through selective new builds and acquisitions, closure of underperforming theatres and implementation of initiatives to increase revenues and control costs. The theatrical exhibition industry is cyclical, and we believe that we are capable of generating sufficient future taxable income to utilize our deferred tax assets.

        We believe it is more likely than not that we will realize future taxable income sufficient to utilize our deferred tax assets except as follows. As of April 3, 2003, we believe it is more likely than not that deferred

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tax assets related to certain state tax net operating loss carryforwards and certain net operating loss carryforwards of foreign subsidiaries in the amount of approximately $37 million (expiring 2007 through 2022) and $21 million (expiring in 2004 through 2009), respectively, will not be realized due to uncertainties as to the timing and amounts of related future taxable income. Accordingly, a valuation allowance of $9.1 million was established as of April 3, 2003. We have made estimates of our future taxable income based on expected increases in attendance and ticket and concession prices. We currently estimate taxable income of $20.3 million in fiscal 2003 and had reported taxable income of $7.3 million in fiscal 2002. Based on expected future reversals of our temporary differences and estimates of future taxable income, we believe it is more likely than not that we will have generated sufficient taxable income by the end of fiscal year 2011 to enable us to realize our deferred tax assets recorded as of April 3, 2003. Our estimates of future taxable income require significant amounts of management judgment and estimation and actual results could differ from estimated amounts. See "Forward-Looking Statements" for factors which may cause actual results to differ from our expectations. Accordingly, while we believe it is more likely than not that we will realize future taxable income sufficient to realize our net current and non-current deferred tax asset of $187 million, it is possible that these deferred taxes may not be realized in the future.

        The table below reconciles loss before income taxes and cumulative effect of an accounting change for financial statement purposes with taxable income (loss) for income tax purposes.

        Our foreign subsidiaries have net operating loss carryforwards in Spain, Japan and the United Kingdom aggregating approximately $40 million, $17 million of which may be carried forward indefinitely and the balance of which expires from 2008 through 2013. Our federal income tax loss carryforward of $88 million expires in 2020 and 2021 and will be limited to approximately $20 million annually due to the sale of Preferred Stock and the acquisition of GC Companies, Inc. State net operating loss carryforwards of approximately $62 million may be used over various periods ranging from five to 20 years.

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        We anticipate that net temporary differences should reverse and become available as tax deductions as follows:

Impact of Inflation

        Historically, the principal impact of inflation and changing prices upon us has been to increase the costs of the construction of new theatres, the purchase of theatre equipment, rent and the utility and labor costs incurred in connection with continuing theatre operations. Film exhibition costs, our largest cost of operations, are customarily paid as a percentage of admissions revenues and hence, while the film exhibition costs may increase on an absolute basis, the percentage of admissions revenues represented by such expense is not directly affected by inflation. Except as set forth above, inflation and changing prices have not had a significant impact on our total revenues and results of operations.

New Accounting Pronouncements

        In July 2001, the Financial Accounting Standards Board ("FASB") issued two new standards: Statement of Financial Accounting Standards No. 141 ("SFAS No. 141") Business Combinations and SFAS No. 142 Goodwill and Other Intangible Assets. SFAS No. 141 requires that all business combinations be accounted for using one method (the purchase method) and prescribes criteria for the initial recognition and measurement of goodwill and other intangible assets. SFAS No. 141 is effective for all business combinations completed after June 30, 2001.

        SFAS No. 142 establishes new guidelines for accounting for goodwill and other intangible assets. The provisions of SFAS No. 142 state that goodwill and indefinite-lived intangible assets will no longer be amortized and that goodwill and indefinite-lived intangible assets will be tested for impairment at least annually. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. SFAS No. 142 became effective for us in fiscal 2003. However, goodwill and intangible assets acquired after June 30, 2001, were subject immediately to the non-amortization and amortization provisions. Adoption of SFAS No. 141 and SFAS No. 142 did not have a material impact on our consolidated financial position, results of operations or cash flows.

        In August 2001, the FASB issued SFAS No. 143 Accounting for Asset Retirement Obligations. SFAS No. 143 addresses the recognition and remeasurement of obligations associated with the retirement of a tangible long-lived asset. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. SFAS No. 143 will become effective for us in fiscal 2004. Adoption of SFAS No. 143 is not expected to have a material impact on our consolidated financial position, results of operations or cash flows.

        In October 2001, the FASB issued SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 applies to all long-lived assets (excluding goodwill) and discontinued operations and develops one accounting model for long-lived assets that are to be disposed of by sale. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. SFAS No. 144 became effective for us in fiscal 2003. Adoption of SFAS No. 144 did not have a material impact on our consolidated financial position, results of operations or cash flows.

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        In June 2002, the FASB issued SFAS No. 146 Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and requires that the liabilities associated with these costs be recorded at their fair value in the period in which the liability is incurred. SFAS No. 146 was effective for us for disposal activities initiated after December 31, 2002 and did not have a material impact on our consolidated financial position, results of operations or cash flows.

        In December 2002, the FASB issued SFAS No. 148 Accounting for Stock-Based Compensation—Transition and Disclosure. SFAS No. 148 amends SFAS No. 123 Accounting for Stock-Based Compensation to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS No. 148 became effective for us in fiscal year 2003 and will be effective for interim periods in fiscal year 2004.

        In April 2003, the FASB issued SFAS No. 149 Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, except as stated below, and for hedging relationships designated after June 30, 2003. In addition, except as stated below, all provisions of SFAS No. 149 should be applied prospectively. The provisions of SFAS No. 149 relating to SFAS No. 133 Implementation Issues that have been effective for fiscal quarters beginning prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. Adoption of SFAS No. 149 is not expected to have a material impact on our consolidated financial position, results of operations or cash flows.

        In May 2003, the FASB issued SFAS No. 150 Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of these instruments were previously classified as temporary equity. SFAS No. 150 will be effective for financial instruments entered into or modified after May 31, 2003, and otherwise shall be effective at the beginning of the first interim period beginning after June 15, 2003. For financial instruments created before the issuance date of SFAS No. 150 and still existing at the beginning of the interim period of adoption, transition shall be achieved by reporting the cumulative effect of a change in accounting principle by initially measuring the financial instruments at fair value or other measurement attribute required by SFAS No. 150. Instruments with characteristics of both liabilities and equity not addressed in SFAS No. 150 will be addressed in the next phase of the project. Adoption of SFAS No. 150 is not expected to have a material impact on our consolidated financial position, results of operations or cash flows.

        In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. This interpretation elaborates on the disclosures to be made by a guarantor in interim and annual financial statements about the obligations under certain guarantees. We adopted the disclosure provisions of FASB Interpretation No. 45 on December 15, 2002. FASB Interpretation No. 45 also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. We do not currently provide significant guarantees on a routine basis. As a result, this interpretation did not have a material impact on our financial statements. To the extent that we enter into any such guarantees after

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December 31, 2002, we will record the fair value as a liability and an offsetting amount for an asset or expense depending on the circumstances in which the guarantee was issued.

        In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities. This interpretation addresses the consolidation of business enterprises (variable interest entities) to which the usual condition of consolidation does not apply. This interpretation focuses on financial interests that indicate control. It concludes that in the absence of clear control through voting interests, a company's exposure (variable interest) to the economic risks and potential rewards from the variable interest entity's assets and activities are the best evidence of control. Variable interests are rights and obligations that convey economic gains or losses from changes in the values of the variable interest entity's assets and liabilities. Variable interests may arise from financial instruments, service contracts, nonvoting ownership interests and other arrangements. If an enterprise holds a majority of the variable interests of an entity, it would be considered the primary beneficiary. The primary beneficiary would be required to include assets, liabilities and the results of operations of the variable interest entity in its financial statements. This interpretation applies immediately to variable interest entities that are created, or for which control is obtained after, January 31, 2003. For variable interest entities created prior to February 1, 2003, the provisions would be applied effective July 1, 2003.

        We have entered into operating leases with landlords and sale leaseback transactions with landlords that have been accounted for as operating leases and as transactions that qualify for the use of sale leaseback accounting. Certain of these landlord relationships are considered variable interests, and it is possible that we may be required to consolidate such variable interest entities when FASB Interpretation No. 46 becomes effective on July 1, 2003. The difference between consolidation and operating lease and or sale leaseback accounting treatment could increase the amount of assets and indebtedness on our consolidated financial statements related to properties that we currently lease. We are in the process of identifying those landlords that qualify as variable interest entities and those situations where we are the primary beneficiary, if any.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

        We are exposed to various market risks including interest rate risk and foreign currency exchange rate risk. We do not hold any significant derivative financial instruments.

        Market risk on variable-rate financial instruments.    We maintain a $375,000,000 credit facility, which permits borrowings at interest rates based on either the bank's base rate or LIBOR. Increases in market interest rates would cause interest expense to increase and earnings before income taxes to decrease. The change in interest expense and earnings before income taxes would be dependent upon the weighted average outstanding borrowings during the reporting period following an increase in market interest rates. Because we had no borrowings on our credit facility as of April 3, 2003, a 100 basis point increase in market interest rates would have no effect on annual interest expense or earnings before income taxes.

        Market risk on fixed-rate financial instruments.    Included in long-term debt are $200,000,000 of 9¹/2% Senior Subordinated Notes due 2009, $297,880,000 of 9¹/2% Senior Subordinated Notes due 2011 and $175,000,000 of 9⁷/8% Senior Subordinated Notes due 2012. Increases in market interest rates would generally cause a decrease in the fair value of the notes due 2009, 2011 and 2012 and a decrease in market interest rates would generally cause an increase in fair value of the Notes due 2009, 2011 and 2012.

        Foreign currency exchange rates.    We currently operate theatres in Canada, Portugal, Spain, France, Japan, Sweden, China (Hong Kong) and the United Kingdom. As a result of these operations, we have assets, liabilities, revenues and expenses denominated in foreign currencies. The strengthening of the U.S. dollar against the respective currencies causes a decrease in the carrying values of assets, liabilities, revenues and expenses denominated in such foreign currencies and the weakening of the U.S. dollar against the respective currencies causes an increase in the carrying values of these items. The increases and

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decreases in assets, liabilities, revenues and expenses are included in accumulated other comprehensive income. Changes in foreign currency exchange rates also impact the comparability of earnings in these countries on a year-to-year basis. As the U.S. dollar strengthens, comparative translated earnings decrease, and as the U.S. dollar weakens comparative translated earnings from foreign operations increase. Although we do not currently hedge against foreign currency exchange rate risk, we do not intend to repatriate funds from the operations of our international theatres but instead intend to use them to fund current and future operations. A 10% fluctuation in the value of the U.S. dollar against all foreign currencies of countries where we currently operate theatres would either increase or decrease loss before income taxes and accumulated other comprehensive loss by approximately $4.8 million and $12.5 million, respectively.

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Item 8.  Financial Statements and Supplementary Data.

RESPONSIBILITY FOR PREPARATION OF FINANCIAL STATEMENTS
AMC Entertainment Inc.

TO THE STOCKHOLDERS OF AMC ENTERTAINMENT INC.

The accompanying consolidated financial statements and related notes of AMC Entertainment Inc. and subsidiaries were prepared by management in conformity with accounting principles generally accepted in the United States of America appropriate in the circumstances. In preparing the financial statements, management has made judgments and estimates based on currently available information. Management is responsible for the information; representations contained elsewhere in this Annual Report are consistent with the financial statements.

The Company has a formalized system of internal accounting controls designed to provide reasonable assurance that assets are safeguarded and that its financial records are reliable. Management monitors the system for compliance to measure its effectiveness and recommends possible improvements. The Company has a formalized system of internal accounting controls designed to provide reasonable assurance that assets are safeguarded and that its financial records are reliable. Management monitors the system for compliance to measure its effectiveness and recommends possible improvements. As part of their audit of the consolidated financial statements, the Company's independent accountants consider our internal controls over financial reporting solely for the purpose of determining the nature, extent and timing of audit tests to be applied.

The Audit Committee of the Board of Directors (consisting solely of Directors from outside the Company) reviews the process involved in the preparation of the Company's annual audited financial statements, and in this regard meets (jointly and separately) with the independent accountants, management and internal auditors to review matters relating to financial reporting and accounting procedures and policies, the adequacy of internal controls and the scope and results of the audit performed by the independent accountants.

/s/ Peter C. Brown

Chairman of the Board, Chief Executive Officer
and President

/s/ Craig R. Ramsey

Executive Vice President and
Chief Financial Officer

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REPORT OF INDEPENDENT AUDITORS

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF AMC ENTERTAINMENT INC.
KANSAS CITY, MISSOURI

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders' equity (deficit) and of cash flows present fairly, in all material respects, the financial position of AMC Entertainment Inc. and subsidiaries (the "Company") at April 3, 2003 and March 28, 2002, and the results of their operations and their cash flows for each of the three fiscal years in the period ended April 3, 2003 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 1 to the financial statements, the Company adopted Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, retroactive to the beginning of fiscal year 2001.

/s/ PricewaterhouseCoopers LLP

Kansas City, Missouri
May 27, 2003

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AMC Entertainment Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS