Attached files
file | filename |
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EX-4.1 - EXHIBIT 4.1 - AMC ENTERTAINMENT INC | a2199756zex-4_1.htm |
EX-4.2 - EXHIBIT 4.2 - AMC ENTERTAINMENT INC | a2199756zex-4_2.htm |
EX-31.1 - EX-31.1 - AMC ENTERTAINMENT INC | a2199756zex-31_1.htm |
EX-32.1 - EX-32.1 - AMC ENTERTAINMENT INC | a2199756zex-32_1.htm |
EX-3.10 - EXHIBIT 3.10 - AMC ENTERTAINMENT INC | a2199756zex-3_10.htm |
EX-3.3.8 - EXHIBIT 3.3.8 - AMC ENTERTAINMENT INC | a2199756zex-3_38.htm |
EX-31.2 - EX-31.2 - AMC ENTERTAINMENT INC | a2199756zex-31_2.htm |
EX-4.3 - EXHIBIT 4.3 - AMC ENTERTAINMENT INC | a2199756zex-4_3.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One) | ||
ý |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the quarterly period ended July 1, 2010 |
||
OR |
||
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the transition period from to |
Commission file number 1-8747
AMC ENTERTAINMENT INC.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) |
43-1304369 (I.R.S. Employer Identification No.) |
|
920 Main Kansas City, Missouri (Address of principal executive offices) |
64105 (Zip Code) |
(816) 221-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer ý (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Title of Each Class of Common Stock | Number of Shares Outstanding as of July 1, 2010 |
|
---|---|---|
Common Stock, 1¢ par value | 1 |
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
INDEX
2
Item 1. Financial Statements. (Unaudited)
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
|
Thirteen Weeks Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
July 1, 2010 | July 2, 2009 | ||||||||
|
(unaudited) |
|||||||||
Revenues |
||||||||||
Admissions |
$ | 448,597 | $ | 446,227 | ||||||
Concessions |
175,959 | 173,660 | ||||||||
Other theatre |
16,396 | 15,425 | ||||||||
Total revenues |
640,952 | 635,312 | ||||||||
Costs and Expenses |
||||||||||
Film exhibition costs |
238,823 | 249,101 | ||||||||
Concession costs |
20,496 | 19,165 | ||||||||
Operating expense |
147,641 | 150,177 | ||||||||
Rent |
114,554 | 112,373 | ||||||||
General and administrative: |
||||||||||
Merger, acquisition and transaction costs |
5,756 | 178 | ||||||||
Management fee |
1,250 | 1,250 | ||||||||
Other |
13,071 | 13,038 | ||||||||
Depreciation and amortization |
48,603 | 48,788 | ||||||||
Total costs and expenses |
590,194 | 594,070 | ||||||||
Other expense (income) |
||||||||||
Other expense (income) |
(1,939 | ) | 8,773 | |||||||
Interest expense |
||||||||||
Corporate borrowings |
33,019 | 28,299 | ||||||||
Capital and financing lease obligations |
1,383 | 1,413 | ||||||||
Equity in (earnings) loss of non-consolidated entities |
1,766 | (6,262 | ) | |||||||
Investment income |
(50 | ) | (98 | ) | ||||||
Total other expense |
34,179 | 32,125 | ||||||||
Earnings from continuing operations before income taxes |
16,579 | 9,117 | ||||||||
Income tax provision |
6,950 | 1,200 | ||||||||
Earnings from continuing operations |
9,629 | 7,917 | ||||||||
Earnings (loss) from discontinued operations, net of income taxes |
(17 | ) | 723 | |||||||
Net earnings |
$ | 9,612 | $ | 8,640 | ||||||
See Notes to Consolidated Financial Statements.
3
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
|
July 1, 2010 | April 1, 2010 | |||||||
---|---|---|---|---|---|---|---|---|---|
|
(unaudited) |
||||||||
ASSETS |
|||||||||
Current assets: |
|||||||||
Cash and equivalents |
$ | 285,702 | $ | 495,343 | |||||
Receivables, net |
42,094 | 25,545 | |||||||
Other current assets |
87,364 | 73,312 | |||||||
Total current assets |
415,160 | 594,200 | |||||||
Property, net |
1,013,635 | 863,532 | |||||||
Intangible assets, net |
162,134 | 148,432 | |||||||
Goodwill |
1,907,085 | 1,814,738 | |||||||
Other long-term assets |
350,061 | 232,275 | |||||||
Total assets |
$ | 3,848,075 | $ | 3,653,177 | |||||
LIABILITIES AND STOCKHOLDER'S EQUITY |
|||||||||
Current liabilities: |
|||||||||
Accounts payable |
$ | 194,335 | $ | 175,142 | |||||
Accrued expenses and other liabilities |
150,487 | 139,581 | |||||||
Deferred revenues and income |
124,735 | 125,842 | |||||||
Current maturities of corporate borrowings and capital and financing lease obligations |
10,261 | 10,463 | |||||||
Total current liabilities |
479,818 | 451,028 | |||||||
Corporate borrowings |
1,825,015 | 1,826,354 | |||||||
Capital and financing lease obligations |
65,118 | 53,323 | |||||||
Deferred revenuesfor exhibitor services agreement |
362,910 | 252,322 | |||||||
Other long-term liabilities |
343,397 | 309,591 | |||||||
Total liabilities |
$ | 3,076,258 | $ | 2,892,618 | |||||
Commitments and contingencies |
|||||||||
Stockholder's equity: |
|||||||||
Common Stock, 1 share issued with 1¢ par value |
| | |||||||
Additional paid-in capital |
828,823 | 828,687 | |||||||
Accumulated other comprehensive loss |
(1,666 | ) | (3,176 | ) | |||||
Accumulated deficit |
(55,340 | ) | (64,952 | ) | |||||
Total stockholder's equity |
771,817 | 760,559 | |||||||
Total liabilities and stockholder's equity |
$ | 3,848,075 | $ | 3,653,177 | |||||
See Notes to Consolidated Financial Statements.
4
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
Thirteen Weeks Ended | ||||||||
---|---|---|---|---|---|---|---|---|---|
|
July 1, 2010 | July 2, 2009 | |||||||
|
(unaudited) |
||||||||
INCREASE (DECREASE) IN CASH AND EQUIVALENTS |
|||||||||
Cash flows from operating activities: |
|||||||||
Net earnings |
$ | 9,612 | $ | 8,640 | |||||
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|||||||||
Depreciation and amortization |
48,603 | 48,788 | |||||||
Write-off of issuance costs related to early extinguishment of debt |
| 3,312 | |||||||
Excess distributions/(Equity in (earnings) losses from investments, net of distributions) |
3,686 | 2,163 | |||||||
Gain on dispositions |
(10,056 | ) | (823 | ) | |||||
Change in assets and liabilities, net of acquisition: |
|||||||||
Receivables |
(14,232 | ) | (11,604 | ) | |||||
Other assets |
(1,147 | ) | (552 | ) | |||||
Accounts payable |
8,199 | 26,463 | |||||||
Accrued expenses and other liabilities |
(8,264 | ) | 28,742 | ||||||
Other, net |
(1,102 | ) | 1,928 | ||||||
Net cash provided by operating activities |
35,299 | 107,057 | |||||||
Cash flows from investing activities: |
|||||||||
Capital expenditures |
(13,988 | ) | (7,307 | ) | |||||
Acquisition of Kerasotes, net of cash acquired |
(276,798 | ) | | ||||||
Proceeds from disposition of Cinemex |
876 | 2,904 | |||||||
Proceeds from the disposition of long-term assets |
55,000 | | |||||||
Other, net |
15 | (4,845 | ) | ||||||
Net cash used in investing activities |
(234,895 | ) | (9,248 | ) | |||||
Cash flows from financing activities: |
|||||||||
Repayment under revolving credit facility |
| (185,000 | ) | ||||||
Repurchase of Fixed Notes due 2012 |
| (238,065 | ) | ||||||
Proceeds from issuance of Senior Notes due 2019 |
| 585,492 | |||||||
Deferred financing costs |
(95 | ) | (14,411 | ) | |||||
Principal payments under capital and financing lease obligations |
(990 | ) | (855 | ) | |||||
Payments under Term Loan B |
(1,625 | ) | (1,625 | ) | |||||
Change in construction payables |
(7,737 | ) | (3,145 | ) | |||||
Dividends paid to Marquee Holdings Inc. |
| (300,000 | ) | ||||||
Net cash used in financing activities |
(10,447 | ) | (157,609 | ) | |||||
Effect of exchange rate changes on cash and equivalents |
402 | (1,111 | ) | ||||||
Net decrease in cash and equivalents |
(209,641 | ) | (60,911 | ) | |||||
Cash and equivalents at beginning of period |
495,343 | 534,009 | |||||||
Cash and equivalents at end of period |
$ | 285,702 | $ | 473,098 | |||||
See Notes to Consolidated Financial Statements.
5
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 1, 2010
(Unaudited)
NOTE 1BASIS OF PRESENTATION
AMC Entertainment Inc. ("AMCE" or the "Company") is an intermediate holding company, which, through its direct and indirect subsidiaries, including American Multi-Cinema, Inc. ("AMC") and its subsidiaries, and AMC Entertainment International, Inc. ("AMCEI") and its subsidiaries (collectively with AMCE, unless the context otherwise requires, the "Company"), is principally involved in the theatrical exhibition business and owns, operates or has interests in theatres located in the United States, Canada, China (Hong Kong), France and the United Kingdom.
AMCE is a wholly owned subsidiary of Marquee Holdings Inc. ("Holdings") an investment vehicle owned through AMC Entertainment Holdings, Inc. ("Parent") by J.P. Morgan Partners, LLC and certain related investment funds ("JPMP"), Apollo Management, L.P. and certain related investment funds ("Apollo") and affiliates of Bain Capital Partners ("Bain"), The Carlyle Group ("Carlyle") and Spectrum Equity Investors ("Spectrum") (collectively with JPMP and Apollo the "Sponsors").
The accompanying unaudited consolidated financial statements have been prepared in response to the requirements of Form 10-Q and should be read in conjunction with the Company's Annual report on Form 10-K for the year ended April 1, 2010. In the opinion of management, these interim financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the Company's financial position and results of operations. Due to the seasonal nature of the Company's business, results for the thirteen weeks ended July 1, 2010 are not necessarily indicative of the results to be expected for the fiscal year (52 weeks) ending March 31, 2011. The Company manages its business under one operating segment called Theatrical Exhibition.
Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are used for, but not limited to: (1) Impairments, (2) Goodwill, (3) Income Taxes, (4) Pension and Postretirement Assumptions and (5) Film Exhibition Costs. Actual results could differ from those estimates.
The April 1, 2010 consolidated balance sheet data was derived from the audited balance sheet included in the Form 10-K, but does not include all disclosures required by generally accepted accounting principles.
Presentation: Effective April 1, 2010, preopening expense, theatre and other closure expense (income), and disposition of assets and other losses (gains) were reclassified to operating expense with a conforming reclassification made for the prior year presentation. Additionally, in the Consolidated Statements of Cash Flows, certain operating activities were reclassified to other, net and certain investing activities were reclassified to other, net, with conforming reclassifications made for the prior year presentation. These presentation reclassifications reflect how management evaluates information presented in the Consolidated Statement of Operations and Consolidated Statements of Cash Flows.
NOTE 2ACQUISITION
On May 24, 2010, the Company completed the acquisition of substantially all of the assets (92 theatres and 928 screens) of Kerasotes Showplace Theatres, LLC ("Kerasotes"). Kerasotes operated 95
6
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
July 1, 2010
(Unaudited)
NOTE 2ACQUISITION (Continued)
theatres and 972 screens in mid-sized, suburban and metropolitan markets, primarily in the Midwest. More than three quarters of the Kerasotes theatres feature stadium seating and almost 90 percent have been built since 1994. The Company acquired Kerasotes based on their highly complementary geographic presence in certain key markets. Additionally, the Company expects to realize synergies and cost savings related to the Kerasotes acquisition as a result of moving to its operating practices, decreasing costs for newspaper advertising and concessions and general and administrative expense savings, particularly with respect to the consolidation of corporate related functions and elimination of redundancies. The purchase price for the Kerasotes theatres paid in cash at closing was $276,798,000, net of cash acquired, and is subject to working capital and other purchase price adjustments as described in the Unit Purchase Agreement. The Company expects to pay working capital and other purchase price adjustments of $3,808,000 during the second quarter of fiscal 2011, based on the final closing date working capital and deferred revenue amounts and has accrued for this amount as part of the total estimated purchase price.
The acquisition of Kerasotes is being treated as a purchase in accordance with Accounting Standards Topic 805, Business Combinations. The following is a summary of the allocation of the purchase price to the estimated fair values of assets and liabilities acquired in the transaction. The allocation of purchase price is based on management's judgment after evaluating several factors, including bid prices from potential buyers and a preliminary valuation assessment. The allocation of purchase price is preliminary and subject to changes as an appraisal of both tangible and intangible assets and liabilities is finalized and additional information becomes available:
(In thousands)
|
Total | |||
---|---|---|---|---|
Cash |
$ | 809 | ||
Receivables, net(1) |
3,832 | |||
Other current assets |
12,905 | |||
Property, net |
204,998 | |||
Intangible assets, net(2) |
17,425 | |||
Goodwill(3) |
109,233 | |||
Other long-term assets |
5,920 | |||
Accounts payable |
(12,980 | ) | ||
Accrued expenses and other liabilities |
(12,439 | ) | ||
Deferred revenues and income |
(1,690 | ) | ||
Capital and financing lease obligations |
(12,583 | ) | ||
Other long-term liabilities(4) |
(34,015 | ) | ||
Total estimated purchase price |
$ | 281,415 | ||
- (1)
- Receivables
consist of trade receivables recorded at fair value. The Company did not acquire any other class of receivables as a result of the acquisition
of Kerasotes.
- (2)
- Intangible assets consist of certain Kerasotes' trade names, a non-compete agreement, and favorable leases. See Note 4Goodwill and Intangible Assets for further information.
7
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
July 1, 2010
(Unaudited)
NOTE 2ACQUISITION (Continued)
- (3)
- Goodwill
arising from the acquisition consists largely of the synergies and economies of scale expected from combining the operations. Amounts recorded for
goodwill are not subject to amortization and are expected to be deductible for tax purposes.
- (4)
- Other long-term liabilities consist of certain theatre and ground leases that have been identified as unfavorable.
During the thirteen weeks ended July 1, 2010, the Company incurred acquisition-related costs of approximately $5,754,000 included in general and administrative expense: merger, acquisition and transaction costs in the Consolidated Statements of Operations.
In connection with the acquisition of Kerasotes, the Company divested of five Kerasotes theatres with 59 screens as required by the Antitrust Division of the United States Department of Justice. Proceeds from the divested theatres exceeded the carrying amount of such theatres by $16,886,000, which was recorded as a reduction to goodwill. In addition, the Company has classified two Kerasotes theatres with 26 screens as held for sale during the thirteen weeks ended July 1, 2010, that will be divested. Assets held for sale of approximately $9,020,000 were classified as other current assets in the Company's Consolidated Balance Sheets. The theatres are expected to be sold within the next 12 months.
The Company was also required by the Antitrust Division of the United States Department of Justice to divest of four legacy AMC theatres with 57 screens. The Company recorded a gain on disposition of assets of $10,056,000 for one divested legacy theatre with 14 screens during the thirteen weeks ended July 1, 2010, which reduced operating expenses by approximately $10,056,000. Additionally, the Company acquired two theatres with 26 screens that were received in exchange for three of the legacy AMC theatres with 43 screens.
The unaudited pro forma financial information presented below sets forth the Company's historical statements of operations for the periods indicated and gives effect to the acquisition as if the business combination and required divestitures had occurred as of the beginning of the respective periods. Such information is presented for comparative purposes to the Consolidated Statements of Operations only and does not purport to represent what the Company's results of operations would actually have been
8
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
July 1, 2010
(Unaudited)
NOTE 2ACQUISITION (Continued)
had these transactions occurred on the date indicated or to project its results of operations for any future period or date.
|
Thirteen Weeks Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
Pro forma July 1, 2010 | Pro forma July 2, 2009 | ||||||||
|
(unaudited) |
|||||||||
Revenues |
||||||||||
Admissions |
$ | 468,860 | $ | 491,740 | ||||||
Concessions |
185,295 | 194,679 | ||||||||
Other theatre |
17,226 | 17,402 | ||||||||
Total revenues |
671,381 | 703,821 | ||||||||
Costs and Expenses |
||||||||||
Film exhibition costs |
249,613 | 273,333 | ||||||||
Concession costs |
21,993 | 21,758 | ||||||||
Operating expense |
154,524 | 167,697 | ||||||||
Rent |
119,350 | 122,144 | ||||||||
General and administrative: |
||||||||||
Merger, acquisition and transaction costs* |
5,756 | 178 | ||||||||
Management fee |
1,250 | 1,250 | ||||||||
Other |
14,722 | 16,790 | ||||||||
Depreciation and amortization |
52,530 | 55,193 | ||||||||
Total costs and expenses |
619,738 | 658,343 | ||||||||
Other expense (income) |
||||||||||
Other expense (income) |
(1,939 | ) | 8,773 | |||||||
Interest expense |
||||||||||
Corporate borrowings |
33,019 | 28,299 | ||||||||
Capital and financing lease obligations |
1,599 | 1,629 | ||||||||
Equity in (earnings) loss of non-consolidated entities |
1,766 | (6,262 | ) | |||||||
Investment income |
(50 | ) | (98 | ) | ||||||
Total other expense |
34,395 | 32,341 | ||||||||
Earnings from continuing operations before income taxes |
17,248 | 13,137 | ||||||||
Income tax provision |
7,250 | 2,700 | ||||||||
Earnings from continuing operations |
9,998 | 10,437 | ||||||||
Earnings (loss) from discontinued operations, net of income taxes |
(17 | ) | 723 | |||||||
Net earnings |
$ | 9,981 | $ | 11,160 | ||||||
- *
- Primarily represents non-recurring transaction costs for the acquisition and related transactions.
The Company recorded revenues of approximately $35,700,000 from May 24, 2010 through July 1, 2010 resulting from the acquisition of Kerasotes, while total costs and expenses increased by
9
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
July 1, 2010
(Unaudited)
NOTE 2ACQUISITION (Continued)
approximately $34,200,000. Total costs and expenses include other expenses and non-recurring acquisition costs.
NOTE 3COMPREHENSIVE EARNINGS
The components of comprehensive earnings are as follows:
|
Thirteen Weeks Ended | ||||||
---|---|---|---|---|---|---|---|
(In thousands)
|
July 1, 2010 | July 2, 2009 | |||||
Net earnings |
$ | 9,612 | $ | 8,640 | |||
Foreign currency translation adjustment |
1,892 | (7,739 | ) | ||||
Pension and other benefit adjustments |
(62 | ) | (47 | ) | |||
Change in fair value of cash flow hedges |
| (6 | ) | ||||
Losses on interest rate swaps reclassified to interest expense: corporate borrowings |
| 558 | |||||
Increase (decrease) in unrealized gain on marketable securities |
(320 | ) | 255 | ||||
Total comprehensive earnings |
$ | 11,122 | $ | 1,661 | |||
NOTE 4GOODWILL AND INTANGIBLE ASSETS
Activity of goodwill is presented below.
(In thousands)
|
Total | ||||
---|---|---|---|---|---|
Balance as of April 1, 2010 |
$ | 1,814,738 | |||
Acquisition of Kerasotes |
109,233 | ||||
Goodwill allocated to sales(1) |
(16,886 | ) | |||
Balance as of July 1, 2010 |
$ | 1,907,085 | |||
- (1)
- Reduction in goodwill for sales of five Kerasotes theatres with 59 screens. Subsequent to the acquisition, the Company was required to sell certain acquired theatres to comply with government requirements related to the sale. No gains or losses were recorded for these transactions.
10
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
July 1, 2010
(Unaudited)
NOTE 4GOODWILL AND INTANGIBLE ASSETS (Continued)
Activity for intangible assets is presented below:
|
|
July 1, 2010 | April 1, 2010 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In thousands)
|
Remaining Useful Life |
Gross Carrying Amount |
Accumulated Amortization |
Gross Carrying Amount |
Accumulated Amortization |
|||||||||||
Acquired Intangible Assets: |
||||||||||||||||
Amortizable Intangible Assets: |
||||||||||||||||
Favorable leases |
2 to 17 years | $ | 110,231 | $ | (46,400 | ) | $ | 104,646 | $ | (44,127 | ) | |||||
Loyalty program |
3 years | 46,000 | (39,629 | ) | 46,000 | (38,870 | ) | |||||||||
Loews' trade name |
1 year | 2,300 | (2,035 | ) | 2,300 | (1,920 | ) | |||||||||
Loews' management contracts |
12 to 21 years | 35,400 | (29,299 | ) | 35,400 | (29,209 | ) | |||||||||
Non-compete agreement |
5 years | 6,400 | (140 | ) | | | ||||||||||
Other intangible assets |
1 to 12 years | 13,309 | (13,103 | ) | 13,309 | (13,097 | ) | |||||||||
Total, amortizable |
$ | 213,640 | $ | (130,606 | ) | $ | 201,655 | $ | (127,223 | ) | ||||||
Unamortizable Intangible Assets: |
||||||||||||||||
AMC trademark |
$ | 74,000 | $ | 74,000 | ||||||||||||
Kerasotes trade names |
5,100 | | ||||||||||||||
Total, unamortizable |
$ | 79,100 | $ | 74,000 | ||||||||||||
Additional information for Kerasotes intangible assets acquired on May 24, 2010 is presented below:
(In thousands)
|
Weighted Average Amortization Period | Gross Carrying Amount | |||||
---|---|---|---|---|---|---|---|
Acquired Intangible Assets: |
|||||||
Amortizable Intangible Assets: |
|||||||
Favorable leases |
9.5 years | $ | 5,585 | ||||
Non-compete agreement |
5 years | 6,400 | |||||
Total, amortizable |
7 years | $ | 11,985 | ||||
Unamortizable Intangible Assets: |
|||||||
Kerasotes trade names |
$ | 5,100 | |||||
Amortization expense associated with the Company's intangible assets is as follows:
|
Thirteen Weeks Ended | ||||||
---|---|---|---|---|---|---|---|
(In thousands)
|
July 1, 2010 | July 2, 2009 | |||||
Recorded amortization |
$ | 3,383 | $ | 4,199 |
Estimated amortization expense for the next five fiscal years for intangible assets owned as of July 1, 2010 is projected below:
(In thousands)
|
2011 | 2012 | 2013 | 2014 | 2015 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Projected amortization expense |
$ | 13,656 | $ | 12,868 | $ | 12,159 | $ | 9,779 | $ | 8,958 |
11
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
July 1, 2010
(Unaudited)
NOTE 5STOCKHOLDER'S EQUITY
AMCE has one share of Common Stock issued as of July 1, 2010, which is owned by Holdings. Holdings has one share of Common Stock issued as of July 1, 2010, which is owned by Parent.
Stock-Based Compensation
The Company has no stock-based compensation arrangements of its own, but Parent has adopted a stock-based compensation plan that permits a maximum of 49,107.44681 options to be issued on Parent's stock under the amended and restated 2004 Stock Option Plan. The stock options have a ten year term and generally step vest in equal amounts from one to three or five years from the date of the grant. Vesting may accelerate for a certain participant if there is a change of control (as defined in the plan). All outstanding options have been granted to employees and one director of the Company. The Company accounts for stock options using the fair value method of accounting and has elected to use the simplified method for estimating the expected term of "plain vanilla" share option grants, as it does not have enough historical experience to provide a reasonable estimate.
The Company has recorded stock-based compensation expense of $136,000 and $411,000 within general and administrative: other during the thirteen weeks ended July 1, 2010, and July 2, 2009, respectively. The Company's financial statements reflect an increase to additional paid-in capital related to stock-based compensation for all outstanding options of $136,000 during fiscal 2011. As of July 1, 2010, there was approximately $2,030,000 of total estimated unrecognized compensation cost related to nonvested stock-based compensation arrangements under the Parent's plan expected to be recognized over approximately 4 years.
On July 8, 2010, the Board approved a grant of 1,023 non-qualified stock options to a certain employee of the Company under the amended and restated 2004 Stock Option Plan. These options vest ratably over 5 years with an exercise price of $752 per share. Expense for this award will be recognized over the vesting period, beginning in the second quarter of fiscal 2011. See 2010 Equity Incentive Plan below for further information regarding assumptions used in determining fair value. On July 23, 2010, the Board determined that the Company would no longer grant any awards of shares of common stock of the Company under the amended and restated 2004 Stock Option Plan on and after July 23, 2010.
2010 Equity Incentive Plan
On July 8, 2010, the Board of Directors (the "Board") of Parent and the stockholders of Parent approved the adoption of the AMC Entertainment Holdings, Inc. 2010 Equity Incentive Plan (the "Plan"). The Plan provides for grants of nonqualified stock options, incentive stock options, stock appreciation rights ("SARs"), restricted stock awards, other stock-based awards or performance-based compensation awards.
The aggregate number of shares of common stock of Parent available for delivery pursuant to awards granted under the Plan is 39,312 shares (subject to adjustment as provided in the Plan). Subject to adjustment as provided for in the Plan, (i) the number of shares available for granting incentive stock options under the Plan will not exceed 19,652 shares and (ii) the maximum number of shares that may be granted to a participant each year is 7,862. To the extent shares subject to an award are not issued or delivered by reason of (i) the expiration, cancellation, forfeiture or other termination of an
12
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
July 1, 2010
(Unaudited)
NOTE 5STOCKHOLDER'S EQUITY (Continued)
award, (ii) the withholding of such shares in satisfaction of applicable taxes or (iii) the settlement of all or a portion of an award in cash, then such shares will again be available for issuance under the Plan.
Award agreements under the Plan generally have the following features, subject to Parent's compensation committee:
-
- Non-Qualified Stock Option Award Agreement: 25% of the options will vest on each of the first four
anniversaries of the date of grant; provided, however, that the options will become fully vested and exercisable if within one year following a Change of Control (as defined in the Plan), the
participant's service is terminated by the Company without cause.
-
- Restricted Stock Award Agreement (Time Vesting): The restricted shares will become vested on the fourth anniversary of the
date of grant; provided, however, that the restricted shares will become fully vested if within one year following a Change of Control, the participant's service is terminated by the Company without
cause.
-
- Restricted Stock Award Agreement (Performance Vesting): 25% of the restricted shares will become vested in each year over a four-year period upon the Company meeting certain pre-established annual performance targets; provided, however, that the restricted shares will become fully vested if within one year following a Change of Control, the participant's service is terminated by the Company without cause.
On the date the Board adopted the Plan, the Board approved the grants of 5,399 non-qualified stock options, 5,399 shares of restricted stock (time vesting), and 5,404 shares of restricted stock (performance vesting) to certain of its employees. The estimated fair value of the stock at the grant date was $752 per share and was based upon a contemporaneous valuation reflecting market conditions. Expense for these awards will be recognized over the respective performance and vesting periods, beginning in the second quarter of fiscal 2011.
The following table reflects the weighted average fair value per option granted under the amended and restated 2004 Option Plan and the 2010 Equity Incentive Plan during the second quarter of fiscal 2011, as well as the significant assumptions used in determining weighted average fair value using the Black-Scholes option-pricing model:
|
2010 Plan | 2004 Plan | |||||
---|---|---|---|---|---|---|---|
Weighted average fair value of options on grant date |
$ | 293.72 | $ | 300.91 | |||
Risk-free interest rate |
2.50 | % | 2.58 | % | |||
Expected life (years) |
6.25 | 6.50 | |||||
Expected volatility(1) |
35.0 | % | 35.0 | % | |||
Expected dividend yield |
| |
- (1)
- The Company uses share values of its publicly traded competitor peer group for purposes of calculating volatility.
13
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
July 1, 2010
(Unaudited)
NOTE 6INVESTMENTS
Investments in non-consolidated affiliates and certain other investments accounted for following the equity method generally include all entities in which the Company or its subsidiaries have significant influence, but not more than 50% voting control. Investments in non-consolidated affiliates as of July 1, 2010, include a 23.05% interest in National CineMedia, LLC ("NCM"), a 50% interest in three U.S. motion picture theatres, a 26% equity interest in Movietickets.com ("MTC"), a 50% interest in Midland Empire Partners, LLC ("MEP") and a 29% interest in Digital Cinema Implementation Partners, LLC ("DCIP").
Condensed financial information of our non-consolidated equity method investments is shown below. Amounts are presented under U.S. GAAP for the periods of ownership by the Company.
Operating Results (1):
|
For the thirteen weeks ended July 1, 2010 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In thousands)
|
NCM | DCIP | Other | Total | |||||||||
Revenues |
$ | 98,998 | $ | 5,286 | $ | 10,688 | $ | 114,972 | |||||
Operating costs and expenses |
71,452 | 23,440 | 10,455 | 105,347 | |||||||||
Net earnings (loss) |
$ | 27,546 | $ | (18,154 | ) | $ | 233 | $ | 9,625 | ||||
The Company's recorded equity in earnings (loss) |
$ | 3,458 | $ | (5,169 | ) | $ | (55 | ) | $ | (1,766 | ) |
|
For the thirteen weeks ended July 2, 2009 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In thousands)
|
NCM | DCIP | Other | Total | |||||||||
Revenues |
$ | 92,898 | $ | | $ | 10,606 | $ | 103,504 | |||||
Operating costs and expenses |
60,438 | 2,513 | 11,085 | 74,036 | |||||||||
Net earnings (loss) |
$ | 32,460 | $ | (2,513 | ) | $ | (479 | ) | $ | 29,468 | |||
The Company's recorded equity in earnings (loss) |
$ | 7,366 | $ | (838 | ) | $ | (266 | ) | $ | 6,262 |
- (1)
- Certain differences in the Company's recorded investment over its proportional ownership share are amortized to equity in (earnings) or losses over the estimated useful life of the underlying assets or liabilities. The recorded equity in earnings of NCM on common membership units owned immediately following the IPO of NCM, Inc. (Tranche 1 Investment) does not include undistributed equity in earnings. The Company considered the excess distribution received following NCM, Inc.'s IPO as an advance on NCM's future earnings. As a result, the Company will not recognize any undistributed equity in earnings of NCM on the original common membership units (Tranche 1 Investment) until NCM's future net earnings equal the amount of the excess distribution.
As of July 1, 2010, the Company owns 25,458,613 units, or a 23.05% interest, in NCM accounted for following the equity method of accounting. The estimated fair market value of the units in National CineMedia, LLC was approximately $442,216,000, based on a price for shares of National CineMedia, Inc. on July 1, 2010 of $17.37 per share.
14
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
July 1, 2010
(Unaudited)
NOTE 6INVESTMENTS (Continued)
As of July 1, 2010 and April 1, 2010, the Company has recorded $2,170,000 and $1,462,000 respectively, of amounts due from NCM related to on-screen advertising revenue. As of July 1, 2010 and April 1, 2010, the Company had recorded $1,911,000 and $1,502,000 respectively, of amounts due to NCM related to the Exhibitors Services Agreement. The Company recorded revenues for advertising from NCM of $5,419,000 and $5,416,000 during the thirteen weeks ended July 1, 2010 and July 2, 2009, respectively. The Company recorded advertising expenses related to a beverage advertising agreement paid to NCM of $3,264,000 and $3,206,000 during the thirteen weeks ended July 1, 2010 and July 2, 2009, respectively.
The Company recorded the following changes in the carrying amount of its investment in NCM and equity in (earnings) losses of NCM during the thirteen weeks ended July 1, 2010:
(In thousands)
|
Investment in NCM(1) |
Deferred Revenue(2) |
Cash Received (Paid) |
Equity in (Earnings) Losses |
Advertising (Revenue) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Beginning balance April 1, 2010 |
$ | 28,826 | $ | (252,322 | ) | $ | | $ | | $ | | |||||
Receipt of Common Units(3) |
111,520 | (111,520 | ) | | | | ||||||||||
Receipt of excess cash distribution |
(148 | ) | | 1,920 | (1,772 | ) | | |||||||||
Amortization of deferred revenue |
| 932 | | | (932 | ) | ||||||||||
Equity in earnings(4) |
1,686 | | | (1,686 | ) | | ||||||||||
Ending balance July 1, 2010 |
$ | 141,884 | $ | (362,910 | ) | $ | 1,920 | $ | (3,458 | ) | $ | (932 | ) | |||
- (1)
- Represents
AMC's investment in 939,853 common membership units originally valued at March 27, 2008 and 406,371 common membership units originally
valued at March 17, 2009, 127,290 common membership units originally valued at March 17, 2010, and 6,510,209 common membership units originally valued at June 14, 2010 received
under the Common Unit Adjustment Agreement dated as of February 13, 2007 (Tranche 2 Investments). AMC's investment in 17,474,890 common membership units (Tranche 1 Investment) is
carried at zero cost.
- (2)
- Represents
the unamortized portion of the Exhibitors Services Agreement (ESA) modifications payment received from NCM. Such amounts are being amortized to
revenues over the remainder of the 30 year term of the ESA ending in 2036.
- (3)
- Effective
June 14, 2010 and with a settlement date of June 28, 2010, the Company received 6,510,209 common membership units of NCM as a result
of an Extraordinary Common Unit Adjustment in connection with the Company's acquisition of Kerasotes. The Company recorded the additional units at a fair value of $111,520,000 with an offsetting
adjustment to deferred revenue.
- (4)
- Represents equity in earnings on the Tranche 2 Investments only.
NOTE 7FAIR VALUE MEASUREMENTS
Fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the entity transacts. The
15
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
July 1, 2010
(Unaudited)
NOTE 7FAIR VALUE MEASUREMENTS (Continued)
inputs used to develop these fair value measurements are established in a hierarchy, which ranks the quality and reliability of the information used to determine the fair values. The fair value classification is based on levels of inputs. Assets and liabilities that are carried at fair value are classified and disclosed in one of the following categories:
Level 1: | Quoted market prices in active markets for identical assets or liabilities. | |
Level 2: |
Observable market based inputs or unobservable inputs that are corroborated by market data. |
|
Level 3: |
Unobservable inputs that are not corroborated by market data. |
The following table summarizes the fair value hierarchy of the Company's financial assets and liabilities carried at fair value on a recurring basis as of July 1, 2010:
|
|
Fair Value Measurements at July 1, 2010 Using | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In thousands)
|
Total Carrying Value at July 1, 2010 |
Quoted prices in active market (Level 1) |
Significant other observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
|||||||||||
Assets: |
|||||||||||||||
Money Market Mutual Funds |
$ | 864 | $ | 864 | $ | | $ | | |||||||
Equity securities, available-for-sale: |
|||||||||||||||
RealD Inc. Common Stock |
6,522 | | 6,522 | | |||||||||||
Mutual Fund International |
2,193 | 2,193 | | | |||||||||||
Mutual Fund Large U.S. Equity |
128 | 128 | | | |||||||||||
Mutual Fund Small/Mid U.S. Equity |
208 | 208 | | | |||||||||||
Mutual Fund Other Equity |
21 | 21 | | | |||||||||||
Mutual Fund Fixed Income |
323 | 323 | | | |||||||||||
Total assets at fair value |
$ | 10,259 | $ | 3,737 | $ | 6,522 | $ | | |||||||
Liabilities: |
|||||||||||||||
Total liabilities at fair value |
$ | | $ | | $ | | $ | | |||||||
Valuation Techniques. The Company's money market mutual funds are invested in funds that seek to preserve principal, are highly liquid, and therefore are recorded on the balance sheet at the principal amounts deposited, which equals fair value. The equity securities primarily consist of common stock and mutual funds invested in equity, fixed income, and international funds. The money market funds are classified within Level 1 of the valuation hierarchy. The deferred compensation plan and non-qualified defined benefit plan assets are measured at fair value using quoted market prices and are classified within Level 1 of the valuation hierarchy. The fair value of the RealD common stock was determined using RealD's initial public offering price, which falls under Level 2 of the valuation hierarchy. The amortized cost basis of the equity securities held as of July 1, 2010 is $9,250,000.
16
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
July 1, 2010
(Unaudited)
NOTE 7FAIR VALUE MEASUREMENTS (Continued)
In connection with the RealD Inc. motion picture license agreement, the Company received a ten-year option to purchase 1,222,782 shares of RealD Inc. common stock at approximately $0.00667 per share. The stock options vest in 3 tranches upon the achievement of screen installation targets. During the first quarter of fiscal 2011, the Company vested in the first tranche and has exercised its option to purchase 407,594 shares of RealD Inc. common stock. The stock is accounted for as an equity security, available for sale, and is recorded in the consolidated balance sheet in other long term assets with an offsetting entry recorded to other long term liabilities. Any recurring fair value adjustments will be recorded to other long term assets with an offsetting entry to accumulated other comprehensive loss. The amount recorded in other long term liabilities will be amortized on a straight-line basis to reduce RealD license expense recorded in the statement of operations under operating expense.
The Company is required to disclose the fair value of financial instruments that are not recognized in the statement of financial position for which it is practicable to estimate that value. At July 1, 2010, the carrying amount of the Company's liabilities for corporate borrowings was approximately $1,831,515,000 and the fair value was approximately $1,823,509,000. At April 1, 2010, the carrying amount of the corporate borrowings was approximately $1,832,854,000 and the fair value of was approximately $1,891,002,000. Quoted market prices were used to value publicly held corporate borrowings. The carrying value of cash and equivalents approximates fair value because of the short duration of those instruments.
NOTE 8INCOME TAXES
The difference between the effective tax rate on earnings from continuing operations before income taxes and the U.S. federal income tax statutory rate is as follows:
|
Thirteen Weeks Ended | ||||||
---|---|---|---|---|---|---|---|
|
July 1, 2010 | July 2, 2009 | |||||
Income tax expense at the federal statutory rate |
5,800 | 3,200 | |||||
Effect of: |
|||||||
State income taxes |
4,800 | 1,000 | |||||
Permanent items |
(100 | ) | 100 | ||||
Valuation allowance |
(3,600 | ) | (3,050 | ) | |||
Other, net |
50 | (50 | ) | ||||
Income tax expense |
6,950 | 1,200 | |||||
Effective income tax rate |
41.9 | % | 13.2 | % | |||
The accounting for income taxes requires that deferred tax assets and liabilities be recognized, using enacted tax rates, for the tax effect of temporary differences between the financial reporting and tax bases of recorded assets and liabilities. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be realized.
17
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
July 1, 2010
(Unaudited)
NOTE 9EMPLOYEE BENEFIT PLANS
The Company sponsors frozen non-contributory qualified and non-qualified defined benefit pension plans generally covering all employees who, prior to the freeze, were age 21 or older and had completed at least 1,000 hours of service in their first twelve months of employment, or in a calendar year ending thereafter, and who were not covered by a collective bargaining agreement. The Company also offers eligible retirees the opportunity to participate in a health plan (medical and dental). Certain employees are eligible for subsidized postretirement medical benefits. The eligibility for these benefits is based upon a participant's age and service as of January 1, 2009. The Company also sponsors a nonqualified deferred compensation plan.
The Company expects to make pension contributions of approximately $390,000 per quarter for a total of approximately $1,560,000 during fiscal 2011.
Net periodic benefit cost (income) recognized for the plans during the thirteen weeks ended July 1, 2010 and July 2, 2009 consists of the following:
|
Pension Benefits | Other Benefits | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In thousands)
|
July 1, 2010 |
July 2, 2009 |
July 1, 2010 |
July 2, 2009 |
||||||||||
Components of net periodic benefit cost: |
||||||||||||||
Service cost |
$ | 46 | $ | 45 | $ | 38 | $ | 52 | ||||||
Interest cost |
1,151 | 1,101 | 319 | 324 | ||||||||||
Expected return on plan assets |
(996 | ) | (748 | ) | | | ||||||||
Amortization of (gain) loss |
154 | 158 | | (69 | ) | |||||||||
Amortization of prior service credit |
| | (216 | ) | (136 | ) | ||||||||
Net periodic benefit cost |
$ | 355 | $ | 556 | $ | 141 | $ | 171 | ||||||
Effective July 29, 2010, the Company was able to determine it will no longer be obligated to contribute to one of its union sponsored pension plans under a new union contract triggering a complete withdrawal from the plan. The Company expects to record a liability and pension cost related to the complete withdrawal of approximately $2,660,000 in the second quarter of fiscal 2011.
18
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
July 1, 2010
(Unaudited)
NOTE 10CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X Rule 3-10, Financial statements of guarantors and issuers of guaranteed securities registered or being registered. Each of the subsidiary guarantors are 100% owned by AMCE. The subsidiary guarantees of AMCE's Notes due 2014, Notes due 2016, and Notes due 2019 are full and unconditional and joint and several. There are significant restrictions on the Company's ability to obtain funds from any of its subsidiaries through dividends, loans or advances. The Company and its subsidiary guarantor's investments in its consolidated subsidiaries are presented under the equity method of accounting.
Thirteen weeks ended July 1, 2010:
(In thousands)
|
AMCE | Subsidiary Guarantors |
Subsidiary Non-Guarantors |
Consolidating Adjustments |
Consolidated AMC Entertainment Inc. |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues |
||||||||||||||||||
Admissions |
$ | | $ | 445,870 | $ | 2,727 | $ | | $ | 448,597 | ||||||||
Concessions |
| 174,976 | 983 | | 175,959 | |||||||||||||
Other theatre |
| 16,123 | 273 | | 16,396 | |||||||||||||
Total revenues |
| 636,969 | 3,983 | | 640,952 | |||||||||||||
Costs and Expenses |
||||||||||||||||||
Film exhibition costs |
| 237,617 | 1,206 | | 238,823 | |||||||||||||
Concession costs |
| 20,259 | 237 | | 20,496 | |||||||||||||
Operating expense |
| 145,909 | 1,732 | | 147,641 | |||||||||||||
Rent |
| 112,794 | 1,760 | | 114,554 | |||||||||||||
General and administrative: |
||||||||||||||||||
Merger, acquisition and transaction costs |
| 5,756 | | | 5,756 | |||||||||||||
Management fee |
| 1,250 | | | 1,250 | |||||||||||||
Other |
| 13,062 | 9 | | 13,071 | |||||||||||||
Depreciation and amortization |
| 48,548 | 55 | | 48,603 | |||||||||||||
Total costs and expenses |
| 585,195 | 4,999 | | 590,194 | |||||||||||||
Other expense (income) |
||||||||||||||||||
Equity in net (earnings) loss of subsidiaries |
(9,103 | ) | 1,123 | | 7,980 | | ||||||||||||
Other income |
| (1,939 | ) | | | (1,939 | ) | |||||||||||
Interest expense |
||||||||||||||||||
Corporate borrowings |
33,021 | 42,178 | | (42,180 | ) | 33,019 | ||||||||||||
Capital and financing lease obligations |
| 1,383 | | | 1,383 | |||||||||||||
Equity in (earnings) loss of non-consolidated entities |
(143 | ) | 1,802 | 107 | | 1,766 | ||||||||||||
Investment income |
(36,087 | ) | (6,143 | ) | | 42,180 | (50 | ) | ||||||||||
Total other expense (income) |
(12,312 | ) | 38,404 | 107 | 7,980 | 34,179 | ||||||||||||
Earnings (loss) from continuing operations before income taxes |
12,312 | 13,370 | (1,123 | ) | (7,980 | ) | 16,579 | |||||||||||
Income tax provision |
2,700 | 4,250 | | | 6,950 | |||||||||||||
Earnings (loss) from continuing operations |
9,612 | 9,120 | (1,123 | ) | (7,980 | ) | 9,629 | |||||||||||
Loss from discontinued operations, net of income taxes |
| (17 | ) | | | (17 | ) | |||||||||||
Net earnings (loss) |
$ | 9,612 | $ | 9,103 | $ | (1,123 | ) | $ | (7,980 | ) | $ | 9,612 | ||||||
19
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
July 1, 2010
(Unaudited)
NOTE 10CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
Thirteen weeks ended July 2, 2009:
(In thousands)
|
AMCE | Subsidiary Guarantors |
Subsidiary Non-Guarantors |
Consolidating Adjustments |
Consolidated AMC Entertainment Inc. |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues |
||||||||||||||||||
Admissions |
$ | | $ | 443,301 | $ | 2,926 | $ | | $ | 446,227 | ||||||||
Concessions |
| 172,491 | 1,169 | | 173,660 | |||||||||||||
Other theatre |
| 15,101 | 324 | | 15,425 | |||||||||||||
Total revenues |
| 630,893 | 4,419 | | 635,312 | |||||||||||||
Costs and Expenses |
||||||||||||||||||
Film exhibition costs |
| 247,742 | 1,359 | | 249,101 | |||||||||||||
Concession costs |
| 18,947 | 218 | | 19,165 | |||||||||||||
Operating expense |
| 148,734 | 1,443 | | 150,177 | |||||||||||||
Rent |
| 110,512 | 1,861 | | 112,373 | |||||||||||||
General and administrative: |
||||||||||||||||||
Merger, acquisition and transaction costs |
| 178 | | | 178 | |||||||||||||
Management fee |
| 1,250 | | | 1,250 | |||||||||||||
Other |
| 13,010 | 28 | | 13,038 | |||||||||||||
Depreciation and amortization |
| 48,636 | 152 | | 48,788 | |||||||||||||
Total costs and expenses |
| 589,009 | 5,061 | | 594,070 | |||||||||||||
Other expense (income) |
||||||||||||||||||
Equity in net (earnings) loss of subsidiaries |
(6,119 | ) | 1,922 | | 4,197 | | ||||||||||||
Other income |
| 8,773 | | | 8,773 | |||||||||||||
Interest expense |
||||||||||||||||||
Corporate borrowings |
28,268 | 36,518 | | (36,487 | ) | 28,299 | ||||||||||||
Capital and financing lease obligations |
| 1,413 | | | 1,413 | |||||||||||||
Equity in (earnings) loss of non-consolidated entities |
(96 | ) | (7,459 | ) | 1,293 | | (6,262 | ) | ||||||||||
Investment income |
(31,153 | ) | (5,419 | ) | (13 | ) | 36,487 | (98 | ) | |||||||||
Total other expense (income) |
(9,100 | ) | 35,748 | 1,280 | 4,197 | 32,125 | ||||||||||||
Earnings (loss) from continuing operations before income taxes |
9,100 | 6,136 | (1,922 | ) | (4,197 | ) | 9,117 | |||||||||||
Income tax provision |
460 | 740 | | | 1,200 | |||||||||||||
Earnings (loss) from continuing operations |
8,640 | 5,396 | (1,922 | ) | (4,197 | ) | 7,917 | |||||||||||
Earnings from discontinued operations, net of income taxes |
| 723 | | | 723 | |||||||||||||
Net earnings (loss) |
$ | 8,640 | $ | 6,119 | $ | (1,922 | ) | $ | (4,197 | ) | $ | 8,640 | ||||||
20
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
July 1, 2010
(Unaudited)
NOTE 10CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
As of July 1, 2010:
(In thousands)
|
AMCE | Subsidiary Guarantors | Subsidiary Non-Guarantors | Consolidating Adjustments | Consolidated AMC Entertainment Inc. | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets |
||||||||||||||||||
Current assets: |
||||||||||||||||||
Cash and equivalents |
$ | | $ | 245,367 | $ | 40,335 | $ | | $ | 285,702 | ||||||||
Receivables, net |
130 | 41,050 | 914 | | 42,094 | |||||||||||||
Other current assets |
| 85,478 | 1,886 | | 87,364 | |||||||||||||
Total current assets |
130 | 371,895 | 43,135 | | 415,160 | |||||||||||||
Investment in equity of subsidiaries |
(121,550 | ) | 106,471 | | 15,079 | | ||||||||||||
Property, net |
| 1,012,796 | 839 | | 1,013,635 | |||||||||||||
Intangible assets, net |
| 162,134 | | | 162,134 | |||||||||||||
Intercompany advances |
2,716,668 | (2,798,823 | ) | 82,155 | | | ||||||||||||
Goodwill |
| 1,907,085 | | | 1,907,085 | |||||||||||||
Other long-term assets |
32,245 | 308,656 | 9,160 | | 350,061 | |||||||||||||
Total assets |
$ | 2,627,493 | $ | 1,070,214 | $ | 135,289 | $ | 15,079 | $ | 3,848,075 | ||||||||
Liabilities and Stockholder's Equity |
||||||||||||||||||
Current liabilities: |
||||||||||||||||||
Accounts payable |
$ | | $ | 193,630 | $ | 705 | $ | | $ | 194,335 | ||||||||
Accrued expenses and other liabilities |
24,161 | 125,854 | 472 | | 150,487 | |||||||||||||
Deferred revenues and income |
| 124,224 | 511 | | 124,735 | |||||||||||||
Current maturities of corporate borrowings and capital and financing lease obligations |
6,500 | 3,761 | | | 10,261 | |||||||||||||
Total current liabilities |
30,661 | 447,469 | 1,688 | | 479,818 | |||||||||||||
Corporate borrowings |
1,825,015 | | | | 1,825,015 | |||||||||||||
Capital and financing lease obligations |
| 65,118 | | | 65,118 | |||||||||||||
Deferred revenues for exhibitor services agreement |
| 362,910 | | | 362,910 | |||||||||||||
Other long-term liabilities |
| 316,267 | 27,130 | | 343,397 | |||||||||||||
Total liabilities |
1,855,676 | 1,191,764 | 28,818 | | 3,076,258 | |||||||||||||
Stockholder's equity (deficit) |
771,817 | (121,550 | ) | 106,471 | 15,079 | 771,817 | ||||||||||||
Total liabilities and stockholder's equity |
$ | 2,627,493 | $ | 1,070,214 | $ | 135,289 | $ | 15,079 | $ | 3,848,075 | ||||||||
21
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
July 1, 2010
(Unaudited)
NOTE 10CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
As of April 1, 2010:
(In thousands)
|
AMCE | Subsidiary Guarantors |
Subsidiary Non-Guarantors |
Consolidating Adjustments |
Consolidated AMC Entertainment Inc. |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets |
|||||||||||||||||||
Current assets: |
|||||||||||||||||||
Cash and equivalents |
$ | | $ | 455,242 | $ | 40,101 | $ | | $ | 495,343 | |||||||||
Receivables, net |
13 | 24,448 | 1,084 | | 25,545 | ||||||||||||||
Other current assets |
| 71,467 | 1,845 | | 73,312 | ||||||||||||||
Total current assets |
13 | 551,157 | 43,030 | | 594,200 | ||||||||||||||
Investment in equity of subsidiaries |
(161,239 | ) | 106,304 | | 54,935 | | |||||||||||||
Property, net |
| 862,651 | 881 | | 863,532 | ||||||||||||||
Intangible assets, net |
| 148,432 | | | 148,432 | ||||||||||||||
Intercompany advances |
2,743,747 | (2,825,700 | ) | 81,953 | | | |||||||||||||
Goodwill |
| 1,814,738 | | | 1,814,738 | ||||||||||||||
Other long-term assets |
33,367 | 189,428 | 9,480 | | 232,275 | ||||||||||||||
Total assets |
$ | 2,615,888 | $ | 847,010 | $ | 135,344 | $ | 54,935 | $ | 3,653,177 | |||||||||
Liabilities and Stockholder's Equity |
|||||||||||||||||||
Current liabilities |
|||||||||||||||||||
Accounts payable |
$ | | $ | 174,251 | $ | 891 | $ | | $ | 175,142 | |||||||||
Accrued expenses and other liabilities |
22,475 | 116,839 | 267 | | 139,581 | ||||||||||||||
Deferred revenues and income |
| 125,376 | 466 | | 125,842 | ||||||||||||||
Current maturities of corporate borrowings and capital and financing lease obligations |
6,500 | 3,963 | | | 10,463 | ||||||||||||||
Total current liabilities |
28,975 | 420,429 | 1,624 | | 451,028 | ||||||||||||||
Corporate borrowings |
1,826,354 | | | | 1,826,354 | ||||||||||||||
Capital and financing lease obligations |
| 53,323 | | | 53,323 | ||||||||||||||
Deferred revenues for exhibitor services agreement |
| 252,322 | | | 252,322 | ||||||||||||||
Other long-term liabilities |
| 282,175 | 27,416 | | 309,591 | ||||||||||||||
Total liabilities |
1,855,329 | 1,008,249 | 29,040 | | 2,892,618 | ||||||||||||||
Stockholder's equity (deficit) |
760,559 | (161,239 | ) | 106,304 | 54,935 | 760,559 | |||||||||||||
Total liabilities and stockholder's equity |
$ | 2,615,888 | $ | 847,010 | $ | 135,344 | $ | 54,935 | $ | 3,653,177 | |||||||||
22
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
July 1, 2010
(Unaudited)
NOTE 10CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
Thirteen weeks ended July 1, 2010:
(In thousands)
|
AMCE | Subsidiary Guarantors | Subsidiary Non-Guarantors | Consolidating Adjustments | Consolidated AMC Entertainment Inc. | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Cash flows from operating activities: |
|||||||||||||||||
Net cash provided by operating activities |
$ | 5,961 | $ | 29,113 | $ | 225 | $ | | $ | 35,299 | |||||||
Cash flows from investing activities: |
|||||||||||||||||
Capital expenditures |
| (13,945 | ) | (43 | ) | | (13,988 | ) | |||||||||
Acquisition of Kerasotes |
| (276,798 | ) | | | (276,798 | ) | ||||||||||
Proceeds from disposition of Cinemex |
| 876 | | | 876 | ||||||||||||
Proceeds from the disposition of long-term assets |
| 55,000 | | | 55,000 | ||||||||||||
Other, net |
| 15 | | | 15 | ||||||||||||
Net cash used in investing activities |
| (234,852 | ) | (43 | ) | | (234,895 | ) | |||||||||
Cash flows from financing activities: |
|||||||||||||||||
Deferred financing costs |
(95 | ) | | | | (95 | ) | ||||||||||
Principal payments under capital and financing lease obligations |
| (990 | ) | | | (990 | ) | ||||||||||
Principal payments on Term Loan B |
(1,625 | ) | | | | (1,625 | ) | ||||||||||
Change in construction payables |
| (7,737 | ) | | | (7,737 | ) | ||||||||||
Change in intercompany advances |
(4,241 | ) | 4,443 | (202 | ) | | | ||||||||||
Net cash used in financing activities |
(5,961 | ) | (4,284 | ) | (202 | ) | | (10,447 | ) | ||||||||
Effect of exchange rate changes on cash and equivalents |
| 148 | 254 | | 402 | ||||||||||||
Net increase (decrease) in cash and equivalents |
| (209,875 | ) | 234 | | (209,641 | ) | ||||||||||
Cash and equivalents at beginning of period |
| 455,242 | 40,101 | | 495,343 | ||||||||||||
Cash and equivalents at end of period |
$ | | $ | 245,367 | $ | 40,335 | $ | | $ | 285,702 | |||||||
23
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
July 1, 2010
(Unaudited)
NOTE 10CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
Thirteen weeks ended July 2, 2009:
(In thousands)
|
AMCE | Subsidiary Guarantors | Subsidiary Non-Guarantors | Consolidating Adjustments | Consolidated AMC Entertainment Inc. | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Cash flows from operating activities: |
|||||||||||||||||
Net cash provided by operating activities |
$ | 32,269 | $ | 82,411 | $ | (7,623 | ) | $ | | $ | 107,057 | ||||||
Cash flows from investing activities: |
|||||||||||||||||
Capital expenditures |
| (7,259 | ) | (48 | ) | | (7,307 | ) | |||||||||
Proceeds from disposition of Cinemex |
| 2,904 | | | 2,904 | ||||||||||||
Other, net |
| (4,845 | ) | | | (4,845 | ) | ||||||||||
Net cash used in investing activities |
| (9,200 | ) | (48 | ) | | (9,248 | ) | |||||||||
Cash flows from financing activities: |
|||||||||||||||||
Repayment under revolving credit facility |
(185,000 | ) | | | | (185,000 | ) | ||||||||||
Repurchase of Fixed Notes due 2012 |
(238,065 | ) | | | | (238,065 | ) | ||||||||||
Proceeds from issuance of Senior Notes due 2019 |
585,492 | | | | 585,492 | ||||||||||||
Deferred financing costs |
(14,411 | ) | | | | (14,411 | ) | ||||||||||
Principal payments under capital and financing lease obligations |
| (855 | ) | | | (855 | ) | ||||||||||
Principal payments on Term Loan B |
(1,625 | ) | | | | (1,625 | ) | ||||||||||
Change in construction payables |
| (3,145 | ) | | | (3,145 | ) | ||||||||||
Dividends paid Marquee Holdings Inc. |
(300,000 | ) | | | | (300,000 | ) | ||||||||||
Change in intercompany advances |
121,340 | (124,728 | ) | 3,388 | | | |||||||||||
Net cash provided by (used in) financing activities |
(32,269 | ) | (128,728 | ) | 3,388 | | (157,609 | ) | |||||||||
Effect of exchange rate changes on cash and equivalents |
| | (1,111 | ) | | (1,111 | ) | ||||||||||
Net decrease in cash and equivalents |
| (55,517 | ) | (5,394 | ) | | (60,911 | ) | |||||||||
Cash and equivalents at beginning of period |
| 488,800 | 45,209 | | 534,009 | ||||||||||||
Cash and equivalents at end of period |
$ | | $ | 433,283 | $ | 39,815 | $ | | $ | 473,098 | |||||||
24
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
July 1, 2010
(Unaudited)
NOTE 11COMMITMENTS AND CONTINGENCIES
The Company, in the normal course of business, is party to various legal actions. Except as described below, management believes that the potential exposure, if any, from such matters would not have a material adverse effect on the financial condition, cash flows or results of operations of the Company.
United States of America v. AMC Entertainment Inc. and American Multi Cinema, Inc. (No. 99 01034 FMC (SHx), filed in the U.S. District Court for the Central District of California). On January 29, 1999, the Department of Justice (the "Department") filed suit alleging that the Company's stadium style theatres violated the ADA and related regulations. The Department alleged the Company had failed to provide persons in wheelchairs seating arrangements with lines-of-sight comparable to the general public. The Department alleged various non-line-of-sight violations as well. The Department sought 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.
As to line-of-sight matters, the trial court entered summary judgment in favor of the Justice Department as to both liability and as to the appropriate remedy. On December 5, 2008, the Ninth Circuit Court of Appeals reversed the trial court as to the appropriate remedy and remanded the case back to the trial court for findings consistent with its decision. The Company is negotiating the extent of betterments related to the remaining remedies required for line-of-sight violations consistent with the Ninth Circuit's decision. The improvements will be made over a 5 year term. The Justice Department moved for reconsideration on the line-of-sight matters and was denied on June 8, 2009 by the Ninth Circuit Court of Appeals. The case has reverted to the trial court. The Company has recorded a liability of approximately $349,000 for estimated fines related to this matter.
As to the non-line-of-sight aspects of the case, on January 21, 2003, the trial court entered summary judgment in favor of the Department on matters such as parking areas, signage, ramps, location of toilets, counter heights, ramp slopes, companion seating and the location and size of handrails. On December 5, 2003, the trial court entered a consent order and final judgment on non-line-of-sight issues under which the Company agreed to remedy certain violations at its stadium-style theatres and at certain theatres it may open in the future. Currently the Company estimates that these betterments will be required at approximately 140 stadium-style theatres. The Company estimates that the total cost of these betterments will be approximately $54,000,000, and through July 1, 2010 the Company has incurred approximately $34,100,000 of these costs. The estimate is based on actual costs incurred on remediation work completed to date. The actual costs of betterments may vary based on the results of surveys of the remaining theatres.
Michael Bateman v. American Multi-Cinema, Inc. (No. CV07-00171). In January 2007, a class action complaint was filed against the Company in the Central District of the United States District Court of California (the "District Court") alleging violations of the Fair and Accurate Credit Transactions Act ("FACTA"). FACTA provides in part that neither expiration dates nor more than the last 5 numbers of a credit or debit card may be printed on receipts given to customers. FACTA imposes significant penalties upon violators where the violation is deemed to have been willful. Otherwise damages are limited to actual losses incurred by the card holder. On October 24, 2008, the District Court denied plaintiff's renewed motion for class certification. Plaintiff has appealed this decision and the case is stayed pending this appeal.
25
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
July 1, 2010
(Unaudited)
NOTE 11COMMITMENTS AND CONTINGENCIES (Continued)
On May 14, 2009, Harout Jarchafjian filed a similar lawsuit alleging that the Company willfully violated FACTA and seeking statutory damages, but without alleging any actual injury (Jarchafjian v. American Multi-Cinema, Inc. (C.D. Cal. Case No. CV09-03434). The Jarchafjian case has been deemed related to the Bateman case and is stayed pending a Ninth Circuit decision in the Bateman case. The Company believes the plaintiff's allegations in both these cases, particularly those asserting AMC's willfulness, are without merit.
In addition to the cases noted above, the Company is also currently a party to various ordinary course claims from vendors (including concession suppliers, and motion picture distributors), landlords and suppliers and other legal proceedings. If management believes that a loss arising from these actions is probable and can reasonably be estimated, the Company records the amount of the loss, or the minimum estimated liability when the loss is estimated using a range and no point is more probable than another. As additional information becomes available, any potential liability related to these actions is assessed and the estimates are revised, if necessary. Except as described above, management believes that the ultimate outcome of such other matters, individually and in the aggregate, will not have a material adverse effect on the Company's financial position or overall trends in results of operations. However, litigation and claims are subject to inherent uncertainties and unfavorable outcomes could occur. An unfavorable outcome could include monetary damages. If an unfavorable outcome were to occur, there exists the possibility of a material adverse impact on the results of operations in the period in which the outcome occurs or in future periods.
NOTE 12RELATED PARTY TRANSACTIONS
Amended and Restated Fee Agreement
In connection with the merger with LCE Holdings Inc., Holdings, AMCE and the Sponsors entered into an Amended and Restated Fee Agreement, which provides for an annual management fee of $5,000,000, payable quarterly and in advance to each Sponsor, on a pro rata basis, until the earliest of (i) the twelfth anniversary from December 23, 2004; (ii) such time as the sponsors own less than 20% in the aggregate of Parent; and (iii) such earlier time as Holdings, AMCE and the Requisite Stockholder Majority agree. In addition, the fee agreement provided for reimbursements by AMCE to the Sponsors for their out-of-pocket expenses and to Holdings of up to $3,500,000 for fees payable by Holdings in any single fiscal year in order to maintain AMCE's and its corporate existence, corporate overhead expenses and salaries or other compensation of certain employees. The Amended and Restated Fee Agreement terminated on June 11, 2007, the date of the holdco merger, and was superseded by a substantially identical agreement entered into by AMC Entertainment Holdings, Inc., Holdings, AMCE, the Sponsors and Holdings' other stockholders.
Upon the consummation of a change in control transaction or an initial public offering, each of the Sponsors will receive, in lieu of quarterly payments of the annual management fee, a fee equal to the net present value of the aggregate annual management fee that would have been payable to the Sponsors during the remainder of the term of the fee agreement (assuming a twelve year term from the date of the original fee agreement), calculated using the treasury rate having a final maturity date that is closest to the twelfth anniversary of the date of the original fee agreement date. As of July 1, 2010, the Company estimates that this amount would be $28,177,000.
The fee agreement also provides that the Company will indemnify the Sponsors against all losses, claims, damages and liabilities arising in connection with the management services provided by the Sponsors under the fee agreement.
26
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Forward Looking Statements
In addition to historical information, this Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, or the "Securities Act," and Section 21E of the Securities Exchange Act of 1934, as amended, or the "Exchange Act." The words "forecast," "estimate," "project," "intend," "expect," "should," "believe" and similar expressions are intended to identify forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors, including those discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations of AMC Entertainment Inc.," which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the following:
-
- national, regional and local economic conditions that may affect the markets in which we or our joint venture investees
operate;
-
- the levels of expenditures on entertainment in general and movie theatres in particular;
-
- increased competition within movie exhibition or other competitive entertainment mediums;
-
- technological changes and innovations, including alternative methods for delivering movies to consumers;
-
- the popularity of theatre attendance and major motion picture releases;
-
- shifts in population and other demographics;
-
- our ability to renew expiring contracts at favorable rates, or to replace them with new contracts that are comparably
favorable to us;
-
- our ability to integrate Kerasotes Showplace Theatres, LLC ("Kerasotes") and achieve anticipated synergies with minimal
disruption to our business;
-
- our need for, and ability to obtain, additional funding for acquisitions and operations;
-
- risks and uncertainties relating to our significant indebtedness;
-
- fluctuations in operating costs;
-
- capital expenditure requirements;
-
- changes in interest rates; and
-
- changes in accounting principles, policies or guidelines.
This list of factors that may affect future performance and the accuracy of forward-looking statements is illustrative but not exhaustive. In addition, new risks and uncertainties may arise from time to time. Accordingly, all forward-looking statements should be evaluated with an understanding of their inherent uncertainty.
Readers are urged to consider these factors carefully in evaluating the forward-looking statements. For further information about these and other risks and uncertainties, see Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended April 1, 2010 and in this Quarterly Report on Form 10-Q.
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 Quarterly Report on Form 10-Q, 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.
27
Significant Event
On May 24, 2010, we completed the acquisition of 92 theatres and 928 screens from Kerasotes Showplace Theatres, LLC ("Kerasotes"). Kerasotes operated 95 theatres and 972 screens in mid-sized, suburban and metropolitan markets, primarily in the Midwest. More than three quarters of the Kerasotes theatres feature stadium seating and almost 90 percent have been built since 1994. The purchase price for the Kerasotes theatres paid in cash at closing was $276,798,000, net of cash acquired and is subject to working capital and other purchase price adjustments as described in the Unit Purchase Agreement. The acquisition of Kerasotes significantly increased our size. Accordingly, results of operations for the thirteen weeks ended July 1, 2010, which include five weeks of operations of the theatres we acquired, are not comparable to our results for the thirteen weeks ended July 2, 2009. For additional information about the Kerasotes acquisition, see Note 2Acquisition to our Consolidated Financial Statements under Part I Item 1. of this Report on Form 10-Q.
Overview
We are one of the world's leading theatrical exhibition companies. As of July 1, 2010, we owned, operated or had interests in 382 theatres and 5,342 screens, with 99%, or 5,287, of our screens in the U.S. and Canada and 1%, or 55, of our screens in China (Hong Kong), France and the United Kingdom.
During the thirteen weeks ended July 1, 2010, we acquired 92 theatres with 928 screens from Kerasotes in the U.S. In connection with the acquisition of Kerasotes, we divested of nine theatres with 116 screens as required by the Antitrust Division of the United States Department of Justice and acquired two theatres with 26 screens that were received in exchange for three of the divested theatres above with 43 screens. We also closed one theatre with 15 screens in the U.S. and acquired one theatre with 6 screens in the U.S. in the ordinary course of business.
Our Theatrical Exhibition revenues are generated primarily from box office admissions and theatre concession sales. The balance of our revenues are generated from ancillary sources, including on-screen advertising, rental of theatre auditoriums, fees and other revenues generated from the sale of gift cards and packaged tickets, on-line ticketing fees and arcade games located in theatre lobbies.
Box office admissions are our largest source of revenue. 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. Film exhibition costs are accrued based on the applicable admissions revenues and estimates of the final settlement pursuant to our film licenses. Licenses that we enter into typically state that rental fees are based on either aggregate terms established prior to the opening of the picture or on a mutually agreed settlement upon the conclusion of the picture run. Under an aggregate terms formula, we pay the distributor a specified percentage of box office gross or pay based on a scale of percentages tied to different amounts of box office gross. The settlement process allows for negotiation based upon how a film actually performs.
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. 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.
Our revenues are dependent upon the timing and popularity 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.
During fiscal 2010, films licensed from our six largest distributors based on revenues accounted for approximately 84% of our U.S. and Canada admissions revenues. Our revenues attributable to
28
individual distributors may vary significantly from year to year depending upon the commercial success of each distributor's motion pictures in any given year.
During the period from 1990 to 2009, 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 633 in 2008, according to Motion Picture Association of America 2009 MPAA Theatrical Market Statistics. The number of digital 3D films released increased to a high of 20 from a low of 0 during this same time period.
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. We are an industry leader in the development and operation of megaplex theatres, typically defined as a theatre 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 have increased our 3D screens by 467 to 628 screens and our IMAX screens by 29 to 85 screens since July 2, 2009; and as of July 1, 2010, approximately 11.8% of our screens were 3D screens and 1.6% were IMAX screens.
Operating Results
The following table sets forth our revenues, costs and expenses attributable to our theatrical exhibition operations.
|
Thirteen Weeks Ended | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(In thousands)
|
July 1, 2010 |
July 2, 2009 |
% Change | ||||||||
Revenues |
|||||||||||
Theatrical exhibition |
|||||||||||
Admissions |
$ | 448,597 | $ | 446,227 | 0.5 | % | |||||
Concessions |
175,959 | 173,660 | 1.3 | % | |||||||
Other theatre |
16,396 | 15,425 | 6.3 | % | |||||||
Total revenues |
$ | 640,952 | $ | 635,312 | 0.9 | % | |||||
Cost of Operations |
|||||||||||
Theatrical exhibition |
|||||||||||
Film exhibition costs |
$ | 238,823 | $ | 249,101 | -4.1 | % | |||||
Concession costs |
20,496 | 19,165 | 6.9 | % | |||||||
Operating expense |
147,641 | 150,177 | -1.7 | % | |||||||
Rent |
114,554 | 112,373 | 1.9 | % | |||||||
|
521,514 | 530,816 | -1.8 | % | |||||||
General and administrative expense: |
|||||||||||
Merger, acquisition and transaction costs |
5,756 | 178 | * | ||||||||
Management Fee |
1,250 | 1,250 | | % | |||||||
Other |
13,071 | 13,038 | 0.3 | % | |||||||
Depreciation and amortization |
48,603 | 48,788 | -0.4 | % | |||||||
Total costs and expenses |
$ | 590,194 | $ | 594,070 | -0.7 | % | |||||
- *
- Percentage change in excess of 100%
29
|
Thirteen Weeks Ended | |||||||
---|---|---|---|---|---|---|---|---|
|
July 1, 2010 |
July 2, 2009 |
||||||
Operating DataContinuing Operations (at period end): |
||||||||
New theatre screens |
| 6 | ||||||
Screens acquired |
960 | | ||||||
Screen dispositions |
131 | 8 | ||||||
Average screenscontinuing operations(1) |
4,834 | 4,534 | ||||||
Number of screens operated |
5,342 | 4,610 | ||||||
Number of theatres operated |
382 | 307 | ||||||
Screens per theatre |
14.0 | 15.0 | ||||||
Attendance (in thousands)continuing operations(1) |
51,619 | 53,703 |
- (1)
- Includes consolidated theatres only.
We present Adjusted EBITDA as a supplemental measure of our performance. We define Adjusted EBITDA as earnings (loss) from continuing operations plus (i) income tax provisions, (ii) interest expense and (iii) depreciation and amortization, as further adjusted to eliminate the impact of certain items that we do not consider indicative of our ongoing operating performance. These further adjustments are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.
|
Thirteen Weeks Ended | ||||||||
---|---|---|---|---|---|---|---|---|---|
(In thousands)
|
July 1, 2010 |
July 2, 2009 |
|||||||
Earnings from continuing operations |
$ | 9,629 | $ | 7,917 | |||||
Plus: |
|||||||||
Income tax provision |
6,950 | 1,200 | |||||||
Interest expense |
34,402 | 29,712 | |||||||
Depreciation and amortization |
48,603 | 48,788 | |||||||
Certain operating expenses(1) |
(9,475 | ) | 956 | ||||||
Equity in (earnings) loss of non-consolidated entities |
1,766 | (6,262 | ) | ||||||
Investment income |
(50 | ) | (98 | ) | |||||
Other (income) expense(2) |
| 10,826 | |||||||
General and administrative expenseunallocated: |
|||||||||
Merger, acquisition and transaction costs |
5,756 | 178 | |||||||
Management fee |
1,250 | 1,250 | |||||||
Stock-based compensation expense |
136 | 411 | |||||||
Adjusted EBITDA(3) |
$ | 98,967 | $ | 94,878 | |||||
- (1)
- Amounts
represent preopening expense, theatre and other closure expense, deferred digital equipment rent expense, and disposition of assets and other gains
included in operating expenses.
- (2)
- Other
expense for fiscal 2010 is comprised of the loss on extinguishment of indebtedness related to the redemption of our 85/8% Senior Notes
due 2012.
- (3)
- The acquisition of Kerasotes contributed approximately $10,000,000 in Adjusted EBITDA during the thirteen weeks ended July 1, 2010.
Adjusted EBITDA is a non-GAAP financial measure commonly used in our industry and should not be construed as an alternative to net earnings (loss) as an indicator of operating performance or as
30
an alternative to cash flow provided by operating activities as a measure of liquidity (as determined in accordance with GAAP). Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies. We have included Adjusted EBITDA because we believe it provides management and investors with additional information to measure our performance and liquidity, estimate our value and evaluate our ability to service debt. In addition, we use Adjusted EBITDA for incentive compensation purposes.
Adjusted EBITDA has important limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. For example, Adjusted EBITDA:
-
- does not reflect our capital expenditures, future requirements for capital expenditures or contractual commitments;
-
- does not reflect changes in, or cash requirements for, our working capital needs;
-
- does not reflect the significant interest expenses, or the cash requirements necessary to service interest or principal
payments, on our debt;
-
- excludes tax payments that represent a reduction in cash available to us;
-
- does not reflect any cash requirements for the assets being depreciated and amortized that may have to be replaced in the
future; and
-
- does not reflect management fees that may be paid to our sponsors.
Thirteen Weeks Ended July 1, 2010 and July 2, 2009
Revenues. Total revenues increased 0.9%, or $5,640,000, during the thirteen weeks ended July 1, 2010 compared to the thirteen weeks ended July 2, 2009. This increase included approximately $35,700,000 of additional revenues resulting from the acquisition of Kerasotes. Admissions revenues increased 0.5%, or $2,370,000, during the thirteen weeks ended July 1, 2010 compared to the thirteen weeks ended July 2, 2009, due to the acquisition of Kerasotes and a 4.6% increase in average ticket prices, partially offset by a 3.9% decrease in attendance. The decrease in attendance and increase in admissions revenues includes the increased attendance and admissions revenues of approximately $24,000,000 from Kerasotes. The increase in average ticket price was primarily due to an increase in attendance from IMAX and 3D film product where we are able to charge more per ticket than for a standard 2D film. Admissions revenues at comparable theatres (theatres opened on or before the first quarter of fiscal 2010) decreased 3.8%, or $16,462,000, during the thirteen weeks ended July 1, 2010 from the comparable period last year. Attendance was negatively impacted by less popular film product during the thirteen weeks ended July 1, 2010 as compared to the thirteen weeks ended July 2, 2009. Concessions revenues increased 1.3%, or $2,299,000, during the thirteen weeks ended July 1, 2010 compared to the thirteen weeks ended July 2, 2009, due to the acquisition of Kerasotes and a 5.6% increase in average concessions per patron, partially offset by the decrease in attendance. The increase in concession revenues includes approximately $11,200,000 from Kerasotes. The increase in concessions per patron includes the impact of concession price and size increases placed in effect during the thirteen weeks ended December 31, 2009. Other theatre revenues increased 6.3%, or $971,000, during the thirteen weeks ended July 1, 2010 compared to the thirteen weeks ended July 2, 2009, primarily due to increases in on-line ticket fees, non-presentment income from package ticket sales, and merchandise sales, partially offset by decreases in arcade sales. The increase in other theatre revenues includes $500,000 from Kerasotes.
Costs and expenses. Total costs and expenses decreased 0.7%, or $3,876,000, during the thirteen weeks ended July 1, 2010 compared to the thirteen weeks ended July 2, 2009. The effect of the acquisition of Kerasotes was an increase in total costs and expenses of approximately $34,000,000. Film exhibition costs decreased 4.1%, or $10,278,000, during the thirteen weeks ended July 1, 2010 compared to the thirteen weeks ended July 2, 2009 due to the decrease in film exhibition costs as a percentage of
31
admissions revenues, partially offset by the increase in admissions revenues. As a percentage of admissions revenues, film exhibition costs were 53.2% in the current period and 55.8% in the prior year period. Film exhibition costs in the prior year period were higher in comparison primarily due to admissions revenues on higher grossing films, which typically carry a higher film cost as a percentage of admissions revenues. Concession costs increased 6.9%, or $1,331,000, during the thirteen weeks ended July 1, 2010 compared to the thirteen weeks ended July 2, 2009 due to an increase in concession costs as a percentage of concession revenues and the increase in concession revenues. As a percentage of concessions revenues, concession costs were 11.6% in the current period compared with 11.0% in the prior period, primarily due to the concession price and size increases. As a percentage of revenues, operating expense was 23.0% in the current period as compared to 23.6% in the prior period. A gain was recorded on disposition of assets during the thirteen weeks ended July 1, 2010 which reduced operating expenses by approximately $10,056,000, primarily due to the sale of a divested legacy AMC theatre in conjunction with the acquisition of Kerasotes. Rent expense increased 1.9%, or $2,181,000, during the thirteen weeks ended July 1, 2010 compared to the thirteen weeks ended July 2, 2009 primarily due to increased rent as a result of the acquisition of Kerasotes of approximately $4,300,000, partially offset by dispositions and closures of theatres and rent reductions from landlords related to their failure to meet co-tenancy provisions in certain lease agreements and renegotiations on more favorable terms. Rent reductions related to co-tenancy may not continue should our landlords meet the related co-tenancy provisions in the future.
General and Administrative Expense:
Merger, acquisition and transaction costs. Merger, acquisition and transaction costs increased $5,578,000 during the thirteen weeks ended July 1, 2010 compared to the thirteen weeks ended July 2, 2009. Current year costs primarily consist of costs related to the acquisition of Kerasotes.
Management fees. Management fees were unchanged during the thirteen weeks ended July 1, 2010. Management fees of $1,250,000 are paid quarterly, in advance, to our Sponsors in exchange for consulting and other services.
Other. Other general and administrative expense increased 0.3%, or $33,000, during the thirteen weeks ended July 1, 2010 compared to the thirteen weeks ended July 2, 2009.
Depreciation and Amortization. Depreciation and amortization decreased 0.4%, or $185,000, compared to the prior period. Decreases in depreciation and amortization expenses related to declining net book value of theatre assets, partially offset by increases in depreciation and amortization as a result of the acquisition of Kerasotes.
Other (Income) Expense. Other (income) expense includes $(1,939,000) and $(2,053,000) of income related to the derecognition of gift card liabilities, as to which we believe future redemption to be remote, during the thirteen weeks ended July 1, 2010 and July 2, 2009, respectively. Other (income) expense includes a loss of $10,826,000 related to the redemption of our 85/8% Senior Notes due 2012 during the thirteen weeks ended July 2, 2009.
Interest Expense. Interest expense increased 15.8%, or $4,690,000, primarily due to an increase in interest expense related to the issuance of our 8.75% Senior Notes due 2019 (the "Notes due 2019") on June 9, 2009.
Equity in (Earnings) Loss of Non-Consolidated Entities. Equity in (earnings) loss of non-consolidated entities was $1,766,000 in the current period compared to $(6,262,000) in the prior period. Equity in (earnings) related to our investment in National CineMedia, LLC were $(3,458,000) and $(7,366,000) for the thirteen weeks ended July 1, 2010 and July 2, 2009, respectively. Equity in losses related to our investment in Digital Cinema Implementation Partners, LLC ("DCIP") were $5,169,000 and $838,000 for the thirteen weeks ended July 1, 2010 and July 2, 2009, respectively.
32
Investment Income. Investment income was $50,000 for the thirteen weeks ended July 1, 2010 compared to $98,000 for the thirteen weeks ended July 2, 2009.
Income Tax Provision. The income tax provision from continuing operations was $6,950,000 for the thirteen weeks ended July 1, 2010 and $1,200,000 for the thirteen weeks ended July 2, 2009. See Note 8Income Taxes for further information.
Earnings (Loss) from Discontinued Operations, Net. On December 29, 2008, we sold our operations in Mexico, including 44 theatres and 493 screens. The results of operations of the Cinemex theatres have been classified as discontinued operations for all periods presented.
Net Earnings. Net earnings were $9,612,000 and $8,640,000 for the thirteen weeks ended July 1, 2010 and July 2, 2009, respectively. Net earnings during the thirteen weeks ended July 1, 2010 were positively impacted by a gain on disposition of a theatre for approximately $10,056,000 and negatively impacted by merger and acquisition costs of approximately $5,756,000 related to the acquisition of Kerasotes and increased interest expense of $4,690,000. Net earnings during the thirteen weeks ended July 2, 2009 were negatively impacted by an expense of $10,826,000 related to the redemption of our 85/8% Senior Notes due 2012.
LIQUIDITY AND CAPITAL RESOURCES
Our consolidated 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.
We believe that cash generated from operations and existing cash and equivalents will be sufficient to fund operations and planned capital expenditures for at least the next 12 months and enable us to maintain compliance with covenants related to the senior secured credit facility and our 8% Senior Subordinated Notes due 2014 (the "Notes due 2014"), 11% Senior Subordinated Notes due 2016 (the "Notes due 2016") and 8.75% Senior Notes due 2019 (the "Notes due 2019").
Cash Flows provided by Operating Activities
Cash flows provided by operating activities, as reflected in the Consolidated Statements of Cash Flows, were $35,299,000 and $107,057,000 during the thirteen weeks ended July 1, 2010 and July 2, 2009, respectively. The decrease in cash flows provided by operating activities for the thirteen weeks ended July 1, 2010 was primarily due to an increase in payments on accounts payables and accrued expenses and other liabilities, net of any additions related to the Kerasotes acquisition. Cash flows during the thirteen weeks ended July 2, 2009 include consent fee payments of $7,142,000 related to the redemption of our 85/8% Senior Notes due 2012, which reduced our cash flows from operating activities. We had working capital (deficit) surplus as of July 1, 2010 and April 1, 2010 of $(64,658,000) and $143,172,000, respectively. Working capital includes $124,735,000 and $125,842,000 of deferred revenues as of July 1, 2010 and April 1, 2010, respectively. We have the ability to borrow against our credit facility to meet obligations as they come due (subject to limitations on the incurrence of indebtedness in our various debt instruments) and could incur indebtedness of $187,324,000 on our Credit Facility to meet these obligations as of July 1, 2010.
33
Cash Flows used in Investing Activities
Cash flows used in investing activities, as reflected in the Consolidated Statements of Cash Flows, were $234,895,000 and $9,248,000, during the thirteen weeks ended July 1, 2010 and July 2, 2009, respectively. Cash outflows from investing activities include capital expenditures of $13,988,000 and $7,307,000 during the thirteen weeks ended July 1, 2010 and July 2, 2009, respectively. We expect that our gross capital expenditures cash outflows will be approximately $130,000,000 to $160,000,000 for fiscal 2011.
During the thirteen weeks ended July 1, 2010, we paid $276,798,000 in cash for the purchase of Kerasotes theatres at closing, net of cash acquired. The purchase is subject to working capital and other purchase price adjustments as described in the Unit Purchase Agreement.
We received $55,000,000 in cash proceeds from the sale of certain theatres required to be divested in connection with the Kerasotes acquisition during the thirteen weeks ended July 1, 2010.
We fund the costs of constructing new theatres using 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 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.
Cash Flows used in Financing Activities
Cash flows used in financing activities, as reflected in the Consolidated Statement of Cash Flows, were $10,447,000 and $157,609,000 during the thirteen weeks ended July 1, 2010 and July 2, 2009, respectively.
During the thirteen weeks ended July 2, 2009, we made dividend payments of $300,000,000 to our stockholder, Holdings, and Holdings made dividend payments to its stockholder, Parent, totaling $300,000,000, which was treated as a reduction of additional paid-in capital.
Proceeds from the issuance of the 8.75% Senior Notes due 2019 were $585,492,000 and deferred financing costs paid related to the issuance of the 8.75% Senior Notes due 2019 were $14,411,000 during the thirteen weeks ended July 2, 2009.
During the thirteen weeks ended July 2, 2009, we made principal payments of $238,065,000 in connection with the redemption of our 85/8% Senior Notes due 2012 and repaid $185,000,000 of borrowings under our revolving credit facility.
Reference is made to Management's Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources in our Annual Report on Form 10-K for the fiscal year ended April 1, 2010 for certain information about our Senior Secured Credit Facility, our 8% Senior Subordinated Notes due 2014 (the "Notes due 2014"), 11% Senior Subordinated Notes due 2016 (the "Notes due 2016"), and our 8.75% Senior Notes due 2019 (the "Notes due 2019") and for certain information about Holdings' Discount Notes due 2014 and Parent's Term Loan Facility.
The indentures relating to our notes (Notes due 2014, Notes due 2016 and Notes due 2019) and the Parent Term Loan Facility allow us to incur specified permitted indebtedness (as defined therein) without restriction. The indentures and the Parent Term Loan Facility also allow us to incur any amount of additional debt, including borrowings under the revolving portion of our Senior Secured Credit Facility, as long as we can satisfy the applicable coverage ratio of each indenture, after giving effect to the event on a pro forma basis. Under the indentures we could borrow approximately $615,300,000 (assuming an interest rate of 9.00% per annum on the additional indebtedness) in addition to specified permitted indebtedness. If we cannot satisfy the applicable coverage ratios,
34
generally we can incur no more than $100,000,000 of new "permitted indebtedness" under the terms of the indentures relating to our notes and the Parent Term Loan Facility.
As of July 1, 2010, we were in compliance with all financial covenants relating to the Senior Secured Credit Facility, the Notes due 2016, the Notes due 2014, and the Notes due 2019.
Investment in NCM LLC
We hold an investment in 23.05% of NCM LLC accounted for following the equity method as of July 1, 2010. The fair market value of these shares is approximately $442,216,000 as of July 1, 2010. Because we have little tax basis in these units, the sale of all these units at July 1, 2010 would require us to report taxable income of approximately $458,000,000, including distributions received from NCM LLC that were previously deferred. Our investment in NCM LLC is a source of liquidity for us and we expect that any sales we may make of NCM LLC units would be made in such a manner to most efficiently manage any related tax liability. We have available net operating loss carryforwards which could reduce any related tax liability. On August 9, 2010, we announced our intent, subject to market and other conditions, to redeem 6,500,000 common membership units of NCM LLC for a like number of shares of National CineMedia, Inc's ("NCM Inc.") common stock and then resell such shares of common stock in a registered underwritten public offering. NCM Inc. is the managing member and owner of 38.3% of NCM LLC. We intend to grant the underwriters an option for 30 days to purchase up to 812,500 additional shares of NCM Inc. common stock after conversion of NCM LLC common membership units by us, to cover over-allotments, if any. The expected proceeds would be used for general corporate purposes including repaying indebtedness and to pursue accretive acquisitions as they become available.
Commitments and Contingencies
Minimum annual cash payments required under existing capital and financing lease obligations, maturities of corporate borrowings, future minimum rental payments under existing operating leases, furniture, fixtures and equipment and leasehold purchase provisions, ADA related betterments and pension funding that have initial or remaining non-cancelable terms in excess of one year for fiscal years 2011 through 2015 and thereafter are as follows:
(In thousands)
|
Minimum Capital and Financing Lease Payments |
Principal Amount of Corporate Borrowings(1) |
Interest Payments on Corporate Borrowings(2) |
Minimum Operating Lease Payments |
Acquisitions and Capital Related Betterments(3) |
Pension Funding(4) |
Total Commitments |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2011 |
$ | 10,096 | $ | 6,500 | $ | 124,625 | $ | 436,448 | $ | 18,234 | $ | 4,754 | $ | 600,657 | ||||||||
2012 |
8,894 | 6,500 | 124,495 | 438,158 | 10,323 | 976 | 589,346 | |||||||||||||||
2013 |
7,926 | 609,375 | 122,354 | 425,731 | | | 1,165,386 | |||||||||||||||
2014 |
7,612 | 300,000 | 110,250 | 399,275 | | | 817,137 | |||||||||||||||
2015 |
7,683 | | 88,250 | 395,984 | | | 491,917 | |||||||||||||||
Thereafter |
76,304 | 925,000 | 252,917 | 2,500,207 | | | 3,754,428 | |||||||||||||||
Total |
$ | 118,515 | $ | 1,847,375 | $ | 822,891 | $ | 4,595,803 | $ | 28,557 | $ | 5,730 | $ | 7,418,871 | ||||||||
- (1)
- Represents
cash requirements for the payment of principal on corporate borrowings. Total amount does not equal carrying amount due to unamortized discounts
on issuance.
- (2)
- Interest
expense on the term loan portion of our senior secured credit facility was estimated at 2.00% based upon the interest rate in effect as of
July 1, 2010.
- (3)
- Includes committed capital expenditures and acquisitions including the estimated cost of ADA related betterments. Does not include planned, but non-committed capital expenditures.
35
- (4)
- Historically, we fund our pension plan such that the plan is approximately 90% funded. The plan has been frozen effective December 31, 2006. The funding requirement has been estimated based upon our expected funding amount. Also included are payments due under a withdrawal liability for a union sponsored plan. The retiree health plan is not funded.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to various market risks including interest rate risk and foreign currency exchange rate risk.
Market risk on variable-rate financial instruments. We maintain an $850,000,000 Senior Secured Credit Facility, comprised of a $200,000,000 revolving credit facility and a $650,000,000 term loan facility, which permits borrowings at a rate equal to an applicable margin plus, at our option, either a 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. We had no borrowings on our revolving credit facility as of July 1, 2010 and had $620,750,000 outstanding under the term loan facility on July 1, 2010. A 100 basis point change in market interest rates would have increased or decreased interest expense on the Senior Secured Credit Facility by $1,573,000 during the thirteen weeks ended July 1, 2010.
Market risk on fixed-rate financial instruments. Included in long-term debt are principal amounts of $325,000,000 of our Notes due 2016, $300,000,000 of our Notes due 2014, and $600,000,000 of our Notes due 2019. Increases in market interest rates would generally cause a decrease in the fair value of the Notes due 2016, Notes due 2014, and Notes due 2019 and a decrease in market interest rates would generally cause an increase in fair value of the Notes due 2016, Notes due 2014, and Notes due 2019.
Foreign currency exchange rates. We currently operate theatres in Canada, France 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 decreases in assets, liabilities, revenues and expenses are included in accumulated other comprehensive loss. 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. A 10% increase in the value of the U.S. dollar against all foreign currencies of countries where we currently operate theatres would increase earnings before income taxes by approximately $253,000 and decrease accumulated other comprehensive loss by approximately $8,060,000, respectively, as of July 1, 2010. A 10% decrease in the value of the U.S. dollar against all foreign currencies of countries where we currently operate theatres would increase earnings before income taxes by approximately $29,000 and increase accumulated other comprehensive loss by approximately $9,852,000, respectively, as of July 1, 2010.
Item 4. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures.
The Company maintains a set of disclosure controls and procedures designed to ensure that material information required to be disclosed in its filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and
36
Exchange Commission's rules and forms and that material information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company's Chief Executive Officer and Chief Financial Officer have evaluated these disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q and have determined that such disclosure controls and procedures were effective.
- (b)
- Changes in internal controls.
There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
37
Reference is made to Part I. Item 3. Legal Proceedings in our Annual Report on Form 10-K for the fiscal year ended April 1, 2010 for information on certain litigation to which we are a party.
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.
Reference is made to Part I Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended April 1, 2010.
38
EXHIBIT NUMBER | DESCRIPTION | ||
---|---|---|---|
2.1 | Agreement and Plan of Merger, dated June 20, 2005, by and among Marquee Holdings Inc. and LCE Holdings, Inc. (incorporated by reference from Exhibit 2.1 to AMCE's Current Report on Form 8-K (File No. 1-8747) filed on June 24, 2005). | ||
2.2 |
Agreement and Plan of Merger, dated as of July 22, 2004 by and among Marquee Holdings Inc., Marquee Inc. and AMCE (incorporated by reference from Exhibit 2.1 to AMCE's Current Report on Form 8-K (File No. 1-8747) filed on July 23, 2004). |
||
2.3 |
Unit Purchase Agreement among Kerasotes ShowPlace Theatres Holdings, LLC, Kerasotes ShowPlace Theatres, LLC, ShowPlace Theatres Holding Company, LLC, AMC ShowPlace Theatres, Inc. and American Multi-Cinema, Inc. (incorporated by reference from Exhibit 2.1 to the Company's Form 8-K (File No. 1-8747) filed on July 14, 2010). |
||
3.1 |
Restated and Amended Certificate of Incorporation of AMC Entertainment Inc. (as amended on December 2, 1997, September 18, 2001 and December 23, 2004) (incorporated by reference from Exhibit 3.1 to the AMCE's Current Report on Form 8-K (File No. 1-8747) filed on December 27, 2004). |
||
3.2 |
Amended and Restated By-laws of AMC Entertainment Inc. (incorporated by reference from Exhibit 3.2 to AMCE's Current Report on Form 8-K (File No. 1-8747) filed on December 27, 2004). |
||
Certificates of Incorporation or corresponding instruments, with amendments, of the following additional registrants: |
|||
3.3.1 |
Loews Citywalk Theatre Corporation (incorporated by reference from Exhibit 3.3.1 to AMCE's Registration Statement on Form S-4 (File No. 333-133574) filed on April 27, 2006). |
||
3.3.2 |
LCE Mexican Holdings, Inc. (incorporated by reference from Exhibit 3.3.9 to AMCE's Registration Statement on Form S-4 (File No. 333-133574) filed on April 27, 2006). |
||
3.3.4 |
AMC Card Processing Services, Inc. (incorporated by reference from Exhibit 3.3.93 to AMCE's Registration Statement on Form S-4 (File No. 333-133574) filed on April 27, 2006). |
||
3.3.5 |
AMC Entertainment International, Inc. (incorporated by reference from Exhibit 3.3.94 to AMCE's Registration Statement on Form S-4 (File No. 333-133574) filed on April 27, 2006). |
||
3.3.6 |
American Multi-Cinema, Inc. (incorporated by reference from Exhibit 3.3.10 to AMCE's Form 10-Q (File No. 1-8747) filed on February 8, 2008). |
||
3.3.7 |
Club Cinema of Mazza, Inc. (incorporated by reference from Exhibit 3.3.97 to AMCE's Registration Statement on Form S-4 (File No. 333-133574) filed on April 27, 2006). |
||
*3.3.8 |
AMC ShowPlace Theatres, Inc. |
||
3.4 |
By-laws of the following Additional Registrants: (incorporated by reference from Exhibit 3.4 to AMCE's Registration Statement on Form S-4 (File No. 333-133574) filed on April 27, 2006): |
||
Loews Citywalk Theatre Corporation |
39
EXHIBIT NUMBER | DESCRIPTION | ||
---|---|---|---|
3.5 | By-laws of LCE Mexican Holdings, Inc. (incorporated by reference from Exhibit 3.5 to AMCE's Registration Statement on Form S-4 (File No. 333-133574) filed on April 27, 2006). | ||
3.6 |
By-laws of AMC Card Processing Services, Inc. (incorporated by reference from Exhibit 3.20 to AMCE's Registration Statement on Form S-4 (File No. 333-133574) filed on April 27, 2006). |
||
3.7 |
By-laws of AMC Entertainment International, Inc. (incorporated by reference from Exhibit 3.21 to AMCE's Registration Statement on Form S-4 (File No. 333-133574) filed on April 27, 2006). |
||
3.8 |
By-laws of American Multi-Cinema, Inc. (incorporated by reference from Exhibit 3.9 to AMCE's Form 10-Q (File No. 1-8747) filed on February 8, 2008). |
||
3.9 |
By-laws of Club Cinema of Mazza, Inc. (incorporated by reference from Exhibit 3.24 to AMCE's Registration Statement on Form S-4 (File No. 333-133574) filed on April 27, 2006). |
||
*3.10 |
By-laws of AMC ShowPlace Theatres, Inc. |
||
*4.1 |
Fourth Supplemental Indenture dated June 24, 2010, respecting AMC Entertainment Inc.'s 8% Senior Subordinated Notes due 2014. |
||
*4.2 |
Second Supplemental Indenture dated June 24, 2010, respecting AMC Entertainment Inc.'s 11% Senior Subordinated Notes due 2016. |
||
*4.3 |
First Supplemental Indenture, dated as of June 24, 2010, respecting AMC Entertainment Inc.'s 8.75% Senior Notes due 2019. |
||
*31.1 |
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Acts of 2002. |
||
*31.2 |
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Acts of 2002. |
||
*32.1 |
Section 906 Certifications of Gerardo I. Lopez (Chief Executive Officer) and Craig R. Ramsey (Chief Financial Officer) furnished in accordance with Securities Act Release 33-8212. |
- *
- Filed herewith
40
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
AMC ENTERTAINMENT INC. | ||
Date: August 10, 2010 |
/s/ GERARDO I. LOPEZ Gerardo I. Lopez Chief Executive Officer, Director and President |
|
Date: August 10, 2010 | /s/ CRAIG R. RAMSEY Craig R. Ramsey Executive Vice President and Chief Financial Officer |
41