UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 28, 2001

OR

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

THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _________________ to ______________________

Commission file number 1-8747

AMC ENTERTAINMENT INC.

(Exact name of registrant as specified in its charter)

Delaware

43-1304369

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

106 West 14th Street

P.O. Box 219615

Kansas City, Missouri 64121-9615

(Address of principal executive offices) (Zip Code)

(816) 221-4000

(Registrant's telephone number, including area code)

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

Yes x No ____

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

 

Number of Shares

Outstanding as of June 28, 2001

Title of Each Class of Common Stock

Common Stock, 66 2/3 cents par value

19,427,098

Class B Stock, 66 2/3 cents par value

4,041,993

 

AMC ENTERTAINMENT INC. AND SUBSIDIARIES

INDEX

<Table>

<Caption>

 

 

Page Number

 

PART I - FINANCIAL INFORMATION

 

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Item 1.

Financial Statements

 

 

Consolidated Statements of Operations

3

 

Consolidated Balance Sheets

4

 

Consolidated Statements of Cash Flows

5

 

Notes to Consolidated Financial Statements

7

Item 2.

Management's Discussion and Analysis

 

 

of Financial Condition and Results of Operations

11

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

18

 

PART II - OTHER INFORMATION

 

Item 1.

Legal Proceedings

18

Item 2.

Changes in Securities and Use of Proceeds

19

Item 6.

Exhibits and Reports on Form 8-K

20

 

 

 

 

Signatures

23

</table>

Item 1. Financial Statements.

<Table>

<Caption>

AMC ENTERTAINMENT INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

 

Thirteen Weeks Ended

 

June 28, 2001

June 29, 2000

 

(Unaudited)

<S>

<C>

<C>

Revenues

 

 

Admissions

$203,184

$193,541

Concessions

84,865

80,715

Other theatre

12,905

9,827

Other

8,531

7,161

Total revenues

309,485

291,244

Expenses

 

 

Film exhibition costs

110,181

104,109

Concession costs

10,725

12,217

Theatre operating expense

79,396

75,809

Rent

58,846

55,979

Other

10,737

8,825

General and administrative

7,795

6,635

Preopening expense

1,269

1,608

Theatre and other closure expense

76

727

Depreciation and amortization

23,298

26,378

(Gain) loss on disposition of assets

159

(1,640)

Total costs and expenses

302,482

290,647

Operating income

7,003

597

Other expense (income)

 

 

Other expense

3,754

-

Interest expense

 

 

Corporate borrowings

11,899

16,248

Capital and financing lease obligations

3,514

3,182

Investment income

(282)

(1,100)

Loss before income taxes and cumulative effect of an accounting change

(11,882)

(17,733)

Income tax provision

-

(6,600)

Loss before cumulative effect of an accounting change

(11,882)

(11,133)

Cumulative effect of an accounting change

 

 

(net of income tax benefit of $10,950)

-

(15,760)

Net loss

$(11,882)

$ (26,893)

Preferred dividends

2,398

-

Net loss for common shares

$(14,280)

$ (26,893)

Loss per common share before cumulative effect of an accounting change:

 

 

Basic

$ (.61)

$ (.47)

Diluted

$ (.61)

$ (.47)

Net loss per common share:

 

 

Basic

$ (.61)

$ (1.15)

Diluted

$ (.61)

$ (1.15)

See Notes to Consolidated Financial Statements.

</table>

<Table>

<Caption>

AMC ENTERTAINMENT INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

June 28, 2001

March 29, 2001

 

(Unaudited)

 

ASSETS

 

 

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<C>

<C>

Current assets:

 

 

Cash and equivalents

$ 25,647

$ 34,075

Receivables, net of allowance for doubtful accounts of $1,247

 

 

as of June 28, 2001 and $1,137 as of March 29, 2001

18,919

14,231

Other current assets

45,541

45,075

Total current assets

90,107

93,381

Property, net

748,754

757,518

Intangible assets, net

7,225

7,639

Deferred income taxes

135,491

135,491

Other long-term assets

51,267

53,235

Total assets

$1,032,844

$1,047,264

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:

 

 

Accounts payable

$103,201

$ 100,989

Accrued expenses and other liabilities

138,349

138,193

Current maturities of capital and financing

 

 

lease obligations

2,854

2,718

Total current liabilities

244,404

241,900

Corporate borrowings

457,190

694,172

Capital and financing lease obligations

62,977

53,966

Other long-term liabilities

111,070

116,271

Total liabilities

875,641

1,106,309

Commitments and contingencies

 

 

Stockholders' equity (deficit):

 

 

Series A Convertible Preferred Stock, 66 2/3 cents par value; 92,000 shares issued and outstanding as of June 28, 2001 (aggregate liquidation preference of $93,242 as of June 28, 2001)

61

-

Series B Exchangeable Preferred Stock, 66 2/3 cents par value; 158,000 shares issued and outstanding as of June 28, 2001 (aggregate liquidation preference of $161,792 as of June 28, 2001)

106

-

Common Stock, 66 2/3 cents par value; 19,447,598

 

 

shares issued as of June 28, 2001 and March 29, 2001

12,965

12,965

Convertible Class B Stock, 66 2/3 cents par value; 4,041,993 shares

 

 

issued and outstanding as of June 28, 2001 and March 29, 2001

2,695

2,695

Additional paid-in capital

336,517

106,713

Accumulated other comprehensive income

(16,829)

(15,121)

Accumulated deficit

(167,929)

(156,047)

 

167,586

(48,795)

Less:

 

 

Employee notes for Common Stock purchases

10,014

9,881

Common Stock in treasury, at cost, 20,500 shares as of

 

 

June 28, 2001 and March 29, 2001

369

369

Total stockholders' equity (deficit)

157,203

(59,045)

Total liabilities and stockholders' equity (deficit)

$1,032,844

$1,047,264

See Notes to Consolidated Financial Statements.

</table>

<Table>

<Caption>

AMC ENTERTAINMENT INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, except per share data)

 

Thirteen Weeks Ended

 

June 28, 2001

June 29, 2000

INCREASE (DECREASE) IN CASH AND EQUIVALENTS

(Unaudited)

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<C>

<C>

Cash flows from operating activities:

 

 

Net loss

$ (11,882)

$ (26,893)

Adjustments to reconcile net loss to

 

 

net cash provided by operating activities:

 

 

Depreciation and amortization

23,298

26,378

Deferred income taxes

-

(6,458)

Loss (gain) on disposition of long-term assets

159

(1,640)

Cumulative effect of an accounting change

-

15,760

Change in assets and liabilities:

 

 

Receivables

(2,110)

(933)

Other current assets

(466)

4,069

Accounts payable

6,433

176

Accrued expenses and other liabilities

5,118

10,407

Liabilities for theatre closure

(2,890)

(405)

Other, net

344

924

Net cash provided by operating activities

18,004

21,385

Cash flows from investing activities:

 

 

Capital expenditures

(22,099)

(31,876)

Proceeds from sale/leasebacks

9,167

6

Net proceeds (payments) on reimbursable construction advances

(3,412)

777

Proceeds from disposition of long-term assets

940

26,134

Other, net

1,175

(3,739)

Net cash used in investing activities

(14,229)

(8,698)

Cash flows from financing activities:

 

 

Net proceeds from preferred stock issuance

229,874

-

Net repayments under revolving Credit Facility

(237,000)

(70,000)

Proceeds from sale/leasebacks

-

3,001

Principal payments under capital and financing lease obligations

(699)

(798)

Change in cash overdrafts

(3,223)

(869)

Change in construction payables

(998)

1,233

Deferred financing costs and other

40

-

Net cash used in financing activities

(12,006)

(67,433)

Effect of exchange rate changes on cash and equivalents

(197)

(720)

Net decrease in cash and equivalents

(8,428)

(55,466)

Cash and equivalents at beginning of period

34,075

119,305

Cash and equivalents at end of period

$ 25,647

$ 63,839

</table>

 

<Table>

<Caption>

AMC ENTERTAINMENT INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

Thirteen Weeks Ended

 

June 28, 2001

June 29, 2000

 

(Unaudited)

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

 

Cash paid during the period for:

 

 

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<C>

<C>

Interest (net of amounts capitalized of $974 and $1,386)

$ 7,420

$ 11,132

Income taxes paid (refunded)

32

(5,054)

   

See Notes to Consolidated Financial Statements.

 

 

</table>

AMC ENTERTAINMENT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 28, 2001

(Unaudited)

NOTE 1 - BASIS OF PRESENTATION

AMC Entertainment Inc. ("AMCE") is a holding company which, through its direct and indirect subsidiaries, including American Multi-Cinema, Inc. ("AMC"), AMC Theatres of Canada (a division of AMC Entertainment International, Inc.), AMC Entertainment International, Inc., National Cinema Network, Inc. ("NCN") and AMC Realty, Inc. (collectively with AMCE, unless the context otherwise requires, the "Company"), is principally involved in the theatrical exhibition business throughout North America and in China (Hong Kong SAR), Japan, France, Portugal, Spain and Sweden. The Company's North American theatrical exhibition business is conducted through AMC and AMC Theatres of Canada. The Company's International theatrical exhibition business is conducted through AMC Entertainment International, Inc. The Company is also involved in the business of providing on-screen advertising and other services to AMC and other theatre circuits through a wholly-owned subsidiary, National Cinema Network, Inc., and in miscellaneous ventures through AMC Realty, Inc.

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 (52 weeks) ended March 29, 2001. In the opinion of management, these interim financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation 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 June 28, 2001 are not necessarily indicative of the results to be expected for the fiscal year (52 weeks) ending March 28, 2002.

The March 29, 2001 consolidated balance sheet data was derived from the audited balance sheet, but does not include all disclosures required by generally accepted accounting principles.

Certain amounts have been reclassified from prior period consolidated financial statements to conform with the current year presentation. Prior period results of operations have been revised to reflect the adoption of Staff Accounting Bulletin No. 101 Revenue Recognition in Financial Statements.

NOTE 2 - LOSS PER COMMON SHARE

The following table sets forth the computation of basic and diluted loss per common share:

<Table>

<Caption>

 

Thirteen Weeks Ended

 

June 28, 2001

June 29, 2000

 

(in thousands, except per share data)

<S>

<C>

<C>

Loss before cumulative effect of an accounting change

$ (11,882)

$ (11,133)

Less: Preferred dividends

2,398

-

Net loss for common shares before cumulative effect of an accounting change for basic and diluted earnings per common share

$(14,280)

$ (11,133)

Denominator:

 

 

Shares for basic and diluted earnings per common share -

 

 

Average shares outstanding

23,469

23,469

Basic loss per common share before cumulative effect of an accounting change

$ (.61)

$ (.47)

Diluted loss per common share before cumulative effect of an accounting change

$ (.61)

$ (.47)

</table>

Shares from options to purchase shares of Common Stock were excluded from the diluted earnings per share calculation because they were anti-dilutive. During the thirteen weeks ended June 28, 2001, shares from options to purchase 235,178 shares of Common Stock and 10,293,706 shares of Common Stock from the assumed conversion of Series A Convertible Preferred Stock were excluded from the diluted earnings per common share calculation because they were anti-dilutive.

NOTE 3 - COMPREHENSIVE INCOME

The components of comprehensive income are as follows:

<Table>

<Caption>

 

Thirteen Weeks Ended

 

June 28, 2001

June 29, 2000

 

(in thousands)

<S>

<C>

<C>

Net loss

$ (11,882)

$ (26,893)

Foreign currency translation adjustment

(1,708)

(1,038)

Unrealized gain on marketable securities (net of income tax benefit of $99)

-

151

Comprehensive loss

$ (13,590)

$ (27,780)

</table>

NOTE 4 - OPERATING SEGMENTS

Information about the Company's operations by operating segment is as follows:

<Table>

<Caption>

 

Thirteen Weeks Ended

 

June 28, 2001

June 29, 2000

Revenues

(in thousands)

<S>

<C>

<C>

North American theatrical exhibition

$283,029

$267,751

International theatrical exhibition

17,925

16,332

NCN and other

8,531

7,161

Total revenues

$309,485

$291,244

Adjusted EBITDA (1)

North American theatrical exhibition

$44,778

$37,599

International theatrical exhibition

(2,972)

(1,630)

NCN and other

(2,206)

(1,664)

Total segment Adjusted EBITDA

39,600

34,305

General and administrative

7,795

6,635

Total Adjusted EBITDA

$31,805

$27,670

 

June 28, 2001

June 29, 2000

Property (2)

(in thousands)

North American theatrical exhibition

$1,086,285

$ 1,082,049

International theatrical exhibition

84,849

77,307

NCN and other

13,924

13,465

Total segment property

1,185,058

1,172,821

Construction in progress

26,305

39,889

Corporate

31,278

45,882

 

1,242,641

1,258,592

Less-accumulated depreciation

 

 

and amortization

493,887

429,711

Property, net

$ 748,754

$ 828,881

(1) Represents loss before cumulative effect of an accounting change plus interest, income taxes, depreciation and amortization, other expense and adjusted for preopening expense, theatre and other closure expense, (gain) loss on disposition of assets and equity in earnings of unconsolidated affiliates.

(2) Property is comprised of land, buildings and improvements, leasehold improvements and furniture, fixtures and equipment.

</table>

NOTE 5 - STOCKHOLDERS' EQUITY (DEFICIT)

On April 19, 2001, the Company issued 92,000 shares of Series A Convertible Preferred Stock (the "Series A Preferred") and 158,000 shares of Series B Exchangeable Preferred Stock (the "Series B Preferred" and collectively with the Series A Preferred, the "Preferred Stock") at a price of $1,000 per share. Net proceeds from the issuance were used to repay borrowings under the Credit Facility. Reference is made to Note 5, Stockholders' Equity (Deficit), of the Company's Annual Report on Form 10-K for the fiscal year ended March 29, 2001 for additional information concerning the Preferred Stock.

On July 25, 2001, holders of Convertible Class B Stock converted 100,000 shares of Class B Stock into 100,000 shares of Common Stock.

NOTE 6 - THEATRE AND OTHER CLOSURE AND DISPOSITION OF ASSETS

A rollforward of reserves for theatre and other closure and the discontinuing operation of fast food restaurants is as follows:

 

Thirteen Weeks Ended

 

June 28, 2001

Beginning Balance

$32,092

Theatre and other closure expense

76

Interest expense

1,356

Transfer of deferred rent balances

308

Payments

(4,676)

Ending Balance

$29,156

NOTE 7 - 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.

The Company is the defendant in two coordinated cases now pending in California, Weaver v. AMC Entertainment Inc., (filed March 2000 in Superior Court of California, San Francisco County), and Geller v. AMC Entertainment Inc. (filed May 2000 in Superior Court of California, San Bernardino County). The litigation is based upon California Civil Code Section 1749.5, which provides that "on or after July 1, 1997, it is unlawful for any person or entity to sell a gift certificate to a purchaser containing an expiration date." Weaver is a purported class action on behalf of all persons in California who, on or after January 1, 1997, purchased or received an AMC Gift of Entertainment ("GOE") containing an expiration date. Geller is brought by a plaintiff who allegedly received an AMC discount ticket in California containing an expiration date and who purports to represent all California purchasers of these "gift certificates" purchased from any AMC theatre, store, location, web-site or other venue owned or controlled by AMC since January 1, 1997. Both complaints allege unfair competition and seek injunctive relief. Geller seeks restitution of all expired "gift certificates" purchased in California since January 1, 1997 and not redeemed. Weaver seeks disgorgement of all revenues and profits obtained since January 1997 from sales of "gift certificates" containing an expiration date, as well as actual and punitive damages. The Company has denied any liability, answering that GOEs and discount tickets are not a "gift certificate" under the statute and that, in any event, no damages have occurred. On May 11, 2001, following a special trial on the issue, the court ruled that the GOEs and discount tickets are "gift certificates." The Company intends to appeal this ruling and to continue defending the cases vigorously. Should the result of this litigation ultimately be adverse to the Company, it is presently unable to estimate the amount of the potential loss.

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

This section contains certain "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally can be identified by use of statements that include words or phrases such as the Company or its management "believes," "expects," "anticipates," "intends," "plans," "foresees" or other words or phrases of similar import. Similarly, statements that describe the Company's objectives, plans or goals also are forward-looking statements. All such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those contemplated by the relevant forward-looking statement. Important factors that could cause actual results to differ materially from the expectations of the Company include, among others: (i) the Company's ability to enter into various financing programs; (ii) the performance of films licensed by the Company; (iii) competition; (iv) construction delays; (v) the ability to open or close theatres and screens as currently planned; (vi) general economic conditions, including adverse changes in inflation and prevailing interest rates; (vii) demographic changes; (viii) increases in the demand for real estate; (ix) changes in real estate, zoning and tax laws and (x) unforeseen changes in operating requirements. Readers are urged to consider these factors carefully in evaluating the forward-looking statements. The forward-looking statements included herein are made only as of the date of this Form 10-Q and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

 Operating Results

Set forth in the table below is a summary of revenues, costs and expenses attributable to the Company's North American and International theatrical exhibition operations and NCN and other businesses.

 

<Table>

<Caption>

 

 

Thirteen Weeks Ended

 

 

June 28, 2001

June 29, 2000

% Change

 

 

(Dollars in thousands)

 

<S>

 

<C>

<C>

<C>

Revenues

 

 

 

 

North American theatrical exhibition

 

 

 

 

Admissions

 

$188,803

$180,377

4.7%

Concessions

 

81,833

78,023

4.9

Other theatre

 

12,393

9,351

32.5

283,029

267,751

5.7

International theatrical exhibition

 

 

 

 

Admissions

 

14,381

13,164

9.2

Concessions

 

3,032

2,692

12.6

Other theatre

 

512

476

7.6

17,925

16,332

9.8

NCN and other

8,531

7,161

19.1

Total revenues

$309,485

$291,244

6.3%

Cost of Operations

 

 

 

 

North American theatrical exhibition

 

 

 

 

Film exhibition costs

 

$102,956

$ 97,328

5.8%

Concession costs

 

9,766

11,416

(14.5)

Theatre operating expense

 

73,992

70,642

4.7

Rent

 

52,034

50,766

2.5

Preopening expense

 

1,261

1,342

(6.0)

Theatre and other closure expense

 

76

727

(89.5)

240,085

232,221

3.4

International theatrical exhibition

 

 

 

 

Film exhibition costs

 

7,225

6,781

6.5

Concession costs

 

959

801

19.7

Theatre operating expense

 

5,404

5,167

4.6

Rent

 

6,812

5,213

30.7

Preopening expense

8

266

(97.0)

 

 

20,408

18,228

12.0

NCN and other

 

10,737

8,825

21.7

General and administrative

 

7,795

6,635

17.5

Depreciation and amortization

 

23,298

26,378

(11.7)

(Gain) loss on disposition of assets

159

(1,640)

*

Total costs and expenses

 

$302,482

$290,647

4.1%

*Percentage change in excess of 100%.

</table>

Thirteen weeks ended June 28, 2001 and June 29, 2000.

Revenues. Total revenues increased 6.3% during the thirteen weeks ended June 28, 2001 compared to the thirteen weeks ended June 29, 2000.

North American theatrical exhibition revenues increased 5.7% from the prior year. Admissions revenues increased 4.7% due to a 5.1% increase in average ticket price offset by a 0.4% decrease in attendance. The increase in average ticket prices was due primarily to a strategic initiative implemented by the Company during fiscal 2001 and 2002 to selectively increase ticket prices. Attendance decreased due to the closure or sale of 38 theatres with 256 screens since June 29, 2000, offset by attendance increases from 6 new theatres with 116 screens added since June 29, 2000. Attendance at comparable theatres (theatres opened before fiscal 2001) was essentially unchanged. Concessions revenues increased 4.9% due to a 5.3% increase in average concessions per patron. The increase in average concessions per patron was attributable primarily to the increased attendance at children's films where concession spending per patron is generally higher.

International theatrical exhibition revenues increased 9.8% from the prior year. Admissions revenues increased 9.2% due to an increase in attendance from the addition of 2 new theatres with a total of 34 screens since June 29, 2000. Attendance at comparable theatres increased 2.4%. Concession revenues increased 12.6% due primarily to the increase in total attendance. International revenues were negatively impacted by a stronger U.S. dollar, although this did not contribute materially to consolidated net loss.

Revenues from NCN and other increased 19.1% from the prior year due to an increase in advertising revenues at NCN.

Costs and expenses. Total costs and expenses increased 4.1% during the thirteen weeks ended June 28, 2001 compared to the thirteen weeks ended June 29, 2000.

North American theatrical exhibition costs and expenses increased 3.4% from the prior year. Film exhibition costs increased 5.8% due to higher admissions revenues and an increase in the percentage of admissions paid to film distributors. As a percentage of admissions revenues, film exhibition costs were 54.5% in the current year as compared with 54.0% in the prior year. Concession costs decreased 14.5% due to additional marketing incentives from vendors under renegotiated contract terms and the Company's initiative to consolidate purchasing to obtain more favorable pricing, offset by an increase in concession sales. As a percentage of concessions revenues, concession costs were 11.9% in the current year compared with 14.6% in the prior year. As a percentage of revenues, theatre operating expense was 26.1% in the current year as compared to 26.4% in the prior year. Rent expense increased 2.5% due to the growing number of megaplexes (theatres with predominantly stadium seating) in the Company's theatre circuit, which generally have higher rent per screen than multiplexes (theatres generally without stadium seating). During the thirteen weeks, the Company incurred $76,000 of theatre and other closure expenses, primarily comprised of expected payments to landlords to terminate leases related to the closure of 3 multiplexes with 18 screens offset by a favorable renegotiation of vacant restaurant space related to a terminated joint venture. The Company closed these theatres as a result of negative operating cash flows which were not expected to improve in the future. The Company anticipates that it will incur approximately $5,000,000 of costs related to the closure of approximately 83 multiplex screens in fiscal 2002.

International theatrical exhibition costs and expenses increased 12.0% from the prior year. Film exhibition costs increased 6.5% primarily due to higher admissions revenues. Rent expense increased 30.7% and theatre operating expense increased 4.6% from the prior year, due to the increased number of screens in operation. International theatrical exhibition costs and expenses were positively impacted by a stronger U.S. dollar, although this did not contribute materially to consolidated net loss.

Costs and expenses from NCN and other increased 21.7% due primarily to an increase in expenses at NCN.

General and administrative expenses increased 17.5% from the prior year due primarily to an increase in incentive compensation expense. As a percentage of total revenues, general and administrative expenses increased from 2.3% in the prior year to 2.5% in the current year.

Depreciation and amortization decreased 11.7%, or $3,080,000, during the thirteen weeks ended June 28, 2001. The decrease was primarily caused by a decrease in depreciation of $2,229,000 related to impairment losses recorded in previous periods which reduced the carrying value of theatre assets.

Gain on disposition of assets decreased from a gain of $1,640,000 in the prior year to a loss of $159,000 during the current year. Current year and prior year results include the sale of real estate held for investment.

Other Expense. During the thirteen weeks ended June 28, 2001, the Company recognized $3,754,000 of transaction expenses incurred in connection with the issuance of Preferred Stock.

Interest Expense. Interest expense decreased 20.7% during the thirteen weeks ended June 28, 2001 compared to the prior year, due to a decrease in average outstanding borrowings from net proceeds on the sale of Preferred Stock.

Income Tax Provision. The provision for income taxes was $0 during the current year compared to a benefit of $6,600,000 in the prior year. The effective tax rate was 0% for the current year compared to 37.2% for the previous year. The Company adjusts its expected annual tax rate on a quarterly basis based on current projections of non-deductible expenses and pre-tax earnings or losses for its domestic and foreign subsidiaries.

Net Loss. Net loss decreased during the thirteen weeks ended June 28, 2001 to a loss of $11,882,000 from a loss of $26,893,000 in the prior year due primarily to the cumulative effect of an accounting change recorded in the prior year. Net loss per common share was $.61 compared to a loss of $1.15 in the prior year. Prior year results include the cumulative effect of an accounting change of $15,760,000 (net of income tax benefit of $10,950,000), which increased loss per share by $.68 for the thirteen weeks ended June 29, 2000.

LIQUIDITY AND CAPITAL RESOURCES

The Company's revenues are collected in cash, principally through box office admissions and theatre concessions sales. The Company has an operating "float" which partially finances its operations and which generally permits the Company to maintain a smaller amount of working capital capacity. This float exists because admissions revenues are received in cash, while exhibition costs (primarily film rentals) are ordinarily paid to distributors from 30 to 45 days following receipt of box office admissions revenues. The Company is only occasionally required to make advance or early payments or non-refundable guaranties of film rentals. Film distributors generally release during the summer and holiday seasons the films which they anticipate will be the most successful. Consequently, the Company typically generates higher revenues during such periods.

Cash flows from operating activities, as reflected in the Consolidated Statements of Cash Flows, declined $3,381,000 from $21,385,000 during the thirteen weeks ended June 29, 2000 to $18,004,000 during the thirteen weeks ended June 28, 2001. The decrease in operating cash flows for the thirteen weeks ended June 29, 2000 to June 28, 2001 is primarily due to an increase in incentive compensation payments, a decrease in tax refunds, increases in Preferred Stock transaction payments, and increases in theatre closure payments offset by decreases in payments on accounts payable, increased adjusted EBITDA and decreased interest payments. The Company had a net working capital deficit as of June 28, 2001 and March 29, 2001 of $154,297,000 and $148,519,000, respectively. The increase in working capital deficit is not expected to negatively impact the Company's ability to fund operations or planned capital expenditures for the next 12 months. The Company borrows against its Credit Facility to meet obligations as they come due and had approximately $334,000,000 and $150,000,000 available on its Credit Facility to meet these obligations as of June 28, 2001 and March 29, 2001, respectively.

The Company continues to expand its North American and International theatre circuits. During the current fiscal year, the Company opened 3 theatres with 60 screens. In addition, the Company closed 3 theatres with 18 screens resulting in a circuit total of 180 theatres with 2,810 screens as of June 28, 2001.

The costs of constructing new theatres are funded by the Company through internally generated cash flow or borrowed funds. The Company generally leases its theatres pursuant to long-term non-cancelable operating leases which require the developer, who owns the property, to reimburse the Company for a portion of the construction costs. However, the Company may decide to own the real estate assets of new theatres and, following construction, sell and leaseback the real estate assets pursuant to long-term non-cancelable operating leases. During the thirteen weeks ended June 28, 2001, the Company leased 3 new theatres with 60 screens from developers. The Company also sold and subsequently leased back the land at one of its megaplex theatres to Entertainment Properties Trust ("EPT"), a real estate investment trust, for approximately $7,500,000.

Until November 2002, EPT has a right of first refusal and first offer to purchase and leaseback to the Company the real estate assets associated with any megaplex theatre and related entertainment property owned or ground-leased by the Company, exercisable upon the Company's intended disposition of such property. As of June 28, 2001, the Company had 4 open megaplexes that would be subject to EPT's right of first refusal and first offer to purchase should the Company seek to dispose of such megaplexes.

Historically, the Company has owned and paid for the equipment necessary to fixture a theatre. However, the Company may enter into lease agreements for equipment necessary to fixture certain theatres.

As of June 28, 2001, the Company had construction in progress of $26,305,000 and reimbursable construction advances (amounts due from developers on leased theatres) of $3,421,000. The Company had four theatres in the U.S. with a total of 70 screens, one theatre in the United Kingdom with 16 screens and two theatres in Spain with 38 screens under construction on June 28, 2001. During the thirteen weeks ended June 28, 2001, the Company had capital expenditures of $22,099,000. The Company expects that the net cash requirements for capital expenditures will approximate $75,000,000 in fiscal 2002.

The Company's Credit Facility permits borrowings at interest rates based on either the bank's base rate or LIBOR and requires an annual commitment fee based on margin ratios that could result in a rate of .375% or .500% on the unused portion of the commitment. The Credit Facility matures on April 10, 2004. The commitment thereunder will be reduced by $25,000,000 on each of December 31, 2002, March 31, 2003, June 30, 2003 and September 30, 2003 and by $50,000,000 on December 31, 2003. The total commitment under the Credit Facility is $425,000,000, but the facility contains covenants that limit the Company's ability to incur debt (whether under the Credit Facility or from other sources). As of June 28, 2001, the Company had outstanding borrowings of $33,000,000 under the Credit Facility at an average interest rate of 6.7% per annum, and approximately $334,000,000 was available for borrowing under the Credit Facility.

Covenants under the Credit Facility impose limitations on indebtedness, creation of liens, change of control, transactions with affiliates, mergers, investments, guaranties, asset sales, dividends, business activities and pledges. In addition, the Credit Facility contains certain financial covenants. Covenants under the Indentures relating to the Company's $225,000,000 aggregate principal amount of 9 1/2% Senior Subordinated Notes due 2011 (the "Notes due 2011") and $200,000,000 aggregate principal amount of 9 1/2% Senior Subordinated Notes due 2009 (the "Notes due 2009") are substantially the same and impose limitations on the incurrence of indebtedness, dividends, purchases or redemptions of stock, transactions with affiliates, and mergers and sales of assets, and require the Company to make an offer to purchase the Notes upon the occurrence of a change in control, as defined in the Indentures. Upon a change of control, the Company will be required to make an offer to repurchase each holder's Notes due 2009 and Notes due 2011 at a price equal to 101% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase.

The Indentures relating to the Notes due 2009 and 2011 (collectively, the "Notes") also contain provisions subordinating the obligations of the Company under the Notes to its obligations under the Credit Facility and other senior indebtedness. These include a provision that applies if there is a payment default under the Credit Facility or other senior indebtedness and one that applies if there is a non-payment default that permits acceleration of indebtedness under the Credit Facility. If there is a payment default under the Credit Facility or other senior indebtedness, generally no payment may be made on the Notes until such payment default has been cured or waived or such senior indebtedness had been discharged or paid in full. If there is a non-payment default under the Credit Facility that would permit the lenders to accelerate the maturity date of the Credit Facility, no payment may be made on the Notes for a period (the "Payment Blockage Period") commencing upon the receipt by the Indenture trustees for the Notes of notice of such default and ending up to 179 days thereafter. Not more than one Payment Blockage Period may be commenced during any period of 365 consecutive days. Failure of the Company to make payment on either series of Notes when due or within any applicable grace period, whether or not occurring under a Payment Blockage Period, will be an event of default with respect to such Notes. As of June 28, 2001, the Company was in compliance with all financial covenants relating to the Credit Facility, the Notes due 2009 and the Notes due 2011. However, as of such date, under provisions of the Indentures related to the Notes due 2009, the Company is prohibited from incurring additional indebtedness, other than additional borrowings under the Credit Facility and other permitted indebtedness, as defined in the Indentures, and paying cash dividends or making distributions in respect of its capital stock.

On April 19, 2001, the Company issued shares of Series A Preferred Stock and Series B Preferred Stock for an aggregate purchase price of $250,000,000. Net proceeds from the sale (including transaction expenses) of approximately $225,000,000 were used to reduce outstanding indebtedness under the Company's Credit Facility. As described in Note 5 to the Company's Notes to Consolidated Financial Statements included in Part I Item 8. of its Form 10-K for the year ended March 29, 2001, dividends on the Preferred Stock are payable in additional shares of Preferred Stock until April 2004. Thereafter, at the Company's option, dividends on Series B Preferred Stock may be paid in additional shares of Series B Preferred Stock until April 2006 and dividends on Series A Preferred Stock may be paid in additional shares of Series A Preferred Stock until April 2008. Reference is made to such Note 5 for information describing circumstances in which holders of Preferred Stock may be entitled to special in-kind dividends and other circumstances under which holders of Preferred Stock may be required to receive payments-in-kind in lieu of cash and shares of Series B Preferred Stock instead of Series A Preferred Stock. Reference is also made to such Note 5 for information relating to conversion rights, exchange obligations, the Company's redemption option, the holders' redemption option, voting rights, election of directors and liquidation preferences of the Preferred Stock.

The Company believes that cash generated from operations, existing cash and equivalents, expected reimbursements from developers and the available commitment amount under its Credit Facility will be sufficient to fund operations, including amounts due under credit agreements, and planned capital expenditures for the next 12 months and enable the Company to maintain compliance with covenants related to the Credit Facility and the Notes. However, the performance of films licensed by the Company and unforeseen changes in operating requirements could affect the Company's ability to continue its business strategy as well as comply with certain financial covenants.

Euro Conversion

In January 1999, certain member countries of the European Union established irrevocable, fixed conversion rates between their existing currencies and the European Union's common currency (the "Euro"). The introduction of the Euro is scheduled to be phased in over a period ending January 1, 2002, when Euro notes and coins will come into circulation. The existing currencies are due to be completely removed from circulation on February 28, 2002.

The Company currently operates one theatre in France, one theatre in Portugal and two theatres in Spain. These countries are member countries that adopted the Euro as of January 1, 1999. The Company is implementing necessary changes to accounting, operational, and payment systems to accommodate the introduction of the Euro. The Company does not anticipate that the conversion will have a material impact on its consolidated financial position, results of operations or cash flows.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The Company is exposed to various market risks including interest rate risk and foreign currency exchange rate risk. The Company does not hold any derivative financial instruments.

Market risk on variable rate financial instruments. The Company maintains a $425 million credit facility (the "Credit Facility"), which permits borrowings at interest rates based on either the bank's base rate or LIBOR. Increases in market interest rates would cause interest expense to increase and earnings before income taxes to decrease. The change in interest expense and earnings before income taxes would be dependent upon the weighted average outstanding borrowings during the reporting period following an increase in market interest rates. Based on the Company's current outstanding borrowings under the Credit Facility at an average interest rate of 6.7% per annum, a 100 basis point increase in market interest rates would increase interest expense and decrease earnings before income taxes by approximately $330,000.

Market risk on fixed-rate financial instruments. Included in long-term debt are $200 million of 9 1/2% Senior Subordinated Notes due 2009 and $225 million of 9 1/2% Senior Subordinated Notes due 2011. Increases in market interest rates would generally cause a decrease in the fair value of the Notes due 2009 and the Notes due 2011 and a decrease in market interest rates would generally cause an increase in fair value of the Notes due 2009 and the Notes due 2011.

Foreign currency exchange rates. The Company currently operates theatres in China (Hong Kong SAR), Japan, France, Portugal, Spain, Sweden and Canada and is currently developing theatres in other international markets. As a result of these operations, the Company has assets, liabilities, revenues and expenses denominated in foreign currencies. The strengthening of the U.S. dollar against the respective currencies causes a decrease in the carrying values of assets, liabilities, revenues and expenses denominated in such foreign currencies and the weakening of the U.S. dollar against the respective currencies causes an increase in the carrying values of these items. The increases and decreases in assets, liabilities, revenues and expenses are included in accumulated other comprehensive income. Changes in foreign currency exchange rates also impact the comparability of earnings in these countries on a year-to-year basis. As the U.S. dollar strengthens, comparative translated earnings decrease, and as the U.S. dollar weakens, comparative translated earnings from foreign operations increase. Although the Company does not currently hedge against foreign currency exchange rate risk, it does not intend to repatriate funds from the operations of its international theatres but instead intends to use them to fund additional expansion. A 10% fluctuation in the value of the U.S. dollar against all foreign currencies of countries where the Company currently operates theatres would either increase or decrease earnings before income taxes and accumulated other comprehensive income by approximately $1.0 million and $10.8 million, respectively.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

Reference is made to Item 3. Legal Proceedings of the Company's Annual Report on Form 10-K for the fiscal year ended March 29, 2001 for information on certain litigation to which the Company is a party.

The Company is 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 the Company.

Item 2. Changes in Securities and Use of Proceeds.

As previously reported, on April 19, 2001, the Company entered into an Investment Agreement with Apollo Investment Fund IV, L.P., Apollo Overseas Partners IV, L.P., Apollo Investment Fund V, Apollo Overseas Partners V, L.P. (collectively, with any other partnership or entity affiliated with and managed by Apollo over which Apollo exercises investment authority, the "Apollo Purchasers"), Apollo Management IV, L.P., and Apollo Management V, L.P. (together with their affiliates, "Apollo"). Pursuant to the Investment Agreement, the Company sold the Apollo Purchasers 92,000 shares of Series A Convertible Preferred Stock (ASeries A Preferred Stock@) and 158,000 shares of Series B Exchangeable Preferred Stock (ASeries B Preferred Stock@, and together with the Series A Preferred Stock, the APreferred Stock@). The sale of the Preferred Stock has been reported previously in the Company's Form 8-K dated May 7, 2001 and Form 10-K for the fiscal year ended March 29, 2001.

Subsequently, on July 3, 2001, the Apollo Purchasers sold 5,520 shares of Series A Preferred Stock and 9,480 shares of Series B Preferred Stock to a group of investment entities (the ASandler Funds@) affiliated with Sandler Capital Management. The sale was a negotiated transaction exempt from registration under Section 4 of the Securities Act of 1933, as amended. Each of the Sandler Funds represented that it was an accredited investor and was acquiring the shares of Preferred Stock for investment and not with a view to or for sale in connection with any distribution thereof. The Sandler Funds are subject to the same restrictions regulating the conversion of Series A Preferred Stock and the transfer of Series B Preferred Stock as apply to the Apollo Purchasers.

The rights of holders of Common Stock and Class B Stock may have been affected by the issuance of the Preferred Stock in the following respects.

The Preferred Stock is senior to the Company's Common Stock and Class B Stock with respect to dividend rights and rights upon the liquidation, winding up or dissolution of the Company. Unless and until full cumulative dividends on the Preferred Stock in respect of all past quarterly dividends have been paid, and the full amount of dividends on shares of Preferred Stock in respect of the current quarterly dividend have been paid or are contemporaneously declared and set aside, no cash dividends may be paid or declared on shares of Common Stock or Class B Stock and no shares of Common Stock or Class B Stock may be purchased by the Company.

Further, until such time as the Apollo Purchasers no longer beneficially own 50% of the aggregate number of shares of Preferred Stock issued pursuant to the Investment Agreement (reduced by the shares sold on July 3, 2001 to the Sandler Funds) or either Apollo is terminated as investment manager of the Apollo Purchasers or an Apollo affiliate is removed as the general partner of the Apollo Purchasers and, in either case, is not replaced by another Apollo affiliate, Apollo's approval is required with respect to the payment of cash dividends and certain other corporate actions, including, generally, amending the Company's Amended and Restated Certificate of Incorporation or bylaws, creating, issuing or purchasing capital stock, prepaying indebtedness, incurring indebtedness, engaging in mergers with other companies, engaging in certain affiliate transactions, changing the size of the Board of Directors or acquiring significant assets.

Upon transfer of Series A Preferred Stock shares to a transferee that is not an affiliate of an Apollo Purchaser, the transferee holder of Series A Preferred Stock is entitled to vote on an as-converted basis with the holders of Common Stock and Class B Stock on all matters except the election of directors and any matter reserved by law or the Company's Amended and Restated Certificate of Incorporation for consideration exclusively by the holders of Common Stock or Class B Stock.

Reference is made to the Company's Form 8-K dated May 7, 2001 and Form 10-K for the fiscal year ended March 29, 2001 for additional information relating to the Preferred Stock.

Item 6. Exhibits and Reports on Form 8-K.

  1. Exhibits

EXHIBIT INDEX

EXHIBIT NUMBER DESCRIPTION

3.1

Amended and Restated Certificate of Incorporation of AMC Entertainment Inc. (as amended on December 2, 1997) (Incorporated by reference from Exhibit 3.1 to AMCE's Form 10-K (File No. 1-8747) dated March 29, 2001).

3.2

Bylaws of AMC Entertainment Inc. (Incorporated by reference from Exhibit 3.2 to AMCE's Form 10-K (File No. 1-8747) dated March 29, 2001).

4.1

Fifth Amendment, dated April 10, 2001, to Amended and Restated Credit Agreement dated as of April 10, 1997. (Incorporated by reference from Exhibit 4.1(e) to the Company's Form 8-K (File No. 1-8747) dated May 7, 2001).

4.2

Certificate of Designations of Series A Convertible Preferred Stock and Series B Exchangeable Preferred Stock of AMC Entertainment Inc. (Incorporated by reference from Exhibit 4.6 to the Company's Form 8-K (File No. 1-8747) filed on April 20, 2001).

4.3

Investment Agreement entered into April 19, 2001 by and among AMC Entertainment Inc. and Apollo Investment Fund IV, L.P., Apollo Overseas Partners IV, L.P., Apollo Investment Fund V, L.P., Apollo Overseas Partners V, L.P., Apollo Management IV, L.P. and Apollo Management V, L.P. (Incorporated by reference from Exhibit 4.7 to the Company's Form 8-K (File No. 1-8747) filed on April 20, 2001).

4.4

Standstill Agreement by and among AMC Entertainment Inc., and Apollo Investment Fund IV, L.P., Apollo Overseas Partners IV, L.P., Apollo Investment Fund V, L.P., Apollo Overseas Partners V, L.P., Apollo Mangement IV, L.P. and Apollo Management V, L.P., dated as of April 19, 2001. (Incorporated by reference from Exhibit 4.8 to the Company's Form 8-K (File No. 1-8747) filed on April 20, 2001).

4.5

Registration Rights Agreement dated April 19, 2001 by and among AMC Entertainment Inc. and Apollo Investment Fund IV, L.P., Apollo Overseas Partners IV, L.P., Apollo Investment Fund V, L.P., Apollo Overseas Partners V, L.P. (Incorporated by reference from Exhibit 4.9 to the Company's Form 8-K (File No. 1-8747) filed on April 20, 2001).

*4.6

Securities Purchase Agreement dated June 29, 2001 by and among Apollo Investment Fund IV, L.P., Apollo Overseas Partners IV, L.P., Apollo Investment Fund V, L.P., Apollo Overseas Partners V, L.P., Apollo Management IV, L.P., Apollo Management V, L.P., AMC Entertainment Inc., Sandler Capital Partners V, L.P., Sandler Capital Partners V FTE, L.P. and Sandler Capital Partners V Germany, L.P.

10.1

Employment agreement between AMC Entertainment Inc., American Multi-Cinema, Inc. and Philip M. Singleton which commenced on July 1, 2001. (Incorporated by reference from Exhibit 10.6 to the Company's Form 10-K/A (File No. 1-8747) filed on July 27, 2001).

10.2

Employment Agreement between AMC Entertainment Inc. and Peter C. Brown which commenced on July 1, 2001. (Incorporated by reference from Exhibit 10.7 to the Company's Form 10-K/A (File No. 1-8747) filed on July 27, 2001).

10.3

Employment agreement between AMC Entertainment Inc., American Multi-Cinema, Inc. and Richard M. Fay which commenced on July 1, 2001. (Incorporated by reference from Exhibit 10.15 to the Company's Form 10-K/A (File No. 1-8747) filed on July 27, 2001).

10.4

Employment agreement between AMC Entertainment Inc., American Multi-Cinema, Inc. and Richard T. Walsh which commenced July 1, 2001. (Incorporated by reference from Exhibit 10.25 to the Company's Form 10-K/A (File No. 1-8747) filed on July 27, 2001).

10.5

Retainer agreement with Raymond F. Beagle, Jr. which commenced July 1, 2001. (Incorporated by reference from Exhibit 10.27 to the Company's Form 10-K/A (File No. 1-8747) filed on July 27, 2001).

10.6

Employment agreement between AMC Entertainment Inc., American Multi-Cinema, Inc. and John D. McDonald which commenced July 1, 2001. (Incorporated by reference from Exhibit 10.29 to the Company's Form 10-K/A (File No. 1-8747) filed on July 27, 2001).

* Filed herewith

(b) Reports on Form 8-K

On April 20, 2001, the Company filed a Form 8-K reporting under Item 9. the sale of $250 million of Preferred Stock on April 19, 2001.

On May 7, 2001, the Company filed a Form 8-K reporting under Item 5. details of the sale of $250 million of Preferred Stock on April 19, 2001.

On May 29, 2001, the Company filed a Form 8-K reporting under Item 9. the date of its year end earnings conference call and webcast.

On May 30, 2001, the Company filed a Form 8-K reporting under Item 9. its operating results for fiscal year 2001.

On June 6, 2001, the Company filed a Form 8-K reporting under Item 5. its 2001 Annual Meeting of Stockholders date of September 13, 2001.

On July 12, 2001, the Company filed a Form 8-K reporting under Item 9. the date its first quarter earnings conference call and webcast for fiscal 2002.

On July 17, 2001, the Company filed a Form 8-K reporting under Item 9. its first quarter operating results for fiscal year 2002.

SIGNATURES

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, 2001

/s/ Peter C. Brown

Peter C. Brown

Chairman of the Board,

Chief Executive Officer and President

 

Date: August 10, 2001

/s/ Craig R. Ramsey

Craig R. Ramsey

Senior Vice President, Finance,

Chief Financial Officer and

Chief Accounting Officer