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As filed with the Securities and Exchange Commission on June 23, 2009January 21, 2011
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AMC ENTERTAINMENT INC.
(See Schedule A for additional registrants)
(Exact name of registrants as specified in their charters)
DELAWARE | 7832 | 43-1304369 | ||
(State or other jurisdiction of Incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification No.) |
920 Main Street
Kansas City, Missouri 64105
(816) 221-4000
(Address, including zip code, and telephone number, including
area code, of Registrant's Principal Executive Offices)
Craig R. Ramsey
Executive Vice President and Chief Financial Officer
AMC Entertainment Inc.
920 Main Street
Kansas City, Missouri 64105
(816) 221-4000
(Name, address, including zip code, and telephone number, including area code, of agent for service)
With a copy to:
Monica K. Thurmond, Esq.
O'Melveny & Myers LLP
7 Times Square
New York, New York 10036
(212) 326-2000
Approximate date of commencement of proposed sale to public:As soon as practicable after this Registration Statement becomes effective.
If any securities being registered on this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.o
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.o
CALCULATION OF REGISTRATION FEE
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Title of each Class of Securities to be Registered | Amount to be Registered | Proposed Maximum Offering Price Per Note | Proposed Maximum Aggregate Offering Price(1) | Amount of Registration Fee(2) | ||||
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8.75% Senior Notes due 2019 | $600,000,000 | 100% | $600,000,000 | $33,480 | ||||
Guarantee of 8.75% Senior Notes due 2019(3) | — | — | — | (4) | ||||
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Title of each Class of Securities to be Registered | Amount to be Registered | Proposed Maximum Offering Price Per Note | Proposed Maximum Aggregate Offering Price(1) | Amount of Registration Fee(2) | ||||
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9.75% Senior Subordinated Notes due 2020 | $600,000,000 | 100% | $600,000,000 | $69,660 | ||||
Guarantee of 9.75% Senior Subordinated Notes due 2020(3) | — | — | — | (4) | ||||
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The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
SCHEDULE A
Guarantor | State or Other Jurisdiction of Incorporation or Organization | Address of Registrants' Principal Executive Offices | I.R.S. Employer Identification Number | |||||||
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AMC | Arizona | 920 Main Street Kansas City, Missouri 64105 | 20-1879589 | |||||||
AMC | 920 Main Street Kansas City, Missouri 64105 | |||||||||
920 Main Street Kansas City, Missouri 64105 | ||||||||||
AMC | 920 Main Street Kansas City, Missouri 64105 | |||||||||
Delaware | 920 Main Street Kansas City, Missouri 64105 | |||||||||
920 Main Street Kansas City, Missouri 64105 | ||||||||||
920 Main Street Kansas City, Missouri 64105 | ||||||||||
Delaware | 920 Main Street Kansas City, Missouri 64105 | |||||||||
920 Main Street Kansas City, Missouri 64105 | ||||||||||
920 Main Street Kansas City, Missouri 64105 | ||||||||||
The information in this prospectus is not complete and may be changed. We may not complete the exchange offer and issue these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell securities and it is not soliciting an offer to buy these securities in any state where the offer is not permitted.
Subject to Completion, dated June 23, 2009January 21, 2011
PRELIMINARY PROSPECTUS
AMC Entertainment Inc.
OFFER TO EXCHANGE
$600,000,000 aggregate principal amount of its 8.75%9.75% Senior Subordinated Notes due 2019,2020, the issuance of each of which has been registered under the Securities Act of 1933, as amended (collectively, the "exchange notes"), for any and all of its outstanding 8.75%9.75% Senior Subordinated Notes due 20192020 (the "original notes," and together with the exchange notes, the "notes").
AMC Entertainment Inc. hereby offers, upon the terms and subject to the conditions set forth in this prospectus and the accompanying letter of transmittal (which together constitute the "exchange offer"), to exchange up to $600,000,000 in aggregate principal amount of our registered 8.75%9.75% Senior Subordinated Notes due 20192020 and the guarantees thereof (the "exchange notes"), for a like principal amount of our unregistered 8.75%9.75% Senior Subordinated Notes due 20192020 (the "original notes"). We refer to the original notes and exchange notes collectively as the "notes." The terms of the exchange notes and the guarantees thereof are identical to the terms of the original notes and the guarantees thereof in all material respects, except for the elimination of some transfer restrictions, registration rights and additional interest provisions relating to the original notes. The notes are fully and unconditionally guaranteed by all domestic restricted subsidiaries of AMC Entertainment Inc. that guarantee AMC Entertainment Inc's other indebtedness (the "guarantors"). The notes will be exchanged in denominations of $1,000 and in integral multiples of $1,000.
We will exchange any and all original notes that are validly tendered and not validly withdrawn prior to 5:00 p.m., New York City time, on , 2009,2011, unless extended.
We have not applied, and do not intend to apply, for listing of the notes on any national securities exchange or automated quotation system.
See "Risk Factors" beginning on page 1314 of this prospectus for a discussion of certain risks that you should consider before participating in this exchange offer.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is , 2009.2011.
| Page | |||
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Prospectus Summary | 1 | |||
Risk Factors | ||||
Cautionary Statements Concerning Forward-Looking Statements | 27 | |||
Industry and Market Data | 28 | |||
The Exchange Offer | 29 | |||
Use of Proceeds | 40 | |||
Capitalization | 40 | |||
Unaudited Pro Forma Condensed Consolidated Financial Data | 41 | |||
Selected Historical Consolidated Financial Data | ||||
Management's Discussion and Analysis of Financial Condition And Results of Operations | ||||
Business | ||||
Management | ||||
Security Ownership of Certain Beneficial Owners and Management | ||||
Certain Relationships and Related Party Transactions | ||||
Description of Other Indebtedness | ||||
Description of Exchange Notes | ||||
Certain U.S. Federal Income Tax Considerations | ||||
Plan of Distribution | ||||
Legal Matters | ||||
Experts | ||||
Where You Can Find More Information | ||||
Index To Consolidated Financial Statements | F-1 |
We have not authorized anyone to give you any information or to make any representations about us or the transactions we discuss in this prospectus other than those contained in this prospectus. If you are given any information or representations about these matters that is not discussed in this prospectus, you must not rely on that information. This prospectus is not an offer to sell or a solicitation of an offer to buy securities anywhere or to anyone where or to whom we are not permitted to offer or sell securities under applicable law. The delivery of this prospectus does not, under any circumstances, mean that there has not been a change in our affairs since the date of this prospectus. Subject to our obligation to amend or supplement this prospectus as required by law and the rules of the Securities and Exchange Commission, or the SEC, the information contained in this prospectus is correct only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of these securities.
The notes may not be offered or sold in or into the United Kingdom by means of any document except in circumstances that do not constitute an offer to the public within the meaning of the Public Offers of Securities Regulations 1995. All applicable provisions of the Financial Services and Markets Act 2000 must be complied with in respect of anything done in relation to the notes in, from or otherwise involving or having an effect in the United Kingdom.
The notes have not been and will not be qualified under the securities laws of any province or territory of Canada. The notes are not being offered or sold, directly or indirectly, in Canada or to or for the account of any resident of Canada in contravention of the securities laws of any province or territory thereof.
Until , 20092011 (90 days after the date of this prospectus), all dealers effecting transactions in the exchange notes, whether or not participating in the exchange offer, may be required to deliver a prospectus.
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PROSPECTUS SUMMARY
This summary highlights information appearing elsewhere in, or incorporated by reference into, this prospectus. This summary is not complete and does not contain all of the information that you should consider before investing in the notes. You should carefully read the entire prospectus, including the information presented under the headingsection entitled "Risk Factors" and the more detailed information in, along with the financial data and related notes presented elsewhereand the other documents that we incorporate by reference in this prospectus. Except as otherwise indicated or otherwise required by the context, references in this prospectus to "we," "us," "our,""we", "us", "our", the "company" or the "Issuer" refer to the combined business of AMC Entertainment Inc. and its subsidiaries.
As used in this prospectus, the term "pro forma" refers to, in the case of pro forma financial information, such information after giving pro forma effect to the Kerasotes Acquisition (as described under "Recent Developments").
Our fiscal year ends on the Thursday closest to the last day of March and is either 52 or 53 weeks long, depending on the year. References to a fiscal year are to the 52- or 53-week period ending in that year. For example, our fiscal year 20092010 ended on April 2, 2009.1, 2010.
We are one of the world's leading theatrical exhibition companies based on a number of measures, including total revenues, total number of screens and annual attendance.companies. As of April 2, 2009,September 30, 2010, we owned, operated or held interests in 307378 theatres with a total of 4,6125,304 screens, approximately 99% of which were located in the United States and Canada. Our theatres are primarily located in large urbanmajor metropolitan markets, in which we believe offer us strategic, operational and financial advantages. We also have a strong market position relative to our competition. We believe that we operate a modern, and highly productive theatre circuit. Our average screencircuit that leads the industry in key asset quality and performance metrics, such as screens per theatre and per theatre productivity measures. Our industry-leading performance is largely driven by the quality of our theatre sites, our operating practices, which focus on delivering the best customer experience, and, most recently, our implementation of premium sight and sound formats, which we believe will be key components of the future movie-going experience. As of September 30, 2010, we are the largest IMAX exhibitor in the world with a 44% market share in the United States and more than twice the screen count of 15.0 for our circuitthe second largest U.S. IMAX exhibitor.
For the 52 weeks ended September 30, 2010, the fiscal year ended April 1, 2010 and our annual attendance per theatrethe 26 weeks ended September 30, 2010, we generated pro forma revenues of 650,000 patrons substantially exceed industry averages. Historically, these favorable attributes have enabled us to generate significant cash provided by operating activities.approximately $2.7 billion, $2.7 billion and $1.3 billion, respectively, pro forma Adjusted EBITDA (as defined on page 13) of $370.2 million, $365.6 million and $188.2 million, respectively, and pro forma earnings from continuing operations of $145.4 million, $84.8 million and $64.2 million, respectively. We have a significant presencereported revenues of approximately $2.4 billion, earnings from continuing operations of $77.3 million and net earnings of $69.8 million in most major urban "Designated Market Areas," or "DMAs" (television areas as defined by Nielsen Media Research). Our revenues forfiscal 2010. For fiscal 2009 wereand 2008, we reported revenues of approximately $2.3 billion.billion and $2.3 billion, earnings (losses) from continuing operations of $(90.9) million and $41.6 million, and net earnings (losses) of $(81.2) million and $43.4 million, respectively.
We were founded in 1920 and since that timethen have pioneered many of the industry's most important innovations, including the multiplex theatre format in the early 1960s and the North American megaplex theatre format in the mid-1990s. In addition, we have acquired some of the most respected companies in the theatrical exhibition industry, including Loews Cineplex Entertainment Corporation ("Loews") and, General Cinema Corporation ("General Cinema") and, we have a demonstrated track recordmore recently, Kerasotes Showplace Theatres, LLC ("Kerasotes").
Recent Developments
All of successfully integrating those companies through timely conversion to AMC's operating procedures, headcount reductions, consolidation of corporate functions and adoption of best practices. We have also created and invested in a number of allied businesses and strategic initiatives that have created value for our company and, we believe, will continue to generate incremental value for our company. For example:
Recent Events
share-for-share basis. On August 18, 2010, we sold 6,500,000 shares of common stock of NCM, Inc., in an underwritten public offering for $16.00 per share and reduced our related investment in NCM by $36,709,000, the average carrying amount of the shares sold. Net proceeds received on this sale were $99,840,000, after deducting related underwriting fees and professional and consulting costs of $4,160,000, resulting in a gain on sale of $63,131,000. In addition, on September 8, 2010, we sold 155,193 shares of NCM, Inc. to the underwriters to cover over allotments for $16.00 per share and reduced our related investment in NCM by $867,000, the average carrying amount of the shares owned. Net proceeds received on this sale were $2,384,000, after deducting related underwriting fees and professional and consulting costs of $99,000, resulting in a gain on sale of $1,517,000.
On May 24, 2010, we completed the acquisition of 92 theatres and 928 screens from Kerasotes (the "Kerasotes Acquisition"). 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% have been built since 1994. The purchase price for the Kerasotes theatres paid in cash at closing was $276.8 million, net of cash acquired, and was subject to working capital and other purchase price adjustments. We paid working capital and other purchase price adjustments of $3.8 million during the second quarter of fiscal 2011, based on the final closing date working capital and deferred revenue amounts and have included this amount as part of the total estimated purchase price. The acquisition of Kerasotes significantly increased our size. For additional information about the Kerasotes Acquisition, see the notes to our unaudited consolidated financial statements for the 26-week period ended September 30, 2010 included elsewhere in this prospectus.
Original Notes Offering, and Cash Tender OfferOffers and Redemptions
On June 9, 2009,December 15, 2010, we issued $600,000,000 aggregate principal amount of the original notes pursuant to an indenture, dated as of June 9, 2009,December 15, 2010, among the Issuer, the guarantors named therein and U.S. Bank National Association, as trustee (the "Indenture"). The Indenture provides that the notes are general unsecured senior subordinated obligations of the Company and are fully and unconditionally guaranteed on a joint and several senior subordinated unsecured basis by all of the Company's existing and future domestic restricted subsidiaries that guarantee the Company's other indebtedness.
Concurrently with the initial notes offering, we launched a cash tender offer and consent solicitation for any and all of our currently outstanding 85/8% senior notes11% Senior Subordinated Notes due 20122016 (the "Existing AMCE"2016 Senior Subordinated Notes") at a purchase price of $1,000$1,031.00 plus a $30$30.00 consent fee for each $1,000$1,000.00 of principal amount of currently outstanding 85/8% senior notes due 20122016 Subordinated Notes validly tendered and accepted by us on or before the early tender date, and Marquee Holdings Inc. ("Marquee" or "Holdings"), our direct parent, launched a tender offer for its 12% Senior Discount Notes due 2014 (the "Marquee Notes") at a purchase price of $797.00 plus a $30.00 consent fee for each $1,000.00 face amount (or $792.09 accreted value) of currently outstanding Marquee Notes validly tendered and accepted by Marquee on or before the early tender date (the "Cash Tender Offer"Offers"). As of December 29, 2010, we had purchased $95.1 million principal amount of our 2016 Senior Subordinated Notes for a total consideration of $104.8 million, and Marquee had purchased $215.5 million principal amount at face value (or $170.7 million accreted value) of the Marquee Notes for a total consideration of $185.0 million. We recorded a loss on extinguishment for the 2016 Senior Subordinated Notes and our Senior Secured Credit Facility Amendment of approximately $11.0 million and Marquee recorded a loss on extinguishment for the Marquee Notes of approximately $10.7 million.
We used a portion of the net proceeds from the issuance of the original notes to pay the consideration for the 2016 Senior Subordinated Notes Cash Tender Offer plus any accrued and unpaid interest and distributed the remainder of such proceeds to Marquee to be applied to the Marquee Notes Cash Tender Offer. On January 3, 2011, Marquee redeemed $88.5 million principal amount at face value (or $70.1 million accreted value) of the $238,065,000Marquee Notes that remained outstanding after the
closing of the Marquee Notes Cash Tender Offer at a price of $823.77 per $1,000.00 face amount (or $792.09 accreted value) of Marquee Notes for a total consideration of $76.1 million in accordance of the terms of the indenture governing the Marquee Notes, as amended pursuant to the consent solicitation. Marquee recorded an additional loss on extinguishment related to the Marquee Notes of approximately $2.8 million. On December 30, 2010, we issued an irrevocable notice of redemption in respect of the $229.9 million principal amount of Existing AMCE2016 Senior Notes tendered. We will use the remaining amount of net proceeds for other general corporate purposes, which may in the future include retiring any outstanding Existing AMCE Senior Notes not purchased in the Cash Tender Offer and portions of our other existing indebtedness and indebtedness of our parent companies through open market purchases or by other means. We intend to redeem any of our Existing AMCE SeniorSubordinated Notes that remainremained outstanding after the closing of the Cash Tender OfferOffers, and we will redeem the remaining 2016 Senior Subordinated Notes at a price of $1,021.56$1,055.00 per $1,000$1,000.00 principal amount of Existing AMCE2016 Senior Subordinated Notes as promptly as practicableon or after August 15, 2009February 1, 2011 for a total consideration of $255.2 million in accordance with the terms of the indenture governing the Existing AMCE2016 Senior Subordinated Notes.
Senior Secured Credit Facility Amendment
We may seek from our lenders certain amendments toOn December 15, 2010, we amended our senior secured credit facility dated January 26, 2006 to extend the term of the senior secured credit facility.2006. The amendments, among other things, could:: (i) extendreplaced the maturity ofexisting revolving commitments andfacility with a new five year revolving loans held byfacility (with higher interest rates than the existing revolving lenders who consent to such extension;facility); (ii) extendextended the maturity of term loans held by term lenders who consentconsented to such extension; (iii) increaseincreased the interest rates payable to holders of extended revolving commitments, extended revolving loans and extended term loans; and (iv) includeincluded certain other modifications to the senior secured credit facility in connection with the foregoing. We have not determined for certain whether to pursue this amendment, and if we do, there can be no assurance thatFor more information regarding the requisite lenders will agree to the requested amendments.senior secured credit facility, as amended, see "Description of Other Indebtedness—Senior Secured Credit Facility."
Dividend
During AprilDecember of 2010 and MayJanuary of 2009,2011, AMC Entertainment Inc. ("AMC Entertainment" or "AMCE") made dividend payments to its parent, Marquee, Holdings Inc. ("Holdings"),totaling $261,175,000. Marquee used the available funds to pay the consideration for the Marquee Notes Cash Tender Offer and Holdingsthe redemption of all of Marquee Notes that remained outstanding after the closing of the Marquee Notes Cash Tender Offer.
During September of 2010, AMCE made dividend payments to its parent,Marquee of $15,184,000, and Marquee made dividend payments to AMC Entertainment Holdings, Inc. ("Parent"), totaling $300,000,000. AMC Entertainment Holdings, Inc. made payments to purchase term loans and reduced the principal balance of its senior unsecured term loan facility to $226,261,000 with a portion of the dividend proceeds$669,000 (the "Dividend"). Marquee and Parent used the available funds to make a cash interest payment on the Marquee Notes and pay corporate overhead expenses incurred in the ordinary course of business.
Summary of the Terms of the Exchange Offer
In connection with the original notes offering, AMC Entertainment Inc. entered into a registration rights agreement with the initial purchasers of the original notes. Under that agreement, AMC Entertainment Inc. agreed to deliver to you this prospectus and to consummate the exchange offer.
Original Notes | |||||||
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Original Notes | $600,000,000 aggregate principal amount of | ||||||
Notes Offered | |||||||
Exchange Notes | |||||||
Exchange Offer | The Issuer is offering to exchange: | ||||||
• | up to $600,000,000 aggregate principal amount of its exchange notes that have been registered under the Securities Act, for an equal amount of its original notes. | ||||||
The Issuer is also offering to satisfy certain of its obligations under the registration rights agreement that the Issuer entered into when it issued the original notes in transactions exempt from registration under the Securities Act. | |||||||
Expiration Date; Withdrawal of Tenders | The exchange offer will expire at 5:00 p.m., New York City time, on , | ||||||
Conditions to the Exchange Offer | The exchange offer is subject to customary conditions, some of which the Issuer may waive. For more information, see "The Exchange Offer—Certain Conditions to the Exchange Offer." |
Procedures for Tendering | If you wish to accept the exchange offer, you must complete, sign and date the accompanying letter of transmittal, or a copy of the letter of transmittal, according to the instructions contained in this prospectus and the letter of transmittal. You must also mail or otherwise deliver the letter of transmittal, or the copy, together with the original notes and any other required documents, to the exchange agent at the address set forth on the cover of the letter of transmittal. If you hold original notes through The Depository Trust Company ("DTC") and wish to participate in the exchange offer, you must comply with the Automated Tender Offer Program procedures of DTC, by which you will agree to be bound by the letter of transmittal. | |||
By signing or agreeing to be bound by the letter of transmittal, you will represent to us that, among other things: | ||||
• | any exchange notes that you receive will be acquired in the ordinary course of your business; | |||
• | you have no arrangement or understanding with any person or entity, including any of our affiliates, to participate in the distribution of the exchange notes; | |||
• | if you are a broker-dealer that will receive exchange notes for your own account in exchange for original notes that were acquired as a result of market-making activities, that you will deliver a prospectus, as required by law, in connection with any resale of the exchange notes; and | |||
• | you are not our "affiliate" as defined in Rule 405 under the Securities Act, or, if you are an affiliate, you will comply with any applicable registration and prospectus delivery requirements of the Securities Act. | |||
Guaranteed Delivery Procedures | If you wish to tender your original notes and your original notes are not immediately available or you cannot deliver your original notes, the letter of transmittal or any other documents required by the letter of transmittal or comply with the applicable procedures under DTC's Automated Tender Offer Program prior to the expiration date, you must tender your original notes according to the guaranteed delivery procedures set forth in this prospectus under "The Exchange Offer—Guaranteed Delivery Procedures." |
Effect on Holders of Original Notes | As a result of the making of, and upon acceptance for exchange of all validly tendered original notes pursuant to the terms of, the exchange offer, the Issuer will have fulfilled a covenant contained in the registration rights agreement for the original notes and, accordingly, the Issuer will not be obligated to pay additional interest as described in the registration rights agreement. If you are a holder of original notes and do not tender your original notes in the exchange offer, you will continue to hold such original notes and you will be entitled to all the rights and limitations applicable to the original notes in the indenture, except for any rights under the registration rights agreement that, by their terms, terminate upon the consummation of the exchange offer. | |||
Consequences of Failure to Exchange | All untendered original notes will continue to be subject to the restrictions on transfer provided for in the original notes and in the indenture. In general, the original notes may not be offered or sold unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. Other than in connection with the exchange offer, the Issuer does not currently anticipate that it will register the original notes under the Securities Act. | |||
Resale of the Exchange Notes | Based on an interpretation by the staff of the SEC set forth in no-action letters issued to third parties, we believe that the exchange notes issued pursuant to the exchange offer in exchange for original notes may be offered for resale, resold and otherwise transferred by you (unless you are the our "affiliate" within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that you: | |||
• | are acquiring the exchange notes in the ordinary course of business; and | |||
• | have not engaged in, do not intend to engage in, and have no arrangement or understanding with any person or entity, including any of the Issuer's affiliates, to participate in, a distribution of the exchange notes. | |||
In addition, each participating broker-dealer that receives exchange notes for its own account pursuant to the exchange offer in exchange for original notes that were acquired as a result of market-making or other trading activity must also acknowledge that it will deliver a prospectus in connection with any resale of the exchange notes. For more information, see "Plan of Distribution." Any holder of original notes, including any broker-dealer, who: | ||||
• | is our affiliate, |
• | does not acquire the exchange notes in the ordinary course of its business, or | |||
• | tenders in the exchange offer with the intention to participate, or for the purpose of participating, in a distribution of exchange notes, | |||
cannot rely on the position of the staff of the Commission expressed in Exxon Capital Holdings Corporation, Morgan Stanley & Co., Incorporated or similar no-action letters and, in the absence of an exemption, must comply with the registration and prospectus delivery requirements of the Securities Act in connection with the resale of the exchange notes. | ||||
Material Tax Consequences | The exchange of original notes for exchange notes in the exchange offer will not be a taxable event for U.S. federal income tax purposes. For more information, see "Certain U.S. Federal Income Tax Considerations." | |||
Use of Proceeds | We will not receive any cash proceeds from the issuance of the exchange notes in the exchange offer. | |||
Exchange Agent | U.S. Bank National Association is the exchange agent for the exchange offer. The address and telephone number of the exchange agent are set forth in the section captioned "The Exchange Offer—Exchange Agent." |
Summary of the Terms of the Exchange Notes
The following summary highlights the material information regarding the exchange notes contained elsewhere in this prospectus. We urge you to read this entire prospectus, including the "Risk Factors" section and the consolidated financial statements and related notes.
Issuer | AMC Entertainment Inc. | |||
Notes Offered | ||||
Exchange Notes | ||||
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Guarantees |
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Ranking | The exchange notes and the guarantees will be our and our guarantors' unsecured senior subordinated obligations. The exchange notes will rank: | |||
• junior to all of our and our guarantors' existing and future senior indebtedness including borrowings under our senior secured credit facility and our existing senior notes; | ||||
• equally in right of payment with all of our and our guarantors' existing and future unsecured subordinated indebtedness including our existing senior subordinated notes; | ||||
• senior in right of payment to any of our and our guarantors' future indebtedness that is expressly subordinated in right of payment to the notes; and | ||||
• effectively junior to all of the existing and future indebtedness, including trade payables, of our subsidiaries that do not guarantee the notes. | ||||
As of September 30, 2010, on an as adjusted basis to give effect to the original notes offering and the use of proceeds thereof, the notes and the guarantees would have ranked junior to approximately $1,273.7 million of our senior indebtedness, consisting of the borrowings under our senior secured credit facility, capital and financing lease obligations and our existing senior notes, and $187.3 million would have been available for borrowing as additional senior debt under our senior secured credit facility. |
On an as adjusted basis to give effect to the original notes offering, our subsidiaries that are not guarantors would have accounted for approximately $19.4 million, or 0.7%, of our total revenues for the 52 weeks ended September 30, 2010 and approximately $134.3 million, or 3.5%, of our total assets and approximately $30.2 million, or 1.0%, of our total liabilities as of September 30, 2010. | ||||
Optional Redemption |
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• | incur additional indebtedness, including additional senior indebtedness; | |||
• | pay dividends or make distributions to our stockholders; | |||
• | repurchase or redeem capital stock; | |||
• | enter into transactions with our affiliates; and | |||
• | merge or consolidate with other companies or transfer all or substantially all of our assets. | |||
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No Prior Market | The exchange notes will be new securities for which there is no market. Although the initial purchasers have informed us that they intend to make a market in the notes and, if issued, the exchange notes, they are not obligated to do so and may discontinue market-making at any time without notice. Accordingly, we cannot assure you that a liquid market for the notes or exchange notes will develop or be maintained. We do not intend to list the notes on any securities exchange. | |
Risk Factors |
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Our principal executive offices are located at 920 Main Street, Kansas City, Missouri 64105-1977. Our telephone number is (816) 221-4000 and our website address iswww.amctheatres.com. This internet address is provided for informational purposes only and is not intended to be a hyperlink. Accordingly, no information in this internet address is included or incorporated herein.
Summary Pro Forma and Historical Financial and Operating Data
The following tables setsummary historical financial data sets forth certain of AMC Entertainment Inc.'sour historical financial and operating data. The summary historical financial data for the three26 weeks ended September 30, 2010 and October 1, 2009 and the fiscal years ended April 1, 2010, April 2, 2009 and April 3, 2008 and March 29, 2007which have been derived from AMC Entertainment Inc.'s auditedour consolidated financial statements and related notes for such periods included elsewhere in this prospectus. The following data should be read in conjunction with "Risk Factors" and our financial statements and the related notes included elsewhere in this prospectus.
The following summary historicalunaudited pro forma financial and operating data presented belowsets forth our unaudited pro forma combined statement of operations for the 26 weeks ended September 30, 2010, the 52 weeks ended September 30, 2010 and the 52 weeks ended April 1, 2010. The pro forma financial data has been derived from our historical consolidated financial information, including the notes thereto, and the Kerasotes historical financial information, including the notes thereto, included elsewhere herein, and has been prepared based on our historical consolidated financial statements and the Kerasotes historical financial statements included elsewhere in this prospectus. The unaudited pro forma combined statement of operations data gives pro forma effect to the Kerasotes Acquisition as if it had occurred on April 3, 2009. The summary unaudited pro forma financial and operating data is based on certain assumptions and adjustments and does not purport to present what the Company's actual results of operations would have been had the Kerasotes Acquisition and events reflected by them in fact occurred on the dates specified, nor is it necessarily indicative of the results of operations that may be achieved in the future. The summary unaudited pro forma financial data should be read in conjunction with the "Selected Historical"Unaudited Pro Forma Condensed Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations"Information" and our other financial statements and notes theretodata included elsewhere in this prospectus.
| Years Ended(1)(3) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| 52 Weeks Ended April 2, 2009 | 53 Weeks Ended April 3, 2008 | 52 Weeks Ended March 29, 2007 | |||||||||
| (in thousands, except operating data) | |||||||||||
Statement of Operations Data: | ||||||||||||
Revenues | ||||||||||||
Admissions | $ | 1,580,328 | $ | 1,615,606 | $ | 1,576,924 | ||||||
Concessions | 626,251 | 648,330 | 631,924 | |||||||||
Other theatre | 58,908 | 69,108 | 94,374 | |||||||||
Total revenues | $ | 2,265,487 | $ | 2,333,044 | $ | 2,303,222 | ||||||
Costs and Expenses: | ||||||||||||
Film exhibition costs | 827,785 | 841,641 | 820,865 | |||||||||
Concession costs | 67,779 | 69,597 | 66,614 | |||||||||
Operating expense | 589,376 | 607,588 | 579,123 | |||||||||
Rent | 448,803 | 439,389 | 428,044 | |||||||||
General and administrative: | ||||||||||||
Merger, acquisition and transactions costs | 650 | 3,739 | 9,996 | |||||||||
Management fee | 5,000 | 5,000 | 5,000 | |||||||||
Other(5) | 53,628 | 39,102 | 45,860 | |||||||||
Pre-opening expense | 5,421 | 7,130 | 4,776 | |||||||||
Theatre and other closure expense (income) | (2,262 | ) | (20,970 | ) | 9,011 | |||||||
Depreciation and amortization | 201,413 | 222,111 | 228,437 | |||||||||
Impairment of long-lived assets | 73,547 | 8,933 | 10,686 | |||||||||
Disposition of assets and other gains | (1,642 | ) | (2,408 | ) | (11,183 | ) | ||||||
Total costs and expenses | 2,269,498 | 2,220,852 | 2,197,229 | |||||||||
Other (income)(4) | (14,139 | ) | (12,932 | ) | (10,267 | ) | ||||||
Interest expense: | ||||||||||||
Corporate borrowings | 115,757 | 131,157 | 188,809 | |||||||||
Capital and financing lease obligations | 5,990 | 6,505 | 4,669 | |||||||||
Equity in (earnings) of non-consolidated entities(7) | (24,823 | ) | (43,019 | ) | (233,704 | ) | ||||||
Investment (income)(8) | (1,696 | ) | (23,782 | ) | (17,385 | ) | ||||||
Earnings (loss) from continuing operations before income taxes | (85,100 | ) | 54,263 | 173,871 | ||||||||
Income tax provision (benefit) | 5,800 | 12,620 | 39,046 | |||||||||
Earnings (loss) from continuing operations | (90,900 | ) | 41,643 | 134,825 | ||||||||
Earnings (loss) from discontinued operations, net of income tax benefit(2) | 9,728 | 1,802 | (746 | ) | ||||||||
Net earnings (loss) | $ | (81,172 | ) | $ | 43,445 | $ | 134,079 | |||||
| Pro Forma | Historical | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | 26 Weeks Ended | Years Ended(1)(2) | |||||||||||||||||||||
| 26 Weeks Ended Sept. 30, 2010 | 52 Weeks Ended Sept. 30, 2010(3) | 52 Weeks Ended April 1, 2010 | 26 Weeks Ended Sept. 30, 2010 | 26 Weeks Ended Oct. 1, 2009 | 52 Weeks Ended April 1, 2010 | 52 Weeks Ended April 2, 2009 | 53 Weeks Ended April 3, 2008 | ||||||||||||||||||
| (in thousands, except operating data) | |||||||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||||||||
Total revenues | $ | 1,323,164 | $ | 2,689,918 | $ | 2,683,755 | $ | 1,294,577 | $ | 1,186,364 | $ | 2,417,739 | $ | 2,265,487 | $ | 2,333,044 | ||||||||||
Operating Costs and Expenses: | ||||||||||||||||||||||||||
Cost of operations | 874,508 | 1,787,181 | 1,785,080 | 846,781 | 786,067 | 1,612,260 | 1,486,457 | 1,502,578 | ||||||||||||||||||
Rent | 240,428 | 480,549 | 479,590 | 236,035 | 220,684 | 440,664 | 448,803 | 439,389 | ||||||||||||||||||
General and administrative: | ||||||||||||||||||||||||||
Merger, acquisition and transactions costs | 10,975 | 13,034 | 2,280 | 10,975 | 221 | 2,280 | 650 | 3,739 | ||||||||||||||||||
Management fee | 2,500 | 5,000 | 5,000 | 2,500 | 2,500 | 5,000 | 5,000 | 5,000 | ||||||||||||||||||
Other | 32,709 | 73,970 | 74,825 | 31,058 | 26,071 | 57,858 | 53,628 | 39,102 | ||||||||||||||||||
Depreciation and amortization | 104,517 | 210,544 | 213,582 | 100,958 | 95,477 | 188,342 | 201,413 | 222,111 | ||||||||||||||||||
Impairment of long-lived assets | — | 3,765 | 3,765 | — | — | 3,765 | 73,547 | 8,933 | ||||||||||||||||||
Operating costs and expenses | 1,265,637 | 2,574,043 | 2,564,122 | 1,228,307 | 1,131,020 | 2,310,169 | 2,269,498 | 2,220,852 | ||||||||||||||||||
Operating income (loss) | 57,527 | 115,875 | 119,633 | 66,270 | 55,344 | 107,570 | (4,011 | ) | 112,192 | |||||||||||||||||
Other expense (income) | (9,685 | ) | (14,079 | ) | (2,559 | ) | (9,685 | ) | 1,835 | (2,559 | ) | (14,139 | ) | (12,932 | ) | |||||||||||
Interest expense | 68,974 | 136,546 | 132,110 | 68,758 | 64,106 | 132,110 | 121,747 | 137,662 | ||||||||||||||||||
Equity in earnings of non-consolidated entities(4) | (3,566 | ) | (23,256 | ) | (30,300 | ) | (3,566 | ) | (10,610 | ) | (30,300 | ) | (24,823 | ) | (43,019 | ) | ||||||||||
Gain on NCM, Inc. stock sale | (64,648 | ) | (64,648 | ) | — | (64,648 | ) | — | — | — | — | |||||||||||||||
Investment income(5) | (104 | ) | (176 | ) | (7 | ) | (104 | ) | (131 | ) | (205 | ) | (1,696 | ) | (23,782 | ) | ||||||||||
Earnings (loss) from continuing operations before income taxes | 66,556 | 81,488 | 20,389 | 75,515 | 144 | 8,524 | (85,100 | ) | 54,263 | |||||||||||||||||
Income tax provision (benefit) | 2,400 | (63,950 | ) | (64,400 | ) | 5,800 | 50 | (68,800 | ) | 5,800 | 12,620 | |||||||||||||||
Earnings (loss) from continuing operations | $ | 64,156 | $ | 145,438 | $ | 84,789 | $ | 69,715 | $ | 94 | $ | 77,324 | $ | (90,900 | ) | $ | 41,643 | |||||||||
| Years Ended(1)(3) | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| 52 Weeks Ended April 2, 2009 | 53 Weeks Ended April 3, 2008 | 52 Weeks Ended March 29, 2007 | |||||||
| (in thousands, except operating data and leverage ratios) | |||||||||
Balance Sheet Data (at period end): | ||||||||||
Cash and equivalents | $ | 534,009 | $ | 106,181 | $ | 317,163 | ||||
Corporate borrowings | 1,687,941 | 1,615,672 | 1,634,265 | |||||||
Other long-term liabilities | 308,701 | 351,310 | 366,813 | |||||||
Capital and financing lease obligations | 60,709 | 69,983 | 53,125 | |||||||
Stockholder's equity | 1,039,603 | 1,133,495 | 1,391,880 | |||||||
Total assets | 3,725,597 | 3,847,282 | 4,104,260 | |||||||
Other Financial Data: | ||||||||||
Net cash provided by operating activities | $ | 200,701 | $ | 220,208 | $ | 417,751 | ||||
Capital expenditures | (104,704 | ) | (151,676 | ) | (138,739 | ) | ||||
Ratio of Earnings to fixed charges(9) | — | 1.2x | 1.5x | |||||||
Operating Data: | ||||||||||
Screen additions | 83 | 136 | 107 | |||||||
Screen acquisitions | — | — | 32 | |||||||
Screen dispositions | 77 | 196 | 243 | |||||||
Average screens—continuing operations(6) | 4,545 | 4,561 | 4,627 | |||||||
Number of screens operated | 4,612 | 4,606 | 4,666 | |||||||
Number of theatres operated | 307 | 309 | 318 | |||||||
Screens per theatre | 15.0 | 14.9 | 14.7 | |||||||
Attendance (in thousands)—continuing operations(6) | 196,184 | 207,603 | 213,041 |
| Pro Forma | Historical | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | 26 Weeks Ended | Years Ended(1)(2) | |||||||||||||||||||||
| 26 Weeks Ended Sept. 30, 2010 | 52 Weeks Ended Sept. 30, 2010(3) | 52 Weeks Ended April 1, 2010 | 26 Weeks Ended Sept. 30, 2010 | 26 Weeks Ended Oct. 1, 2009 | 52 Weeks Ended April 1, 2010 | 52 Weeks Ended April 2, 2009 | 53 Weeks Ended April 3, 2008 | ||||||||||||||||||
| (in thousands, except operating data) | |||||||||||||||||||||||||
Balance Sheet Data (at period end): | ||||||||||||||||||||||||||
Cash and equivalents | $ | 326,852 | $ | 390,047 | $ | 495,343 | $ | 534,009 | $ | 106,181 | ||||||||||||||||
Corporate borrowings, including current portion | 1,830,183 | 1,835,553 | 1,832,854 | 1,687,941 | 1,615,672 | |||||||||||||||||||||
Other long-term liabilities | 350,836 | 312,082 | 309,591 | 308,701 | 351,310 | |||||||||||||||||||||
Capital and financing lease obligations, including current portion | 67,797 | 58,997 | 57,286 | 60,709 | 69,983 | |||||||||||||||||||||
Stockholder's equity | 815,216 | 715,778 | 760,559 | 1,039,603 | 1,133,495 | |||||||||||||||||||||
Total assets | 3,816,246 | 3,531,592 | 3,653,177 | 3,725,597 | 3,847,282 | |||||||||||||||||||||
Other Data: | ||||||||||||||||||||||||||
Adjusted EBITDA(6) | 188,217 | 370,167 | 365,578 | 183,345 | 165,609 | 328,275 | 294,877 | 347,620 | ||||||||||||||||||
NCM cash distributions received | 10,175 | 31,739 | 34,633 | 10,175 | 13,069 | 34,633 | 28,104 | 22,175 | ||||||||||||||||||
Net cash provided by operating activities | 29,862 | 230,687 | 295,318 | 24,990 | 76,474 | 258,015 | 200,701 | 220,208 | ||||||||||||||||||
Capital expenditures | (47,000 | ) | (116,038 | ) | (99,109 | ) | (46,711 | ) | (29,781 | ) | (97,011 | ) | (121,456 | ) | (171,100 | ) | ||||||||||
Ratio of earnings to fixed charges(7) | 1.5 | x | 1.3 | x | 1.1 | x | 1.6 | x | 1.0 | x | 1.1 | x | — | 1.2 | x | |||||||||||
Proceeds from sale/leasebacks | — | — | 6,570 | — | — | 6,570 | — | — | ||||||||||||||||||
Operating Data (at period end): | ||||||||||||||||||||||||||
Screen additions | 20 | 26 | 6 | 974 | 6 | 6 | 83 | 136 | ||||||||||||||||||
Screen dispositions | 67 | 111 | 105 | 183 | 44 | 105 | 77 | 196 | ||||||||||||||||||
Average screens—continuing operations(8) | 5,214 | 5,224 | 5,271 | 5,035 | 4,521 | 4,485 | 4,545 | 4,561 | ||||||||||||||||||
Number of screens operated | 5,278 | 5,278 | 5,299 | 5,304 | 4,574 | 4,513 | 4,612 | 4,606 | ||||||||||||||||||
Number of theatres operated | 376 | 376 | 378 | 378 | 304 | 297 | 307 | 309 | ||||||||||||||||||
Screens per theatre | 14.0 | 14.0 | 14.0 | 14.0 | 15.0 | 15.2 | 15.0 | 14.9 | ||||||||||||||||||
Attendance (in thousands)—continuing operations(8) | 108,116 | 220,499 | 225,222 | 105,479 | 100,485 | 200,285 | 196,184 | 207,603 |
results will be unaffected by unusual or non-recurring items. Set forth below is a reconciliation of Adjusted EBITDA to earnings (loss) from continuing operations, our most comparable GAAP measure:
| Pro Forma | Historical | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | 26 Weeks Ended | Years Ended(1)(2) | ||||||||||||||||||||||
| 26 Weeks Ended Sept. 30, 2010 | 52 Weeks Ended Sept. 30, 2010(3) | 52 Weeks Ended April 1, 2010 | 26 Weeks Ended Sept. 30, 2010 | 26 Weeks Ended Oct. 1, 2009 | 52 Weeks Ended April 1, 2010 | 52 Weeks Ended April 2, 2009 | 53 Weeks Ended April 3, 2008 | |||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
Earnings (loss) from continuing operations | $ | 64,156 | $ | 145,438 | $ | 84,789 | $ | 69,715 | $ | 94 | $ | 77,324 | $ | (90,900 | ) | $ | 41,643 | ||||||||||
Plus: | |||||||||||||||||||||||||||
Income tax provision (benefit) | 2,400 | (63,950 | ) | (64,400 | ) | 5,800 | 50 | (68,800 | ) | 5,800 | 12,620 | ||||||||||||||||
Interest expense | 68,974 | 136,546 | 132,110 | 68,758 | 64,106 | 132,110 | 121,747 | 137,662 | |||||||||||||||||||
Depreciation and amortization | 104,517 | 210,544 | 213,582 | 100,958 | 95,477 | 188,342 | 201,413 | 222,111 | |||||||||||||||||||
Impairment of long-lived assets | — | 3,765 | 3,765 | — | — | 3,765 | 73,547 | 8,933 | |||||||||||||||||||
Certain operating expenses(a) | 2,149 | 6,460 | 6,099 | (7,907 | ) | 1,788 | 6,099 | 1,517 | (16,248 | ) | |||||||||||||||||
Equity in earnings of non-consolidated entities | (3,566 | ) | (23,256 | ) | (30,300 | ) | (3,566 | ) | (10,610 | ) | (30,300 | ) | (24,823 | ) | (43,019 | ) | |||||||||||
Gain on NCM, Inc. stock sale | (64,648 | ) | (64,648 | ) | — | (64,648 | ) | — | — | — | — | ||||||||||||||||
Investment income | (104 | ) | (176 | ) | (7 | ) | (104 | ) | (131 | ) | (205 | ) | (1,696 | ) | (23,782 | ) | |||||||||||
Other (income) expense(b) | — | — | 11,276 | — | 11,276 | 11,276 | — | (1,246 | ) | ||||||||||||||||||
General and administrative expense: | |||||||||||||||||||||||||||
Merger, acquisition and transaction costs | 10,975 | 13,034 | 2,280 | 10,975 | 221 | 2,280 | 650 | 3,739 | |||||||||||||||||||
Management Fee | 2,500 | 5,000 | 5,000 | 2,500 | 2,500 | 5,000 | 5,000 | 5,000 | |||||||||||||||||||
Stock-based compensation expense | 864 | 1,410 | 1,384 | 864 | 838 | 1,384 | 2,622 | 207 | |||||||||||||||||||
Adjusted EBITDA(c)(d) | $ | 188,217 | $ | 370,167 | $ | 365,578 | $ | 183,345 | $ | 165,609 | $ | 328,275 | $ | 294,877 | $ | 347,620 | |||||||||||
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 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 analytical tools, and you should not consider it in isolation, or as substitutes for analysis of our results as reported under U.S. GAAP. For example, Adjusted EBITDA:
You should carefully consider the risk factors set forth below, as well as the other information contained in this offering memorandum,prospectus, before purchasing any notes. The risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially and adversely affect our business, financial condition or results of operations. Any of the following risks could materially and adversely affect our business, financial condition or results of operations. In such a case, you may lose all or a part of your original investment.
Risks Related to the Exchange Offer
You may have difficulty selling the original notes that you do not exchange.
If you do not exchange your original notes for exchange notes in the exchange offer, you will continue to be subject to the restrictions on transfer of your original notes described in the legend on your original notes. The restrictions on transfer of your original notes arise because we issued the original notes under exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, you may only offer or sell the original notes if they are registered under the Securities Act and applicable state securities laws, or offered and sold under an exemption from these requirements. Except as required by the registration rights agreements, we do not intend to register the original notes under the Securities Act. The tender of original notes under the exchange offer will reduce the principal amount of the currently outstanding original notes. Due to the corresponding reduction in liquidity, this may have an adverse effect upon, and increase the volatility of, the market price of any currently outstanding original notes that you continue to hold following completion of the exchange offer. See "The Exchange Offer—Consequences of Failure to Exchange."
There is no public market for the exchange notes, and we do not know if a market will ever develop or, if a market does develop, whether it will be sustained.
The exchange notes are a new issue of securities for which there is no existing trading market. Accordingly, we cannot assure you that a liquid market will develop for the exchange notes, that you will be able to sell your exchange notes at a particular time or that the prices that you receive when you sell the exchange notes will be favorable.
We do not intend to apply for listing or quotation of the notes on any securities exchange or automated quotation system, although our original notes trade on the PORTAL Market. The liquidity of any market for the exchange notes is subject to a number of factors, including:
We understand that one or more of the initial purchasers of the original notes presently intend to make a market in the exchange notes. However, they are not obligated to do so, and any market-making activity with respect to the exchange notes may be discontinued at any time without notice. In addition, any market-makingmarket- making activity will be subject to the limits imposed by the Securities Act and the Exchange Act and may be limited during the exchange offer or the pendency of an applicable shelf
registration statement. There can be no assurance that an active trading market will exist for the exchange notes or that any trading market that does develop will be liquid.
You must comply with the exchange offer procedures in order to receive new, freely tradable exchange notes.
Delivery of exchange notes in exchange for original notes tendered and accepted for exchange pursuant to the exchange offer will be made only after timely receipt by the exchange agent of book-entry transfer of original notes into the exchange agent's account at DTC, as depositary, including an agent's message (as defined herein). We are not required to notify you of defects or irregularities in tenders of original notes for exchange. Original notes that are not tendered or that are tendered but we do not accept for exchange will, following consummation of the exchange offer, continue to be subject to the existing transfer restrictions under the Securities Act and, upon consummation of the exchange offer certain registration and other rights under the registration rights agreements will terminate. See "The Exchange Offer—Procedures for Tendering" and "The Exchange Offer—Consequences of Failure to Exchange."
Some holders who exchange their original notes may be deemed to be underwriters, and these holders will be required to comply with the registration and prospectus delivery requirements in connection with any resale transaction.
If you exchange your original notes in the exchange offer for the purpose of participating in a distribution of the exchange notes, you may be deemed to have received restricted securities and, if so, will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction
Risks Related to Our Indebtedness and the Notes
Our substantial debt could adversely affect our operations and your investment in the notes.
We have a significant amount of debt. As of April 2, 2009,September 30, 2010, on an as adjusted basis to give effect to the original notes offering (without giving effect to the use of proceeds other than the Cash Tender Offer), the Dividend, this offering and the redemption of all Existing AMCE Senior Notes that remained outstanding after the completionapplication of the Cash Tender Offer,proceeds thereof, we would have had outstanding $2,084.1$2,173.0 million of indebtedness, of which $585.5$600.0 million ($600.0 million face amount) would have consisted of the original notes offered hereby, and the balance would have consisted of $813.9$619.1 million under our senior secured credit facility, $624.1$586.8 million of Existing Senior Subordinated Notesour existing senior notes ($625.0600.0 million face amount), $299.3 million of our existing subordinated notes and $60.7$67.8 million of existing capital and financing lease obligations.obligations, and $187.3 million would have been available for borrowing as additional senior debt under our senior secured credit facility. As of April 2, 2009,September 30, 2010, on an as adjusted basis to give effect to the original notes offering (without giving effect to(and the use of proceeds other than the Cash Tender Offer), the Dividend, this offering and the redemption of all Existing AMCE Senior Notes that remained outstanding after the completionapplication of the Cash Tender Offer,proceeds thereof), we also had approximately $4.2$4.6 billion of undiscounted rental payments under operating leases (with initial base terms of between 10 and 25 years).
The amount of our indebtedness and lease and other financial obligations could have important consequences to you as a holder of the notes. For example, it could:
If we fail to make any required payment under our senior secured credit facility or to comply with any of the financial and operating covenants included in the senior secured credit facility,contained therein, we would be in default. Lenders under our senior secured credit facility could then vote to accelerate the maturity of the indebtedness under the senior secured credit facility and foreclose upon the stock and personal property of our subsidiaries that is pledged to secure the senior secured credit facility. Other creditors might then accelerate other indebtedness. If the lenders under the senior secured credit facility accelerate the maturity of the indebtedness thereunder, we cannot assure you that we willmight not have sufficient assets to satisfy our obligations under the senior secured credit facility or our other indebtedness, including the notes.indebtedness.
Our indebtedness under our senior secured credit facility bears interest at rates that fluctuate with changes in certain prevailing interest rates (although, subject to certain conditions, such rates may be fixed for certain periods). If interest rates increase, we may be unablecannot assure you that we will have sufficient assets to meetsatisfy our debt service obligations under ourthe senior secured credit facility andor our other indebtedness.indebtedness, including the notes.
Despite current indebtedness levels, we and our subsidiaries may still be able to incur substantially more debt. This could further exacerbate the risks associated with our substantial leverage.
The terms of the indentureindentures governing the notes and our existing notes, our senior secured credit facility and our other outstanding debt instruments will not fully prohibit us or our subsidiaries from incurring substantial additional indebtedness in the future. Moreover, none of our indentures, including the indenture governing the notes offered hereby, impose any limitation on our incurrence of liabilities that are not considered "Indebtedness" under the indentures (such as operating leases), nor do they impose any limitation on liabilities incurred by subsidiaries, if any, that might be designated as "unrestricted subsidiaries." If new debt or other liabilities are added to our and our subsidiaries' current levels, the related risks that we and they now face could intensify.
If our cash flows prove inadequate to service our debt and provide for our other obligations, we may be required to refinance all or a portion of our existing debt or future debt at terms unfavorable to us.
Our ability to make payments on and refinance our debt, including the notes, and other financial obligations and to fund our capital expenditures and acquisitions will depend on our ability to generate substantial operating cash flow. This will depend on our future performance, which will be subject to prevailing economic conditions and to financial, business and other factors beyond our control. In addition, our $625.0Our $586.8 million of existing senior notes ($600.0 million face value), $299.3 million in aggregate principal amount of the Existing AMCE Senior Subordinated Notes, Marquee Holdings Inc.'s $240.8 million of 12%existing senior discountsubordinated notes due 2014 and the $813.9$619.1 million outstanding under our senior secured credit facility all have an earlier maturity date than that of the notes offered hereby, and we will be required to repay or refinance such indebtedness prior to when the notes offered hereby come due. For the 52 weeks ended April 2, 2009,September 30, 2010, on an as adjusted basis to give effect to the original notes offering (without giving effect to(and the use of proceeds other than the Cash Tender Offer), the Dividend, this offering and the redemption of all Existing AMCE Senior Notes that remained outstanding after the completionapplication of the Cash Tender Offer,proceeds thereof), we would have a deficiencyratio of earnings to fixed charges of $122.4 million.1.2x. If our cash flows were to prove inadequate
to meet our debt service, rental and other obligations in the future, we may be required to refinance all or a portion of our existing or future debt, including these notes, on or before maturity, to sell assets or to obtain additional financing. We cannot assure you that we will be able to refinance any of our indebtedness, including our senior secured credit facility and these notes, sell any such assets or obtain additional financing on commercially reasonable terms or at all.
In addition, all of our notes require us to repay or refinance those notes when they come due. If our cash flows were to prove inadequate to meet our debt service, rental and other obligations in the future, we may be required to refinance all or a portion of our existing or future debt, including these
notes, on or before maturity, to sell assets or to obtain additional financing. We cannot assure you that we will be able to refinance any of our indebtedness, including our senior secured credit facility and these notes, sell any such assets or obtain additional financing on commercially reasonable terms or at all.
Your right to receive payments on these notes will be effectively subordinatedis junior to those lenders who have a security interest in our assets.senior secured credit facility, our existing senior indebtedness and possibly all of our future borrowings. Further, the guarantees of these notes are junior to all our guarantors' existing senior indebtedness and possibly to all of our guarantors' future borrowings.
Our obligations under theThe notes and our guarantors' obligations under theirthe guarantees of the notes will be unsecured, but our obligations underrank behind our senior secured credit facility and each guarantor's obligations under their guarantees of the senior secured credit facility are secured by a security interest in substantially all of our domestic tangible and intangible assets, including the stockguarantors' existing senior indebtedness and future borrowings (other than trade payables), except any indebtedness that expressly provides that it ranks equal with, or subordinated in right of mostpayment to, the notes and the guarantees. In the event of any distribution or payment of our wholly owned U.S. subsidiaries,assets in any foreclosure, dissolution, winding-up, liquidation, reorganization, or other bankruptcy proceeding, the holders of our senior indebtedness and that of our guarantors will be entitled to be paid in full and in cash before any payment may be made with respect to the notes or the guarantees. In addition, the notes and the assets and a portionguarantees will also be effectively subordinated to any debt that is secured to the extent of the stockvalue of the property securing such debt.
In addition, all payment on the notes and the guarantees will be blocked in the event of a payment default on senior debt and may be blocked in the event of certain non-payment defaults on senior debt.
In the event of a bankruptcy, liquidation or reorganization or similar proceeding relating to us or our guarantors, holders of the notes will participate with trade creditors and all other holders of our non-U.S. subsidiaries. Ifand the guarantors' senior subordinated indebtedness in assets remaining after we are declared bankruptand the guarantors have paid all of our senior debt. However, because the indenture governing the notes requires that amounts otherwise payable to holders of the notes in a bankruptcy or insolvent, or ifsimilar proceeding be paid to holders of senior debt instead, holders of the notes may receive less, ratably, than holders of trade payables in any such proceeding. In any of these cases, we defaultand the guarantors may not have sufficient funds to pay all of our creditors and holders of notes may receive less, ratably, than the holders of our senior debt.
As of September 30, 2010, on an as adjusted basis to give effect to the original notes offering (and the application of the proceeds thereof), the notes and the guarantees would have been subordinated to $1,273.7 million of senior debt, and $187.3 million would have been available for borrowing as additional senior debt under our senior secured credit facility, the lenders could declare all of the funds borrowed thereunder, together with accrued interest, immediately due and payable. If we were unable to repay such indebtedness, the lenders could foreclose on the pledged assets to the exclusion of holders of the notes, even if an event of default exists under the indenture governing the notes at such time.
Furthermore, if the lenders foreclose and sell the pledged equity interests in any subsidiary guarantor under the notes, then that guarantorfacility. We will be released from its obligations under its guarantee of the notes automatically and immediately upon such sale. In any such event, because the notes will not be secured by any of our assets or the equity interests in subsidiary guarantors, it is possible that there would be no assets remaining from which your claims could be satisfied or, if any assets remained, they might be insufficientpermitted to satisfy your claims fully.
As of April 2, 2009, the aggregate amount of our secured indebtedness and the secured indebtedness of our subsidiaries was approximately $813.9 million. The indenture governing the notes will permit us and our restricted subsidiaries to incurborrow substantial additional indebtedness, including senior debt, in the future including senior secured indebtedness.under the terms of the indenture.
Our subsidiaries will only be required to guarantee the notes if they guarantee our other indebtedness, including our senior secured credit facility, and in certain circumstances, their guarantees will be subject to automatic release.
Our existing and future subsidiaries will only be required to guarantee the notes if they guarantee other indebtedness of ours or any of the subsidiary guarantors, including our senior secured credit facility. If a subsidiary guarantor is released from its guarantee of such other indebtedness for any reason whatsoever, or if such other guaranteed indebtedness is repaid in full or refinanced with other indebtedness that is not guaranteed by such subsidiary guarantor, then such subsidiary guarantor also will be released from its guarantee of the notes.
Your right to receive payments on these notes could be adversely affected if any of our non-guarantor subsidiaries declare bankruptcy, liquidate or reorganize.
Some of our subsidiaries (including all of our foreign subsidiaries) will not guarantee the notes. In the event of a bankruptcy, liquidation or reorganization of any of our non-guarantor subsidiaries, holders of their indebtedness and their trade creditors will generally be entitled to payment of their claims from the assets of those subsidiaries before any assets are made available for distribution to us.
As of April 2, 2009, on an adjusted basis to give effect to the original notes offering (without giving effect to the use of proceeds other than the Cash Tender Offer), the Dividend, this offering and the redemption of all Existing AMCE Senior Notes that remained outstanding after the completion of the Cash Tender Offer, the notes would have been effectively junior to $813.9 million of our senior indebtedness under our senior secured credit facility and $60.7 million of capital and financing lease obligations. On an adjusted basis to give effect to the original notes offering (without giving effect to the use of proceeds other than the Cash Tender Offer), the Dividend, this offering and the redemption of all Existing AMCE Senior Notes that remained outstanding after the completion of the Cash Tender Offer, our non-guarantor subsidiaries generated approximately 0.8% of our consolidated revenues for the 52 weeks ended April 2, 2009 and held approximately 3.8% of our consolidated assets as of April 2, 2009.
The notes are effectively subordinated to the existing and future liabilities of our non-guarantor subsidiaries.
The notes are unsecured senior subordinated obligations of AMC Entertainment Inc. and the guarantors and will rank equal in right of payment to AMC Entertainment Inc.'s and the guarantors'
other existing and future unsecured senior debt. The notes are not secured by any of our assets. Any future claims of secured lenders with respect to assets securing their loans will be prior to any claim of the holders of the notes with respect to those assets.
Since virtually all of our operations are conducted through subsidiaries, a significant portion of our cash flow and, consequently, our ability to service debt, including the notes, is dependent upon the earnings of our subsidiaries and the transfer of funds by those subsidiaries to us in the form of dividends, payments of interest on intercompany indebtedness, or other transfers.
Creditors of our non-guarantor subsidiaries would be entitled to a claim on the assets of our non-guarantor subsidiaries prior to any claims by us. Consequently, in the event of a liquidation or reorganization of any non-guarantor subsidiary, creditors of the non-guarantor subsidiary are likely to be paid in full before any distribution is made to us, except to the extent that we ourselves are recognized as a creditor of such non-guarantor subsidiary. Any of our claims as the creditor of our non-guarantor subsidiary would be subordinate to any security interest in the assets of such non-guarantor subsidiary and any indebtedness of our non-guarantor subsidiary senior to that held by us.
As of April 2, 2009,September 30, 2010, on an as adjusted basis to give effect to the original notes offering (without giving(and the application of the proceeds thereof), the notes would have been effectively junior to $30.2 million of indebtedness and other liabilities (including trade payables) of our non-guarantor subsidiaries. On an as adjusted basis to give effect to the use of proceeds other thanoriginal notes offering (and the Cash Tender Offer), the Dividend, this offering and the redemption of all Existing AMCE Senior Notes that remained outstanding after the completionapplication of the Cash Tender Offer,proceeds thereof), our non-guarantor subsidiaries that are not guarantors would have accounted forgenerated approximately $19.0 million, or 0.8%,0.7% of our totalconsolidated revenues for the 52 weeks ended April 2, 2009,September 30, 2010 and held approximately $143.9 million, or 3.8%,3.5% of our totalconsolidated assets and approximately $30.5 million, or 1.0%,as of our total liabilities.September 30, 2010.
The indentureOur senior secured credit facility and the indentures governing our existing debt securities, including the notes containsoffered hereby, contain covenants that may limit our ability to take advantage of certain business opportunities advantageous to us that may arise.
The indentureOur senior secured credit facility and the indentures governing our debt securities, including the notes containsoffered hereby, contain various covenants that limit our ability to, among other things:
These restrictions could limit our ability to obtain future financing, make acquisitions or needed capital expenditures, withstand economic downturns in our business or the economy in general, conduct operations or otherwise take advantage of business opportunities that may arise.
Although the indenture for the notes containsindentures governing our outstanding debt securities contain a fixed charge coverage test that limits our ability to incur indebtedness, this limitation is subject to a number of significant exceptions and qualifications. Moreover, the indenture doesindentures do not impose any limitation on our incurrence of capital or finance lease obligations or liabilities that are not considered "Indebtedness" under the indentureindentures (such as operating leases), nor does itdo they impose any limitation on the amount of liabilities incurred by subsidiaries, if any, that might designated as "unrestricted subsidiaries" (as defined herein). See "—Our substantial debt could adversely affect our operations and your investment in the notes" and "Description of Exchange Notes—Certain Covenants—Limitation on Consolidated Indebtedness."
Furthermore, there are no restrictions in the indentureindentures on our ability to invest in other entities (including unaffiliated entities) and no restrictions on the ability of our subsidiaries to enter into agreements restricting their ability to pay dividends or otherwise transfer funds to us. Also, although the indenture limitsindentures limit our ability to make restricted payments, these restrictions are subject to significant exceptions and qualifications. The maximum amount AMC Entertainment Inc. waswe were permitted to distribute to Marquee Holdings Inc.(or, subsequent to the Marquee Merger, Parent) in compliance with itsour senior secured credit facility and the indentures governing AMC Entertainment Inc.'sour debt securities, including the original notes offered hereby, was approximately $350.0$328.2 million as of April 2, 2009,September 30, 2010, after giving effect to the original notes offering (without giving effect to(and the use of proceeds other than the Cash Tender Offer), the Dividend, this offering and the redemption of all Existing AMCE Senior Notes that remained outstanding after the completionapplication of the Cash Tender Offer.proceeds thereof).
We must offer to repurchase the notes upon a change of control, which could also result in an event of default under our senior secured credit facility.
The indenture governing the notes will require that, upon the occurrence of a "change of control,"control", as such term is defined in the indenture, we must make an offer to repurchase the notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase.
Certain events involving a change of control will result in an event of default under our senior secured credit facility and may result in an event of default under other indebtedness that we may incur in the future and would trigger a "change of control" under the Existing AMCE Subordinated Notes and the Existing AMCE Senior Notes.our existing notes. An event of default under our senior secured credit facility or other indebtedness could result in an acceleration of such indebtedness. See "Description of Exchange Notes—Change of Control." We cannot assure you that we would have sufficient resources to repurchase any of the notes or pay our obligations if the indebtedness under our senior secured credit facility or other indebtedness were accelerated upon the occurrence of a change of control. The acceleration of indebtedness and our inability to repurchase all the tendered notes would constitute events of default under the indenture governing the notes. No assurance can be given that the terms of any future indebtedness will not contain cross default provisions based upon a change of control or other defaults under such debt instruments.
Federal and state statutes allow courts, under specific circumstances, to void guarantees and require note holders to return payments received from guarantors.
Under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws, a guarantee could be voided, or claims in respect of a guarantee could be subordinated to all other debt
of that guarantor if, among other things, the guarantor, at the time it incurred the indebtedness evidenced by its guarantee:
In addition, any payment by that guarantor pursuant to its guarantee could be voided and required to be returned to the guarantor or to a fund for the benefit of the creditors of the guarantor. The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, a guarantor would be considered insolvent if:
On the basis of historical financial information, recent operating history and other factors, we believe that each guarantor, after giving effect to its guarantee of the notes, will not be insolvent, will not have unreasonably small capital for the business in which it is engaged and will not have incurred debt beyond its ability to pay such debts as they mature. We cannot assure you, however, as to what standard a court would apply in making these determinations or that a court would agree with our conclusions in this regard.
If a bankruptcy petition were filed by or against us, holders of notes may receive a lesser amountThere is no public trading market for their claim than they would have been entitled to receive under the indenture governing the notes.
IfThe notes are new issues of securities for which there are currently no established trading markets. We do not intend to have the notes or the exchange notes listed on a bankruptcy petition were filed by or against us undernational securities exchange. In addition, although the U.S. Bankruptcy Code after the issuanceinitial purchasers of the notes have advised us that they currently intend to make a market in the claimnotes, they are not obligated to do so and may discontinue market-making activities at any time without notice. Furthermore, such market-making activity will be subject to limits imposed by any holderthe Securities Act and the Exchange Act. Because J.P. Morgan Securities LLC is our affiliate, J.P. Morgan Securities LLC will be required to deliver a current "market-making" prospectus and otherwise comply with the registration requirements of the notes for the principal amountSecurities Act in any secondary market sale of the exchange notes following the exchange offer. Accordingly, the ability of J.P. Morgan Securities LLC to make a market in the exchange notes following the exchange offer may, in part, depend on our ability to maintain a current market-making prospectus. If we are unable to maintain a current market-making prospectus, J.P. Morgan Securities LLC may be limitedrequired to an amount equal to the sum of:
Any original issue discount that was not amortized as of the date of the bankruptcy filing would constitute unmatured interest. Accordingly, holders of the notes under these circumstances may receive a lesser amount than they would be entitled to under the terms of the indenture governing the notes, even if sufficient funds are available.
Table of Contentsdiscontinue market-making without notice.
We are controlled by our sponsors, whose interests may not be aligned with ours.
All of our issued and outstanding capital stock is owned by Marquee, Holdings Inc., and all of the issued and outstanding capital stock of Marquee Holdings Inc. is owned by AMC Entertainment Holdings, Inc.,Parent, which is controlled by sponsors. Our sponsors have the ability to control our affairs and policies and the election of our directors and appointment of management. Seven of our nine directors have been appointed by the sponsors. Our sponsors are in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us, as well as businesses that represent major customers of our business. They may also pursue acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us. So long as our sponsors or their affiliates control our direct parent, Marquee Holdings Inc., they will continue to be able to strongly influence or effectively control our decisions. For a further description of the control arrangements of our sponsors, see "Certain Relationships and Related Party Transactions."
We have had significant financial losses in recent years.
Prior to fiscal 2007, AMC Entertainment Inc.we had reported net losses in each of the lastprior nine fiscal years totaling approximately $510,088,000.$510.1 million. For fiscal 2007, and 2008, AMC Entertainment Inc.we reported net earnings of $134,079,000$134.1 million. For fiscal 2008 and $43,445,000,2009, we reported net earnings (losses) of $43.4 million and $(81.2) million, respectively. AMC Entertainment Inc.We reported a net lossearnings of $81,172,000$69.8 million in fiscal 2009.2010. If we experience losses in the future, we may be unable to meet our payment obligations while attempting to expand our theatre circuit and withstand competitive pressures or adverse economic conditions.
We face significant competition for new theatre sites, and we may not be able to build or acquire theatres on terms favorable to us.
We anticipate significant competition from other exhibition companies and financial buyers when trying to acquire theatres, and there can be no assurance that we will be able to acquire such theatres at reasonable prices or on favorable terms. Moreover, some of these possible buyers may be stronger financially than we are. In addition, given our size and market share, as well as our recent experiences with the Antitrust Division of the United States Department of Justice in connection with the Loews Acquisitionacquisition of Kerasotes and prior acquisitions, we may be required to dispose of theatres in connection with future acquisitions that we make. As a result of the foregoing, we may not succeed in acquiring theatres or may have to pay more than we would prefer to make an acquisition.
Acquiring or expanding existing circuits and theatres may require additional financing, and we cannot be certain that we will be able to obtain new financing on favorable terms, or at all.
OurOn a pro forma basis, our net capital expenditures aggregated to approximately $104,704,000$99.1 million for fiscal 2009.2010. We estimate that our planned capital expenditures will be between $100,000,000$130.0 million and $105,000,000$160.0 million in fiscal 2010.2011 and will continue at this level or higher over the next three years. Actual capital expenditures in fiscal 2010 and 2011 may differ materially from our estimates. We may have to seek additional financing or issue additional securities to fully implement our growth strategy. We cannot be certain that we will be able to obtain new financing on favorable terms, or at all. In addition, covenants under our existing indebtedness limit our ability to incur additional indebtedness, and the performance of any additional theatres may not be sufficient to service the related indebtedness that we are permitted to incur.
We may be reviewed by antitrust authorities in connection with acquisition opportunities that would increase our number of theatres in markets where we have a leading market share and in connection with DCIP.share.
Given our size and market share, pursuit of acquisition opportunities that would increase the number of our theatres in markets where we have a leading market share would likely result in significant review by the Antitrust Division of the United States Department of Justice, and we may be required to dispose of theatres in order to complete such acquisition opportunities. For example, in connection with the Loews Dispositions,acquisition of Kerasotes, we were required to dispose of 1011 theatres located in various markets across the United States, including New York City, Chicago, DallasDenver and San Francisco.Indianapolis. As a result, we may not be able to succeed in acquiring other exhibition companies or we may have to dispose of a significant number of theatres in key markets in order to complete such acquisitions.
In addition, as a cooperative venture among competitors for the purpose of joint purchasing, DCIP is potentially subject to restrictions under applicable antitrust law. While we believe that DCIP has conducted and will conduct its operations in accordance with all applicable law, it is possible that antitrust authorities will choose to examine and place limitations on DCIP's operations. Such limitations could include requiring that the venture be opened to include other independent competitors or striking down the joint purchasing arrangements altogether. If this were to occur, we might not realize the cost benefits, competitive advantages and increased core and ancillary revenues that we expect to receive from DCIP.
We may not generate sufficient cash flow from our theatre acquisitions to service our indebtedness.
In any acquisition, we expect to benefit from cost savings through, for example, the reduction of overhead and theatre level costs, and from revenue enhancements resulting from the acquisition. However, there can be no assurance that we will be able to generate sufficient cash flow from these acquisitions to service any indebtedness incurred to finance such acquisitions or realize any other
anticipated benefits. Nor can there be any assurance that our profitability will be improved by any one or more acquisitions. Any acquisition may involve operating risks, such as:
The credit market crisis may adversely affect our ability to raise capital.
The severe dislocations and liquidity disruptions in the credit markets could materially impact our ability to obtain debt financing on reasonable terms. The inability to access debt financing on reasonable terms could materially impact our ability to make acquisitions or materially expand our business in the future. Additionally, a prolonged economic downturn or recession could materially impact our operations to the extent it results in reduced demand for moviegoing. If current market and economic conditions persist or deteriorate, we may experience adverse impacts on our business, results of operations and financial condition.
Optimizing our theatre circuit through new construction is subject to delay and unanticipated costs.
The availability of attractive site locations is subject to various factors that are beyond our control. These factors include:
In addition, we typically require 18 to 24 months in the United States and Canada from the time we identify a site to the opening of the theatre. We may also experience cost overruns from delays or other unanticipated costs. Furthermore, these new sites may not perform to our expectations.
Our investment in and revenues from NCM may be negatively impacted by the competitive environment in which NCM operates.
We have maintained an investment in NCM. NCM's in-theatre advertising operations compete with other cinema advertising companies and other advertising mediums including, most notably, television, newspaper, radio and the Internet. There can be no guarantee that in-theatre advertising will continue to attract major advertisers or that NCM's in-theatre advertising format will be favorably received by the theatre-going public. If NCM is unable to generate expected sales of advertising, it may not maintain the level of profitability we hope to achieve, its results of operations and cash flows may be adversely affected and our investment in and revenues and dividends from NCM may be adversely impacted.
We may suffer future impairment losses and lease termination charges.
The opening of large megaplexes by us and certain of our competitors has drawn audiences away from some of our older, multiplex theatres. In addition, demographic changes and competitive pressures have caused some of our theatres to become unprofitable. As a result, we may have to close certain theatres or recognize impairment losses related to the decrease in value of particular theatres. We review long-lived assets, including intangibles, for impairment as part of our annual budgeting process and whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. We recognized non-cash impairment losses in 1996 and in each fiscal year thereafter except for 2005. AMC Entertainment Inc.'sOur impairment losses from continuing operations over this
period aggregated to approximately $281.3$285.0 million. Loews' impairment losses aggregated approximately $4.0 million in the period since it emerged from bankruptcy in 2002. Beginning fiscal 1999 through April 2, 2009, AMC Entertainment Inc.September 30, 2010, we also incurred theatre and other closure expenses, including theatre lease termination charges aggregating approximately $57.1$56.9 million. Historically, Loews has not incurred lease termination charges on its theatres that were disposed of or closed. Deterioration in the performance of our theatres could require us to recognize additional impairment losses and close additional theatres, which could have an adverse effect on the results of our operations.
Our international and Canadian operations are subject to fluctuating currency values.
As of April 2, 2009, we owned, operated or held interests in megaplexes in Canada, China (Hong Kong), France and We continually monitor the United Kingdom. Because the results of operations and the financial positionperformance of our foreign operations are reported in their respective local currencies and then translated into U.S. dollars at the applicable exchange rates for inclusion in our consolidated financial statements, our financial results are impacted by currency fluctuations between the dollar and those local currencies. Revenues from our theatre operationstheatres outside the United States, accountedand factors such as changing consumer preferences for 4% offilmed entertainment in international markets and our total revenues during the 52 weeks ended April 2, 2009. As ainability to sublease vacant retail space could negatively impact operating results and result of our international operations, we have risks from fluctuating currency values. As of April 2, 2009, a 10% fluctuation in the value of the U.S. dollar against all foreign currencies of countries where we currently operate theatres would either increase or decrease loss before income taxesfuture closures, sales, dispositions and accumulated other comprehensive loss by approximately $1.8 million and $7.7 million, respectively. We do not currently hedge against foreign currency exchange rate risk.
We sometimes have been unable to obtain the films we want for our theatres in certain foreign markets.
Because of existing relationships between distributorssignificant theatre and other theatre owners, we sometimes have been unableclosure charges prior to obtain the films we want for our theatres in certain foreign markets. As a result, attendance at someexpiration of our international theatres may not be sufficient to permit us to operate them profitably.underlying lease agreements.
We must comply with the ADA, which could entail significant cost.
Our theatres must comply with Title III of the Americans with Disabilities Act of 1990, or ADA. Compliance with the ADA requires that public accommodations "reasonably accommodate" individuals with disabilities and that new construction or alterations made to "commercial facilities" conform to accessibility guidelines unless "structurally impracticable" for new construction or technically infeasible for alterations. Non-compliance with the ADA could result in the imposition of injunctive relief, fines, and an award of damages to private litigants or additional capital expenditures to remedy such noncompliance.
On January 29, 1999, the Civil Rights Division of the Department of Justice, or the Department, filed suit alleging that the company's stadium-style theatres violated the ADA and related regulations. On December 5, 2003, the trial court entered a consent order and final judgment on non-line-of-sight issues under which we agreed to remedy certain violations at our stadium-style theatres and at certain theatres it may open in the future. Currently we estimate that remaining betterments related to non-line of sight remedies will beare required at approximately 14039 stadium-style theatres. We estimate that the total costunpaid costs of these betterments will be approximately $51.9 million and through April 2, 2009 our company has$19.1 million. The estimate is based on actual costs incurred approximately $23.6 millionon remediation work completed to date. The actual costs of these costs. See "Business—Legal Proceedings."
We will not be fully subject tobetterments may vary based on the requirementsresults of Section 404surveys of the Sarbanes-Oxley Act of 2002 until the end ofremaining theatres. See "Note 11—Commitments and Contingencies" to our fiscal year 2010.
We are required to document and test our internal control proceduresunaudited consolidated financial statements included elsewhere in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires annual management assessments and reports by an issuer's independent registered public accounting firm on the effectiveness of internal controls over financial reporting. We have completed our Section 404 annual management report and included the report in our Annual Report on Form 10-K for fiscal, 2009 filed on May 21, 2009. Our independent registered public accounting firm did not, however, need to include its attestation report in our annual report for fiscal 2009. Under current rules, the attestation of our independent registered public accounting firm will be required beginning in our Annual Report on Form 10-K for our fiscal 2010, which ends in April 2010.
Table of Contentsthis prospectus.
We are party to significant litigation.
We are subject to a number of legal proceedings and claims that arise in the ordinary course of our business. We cannot be assured that we will succeed in defending any claims, that judgments will not be entered against us with respect to any litigation or that reserves we may set aside will be adequate to cover any such judgments. If any of these actions or proceedings against us is successful, we may be subject to significant damages awards. For a description of our legal proceedings, see "Business—Legal Proceedings.Note 11—"Notes to Consolidated Financial Statements" of our unaudited consolidated financial statements included elsewhere in this prospectus.
We may be subject to liability under environmental laws and regulations.
We own and operate facilities throughout the United States and manage or own facilities in several foreign countries and are subject to the environmental laws and regulations of those jurisdictions, particularly laws governing the cleanup of hazardous materials and the management of properties. We might in the future be required to participate in the cleanup of a property that we own or lease, or at which we have been alleged to have disposed of hazardous materials from one of our facilities. In certain circumstances, we might be solely responsible for any such liability under environmental laws, and such claims could be material.
We may not be able to generate additional ancillary revenues.
We intend to continue to pursue ancillary revenue opportunities such as advertising, promotions and alternative uses of our theatres during non-peak hours. Our ability to achieve our business objectives may depend in part on our success in increasing these revenue streams. Some of our U.S. and Canadian competitors have stated that they intend to make significant capital investments in digital advertising delivery, and the success of this delivery system could make it more difficult for us to compete for advertising revenue. In addition, in March 2005 we contributed our cinema screen advertising business to NCM. As such, although we retain board seats and an ownership interest in NCM, we do not control this business, and therefore do not control our revenues attributable to cinema screen advertising. We cannot assure you that we will be able to effectively generate additional ancillary revenue and our inability to do so could have an adverse effect on our business and results of operations.
IfWe depend on key personnel for our current and future performance.
Our current and future performance depends to a significant degree upon the retention of our senior management team and other key personnel. The loss or unavailability to us of any member of our senior management team or a key employee could have a material adverse effect on our business, financial condition and results of operations. We cannot assure you that we fail to maintain an effective system of internal controls, we may notwould be able to accurately report our financial results.
Effective internal controls are necessarylocate or employ qualified replacements for us to provide reliable financial reports and effectively prevent fraud. Because of inherent limitations, internal control over financial reporting may not preventsenior management or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In the past, we have identified a material weakness in our internal control over financial reporting and concluded that our disclosure controls and procedures were ineffective. In addition, we may in the future discover areas of our internal controls that need improvement or that constitute material weaknesses. A material weakness is a control deficiency or combination of control deficiencies that results in more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected. Any failure to remediate any future material weaknesses in our internal control over financial reporting or to implement and maintain effective internal controls, or difficulties encountered in their implementation, could cause us to fail to timely meet our reporting obligations, result in material misstatements in our financial statements or could result in defaults under our senior credit facility, the indentures governing our debt securities or under any other debt instruments we may enter into in the future. Deficiencies in our internal controls could also cause investors to lose confidence in our reported financial information.
Table of Contentskey employees on acceptable terms.
We depend on motion picture production and performanceperformance..
Our ability to operate successfully depends upon the availability, diversity and appeal of motion pictures, our ability to license motion pictures and the performance of such motion pictures in our markets. We mostly license first-run motion pictures, the success of which has increasingly depended on the marketing efforts of the major motion picture studios. Poor performance of, or any disruption in the production of these motion pictures (including by reason of a strike) these motion pictures,strike or lack of adequate financing), or a reduction in the marketing efforts of the major motion picture studios, could hurt our business and results of operations. Conversely, the successful performance of these motion pictures, particularly the sustained success of any one motion picture, or an increase in effective marketing efforts of the major motion picture studios, may generate positive results for our business and operations in a specific fiscal quarter or year that may not necessarily be indicative of, or comparable to, future results of operations. In addition, a change in the type and breadth of movies offered by motion picture studios may adversely affect the demographic base of moviegoers.
The master contract between film producers and the Screen Actors Guild ("SAG") expired at the beginning of July 2008. A tentative agreement was reached on April 17, 2009. The two-year agreement is being submitted to SAG's members for approval. If SAG members choose to reject the proposed agreement, and subsequently vote to strike, or film producers choose to lock out the union members, a disruption in production of motion pictures could result.
We have no control over distributors of the films and our business may be adversely affected if our access to motion pictures is limited or delayed.
We rely on distributors of motion pictures, over whom we have no control, for the films that we exhibit. Major motion picture distributors are required by law to offer and license film to exhibitors, including us, on a film-by-film and theatre-by-theatre basis. Consequently, we cannot assure ourselves of a supply of motion pictures by entering into long-term arrangements with major distributors, but must compete for our licenses on a film-by-film and theatre-by-theatre basis. Our business depends on maintaining good relations with these distributors, as this affects our ability to negotiate commercially favorable licensing terms for first-run films or to obtain licenses at all. Our business may be adversely affected if our access to motion pictures is limited or delayed because of deterioration in our relationships with one or more distributors or for some other reason. To the extent that we are unable to license a popular film for exhibition in our theatres, our operating results may be adversely affected.
We are subject, at times, to intense competition.
Our theatres are subject to varying degrees of competition in the geographic areas in which we operate. Competitors may be national circuits, regional circuits or smaller independent exhibitors. Competition among theatre exhibition companies is often intense with respect to the following factors:
The theatrical exhibition industry also faces competition from other forms of out-of-home entertainment, such as concerts, amusement parks and sporting events and from other distribution
channels for filmed entertainment, such as cable television, pay per view and home video systems and from other forms of in-home entertainment.
Industry-wide screen growth has affected and may continue to affect the performance of some of our theatres.
In recent years, theatrical exhibition companies have emphasized the development of large megaplexes, some of which have as many as 30 screens in a single theatre. The industry-wide strategy of aggressively building megaplexes generated significant competition and rendered many older, multiplex theatres obsolete more rapidly than expected. Many of these theatres are under long-term lease commitments that make closing them financially burdensome, and some companies have elected to continue operating them notwithstanding their lack of profitability. In other instances, because theatres are typically limited use design facilities, or for other reasons, landlords have been willing to make rent concessions to keep them open. In recent years, many older theatres that had closed are being reopened by small theatre operators and in some instances by sole proprietors that are able to negotiate significant rent and other concessions from landlords. As a result, there has been growth in the number of screens in the U.S. and Canadian exhibition industry.industry from 2005 to 2008. This has affected and may continue to affect the performance of some of our theatres. The number of screens in the U.S. and Canadian exhibition industry slightly declined from 2008 to 2009.
An increase in the use of alternative film delivery methods or other forms of entertainment may drive down our attendance and limit our ticket prices.
We compete with other film delivery methods, including network, syndicated cable and satellite television, DVDs and video cassettes, as well as video-on-demand, pay-per-view services and downloads via the Internet. We also compete for the public's leisure time and disposable income with other forms of entertainment, including sporting events, amusement parks, live music concerts, live theatre and restaurants. An increase in the popularity of these alternative film delivery methods and other forms of entertainment could reduce attendance at our theatres, limit the prices we can charge for admission and materially adversely affect our business and results of operations.
Our results of operations may be impacted by shrinking video release windows.
Over the last decade, the average video release window, which represents the time that elapses from the date of a film's theatrical release to the date a film is available on DVD, an important downstream market, has decreased from approximately six months to approximately three to four months. If patrons choose to wait for a DVD release rather than attend a theatre for viewing the film, it may adversely impact our business and results of operations, financial condition and cash flows. Film studios are currently considering a premium video on demand product which could also cause the release window to shrink further. We cannot assure you that this release window, which is determined by the film studios, will not shrink further or be eliminated altogether, which could have an adverse impact on our business and results of operations.
General political, social and economic conditions can reduce our attendance.
Our success depends on general political, social and economic conditions and the willingness of consumers to spend money at movie theatres. If going to motion pictures becomes less popular or consumers spend less on concessions, which accounted for 28%27% of our revenues in fiscal 2009,2010, our operations could be adversely affected. In addition, our operations could be adversely affected if consumers' discretionary income falls as a result of an economic downturn. Political events, such as terrorist attacks, could cause people to avoid our theatres or other public places where large crowds are in attendance.
Industry-wide conversion to digital-based mediaDevelopment of digital technology may increase our costs.capital expenses.
The industry is in the early stagesprocess of conversion fromconverting film-based media to digital-based media. There areWe, along with some of our competitors, have commenced a varietyroll-out of constituencies associated with this anticipated changedigital equipment for exhibiting feature films and plan to continue the roll-out through our joint venture DCIP. However, significant obstacles exist that may significantly impact industry participants,such a roll-out plan, including content providers, distributors,the cost of digital projectors, and the supply of projectors by manufacturers. During fiscal 2010, DCIP completed its formation and $660 million funding to facilitate the financing and deployment of digital technology in our theatres. We cannot assure you that DCIP will be able to obtain sufficient additional financing to be able to purchase and lease to us the number of digital projectors ultimately needed for our roll-out or that the manufacturers will be able to supply the volume of projectors needed for our roll-out. As a result, our roll-out of digital equipment providers and venue operators. While content providers and distributors have indicated they would bear substantially all of the costs of this change, there cancould be no assurance that we will have access to adequate capital to finance the conversion costs associated with this potential change should the conversion process rapidly acceleratedelayed or the content providers and distributors elect to not bear the related costs. Furthermore, it is impossible to accurately predict how the roles and allocation of costs between various industry participants will change if the industry changes from film-based media to digital-based media.completed at all.
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS
All statements, other than statements of historical facts, included in this prospectus regarding the prospects of our industry and our prospects, plans, financial position and business strategy may constitute "forward looking"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 Exchange Act. In addition, forward lookingforward-looking statements generally can be identified by the use of forward lookingforward-looking terminology such as "may," "will," "expect," "intend," "estimate," "anticipate," "plan," "foresee,""may", "expect", "intend", "estimate", "anticipate", "plan", "foresee", "believe" or "continue" or the negatives of these terms or variations of them or similar terminology.
Although we believe that the expectations reflected in these forward lookingforward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. All such forward lookingforward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those contemplated by the relevant forward lookingforward-looking statement. Important factors that could cause actual results to differ materially from our expectations include, among others:
Readers are urged to consider these factors carefully in evaluating the forward lookingforward-looking statements. For a discussion of these and other risk factors, see "Risk Factors" in this prospectus.Factors."
All subsequent written and oral forward lookingforward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward lookingforward-looking statements included herein are made only as of the date of this prospectus, and we do not undertake any obligation to release publicly any revisions to such forward lookingforward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Information regarding market share, market position and industry data pertaining to our business contained in this prospectus consists of our estimates based on data and reports compiled by industry professional organizations, (includingincluding the Motion Picture Association of America, the National Association of Theatre Owners ("NATO"), Nielsen Media Research, Rentrak Corporation ("Rentrak"), industry analysts and our management's knowledge of our business and markets. Unless otherwise noted in this prospectus, all information provided by the Motion Picture Association of America is for the 2009 calendar year, all information provided by NATO is for the 2009 calendar year and all information provided by Rentrak is as of April 1, 2010.
Although we believe that the sources are reliable, we and the initial purchasers have not independently verified market industry data provided by third parties or by industry or general publications. Similarly, while we believe our internal estimates with respect to our industry are reliable, our estimates have not been verified by any independent sources. While we are not aware of any misstatements regarding any industry data presented in this prospectus, our estimates involve risks and uncertainties and are subject to changes based on various factors, including those discussed under "Risk Factors" in this prospectus.Factors."
Purpose and Effect of the Exchange Offer
We have entered into a registration rights agreement with the initial purchasers of the original notes, in which we agreed to file a registration statement relating to an offer to exchange the original notes for exchange notes. The registration statement of which this prospectus forms a part was filed in compliance with this obligation. We also agreed to use our commercially reasonable efforts to file the registration statement with the SEC and to cause it to become effective under the Securities Act. The exchange notes will have terms substantially identical to the original notes except that the exchange notes will not contain terms with respect to transfer restrictions and registration rights and additional interest payable for the failure to consummate the exchange offer by the dates set forth in the registration rights agreement. Original notes in an aggregate principal amount of $600,000,000 were issued on June 9, 2009.December 15, 2010.
Under the circumstances set forth below, we will use our commercially reasonable efforts to cause the SEC to declare effective a shelf registration statement with respect to the resale of the original notes and to keep the shelf registration statement effective for up to two years after the effective date of the shelf registration statement. These circumstances include:
Each holder of original notes that wishes to exchange such original notes for transferable exchange notes in the exchange offer will be required to make the following representations:
In addition, each broker-dealer that receives exchange notes for its own account in exchange for original notes, where such original notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. See "Plan of Distribution."
Resale of Exchange Notes
Based on interpretations of the SEC staff set forth in no action letters issued to unrelated third parties, we believe that exchange notes issued in the exchange offer in exchange for original notes may be offered for resale, resold and otherwise transferred by any exchange note holder without compliance with the registration and prospectus delivery provisions of the Securities Act, if:
Any holder who tenders in the exchange offer with the intention of participating in any manner in a distribution of the exchange notes:
If, as stated above, a holder cannot rely on the position of the staff of the SEC set forth in "Exxon Capital Holdings Corporation" or similar interpretive letters, any effective registration statement used in connection with a secondary resale transaction must contain the selling security holder information required by Item 507 of Regulation S-K under the Securities Act.
This prospectus may be used for an offer to resell, for the resale or for other retransfer of exchange notes only as specifically set forth in this prospectus. With regard to broker-dealers, only broker-dealers that acquired the original notes as a result of market-making activities or other trading activities may participate in the exchange offer. Each broker-dealer that receives exchange notes for its own account in exchange for original notes, where such original notes were acquired by such broker-dealer as a result of market-makingmarket- making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of the exchange notes. Please read the section captioned "Plan of Distribution" for more details regarding these procedures for the transfer of exchange notes. We have agreed that, for a period starting from the date on which the exchange offer is consummated to the close of business one year after, we will make this prospectus available to any broker-dealer for use in connection with any resale of the exchange notes.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal, we will accept for exchange any original notes properly tendered and not withdrawn prior to the expiration date. We will issue $1,000 principal amount of exchange notes in exchange for each $1,000 principal amount of original notes surrendered under the exchange offer. Original notes may be tendered only in denominations of $1,000 and in integral multiples of $1,000.
The form and terms of the exchange notes will be substantially identical to the form and terms of the original notes except the exchange notes will be registered under the Securities Act, will not bear legends restricting their transfer and will not provide for any additional interest upon our failure to fulfill our obligations under the registration rights agreement to file, and cause to become effective, a registration statement. The exchange notes will evidence the same debt as the original notes. The exchange notes will be issued under and entitled to the benefits of the same indenture that authorized the issuance of the outstanding original notes. Consequently, both series of notes will be treated as a single class of debt securities under the indenture.
The exchange offer is not conditioned upon any minimum aggregate principal amount of original notes being tendered for exchange.
As of the date of this prospectus, $600,000,000 in aggregate principal amount of original notes werewas outstanding, and there was one registered holder, CEDE & Co., a nominee of DTC. This prospectus and the letter of transmittal are being sent to all registered holders of original notes. There will be no fixed record date for determining registered holders of original notes entitled to participate in the exchange offer.
We will conduct the exchange offer in accordance with the provisions of the registration rights agreement, the applicable requirements of the Securities Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations of the SEC. Original notes that are not tendered for exchange in the exchange offer will remain outstanding and continue to accrue interest and will be entitled to the rights and benefits such holders have under the indenture relating to the original notes.
We will be deemed to have accepted for exchange properly tendered original notes when we have given oral or written notice of the acceptance to the exchange agent. The exchange agent will act as agent for the tendering holders for the purposes of receiving the exchange notes from us and delivering exchange notes to such holders. Subject to the terms of the registration rights agreement, we expressly reserve the right to amend or terminate the exchange offer, and not to accept for exchange any original notes not previously accepted for exchange, upon the occurrence of any of the conditions specified below under the caption "—Certain Conditions to the Exchange Offer."
Holders who tender original notes in the exchange offer will not be required to pay brokerage commissions or fees, or, subject to the instructions in the letter of transmittal, transfer taxes with respect to the exchange of original notes. We will pay all charges and expenses, other than those transfer taxes described below, in connection with the exchange offer. It is important that you read the section labeled "—Fees and Expenses" below for more details regarding fees and expenses incurred in the exchange offer.
Expiration Date; Extensions; Amendments
The exchange offer will expire at 5:00 p.m., New York City time on , 20092011 unless we extend it in our sole discretion.
In order to extend the exchange offer, we will notify the exchange agent orally or in writing of any extension. We will notify in writing or by public announcement the registered holders of original notes of the extension no later than 9:00 a.m., New York City time, on the business day after the previously scheduled expiration date.
We reserve the right, in our sole discretion:
Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by written notice or public announcement thereof to the registered holders of original notes. If we amend the exchange offer in a manner that we determine to constitute a material change, we will promptly disclose such amendment in a manner reasonably calculated to inform the holders of original notes of such amendment, provided that in the event of a material change in the exchange offer, including the waiver of a material condition, we will extend the exchange offer period, if necessary, so that at least five business days remain in the exchange offer following notice of the material change. If we terminate this exchange offer as provided in this prospectus before accepting any original notes for exchange or if we amend the terms of this exchange offer in a manner that constitutes a fundamental change in the information set forth in the registration statement of which this prospectus forms a part, we will promptly file a post-effective amendment to the registration statement of which this prospectus forms a part. In addition, we will in all events comply with our obligation to make prompt payment for all original notes properly tendered and accepted for exchange in the exchange offer.
Without limiting the manner in which we may choose to make public announcements of any delay in acceptance, extension, termination or amendment of the exchange offer, we shall have no obligation to publish, advertise, or otherwise communicate any such public announcement, other than by issuing a timely press release to a financial news service.
Certain Conditions to the Exchange Offer
Despite any other term of the exchange offer, we will not be required to accept for exchange, or exchange any exchange notes for, any original notes, and we may terminate the exchange offer as provided in this prospectus before accepting any original notes for exchange if in our reasonable judgment:
In addition, we will not be obligated to accept for exchange the original notes of any holder that has not made:
We expressly reserve the right, at any time or at various times on or prior to the scheduled expiration date of the exchange offer, to extend the period of time during which the exchange offer is open. Consequently, we may delay acceptance of any original notes by giving written notice of such extension to the registered holders of the original notes. During any such extensions, all original notes previously tendered will remain subject to the exchange offer, and we may accept them for exchange unless they have been previously withdrawn. We will return any original notes that we do not accept for
exchange for any reason without expense to their tendering holder promptly after the expiration or termination of the exchange offer.
We expressly reserve the right to amend or terminate the exchange offer on or prior to the scheduled expiration date of the exchange offer, and to reject for exchange any original notes not previously accepted for exchange, upon the occurrence of any of the conditions of the exchange offer specified above. We will give written notice or public announcement of any extension, amendment, non-acceptance or termination to the registered holders of the original notes as promptly as practicable. In the case of any extension, such notice will be issued no later than 9:00 a.m., New York City time, on the business day after the previously scheduled expiration date.
��These conditions are for our sole benefit and we may, in our sole discretion, assert them regardless of the circumstances that may give rise to them or waive them in whole or in part at any or at various times except that all conditions to the exchange offer must be satisfied or waived by us prior to the expiration of the exchange offer. If we fail at any time to exercise any of the foregoing rights, that failure will not constitute a waiver of such right. Each such right will be deemed an ongoing right that we may assert at any time or at various times prior to the expiration of the exchange offer. Any waiver by us will be made by written notice or public announcement to the registered holders of the notes.
In addition, we will not accept for exchange any original notes tendered, and will not issue exchange notes in exchange for any such original notes, if at such time any stop order is threatened or in effect with respect to the registration statement of which this prospectus constitutes a part or the qualification of the indenture under the Trust Indenture Act of 1939, as amended.
Procedures for Tendering
Only a holder of original notes may tender such original notes in the exchange offer. To tender in the exchange offer, a holder must:
In addition, either:
To be tendered effectively, the exchange agent must receive any physical delivery of the letter of transmittal and other required documents at the address set forth below under "—Exchange Agent" prior to the expiration date.
The tender by a holder that is not withdrawn prior to the expiration date will constitute an agreement between such holder and us in accordance with the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal.
The method of delivery of original notes, the letter of transmittal and all other required documents to the exchange agent is at the holder's election and risk. Rather than mail these items, we recommend
that holders use an overnight or hand delivery service. In all cases, holders should allow sufficient time to assure delivery to the exchange agent before the expiration date. Holders should not send us the letter of transmittal or original notes. Holders may request their respective brokers, dealers, commercial banks, trust companies or other nominees to effect the above transactions for them.
Any beneficial owner whose original notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct it to tender on the owners' behalf. If such beneficial owner wishes to tender on its own behalf, it must, prior to completing and executing the letter of transmittal and delivering its original notes, either:
The transfer of registered ownership may take considerable time and may not be completed prior to the expiration date.
Signatures on a letter of transmittal or a notice of withdrawal described below must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or another "eligible institution" within the meaning of Rule 17Ad-15 under the Exchange Act, unless the original notes tendered pursuant thereto are tendered:
If the letter of transmittal is signed by a person other than the registered holder of any original notes listed on the original notes, such original notes must be endorsed or accompanied by a properly completed bond power. The bond power must be signed by the registered holder as the registered holder's name appears on the original notes and an eligible institution must guarantee the signature on the bond power.
If the letter of transmittal or any original notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing. Unless waived by us, they should also submit evidence satisfactory to us of their authority to deliver the letter of transmittal.
The exchange agent and DTC have confirmed that any financial institution that is a participant in DTC's system may use DTC's Automated Tender Offer Program to tender. Participants in the program may, instead of physically completing and signing the letter of transmittal and delivering it to the exchange agent, transmit their acceptance of the exchange offer electronically. They may do so by causing DTC to transfer the original notes to the exchange agent in accordance with its procedures for transfer. DTC will then send an agent's message to the exchange agent. The term "agent's message" means a message transmitted by DTC, received by the exchange agent and forming part of the book-entry confirmation, to the effect that:
We will determine in our sole discretion all questions as to the validity, form, eligibility (including time of receipt), acceptance of tendered original notes and withdrawal of tendered original notes. Our determination will be final and binding. We reserve the absolute right to reject any original notes not properly tendered or any original notes the acceptance of which would, in the opinion of our counsel, be unlawful. Our interpretation of the terms and conditions of the exchange offer (including the instructions in the letter of transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of original notes must be cured within such time as we shall determine. Although we intend to notify holders of defects or irregularities with respect to tenders of original notes, neither we, the exchange agent nor any other person will incur any liability for failure to give such notification. Tenders of original notes will not be deemed made until such defects or irregularities have been cured or waived. Any original notes received by the exchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned to the exchange agent without cost to the tendering holder, unless otherwise provided in the letter of transmittal, promptly following the expiration date or termination of the exchange offer, as applicable.
In all cases, we will issue exchange notes for original notes that we have accepted for exchange under the exchange offer only after the exchange agent timely receives:
By signing the letter of transmittal, each tendering holder of original notes will represent that, among other things:
In addition, each broker-dealer that receives exchange notes for its own account in exchange for original notes, where such original notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. See "Plan of Distribution."
Book-Entry Transfer
The exchange agent will make a request to establish an account with respect to the original notes at DTC for purposes of the exchange offer promptly after the date of this prospectus; and any financial institution participating in DTC's system may make book-entry delivery of original notes by causing
DTC to transfer such original notes into the exchange agent's account at DTC in accordance with DTC's procedures for transfer. Holders of original notes who are unable to deliver confirmation of the book-entry tender of their original notes into the exchange agent's account at DTC or all other documents of transmittal to the exchange agent on or prior to the expiration date must tender their original notes according to the guaranteed delivery procedures described below.
Guaranteed Delivery Procedures
Holders wishing to tender their original notes but whose original notes are not immediately available or who cannot deliver their original notes, the letter of transmittal or any other required documents to the exchange agent or comply with the applicable procedures under DTC's Automated Tender Offer Program prior to the expiration date may tender if:
Upon request to the exchange agent, a notice of guaranteed delivery will be sent to holders who wish to tender their original notes according to the guaranteed delivery procedures set forth above.
Withdrawal of Tenders
Except as otherwise provided in this prospectus, holders of original notes may withdraw their tenders at any time prior to the expiration date.
For a withdrawal to be effective:
Any such notice of withdrawal must:
If certificates for original notes have been delivered or otherwise identified to the exchange agent, then, prior to the release of such certificates, the withdrawing holder must also submit:
If original notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn original notes and otherwise comply with the procedures of such facility. We will determine all questions as to the validity, form and eligibility, including time of receipt, of such notices, and our determination shall be final and binding on all parties. We will deem any original notes so withdrawn not to have been validly tendered for exchange for purposes of the exchange offer. Any original notes that have been tendered for exchange but which are not exchanged for any reason will be returned to the holder thereof without cost to such holder (or, in the case of original notes tendered by book-entry transfer into the exchange agent's account at DTC according to the procedures described above, such original notes will be credited to an account maintained with DTC for original notes) promptly after withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn original notes may be retendered by following one of the procedures described under "—Procedures for Tendering" above at any time prior to the expiration date.
Exchange Agent
U.S. Bank National Association has been appointed as exchange agent for the exchange offer. You should direct questions and requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal and requests for the notice of guaranteed delivery to the exchange agent addressed as follows:
U.S. Bank National Association
(Exchange Agent/Depositary addresses)
By Registered & Certified Mail: | Regular Mail or Overnight Courier: | |
U.S. BANK NATIONAL ASSOCIATION | U.S. BANK NATIONAL ASSOCIATION | |
Corporate Trust Services | 60 Livingston Avenue | |
EP-MN-WS3C | St. Paul, Minnesota 55107-1419 | |
60 Livingston Avenue | Attention: Specialized Finance | |
St. Paul, Minnesota 55107-1419 | ||
In Person by Hand Only: | By Facsimile (for Eligible Institutions only): | |
(651) 495-8158 | ||
U.S. BANK NATIONAL ASSOCIATION | ||
60 Livingston Avenue | For Information or Confirmation by Telephone: | |
1st Floor—Bond Drop Window | 1-800-934-6802 | |
St. Paul, Minnesota 55107 |
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
Fees and Expenses
We will bear the expenses of soliciting tenders. The principal solicitation is being made by mail, however, we may make additional solicitations by telegraph, telephone or in person by our officers and regular employees and those of our affiliates.
We have not retained any dealer-manager in connection with the exchange offer and will not make any payments to broker-dealers or others soliciting acceptances of the exchange offer. We will, however, pay the exchange agent reasonable and customary fees for its services and reimburse it for its related reasonable out-of-pocket expenses.
Our expenses in connection with the exchange offer include:
Transfer Taxes
We will pay all transfer taxes, if any, applicable to the exchange of original notes under the exchange offer. The tendering holder, however, will be required to pay any transfer taxes, whether imposed on the registered holder or any other person, if:
If satisfactory evidence of payment of such taxes is not submitted with the letter of transmittal, the amount of such transfer taxes will be billed to that tendering holder.
Holders who tender their original notes for exchange will not be required to pay any transfer taxes. However, holders who instruct us to register exchange notes in the name of, or request that original notes not tendered or not accepted in the exchange offer be returned to, a person other than the registered tendering holder will be required to pay any applicable transfer tax.
Consequences of Failure to Exchange
Holders of original notes who do not exchange their original notes for exchange notes under the exchange offer, including as a result of failing to timely deliver original notes to the exchange agent,
together with all required documentation, including a properly completed and signed letter of transmittal, will remain subject to the restrictions on transfer of such original notes:
In addition, you will no longer have any registration rights or be entitled to additional interest with respect to the original notes.
In general, you may not offer or sell the original notes unless they are registered under the Securities Act, or if the offer or sale is exempt from registration under the Securities Act and applicable state securities laws. Except as required by the registration rights agreement, we do not intend to register resales of the original notes under the Securities Act. Based on interpretations of the SEC staff, exchange notes issued pursuant to the exchange offer may be offered for resale, resold or otherwise transferred by their holders, other than any such holder that is our "affiliate" within the meaning of Rule 405 under the Securities Act, without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that the holders acquired the exchange notes in the ordinary course of the holders' business and the holders have no arrangement or understanding with respect to the distribution of the exchange notes to be acquired in the exchange offer. Any holder who tenders in the exchange offer for the purpose of participating in a distribution of the exchange notes:
After the exchange offer is consummated, if you continue to hold any original notes, you may have difficulty selling them because there will be fewer original notes outstanding.
Accounting Treatment
We will record the exchange notes in our accounting records at the same carrying value as the original notes, as reflected in our accounting records on the date of exchange. Accordingly, we will not recognize any gain or loss for accounting purposes in connection with the exchange offer.
Other
Participation in the exchange offer is voluntary, and you should carefully consider whether to accept. You are urged to consult your financial and tax advisors in making your own decision on what action to take.
We may in the future seek to acquire untendered original notes in the open market or privately negotiated transactions, through subsequent exchange offer or otherwise. We have no present plans to acquire any original notes that are not tendered in the exchange offer or to file a registration statement to permit resales of any untendered original notes.
This exchange offer is intended to satisfy certain of our obligations under the registration rights agreement. We will not receive any proceeds from the issuance of the exchange notes in the exchange offer. In exchange for each of the exchange notes, AMC Entertainment Inc. will receive original notes in like principal amount. AMC Entertainment Inc. will retire or cancel all of the original notes tendered in the exchange offer. Accordingly, issuance of the exchange notes will not result in any change in our capitalization.
The following table sets forth the cash and cash equivalents and capitalization of AMC Entertainment Inc. as of April 2, 2009,September 30, 2010, on an actual basis and on an adjusted basis to give effect to the original notes offering (without giving effect to(and the use of proceeds other than the Cash Tender Offer), the Dividend, this offering and the redemption of all Existing AMCE Senior Notes that remained outstanding after the completionapplication of the Cash Tender Offer.proceeds thereof). The information in this table should be read in conjunction with the "Business" and the historical financial statements of AMC Entertainment Inc. and the respective accompanying notes thereto appearingincluded elsewhere in this prospectus.
| As of April 2, 2009 | ||||||||
---|---|---|---|---|---|---|---|---|---|
| Actual | As adjusted | |||||||
| (in thousands) | ||||||||
Cash and cash equivalents | $ | 534,009 | $ | 541,506 | |||||
Short-term debt (current maturities of long-term debt and capital and financing lease obligations) | $ | 9,923 | $ | 9,923 | |||||
Long-term debt: | |||||||||
Senior secured credit facility | |||||||||
Revolving loan facility(1) | 185,000 | 185,000 | |||||||
Term loan | 622,375 | 622,375 | |||||||
8.75% senior notes due 2019 | — | 585,492 | |||||||
85/8% senior notes due 2012 | 250,000 | — | |||||||
8% senior subordinated notes due 2014 | 299,066 | 299,066 | |||||||
11% senior subordinated notes due 2016 | 325,000 | 325,000 | |||||||
Capital and financing lease obligations, interest ranging from 9% to 111/2% | 57,286 | 57,286 | |||||||
Total debt(2) | $ | 1,748,650 | $ | 2,084,142 | |||||
Stockholder's equity: | |||||||||
Common Stock ($1 par value, 1 share issued) | — | — | |||||||
Additional paid-in capital | 1,157,284 | 857,284 | |||||||
Accumulated other comprehensive earnings | 17,061 | 17,061 | |||||||
Accumulated deficit | (134,742 | ) | (146,236 | ) | |||||
Total stockholder's equity | 1,039,603 | 728,109 | |||||||
Total capitalization | $ | 2,788,253 | $ | 2,812,251 | |||||
| As of September 30, 2010 | ||||||||
---|---|---|---|---|---|---|---|---|---|
| Actual | As adjusted | |||||||
| (in thousands) | ||||||||
Cash and cash equivalents(1) | $ | 326,852 | $ | 307,546 | |||||
Short-term debt (current maturities of long-term debt and capital and financing lease obligations) | $ | 10,347 | $ | 10,347 | |||||
Long-term debt: | |||||||||
Senior secured credit facility | |||||||||
Revolving loan facility(2) | — | — | |||||||
Term loan | 612,625 | 612,625 | |||||||
8.75% Senior Notes due 2019 | 586,746 | 586,746 | |||||||
8% Senior Subordinated Notes due 2014 | 299,312 | 299,312 | |||||||
11% Senior Subordinated Notes due 2016 | 325,000 | — | |||||||
Senior Subordinated Notes offered hereby | — | 600,000 | |||||||
Capital and financing lease obligations | 63,950 | 63,950 | |||||||
Total debt(3) | $ | 1,897,980 | $ | 2,172,980 | |||||
Stockholder's equity: | |||||||||
Common Stock (1 par value, 1 share issued) | — | — | |||||||
Additional paid-in capital | 814,367 | 559,287 | |||||||
Accumulated other comprehensive loss | (3,889 | ) | (3,889 | ) | |||||
Accumulated deficit | 4,738 | (21,062 | ) | ||||||
Total stockholder's equity | 815,216 | 534,336 | |||||||
Total capitalization | $ | 2,713,196 | $ | 2,707,316 | |||||
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
We derived the following unaudited pro forma condensed consolidated financial information by applying pro forma adjustments attributable to the Kerasotes Acquisition to our historical consolidated financial statements and the Kerasotes financial statements included elsewhere in this prospectus.
These adjustments include:
The unaudited pro forma condensed consolidated statement of operations data for the 26 weeks ended September 30, 2010, the 52 weeks ended April 1, 2010 and the 52 weeks ended September 30, 2010 gives effect to the Kerasotes Acquisition as if it had occurred on April 3, 2009. We describe the assumptions underlying the pro forma adjustments in the accompanying notes, which should be read in conjunction with the unaudited pro forma condensed consolidated financial information.
The pro forma statement of operations and other data for the 52 weeks ended September 30, 2010, which are unaudited, have been calculated by subtracting the pro forma data for the 26 weeks ended October 1, 2009 from the pro forma data for the 52 weeks ended April 1, 2010 and adding the data for the 26 weeks ended September 30, 2010. This presentation is not in accordance with U.S. GAAP. We believe that this presentation provides useful information to investors regarding our recent financial performance, and we view this presentation of the four most recently completed fiscal quarters as a key measurement period for investors to assess our historical results. In addition, our management uses trailing four quarter financial information to evaluate our financial performance for ongoing planning purposes, including a continuous assessment of our financial performance in comparison to budgets and internal projections. We also use trailing four quarter financial data to test compliance with covenants under our senior secured credit facility. This presentation has limits as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.
The unaudited pro forma condensed consolidated financial information is for illustrative and informational purposes only and should not be considered indicative of the results that would have been achieved had the transactions been consummated on the dates or for the periods indicated and do not purport to represent consolidated balance sheet data or statement of operations data or other financial data as of any future date or any future period.
The unaudited pro forma condensed consolidated financial information should be read in conjunction with our consolidated financial statements and accompanying notes and the Kerasotes financial statements included elsewhere in this prospectus.
AMC Entertainment Holdings, Inc.ENTERTAINMENT INC.
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
TWENTY SIX WEEKS ENDED SEPTEMBER 30, 2010
(dollars in thousands)
| Twenty Six Weeks Ended September 30, 2010 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Company 26 Weeks Ended Sept. 30, 2010 Historical | Kerasotes April 1, 2010 to May 24, 2010 Historical | Kerasotes Acquisition Pro Forma Adjustments | Company Pro Forma Kerasotes Acquisition | ||||||||||
Revenues | $ | 1,294,577 | $ | 40,696 | $ | (12,109 | )(1) | $ | 1,323,164 | |||||
— | (2) | |||||||||||||
Cost of operations | 846,781 | 25,802 | (8,131 | )(1) | 874,508 | |||||||||
10,056 | (2) | |||||||||||||
Rent | 236,035 | 6,405 | (2,714 | )(1) | 240,428 | |||||||||
702 | (2) | |||||||||||||
General and administrative: | ||||||||||||||
M&A Costs | 10,975 | — | — | 10,975 | ||||||||||
Management fee | 2,500 | — | — | 2,500 | ||||||||||
Other | 31,058 | 1,651 | — | 32,709 | ||||||||||
Depreciation and amortization | 100,958 | 2,702 | (561 | )(1) | 104,517 | |||||||||
1,418 | (2) | |||||||||||||
Operating costs and expenses | 1,228,307 | 36,560 | 770 | 1,265,637 | ||||||||||
Operating income | 66,270 | 4,136 | (12,879 | ) | 57,527 | |||||||||
Other expense | (9,685 | ) | — | — | (9,685 | ) | ||||||||
Interest expense | 68,758 | 395 | (179 | )(2) | 68,974 | |||||||||
Equity in earnings of non-consolidated entities | (3,566 | ) | — | — | (3,566 | ) | ||||||||
Gain on NCM, Inc. stock sale | (64,648 | ) | — | — | (64,648 | ) | ||||||||
Investment income | (104 | ) | (99 | ) | 99 | (2) | (104 | ) | ||||||
Total other expense | (9,245 | ) | 296 | (80 | ) | (9,029 | ) | |||||||
Earnings (loss) from continuing operations before income taxes | 75,515 | 3,840 | (12,799 | ) | 66,556 | |||||||||
Income tax provision (benefit) | 5,800 | — | (3,400 | )(3) | 2,400 | |||||||||
Earnings (loss) from continuing operations | $ | 69,715 | $ | 3,840 | $ | (9,399 | ) | $ | 64,156 | |||||
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
AMC ENTERTAINMENT INC.
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FIFTY-TWO WEEKS ENDED APRIL 1, 2010
(dollars in thousands)
| Fifty-two weeks ended April 1, 2010 | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Company 52 Weeks Ended April 1, 2010 Historical | Kerasotes Year Ended Dec. 31, 2009 Historical | Kerasotes Three Months Ended Mar. 31, 2010 Historical | Kerasotes Three Months Ended Mar. 31, 2009 Historical | Kerasotes Twelve Months Ended Mar. 31, 2010 Historical | Kerasotes Acquisition Pro Forma Adjustments | Company Pro Forma Kerasotes Acquisition | ||||||||||||||||
Revenues | $ | 2,417,739 | $ | 325,964 | $ | 79,723 | $ | 76,283 | $ | 329,404 | $ | (62,611 | )(1) | $ | 2,683,755 | ||||||||
(777 | )(2) | ||||||||||||||||||||||
Cost of operations | 1,612,260 | 210,990 | 53,942 | 50,428 | 214,504 | (41,684 | )(1) | 1,785,080 | |||||||||||||||
Rent | 440,664 | 45,212 | 11,640 | 11,336 | 45,516 | (11,365 | )(1) | 479,590 | |||||||||||||||
4,775 | (2) | ||||||||||||||||||||||
General and administrative: | |||||||||||||||||||||||
M&A costs | 2,280 | — | — | — | — | — | 2,280 | ||||||||||||||||
Management fee | 5,000 | — | — | — | — | — | 5,000 | ||||||||||||||||
Other | 57,858 | 17,011 | 3,973 | 4,017 | 16,967 | — | 74,825 | ||||||||||||||||
Depreciation and amortization | 188,342 | 21,894 | 4,628 | 5,252 | 21,270 | (1,540 | )(1) | 213,582 | |||||||||||||||
5,510 | (2) | ||||||||||||||||||||||
Impairment of long-lived assets | 3,765 | — | — | — | — | — | 3,765 | ||||||||||||||||
Operating costs and expenses | 2,310,169 | 295,107 | 74,183 | 71,033 | 298,257 | (44,304 | ) | 2,564,122 | |||||||||||||||
Operating income (loss) | 107,570 | 30,857 | 5,540 | 5,250 | 31,147 | (19,084 | ) | 119,633 | |||||||||||||||
Other income | (2,559 | ) | — | — | — | — | — | (2,559 | ) | ||||||||||||||
Interest expense | 132,110 | 4,150 | 744 | 1,042 | 3,852 | (3,852 | )(2) | 132,110 | |||||||||||||||
Equity in earnings of non-consolidated entities | (30,300 | ) | — | — | — | — | — | (30,300 | ) | ||||||||||||||
Investment (income) expense | (205 | ) | 3,291 | 569 | 715 | 3,145 | (2,947 | )(2) | (7 | ) | |||||||||||||
Total other expense | 99,046 | 7,441 | 1,313 | 1,757 | 6,997 | (6,799 | ) | 99,244 | |||||||||||||||
Earnings (loss) from continuing operations before income taxes | 8,524 | 23,416 | 4,227 | 3,493 | 24,150 | (12,285 | ) | 20,389 | |||||||||||||||
Income tax provision (benefit) | (68,800 | ) | — | — | — | — | 4,400 | (3) | (64,400 | ) | |||||||||||||
Earnings (loss) from continuing operations | $ | 77,324 | $ | 23,416 | $ | 4,227 | $ | 3,493 | $ | 24,150 | $ | (16,685 | ) | $ | 84,789 | ||||||||
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Information.
AMC ENTERTAINMENT INC.
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FIFTY-TWO WEEKS ENDED SEPTEMBER 30, 2010
(dollars in thousands)
| Fifty-two Weeks ended September 30, 2010 | |||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Company 52 Weeks Ended April 1, 2010 Historical | Company 26 Weeks Ended Sept. 30, 2010 Historical | Company 26 Weeks Ended Oct. 1, 2009 Historical | Company 52 Weeks Ended Sept. 30, 2010 Historical | Kerasotes Year Ended Dec. 31, 2009 Historical | Kerasotes Jan. 1, 2010 to May 24, 2010 Historical | Kerasotes Nine Months Ended Sept. 30, 2009 Historical | Kerasotes October 1, 2009 to May 24, 2010 Historical | Kerasotes Acquisition Pro Forma Adjustments | Company Pro Forma Kerasotes Acquisition | ||||||||||||||||||||||
Revenues | $ | 2,417,739 | $ | 1,294,577 | $ | 1,186,364 | $ | 2,525,952 | $ | 325,964 | $ | 120,419 | $ | 237,928 | $ | 208,455 | $ | (43,712 | )(1) | $ | 2,689,918 | |||||||||||
(777 | )(2) | |||||||||||||||||||||||||||||||
Cost of operations | 1,612,260 | 846,781 | 786,067 | 1,672,974 | 210,990 | 79,744 | 157,471 | 133,263 | (29,112 | )(1) | 1,787,181 | |||||||||||||||||||||
10,056 | (2) | |||||||||||||||||||||||||||||||
Rent | 440,664 | 236,035 | 220,684 | 456,015 | 45,212 | 18,045 | 33,392 | 29,865 | (8,403 | )(1) | 480,549 | |||||||||||||||||||||
3,072 | (2) | |||||||||||||||||||||||||||||||
General and administrative: | ||||||||||||||||||||||||||||||||
M&A costs | 2,280 | 10,975 | 221 | 13,034 | — | — | — | — | — | 13,034 | ||||||||||||||||||||||
Management fee | 5,000 | 2,500 | 2,500 | 5,000 | — | — | — | — | — | 5,000 | ||||||||||||||||||||||
Other | 57,858 | 31,058 | 26,071 | 62,845 | 17,011 | 5,624 | 11,510 | 11,125 | — | 73,970 | ||||||||||||||||||||||
Depreciation and amortization | 188,342 | 100,958 | 95,477 | 193,823 | 21,894 | 7,330 | 16,351 | 12,873 | (694 | )(1) | 210,544 | |||||||||||||||||||||
4,542 | (2) | |||||||||||||||||||||||||||||||
Impairment of long-lived assets | 3,765 | — | — | 3,765 | — | — | — | — | — | 3,765 | ||||||||||||||||||||||
Operating costs and expenses | 2,310,169 | 1,228,307 | 1,131,020 | 2,407,456 | 295,107 | 110,743 | 218,724 | 187,126 | (20,539 | ) | 2,574,043 | |||||||||||||||||||||
Operating income | 107,570 | 66,270 | 55,344 | 118,496 | 30,857 | 9,676 | 19,204 | 21,329 | (23,950 | ) | 115,875 | |||||||||||||||||||||
Other expense (income) | (2,559 | ) | (9,685 | ) | 1,835 | (14,079 | ) | — | — | — | — | — | (14,079 | ) | ||||||||||||||||||
Interest expense | 132,110 | 68,758 | 64,106 | 136,762 | 4,150 | 1,139 | 2,738 | 2,551 | (2,767 | )(2) | 136,546 | |||||||||||||||||||||
Equity in earnings of non-consolidated entities | (30,300 | ) | (3,566 | ) | (10,610 | ) | (23,256 | ) | — | — | — | — | — | (23,256 | ) | |||||||||||||||||
Gain on NCM, Inc. stock sale | — | (64,648 | ) | — | (64,648 | ) | — | — | — | — | — | (64,648 | ) | |||||||||||||||||||
Investment (income) expense | (205 | ) | (104 | ) | (131 | ) | (178 | ) | 3,291 | 470 | 1,615 | 2,146 | (2,144 | )(2) | (176 | ) | ||||||||||||||||
Total other expense | 99,046 | (9,245 | ) | 55,200 | 34,601 | 7,441 | 1,609 | 4,353 | 4,697 | (4,911 | ) | 34,387 | ||||||||||||||||||||
Earnings from continuing operations before income taxes | 8,524 | 75,515 | 144 | 83,895 | 23,416 | 8,067 | 14,851 | 16,632 | (19,039 | ) | 81,488 | |||||||||||||||||||||
Income tax provision (benefit) | (68,800 | ) | 5,800 | 50 | (63,050 | ) | — | — | — | — | (900 | )(3) | (63,950 | ) | ||||||||||||||||||
Earnings from continuing operations | $ | 77,324 | $ | 69,715 | $ | 94 | $ | 146,945 | $ | 23,416 | $ | 8,067 | $ | 14,851 | $ | 16,632 | $ | (18,139 | ) | $ | 145,438 | |||||||||||
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Information.
AMC ENTERTAINMENT INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Kerasotes Acquisition
On May 24, 2010, we completed the acquisition of substantially all of the assets (92 theatres and 928 screens) of 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% have been built since 1994. We acquired Kerasotes based on their highly complementary geographic presence in certain key markets. Additionally, we expect to realize synergies and cost savings related to the Kerasotes acquisition as a result of moving to our 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 $276.8 million, net of cash acquired, and was subject to working capital and other purchase price adjustments. We paid working capital and other purchase price adjustments of $3.8 million during the second quarter of fiscal 2011, based on the final closing date working capital and deferred revenue amounts, and have included 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 Codification 805,Business Combinations, which requires 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 which falls under Level 3 of the valuation hierarchy. The allocation of purchase price is subject to changes as an appraisal of both tangible and intangible assets and liabilities is finalized and additional information becomes available, however, we do not expect material changes. The following is a summary of the preliminary allocation of the purchase price:
(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) | 109,907 | |||
Other long-term assets | 5,920 | |||
Accounts payable | (13,538 | ) | ||
Accrued expenses and other liabilities | (12,439 | ) | ||
Deferred revenues and income | (1,806 | ) | ||
Capital and financing lease obligations | (12,583 | ) | ||
Other long-term liabilities(4) | (34,015 | ) | ||
Total estimated purchase price | $ | 281,415 | ||
AMC ENTERTAINMENT INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
the 26-week period ended September 30, 2010 included elsewhere in this prospectus for further information.
During the 26 weeks ended September 30, 2010, we incurred acquisition-related costs of approximately $10.2 million included in general and administrative expense: merger, acquisition and transaction costs in our consolidated statements of operations. We have expensed acquisition-related transaction costs as incurred pursuant to ASC 805-10.
In connection with the acquisition of Kerasotes, we divested of five Kerasotes theatres with 59 screens as required by the Antitrust Division of the United States Department of Justice. We also sold one vacant theatre that had previously been closed by Kerasotes. Proceeds from the divested theatres exceeded the carrying amount of such theatres by $16.9 million which was recorded as a reduction to goodwill. In addition, we have classified two Kerasotes theatres with 26 screens as assets held for sale during the 26 weeks ended September 30, 2010, that will be divested. The carrying amount of the assets held for sale was reduced by $6.5 million which was recorded as an increase to goodwill during the 26 weeks ended September 30, 2010, to reflect the $0.9 million net sales price received for one of the theatres during the third quarter of fiscal 2011.
We were also required by the Antitrust Division of the United States Department of Justice to divest of four legacy AMC theatres with 57 screens. We recorded a gain on disposition of assets of $10.1 million for one divested legacy theatre with 14 screens during the 26 weeks ended September 30, 2010, which reduced operating expenses by approximately $10.1 million. Additionally, we acquired two theatres with 26 screens that were received in exchange for three of the legacy AMC theatres with 43 screens.
A reconciliation of the $275.0 million purchase price as set forth in the acquisition agreement to the total estimated purchase price is as follows:
Base Purchase Price | $ | 275,000,000 | ||
Swap Termination Costs | 1,798,000 | |||
Closing Date Working Capital Amount | 4,617,000 | |||
Total estimated purchase price | $ | 281,415,000 | ||
Methods and Significant Assumptions Used in Valuation
Leases
To evaluate whether the individual standard operating leases being acquired were either favorable or unfavorable, a representative sample of leases from both Kerasotes' and AMC's theatre portfolio was analyzed to develop an estimate of current market terms. Rent, as a percentage of revenue, was considered an appropriate metric to estimate a market term.
AMC ENTERTAINMENT INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Theatres considered at-market were the theatres in which rent-to-revenue ratio was within a calculated a range equal to one standard deviation around the average. As a secondary test, a comparison of all of the theatres' positive average annual operating cash flow ("OCF") margin was done. Similar to the rent to revenue analysis, a one standard deviation range from the average OCF margin was developed to represent reasonable profitability. Certain theatres within this at-market rent range were deemed favorable or unfavorable depending on the strength of their OCF margin.
To calculate the value of the favorable and unfavorable leases, the expected rent to be paid annually was compared to a normalized rent level based on the average rent-to-revenue ratio discussed above. The rent differential was calculated over the remaining term of the individual leases for the identified theatres. The difference in rent was then discounted at a rate of return based on rates for similar real property.
Trade Name
The Royalty Savings or Relief-from-Royalty Method, an income approach (Level 3 fair value measurement), was used to estimate the Fair Value of the ShowPlace and Star trade names. The Royalty Savings Method, estimates the value of a trade name by capitalizing the royalties saved because we own the trade name. The relief from royalty analysis is comprised of two primary steps including: i) the determination of the appropriate royalty rate, and ii) the subsequent application of the relief from royalty method.
The seller has retained the "Kerasotes" name but most of the theatres were branded as either ShowPlace or Star. Therefore we valued the ShowPlace and Star trade names. We plan to preserve the use all of the ShowPlace and Star Theatres' trade names on a total of 46 theatres.
The royalty savings was calculated by multiplying the royalty rate by the annual revenues for all of the theatres with the ShowPlace or Star names. The royalty rate was established based on various quantitative and qualitative factors. The present value of the after-tax royalty savings was determined using a rate for intangible assets.
Non-Compete Agreement
As part of the Kerasotes Acquisition, certain management members of the remaining Kerasotes company ("Potential Competitors") entered into five year non-competition agreements, which prevent them from competing against the sold Kerasotes theatres and all other AMC theatres over the duration of the agreement. The Differential Cash Flow Method, an income approach (Level 3 fair value measurement), was used to value the Non-Competition Agreements.
Key assumptions used in the Differential Cash Flow Method included assumptions regarding theatre cash flows with and without the non-compete agreements in place, probabilities regarding competitors reentering the market, and a discount rate used to present value cash flows, appropriate for intangible assets.
Our preliminary allocation of purchase price as of May 24, 2010 consisted primarily of:
AMC ENTERTAINMENT INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
AMC ENTERTAINMENT INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Kerasotes Acquisition Pro Forma Adjustments
| 26 Weeks Ended September 30, 2010 | 52 Weeks Ended April 1, 2010 | 52 Weeks Ended September 30, 2010 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| (thousands of dollars) | |||||||||
Revenues | $ | 12,109 | $ | 62,611 | $ | 43,712 | ||||
Cost of operations | 8,131 | 41,684 | 29,112 | |||||||
Rent | 2,714 | 11,365 | 8,403 | |||||||
Depreciation & amortization | 561 | 1,540 | 694 |
| 26 weeks ended September 30, 2010 | 52 weeks ended April 1, 2010 | 52 weeks ended September 30, 2010 | Estimated Useful Life | Balance Sheet Classification | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (thousands of dollars) | | | |||||||||||
Revenues: | ||||||||||||||
Remove Kerasotes historical gift certificate breakage | $ | — | $ | (777 | ) | $ | (777 | ) | ||||||
Cost of operations: | ||||||||||||||
Remove gain on sale of divested theatres | 10,056 | — | 10,056 | |||||||||||
Depreciation and Amortization: | ||||||||||||||
Remove Kerasotes historical amount | $ | (2,702 | ) | $ | (21,270 | ) | $ | (12,873 | ) | |||||
Buildings and improvements, furniture, fixtures and equipment and leasehold improvements | 3,800 | 24,700 | 16,150 | 7 | Property, net | |||||||||
Favorable leases | 123 | 800 | 428 | 9 | Intangibles, net | |||||||||
Non-compete agreements | 197 | 1,280 | 837 | 5 | Intangibles, net | |||||||||
Tradename | — | — | — | Indefinite | Intangibles, net | |||||||||
$ | 1,418 | $ | 5,510 | $ | 4,542 | |||||||||
The $777,000 reduction to revenues represents Kerasotes' historical gift certificate breakage, which we determined from Kerasotes' disclosure of the amount of breakages for its year ended December 31, 2009. We also determined that Kerasotes recorded breakage annually and that on an interim basis, there was no breakage recorded; therefore, the amounts for the 52 weeks ended
AMC ENTERTAINMENT INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
April 1, 2010 and the 52 weeks ended September 30, 2010 are the same, and the 26 weeks ended September 30, 2010 is $0.
We determined the estimated useful lives for Buildings and improvements, Furniture fixtures and equipment and Leasehold improvements using our accounting policy for those classes of assets. Building lives assigned were approximately 20 years, Leasehold improvement lives reflect the shorter of the base terms of the corresponding lease agreements or the expected useful lives of the assets. Furniture, fixtures and equipment lives range from 1 to 10 years. The seven year estimated useful life represents the weighted average life for the assets acquired and the majority of the assets acquired were Furniture, fixtures and equipment and Leasehold improvements. Lives for favorable leases reflect the remaining base term of the lease agreements. The five year life for the non-compete agreement reflects the term of the agreement.
The pro forma adjustments for depreciation and amortization were determined by first removing all of the Kerasotes recorded historical amounts of depreciation and amortization which were recorded by Kerasotes based on their historical cost and accounting policies. We then recomputed depreciation and amortization for the appropriate period of time for each period presented to replace the historical amounts recorded by Kerasotes with depreciation and amortization we calculated based on the estimated fair values recorded in purchase accounting divided by the remaining useful lives on a straight-line basis.
| 26 weeks ended September 30, 2010 | 52 weeks ended April 1, 2010 | 52 weeks ended September 30, 2010 | Estimated Useful Life | Balance Sheet Classification | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (thousands of dollars) | | | |||||||||||
Rent: | ||||||||||||||
Kerasotes amortization of deferred gain on sale-leaseback transactions | $ | 1,086 | $ | 7,275 | $ | 4,706 | ||||||||
Unfavorable leases | (384 | ) | (2,500 | ) | (1,634 | ) | 15 | Other long-term liabilities | ||||||
$ | 702 | $ | 4,775 | $ | 3,072 | |||||||||
The pro forma adjustments for rent were determined by removing all of the Kerasotes amortization of deferred gain on sale-leaseback transactions recorded in their historical financial statements and included in the pro forma financial statements within the Rent line as the deferred gain on the sale-leaseback transactions was reduced to a $0 in purchase accounting. We have also included amortization of the fair value of the unfavorable leases recorded in purchase accounting
AMC ENTERTAINMENT INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
and calculated the amounts based on the estimated fair values recorded in purchase accounting divided by the remaining base terms of the lease agreements.
| 26 weeks ended September 30, 2010 | 52 weeks ended April 1, 2010 | 52 weeks ended September 30, 2010 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| (thousands of dollars) | |||||||||
Interest Expense: | ||||||||||
Interest expense to Kerasotes Showplace Theatres, LLC and other | $ | (179 | ) | $ | (3,852 | ) | $ | (2,767 | ) | |
$ | (179 | ) | $ | (3,852 | ) | $ | (2,767 | ) | ||
We made pro forma adjustments to interest expense to remove the interest expense recorded in Kerasotes historical financial statements related to long-term debt that was not assumed as part of the Kerasotes Acquisition.
| 26 weeks ended September 30, 2010 | 52 weeks ended April 1, 2010 | 52 weeks ended September 30, 2010 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| (thousands of dollars) | |||||||||
Investment Income: | ||||||||||
Kerasotes expense related to interest rate swap and other | $ | 99 | $ | (2,947 | ) | $ | (2,144 | ) | ||
$ | 99 | $ | (2,947 | ) | $ | (2,144 | ) | |||
We made pro forma adjustments to investment income to remove the historical amounts recorded by Kerasotes related to assets not acquired in the Kerasotes Acquisition which was primarily the Kerasotes interest rate swap agreement.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth certain of AMC Entertainment'sour selected historical financial and operating data. AMC Entertainment'sOur selected financial data for the fiscal years ended April 1, 2010, April 2, 2009, April 3, 2008, March 29, 2007 and March 30, 2006 the period from July 16, 2004 through March 31, 2005 and the period from April 2, 2004 through December 23, 200426 weeks ended September 30, 2010 and October 1, 2009 have been derived from the audited consolidated financial statements for such periods either included elsewhere in this prospectus or not included herein.
On December 23, 2004, AMC Entertainment completed the transactions in which Holdings acquired AMC Entertainment through a merger of AMC Entertainment and Marquee Inc. ("Marquee"). Marquee was formed on July 16, 2004. On December 23, 2004, pursuant to a merger agreement, Marquee merged with and into AMC Entertainment (the "Predecessor") with AMC Entertainment as the surviving entity (the "Successor"). The merger was treated as a purchase with Marquee being the "accounting acquiror" in accordance with Statement of Financial Accounting Standards No. 141,Business Combinations. As a result, the Successor applied the purchase method of accounting to the separable assets, including goodwill, and liabilities of the accounting acquiree and Predecessor, AMC Entertainment, as of December 23, 2004, the merger date. The consolidated financial statements presented below are those of the accounting acquiror from its inception on July 16, 2004 through April 2, 2009, and those of its Predecessor, AMC Entertainment, for all periods through the closing date of the merger.
The selected financial data presented herein should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," consolidated financial statements, including the notes thereto, and our other historical financial information, of AMC Entertainment, including the notes thereto, included elsewhere in this prospectusprospectus.
| Years Ended(1)(3)(6) | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 52 Weeks Ended April 2, 2009(4) | 53 Weeks Ended April 3, 2008(4) | 52 Weeks Ended March 29, 2007(4) | 52 Weeks Ended March 30, 2006(4) | From Inception July 16, 2004 through March 31, 2005(7) | | April 2, 2004 through December 23, 2004(7) | ||||||||||||||||
| (Successor) | (Successor) | (Successor) | (Successor) | (Successor) | | (Predecessor) | ||||||||||||||||
| (in thousands, except operating data) | ||||||||||||||||||||||
Statement of Operations Data: | |||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||
Admissions | $ | 1,580,328 | $ | 1,615,606 | $ | 1,576,924 | $ | 1,125,243 | $ | 297,310 | $ | 847,476 | |||||||||||
Concessions | 626,251 | 648,330 | 631,924 | 448,086 | 117,266 | 328,970 | |||||||||||||||||
Other revenue | 58,908 | 69,108 | 94,374 | 90,631 | 24,884 | 82,826 | |||||||||||||||||
Total revenues | 2,265,487 | 2,333,044 | 2,303,222 | 1,663,960 | 439,460 | 1,259,272 | |||||||||||||||||
Costs and Expenses: | |||||||||||||||||||||||
Film exhibition costs | 827,785 | 841,641 | 820,865 | 590,456 | 152,747 | 452,727 | |||||||||||||||||
Concession costs | 67,779 | 69,597 | 66,614 | 48,845 | 12,801 | 37,880 | |||||||||||||||||
Operating expense | 589,376 | 607,588 | 579,123 | 444,593 | 115,590 | 324,427 | |||||||||||||||||
Rent | 448,803 | 439,389 | 428,044 | 326,627 | 80,776 | 223,734 | |||||||||||||||||
General and administrative: | |||||||||||||||||||||||
Merger, acquisition and transactions costs | 650 | 3,739 | 9,996 | 12,487 | 22,268 | 42,732 | |||||||||||||||||
Management fee | 5,000 | 5,000 | 5,000 | 2,000 | 500 | — | |||||||||||||||||
Other(8) | 53,628 | 39,102 | 45,860 | 38,029 | 14,600 | 33,727 | |||||||||||||||||
Pre-opening expense | 5,421 | 7,130 | 4,776 | 5,768 | 39 | 1,292 | |||||||||||||||||
Theatre and other closure expense (income) | (2,262 | ) | (20,970 | ) | 9,011 | 601 | 1,267 | 10,758 | |||||||||||||||
Restructuring charge(9) | — | — | — | 3,980 | 4,926 | — | |||||||||||||||||
Depreciation and amortization | 201,413 | 222,111 | 228,437 | 158,098 | 43,931 | 86,052 | |||||||||||||||||
Impairment of long-lived assets | 73,547 | 8,933 | 10,686 | 11,974 | — | — | |||||||||||||||||
Disposition of assets and other gains | (1,642 | ) | (2,408 | ) | (11,183 | ) | (997 | ) | (302 | ) | (2,715 | ) | |||||||||||
Total costs and expenses | 2,269,498 | 2,220,852 | 2,197,229 | 1,642,461 | 449,143 | 1,210,614 | |||||||||||||||||
Other (income)(5) | (14,139 | ) | (12,932 | ) | (10,267 | ) | (9,818 | ) | (6,778 | ) | — | ||||||||||||
Interest expense: | |||||||||||||||||||||||
Corporate borrowings | 115,757 | 131,157 | 188,809 | 114,030 | 39,668 | 66,851 | |||||||||||||||||
Capital and financing lease obligations | 5,990 | 6,505 | 4,669 | 3,937 | 1,449 | 5,848 | |||||||||||||||||
Equity in (earnings) losses of non-consolidated entities(12) | (24,823 | ) | (43,019 | ) | (233,704 | ) | 7,807 | (161 | ) | (129 | ) | ||||||||||||
Investment (income)(13) | (1,696 | ) | (23,782 | ) | (17,385 | ) | (3,075 | ) | (2,351 | ) | (6,344 | ) | |||||||||||
Earnings (loss) from continuing operations before income taxes | (85,100 | ) | 54,263 | 173,871 | (91,382 | ) | (41,510 | ) | (17,568 | ) | |||||||||||||
Income tax provision (benefit) | 5,800 | 12,620 | 39,046 | 68,260 | (6,880 | ) | 14,760 | ||||||||||||||||
Earnings (loss) from continuing operations | (90,900 | ) | 41,643 | 134,825 | (159,642 | ) | (34,630 | ) | (32,328 | ) | |||||||||||||
Earnings (loss) from discontinued operations, net of income tax benefit(2) | 9,728 | 1,802 | (746 | ) | (31,234 | ) | (133 | ) | (3,550 | ) | |||||||||||||
Net earnings (loss) | $ | (81,172 | ) | $ | 43,445 | $ | 134,079 | $ | (190,876 | ) | $ | (34,763 | ) | $ | (35,878 | ) | |||||||
Preferred dividends | — | — | — | — | — | 104,300 | |||||||||||||||||
Net earnings (loss) for shares of common stock | $ | (81,172 | ) | $ | 43,445 | $ | 134,079 | $ | (190,876 | ) | $ | (34,763 | ) | $ | (140,178 | ) | |||||||
Balance Sheet Data (at period end): | |||||||||||||||||||||||
Cash and equivalents | $ | 534,009 | $ | 106,181 | $ | 317,163 | $ | 230,115 | $ | 70,949 | $ | — | |||||||||||
Corporate borrowings | 1,687,941 | 1,615,672 | 1,634,265 | 2,250,559 | 1,161,970 | — | |||||||||||||||||
Other long-term liabilities | 308,701 | 351,310 | 366,813 | 394,716 | 350,490 | — | |||||||||||||||||
Capital and financing lease obligations | 60,709 | 69,983 | 53,125 | 68,130 | 65,470 | — | |||||||||||||||||
Stockholder's equity | 1,039,603 | 1,133,495 | 1,391,880 | 1,243,909 | 900,966 | — | |||||||||||||||||
Total assets | 3,725,597 | 3,847,282 | 4,104,260 | 4,402,590 | 2,789,948 | — |
| Twenty-Six Weeks Ended (unaudited) | Years Ended(1)(2) | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 26 Weeks Ended September 30, 2010 | 26 Weeks Ended October 1, 2009 | 52 Weeks Ended April 1, 2010 | 52 Weeks Ended April 2, 2009 | 53 Weeks Ended April 3, 2008 | 52 Weeks Ended March 29, 2007 | 52 Weeks Ended March 30, 2006(3) | |||||||||||||||||
| (in thousands, except operating data) | |||||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Admissions | $ | 907,169 | $ | 836,725 | $ | 1,711,853 | $ | 1,580,328 | $ | 1,615,606 | $ | 1,576,924 | $ | 1,125,243 | ||||||||||
Concessions | 355,671 | 321,041 | 646,716 | 626,251 | 648,330 | 631,924 | 448,086 | |||||||||||||||||
Other theatre | 31,737 | 28,598 | 59,170 | 58,908 | 69,108 | 94,374 | 90,631 | |||||||||||||||||
Total revenues | 1,294,577 | 1,186,364 | 2,417,739 | 2,265,487 | 2,333,044 | 2,303,222 | 1,663,960 | |||||||||||||||||
Operating Costs and Expenses: | ||||||||||||||||||||||||
Film exhibition costs | 481,004 | 457,429 | 928,632 | 842,656 | 860,241 | 838,386 | 604,393 | |||||||||||||||||
Concession costs | 44,301 | 35,070 | 72,854 | 67,779 | 69,597 | 66,614 | 48,845 | |||||||||||||||||
Operating expense | 321,476 | 293,568 | 610,774 | 576,022 | 572,740 | 564,206 | 436,028 | |||||||||||||||||
Rent | 236,035 | 220,684 | 440,664 | 448,803 | 439,389 | 428,044 | 326,627 | |||||||||||||||||
General and administrative: | ||||||||||||||||||||||||
Merger, acquisition and transactions costs | 10,975 | 221 | 2,280 | 650 | 3,739 | 9,996 | 12,487 | |||||||||||||||||
Management fee | 2,500 | 2,500 | 5,000 | 5,000 | 5,000 | 5,000 | 2,000 | |||||||||||||||||
Other | 31,058 | 26,071 | 57,858 | 53,628 | 39,102 | 45,860 | 38,029 | |||||||||||||||||
Restructuring charge | — | — | — | — | — | — | 3,980 | |||||||||||||||||
Depreciation and amortization | 100,958 | 95,477 | 188,342 | 201,413 | 222,111 | 228,437 | 158,098 | |||||||||||||||||
Impairment of long-lived assets | — | — | 3,765 | 73,547 | 8,933 | 10,686 | 11,974 | |||||||||||||||||
Operating costs and expenses | 1,228,307 | 1,131,020 | 2,310,169 | 2,269,498 | 2,220,852 | 2,197,229 | 1,642,461 | |||||||||||||||||
Operating income (loss) | 66,270 | 55,344 | 107,570 | (4,011 | ) | 112,192 | 105,993 | 21,499 | ||||||||||||||||
Other expense (income) | (9,685 | ) | 1,835 | (2,559 | ) | (14,139 | ) | (12,932 | ) | (10,267 | ) | (9,818 | ) | |||||||||||
Interest expense: | ||||||||||||||||||||||||
Corporate borrowings | 65,750 | 61,280 | 126,458 | 115,757 | 131,157 | 188,809 | 114,030 | |||||||||||||||||
Capital and financing lease obligations | 3,008 | 2,826 | 5,652 | 5,990 | 6,505 | 4,669 | 3,937 | |||||||||||||||||
Equity in (earnings) losses of non-consolidated entities(4) | (3,566 | ) | (10,610 | ) | (30,300 | ) | (24,823 | ) | (43,019 | ) | (233,704 | ) | 7,807 | |||||||||||
Gain on NCM, Inc. stock sale | (64,648 | ) | — | — | — | — | — | — | ||||||||||||||||
Investment income(5) | (104 | ) | (131 | ) | (205 | ) | (1,696 | ) | (23,782 | ) | (17,385 | ) | (3,075 | ) | ||||||||||
Earnings (loss) from continuing operations before income taxes | 75,515 | 144 | 8,524 | (85,100 | ) | 54,263 | 173,871 | (91,382 | ) | |||||||||||||||
Income tax provision (benefit) | 5,800 | 50 | (68,800 | ) | 5,800 | 12,620 | 39,046 | 68,260 | ||||||||||||||||
Earnings (loss) from continuing operations | 69,715 | 94 | 77,324 | (90,900 | ) | 41,643 | 134,825 | (159,642 | ) | |||||||||||||||
Earnings (loss) from discontinued operations, net of income taxes(6) | (25 | ) | 542 | (7,534 | ) | 9,728 | 1,802 | (746 | ) | (31,234 | ) | |||||||||||||
Net earnings (loss) | $ | 69,690 | $ | 636 | $ | 69,790 | $ | (81,172 | ) | $ | 43,445 | $ | 134,079 | $ | (190,876 | ) | ||||||||
| Years Ended(1)(3)(6) | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 52 Weeks Ended April 2, 2009(4) | 53 Weeks Ended April 3, 2008(4) | 52 Weeks Ended March 29, 2007(4) | 52 Weeks Ended March 30, 2006(4) | From Inception July 16, 2004 through March 31, 2005(7) | | April 2, 2004 through December 23, 2004(7) | ||||||||||||||
| (Successor) | (Successor) | (Successor) | (Successor) | (Successor) | | (Predecessor) | ||||||||||||||
| (in thousands, except operating data) | ||||||||||||||||||||
Other Data: | |||||||||||||||||||||
Net cash provided by (used in) operating activities(11) | $ | 200,701 | $ | 220,208 | $ | 417,751 | $ | 23,654 | $ | (46,687 | ) | $ | 145,364 | ||||||||
Capital expenditures | (104,704 | ) | (151,676 | ) | (138,739 | ) | (117,668 | ) | (18,622 | ) | (66,155 | ) | |||||||||
Proceeds from sale/leasebacks | — | — | — | 35,010 | 50,910 | — | |||||||||||||||
Ratio of earnings to fixed charges(14) | — | 1.2x | 1.5x | — | — | — | |||||||||||||||
Screen additions | 83 | 136 | 107 | 106 | — | 44 | |||||||||||||||
Screen acquisitions | — | — | 32 | 1,363 | 3,375 | — | |||||||||||||||
Screen dispositions | 77 | 196 | 243 | 60 | 14 | 28 | |||||||||||||||
Average screens—continuing operations(10) | 4,545 | 4,561 | 4,627 | 3,583 | 3,355 | 3,350 | |||||||||||||||
Number of screens operated | 4,612 | 4,606 | 4,666 | 4,770 | 3,361 | 3,560 | |||||||||||||||
Number of theatres operated | 307 | 309 | 318 | 335 | 219 | 231 | |||||||||||||||
Screens per theatre | 15.0 | 14.9 | 14.7 | 14.2 | 15.3 | 15.4 | |||||||||||||||
Attendance (in thousands)—continuing operations(10) | 196,184 | 207,603 | 213,041 | 161,867 | 44,278 | 126,450 |
| Twenty-Six Weeks Ended (unaudited) | Years Ended(1)(2) | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 26 Weeks Ended September 30, 2010 | 26 Weeks Ended October 1, 2009 | 52 Weeks Ended April 1, 2010 | 52 Weeks Ended April 2, 2009 | 53 Weeks Ended April 3, 2008 | 52 Weeks Ended March 29, 2007 | 52 Weeks Ended March 30, 2006(3) | |||||||||||||||
| (in thousands, except operating data) | |||||||||||||||||||||
Balance Sheet Data (at period end): | ||||||||||||||||||||||
Cash and equivalents | $ | 326,852 | $ | 495,343 | $ | 534,009 | $ | 106,181 | $ | 317,163 | $ | 230,115 | ||||||||||
Corporate borrowings, including current portion | 1,830,183 | 1,832,854 | 1,687,941 | 1,615,672 | 1,634,265 | 2,250,559 | ||||||||||||||||
Other long-term liabilities | 350,836 | 309,591 | 308,701 | 351,310 | 366,813 | 394,716 | ||||||||||||||||
Capital and financing lease obligations, including current portion | 67,797 | 57,286 | 60,709 | 69,983 | 53,125 | 68,130 | ||||||||||||||||
Stockholders' equity | 815,216 | 760,559 | 1,039,603 | 1,133,495 | 1,391,880 | 1,243,909 | ||||||||||||||||
Total assets | 3,816,246 | 3,653,177 | 3,725,597 | 3,847,282 | 4,104,260 | 4,402,590 | ||||||||||||||||
Other Data: | ||||||||||||||||||||||
Net cash provided by operating activities(7) | $ | 24,990 | $ | 76,474 | $ | 258,015 | $ | 200,701 | $ | 220,208 | $ | 417,751 | $ | 23,654 | ||||||||
Capital expenditures | (46,711 | ) | (29,781 | ) | (97,011 | ) | (121,456 | ) | (171,100 | ) | (142,969 | ) | (123,838 | ) | ||||||||
Ratio of Earnings to fixed charges(9) | 1.6 | x | 1.0 | x | 1.1 | x | — | 1.2 | x | 1.5 | x | — | ||||||||||
Proceeds from sale/leasebacks | — | — | 6,570 | — | — | — | 35,010 | |||||||||||||||
Operating Data (at period end): | ||||||||||||||||||||||
Screen additions | 14 | 6 | 6 | 83 | 136 | 107 | 106 | |||||||||||||||
Screen acquisitions | 960 | — | — | — | — | 32 | 1,363 | |||||||||||||||
Screen dispositions | 183 | 44 | 105 | 77 | 196 | 243 | 60 | |||||||||||||||
Average screens—continuing operations(8) | 5,035 | 4,521 | 4,485 | 4,545 | 4,561 | 4,627 | 3,583 | |||||||||||||||
Number of screens operated | 5,304 | 4,574 | 4,513 | 4,612 | 4,606 | 4,666 | 4,770 | |||||||||||||||
Number of theatres operated | 378 | 304 | 297 | 307 | 309 | 318 | 335 | |||||||||||||||
Screens per theatre | 14.0 | 15.0 | 15.2 | 15.0 | 14.9 | 14.7 | 14.2 | |||||||||||||||
Attendance (in thousands)—continuing operations(8) | 105,479 | 100,485 | 200,285 | 196,184 | 207,603 | 213,041 | 161,867 |
related to the derecognition of gift card liabilities where management believes future redemption to be remote and $33 of gain recognized on the redemption of $1,663 of our 91/2% senior subordinated notes due 2011.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together with the financial statements and related notes included elsewhere in this prospectus. This discussion contains forward-lookingforward- looking statements. Please see "Forward-Looking Statements" for a discussion of the risks, uncertainties and assumptions relating to these statements. Capitalized terms used but not defined in this section shall have the meanings ascribed to them elsewhere in this prospectus. Terms defined in this section shall only be used as such for the purposes of this section.
Overview
We are one of the world's leading theatrical exhibition companies. As of April 2, 2009,September 30, 2010, we owned, operated or hadheld interests in 307378 theatres and 4,6125,304 screens, withapproximately 99%, or 4,5575,249, of our screens located in the U.S. and Canada, and 1%, or 55, of our screens in China (Hong Kong), France and the United Kingdom.
Our principal directly owned subsidiaries are American Multi-Cinema, Inc. ("AMC") and AMC Entertainment International, Inc. ("AMCEI"). We conduct our theatrical exhibition business through AMC and its subsidiaries and AMCEI and its subsidiaries.
On March 29, 2005, AMC Entertainment, alongDuring the 26 weeks ended September 30, 2010, we acquired 92 theatres with Regal Entertainment Group ("Regal"), combined our respective cinema screen advertising businesses into a new joint venture company called National CineMedia, LLC ("NCM"). The new company engages928 screens from Kerasotes in the marketing and sale of cinema advertising and promotions products; business communications and training services; and the distribution of digital alternative content. We record our share of on-screen advertising revenues generated by our advertising subsidiary, National Cinema Network, Inc. ("NCN") and NCM in other theatre revenues. We contributed fixed assets and exhibitor agreements of our cinema screen advertising subsidiary NCN to NCM. We also included goodwill (recorded inU.S. In connection with the mergeracquisition of Kerasotes, we divested of nine theatres with Marquee)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 permanently closed three theatres with 26 screens in the cost assigned to our investment in NCM. Additionally, we paid termination benefits related to the displacement of certain NCN associates. In consideration of the NCN contributions described above NCM issued a 37% interest in its Class A units to NCN. Since that date, our interest in NCM has declined to 18.53% as of April 2, 2009, due to the entry of new investors. On February 13, 2007, NCM, Inc.U.S., a newly-formed entity that serves as the sole manager of NCM, announced the pricing of its initial public offering of 42,000,000 shares of common stock at a price of $21.00 per share. Subsequent to the NCM, Inc. IPO, we held an 18.6% interest in NCM. AMCE received net proceeds upon completion of the NCM initial public offering of $517,122,000. We used the net proceeds from the NCM initial public offering, along with cash on hand, to redeem our 91/2% senior subordinated notes due 2011, our senior floating rate notes due 2010 and our 97/8% senior subordinated notes due 2012. On March 19, 2007 we redeemed $212,811,000 aggregate principal amount of our 91/2% senior subordinated notes due 2011 at 100% of principal value, on March 23, 2007 we redeemed $205,000,000 aggregate principal amount of our senior floating rate notes due 2010 at 103% of principal value and on March 23, 2007 we redeemed $175,000,000 aggregate principal amount of our 97/8% senior subordinated notes due 2012 at 104.938% of principal value. Our loss on redemption of these notes including call premiums and the write off of unamortized deferred charges and premiums was $3,488,000.
On November 7, 2006, our Board of Directors approved an amendment to freeze our Defined Benefit Retirement Income Plan, Supplemental Executive Retirement Plan and Retirement Enhancement Plan (the "Plans") as of December 31, 2006. On December 20, 2006 we amended and restated the Plans to implement the freeze as of December 31, 2006. As a result of the freeze there will be no further benefits accrued after December 31, 2006, but continued vesting for associates with less than five years of vesting service. We will continue to fund existing benefit obligations and there will be
no new participants in the future. As a result of amending and restating the Plans to implement the freeze, we recognized a curtailment gain of $10,983,000 in our consolidated financial statements which reduced our pension expense for fiscal 2007.
In December 2006, we disposed of our equity method investment in Yelmo, which owned and operated 27 theaters with 310 screens in Spain on the date of sale. There was no gain or loss recorded on the sale of Yelmo.
On May 2, 2008, our Board of Directors approved revisions to our Post Retirement Medical and Life Insurance Plan effective January 1, 2009 and on July 3, 2008 the changes were communicated to the plan participants. As a result of these revisions, we recorded a negative prior service cost of $5,969,000 through other comprehensive income to be amortized over eleven years based on expected future service of the remaining participants.
In May 2007, we disposed of our investment in Fandango, accounted for using the cost method, for total proceeds of $20,360,000, of which $17,977,000 was received in May and September 2007 and $2,383,000 was received in November 2008, and have recorded a gain on the sale included in investment income of approximately $15,977,000 during fiscal 2008 and $2,383,000 during fiscal 2009. In July 2007 we disposed of our investment in HGCSA, an entity that operated 17 theatres in South America, for total proceeds of approximately $28,682,000 and recorded a gain on the sale included in equity earnings of non-consolidated entities of approximately $18,751,000.
On December 29, 2008, we sold all of our interests in Grupo Cinemex, S.A. de C.V. ("Cinemex"), which then operated 44temporarily closed three theatres with 493 screens primarily in the Mexico City Metropolitan Area, to Entretenimiento GM de Mexico S.A. de C.V. ("Entretenimiento"). The purchase price received at the date of the sale and in accordance with the Stock Purchase Agreement was $248,141,000 and costs related to the disposition were estimated to be $4,046,000. Additionally, we estimate that we will receive an additional $12,253,000 of the purchase price related to tax payments and refunds in later periods and have received an additional $809,000 of purchase price related to a working capital calculation and post closing adjustments subsequent to April 2, 2009 which are included in our gain on disposition. We have recorded a gain on disposition before income taxes of $14,772,000 related to the disposition that is included as discontinued operations.
We acquired Cinemex in January 2006 as part of a larger acquisition of Loews Cineplex Entertainment Corporation. We do not operate any other theatres in Mexico and have divested of the majority of our other investments in international theatres in Japan, Hong Kong, Spain, Portugal, Sweden, Argentina, Brazil, Chile, and Uruguay over the past several years as part of our overall business strategy.
The operations and cash flows of the Cinemex theatres have been eliminated from our ongoing operations as a result of the disposal transaction. We will not have any significant continuing involvement in the operations of the Cinemex theatres after the disposition. The results of operations of the Cinemex theatres have been classified as discontinued operations, and information presented for all periods reflects the new classification. The operations of the Cinemex theatres were previously reported in our International Theatrical Exhibition operating segment. As a result of the sale of Cinemex, we no longer report an International Theatrical Exhibition operating segment and for financial reporting purposes we have one operating segment.
On February 23, 2009, Mr. Peter C. Brown provided the Parent with notice of his retirement from his positions as Chairman of the Board, Chief Executive Officer and President of Parent and its subsidiaries including Holdings and AMC Entertainment Inc. In connection with a Separation and General Release Agreement, Mr. Brown received a cash severance payment of $7,014,000 which is recorded in general and administrative: other during the fifty-two weeks ended April 2, 2009.
During the fifty-two weeks ended April 2, 2009 we recorded $5,279,000 of expense related to our partial withdrawal liability for a union-sponsored pension plan included in general and administrative: other.
During the fifty-two weeks ended April 2, 2009, we closed eight theatres with 7728 screens in the U.S. and opened six new theatres with 83temporarily closed 13 screens in the U.S. resultingat one location where the other screens continue to operate as part of a remodeling project to allow for dine-in theatres at these locations. We opened one new managed theatre with 14 screens in a circuit totalthe U.S. and acquired one theatre with 6 screens in the U.S. in the ordinary course of 307 theatres and 4,612 screens.business.
Our Theatrical Exhibition revenues and income 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 receiptsgross 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 2009,2010, films licensed from our 6six largest distributors based on revenues accounted for approximately 81%84% of our U.S. and Canada admissions revenues. Our revenues attributable to individual distributors may vary significantly from year to year depending upon the commercial success of each distributor's motion pictures in any given year.
During the period from 1990 to 2008,2009, 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 606633 in 2008, according to the Motion Picture Association 2008 MPAof America 2009 MPAA Theatrical Market Statistics. The number of digital 3D films released annually 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. AsWe have increased our 3D screens by 414 to 662 screens and our IMAX screens by 36 to 97 screens since October 1, 2009; and as of April 2, 2009,September 30, 2010, approximately 76%12.5% of our screens were located3D screens and approximately 1.8% of our screens were IMAX screens.
Significant Events
During December of 2010 and January of 2011, AMCE made dividend payments to Marquee, totaling $261.2 million. Marquee used the available funds to pay the consideration for the Marquee Notes Cash Tender Offer and the redemption of all of Marquee Notes that remained outstanding after the closing of the Marquee Notes Cash Tender Offer.
On December 15, 2010, we issued $600.0 million aggregate principal amount of the original notes pursuant to an indenture, dated as of December 15, 2010, among the Issuer, the guarantors named therein and U.S. Bank National Association, as trustee (the "Indenture"). The Indenture provides that the notes are general unsecured senior subordinated obligations of the Company and are fully and unconditionally guaranteed on a joint and several senior subordinated unsecured basis by all of the Company's existing and future domestic restricted subsidiaries that guarantee the Company's other indebtedness.
Concurrently with the initial notes offering, we launched a cash tender offer and consent solicitation for any and all of our currently outstanding 11% Senior Subordinated Notes due 2016 (the "2016 Senior Subordinated Notes") at a purchase price of $1,031.00 plus a $30.00 consent fee for each $1,000.00 of principal amount of currently outstanding 2016 Subordinated Notes validly tendered and accepted by us on or before the early tender date, and Marquee Holdings Inc. ("Marquee" or "Holdings"), our direct parent, launched a tender offer for its 12% Senior Discount Notes due 2014 (the "Marquee Notes") at a purchase price of $797.00 plus a $30.00 consent fee for each $1,000.00 face amount (or $792.09 accreted value) of currently outstanding Marquee Notes validly tendered and accepted by Marquee on or before the early tender date (the "Cash Tender Offers"). As of December 29, 2010, we had purchased $95.1 million principal amount of our 2016 Senior Subordinated Notes for a total consideration of $104.8 million, and Marquee had purchased $215.5 million principal amount at face value (or $170.7 million accreted value) of the Marquee Notes for a total consideration of $185.0 million. We recorded a loss on extinguishment for the 2016 Senior Subordinated Notes and our Senior Secured Credit Facility Amendment of approximately $11.0 million and Marquee recorded a loss on extinguishment for the Marquee Notes of approximately $10.7 million.
We used a portion of the net proceeds from the issuance of the original notes to pay the consideration for the 2016 Senior Subordinated Notes Cash Tender Offer plus any accrued and unpaid interest and distributed the remainder of such proceeds to Marquee to be applied to the Marquee
Notes Cash Tender Offer. On January 3, 2011, Marquee redeemed $88.5 million principal amount at face value (or $70.1 million accreted value) of the Marquee Notes that remained outstanding after the closing of the Marquee Notes Cash Tender Offer at a price of $823.77 per $1,000.00 face amount (or $792.09 accreted value) of Marquee Notes for a total consideration of $76.1 million in megaplexaccordance of the terms of the indenture governing the Marquee Notes, as amended pursuant to the consent solicitation. Marquee recorded an additional loss on extinguishment related to the Marquee Notes of approximately $2.8 million. On December 30, 2010, we issued an irrevocable notice of redemption in respect of the $229.9 million principal amount of 2016 Senior Subordinated Notes that remained outstanding after the closing of the Cash Tender Offers, and we will redeem the remaining 2016 Senior Subordinated Notes at a price of $1,055.00 per $1,000.00 principal amount of 2016 Senior Subordinated Notes on or after February 1, 2011 for a total consideration of $255.2 million in accordance with the terms of the indenture governing the 2016 Senior Subordinated Notes.
During September of 2010, AMCE made dividend payments to Marquee of $15.2 million, and Marquee made dividend payments to AMC Entertainment Holdings, Inc. ("Parent") totaling $0.7 million (the "Dividend"). Marquee and Parent used the available funds to make a cash interest payment on the Marquee Notes and pay corporate overhead expenses incurred in the ordinary course of business.
All of our National CineMedia, LLC ("NCM") membership units are redeemable for, at the option of NCM, cash or shares of common stock of National CineMedia, Inc. ("NCM, Inc.") on a share-for-share basis. On August 18, 2010, we sold 6,500,000 shares of common stock of NCM, Inc., in an underwritten public offering for $16.00 per share and reduced our related investment in NCM by $36.7 million, the average carrying amount of the shares sold. Net proceeds received on this sale were $99.8 million, after deducting related underwriting fees and professional and consulting costs of $4,160,000, resulting in a gain on sale of $63.1 million. In addition, on September 8, 2010, we sold 155,193 shares of NCM, Inc. to the underwriters to cover over allotments for $16.00 per share and reduced our related investment in NCM by $867,000, the average carrying amount of the shares owned. Net proceeds received on this sale were $2.4 million, after deducting related underwriting fees and professional and consulting costs of $99,000, resulting in a gain on sale of $1.5 million.
On May 24, 2010, we completed the acquisition of 92 theatres and 928 screens from Kerasotes (the "Kerasotes Acquisition"). 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% have been built since 1994. The purchase price for the Kerasotes theatres paid in cash at closing was $276.8 million, net of cash acquired, and was subject to working capital and other purchase price adjustments. We paid working capital and other purchase price adjustments of $3.8 million during the second quarter of fiscal 2011, based on the final closing date working capital and deferred revenue amounts and have included this amount as part of the total estimated purchase price. The acquisition of Kerasotes significantly increased our size. For additional information about the Kerasotes Acquisition, see the notes to our unaudited consolidated financial statements for the 26-week period ended September 30, 2010 included elsewhere in this prospectus.
On March 10, 2010, Digital Cinema Implementation Partners, LLC ("DCIP") completed its financing transactions for the deployment of digital projection systems to nearly 14,000 movie theatre screens across North America, including screens operated or managed by the Company, Regal Entertainment Group ("Regal") and Cinemark Holdings, Inc ("Cinemark"). At closing, we contributed 342 projection systems that we owned to DCIP, which we recorded at estimated fair value as part of an additional investment in DCIP of $21.8 million. We also made cash investments in DCIP of $840,000 at closing and DCIP made a distribution of excess cash to us after the closing date and prior to year-end of $1.3 million. We recorded a loss on contribution of the 342 projection systems of $563,000, based on the difference between estimated fair value and our carrying value on the date of contribution. On March 26, 2010, we acquired 117 digital projectors from third party lessors for $6.8 million and sold
them together with seven digital projectors that we owned to DCIP for $6.6 million. We recorded a loss on the sale of these 124 systems to DCIP of $697,000. As of April 1, 2010, we operated 568 digital projection systems leased from DCIP pursuant to operating leases and anticipate that we will have deployed 4,000 of these systems in our existing theatres over the next three to four years.
The additional digital projection systems will allow us to add additional 3D screens to our circuit where we are generally able to charge a higher admission price than 2D. The digital projection systems leased from DCIP and its affiliates will replace most of our existing 35 millimeter projection systems in our U.S. theatres. We are examining the estimated depreciable lives for our existing 35 millimeter projection systems, with a net book value of $14.2 million, and expect to adjust the depreciable lives in order to accelerate the depreciation of these existing 35 millimeter projection systems, so that such systems are fully depreciated at the end of the digital projection system deployment timeframe. We currently estimate that the increase to depreciation and amortization expense as a result of the acceleration will be $2.7 million, $0.3 million and $1.0 million in fiscal years 2011, 2012 and 2013, respectively. Upon full deployment of the digital projection systems, we expect the cash rent expense of such equipment to approximate $4.5 million, annually, and the deferred rent expense to approximate $5.5 million, annually, which will be recognized in our consolidated statements of operations as "Operating expense."
On June 9, 2009, we completed the offering of $600.0 million aggregate principal amount of our 8.75% Senior Notes due 2019 (the "Notes due 2019"). Concurrently with the notes offering, we launched a cash tender offer and consent solicitation for any and all of our then outstanding $250.0 million aggregate principal amount of 85/8% Senior Notes due 2012 (the "Fixed Notes due 2012") at a purchase price of $1,000 plus a $30 consent fee for each $1,000 of principal amount of currently outstanding Fixed Notes due 2012 validly tendered and accepted by us on or before the early tender date (the "Cash Tender Offer"). We used the net proceeds from the issuance of the Notes due 2019 to pay the consideration for the Cash Tender Offer plus accrued and unpaid interest on $238.1 million principal amount of the Fixed Notes due 2012. We recorded a loss on extinguishment related to the Cash Tender Offer of $10.8 million in other expense during the 52 weeks ended April 1, 2010, which included previously capitalized deferred financing fees of $3.3 million consent fee paid to holders of $7.1 million and other expenses of $372,000. On August 15, 2009, we redeemed the remaining $11.9 million of Fixed Notes due 2012 at a price of $1,021.56 per $1,000 principal in accordance with the terms of the indenture. We recorded a loss of $450,000 in Other expense related to the extinguishment of the remaining Fixed Notes due 2012 during the 52 weeks ended April 1, 2010, which included previously capitalized deferred financing fees of $157,000, a consent fee paid to the holders of $257,000 and other expenses of $36,000.
We acquired Grupo Cinemex, S.A. de C.V. ("Cinemex") in January 2006 as part of a larger acquisition of Loews Cineplex Entertainment Corporation. We do not operate any other theatres in Mexico and have divested of the majority of our other investments in international theatres in Japan, Hong Kong, Spain, Portugal, Argentina, Brazil, Chile, and Uruguay over the past several years as part of our overall business strategy.
On December 29, 2008, we sold all of our interests in Cinemex, which then operated 44 theatres with 493 screens primarily in the Mexico City Metropolitan Area, to Entretenimiento GM de Mexico S.A. de C.V. ("Entretenimiento"). The purchase price received at the date of the sale and in accordance with the Stock Purchase Agreement was $248.1 million. During the year ended April 1, 2010, we received payments of $4.3 million for purchase price adjustments in respect of tax payments and refunds, and a working capital calculation and post closing adjustments. Additionally, we estimate that as of April 1, 2010, we are contractually entitled to receive an additional $8.8 million in purchase price adjustments in respect of tax payments and refunds. While we believe we are entitled to these amounts from Cinemex, the collection thereof will require litigation, which was initiated by us on April 30, 2010. Resolution could take place over a prolonged period. As a result of the litigation, we
have established an allowance for doubtful accounts related to this receivable in the amount of $7.5 million as of April 1, 2010 and further directly charged off $1.4 million of certain amounts as uncollectible with an offsetting charge of $8.9 million recorded to loss on disposal included as a component of discontinued operations in fiscal 2010.
The operations and cash flows of the Cinemex theatres have been eliminated from our ongoing operations as a result of the disposal transaction. We do not have any significant continuing involvement in the operations of the Cinemex theatres. The results of operations of the Cinemex theatres have been classified as discontinued operations for all periods presented.
In May 2007, we disposed of our investment in Fandango, accounted for using the cost method, for total proceeds of $20.4 million, of which $18.0 million was received in May and September 2007 and $2.4 million was received in November 2008, and have recorded a gain on the sale, included in investment income, of approximately $16.0 million during fiscal 2008 and $2.4 million during fiscal 2009. In July 2007, we disposed of our investment in Hoyts General Cinemas South America ("HGCSA"), an entity that operated 17 theatres in South America, for total proceeds of approximately $28.7 million and recorded a gain on the sale, included in equity earnings of non-consolidated entities, of approximately $18.8 million.
Stock-Based Compensation
We account for stock-based employee compensation arrangements in accordance withusing the provisions of SFAS No. 123(R), "Shared-Based Payment (Revised)" and Staff Accounting Bulletins
No. 107 and No. 110 "Share Based Payments". Under SFAS 123(R), compensation cost is calculated on the date of the grant and then amortized over the vesting period.fair value method. The fair value of each stock option was estimated on the grant date using the Black-Scholes option pricing model using the following assumptions: common stock value on the grant date, risk-free interest rate, expected term, expected volatility, and dividend yield. Option awards which require classificationWe have elected to use the simplified method for estimating the expected term of "plain vanilla" share option grants as we do not have enough historical experience to provide a liability under FAS 123(R) are revalued at each subsequent reportingreasonable estimate. Compensation cost is calculated on the date usingof the Black-Scholes model.grant and then amortized over the vesting period.
We granted 38,876.7287338,876.7 options on December 23, 2004, 600 options on January 26, 2006, and 15,980.4515,980.5 options on March 6, 2009 and 4,786 options on May 28, 2009 to employees to acquire our common stock. The fair value of these options on their respective grant dates was $22,373,000,$22.4 million, $138,000, $2.1 million, and $2,069,000.$0.65 million, respectively. All of these options currently outstanding are equity classified.
On July 8, 2010, we granted 6,377 options and 6,693 shares of restricted stock. The fair value of these options and restricted shares on their respective grant dates was $1.9 million and $5.0 million, respectively. All of these options currently outstanding are equity classified.
The common stock value used to estimate the fair value of each option on the December 23, 2004 grant date was based upon a contemporaneous third party arms-length transaction on December 23, 2004 in which we sold 769,350 shares of our common stock for $1,000 per share to unrelated parties. The common stock value used to estimate the fair value of each option on the March 6, 2009 grant date was based upon a contemporaneous valuation reflecting market conditions as of January 1, 2009, a purchase of 2,542 shares by Parent for $323.95 per share from our former Chief Executive Officer pursuant to his Separation and General Release Agreement dated February 23, 2009 and a sale of 385.862 shares by Parent to our current Chief Executive Officer pursuant to his Employment Agreement dated February 23, 2009 for $323.95 per share.
One of the previous holders of stock options held put rights associated with his options deemed to be within his control whereby he could require Holdings to repurchase his options and, as a result, the expense for these options was remeasured each reporting period as liability based options at the Holdings level and the related compensation expense was included in AMCE's financial statements. However, since the put option that caused liability classification was a put to AMCE's parent Holdings rather than AMCE, AMCE's financial statements reflect an increase to additional paid-in capital related to stock-based compensation.
For the 7,684.57447 option awards classified as liabilities by Holdings, we revalued the options at each period end following the grant date using the Black-Scholes model. In valuing this liability, Holdings used a fair value of common stock of $1,000 per share, which was based on a contemporaneous valuation reflecting market conditions as of April 3, 2008. In May 2008, Holdings was notified of the holder's intention to exercise the put option and Holdings made cash payments to settle the accrued liability of $3,911,000 during fiscal 2009. As a result of the exercise of the put right, there was no additional stock compensation expense related to these options in fiscal 2009 and the related options were canceled upon exercise of the put right during fiscal 2009.
On June 11, 2007, Marquee Merger Sub Inc. ("merger sub"), a wholly-owned subsidiary of Parent,AMC Entertainment Holdings, Inc., merged with and into Holdings, with Holdings continuing as the surviving corporation (the "holdco merger"). In connection with this, Parent adopted an amended and restated 2004 stock option plan (formerly known as the 2004 Stock Option Plan of Marquee Holdings Inc.). The option exercise price per share of $1,000 was adjusted to $491 pursuant to the antidilution provisions of the
2004 Stock Option Plan to give effect to the payment of a one time non-recurring dividend paid by Parent on June 15, 2007 of $652,800,000$652.8 million to the holders of its 1,282,750 shares of common stock. The Company applied the guidance in SFAS 123(R) and determined that there was no incremental value transferred as a result of the modification and as a result, no additional compensation cost to recognize.
On February 23,The common stock value of $339.59 per share used to estimate the fair value of each option on the May 28, 2009 we entered intogrant date was based upon a Separation and General Release Agreement with Peter C. Brown (formerly Chairmanvaluation prepared by management on behalf of the Compensation Committee of the Board Chief Executive Officerof Directors. Management chose not to obtain a contemporaneous valuation performed by an unrelated valuation specialist as management believed that the valuation obtained at January 1, 2009 and Presidentthe subsequent stock sales and purchases were recent and could easily be updated and rolled forward without engaging a third party and incurring additional costs. Additionally, management considered that the number of Parent, Holdingsoptions granted generated a relatively low amount of annual expense over 5 years ($130,100) and AMCE), whereby all outstanding vestedthat any differences in other estimates of fair value would not be expected to materially impact the related annual expense. The common stock value was estimated based on current estimates of annual operating cash flows multiplied by the current average peer group multiple for similar publicly traded competitors of 6.7x less net indebtedness, plus the current fair value of our investment in NCM. Management compared the estimated stock value of $339.59 per share with the $323.95 value per share discussed above related to the March 6, 2009 option grant and unvestednoted the overall increase in value was primarily due the following:
March 6, 2009 grant value per share | $ | 323.95 | ||
Decline in net indebtedness | 20.15 | |||
Increase in value of investment in NCM | 37.10 | |||
Increase due to peer group multiple | 47.89 | |||
Decrease in annual operating cash flows | (89.50 | ) | ||
May 28, 2009 grant value per share | $ | 339.59 | ||
The common stock value of $752 per share used to estimate the fair value of each option and restricted share on July 8, 2010 was based upon a contemporaneous valuation reflecting market conditions. The estimated grant date fair value for 5,354 shares of restricted stock (time vesting) and 1,339 shares of restricted stock (performance vesting, where the performance targets were established at the grant date following ASC 718-10-55-95) was based on $752 per shares and was $4.0 million and $1.0 million, respectively. The estimated grant date fair value of the options were voluntarily forfeited. Stockgranted on 5,354 shares was $293.72 per share, or $1.6 million, and was determined using the Black-Scholes option-pricing model. The option exercise price was $752 per share, and the estimated fair value of the shares was $752, resulting in $0 intrinsic value for the option grants. Total unrecognized stock based compensation expense recordedrelated to the restricted stock awards and options granted on July 8, 2010 pursuant to the 2010 equity incentive plan was $6.7 million.
Critical Accounting Estimates
Our consolidated financial statements are prepared in fiscal 2009accordance with GAAP. In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related onlydisclosures. We base our assumptions, estimates, and judgments on historical experience, current trends and other factors that management believes to awardsbe relevant at the time our consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates, and judgments to ensure that vested prior to February 23,our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with
2009. Because all vestedcertainty, actual results could differ from our assumptions and unvested awards were forfeited, there is no additional compensation cost to recognizeestimates, and such differences could be material.
Our significant accounting policies are discussed in future periods related to his awards.
Critical Accounting Estimates
The accounting estimates identified below are criticalnote 1 to our business operations and the understanding of our results of operations. The impact of, and any associated risks related to, these estimates on our business operations are discussed throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations where such estimates affect our reported and expected financial results. For a detailed discussion on the application of these estimates and other accounting policies, see the notes to AMCE'saudited consolidated financial statements included elsewhere in this prospectus. The methods and judgments we use in applying our accounting estimates have a significant impact on the results we report in our financial statements. SomeA listing of our accounting estimates require us to make difficult and subjective judgments, often as a resultsome of the need to make estimates of matters that are inherently uncertain. Our mostmore critical accounting estimates include the assessment of recoverability of long-lived assets, including intangibles, which impacts impairment of long-lived assets whenthat we impair assets or accelerate their depreciation; recoverability of goodwill, which creates the potential for write-offs of goodwill; recognitionbelieve merit additional discussion and measurement of currentaid in better understanding and deferred income tax assets and liabilities, which impactsevaluating our tax provision; recognition and measurement of our remaining lease obligations to landlords on our closed theatres and other vacant space, which impacts theatre and other closure expense (income); estimation of self-insurance reserves which impacts theatre operating and general and administrative expenses; recognition and measurement of net periodic benefit costs for our pension and other defined benefit programs, which impacts general and administrative expense; estimation of film settlement terms and measurement of film rental fees which impacts film exhibition costs and estimation of the fair value of assets acquired, liabilities assumed and consideration paid for acquisitions, which impacts the measurement of assets acquired (including goodwill) and liabilities assumed in a business combination. Below, we discuss these areas further,reported financial results are as well as the estimates and judgments involved.follows.
Impairments.Impairment charges. We review long-livedevaluate goodwill and other indefinite lived intangible assets including definite-lived intangibles, investments in non-consolidated subsidiaries accounted for under the equity method, marketable equity securities and internal use software for impairment annually, or more frequently as part of our annual budgeting process andspecific events or circumstances dictate. Impairment for other long lived assets (including finite lived intangibles) is done whenever events or changes in circumstances indicate that the carrying amount of thethese assets may not be fully recoverable. We identify impairmentshave invested material amounts of capital in goodwill and other intangible assets in addition to other long lived assets. We operate in a very competitive business environment and our revenues are highly dependent on movie content supplied by film producers. In addition, it is not uncommon for us to closely monitor certain locations where operating performance may not meet our expectations. Because of these and other reasons over the past three years we have recorded material impairment charges primarily related to internal use software whenlong lived assets. For the last three years, impairment charges were $3.8 million in fiscal 2010, $73.5 million in fiscal 2009 and $8.9 million in fiscal year 2008. There are a number of estimates and significant judgments that are made by management determines thatin performing these impairment evaluations. Such judgments and estimates include estimates of future revenues, cash flows, capital expenditures, and the remaining carrying valuecost of capital, among others. Management believes we have used reasonable and appropriate business judgments. These estimates determine whether an impairment has been incurred and also quantify the software will not be realized through future use. We review internal management reports on a quarterly basis as well as monitor current and potential future competition inamount of any related impairment charge. Given the markets where we operate for indicators of triggering events or circumstances that indicate impairment of individual theatre assets. We evaluate theatres using historical and projected data of theatre level cash flow as our primary indicator of potential impairment and consider the seasonalitynature of our business when evaluating theatres for impairment. We performand our annual impairment analysis during the fourth quarter because Christmasrecent history, future impairments are possible and New Year's holiday results comprise a significant portion of our operating cash flow, the actual results from this period, which are available during the fourth quarter of each fiscal year, are an integral part of our impairment analysis. We performed an interim impairment analysis during the third quarter of fiscal 2009 as a result of the recent downturns in the current economic operating environment related to the credit and capital market crisis. Under these analyses, if the sum of the estimated future cash flows, undiscounted and without interest charges, are less than the carrying amount of the asset, an impairment loss is recognized in the amount by which the carrying value of the asset exceeds its estimated fair value. Assets are evaluated for impairment on an individual theatre basis, which we believe is the lowest level for which there are identifiable cash flows. The impairment evaluation is based on the estimated cash flows from continuing use until the expected disposal date or the fair value of furniture, fixtures and equipment. The expected disposal date does not exceed the remaining lease period unless it is probable the lease period will be
extended andthey may be less than the remaining lease period when we do not expect to operate the theatre to the end of its lease term. The fair value of assets is determined as either the expected selling price less selling costs (where appropriate) or the present value of the estimated future cash flows. The fair value of furniture, fixtures and equipment has been determined using similar asset sales and in some instances the assistance of third party valuation studies. The discount rate used in determining the present value of the estimated future cash flows was 20% and wasmaterial based on management's expected return on assets during fiscal 2009, 2008, and 2007. There is considerable management judgment necessary to determine the future cash flows, fair value and the expected operating period of a theatre, and, accordingly, actual results could vary significantly from such estimates. We have recorded impairments of long-lived assets of $73,547,000, $8,933,000, and $10,686,000 during fiscal 2009, 2008, and 2007, respectively.upon business conditions that are constantly changing.
Goodwill. Our recorded goodwill was $1,814,738,000$1,914.3 million, $1,814.7 million and $2,048,865,000$1,814.7 million as of September 30, 2010, April 1, 2010 and April 2, 2009, and April 3, 2008, respectively. We evaluate goodwill and our trademark for impairment annually as of the beginning of theduring our fourth fiscal quarter and any time an event occurs or circumstances change that would more likely than not reduce the fair value for a reporting unit below its carrying amount. Our goodwill is recorded in our Theatrical Exhibition operating segment, which is also the reporting unit for purposes of evaluating recorded goodwill for impairment. If the carrying value of the reporting unit exceeds its fair value we are required to reallocate the fair value of the reporting unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. We determine fair value by using an enterprise valuation methodology determined by applying multiples to cash flow estimates less net indebtedness, which we believe is an appropriate method to determine fair value. There is considerable management judgment with respect to cash flow estimates and appropriate multiples and discount rates to be used in determining fair value.value, and, accordingly, actual results could vary significantly from such estimates which fall under Level 3 within the fair value measurement hierarchy.
We performed an interimour annual goodwill impairment analysis during the thirdfourth quarter of fiscal 2009 as a result2010. The estimated fair value of the recent downturns in the current economic operating environment related to the credit and capital market crisis and declines in equity values for our publicly traded peer group competitors.Theatrical Exhibition reporting unit exceeded its carrying value by approximately $500.0 million, which we believe is substantial. While the fair value of our Theatrical Exhibition operations exceed the carrying value at the present time, and management does not believe that impairment is probable, the performance of our Theatrical Exhibition operations requires continued improvement in future periods to sustain its carrying value and small changes in certain assumptions can have a significant impact on fair value. InFacts and circumstances could change, including further deterioration of general economic conditions, the number of motion pictures released by the studios, and the popularity of films supplied by our distributors. These and/or other factors could result in changes to the assumptions underlying the calculation of fair value which could result in future if the carrying valueimpairment of our reporting unit exceeds the estimated fair value, we are required to reallocate the fair valueremaining goodwill.
We evaluated our enterprise value for fiscalas of April 1, 2010 and April 2, 2009 and 2008 based on a contemporaneous valuation reflecting market conditions as of January 1, 2009 and December 27, 2007, respectively.conditions. Two valuation approaches were utilized; the income approach and the market approach. The income approach provides an estimate of enterprise value by measuring estimated annual cash flows over a discrete projection period and applying a present value rate to the cash flows. The present value of the cash flows is then added to the present value equivalent of the residual value of the business to arrive at an estimated fair value of the business. The residual value represents the present value of the projected cash flows beyond the discrete projection period. The discount rate is carefully determined using a rate of return deemed appropriate for the risk of achieving the projected cash flows. The market approach used publicly traded peer companies and reported transactions in the industry. Due to market
conditions and the relatively few sale transactions, the market approach was used to provide additional support for the value achieved in the income approach.
Key rates used in the income approach for fiscal 20092010 and 20082009 follow:
Description | Fiscal 2009 | Fiscal 2008 | |||||
---|---|---|---|---|---|---|---|
Discount rate | 10.0 | % | 8.5 | % | |||
Market risk premium | 6.0 | % | 5.0 | % | |||
Hypothetical capital structure: Debt/Equity | 40%/60 | % | 40%/60 | % |
Description | Fiscal 2010 | Fiscal 2009 | ||
---|---|---|---|---|
Discount rate | 9.0% | 10.0% | ||
Market risk premium | 5.5% | 6.0% | ||
Hypothetical capital structure: Debt/Equity | 40%/60% | 40%/60% |
The discount rate is an estimate of the weighted average cost of debt and equity capital. The required return on common equity was estimated by adding the risk-free required rate of return, the market risk premium (which is adjusted for the Company's estimated market volatility, or beta), and small stock premium. The discount rate used for fiscal 20082010 was 8.5% as compared to9.0% and the 10.0% discount rate used for the fiscal 2009 impairment test.was 10.0%. The higherlower discount rate was due to a number of factors, such as an increasea decrease in corporate bond yields, increasedecrease in betas, and increasedecrease in market risk premiums, given current market conditions.
The aggregate annual cash flows were determined based on management projections on a theatre-by-theatre basis further adjusted by non-theatre cash flows. The projections considered various factors including theatre lease terms, a reduction in attendance, and a reduction in capital investments in new theatres, given current market conditions and the resulting difficulty with obtaining contracts for new-builds. Cash flow estimates included in the analysis reflect our best estimate of the impact of the roll-out of digital projectors throughout our theatre circuit. Because we entered into a definitive agreement to acquire Kerasotes on December 9, 2009 and consummated the acquisition on May 24, 2010, the valuation study includes our projected cash flows for Kerasotes. The decrease in attendance for the 26 weeks ended September 30, 2010 described below under "—Operating Results For the 26 Weeks Ended September 30, 2010 and October 1, 2009" was not available or included in our projections that were used for the estimation of fair value. Based on the seasonal nature of our business, fluctuations in attendance from period to period are expected and we do not believe that the results would significantly decrease our projections for the full fiscal year 2011, or impact our conclusions regarding goodwill impairment. The anticipated acceleration of depreciation of the 35mm equipment described above under "—Significant Events" does not have an impact on our estimation of fair value as depreciation does not impact our projected available cash flow. The expected increases in rent expense upon full deployment of the digital projection systems also described under "—Significant Events" were included in the cash flow projections used to estimate our fair value as a part of our fiscal 2010 annual goodwill impairment analysis, and had the impact of reducing the projected cash flows. Because Cinemex was sold in December 2008, cash flows for the fiscal 2009 study did not include results from Cinemex. Cash flows were projected through fiscal 20152017 and assumed revenues would increase approximately 1.7%3.25% annually primarily due to projected increases in ticket and concession pricing. Costs and expenses, as a percentage of revenue are projected to decrease from 85.5% to 85.1% through fiscal 2017. The residual value is a function of the estimated cash flow for fiscal 20162018 divided
by a capitalization rate (discount rate less long-term growth rate of 2%) then discounted back to represent the present value of the cash flows beyond the discrete projection period. You should note that we utilized the foregoing assumptions about future revenues and costs and expenses for the limited purpose of performing our annual goodwill impairment analysis. These assumptions should not be viewed as "projections" or as representations by us as to expected future performance or results of operations, and you should not rely on them in deciding whether to invest in our common stock. See "Special Note Regarding Forward-Looking Statements."
As the expectations of the average investor are not directly observable, the market risk premium must be inferred. One approach is to use the long-run historical arithmetic average premiums that investors have historically earned over and above the returns on long-term Treasury bonds. The premium obtained using the historical approach is sensitive to the time period over which one calculates the average. Depending on the time period chosen, the historical approach yields an average premium in a range of 5.0% to 8.0%. Another approach is to look at projected rates of return obtained from analysts who follow the stock market. Again, this approach will lead to differing estimates depending upon the source. The published expected returns from firms such as Merrill Lynch, Value Line, and Greenwich Associates collectively tend to indicate a premium in a range of 3.0% to 5.0%. Under normal market conditions, we have utilized a market risk premium of 5.0%; however, given the current economic conditions, we utilized a market risk premium of 6.0% for fiscal 2009.
There was no goodwill impairment as of September 30, 2010, April 1, 2010 or April 2, 2009. During
Film exhibition costs. We have agreements with film companies who provide the fourth fiscal quartercontent we make available to our customers. We are required to routinely make estimates and judgments about box office receipts for certain films and for films provided by specific film distributors in closing our books each period. These estimates are subject to adjustments based upon final settlements and determinations of 2009 the equity values offinal amounts due to our publicly traded peer group competitors increasedcontent providers that are typically based on a films box office receipts and how well it performs. In certain instances this evaluation is done on a film by approximately 40% from the third fiscal quarter ended on January 1, 2009. Based on the results of the study conducted at the end of the third quarter of fiscal 2009, our fair value exceeded the book value by 1.2%.
Following, for illustrative purposes, are the percentages at which our fair value exceeds the carrying value assuming hypothetical reductionsfilm basis or in the fair value as of January 1,aggregate by film production suppliers. We rely upon our industry experience and professional judgment in determining amounts to fairly record these obligations at any given point in time. The accrual made for film costs have historically been material and we expect they will continue to be so into the future. During fiscal years 2010, 2009 (in thousands):and 2008 our film exhibition costs totaled $928.6 million, $842.7 million and $860.2 million, respectively.
Carrying Value | $ | 2,641,360 |
Hypothetical Reduction of Fair Value | Fair Value | % Fair Value Exceeds/(Less than) Carrying Value | |||||
---|---|---|---|---|---|---|---|
0.0% | $ | 2,673,796 | 1.2 | % | |||
2.5% | 2,606,951 | (1.3 | )% | ||||
5.0% | 2,540,106 | (3.8 | )% | ||||
7.5% | 2,473,261 | (6.4 | )% | ||||
10.0% | 2,406,416 | (8.9 | )% |
Income and operating taxes. In determiningIncome and operating taxes are inherently difficult to estimate and record. This is due to the complex nature of the tax code which we use to file our tax returns and also because our returns are routinely subject to examination by government tax authorities, including federal, state and local officials. Most of these examinations take place a few years after we have filed our tax returns. Our tax audits in many instances raise questions regarding our tax filing positions, the timing and amount of deductions claimed and the allocation of income for financial statement purposes,among various tax jurisdictions. Our federal and state tax operating loss carried forward of approximately $407.3 million and $846.5 million, respectively at April 1, 2010, require us to estimate the amount of carry forward losses that we must make certain estimatescan reasonably be expected to realize using feasible and judgments. These estimates and judgments occurprudent tax planning strategies that are available to us. Future changes in the calculation of certain tax liabilitiesconditions and in the determinationtax code may change these strategies and thus change the amount of the recoverability of certain of the deferred tax assets, which arise from temporary differences between the tax and financial statement recognition of revenue and expense as well as operating loss and tax credit carryforwards. We must assess the likelihoodcarry forward losses that we will be ableexpect to recover our deferred tax assets in each domesticrealize and foreign tax jurisdiction in which we operate. If recovery is not more likely than not, we must record a valuation allowance for the deferred tax assets that we estimate are more likely than not unrealizable. As of April 2, 2009, we had recorded approximately $31,000,000 of net deferred tax assets (netamount of valuation allowances of approximately $(281,442,000) related to the estimatedwe have recorded. Accordingly future reported results could be materially impacted by changes in tax benefitsmatters, positions, rules and liabilities of temporary differences between the tax bases of assetsestimates and liabilities and amounts reported in the accompanying consolidated balance sheets, as well as operating loss and tax credit carryforwards. The recoverability of these deferred income tax assets is dependent upon our ability to generate future taxable income in the relevant taxing jurisdictions. Projections of future taxable income require considerable management judgment about future attendance levels, revenues and expenses.changes could be material.
TheatreGift card and Other Closure Expense (Income).packaged ticket revenues. TheatreAs noted in our significant accounting policies for revenue we defer 100% of these items and other closure expense (income)recognize these amounts as they are redeemed by customers or when we estimate the likelihood of future redemption is primarily relatedremote based upon applicable laws and regulations. A vast majority of gift cards are used or partially used. However a portion of the gift cards and packaged ticket sales we sell to payments madeour customers are not redeemed and not used in whole or receivedin part. Non-redeemed or expected to be madepartially redeemed cards or received to or from landlords to terminate leases on certain ofpackaged tickets are known as "breakage" in our closed theatres, other vacant space and theatres where development has been discontinued. Theatre and other closure expense (income) is recognized at the time the theatre closes, space becomes vacant or development is discontinued. Expected payments to or from landlordsindustry. We are based on actual or discounted contractual amounts. We estimate theatre closure expense (income) based on contractual lease terms and our estimates of taxes and utilities. The discount rate we userequired to estimate theatrebreakage and other closure expense (income)do so based upon our historical redemption patterns. Our history indicates that if a card or packaged ticket is basednot used for 18 months or longer, its likelihood of being used past this 18 month period is remote. When it is determined that a future redemption is remote we record income for unused cards and tickets. We changed our estimate on estimates of our borrowing costs at the time of closing. As a result of the merger with Marquee, we have remeasured our liability for theatre closure at a rate of 7.55%, our estimated borrowing cost on the date of this merger. Subsequent theatre closure liabilities have been measured using a discount rate of 8.54%. We have recorded theatre and other closure (income) expense of $(2,262,000), $(20,970,000), and $9,011,000 during the fiscal years ended April 2, 2009, April 3, 2008, and March 29, 2007.
Casualty Insurance. We are self-insured for general liability up to $500,000 per occurrence and carry a $400,000 deductible limit per occurrence for workers compensation claims. We utilize actuarial projections of our estimated ultimate losses that we will be responsible for paying and as a result there is considerable judgment necessary to determine our casualty insurance reserves. The actuarial method that we use includes an allowance for adverse developments on known claims and an allowance for claims which have been incurred but which have not been reported. As of April 2, 2009 and April 3, 2008, we had recorded casualty insurance reserves of $19,179,000 and $23,254,000, respectively, net of estimated insurance recoveries. We have recorded expense related to general liability and workers compensation claims of $10,537,000, $14,836,000, and $14,519,000 during the periods ended April 2,
2009, April 3,when packaged tickets would be considered remote in terms of future redemption in fiscal 2008 and March 29, 2007, respectively. During fiscal 2009changed our estimate of redemption rates for packaged tickets in 2009. Prior to 2008 dates we recorded ahad estimated that unused packaged tickets would not become remote in terms of future use until 24 months after they were issued. The change we made to shorten this period from 24 to 18 months and align redemption patterns for packaged tickets with our gift card program represented our best judgment based on continued development of specific historical redemption patterns in estimate related to favorable loss developments compared to what was originally estimated which reduced our expense by approximately $2,100,000.
Pension and Postretirement Assumptions. Pension and postretirement benefit obligations and the related effects on operations are calculated using actuarial models. Two critical assumptions, discount rate and expected return on assets, are important elements of plan expense and/or liability measurement.gift cards at AMC. We evaluate these critical assumptions at least annually. In addition, medical trend rates are an important assumption in projecting the medical claim levels for our postretirement benefit plan. Other assumptions affecting our pension and postretirement obligations involve demographic factors such as retirement, expected increases in compensation, mortality and turnover. These assumptions are evaluated periodically and are updated to reflect our experience. Actual results in any given year will often differ from actuarial assumptions because of economic and other factors.
The discount rate enables us to state expected future cash flows at a present value on the measurement date. We have little latitude in selectingbelieve this rate, as it is required to represent the market rate for high-quality fixed income investments. A lower discount rate increases the present value of benefit obligations and increases pension and postretirement expense. For our principal pension plans, a 50 basis point decrease in the discount rate would increase pension expense by approximately $173,000. For our postretirement plans, a 50 basis point decrease in the discount rate would increase postretirement expense by approximately $65,000. For fiscal 2009, we increased our discount rate to 7.43% from 6.25% for our pension plans and to 7.42% from 6.00% for our postretirement benefit plan. On May 2, 2008, our Board of Directors approved revisions to our Post Retirement Medical and Life Insurance Plan effective January 1, 2009, and on July 3, 2008 the changes were communicated to the plan participants. As a result of these revisions, we recorded a negative prior service cost of $5,969,000 through other comprehensive income18 month period continues to be amortized over eleven years based on expected future service of the remaining participants. On November 7, 2006,appropriate and do not anticipate any changes to this policy given our Board of Directors approved an amendmenthistorical experience. We monitor redemptions and if we were to freeze our Defined Benefit Retirement Income Plan, Supplemental Executive Retirement Plan and Retirement Enhancement Plan (the "Plans") as of December 31, 2006. On December 20, 2006 we amended and restated the Plans to implement the freeze as of December 31, 2006. As a result of the freeze there will be no further benefits accrued after December 31, 2006, but continued vesting for associates with less than five years of vesting service. We will continue to fund existing benefit obligations and there will be no new participants in the future. As a result of amending and restating the Plans to implement the freeze, we recognized a curtailment gain of $10,983,000 in our consolidated financial statements which reduced our pension expense for fiscal 2007. We have recorded net periodic benefit cost (income) for our pension and postretirement plans of $(1,890,000), $1,461,000, and $(4,454,000) during the periods ended April 2, 2009, April 3, 2008, and March 29, 2007, respectively.
To determine the expected long-term rate of return on pension plan assets, we consider the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets obtained from our investment portfolio manager. A 50 basis point decrease in the expected return on assets of our qualified defined benefit pension plan would increase pension expense on our principal plans by approximately $203,000 per year.
The annual rate of increase in the per capita cost of covered health care benefits assumed for 2009 was 8.0% for medical and 4.0% for dental and vision. The rates were assumed to decrease gradually to 5.0% for medical in 2012 and remain at 4.0% for dental. The health care cost trend rate assumption has a significant effect on the amounts reported. Increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of April 2, 2009 by $1,840,000 and the aggregate of the service and interest cost components of postretirement expense for fiscal 2009 by $149,000. Decreasing the assumed health care cost trend rates by one percentage point in each year would decrease the accumulated postretirement obligation for
fiscal 2009 by $1,585,000 and the aggregate service and interest cost components of postretirement expense for fiscal 2009 by $130,000. Note 12—Employee Benefit Plans to AMCE's consolidated financial statements included elsewhere in this prospectus includes disclosures of our pension plan and postretirement plan assumptions and information about our pension plan assets.
Film Exhibition Costs. We predominantly license "first-run" motion pictures on a film-by-film and theatre-by-theatre basis from distributors owned by major film production companies and from independent distributors. We obtain these licenses based on several factors, including number of seats and screens available for a particular picture, revenue potential and the location and condition of our theatres. We pay rental fees on a negotiated basis.
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 receipts 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.
We accrue film exhibition costs based on the applicable box office receipts and estimates of the final settlement pursuant to the film licenses entered into with our distributors. Generally, less than one third of our quarterly film exhibition cost is estimated at period-end. The length of time until these costs are known with certainty depends on the ultimate duration of the film play, but is typically "settled" within two to three months of a particular film's opening release. Upon settlement with our film distributors, film cost expense and the related film cost payable are adjusted to the final film settlement. Such adjustments have been historically insignificant. However, actual film costs and film costs payable could differ materially from those estimates. For fiscal years 2009, 2008, and 2007 there were no significant changes in our film cost estimation and settlement procedures.
Asredemption statistics had taken place we would be required to change the current 18 month time period to a period that was determined to be more appropriate. This could cause us to either accelerate or lengthen the amount of April 2, 2009 and April 3, 2008, we had recorded film payablestime a gift card or packaged ticket is outstanding prior to being remote in terms of $60,286,000 and $44,028,000, respectively. We have recorded film exhibition costs of $827,785,000, $841,641,000, and $820,865,000 during the periods ended April 2, 2009, April 3, 2008, and March 29, 2007.any future redemption.
Acquisitions. We account for our acquisitions of theatrical exhibition businesses using the purchase method. The purchase method requires that we estimate the fair value of the individual assets and liabilities acquired as well as various forms of consideration given including cash, common stock, senior subordinated notes and bankruptcy related claims. We have utilized valuation studies for certain of the assets and liabilities acquired to assist us in determining fair value. The estimation of the fair value of the assets and liabilities acquired including deferred tax assets and liabilities related to such amounts and consideration given involves a number of judgments and estimates that could differ materially from the actual amounts.
Operating Results
The following table sets forth our revenues, costs and expenses attributable to our operations. Reference is made to Note 16—Operating Segmentnote 15 to ourthe audited consolidated financial statements included elsewhere in this prospectus for additional information about our operations by operating segment.therein.
Fiscal yearBoth fiscal years 2010 and 2009 includesinclude 52 weeks and fiscal year 2008 includes 53 weeks and fiscal year 2007 includes 52 weeks.
(In thousands) | 52 Weeks Ended April 2, 2009 | 53 Weeks Ended April 3, 2008 | 52 Weeks Ended March 29, 2007 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Revenues | |||||||||||
Theatrical exhibition | |||||||||||
Admissions | $ | 1,580,328 | $ | 1,615,606 | $ | 1,576,924 | |||||
Concessions | 626,251 | 648,330 | 631,924 | ||||||||
Other theatre | 58,908 | 69,108 | 94,374 | ||||||||
Total revenues | $ | 2,265,487 | $ | 2,333,044 | $ | 2,303,222 | |||||
Costs and Expenses | |||||||||||
Theatrical exhibition | |||||||||||
Film exhibition costs | $ | 827,785 | $ | 841,641 | $ | 820,865 | |||||
Concession costs | 67,779 | 69,597 | 66,614 | ||||||||
Theatre operating expense | 589,376 | 607,588 | 579,123 | ||||||||
Rent | 448,803 | 439,389 | 428,044 | ||||||||
Preopening expense | 5,421 | 7,130 | 4,776 | ||||||||
Theatre and other closure expense (income) | (2,262 | ) | (20,970 | ) | 9,011 | ||||||
1,936,902 | 1,944,375 | 1,908,433 | |||||||||
General and administrative expense: | |||||||||||
Merger, acquisition and transaction costs | 650 | 3,739 | 9,996 | ||||||||
Management Fee | 5,000 | 5,000 | 5,000 | ||||||||
Other | 53,628 | 39,102 | 45,860 | ||||||||
Depreciation and amortization | 201,413 | 222,111 | 228,437 | ||||||||
Impairment of long-lived assets | 73,547 | 8,933 | 10,686 | ||||||||
Disposition of assets and other gains | (1,642 | ) | (2,408 | ) | (11,183 | ) | |||||
Total costs and expenses | $ | 2,269,498 | $ | 2,220,852 | $ | 2,197,229 | |||||
Operating Data (at period end): | |||||||||||
Screen additions | 83 | 136 | 107 | ||||||||
Screen acquisitions | — | — | 32 | ||||||||
Screen dispositions | 77 | 196 | 243 | ||||||||
Average screens—continuing operations(1) | 4,545 | 4,561 | 4,627 | ||||||||
Number of screens operated | 4,612 | 4,606 | 4,666 | ||||||||
Number of theatres operated | 307 | 309 | 318 | ||||||||
Screens per theatre | 15.0 | 14.9 | 14.7 | ||||||||
Attendance (in thousands)—continuing operations(1) | 196,184 | 207,603 | 213,041 |
(In thousands) | 26 Weeks Ended Sept. 30, 2010 | 26 Weeks Ended Oct. 1, 2009 | 52 Weeks Ended April 1, 2010 | 52 Weeks Ended April 2, 2009 | 53 Weeks Ended April 3, 2008 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues | |||||||||||||||||
Theatrical exhibition | |||||||||||||||||
Admissions | $ | 907,169 | $ | 836,725 | $ | 1,711,853 | $ | 1,580,328 | $ | 1,615,606 | |||||||
Concessions | 355,671 | 321,041 | 646,716 | 626,251 | 648,330 | ||||||||||||
Other theatre | 31,737 | 28,598 | 59,170 | 58,908 | 69,108 | ||||||||||||
Total revenues | $ | 1,294,577 | $ | 1,186,364 | $ | 2,417,739 | $ | 2,265,487 | $ | 2,333,044 | |||||||
Operating Costs and Expenses | |||||||||||||||||
Theatrical exhibition | |||||||||||||||||
Film exhibition costs | $ | 481,004 | $ | 457,429 | $ | 928,632 | $ | 842,656 | $ | 860,241 | |||||||
Concession costs | 44,301 | 35,070 | 72,854 | 67,779 | 69,597 | ||||||||||||
Operating expense | 321,476 | 293,568 | 610,774 | 576,022 | 572,740 | ||||||||||||
Rent | 236,035 | 220,684 | 440,664 | 448,803 | 439,389 | ||||||||||||
General and administrative expense: | |||||||||||||||||
Merger, acquisition and transaction costs | 10,975 | 221 | 2,280 | 650 | 3,739 | ||||||||||||
Management fee | 2,500 | 2,500 | 5,000 | 5,000 | 5,000 | ||||||||||||
Other | 31,058 | 26,071 | 57,858 | 53,628 | 39,102 | ||||||||||||
Depreciation and amortization | 100,958 | 95,477 | 188,342 | 201,413 | 222,111 | ||||||||||||
Impairment of long-lived assets | — | — | 3,765 | 73,547 | 8,933 | ||||||||||||
Operating costs and expenses | $ | 1,228,307 | $ | 1,131,020 | $ | 2,310,169 | $ | 2,269,498 | $ | 2,220,852 | |||||||
Operating Data (at period end—unaudited) | |||||||||||||||||
Screen additions | 14 | 6 | 6 | 83 | 136 | ||||||||||||
Screen acquisitions | 960 | — | — | — | — | ||||||||||||
Screen dispositions | 183 | 44 | 105 | 77 | 196 | ||||||||||||
Average screens—continuing operations(1) | 5,035 | 4,521 | 4,485 | 4,545 | 4,561 | ||||||||||||
Number of screens operated | 5,304 | 4,574 | 4,513 | 4,612 | 4,606 | ||||||||||||
Number of theatres operated | 378 | 304 | 297 | 307 | 309 | ||||||||||||
Screens per theatre | 14.0 | 15.0 | 15.2 | 15.0 | 14.9 | ||||||||||||
Attendance (in thousands)—continuing operations(1) | 105,479 | 100,485 | 200,285 | 196,184 | 207,603 |
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.
A reconciliation
Reconciliation of earnings (loss) from continuing operations before income taxes to segment Adjusted EBITDA is as follows:
(unaudited)
(In thousands) | 52 Weeks Ended April 2, 2009 | 53 Weeks Ended April 3, 2008 | 52 Weeks Ended March 29, 2007 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Earnings (loss) from continuing operations before income taxes | $ | (85,100 | ) | $ | 54,263 | $ | 173,871 | |||||
Plus: | ||||||||||||
Interest expense | 121,747 | 137,662 | 193,478 | |||||||||
Depreciation and amortization | 201,413 | 222,111 | 228,437 | |||||||||
Impairment of long-lived assets | 73,547 | 8,933 | 10,686 | |||||||||
Preopening expense | 5,421 | 7,130 | 4,776 | |||||||||
Theatre and other closure expense (income) | (2,262 | ) | (20,970 | ) | 9,011 | |||||||
Disposition of assets and other gains | (1,642 | ) | (2,408 | ) | (11,183 | ) | ||||||
Equity in non-consolidated entities | (24,823 | ) | (43,019 | ) | (233,704 | ) | ||||||
Investment loss (income) | (1,696 | ) | (23,782 | ) | (17,385 | ) | ||||||
Other (income) expense(1) | — | (1,246 | ) | 1,019 | ||||||||
General and administrative expense—unallocated: | ||||||||||||
Management fee | 5,000 | 5,000 | 5,000 | |||||||||
Merger, acquisition and transaction costs | 650 | 3,739 | 9,996 | |||||||||
Other(2) | 53,628 | 39,102 | 45,860 | |||||||||
Total Segment Adjusted EBITDA | $ | 345,883 | $ | 386,515 | $ | 419,862 | ||||||
(In thousands) | 26 Weeks Ended Sept. 30, 2010 | 26 Weeks Ended Oct. 1, 2009 | 52 Weeks Ended April 1, 2010 | 52 Weeks Ended April 2, 2009 | 53 Weeks Ended April 3, 2008 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Earnings (loss) from continuing operations | $ | 69,715 | $ | 94 | $ | 77,324 | $ | (90,900 | ) | $ | 41,643 | |||||||
Plus: | ||||||||||||||||||
Income tax provision (benefit) | 5,800 | 50 | (68,800 | ) | 5,800 | 12,620 | ||||||||||||
Interest expense | 68,758 | 64,106 | 132,110 | 121,747 | 137,662 | |||||||||||||
Depreciation and amortization | 100,958 | 95,477 | 188,342 | 201,413 | 222,111 | |||||||||||||
Impairment of long-lived assets | — | — | 3,765 | 73,547 | �� | 8,933 | ||||||||||||
Certain operating expenses(1) | (7,907 | ) | 1,788 | 6,099 | 1,517 | (16,248 | ) | |||||||||||
Equity in earnings of non-consolidated entities | (3,566 | ) | (10,610 | ) | (30,300 | ) | (24,823 | ) | (43,019 | ) | ||||||||
Gain on NCM, Inc. stock sale | (64,648 | ) | — | |||||||||||||||
Investment income | (104 | ) | (131 | ) | (205 | ) | (1,696 | ) | (23,782 | ) | ||||||||
Other (income) expense(2) | — | 11,276 | 11,276 | — | (1,246 | ) | ||||||||||||
General and administrative expense: | ||||||||||||||||||
Merger, acquisition and transaction costs | 10,975 | 221 | 2,280 | 650 | 3,739 | |||||||||||||
Management fee | 2,500 | 2,500 | 5,000 | 5,000 | 5,000 | |||||||||||||
Stock-based compensation expense | 864 | 838 | 1,384 | 2,622 | 207 | |||||||||||||
Adjusted EBITDA(3)(4) | $ | 183,345 | $ | 165,609 | $ | 328,275 | $ | 294,877 | $ | 347,620 | ||||||||
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 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:
For the 26 Weeks Ended September 30, 2010 and October 1, 2009
Revenues. Total revenues increased 9.1%, or $108.2 million, during the twenty-six weeks ended September 30, 2010 compared to the twenty-six weeks ended October 1, 2009. This increase included approximately $103.3 million of additional revenues resulting from the acquisition of Kerasotes. Admissions revenues increased 8.4%, or $70.4 million, during the twenty-six weeks ended September 30, 2010 compared to the twenty-six weeks ended October 1, 2009, due to a 5.0% increase in attendance primarily due to the acquisition of Kerasotes and a 3.2% increase in average ticket prices. The increase in attendance and increase in admissions revenues includes the increased attendance and admissions revenues of approximately $67.8 million from Kerasotes. The increase in average ticket price was primarily due to an increase in attendance from IMAX and 3D film product for which 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) increased 1.8%, or $14.6 million, during the twenty-six weeks ended September 30, 2010 from the comparable period last year. Attendance was negatively impacted by less favorable film product during the twenty-six weeks ended September 30, 2010 as compared to the twenty-six weeks ended October 1, 2009. Concessions revenues increased 10.8%, or $34.6 million, during the twenty-six weeks ended September 30, 2010 compared to the twenty-six weeks ended October 1, 2009, due to a 5.6% increase in average concessions per patron and the increase in attendance, which was primarily due to the acquisition of Kerasotes. The increase in concession revenues includes approximately $33.9 million 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 and thirteen weeks ended September 30, 2010, and a shift in product mix to higher priced items. Other income, net for fiscal 2007 is comprisedtheatre revenues increased 11.0%, or $3.1 million, during the twenty-six weeks ended September 30, 2010 compared to the twenty-six weeks ended October 1, 2009, primarily due to increases in advertising revenues, package ticket sales, merchandise sales, and theatre rentals. The increase in other theatre revenues includes $1.6 million from Kerasotes.
Operating Costs and Expenses. Operating costs and expenses increased 8.6%, or $97.3 million, during the twenty-six weeks ended September 30, 2010 compared to the twenty-six weeks ended October 1, 2009. The effect of the write-offacquisition of deferred financingKerasotes was an increase in operating costs and expenses of approximately $106.0 million. Film exhibition costs increased 5.2%, or $23.6 million, during the twenty-six weeks ended September 30, 2010 compared to the twenty-six weeks ended October 1, 2009 due to the increase in admissions revenues, partially offset by the decrease in film exhibition costs as a percentage of admissions revenues. As a percentage of admissions revenues, film exhibition costs were 53.0% in the current period and 54.7% in the prior year period. Concession costs increased
26.3%, or $9.2 million, during the twenty-six weeks ended September 30, 2010 compared to the twenty-six weeks ended October 1, 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 12.5% in the current period compared with 10.9% in the prior period, primarily due to the concession price and size increases, a shift in product mix from higher to lower margin items, timing of vendor rebate recognition and concession offers targeting attendance growth. As a percentage of revenues, operating expense was 24.8% in the current period as compared to 24.7% in the prior period. Gains were recorded on disposition of assets during the twenty-six weeks ended September 30, 2010 which reduced operating expenses by approximately $10.0 million, primarily due to the sale of a divested legacy AMC theatre in conjunction with the acquisition of Kerasotes. Rent expense increased 7.0%, or $15.4 million, during the twenty-six weeks ended September 30, 2010 compared to the twenty-six weeks ended October 1, 2009, primarily due to increased rent as a result of the acquisition of Kerasotes of approximately $17.7 million.
We continually monitor the performance of our theatres outside the U.S., and factors such as changing consumer preferences for filmed entertainment in international markets and our inability to sublease vacant retail space could negatively impact operating results and result in future closures, sales, dispositions and significant theatre and other closure charges prior to expiration of underlying lease agreements.
General and net recoveries for property lossAdministrative Expense:
Merger, Acquisition and Transaction Costs. Merger, acquisition and transaction costs increased $10.8 million during the twenty-six weeks ended September 30, 2010 compared to the twenty-six weeks ended October 1, 2009. Current year costs primarily consist of costs related to Hurricane Katrina.(2)Including stock-basedthe acquisition of Kerasotes.
Management Fees. Management fees were unchanged during the twenty-six weeks ended September 30, 2010. Management fees of $1.3 million are paid quarterly, in advance, to our Sponsors in exchange for consulting and other services.
Other. Other general and administrative expense increased 19.1%, or approximately $5.0 million, during the twenty-six weeks ended September 30, 2010 compared to the twenty-six weeks ended October 1, 2009 due primarily to increases in expected annual incentive compensation expense of $2,622,000, $207,000$1.6 million and $10,568,000estimated expense related to our complete withdrawal from a union-sponsored pension plan of $2.7 million. During the twenty-six weeks ended October 1, 2009, we recorded $1.4 million of expense related to a complete withdrawal from a union-sponsored pension plan.
Depreciation and Amortization. Depreciation and amortization increased 5.7%, or $5.5 million, compared to the prior period. Increases in depreciation and amortization expense during the twenty-six weeks ended September 30, 2010 are the result of increased net book value of theatre assets primarily due to the acquisition of Kerasotes, which contributed $10.2 million of depreciation expense, partially offset by decreases in the declining net book value of legacy theatre assets.
Other Expense (Income). Other expense (income) includes $(9.6) million and $(9.4) million of income related to the derecognition of gift card liabilities, as to which we believe future redemption to be remote, during the twenty-six weeks ended September 30, 2010 and October 1, 2009, respectively. Other expense (income) includes a loss of $11.3 million related to the redemption of our 85/8% Senior Notes due 2012 during the twenty-six weeks ended October 1, 2009.
Interest Expense. Interest expense increased 7.3%, or $4.7 million, 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 of Non-Consolidated Entities. Equity in earnings of non-consolidated entities was $3,566,000 in the current period compared to $10.6 million in the prior period. Equity in earnings related to our investment in National CineMedia, LLC were $12.4 million and $13.3 million for the twenty-six weeks ended September 30, 2010 and October 1, 2009, respectively. Equity in losses related to our investment in Digital Cinema Implementation Partners, LLC ("DCIP") were $8.6 million and $1.9 million for the twenty-six weeks ended September 30, 2010 and October 1, 2009, respectively.
Gain on NCM, Inc. Stock Sale. The gain on NCM, Inc. shares of common stock sold during the twenty-six weeks ended September 30, 2010 was $64.6 million. See note 6 to the unaudited consolidated financial statements included elsewhere in this prospectus for further information.
Investment Income. Investment income was $104,000 for the twenty-six weeks ended September 30, 2010 compared to $131,000 for the twenty-six weeks ended October 1, 2009.
Income Tax Provision. The income tax provision from continuing operations was $5.8 million for the twenty-six weeks ended September 30, 2010 and $50,000 for the twenty-six weeks ended October 1, 2009. See note 8 to the unaudited consolidated financial statements included elsewhere in this prospectus 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 $69.7 million and $636,000 for the twenty-six weeks ended September 30, 2010 and October 1, 2009, respectively. Net earnings during the twenty-six weeks ended September 30, 2010 were positively impacted by a gain on sale of NCM, Inc. shares of $64.6 million and a gain on disposition of assets of approximately $10 million and negatively impacted by merger and acquisition costs of approximately $10.8 million primarily due to the acquisition of Kerasotes and increased interest expense of $4.7 million. Net earnings during the twenty-six weeks ended October 1, 2009 were negatively impacted by an expense of $11.3 million related to the redemption of our 85/8% Senior Notes due 2012.
For the Year Ended April 1, 2010 and April 2, 2009
Revenues. Total revenues increased 6.7%, or $152.3 million, during the year ended April 1, 2010 compared to the year ended April 2, 2009. Admissions revenues increased 8.3%, or $131.5 million, during the year ended April 1, 2010 compared to the year ended April 2, 2009, due to a 6.1% increase in average ticket prices and a 2.1% increase in attendance. Admissions revenues at comparable theatres (theatres opened on or before the first quarter of fiscal 2009) increased 8.5%, or $131.5 million, during the year ended April 3,1, 2010 from the comparable period last year. The increase in average ticket price was primarily due to increases in attendance from IMAX and 3D film product where we are able to charge more per ticket than for a standard 2D film, as well as our practice of periodically reviewing ticket prices and making selective adjustments based upon such factors as general inflationary trends and conditions in local markets. Attendance was positively impacted by more favorable 3D and IMAX film product during the year ended April 1, 2010 as compared to the year ended April 2, 2009, as well as by an increase in the number of IMAX and 3D screens that we operate. Concessions revenues increased 3.3%, or $20.5 million, during the year ended April 1, 2010 compared to the year ended April 2, 2009, due primarily to the increase in attendance. Other theatre revenues increased 0.4%, or $262,000, during the year ended April 1, 2010 compared to the year ended April 2, 2009, primarily due to increases in on-line ticket fees, partially offset by a reduction in theatre rentals.
Operating costs and expenses. Operating costs and expenses increased 1.8%, or $40.7 million during the year ended April 1, 2010 compared to the year ended April 2, 2009. Film exhibition costs
increased 10.2%, or $86.0 million, during the year ended April 1, 2010 compared to the year ended April 2, 2009 due to the increase in admissions revenues and the increase in film exhibition costs as a percentage of admissions revenues. As a percentage of admissions revenues, film exhibition costs were 54.2% in the current period and 53.3% in the prior year period primarily due to an increase in admissions revenues on higher grossing films, which typically carry a higher film cost as a percentage of admissions revenues. Concession costs increased 7.5%, or $5.1 million, during the year ended April 1, 2010 compared to the year ended April 2, 2009 due to an increase in concession costs as a percentage of concessions revenues and the increase in concession revenues. As a percentage of concessions revenues, concession costs were 11.3% in the current period compared with 10.8% in the prior period. As a percentage of revenues, operating expense was 25.3% in the current period as compared to 25.4% in the prior period. Rent expense decreased 1.8%, or $8.1 million, during the year ended April 1, 2010 compared to the year ended April 2, 2009 primarily due to 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 $1.6 million during the year ended April 1, 2010 compared to the year ended April 2, 2009 primarily due to costs incurred related to the Kerasotes acquisition during the current year.
Management fees. Management fees were unchanged during the year ended April 1, 2010. Management fees of $1.3 million are paid quarterly, in advance, to our Sponsors in exchange for consulting and other services.
Other. Other general and administrative expense increased 7.9%, or $4.2 million, during the year ended April 1, 2010 compared to the year ended April 2, 2009 due primarily to increases in annual incentive compensation of approximately $12.0 million based on improved operating performance and increases in net periodic pension expense of $4.7 million, partially offset by decreases in cash severance payments of $7.0 million to our former Chief Executive Officer made in the prior year and a decrease in expense related to a union-sponsored pension plan of $3.9 million. During the year ended April 2, 2009, we recorded $5.3 million of expense related to our partial withdrawal liability for a union-sponsored pension plan. During the year ended April 1, 2010, we recorded $1.4 million of expense related to our estimated complete withdrawal from the union-sponsored pension plan.
Depreciation and Amortization. Depreciation and amortization decreased 6.5%, or $13.1 million, compared to the prior year due primarily to the impairment of long-lived assets in fiscal 2009.
Impairment of Long-Lived Assets. During the year ended April 1, 2010, we recognized non-cash impairment losses of $3.8 million related to theatre fixed assets and real estate recorded in other long-term assets. We recognized an impairment loss of $2.3 million on five theatres with 41 screens (in Florida, California, New York, Utah and Maryland). Of the theatre charge, $2.3 million was related to property, net. We also adjusted the carrying value of undeveloped real estate assets based on a recent appraisal which resulted in an impairment charge of $1.4 million. During the year ended April 2, 2009, we recognized non-cash impairment losses of $73.5 million related to theatre fixed assets, internal use software and assets held for sale. We recognized an impairment loss of $65.6 million on 34 theatres with 520 screens (in Arizona, California, Canada, Florida, Georgia, Illinois, Maryland, Massachusetts, Michigan, New York, North Carolina, Ohio, Texas, Virginia, Washington and Wisconsin). Of the theatre charge, $1.4 million was related to intangible assets, net, and $64.3 million was related to property, net. We recognized an impairment loss on abandonment of internal use software, recorded in other long-term assets of $7.1 million when management determined that the carrying value would not be realized through future use. We adjusted the carrying value of our assets held for sale to reflect the
subsequent sales proceeds received in January 2009 and declines in fair value, which resulted in impairment charges of $786,000.
Other (Income) Expense. Other (income) expense includes $13.6 million and $14.1 million of income related to the derecognition of gift card liabilities, as to which we believe future redemption to be remote, during the year ended April 1, 2010 and April 2, 2009, respectively. Other (income) expense includes loss on extinguishment of indebtedness of $11.3 million related to the Cash Tender Offer during the year ended April 1, 2010.
Interest Expense. Interest expense increased 8.5%, or $10.4 million, primarily due to an increase in interest expense related to the issuance of the Notes due 2019 partially offset by a decrease in interest rates on the senior secured credit facility and extinguishment of debt from the Cash Tender Offer.
Equity in Earnings of Non-Consolidated Entities. Equity in earnings of non-consolidated entities was $30.3 million in the current year compared to $24.8 million in the prior year. Equity in earnings related to our investment in NCM LLC were $34.4 million and $27.7 million for the year ended April 1, 2010 and April 2, 2009, respectively. We recognized an impairment loss of $2.7 million related to an equity method investment in one U.S. motion picture theatre during the year ended April 2, 2009.
Investment Income. Investment income was $205,000 for the year ended April 1, 2010 compared to $1.7 million for the year ended April 2, 2009. The year ended April 2, 2009 includes a gain of $2.4 million from the May 2008 sale of our investment in Fandango, which was the result of receiving the final distribution from the general claims escrow account. During the year ended April 2, 2009, we recognized an impairment loss of $1.5 million related to unrealized losses previously recorded in accumulated other comprehensive income on marketable securities related to one of our deferred compensation plans when we determined the decline in fair value below historical cost to be other than temporary.
Income Tax Provision (Benefit). The income tax provision (benefit) from continuing operations was a benefit of $68.8 million for the year ended April 1, 2010 and Marcha provision of $5.8 million for the year ended April 2, 2009. Our income tax benefit in fiscal 2010 includes the release of $71.8 million of valuation allowance for deferred tax assets. See note 9 to the audited consolidated financial statements included elsewhere in this prospectus for our effective income tax rate reconciliation.
Earnings (Loss) from Discontinued Operations, Net. On December 29, 2007.2008, 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 years presented and include bad debt expense related to amounts due from Cinemex of $8.9 million for the year ended April 1, 2010. See note 2 to the audited consolidated financial statements included elsewhere in this prospectus for the components of the earnings from discontinued operations.
Net Earnings (Loss). Net earnings (loss) were $69.8 million and $(81.2) million for the year ended April 1, 2010 and April 2, 2009, respectively. Net earnings were favorably impacted by a $71.8 million reduction in the valuation allowance for deferred income tax assets. Net earnings during the year ended April 1, 2010 were negatively impacted by an expense of $11.3 million related to the Cash Tender Offer and by losses of $8.9 million related to the allowance for doubtful accounts and direct write-offs of amounts due from Cinemex included in discontinued operations. Net loss for the year ended April 2, 2009 was primarily due to impairment charges of $73.5 million.
For the Year Ended April 2, 2009 and April 3, 2008
Revenues. Total revenues decreased 2.9%, or $67,557,000,$67.6 million, during the year ended April 2, 2009 compared to the year ended April 3, 2008. Fiscal year 2009 includes 52 weeks and fiscal year 2008 includes 53 weeks which we estimate contributed approximately $30,000,000$30.0 million to the decline in our total revenues. Admissions revenues decreased 2.2%, or $35,278,000,$35.3 million, during the year ended April 2, 2009 compared to the year ended April 3, 2008, due to a 5.5% decrease in attendance partially offset by a 3.6% increase in average ticket price. The increase in average ticket price was primarily due to our practice of periodically reviewing ticket prices and making selective adjustments based upon such factors as general inflationary trends and conditions in local markets. Admissions revenues at comparable theatres (theatres opened on or before the first quarter of fiscal 2008) decreased 4.1%, or $63,821,000,$63.8 million, during the year ended April 2, 2009 from the comparable period last year. Based upon available industry sources, box office revenues of our comparable theatres slightly underperformed the overall industry comparable theatres in the markets where we operate. We believe our underperformance is primarily the result of changes in distribution patterns and an increase in the number of prints released in our markets. While our box office performance on such films was in line with our expectations, the increase in prints in our market diluted our overall performance against the industry. Concessions revenues decreased 3.4%, or $22,079,000,$22.1 million, during the year ended April 2, 2009 compared to the year ended April 3, 2008 due to the decrease in attendance partially offset by a 2.2% increase in average concessions per patron. Other theatre revenues decreased 14.8%, or $10,200,000,$10.2 million, during the year ended April 2, 2009 compared to year ended April 3, 2008, primarily due to a decrease
in advertising revenues. See Note 1—Revenuesnote 1 to the audited consolidated financial statements included elsewhere in this prospectus for discussion of the change in estimate for revenues recorded during the years ended April 2, 2009 and April 3, 2008.
Costs Operating costs and expenses. TotalOperating costs and expenses increased 2.2%, or $48,646,000,$48.6 million, during the year ended April 2, 2009 compared to the year ended April 3, 2008. Film exhibition costs decreased 1.6%2.0%, or $13,856,000,$17.6 million, during the year ended April 2, 2009 compared to the year ended April 3, 2008 due to the decrease in admissions revenues partially offset by an increase in film exhibition costs as a percentage of admission revenues. As a percentage of admissions revenues, film exhibition costs were 52.4%53.3% in the current periodyear as compared with 52.1%53.2% in the prior period.year. Concession costs decreased 2.6%, or $1,818,000,$1.8 million, during the year ended April 2, 2009 compared to the year ended April 3, 2008 due to the decrease in concession revenues partially offset by an increase in concession costs as a percentage of concessions revenues. As a percentage of concessions revenues, concession costs were 10.8% in the current periodyear and 10.7% in the prior period.year. As a percentage of revenues, operating expense was 26.0%25.4% in boththe current year and 24.5% in the prior year. Operating expense in the current and prior period.year includes $2.3 million and $21.0 million of theatre and other closure income, respectively, due primarily to lease terminations negotiated on favorable terms. Rent expense increased 2.1%, or $9,414,000,$9.4 million, during the year ended April 2, 2009 compared to the year ended April 3, 2008 due primarily to the opening of new theatres. Preopening expense decreased $1,709,000$1.7 million during the year ended April 2, 2009 due to a decline in screen additions. During the year ended April 2, 2009 we recognized $2,262,000 of theatre and other closure income primarily due to lease terminations negotiated on favorable terms for two theaters closed during the year ended April 2, 2009. During the year ended April 3, 2008, we recognized $20,970,000 of theatre and other closure income due primarily to a lease termination negotiated on favorable terms for seven of our theatres that were closed during the year ended April 3, 2008 or where the lease was terminated during this period.
General and Administrative Expense:
Merger, acquisition and transaction costs. Merger, acquisition and transaction costs decreased $3,089,000$3.1 million during the year ended April 2, 2009 compared to the year ended April 3, 2008. Prior periodyear costs are primarily comprised of professional and consulting expenses related to a proposed initial public offering of common stock that was withdrawn on June 19, 2007 and preacquisition expenses for casualty insurance losses that occurred prior to the merger with Loews.
Management fees. Management fees were unchanged during the year ended April 2, 2009. Management fees of $1,250,000$1.3 million are paid quarterly, in advance, to our sponsors, affiliates of J.P. Morgan Partners, LLC, Apollo Management, L.P., Bain Capital Partners, The Carlyle Group and Spectrum Equity Investors (collectively, the "Sponsors"),Sponsors in exchange for consulting and other services.
Other. Other general and administrative expense increased 37.1%, or $14,526,000,$14.5 million, during the year ended April 2, 2009 compared to the year ended April 3, 2008. The increase in other general and administrative expenses is primarily due to a cash severance payment of $7,014,000$7.0 million to our former Chief Executive Officer and an expense of $5,279,000$5.3 million related to our partial withdrawal liability for a union-sponsored pension plan, partially offset by a pension curtailment gain of $1,072,000$1.1 million as a result of the retirement of our former chief executive officer.
Depreciation and amortization.Amortization. Depreciation and amortization decreased 9.3%, or $20,698,000,$20.7 million, compared to the prior periodyear due primarily to certain intangible assets becoming fully amortized, the closing of theatres and impairment of long-lived assets.
Impairment of long-lived assets.Long-Lived Assets. During fiscal 2009 we recognized non-cash impairment losses of $73,547,000$73.5 million related to theatre fixed assets, internal use software and assets held for sale. We recognized an impairment loss of $65,636,000$65.6 million on 34 theatres with 520 screens (in Arizona, California, Canada, Florida, Georgia, Illinois, Maryland, Massachusetts, Michigan, New York, North Carolina, Ohio, Texas, Virginia, Washington and Wisconsin). Of the theatre charge, $1,365,000$1.4 million was related to intangible assets, net, and $64,271,000$64.3 million was related to property, net. We recognized an impairment loss on abandonment of internal use software, recorded in other long-term assets of $7,125,000$7.1 million when management
determined that the carrying value would not be realized through future use; anduse, we adjusted the carrying value of our assets held for sale to reflect the sales proceeds received in fiscal 2009 and declines in fair value, which resulted in impairment charges of $786,000. During fiscal 2008 we recognized a non-cash impairment loss of $8,933,000$8.9 million that reduced property, net on 17 theatres with 176 screens (in New York, Maryland, Indiana, Illinois, Nebraska, Oklahoma, California, Arkansas, Pennsylvania, Washington, and the District of Columbia).
Disposition of assets and other gains. Disposition of assets and other gains were $1,642,000 in the current period compared to $2,408,000 in the prior period. The current and prior periods include $2,015,000 and $5,321,000, respectively, of settlements received related to fireproofing litigation and other construction related recoveries at various theatres. The current and prior year also includes contingent legal expense related to the litigation recoveries of $104,000 and $2,895,000, respectively.
Other income.Income. Other income includes $14,139,000$14.1 million and $11,289,000$11.3 million of income related to the derecognition of gift card liabilities, as to which we believe future redemption to be remote, during the year ended April 2, 2009 and April 3, 2008, respectively. Other income includes insurance recoveries related to Hurricane Katrina of $1,246,000$1.2 million for property losses in excess of property carrying cost and $397,000 for business interruption during the year ended April 3, 2008.
Interest expense.Expense. Interest expense decreased 11.6%, or $15,915,000,$15.9 million, primarily due to decreased interest rates on the Senior Secured Credit Facility.senior secured credit facility.
Equity in earningsEarnings of non-consolidated entities.Non-Consolidated Entities. Equity in earnings of non-consolidated entities was $24,823,000$24.8 million in the current periodyear compared to $43,019,000$43.0 million in the prior period.year. Equity in earnings related to our investment in National CineMedia,NCM LLC were $27,654,000$27.7 million and $22,175,000$22.2 million for the year ended April 2, 2009 and April 3, 2008, respectively. Equity in earnings related to HGCSA was $18,743,000$18.7 million during the year ended April 3, 2008 and includes the gain related to the disposition of $18,751,000.$18.8 million. We recognized an impairment loss of $2,742,000$2.7 million related to an equity method investment in one U.S. motion picture theatre during the year ended April 2, 2009.
Investment income.Income. Investment income was $1,696,000$1.7 million for the year ended April 2, 2009 compared to $23,782,000$23.8 million for the year ended April 3, 2008. The year ended April 2, 2009 and April 3, 2008 include a gain on the sale of our investment in Fandango of $2,383,000$2.4 million and $15,977,000,$16.0 million, respectively. Interest income decreased $6,566,000$6.6 million from the prior periodyear primarily due to decreases in temporary investments and decreases in rates of interest earned on temporary investments. During the year ended April 2, 2009, we recognized an impairment loss of $1,512,000$1.5 million related to unrealized losses previously recorded in accumulated other comprehensive income on marketable securities related to one of our deferred compensation plans when we determined the decline in fair value below historical cost to be other than temporary.
Income tax provision.Tax Provision (Benefit). The provision for income taxestax provision from continuing operations was $5,800,000$5.8 million for the year ended April 2, 2009 and $12,620,000$12.6 million for the year ended April 3, 2008 with the reduction due primarily to the decrease in earnings from continuing operations before income taxes. See Note 10—Income Taxes.note 9 to the audited consolidated financial statements included elsewhere in this prospectus.
Earnings from discontinued operations, net.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, and information presented for all periodsyears reflects the new classification. See Note 2—Discontinued Operationsnote 2 to the audited consolidated financial statements included elsewhere in this prospectus for the components of the earnings from discontinued operations.
Net earningsEarnings (loss). Net earnings (loss) were $(81,172,000)$(81.2) million and $43,445,000$43.4 million for the year ended April 2, 2009 and April 3, 2008, respectively. The decrease in net earnings was primarily due to impairment charges of $73,547,000$73.5 million in the current year and the recognition of a gain on the disposition of
HGCSA of $18,751,000,$18.8 million, a gain on the disposition of Fandango of $15,977,000$16.0 million and theatre and other closure income of $20,970,000$21.0 million which were recorded in the prior year.
For the Year Ended April 3, 2008 and March 29, 2007
Revenues. Total revenues increased 1.3%, or $29,822,000 during the year ended April 3, 2008 compared to the year ended March 29, 2007. Admissions revenues increased 2.5%, or $38,682,000, during the year ended April 3, 2008 compared to the year ended March 29, 2007, due to a 5.1% increase in average ticket prices partially offset by a 2.6% decrease in total attendance. Admissions revenues at comparable theatres (theatres opened on or before the first quarter of fiscal 2007) increased 1.7% during the year ended April 3, 2008 over the comparable period last year, primarily due to a 4.9% increase in average ticket price partially offset by a 3.0% decrease in attendance at comparable theatres. The increase in average ticket price was primarily due to our practice of periodically reviewing ticket prices and the discounts we offer and making selective adjustments based upon such factors as general inflationary trends and conditions in local markets. Based upon available industry sources, box office revenues of our comparable theatres performed similarly to overall performance of industry comparable theatres in the markets where we operate. Concessions revenues increased 2.6%, or $16,406,000, during the year ended April 3, 2008 compared to the year ended March 29, 2007 due to a 5.1% increase in average concessions per patron related primarily to price increases partially offset by the decrease in attendance. Other theatre revenues decreased 26.8%, or $25,266,000, during the year ended April 3, 2008 compared to the year ended March 29, 2007. Included in other theatre revenues is our share of on-screen advertising revenues generated by NCM. The decrease in other theatre revenues was primarily due to decreases in on-screen advertising revenues as a result of the new Exhibitor Services Agreement with NCM. See Note 1—Revenues for discussion of the change in estimate for revenues recorded during the year ended April 3, 2008.
Costs and expenses. Total costs and expenses increased 1.1%, or $23,623,000, during the year ended April 3, 2008 compared to the year ended March 29, 2007. Film exhibition costs increased 2.5%, or $20,776,000, during the year ended April 3, 2008 compared to the year ended March 29, 2007 due to the increase in admissions revenues. As a percentage of admissions revenues, film exhibition costs were 52.1% in both the current period and the prior period. Concession costs increased 4.5%, or $2,983,000, during the year ended April 3, 2008 compared to the year ended March 29, 2007 due to the increase in concessions revenues and an increase in concession costs as a percentage of concessions revenues. As a percentage of concessions revenues, concession costs were 10.7% in the current period compared with 10.5% in the prior period. As a percentage of revenues, theatre operating expense increased to 26.0% in the current period from 25.1% in the prior period due primarily to increases in advertising expenses as a result of the new Exhibitor Services Agreement with NCM. Rent expense increased 2.7%, or $11,345,000, during the year ended April 3, 2008 compared to the year ended March 29, 2007. During the year ended April 3, 2008, we recognized $20,970,000 of theatre and other closure income due primarily to lease terminations negotiated on favorable terms for seven of our theatres that were closed during fiscal 2008 or where the lease was terminated during this period. During the year ended March 29, 2007, we recognized $9,011,000 of theatre and other closure expense (income) due primarily to the closure of 26 theatres with 253 screens and to accretion of the closure liability related to theatres closed during prior periods.
General and Administrative Expense:
Merger, acquisition and transaction costs. Merger and acquisition costs decreased $6,257,000 from $9,996,000 to $3,739,000 during the year ended April 3, 2008 compared to the year ended March 29, 2007. Current year costs are primarily comprised of preacquisition expenses for casualty insurance losses and payments for a union-sponsored pension plan related to the Merger with Loews.
Management fees. Management fees were unchanged during the year ended April 3, 2008 compared to the year ended March 29, 2007. Management fees of $1,250,000 were paid quarterly, in advance, to our Sponsors in exchange for consulting and other services.
Other. Other general and administrative expenses decreased 14.7%, or $6,758,000 during the year ended April 3, 2008 compared to the year ended March 29, 2007. The decrease in other general and administrative expenses is primarily due to a decrease in stock compensation expense of $10,361,000 during the year ended April 3, 2008 compared to the year ended March 29, 2007 due to the accelerated vesting of certain options as a result of entry into a separation and general release agreement with the holder of these options during the year ended March 29, 2007 and forfeitures during the year ended April 3, 2008. As a result of the accelerated vesting during the prior year and forfeitures during the current year, there is less expense related to these options during the current year. Additionally, incentive compensation expense decreased by $3,297,000 related to declines in operating performance compared to the annual target underlying our annual incentive plan. These declines in general and administrative expense were partially offset by a decrease in pension income of $5,974,000 related to an amendment to freeze our Plans as of December 31, 2006 which resulted in the recording of a curtailment gain of $10,983,000 during fiscal 2007.
Depreciation and amortization. Depreciation and amortization decreased 2.8%, or $6,326,000 compared to the prior period. The prior year includes a cumulative adjustment to depreciation expense of approximately $2,200,000 related to adjustments to fair value for the Merger.
Impairment of long-lived assets. During fiscal 2008 we recognized a non-cash impairment loss of $8,933,000 that reduced property, net on 17 theatres with 176 screens (in New York, Maryland, Indiana, Illinois, Nebraska, Oklahoma, California, Arkansas, Pennsylvania, Washington, and the District of Columbia). During fiscal 2007 we recognized a non-cash impairment loss of $10,686,000 on 10 theatres with 117 screens (in New York, Washington, Indiana, Illinois, Michigan, Texas, Pennsylvania and Massachusetts). Of the charge, $1,404,000 was related to intangible assets, net and $9,282,000 was related to property, net. The estimated future cash flows of these theatres, undiscounted and without interest charges, were less than the carrying value of the theatre assets. We continually evaluate the future plans for certain of our theatres, which may include selling theatres or closing theatres and terminating the leases.
Disposition of assets and other gains. Disposition of assets and other gains were $2,408,000 in the current period compared to $11,183,000 in the prior period. The current and prior periods include $2,426,000 and $13,130,000, respectively, of settlements received related to fireproofing litigation recoveries at various theatres. The prior year includes a loss on the dispositions of theatres in the United States as required by and in connection with the Mergers of $1,946,000.
Other income. Other income includes $11,289,000 and $10,992,000 of income related to the derecognition of gift card liabilities where we believe future redemption to be remote, during the year ended April 3, 2008 and March 29, 2007, respectively. During the year ended April 3, 2008, other income includes insurance recoveries related to Hurricane Katrina of $1,246,000 for property losses in excess of property carrying cost and $397,000 for business interruption. During the year ended March 29, 2007, other income includes insurance recoveries related to Hurricane Katrina of $2,469,000 for property losses in excess of property carrying cost and $294,000 for business interruption, partially offset by a loss on redemption of debt as described below of $3,488,000.
Interest expense. Interest expense decreased 28.8%, or $55,816,000, primarily due to decreased borrowings.
AMC received net proceeds upon completion of the NCM initial public offering of $517,122,000. We used the net proceeds from the NCM initial public offering, along with cash on hand, to redeem
our 91/2% senior subordinated notes due 2011 (the "Notes due 2011"), our senior floating rate notes due 2010 (the "Floating Notes due 2010") and 97/8% senior subordinated notes due 2012 (the "Notes due 2012"). On March 19, 2007 we redeemed $212,811,000 aggregate principal amount of our Notes due 2011 at 100% of principal value, on March 23, 2007 we redeemed $205,000,000 aggregate principal amount of our Floating Notes due 2010 at 103% of principal value and on March 23, 2007 we redeemed $175,000,000 aggregate principal amount of our Notes due 2012 at 104.938% of principal value. Our loss on redemption of these notes including call premiums and the write off of unamortized deferred charges and premiums was $3,488,000, which was recorded in Other Income in fiscal 2007.
On January 26, 2006, we issued $325,000,000 of the Notes due 2016 and entered into the Senior Secured Credit Facility for $850,000,000.
Equity in earnings of non-consolidated entities. Equity in earnings of non-consolidated entities were $43,019,000 in the current period compared to earnings of $233,704,000 in the prior period. Equity in earnings related to our investment in HGCSA were $18,743,000 for the year ended April 3, 2008, and include the gain on disposition of HGCSA of $18,751,000. Equity in earnings related to our investment in National CineMedia, LLC were $22,175,000 and $234,213,000 for the years ended April 3, 2008 and March 29, 2007, respectively. We received net proceeds upon completion of the NCM initial public offering of $517,122,000. We recorded deferred revenues of $231,308,000 for the proceeds we received related to modification payments to our Exhibitor Services Agreement with National CineMedia, LLC. We recorded the $285,814,000 of remaining proceeds we received from the NCM IPO for the redemption of our preferred and common units to first reduce our recorded equity method investment to $0 and second to reflect the remaining proceeds as equity in earnings of non-consolidated entities. As a result we recorded a change of interest gain of $132,622,000 and received distributions in excess of our investment in National CineMedia, LLC related to the redemption of preferred and common units of $106,188,000. See Note 5—Investments for the components of equity in earnings related to National CineMedia, LLC.
Investment income. Investment income was $23,782,000 for the year ended April 3, 2008 compared to $17,385,000 for the year ended March 29, 2007. Current year investment income includes a gain on the sale of Fandango of $15,977,000. Interest income decreased $10,154,000 compared to prior year due primarily to less cash and equivalents available for investment.
Income tax provision (benefit). The provision for income taxes from continuing operations was $12,620,000 for the year ended April 3, 2008 and $39,046,000 for the year ended March 29, 2007. See Note 10—Income Taxes.
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, and information presented for all periods reflects the new classification. On May 11, 2006, we sold our operations in Iberia, including 4 theatres with 86 screens in Spain and 1 theatre with 20 screens in Portugal. At the date of the sale these operations did not meet the criteria for discontinued operations because of continuing involvement in the region through an equity method investment in Yelmo. In December 2006, we disposed of our investment in Yelmo, including 27 theatres with 310 screens in Spain, and the results of the operations in Iberia have now been classified as discontinued operations. On June 30, 2005, we sold Japan AMC Theatres, Inc., including 4 theatres in Japan with 63 screens, and classified its operations as discontinued operations. The information presented for all fiscal 2008 and 2007 reflects the new classifications. See Note 2—Discontinued Operations for the components of the loss from discontinued operations.
Net earnings (loss). Net earnings were $43,445,000 and $134,079,000 for the year ended April 3, 2008 and March 29, 2007, respectively.
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.
Cash Flows from Operating Activities
Cash flows provided by operating activities, as reflected in the Consolidated Statements of Cash Flows, were $200,701,000, $220,208,000 and $417,751,000 during the periods ended April 2, 2009, April 3, 2008 and March 29, 2007 respectively. The decrease in operating cash flows during the year ended April 2, 2009 is primarily due to the decrease in net earnings which was partially offset by an increase in non-cash impairment charges. The decrease in operating cash flows during the year ended April 3, 2008 is primarily due to the one-time receipt of payments related to the Exhibitor Service Agreement with National CineMedia, LLC in fiscal 2007. We had working capital surplus (deficit) as of April 2, 2009 and April 3, 2008 of $259,308,000 and ($220,072,000), respectively. Working capital includes $121,628,000 and $134,560,000 of deferred revenue as of April 2, 2009 and April 3, 2008 respectively. We received litigation settlement checks related to fireproofing and other construction related claims totaling $1,911,000, $2,426,000 and $13,130,000 during the years ended April 2, 2009, April 3, 2008 and March 29, 2007, respectively. As of April 2, 2009 we have borrowed the available amount of $185,000,000 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 had approximately $0 and $185,947,000 available on our credit facility to meet these obligations for the periods ended April 2, 2009 and April 3, 2008, respectively.
During the year ended April 2, 2009, we closed 8 theatres with 77 screens in the U.S. and opened 6 new theatres with 83 screens in the U.S., resulting in a circuit total of 307 theatres and 4,612 screens.
Cash Flows from Investing Activities
Cash provided by (used in) investing activities, as reflected in the Consolidated Statement of Cash Flows were $100,925,000, $(139,405,000) and $283,969,000 during the periods ended April 2, 2009, April 3, 2008 and March 29, 2007 respectively. As of April 2, 2009, we had construction in progress of $0. We had no U.S. theatres or screens under construction on April 2, 2009. Cash outflows from investing activities include capital expenditures of $104,704,000 during the year ended April 2, 2009. We expect that our gross capital expenditures in fiscal 2010 will be approximately $100,000,000 to $105,000,000.
Cash flows for the period ended April 2, 2009 include proceeds from the sale of Cinemex of $224,378,000 and proceeds from the sale of Fandango of $2,383,000. Cash flows for the period ended April 3, 2008 include proceeds from the disposal of HGCSA and Fandango of $28,682,000 and $17,977,000, respectively. Cash flows for the period ended March 29, 2007 include proceeds from the NCM distribution of $285,814,000, proceeds from the sale of our theatres in Spain and Portugal of $35,446,000 and proceeds from our disposition of Yelmo and of U.S. theatres as required by and in connection with the mergers of $116,439,000.
On December 29, 2008, we sold all of our interests in Cinemex, which then operated 44 theatres with 493 screens primarily in the Mexico City Metropolitan Area, to Entretenimiento GM de Mexico S.A. de C.V. Under the Stock Purchase Agreement for the transaction, the purchase price was $315,000,000, decreased by the amount of net funded indebtedness of Cinemex and other specified items of $66,859,000. Costs paid related to the disposition were $4,046,000 and the cash balance for Cinemex as of the date of sale was $19,717,000, which was accounted for in the purchase price in the calculation of net funded indebtedness. Additionally, we estimate that we will receive an additional $12,253,000 of the purchase price related to tax payments and refunds in later periods and have received an additional $809,000 of purchase price related to a working capital calculation and post closing adjustments subsequent to April 2, 2009.
In December 2006, we disposed of our investment in Yelmo which owned and operated 27 theatres and 310 screens in Spain as of the date sold for proceeds of $52,137,000.
In May 2006, AMCEI and its subsidiary AMC Entertainment International Limited sold its interests in AMC Entertainment España S.A., which owned and operated 4 theatres with 86 screens in Spain, and Actividades Multi-Cinemas E Espectáculos, LDA, which owned and operated 1 theatre with 20 screens in Portugal for a net sales price of approximately $35,446,000.
During the fifty-two weeks ended March 29, 2007, we sold six theatres with 68 screens, exchanged two theatres with 32 screens, and closed one theatre with six screens in the U.S. as required by and in connection with the approval of the Mergers for an aggregate sales price of $64,302,000.
On February 13, 2007, NCM, Inc. completed its IPO of 42,000,000 shares of common stock at a price of $21.00 per share. Net proceeds from the NCM, Inc. IPO were used to acquire newly issued equity interest from NCM, and NCM distributed the net proceeds to each of AMC, Cinemark Holdings, Inc. ("Cinemark") and Regal on a pro rata basis in connection with modifying payment obligations for access to our theatres pursuant to the Exhibitor Services Agreement. We also sold common units in NCM to NCM, Inc. in connection with the exercise of the underwriters' option to purchase additional shares. In connection with the completion of the NCM, Inc. IPO, NCM entered into a $725,000,000 term loan facility the net proceeds of which were used to redeem preferred units held by each of AMC, Cinemark and Regal on a pro rata basis pursuant to a recapitalization of NCM. AMC received net proceeds upon completion of such transactions of $517,122,000. We recorded $285,814,000 of the proceeds received from the NCM, Inc. IPO to first reduce our recorded equity method investment to $0 and second to reflect the remaining proceeds as equity in earnings of non-consolidated entities. We used the proceeds from these transactions, together with cash on hand, to redeem our 91/2% senior subordinated notes due 2011, our senior floating rate notes due 2010 and our 97/8% senior subordinated notes due 2012.
In connection with the completion of the NCM, Inc. IPO, AMC amended and restated its existing services agreement with NCM whereby in exchange for our pro rata share of the NCM, Inc. IPO proceeds, AMC agreed to a modification of NCM's payment obligation under the existing agreement. The modification extended the term of the agreement to 30 years, provided NCM with a five year right of first refusal beginning one year prior to the end of the term and changed the basis upon which AMC is paid by NCM from a percentage of revenues associated with advertising contracts entered into by NCM to a monthly theatre access fee. The theatre access fee would be composed of a fixed payment per patron and a fixed payment per digital screen, which would increase by 8% every five years starting at the end of fiscal 2011 for payments per patron and by 5% annually starting at the end of fiscal 2007 for payments per digital screen. Additionally, AMC entered into the Loews Screen Integration Agreement with NCM pursuant to which AMC will pay NCM an amount that approximates the EBITDA that NCM would generate if it were able to sell advertising in the Loews theatre chain on an exclusive basis commencing upon the completion of the NCM, Inc. IPO, and NCM issued to AMC common membership units in NCM increasing its ownership interest to approximately 33.7%; such
Loews payments were made quarterly and were $15,981,000 through the end of the agreement of which $15,901,000 has been paid through fiscal 2009. Also, with respect to any on-screen advertising time provided to our beverage concessionaire, AMC would be required to purchase such time from NCM at a negotiated rate. In addition, after completion of the NCM, Inc. IPO, AMC expects to receive mandatory quarterly distributions of excess cash from NCM.
We currently own 18,821,114 units or an 18.53% interest in NCM accounted for using the equity method of accounting. As of April 2, 2009 the fair market value of the shares in National CineMedia LLC was approximately $262,743,000 based on a price for shares of National CineMedia, Inc. on April 2, 2009 of $13.96 per share. Because we have little tax basis in these units and because the sale of all these units would require us to report taxable income of $361,759,000 for distributions received from NCM that were previously tax deferred, we expect that any sales of these units would be made ratably over a period of time to most efficiently manage any related tax liability. We have available net operating loss carryforwards which could reduce any related tax liability.
In March 2007, the board of directors of Fandango, Inc. ("Fandango"), an online movie ticketing company in which we owned approximately 8.4% of the outstanding common stock on an as converted basis as of March 29, 2007, approved an Agreement and Plan of Merger (the "Fandango Merger Agreement"), which was adopted and approved by its stockholders. Pursuant to the Fandango Merger Agreement, we and the other existing stockholders sold our interests in Fandango to Comcast Corporation. The transaction closed in the first quarter of fiscal 2008. In connection with the transaction, we received an equity earn up which raised our interest in Fandango to approximately 10.4% of the outstanding common stock on an as converted basis immediately prior to the sale of our shares. Pursuant to the terms of the Fandango Merger Agreement and subject to certain closing adjustments, we have received approximately $20,360,000 in cash consideration in connection with the sale of our interest in Fandango of which $17,977,000 was received during fiscal 2008 and $2,383,000 was received during fiscal 2009.
We fund the costs of constructing, maintaining and remodeling new theatres through existing cash balances, cash generated from operations or borrowed funds, as necessary. We generally lease our theatres pursuant to long-term non-cancelable operating leases which may require the developer, who owns the property, to reimburse us for 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.
We believe that cash generated from operations and existing cash and equivalents will be sufficient to fund operations and planned capital expenditures and acquisitions currently and 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"), the Notes due 2019 and the notes. We are considering various options with respect to the utilization of cash and equivalents on hand in excess of our anticipated operating needs. Such options might include, but are not limited to, acquisitions of theatres or theatre companies, repayment of our corporate borrowings and payment of dividends.
Cash Flows from Operating Activities
Cash flows provided by operating activities, as reflected in the Consolidated Statements of Cash Flows, were $25.0 million and $76.5 million during the twenty-six weeks ended September 30, 2010 and October 1, 2009, respectively. The decrease in cash flows provided by operating activities for the twenty-six weeks ended September 30, 2010 was primarily due to an increase in payments on accounts payables and accrued expenses and other liabilities, including payments of amounts acquired in the Kerasotes acquisition as well as payments made for merger, acquisition and transaction costs in connection with the Kerasotes acquisition. Cash flows during the twenty-six weeks ended October 1, 2009 include consent fee payments of $7.4 million related to the redemption of our 85/8% Senior Notes due 2012, which reduced our cash flows from operating activities. We had working capital surplus as of September 30, 2010 and April 1, 2010 of $33.7 million and $143.2 million, respectively. Working capital includes $111.1 million and $125.8 million of deferred revenues as of September 30, 2010 and April 1, 2010, respectively. We have the ability to borrow against our senior secured 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 $187.3 million on our senior secured credit facility to meet these obligations as of September 30, 2010.
Cash flows provided by operating activities, as reflected in the Consolidated Statements of Cash Flows, were $258.0 million, $200.7 million and $220.2 million during the years ended April 1, 2010, April 2, 2009 and April 3, 2008 respectively. The increase in operating cash flows during the year ended April 1, 2010 is primarily due to an increase in accrued expenses and other liabilities as a result of increases in accrued interest and annual incentive compensation and the increase in attendance. The decrease in operating cash flows during the year ended April 2, 2009 is primarily due to the decrease in net earnings, which was partially offset by an increase in non-cash impairment charges. We had working capital surplus as of April 1, 2010 and April 2, 2009 of $143.2 million and $259.3 million, respectively. Working capital includes $125.8 million and $121.6 million of deferred revenue as of April 1, 2010 and April 2, 2009, respectively.
Cash Flows from Investing Activities
Cash flows used in investing activities, as reflected in the Consolidated Statements of Cash Flows, were $169.2 million and $32.5 million, during the twenty-six weeks ended September 30, 2010 and October 1, 2009, respectively. Cash outflows from investing activities include capital expenditures of $46.7 million and $29.8 million during the twenty-six weeks ended September 30, 2010 and October 1, 2009, respectively. We expect that our gross capital expenditures cash outflows will be approximately $130.0 million to $160.0 million for fiscal 2011.
During the twenty-six weeks ended September 30, 2010, we paid $280.6 million for the purchase of Kerasotes theatres at closing, net of cash acquired. The purchase included working capital and other purchase price adjustments as described in the unit purchase agreement.
During the twenty-six weeks ended September 30, 2010, we received net proceeds of $102,224,000 from the sale of 6,655,193 shares of common stock of NCM, Inc. for $16.00 per share and reduced our related investment in NCM by $37.6 million, the average carrying amount of the shares sold.
We received $55.0 million in cash proceeds from the sale of certain theatres required to be divested in connection with the Kerasotes acquisition during the twenty-six weeks ended September 30, 2010 and received $991,000 for the sale of real estate acquired from Kerasotes.
Cash provided by (used in) investing activities, as reflected in the Consolidated Statement of Cash Flows were $(96.3) million, $100.9 million and $(139.4) million during the years ended April 1, 2010, April 2, 2009 and April 3, 2008, respectively. On March 26, 2010, we acquired 117 digital projection systems from third party lessors for $6.8 million and sold these systems together with seven digital
projectors that we owned to DCIP for cash proceeds of $6.6 million on the same day. Cash outflows from investing activities include capital expenditures of $97.0 million during the year ended April 1, 2010.
Cash flows for the year ended April 2, 2009 include proceeds from the sale of Cinemex of $224.4 million and proceeds from the sale of Fandango of $2.4 million. We have received an additional $4.3 million in purchase price adjustments from Cinemex in respect of tax payments and refunds and a working capital calculation and post closing adjustments during the year ended April 1, 2010. Cash flows for the year ended April 3, 2008 include proceeds from the disposal of HGCSA and Fandango of $28.7 million and $18.0 million, respectively.
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 from Financing Activities
Cash flows used in financing activities, as reflected in the Consolidated Statement of Cash Flows, were $24.1 million and $186.2 million during the twenty-six weeks ended September 30, 2010 and October 1, 2009, respectively. Cash flows provided by (used in) financing activities, as reflected in the Consolidated Statement of Cash Flows, were $129,203,000, $(289,388,000)$(199.1) million, $129.2 million and $(611,131,000)$(289.4) million during the periodsyears ended April 1, 2010, April 2, 2009 and April 3, 2008, respectively.
During the twenty-six weeks ended September 30, 2010 and March 29, 2007, respectively.October 2, 2009, we made dividend payments of $15.2 million and $315.4 million to our stockholder, Marquee, and Marquee made dividend payments to its stockholder, Parent, totaling $669,000 and $300.7 million, respectively, which was treated as a reduction of additional paid-in capital.
Proceeds from the issuance of the 8.75% Senior Notes due 2019 were $585.5 million and deferred financing costs paid related to the issuance of the 8.75% Senior Notes due 2019 were $15.9 million during the twenty-six weeks ended October 1, 2009.
During the twenty-six weeks ended October 1, 2009, we made principal payments of $250.0 million in connection with the redemption of our 85/8% Senior Notes due 2012 and repaid $185.0 million of borrowings under our revolving credit facility.
During fiscal 2010, we used cash on hand to pay two dividend distributions to our stockholder, Holdings in an aggregate amount of $330.0 million, and Holdings made two dividend payments to its stockholder, Parent, totaling $300.9 million, which were treated as reductions of additional paid-in capital. Holdings used the available funds to make cash interest payments on its 12% Senior Discount Notes due 2014, to pay corporate overhead expenses incurred in the ordinary course of business and to pay a dividend to Parent. Parent made payments to purchase term loans and reduced the principal balance of its parent term loan facility from $466.9 million to $193.3 million with a portion of the dividend proceeds. During fiscal 2009, we paid two cash dividends totaling $35,989,000$36.0 million to our stockholder Marquee Holdings Inc. and borrowed $185,000,000$185.0 million under our senior secured credit facility. During fiscal 2008, we made principal payments of $26,295,000$26.3 million on our corporate borrowings, capital and financing lease obligation, and mortgage obligations. We also paid two cash dividends to our stockholder Marquee Holdings Inc. totaling $293,551,000. During fiscal 2007, we made principal payments$293.6 million.
Concurrently with the closing of $592,811,000the merger of Loews with AMCE, AMCE entered into a senior secured credit facility, which is with a syndicate of banks and other financial institutions and provides financing of up to redeem our debt. We used the net proceeds included$850.0 million, consisting of a $650.0 million term loan facility with a maturity date of January 26, 2013 and a $200.0 million revolving credit facility that matures in investing activities from the NCM, Inc. IPO of $517,122,000, along with cash on hand, to redeem our 91/2% senior subordinated notes due 2011 (the "Notes due 2011"), our senior floating rate notes due 2010 (the "Floating Notes due 2010") and our 97/8% senior subordinated notes due 2012 (the "Notes due 2012"). On March 19, 2007 we redeemed $212,811,000 aggregate principal amount of our Notes due 2011 at 100% of principal value, on March 23, 2007 we redeemed $205,000,000 aggregate principal amount of our Floating Notes due 2010 at 103% of principal value and on March 23, 2007 we redeemed $175,000,000 aggregate principal amount of our Notes due 2012 at 104.938% of principal2012. The revolving
value. Our losscredit facility includes borrowing capacity for available letters of credit and for swingline borrowings on redemption of these notes including call premiumssame-day notice.
Borrowings under our senior secured credit facility bear interest at a rate equal to an applicable margin plus, at our option, either a base rate or LIBOR. The current applicable margin for borrowings under the revolving credit facility is 0.75% with respect to base rate borrowings and 1.75% with respect to LIBOR borrowings, and the write off of unamortized deferred charges and premiums was $3,488,000.
Concurrently withcurrent applicable margin for borrowings under the closing of the Mergers, we entered into the following financing transactions: (1) our Senior Secured Credit Facility, consisting of a $650,000,000 term loan facility is 0.75% with respect to base rate borrowings and 1.75% with respect to LIBOR borrowings. The applicable margin for such borrowings may be reduced, subject to attaining certain leverage ratios. In addition to paying interest on outstanding principal under the senior secured credit facility, we are required to pay a $200,000,000commitment fee to the lenders under the revolving credit facility; (2)facility in respect of the issuance byunutilized commitments thereunder at a rate equal to 0.25%. We also pay customary letter of credit fees. We may voluntarily repay outstanding loans under the senior secured credit facility at any time without premium or penalty, other than customary "breakage" costs with respect to LIBOR loans. We are required to repay $1.6 million of the term loan quarterly, beginning March 30, 2006 through September 30, 2012, with any remaining balance due on January 26, 2013.
On February 24, 2004, AMCE of $325,000,000 insold $300 million aggregate principal amount of the Notes due 2016; (3) the termination of AMC Entertainment's existing senior secured credit facility, under which no amounts were outstanding, and the repayment of all outstanding amounts under Loews' existing senior secured credit facility and the termination of all commitments thereunder; and (4) the completion of the tender offer and consent solicitation for all $315,000,000 on aggregate principal amount of Loews' 9.0% senior subordinated notes due 2014.
As a result of the merger with Marquee, AMC Entertainment became the obligor of $250,000,000 in aggregate principal amount of the 85/8% Senior Fixed Rate Notes due 2012 (the "Fixed Notes due 2012") and $205,000,000 in aggregate principal amount of Floating Notes due 2010 that were previously issued by Marquee on August 18, 2004. AMCE redeemed the Floating Notes due 2010 on March 23, 2007 with proceeds from the NCM transactions and cash on hand.
In connection with the Marquee Transactions, Holdings issued $304,000,000 principal amount at maturity of its Discount Notes for gross proceeds of $169,917,760. The only operations of Holdings prior to the merger with Marquee were related to this financing.
Concurrently with the consummation of the merger with Marquee, AMC Entertainment entered into an amendment to its credit facility. We refer to this amended credit facility as the "amended credit facility." The amended credit facility modified a previous Second Amended and Restated Credit Agreement dated as of March 26, 2004, which was superseded in connection with the execution of the "amended credit facility," which was scheduled to mature on April 9, 2009. The amended credit facility was replaced with the Senior Secured Credit Facility on January 26, 2006.
On February 24, 2004, AMC Entertainment sold $300,000,000 aggregate principal amount of 8% Senior Subordinated Notes due 2014 (the "Notes due 2014"). We used the net proceeds (approximately $294,000,000) to redeem our Notes due 2009 and a portion of our Notes due 2011. The Notes due 2014 bear interest at the rate of 8% per annum, payable in March and September. The Notes due 2014 are redeemable at our option, in whole or in part, at any time on or after March 1, 2009 at 104.000% of the principal amount thereof, declining ratably to 100% of the principal amount thereof on or after March 1, 2012, plus in each case interest accrued to the redemption date. The Notes due 2014 are unsecured and are subordinated to all of AMC Entertainment's existing and future senior indebtedness (as defined in the indenture governing the Notes due 2014). The Notes due 2014 rank equally with AMC Entertainment's Notes due 2016.
On January 26, 2006, AMC EntertainmentAMCE sold $325,000,000$325.0 million aggregate principal amount of the Notes due 2016. Net proceeds from the issuance of the Notes due 2016 were used to fund a portion of the Merger Transactions and to pay related fees and expenses.Senior Subordinated Notes. The 2016 Senior Subordinated Notes due 2016 bear interest at the rate of 11% per annum, payable February 1 and August 1 of each year. The 2016 Senior Subordinated Notes due 2016 are redeemable at our option, in whole or in part, at any time on or after February 1, 2011 at 105.5% of the principal amount thereof, declining ratably to 100% of the principal amount thereof on or after February 1, 2014, plus in each case interest accrued to the redemption date. The
On June 9, 2009, AMCE issued $600.0 million aggregate principal amount of Notes due 2016 are unsecured2019. Proceeds from the issuance of the notes were $585.5 million and are subordinatedwere used to all of AMC Entertainment's existing and future senior indebtedness (as defined inredeem the indenture governing the Notes due 2016). The Notes due 2016 rank equally with its Notes due 2014.
The indentures relating to our notes allow us to incur all permitted indebtedness (as defined therein) without restriction, which includes all amounts borrowed under our credit facility. The indentures also allow us to incur anythen outstanding $250.0 million aggregate principal amount of additional debt as long as we can satisfy the coverage
ratio of each indenture, after giving effect to the event on a pro forma basis (under the indentures for the Fixed Notes due 2012,2012. Deferred financing costs paid related to the issuance of the notes were $16.3 million. The Notes due 20142019 bear interest at the rate of 8.75% per annum, payable in June and December of each year. The Notes due 2016). Under the indentures and the Parent Term Loan Facility, we could borrow approximately $1,399,000,000 (assuming an interest rate of 9.5% per annum2019 are redeemable at our option, in whole or in part, at any time on the additional indebtedness) in addition to specified permitted indebtedness. If we cannot satisfy the coverage ratios of the indentures, generally we can incur, in addition to amounts borrowed under the credit facility, no more than $100,000,000 of new "permitted indebtedness" under the terms of the indentures relating to the Notes dueor after June 1, 2014 and Notes due 2016.
The indentures relating to the above described notes also contain covenants limiting dividends, purchases or redemptions of stock, transactions with affiliates, and mergers and sales of assets, and require us to make an offer to purchase the notes upon the occurrence of a change in control, as defined in the indentures. Upon a change of control (as defined in the indentures), we would be required to make an offer to repurchase all of the outstanding notes at a price equal to 101%104.375% of the principal amount thereof, declining ratably to 100% of the principal amount thereof on or after June 1, 2017, plus interest accrued and unpaid interest to the date of repurchase.redemption date.
As of April 2, 2009,September 30, 2010, we were in compliance with all financial covenants relating to the Senior Secured Credit Facility, the Notes due 2016,our senior secured credit facility, the Notes due 2014, the 2016 Senior Subordinated Notes, the Notes due 2019 and the Fixed Notes due 2012.notes.
Senior Secured Credit Facility
The Senior Secured Credit Facility is with a syndicate of banks and other financial institutions and provides AMC Entertainment financing of up to $850,000,000, consisting of a $650,000,000 term loan facility with a maturity of seven years and a $200,000,000 revolving credit facility with a maturity of six years. The revolving credit facility will include borrowing capacity available for letters of credit and for swingline borrowings on same-day notice. AMC Entertainment's ability to borrow against the revolving credit facility is limited to $0 as of April 2, 2009 due to $14,169,000 of outstanding letters of credit and additional borrowings in fiscal 2009 which reduce the capacity of the revolving credit facility. The interest rate as of April 2, 2009 on the outstanding term loans and revolving credit facility borrowings was 2.021% and 2.046% per annum, respectively.
Borrowings under the Senior Secured Credit Facility bear interest at a rate equal to an applicable margin plus, at our option, either a base rate or LIBOR. On March 13, 2007, the Company amended the Senior Secured Credit Facility to, among other things, lower the interest rates related to its term loan, reduce its unused commitment fee and amend the change of control definition so that an initial public offering and related transactions would not constitute a change of control. The current applicable margin for borrowings under the revolving credit facility is 0.50% with respect to base rate borrowings and 1.50% with respect to LIBOR borrowings, and the current applicable margin for borrowings under the term loan facility is 0.50% with respect to base rate borrowings and 1.50% with respect to LIBOR borrowings. In addition to paying interest on outstanding principal under the Senior Secured Credit Facility, AMC Entertainment is required to pay a commitment fee to the lenders under the revolving credit facility in respect of the unutilized commitments thereunder at a rate equal to 0.25%. It will also pay customary letter of credit fees. AMC Entertainment may voluntarily repay outstanding loans under the Senior Secured Credit Facility at any time without premium or penalty, other than customary "breakage" costs with respect to LIBOR loans. AMC Entertainment is required to repay $1,625,000 of the term loan quarterly, beginning March 30, 2006 through September 30, 2012, with any remaining balance due on January 26, 2013.
All obligations under the Senior Secured Credit Facility are guaranteed by each of AMC Entertainment's wholly-owned domestic subsidiaries. All obligations under the Senior Secured Credit Facility, and the guarantees of those obligations (as well as cash management obligations and any interest hedging or other swap agreements), are secured by substantially all of AMC Entertainment's assets as well as those of each subsidiary guarantor.
The Senior Secured Credit Facility contains a number of covenants that, among other things, restrict, subject to certain exceptions, AMC Entertainment's ability, and the ability of its subsidiaries, to sell assets; incur additional indebtedness; prepay other indebtedness (including the notes); pay dividends and distributions or repurchase their capital stock; create liens on assets; make investments; make certain acquisitions; engage in mergers or consolidations; engage in certain transactions with affiliates; amend certain charter documents and material agreements governing subordinated indebtedness, including the Existing Subordinated Notes; change the business conducted by it and its subsidiaries; and enter into agreements that restrict dividends from subsidiaries.
In addition, the Senior Secured Credit Facility requires, commencing with the fiscal quarter ended September 28, 2006, that AMC Entertainment and its subsidiaries maintain a maximum net senior secured leverage ratio as long as the commitments under the revolving credit facility remain outstanding. The Senior Secured Credit Facility also contains certain customary affirmative covenants and events of default.
As a result of the completion on February 13, 2007 of the NCM, Inc. IPO, we received proceeds of $517,122,000. Such proceeds along with approximately $100,000,000 of cash on hand were used for the redemption of our Notes due 2011, Notes due 2012 and our Floating Notes due 2010. The redemption of the subordinated notes would constitute restricted payments under our Senior Secured Credit Facility. Because our current restricted payment basket amount, after giving pro forma effect for an increase resulting from the NCM transaction, would be insufficient to accommodate this debt repayment, we amended the Senior Secured Credit Facility on February 14, 2007 to allow for up to $600,000,000 in subordinated debt repayments to be carved out of the restricted payments basket. This carve out was available for redemptions/repayments through April 30, 2007.
Holdings Discount Notes due 2014
On June 12, 2007, Holdings announced that it had completed a solicitation of consents from holders of its 12% Senior Discount Notes due 2014 (the "Discount Notes due 2014"), and that it had received consents for $301,933,000 in aggregate principal amount at maturity of the Discount Notes due 2014, representing 99.32% of the outstanding Discount Notes due 2014. In connection with the receipt of consents, Holdings paid an aggregate consent fee of approximately $4,360,000, representing a consent fee of $14.44 for each $1,000 in principal amount at maturity of Discount Notes due 2014 to which consents were delivered. Accordingly, the requisite consents to adopt the proposed amendment (the "Amendment") to the indenture pursuant to which the Discount Notes due 2014 were issued were received, and a supplemental indenture to effect the Amendment was executed by Holdings and the trustee under the indenture. The Amendment revised the restricted payments covenant to permit Holdings to make restricted payments in an aggregate amount of $275,000,000 prior to making an election to pay cash interest on its senior discount notes. The Amendment also contained a covenant by Holdings to make an election on August 15, 2007, the next semi-annual accretion date under the indenture, to pay cash interest on the Discount Notes due 2014. As a result, Holdings made its first cash interest payment in the amount of $14,447,700 on the Discount Notes due 2014 on February 15, 2008. During fiscal 2008 Holdings used cash on hand at AMCE to pay a dividend to Holdings' current stockholders in an aggregate amount of $275,000,000 and Holdings used cash on hand at AMCE of $18,551,000 from a $21,830,000 dividend paid by AMCE to make the interest payment on the Discount Notes due 2014 and to pay other professional and consulting expenses. During fiscal 2009 Holdings made cash interest payments of $28,895,400 on the Discount Notes due 2014 from two dividend payments of $35,989,000 in the aggregated paid by AMCE to cover interest payments on the Discount Notes due 2014, repurchase treasury stock, make payments related to liability classified options and pay corporate overhead expenses in the ordinary course of business. The outstanding principal balance on the Discount Notes due 2014 was $240,795,000 as of April 2, 2009. Holdings is a holding company with no operations of its own and has no ability to service interest or principal on the Discount Notes due
2014 other than through dividends it may receive from AMCE. AMCE's Senior Secured Credit Facility and note indentures contain provisions which limit the amount of loans and dividends which AMCE could make to Holdings. Under the most restrictive of these provisions, set forth in the note Indenture for the Fixed Notes due 2012, the amount of loans and dividends which AMCE could make to Holdings may not exceed approximately $523,000,000 in the aggregate as of April 2, 2009.
Parent Term Loan Facility
To help finance the dividend paid by Parent to its stockholders discussed in Note 9 to our consolidated financial statements included elsewhere in this prospectus, our Parent entered into the Parent Term Loan Facility for net proceeds of $396,000,000. The interest rate on borrowings under the Parent Term Loan Facility was 6.32% per annum as of April 2, 2009. The principal balance of the Parent Term Loan Facility was $466,936,000 as of April 2, 2009. Interest on borrowings under the Parent Term Loan Facility is payable on each March 15, June 15, September 15, and December 15, beginning September 15, 2007 by adding such interest for the applicable period to the principal amount of the outstanding loans. Unpaid principal of $400,000,000 and interest on outstanding loans under the Parent Term Loan Facility are required to be repaid upon maturity on June 13, 2012. The Parent Term Loan Facility is neither guaranteed by, nor secured by the assets of, AMCE or our subsidiaries.
The Parent Term Loan Facility contains certain covenants that, among other things, may limit the ability of the Parent to incur additional indebtedness and pay dividends or make distributions in respect of its capital stock.
Subsequent Events
During April and May of 2009, AMCE made dividend payments to its stockholder Marquee Holdings Inc. and Marquee Holdings Inc. made dividend payments to its stockholder AMC Entertainment Holdings, Inc. totaling $300,000,000. AMC Entertainment Holdings, Inc. made payments to purchase term loans and reduced the principal balance of the Parent Term Loan Facility to $226,261,000 with a portion of the dividend proceeds.
On June 9, 2009, we issued $600,000,000 aggregate principal amount of the original notes pursuant to an indenture, dated as of June 9, 2009, among the Issuer, the guarantors named therein and U.S. Bank National Association, as trustee (the "Indenture"). The Indenture provides that the notes are general unsecured senior obligations of the Company and are fully and unconditionally guaranteed on a joint and several senior unsecured basis by all of the Company's existing and future domestic restricted subsidiaries that guarantee the Company's other indebtedness.
Concurrently with the initial notes offering, we launched a cash tender offer and consent solicitation for any and all of our currently outstanding 85/8% senior notes due 2012 (the "Existing AMCE Senior Notes") at a purchase price of $1,000 plus a $30 consent fee for each $1,000 of principal amount of currently outstanding 85/8% senior notes due 2012 validly tendered and accepted by us on or before the early tender date (the "Cash Tender Offer").
We used the net proceeds from the issuance of the original notes to pay the consideration for the Cash Tender Offer plus any accrued and unpaid interest of the $238,065,000 principal amount of Existing AMCE Senior Notes tendered. We will use the remaining amount of net proceeds for other general corporate purposes, which may in the future include retiring any outstanding Existing AMCE Senior Notes not purchased in the Cash Tender Offer and portions of our other existing indebtedness and indebtedness of our parent companies through open market purchases or by other means. We intend to redeem any of our Existing AMCE Senior Notes that remain outstanding after the closing of the Cash Tender Offer at a price of $1,021.56 per $1,000 principal amount of Existing AMCE Senior Notes as promptly as practicable after August 15, 2009 in accordance with the terms of the indenture governing the Existing AMCE Senior Notes.
Commitments and ContingenciesContractual Obligations
Minimum annual cash payments required under existing capital and financing lease obligations, maturities of corporate borrowings, future minimum rental payments under existing operating leases, FF&Efurniture, 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 as of April 2, 20091, 2010 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 | Capital Related Betterments(3) | Pension Funding(4) | Total Commitments | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 | $ | 9,075 | $ | 6,500 | $ | 97,807 | $ | 393,452 | $ | 19,645 | $ | 6,396 | $ | 532,875 | ||||||||
2011 | 9,225 | 6,500 | 97,676 | 393,321 | 12,754 | 1,937 | 521,413 | |||||||||||||||
2012 | 8,023 | 191,500 | 96,914 | 379,991 | — | 437 | 676,865 | |||||||||||||||
2013 | 7,055 | 859,375 | 78,099 | 367,166 | — | — | 1,311,695 | |||||||||||||||
2014 | 6,706 | 300,000 | 57,750 | 345,761 | — | — | 710,217 | |||||||||||||||
Thereafter | 68,628 | 325,000 | 65,542 | 2,298,514 | — | — | 2,757,684 | |||||||||||||||
Total | $ | 108,712 | $ | 1,688,875 | $ | 493,788 | $ | 4,178,205 | $ | 32,399 | $ | 8,770 | $ | 6,510,749 | ||||||||
(In thousands) | Minimum Capital and Financing Lease Payments | Principal Amount of Corporate Borrowings(1)(2) | Interest Payments on Corporate Borrowings(2)(3) | Minimum Operating Lease Payments | Acquisitions and Capital Related Betterments(4) | Pension Funding(5) | Total Commitments | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2011 | $ | 10,096 | $ | 6,500 | $ | 124,625 | $ | 436,448 | $ | 18,234 | $ | 5,753 | $ | 601,656 | ||||||||
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 | $ | 6,729 | $ | 7,419,870 | ||||||||
As discussed in Note 10—Income Taxes, the Company adopted FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes—We have recognized an interpretation of FASB No. 109." At April 2, 2009, the Company had a liabilityobligation for unrecognized benefits for $28,300,000.of $29.2 million and $28.5 million as of September 30, 2010 and April 1, 2010, respectively. There are currently unrecognized tax benefits which we anticipate will be resolved in the next 12 months; however, we are unable at this time to estimate what the impact on our unrecognizedeffective tax benefitsrate will be. Any amounts related to these items are not included in the tabletables above.
Fee Agreement
In connection with the holdco merger, on June 11, 2007, Parent, Holdings, AMCE and the Sponsors entered into a Fee Agreement (the "Management Fee Agreement"), which replaced the December 23, 2004 fee agreement among Holdings, AMCE and Holding's sponsors, J.P. Morgan Partners (BHCA) L.P. and certain other affiliated funds managed by J.P. Morgan Partners, LLC (collectively, "JPMP") and Apollo Investment Fund V, L.P. and certain related investment funds (collectively, "Apollo" and together with JPMP, the "Marquee Sponsors"),Sponsors, as amended and restated on January 26, 2006 entered into in connection with the merger with LCE Holdings (the "original fee agreement"). The Management Fee Agreement provides for an annual management fee of $5,000,000,$5.0 million, payable quarterly and in advance to each Sponsor,our Sponsors, on a pro rata basis, until the twelfth anniversary from December 23, 2004, as well as reimbursements for each Sponsor's respective out-of-pocket expenses in connection with the management services provided under the Management Fee Agreement.
In addition, the Management Fee Agreement provides for reimbursements by AMCE to the Sponsors for their out-of-pocket expenses, and by AMCE to Parent of up to $3,500,000$3.5 million for fees payable by Parent in any single fiscal year in order to maintain Parents'Parent's and AMCE's corporate existence, corporate overhead expenses and salaries or other compensation of certain employees.
Upon the consummation of a change in control transaction or an IPO, the Sponsors will receive, in lieu of quarterly payments of the annual management fee, an automatic 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 April 2, 2009,September 30, 2010, we estimate this amount would be $34,097,000$27.2 million should a change in control transaction or an IPO occur. We expect to record any lump sum payment to the Sponsors as a dividend.
The Management Fee Agreement also provides that AMCE 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.
Investment in NCM LLC
As discussed in Cash Flows From Investing Activities, weWe hold an investment in 18.53%17.02% of NCM LLC accounted for following the equity method.method as of September 30, 2010. The fair market value of these shares is approximately $262,743,000$336.6 million as of April 2, 2009.September 30, 2010. Because we have little tax basis in these units, and because the sale of all these units at September 30, 2010 would require us to report taxable income of $361,759,000approximately $470.0 million, including distributions received from NCM LLC that were previously deferred,deferred. Our investment in NCM LLC is a source of liquidity for us and we expect that any sales we may make of theseNCM LLC units would be made ratably overin such a period of timemanner to most efficiently manage any related tax liability. We have available net operating loss carryforwardscarry-forwards which could reduce any related tax liability.
Conclusion
We believe that cash generated from operations and existing cash and equivalents will be sufficient to fund operations and planned capital expenditures currently and for at least the next 12 months and enable us to maintain compliance with covenants related to the Senior Secured Credit Facility and the notes. We are considering various options with respect to the utilization of cash and equivalents on hand in excess of our anticipated operating needs or from the proceeds of new debt issues by AMCE or Holdings. Such options might include, but are not limited to, acquisitions of theatres or theatre companies, repayment of corporate borrowings of AMCE, Holdings and Parent and payment of dividends.
Impact of Inflation
Historically, the principal impact of inflation and changing prices upon us has been to increase the costs of the construction of new theatres, the purchase of theatre equipment, rent and the utility and labor costs incurred in connection with continuing theatre operations. Film exhibition costs, our largest cost of operations, are customarily paid as a percentage of admissions revenues and hence, while the film exhibition costs may increase on an absolute basis, the percentage of admissions revenues represented by such expense is not directly affected by inflation. Except as set forth above, inflation and changing prices have not had a significant impact on our total revenues and results of operations.
Covenant Compliance
Our senior secured credit facility requires us to maintain a net senior secured leverage ratio of no more than 3.25 to 1.0, calculated on a pro forma basis for the trailing four quarters (as determined under our senior secured credit facility) as long as the commitments under our revolving credit facility remain outstanding. Failure to comply with this covenant would result in an event of default under our
senior secured credit facility unless waived by our revolving credit lenders, and in any event would likely limit our ability to borrow funds pursuant to our revolving credit facility. An event of default under our senior credit facility can result in the acceleration of our indebtedness under the facility, which in turn would result in an event of default and possible acceleration of indebtedness under the Parent Term Loan Facility and our debt securities as well. In addition, our senior secured credit facility restricts our ability to take certain actions such as incurring additional debt or making certain acquisitions if we are unable to comply with our net senior secured leverage ratio covenant or, in the case of additional debt, maintain an Adjusted EBITDA to consolidated interest expense ratio of at least 2.0 to 1.0 and a senior leverage ratio of no more than 3.25 to 1.0 after giving pro forma effect (as determined under our senior secured credit facility) to the debt incurrence or acquisition, as the case may be. Failure to comply with these covenants would result in limiting our long-term growth prospects by hindering our ability to incur future indebtedness or grow through acquisitions. As our failure to comply with the covenants described above can, at best, limit our ability to incur debt or grow our company, and at worst, cause us to go into default under the agreements governing our indebtedness, management believes that our senior secured credit facility and these covenants are material to the Company. As of April 2, 2009, we were in compliance with the covenants described above.
Pro forma Adjusted EBITDA is defined in our senior secured credit facility as loss from continuing operations, as adjusted for the items summarized in the table below. Consolidated interest expense is defined in our senior secured credit facility as interest expense excluding, among other things, the amortization of fees and expenses associated with certain investment and financing transactions and certain payments made in respect of operating leases, as described in the definition of consolidated interest expense, less interest income for the applicable period.
Adjusted EBITDA is not a measurement of our financial performance or liquidity under U.S. GAAP and should not be considered as an alternative to loss from continuing operations, operating income or any other performance measures derived in accordance with U.S. GAAP. Consolidated interest expense as defined in our senior secured credit facility should not be considered an alternative to U.S. GAAP interest expense. Adjusted EBITDA also includes estimated annual cost savings initiatives that we expect to achieve in the ordinary course of business as a result of actions we have taken or anticipate taking in the near future. The adjustments set forth below reflecting estimated cost savings and operating synergies do not qualify as pro forma adjustments under Regulation S-X promulgated under the Securities Act and constitute forward-looking statements within the Private Securities Litigation Reform Act of 1995, as amended. Actual results may differ materially from those reflected due to a number of factors, including without limitation, (i) an inability to reduce advertising
without negatively impacting operations, (ii) an inability to successfully modify lease terms with landlords and (iii) an inability to consolidate vendors or enter into more favorable contracts.
| 52 Weeks Ended April 2, 2009 | | |||
---|---|---|---|---|---|
| (thousands of dollars, except ratios) | | |||
Calculation of Adjusted EBITDA: | |||||
Loss from continuing operation | $ | (90,900 | ) | ||
Income tax provision | 5,800 | ||||
Investment income | (1,696 | ) | |||
Equity in (earnings) of non-consolidated entities | (24,823 | ) | |||
Interest expense | 121,747 | ||||
Disposition of assets and other (gains) | (1,642 | ) | |||
Depreciation and amortization | 201,413 | ||||
Impairment charge | 73,547 | ||||
Theatre and other closure (income) | (2,262 | ) | |||
Pre-opening expense | 5,421 | ||||
Stock-based compensation expense | 2,622 | ||||
Management fees | 5,000 | ||||
Merger and acquisition costs | 650 | ||||
Subtotal | $ | 294,877 | |||
Additional credit facility adjustments: | |||||
Gain on sale of investments and income from equity investments | 218,077 | ||||
Non-cash items, deferred rent and other | 4,450 | ||||
Cost savings initiatives(1) | 18,000 | ||||
| | Required | |||
---|---|---|---|---|---|
Adjusted EBITDA(2) | $ | 535,404 | |||
Net senior secured indebtedness(3) | $ | 185,140 | |||
Net senior secured leverage ratio(4) | .35 to 1.00 | 3.25 to 1.00 Maximum | |||
Senior indebtedness(5) | $ | 1,093,166 | |||
Senior leverage ratio(6) | 2.04 to 1.00 | 3.25 to 1.00 Maximum | |||
Consolidated interest expense(7) | $ | 120,357 | |||
Annualized EBITDA Ratio(8) | 4.45 to 1.00 | 2.00 to 1.00 Minimum |
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:
New Accounting Pronouncements
In April 2009, See note 1 to the FASB issued FSP No. FAS 157-4,Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly ("FSP FAS 157-4"). FSP FAS 157-4 provides guidance on estimating fair value when market activity has decreased and on identifying transactions that are not orderly. Additionally, entities are required to disclose in interim and annual periods the inputs and valuation techniques used to measure fair value. This FSP is effective for interim and annual periods ending after June 15, 2009. We are currently evaluating the impact of FSP FAS 157-4 on ouraudited consolidated financial statements included elsewhere in this prospectus for further information regarding recently issued accounting standards.
Quantitative and will adopt this FSP effective July 2, 2009.Qualitative Disclosures about Market Risk
In April 2009, the FASB issued FSP FAS 115-2 We are exposed to various market risks including interest rate risk and FAS 124-2,foreign currency exchange rate risk.
Recognition and Presentation of Other-Than-Temporary Impairments Market risk on variable-rate financial instruments., ("FSP FAS 115-2 and FAS 124-2"). The existing accounting guidance was modified to demonstrate the intent and ability to hold We maintain an investment security for a period of time sufficient to allow for any anticipated recovery in fair value. When the fair value$850.0 million senior secured credit facility, comprised of a debt$200.0 million revolving credit facility and a $650.0 million term loan facility, which permits borrowings at a rate equal to an applicable margin plus, at our option, either a base rate or equity security has declined belowLIBOR. 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 amortized cost atweighted average outstanding borrowings during the measurement date,reporting period following an entity that intends to sell a security or is more-likely-than-not to sell the security before the recovery of the security's cost basis, must recognize the other-than-temporary impairmentincrease in earnings. FSP FAS 115-2 and FAS 124-2 is effective for interim and annual periods ending after June 15, 2009.market interest rates. We are currently evaluating the impact of FSP FAS 115-2 and FAS 124-2had no borrowings on our consolidated financial statements.
In April 2009, the FASB issued FSP FAS 107-1revolving credit facility as of September 30, 2010 and APB 28-1,Interim Disclosures about Fair Value of Financial Instruments, ("FSP FAS 107-1 and APB 28-1"). SFAS No. 107,Disclosures about Fair Value of Financial Instruments, ("SFAS No. 107") was amended to require an entity to provide disclosures about fair value of financial instruments in interim financial statements. FSP FAS 107-1 and APB 28-1 are effective for interim and annual periods ending after June 15, 2009. We are currently evaluating the impact of FSP FAS 107-1 and APB 28-1 on our consolidated financial statements.
In December 2008, the FASB issued FASB Staff Position FSP 132(R)-1,Employers' Disclosures about Postretirement Benefit Plan Assets, ("FSP 132(R)-1"), which provides guidance on an employer's disclosures about plan assets of a defined benefit pension or other postretirement plan. This interpretation is effective for financial statements issued for fiscal years ending after December 15, 2009 and is effective for us in fiscal 2010. We are currently evaluating the disclosure requirements of this pronouncement.
In June 2008, the FASB issued FSP EITF 03-6-1,Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities, which addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per sharehad $619.1 million outstanding under the two-class method. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008. We are evaluating the impact of FSP EITF 03-6-1term loan facility on our financial statements.
In April 2008, the FASB issued FASB Staff Position Financial Accounting Standard 142-3,Determination of the Useful Life of Intangible Assets, ("FSP 142-3"). FSP 142-3 amends the factors that should be consideredSeptember 30, 2010. A 100 basis point change in developing renewalmarket interest rates would have increased or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142,Goodwill and Other Intangible Assets, ("SFAS 142"). In developing assumptions about renewal or extension, FSP 142-3 requires an entity to consider its own historical experience (or, if no experience, market participant assumptions) adjusted for the entity-specific factors in paragraph 11 of SFAS 142. FSP 142-3 expands the disclosure requirements of SFAS 142 and is effective for financial statements issued for fiscal years beginning after December 15, 2008, and is effective for us at the beginning of fiscal 2010. Early adoption is prohibited. The guidance for determining the useful life of a recognized intangible asset shall be applied prospectively to intangible assets acquired after the effective date. We have not determined the effect that the application of FSP 142-3 will have on our consolidated financial position.
decreased interest expense on our senior secured credit facility by $6.5 million during the 52 weeks ended April 1, 2010 and $3.1 million during the 26 weeks ended September 30, 2010.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51, Market risk on fixed-rate financial instruments. ("SFAS 160"). SFAS 160 establishes accountingIncluded in long-term debt are $325.0 million of our 2016 Senior Subordinated Notes, $300.0 million of our Notes due 2014, and reporting standards that require noncontrolling$600.0 million of our Notes due 2019. Increases in market interest inrates would generally cause a subsidiary to be reported as a component of equity, changesdecrease in a parent's ownership interest while the parent retains its controlling interest to be accounted for as equity transactions, and any retained noncontrolling equity investment upon the deconsolidation of a subsidiary to be initially measured at fair value. The Statement also establishes reporting requirements that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. SFAS 160 is effective as of the beginning of the first fiscal year beginning on or after December 15, 2008, and is effective for us at the beginning of fiscal 2010. Earlier adoption is prohibited. We have not determined the effect that the application of SFAS 160 will have on our consolidated financial position.
In December 2007, the FASB issued Statement No. 141 (revised 2007),Business Combinations, ("SFAS 141(R)"). SFAS 141(R) establishes the principles and requirements for how an acquirer: 1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; 2) in a business combination achieved in stages, sometimes referred to as a step acquisition, recognize the identifiable assets and liabilities, as well as the noncontrolling interest in the acquiree, at the full amounts of their fair values; 3) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase. SFAS 141(R) establishes disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This Statement is to be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period on or after December 15, 2008, and is effective for us at the beginning of fiscal 2010. Earlier adoption is prohibited. Upon adoption of SFAS No. 141(R), the reversal of valuation allowance for deferred tax assets related to business combinations would flow through our income tax provision as opposed to goodwill.
In September 2006, the FASB released SFAS No. 157,Fair Value Measurements, ("SFAS 157") which provides enhanced guidance for using fair value to measure assets and liabilities. Under the standard, 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 reporting entity transacts. It clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In February 2008, the FASB issued FASB Staff Position FAS 157-2,Partial Deferral of the Effective Date of SFAS 157 ("FSP 157-2"), which delays the effective date for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Statement was effective at the beginning of the first quarter of fiscal 2009 for financial assets and liabilities recognized or disclosed at fair value on a recurring basis. The partial adoption of this Statement did not have a material impact on our consolidated financial position and results of operations. Please refer to Note 15—Fair Value of Financial Instruments for additional information. Due to the deferral, we have delayed the implementation of SFAS 157 provisions on the fair value of goodwill, intangiblethe 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 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, with indefinite lives,liabilities, revenues and nonfinancial long-lived assets untilexpenses denominated in foreign currencies. The strengthening of the beginning of fiscal 2010. We areU.S. dollar against the respective currencies causes a decrease in the processcarrying values of evaluatingassets, 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 related to our nonfinancial assets and liabilities not valuedthe comparability of earnings in these countries on a recurring basis (at least annually).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 $354,000 for the twenty-six weeks ended September 30, 2010 and decrease accumulated other comprehensive loss by approximately $8.2 million as of September 30, 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 $53,000 for the twenty-six weeks ended September 30, 2010 and increase accumulated other comprehensive loss by approximately $10.1 million as of September 30, 2010.
We are one of the world's leading theatrical exhibition companies based on a number of measures, including total revenues, total number of screens and annual attendance. For the fiscal year ended April 2, 2009, we had revenues of $2,265,487,000 and loss from continuing operations of $90,900,000.companies. As of April 2, 2009,September 30, 2010, we owned, operated or held interests in 307378 theatres with a total of 4,6125,304 screens, approximately 99% of which were located in the United States and Canada. Our theatres are primarily located in large urbanmajor metropolitan markets, in which we believe offer strategic, operational and financial advantages. We also have a strong market position relative to our competition. We believe that we operate a modern, and highly productive theatre circuit. Our average screencircuit that leads the industry in key asset quality and performance metrics, such as screens per theatre and per theatre productivity measures. Our industry leading performance is largely driven by the quality of our theatre sites, our operating practices, which focus on delivering the best customer experience, and, most recently, our implementation of premium sight and sound formats, which we believe will be key components of the future movie-going experience. As of September 30, 2010, we are the largest IMAX exhibitor in the world with a 44% market share in the United States and more than twice the screen count of 15.0 forthe second largest U.S. IMAX exhibitor.
For the 52 weeks ended September 30, 2010, the fiscal year ended April 1, 2010 and the 26 weeks ended September 30, 2010, we generated pro forma revenues of approximately $2.7 billion, $2.7 billion and $1.3 billion, respectively, pro forma Adjusted EBITDA (as defined on page 13) of $370.2 million, $365.6 million and $188.2 million, respectively, and pro forma earnings from continuing operations of $145.4 million, $84.8 million and $64.2 million, respectively. We reported revenues of approximately $2.4 billion, earnings from continuing operations of $77.3 million and net earnings of $69.8 million in fiscal 2010. For fiscal 2009 and 2008, we reported revenues of approximately $2.3 billion and $2.3 billion, earnings (losses) from continuing operations of $(90.9) million and $41.6 million, and net earnings (losses) of $(81.2) million and $43.4 million, respectively.
The following table provides detail with respect to digital delivery, 3D projection, large screen formats, such as IMAX and our proprietary ETX, and deployment of our enhanced food and beverage offerings as deployed throughout our circuit and our annual attendance per theatreon September 30, 2010.
Format | Theatres | Screens | Planned Fiscal 2011 Screen Deployment | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Digital | 293 | 1,344 | 700 - 800 | |||||||
3D | 293 | 668 | 550 - 650 | |||||||
IMAX | 97 | 97 | 20 - 25 | |||||||
ETX | 11 | 11 | 20 - 25 | |||||||
Dine-in theatre | 3 | 20 | 40 - 60 |
The following table provides detail with respect to the geographic location of our Theatrical Exhibition circuit as of April 2, 2009:September 30, 2010:
Theatrical Exhibition | Theatres(1) | Screens(1) | |||||
---|---|---|---|---|---|---|---|
California | 42 | 651 | |||||
Texas | 22 | 437 | |||||
Florida | 23 | 392 | |||||
New Jersey | 24 | 310 | |||||
New York | 27 | 279 | |||||
Illinois | 18 | 271 | |||||
Michigan | 13 | 214 | |||||
Georgia | 12 | 189 | |||||
Arizona | 9 | 183 | |||||
Washington | 14 | 149 | |||||
Pennsylvania | 12 | 142 | |||||
Maryland | 13 | 136 | |||||
Massachusetts | 10 | 129 | |||||
Missouri | 8 | 117 | |||||
Virginia | 7 | 113 | |||||
Ohio | 5 | 86 | |||||
Colorado | 4 | 74 | |||||
Louisiana | 5 | 68 | |||||
Minnesota | 4 | 64 | |||||
North Carolina | 3 | 60 | |||||
Oklahoma | 3 | 60 | |||||
Kansas | 2 | 48 | |||||
Indiana | 3 | 42 | |||||
Connecticut | 2 | 36 | |||||
Nebraska | 1 | 24 |
Theatrical Exhibition | Theatres(1) | Screens(1) | ||||||
---|---|---|---|---|---|---|---|---|
California | 45 | 688 | ||||||
Illinois | 49 | 520 | ||||||
Texas | 22 | 424 | ||||||
Florida | 21 | 368 | ||||||
New Jersey | 20 | 276 | ||||||
Indiana | 27 | 298 | ||||||
New York | 25 | 267 | ||||||
Michigan | 10 | 184 | ||||||
Arizona | 9 | 183 | ||||||
Georgia | 11 | 177 | ||||||
Colorado | 14 | 187 | ||||||
Missouri | 14 | 143 | ||||||
Pennsylvania | 12 | 142 | ||||||
Washington | 12 | 140 | ||||||
Massachusetts | 10 | 129 | ||||||
Maryland | 12 | 127 | ||||||
Virginia | 7 | 113 | ||||||
Minnesota | 7 | 111 | ||||||
Ohio | 7 | 104 | ||||||
Louisiana | 5 | 68 | ||||||
Wisconsin | 4 | 63 | ||||||
North Carolina | 3 | 60 | ||||||
Oklahoma | 3 | 60 | ||||||
Kansas | 2 | 48 | ||||||
Connecticut | 2 | 36 | ||||||
Iowa | 3 | 34 | ||||||
Nebraska | 1 | 24 | ||||||
District of Columbia | 3 | 22 | ||||||
Kentucky | 1 | 20 | ||||||
Arkansas | 1 | 16 | ||||||
South Carolina | 1 | 14 | ||||||
Nevada | 1 | 10 | ||||||
Utah | 1 | 9 | ||||||
Canada | 8 | 184 | ||||||
China (Hong Kong)(2) | 2 | 13 | ||||||
France | 1 | 14 | ||||||
United Kingdom | 2 | 28 | ||||||
Total Theatrical Exhibition | 378 | 5,304 | ||||||
Theatrical Exhibition | Theatres(1) | Screens(1) | ||||||
---|---|---|---|---|---|---|---|---|
District of Columbia | 3 | 22 | ||||||
Kentucky | 1 | 20 | ||||||
Wisconsin | 1 | 18 | ||||||
Arkansas | 1 | 16 | ||||||
South Carolina | 1 | 14 | ||||||
Utah | 1 | 9 | ||||||
Canada | 8 | 184 | ||||||
China (Hong Kong)(2) | 2 | 13 | ||||||
France | 1 | 14 | ||||||
United Kingdom | 2 | 28 | ||||||
Total Theatrical Exhibition | 307 | 4,612 | ||||||
We were founded in 1920 and since then have improvedpioneered many of the qualityindustry's most important innovations, including the multiplex theatre format in the early 1960s and the North American megaplex theatre format in the mid-1990s. In addition, we have acquired some of our theatre circuit by adding new screens through new builds (including expansions)the most respected companies in the theatrical exhibition industry, including Loews, General Cinema and, acquisitions and by disposing of older screens through closures and sales. As of April 2, 2009, 3,521, or approximately 76%, of our screens were located in megaplex theatres. Our average number of screens per theatre as of April 2, 2009 was 15.0, which was more than twice the National Association of Theatre Owners average of 7.1 for calendar year 2008 and higher than any of our peer competitors.recently, Kerasotes.
The following table sets forth our historical information, of AMC Entertainment on a continuing operations basis, concerning new builds (including expansions), acquisitions and dispositions and end of periodend-of-period operated theatres and screens through April 2, 2009:September 30, 2010:
| New Builds | Acquisitions | Closures/Dispositions | Total Theatres | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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We
We believe that the reach, scope and digital delivery capability of NCM's network provides an effective platform for national, regional and local advertisers to reach an engaged audience. We receive a monthly theatre access fee for participation in the NCM network. In addition, we are entitled to receive mandatory quarterly distributions of excess cash from NCM. Our Competitive Strengths
Major Market existing theatres. We also believe the complexity inherent in operating in these major metropolitan markets is a deterrent to other less sophisticated competitors, protecting our market share position. We believe that customers in our major metropolitan markets are generally more affluent and culturally diverse than those in smaller markets. Traditionally, Modern, Highly Productive Theatre Circuit. We
Leader in Deployment of Premium Formats. We also believe our strong major market presence and our highly productive theatre circuit allow us to take greater advantage of incremental revenue-generating opportunities associated with the premium services that will define the future of the theatrical business, including digital delivery, 3D projection, large screen formats, such as IMAX and our proprietary ETX offering, and alternative programming. As the industry's digital conversion accelerates, we believe we have established a differentiated leadership position in premium formats. For example, we are the world's largest IMAX exhibitor with 97 screens as of September 30, 2010, and we expect to increase our IMAX screen count to 115 by the end of fiscal year 2011. We are able to charge a premium price for the IMAX experience, which, in combination with higher attendance levels, produces average weekly box office per print that is 300% greater than standard 2D versions of the same movie. Innovative Growth Initiatives in Food and Beverage. We believe our
Strong Cash Flow Generation. operating activities totaled $230.7 million. For the fiscal year ended April Our Our strategy is
Broaden and Enhance Food and Beverage Offerings. To address consumer trends, we are expanding
Disciplined Approach to
Maximize Guest Engagement and Loyalty. In addition to differentiating the AMC Entertainment movie-going experience by deploying new sight and sound formats, as well as food and beverage offerings, we are also focused on creating differentiation through guest marketing. We are already the most recognized theatre exhibition brand, with almost 60% brand awareness in the United States. We are actively marketing our own "AMC experience" message to our customers, focusing on every aspect of a customer's engagement with AMC, from the moment a guest visits our website or purchases a ticket to the moment he leaves our theatre. We have also refocused our marketing to drive active engagement with our customers through a redesigned website, Facebook, Twitter and push email campaigns. As of November 23, 2010, we had approximately 327,000 "likes" on Facebook, and we engaged directly with our guests via close to 32 million emails in fiscal 2010. In addition, our frequent moviegoer loyalty program is scheduled to re-launch during 2011 with a new, more robust fee-based program. Our loyalty program currently has approximately 1.5 million active members and a database of over 5.0 million moviegoers. Additional marketing initiatives include:
Continue to Achieve Operating Efficiencies. We believe that the size of our theatre circuit, our major market concentration and the breadth of our operations will allow us to continue to achieve economies of scale and further improve operating margins. Our operating strategies are focused in the following areas:
Film Licensing We predominantly license "first-run" motion pictures from distributors owned by major film production companies and from independent distributors. We license films on a film-by-film and theatre-by-theatre basis. We obtain these licenses based on several factors, including number of seats and screens available for a particular picture, revenue potential and the location and condition of our theatres. We pay rental fees on a negotiated basis. During the period from 1990 to North American film distributors typically establish geographic film licensing zones and generally allocate available film to one theatre within 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. There are several distributors which provide a substantial portion of quality first-run motion pictures to the exhibition industry. These include Paramount Pictures, Twentieth Century Fox, Warner Bros. Distribution, Buena Vista Pictures (Disney), Concessions Concessions sales are our second largest source of revenue after box office admissions. Concessions items include popcorn, soft drinks, candy, hot dogs and other products. Different varieties of candy and soft drinks are offered at our theatres based on preferences in that particular geographic region. We have also implemented "combo-meals" Our strategy emphasizes prominent and appealing concessions counters designed for rapid service and efficiency. We design our megaplex theatres to have more concessions capacity to make it easier to serve larger numbers of customers. Strategic placement of large concessions stands within theatres 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 entertainment and dining experience at certain theatres features casual and premium upscale
The following table sets forth the general character and
Our theatre leases generally have initial terms ranging from 15 to 20 years, with options to extend the leases for up to 20 additional years. The leases typically require escalating minimum annual rent payments and additional rent payments based on a percentage of the leased theatre's revenue above a base amount and require us to pay for property taxes, maintenance, insurance and certain other property-related expenses. In some instances, our escalating minimum annual rent payments are contingent upon increases in the consumer price index. In some cases, our rights as tenant are subject and subordinate to the mortgage loans of lenders to our lessors, so that if a mortgage were to be foreclosed, we could lose our lease. Historically, this has never occurred. We
Employees As of Fewer than 2% of our U.S. employees, consisting primarily of motion picture projectionists, are represented by a union, the International Alliance of Theatrical Stagehand Employees and Motion Picture Machine Operators (and affiliated local unions). We believe that our relationship with this union is satisfactory. We consider our employee relations to be good. Theatrical Exhibition Industry and Competition Theatrical exhibition is the primary initial distribution channel for new motion picture releases, and we believe that the theatrical success of a motion picture is often the most important factor in establishing Theatrical exhibition has demonstrated long-term steady growth. U.S. and Canadian box office revenues increased
The following table represents information about the exhibition industry obtained from
There are approximately Our theatres are subject to varying degrees of competition in the geographic areas in which they operate. Competition is often intense with respect to attracting patrons, licensing motion pictures and finding new theatre sites. Where real estate is readily available, there are few barriers preventing another company from opening a theatre near one of our theatres, which may adversely affect operations at our theatre. However, in certain of our densely populated major metropolitan markets, we believe a scarcity of attractive retail real estate opportunities enhances the strategic value of our existing theatres. We also believe the complexity inherent in operating in these major metropolitan markets is a deterrent to other less sophisticated competitors, protecting our market share position. The theatrical exhibition industry faces competition from other forms of out-of-home entertainment, such as concerts, amusement parks and sporting events, and from other distribution channels for filmed entertainment, such as cable television, pay per view and home video systems, as well as from all other forms of entertainment. We believe the theatrical exhibition industry
Adoption of Digital Technology. The theatrical exhibition industry is in the initial stages of Long History of Steady Growth. The theatrical exhibition industry has produced steady growth in revenues over the past several decades. In recent years, net new build activity has slowed, and screen count has rationalized and is expected to decline in the near term before stabilizing, thereby increasing revenue per screen for existing theatres. The combination of the popularity of movie-going, its steady long-term growth characteristics and consolidation and the industry's relative maturity makes theatrical exhibition a high cash flow generating business today. Box office revenues in the United States and Canada have increased from $5.0 billion in 1989 to $10.6 billion in 2009, driven by increases in both ticket prices and attendance across multiple economic cycles. The industry has also demonstrated its resilience to economic downturns; during four of the last six recessions, attendance and box office revenues grew an average of 8.1% and 12.3%, respectively. In 2009, 32 films grossed over $100.0 million, compared to 25 in the prior year, helping to establish a new industry box office record for the year. In the first 46 weeks of calendar 2010, industry revenues have increased 3% over the comparable period in calendar 2009. A Highly Popular and Affordable Out-of-Home Entertainment Experience. Going to the movies has been one of the most popular and affordable out-of-home entertainment options for decades. The estimated average price of a movie ticket was $7.50 in calendar 2009, considerably less than other out-of-home entertainment alternatives such as concerts and sporting events. According to the MPAA, the 2009 average out-of-home ticket price for the most popular professional sports and theme parks was $47.50. In calendar 2009, attendance at indoor movie theatres in the United States and Canada was 1.4 billion. This contrasts to the 119 million combined annual attendance generated by professional baseball, basketball and football over the same time period. Importance to Content Providers. We believe that the theatrical success of a motion picture is often the key determinant in establishing the film's value in the other parts of the product life cycle, such as DVD, cable television, merchandising and other ancillary markets. For each $1.00 of theatrical box office receipts, an average of $1.33 of additional revenue is generated in the remainder of a film's product life cycle. As a result, we believe motion picture studios will continue to work cooperatively with theatrical exhibitors to ensure the continued value of the theatrical window. Regulatory Environment The distribution of motion pictures is, in large part, regulated by federal and state antitrust laws and has been the subject of numerous antitrust cases. The consent decrees resulting from one of those cases, to which we were not a party, have a material impact on the industry and us. Those consent decrees bind certain major motion picture distributors and require the motion pictures of such distributors to be offered and licensed to exhibitors, including us, on a film-by-film and theatre-by-theatre basis. Consequently, we cannot assure ourselves of a supply of motion pictures by entering into long-term arrangements with major distributors, but must compete for our licenses on a film-by-film and theatre-by-theatre basis. Our theatres must comply with Title III of the Americans with Disabilities Act, As an employer covered by the ADA, we must make reasonable accommodations to the limitations of employees and qualified applicants with disabilities, provided that such reasonable accommodations do not pose an undue hardship on the operation of our business. In addition, many of our employees are covered by various government employment regulations, including minimum wage, overtime and working conditions regulations. Our operations also are subject to federal, state and local laws regulating such matters as construction, renovation and operation of theatres as well as wages and working conditions, citizenship, health and sanitation requirements and licensing. We believe our theatres are in material compliance with such requirements. We also own and operate theatres and other properties which may be subject to federal, state and local laws and regulations relating to environmental protection. Certain of these laws and regulations may impose joint and several liability on certain statutory classes of persons for the costs of investigation or remediation of contamination, regardless of fault or the legality of original disposal. We believe our theatres are in material compliance with such requirements. Seasonality Our revenues are dependent upon the timing of motion picture releases by distributors. The most marketable motion pictures are usually released during the summer and the year-end holiday seasons. Therefore, our business
United States of America v. AMC Entertainment Inc. and American As to line-of-sight matters, the trial court entered summary judgment in favor of the 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. 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 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. 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 ( Bateman case, which has now been issued. The
Executive Officers and Directors Our business and affairs are managed by our board of directors currently consisting of nine members. Gerardo I. Lopez, our The following table sets forth certain information regarding our directors, executive officers and key employees as of
All our current executive officers hold their offices at the pleasure of our board of directors, subject to rights under their respective employment Mr. Aaron J. Stone has served as Chairman of the Board of Parent, Holdings and Connections Academy, LLC, Hughes Communications, Inc., Hughes Network Systems, LLC, Hughes Telematics, Inc., and Parallel Petroleum. Mr. Stone currently serves on the compensation committee of Hughes Communications, Inc. Mr. Gerardo I. Lopez has served as Chief Executive Officer, President and a Director of Parent, Holdings and Dr. Dana B. Ardi has served as a Director of Parent, Holdings and Mr. Stephen P. Murray has served as a Director of Parent since June 2007, and has served as a Director of Holdings and Market Lending Division of Manufacturers Hanover. Mr. Murray focuses on investments in Consumer, Retail and Services, and Healthcare Infrastructure. Mr. Murray also serves on the Mr. Stan Parker has served as a Director of Parent since June 2007, and has served as a Director of Holdings and Mr. Philip H. Loughlin has served as a Director of Parent, Holdings and
Mr. Eliot P. S. Merrill has served as a Director of Parent, Holdings and Mr. Kevin J. Maroni has served as a Director of Parent, Holdings and served as a trustee of numerous non-profit institutions, which currently include National Geographic Ventures; the John F. Kennedy Library Foundation and the Park School. Mr. Maroni holds a Mr. Mr. Craig R. Ramsey has served as Executive Vice President and Chief Financial Officer of Parent and Holdings since June 2007 and December 2004, respectively. Mr. Ramsey has served as Executive Vice President and Chief Financial Officer of Mr. John D. McDonald has served as Executive Vice President, U.S. Mr. Mark A. McDonald has served as Executive Vice President, Global Development since July 2009 of Parent, Holdings and AMCE. Prior thereto, Mr. McDonald served as Executive Vice President, International Operations of Parent, Holdings and AMCE from October 2008 to July 2009. Mr. McDonald has served as Executive Vice President, International Operations of American Multi-Cinema, Inc., and American Multi-Cinema, Inc. Entertainment International, Inc. ("AMCEI"), a subsidiary of AMC, since March 2007 and December 1998, respectively. Prior thereto, Mr. McDonald served as Senior Vice President, Asia Operations from November 1995 until his appointment as Executive Vice President, International Operations and Film in Mr. Stephen A. Colanero has served as Executive Vice President and Chief Marketing Officer of Parent, Holdings and AMCE since December 2009. Prior to joining AMC, Mr. Colanero served as Vice President of Marketing for RadioShack Corporation from April 2008 to December 2009. Mr. Colanero also served as Senior Vice President of Retail Marketing for Washington Mutual Inc. from February 2006 to August 2007 and as Senior Vice President, Strategic Marketing for Blockbuster Inc. from November 1994 to January 2006. Mr. Colanero holds a B.S. degree in Accounting from Villanova University and a M.B.A. in Marketing and Strategic Management from The Wharton School at the University of Pennsylvania. Mr. Robert J. Lenihan has served as President, Programming, of Parent, Holdings and AMCE since April 2009. Prior to joining AMC, Mr. Lenihan served as Executive Vice President for Loews Cineplex Entertainment Corp from August 1998 to February 2002. Mr. Lenihan was appointed Senior Vice President and Head Film Buyer at Mann Theatres in 1985 and served in that capacity at Act III Theatres, Century Theatres, Sundance Cinemas and most recently at Village Roadshow. Mr. Lenihan holds a B.S. degree from Rowan University. Mr. Samuel D. "Sonny" Gourley has served as President of AMC Film Programming of Parent, Holdings and AMCE since December 2009. Mr. Gourley has served as President of AMC Film Programming a Division of AMC since November 2005. Prior thereto, Mr. Gourley served as Executive Vice President, National Film from November 2002 to November 2005 and Executive Vice President, East Film from November 1999 to November 2002. Mr. Gourley currently serves on the advisory board of Tent 25 Variety—The Children's Charity located in Los Angeles, as well as serving on the board of the local Tent 8 Variety—The Children's Charity in Kansas City. Mr. Gourley holds a B.A. degree in English from Miami University in Oxford, Ohio. Mr. Kevin M. Connor has served as Senior Vice President, General Counsel and Secretary of Parent and Holdings since June 2007 and December 2004, respectively. Mr. Connor has served as Senior Vice President, General Counsel and Secretary of since April 2003. Prior to April 2003, Mr. Connor served as Senior Vice President, Legal of Mr.
Mr. Michael W. Zwonitzer has served as Senior Vice President, Finance of Parent, Holdings and AMCE since July 2009. Prior thereto, Mr. Zwonitzer served as Vice President, Finance of Parent and Holdings since June 2007 and December 2004, respectively. Mr. Zwonitzer has served as Vice President, Finance of Mr. Chris A. Cox has served as Senior Vice President and Chief Accounting Officer of Parent and Holdings since June 2010. Prior thereto Mr. Cox served as Vice President and Chief Accounting Officer of Parent and Holdings since June 2007 and December 2004, respectively. Mr. Cox has served as Vice President and Chief Accounting Officer of AMCE and American Multi-Cinema, Inc. since May 2002. Prior to May 2002, Mr. Cox served as Vice President and Controller of American Multi-Cinema, Inc. since November 2000. Previously, Mr. Cox served as Director of Corporate Accounting for the Dial Corporation from December 1999 until November 2000. Mr. Cox holds a Bachelor's of Business Administration in Accounting and Finance degree from the University of Iowa. Mr. Terry W. Crawford has served as Senior Vice President and Treasurer of Parent since June 2010. Previously, Mr. Crawford served as Vice President and Treasurer of Parent since June 2007 and of Holdings AMCE and American Multi-Cinema, Inc. since April 2005. Prior thereto, Mr. Crawford served as Vice President and Assistant Treasurer of Holdings, AMCE and American Multi-Cinema, Inc. from December 2004 until April 2005. Previously, Mr. Crawford served as Vice President, Assistant Treasurer and Assistant Secretary of AMCE from May 2002 until December 2004 and American Multi-Cinema, Inc. from January 2000 until December 2004. Mr. Crawford served as Assistant Treasurer and Assistant Secretary of AMCE from September 2001 until May 2002 and AMC from November 1999 until December 2004. Mr. Crawford served as Assistant Secretary of AMCE from March 1997 until September 2001 and American Multi-Cinema, Inc. from March 1997 until November 1999. Prior to joining AMC, Mr. Crawford served as Vice President and Treasurer for Metmor Financial, Inc., a wholly-owned subsidiary of Metropolitan Life Insurance Company. Mr. Crawford holds a B.S. degree in Business from Emporia State University and a M.B.A. from the University of Missouri—Kansas City. Mr. George Patterson has served as Senior Vice President of Food and Beverage since February 2010. Prior to joining the Company, Mr. Patterson served as Director of Asset Strategy and Multibrand Execution for YUM Brands from 2002 to 2010. Prior to joining YUM Brands, Mr. Patterson was Co-founder and COO of Cool Mountain Creamery and Café from 1997 to 2002. Prior to developing Cool Mountain Creamery and Café, Mr. Patterson was Regional Vice President for Wendy's International restaurants. Mr. Patterson holds a B.A. degree from the University of Florida. Executive Compensation Compensation Discussion and Analysis This section discusses the material elements of compensation awarded to, earned by or paid to our principal executive officer, our principal financial officer, our three other most highly compensated executive officers Our executive compensation programs are determined and approved by our Compensation Committee. None of the Named Executive Officers are members of the Compensation Committee or otherwise had any role in determining the compensation of other Named Executive Officers, although the Compensation Committee does consider the recommendations of our Chief Executive Officer in setting compensation levels for our executive officers other than the Chief Executive Officer. Executive Compensation Program Objectives and Overview The goals of the Compensation Committee with respect to executive compensation are to attract, retain, motivate and reward talented executives, to tie annual and long-term compensation incentives to the achievement of specified performance objectives, and to achieve long-term creation of value for our stockholders by aligning the interests of these executives with those of our stockholders. To achieve these goals, we endeavor to maintain compensation plans that are intended to tie a substantial portion of executives' overall compensation to key strategic, operational and financial goals such as achievement of budgeted levels of adjusted EBITDA or revenue, and other non-financial goals that the Compensation Committee deems important. From time to time, the Compensation Committee evaluates individual executive performance with a goal of setting compensation at levels they believe, based on industry comparables and their general business and industry knowledge and experience, are comparable with executives in other companies of similar size and stage of development operating in the theatrical exhibition industry and similar retail type businesses, while taking into account our relative performance and our own strategic goals. We conduct a periodic review of the aggregate level of our executive compensation as part of the annual budget review and annual performance review processes, which includes determining the operating metrics and non-financial elements used to measure our performance and to compensate our executive officers. This review is based on our knowledge of how other theatrical exhibition industry and similar retail type businesses measure their executive performance and on the key operating metrics that are critical in our effort to increase the value of our company. Current Executive Compensation Program Elements Our executive compensation program consists of the elements described in the following sections. The Compensation Committee determines the portion of compensation allocated to each element for each individual Named Executive Officer. Our Compensation Committee expects to continue these policies in the short term but will reevaluate the current policies and practices as it considers advisable. The Compensation Committee believes based on their general business and industry experience and knowledge that the use of the combination of base salary, discretionary annual performance bonuses, and long-term incentives (including stock option or other stock-based awards) offers the best approach to achieving our compensation goals, including attracting and retaining talented and capable executives and motivating our executives and other officers to expend maximum effort to improve the business results, earnings and overall value of our business. Base Salaries. Base salaries for our Named Executive Officers are established based on the scope of their responsibilities, taking into account competitive market compensation for similar positions, as well as seniority of the individual, our ability to replace the individual and other primarily judgmental factors deemed relevant by the Compensation Committee. Generally, we believe that executive base salaries should be targeted near the median of the range of salaries for executives in similar positions with similar responsibilities at comparable companies, in line with our compensation philosophy, but we do not make any determinations or changes in compensation in reaction to market data alone. The Compensation Committee's goal is to provide total compensation packages that are competitive with prevailing practices in our industry and in the geographic markets in which we conduct business. However, the Compensation Committee retains flexibility within the compensation program to respond to and adjust for specific circumstances and our evolving business environment. Periodically, the Company obtains information regarding the salaries of employees at comparable companies, including approximately 150 multi-unit businesses in the retail, entertainment and food service industries. Base salaries for our Named Executive Officers are reviewed at appropriate times by the Compensation Committee and may be increased from time to time pursuant to such review and/or in accordance with guidelines contained in the various employment agreements in order to realign salaries with market levels after taking into account individual responsibilities, performance and experience. Base salaries for our Named Executive Officers Annual Performance Bonus. The Compensation Committee has the authority to award annual performance bonuses to our Named Executive Officers. Under the current employment agreements, each Named Executive Officer is eligible for an annual bonus based on our annual incentive compensation program as it may exist from time to time. We believe that annual bonuses based on performance serve to align the interests of management and discretion to decrease or increase bonuses relative to the guidelines based on qualitative or other objective factors deemed relevant by the Compensation Committee. The following table summarizes the company component upon attainment of 100% of targeted adjusted EBITDA and the individual component of the annual performance bonus plan for fiscal
Our annual bonuses have historically been paid in cash and traditionally have been paid in a single installment in the first quarter following the completion of a given fiscal Special Incentive Bonus. Pursuant to his employment agreement, Mr. Gerardo Lopez is entitled to a one-time special incentive bonus of $2,000,000 that vests at the rate of $400,000 per year over five years, effective March 2009, provided that he remains employed on each vesting date. The first three installments of the special incentive bonus are payable on the third anniversary and the fourth and fifth installments are payable upon vesting. The special incentive bonus of $2,000,000 shall immediately vest in full upon Mr. Lopez's involuntary termination within twelve months after a change of Long Term Incentive Equity Awards. In connection with the holdco merger, on June 11, 2007, Retirement Benefits. We provide retirement benefits to the Named Executive Officers under both qualified and non-qualified defined-benefit and defined-contribution retirement plans. The Defined Benefit Retirement Income Plan for Certain Employees of American Multi-Cinema, Inc. ("AMC Defined Benefit Retirement Income Plan") and the AMC 401(k) Savings Plan are both tax-qualified retirement plans in which the Named Executive Officers participate on substantially the same terms as our other participating employees. However, due to maximum limitations imposed by the Employee Retirement Income Security Act of 1974 ("ERISA") and the Internal Revenue Code on the annual amount of a pension which may be paid under a qualified defined-benefit plan and on the maximum amount that may be contributed to a qualified defined-contribution plan, the benefits that would otherwise be payable to the Named Executive Officers under the Defined Benefit Retirement Income Plan are limited. Because we did not believe that it was appropriate for the Named Executive Officers' retirement benefits to be reduced because of limits under ERISA and the Internal Revenue Code, we had established non-qualified supplemental defined-benefit plans that permit the Named Executive Officers to receive the same benefit that would be paid under our qualified defined-benefit plan up to the old IRS limit, as indexed, as if the Omnibus Budget Reconciliation Act of 1993 had not been in effect. On November 7, 2006, our Board of Directors approved a proposal to freeze the AMC Defined Benefit Retirement Income Plan and our supplemental defined-benefit plans, the AMC Supplemental Executive Retirement Plan and the AMC Retirement Enhancement Plan, effective as of December 31, 2006. The Compensation Committee determined that these types of plans are not as effective as other elements of compensation in aligning executives' interests with the interests of Effective for fiscal year 2010, The "Pension Benefits" table and related narrative section Non-Qualified Deferred Compensation Program. Named Executive Officers are permitted to elect to defer base salaries and their annual bonuses under the AMC Non-Qualified Deferred Compensation Plan. We believe that providing the Named Executive Officers with deferred compensation opportunities is a cost-effective way to permit officers to receive the tax benefits associated with delaying the income tax event on the compensation deferred, even though the related deduction for the Companies is also deferred. The "Non-Qualified Deferred Compensation" table and related narrative section Severance and Other Benefits Upon Termination of Employment. We believe that severance protections, particularly in the context of a change in control transaction, can play a valuable role in attracting and retaining key executive officers. Accordingly, we provide such protections for each of the Named Executive Officers and for other of our senior officers in their respective employment agreements. The Compensation Committee evaluates the level of severance benefits provided to Named Executive Officers on a case-by-case basis. We consider these severance protections consistent with competitive practices. As described in more detail below under with severance benefits under these circumstances in light of their positions We believe that the occurrence, or potential occurrence, of a change in control transaction will create uncertainty regarding the continued employment of our executive officers. This uncertainty results from the fact that many change in control transactions result in significant organizational changes, particularly at the senior executive level. In order to encourage certain of our executive officers to remain employed with us during an important time when their prospects for continued employment following the transaction are often uncertain, we provide the executives with severance benefits if they terminate their employment within Perquisites. The perquisites provided to each Named Executive Officer during fiscal 2010, 2009 Policy with Respect to Section 162(m). Section 162(m) of the Internal Revenue Code generally disallows public companies a tax deduction for compensation in excess of $1,000,000 paid to their chief executive officers and the four other most highly compensated executive officers unless certain performance and other requirements are met. Our intent generally is to design and administer executive compensation programs in a manner that will preserve the deductibility of compensation paid to our executive officers, and we believe that a substantial portion of our current executive compensation program (including the stock options and other awards that may be granted to our Named Executive Officers as described above) satisfies the requirements for exemption from the $1,000,000 deduction limitation. However, we reserve the right to design programs that recognize a full range of performance criteria important to our success, even where the compensation paid under such programs may not be deductible. The Compensation Committee will continue to monitor the tax and other consequences of our executive compensation program as part of its primary objective of ensuring that compensation paid to our executive officers is reasonable, performance-based and consistent with the goals of Actions Taken After Fiscal 2010. On July 8, 2010, our board of directors approved the adoption of the AMC Entertainment Holdings, Inc. 2010 Equity Incentive Plan, which is described in more detail under "—Equity Incentive Plans" below. Our Compensation Committee
The following table presents information regarding compensation of our principal executive officer, our principal financial officer, our three other most highly compensated executive officers for services rendered during fiscal
In March 2009, Mr. Gerardo Lopez received a stock option grant to purchase 15,980.45 common shares the grant. The valuation assumptions used for Mr. Lopez's option award are provided in No option awards were granted with regards to Named Executive Officers during fiscal
For fiscal 2009, in accordance with
Compensation of Named Executive Officers The Summary Compensation Table above quantifies the value of the different forms of compensation earned by or awarded to our Named Executive Officers in fiscal The Summary Compensation Table should be read in conjunction with the tables and narrative descriptions that follow. A description of the material terms of each Named Executive Officer's base salary and annual bonus is provided below. The "Pension Benefits" table and related description of the material terms of our pension plans describe each Named Executive Officer's retirement benefits under the Companies' defined-benefit pension plans to provide context to the amounts listed in the Summary Compensation Table. The discussion in the section "Potential Payments Upon Termination or Change in Control" explains the potential future payments that may become payable to our Named Executive Officers. Description of Employment Agreements—Salary and Bonus Amounts We have entered into employment agreements with each of Messrs. Lopez, Ramsey, McDonald, Lenihan, Connor, and Gerardo I. Lopez. On February 23, 2009,
respect to salary and bonus levels, the Compensation Committee considers the factors discussed in the "Current Executive Compensation Program Elements" of the Compensation Discussion and Analysis above. The agreement also provides that Mr. Lopez will be eligible for benefits offered by the Company to other executive officers and will be entitled to reimbursements for expenses reasonably incurred in connection with related business expenses and travel. Change in control, severance arrangements and restrictive covenants in Mr. Lopez's employment agreement are discussed in detail below in the narrative section "Potential Payments Upon Termination or Change in Control." Craig R. Ramsey. On July 1, 2001, John D. McDonald. On July 1, 2001, provides that Mr. McDonald will be eligible for benefits offered by the Company to other executive officers and will be entitled to reimbursements for expenses reasonably incurred in connection with business travel and entertainment. Change in control and severance arrangements in Mr. McDonalds' employment agreements are discussed in detail below in the narrative section "Potential Payments Upon Termination or Change in Control." Robert J. Lenihan. On April 7, 2009, we entered into an employment agreement with Robert J. Lenihan who serves as the President of Film Programming. The term of the agreement is for two years, with automatic one-year extensions each year. The agreement provides that Mr. Lenihan will receive an initial annualized base salary of $410,000 subject to review by the Board of Directors or the Compensation Committee. Based on their review, the Board of Directors or the Compensation Committee have discretion to increase (but not reduce) the base salary each year. The agreement also provides for annual bonuses for Mr. Lenihan based on the applicable incentive compensation program of the Company. The target incentive bonus for each fiscal year during the period of employment shall equal 50% of the base salary. In making its determination with respect to salary and bonus levels, the Compensation Committee considers the factors discussed in the "Current Executive Compensation Program Elements" of the Compensation Discussion and Analysis above. In addition, the agreement provides that Mr. Lenihan will be eligible for benefits offered by the Company to other executive officers and will be entitled to reimbursements for expenses reasonably incurred in connection with carrying out the Executive's duties for the Company. Change in control and severance arrangements in Mr. Lenihan's employment agreement are discussed in detail below in the narrative section "Potential Payments Upon Termination or Change in Control." Kevin M. Connor. On November 6, 2002,
The following table summarizes
On Table of Contents to
The following table presents information regarding the outstanding equity awards held by each of our Named Executive Officers as of April
Option Exercises and Stock Vested—Fiscal None of our Named Executive Officers exercised options or held any outstanding stock awards during fiscal The following table presents information regarding the present value of accumulated benefits that may become payable to the Named Executive Officers under our qualified and nonqualified defined-benefit pension plans.
Pension and Other Retirement Plans We provide retirement benefits to the Named Executive Officers under the terms of qualified and non-qualified defined-benefit plans. The AMC Defined Benefit Retirement Income Plan is a tax-qualified retirement plan in which the Named Executive Officers participate on substantially the same terms as our other participating employees. However, due to maximum limitations imposed by ERISA and the Internal Revenue Code on the annual amount of a pension which may be paid under a qualified defined-benefit plan, the benefits that would otherwise be payable to the Named Executive Officers under the Defined Benefit Retirement Income Plan are limited. Because we did not believe that it was appropriate for the Named Executive Officers' retirement benefits to be reduced because of limits under ERISA and the Internal Revenue Code, we have non-qualified supplemental defined-benefit plans that permit the Named Executive Officers to receive the same benefit that would be paid under our qualified defined-benefit plan up to the old IRS limit, as indexed, as if the Omnibus Budget Reconciliation Act of 1993 had not been in effect. On November 7, 2006, our Board of Directors approved a proposal to freeze the AMC Defined Benefit Retirement Income Plan, and our supplemental plans, the AMC Supplemental Executive Retirement Plan and the AMC Retirement Enhancement Plan, effective as of December 31, 2006. As amended, benefits do not accrue after December 31, 2006, but vesting continues for associates with less than five years of vesting service. The material terms of the AMC Defined Benefit Retirement Income Plan, the AMC Supplemental Executive Retirement Plan and the AMC Retirement Enhancement Plan are described below. AMC Defined Benefit Retirement Income Plan. The AMC Defined Benefit Retirement Income Plan is a non-contributory defined-benefit pension plan subject to the provisions of ERISA. As mentioned above, the plan was frozen effective December 31, 2006. The plan provides benefits to certain of our employees based upon years of credited service and the highest consecutive five-year average annual remuneration for each participant. For purposes of calculating benefits, average annual compensation is limited by Section 401(a)(17) of the Internal Revenue Code, and is based upon wages, salaries and other amounts paid to the employee for personal services, excluding certain special compensation. Under the defined benefit plan, a participant earns a vested right to an accrued benefit upon completion of five years of vesting service. AMC Supplemental Executive Retirement Plan. AMC also sponsors a Supplemental Executive Retirement Plan to provide the same level of retirement benefits that would have been provided under the retirement plan had the federal tax law not been changed in the Omnibus Budget Reconciliation Act of 1993 to reduce the amount of compensation which can be taken into account in a qualified retirement plan. The plan was frozen, effective December 31, 2006, and no new participants can enter the plan and no additional benefits can accrue thereafter. Subject to the forgoing, any individual who is eligible to receive a benefit from the AMC Defined Benefit Retirement Income Plan after qualifying for early, normal or late retirement benefits thereunder, the amount of which is reduced by application of the maximum limitations imposed by the Internal Revenue Code, is eligible to participate in the Supplemental Executive Retirement Plan. The benefit payable to a participant equals the monthly amount the participant would receive under the AMC Defined Benefit Retirement Income Plan without giving effect to the maximum recognizable compensation for qualified retirement plan purposes imposed by the Internal Revenue Code, as amended by Omnibus Budget Reconciliation Act of 1993, less the monthly amount of the retirement benefit actually payable to the participant under the AMC Defined Benefit Retirement Income Plan, each as calculated as of December 31, 2006. The benefit is an amount equal to the actuarial equivalent of his/her benefit, computed by the formula above, payable in either a lump sum (in certain limited circumstances, specified in the plan) If a participant's employment
The following table presents information regarding the contributions to and earnings on the Named Executive Officers' deferred compensation balances during fiscal
Non-Qualified Deferred Compensation Plan Pursuant to his employment agreement, Mr. Gerardo Lopez is entitled to a one-time special incentive bonus of $2,000,000 that vests at the rate of $400,000 per year over five years, effective March 2009, provided that he remains employed on each vesting date. The first three installments of the special incentive bonus are payable on the third anniversary and the fourth and fifth installments are payable upon vesting. The special incentive bonus of $2,000,000 shall immediately vest in full upon Mr. Lopez's involuntary termination within twelve months after a change of control, as defined in the employment agreement. As of April 1, 2010, Mr. Lopez has vested in one-fifth, or $400,000, of this special incentive bonus to be paid on his third anniversary. Potential Payments Upon Termination or Change in Control The following section describes the benefits that may become payable to certain Named Executive Officers in connection with a termination of their employment Enhancement Plan), the Named Executive Officer is entitled to his accrued benefits payable thereunder in a form of payment that he has previously chosen. The Retirement Enhancement Plan and the present value of benefits accumulated under the plan are described above in the table "Pension Benefits" and the accompanying narrative "Pension and Other Retirement Plans." Assumptions. As prescribed by the SEC's disclosure rules, in calculating the amount of any potential payments to the Named Executive Officers under the arrangements described below, we have assumed that the applicable triggering event (i.e., termination of employment and/or change in
Gerardo I. Lopez Mr. Lopez's employment agreement, described above under Severance Benefits. In the event Mr. Lopez's employment is terminated as a result of an involuntary termination during the employment term If Mr. Lopez had terminated employment with us on April Other Named Executive Officers The employment agreements for each of the other Named Executive Officers, described above under Severance Benefits. In the event the executive's employment is terminated during the employment term as a result of the executive's death or "Disability" or by Upon a termination of employment with us on April
Restrictive Covenants. Pursuant to each Named Executive Officer's employment agreement, the executive has agreed not to disclose any confidential information of
Director Compensation—Fiscal The following section presents information regarding the compensation paid during fiscal Non-Employee Directors We paid our directors an annual cash retainer of $50,000, plus $1,500 for each meeting of the board of directors they attended in person or by phone, plus $1,000 for each committee meeting they attended. We also reimbursed all directors for any out-of-pocket expenses incurred by them in connection with their services provided in such capacity. The following table presents information regarding the compensation of our non-employee Directors in fiscal
Compensation Committee Interlocks and Insider Participation The Compensation Committee members whose names appear on the Compensation Committee Report were committee members during all of fiscal function) of any other entity that has one or more executive officers serving on our Board of Directors or on the Compensation Committee during the fiscal year ended April Risk Oversight The Board of Directors executes its oversight responsibility for risk management directly and through its Committees, as follows: The Audit Committee has primary responsibility for overseeing the Company's Enterprise Risk Management, or "ERM", program. The Company's Director of Reporting and Control, who reports to the Audit Committee quarterly, facilitates the ERM program with consideration given to our Annual Operating Plan and with direct input obtained from the Senior Leadership Team, or "SLT"—the heads of our principal business and corporate functions—and their direct reports, under the executive sponsorship of our Executive Vice President and Chief Financial Officer and our Vice President and Chief Accounting Officer. The Audit Committee's meeting agendas include discussions of individual risk areas throughout the year, as well as an annual summary of the ERM process. The Board of Directors' other committees oversee risks associated with their respective areas of responsibility. For example, the Compensation Committee considers the risks associated with our compensation policies and practices, with respect to both executive compensation and compensation generally. The Board of Directors is kept abreast of its committees' risk oversight and other activities via reports of the Committee Chairmen to the full Board. These reports are presented at every regular Board of Directors meeting and include discussions of committee agenda topics, including matters involving risk oversight. The Board of Directors considers specific risk topics, including risks associated with our Annual Operating Plan and our capital structure. In addition, the Board of Directors receives detailed regular reports from the members of our SLT that include discussions of the risks and exposures involved in their respective areas of responsibility. Further, the Board of Directors is routinely informed of developments that could affect our risk profile or other aspects of our business. Policies and Practices as They Relate to Risk Management The Compensation Committee believes the elements of the Company's executive compensation program effectively link performance-based compensation to financial goals and stockholder interests without encouraging executives to take unnecessary or excessive risks in the pursuit of those objectives. The Compensation Committee believes that the overall mix of compensation elements is appropriately balanced and does not encourage the taking of short-term risks at the expense of long-term results. Long-term incentives for our executives are awarded in the form of equity instruments reflecting, or valued by reference to, our common stock. Long-term incentive awards are generally made on an annual basis and are subject to a multi-year vesting schedule which helps ensure that award recipients always have significant value tied to long-term stock price performance. The Compensation Committee believes that the combination of granting the majority of long-term incentives in the form of option awards, together with the Company stock actually owned by our executives, appropriately links the long-term interests of executives and stockholders, and balances the short-term nature of annual incentive cash bonuses and any incentives for undue risk-taking in our other compensation arrangements. Equity Incentive Plans As of the date of this prospectus, our employees and directors hold outstanding stock options for the purchase of up to approximately 35,803 shares of Parent's common stock. Those options were granted under the AMC Entertainment Holdings, Inc. Amended and Restated 2004 Stock Option Plan (the "2004 Plan") and our 2010 Equity Incentive Plan. As of January 21, 2011, approximately 14,179 of those options had vested and the balance were not vested. The exercise prices of the outstanding options ranged from $323.95 per share to $752 per share and each of those options had a maximum term of ten years from the applicable date of grant. The following sections provide more detailed information concerning our incentive plans and the shares that are available for future awards under these plans. Each summary below is qualified in its entirety by the full text of the relevant plan document and/or option agreement, which has been filed with the Securities and Exchange Commission and is an exhibit to the Form S-1 Registration Statement of which this prospectus is a part and is available through the Securities and Exchange Commission's internet site at http://www.sec.gov. 2004 Plan We adopted the 2004 Plan as amended and restated as of July 11, 2007. Under the 2004 Plan, we are generally authorized to grant options to purchase shares of our common stock to certain of our employees, non-employee directors and consultants and certain employees of our subsidiaries. Options under the 2004 Plan are either incentive stock options, within the meaning of Section 422 of the Internal Revenue Code, or nonqualified stock options. All options granted under the plan expire no later than ten years from their date of grant. No new awards will be granted under the 2004 Plan after the consummation of this exchange offer. Our Compensation Committee administers the 2004 Plan. As is customary in incentive plans of this nature, the number of shares subject to outstanding awards under the 2004 Plan and the exercise prices of those awards, are subject to adjustment in the event of changes in our capital structure, reorganizations and other extraordinary events. In the event of a corporate event (as defined in the plan), the plan administrator has discretion to provide for the accelerated vesting of awards, among other things. Our board of directors or our Compensation Committee may amend or terminate the 2004 Plan at any time. The 2004 Plan requires that certain amendments, to the extent required by applicable law or any applicable listing agency or deemed necessary or advisable by the board of directors, be submitted to stockholders for their approval. 2010 Equity Incentive Plan On July 8, 2010, our board of directors and our stockholders approved the adoption of the AMC Entertainment Holdings, Inc. 2010 Equity Incentive Plan (the "2010 Plan"). Purpose. The purpose of the 2010 Plan is to attract, retain and motivate the officers, employees, non-employee directors, and consultants of us, and any of our subsidiaries and affiliates and to promote the success of our business by providing the participants with appropriate incentives. Administration. The 2010 Plan will be administered by the Compensation Committee. Available Shares. The aggregate number of shares of Parent's common stock for delivery pursuant to awards granted under the 2010 Plan is 39,312 shares (subject to adjustment), which may be either authorized and unissued shares of our common stock or shares of common stock held in or acquired in treasury. Subject to adjustment as provided for in the 2010 Plan, (i) the number of shares available for granting incentive stock options under the 2010 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 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 2010 Plan. Eligibility. Directors, officers and other employees of us and of any of our subsidiaries and affiliates, as well as others performing consulting services for us or any of our subsidiaries or affiliates will be eligible for grants under the 2010 Plan. Awards. The 2010 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. Award agreements under the 2010 Plan generally have the following features, subject to change by the Compensation Committee:
"Change of Control" unless otherwise specified in the award agreement, means an event or series of events that results in any of the following: (a) a change in our ownership occurs on the date that any one person or more than one person acting as a group (as determined under Treasury Regulation Section 1.409A-3(i)(5)(v)(B)), other than our subsidiaries, acquires ownership of our stock that, together with stock held by such person or group, constitutes more than fifty percent (50%) of our total voting power. However, if any one person (or more than one person acting as a group) is considered to own more than fifty percent (50%) of the total fair market value or total voting power of our stock prior to the acquisition, any acquisition of additional stock by the same person or persons is not considered to cause a change in our ownership; (b) a change in our effective control occurs if, during any twelve-month period, the individuals, who at the beginning of such period constitute our board of directors (the "Incumbent Board"), cease for any reason to constitute at least a majority of the board of directors, provided, however, that if the election, or nomination for election by our stockholders, of any new director was approved by a vote of at least a majority of the Incumbent Board, such new director shall be considered a member of the Incumbent Board, and provided, further, that any reductions in the size of the Board that are instituted voluntarily by the Incumbent Board shall not constitute a "Change of Control", and after any such reduction the "Incumbent Board" shall mean the board of directors as so reduced; or (c) a change in the ownership of a substantial portion of our assets occurs on the date that any one person, or more than one person acting as a group (as determined under Treasury Regulation Section 1.409A-3(i)(5)(v)(B)), other than any of our subsidiaries, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) our assets that have a total gross fair market value of more than fifty percent (50%) of the total gross fair market value of all our assets immediately prior to such acquisition or acquisitions. For this purpose, gross fair market value means the value of our assets, or the value of the assets being disposed of, determined in good faith by the board of directors without regard to any liabilities associated with such assets; provided, that, in no event shall a Change of Control be deemed to occur under clause (a), (b) or (c) hereof, for purposes of the 2010 Plan and any award agreement, as a result of (i) an initial public offering of our stock or (ii) a change in the majority of the Incumbent Board in connection with an initial public offering of our stock or a secondary public offering of our stock. "Cause" means, (i) a material breach by the participant of any of the participant's obligations under any written agreement with us or any of our affiliates, (ii) a material violation by the participant of any of our policies, procedures, rules and regulations applicable to employees generally or to similarly situated employees, in each case, as they may be amended from time to time in our sole discretion; (iii) the failure by the participant to reasonably and substantially perform his or her duties to us or our affiliates (other than as a result of physical or mental illness or injury) or the failure by the participant to comply with reasonable directives of our board of directors; (iv) the participant's willful misconduct (including abuse of controlled substances) or gross negligence that is injurious to us, our affiliates or any of our respective customers, clients or employees; (v) the participant's fraud, embezzlement, misappropriation of funds or beach of fiduciary duty against us or any of our affiliates (or any predecessor thereto or successor thereof); or (vi) the commission by the participant of a felony or other serious crime involving moral turpitude. Notwithstanding the foregoing, if the participant is a party to an employment agreement with us or any of our affiliates at the time of his or her termination of employment and such employment agreement contains a different definition of "cause" (or any derivation thereof), the definition in such employment agreement will control for purposes of the award agreement. In consideration for the grants of the awards, the award agreements subject the participants to certain restrictive covenants and confidentiality obligations. Adjustment. In the event of any corporate event or transaction involving us, any of our subsidiaries and/or affiliates such as a merger, reorganization, capitalization, stock split, spin-off, or any similar corporate event or transaction, the Compensation Committee will, to prevent dilution or enlargement of participants' rights under the 2010 Plan, substitute or adjust in its sole discretion the awards. Amendment and Termination. Subject to the terms of the 2010 Plan, the Compensation Committee, in its sole discretion, may amend, alter, suspend, discontinue or terminate the 2010 Plan, or any part thereof or any award (or award agreement), at any time. In the event any award is subject to Section 409A of the Internal Revenue Code of 1986, as amended ("Section 409A"), the Compensation Committee may amend the 2010 Plan and/or any award agreement without the applicable participant's prior consent to exempt the 2010 Plan and/or any award from the application of Section 409A, preserve the intended tax treatment of any such award or comply with the requirements of Section 409A. Equity Compensation Plan Information The following is a summary of securities authorized for issuance under Parent's equity compensation plans as of April
All of the issued and outstanding capital stock of AMCE is owned by Holdings, and all of the issued and outstanding capital stock of Holdings is owned by Parent. Parent has common stock issued and outstanding. The table below sets forth certain information regarding beneficial ownership of the common stock of Parent held as of December 30, 2010 by (i) each of its directors and
1,011.31 shares of Class A-1 common stock and 1,011.31 shares of Class A-2 common stock owned by J.P. Morgan Partners Global Investors Cayman II, L.P., 2,767.70 shares of Class A-1 common stock and 2,767.70 shares of Class A-2 common stock owned by AMCE (Ginger), L.P., 1,330.19 shares of Class A-1 common stock and 1,330.19 shares of Class A-2 common stock owned by AMCE (Luke), L.P., 2,881.66 shares of Class A-1 common stock and 2,881.66 shares of Class A-2 common stock owned by J.P. Morgan Partners Global Investors (Selldown), L.P., 3,217.09 shares of Class A-1 common stock and 3,217.09 shares of Class A-2 common stock owned by AMCE (Scarlett), L.P., 12,661.15 shares of Class A-1 common stock and 12,661.15 shares of Class A-2 common stock owned by J.P. Morgan Partners Global Investors (Selldown) II, L.P., 1,253.55 shares of Class A-1 common stock and 1,253.55 shares of Class A-2 common stock owned by J.P. Morgan Partners Global Fund/AMC /Selldown II, L.P., 7,260.06 shares of Class A-1 common stock and 7,260.06 shares of Class A-2 common stock owned by J.P. Morgan Partners Global Investors (Selldown) II-C, L.P., (collectively, the "Global Investor Funds") and 75,141.71 shares of Class A-1 common stock and 75,141.71 shares of Class A-2 common stock owned by J.P. Morgan Partners (BHCA), L.P. ("JPMP BHCA"). The general partner of the Global Investor Funds is JPMP Global Investors, L.P. ("JPMP Global"). The general partner of JPMP BHCA is JPMP Master Fund Manager, L.P. ("JPMP MFM"). The general partner of JPMP Global and JPMP MFM is JPMP Capital Corp. ("JPMP Capital"), a wholly owned subsidiary of JPMorgan Chase & Co., a publicly traded company ("JPM Chase"). Each of JPMP Global, JPMP MFM and JPMP Capital may be deemed, pursuant to Rule 13d-3 under the Exchange Act, to beneficially own the shares held by the Global Investor Funds and JPMP BHCA. Each of JPMP Global, JPMP MFM and JPMP Capital disclaims beneficial ownership of such shares. Voting and investment control over the shares held by the Global Investor Funds and JPMP BHCA is exercised by an investment committee of JPMP Capital. Members of this committee are Ina Drew, John Wilmot and Ana Capella Gomez-Acebo, each of whom disclaims beneficial ownership of such shares.
Management, L.P. ("Apollo Management") is the sole member and manager of AIF V LLC. Each of Advisors V, ACM V, Management V, AIF V LLC and Apollo Management disclaim beneficial ownership of all shares of common stock owned by the Apollo Funds. The address of the Apollo Funds, Advisors V, Management V, AIF V LLC and Apollo Management is c/o Apollo Management, L.P., Two Manhattanville Road, Suite 203, Purchase, New York 10017.
Parallel IV, L.P. whose general partner is Spectrum Equity Associates IV, L.P., and (iii) 732.40 shares of Class L-1 common stock and 732.40 shares of Class L-2 common stock owned by Spectrum IV Investment Managers' Fund, L.P. Kevin Maroni is a Senior Managing Director of Spectrum and disclaims beneficial ownership of any shares beneficially owned by Spectrum. The address of Mr. Maroni and Spectrum Equity Investors is c/o Spectrum Equity Investors, One International Place,
The Company seeks to ensure that all transactions with related parties are fair, reasonable and in their best interest. In this regard, generally the board of directors or one of the committees reviews material transactions between the Company and related parties to determine that, in their best business judgment, such transactions meet that standard. The Company believes that each of these transactions Parent is owned by the Sponsors, other co-investors and by certain members of management as follows: JPMP (20.839%); Apollo (20.839%); Bain Capital Partners (15.13%); The Carlyle Group (15.13%); Spectrum Equity Investors (9.79%); Weston Presidio Capital IV, L.P. and WPC Entrepreneur Fund II, L.P. (3.91%); Co-Investment Partners, L.P. (3.91%); Caisse de Depot et Placement du Quebec (3.128%); AlpInvest Partners CS Investments 2003 C.V., AlpInvest Partners Later Stage Co-Investments Custodian II B.V. and AlpInvest Partners Later Stage Co-Investments Custodian IIA B.V. (2.737%); SSB Capital Partners (Master Fund) I, L.P. (1.955%); CSFB Strategic Partners Holdings II, L.P., CSFB Strategic Partners Parallel Holdings II, L.P., and GSO Credit Opportunities Fund (Helios), L.P. (1.564%); Credit Suisse Anlagestiftung, Pearl Holding Limited, Vega Invest (Guernsey) Limited and Partners Group Private Equity Performance Holding Limited (0.782%); Screen Investors 2004, LLC (0.152%); and current and former members of management (0.134%)(1).
For a description of certain employment agreements between us and Messrs. Gerardo I. Lopez, John D. McDonald, Craig R. Ramsey, Kevin M. Connor and Mark A. McDonald, see "Management—Executive Compensation." Governance Agreements In connection with the holdco merger, Parent, Holdings, the Sponsors and the other former continuing stockholders of Holdings, as applicable, entered into various agreements defining the rights of Parent's stockholders with respect to voting, governance and ownership and transfer of the stock of Parent, including an Amended and Restated Certificate of Incorporation of Parent, a Stockholders Agreement, a Voting Agreement among Parent and the former continuing stockholders of Holdings, a Voting Agreement among Parent and the BCS Investors and a Management Stockholders Agreement among Parent and certain members of management of Parent who are stockholders of Parent (collectively, the "Governance Agreements"). The Governance Agreements provide that the Board of Directors for Parent, Holdings and the Company will consist of up to nine directors, two of whom shall be designated by JPMP, two of whom shall be designated by Apollo, one of whom shall be the Chief Executive Officer of Parent, one of whom shall be designated by The Carlyle Group, one of whom shall be designated by Bain Capital Partners, one of whom shall be designated by Spectrum Equity Investors and one of whom shall be designated by Bain Capital Partners, The Carlyle Group and Spectrum Equity Investors, voting together, so long as such designee is consented to by each of Bain Capital Partners and The Carlyle Group. Each of the directors respectively designated by JPMP, Apollo, The Carlyle Group, Bain Capital Partners and Spectrum Equity Investors shall have three votes on all matters placed before the Board of Directors of Parent, Holdings and AMCE and each other director will have one vote each. The number of directors respectively designated by the Sponsors will be reduced upon transfers by such Sponsors of ownership in Holdings below certain thresholds. The Voting Agreement among Parent, and the Holdings (other than Apollo and JPMP) will generally vote their voting shares of capital stock of Parent in favor of any matter in proportion to the shares of capital stock of Apollo and JPMP voted in favor of such matter, except in certain specified instances. The Voting Agreement among Parent and the BCS Investors further provide that during the Blockout Period, the BCS Investors will generally vote their voting shares of capital stocks of Parent on any matter as directed by any two of The Carlyle Group, Bain Capital Partners and Spectrum Equity Investors, except in certain specified instances. In addition, certain actions of Parent, Holdings and/or actions of ours, including, but not limited to, change in control transactions, acquisition or disposition transactions with a value in excess of $10,000,000, the settlement of claims or litigation in excess of $2,500,000, an initial public offering of Parent, hiring or firing a chief executive officer, chief financial officer or chief operating officer, incurring or refinancing indebtedness in excess of $5,000,000 or engaging in new lines of business, require the approval of either (i) any three of JPMP, Apollo, The Carlyle Group or Bain Capital Partners or (ii) Spectrum Equity Investors and (a) either JPMP or Apollo and (b) either The Carlyle Group or Bain Capital Partners (the "Requisite Stockholder Majority") if at such time they hold at least a majority of Parent's voting shares. Prior to the earlier of the end of the Blockout Period and the completion of an initial public offering of the capital stock of Parent, Holdings or AMCE (an "IPO"), the Governance Agreements prohibit the Sponsors and the other former stockholders of Parent from transferring any of their interests in Parent, other than certain permitted transfers to affiliates or to persons approved of by the Sponsors. Following the end of the Blockout Period, the Sponsors may transfer their shares subject to the rights described below. The Governance Agreements set forth additional transfer provisions for the Sponsors and the other former stockholders of Holdings with respect to the interests in Parent, including the following: Right of first offer. After the Blockout Date and prior to an IPO, Parent and, in the event Parent does not exercise its right of first offer, each of its stockholders, has a right of first offer to purchase (on a pro rata basis in the case of the stockholders) all or any portion of the shares of Parent that a stockholder is proposing to sell to a third party at the price and on the terms and conditions offered by such third party. Drag-along rights. If, prior to an IPO, Sponsors constituting a Requisite Stockholder Majority propose to transfer shares of Parent to an independent third party in a bona fide arm's-length transaction or series of transactions that results in a sale of all or substantially all of Parent or us, such Sponsors may elect to require each of the other stockholders of Parent to transfer to such third party all of its shares at the purchase price and upon the other terms and subject to the conditions of the sale. Tag-along rights. Subject to the right of first offer described above, if any stockholder proposes to transfer shares of Parent held by it, then such stockholder shall give notice to each other stockholder, who shall each have the right to participate on a pro rata basis in the proposed transfer on the terms and conditions offered by the proposed purchaser. Participant rights. On or prior to an IPO, the Sponsors have the pro rata right to subscribe to any issuance by Parent or any subsidiary of shares of its capital stock or any securities exercisable, convertible or exchangeable for shares of its capital stock, subject to certain exceptions. The Governance Agreements also provide for certain registration rights in the event of an initial public offering of Parent, including the following: Demand rights. Subject to the consent of at least two of any of JPMP, Apollo, The Carlyle Group and Bain Capital Partners during the first two years following an IPO, each Sponsor has the right at any time following an IPO to make a written request to Parent for registration under the Securities Act of part or all of the registrable equity interests held by such stockholders at Parent's expense, subject to certain limitations. Subject to the same consent requirement, the non-Sponsor stockholders of Parent as a group shall have the right at any time following an IPO to make one written request to Parent for registration under the Securities Act of part or all of the registrable equity interests held by such stockholders with an aggregate offering price to the public of at least $200,000,000. Piggyback rights. If Parent at any time proposes to register under the Securities Act any equity interests on a form and in a manner which would permit registration of the registrable equity interests held by stockholders of Parent for sale to the public under the Securities Act, Parent shall give written notice of the proposed registration to each stockholder, who shall then have the right to request that any part of its registrable equity interests be included in such registration, subject to certain limitations. Holdback agreements. Each stockholder has agreed that it will not offer for public sale any equity interests during a period not to exceed 90 days (180 days in the case of the IPO) after the effective date of any registration statement filed by Parent in connection with an underwritten public offering (except as part of such underwritten registration or as otherwise permitted by such underwriters), subject to certain limitations. Amended and Restated Fee Agreement In connection with the holdco merger, Parent, Holdings, AMCE and the Sponsors entered into a 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 twelfth anniversary from December 23, 2004, and such time as the Sponsors own less than 20% in the aggregate of Parent. In addition, the fee agreement provides for reimbursements by AMCE to the Sponsors for their out-of-pocket expenses and to Parent of up to $3,500,000 for fees payable by Parent in any single fiscal year in order to maintain its corporate existence, corporate overhead expenses and salaries or other compensation of certain employees. 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 December 30, 2010, the Company estimates this amount would be $26.1 million should a change in control transaction or an IPO occur. The fee agreement also provides that AMCE 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.
In February 2007, Mr. Travis Reid was hired as the chief executive officer of DCIP, a joint venture between AMCE, Cinemark USA and Regal formed to
owned to DCIP which were recorded at estimated fair value as part of Market Making Transactions On August 18, 2004, Holdings sold 2019. On January 26, 2006, On December 15, 2010, we sold $600.0 million in aggregate principal amount of our 9.75% Senior Subordinated Notes due 2020. J.P. Morgan Securities LLC, an affiliate of J.P. Morgan Partners, LLC which owns approximately 20.8% of Holdings, was AMCE Dividend to Holdings On April 3, 2008, the Company declared and made distributions to or for the benefit of Holdings in the amount of $21,830,000 which has been recorded by the Company as a reduction to additional paid-in capital. The distribution included $3,279,000 of advances made by the Company on behalf of Holdings prior to fiscal 2008 and $18,551,000 of cash advances made during fiscal 2008, including payment of interest on the Holdings Discount Notes due 2014 of $14,447,700. In connection with the holdco merger, AMCE paid a dividend to Holdings of $275,000,000 which has been recorded by the Company as a reduction to additional paid-in capital. During fiscal 2009, AMCE used cash on hand to pay dividend distributions to Holdings in an aggregate amount of $35,989,000. Holdings and Parent used the available funds to make cash interest payments on the
During April and May of 2009, AMCE made dividend payments to its stockholder, Holdings, and Holdings made dividend payments to its stockholder, Parent, totaling During September of 2009 and March of 2010, AMCE used cash on hand to pay a dividend distribution to Holdings in an aggregate amount of $15,351,000 and $14,630,000, respectively. Holdings and Parent used the available funds to make a cash interest payment on the Holdco Notes and pay corporate overhead expenses incurred in the ordinary course of business. During September of 2010, AMCE made dividend payments to Holdings, and Holdings made dividend payments to Parent, totaling $15,184,000. Holdings and Parent used the available funds to make a cash interest payment on the Marquee Notes and pay corporate overhead expenses incurred in the ordinary course of business. During December of 2010, AMCE made dividend payments to Holdings, totaling $261,175,000. Holdings used the available funds to pay the consideration for the Marquee Notes Cash Tender Offer and the redemption of all of Marquee Notes that remained outstanding after the closing of the Marquee Notes Cash Tender Offer. Director Independence As of May 7, 2010, our Board of Directors was comprised of Dana B. Ardi, Gerardo I. Lopez, Phillip H. Loughlin, Kevin Maroni, Eliot P. S. Merrill, Stephen P. Murray, Stan Parker, Travis Reid and Aaron J. Stone. We have no securities listed for trading on a national securities exchange or in an automated inter-dealer quotation system of a national securities association which has requirements that a majority of our board of directors be independent. For purposes of complying with the disclosure requirements of the Securities and Exchange Commission, we have adopted the definition of independence used by the New York Stock Exchange. Under the New York Stock Exchange's definition of independence, none of our directors are independent.
The following is a summary of provisions relating to our indebtedness. Senior Secured Credit Facility The senior secured credit facility, as amended on December 15, 2010, is being provided by a syndicate of banks and other financial institutions and provides financing of up to $850.0 million, consisting of a:
The revolving credit facility includes borrowing capacity available for letters of credit and for borrowings on same-day notice, referred to as the swingline loans. Interest Rate and Fees The borrowings under the senior secured credit facility bear interest at a rate equal to an applicable margin plus, at our option, either (a) a base rate determined by reference to the higher of (1) the base rate of Citibank, N.A. and (2) the federal funds rate plus1/2 of 1% or (b) a LIBOR rate determined by reference to the offered rate for deposits in U.S. dollars appearing on the applicable Telerate screen for the interest period relevant to such borrowing adjusted for certain additional reserves. The initial applicable margin for borrowings under the revolving credit facility is facility is 2.25% with respect to base rate borrowings and 3.25% with respect to LIBOR borrowings (which margins may be reduced subject to our attaining certain leverage ratios), the initial applicable margin for borrowings of term B-1 loans under the term loan facility is 0.75% with respect to base rate borrowings and 1.75% with respect to LIBOR borrowings In addition to paying interest on outstanding principal under the senior secured credit facility, we were required to pay a commitment fee to the lenders under the revolving credit facility in respect of the unutilized commitments thereunder at a rate equal to Prepayments The senior secured credit facility requires us to prepay outstanding term loans, subject to certain exceptions, with:
We may voluntarily repay outstanding loans under the senior secured credit facility at any time without premium or penalty, other than customary "breakage" costs with respect to LIBOR loans. Amortization The balance of term B-1 loans and term B-2 loans made under the term loan facility
Principal amounts outstanding under the revolving credit facility are due and payable in full at maturity Guarantee and Security All obligations under the senior secured credit facility are unconditionally guaranteed by, subject to certain exceptions, each of our existing and future direct and indirect wholly-owned domestic subsidiaries. All obligations under the senior secured credit facility, and the guarantees of those obligations (as well as cash management obligations and any interest hedging or other swap agreements), are secured by substantially all of our assets as well as those of each subsidiary guarantor, including, but not limited to, the following, and subject to certain exceptions:
Certain Covenants and Events of Default The senior secured credit facility contains a number of covenants that, among other things, restrict, subject to certain exceptions, our ability, and the ability of our subsidiaries, to:
In addition, the senior secured credit facility requires us, commencing with fiscal quarter ended September 28, 2006, to maintain a maximum net senior secured leverage ratio as long as the commitments under the revolving credit facility remain outstanding. The senior secured credit facility also contains certain customary affirmative covenants and events of default.
On June 9, 2009, we sold $600 million aggregate principal amount of our 8.75% Senior Notes On February 24, 2004, we sold $300.0 million aggregate principal amount of our 8% our option, in whole or in part, at any time on or after March 1, 2009 at 104.000% of the principal amount thereof, declining ratably to 100% of the principal amount thereof on or after March 1, 2012, plus interest accrued to the redemption date. The Notes due 2014 are unsecured and are subordinated to all Notes due On On December 30, 2010, we issued an irrevocable notice of redemption in respect of the $229.9 million principal amount of 2016 Senior Subordinated Notes
Parent Term Loan Facility On June 13, 2007, our Parent entered into a General You can find the definitions of certain terms used in this description under "—Certain Definitions." In this description, the words "we," "us," "our," the issuer," and the "Company" refer only to AMC Entertainment Inc. and not to any of its subsidiaries. The Company issued $600.0 million in aggregate principal amount of The Issuer will issue the exchange notes under the Indenture. The terms of the exchange notes are identical in all material respects to the original notes except that upon completion of the exchange offer, the exchange notes will be registered under the Securities Act and free of any covenants regarding exchange registration rights. References to the "notes" refer to both the original notes and exchange notes. The following description is only a summary of the material provisions of the Indenture and Registration Rights Agreement and does not purport to be complete and is qualified in its entirety by reference to the provisions of those agreements, including the definitions therein of certain terms used below. We urge you to read the Indenture and the Registration Rights Agreement because those agreements, not this description, define your rights as holders of the notes. You may request copies of the Indenture and Registration Rights Agreement at our address set forth address indicated under "Where You Can Find More Information About Us." Certain defined terms used in this description but not defined below under "Certain Definitions" have the meanings assigned to them in the indenture. Brief Description of the Notes and the Guarantees The notes:
The Guarantees:
Principal, Maturity and Interest The notes will mature on Limitation on Consolidated Interest on the notes will accrue at a rate of Interest on the notes will accrue from the date of original issuance or, if interest has already been paid, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Any additional interest payable as a result of any such increase in interest rate is referred to as "Special Interest."
The payment of all Obligations in respect of the notes In the event of any:
the holders of Senior Indebtedness of the Company or such Guarantor, as the case may be, will first be entitled to receive payment in full in cash or Cash Equivalents of all Senior Indebtedness, or provision shall be made for such payment in full in cash or Cash Equivalents to the satisfaction of the holders of Senior Indebtedness, before the Holders will be entitled to receive any payment or distribution of any kind or character from any source (other than any payment or distribution in the form of Permitted Junior Securities) on account of all Obligations in respect of the notes or on account of the purchase, deposit for defeasance or redemption or other acquisition of notes. As of September 30, 2010, as adjusted to give effect to the original notes offering and
Ranking The notes are unsecured obligations of the Company and the Subsidiary Guarantees are unsecured obligations of the Guarantors. Secured Indebtedness of the Company and the Guarantors will be effectively senior to the notes and the Subsidiary Guarantees, respectively, to the extent of the value of the assets No payment (other than any payments made pursuant to the provisions described under "—Defeasance and Covenant Defeasance of the Indenture" from monies or No payment (other than any payments made pursuant to the provisions described under "—Defeasance and Covenant Defeasance of the The Payment Blockage Period will commence upon the date of receipt by the Trustee of written notice from such representative and shall end on the earliest of: (1) 179 days thereafter (provided any Designated Senior Indebtedness as to which notice was given shall not theretofore have been accelerated, in which case the provisions of the second preceding paragraph shall apply); (2) the date on which such Non-payment Default is cured, waived or ceases to exist; (3) such Designated Senior Indebtedness has been discharged or paid in full in cash or Cash Equivalents; or (4) such Payment Blockage Period shall have been terminated by written notice to the Trustee from the representative initiating such Payment Blockage Period; after which the Company will resume making any and all required payments in respect of the notes, including any missed payments. In any event, not more than one Payment Blockage Period may be commenced during any period of 365 consecutive days. No event of default that the basis for the commencement of a subsequent Payment Blockage Period, unless such default has been cured or waived for a period of not less than 90 consecutive days. In the event that, notwithstanding the foregoing, the Trustee or any holder of the notes shall have received any payment prohibited by the foregoing, then such payment shall be paid over to the representatives of such Designated Senior Indebtedness initiating the Payment Blockage Period, to be held in trust for distribution to the holders of Senior Indebtedness or, to the extent amounts are not then due in respect of Senior Indebtedness, prompt return to the Company, or otherwise as a court of competent jurisdiction shall direct. Failure by the Company to make any required payment in respect of the notes when due or within any applicable grace period, whether or not occurring during a Payment Blockage Period, will result in an Event of Default and, thereafter, holders will have the right to require repayment of the notes in full. See "—Events of Default." By reason of such subordination, in the event of liquidation, receivership, reorganization or insolvency of the Company, creditors of the Company who are holders of Senior Indebtedness may recover more, ratably, than the holders of the notes, and assets which would otherwise be available to pay obligations The Subsidiary Guarantee of each of the Guarantors will be subordinated to Senior Indebtedness of such Guarantor to the same extent and in the same manner as the notes are subordinated to Senior Indebtedness of the Company. Payments under the Subsidiary All of the Company's operations are conducted through its subsidiaries. Therefore, the Company's ability to service its Indebtedness, including the notes, is dependent upon the earnings of its subsidiaries and their ability to distribute those earnings as dividends, loans or other payments to the Company. Certain laws restrict the ability of the Company's subsidiaries to pay dividends and make loans and advances to the Company. If these restrictions apply to subsidiaries that are not Guarantors, then the Company would not be able to use the earnings of these subsidiaries to make payments on the notes. In addition, the Company only has a stockholder's claim on the assets of its subsidiaries. This stockholder's claim is junior to the claims that creditors and holders of Preferred Stock of the Company's subsidiaries have against those subsidiaries. Not all of our subsidiaries will Guarantee the notes. The notes are Guaranteed by each of our subsidiaries that Guarantees any of our other Indebtedness, including the Credit non-guarantor subsidiaries will pay the holders of their debt and trade creditors before they will be able to distribute any of their assets to us. The notes are effectively subordinated in right of payment to existing and future liabilities of our See "Risk Factors—Risks Related to Our Indebtedness and Subsidiary Guarantees The Guarantors, jointly and severally, fully and unconditionally guarantee on a senior subordinated unsecured basis the Company's obligations under the notes and all obligations under the Indenture. Although the Indenture limits the amount of Indebtedness that Subsidiaries may Incur, such Indebtedness may be substantial and a significant portion of it may be Indebtedness of Guarantors The Indenture governing the notes provides that the obligations of each Guarantor under its Subsidiary Guarantee are limited as necessary to prevent that Subsidiary Guarantee from constituting a fraudulent conveyance or fraudulent transfer under applicable law. In the event a Guarantor is sold or disposed of (whether by merger, consolidation, the sale of its Capital Stock or the sale of all or substantially all of its assets (other than by lease)) and whether or not the Guarantor is the surviving entity in such a transaction involving a Person that is not the Company or a Subsidiary of the Company, such Guarantor will be released from its obligations under the Indenture, its Subsidiary Guarantee and the Registration Rights Agreement if: (1) no Default or Event of Default will have occurred or be continuing or would occur as a consequence of a release of the obligations of such Guarantor; and (2) all the obligations of such Guarantor under the Credit Agreement and related documentation and any other obligations of such Guarantor relating to any other Indebtedness of the Company or its Subsidiaries terminate upon consummation of such transaction. In addition, a Guarantor will be released from its obligations under the Indenture, its Subsidiary Guarantee and the Registration Rights Agreement if (1) the conditions relating to legal defeasance are satisfied in accordance with the Indenture or (2) the Company designates such Subsidiary as an Unrestricted Subsidiary and such designation complies with the other provisions of the Indenture. Sinking Fund The notes will not be entitled to the benefit of any sinking fund. Optional Redemption The notes will not be redeemable at the option of the Company prior to period commencing on
Prior to (1) at least 65% of the original aggregate principal amount of the notes remains outstanding after each such redemption; and (2) the redemption occurs within 90 days after the closing of such Equity Offering. If less than all of the notes are to be redeemed at any time, selection of notes for redemption will be made by the Trustee not more than 60 days prior to the redemption date by such method as the Trustee shall deem fair and appropriate;provided, Certain Covenants Limitation on Consolidated Indebtedness. The Company will not, and will not permit any of its Subsidiaries to, Incur any Indebtedness unless after giving effect to such event on a pro forma basis, For purposes of determining compliance with this covenant, in the event that an item of Indebtedness (or any portion thereof) meets the criteria of one or more of the categories of Permitted Indebtedness reclassify, or later divide, classify or reclassify, such item of Indebtedness (or any portion thereof) in any manner that complies with this covenant. Accrual of interest, the accretion of accreted value, amortization of original issue discount, the payment of interest in the form of additional Indebtedness with the same terms or in the form of common stock of the Company, the payment of dividends on Preferred Stock in the form of additional shares of Preferred Stock of the same class, the accretion of original issue discount or liquidation preference and increases in the amount of Indebtedness outstanding solely as a result of fluctuations in the exchange rate of currencies or increases in the value of property securing Indebtedness described in clause (3) of the definition of "Indebtedness" will not be deemed to be an Incurrence of Indebtedness for purposes of this covenant. Guarantees of, or obligations in respect of letters of credit relating to, Indebtedness which is otherwise included in the determination of a particular amount of Indebtedness shall not be included in the determination of such amount of Indebtedness;provided, however, that the Incurrence of the Indebtedness represented by such guarantee or letter of credit, as the case may be, was in compliance with this covenant. Limitation on Restricted Payments. The Company will not, and will not permit its Subsidiaries to, directly or indirectly: (1) declare or pay any dividend on, or make any distribution in respect of, any shares of the Company's or any Subsidiary's Capital Stock (excluding dividends or distributions payable in shares of the Company's Capital Stock or in options, warrants or other rights to purchase such Capital Stock, but including dividends or distributions payable in Redeemable Capital Stock or in options, warrants or other rights to purchase Redeemable Capital Stock (other than dividends on such Redeemable Capital Stock payable in shares of such Redeemable Capital Stock)) held by any Person other than the Company or any of its Wholly Owned Subsidiaries; or (2) purchase, redeem or acquire or retire for value any Capital Stock of the Company or any Affiliate thereof (other than any Wholly Owned Subsidiary of the Company) or any options, warrants or other rights to acquire such Capital Stock;
(such payments or any other actions described in (1) (a) no Default or Event of Default shall have occurred and be continuing; (b) the Company could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under the provisions of "—Limitation on Consolidated Indebtedness"; and (c) the aggregate amount of all Restricted Payments (other than Restricted Payments permitted by clause (i) (x) Consolidated EBITDA for the Restricted Payments Computation Period, minus (y) 1.70 times Consolidated Interest Expense for the Restricted Payments Computation Period (which commenced on April 2, 2009);plus (ii) the aggregate net proceeds, including the Fair Market Value of property other than cash (as determined by the Board of Directors, whose determination shall be conclusive, except that for any property whose Fair Market Value exceeds $10.0 million such Fair Market Value shall be confirmed by an independent appraisal obtained by the Company), received after the Issue Date by the Company from the issuance or sale (other than to any of its Subsidiaries) of shares of Capital Stock of the Company (other than Redeemable Capital Stock) or warrants, options or rights to purchase such shares of Capital Stock;plus (iii) the aggregate net proceeds, including the Fair Market Value of property other than cash (as determined by the Board of Directors, whose determination shall be conclusive, except that for any property whose Fair Market Value exceeds $10.0 million such Fair Market Value shall be confirmed by an independent appraisal obtained by the Company), received after the Issue Date by the Company from debt securities that have been converted into or exchanged for Capital Stock of the Company (other than Redeemable Capital Stock) to the extent such debt securities were originally sold for such net proceeds plus the aggregate cash received by the Company at the time of such conversion. As of September 30, 2010, as adjusted to give effect to the original notes offering and the use of proceeds thereof, the Company would have been able to make approximately $328.2 million of restricted payments under the foregoing clause (c) and clause (6) below;provided that the Company's ability to make restricted payments may be further restricted by the other limitations set forth in this covenant, by the covenants governing the Company's other Indebtedness or by applicable law. Notwithstanding the foregoing limitation, the Company or any of its Subsidiaries may: (1) pay dividends on its Capital Stock within sixty days of the declaration thereof if, on the declaration date, such dividends could have been paid in compliance with the foregoing limitation; (2) acquire, redeem or retire Capital Stock in exchange for, or in connection with a substantially concurrent issuance of, Capital Stock of the Company (other than Redeemable Capital Stock); (3)
(a) the amounts required for any direct or indirect parent to pay franchise taxes and other fees required to maintain its legal existence; and (b) an amount not to exceed $3.5 million in any fiscal year to permit any direct or indirect parent to pay its corporate overhead expenses Incurred in the ordinary course of business, and to pay salaries or other compensation of employees who perform services for any such parent and the Company;
Limitation on Transactions with Affiliates. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly enter into or suffer to exist any transaction or series of related transactions (including, without limitation, the sale, purchase, exchange or lease of assets, property or services) with any Affiliate of the Company (other than a Wholly Owned Subsidiary of the Company) involving aggregate consideration in excess of $5.0 million, unless: (1) such transaction or series of transactions is on terms that are no less favorable to the Company or such Subsidiary, as the case may be, than would be available at the time of such transaction or series of transactions in a comparable transaction in an arm's-length dealing with an unaffiliated third party; (2) such transaction or series of transactions is in the best interests of the Company; and (3) with respect to a transaction or series of transactions involving aggregate payments equal to or greater than $50.0 million, a majority of disinterested members of the Board of Directors determines that such transaction or series of transactions complies with clauses (1) and (2) above, as evidenced by a Board Resolution. Notwithstanding the foregoing limitation, the Company and its Subsidiaries may enter into or suffer to exist the following: (1) any transaction pursuant to any contract in existence on the Issue Date; (2) any Restricted Payment permitted to be made pursuant to the provisions of "—Limitation on Restricted Payments" above; (3) any transaction or series of transactions between the Company and one or more of its Subsidiaries or between two or more of its Subsidiaries (provided that no more than 5% of the equity interest in any such Subsidiary is owned, directly or indirectly (other than by direct or indirect ownership of an equity interest in the Company), by any Affiliate of the Company other than a Subsidiary); (4) the payment of compensation (including amounts paid pursuant to employee benefit plans) for the personal services of officers, directors and employees of the Company or any of its Subsidiaries; and (5) the existence of, or the performance by the Company or any of its Subsidiaries of its obligations under the terms of, any agreements that are described in this prospectus under the headings "Management" and "Certain Relationships and Related Party Transactions" and any amendments thereto;provided, Limitation on
Future Guarantors. After the Issue Date, the Company will cause each Subsidiary which guarantees obligations under the Credit SEC Reports Notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file with the Commission and provide the Trustee and holders of notes with such annual reports and such information, documents and other reports as are specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to such Sections, such information, documents and reports to be so filed and provided at the times specified for the filing of such information, documents and reports under such Sections;provided, however, that the Company shall not be so obligated to file such information, documents and reports with the Commission if the Commission does not permit such filings but shall still be obligated to provide such information, documents and reports to the Trustee and the holders of the notes. Payments for Consent The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any holder of any notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the notes unless that consideration is offered to be paid or is paid to all holders of the notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to the consent, waiver or agreement. Merger and Sale of Substantially All Assets The Company will not, in a single transaction or through a series of related transactions, consolidate with or merge with or into any other Person (other than any Wholly Owned Subsidiary) or sell, assign, transfer, lease or otherwise dispose of all or substantially all of its properties and assets to any Person (other than any Wholly Owned Subsidiary) or group of affiliated Persons unless at the time and after giving effect thereto: (1) either: (a) the Company will be the continuing corporation; or (b) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance, transfer, lease or disposition the properties and assets of the Company substantially as an entirety (the "Surviving Entity") will be a corporation duly organized and validly existing under the laws of the United States of America, any state thereof or the District of Columbia and shall, in either case, expressly assume all the Obligations of the Company under the notes and the Indenture; (2) immediately after giving effect to such transaction on a pro forma basis, no Default or Event of Default shall have occurred and be continuing; (3) immediately after giving effect to such transaction on a pro forma basis, except in the case of the consolidation or merger of any Subsidiary with or into the Company, the Company (or the Surviving Entity if the Company is not the continuing corporation) could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under the provisions of "Certain Covenants—Limitation on Consolidated Indebtedness"; and (4) each Guarantor (unless it is the other party to the transactions above, in which case clause (1)(b) shall apply) shall have by supplemental indenture confirmed that its Subsidiary Guarantee shall apply to such Person's obligations in respect of the outstanding notes and the Indenture and its obligations under the Registration Rights Agreement shall continue to be in effect. In connection with any consolidation, merger, transfer or lease contemplated hereby, the Company shall deliver, or cause to be delivered, to the Trustee, in the form and substance reasonably satisfactory to the Trustee, an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, transfer or lease and the supplemental indenture in respect thereto comply with the provisions described herein and that all conditions precedent herein provided for or relating to such transaction have been complied with. Upon any consolidation or merger or any transfer of all or substantially all of the assets of the Company in accordance with the foregoing, the successor corporation formed by such a consolidation or into which the Company is merged or to which such transfer is made shall succeed to, shall be substituted for and may exercise every right and power of the Company under the notes and the Indenture, with the same effect as if such successor corporation had been named as the Company therein. In the event of any transaction (other than a lease) described and listed in the immediately preceding paragraphs in which the Company is not the continuing corporation, the successor Person formed or remaining shall succeed to, be substituted for and may exercise every right and power of the Company, and the Company shall be discharged from all obligations and covenants under the notes and the Indenture. Change of Control Upon the occurrence of a Change of Control, the Company will be required to make an offer (a "Change of Control Offer") to purchase all outstanding notes (as described in the Indenture) at a purchase price (the "Change of Control Purchase Price") equal to 101% of their principal amount plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date). Within 30 days following the date upon which the Change of Control occurred, the Company must send, by first class mail, a notice to each holder of notes, with a copy to the Trustee, which notice shall govern the terms of the Change of Control Offer. Such notice will state, among other things, the purchase date, which must be no earlier than 30 days nor later than 60 days from the date such notice is mailed, other than as may be required by law (the "Change of Control Payment Date"). The Change of Control Offer is required to remain open for at least 20 Business Days and until the close of business on the Change of Control Payment Date. The Change of Control provision of the notes may in certain circumstances make it more difficult or discourage a takeover of the Company and, as a result, may make removal of incumbent management more difficult. The Change of Control provision, however, is not the result of the Company's knowledge of any specific effort to accumulate the Company's stock or to obtain control of the Company by means of a merger, tender offer, solicitation or otherwise, or part of a plan by management to adopt a series of anti-takeover provisions. Instead, the Change of Control provision is a result of negotiations between the Company and the initial purchasers. The Company is not presently in discussions or negotiations with respect to any pending offers which, if accepted, would result in a transaction involving a Change of Control, although it is possible that the Company would decide to do so in the future. The Credit Agreement provides that certain change of control events with respect to the Company would constitute a default thereunder. such Change of Control with the written consent of the holders of a majority in principal amount of the notes. See "—Modification and Waiver." The provisions of the Indenture would not necessarily afford holders of the notes protection in the event of a highly leveraged transaction, reorganization, restructuring, merger or similar transaction involving the Company that may adversely affect the holders. If an offer is made to repurchase the notes pursuant to a Change of Control Offer, the Company will comply with all tender offer rules under state and federal securities laws, including, but not limited to, Section 14(e) under the Exchange Act and Rule 14e-1 thereunder, to the extent applicable to such offer. Additional Information Anyone who receives this prospectus may obtain a copy of the Indenture and the Registration Rights Agreement without charge by writing to AMC Entertainment Inc., Attention: Mr. Kevin M. Connor, Senior Vice President, General Counsel and Secretary, 920 Main Street, Kansas City, Missouri 64105-1977 (telephone: (816) 221-4000). Certain Definitions Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for the definition of any other capitalized term used in this section for which no definition is provided. Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for the definition of any other capitalized term used in this section for which no definition is provided. "Acquired "Affiliate" means, with respect to any specified Person: (1) any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person; or (2) any other Person that owns, directly or indirectly, 10% or more of such Person's Capital Stock or any officer or director of any such Person or other Person or with respect to any natural Person, any person having a relationship with such Person by blood, marriage or adoption not more remote than first cousin. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "
"Apollo Group" means (i) Apollo; (ii) the Apollo Holders; and (iii) any Affiliate of Apollo (including the Apollo Holders). "Apollo Holders" means (i) Apollo Investment Fund V, L.P. ("AIF V"), Apollo Overseas Partners V, L.P. ("AOP V"), Apollo Netherlands Partners V (A), L.P. ("Apollo Netherlands A"), Apollo Netherlands Partners V (B), L.P. ("Apollo "Bain Capital Group" means (i) Bain Capital Holdings (Loews) I, L.P., (ii) Bain Capital AIV (Loews) II, L.P. and (iii) any Affiliates of Bain Capital Holdings (Loews) I, L.P. and Bain Capital AIV (Loews) II, L.P. "Board of Directors" means the Board of Directors of the Company or any committee of such Board of Directors duly authorized to act under the Indenture. "Board Resolution" means a copy of a resolution, certified by the Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means any day other than a Saturday or Sunday or other day on which banks in New York, New York, Kansas City, Missouri, or the city in which the Trustee's office is located are authorized or required to be closed, or, if no note is outstanding, the city in which the principal corporate trust office of the Trustee is located. "Capital Lease Obligations" of any Person means any obligations of such Person and its Subsidiaries on a consolidated basis under any capital lease or financing lease of real or personal property which, in accordance with GAAP, has been recorded as a capitalized lease obligation (together with Indebtedness in the form of operating leases entered into by the Company or its Subsidiaries after May 21, 1998 and required to be reflected on a consolidated balance sheet pursuant to EITF 97-10 or any subsequent pronouncement having similar effect). "Capital "Carlyle Group" means (i) TC Group, L.L.C., (ii) Carlyle Partners III Loews, L.P., (iii) CP II Coinvestment, L.P. and (iv) any Affiliates of TC Group, L.L.C., Carlyle Partners III Loews, L.P. and CP II Coinvestment, L.P. "Cash Equivalents" means: (1) United States dollars; (2) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality; (3) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any United States domestic commercial bank having capital and surplus in excess of $500.0 million and a Keefe Bank Watch Rating of "B" or better; (4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) entered into with any financial institution meeting the qualifications specified in clause (3) above; (5) commercial paper having one of the two highest rating categories obtainable from Moody's or S&P in each case maturing within six months after the date of acquisition; (6) readily marketable direct obligations issued by any State of the United States of America or any political subdivision thereof having one of the two highest rating categories obtainable from Moody's or S&P; and (7) investments in money market funds which invest at least 95% of their assets in securities of the types described in clauses (1) through (6) of this definition. "Change of Control" means the occurrence of, after the date of the Indenture, any of the following events: (1) any "person" or "group" as such terms are used in Section 13(d) and 14(d) of the Exchange Act other than one or more Permitted Holders is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that such person or group shall be deemed to have "beneficial ownership" of all shares that any such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, by way of merger, consolidation or other business combination or purchase of 50% or more of the total voting power of the Voting Stock of the Company; (2) the adoption of a plan relating to the liquidation or dissolution of the Company; (3) the sale, lease, transfer or other conveyance, in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole, to any Person other than one or more Permitted Holders; or (4) a change of control under any of the indentures relating to the Existing Notes. "Co-Investors" means Weston Presidio Capital IV, L.P., WPC Entrepreneur Fund II, L.P., SSB Capital Partners (Master Fund) I, L.P., Caisse de Depot et Placement du Quebec, Co-Investment Partners, L.P., CSFB Strategic Partners Holdings II, L.P., CSFB Strategic Partners Parallel Holdings II, L.P., CSFB Credit Opportunities Fund (Employee), L.P., CSFB Credit Opportunities Fund (Helios), L.P., Credit Suisse Anlagestiftung, Pearl Holding Limited, Partners Group Private Equity Performance Holding Limited, Vega Invest (Guernsey) Limited, Alpinvest Partners CS Investments 2003 C.V., Alpinvest Partners Later Stage Co-Investments Custodian II B.V., Alpinvest Partners Later Stage Co-Investments Custodian IIA B.V. and Screen Investors 2004, LLC and their respective Affiliates. "Consolidated EBITDA" means, with respect to any Person for any period, the Consolidated Net Income (Loss) of such Person for such period increased (to the extent deducted in determining Consolidated Net Income (Loss)) by the sum of: (1) all income taxes of such Person and its Subsidiaries paid or accrued in accordance with GAAP for such period (other than income taxes attributable to extraordinary, unusual or non-recurring gains or losses); (2) Consolidated Interest Expense of such Person and its Subsidiaries for such period; (3) depreciation expense of such Person and its Subsidiaries for such period; (4) amortization expense of such Person and its Subsidiaries for such period including amortization of capitalized debt issuance costs; (5) any other non-cash charges of such Person and its Subsidiaries for such period (including non-cash expenses recognized in accordance with Financial Accounting Standard Number 106), all determined on a consolidated basis in accordance with GAAP; and (6) any fees, expenses, charges or premiums relating to any issuance of Capital Stock or issuance, repayment, refinancing, amendment or modification of Indebtedness (in each case, whether or not successful), including, without limitation any fees, expenses or charges related to the offering of the Notes; provided,however, that corporate overhead expenses payable by For purposes of this definition, all transactions involving the acquisition of any Person or motion picture theatre by another Person shall be accounted for on a "pooling of interests" basis and not as a purchase;provided,further, that, solely with respect to calculations of the Consolidated EBITDA Ratio: (1) Consolidated EBITDA shall include the effects of incremental contributions the Company reasonably believes in good faith could have been achieved during the relevant period as a result of a Theatre Completion had such Theatre Completion occurred as of the beginning of the relevant period;provided,however, that such incremental contributions were identified and quantified in good faith in an Officers' Certificate delivered to the Trustee at the time of any calculation of the Consolidated EBITDA Ratio; (2) Consolidated EBITDA shall be calculated on a pro forma basis after giving effect to any motion picture theatre or screen that was permanently or indefinitely closed for business at any time on or subsequent to the first day of such period as if such theatre or screen was closed for the entire period; and (3) All preopening expense and theatre closure expense which "Consolidated EBITDA Ratio" of any Person means, for any period, the ratio of Consolidated EBITDA to Consolidated Interest Expense for such period (other than any non-cash Consolidated Interest Expense attributable to any amortization or write-off of deferred financing costs);provided that, in making such computation: (1) if the Company or any Subsidiary: (a) has Incurred any Indebtedness since the beginning of such period that remains outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated EBITDA Ratio is an Incurrence of Indebtedness, Indebtedness at the end of such period, Consolidated EBITDA and Consolidated Interest Expense for such period will be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been Incurred on the first day of such period (except that in making such computation, the amount of Indebtedness under any revolving credit facility outstanding on the date of such calculation will be deemed to be: (i) the average daily balance of such Indebtedness during such four fiscal quarters or such shorter period for which such facility was outstanding; or (ii) if such facility was created after the end of such four fiscal quarters, the average daily balance of such Indebtedness during the period from the date of creation of such facility to the date of such calculation); and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period; or (b) has repaid, repurchased, defeased or otherwise discharged any Indebtedness since the beginning of the period that is no longer outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated EBITDA Ratio involves a discharge of Indebtedness (in each case other than Indebtedness Incurred under any revolving credit facility unless such Indebtedness has been permanently repaid and the related commitment terminated), Indebtedness, Consolidated EBITDA and Consolidated Interest Expense for such period will be calculated after giving effect on a pro forma basis to such discharge of such Indebtedness, including with the proceeds of such new Indebtedness, as if such discharge had occurred on the first day of such (2) the Consolidated Interest Expense attributable to interest on any Indebtedness computed on a pro forma basis and bearing a floating interest rate shall be computed as if the rate in effect on the date of computation had been the applicable rate for the entire period; and (3) with respect to any Indebtedness which bears, at the option of such Person, a fixed or floating rate of interest, such Person shall apply, at its option, either the fixed or floating rate. "Consolidated Interest Expense" of any Person means, without duplication, for any period, as applied to any Person: (1) the sum of: (a) the aggregate of the interest expense on Indebtedness of such Person and its consolidated Subsidiaries for such period, on a consolidated basis, including, without limitation: (i) amortization of debt discount; (ii) the net cost under Interest Rate Protection Agreements (including amortization of discounts); (iii) the interest portion of any deferred payment obligation; and (iv) accrued interest; plus (b) the interest component of the Capital Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such Person and its consolidated Subsidiaries during such period, minus (2) the cash interest income (exclusive of deferred financing fees) of such Person and its consolidated Subsidiaries during such period, in each case as determined in accordance with GAAP consistently applied. "Consolidated Net Income (Loss)" of any Person means, for any period, the consolidated net income (loss) of such Person and its consolidated Subsidiaries for such period as determined in accordance with GAAP, adjusted, to the extent included in calculating such net income (loss), by excluding all extraordinary gains or losses (net of reasonable fees and expenses relating to the transaction giving rise thereto) of such Person and its Subsidiaries. "Construction Indebtedness" means Indebtedness incurred by the Company or its Subsidiaries in connection with the construction of motion picture theatres or screens. "Credit Agreement" means that certain Credit Agreement, dated January 26, 2006, among the Company, as Borrower, the lenders and issuers party thereto, Citicorp North America, Inc., as Administrative Agent, JPMorgan Chase Bank, N.A., as Syndication Agent, and Credit Suisse Securities (USA) LLC, Bank of America, N.A. and General Electric Capital Corporation, as Co-Documentation Agents, and any related notes, collateral documents, letters of credit, guarantees and other documents, and any appendices, exhibits or schedules to any of the foregoing, as any or all of such agreements may be amended, restated, modified or supplemented from time to time, together with any extensions, revisions, increases, refinancings, renewals, refundings, restructurings or replacements thereof. "Credit Facilities" means one or more (i) debt facilities or commercial paper facilities, providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to lenders or to special purpose entities formed to borrow from lenders against such receivables) or letters of credit, including, without limitation, the Credit Agreement, (ii) debt securities, indentures or other forms of debt financing (including convertible or exchangeable debt instruments or bank guarantees or bankers' acceptances), or (iii) instruments or agreements evidencing any other Indebtedness, in each case, with the same or different borrowers or issuers and, in each case, as amended, supplemented, modified, extended, restructured, renewed, refinanced, restated, replaced or refunded in whole or in part from time to time. "Currency Hedging Obligations" means the obligations of any Person pursuant to an arrangement designed to protect such Person against fluctuations in currency exchange rates. "Debt Rating" means the rating assigned to the notes by Moody's or S&P, as the case may be. " "Designated Senior Indebtedness" means: (1) all Senior Indebtedness under the Credit Agreement; and (2) any other Senior Indebtedness: (a) which at the time of determination exceeds $30.0 million in aggregate principal amount; (b) which is specifically designated in the instrument evidencing such Senior Indebtedness as "Designated Senior Indebtedness" by the Company or any Guarantor, as applicable; and (c) as to which the Trustee has been given written notice of such designation. "Equity Offering" means a public or private sale for cash by the Company or of a direct or indirect parent of the Company (the proceeds of which have been contributed to the Company) of common stock or preferred stock (other than Redeemable Capital Stock), or options, warrants or rights with respect to such Person's common stock or preferred stock (other than Redeemable Capital Stock), other than public offerings with respect to such Person's common stock, preferred stock (other than Redeemable Capital Stock), or options, warrants or rights, registered on Form S-4 or S-8. "Exchange "Existing Notes" means the Existing "Existing "Existing "Fair Market Value" means, with respect to any asset or property, the sale value that would be obtained in an arm's-length transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy. "Generally Accepted Accounting Principles" or "GAAP" means generally accepted accounting principles in the United States as in effect on the Issue Date, consistently applied. "Government Securities" means direct obligations (or certificates representing an ownership interest in such obligations) of, or obligations guaranteed by, the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable or redeemable at the issuer's option. "Guarantee" means, with respect to any Person, any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Indebtedness or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person: (1) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such other Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise); or (2) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Guaranteed " "
acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary; andprovided further,however, that solely for purposes of determining compliance with "Certain Covenants—Limitation on Consolidated " (1) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services, excluding any trade payables and other accrued current liabilities Incurred in the ordinary course of business, but including, without limitation, all obligations of such Person in connection with any letters of credit and acceptances issued under letter of credit facilities, acceptance facilities or other similar facilities, now or hereafter outstanding; (2) all obligations of such Person evidenced by bonds, notes, debentures or other similar instruments; (3) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even if the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), but excluding trade accounts payable arising in the ordinary course of business; (4) every obligation of such Person issued or contracted for as payment in consideration of the purchase by such Person or a Subsidiary of such Person of the Capital Stock or substantially all of the assets of another Person or in consideration for the merger or consolidation with respect to which such Person or a Subsidiary of such Person was a party; (5) all indebtedness referred to in clauses (1) through (4) above of other Persons and all dividends of other Persons, the payment of which is secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness; (6) all Guaranteed Indebtedness of such Person; (7) all obligations under Interest Rate Protection Agreements of such Person; (8) all Currency Hedging Obligations of such Person; (9) all Capital Lease Obligations of such Person; and (10) any amendment, supplement, modification, deferral, renewal, extension or refunding of any liability of the types referred to in clauses (1) through (9) above. "Interest Rate Protection Agreement" means any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement, option or future contract or other similar agreement or arrangement designed to protect the Company or any of its Subsidiaries against fluctuations in interest rates. "Issue Date" means "J.P. Morgan Partners Group" means (i) J.P. Morgan Partners, LLC and (ii) any Affiliates of J.P. Morgan Partners, LLC. "
"Moody's" means Moody's Investor Service, Inc. or any successor to the rating agency business thereof. "Net Cash Proceeds," with respect to any issuance or sale of Capital Stock, means the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, listing fees, discounts or commissions and brokerage, consultant and other fees and charges actually Incurred in connection with such issuance or sale and net of taxes paid or payable as a result of such issuance or sale (after taking into account any available tax credit or deductions and any tax sharing arrangements).
"Non-Recourse Indebtedness" means Indebtedness as to which: (1) none of the Company or any of its Subsidiaries: (a) provides credit support (including any undertaking, agreement or instrument which would constitute Indebtedness); or (b) is directly or indirectly liable; and (2) no default with respect to such Indebtedness (including any rights which the holders thereof may have to take enforcement action against the relevant Unrestricted Subsidiary or its assets) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or its Subsidiaries (other than Non-Recourse Indebtedness) to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity. " "Officer" means the Chairman of the Board, any Co-Chairman of the Board, President, the Chief Executive Officer, any Executive Vice President, any Senior Vice President and the Chief Financial Officer of the Company. "Officers' Certificate" means a certificate signed by two Officers. "Opinion of Counsel" means a written opinion of counsel to the Company or any other Person reasonably satisfactory to the Trustee. "Permitted Holder" means: (1) any member of the Apollo Group; (2) any member of the J.P. Morgan Partners Group; (3) any member of the Bain Capital Group; (4) any member of the Carlyle Group; (5) any member of the Spectrum Group; (6) any "Co-Investor";provided that to the extent any Co-Investor acquires securities of the Company in excess of the amount of such securities held by such Co-Investor on the Issue Date, such excess securities shall not be deemed to be held by a Permitted Holder; (7) any Subsidiary, any employee stock purchase plan, stock option plan or other stock incentive plan or program, retirement plan or automatic reinvestment plan or any substantially similar plan of the Company or any Subsidiary or any Person holding securities of the Company for or pursuant to the terms of any such employee benefit plan; provided that if any lender or other Person shall foreclose on or otherwise realize upon or exercise any remedy with respect to any security interest in or Lien on any securities of the Company held by any Person listed in this clause (7), then such securities shall no longer be deemed to be held by a Permitted (8) any Person with respect to which no "person" or "group" as such terms are used in Section 13(d) and 14(d) of the Exchange Act is the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that such person or group shall be deemed to have "beneficial ownership" of all shares that any such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly of 50% or more of the total voting power of the Voting Stock of such Person. "Permitted Indebtedness" means the following: (1) Indebtedness of the Company in respect of the notes and Indebtedness of the Guarantors in respect of the Subsidiary Guarantees, in each case issued on the Issue Date, and the related exchange notes and exchange guarantees issued in registered exchange offers pursuant to the registration rights agreements; (2) Indebtedness of the Company or any Guarantor under Credit Facilities together with the guarantees thereunder and the issuance and creation of letters of credit and bankers' acceptances thereunder (with letters of credit and bankers' acceptances being deemed to have a principal amount equal to the face amount thereof) in an aggregate principal amount at any one time outstanding not to exceed $1,150.0 million; (3) Indebtedness of the Company or any Guarantor under the Existing Notes and the Guarantees thereof; (4) Indebtedness of the Company or any of its Subsidiaries outstanding on the Issue Date (other than the Existing Notes or Indebtedness outstanding under the Credit Facility); (5) Indebtedness of the Company or any of its Subsidiaries consisting of Permitted Interest Rate Protection Agreements; (6) Indebtedness of the Company or any of its Subsidiaries to any one or the other of them; (7) Indebtedness Incurred to renew, extend, refinance or refund (each, a "refinancing") the Existing Notes or any other Indebtedness outstanding on the Issue Date, including the notes, in an aggregate principal amount not to exceed the principal amount of the Indebtedness so refinanced plus the amount of any premium required to be paid in connection with such refinancing pursuant to the terms of the Indebtedness so refinanced or the amount of any premium reasonably determined by the Company as necessary to accomplish such refinancing by means of a tender offer or privately negotiated repurchase, plus the expenses of the Company incurred in connection with such refinancing; (8) Indebtedness of any Subsidiary Incurred in connection with the Guarantee of any Indebtedness of the Company or the Guarantors in accordance with the provisions of the Indenture;provided that in the event such Indebtedness that is being Guaranteed is a Subordinated Obligation or Guarantor Subordinated Obligation, then the related Guarantee shall be subordinated in right of payment to the Subsidiary Guarantee; (9) Indebtedness relating to Currency Hedging Obligations entered into solely to protect the Company or any of its Subsidiaries from fluctuations in currency exchange rates and not to speculate on such fluctuations; (10) Capital Lease Obligations of the Company or any of its Subsidiaries; (11) Indebtedness of the Company or any of its Subsidiaries in connection with one or more standby letters of credit or performance bonds issued in the ordinary course of business or pursuant to self-insurance obligations; (12) Indebtedness represented by property, liability and workers' compensation insurance (which may be in the form of letters of credit); (13) Acquired Indebtedness;provided that such Indebtedness, if Incurred by the Company, would be in compliance with the covenant described under "Certain Covenants—Limitation on Consolidated Indebtedness"; (14) Indebtedness of the Company or any of its Subsidiaries to an Unrestricted Subsidiary for money borrowed;provided that such Indebtedness is subordinated in right of payment to the notes and the Weighted Average Life of such Indebtedness is greater than the Weighted Average Life of the notes; (15) Construction Indebtedness in an aggregate principal amount that does not exceed $100.0 million at any time outstanding; and (16) Indebtedness of the Company or a Subsidiary Guarantor not otherwise permitted to be Incurred pursuant to clauses (1) through (15) above which, together with any other Indebtedness Incurred pursuant to this clause (16), has an aggregate principal amount that does not exceed $350.0 million at any time outstanding. "Permitted Interest Rate Protection Agreements" means, with respect to any Person, Interest Rate Protection Agreements entered into in the ordinary course of business by such Person that are designed to protect such Person against fluctuations in interest rates with respect to Permitted Indebtedness and that have a notional amount no greater than the payment due with respect to Permitted Indebtedness hedged thereby. "Permitted
"Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint stock company, trust, estate, unincorporated organization or government or any agency or political subdivision thereof. "Preferred Stock," as applied to the Capital Stock of any corporation, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. "Redeemable Capital Stock" means any Capital Stock that, either by its terms, by the terms of any security into which it is convertible or exchangeable or otherwise, is or upon the happening of an event or passage of time would be required to be redeemed prior to the final Stated Maturity of the notes or is mandatorily redeemable at the option of the holder thereof at any time prior to such final Stated Maturity (except for any such Capital Stock that would be required to be redeemed or is redeemable at the option of the holder if the issuer thereof may redeem such Capital Stock for consideration consisting solely of Capital Stock that is not Redeemable Capital Stock), or is convertible into or exchangeable for debt securities at any time prior to such final Stated Maturity at the option of the holder thereof.
"Restricted Payments" has the meaning set forth in the "Limitation on Restricted Payments" covenant. "Restricted Payments Computation Period" means the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after April 2, 2009 to the last day of the Company's fiscal quarter preceding the date of the applicable proposed Restricted Payment. "SEC" means the Securities and Exchange Commission. "S&P" means Standard & Poor's Ratings Service or any successor to the rating agency business thereof. "Senior Indebtedness" means, whether outstanding on the Issue Date or thereafter issued, created, Incurred or assumed, all amounts payable by the Company and its Subsidiaries under or in respect of Indebtedness of the Company and its Subsidiaries, including the notes and premiums and accrued and unpaid interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company or any of its Subsidiaries at the rate specified in the documentation with respect thereto whether or not a claim for post filing interest is allowed in such proceeding) and fees relating thereto;provided,however, that Senior Indebtedness will not include: (1) any obligation of the Company to any Subsidiary or any obligation of a Subsidiary to the Company or another Subsidiary; (2) any liability for Federal, state, foreign, local or other taxes owed or owing by the Company or any of its Subsidiaries; (3) any accounts payable or other liability to trade creditors arising in the ordinary course of business (including Guarantees thereof or instruments evidencing such liabilities); (4) any Indebtedness, Guarantee or obligation of the Company or any of its Subsidiaries that is expressly subordinate or junior in right of payment to any other Indebtedness, Guarantee or obligation of the Company or any of its Subsidiaries, as the case may be, including, without limitation, any Subordinated Obligations or Guarantor Subordinated Obligations; (5) any Capital Stock; or (6) the notes or the Existing Senior Subordinated Notes. "Senior
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"Special Interest" means the additional interest, if any, to be paid on the notes as described under "Exchange "Spectrum Group" means (i) Spectrum Equity Investors IV, L.P., (ii) Spectrum Equity Investors Parallel IV, L.P., (iii) Spectrum IV Investment Managers' Fund, L.P. and (iv) any Affiliates of Spectrum Equity Investors IV, L.P., Spectrum Equity Investors Parallel IV, L.P. and Spectrum IV Investment Managers' Fund, L.P. "Stated Maturity", "Subordinated Obligation" means any Indebtedness of the Company (whether outstanding on the Issue Date or thereafter Incurred) which is subordinate or junior in right of payment to the notes pursuant to a written agreement. "Subsidiary" of any person means: (1) any corporation of which more than 50% of the outstanding shares of Capital Stock having ordinary voting power for the election of directors is owned directly or indirectly by such Person; and (2) any partnership, limited liability company, association, joint venture or other entity in which such Person, directly or indirectly, has more than a 50% equity interest, and, except as otherwise indicated herein, references to Subsidiaries shall refer to Subsidiaries of the Company. Notwithstanding the foregoing, for purposes hereof, an Unrestricted Subsidiary shall not be deemed a Subsidiary of the Company other than for purposes of the definition of "Unrestricted Subsidiary" unless the Company shall have designated in writing to the Trustee an Unrestricted Subsidiary as a Subsidiary. A designation of an Unrestricted Subsidiary as a Subsidiary may not thereafter be rescinded.
"Theatre Completion" means any motion picture theatre or screen which was first opened for business by the Company or a Subsidiary during any applicable period. "Unrestricted Subsidiary" means a Subsidiary of the Company designated in writing to the Trustee: (1) whose properties and assets, to the extent they secure Indebtedness, secure only Non-Recourse Indebtedness; (2) that has no Indebtedness other than Non-Recourse Indebtedness; and (3) that has no Subsidiaries. "Voting Stock" of a Person means all classes of Capital Stock or other interests (including partnership interests) of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof. "Weighted Average Life" means, as of any date, with respect to any debt security, the quotient obtained by dividing (1) the sum of the products of the number of years from such date to the dates of each successive scheduled principal payment (including any sinking fund payment requirements) of such debt security multiplied by the amount of such principal payment, by (2) the sum of all such principal payments. "Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person, all of the Capital Stock (other than directors' qualifying shares) or other ownership interests of which shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person or by such Person and one or more Wholly Owned Subsidiaries of such Person. Events of Default The following will be "Events of Default" under the Indenture: (1) default in the payment of any interest (including Special Interest) on any note when it becomes due and payable and continuance of such default for a period of 30 days; (2) default in the payment of the principal of or premium, if any, on any note at its Maturity (upon acceleration, optional redemption, required purchase or otherwise); (3) failure to comply with the covenant described under "Merger and Sale of Substantially All Assets"; (4) default in the performance, or breach, of any covenant or warranty of the Company contained in the Indenture (other than a default in the performance, or breach, of a covenant or warranty which is specifically dealt with in clause (1), (2) or (3) above) and continuance of such default or breach for a period of 60 days after written notice shall have been given to the Company by the Trustee or to the Company and the Trustee by the holders of at least 25% in aggregate principal amount of the notes then outstanding; (5) (a) one or more defaults in the payment of principal of or premium, if any, on Indebtedness of the Company or any Significant Subsidiary, aggregating $5.0 million or more, when the same becomes due and payable at the stated maturity thereof, and such default or defaults shall have continued after any applicable grace period and shall not have been cured or waived or (b) Indebtedness of the Company or any Significant Subsidiary, aggregating $5.0 million or more shall have been accelerated or otherwise declared due and payable, or required to be prepaid, or repurchased (other than by regularly scheduled prepayment) prior to the stated maturity thereof; (6) any holder of any Indebtedness in excess of $5.0 million in the aggregate of the Company or any Significant Subsidiary shall notify the Trustee of the intended sale or disposition of any assets of the Company or any Significant Subsidiary that have been pledged to or for the benefit of such Person to secure such Indebtedness or shall commence proceedings, or take action (including by way of set-off) to retain in satisfaction of any such Indebtedness, or to collect on, seize, dispose of or apply, any such asset of the Company or any Significant Subsidiary pursuant to the terms of any agreement or instrument evidencing any such Indebtedness of the Company or any Significant Subsidiary or in accordance with applicable law; (7) one or more final judgments or orders shall be rendered against the Company or any Significant Subsidiary for the payment of money, either individually or in an aggregate amount, in excess of $5.0 million and shall not be discharged and either (a) an enforcement proceeding shall have been commenced by any creditor upon such judgment or order or (b) there shall have been a period of 60 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, was not in effect; (8) the occurrence of certain events of bankruptcy, insolvency or reorganization with respect to the Company or any Significant Subsidiary; and (9) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee. If an Event of Default (other than an Event of Default specified in clause (8) above) shall occur and be continuing, the Trustee or the holders of not less than 25% in aggregate principal amount of the notes then outstanding may declare the principal, premium, if any, and accrued and unpaid interest, if any, of all notes due and (a) five Business Days following a delivery of a notice of such acceleration to the agent under the Credit Agreement; and (b) the acceleration of any amounts under the Credit Agreement. If an Event of Default specified in clause (8) above occurs and is continuing, then the principal, premium, if any, and accrued and unpaid interest, if any, of all the notes shall become due and payable without any declaration or other act on the part of the Trustee or any holder of notes. After a declaration of acceleration, but before a judgment or decree for payment of the money due has been obtained by the Trustee, the holders of a majority in aggregate principal amount of the outstanding notes, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if: (1) the Company has paid or deposited, or caused to be paid or deposited, with the Trustee a sum sufficient to pay: (A) all sums paid or advanced by the Trustee under the Indenture and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; (B) all overdue interest (including Special Interest) on all notes; (C) the principal of and premium, if any, on any notes that has become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the notes; and (D) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate borne by the notes; and (2) all Events of Default, other than the non-payment of principal of the notes which have become due solely by such declaration of acceleration, have been cured or waived. Notwithstanding the preceding paragraph, in the event of a declaration of acceleration in respect of the notes because an Event of Default specified in paragraph (5) above shall have occurred and be continuing, such declaration of acceleration shall be automatically annulled if the Indebtedness that is the subject of such Event of Default (1) is Indebtedness in the form of an operating lease entered into by the Company or its Subsidiaries after May 21, 1998 and required to be reflected on a consolidated balance sheet pursuant to EITF 97-10 or any subsequent pronouncement having similar effect, (2) has been discharged or the holders thereof have rescinded their declaration of acceleration in respect of such Indebtedness, and (3) written notice of such discharge or rescission, as the case may be, shall have been given to the Trustee by the Company and countersigned by the holders of such Indebtedness or a trustee, fiduciary or agent for such holders, within 30 days after such declaration of acceleration in respect of the notes, and no other Event of Default has occurred during such 30 day period which has not been cured or waived during such period. The Indenture contains a provision entitling the Trustee, subject to the duty of the Trustee during the existence of an Event of Default to act with the required standard of care, to be indemnified by the holders of notes before proceeding to exercise any right or power under the Indenture at the request of such holders. The Indenture provides that the holders of a majority in aggregate principal amount of the notes then outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred upon the Trustee. During the existence of an Event of Default, the Trustee is required to exercise such rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. The Trust Indenture Act of 1939 contains limitations on the rights of the Trustee, should it be a creditor of the Company, to obtain payment of claims in certain cases or to realize on certain property received by it in respect of any such claims, as security or otherwise. The Trustee is permitted to engage in other transactions; provided that if it acquires any conflicting interest it must eliminate such conflict upon the occurrence of an Event of Default or else resign. The Company will be required to furnish to the Trustee annually a statement as to any default by the Company in the performance and observance of its obligations under the Indenture. Defeasance and Covenant Defeasance of the Indenture The Company may, at its option, and at any time, elect to have the obligations of the Company discharged with respect to all outstanding notes and all obligations of the Guarantors discharged with respect to their Subsidiary Guarantee ("defeasance"). Such defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding notes and to have satisfied its other obligations under the Indenture, except for the following which shall survive until otherwise terminated or discharged: (1) the rights of holders of outstanding notes to receive payments in respect of the principal of, premium, if any, and interest (including Special Interest) on such notes when such payments are due; (2) the Company's obligations with respect to the notes relating to the issuance of temporary notes, the registration, transfer and exchange of notes, the replacement of mutilated, destroyed, lost or stolen notes, the maintenance of an office or agency in The City of New York, the holding of money for security payments in trust and statements as to compliance with the Indenture; (3) its obligations in connection with the rights, powers, trusts, duties and immunities of the Trustee; and (4) the defeasance provisions of the Indenture. In addition the Company may, at its option and at any time, elect to have the obligations of the Company and the Guarantors released with respect to certain restrictive covenants under the Indenture
In order to exercise either defeasance or covenant defeasance: (1) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the holders of the notes, cash in U.S. dollars, certain U.S. government obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of (and premium, if any, on) and interest (including Special Interest) on the outstanding notes on the Stated Maturity (or redemption date, if applicable) of such principal (and premium, if any) or installment of interest; (2) in the case of defeasance, the Company shall have delivered to the Trustee an Opinion of Counsel stating that: (a) the Company has received from, or there has been published by, the Internal Revenue Service a ruling; or (b) since the date of this prospectus, there has been a change in the applicable United States federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the holders of the outstanding notes will not recognize income, gain or loss for United States federal income tax purposes as a result of such defeasance and will be subject to United States federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred; (3) in the case of covenant defeasance, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the holders of the outstanding notes will not recognize income, gain or loss for United States federal income tax purposes as a result of such covenant defeasance and will be subject to United States federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; (4) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that such deposit shall not cause the Trustee or the trust so created to be subject to the Investment Company Act of 1940; and (5) the Company must comply with certain other conditions, including that such defeasance or covenant defeasance will not result in a breach or violation of, or constitute a default under, the Indenture or any material agreement or instrument to which the Company is a party or by which it is bound. Satisfaction and Discharge The Indenture will be discharged and will cease to be of further effect as to all notes issued thereunder, when: (1) either: (a) all such notes that have been authenticated, except notes that have been lost, destroyed or wrongfully taken and that have been replaced or paid and notes for whose payment money has been deposited in trust and thereafter repaid to the Company, have been delivered to the Trustee for cancellation; or (b) all notes that have not been delivered to the Trustee for cancellation have become due and payable, whether at maturity or upon redemption or will become due and payable within one year or are to be called for redemption within one year and the Company has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the holders, cash in U.S. dollars, non-callable Government Securities, or a combination of cash in U.S. dollars and non-callable Government Securities, in amounts as will be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire Indebtedness on the notes not delivered to the Trustee for cancellation for principal, premium and Special Interest, if any, and accrued interest to the date of maturity or redemption; (2) no Default or Event of Default has occurred and is continuing on the date of the deposit or will occur as a result of the deposit and the deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Company or any Guarantor is a party or by which the Company or any Guarantor is bound; (3) the Company or any Guarantor has paid or caused to be paid all sums payable by it under the Indenture and the Securities; and (4) the Company has delivered irrevocable instructions to the Trustee under the Indenture to apply the deposited money toward the payment of the notes issued thereunder at maturity or at the redemption date, as the case may be. In addition, the Company must deliver an Officers' Certificate and an opinion of counsel to the Trustee stating that all conditions precedent to the satisfaction and discharge have been satisfied at the Company's cost and expense. Modification and Waiver Modifications and amendments of the Indenture may be entered into by the Company and the Trustee with the consent of the holders of not less than a majority in aggregate principal amount of the outstanding notes;provided,however, that no such modification or amendment may, without the consent of the holder of each outstanding note affected thereby: (1) change the Stated Maturity of the principal of, or any installment of interest (including Special Interest) on, any note, or reduce the principal amount thereof or the rate of interest (including Special Interest) thereon or any premium payable upon the redemption thereof, or change the coin or currency in which any note or any premium or the interest (including Special Interest) thereon is payable, or impair the right to institute suit for the enforcement of any such payment after the Stated Maturity thereof (or, in the case of redemption, on or after the redemption date); (2) reduce the amount of, or change the coin or currency of, or impair the right to institute suit for the enforcement of, the Change of Control Purchase Price; (3) reduce the percentage in principal amount of outstanding notes, the consent of whose holders is necessary to amend or waive compliance with certain provisions of the Indenture or to waive certain defaults; (4) modify any of the provisions relating to supplemental indentures requiring the consent of holders of the notes, relating to the rights of holders to receive payment of principal and interest on the notes, or to bring suit for the enforcement of such payment, on or after the respective due dates set forth in the notes, relating to the waiver of past defaults or relating to the waiver of certain covenants, except to increase the percentage of outstanding notes the consent of whose holders is required for such actions or to provide that certain other provisions of the Indenture cannot be modified or waived without the consent of the holder of each note affected (5) modify any of the provisions of the Indenture relating to the subordination of the notes in a manner adverse to any holder of notes. The holders of a majority in aggregate principal amount of the outstanding notes may waive compliance with certain restrictive covenants and provisions of the Indenture. Without the consent of any holder of the notes, the Company and the Trustee may amend the Indenture to: cure any ambiguity, omission, defect or inconsistency; provide for the assumption by a successor corporation of the obligations of the Company under the Indenture; provide for uncertificated notes in addition to or in place of certificated notes (provided that the uncertificated notes are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated notes are described in Section 163(f)(2)(B) of the Code); add Guarantees with respect to the notes; secure the notes; add to the covenants of the Company for the benefit of the holders of the notes or to surrender any right or power conferred upon the Company; make any change that does not adversely affect the rights of any holder of the notes; make any change to the subordination provisions of the Indenture that would limit or terminate the benefits available to any holder of Senior Indebtedness under such provisions; or comply with any requirement of the Securities and Exchange Commission in connection with the qualification of the Indenture under the Trust Indenture Act. Book-Entry System The notes will initially be issued in the form of Global Securities held in book-entry form. The notes will be deposited with the Trustee as custodian for The Depository Trust Company (the "Depository"), and the Depository or its nominee will initially be the sole registered holder of the notes for all purposes under the Indenture. Except as set forth below, a Global Security may not be transferred except as a whole by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository. Upon the issuance of a Global Security, the Depository or its nominee will credit, on its internal system, the accounts of persons holding through it with the respective principal amounts of the individual beneficial interest represented by such Global Security purchased by such persons in this exchange offer. Such accounts shall initially be designated by the initial purchasers with respect to notes placed by the initial purchasers for the Company. Ownership of beneficial interests in a Global Security will be limited to persons that have accounts with the Depository ("participants") or persons that may hold interests through participants. Any person acquiring an interest in a Global Security through an offshore transaction in reliance on Regulation S of the Securities Act may hold such interest through Euroclear or Cedel. Ownership of beneficial interests by participants in a Global Security will be shown on, and the transfer of that ownership interest will be effected only through, records maintained by the Depository or its nominee for such Global Security. Ownership of beneficial interests in such Global Security by persons that hold through participants will be shown on, and the transfer of that ownership interest within such participant will be effected only through, records maintained by such participant. The laws of some jurisdictions require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and such laws may impair the ability to transfer beneficial interests in a Global Security. Payment of principal, premium, if any, and interest on notes represented by any such Global Security will be made to the Depository or its nominee, as the case may be, as the sole registered owner and the sole holder of the notes represented thereby for all purposes under the Indenture. None of the Company, the Trustee, any agent of the Company or the The Company expects that upon receipt of any payment of principal of, premium, if any, or interest on any Global Security, the Depository will immediately credit, on its book-entry registration and transfer system, the accounts of participants with payments in amounts proportionate to their respective beneficial interests in the principal or face amount of such Global Security, as shown on the records of the Depository. The Company expects that payments by participants to owners of beneficial interests in a Global Security held through such participants will be governed by standing instructions and customary practices as is now the case with securities held for customer accounts registered in "street name" and will be the sole responsibility of such participants. So long as the Depository or its nominee is the registered owner or holder of such Global Security, the Depository or such nominee, as the case may be, will be considered the sole owner or holder of the notes represented by such Global Security for the purposes of receiving payment on the notes, receiving notices and for all other purposes under the Indenture and the notes. Beneficial interests in the notes will be evidenced only by, and transfers thereof will be effected only through, records maintained by the Depository and its participants. Except as provided below, owners of beneficial interests in a Global Security will not be entitled to receive physical delivery of certificated notes in definitive form and will not be considered the holders of such Global Security for any purposes under the Indenture. Accordingly, each person owning a beneficial interest in a Global Security must rely on the procedures of the Depository and, if such person is not a participant, on the procedures of the participant through which such person owns its interest, to exercise any rights of a holder under the Indenture. The Company understands that under existing industry practices, in the event that the Company requests any action of holders or that an owner of a beneficial interest in a Global Security desires to give or take any action that a holder is entitled to give or take under the Indenture, the Depository would authorize the participants holding the relevant beneficial interest to give or take such action, and such participants would authorize beneficial owners owning through such participants to give or take such action or would otherwise act upon the instructions of beneficial owners owning through them. The Company understands that the Depository will take any action permitted to be taken by a holder of notes only at the direction of one or more participants to whose account with the Depository interests in the Global Security are credited and only in respect of such portion of the aggregate principal amount of the notes as to which such participant or participants has or have given such direction. Although the Depository has agreed to the foregoing procedures in order to facilitate transfers of interests in Global Securities among participants of the Depository, it is under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. None of the Company, the Trustee, any agent of the Company or the initial purchasers will have any responsibility for the performance by the Depository or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations. The Depository has advised the Company that the Depository is a companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly. Certificated Notes Notes represented by a Global Security are exchangeable for certificated notes only if (i) the Depository notifies the Company that it is unwilling or unable to continue as a depository for such Global Security or if at any time the Depository ceases to be a clearing agency registered under the Exchange Act, and a successor depository is not appointed by the Company within 90 days, (ii) the Company executes and delivers to the Trustee a notice that such Global Security shall be so transferable, registrable and exchangeable, and such transfer shall be registrable or (iii) there shall have occurred and be continuing an Event of Default or an event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default with respect to the notes represented by such Global Security. Any Global Security that is exchangeable for certificated notes pursuant to the preceding sentence will be transferred to, and registered and exchanged for, certificated notes in authorized denominations and registered in such names as the Depository or its nominee holding such Global Security may direct. Subject to the foregoing, a Global Security is not exchangeable, except for a Global Security of like denomination to be registered in the name of the Depository or its nominee. In the event that a Global Security becomes exchangeable for certificated notes, (i) certificated notes will be issued only in fully registered form in denominations of $1,000 or integral multiples thereof, (ii) payment of principal, premium, if any, and interest on the certificated notes will be payable, and the transfer of the certificated notes will be registrable; at the office or agency of the Company maintained for such purposes and (iii) no service charge will be made for any issuance of the certificated notes, although the Company may require payment of a sum sufficient to cover any tax or governmental charge imposed in connection therewith. In addition, such certificates will bear the legend referred to under "Notice to Investors" (unless the Company determines otherwise in accordance with applicable law) subject, with respect to such notes, to the provisions of such legend. Concerning the Trustee U.S. Bank National Association is the Trustee under the Indenture. Governing Law The Indenture and the notes will be governed by and construed in accordance with the laws of the State of New York.
General The following is a summary of material U.S. federal income tax consequences of the exchange of original notes for exchange notes pursuant to the exchange offer, but does not address any other aspects of U.S. federal income tax consequences to holders of original notes or exchange notes. This summary is based upon the Except as expressly stated otherwise, this summary applies only to U.S. holders that exchange original notes for exchange notes in the exchange offer and who hold the original notes as capital assets within the meaning of Section 1221 of the Code. It does not address the tax consequences to holders who are subject to special rules under U.S. federal income tax laws (such as financial institutions, tax-exempt organizations and insurance companies). A "U.S. holder" means a beneficial owner of a note and is, for U.S. federal income tax purposes: (i) This summary does not represent a detailed description of the U.S. federal income and tax consequences to holders in light of their particular circumstances and does not address the effects of any state, local or non-United States tax laws. It is not intended to be, and should not be construed to be, legal or tax advice to any particular holder of notes. Persons considering the exchange of original notes for exchange notes should consult their own tax advisors concerning the U.S. federal income tax consequences in light of their particular situations as well as any consequences arising under the laws of any other taxing jurisdiction. Exchange of an The exchange by any holder of an original note for an exchange note should not constitute a taxable exchange for U.S. federal income tax purposes. Consequently, no gain or loss will be recognized by holders that exchange original notes for exchange notes pursuant to the exchange offer. For purposes of determining gain or loss upon the subsequent sale or exchange of exchange notes, a holder's tax basis in an exchange will be the same as such holder's tax basis in the original note exchanged therefor. Holders will be considered to have held the exchange notes from the time of their acquisition of the original notes. Until 90 days after the date of this prospectus, all dealers effecting transactions in the exchange notes, whether or not participating in this distribution, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. Each broker-dealer that receives exchange notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of exchange notes received in exchange for original notes only where such original notes were acquired as a result of market-making activities or other trading activities. We have agreed that, for a period starting from the date on which the exchange offer is consummated to the close of business one year after, we will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until We will not receive any proceeds from any sale of exchange notes by broker-dealers. Exchange notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the exchange notes or a combination of such methods of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any exchange notes. Any broker-dealer that resells exchange notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such exchange notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of exchange notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period starting from the date on which the exchange offer is consummated to the close of business one year after, we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents in the letter of transmittal. We have agreed to pay all expenses incident to the exchange offer, other than commissions or concessions of any broker-dealers and will indemnify the holders of the notes, including any broker-dealers, against certain liabilities, including liabilities under the Securities Act. The validity of the exchange notes and the enforceability of obligations under the exchange notes and guarantees being issued are being passed upon for us by O'Melveny & Myers LLP, New York, New York. The consolidated financial statements of AMC Entertainment Inc. as of April 1, 2010, and for the year then ended, have been included herein and in the registration statement in reliance upon the report of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The audit report covering the April 1, 2010, consolidated financial statements contains an explanatory paragraph that states that the Company changed its accounting treatment for business combinations due to the adoption of new accounting requirements issued by the FASB. The consolidated financial statements of AMC Entertainment Inc. as of April 2, 2009 and The financial statements of National CineMedia, LLC The financial statements of the Kerasotes Showplace Theatres Sold to AMC Entertainment Inc. as of December 31, 2009 and 2008 and for the years ended December 31, 2009, 2008 and 2007, included in this Prospectus have been
We are required to file annual and quarterly reports and other information with the SEC. You may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C., 20549. Please call 1-800-SEC-0330 for further information on the operation of the Public Reference Room. Our filings will also be available to the public from commercial document retrieval services and at the web site maintained by the SEC athttp://www.sec.gov. Our reports and other information that we have filed, or may in the future file, with the SEC are not incorporated by reference into and do not constitute part of this prospectus. We have filed a registration statement on Form S-4 to register with the SEC the exchange notes to be issued in exchange for the original notes. This prospectus is part of that registration statement. As allowed by the SEC's rules, this prospectus does not contain all of the information you can find in the registration statement or the exhibits to the registration statement. You should note that where we summarize in this prospectus the material terms of any contract, agreement or other document filed as an exhibit to the registration statement, the summary information provided in the prospectus is less complete than the actual contract, agreement or document. You should refer to the exhibits filed to the registration statement for copies of the actual contract, agreement or document. We have not authorized anyone to give you any information or to make any representations about us or the transactions we discuss in this prospectus other than those contained in this prospectus. If you are given any information or representations about these matters that is not discussed in this prospectus, you must not rely on that information. This prospectus is not an offer to sell or a solicitation of an offer to buy securities anywhere or to anyone where or to whom we are not permitted to offer or sell securities under applicable law. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
See Notes to Consolidated Financial Statements.
See Notes to Consolidated Financial Statements.
See Notes to Consolidated Financial Statements.
NOTE 1—BASIS 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 twenty-six weeks ended September 30, 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) Impairment charges, (2) Film exhibition costs, (3) Income and operating taxes and (4) Gift card and packaged ticket revenues. 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. Other Expense (Income): The following table sets forth the components of other expense (income):
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2010 (Unaudited) NOTE 1—BASIS OF PRESENTATION (Continued) 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 2—ACQUISITION 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 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 the Company's 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 was subject to working capital and other purchase price adjustments as described in the Unit Purchase Agreement. The Company paid 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 included 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 Codification 805, Business Combinations, which requires 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 subject to changes as an appraisal of both tangible and intangible assets and liabilities is finalized and additional
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2010 (Unaudited) NOTE 2—ACQUISITION (Continued) information becomes available; however, we do not expect material changes. The following is a summary of the preliminary allocation of the purchase price:
During the twenty-six weeks ended September 30, 2010, the Company incurred acquisition-related costs of approximately $10,155,000, which are 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. The Company also sold one vacant theatre that had previously been closed by Kerasotes. Proceeds from the divested theatres exceeded the carrying amount of such theatres by $16,850,000, which was recorded as a reduction to goodwill. In addition, the Company has classified two Kerasotes theatres with 26 screens as assets held for sale during the twenty-six weeks ended September 30, 2010, that will be divested. The carrying amount of the assets held for sale was reduced by $6,466,000, which was recorded as an increase to goodwill during the twenty-six weeks ended September 30, 2010, to reflect the $900,000 net sales price received for one of the theatres during the third quarter of fiscal 2011. Assets held for sale
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2010 (Unaudited) NOTE 2—ACQUISITION (Continued) of approximately $2,557,000 were classified as other current assets in the Company's Consolidated Balance Sheets. 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 twenty-six weeks ended September 30, 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2010 (Unaudited) NOTE 2—ACQUISITION (Continued) had these transactions occurred on the date indicated or to project its results of operations for any future period or date.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2010 (Unaudited) NOTE 2—ACQUISITION (Continued)
The Company recorded revenues of approximately $103,300,000 from May 24, 2010 through September 30, 2010 resulting from the acquisition of Kerasotes, and recorded operating costs and expenses of approximately $106,000,000, including $10,200,000 of depreciation and amortization and $10,155,000 of merger, acquisition and transaction costs. The Company recorded $375,000 of other expense related to Kerasotes. NOTE 3—COMPREHENSIVE EARNINGS The components of comprehensive earnings are as follows:
NOTE 4—GOODWILL AND INTANGIBLE ASSETS Activity of goodwill is presented below.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2010 (Unaudited) NOTE 4—GOODWILL AND INTANGIBLE ASSETS (Continued) expected selling price. 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. Activity for intangible assets is presented below:
Additional information for Kerasotes intangible assets acquired on May 24, 2010 is presented below:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2010 (Unaudited) NOTE 4—GOODWILL AND INTANGIBLE ASSETS (Continued) Amortization expense associated with the Company's intangible assets is as follows:
Estimated amortization expense for the next five fiscal years for intangible assets owned as of September 30, 2010 is projected below:
NOTE 5—STOCKHOLDER'S EQUITY AMCE has one share of Common Stock issued as of September 30, 2010, which is owned by Holdings. Holdings has one share of Common Stock issued as of September 30, 2010, which is owned by Parent. During September of 2010, AMCE used cash on hand to pay a dividend distribution to Holdings in an aggregate amount of $15,184,000. Holdings and Parent used the available funds to make a cash interest payment on the 12% Senior Discount Notes due 2014 and pay corporate overhead expenses incurred in the ordinary course of business. 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. 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2010 (Unaudited) NOTE 5—STOCKHOLDER'S EQUITY (Continued) 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 non-qualified stock options, incentive stock options, stock appreciation rights ("SARs"), restricted stock awards, other stock-based awards or performance-based compensation awards. Subject to adjustment as provided for in the Plan, (i) the aggregate number of shares of common stock of Parent available for delivery pursuant to awards granted under the Plan is 39,312 shares, (ii) the number of shares available for granting incentive stock options under the Plan will not exceed 19,652 shares and (iii) the maximum number of shares that may be granted to a participant each year is 7,862. On July 8, 2010, the Board approved the grants of non-qualified stock options, restricted stock (time vesting), and restricted stock (performance vesting) to certain of its employees. The estimated fair value of the stock at the grant date was approximately $752 per share and was based upon a contemporaneous valuation reflecting market conditions. The award agreements under the Plan generally have the following features, subject to Parent's compensation committee:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2010 (Unaudited) NOTE 5—STOCKHOLDER'S EQUITY (Continued) following a Change of Control, the participant's service is terminated by the Company without cause. The fiscal 2011 performance target was established at the grant date following ASC 718-10-55-95 and the estimated grant date fair value was $1,008,000, or approximately $752 per share. Compensation expense for stock options and restricted stock are recognized on a straight-line basis (net of estimated forfeitures) over the requisite service period, which is generally the vesting period of the award. The Company has recorded stock-based compensation expense of $864,000 and $838,000 within general and administrative: other during the twenty-six weeks ended September 30, 2010 and October 1, 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 $864,000 during fiscal 2011. As of September 30, 2010, there was approximately $8,201,000 of total estimated unrecognized compensation cost related to nonvested stock-based compensation arrangements under both the 2010 Equity Incentive Plan and the 2004 Stock Option Plan expected to be recognized over a weighted average 3.44 years. 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:
NOTE 6—INVESTMENTS 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 September 30, 2010, include a 17.02% 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"). Indebtedness held by equity method investees is non-recourse to the Company. 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2010 (Unaudited) NOTE 6—INVESTMENTS (Continued) Operating Results(1): For the 26 weeks ended September 30, 2010
For the 26 weeks ended October 1, 2009
As of September 30, 2010, the Company owns 18,803,420 units, or a 17.02% interest, in NCM accounted for following the equity method of accounting. The estimated fair market value of the units in NCM was approximately $336,581,000, based on the price per share of NCM, Inc. on September 30, 2010 of $17.90 per share. As of September 30, 2010 and April 1, 2010, the Company has recorded $1,190,000 and $1,462,000 respectively, of amounts due from NCM related to on-screen advertising revenue. As of September 30, 2010 and April 1, 2010, the Company had recorded $915,000 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 $11,411,000 and $10,215,000 during the twenty-six weeks ended September 30, 2010 and October 1, 2009, respectively. The Company recorded advertising expenses
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2010 (Unaudited) NOTE 6—INVESTMENTS (Continued) related to a beverage advertising agreement paid to NCM of $6,686,000 and $5,993,000 during the twenty-six weeks ended September 30, 2010 and October 1, 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 twenty-six weeks ended September 30, 2010:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2010 (Unaudited) NOTE 6—INVESTMENTS (Continued) Differences in Accounting for Tranche 1 and Tranche 2 Investments in NCM On February 13, 2007, NCM, Inc., the sole manager of NCM, closed its IPO and used the net proceeds from the IPO to purchase a 44.8% interest in NCM, paying NCM $746,100,000 and paying the Founding Members $78,500,000 for a portion of the NCM units owned by them. NCM then paid $686,300,000 of the funds received from NCM, Inc. to the Founding Members as consideration for their agreement to modify the then-existing ESA. Also in connection with the IPO, NCM used $59,800,000 of the proceeds it received from NCM, Inc. and $709,700,000 of net proceeds from its new senior secured credit facility entered into concurrently with the completion of the IPO to redeem $769,500,000 in NCM preferred units held by the Founding Members. The distribution to the Founding Members described above related to the IPO resulted in large Members' Deficit amounts for the Founding Members. The Company received approximately $259,300,000 for the redemption of all of its preferred units in NCM and approximately $26,500,000 from selling common units in NCM to NCM, Inc. In addition, the Company received $231,300,000 as consideration for modifying the ESA. Following the IPO, the Company determined it would not recognize undistributed equity in the earnings on the original 17,474,890 NCM membership units (Tranche 1 Investment) until NCM's future net earnings, less distributions received, surpass the amount of the excess distribution which created the Members' deficit in NCM. The Company considers the excess distribution described above as an advance on NCM's future earnings and, accordingly, future earnings of NCM should not be recognized through the application of equity method accounting until such time as its share of NCM's future earnings, net of distributions received, exceeds the excess distribution. The Company believes that the accounting model provided by ASC 323-10-35-22 for recognition of equity investee losses in excess of an investor's basis is analogous to the accounting for equity income subsequent to recognizing an excess distribution. The Company's Tranche 1 Investment recorded at $0 corresponds with a NCM Members' Deficit amount in its capital account. The Company has received 7,983,723 additional units in NCM subsequent to the IPO as a result of Common Unit Adjustments received from March 27, 2008 through June 14, 2010 (Tranche 2 Investments). The Company follows the guidance in ASC 323-10-35-29 (formerly EITF 02-18, Accounting for Subsequent Investments in an Investee after Suspension of Equity Loss Recognition) by analogy, which also refers to AICPA Technical Practice Aid 2220.14. Both sets of literature indicate that if a subsequent investment is made in an equity method investee that has experienced significant losses, the investor must determine if the subsequent investment constitutes funding of prior losses. The Company concluded that the construction or acquisition of new theatres that has led to the Common Unit adjustments included in its Tranche 2 Investments equates to making additional investments in NCM. The Company has evaluated the receipt of the additional common units in NCM and the assets exchanged for these additional units and has determined that the right to use its incremental new screens would not be considered funding of prior losses. This determination was formed by considering that (i) NCM does not receive any additional funds from the Tranche 2 Investments, (ii) both NCM and AMC record their respective increases to Members' Equity and Investment at the same amount (fair value of the units issued), (iii) the additional investments result in additional ownership in NCM and (iv) the investments in additional common units are not subordinate to the other equity of NCM.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2010 (Unaudited) NOTE 6—INVESTMENTS (Continued) As such, the additional common units received would be accounted for as a Tranche 2 Investment separate from the Company's initial investment following the equity method. The Company's Tranche 2 Investments correspond with the NCM Members' equity amounts in its capital account. NOTE 7—FAIR 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 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 September 30, 2010:
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 equity securities, available-for-sale, are measured at fair value using quoted market prices. The Company is restricted from selling its
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2010 (Unaudited) NOTE 7—FAIR VALUE MEASUREMENTS (Continued) shares of RealD Inc. until January 2011 when the related lock-up period expires. The unrecognized gain of the equity securities recorded in accumulated other comprehensive loss as of September 30, 2010 is $1,381,000. 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 September 30, 2010, the carrying amount of the Company's liabilities for corporate borrowings was approximately $1,830,183,000 and the fair value was approximately $1,892,776,000. At April 1, 2010, the carrying amount of the corporate borrowings was approximately $1,832,854,000 and the fair value 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 8—INCOME 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:
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2010 (Unaudited) NOTE 9—EMPLOYEE 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 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 recognized for the plans during the twenty-six weeks ended September 30, 2010 and October 1, 2009 consists of the following:
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 recorded a liability and pension cost related to the complete withdrawal of approximately $2,661,000 in the second quarter of fiscal 2011. NOTE 10—CONDENSED 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2010 (Unaudited) NOTE 10—CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued) Twenty-six weeks ended September 30, 2010:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2010 (Unaudited) NOTE 10—CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued) Twenty-six weeks ended October 1, 2009:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2010 (Unaudited) NOTE 10—CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued) As of September 30, 2010:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2010 (Unaudited) NOTE 10—CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued) As of April 1, 2010:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2010 (Unaudited) NOTE 10—CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued) Twenty-six weeks ended September 30, 2010:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2010 (Unaudited) NOTE 10—CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued) Twenty-six weeks ended October 1, 2009:
NOTE 11—COMMITMENTS 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2010 (Unaudited) NOTE 11—COMMITMENTS AND CONTINGENCIES (Continued) 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 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 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 and Department have reached a settlement in principal regarding the extent of betterments related to the remaining remedies required for line-of-sight violations which the parties believe are consistent with the Ninth Circuit's decision. The improvements will likely be made over a 5 year term. 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 remaining betterments are required at approximately 39 stadium-style theatres. The Company estimates that the unpaid costs of these betterments will be approximately $19,100,000. 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. On September 27, 2010, the Ninth Circuit Court of Appeals vacated the District Court's order and remanded the proceedings for a new determination consistent with their opinion. The Company filed its Petition for En Banc and/or Panel Rehearing on October 8, 2010. The parties have reached a tentative settlement, subject to court approval, which is not expected to have a material adverse impact to the Company's financial condition. 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 was stayed pending a Ninth Circuit decision in the Bateman case, which has now been issued. The Company has renewed settlement discussions in this matter as well. The Company believes the plaintiff's allegations in this case, particularly those asserting AMC's
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2010 (Unaudited) NOTE 11—COMMITMENTS AND CONTINGENCIES (Continued) willfulness, are without merit. The Company is currently unable to estimate a possible loss or range of loss related to this matter. 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 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 12—RELATED 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 September 30, 2010, the Company estimates that this amount would be $27,156,000. The Company expects to record any lump sum payment to the Sponsors as a dividend. 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.
The Board of Directors and Stockholder We have audited the accompanying consolidated balance sheet of AMC Entertainment Inc. (and subsidiaries) as of April 1, 2010, and the related consolidated statements of operations, stockholder's equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AMC Entertainment Inc. (and subsidiaries) as of April 1, 2010, and the results of their operations and their cash flows for the year then ended in conformity with U.S. generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, the Company changed its accounting treatment for business combinations due to the adoption of new accounting requirements issued by the FASB, as of April 3, 2009. /s/ KPMG LLP Kansas City, Missouri
TO THE BOARD OF DIRECTORS AND STOCKHOLDER OF AMC ENTERTAINMENT INC.: In our opinion, the accompanying consolidated balance As discussed in Note /s/ PricewaterhouseCoopers LLP Kansas City, Missouri
See Notes to Consolidated Financial Statements.
See Notes to Consolidated Financial Statements.
See Notes to Consolidated Financial Statements.
See Notes to Consolidated Financial Statements
NOTE 1—THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES 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 subsidiary, 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. The Company discontinued its operations in Spain and Portugal during the third quarter of fiscal 2007 and discontinued its operations in Mexico during the third quarter of fiscal 2009. The Company's theatrical exhibition business is conducted through AMC and its subsidiaries and AMCEI. AMCE is a wholly owned subsidiary of Marquee Holdings Inc. ("Holdings")
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) Principles of Consolidation: The consolidated financial statements include the accounts of AMCE and all subsidiaries, as discussed above. All significant intercompany balances and transactions have been Fiscal Year: The Company has a Revenues: Revenues are recognized when admissions and concessions sales are received at the theatres. The Company defers 100% of the revenue associated with the sales of gift cards and packaged tickets
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 1—THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (Continued) approximately $2,600,000 during fiscal 2008. The impact on loss from continuing operations and net loss for the change in estimate was a decrease to Film Exhibition Costs: Film exhibition costs are accrued based on the applicable box office receipts and estimates of the final settlement to the film licenses. Film exhibition costs include certain advertising costs. As of April Concession Costs: The Company records payments from vendors as a reduction of concession costs when earned unless it is determined that the payment was for the fair value of services provided to the vendor where the benefit to the vendor is sufficiently separable from the Company's purchase of the vendor's products. In the latter instance, revenue is recorded when and if the consideration received is in excess of fair value, then the excess is recorded as a reduction of concession costs. In addition, if the payment from the vendor is for a reimbursement of expenses, then those expenses are offset.
Screen Advertising: On March 29, 2005, the Company and Regal Entertainment Group combined their respective cinema screen advertising businesses into a new joint venture company called National CineMedia, LLC ("NCM") Loyalty Program: The Company records the estimated incremental cost of providing free concession items for awards under itsMoviewatcher loyalty program when the awards are earned. Historically, the costs of these awards have not been significant. Advertising Costs: The Company expenses advertising costs as incurred and does not have any direct-response advertising recorded as assets. Advertising costs were Cash and Equivalents: Under the Company's cash management system, checks issued but not presented to banks frequently result in book overdraft balances for accounting purposes and are classified within accounts payable in the balance sheet. The change in book overdrafts are reported as a component of operating cash flows for accounts payable as they do not represent bank overdrafts. The amount of these checks included in accounts payable as of April 1, 2010 and April 2, 2009 was $60,943,000 and
Intangible Assets: Intangible assets are recorded at cost or fair value, in the case of intangible assets resulting from acquisitions, and are comprised of lease rights, amounts assigned to theatre leases
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 1—THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (Continued) acquired under favorable terms, customer relationship intangible assets, Investments: The Company accounts for its investments in non-consolidated entities using either the cost or equity methods of accounting as appropriate, and has recorded the investments within other long-term assets in its consolidated balance sheets and records equity in earnings and losses of those entities accounted for following the equity method of accounting within equity in (earnings) losses of non-consolidated entities in its consolidated statements of operations. The Company follows the guidance in
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 1—THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Goodwill: Goodwill represents the excess of cost over fair value of net tangible and identifiable intangible assets related to acquisitions. The Company is not required to amortize goodwill as a charge to earnings; however, the Company is required to conduct an annual review of goodwill for impairment. The Company's recorded goodwill was $1,814,738,000 The Company performed
Other Long-term Assets: Other long-term assets are comprised principally of investments in partnerships and joint ventures, costs incurred in connection with the issuance of debt securities, which are being amortized to interest expense over the respective lives of the issuances, and capitalized computer software, which is amortized over the estimated useful life of the software.
Leases: The majority of the Company's operations are conducted in premises occupied under lease agreements with initial base terms ranging generally from 15 to 20 years, with certain leases containing options to extend the leases for up to an additional 20 years. The Company does not believe that exercise of the renewal options The
The Company records rent expense for its operating leases on a straight-line basis over the base term of the lease agreements commencing with the date the Company has "control and access" to the leased premises, which is generally a date prior to the "lease commencement date"
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 1—THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (Continued) charges upon completion of the leased premises subsequent to the theatre opening date are expensed as a component of rent expense. Occasionally, the Company will receive amounts from developers in excess of the costs incurred related to the construction of the leased premises. The Company records the excess amounts received from developers as deferred rent and amortizes the balance as a reduction to rent expense over the base term of the lease agreement. The Company evaluates the classification of its leases following the guidance in Occasionally, the Company is responsible for the construction of leased theatres and for paying project costs that are in excess of an agreed upon amount to be reimbursed from the developer. Sale and Leaseback Transactions: The Company accounts for the sale and leaseback of real estate assets in accordance with Impairment of Long-lived Assets: The Company reviews long-lived assets, including definite-lived intangibles, investments in non-consolidated subsidiaries accounted for under the equity method, marketable equity securities and internal use software for impairment
well as monitors current and potential future competition in the markets where it operates for indicators of triggering events or circumstances that indicate potential impairment of individual theatre assets. The Company evaluates theatres using historical and projected data of theatre level cash flow as its primary indicator of potential impairment and considers the seasonality of its business when
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 1—THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (Continued) estimated cash flows from continuing use until the expected disposal date or the fair value of furniture, fixtures and equipment. The expected disposal date does not exceed the remaining lease period unless it is probable the lease period will be extended and may be less than the remaining lease period when the Company does not expect to operate the theatre to the end of its lease term. The fair value of assets is determined as either the expected selling price less selling costs (where appropriate) or the present value of the estimated future cash flows. The fair value of furniture, fixtures and equipment has been determined using similar asset sales and in some instances with the assistance of third party valuation studies. The discount rate used in determining the present value of the estimated future cash flows was There is considerable management judgment necessary to determine the estimated future cash flows and fair
Impairment losses
Foreign Currency Translation: Operations outside the United States are generally measured using the local currency as the functional currency. Assets and liabilities are translated at the rates of exchange at the balance sheet date. Income and expense items are translated at average rates of exchange. The resultant translation adjustments are included in foreign currency translation adjustment, a separate component of accumulated other comprehensive income (loss). Gains and losses from foreign currency transactions, except those intercompany transactions of a long-term investment nature, are included in net earnings (loss).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and NOTE 1—THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (Continued) Other income: The following table sets forth the components of other income:
Stock-based Compensation: AMCE has no stock-based compensation arrangements of its own; however its ultimate parent, AMC Entertainment Holdings, Inc. granted options on The options have been accounted for using the fair value method of accounting for stock-based compensation arrangements,
The following table reflects the weighted average fair value per option granted during each year, as well as the significant weighted average assumptions used in determining fair value using the Black-Scholes option-pricing model:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 1—THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (Continued) Income Taxes: The Company accounts for income taxes in accordance with
AMCE entered into a tax sharing agreement with Holdings and Parent under which AMCE agreed to make cash payments to Holdings and Parent to enable it to pay any (i) federal, state or local income taxes to the extent that such income taxes are directly attributable to AMCE or its subsidiaries' income and (ii) franchise taxes and other fees required to maintain Holdings' and Parent's legal existence. Casualty Insurance: The Company is self-insured for general liability up to $500,000 per occurrence and carries a $400,000 deductible limit per occurrence for workers compensation claims. The Company utilizes actuarial projections of its ultimate losses New Accounting Pronouncements: In January 2010, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2010-06,Fair Value Measurements and Disclosures (Topic 820)—Improving Disclosures about Fair Value Measurements, ("ASU 2010-06"). This Update provides a greater level of disaggregated information and enhanced disclosures about valuation techniques and inputs to fair value measurements. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009 and is effective for the Company as of the end of fiscal 2010 except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years and is effective for the Company as of the beginning of fiscal 2011. See Note 11—Employee Benefit Plans and Note 14—Fair Value Measurements for required disclosures. In October 2009, the FASB issued ASU No. 2009-13,Revenue Recognition (Topic 605)—Multiple-Deliverable Revenue Arrangements—A Consensus of the FASB Emerging Issues Task Force, ("ASU 2009-13"). This Update provides amendments to the criteria in Subtopic 605-25 that addresses how to separate multiple-deliverable arrangements and how to measure and allocate arrangement consideration to one or more units of accounting. In addition, this amendment significantly expands the disclosure requirements related to multiple-deliverable revenue arrangements. ASU 2009-13 will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 and is effective for the Company as of the beginning of fiscal 2012. Early adoption is permitted. The Company is in the process of evaluating the impact ASU 2009-13 will have on its financial statements. In June 2009, the FASB amended guidance for determining whether an entity is a variable interest entity and requires an analysis to determine whether the variable interest gives a company a controlling
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 1—THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
In December 2008,
In December 2007, the FASB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008
NOTE 2—DISCONTINUED OPERATIONS On December 29, 2008, the Company sold all of its interests in Cinemex, which then operated 44 theatres with 493 screens primarily in the Mexico City Metropolitan Area, to Entretenimiento GM de Mexico S.A. de C.V.
The operations and cash flows of the Cinemex theatres have been eliminated from the Company's ongoing operations as a result of the disposal transaction. The purchase price received at the date of the sale and in accordance with the Stock Purchase Agreement was $248,141,000. During the year ended April 1, 2010, the Company received payments of $4,315,000 for purchase price related to tax payments and refunds, and a working capital calculation and post closing adjustments. Additionally, the Company estimates that it is contractually entitled to receive an additional $8,752,000 of the purchase price related to other tax payments and refunds. While the Company believes it is entitled to these amounts from Cinemex, the resolution and collection will require litigation which was initiated by the Company on April 30, 2010. Resolution could take place over a prolonged period. As a result of the litigation, the Company has established an allowance for doubtful accounts related to this receivable in the amount of $7,480,000 and further directly charged off $1,381,000 of certain amounts as uncollectible with an offsetting charge of $8,861,000 recorded to loss on disposal included as a component of discontinued operations. The Company does not have any significant continuing involvement in the operations of the Cinemex theatres after the disposition. The results of operations of the Cinemex theatres have been classified as discontinued operations
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 2—DISCONTINUED OPERATIONS (Continued)
Statements of operations data:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 3—PROPERTY A summary of property is as follows:
Expenditures for additions (including interest during construction) and betterments are capitalized, and expenditures for maintenance and repairs are charged to expense as incurred. The cost of assets retired or otherwise disposed of and the related accumulated depreciation and amortization are eliminated from the accounts in Depreciation expense was $163,506,000, $174,851,000, and $190,194,000 for the periods ended April 1, 2010, April 2, 2009, and April 3, 2008, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 4—GOODWILL AND OTHER INTANGIBLE ASSETS Activity of goodwill is presented below.
Activity of other intangible assets is presented below:
Amortization expense associated with the intangible assets noted above is as follows:
Estimated amortization expense for the next five fiscal years for intangible assets
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009
NOTE 5—INVESTMENTS Investments in non-consolidated affiliates and certain other investments accounted for under 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
In May 2007, the Company disposed of its investment in Fandango, Inc. ("Fandango"), accounted for using the cost method, for total proceeds of approximately $20,360,000, of which $17,977,000 was received in May and September 2007 and $2,383,000 was received in November 2008. The Company recorded a gain on the sale recorded in investment income of approximately $15,977,000 during fiscal 2008 and $2,383,000 during fiscal 2009. In July 2007, the Company disposed of its investment in DCIP Transactions On March 10, 2010, DCIP completed its financing transactions for the deployment of digital projection systems to nearly 14,000 movie theatre screens across North America, including screens operated or managed by the Company, Cinemark Holdings, Inc. ("Cinemark") and Regal Entertainment Group ("Regal"). At closing the Company contributed 342 projection systems that it owned to DCIP which were recorded at estimated fair value as part of an additional investment in DCIP of $21,768,000. The Company also made cash investments in DCIP of $840,000 at closing and DCIP made a distribution of excess cash to us after the closing date and prior to year-end of $1,262,000. The Company recorded a loss on contribution of the 342 projection systems of $563,000, based on the difference between estimated fair value and its carrying value on the date of contribution. On March 26, 2010, the Company acquired 117 digital projectors from third party lessors for $6,784,000 and sold them together with 7 digital projectors that it owned to DCIP for $6,570,000. The Company recorded a loss on the sale of these 124 systems to DCIP of $697,000. As of April 1, 2010, the Company operated 568 digital projection systems leased from DCIP pursuant to operating leases and anticipates that it will have deployed 4,000 of these systems in its existing theatres over the next three to four years. The digital projection systems leased from DCIP and its affiliates will replace most of the Company's existing 35 millimeter projection systems in its U.S. theatres. The Company is examining its estimated depreciable lives for its existing equipment, with a net book value of approximately $14,224,000 that will be replaced and expects to accelerate the depreciation of these existing 35 millimeter projection systems, based on the estimated digital projection system deployment timeframe.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 5—INVESTMENTS (Continued) NCM Transactions On March 29, 2005, the Company In connection with the completion of NCM, Inc.'s IPO, on February 13, 2007, the Company entered into the Third Amended and Restated Limited Liability Company Operating Agreement (the "NCM Operating Agreement") among
programming services, and provides NCM with a five year right of first refusal for the services beginning one year prior to the end of the term. The ESA also changed the basis upon which the Company is paid by NCM from a percentage of revenues associated with advertising contracts entered into by NCM to a monthly theatre access fee. The theatre access fee is now composed of a fixed payment per patron and a fixed payment per digital screen, which increases by 8% every five years starting at the end of fiscal 2011 for payments per patron and by 5% annually starting at the end of fiscal 2007 for payments per digital screen. The theatre access fee paid in the aggregate to the Founding Members will not be less than 12% of NCM's aggregate advertising revenue, or it will be adjusted upward to meet this minimum payment. Additionally, the Company entered into the First Amended and Restated Loews Screen Integration Agreement with NCM on February 13, 2007, pursuant to which the Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 5—INVESTMENTS (Continued) quarterly distributions of excess cash from NCM. Immediately following the NCM, Inc. IPO, the Company held an 18.6% interest in NCM. Annual adjustments to the common membership units are made pursuant to the Common Unit Adjustment Agreement dated as of February 13, 2007 between NCM, Inc. and the Founding Members. The The Common Unit Adjustment Agreement provides that transfers of common units are solely between the Founding Members and NCM. There are no transfers of units among the Founding Members. In addition, there are no circumstances under which common units would be surrendered by the Company to NCM in the event of an acquisition by one of the Founding Members. However, adjustments to the common units owned by one of the Founding Members will result in an adjustment to the Company's equity ownership interest percentage in NCM. Pursuant to our Common Unit Adjustment Agreement, from time to time, common units of NCM held by the Founding Members will be adjusted up or down through a formula ("Common Unit Adjustment") primarily based on increases or decreases in the number of theatre screens operated and Effective March 27, 2008, the Company received 939,853 common membership units of NCM as a result of the Common Unit Adjustment, increasing the Company's interest in NCM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 5—INVESTMENTS (Continued) to 18.53%. The Company recorded these additional units at a fair value of $5.5 million, based on a price for shares of NCM, Inc. on March 17, 2009, of $13.42 per share, with an offsetting adjustment to deferred revenue. Effective March 17, 2010, the Company received 127,290 common membership units of NCM. As a result of the Common Unit Adjustment among the Founding Members, the Company's interest in NCM decreased to 18.23% as of April 1, 2010. The Company recorded the additional units received at a fair value As a result of NCM,
As of April 1, 2010, the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 5—INVESTMENTS (Continued)
Related Party Transactions As of April Summary Financial Information Investments in non-consolidated affiliates as of April 1, 2010, include an 18.23% interest in National CineMedia, LLC ("NCM"), a 50% interest in three U.S. motion picture theatres and one IMAX screen, a 26% equity interest in Movietickets.com, Inc. ("MTC"), a 50% interest in Midland Empire Partners, LLC and a 29% interest in Digital Cinema Implementation Partners, LLC ("DCIP"). Financial results for the 53 weeks ended April 3, 2008 include a 50% interest in Hoyts General Cinemas South America ("HGCSA"), an entity that operated 17 theatres in South America, which was disposed of in July 2007. Condensed financial information of
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 5—INVESTMENTS (Continued) Financial Condition:
The Company reviews investments in non-consolidated subsidiaries accounted for under the equity method for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be fully recoverable. The Company reviews unaudited financial statements on a quarterly basis and audited financial statements on an annual basis for indicators of triggering events or circumstances that indicate the potential impairment of these investments as well as current
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 5—INVESTMENTS (Continued) equity prices for its investment in NCM LLC and discounted projections of cash flows for certain of its other investees. Additionally, the Company has quarterly discussions with the management of significant investees to assist in the identification of any factors that might indicate the potential for impairment. In order to determine whether the carrying value of investments may have experienced an "other-than-temporary" decline in value necessitating the write-down of the recorded investment, the Company considers the period of time during which the fair value of the investment remains substantially below the recorded amounts, the investees financial condition and quality of assets, the length of time the investee has been operating, the severity and nature of losses sustained in current and prior years, a reduction or cessation in the investees dividend payments, suspension of trading in the security, qualifications in accountant's reports due to liquidity or going concern issues, investee announcement of adverse changes, downgrading of investee debt, regulatory actions, changes in reserves for product liability, loss of a principal customer, negative operating cash flows or working capital deficiencies and the recording of an impairment charge by the investee for goodwill, intangible or long-lived assets. Once a determination is made that an other-than-temporary impairment exists, the Company writes down its investment to fair value. Included in impairment of long-lived assets for the Operating Results:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 5—INVESTMENTS (Continued) The Company recorded the following changes in the carrying amount of its investment in NCM and equity in (earnings) losses of NCM during the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, NOTE 5—INVESTMENTS (Continued) common membership units in fiscal 2008, 2009 and 2010, valued at $21,598,000, $5,453,000 and $2,290,000, respectively (Tranche
Differences in Accounting for Tranche 1 and Tranche 2 Investments in NCM On February 13, 2007, NCM, Inc., the sole manager of NCM, closed its IPO and used the net proceeds from the IPO to purchase a 44.8% interest in NCM, paying NCM $746,100,000 and paying the Founding Members $78,500,000 for a portion of the NCM units owned by them. NCM then paid $686,300,000 of the funds received from NCM, Inc. to the Founding Members as consideration for their agreement to modify the then-existing ESA. Also in connection with the IPO, NCM used $59,800,000 of the proceeds it received from the IPO and $709,700,000 of net proceeds from its new senior secured credit facility entered into concurrently with the completion of the IPO to redeem $769,500,000 in NCM preferred units held by the Founding Members. The distributions to the Founding Members described above related to the IPO resulted in large Members' Deficit amounts for the Founding Members. The Company received approximately $259,300,000 for the redemption of all of its preferred units in NCM and approximately $26,500,000 from selling common units in NCM to NCM, Inc. In addition, the Company received $231,300,000 as consideration for modifying the ESA. Following the IPO, the Company determined it would not recognize undistributed equity in the earnings on the original 17,474,890 NCM membership units (Tranche 1 Investment) until NCM's future net earnings, less distributions received, surpass the amount of the excess distribution which created the Members' Deficit in NCM. The Company considers the excess distributions described above as an advance on NCM's future earnings and, accordingly, future earnings of NCM should not be recognized through the application of equity method accounting until such time as its share of NCM's future earnings, net of distributions received, exceeds the excess distribution. The Company believes that the accounting model provided by ASC 323-10-35-22 for recognition of equity investee losses in excess of an investor's basis is analogous to the accounting for equity income subsequent to recognizing an excess distribution. The Company's Tranche 1 Investment recorded at $0 corresponds with a NCM Members' Deficit amount in its capital account.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 5—INVESTMENTS (Continued) The Company has received 7,983,723 additional units in NCM subsequent to the IPO as a result of Common Unit Adjustments received from March 27, 2008 through June 14, 2010 (Tranche 2 Investments). The Company follows the guidance in ASC 323-10-35-29 (formerly EITF 02-18 "Accounting for Subsequent Investments in an Investee after Suspension of Equity Loss Recognition") by analogy, which also refers to AICPA Technical Practice Aid 2220.14. Both sets of literature indicate that if a subsequent investment is made in an equity method investee that has experienced significant losses, the investor must determine if the subsequent investment constitutes funding of prior losses. The Company concluded that the construction or acquisition of new theatres that has led to the Common Unit Adjustments included in its Tranche 2 Investments equates to making additional investments in NCM. The Company has evaluated the receipt of the additional common units in NCM and NOTE 6—SUPPLEMENTAL BALANCE SHEET INFORMATION Other assets and liabilities consist of the following:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 6—SUPPLEMENTAL BALANCE SHEET INFORMATION (Continued)
NOTE 7—CORPORATE BORROWINGS AND CAPITAL AND FINANCING LEASE OBLIGATIONS A summary of the carrying value of corporate borrowings and capital and financing lease obligations is as follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 7—CORPORATE BORROWINGS AND CAPITAL AND FINANCING LEASE OBLIGATIONS (Continued) Minimum annual payments required under existing capital and financing lease obligations (net present value thereof) and maturities of corporate borrowings as of April
Senior Secured Credit Facility The Borrowings under the
All obligations under the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 7—CORPORATE BORROWINGS AND CAPITAL AND FINANCING LEASE OBLIGATIONS (Continued) interest hedging or other swap agreements), are secured by substantially all of AMC Entertainment's assets as well as those of each subsidiary guarantor. The In addition, the Fixed Notes due 2012 In connection with the merger with Marquee, AMC Entertainment became the obligor of $250,000,000 aggregate principal amount of 85/8% Senior On June 9, 2009, AMC Entertainment completed the offering of $600,000,000 aggregate principal amount of its 8.75% Senior Notes due 2019 (the "Notes due 2019"). Concurrently with the initial notes offering, the Company launched a cash tender offer and
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 7—CORPORATE BORROWINGS AND CAPITAL AND FINANCING LEASE OBLIGATIONS (Continued) Notes Due 2014 On February 24, 2004, AMC Entertainment sold $300,000,000 aggregate principal amount of 8% Senior Subordinated Notes due 2014 (the "Notes due 2014"). AMC Entertainment applied the net proceeds from the sale of Notes due 2014, plus cash on hand, to redeem all outstanding $200,000,000 aggregate principal amount of its 91/2% Senior Subordinated Notes due 2009 and $83,406,000 aggregate principal amount of its Notes due 2011. The Notes due 2014 bear interest at the rate of 8% per annum, payable in March and September. The Notes due 2014 are redeemable at the option of AMC Entertainment, in whole or in part, at any time on or after March 1, 2009 at 104% of the principal amount thereof, declining ratably to 100% of the principal amount thereof on or after March 1, 2012, plus in each case interest accrued to the redemption date. The indenture governing the Notes due 2014 contains certain covenants that, among other things, may limit the ability of AMC Entertainment and its subsidiaries to incur additional indebtedness and pay dividends or make distributions in respect of their capital stock. In connection with the merger with Marquee, the carrying value of the Notes due 2014 was adjusted to fair value. As a result, a discount of $1,500,000 was recorded and will be amortized to interest expense over the remaining term of the notes.
Notes Due 2016 On January 26, 2006, AMC Entertainment issued $325,000,000 aggregate principal amount of 11% Senior Subordinated Notes (the "Notes due 2016") issued under an indenture (the "Indenture"), with HSBC Bank USA, National Association, as trustee. The Notes due 2016 will bear interest at a rate of 11% per annum, payable on February 1 and August 1 of each year (commencing on August 1, 2006), and have a maturity date of February 1, 2016. The Notes due 2016 are general unsecured senior subordinated obligations of AMC Entertainment, fully and unconditionally guaranteed, jointly and severally, on a senior subordinated basis by each of AMC Entertainment's existing and future domestic restricted subsidiaries that guarantee AMC Entertainment's other indebtedness. AMC Entertainment may redeem some or all of the Notes due 2016 at any time on or after February 1, 2011 at 105.5% of the principal amount thereof, declining ratably to 100% of the principal amount thereof on or after February 1, 2014. The indenture relating to
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 7—CORPORATE BORROWINGS AND CAPITAL AND FINANCING LEASE OBLIGATIONS (Continued) most restrictive indenture), we could borrow approximately $570,700,000 (assuming an interest rate of 8.25% per annum on the additional indebtedness) in addition to The indenture governing the Notes due 2016 contains covenants limiting other indebtedness, dividends, purchases or redemptions of stock, transactions with affiliates and mergers and sales of assets. It also contains provisions subordinating AMC Entertainment's obligations under the Notes due 2016 to AMC Entertainment's obligations under its Notes Due 2019 On June 9, 2009, AMC Entertainment issued $600,000,000 aggregate principal amount of 8.75% Senior Notes (the "Notes due 2019") issued under an indenture (the "Indenture"), with U.S. Bank, National Association, as trustee. The Notes due 2019 bear interest at a rate of 8.75% per annum, payable on June 1 and December 1 of each year (commencing on December 1, 2009), and have a maturity date of June 1, 2019. The Notes due 2019 are general unsecured senior obligations of AMC Entertainment, fully and unconditionally guaranteed, jointly and severally, on a senior basis by each of AMC Entertainment's existing and future domestic restricted subsidiaries that guarantee AMC Entertainment's other indebtedness. The Notes due 2019 are redeemable at our option in whole or in part, at any time on or after June 1, 2014 at 104.375% of the principal amount thereof, declining ratably to 100% of the The indenture governing the Notes due As of April Change of Control Upon a change of control (as defined in the indentures), AMCE would be required to make an offer to repurchase all of the outstanding Notes due 2019, Notes due 2016, and Notes due 2014 at a
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 7—CORPORATE BORROWINGS AND CAPITAL AND FINANCING LEASE OBLIGATIONS (Continued) price equal to 101% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase. The Sponsors are considered Permitted Holders as defined in each of the indentures and as such could create certain voting arrangements that would not constitute a change of control under the indentures. Holdings Discount Notes Due 2014 To help finance the merger with Marquee, Holdings issued $304,000,000 aggregate principal amount at maturity of its 12% Senior Discount Notes due 2014 ("Discount Notes due 2014") for gross proceeds of $169,917,760. The indenture governing the Discount Notes due 2014 contains certain covenants that, among other things, may limit the ability of the Company and its subsidiaries to incur additional indebtedness and pay dividends or make distributions in respect of their capital stock.
Holdings is a holding company with no operations of its own and has no ability to service interest or principal on the Discount Notes due 2014 other than through any dividends it may receive from AMCE. AMCE will be restricted, in certain circumstances, from paying dividends to Holdings by the terms of the indentures governing the On any interest payment date prior to August 15, 2009, Holdings Upon a change of control (as defined in the indentures), Holdings would be required to make an offer to repurchase all of the outstanding Discount Notes due 2014 at a price equal to 101% of the principal amount thereof plus accrued and unpaid interest. Parent Term Loan Facility To help finance the dividend paid by Parent to its stockholders discussed in Note
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 7—CORPORATE BORROWINGS AND CAPITAL AND FINANCING LEASE OBLIGATIONS (Continued) the Parent Term Loan Facility, including unpaid interest, was Parent is a holding company with no operations of its own and has no ability to service interest or principal on the Parent Term Loan Facility other than through dividends it may receive from Holdings and AMCE. Holdings and AMCE are restricted, in certain circumstances, from paying dividends to Parent by the terms of the indentures governing their Borrowings under the Parent Term Loan Facility bear interest at a rate equal to an applicable margin plus, at the Parent's option, either a base rate or LIBOR. The initial applicable margin for borrowings under the Parent Term Loan Facility is 4.00% with respect to base rate borrowings and 5.00% with respect to LIBOR borrowings. Interest on borrowings under the Parent Term Loan Facility is payable on each March 15, June 15, September 15, and December 15, beginning September 15, 2007 by adding such interest for the applicable period to the principal amount of the outstanding loans. Parent is required to pay an administrative agent fee to the lenders under the Parent Term Loan Facility of $100,000 annually. Parent may voluntarily repay outstanding loans under the Parent Term Loan Facility, in whole or in part, together with accrued interest to the date of such prepayment on the principal amount prepaid at any time on or before June 13,
The Parent Term Loan Facility contains certain covenants that, among other things, may limit the ability of the Parent to incur additional indebtedness and pay dividends or make distributions in respect of its capital stocks, and this obligation is not reflected on AMCE's balance sheet. NOTE 8—
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 8—
Pursuant to the terms of the Merger Agreement, on January 26, 2006, in connection with the consummation of the Merger, Holdings issued 256,085.61252 voting shares of Class L-1 Common Stock, par value $0.01 per share ("Class L-1 Common Stock"), 256,085.61252 voting shares of
Class L-2 Common Stock, par value $0.01 per share ("Class L-2 Common Stock" and, together with the Class L-1 Common Stock, the "Class L Common Stock"), 382,475 voting shares of Class A-1 Common Stock, par value $0.01 per share (the "Class A-1 Common Stock"), 382,475 voting shares of Class A-2 Common Stock, par value $0.01 per share (the "Class A-2 Common Stock" and, together with the Class A-1 Common Stock, the "Class A Common Stock"), and 5,128.77496 nonvoting shares of Class N Common Stock, par value $0.01 per share (the Class N Common Stock"), such that (i) the former non-management stockholders of LCE Holdings, including the Bain Investors, the Carlyle Investors and the Spectrum Investors (collectively, the "Former LCE Sponsors"), hold all of the outstanding shares of Class L Common Stock, (ii) the pre-existing non-management stockholders of Holdings, including the JPMP Investors and the Apollo Investors (collectively, the "Pre-Existing Holdings Sponsors" and, the Pre-Existing Holdings Sponsors together with the Former LCE Sponsors, the "Sponsors") and other co-investors (the "Coinvestors"), hold all of the outstanding shares of Class A Common Stock, and (iii) management stockholders of Holdings (the "Management Stockholders" and, together with the Sponsors and Coinvestors, the "Stockholders") hold all of the non-voting Class N Common Stock. The Class L Common Stock, Class A Common Stock and Class N Common Stock will automatically convert on a one-for-one basis into shares of The issuance of the equity securities was exempt from registration under the Securities Act of 1933 and the rules promulgated thereunder (the "Securities Act") in reliance on Section 4(2) of the Securities Act, as transactions by an issuer not involving a public offering. On June 11, 2007, Marquee Merger Sub Inc. ("merger
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 8—STOCKHOLDER'S EQUITY (Continued) and proceeds from the issuance of a $400,000,000 Credit Agreement issued by Parent (See Note 7) to pay a dividend to its stockholders of $652,800,000 during fiscal year 2008. On June 12, 2007, Holdings announced that it had completed a solicitation of consents from holders of its Discount Notes due 2014, and that it had received consents for $301,933,000 in aggregate principal amount at maturity of the Discount Notes due 2014, representing 99.32% of the outstanding Discount Notes due 2014. In connection with the receipt of consents, Holdings paid an aggregate consent fee of approximately $4,360,000, representing a consent fee of $14.44 for each $1,000 in principal amount at maturity of Discount Notes due 2014 to which consents were delivered. Accordingly, the requisite consents to adopt the proposed amendment (the "Amendment") to the indenture pursuant to which the Discount Notes due 2014 were issued were received, and a
supplemental indenture to effect the Amendment was executed by Holdings and the trustee under the indenture. The Amendment revised the restricted payments covenant to permit Holdings to make restricted payments in an aggregate amount of $275,000,000 prior to making an election to pay cash interest on its senior discount notes. The Amendment also contained a covenant by Holdings to make an election on August 15, 2007, the next semi-annual accretion date under the indenture, to pay cash interest on the senior discount notes. As a result, Holdings made its first cash interest payment on the senior discount notes on February 15, 2008. Holdings used cash on hand at AMCE to pay a dividend to Holdings' current stockholder in an aggregate amount of $275,000,000. On April 3, 2008, the Company distributed to Holdings $21,830,000, which has been recorded by the Company as a reduction to additional paid-in capital. The distribution included $3,279,000 of advances made by the Company on behalf of Holdings prior to fiscal 2008 and $18,551,000 of cash advances made during fiscal 2008, including payment of interest on the Holdings Discount notes due 2014 of $14,447,700. During fiscal 2009, the Company distributed to Holdings $35,989,000, which has been recorded by the Company as a reduction to additional paid-in capital. Holdings and Parent used the available funds to make cash interest payments on the 12% Senior Discount Notes due 2014, repurchase treasury stock and make payments related to the liability classified options, and pay corporate overhead expenses incurred in the ordinary course of business. During fiscal 2010, the Company distributed to Holdings $329,981,000 and Holdings distributed $300,881,000 to Parent, which were treated as reductions of additional paid-in capital. Holdings used the available funds to make cash interest payments on the 12% Senior Discount Notes due 2014, to pay corporate overhead expenses incurred in the ordinary course of business and to pay a dividend to Parent. Parent made payments to purchase term loans and reduced the principal balance of its Parent Term Loan Facility from $466,936,000 to $193,290,000 with a portion of the dividend proceeds. As discussed in Note
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 8—STOCKHOLDER'S EQUITY (Continued) Common Stock Rights and Privileges Parent's Class A-1 voting Common Stock, Class A-2 voting Common Stock, Class N nonvoting Common Stock, Class L-1 voting Common Stock and Class L-2 voting Common Stock entitle the holders thereof to the same rights and privileges, subject to the same qualifications, limitations and restrictions with respect to dividends. Additionally, each share of Class A Common Stock, Class L Common Stock and Class N Common Stock shall automatically convert into one share of Residual Common Stock on a one-for-one basis immediately prior to the consummation of an Initial Public Offering. 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 grants of up to 49,107.44681 options on Parent's stock and has granted options on 4,786.0000, 15,980.45, 600.00000 and 38,876.72873 of its shares to certain employees during the periods ended April 1, 2010, April 2, 2009, March 30, 2006 and March 31, 2005, respectively. As of April
Since the employees to whom the options were granted are employed by the Company, the Company is required to reflect the stock-based compensation expense associated with the options within its consolidated statements of operations. The options have a ten year term, the options granted during fiscal 2005 step-vest in equal amounts over five years with the final vesting
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 8—STOCKHOLDER'S EQUITY (Continued) April 3, 2008. In May 2008, Holdings was notified of the holder's intention to exercise the put option and Holdings made cash payments to settle the accrued liability of $3,911,000 during fiscal 2009. As a result of the exercise of the put right, there was no additional stock compensation expense related to these options in fiscal 2009 and the related options were canceled upon exercise of the put right during fiscal 2009. The Company accounts for stock options using the fair value method of accounting
On February 23, 2009, the Company entered into a Separation and General Release Agreement with Peter C. Brown (formerly Chairman of the Board, Chief Executive Officer and President of Parent, Holdings and AMCE), whereby all outstanding vested and unvested options were voluntarily forfeited. Stock compensation expense recorded in fiscal 2009 related only to awards that vested prior to February 23, 2009. Because all vested and unvested awards were forfeited, there is no additional compensation cost to recognize in future periods related to his awards. A summary of stock option activity under all plans is as follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and NOTE 8—STOCKHOLDER'S EQUITY (Continued)
For options exercised, intrinsic value is calculated as the difference between the market price on the date of exercise (determined using the most recent contemporaneous valuation prior to the exercise) and the exercise price of the options. The total intrinsic value of options exercised was
NOTE Income tax provision reflected in the Consolidated Statements of Operations for the periods in the three years ended April
AMCE has recorded no alternative minimum taxes as the consolidated tax group for which AMCE is a member expects no alternative minimum tax liability and pursuant to the tax sharing arrangement in place, AMCE has no liability.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE Pre-tax income (losses) consisted of the following:
The difference between the effective tax rate on earnings (loss) from continuing operations before income taxes and the U.S. federal income tax statutory rate is as follows:
The fiscal
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 9—INCOME TAXES (Continued) The significant components of deferred income tax assets and liabilities as of April
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE A rollforward of the Company's valuation allowance for deferred tax assets is as follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 9—INCOME TAXES (Continued) activity in fiscal 2008 represents an adjustment to the valuation allowance related to the intercompany tax sharing agreement with Parent and Holdings, as described above.
The Company's federal income tax loss carryforward of Parent During fiscal 2010, management believed it was more likely than not that The Company has recorded a valuation allowance against its remaining net deferred tax asset in U.S. and foreign jurisdictions of Effective March 30, 2007, the Company adopted
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 9—INCOME TAXES (Continued) of stockholder's accumulated deficit at March 30, 2007. A reconciliation of the change in the amount of unrecognized tax benefits during the year ended April
As of April
The Company's effective tax rate would not be significantly impacted by the ultimate resolution of the uncertain tax positions because of the retention of a valuation allowance against most of its net operating loss carryforwards. During December 2007, the IRS informed the Company of its acceptance of certain tax conclusions that the Company had taken on a transaction the Company entered into during the fiscal year ended March 29, 2007 that were presented to the IRS in a Request for a Pre-Filing Agreement. As a result of the IRS accepting the Company's tax conclusions, the $5,373,000 reserve established with the adoption of The Company recognizes income tax-related interest expense and penalties as income tax expense and There are currently unrecognized tax benefits which the Company anticipates will be resolved in the next 12 months; however, the Company is unable at this time to estimate what the impact on its unrecognized tax benefits will be. The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. An IRS examination of the tax years February 28, 2002 through December 31, 2003 of the former Loews Cineplex Entertainment Corporation and subsidiaries was concluded during fiscal 2007. An IRS examination for the tax years ended March 31, 2005 and March 30, 2006 was completed during 2009.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 9—INCOME TAXES (Continued) and various state jurisdictions which have carryforwards of varying lengths of time. These NOLs are subject to adjustment based on the statute of limitations of the return in which they are utilized, not the year in which they are generated. Various state, local and foreign income tax returns are also under examination by taxing authorities. The Company does not believe that the outcome of any examination will have a material impact on its financial statements. NOTE Beginning in fiscal 1998, the Company has completed numerous real estate lease agreements with Entertainment Properties Trust ("EPT") including transactions accounted for as sale and leaseback transactions in accordance with
Following is a schedule, by year, of future minimum rental payments required under existing operating leases that have initial or remaining non-cancelable terms in excess of one year as of April
As of April Included in other long-term liabilities as of April 1, 2010 and April 2, 2009 is $226,061,000 and
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 10—LEASES (Continued) Rent expense is summarized as follows:
NOTE 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)
In the fourth quarter of fiscal 2009, the Company recorded a curtailment gain of $1,072,000 as a result of the retirement of its former chief executive officer on February 23, 2009. The curtailment gain relates to the Retirement Enhancement Plan which included only one active unvested participant and one retired vested participant. Because the former chief executive officer had not vested in his eligible benefit, his retirement created a significant elimination of the accrual of deferred benefits for his future services. On May 2, 2008, the Company's Board of Directors approved revisions to the Company's Post Retirement Medical and Life Insurance Plan effective January 1, 2009 and on July 3, 2008 the changes were communicated to the plan participants. As a result of these revisions, Effective March 29, 2007, the Company adopted
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 11—EMPLOYEE BENEFIT PLANS (Continued) Company recorded an $82,000 loss to fiscal 2009 opening accumulated deficit and a $411,000 unrealized loss to other comprehensive income. As a result of the Merger in January 2006, the Company acquired two pension plans in the U.S. and one in Mexico. One of the U.S. plans is a frozen cash balance plan and neither of the U.S. plans has admitted new participants post-merger. On November 7, 2006, the Company's Board of Directors approved an amendment to freeze the Company's Defined Benefit Retirement Income Plan, Supplemental Executive Retirement Plan and Retirement Enhancement Plan (the "Plans") as of December 31, 2006. On December 20, 2006 the Company amended and restated the Plans to implement the freeze as of December 31, 2006. As a result of the freeze there will be no further benefits accrued after December 31, 2006, but continued vesting for associates with less than five years of vesting service. The Company will continue to fund existing benefit obligations and there will be no new participants in the future. As a result of amending and restating the Plans to implement the freeze, the Company recognized a curtailment gain of $10,983,000 in fiscal 2007 in its consolidated financial statements which was recorded within general
and administrative: other. Additionally, the Company terminated the LCE post-retirement plan as of December 31, 2006 and merged this plan into the AMCE post-retirement plan as of January 1, 2007. The measurement date used to determine pension and other postretirement benefits is April 1, 2010. Net periodic benefit cost for the plans consists of the following:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, NOTE 11—EMPLOYEE BENEFIT PLANS (Continued) The following table summarizes the changes in other comprehensive income:
The following tables set forth the plan's change in benefit obligations and plan assets and the accrued liability for benefit costs included in the consolidated balance sheets:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 11—EMPLOYEE BENEFIT PLANS (Continued)
The following table summarizes pension plans with accumulated benefit obligations and projected benefit obligations in excess of plan assets:
Amounts recognized in accumulated other comprehensive income consist of the following:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 11—EMPLOYEE BENEFIT PLANS (Continued) Amounts in accumulated other comprehensive income (loss) expected to be recognized in components of net periodic pension cost in fiscal 2011 are as follows:
Actuarial Assumptions The weighted-average assumptions used to determine benefit obligations
The weighted-average assumptions used to determine net periodic benefit
In developing the expected long-term rate of return on plan assets at each measurement date, the Company considers the plan assets' historical returns, asset allocations, and the anticipated future economic environment and long-term performance of the asset classes. While appropriate consideration is given to recent and historical investment performance, the assumption represents management's best estimate of the long-term prospective return.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE
Modernization Act of 2003
The Company expects to contribute The following table provides the benefits expected to be paid (inclusive of benefits attributable to estimated future employee service) in each of the next five fiscal years, and in the aggregate for the five fiscal years thereafter:
Pension Plan Assets For
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE
The Company sponsors a voluntary 401(k) savings plan covering employees age 21 or older who have completed at least 1,000 hours of service in their first twelve months of employment, or in a calendar year thereafter, and who are not covered by a collective bargaining agreement.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and NOTE 11—EMPLOYEE BENEFIT PLANS (Continued) Union-Sponsored Plans Certain theatre employees are covered by union-sponsored pension and health and welfare plans. Company contributions into these plans are determined in accordance with provisions of negotiated labor contracts. Contributions aggregated $501,000, $559,000, NOTE 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
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. AMCE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and NOTE 12—COMMITMENTS AND CONTINGENCIES (Continued) 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
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 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, software technology vendors, 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE Kerasotes Acquisition. On December 9, 2009, the Company entered into a definitve agreement with Kerasotes ShowPlace Theatres, LLC ("Kerasotes") pursuant to which the Company will acquire substantially all of the assets of Kerasotes. Kerasotes operated 95 theatres and 972 screens in mid-sized, suburban and metropolitan markets, primarily in the Midwest. On May 24, 2010, the Company completed the acquisition. The purchase price for the Kerasotes theatres paid in cash at closing was $275,000,000 and is subject to working capital and other purchase price adjustments as described in the Unit Purchase Agreement. In connection with the consummation of the acquisition, the Company sold one of its theatres for a gain on sale of approximately $10,000,000. NOTE 13—THEATRE AND OTHER CLOSURE AND DISPOSITION OF ASSETS The Company has provided reserves for estimated losses from theatres which have been A rollforward of reserves for theatre and other closure is as follows:
other closure expense due primarily to closure of one theatre and accretion of the closure liability related to theatres closed during prior periods. During the fifty-two weeks ended April 2, 2009, the Company recognized $2,262,000 of theatre and other closure income due primarily to lease terminations negotiated on favorable terms for two theatres that were closed during this period. The Company did not receive cash payments in connection with the lease terminations, but recognized income from the write-off of the unamortized deferred rent liability. During the fifty-three weeks ended April 3, 2008, the Company recognized $20,970,000 of theatre and other closure income due primarily to lease terminations negotiated on favorable terms at seven of its theatres that were either closed or
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 13—THEATRE AND OTHER CLOSURE AND DISPOSITION OF ASSETS (Continued) the lease terms were settled favorably during this period. The Company received net cash payments of $10,159,000 in connection with these seven lease terminations. Theatre and other closure reserves for leases that have not been terminated are recorded at the present value of the future contractual commitments for the base rents, taxes and maintenance. As of April NOTE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE The following table summarizes the fair value hierarchy of the Company's financial assets and liabilities carried at fair value on a recurring
Valuation Techniques. The Company's cash and cash equivalents are primarily money market mutual funds
The following table summarizes the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE In accordance with the provisions of the impairment of long-lived assets subsections of FASB Codification Subtopic 360-10, long-lived assets held and used were written down to their fair value of $10,335,000, resulting in an impairment charge of $3,765,000, which was included in earnings for the fifty-two weeks ending April 1, 2010. The fair value of assets is determined as either the expected selling price less selling costs (where appropriate) or the present value of the estimated future cash flows. The fair value of furniture, fixtures and equipment has been determined using similar asset sales and in some instances with the assistance of third party valuation studies. The discount rate used in determining the present value of the estimated future cash flows was based on management's expected return on assets during fiscal 2010. NOTE 15—OPERATING SEGMENT The Company reports information about operating segments in accordance with Information about the Company's revenues and assets by geographic area is as follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE
NOTE 16—CONDENSED CONSOLIDATING FINANCIAL INFORMATION The accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE Fifty-two weeks ended
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE Fifty-three weeks ended April
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE April
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE Fifty-two weeks ended
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE Fifty-three weeks ended April 3, 2008:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 17—RELATED PARTY TRANSACTIONS Governance Agreements
The Voting Agreement among Parent and the pre-existing stockholders of Holdings Prior to the earlier of the end of the Blockout Period and the completion of an initial public offering of the capital stock of Parent, Holdings or AMCE, the Governance Agreements
Parent, other than (i) certain permitted transfers to affiliates or to persons approved of by the Sponsors and (ii) transfers after the Blockout Period subject to the rights described below. The Governance Agreements set forth additional transfer provisions for the Sponsors and the other pre-existing stockholders of Holdings with respect to the interests in Parent, including the following: Right of first offer. After the Blockout Date and prior to an initial public offering, Parent and, in the event Parent
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 17—RELATED PARTY TRANSACTIONS (Continued) stockholder of Holdings was proposing to sell to a third party at the price and on the terms and conditions offered by such third party. Drag-along rights. If, prior to an initial public offering, Sponsors constituting a Requisite Stockholder Majority propose to transfer shares of Parent to an independent third party in a bona fide arm's-length transaction or series of transactions that resulted in a sale of all or substantially all of Parent, such Sponsors may have elected to require each of the other stockholders of Holdings to transfer to such third party all of its shares at the purchase price and upon the other terms and subject to the conditions of the sale. Tag-along rights. Subject to the right of first offer described above, if any Sponsor or other former continuing stockholder of Holdings proposes to transfer shares of Parent held by it, then such stockholder would Participant rights. On or prior to an initial public offering, the Sponsors and the other pre-existing stockholders of Holdings have the pro rata right to subscribe to any issuance by Parent or any subsidiary of shares of its capital stock or any securities exercisable, convertible or exchangeable for shares of its capital stock, subject to certain exceptions. The Governance Agreements also provide for certain registration rights in the event of an initial public offering of Parent, including the following: Demand rights. Subject to the consent of at least two of any of JPMP, Apollo, Carlyle and Bain during the first two years following an initial public offering, each Sponsor has the right at any time following an initial public offering to make a written request to Parent for registration under the Securities Act of part or all of the registrable equity interests held by such stockholders at Parent's expense, subject to certain limitations. Subject to the same consent requirement, the other pre-existing stockholders of Holdings as a group have the right at any time following an initial public offering to make one written request to Parent for registration under the Securities Act of part or all of the registrable equity interests held by such stockholders with an aggregate offering price to the public of at least $200,000,000. Piggyback rights. If Parent at any time proposes to register under the Securities Act any equity interests on a form and in a manner which would permit registration of the registrable equity interests
held by stockholders of Parent for sale to the public under the Securities Act, Parent must give written notice of the proposed registration to each stockholder, who then have the right to request that any part of its registrable equity interests be included in such registration, subject to certain limitations. Holdback agreements. Each stockholder agrees that it would not offer for public sale any equity interests during a period not to exceed 90 days (180 days in the case of an initial public offering) after the effective date of any registration statement filed by Parent in connection with an underwritten public offering (except as part of such underwritten registration or as otherwise permitted by such underwriters), subject to certain limitations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 17—RELATED PARTY TRANSACTIONS (Continued) Amended and Restated Fee Agreement In connection with the Mergers, Holdings, AMCE and the Sponsors entered into an Amended and Restated Fee Agreement, which provided for an annual management fee of $5,000,000, payable quarterly and in advance to each Sponsor, on a pro rata basis, until the twelfth anniversary from December 23, 2004, and such time as the sponsors own less than 20% in the aggregate of Parent. 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 April 1, 2010, the Company estimates this amount would be $29,190,000 should a change in control transaction or an IPO occur. The Company expects to record any lump sum payment to the Sponsors as a dividend. The fee agreement also provides that AMCE 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. Parent is owned by the Sponsors, other co-investors and by certain members of management as follows: JPMP (20.839%); Apollo (20.839%); Bain Capital Partners (15.13%); The Carlyle Group (15.13%); Spectrum Equity Investors (9.79%); Weston Presidio Capital IV, L.P. and WPC Entrepreneur Fund II, L.P. (3.91%); Co-Investment Partners, L.P. (3.91%); Caisse de Depot et Placement du Quebec (3.128%); AlpInvest Partners CS Investments 2003 C.V., AlpInvest Partners Later Stage Co-Investments Custodian II B.V. and AlpInvest Partners Later Stage Co-Investments Custodian IIA B.V. (2.737%); SSB Capital Partners (Master Fund) I, L.P. (1.955%); CSFB Strategic Partners Holdings II, L.P., CSFB Strategic Partners Parallel Holdings II, L.P., and GSO Credit Opportunities Fund (Helios), L.P. (1.564%); Credit Suisse Anlagestiftung, Pearl Holding Limited, Vega Invest (Guernsey) Limited and
Partners Group Private Equity Performance Holding Limited (0.782%); Screen Investors 2004, LLC (0.152%); and current and former members of management (0.134%)(1).
Control Arrangement The Sponsors have the ability to control the Company's affairs and policies and the election of directors and appointment of management.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended April 1, 2010, April 2, 2009 and April 3, 2008 NOTE 17—RELATED PARTY TRANSACTIONS (Continued) DCIP In February 2007, Mr. Travis Reid was hired as the chief executive officer of DCIP, a joint venture between AMCE, Cinemark Market Making Transactions On August 18, 2004, Holdings sold $304,000,000 in aggregate principal amount at maturity of its 2019. On January 26, 2006, AMCE sold $325,000,000 in aggregate principal amount of its
To the Board of Directors and Members of We have audited the accompanying balance sheets of National CineMedia, LLC (the "Company") as of December 31, 2009 and January 1, 2009, We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2009 and January 1, 2009, /s/ Deloitte & Touche LLP Denver, Colorado
See accompanying notes to financial statements. Table of Contents
OPERATIONS
See accompanying notes to financial statements.
See accompanying notes to financial statements.
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Formation of Business National CineMedia, LLC ("NCM LLC" or "the Company") commenced operations on April 1, 2005 and operates the largest digital in-theatre network in North America, allowing NCM LLC to distribute advertising, NCM LLC was formed through the combination of the operations of National Cinema Network, Inc. ("NCN"), a wholly owned subsidiary of AMCE, and Regal CineMedia Corporation ("RCM"), a wholly owned subsidiary of Regal. All assets contributed to and liabilities assumed by NCM LLC were recorded on NCM LLC's accounting records in the amounts as reflected on the Members' historic accounting records, based on the application of accounting principles Initial Public Offering and Related Transactions On February 13, 2007, National CineMedia, Inc. ("NCM, Inc." or "managing member"), a Company formed by NCM LLC and incorporated in the State of Delaware with the sole purpose of becoming a member and sole manager of NCM LLC, closed its initial public offering ("IPO"). NCM, Inc. used the net proceeds from its IPO to purchase a 44.8% interest in NCM LLC, paying NCM LLC $746.1 million, which included reimbursement to NCM LLC for expenses the Company advanced related to the NCM, Inc. IPO and paying the founding members $78.5 million for a portion of the NCM LLC units owned by them. NCM LLC paid $686.3 million of the funds received from NCM, Inc. to the founding members as consideration for their agreement to modify the then-existing ESAs. Proceeds received by NCM LLC from NCM, Inc. of $59.8 million, together with $709.7 million net proceeds from NCM LLC's new senior secured credit facility (see Note
NOTES TO FINANCIAL STATEMENTS (Continued) 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) At December 31, 2009, NCM LLC had 101,557,505 membership units outstanding, of which 42,121,747 (41.5%) were owned by NCM, Inc., 25,425,689 (25.0%) were owned by RCM, 18,821,114 (18.5%) were owned by AMC, and 15,188,955 (15.0%) were owned by Cinemark. In connection with the completion of the NCM, Inc.'s IPO, NCM, Inc. and the founding members entered into a third amended and restated limited liability company operating agreement of NCM LLC ("LLC Operating Agreement"). Under the LLC Operating Agreement, NCM, Inc. became a member and the sole manager of NCM LLC. As the sole manager, NCM, Inc. is able to control all of the day to day business affairs and decision-making of NCM LLC without the approval of any other member. NCM, Inc. cannot be removed as manager of NCM LLC. NCM LLC entered into a management services agreement with NCM, Inc. pursuant to which NCM, Inc. agrees to provide certain specific management services to NCM LLC, including those services typically provided by the individuals serving in the positions of president and chief executive officer, president of sales and chief marketing officer, executive vice president and chief financial officer, executive vice president and chief Basis of Presentation The Company has prepared its financial statements and related notes in accordance with accounting principles generally accepted in the United States of America ("GAAP") and the rules and regulations of the Securities and Exchange Commission ("SEC"). The Company's historical financial data may not be indicative of the Company's future performance nor will such data reflect what its financial position and results of operations would have been had it operated as an independent company during the entirety of all periods presented.
NOTES TO FINANCIAL STATEMENTS (Continued) 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) NCM, Inc.'s IPO was completed in February 2007. In addition, as a result of the various related-party agreements discussed in Note 5, the operating results as presented are not necessarily indicative of the results that might have occurred if all agreements were with non-related third parties. The founding members received all of the proceeds from NCM, Inc.'s IPO and the related issuance of debt, except for amounts needed to pay out-of-pocket costs of the financings and other expenses, and $10.0 million to repay outstanding amounts under NCM LLC's then-existing revolving line of credit agreement. In conformity with accounting guidance of the SEC concerning monetary consideration paid to promoters, such as the founding members, in exchange for property conveyed by the promoters, the excess over predecessor cost was treated as a special distribution. Because the founding members had no cost basis in the ESAs, all payments to the founding members with the proceeds of NCM Inc.'s IPO and related debt, amounting to approximately $1.456 billion, have been accounted for as distributions, except for the payments to liquidate accounts payable to the founding members arising from the ESAs. The distributions by NCM LLC to the founding members made at the date of NCM, Inc.'s IPO resulted in a stockholders' deficit. The results of operations for the period ended December 27, 2007 are presented in two periods, reflecting operations prior to and subsequent to
Summary of Significant Accounting Policies Accounting Period—The Company operates on a 52-week fiscal year, with the fiscal year ending on the first Thursday after December 25, which, in certain years, results in a 53-week year, as was the case for fiscal year 2008. Estimates—The preparation of financial statements in conformity with
expenses during the reporting period. Significant estimates include those related to the reserve for uncollectible accounts receivable Segment Reporting—Segments are accounted for under ASC Topic 280Segment Reporting (formerly Statement of Financial Accounting Standards ("SFAS") No. 131,Disclosures about Segments of an Enterprise and Related Information). Refer to Note 11. Revenue Recognition—Advertising revenue
NOTES TO FINANCIAL STATEMENTS (Continued) 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) earned is recognized in that period. Deferred revenue refers to the unearned portion of advertising contracts. All deferred revenue is classified as a current liability. Operating Costs—Advertising-related operating costs primarily include personnel and other costs related to advertising fulfillment, and to a lesser degree, production costs of non-digital advertising, and payments due to unaffiliated In the 2007 pre-IPO period and prior periods, circuit share costs were fees payable to the founding members for the right to exhibit advertisements within the theatres, based on a percentage of advertising revenue. In the 2007 post-IPO period and subsequent periods, under the amended and restated ESAs, a payment to the founding members of a theatre access fee, in lieu of circuit share expense, comprised of a payment per theatre attendee and a payment per digital screen, both of which escalate over time, is reflected in expense. Network costs include personnel, satellite bandwidth, repairs, and other costs of maintaining and operating the digital network and preparing advertising and other content for transmission across the digital network. These costs Leases—The Company leases various office facilities under operating leases with terms ranging from Advertising Costs—Costs related to advertising and other promotional expenditures are expensed as incurred. Due to the nature of our business, we have an insignificant amount of advertising costs included in selling and marketing costs on the statement of operations. Cash and Cash Equivalents—All highly liquid debt instruments and investments purchased with an original maturity of three months or less are classified as cash equivalents.
Restricted Cash—At December 31, 2009 and January 1, 2009, Receivables— Table of
NOTES TO FINANCIAL STATEMENTS (Continued) 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) advertising agency group through which the Company sources national advertising revenue representing approximately 10% and 20%, respectively, of Receivables consisted of
Long-lived Assets—Property and equipment is stated at cost, net of accumulated depreciation or amortization. Refer to Note
We account for the costs of software and web site development costs developed or obtained for internal use in accordance with ASC Subtopic 350-40Internal Use Software (formerly American Institute of Certified Public Accountants Statement of Position ("SOP") 98-1,Accounting for the Costs of Computer Software Developed or Obtained for Internal Use) and ASC Subtopic 350-50Website Development Costs (formerly EITF 00-2,Accounting for Web Site Development
NOTES TO FINANCIAL STATEMENTS (Continued) 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The majority of our software costs and web site development costs, which are included in equipment, are depreciated over three to five years. As of December 31, 2009 and January 1, 2009, Construction in progress includes costs relating to installations of our equipment into affiliate theatres. Assets under construction are not depreciated until placed into service. Intangible assets consist of contractual rights and are stated at cost, net of accumulated amortization. Refer to Note
We assess impairment of long-lived assets pursuant with ASC Topic 360Property, Plant and Equipment (formerly SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets) annually. This includes determining if certain triggering events have occurred that could affect the value of an asset. Thus far, Amounts Due to/from Founding Members— Amounts Due to/from Managing Member—In the 2009 and 2008
Accumulated Other Comprehensive Income/Loss—Accumulated other comprehensive income/loss is composed of the
NOTES TO FINANCIAL STATEMENTS (Continued) 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Debt Issuance Costs—In relation to the issuance of long-term debt discussed in Note
Fair Value of Financial Instruments—The carrying amounts of cash and cash equivalents,
carrying amounts and fair Equity Method Investments—The Company accounts for its investment in RMG Networks, Inc., ("RMG") (formerly Danoo, Inc.) under the equity method of accounting as required by ASC Topic 323-10Investments—Equity Method and Joint Ventures (formerly APB No. 18,The Equity Method of Accounting for Investments in Common Stock) because we exert "significant influence" over, but do not control, the policy and decisions of RMG (see Note 9). As of December 31, 2009, the Company owns approximately 24% of the issued and outstanding preferred and common stock of RMG (before considering out-of-the-money warrants). The Company's investment is $7.4 million. The investment in RMG and the Company's share of its operating results are not material to the Company's financial position or results of operations and as a result summarized financial information is not presented. Share-Based Compensation—Stock-based employee compensation is accounted for at fair value under ASC Topic 718Compensation—Stock Compensation (formerly SFAS No. 123(R),Share-Based Payment). The Company adopted
Recent Accounting Pronouncements In April 2009, the Company adopted ASC Topic 820-10-65Fair Value Measurements and Disclosures (formerly FASB Staff Position No. SFAS 157-4,Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly). The standard provides
NOTES TO FINANCIAL STATEMENTS (Continued) 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) In July 2009, the FASB issued SFAS No. The Company adopted, ASC Topic 855-10Subsequent Events (formerly SFAS 165,Subsequent Events) effective April 3, 2009, which was modified in February 2010. This pronouncement changes the general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued (see Note 12). In August 2009, the FASB issued Accounting Standards Update ("ASU") No. 2009-05,Measuring Liabilities at Fair Value, which clarifies, among other things, that when a quoted price in an active market for the identical liability is In In The Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its financial statements.
NOTES TO FINANCIAL STATEMENTS (Continued) 2.
For the
During 2008, NCM LLC issued 2,544,949 common membership units to its founding members in connection with its rights of exclusive access to net new theatres and projected attendees added by the founding members to NCM LLC's network and 2,913,754 common membership units to Regal in connection with the closing of its acquisition of Consolidated Pursuant to ASC Topic 350-10Intangibles—Goodwill and Other (formerly SFAS No. 142,Goodwill and Other Intangible Assets), the intangible
NOTES TO FINANCIAL STATEMENTS (Continued) 3. INTANGIBLE ASSETS (Continued) For the The estimated aggregate amortization expense for each of the five succeeding years
Pursuant to the ESAs, the Company makes monthly theatre access fee payments to the founding members, comprised of a payment per theatre attendee and a payment per digital screen Also, pursuant to the terms of the LLC Operating Agreement in place since the close of
NOTES TO FINANCIAL STATEMENTS (Continued)
On January 26, 2006, AMC acquired the Loews Cineplex Entertainment Inc. ("AMC Loews") theatre circuit. The Loews screen integration agreement, effective as of January 5, 2007 and amended and restated as of February 13, 2007, between NCM LLC and AMC, On April 30, 2008, Regal acquired Consolidated Amounts due to/from founding
NOTES TO FINANCIAL STATEMENTS (Continued) 5. RELATED-PARTY TRANSACTIONS (Continued) Amounts due to/from founding members at January 1, 2009 were comprised of the
2007 Pre-IPO At the formation of NCM LLC and upon the admission of Cinemark as a founding member, circuit share arrangements and administrative services fee arrangements were in place with each
founding member. Circuit share cost and administrative fee revenue by founding member were as follows (in millions):
Pursuant to the agreements entered into at the completion of Other— During the Included in
NOTES TO FINANCIAL STATEMENTS (Continued)
National CineMedia, Inc.— Pursuant to the LLC Operating Agreement, as the sole manager of NCM LLC, NCM, Inc. provides certain specific management services to NCM LLC, including those services of the positions of president and chief executive officer, president of sales and chief marketing officer, executive vice president and chief financial officer, executive vice president and chief
Amounts due to/from managing member were comprised of the following (in millions):
The outstanding balance of the term loan facility at December 31, 2009 and January 1, 2009 was $725.0 million. The outstanding balance under the revolving credit facility at December 31, 2009 and January 1, 2009 was $74.0 million. As of
NOTES TO FINANCIAL STATEMENTS (Continued) 6. BORROWINGS (Continued) non-GAAP measure defined in the credit
On September 15, 2008, Lehman Brothers Holdings Inc. ("Lehman") filed for protection under Chapter 11 of the federal Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. NCM LLC has an aggregate revolving credit facility commitment of $80.0 million with a consortium of banks, including $20.0 million with Lehman Commercial Paper Inc. ("LCPI"), a subsidiary of Lehman. As of On March 19, 2009, the Company gave an $8.5 million note payable to Credit Suisse, Cayman Islands Branch ("Credit Suisse") with no stated interest to settle the $10.0 million contingent put obligation and to acquire the $20.7 million outstanding principal balance of debt of IdeaCast, Inc. ("IdeaCast") (together with all accrued interest and other lender costs required to be reimbursed by IdeaCast). Quarterly payments to Credit Suisse began on April 15, 2009 and will continue through January 15, 2011. At issuance the Company recorded the note at a present value of $7.0 million. At December 31, 2009, $4.3 million of the balance is recorded in current liabilities and $0.3 million is included in non-current liabilities. Interest on the note is accreted at the Company's
NOTES TO FINANCIAL STATEMENTS (Continued) 6. BORROWINGS (Continued) Future Maturities of Long-Term Borrowings—
On April 4, 2006, NCM LLC's board of directors approved the NCM LLC 2006 Unit Option Plan, under which 1,131,728 units were outstanding as of December 28, 2006. Under certain circumstances, holders of unit options could put the options to NCM LLC for cash. As such, the Unit Option Plan was accounted for as a liability plan and the liability was measured at its fair value at each reporting date. The valuation of the liability was determined based on provisions of ASC Topic 718Compensation—Stock Compensation (formerly SFAS No. 123(R)), and factored into the valuation that the options were granted in contemplation of At the date of the NCM, Inc. IPO, the Company adopted the NCM, Inc. 2007 Equity Incentive Plan. The employees of NCM, Inc. and
also issued 262,466 shares of restricted stock. In connection with the conversion at the date of As of
NOTES TO FINANCIAL STATEMENTS (Continued) 7. SHARE-BASED COMPENSATION (Continued) Under the fair value recognition provisions of The The weighted average grant date fair value of granted options was $2.17, $3.77 and $6.23 for the The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model, which requires that
Activity in the Equity Incentive Plan, as converted, is as follows:
NOTES TO FINANCIAL STATEMENTS (Continued) 7. SHARE-BASED COMPENSATION (Continued) The following table summarizes information about the stock options at
Non-vested
The following table represents the shares of non-vested stock:
NOTES TO FINANCIAL STATEMENTS (Continued) 8. EMPLOYEE BENEFIT PLANS NCM LLC sponsors the NCM 401(k) Profit Sharing Plan (the "Plan") under Section 401(k) of the Internal Revenue Code of 1986, as amended, for the benefit of substantially all full-time employees. The Plan provides that participants may contribute up to 20% of their compensation, subject to Internal Revenue Service limitations. Employee contributions are invested in various investment funds based upon election made by the employee. The recognized expense, including the discretionary contributions of NCM, Inc. employees, is included in the operating results of NCM LLC. The Company made discretionary contributions of $0.8 million,
The Company is subject to claims and legal actions in the ordinary course of business. The Company believes such claims will not have a material adverse effect on its financial position or results of operations. Operating Lease Commitments The Company leases office facilities for its headquarters in Centennial, Colorado and also in various cities for its sales and marketing personnel as sales offices. The Company has no capital lease obligations. Total lease expense for the
Future minimum lease payments under noncancelable operating leases as of
Contingent Put Obligation On April 29, 2008, NCM LLC, IdeaCast, the IdeaCast lender and certain of its stockholders agreed to a financial restructuring of IdeaCast. Among other things, the restructuring resulted in the lender being granted an option to "put," or require NCM LLC to purchase, up to $10 million of the funded convertible debt at par, on or after December 31, 2010 through March 31, 2011.
NOTES TO FINANCIAL STATEMENTS (Continued) 9. COMMITMENTS AND CONTINGENCIES (Continued) (net of estimated recoveries from the net assets of IdeaCast that serve as collateral for the convertible debt) obligation over the unamortized On March 19, 2009, NCM LLC, IdeaCast and IdeaCast's lender agreed to certain transactions with respect to the IdeaCast Credit Agreement. Among other things, these agreements resulted in (i) the termination of the Put and the Call; (ii) the transfer, sale and assignment by IdeaCast's lender to NCM LLC of all of its right, title and interest under the Credit Agreement, including without limitation the loans outstanding under the Credit Agreement; (iii) the resignation of IdeaCast's lender, and the appointment of NCM LLC, as administrative agent and collateral agent under the Credit Agreement; and (iv) the delivery by NCM LLC to IdeaCast's lender of a non-interest bearing promissory note in the amount of $8.5 million payable through January 2011. On June 16, 2009, NCM LLC's interest in the Credit Agreement was assigned to NCM Out-Of-Home, LLC ("OOH"), which was a wholly-owned subsidiary of NCM LLC. OOH was also appointed as administrative agent and collateral agent under the Credit Agreement. On June 16, 2009, OOH, as IdeaCast's senior secured lender, foreclosed on substantially all of the assets of IdeaCast, consisting of certain tangible and intangible assets (primarily equipment, business processes and contracts with health clubs and programming partners). The assets were valued at approximately $8.2 million. On June 29, 2009, NCM LLC transferred its ownership interest in OOH to RMG, a digital advertising company, in exchange for approximately 24% of the equity (excluding out-of-the-money warrants) of RMG on a fully diluted basis through a combination of convertible preferred stock, common stock and common stock warrants (refer to Note 1-Equity Method Investments). The Company's investment in RMG was valued at the fair value of the assets contributed. Minimum Revenue Guarantees As part of the network affiliate agreements entered in the ordinary course of business under which the Company sells advertising for display in various theatre chains other than those of the founding members of NCM LLC, the Company has agreed to certain minimum revenue guarantees. If an affiliate achieves the attendance set forth in their respective agreement, the Company has guaranteed minimum revenue for the network affiliate per
NOTES TO FINANCIAL STATEMENTS (Continued) 10. FAIR VALUE MEASUREMENTS AND DERIVATIVE INSTRUMENTS Fair Value Measurements—The fair values of the Company's assets and liabilities measured on a recurring basis pursuant to ASC Topic 820-10Fair Value Measurements and Disclosures (formerly FAS No. 157,Fair Value Measurements and Disclosures) are as follows (in millions):
Derivative Instruments—NCM LLC has interest rate swap agreements with four counterparties that, at their inception, qualified for and were designated as cash flow hedges against interest rate exposure on $550.0 million of the variable rate debt obligations under the senior secured credit facility. The interest rate swap agreements have the effect of converting a portion of the Company's variable rate debt to a fixed rate of 6.734%. All interest rate swaps were entered into for risk management purposes. The Company has no derivatives for other purposes. On September 15, 2008, Lehman filed for protection under Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. LBSF is the counterparty to a notional amount of $137.5 million of NCM LLC's interest rate swaps, and Lehman is a guarantor of LBSF's obligations under such swap. NCM LLC notified LBSF on September 18, 2008 that, as a result of the bankruptcy of Lehman, an event of default had occurred under the swap with respect to which LBSF was the defaulting party. On October 3, 2008, LBSF also filed for Chapter 11 protection, which constituted another default by LBSF under the swap. As a result, as permitted under the terms of NCM LLC's swap agreement with LBSF, the Company has withheld interest rate swap payments aggregating $5.5 million in the year ended December 31, 2009 and $1.5 million in the year ended January 1, 2009 that were due to LBSF, and has further notified LBSF that the bankruptcy and insolvency of both Lehman and LBSF constitute default events under the swap. As of December 31, 2009 the interest rate swap agreement had not been terminated. The Company performed an effectiveness test for the swaps with LBSF as of September 14, 2008, the day immediately prior to the default date, and determined they were effective on that date. As a result, the fair values of the interest rate swap on that date was recorded as a liability with an offsetting amount recorded in other comprehensive income. Cash flow hedge accounting was discontinued on September 15, 2008 due to the event of default and the inability of the Company to continue to demonstrate the swap would be effective. The Company continues to record the interest rate swap with LBSF at fair value with any change in the fair value recorded in the statement of operations. There was an $8.3 million decrease and a $13.8 million increase in the fair value of the liability for the years ended December 31, 2009 and January 1, 2009, respectively, which the Company recorded as a component of interest expense. In accordance with Topic 815Derivatives and Hedging, the net derivative loss as of September 14, 2008 related to the discontinued cash flow hedge with LBSF shall continue to be reported in accumulated other comprehensive income unless it is probable that the forecasted transaction will not occur by the end of the originally specified time period. Accordingly, the net derivative loss is being amortized to interest expense over the remaining term of the interest rate
NOTES TO FINANCIAL STATEMENTS (Continued) 10. FAIR VALUE MEASUREMENTS AND DERIVATIVE INSTRUMENTS (Continued) swap through February 13, 2015. The amount amortized during the years ended December 31, 2009 and January 1, 2009 were $1.3 million and $0.4 million, respectively. The Company estimates approximately $1.3 million will be amortized to interest expense in the next 12 months. Both at inception and on an on-going basis the Company performs an effectiveness test using the hypothetical derivative method. The fair values of the interest rate swaps with the counterparties other than LBSF (representing notional amounts of $412.5 million associated with a like amount of the variable rate debt) are recorded on the Company's balance sheet as a liability with the change in fair value recorded in other comprehensive income since the instruments other than LBSF were determined to be perfectly effective at December 31, 2009 and January 1, 2009. There were no amounts reclassified into current earnings due to ineffectiveness during the periods presented other than as described below. The fair value of the Company's interest rate swap is based on dealer quotes, and represents an estimate of the amount the Company would receive or pay to terminate the agreements taking into consideration various factors, including current interest rates and the forward yield curve for 3-month LIBOR. At December 31, 2009 and January 1, 2009, the estimated fair value and line item caption of derivative instruments recorded were as follows (in millions):
The effect of derivative instruments in cash flow hedge relationships on the financial statements for the year ended December 31, 2009, January 1, 2009, the 2007 post-IPO period were as follows (in millions):
There was $1.3 million and $0.4 million $0.0 million and $0.0 million of ineffectiveness recognized for the years ended December 31, 2009, January 1, 2009, the 2007 post-IPO period and the 2007 pre-IPO period, respectively.
NOTES TO FINANCIAL STATEMENTS (Continued) 10. FAIR VALUE MEASUREMENTS AND DERIVATIVE INSTRUMENTS (Continued) The effect of derivative not designated as hedging instruments under Topic 815 on the financial statements for the years ended December 31, 2009, January 1, 2009, the 2007 post-IPO period and the 2007 pre-IPO period were as follows (in millions):
11. SEGMENT REPORTING Advertising is the principal business activity of the Company and is the Company's reportable segment under the requirements of ASC Topic 280,Segment Reporting. Advertising revenue accounts for 88.0%, 89.4%, 91.7% and 87.7% of revenue for the years ended December 31, 2009, January 1, 2009, the post-IPO period and the pre-IPO period, respectively. Fathom Consumer Events and Fathom Business Events are operating segments under ASC Topic 280, but do not meet the quantitative thresholds for segment reporting. The following table presents revenues less directly identifiable expenses to arrive at operating income net of direct expenses for the Advertising reportable segment, the combined Fathom Events operating segments, and Network, Administrative and Unallocated costs. Management does not evaluate its segments on a fully allocated cost basis. Therefore, the measure of segment operating income net of direct expenses shown below is not prepared on the same basis as operating income in the statement of operations and the results below are not indicative of what segment results of operations would have been had it been operated on a fully allocated cost basis. Management cautions that it would be inappropriate to assume that unallocated operating costs are incurred proportional to segment revenue or any directly identifiable segment expenses. Unallocated operating costs consist primarily of network costs, general and administrative costs and other
NOTES TO FINANCIAL STATEMENTS (Continued) 11. SEGMENT REPORTING (Continued) unallocated costs including depreciation and amortization. Management does not track segment assets and, therefore, segment asset information is not presented.
NOTES TO FINANCIAL STATEMENTS (Continued) 11. SEGMENT REPORTING (Continued)
The following is a summary of revenues by category, in millions:
12. SUBSEQUENT EVENTS ASC Topic 855-10,Subsequent Events (formerly SFAS No. 165,Subsequent Events) requires the Company to disclose the date through which subsequent events have been evaluated, as well as whether that date is the date the financial statements were issued. For the year ended December 31, 2009, the Company evaluated, for potential recognition and disclosure, events that occurred prior to the inclusion of the Company's financial statements in NCM, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2009 on March 9, 2010. Effective February 8, 2010, NCM LLC entered into a novation agreement with Lehman Brothers Special Financing Inc. ("Lehman") and Barclays Bank PLC ("Barclays") whereby Lehman transferred to Barclays all the rights, liabilities, duties and obligations of NCM LLC's interest rate swap agreement with Lehman with identical terms. NCM LLC accepted Barclays as its sole counterparty with respect to the new agreement. The term runs until February 13, 2015, subject to earlier termination upon the occurrence of certain specified events. Subject to the terms of the new agreement, NCM LLC or Barclays will make payments at specified intervals based on the variance between LIBOR and a fixed rate of 4.984% on a notional amount of $137,500,000. NCM LLC effectively pays a rate of 6.734% on
NOTES TO FINANCIAL STATEMENTS (Continued) 12. SUBSEQUENT EVENTS (Continued) this notional amount inclusive of the 1.75% margin currently required by NCM LLC's credit agreement. The agreement with Barclays is secured by the assets of NCM LLC on a pari passu basis with the credit agreement (as defined in Note 6) and the other interest rates swaps that were entered into by NCM LLC. In consideration of Lehman entering into the transfer, NCM LLC agreed to pay to Lehman the full amount of interest rate swap payments withheld aggregating $7.0 million and an immaterial amount of default interest. The Company expects to redesignate the Barclays interest rate swap agreement as a cash flow hedge. Effective February 3, 2010, LCPI entered into an assignment and assumption agreement with Barclays whereby LCPI transferred to Barclays the remaining unfunded revolving credit commitment of $6.0 million.
See Notes to Unaudited Condensed Financial Statements.
See Notes to Unaudited Condensed Financial Statements.
See Notes to Unaudited Condensed Financial Statements.
1. BASIS OF PRESENTATION The principal business of the Kerasotes Showplace Theatres Sold to AMC Entertainment Inc (such theatres are hereafter referred to as the "Theatres") is the operation of motion picture theatres. Box office admission and concession sales are the Theatres' primary sources of revenue. The Theatres' operations are primarily located throughout the Midwest in the states of Illinois, Indiana, Iowa, Missouri, Minnesota, and Ohio. Over the years, the Theatres have grown through the construction and acquisition of theatres, most recently in the states of Colorado, Wisconsin, and California. The Theatres are not a separate legal entity, and were operated by Kerasotes Showplace Theatres, LLC (the "Parent") during the periods presented. On December 9, 2009, the Parent agreed to sell these theatre assets comprising a substantial majority of the Parent's theatres and transfer related liabilities to AMC Entertainment Inc. ("AMC") (the "Sale"); this sale was closed on May 24, 2010. Further discussion of the Sale is included in Note 2. These unaudited condensed financial statements have been prepared in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 270,Interim Reporting. Accordingly, they do not include all of the information and footnotes required in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments (which consist of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the interim period are not necessarily indicative of the results that may be expected for the full year. These interim financial statements and related notes should be read in conjunction with the audited financial statements and related notes for the year ended December 31, 2009. 2. THE SALE As mentioned in Note 1, on December 9, 2009, the Parent agreed to sell certain theatre assets comprising a substantial majority of the Parent's theatres and transfer-related liabilities to AMC; this sale closed on May 24, 2010. These theatres were sold for $275,000,000 in cash, subject to certain working capital and other purchase price adjustments finalized on the closing date. The unaudited condensed financial statements pertain to these theatres sold to AMC by the Parent. The financial statements have been prepared from the records maintained by the Parent and may not necessarily be indicative of the conditions that would have existed or the results of the operations if these theatres had been operated as an unaffiliated company. The majority of the assets, liabilities, income and expenses presented in these financial statements are specifically-identifiable to the theatres sold by the Parent to AMC. Portions of certain assets, liabilities, income and expenses represent allocations made from the Parent to these theatres that are applicable to the Parent as a whole where specific-identification of these balances to each theatre is not practicable. These allocations primarily relate to certain receivables, payables, accrued expenses, debt, and operating expenses generated or incurred at the Parent and not directly related to an individual theatre; these allocations have been made based on the proportion of the number of theatre screens within the theatres sold to AMC as a percentage of the total number of theatre screens owned by the Parent prior to the Sale. In the opinion of management, these allocations are reasonable for the purposes of presenting the unaudited condensed interim financial information of the Theatres.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (Continued) As of and for the Quarters Ended March 31, 2010 and 2009 3. DEBT These financial statements include an allocation of the amounts outstanding on the Parent's bank debt, and also the related debt issuance costs. The Parent's outstanding debt facilities consisted of a revolving line of credit ("Revolver") and Term B notes. These outstanding Parent debt balances were secured by substantially all of the Parent's assets, which included the assets of the Theatres. The Parent's bank debt was repaid in full as of the closing date of the Sale. 4. RELATED-PARTY TRANSACTIONS The Theatres are not a separate legal entity, and were operated by the Parent during the periods presented. As discussed in Note 2, the financial statements have been prepared from the records maintained by the Parent and may not necessarily be indicative of the conditions that would have existed or the results of the operations if these theatres had been operated as an unaffiliated company. Portions of certain assets, liabilities, income and expenses represent allocations made from the Parent to these theatres that are applicable to the Parent as a whole. The Parent maintains and manages the cash generated by the Theatres, including the transfer of cash deposits from Theatres' operations to the Parent's bank accounts; these funds are used to finance the operations and capital expenditures of the Theatres. The outstanding amounts owed by the Parent to the Theatres are presented as "Due from Parent" in the Statements of Assets and Liabilities. Total rental expense payable to related-parties of the Theatres amounted to $3,600 and $3,600 for the quarterly-periods ended March 31, 2010 and 2009, respectively. Amounts payable to related-parties at March 31, 2010 and December 31, 2009 were $187,153 and $183,553, respectively. Amounts paid to an advertising agency owned by a close relative of one of the Parent's shareholders were $0 and $22,087 for the quarterly-periods ended March 31, 2010 and 2009, respectively. 5. SUBSEQUENT EVENTS Management has evaluated subsequent events through July 13, 2010, which is the date the unaudited condensed financial statements were issued. To the Member and Board of Directors of We have audited the accompanying statements of assets and liabilities of the Kerasotes Showplace Theatres Sold to AMC Entertainment Inc. (the "Theatres") as of December 31, 2009, and 2008, and the related statements of income and cash flows for the years ended December 31, 2009, 2008 and 2007. These financial statements are the responsibility of the Theatres' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Theatres' internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Kerasotes Showplace Theatres Sold to AMC Entertainment Inc. as of December 31, 2009 and 2008, and the results of their operations and their cash flows for the years ended December 31, 2009, 2008 and 2007 in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 2 to the financial statements, these financial statements pertain to the Kerasotes Showplace Theatres Sold to AMC Entertainment Inc. by Kerasotes Showplace Theatres, LLC (the "Parent"). The accompanying financial statements have been prepared from the records maintained by the Parent and may not necessarily be indicative of the conditions that would have existed or the results of the operations if the Theatres had been operated as an unaffiliated company. Portions of certain assets, liabilities, income and expenses represent allocations made from the Parent to the Theatres that are applicable to the Parent as a whole. /s/ Deloitte & Touche LLP
See Notes to Financial Statements.
See Notes to Financial Statements.
See Notes to Financial Statements.
1. THE THEATRES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal business of the Kerasotes Showplace Theatres Sold to AMC Entertainment Inc (such theatres are hereafter referred to as the "Theatres") is the operation of motion picture theatres. Box office admission and concession sales are the Theatres' primary sources of revenue. The Theatres' operations are primarily located throughout the Midwest in the states of Illinois, Indiana, Iowa, Missouri, Minnesota, and Ohio. Over the years, the Theatres have grown through the construction and acquisition of theatres, most recently in the states of Colorado, Wisconsin, and California. The Theatres are not a separate legal entity, and were operated by Kerasotes Showplace Theatres, LLC (the "Parent") during the periods presented. On December 9, 2009, the Parent agreed to sell these theatre assets comprising a substantial majority of the Parent's theatres and transfer related liabilities to AMC Entertainment Inc. ("AMC") (the "Sale"); this sale was closed on May 24, 2010. Further discussion of the Sale is included in Note 2. Management's Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Actual results could differ from those estimates. Preopening Expenses—Costs incurred prior to opening of a new theatre are expensed as incurred. These costs include advertising and other start-up costs incurred prior to the operation of new theatres and are reported in their respective lines in the statements of income. Accounts Receivable—An allowance for doubtful accounts is provided only if specific accounts are considered uncollectible. If items become uncollectible, they will be charged to operations when that determination is made. Management determined no allowance was required as of December 31, 2009 or 2008. Inventories—Inventories consist primarily of concession items and are carried at the lower of cost, determined by the first-in, first-out method, or market. Property and Equipment—Property and equipment, consisting of buildings, land and leasehold improvements, and equipment, are carried at cost, less accumulated depreciation computed using both straight-line and accelerated methods. Land improvements are depreciated over an estimated useful life of 15 years. Buildings and improvements are depreciated over an estimated useful life of 39 years. Leasehold improvements are depreciated over the shorter of the lease term or economic life of the asset. Equipment is depreciated over an estimated useful life of five to seven years. Interest capitalized on Theatre-managed construction projects totaled $0 and $336,858 for the years ended December 31, 2009 and 2008. Leases—A significant portion of the Theatres' operations are conducted in premises occupied under lease agreements with initial base terms ranging generally from 15 to 20 years, with certain leases containing options to extend for up to an additional 20 years. The Theatres do not believe that exercise
NOTES TO FINANCIAL STATEMENTS (Continued) As of December 31, 2009 and 2008, and For the Years Ended December 31, 2009, 2008, and 2007 1. THE THEATRES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) of the renewal options in its leases is reasonably assured at the inception of the lease agreements and therefore considers the initial base term the lease term. The leases provide for fixed and escalating rentals, contingent escalating rentals based on the consumer price index with a contractual floor and ceiling, and contingent rentals, including those that are based on revenues with a guaranteed minimum. As of December 31, 2009, all leases qualified as operating leases. The Theatres record rent expense for their operating leases on a straight-line basis over the base term of the lease agreements, commencing with the date the Theatres have control and access to leased premises. Occasionally, the Theatres are responsible for the construction of theatres subject to operating leases and receive reimbursement from the property developer for construction costs incurred. The Theatres evaluate these leases to determine who the accounting owner is during the construction period. For leases where the Theatres are determined to be the accounting owner during construction, they account for receipt of developer reimbursements under prevailing sale-leaseback accounting guidance. The Theatres have constructed four theatres subject to the circumstances described for which they have determined certain terms of the leases to be prohibited forms of continuing involvement. As a result, the Theatres have recorded developer reimbursement financing obligations of $17,046,863 and $14,849,587 in their statements of assets and liabilities as of December 31, 2009 and 2008, respectively, for operating leases related to these projects. The current portion of developer reimbursement financing obligations was $262,588 and $56,221, respectively, as of December 31, 2009 and 2008. Business Combinations—The Theatres account for their acquisitions of theatres using the purchase method. The purchase method requires that the Theatres estimate the fair value of the individual assets and liabilities acquired. The allocation of purchase price is based on management's judgment, including valuation assessments. Goodwill—The Theatres evaluate their goodwill for impairment annually during the fourth quarter, or more frequently, if events or changes in circumstances indicate that an asset might be impaired. The evaluation is performed using a two-step process. In the first step, the fair value of a reporting unit is compared with its carrying amount, including goodwill. If the estimated fair value of a reporting unit is less than its carrying amount, then a second step must be completed in order to determine the amount of the goodwill impairment that should be recorded. In the second step, the implied fair value of a reporting unit's goodwill is determined by allocating the reporting unit's fair value to all of its assets and liabilities other than goodwill (including any unrecognized intangible assets) in a manner similar to a business combination. The resulting implied fair value of the goodwill that results from the application of this second step is then compared to the carrying amount of the goodwill and an impairment charge is recorded for the difference if the implied goodwill is less than the carrying amount. The assumptions used in the estimate of fair value are generally consistent with the past performance of a reporting unit and are also consistent with the projections and assumptions that are used in current operating plans. Such assumptions are subject to change as a result of changing economic and competitive conditions. The Theatres recorded no goodwill impairment during the years ended December 31, 2009, 2008, or 2007.
NOTES TO FINANCIAL STATEMENTS (Continued) As of December 31, 2009 and 2008, and For the Years Ended December 31, 2009, 2008, and 2007 1. THE THEATRES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The changes in the carrying amount of goodwill during the fiscal years ended December 31, 2009 and 2008 are as follows:
Intangible Assets—As of December 31, 2009, definite-lived intangible assets were $25,963,411, net of accumulated amortization of $4,186,285. As of December 31, 2008, definite-lived intangible assets were $27,408,299, net of accumulated amortization of $2,741,397. These intangible assets consisted primarily of the intangible value associated with the operating leases that were acquired in the acquisitions discussed in Note 5. Amortization expense was $1,444,888, $1,902,252, and $839,145 for fiscal years 2009, 2008, and 2007, respectively, and is recorded in depreciation and amortization expense in the statements of income. Amortization expense is expected to be as follows:
Other Assets—As of December 31, 2009, debt issuance costs were $1,858,065, net of accumulated amortization of $1,393,590. As of December 31, 2008, other assets include debt issuance costs $698,253, net of accumulated amortization of $644,899. Costs resulting from the issuance of debt are capitalized and amortized over the term of the related debt agreement. Amortization expense of $1,017,322, $531,677, and $922,721 for fiscal years 2009, 2008, and 2007, respectively, is recorded in interest expense in the statements of income. Long-Lived Assets—The Theatres review the carrying value of their long-lived assets, including property and equipment, whenever events or changes in circumstances indicate that the carrying value may not be recoverable. To the extent the estimated future cash inflows attributable to the assets, less estimated future cash outflows, are less than the carrying amount, an impairment loss would be recognized. No impairment loss was recognized during the years ended December 31, 2009, 2008, and 2007.
NOTES TO FINANCIAL STATEMENTS (Continued) As of December 31, 2009 and 2008, and For the Years Ended December 31, 2009, 2008, and 2007 1. THE THEATRES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Revenue Recognition—Revenues include box office receipts, sales of concessions merchandise, advertising revenues, and other miscellaneous revenues, primarily fees for theatre rentals. The Theatres recognize box office and concession revenues at the point of sale and other revenues when earned. The Theatres sell gift certificates and gift cards both in the theatres and online. These receipts are excluded from revenues until the date the gift certificates and gift cards are redeemed. The Theatres recognize gift certificate breakage when its future performance obligation is determined to be remote. Gift certificate breakage was $777,298, $355,118, and $2,817,092, respectively, for the years ended December 31, 2009, 2008, and 2007. Gift certificate breakage is recorded as a component of other operating revenue in the statements of income. Operating Expenses—Film rental costs are recorded as revenue is earned based upon the terms of the respective film license arrangements. Advertising costs are expensed as incurred. Other operating expenses are principally comprised of payroll and benefits costs, utilities, maintenance, repairs, and other general operating expenses. The balance of operating expenses incurred by the corporate function is classified as general and administrative expenses. Theatre occupancy costs include rent, property taxes, and other occupancy costs. Vendor Allowances—The Theatres receive volume-based purchase rebates from vendors. These rebates are recorded as a reduction of inventories upon receipt and recognized as a reduction of the cost of concession sales when merchandise is sold. Comprehensive Income—Comprehensive income equals net income for all periods presented. 2. THE SALE As mentioned in Note 1, on December 9, 2009, the Parent agreed to sell certain theatre assets comprising a substantial majority of the Parent's theatres and transfer related liabilities to AMC; this sale closed on May 24, 2010. These theatres were sold for $275,000,000 in cash, subject to certain working capital and other purchase price adjustments finalized on the closing date. The financial statements pertain to these theatres sold to AMC by the Parent. The financial statements have been prepared from the records maintained by the Parent and may not necessarily be indicative of the conditions that would have existed or the results of the operations if these theatres had been operated as an unaffiliated company. The majority of the assets, liabilities, income and expenses presented in these financial statements are specifically-identifiable to the theatres sold by the Parent to AMC. Portions of certain assets, liabilities, income and expenses represent allocations made from the Parent to these theatres that are applicable to the Parent as a whole where specific-identification of these balances to each theatre is not practicable. These allocations primarily relate to certain receivables, payables, accrued expenses, debt and operating expenses generated or incurred at the Parent and not directly related to an individual theatre; these allocations have been made based on the proportion of the number of theatre screens within the theatres sold to AMC as a percentage of the total number of theatre screens owned by the Parent prior to the Sale. In the opinion of management, these allocations are reasonable for the purposes of presenting the financial statements of the Theatres.
NOTES TO FINANCIAL STATEMENTS (Continued) As of December 31, 2009 and 2008, and For the Years Ended December 31, 2009, 2008, and 2007 3. NEW ACCOUNTING PRONOUNCEMENTS In June 2009, the Financial Accounting Standards Board (FASB) issued ASC 105,Generally Accepted Accounting Principles, as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernment entities. Generally, ASC 105 is not expected to change accounting principles generally accepted in the United States of America. The Theatres adopted ASC 105 for the year ended December 31, 2009, and any references to authoritative accounting literatures in the financial statements are referenced in accordance with the ASC, unless the literature has not been codified. In December 2007, the FASB revised ASC 805 (formerly FASB Statement No. 141(R),Business Combinations). ASC 805 is effective for fiscal years beginning on or after December 15, 2008, with early adoption prohibited. The provisions of ASC 805 are applied prospectively from the date of adoption, except for adjustments to a previously acquired entity's deferred tax assets and uncertain tax position balances occurring outside the measurement period, which are recorded as a component of income tax expense in the period of adjustment, rather than goodwill. The Theatres adopted ASC 805 on January 1, 2009. The adoption of ASC 805 did not have a material impact the Theatres' financial position, results of operations, or cash flows. 4. INVESTMENT IN KCC On January 15, 2004, the Parent made a $4,740,145 minority investment in a new company, KCC. The Parent made this investment in conjunction with Providence Growth Entrepreneurs Fund, L.P.; Providence Growth Investors, L.P.; and the management team of KCC. Prior to the March 2, 2007 acquisition of the controlling interest in KCC (as discussed in Note 5), the Theatres owned 23.685% of KCC and did not have managerial control. Accordingly, this investment had been accounted for under the equity method and the financial statements included the Theatres' share of the results of operations from January 15, 2004 through March 1, 2007. For the period from January 1, 2007 to March 1, 2007, KCC had operating revenues of $6,185,285, operating loss of $(201,044), and a net loss of $(840,998). 5. ACQUISITIONS On January 31, 2008, the Parent acquired the assets, property, and operations of six theatres located in Iowa and Wisconsin from AGT Enterprises, Inc., and Star-Iowa, LLC (the "Star acquisition") for $75,517,400. The Star acquisition added 81 screens to the Theatres' circuit. The purpose of the transaction was to increase the scale of the Theatres, diversify and expand the Theatres' customer base, and strengthen the Theatres' competitive position in the industry. In conjunction with this transaction, the Theatres consummated two separate sale-leaseback transactions. The proceeds of the sale-leaseback transactions were used to finance the Star acquisition, pay down debt, and pay taxes and fees associated with the deal. The results of theatre operations are included in the financial statements from the date of acquisition. On March 2, 2007, the Parent acquired the remaining 76.315% interest they did not previously own in their investment in KCC for a purchase price of $52,754,184, net of cash acquired ($424,773). The purchase price was subject to the terms of an escrow arrangement that was finalized in 2008 with a payment of $817,305 to the Parent, which reduced the total purchase price for the acquisition to
NOTES TO FINANCIAL STATEMENTS (Continued) As of December 31, 2009 and 2008, and For the Years Ended December 31, 2009, 2008, and 2007 5. ACQUISITIONS (Continued) $51,936,879. This acquisition added 11 theatres and 125 screens to the overall circuit and gave the Theatres a presence in the state of Colorado. The acquisition was financed with cash on hand and additional debt. The results of theatre operations are included in the financial statements from the date of acquisition. On March 2, 2007, the Parent also acquired the assets, properties, and operations of two existing theatres near Chicago, Illinois for a purchase price of $12,652,954. The acquisition of these theatres added 28 screens to the overall circuit and enhanced the Theatres' presence in the Chicago area market. The acquisition was financed with cash on hand and additional debt. The results of theatre operations are included in the financial statements from the date of acquisition. The Theatres have allocated the purchase price to the theatre assets acquired at estimated fair values. The excess of fair value of the net assets acquired compared to the amount paid as of the acquisition date has been reflected as goodwill. The Theatres completed the purchase price allocations for the 2007 acquisitions during 2008, reflecting finalization of consideration paid in the KCC acquisition (pursuant to the terms of the escrow arrangement in the transaction) and the finalization of other allocations for both transactions based on all available evidence subsequent to the transaction. The purchase price allocation was completed for the Star acquisition during 2008. The following table summarizes the estimated fair values of the assets acquired at the dates of acquisition:
As a result of the 2007 acquisition of 76.315% interest in KCC included above, the previously owned 23.685% interest in KCC was consolidated into the Theatres' financial statements on a
NOTES TO FINANCIAL STATEMENTS (Continued) As of December 31, 2009 and 2008, and For the Years Ended December 31, 2009, 2008, and 2007 5. ACQUISITIONS (Continued) historical-cost basis. The amounts consolidated were as follows: cash of $131,834; other current assets of $175,056; property and equipment, net of $12,336,370; goodwill of $1,596,089; other assets of $161,670; current liabilities of $841,524; long-term debt of $8,870,033; and other long-term liabilities of $486,364. 6. DEBT AND DEVELOPER REIMBURSEMENT FINANCING OBLIGATIONS These financial statements include an allocation of the amounts outstanding on the Parent's bank debt, and also the related debt issuance costs. The Parent's outstanding debt facilities consisted of a revolving line of credit ("Revolver") and Term B notes. These outstanding Parent debt balances were secured by substantially all of the Parent's assets, which included the assets of the Theatres. The Parent's bank debt was repaid in full as of the closing date of the Sale. Allocated debt and developer reimbursement financing obligations at December 31, 2009 and 2008 consisted of the following:
The contractual terms of the Parent's Term B debt required quarterly installments of $166,403 from December 31, 2009, until December 31, 2010. Three quarterly installments of $15,974,687 were required from March 31, 2011, with the final payment due October 28, 2011. Draws and repayment on the revolving line are at the discretion of the Parent, and the Parent uses distributions from the Theatres to fund any debt repayments. At December 31, 2009 and 2008, the aggregate available borrowing capacity on this facility was $50,000,000 and $27,300,000, respectively. Interest on the Parent's Term B and Revolver debt was at variable rates based on the prime rate or the Eurodollar rate, adjusted for the Parent's consolidated economic performance, as specified in the agreement. During the year ended December 31, 2009, interest rates ranged from 4.81% to 5.56%. During the year ended December 31, 2008, interest rates ranged from 2.5% to 7.75%.
NOTES TO FINANCIAL STATEMENTS (Continued) As of December 31, 2009 and 2008, and For the Years Ended December 31, 2009, 2008, and 2007 6. DEBT AND DEVELOPER REIMBURSEMENT FINANCING OBLIGATIONS (Continued) The carrying value of the Parent's long-term debt approximated its fair value as of December 31, 2009, since the Parent's long-term debt has interest rates that fluctuate based on published market rates. The fair value of the Parent's long-term debt was $104,947,507 as of December 31, 2008. The fair value of the Parent's long-term debt as of December 31, 2008, was determined as the net present value of the future cash flows at the prevailing balance sheet rate, discounted at the renegotiated market rate received in the amendment to the Parent's credit facility. 7. LEASE COMMITMENTS The Theatres conduct their operations in facilities and using equipment leased under noncancelable operating leases expiring at various dates through 2029. At the end of the lease terms, most of the leases are renewable at the fair rental value for periods of 5 to 20 years. The rental payments for some facilities are based on a minimum annual rent plus a percentage of receipts in excess of a specified amount. Refer to Note 1 for discussion of the Theatres' financing leases. Rental expense for noncancelable operating leases for the years ended December 31, 2009, 2008, and 2007, consists of the following:
The minimum rental commitments related to noncancelable operating leases and developer reimbursement financing leases at December 31, 2009, are as follows:
NOTES TO FINANCIAL STATEMENTS (Continued) As of December 31, 2009 and 2008, and For the Years Ended December 31, 2009, 2008, and 2007 8. INCOME TAXES The Parent is a limited liability company, and is not subject to the payment of federal or state income taxes, as the components of its income and expenses flow directly to the Parent's members. Accordingly, the Parent is not liable for any federal or state income tax, except for minor taxes imposed by some of the states in which the Parent does business. These financial statements include an allocation of these taxes incurred and paid by the Parent on behalf of the Theatres. These taxes were $(3,882), $14,404, and $0 for the years ended December 31, 2009, 2008, and 2007, respectively. 9. RETIREMENT PLAN The Theatres have contributed to the Parent's 401(k) profit-sharing plan for all managers, assistant managers, trainees, and administrative employees who have reached the age of 21. Employees may contribute up to 60% of their pay, not exceeding $16,500 ($22,000 for employees over age 50). Following one year of employment, the Theatres will match 100% of the first 3% of contribution and 50% on the next 2% of contribution. Matching contributions are immediately vested. The Theatres fund the matching contributions as they accrue. These contributions were $372,328, $394,353, and $371,970 for the years ended December 31, 2009, 2008, and 2007, respectively. 10. RELATED-PARTY TRANSACTIONS The Theatres are not a separate legal entity, and were operated by the Parent during the periods presented. As discussed in Note 2, the financial statements have been prepared from the records maintained by the Parent and may not necessarily be indicative of the conditions that would have existed or the results of the operations if these theatres had been operated as an unaffiliated company. Portions of certain assets, liabilities, income and expenses represent allocations made from the Parent to these theatres that are applicable to the Parent as a whole. The Parent maintains and manages the cash generated by the Theatres, including the transfer of cash deposits from Theatres' operations to the Parent's bank accounts; these funds are used to finance the operations and capital expenditures of the Theatres. The outstanding amounts owed by the Parent to the Theatres are presented as "Due from Parent" in the Statements of Assets and Liabilities. Total rental expense payable to related-parties of the Theatres amounted to $14,400 for the each of the years ended December 31, 2009, 2008, and 2007. Amounts payable to related-parties at December 31, 2009, 2008, and 2007, were $183,553, $169,153, and $154,753, respectively. Amounts paid to an advertising agency owned by a close relative of one of the Parent's shareholders were $82,632, $31,414, and $0 for 2009, 2008, and 2007, respectively. 11. SALE-LEASEBACK TRANSACTIONS On January 31, 2008, the Theatres entered into two separate sale-leaseback transactions, whereby the Theatres sold eight of their fee-owned theatres for a sale price of $97,560,246, net of closing costs of $430,317. The Theatres leased back the sold theatres subject to 20-year triple net operating leases (with renewal terms of either three five-year options or one 10-year option and one five-year option). The gain of $19,017,834 has been deferred and is being recognized ratably over the life of the leases. The proceeds from the transaction were used to pay down debt, with the remaining proceeds used to
NOTES TO FINANCIAL STATEMENTS (Continued) As of December 31, 2009 and 2008, and For the Years Ended December 31, 2009, 2008, and 2007 11. SALE-LEASEBACK TRANSACTIONS (Continued) pay taxes and fees associated with the deal. The balance was retained to fund future capital expenditures. On September 19, 2007, the Theatres entered into a sale-leaseback transaction, whereby the Theatres sold 11 of their fee-owned theatres with a book value of $78,112,826 for $99,720,206, net of closing costs of $638,171 and leased back the same buildings for a period of 20 years with three five-year options for each of the sold properties. The resulting leases are classified as being accounted for as operating leases. The gain of $25,594,136 has been deferred and is being recognized ratably over the life of the leases. Losses of $3,986,755 were immediately recognized in earnings. The proceeds from the transaction were used to pay down debt, with the remaining proceeds used to pay an owner distribution, taxes, and fees associated with the deal. The balance was retained to fund future capital expenditures. On September 30, 2005, the Theatres entered into a sale-leaseback transaction, whereby the Theatres sold 17 of their fee-owned theatres with a book value of $94,759,887 for $200,000,000 and leased back the same buildings for a period of 20 years with three five-year options for each of the sold properties. The resulting leases are classified as operating leases. The gain of $102,340,355 has been deferred and is being recognized ratably over the life of the leases. The proceeds from the transaction were used to pay down debt, with the remaining proceeds used to pay an owner distribution, taxes, and fees associated with the deal. The balance was retained to fund future capital expenditures. 12. SUBSEQUENT EVENTS Management has evaluated subsequent events through July 13, 2010, which is the date the financial statements were issued. ******
ITEM 20. Indemnification of Directors and Officers. Arizona Registrant: AMC Card Processing Services, Inc. is incorporated under the laws of Arizona. Section 10-851 of the Arizona Revised Statutes authorizes a corporation to indemnify a director made a party to a proceeding in such capacity, provided that the individual's conduct was in good faith and, when serving in an official capacity with the corporation, the individual reasonably believed that the conduct was in best interests of the corporation, or in all other cases, that the conduct was at least not opposed to its best interests. In the case of any criminal proceedings, indemnification is allowed if the individual had no reasonable cause to believe the conduct was unlawful. A corporation may also indemnify a director for conduct for which broader indemnification has been made permissible or obligatory under a provision of the articles of incorporation pursuant to section 10-202, subsection B, paragraph 2. Section 10-851 also provides that a corporation may not indemnify a director in connection with a proceeding by or in the right of the corporation to procure a judgment in its favor in which the director was adjudged liable to the corporation or in connection with any other proceeding charging improper financial benefit to the director in which the director was adjudged liable on the basis that financial benefit was improperly received by the director. Indemnification permitted under Section 10-851 in connection with a proceeding by or in the right of the corporation to procure a judgment in its favor is limited to reasonable expenses incurred in connection with the proceeding. Unless otherwise limited by its articles of incorporation, Section 10-852 of the Arizona Revised Statutes requires a corporation to indemnify (i) a director who was the prevailing party, on the merits or otherwise, in the defense of any proceeding to which the director was a party because the director is or was a director of the corporation against reasonable expenses incurred by the director in connection with the proceeding, and (ii) an outside director, provided the proceeding is not one by or in the right of the corporation to procure a judgment in its favor in which the director was adjudged liable to the corporation, or one charging improper financial benefit to the director, whether or not involving action in the director's official capacity, in which the director was adjudged liable on the basis that financial benefit was improperly received by the director. Section 10-856 of the Arizona Revised Statutes provides that a corporation may indemnify and advance expenses to an officer of the corporation who is a party to a proceeding because the individual is or was an officer of the corporation to the same extent as a director. The articles of incorporation of AMC Card Processing Services, Inc. provide that its directors shall not be personally liable to the corporation or its stockholders for money damages for any action taken or any failure to take any action as a director, except for liability for any of the following: (i) for the amount of a financial benefit received by a director to which the director is not entitled; (ii) an intentional infliction of harm received by a director to which the director is not entitled; (iii) an intentional violation of Section 10-833 of the Arizona Revised Statutes and any amendment thereto; or (iv) an intentional violation of criminal law. The articles of incorporation further provide for indemnification of the directors and officers of the corporation and of any subsidiary of the corporation for liability, as defined in Section 10-851(D) of the Arizona Revised Statutes, to the fullest extent permitted by law. Any officer who is not also a director, or who is party to a proceeding on the basis of an act or omission solely as an officer, shall further be indemnified against liability for any of the exceptions described in clauses (i) through (iv) above, except that an officer who is not also a director shall not be indemnified for (a) liability in connection with a proceeding by or in the right of the corporation to procure a judgment in its favor other than for reasonable expenses incurred in connection with the proceeding or (b) liability arising out of conduct that constitutes: (x) receipt by the officer of a financial benefit to which the officer is not entitled; (y) an intentional infliction of harm on the corporation or its shareholders; or (iii) an intentional violation of criminal law. The articles of II-1 incorporation also provide that the private property of the officers, directors and shareholders of the corporation shall be exempt from all corporate debts of any kind whatsoever. Reasonable expenses incurred by a director or officer of the corporation or any of its subsidiaries who is party to a proceeding, as defined in Section 10-850 of the Arizona Revised Statutes, shall be paid by the corporation in advance of the final disposition of such proceeding to the fullest extent permitted by Section 10-853 of the Arizona Revised Statutes or other applicable law, upon receipt of an undertaking by or on behalf of the director or officer to repay such amount to the extent of the amount to which such person shall ultimately be determined not to be entitled. The by-laws of AMC Card Processing Services, Inc. provide for indemnification of any person made party to or threatened to be made party to any proceeding, other than an action by or in the right of the corporation to procure a judgment in its favor, by reason of the fact that such person is or was a director, officer, employee, agent of the corporation or voting trustee under any voting trust agreement (which has been entered into between the owners and the holders of shares of the corporation, such voting trustee and the corporation), or is or was serving at the request of the corporation as a director, officer, employee or agent of another entity, against expenses, including attorney's fees, judgments, fines and amount paid in settlement, actually and reasonably incurred by such person in connection with such action, provided such person acted in good faith, in a manner reasonably believed by such person to be in or not opposed to the best interests of the corporation, and, in the case of a criminal action or proceeding, had no reasonable cause to believe that such conduct was unlawful. The by-laws of the corporation further provide that the corporation shall indemnify any person who was or is a party or is threatened to be made a party to any action or suit by or in the right of the company by reason of the fact that such person is or was a director, officer, employee or agent of the company, or was serving at the request of the company as a director, officer, employee or agent of another entity, against expenses, including attorney's fees, actually and reasonably incurred by such person in connection with the defense or settlement of such action, provided such person acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation, and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of such person's duty to the corporation unless and only to the extent that the court in which such action was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. Pursuant to the by-laws of the corporation, expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors upon receipt of an undertaking by or on behalf of the director or officer to repay such amount unless it shall ultimately be determined that such person is entitled to be indemnified by the corporation. Pursuant to the by-laws of the corporation, any indemnification made under the by-laws shall be made, unless ordered by the court, only as authorized by an appropriate determination that indemnification is proper because the person has met the applicable standard of conduct for such indemnification made (i) by the Board of Directors by a majority vote of a quorum, consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such quorum is not obtainable, or even if obtainable, if a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. II-2 California Registrant: Loews Citywalk Theatre Corporation is incorporated under the laws of California. Section 317 of the California Corporations Code authorizes a corporation to indemnify any person who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the corporation to procure a judgment in its favor to procure a judgment in its favor) by reason of the fact that the person is or was an agent of the corporation, against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with the proceeding, if that person acted in good faith and in a manner reasonably believed by such person to be in the best interests of the corporation, and in the case of a criminal proceeding, had no reasonable cause to believe the conduct of the person was unlawful. corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action by or in the right of the corporation to procure a judgment in its favor to procure a judgment in its favor by reason of the fact that the person is or was an agent of the corporation, against expenses actually and reasonably incurred by that person in connection with the defense or settlement of the action if the person acted in good faith, in a manner the person believed to be in the best interests of the corporation and its shareholders. Section 317 of the California Corporations Code also provides that a corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action by or in the right of the corporation to procure a judgment in its favor to procure a judgment in its favor by reason of the fact that the person is or was an agent of the corporation, against expenses actually and reasonably incurred by that person in connection with the defense or settlement of the action if the person acted in good faith, in a manner the person believed to be in the best interests of the corporation and its shareholders. Indemnification for expenses, including amounts paid on settling or otherwise disposing of a threatened or pending action or defending against the same, can be made in certain circumstances by action of the company through a majority vote of a quorum of the corporation's Board of Directors consisting of directors who are not party to the proceedings; approval of shareholders, with the shares owned by the person to be indemnified not being entitled to vote thereon; or such court in which the proceeding is or was pending upon application by designated parties. The articles of incorporation of Loews Citywalk Theatre Corporation provides for indemnification of any current or former director or officer of the corporation or any person who may have acted at its request as a director of officer of any other corporation in which it is a creditor, against expenses actually and necessarily incurred by such person in connection with the defense of any action, suit or proceeding in which he is made an officer, except in relation to matters as to which such person is adjudged to be liable for negligence or misconduct in performance of duty. Such indemnification shall not be deemed exclusive of any other rights to which such director or officer may be entitled, under any by-law, agreement, vote of shareholders or otherwise. The by-laws of Loews Citywalk Theatre Corporation provide for indemnification of any person made party to or threatened to be made party to any proceeding by reason of the fact that such person is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another entity, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action provided such person acted in good faith, in a manner reasonably believed to be in the best interests of the corporation, and, in the case of a criminal action or proceeding, had no reasonable cause to believe that such conduct was unlawful. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any action or suit by or in the right of the company by reason of the fact that such person is or was a director or officer of the corporation, or was serving at the request of the corporation as the director or officer of another entity, against expenses, including attorney's fees, actually and reasonably incurred by such person in II-3 connection with the defense or settlement of such action, provided such person acted in good faith and in a manner reasonably believed by such person to be in or not opposed to the best interests of the corporation. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors upon receipt of an undertaking by or on behalf of the director or officer to repay such amount unless it shall ultimately be determined that such person is entitled to be indemnified by the corporation. Any indemnification made under the by-laws shall be made, unless ordered by a court, only as authorized by an appropriate determination that indemnification is proper because the person has met the applicable standard of conduct for such indemnification made (i) by the Board of Directors by a majority vote of a quorum, consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such quorum is not obtainable, or even if obtainable, if a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. Delaware Registrants: Section 145 of the Delaware General Corporation Law (the "DGCL") permits each corporation organized thereunder the power to indemnify any person who is or was a director, officer, employee or agent of a corporation or enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, other than an action by or in the right of the corporation to procure a judgment in its favor to procure a judgment in its favor, by reason of being or having been in any such capacity, if such person acted in good faith in a manner reasonably believed by such person to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Section 145 of the DGCL further provides that a corporation may indemnify any person who is or was a director, officer, employee or agent of a corporation or enterprise, against expenses, including attorneys' fees, actually and reasonably incurred by such person in connection with the defense or settlement of any threatened, pending or completed action, suit or proceeding by or in the right of the corporation to procure a judgment in its favor to procure a judgment in its favor, by reason of being or having been in any such capacity, if such person acted in good faith in a manner reasonably believed by such person to be in, or not opposed to, the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. Section 145 of the DGCL also allows a corporation to provide contractual indemnification to its directors, and we have entered into indemnification agreements with each of our directors whereby we are contractually obligated to indemnify the director and advance expenses to the full extent permitted by the DGCL. Section 102(b)(7) of the DGCL enables a corporation in its certificate of incorporation to eliminate or limit the personal liability of a director to the corporation or its stockholders of monetary damages for violations of the directors' fiduciary duty of care, except (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the DGCL (providing for liability of directors for unlawful payment of dividends or unlawful stock purchases or redemptions) or (iv) for any transaction from which a director derived an improper personal benefit. II-4 (a) AMC Entertainment Inc. is incorporated under the laws of Delaware. The amended and restated certificate of incorporation of AMC Entertainment Inc. provides for indemnification of any person made party to or threatened to be made party to any proceeding by reason of the fact that such person is or was a director or officer of the company, or a person of whom such person is the legal representative, or is or was serving at the request of the corporation as a director or officer of another corporation, or as its representative in a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, to the fullest extent permitted by the DGCL, against any expenses, liability and loss (including attorneys' fees, judgments, fines Employee Retirement Income Security Act of 1974 excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith. The amended and restated certificate of incorporation of AMC Entertainment Inc. also provides that the personal liability of its directors for monetary damages for breach of fiduciary duty as a director of the corporation is eliminated to the fullest extent permitted by the DGCL. Expenses incurred in defending any such proceeding in advance of its final disposition may be paid by the corporation in advance of its final disposition, provided that if the DGCL so requires, the payment of such expenses shall only be made upon delivery to the corporation of an undertaking, by or on behalf of such person, to repay all amounts so advanced if it should be determined ultimately that such person is not entitled to be indemnified by the corporation. Neither the failure of the corporation to have made a determination prior to the commencement of such action that indemnification of the claimant is proper because such person has met the applicable standard of conduct set forth in the DGCL nor an actual determination that such person has failed to meet such standard of conduct shall be a defense to an action brought by a claimant whom the corporation has failed to pay in full within 30 days of having received a written claim. (b) AMC Entertainment International, Inc. is incorporated under the laws of Delaware. The by-laws of AMC Entertainment International, Inc. provide for indemnification of any person made party to or threatened to be made party to any proceeding, other than an action by or in the right of the corporation to procure a judgment in its favor, by reason of the fact that such person is or was a director, officer, employee, agent of the corporation or voting trustee under any voting trust agreement (which has been entered into between the owners and the holders of shares of the corporation, such voting trustee and the corporation), or is or was serving at the request of the corporation as a director, officer, employee or agent of another entity, against expenses, including attorney's fees, judgments, fines and amount paid in settlement, actually and reasonably incurred by such person in connection with such action, provided such person acted in good faith, in a manner reasonably believed by such person to be in or not opposed to the best interests of the corporation, and, in the case of a criminal action or proceeding, had no reasonable cause to believe that such conduct was unlawful. The by-laws of the corporation further provide that the corporation shall indemnify any person who was or is a party or is threatened to be made a party to any action or suit by or in the right of the company by reason of the fact that such person is or was a director, officer, employee or agent of the company, or was serving at the request of the company as a director, officer, employee or agent of another entity, against expenses, including attorney's fees, actually and reasonably incurred by such person in connection with the defense or settlement of such action, provided such person acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation, and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of such person's duty to the corporation unless and only to the extent that the court in which such action was brought shall determine upon application that, despite the adjudication of II-5 liability but in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors upon receipt of an undertaking by or on behalf of the director or officer to repay such amount unless it shall ultimately be determined that such person is entitled to be indemnified by the corporation. Pursuant to the by-laws of the corporation, any indemnification made under the by-laws shall be made, unless ordered by the court, only as authorized by an appropriate determination that indemnification is proper because the person has met the applicable standard of conduct for such indemnification made (i) by the Board of Directors by a majority vote of a quorum, consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such quorum is not obtainable, or even if obtainable, if a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. The certificate of incorporation of AMC Entertainment International, Inc. provides that the personal liability of its directors for monetary damages for breach of fiduciary duty as a director of the corporation is eliminated to the fullest extent permitted by the DGCL. (c) LCE AcquisitionSub, Inc. and LCE Mexican Holdings, Inc. are incorporated under the laws of Delaware. The certificate of incorporation of each of LCE AcquisitionSub, Inc. and LCE Mexican Holdings, Inc. provides for indemnification of any person made party to or threatened to be made party to any proceeding by reason of the fact that such person is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director, officer, partner, trustee, employee or agent of another entity, including service with respect to employee benefit plans, to the fullest extent permitted by the DGCL, against any expenses, including attorney's fees, judgments, fines, penalties and amounts paid in settlement incurred (and not otherwise recovered) in connection with the investigation, preparation to defend or defense of such action and shall include the advancement, upon request, of such expenses, provided that the corporation shall not indemnify or advance expenses in connection with any proceeding initiated by or on behalf of such person. Any person seeking indemnification under the certificate of incorporation shall be deemed to have met the standard of conduct required for such indemnification unless the contrary shall be established. The certificate of incorporation of each of LCE AcquisitionSub, Inc. and LCE Mexican Holdings, Inc. provides that the personal liability of its directors for monetary damages for breach of fiduciary duty as a director of the corporation is eliminated to the fullest extent permitted by the DGCL.
District of Columbia Registrant: Club Cinema of Mazza, Inc. is incorporated under the laws of the District of Columbia. Section 29-101.04 of the District of Columbia Business Corporation Act authorizes a corporation to indemnify any and all of its directors or officers or former directors or officers or any person who may have served at its request as a director or officer of another corporation in which it owns shares of capital stock or of which it is a creditor against expenses actually and necessarily incurred by them in connection with the defense of any action, suit, or proceeding in which they, or any of them, are made parties, or a party, by reason of being or having been directors or officers or a director or officer of the corporation, or of such other corporation, except in relation to matters as to which any such director or
officer or former director or officer or person shall be adjudged in such action, suit, or proceeding to be liable for negligence or misconduct in the performance of duty. II-6 There is no provision for indemnification in the articles of incorporation or by-laws of Club Cinema of Mazza, Inc. Kansas Registrant: AMC License Services, Inc. is incorporated under the laws of Kansas. Section 17-6305 of the Kansas General Corporation Law authorizes a corporation to indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, other than an action by or in the right of the corporation to procure a judgment in its favor, by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, judgments, fines and amounts paid in settlement in connection with such action, including attorney's fees, if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation; and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful. Notwithstanding the preceding sentence, no indemnification is permitted in respect of any claim, issue or matter as to which such person has been adjudged to be liable to the corporation, unless otherwise determined by the court in which such proceeding is pending. A Kansas corporation may also indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses actually and reasonably incurred by such person in connection with the defense or settlement of such action, including attorney's fees, if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. The by-laws of AMC License Services, Inc. provide for indemnification of any person made party to or threatened to be made party to any proceeding, other than an action by or in the right of the corporation to procure a judgment in its favor, by reason of the fact that such person is or was a director, officer, employee, agent of the corporation or voting trustee under any voting trust agreement (which has been entered into between the owners and the holders of shares of the corporation, such voting trustee and the corporation), or is or was serving at the request of the corporation as a director, officer, employee or agent of another entity, against expenses, including attorney's fees, judgments, fines and amount paid in settlement, actually and reasonably incurred by such person in connection with such action, provided such person acted in good faith, in a manner reasonably believed by such person to be in or not opposed to the best interests of the corporation, and, in the case of a criminal action or proceeding, had no reasonable cause to believe that such conduct was unlawful. The by-laws of the corporation further provide that the corporation shall indemnify any person who was or is a party or is threatened to be made a party to any action or suit by or in the right of the company by reason of the fact that such person is or was a director, officer, employee or agent of the company, or was serving at the request of the company as a director, officer, employee or agent of another entity, against expenses, including attorney's fees, actually and reasonably incurred by such
person in connection with the defense or settlement of such action, provided such person acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the II-7 corporation, and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of such person's duty to the corporation unless and only to the extent that the court in which such action was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors upon receipt of an undertaking by or on behalf of the director or officer to repay such amount unless it shall ultimately be determined that such person is entitled to be indemnified by the corporation. Pursuant to the by-laws of the corporation, any indemnification made under the by-laws shall be made, unless ordered by the court, only as authorized by an appropriate determination that indemnification is proper because the person has met the applicable standard of conduct for such indemnification made (i) by the Board of Directors by a majority vote of a quorum, consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such quorum is not obtainable, or even if obtainable, if a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the shareholders. The articles of incorporation of AMC License Services, Inc. provide that its directors shall not be personally liable to the corporation or its stockholders for monetary damages for any breach of fiduciary duty by any such director, except to the extent provided by applicable law (i) for breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under the provisions of Section 17-6424 of the Kansas General Corporation Law and any amendments thereto, or (iv) for any transaction from which the director derived an improper personal benefit.
Missouri Registrant: American Multi-Cinema, Inc. is incorporated under the laws of Missouri. Section 351.355 of the General and Business Corporation Law of Missouri authorizes a corporation to indemnify any person, including an officer or director, who was or is, or is threatened to be made, a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person is or was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. The indemnity may include expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of such corporation, and, with respect to any criminal actions and proceedings, had no reasonable cause to believe that such person's conduct was unlawful. The by-laws of American Multi-Cinema, Inc. provide for indemnification of any person made party to or threatened to be made party to any proceeding, other than an action by or in the right of the corporation to procure a judgment in its favor, by reason of the fact that such person is or was a director, officer, employee, agent of the corporation or voting trustee under any voting trust agreement (which has been entered into between the owners and the holders of shares of the corporation, such voting trustee and the corporation), or is or was serving at the request of the corporation as a director, officer, employee or agent of another entity, against expenses, including attorney's fees, judgments, fines and amount paid in settlement, actually and reasonably incurred by such person in connection with such action, provided such person acted in good faith, in a manner reasonably believed by such person to be in or not opposed to the best interests of the corporation, and, in the case of a criminal action or proceeding, had no reasonable cause to believe that such conduct was unlawful. II-8 The by-laws of the corporation further provide that the corporation shall indemnify any person who was or is a party or is threatened to be made a party to any action or suit by or in the right of the company by reason of the fact that such person is or was a director, officer, employee or agent of the company, or was serving at the request of the company as a director, officer, employee or agent of another entity, against expenses, including attorney's fees, actually and reasonably incurred by such person in connection with the defense or settlement of such action, provided such person acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation, and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of such person's duty to the corporation unless and only to the extent that the court in which such action was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors upon receipt of an undertaking by or on behalf of the director or officer to repay such amount unless it shall ultimately be determined that such person is entitled to be indemnified by the corporation. Pursuant to the by-laws of the corporation, any indemnification made under the by-laws shall be made, unless ordered by the court, only as authorized by an appropriate determination that indemnification is proper because the person has met the applicable standard of conduct for such indemnification made (i) by the Board of Directors by a majority vote of a quorum, consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such quorum is not obtainable, or even if obtainable, if a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the shareholders.
The amended and restated articles of incorporation of American Multi-Cinema, Inc. provide that its directors shall not be personally liable to the corporation or its stockholders for monetary damages for any breach of fiduciary duty by any such director, except (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 351.345 of the Missouri General and Business Corporation Law, and any amendments thereto, or (iv) for any transaction from which the director derived an improper personal benefit. The articles of incorporation further provide that the corporation shall indemnify to fullest extent permitted by law any person who is or was a director, officer, employee or agent of the corporation, or any person who is serving at the request of the corporation as a director, officer, employee or agent of another entity, unless such person's conduct is finally adjudged to have been knowingly fraudulent, deliberately dishonest or willful misconduct. Item 21. Exhibits and Financial Schedules. See the Exhibit Index immediately following the signature pages included in this Registration Statement.
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unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
SIGNATURES Pursuant to the requirements of the Securities Act, the registrant has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Kansas City, State of Missouri, on
POWER OF ATTORNEY The undersigned directors and officers of AMC Entertainment Inc. hereby appoint Craig R. Ramsey as attorney-in-fact for the undersigned, with full power of substitution for, and in the name, place and stead of the undersigned, to sign and file with the Securities and Exchange Commission under the Securities Act, any and all amendments (including post-effective amendments) and exhibits to this II-11 Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and as of the dates indicated.
SIGNATURES Pursuant to the requirements of the Securities Act, each of the registrants listed below has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Kansas City, State of Missouri, on
POWER OF ATTORNEY The undersigned directors and officers of the registrants listed above hereby appoint Craig R. Ramsey as attorney-in-fact for the undersigned, with full power of substitution for, and in the name, place and stead of the undersigned, to sign and file with the Securities and Exchange Commission under the Securities Act, any and all amendments (including post-effective amendments) and exhibits to this II-13 Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and as of the dates indicated.
SIGNATURES Pursuant to the requirements of the Securities Act, AMC Entertainment International, Inc. has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Kansas City, State of Missouri, on
POWER OF ATTORNEY The undersigned directors and officers of AMC Entertainment International, Inc. hereby appoint Craig R. Ramsey as attorney-in-fact for the undersigned, with full power of substitution for, and in the name, place and stead of the undersigned, to sign and file with the Securities and Exchange Commission under the Securities Act, any and all amendments (including post-effective amendments) and exhibits to this Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and as of the dates indicated.
SIGNATURES Pursuant to the requirements of the Securities Act, AMC License Services, Inc. has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Kansas City, State of Missouri, on
Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and as of the dates indicated.
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