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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended DECEMBER 31, 1999
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______ to _______
Commission File Number 1-11604
CARMIKE CINEMAS, INC.
(Exact Name Of Registrant As Specified in Its Charter)
DELAWARE 58-1469127
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1301 FIRST AVENUE, COLUMBUS, GEORGIA 31901
(Address of Principal Executive Offices) (Zip Code)
(706) 576-3400
(Registrant's Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
CLASS A COMMON STOCK, PAR VALUE $.03 PER SHARE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ]
As of March 3, 2000, 9,968,287 shares of Class A Common Stock, par
value $.03 per share, were outstanding and the aggregate market value of the
shares of the Class A Common Stock held by non-affiliates of the registrant was
approximately $65,417,634.50. As of March 3, 2000, 1,420,700 shares of Class B
Common Stock, par value $.03 per share, were outstanding, all of which shares
are held by affiliates of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Specified portions of Carmike Cinemas, Inc.'s Proxy Statement relating
to the 2000 Annual Meeting of Stockholders are incorporated by reference into
Part III.
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TABLE OF CONTENTS
PAGE
NUMBER
------
Part I
Item 1. Business..................................................................................3
Item 2. Properties...............................................................................16
Item 3. Legal Proceedings........................................................................17
Item 4. Submission of Matters to a Vote of Security Holders......................................17
Executive Officers of the Registrant................................................................17
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters....................19
Item 6. Selected Financial and Operating Data....................................................21
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....23
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...............................32
Item 8. Financial Statements and Supplementary Data..............................................32
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.....33
*Part III
Item 10. Directors and Executive Officers of the Registrant.......................................33
Item 11. Executive Compensation...................................................................33
Item 12 Security Ownership of Certain Beneficial Owners and Management...........................33
Item 13 Certain Relationships and Related Transactions...........................................33
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..........................34
*Incorporated by reference from 2000 Proxy Statement.
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CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), including, in particular, forward-looking statements under the
headings "Item 1. Business" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations." The words "expect,"
"anticipate," "intend," "plan," "believe," "seek," "estimate," "slate" and
similar expressions are intended to identify such forward-looking statements;
however, this Report also contains other forward-looking statements in addition
to historical information. Carmike cautions that there are various important
factors that could cause actual results to differ materially from those
indicated in the forward-looking statements; accordingly, there can be no
assurance that such indicated results will be realized. Among the important
factors that could cause actual results to differ materially from those
indicated by such forward-looking statements are the factors set forth below in
"Item 1. Business -- Factors That May Affect Future Performance." By making
these forward-looking statements, Carmike does not undertake to update them in
any manner except as may be required by its disclosure obligations in filings it
makes with the Securities and Exchange Commission (the "Commission") under the
Federal securities laws.
In this Report, the words "Company," "Carmike," "we," "our," "ours,"
and "us" refer to Carmike Cinemas, Inc. and its subsidiaries.
PART I
ITEM 1. BUSINESS.
OVERVIEW
Carmike is the largest motion picture exhibitor in the United States in
terms of number of theatres operated and is the third largest in terms of the
number of screens operated. As of December 31, 1999, Carmike operated 458
theatres with an aggregate of 2,848 screens located in 36 states. Carmike's
theatres are located in small to mid-sized communities ranging in population
size from approximately 7,700 to 500,000. As of December 31, 1999, management
believes that Carmike was the sole exhibitor in approximately 65% of its free
film licensing zones.
Carmike was organized as a Delaware corporation in April 1982 in
connection with the leveraged buy-out of its predecessor, the Martin Theatres
circuit, by present management of Carmike. The principal executive offices of
Carmike are located at 1301 First Avenue, Columbus, Georgia 31901, and the
telephone number is (706) 576-3400.
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RECENT DEVELOPMENTS
Amendment of Credit and Lease Facilities
Carmike and its lenders recently negotiated amendments to Carmike's
revolving credit facility, term loan and master lease facility. Pursuant to
these amendments, certain financial covenants were modified, additional
limitations were placed on capital expenditures, and certain costs related to
the facilities were increased. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for more information regarding
these amendments.
Sale/Leaseback Transactions
During the first quarter of 2000, Carmike entered into a sale and
leaseback transaction for three theatres with a net book value of approximately
$22.4 million and a sale price of $23.7 million. Carmike also has a commitment
to sell and leaseback another three theatres with a net book value of $19.6
million and a sale price of $22.6 million, which it expects to consummate during
the second quarter of 2000. Gains resulting from the sales will be recognized
ratably over the leaseback period, which in both cases involves an initial lease
term of 20 years with four 5-year renewal options. These lease transactions will
be triple net leases that require the tenant to be responsible for all operating
costs.
THEATRE OPERATIONS
Carmike's revenues are generated primarily from admissions and
concessions sales. Additional revenues, which are not material, are generated
from video game arcade areas, family entertainment centers and on-screen
advertising. The following table sets forth, as of December 31, 1999, certain
information regarding the 458 theatres and 2,848 screens operated by Carmike:
STATE THEATRES SCREENS STATE THEATRES SCREENS
- ----- -------- ------- ----- -------- -------
Alabama................25 203 Nebraska................9 32
Arkansas...............12 99 New Mexico..............1 2
Colorado...............11 64 New York................1 8
Delaware................2 20 North Carolina.........62 380
Florida................18 109 North Dakota............9 45
Georgia................39 275 Ohio....................8 43
Idaho...................7 22 Oklahoma...............12 61
Illinois................3 13 Pennsylvania...........37 232
Indiana.................2 13 South Carolina.........21 124
Iowa...................21 142 South Dakota............7 48
Kansas..................2 18 Tennessee..............40 262
Kentucky...............11 53 Texas..................18 112
Louisiana...............3 22 Utah...................12 72
Maryland................2 12 Virginia...............14 85
Michigan................2 10 Washington..............2 13
Minnesota..............13 75 West Virginia...........5 30
Missouri................1 8 Wisconsin...............7 46
Montana................15 80 Wyoming.................4 15
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From time to time, Carmike converts marginally profitable theatres to
"Discount Theatres" for the exhibition of films that have previously been shown
on a first-run basis. Carmike also operates certain theatres for the exhibition
of first-run films at a reduced admission price. These theatres are typically in
a smaller market where Carmike is the only exhibitor in the market. At December
31, 1999, Carmike operated 74 theatres with 314 screens as Discount Theatres.
As of December 31, 1999, Carmike owned 88 of its theatres, had 316
ground and improvement leases and 47 ground leases. An additional seven theatres
were operated by Carmike under shared ownership.
Carmike's theatre operations are under the supervision of its Senior
Vice President -- Operations and four division managers. The division managers
are responsible for implementing Company operating policies and supervising
Carmike's eighteen operating districts. Each operating district has a district
manager who is responsible for overseeing the day-to-day operations of Carmike's
theatres. Corporate policy development, strategic planning, site selection and
lease negotiation, theatre design and construction, concession purchasing, film
licensing, advertising, and financial and accounting activities are centralized
at Carmike's corporate headquarters.
Carmike has implemented an incentive bonus program for theatre level
management which provides for bonuses based on incremental improvements in
theatre profitability, including concession sales. As part of this program,
Carmike evaluates "mystery shopper" reports on the quality of service,
cleanliness and film presentation at individual theatres.
Carmike relies upon advertisements and movie schedules published in
newspapers and on its web site, carmike.com, to inform customers of film
selections and show times. Newspaper advertisements are typically displayed in a
single group for all of Carmike's theatres located in the newspaper's
circulation area. In addition, Carmike utilizes radio spots and promotions to
further market its films. Major distributors frequently share the cost of
newspaper and radio advertising. Carmike also exhibits previews of coming
attractions and films presently playing on Carmike's other screens in the same
market area. In addition, Carmike sells gift certificates and offers a discount
ticket plan to attract groups of patrons to its theatres.
THEATRE DEVELOPMENT
Carmike's growth strategy primarily involves the development of new
theatres and the addition of screens and other improvements to existing
theatres, as well as selective acquisitions of theatres as available. During
1999, Carmike opened 24 theatres with 313 screens, added 39 auditoriums to its
existing theatres and retrofit 59 auditoriums at certain of its theatres. At
December 31, 1999, Carmike had 88 screens under construction that will be
completed in 2000. Carmike's capital expenditures during 1999 aggregated
approximately $170 million, net of lease financings, and Carmike estimates that
net capital expenditures in connection with its development plans will aggregate
approximately $22 million, net of lease financings, during 2000.
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Carmike has designed a prototype multiplex theatre which can be adapted
and sized to a particular location, which management believes results in
construction and operating cost savings. Carmike's typical new multiplex is
designed for a market with a population of between 50,000 to 250,000, has 9 to
20 screens (with 14 screens being typical), and features digital stereo surround
sound, oversized screens, plush seating with cup holders and a spacious lobby.
Stadium seating will be included in or added to certain theatres located in
Carmike's larger markets, where appropriate. Carmike currently has 702 screens
with stadium seating and plans to provide stadium seating in another 98
auditoriums during 2000. Carmike estimates that the average cost of a new
16-screen multiplex will be approximately $9 million ($4 million if the land and
improvements are leased rather than owned).
FILM LICENSING
Carmike obtains licenses to exhibit films by directly negotiating with
or, in rare circumstances, submitting bids to film distributors. Carmike
licenses films through its booking office located in Columbus, Georgia.
Carmike's Senior Vice President -- Film, in consultation with Carmike's
President, directs Carmike's motion picture bookings.
Prior to negotiating or bidding for a film license, Carmike's Senior
Vice President -- Film and film booking personnel evaluate the prospects for
upcoming films. The criteria considered for each film include cast, director,
plot, performance of similar films, estimated film rental costs and expected
MPAA rating. Successful licensing depends greatly upon the availability of
commercially popular motion pictures, knowledge of the tastes of residents in
markets served by each theatre and insight into the trends in those tastes.
Carmike maintains a database that includes revenue information on films
previously exhibited in its markets. This historical information is then
utilized by Carmike to match new films with particular markets so as to maximize
revenues.
The major film distributors generally release during the summer and
holiday seasons, primarily Thanksgiving and Christmas, those films which they
anticipate to be the most successful. Consequently, Carmike has historically
generated higher revenues during such periods.
Film Rental Fees
Film licenses typically specify rental fees based on the higher of a
gross box office receipts formula or an adjusted gross box office receipts
formula. Under a gross box office receipts formula, the distributor receives a
specified percentage of box office receipts, with the percentage declining over
the term of the run. Carmike's film rental fees typically begin at 60% of
admission revenues and gradually decline to as low as 30% over a period of four
to eight weeks. Under an adjusted gross box office receipts formula (commonly
known as a "90/10" clause), the distributor receives a specified percentage
(i.e., 90%) of the excess of box office receipts over a negotiated amount for
house expenses. In addition, Carmike is occasionally required to pay
non-refundable guarantees of film rentals, to make advance payments of film
rentals, or both, in order to obtain a license for a film. Although not
specifically contemplated by the provisions of film licenses, the terms of film
licenses generally (with the exception of
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Universal, Fox, Sony and DreamWorks) are adjusted or re-negotiated subsequent to
exhibition of the film in relation to its success.
Film Licensing Zones
Film licensing zones are geographic areas (generally encompassing a
radius of three to five miles) established by film distributors where any given
film is allocated to only one theatre within that area. In film licensing zones
where Carmike has little or no competition, Carmike obtains film licenses by
selecting a film from among those offered and negotiating directly with the
distributor. In competitive film licensing zones, a distributor will either
require the exhibitors in the zone to bid for a film or will allocate its films
among the exhibitors in the zone. When films are licensed under the allocation
process, a distributor will choose which exhibitor is offered a movie and then
that exhibitor will negotiate film rental terms directly with the distributor
for the film. Over the past several years, distributors have generally used the
allocation rather than the bidding process to license their films. When films
are licensed through a bidding process, exhibitors compete for licenses based
upon economic terms. Carmike currently does not bid for films in any of its film
licensing zones.
First-Run Films
Carmike predominantly licenses "first-run" films. If a film has
substantial remaining potential following its first-run, Carmike may license it
for a subsequent run (a "sub-run"). Although average daily sub-run attendance is
often less than average daily first-run attendance, sub-run film cost is
generally less than first-run film cost. Additionally, sub-runs enable Carmike
to exhibit a variety of films during periods in which there are few new
releases.
Relationship with Distributors
Carmike depends on, among other things, the quality, quantity,
availability and acceptance by movie going customers of the motion pictures
produced by the motion picture production companies and licensed for exhibition
to the motion picture exhibitors by distribution companies. Disruption in the
production of motion pictures by the major studios and/or independent producers
or poor performance of motion pictures could have an adverse effect on the
business of Carmike. The motion picture production and distribution industry in
the United States is led by a few major movie studios and their distribution
operations, but no single distributor dominates the market. See "-- Regulatory
Environment." Accordingly, Carmike's business is dependent upon the availability
of marketable pictures and its relationships with distributors.
While there are numerous distributors which provide quality first-run
movies to the motion picture exhibition industry, the following nine major
distributors accounted for approximately 94% of Carmike's admission revenues
during the year ended December 31, 1999: Buena Vista, Warner Brothers, Fox,
Paramount, Universal, DreamWorks, MGM/UA, Sony and New Line Cinema. Carmike
licenses films from a number of distributors and believes that its relationships
with distributors generally are satisfactory.
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CONCESSIONS
Concessions sales are Carmike's second largest revenue source after box
office admissions, constituting approximately 28% of total revenues for 1999.
Carmike's strategy emphasizes quick and efficient service built around a limited
menu primarily focused on higher margin items such as popcorn, candy and soft
drinks. In addition, Carmike has introduced a limited number of new products,
such as bottled water, frozen drinks, coffee, ice cream, pizza, and hot dogs, at
certain theatre locations. Carmike actively seeks to promote concessions sales
through the design and appearance of its concession stands, the introduction of
special promotions from time to time, and the training of its employees to cross
sell products. In addition, Carmike's management incentive bonus program
includes concession results as a component of determining the bonus awards.
Carmike negotiates prices for its concessions supplies directly with
concessions vendors on a national or regional basis to obtain high volume
discounts or bulk rates.
MANAGEMENT INFORMATION SYSTEMS
Carmike has a significant commitment to its major operating systems,
some of which have been developed internally. Carmike's proprietary computer
system, IQ-Zero, which is installed in all of its theatres, allows Carmike to
centralize most theatre-level administrative functions at its corporate
headquarters, creating significant operating leverage. IQ-Zero allows corporate
management to monitor ticket and concessions sales and box office and concession
staffing on a daily basis. Carmike's integrated management information system,
centered around IQ-Zero, also coordinates payroll, tracks theatre invoices and
generates operating reports analyzing film performance and theatre
profitability. Accordingly, there is active communication between the theatres
and corporate headquarters, which allows senior management to react to vital
profit and staffing information on a daily basis and perform the majority of the
theatre-level administrative functions, thereby enabling the theatre manager to
focus on the day-to-day operations of the theatre.
ADDITIONAL REVENUE STREAMS
Carmike actively engages in efforts to develop revenue streams in
addition to admissions and concessions revenues. Certain Carmike theatres
include electronic video games located in or adjacent to the lobby, and
on-screen advertising is provided on a number of Carmike's screens, each of
which provides additional revenues to Carmike. Since 1997, Carmike has opened
five family entertainment centers under the name Hollywood Connection(R),
including three which were developed pursuant to a joint venture with Wal-Mart,
and which feature multiplex theatres and other forms of entertainment. Carmike
is currently evaluating this concept and is also exploring alternate revenue
sources such as advertising and marketing programs on beverage and popcorn
containers.
COMPETITION
The motion picture exhibition industry is fragmented and highly
competitive. In markets where it is not the sole exhibitor, Carmike competes
against regional and independent operators as well as the larger theatre circuit
operators.
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Carmike's operations are subject to varying degrees of competition with
respect to film licensing, attracting customers, obtaining new theatre sites or
acquiring theatre circuits. Carmike believes that the principal competitive
factors with respect to film licensing include licensing terms, seating
capacity, location and prestige of an exhibitor's theatres, quality of
projection and sound at the theatres and the exhibitor's ability and willingness
to promote the films. Competition for customers is dependent upon factors such
as the availability of popular films, location of the theatres, stadium seating,
customer comfort, quality of projection and sound and ticket prices. Carmike
believes that its admission prices are competitive with admission prices of
competing theatres. In those areas where real estate is readily available, there
are few barriers preventing competing companies from opening theatres near one
of Carmike's existing theatres, which may have a material adverse effect on our
theatres. In addition, competitors have built or are planning to build theatres
in certain areas in which Carmike operates, which may result in excess capacity
in such areas and may adversely affect attendance and pricing at Carmike's
theatres in such areas.
The opening of large multiplexes and theatres with stadium seating by
Carmike and certain of its competitors has tended to, and is expected to
continue to, draw audiences away from certain older theatres, including theatres
operated by us. In addition, demographic changes and competitive pressures can
lead to a theatre location becoming impaired.
In addition to competition with other motion picture exhibitors,
Carmike's theatres face competition from a number of alternative motion picture
exhibition delivery systems, such as cable television, satellite and
pay-per-view services and home video systems. The expansion of such delivery
systems (such as video on demand) could have a material adverse effect upon
Carmike's business and results of operations. Carmike also competes for the
public's leisure time and disposable income with all forms of entertainment,
including sporting events, concerts, live theatre and restaurants.
REGULATORY ENVIRONMENT
The distribution of motion pictures is in large part regulated by
federal and state antitrust laws and has been the subject of numerous antitrust
cases. Certain consent decrees resulting from such cases bind certain major
motion picture distributors and require the motion pictures of such distributors
to be offered and licensed to exhibitors, including Carmike, on a
theatre-by-theatre basis. Consequently, exhibitors such as Carmike cannot assure
themselves of a supply of motion pictures by entering into long-term
arrangements with major distributors but must compete for licenses on a
film-by-film and theatre-by-theatre basis.
The Americans with Disabilities Act (the "ADA"), which became effective
in 1992, and certain state statutes and local ordinances, among other things,
require that places of public accommodation, including theatres (both existing
and newly constructed), be accessible to patrons with disabilities. The ADA
requires that theatres be constructed to permit persons with disabilities full
use of a theatre and its facilities. Also, the ADA may require certain
modifications be made to existing theatres in order to make them accessible to
patrons and employees who are disabled. For example, Carmike is aware of several
lawsuits that have been filed against other exhibitors by disabled moviegoers
alleging that certain stadium seating designs violate the ADA. Carmike is also a
defendant in a proceeding that was recently filed
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against four motion picture exhibitors by certain deaf individuals asserting
claims under the ADA and a state disability statute and seeking to require the
installation of closed captioning equipment in defendants' theatres.
On June 30, 1998, Carmike executed a Settlement Agreement with the U.S.
Department of Justice under Title III of the ADA. Under the Settlement
Agreement, Carmike agreed to complete the readily achievable removal of barriers
to accessibility, or alternatives to barrier removal, at two theatres in Des
Moines, Iowa and to distribute to all of its theatres a questionnaire designed
to assist its management in the identification of existing and potential
barriers and a threshold determination of what steps might be available for
removal of such existing and potential barriers. Carmike is continuing to assess
the impact of such questionnaires on its theatres. Carmike constructs new
theatres to be accessible to the disabled and believes it is otherwise in
substantial compliance with applicable regulations relating to accommodating the
needs of the disabled. Carmike has a Director of ADA Compliance to monitor its
ADA requirements.
Carmike's theatre operations are also subject to federal, state and
local laws governing such matters as construction, renovation and operation of
its theatres, as well as wages, working conditions, citizenship, and health and
sanitation requirements and licensing. Carmike believes that its theatres are in
material compliance with such requirements. At December 31, 1999, approximately
63% of Carmike's employees were paid at the federal minimum wage and,
accordingly, the minimum wage largely determines our labor costs for those
employees.
Carmike owns, manages and/or operates theatres and other properties
which may be subject to certain U.S. federal, state and local laws and
regulations relating to environmental protection, including those governing past
or present releases of hazardous substances. Certain of these laws and
regulations may impose joint and several liability on certain statutory classes
of persons for the costs of investigation or remediation of such contamination,
regardless of fault or the legality of original disposal. These persons include
the present or former owner or operator of a contaminated property, and
companies that generated, disposed of or arranged for the disposal of hazardous
substances found at the property. Additionally, in the course of maintaining and
renovating its theatres and other properties, Carmike periodically encounters
asbestos containing materials ("ACMs") that must be handled and disposed of in
accordance with federal, state and local laws, regulations and ordinances. Such
laws may impose liability for release of ACMs and may entitle third parties to
seek recovery from owners or operators of real properties for personal injury
associated with ACMs.
TRADEMARKS AND TRADENAMES
Carmike owns or has rights to trademarks or trade names that it uses in
conjunction with the operation of its theatres. Carmike owns the Carmike
Cinemas(R) and Hollywood Connection(R) trademarks.
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EMPLOYEES
As of December 31, 1999, Carmike had approximately 11,068 employees, of
which 51 are covered by collective bargaining agreements. Carmike considers its
relations with its employees to be good.
FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
In addition to other factors and matters discussed elsewhere herein,
factors that, in the view of Carmike, could cause actual results to differ
materially from those discussed in forward-looking statements are set forth
below. All forward-looking statements attributable to Carmike or persons acting
on our behalf are expressly qualified in their entirety by the following
cautionary statements.
Seasonality
Our revenues are dependent upon the timing of motion picture releases
by distributors. Our business is generally seasonal, with higher revenues
generated during the summer and holiday seasons. While motion picture
distributors have begun to release major motion pictures evenly throughout the
year, the most marketable motion pictures are usually released during the summer
and the year-end holiday periods. Additionally, the unexpected emergence of a
hit film may occur in these or other periods. As a result, the timing of motion
picture releases affects our results of operations, which may vary significantly
from quarter to quarter. Moreover, to the extent that certain "event" films are
distributed more widely than in the past, our margins may be hurt as a result of
the higher film licensing fees payable during the early period of a film's run.
For the year ended December 31, 1999, the percentages of our admissions revenue
by quarter were as follows: first quarter 20%; second quarter 26%; third quarter
30%; and fourth quarter 24%.
Dependence upon Motion Picture Production and Performance
Our business will be adversely affected if there is a decline in the
quality and number of motion pictures available for screening. Our business
depends on the availability of suitable motion pictures for screening in our
theatres and the appeal of such motion pictures in our theatre markets. We
mainly license first-run motion pictures. Our results of operations will vary
from period to period based upon the quantity and quality of the motion pictures
we show in our theatres. For example, in the second quarter of 1999, we
benefited from the success of "Star Wars: Episode 1," while in the fourth
quarter of 1999 our results were adversely impacted by the disappointing
performance of the holiday season releases. A disruption in the production of
motion pictures, lack of motion pictures or poor performance of motion pictures
in theatres could adversely affect our business and results of operations.
Dependence on Relationships with Motion Picture Distributors
Our business depends to a significant degree on maintaining good
relations with the major film distributors that license films to our theatres.
While there are numerous motion picture distributors that provide quality
first-run movies to the motion picture exhibition industry, the following nine
distributors accounted for approximately 94% of our admission revenues for
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the fiscal year ended December 31, 1999: Buena Vista, Warner Brothers, Fox,
Paramount, Universal, DreamWorks, MGM/UA, Sony and New Line Cinema. No single
distributor dominates the market. A deterioration in our relationships with any
of the major film distributors could adversely affect our access to commercially
successful films and could adversely affect our business and results of
operations.
Government Regulation
Like others in our industry, we are subject to certain federal, state
and local laws and regulations which limit the manner in which we may conduct
our business. The distribution of motion pictures is in large part regulated by
federal and state antitrust laws and has been the subject of numerous antitrust
cases. As a result of these laws and cases, we cannot ensure a supply of motion
pictures by entering into long term arrangements with major distributors.
Instead, we must compete for film licenses on a film by film and theatre by
theatre basis.
Our theatre operations are also subject to federal, state and local
laws governing matters such as construction, renovation and operation of our
theatres, as well as wages, working conditions, citizenship, and health and
sanitation requirements and licensing. We believe that our theatres are in
material compliance with these requirements. At December 31, 1999, approximately
63% of our employees were paid at the federal minimum wage and, accordingly, the
minimum wage largely determines our labor costs for those employees.
The ADA and certain state statutes and local ordinances, among other
things, require that places of public accommodation, including both existing and
newly constructed theatres, be accessible to customers with disabilities. The
ADA may require that certain modifications be made to existing theatres in order
to make them accessible to patrons and employees who are disabled. The ADA
requires that theatres be constructed to permit persons with disabilities full
use of a theatre and its facilities. We are aware of several lawsuits that have
been filed against other exhibitors by disabled moviegoers alleging that certain
stadium seating designs violated the ADA. We are also a defendant, together with
certain other motion picture exhibitors, in a recent proceeding filed by certain
deaf individuals asserting, among other things, claims under the ADA and seeking
to require the defendants to install closed captioning equipment in theatres. We
have established a program to review and evaluate our theatres and to make
changes that may be required by law. Although we believe that the cost of
complying with the ADA will not adversely affect our business and results of
operations, we cannot predict the extent to which the ADA or any future laws or
regulations regarding the needs of the disabled will impact our operations.
Competition
Our business is subject to significant competitive pressures. The
opening of large multiplexes and theatres with stadium seating by us and certain
of our competitors has tended to, and is expected to continue to, draw audiences
away from certain older theatres, including theatres operated by us. In
addition, demographic changes and competitive pressures can lead to the
impairment of a theatre. In addition to competition from other motion picture
exhibitors, we face competition from other forms of entertainment. We face
varying degrees of competition with respect to licensing films, attracting
customers, obtaining new theatre sites and acquiring
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theatre circuits. There have been a number of consolidations in the movie
theatre industry, and the impact of these consolidations could have an adverse
effect on our business. Even where we are the only exhibitor in a film licensing
zone, we may still experience competition for moviegoers from theatres in a
neighboring zone. In addition, our theatres compete with a number of other types
of motion picture delivery systems, such as pay television, pay-per-view,
satellite and home video systems. While the impact of these delivery systems on
the motion picture industry is difficult to determine precisely, there is a risk
that they could adversely affect attendance at motion pictures shown in
theatres. Movie theatres also face competition from a variety of other forms of
entertainment competing for the public's leisure time and disposable income,
including sporting events, concerts, live theatre and restaurants.
Expansion Plans
We have continued to expand our operations through the development of
new theatres, the expansion of existing theatres and the selective acquisition
of existing theatres. Developing new theatres poses a number of risks.
Construction of new theatres may result in cost overruns, delays or
unanticipated expenses related to zoning or tax law considerations. Desirable
sites for new theatres may be unavailable or expensive, and the market locations
for new theatres may deteriorate over time. Additionally, the market potential
of new theatre sites cannot be precisely determined, and our theatres may face
competition in new markets from unexpected sources. Newly constructed theatres
may not perform up to management's expectations. Additionally, there is a risk
that we may not be able to manage growth as effectively as we have in the past
if we expand our existing operations.
We face significant competition for potential theatre locations and for
opportunities to acquire existing theatres and theatre circuits. Because of this
competition, Carmike may be unable to make acquisitions on terms we consider
acceptable.
Future Capital Requirements
Carmike may not have, or be able to obtain, the significant amounts of
capital we need to expand our business. Our industry is undergoing a transition
as newer theatres with stadium seating are attracting moviegoers away from older
theatres. As of December 31, 1999, we had 88 screens under construction that
will be completed in 2000. All of the theatres scheduled to be added in 2000
will provide stadium seating. We also anticipate that our construction,
expansion and renovation program will require capital expenditures of
approximately $22 million, net of lease financings and landlord reimbursements,
in 2000.
Like others in our industry, we have been required to recognize charges
associated with the write-down and closing of underperforming theatres primarily
as a result of the emergence of new competition in the marketplace. The opening
of large multiplexes by our competitors and the opening of newer theatres with
stadium seating in certain of our markets have led us to reassess a number of
our theatre locations to determine whether to renovate or to dispose of
underperforming locations. The opening of new multiplexes by our competitors
will likely continue to draw audiences away from our older theatres unless we
continue to make significant capital expenditures. In the year 2000 we
anticipate retrofitting approximately 10 screens to strengthen our position in
certain markets. We will lose revenue from those theatres while they
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are being renovated. As of December 31, 1999, after giving effect to our
construction, expansion and renovation program, approximately 30% of our
auditoriums are in theatres featuring stadium seating. Further advances in
theatre design may also require us to make substantial capital expenditures in
the future, or to close older theatres that cannot be economically renovated, to
compete with new developments in theatre design.
We believe that we will be able to satisfy our currently anticipated
capital needs for theatre construction, expansion and renovation and possible
acquisitions for at least the next year by cash flow from operations and
available cash, together with borrowings under our revolving credit facility,
additional sales of debt or equity securities, and additional bank financings
and other forms of long-term debt. As a result of recent amendments to our
revolving credit facility, our net capital expenditures have been limited to $25
million in 2000 and $35 million in 2001 and 2002. We may also enter into sales
and leasebacks of theatre properties to supplement our current sources of
capital. However, we cannot assure you that our business will generate
sufficient cash flow from operations, that we will satisfy the requirements for
borrowing under the revolving credit facility, that currently anticipated
revenue growth and operating improvements will be realized or that future
capital will be available to us to enable us to fund our capital expenditure
needs.
Accounting for Impairment of Assets
The opening of large multiplexes and theatres with stadium seating by
us and certain of our competitors has tended to, and is expected to continue to,
draw audiences away from certain older theatres, including theatres operated by
us. In addition, demographic changes and competitive pressures can lead to the
impairment of a theatre. We review for impairment of long-lived assets and
goodwill related to those assets to be held and used in the business whenever
events or changes in circumstances indicate that the carrying amount of an asset
or a group of assets may not be recoverable. We also periodically review and
monitor our internal management reports and the competition in our markets for
indicators of impairment of individual theatres. If we determine that assets are
impaired, we will be required to recognize a charge to earnings.
In the fourth quarter of 1999, we identified impairments of asset
values for certain theatres and a joint venture investment in three movie
theatre-entertainment complexes. As a result, we recognized a non-cash
impairment charge of approximately $33 million in the fourth quarter of 1999 to
reduce the carrying value of approximately 82 theatres with approximately 432
screens and to reduce our investment in the joint venture movie
theatre-entertainment complexes. We have previously recognized impairment
charges in 1996 and 1998. There can be no assurance that we will not take
additional charges in the future related to the impairment of assets.
Substantial Leverage
We have now and will continue to have a significant amount of
indebtedness. Our substantial indebtedness could have important consequences.
For example, it could:
- make it more difficult for us to satisfy our obligations with
respect to our indebtedness;
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- increase our vulnerability to general adverse economic and
industry conditions;
- limit our ability to fund future working capital, capital
expenditures for theatre construction, expansion, renovation
or acquisition, and other general corporate requirements;
- require us to dedicate a substantial portion of our cash flow
from operations to payments on our indebtedness, which would
reduce the availability of our cash flow to fund working
capital, capital expenditures, and other general corporate
purposes;
- limit our flexibility in planning for, or reacting to, changes
in our business and the industry in which we operate;
- place us at a competitive disadvantage compared to our
competitors that have less debt; and
- limit, along with the financial and other restrictive
covenants in our indebtedness, among other things, our ability
to borrow additional funds.
Compliance with Financial Covenants
Carmike's revolving credit facility, as well as its term loan and a
master lease, requires the maintenance of certain financial ratios and imposes
certain operating and financial restrictions on Carmike, including restrictions
on its ability to declare dividends, incur additional indebtedness and make
capital expenditures. These instruments were amended recently to, among other
things, adjust certain financial ratios relative to past and future operating
performance. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for additional information regarding these
amendments. Management believes that Carmike will be in compliance with the
amended covenants during 2000, but there can be no assurance that Carmike will
achieve such compliance. Carmike's failure to comply with these financial
covenants could result in an event of default which, if not cured or waived,
would have a material adverse effect on us.
Additional Borrowings Available
Despite current indebtedness levels, we and our subsidiaries may still
be able to incur substantially more debt. This could further exacerbate the
risks described above. The terms of the agreements governing our indebtedness do
not fully prohibit us or our subsidiaries from incurring additional debt. As of
March 31, 2000, our revolving credit facility would permit additional borrowings
of up to approximately $29 million. If new debt is added to our and our
subsidiaries' current debt levels, the related risks that we and they now face
could intensify.
Ability to Service Debt
To service our indebtedness, we will require a significant amount of
cash. Our ability to generate cash depends on many factors beyond our control.
Our ability to make scheduled payments of principal, to pay the interest on, to
refinance our indebtedness, or to fund planned capital expenditures for theatre
construction, expansion and renovation or theatre acquisition will depend on our
future performance. Our future performance is, to a certain extent, subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond
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our control. Based upon our current level of operations and anticipated
increases in revenues and cash flow as a result of our theatre construction,
expansion and renovation program, and the scheduled closing of certain
underperforming theatres, we believe that cash flow from operations and
available cash, together with available borrowings under our revolving credit
facility and cash that could be generated from lease financing arrangements,
sales of additional debt or equity securities and sales of surplus assets will
be adequate to meet our future liquidity needs for at least the next year.
We cannot assure you, however, that our business will generate
sufficient cash flow from operations, that currently anticipated revenue growth
and operating improvements will be realized or that future capital will be
available to us from the sale of debt or equity securities, additional bank
financings, other long-term debt or lease financings in an amount sufficient to
enable us to pay our indebtedness or to fund our other liquidity needs. We may
need to refinance all or a portion of our indebtedness on or before maturity. We
cannot assure you that we will be able to refinance any of our indebtedness, or
raise additional capital through other means, on commercially reasonable terms
or at all.
Dependence Upon Senior Management
We believe that our success is due to our experienced management team.
We depend in large part on the continued contribution of our senior management,
including Michael W. Patrick, Carmike's President. Losing the services of one or
more members of our senior management could adversely affect our business and
results of operations. We have an employment agreement with Michael W. Patrick
which is automatically renewed each year and we maintain key man life insurance
covering him. Our success partially depends on our ability to attract and retain
key personnel.
ITEM 2. PROPERTIES.
As of December 31, 1999, Carmike owned 88 of its theatres, had 316
ground and improvement leases and 47 ground leases. An additional seven theatres
were operated by Carmike under shared ownership.
Carmike's leases are generally entered into on a long-term basis. The
theatre leases generally provide for the payment of fixed monthly rentals,
contingent rentals based on a percentage of revenue over a specified amount, and
the payment of property taxes, common area maintenance, insurance and repairs.
Carmike, at its option, can renew a substantial portion of its theatre leases,
at the then fair rental rate for various periods with the maximum renewal period
totaling 10 years.
Carmike owns its headquarters building, which has approximately 48,500
square feet, in Columbus, Georgia. Pursuant to the terms of industrial revenue
bonds which were issued in connection with the construction of the corporate
office, Carmike's interest in the building is encumbered by a Deed to Secure
Debt and Security Agreement in favor of the Downtown Development Authority of
Columbus, Georgia.
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ITEM 3. LEGAL PROCEEDINGS.
From time to time, Carmike is involved in routine litigation and legal
proceedings in the ordinary course of its business, such as personal injury
claims, employment matters, contractual disputes and claims alleging ADA
violations. Currently, Carmike does not have pending any litigation or
proceedings that management believes will have a material adverse effect, either
individually or in the aggregate, upon Carmike.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during
the last quarter of the year ended December 31, 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information as of March 15, 2000
regarding the executive officers of Carmike. For purposes of this section,
references to Carmike include Carmike's predecessor, Martin Theatres, Inc.
NAME AGE TITLE
- ---- --- -----
C.L. Patrick...................81 Chairman of the Board of Directors
Michael W. Patrick.............49 President, Chief Executive Officer and Director
Martin A. Durant...............51 Senior Vice President - Finance,
Treasurer and Chief Financial Officer
Fred W. Van Noy................43 Senior Vice President -- Operations
F. Lee Champion, III...........49 Senior Vice President, General Counsel,
Secretary and Director
Anthony J. Rhead...............58 Senior Vice President -- Film
P. Lamar Fields................45 Senior Vice President -- Real Estate
H. Madison Shirley.............48 Senior Vice President-- Concessions and
Assistant Secretary
Marilyn B. Grant...............52 Vice President -- Advertising
Philip A. Smitley..............41 Assistant Vice President and Controller
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C.L. PATRICK has served as Chairman of the Board of Directors of
Carmike since April 1982. He joined Carmike in 1945, became its General Manager
in 1948 and served as President of Carmike from 1969 to 1970. In January 2000,
Mr. Patrick retired from active participation in the day-to-day management and
affairs of Carmike. He served as President of Fuqua Industries, Inc. from 1970
to 1978 and as Vice Chairman of the Board of Directors of Fuqua Industries, Inc.
from 1978 to 1982. Mr. Patrick is a director emeritus of Columbus Bank & Trust
Company. Messrs. Michael W. Patrick and Carl L. Patrick, Jr., directors of
Carmike, are the sons of Mr. Patrick.
MICHAEL W. PATRICK has served as President of Carmike since October
1981, as a director of Carmike since April 1982 and as Chief Executive Officer
since March 1989. He joined Carmike in 1970 and served in a number of
operational and film booking and buying capacities prior to becoming President.
Mr. Patrick serves as a director of Columbus Bank & Trust Company and the Will
Rogers Institute, and he is a member of the Board of Trustees of Columbus State
University Foundation, Inc.
MARTIN A. DURANT joined Carmike in July 1999 as Senior Vice President -
Finance, Treasurer and Chief Financial Officer. Prior to joining Carmike, Mr.
Durant was Senior Vice President - Corporate Services for AFLAC Incorporated, a
Columbus, Georgia based international holding company, for a period of ten
years. Prior to his position with AFLAC he was President of a venture capital
firm located in Florida. Mr. Durant began his career with KPMG Peat Marwick and
is a licensed Certified Public Accountant.
FRED W. VAN NOY joined Carmike in 1975. He served as a District Manager
from 1984 to 1985 and as Western Division Manager from 1985 to 1988, when he
became Vice President -- General Manager. In December 1997, he was elected to
his present position as Senior Vice President -- Operations.
F. LEE CHAMPION, III joined Carmike in January 1998 as Senior Vice
President, General Counsel and Secretary. In December 1998, he was elected a
director of Carmike. Prior to joining Carmike, Mr. Champion practiced law with
the firm of Champion and Champion.
ANTHONY J. RHEAD joined Carmike in June 1981 as manager of the booking
office in Charlotte, North Carolina. In July 1983, Mr. Rhead became Vice
President -- Film of Carmike and in December 1997 was elected Senior Vice
President -- Film. Prior to joining Carmike, he worked as a film booker for
Plitt Theatres, Inc. from 1973 to 1981.
P. LAMAR FIELDS joined Carmike in January 1983 as Director of Real
Estate. He served in this position until 1985 when he became Vice President --
Development. In December 1997 he was elected to his present position of Senior
Vice President -- Real Estate.
H. MADISON SHIRLEY joined Carmike in 1976 as a theatre manager. He
served as a District Manager from 1983 to 1987 and as Director of Concessions
from 1987 until 1990. He became Vice President -- Concessions in 1990 and Senior
Vice President -- Concessions and Assistant Secretary in December 1997.
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MARILYN B. GRANT joined Carmike in 1975 as a bookkeeper. She served as
Advertising Coordinator from 1984 to 1985 and became the Director of Advertising
in 1985. In August 1990, she was elected to her present position as Vice
President -- Advertising.
PHILIP A. SMITLEY joined Carmike in April 1997 as Controller. In
January 1998, he was elected to his present position of Assistant Vice President
and Controller. In March 1999, he assumed the duties of interim Chief Financial
Officer pending the appointment of Martin A. Durant in July 1999. Prior to
joining Carmike, Mr. Smitley was Divisional Controller -- Transportation of
Burnham Service Corporation, a trucking company.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Carmike's Class A Common Stock, par value $.03 per share (the "Class A
Common Stock"), is traded on the New York Stock Exchange under the symbol "CKE."
The following table sets forth the high and low sales prices of the Class A
Common Stock as reported by the New York Stock Exchange for the periods
indicated.
HIGH LOW
------------ -----------
1998
First Quarter............... $ 32 1/2 $ 27 1/8
Second Quarter.............. 33 1/16 25 11/16
Third Quarter............... 27 11/16 17 5/8
Fourth Quarter.............. 21 11/16 15 1/16
1999
First Quarter............... $ 20 1/8 $ 15 1/2
Second Quarter.............. 21 9/16 15 5/8
Third Quarter............... 15 7/8 12 13/16
Fourth Quarter.............. 13 3/16 6 23/32
On March 3, 2000, the last reported sale price of the Class A Common
Stock on the New York Stock Exchange was $7.25 per share. As of March 3, 2000,
there were approximately 718 holders of record of Carmike's Class A Common Stock
and three holders of record of Carmike's Class B Common Stock, par value $.03
per share (the "Class B Common Stock").
Carmike also has 550,000 shares of a series of cumulative, convertible
preferred stock outstanding (the "5.5% Series A Preferred Stock"), all of which
are held by certain affiliates of Goldman, Sachs & Co. Each share of the Series
A Preferred Stock is convertible into four shares of the Class A Common Stock.
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Carmike has never declared or paid any cash dividends on its Class A
Common Stock or Class B Common Stock. Carmike currently intends to retain future
earnings for use in the expansion and operation of its business and, therefore,
does not anticipate paying dividends in the foreseeable future. The payment of
dividends, if any, in the future is within the discretion of Carmike's board of
directors and will depend on Carmike's earnings, capital requirements, financial
condition and other relevant factors. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and Note 5 of Notes to Consolidated Financial Statements
regarding restrictions in Carmike's debt instruments on Carmike's ability to pay
dividends.
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ITEM 6. SELECTED FINANCIAL AND OPERATING DATA.
The selected consolidated Statement of Income and Balance Sheet data
set forth below were derived from the consolidated financial statements of
Carmike. This information should be read in conjunction with "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Carmike's Consolidated Financial Statements and related Notes
thereto.
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1995 1996 1997 1998 1999
(1) (2) (3) (4) (4)(5)
--------- ---------- --------- ---------- ----------
(IN MILLIONS EXCEPT PERCENTAGES, RATIOS AND OPERATING DATA)
STATEMENT OF INCOME DATA:
Revenues:
Admissions .............................................. $ 253.7 $ 296.6 $ 319.2 $ 330.5 $ 336.0
Concessions and other ................................... 111.0 130.1 139.4 151.1 150.9
--------- ---------- --------- ---------- ----------
Total revenues ..................................... 364.7 426.7 458.6 481.6 486.9
Costs and expenses:
Film exhibition costs ................................... 135.6 157.0 169.7 177.8 181.5
Concession costs ........................................ 15.0 17.3 18.3 19.9 19.0
Other theatre operating costs ........................... 143.7 164.1 175.1 187.9 191.1
General and administrative .............................. 5.5 6.0 6.4 7.1 7.3
Depreciation and amortization ........................... 27.2 28.4 33.4 37.5 41.2
Impairment of long-lived assets (6) .................... -- 45.4 -- 38.3 33.0
Restructuring charge (6) ................................ -- -- -- 34.7 (2.7)
--------- ---------- --------- ---------- ----------
327.0 418.2 402.9 503.2 470.4
--------- ---------- --------- ---------- ----------
Operating income (loss) ............................ 37.7 8.5 55.7 (21.6) 16.5
Interest expense ............................................ 16.0 20.3 23.1 27.2 36.8
--------- ---------- --------- ---------- ----------
Income (loss) before income taxes ........................... 21.7 (11.8) 32.6 (48.8) (20.3)
Income tax expense (benefit) ................................ 8.7 (4.5) 12.4 (18.2) (7.7)
--------- ---------- --------- ---------- ----------
Net income (loss) before extraordinary item ................. $ 13.0 $ (7.3) $ 20.2 $ (30.6) $ (12.6)
--------- ---------- --------- ---------- ----------
Weighted average common Shares outstanding:
Basic ....................................................... 11,161 11,174 11,277 11,356 11,375
--------- ---------- --------- ---------- ----------
Diluted ..................................................... 11,260 11,174 11,366 11,356 11,375
--------- ---------- --------- ---------- ----------
Earnings (loss) per common share before extraordinary item:
Basic ....................................................... $ 1.17 $ (0.65) $ 1.79 $ (2.73) $ (1.37)
--------- ---------- --------- ---------- ----------
Diluted ..................................................... $ 1.16 $ (0.65) $ 1.78 $ (2.73) $ (1.37)
--------- ---------- --------- ---------- ----------
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AS OF DECEMBER 31,
-----------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
(in millions, except operating data)
BALANCE SHEET DATA:
Cash and cash equivalents..................... $ 11.3 $ 5.6 $ 16.5 $ 17.8 $ 6.5
Property and equipment, net................... 371.9 388.0 497.1 573.6 681.5
Total assets.................................. 478.0 489.4 620.0 697.5 807.5
Total long-term obligations, including
current maturities (7).................... 230.5 268.3 360.7 351.8 470.3
Total shareholders' equity.................... 185.1 178.0 202.9 226.3 204.2
OPERATING DATA:
Theatre locations (8)......................... 519 519 520 468 458
Screens (8)................................... 2,383 2,518 2,720 2,658 2,848
Average screens per location.................. 4.6 4.9 5.2 5.7 6.2
Total attendance (in thousands)............... 64,496 74,213 75,336 77,763 74,518
Total average screens in operation............ 2,151 2,476 2,644 2,733 2,800
Average ticket price.......................... $ 3.93 $ 4.00 $ 4.24 $ 4.25 $ 4.51
Average concession per patron................. $ 1.59 $ 1.62 $ 1.68 $ 1.79 $ 1.84
- -----------------
(1) During the year ended December 31, 1995, Carmike acquired, in various
acquisitions, 83 theatres with 377 screens.
(2) During the year ended December 31, 1996, Carmike acquired, in various
acquisitions, 14 theatres with 79 screens.
(3) See Note 4 of Notes to Consolidated Financial Statements with respect
to acquisitions during the year ended December 31, 1997.
(4) Preferred stock dividends on the Series A Preferred Stock totaled
$332,000 and $3,025,000 for the years ended December 31, 1998 and 1999,
respectively. See Note 8 of Notes to Consolidated Financial Statements.
(5) Excludes an extraordinary charge of $6,291,000 (net of income taxes) or
$0.56 per diluted share.
(6) See Notes 2 and 3 of Notes to Consolidated Financial Statements with
respect to impairments of long-lived assets and restructuring charges.
(7) Excludes long-term restructuring reserves and deferred income tax
liabilities; includes current maturities of long-term indebtedness and
capital lease obligations.
(8) Excludes 28 theatres with 116 screens at December 31, 1998, which were
closed by Carmike during 1999 in accordance with its restructuring
plan.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion of Carmike's financial condition and operating
results should be read in conjunction with "Item 6. Selected Financial and
Operating Data" and Carmike's Consolidated Financial Statements and Notes
thereto.
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve a number of risks
and uncertainties. Factors which could cause Carmike's actual results in future
periods to differ materially include, but are not limited to, the availability
of suitable motion pictures for exhibition in Carmike's markets, the
availability of opportunities for expansion, the effect of consolidations in the
movie exhibition industry, competition with other forms of entertainment and the
other factors set forth in "Item 1. Business -- Factors That May Affect Future
Performance," as well as other factors discussed or identified from time to time
in Carmike's filings with the Commission.
ASSET IMPAIRMENTS AND RESTRUCTURING CHARGE
Asset Impairments
The opening of large multiplexes and theatres with stadium seating by
Carmike and certain of its competitors has tended to, and is expected to
continue to, draw audiences away from certain older theatres, including theatres
operated by Carmike. In addition, demographic changes and competitive pressures
can lead to the impairment of a theatre. Carmike accounts for its long-lived
assets in accordance with the Financial Accounting Standards Board Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of ("Statement No. 121"). Carmike reviews for impairment
of long-lived assets and goodwill related to those assets to be held and used in
the business whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Carmike also periodically
reviews and monitors its internal management reports and the competition in its
markets for indicators of impairment of individual theatres.
In the fourth quarter of 1999, Carmike identified impairments of asset
values for 82 theatres with 432 screens (the "1999 Impairment Charge"). The 82
theatres included a further impairment of 29 theatres that were included in
previous impairment charges. There can be no assurance that Carmike will not
take additional charges in the future related to the impairment of assets. The
1999 Impairment Charge totaled approximately $28 million (approximately $17
million after income taxes or $1.50 per share). This charge reduced the carrying
value of property and equipment by approximately $22 million (costs of
approximately $35 million less accumulated depreciation and amortization of
approximately $13 million) and the excess of purchase price over net assets of
business acquired by approximately $6 million.
During the fourth quarter of 1999, Carmike also identified an
investment in a joint venture as permanently impaired based on the joint
venture's estimate of future cash flows. The 50% owned joint venture is managed
by Carmike under a management agreement and we prepare the joint venture's cash
flow estimates. The joint venture operates three movie theatre/entertainment
complexes. The impairment charge of approximately $5 million
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(approximately $3 million after income taxes or $.30 per share) (together with
the 1999 Impairment Charge, collectively, the "1999 Impairment Charges")
represents our pro-rata portion of the impairment.
In the fourth quarter of 1998, Carmike identified impairments of asset
values for 145 theatres with 610 screens (including further impairments for 46
theatres that were part of a 1996 impairment charge) (the "1998 Impairment
Charge"). The 1998 Impairment Charge of approximately $38 million (approximately
$24 million after income taxes or $2.12 per share) reduced the carrying value of
property and equipment by approximately $29 million (costs of approximately $49
million less accumulated depreciation and amortization of approximately $20
million) and the excess of purchase price over net assets of businesses acquired
by approximately $9 million.
The 1999 Impairment Charges and the 1998 Impairment Charge were
primarily caused by reductions in estimated theatre cash flows due to (i) the
impact of new or increased competition on certain of our older, auditorium-style
theatres, (ii) negative evaluation of the operating results produced from
theatres previously converted to Discount Theatres or (iii) inability to improve
a marginal theatre/entertainment center's operating results to a level that
would support the carrying value of the long-lived assets.
As a result of the reduced carrying amount of the impaired assets due
to the 1996 and 1998 impairment charges, depreciation and amortization expense
for 1999, 1998 and 1997 was reduced by approximately $7 million, $4 million and
$4 million, respectively (1999 -- approximately $4 million after income taxes or
$.37 per share; 1998 -- approximately $2 million after income taxes or $.19 per
share; 1997 -- approximately $2 million after income taxes or $.21 per share).
Depreciation and amortization for 2000 will be reduced by approximately $9
million as a result of the 1999, 1998 and 1996 impairment charges.
After recognition of the 1999 Impairment Charges, Carmike has
approximately $50 million of excess of purchase price over net asset of
businesses acquired ("goodwill") recorded at December 31, 1999. The goodwill
values arose from acquisitions made by Carmike during the period from 1982
through 1997 and are amortized on a straight-line basis over a forty year life.
Generally, Carmike has not exited any markets which were acquired through its
acquisitions even if individual theatres might be closed within that market.
Carmike evaluates goodwill for impairment in accordance with the requirements of
FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of. The unimpaired goodwill at December
31, 1999 was evaluated by Carmike based on estimated theatre and market level
cash flows (also see Note 2 of Notes to Consolidated Financial Statements) and
Carmike believes that the assigned life of goodwill is appropriate.
The 1999 Impairment Charges and the 1998 Impairment Charge are
reflected as operating expenses in Carmike's Consolidated Financial Statements.
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Restructuring Charge
In December 1998, Carmike's Board of Directors approved a restructuring
plan involving the closure or disposition of 28 theatres (116 screens) in
certain markets that did not fit Carmike's operating and growth strategies (the
"Restructuring Plan"). In accordance with the Restructuring Plan, the theatres
were closed during 1999. Carmike has recognized a charge of approximately $35
million (approximately $21 million after income taxes or $1.89 per share) to
establish reserves for future cash expenditures related to these theatres. The
established reserves are primarily for future lease payments payable in
accordance with the terms of the lease agreements and for certain lease related
costs. There are no material employee termination costs as a result of the
closure of these theatres.
During June 1999, Carmike revised its estimates of the total costs to
be incurred for its Restructuring Plan. The $3 million decrease in estimated
costs (approximately $2 million after income taxes or $.15 per share) was the
result of a lessor initiated early buyout of a lease included in the
Restructuring Plan. The early lease termination provides savings for the lease
payments, utilities and other associated lease costs which were expected to be
incurred over the remaining lease period at December 31, 1998. Disbursements of
the restructuring reserves for 2000 are estimated to total approximately $4
million.
Revenues during the years ended December 31, 1998 and 1997 for the
theatres closed under the Restructuring Plan were approximately $8.7 million and
$14.6 million, respectively. Operating losses during the years ended December
31, 1998 and 1997 for the theatres included in the Restructuring Plan were
approximately $3.6 million and $.5 million, respectively.
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RESULTS OF OPERATIONS
The following table sets forth for the years indicated the percentage
of total revenues represented by certain items reflected in Carmike's
Consolidated Statements of Operations:
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1995 1996 1997 1998 1999(1)
------ ------ ------ ------ -------
Revenues:
Admissions...................................... 69.6% 69.5% 69.6% 68.6% 69.0%
----- ----- ----- ----- -----
Concessions and other........................... 30.4 30.5 30.4 31.4 31.0
----- ----- ----- ----- -----
Total revenues................................ 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Costs and expenses:
Film exhibition costs (2)....................... 37.2 36.8 37.0 36.9 37.3
Concession costs................................ 4.1 4.0 4.0 4.1 3.9
Other theatre operating costs................... 39.4 38.4 38.2 39.0 39.2
General and administrative...................... 1.5 1.4 1.4 1.5 1.5
Depreciation and amortization................... 7.5 6.7 7.3 7.8 8.4
Impairment of long-lived assets................. -- 10.7 -- 8.0 6.8
Restructuring charge............................ -- -- -- 7.2 (.5)
----- ----- ----- ----- -----
89.7 98.0 87.9 104.5 96.6
----- ----- ----- ----- -----
Operating income (loss)....................... 10.3 2.0 12.1 (4.5) 3.4
Interest expense................................... 4.4 4.7 5.0 5.6 7.6
----- ----- ----- ----- -----
Income (loss) before income taxes.................. 5.9 (2.7) 7.1 (10.1) (4.2)
Income tax expense (benefit)....................... 2.4 (1.0) 2.7 (3.8) (1.6)
----- ----- ----- ----- -----
Net income (loss) before extraordinary item........ 3.5% (1.7)% 4.4% (6.3)% (2.6)%
===== ===== ===== ===== =====
Other Information:
Film exhibition costs as % of admissions
revenue (2)................................... 53.5% 52.9% 53.1% 53.8% 54.0%
Concession costs as a % of concessions.......... 14.4% 14.2% 14.4% 14.3% 14.0%
- ------------
(1) Excludes extraordinary items for loss on debt refinancing.
(2) Film exhibition costs include advertising expenses net of co-op
reimbursements.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Total revenues for the year ended December 31, 1999 increased 1.0% to
$487 million from $482 million. This increase is due primarily to the additional
revenues generated by the increase in the average admission sale per patron,
somewhat offset by a decrease in total attendance including the loss in revenues
at theatres closed during the period for renovation. Attendance per average
screen was 26,614 for 1999 compared to 28,453 for 1998. Revenue per average
screen was $173,902 for 1999 compared to $176,205 for 1998. Average admission
prices increased 6.1% to $4.51 for 1999 compared to $4.25 the previous year with
the average concessions sale per patron increasing 2.9% to $1.84 for 1999 from
$1.79 for 1998.
26
27
Cost of theatre operations (film exhibition costs, concession costs and
other theatre operating costs) increased 1.6% to $392 million from $386 million
due to films that did not play for an extended period of time, which provides
greater percentage payments to the distributors, more screens in operation, and
increased startup costs for new theatres. As a percentage of revenue, cost of
theatre operations increased from 80.1% of total revenues in 1998 to 80.4% of
total revenues in 1999.
General and administrative costs were $7 million for 1999 and 1998. As
a percentage of total revenues, general and administrative costs increased to
1.50% from 1.48% in 1998.
Depreciation and amortization increased 9.7% to $41 million from $38
million as a result of the increased screens in operation from our expansions in
1998 and 1999. The 1996 and 1998 impairment charges reduced the values of
property and equipment and goodwill. These adjustments to cost reduced the
amount of depreciation and amortization recognized during 1999 by approximately
$7 million.
Interest expense increased to $37 million from $27 million due to the
increase in the average amount of outstanding debt and our effective borrowing
rates.
An income tax benefit of $7.7 million was recognized based on the
Company's ability to offset operating losses against prior year's taxable income
and the Company's forecast of taxable income for 2000 and future periods.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Total revenues for the year ended December 31, 1998 increased 5.0% to
$482 million from $459 million, due primarily to an increase of approximately
$11 million in admissions and approximately $12 million in concessions and
other. Additional revenues were generated by the increase in the average number
of screens in operation and an increase in the average concessions sales per
patron, partially offset by the loss in revenues at theatres closed during the
period for renovation. Attendance per average screen was 28,453 for 1998
compared to 28,493 for 1997. Revenue per average screen was $176,205 for 1998
compared to $173,449 for 1997. Average admission prices were relatively
unchanged at $4.25 for 1998 compared to $4.24 the previous year with the average
concessions sales per patron increasing 6.5% to $1.79 for 1998 from $1.68 for
1997.
Cost of theatre operations (film exhibition costs, concession costs and
other theatre operating costs) increased 6.2% to $386 million from $363 million
due to films that did not play for an extended period of time, which provides
greater percentage payments to the distributors, more screens in operation and
higher attendance numbers. As a percentage of revenues, cost of theatre
operations increased from 79.2% of total revenues in 1997 to 80.1% of total
revenues in 1998.
27
28
General and administrative costs increased 10.9% to $7 million from $6
million, reflecting additional general and administrative costs incurred in
connection with the additional screens added in 1997 and 1998. As a percentage
of total revenues, general and administrative costs increased slightly to 1.48%
in 1998 from 1.40% in 1997.
Depreciation and amortization increased 12.3% to $38 million from $33
million as a result of the increased screens in operation from the Company's
acquisitions and expansions in 1997 and 1998. These amounts have also been
reduced by approximately $4 million due to our 1996 impairment charge.
Interest expense increased to $27 million from $23 million due to the
increase in the average amount of outstanding debt.
LIQUIDITY AND CAPITAL RESOURCES
Carmike's revenues are collected in cash and credit cards, principally
through admissions and theatre concessions. Because its revenues are received in
cash and cash equivalents prior to the payment of related expenses, Carmike has
an operating "float" which partially finances its operations.
Carmike has a $200 million revolving credit facility (the "Revolving
Credit Facility"), which matures November 10, 2002 and, as amended effective
March 31, 2000, bears interest at LIBOR plus 3.25%. Carmike is obligated to pay
a commitment fee of .5% on the unused portion of the facility. At March 31,
2000, Carmike had approximately $29 million available for borrowings under the
Revolving Credit Facility.
Carmike is a party to a $75 million term loan ("Term Loan B"), which
matures on March 30, 2005 and, as amended effective March 31, 2000, bears
interest at LIBOR plus 3.5%. Carmike's other indebtedness includes $200 million
of 9 3/8% Senior Subordinated Notes (the "Subordinated Notes"), which are
subordinate to existing indebtedness and are unconditionally guaranteed by
certain of Carmike's subsidiaries. The Subordinated Notes mature February 1,
2009 and bear interest at the rate of 9 3/8%, payable semiannually in arrears.
Carmike also obtains liquidity through its theatre leasing
arrangements. The cost of constructing a new theatre is reduced substantially if
Carmike leases the real estate and improvements rather than purchasing them. As
of December 31, 1999, Carmike had 47 ground leases and 316 ground and
improvement leases. Minimum annual rent payments on these theatres totaled $55
million in 1999 and are expected to increase in 2000. Carmike is a party to a
master lease facility (the "Master Lease") with Movieplex Realty Leasing,
L.L.C., which provides up to $75 million for financing the development of
multiplex theatres. Theatres leased pursuant to the Master Lease have lease
terms of 16 years. As of December 31, 1999, no additional amounts were available
for expenditures under the Master Lease.
The Revolving Credit Facility, the Term Loan B and the Master Lease are
secured by substantially all of the personal property of Carmike and a pledge of
the stock of its subsidiaries. These facilities contain certain restrictive
provisions which, among other things, limit additional indebtedness of Carmike,
limit the payment of dividends and other defined restricted payments, require
that certain debt to capitalization ratios be maintained and require minimum
levels of
28
29
cash flows. Effective March 31, 2000, Carmike amended each of the Revolving
Credit Facility, the Term Loan B Agreement and the Master Lease to, among other
things, adjust certain financial ratios relative to past and future operating
performance and to add a new covenant as to the ratio of Carmike's funded debt
plus rental expense to Carmike's cash flow plus rental expense. In connection
with these amendments, the interest rates under the Revolving Credit Facility
and Term Loan B were increased, the base rent payable under the Master Lease was
increased and Carmike is required to permanently prepay the loans under the
Revolving Credit Facility and the Term Loan B in an amount equal to 75% of
annual excess cash flow. In addition, the amendments reduced the amount of
investments Carmike can make to $10 million in the aggregate and limited
Carmike's net capital expenditures to $25 million in 2000 and $35 million in
2001 and 2002.
In order to obtain these amendments, Carmike agreed to secure the
Revolving Credit Facility, Term Loan B and the Master Lease with mortgages on
its owned theatres and leasehold mortgages on certain of its leased theatres, to
the extent it can obtain the landlord's consent to such a leasehold mortgage.
If, prior to November 1, 2000, Carmike is unable to provide the lenders with
mortgages from theatres representing at least $60 million of Carmike's 1999
theatre-level cash flow ("1999 Theatre Level Cash Flow"), the interest rate
payable on the Revolving Credit Facility and Term Loan B will increase and the
base rent under the Master Lease will increase, by an amount ranging from 25
basis points to 100 basis points, depending upon the amount of 1999 Theatre
Level Cash Flow from the theatres on which mortgages have been granted. Such
increase in interest rate and in the base rent under the Master Lease would be
retroactive to March 31, 2000.
Carmike's capital expenditures arise principally in connection with the
development of new theatres, renovation and expansion of existing theatres and
theatre acquisitions. During 1999, such capital expenditures totaled
approximately $170 million, net of lease financings. Carmike estimates that
capital expenditures for 2000 will be approximately $22 million, net of any
lease financings. Carmike expects to build five new theatres having an aggregate
of 82 screens, add six stadium seating auditoriums to existing theatres, and
retrofit approximately 10 existing auditoriums in 2000. Carmike estimates that
the average cost of a new 16-screen multiplex will be approximately $9 million
($4 million if the land and improvements are leased rather than owned). Carmike
intends to enter into leasing arrangements whenever possible in order to
minimize capital requirements. Carmike believes that its currently anticipated
capital needs for theatre construction, expansion and renovation and possible
acquisitions for at least the next year will be satisfied by the cash and cash
equivalents and short-term investments on hand, borrowings under the Revolving
Credit Facility, additional sale of debt and/or equity securities, additional
bank financings and other forms of long-term debt and internally generated cash
flow. Additionally, Carmike plans to supplement its current sources of capital
through sales and leasebacks of theatre properties where market conditions for
such transactions are favorable including one recently consummated transaction
and another transaction expected to close during the second quarter of 2000 for
an aggregate of six theatres with net proceeds of approximately $46 million. The
proceeds will be used to reduce amounts outstanding under the Revolving Credit
Facility and Term Loan B and for operations.
29
30
Cash from operating activities was approximately $58 million for the
year ended December 31, 1999, compared to approximately $92 million for the year
ended December 31, 1998. Net cash used in investing activities was approximately
$165 million for the year ended December 31, 1999 as compared to approximately
$138 million for the year ended December 31, 1998. This increase in cash used in
investing activities was primarily due to increased capital expenditures for
Carmike's new theatres. For the years ended December 31, 1999 and 1998, cash
provided by financing activities was approximately $96 million and approximately
$48 million, respectively. This increase in cash provided by financing
activities was due primarily to net borrowings of approximately $101 million in
1999, as compared to net repayments of approximately $9 million in 1998, net of
proceeds totaling $54 million from the 1998 issuance of preferred stock.
Our ability to make scheduled payments of principal, to pay the
interest on, or to refinance our indebtedness, or to fund planned capital
expenditures for theatre construction, expansion, renovation or acquisition will
depend on our future performance. Our future performance is, to a certain
extent, subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control. Based upon our current
level of operations and anticipated increases in revenues and cash flow as a
result of our theatre construction, expansion and renovation program, and the
scheduled closing of certain underperforming theatres, we believe that cash flow
from operations and available cash, together with available borrowings under the
Revolving Credit Facility, lease financing arrangements and/or sales of
additional debt or equity securities, will be adequate to meet our future
liquidity needs for at least the next year.
We cannot assure you, however, that our business will generate
sufficient cash flow from operations, that currently anticipated revenue growth
and operating improvements will be realized or that future capital will be
available to us from the sale of debt or equity securities, additional bank
financings, other long-term debt or lease financings in an amount sufficient to
enable us to pay our indebtedness, or to fund our other liquidity needs. We may
need to refinance all or a portion of our indebtedness on or before maturity. We
cannot assure you that we will be able to refinance any of our indebtedness or
raise additional capital through other means, on commercially reasonable terms
or at all. See "Item 1. Business -- Factors That May Affect Future Performance
- -- Future Capital Requirements," "-- Substantial Leverage", "-- Compliance with
Financial Covenants" and "-- Ability to Service Debt."
SEASONALITY AND INFLATION
The major film distributors generally release those films which they
anticipate to be the most successful during the summer and holiday seasons.
Consequently, Carmike has historically generated higher revenues during such
periods.
Carmike adjusts its prices periodically and will continue to do so as
competitive conditions permit. In general, management believes that inflation
has not had a significant impact on the operations of Carmike in any of the
periods discussed above.
30
31
IMPACT OF YEAR 2000
In prior years, we discussed the nature and progress of our plans to
become Year 2000 compliant. In late 1999, Carmike completed its remediation and
testing of systems. As a result of those planning and implementation efforts, we
have experienced no significant disruptions in mission critical information
technology and non-information technology systems and we believe those systems
successfully responded to the Year 2000 date change. Expenses incurred to
remediate our systems were not material. Carmike is not aware of any material
problems resulting from Year 2000 issues, either with its products, its internal
systems, or the products and services of third parties. Carmike will continue to
monitor its mission critical computer applications and those of its suppliers
and vendors throughout the year 2000 to ensure matters that may arise are
addressed promptly.
RISK MANAGEMENT AND MARKET SENSITIVE INSTRUMENTS
Carmike is exposed to various market risks. These exposures primarily
relate to changes in interest rates.
FLOATING INTEREST RATE RISK: Based on Carmike's floating rate debt
outstanding at December 31, 1999, a 100 basis point increase in market rates
would increase interest expense and decrease income before income taxes by
approximately $2 million. The amount was determined by calculating the effect of
the hypothetical interest rate on Carmike's floating rate debt outstanding at
December 31, 1999.
FIXED INTEREST RATE RISK: The fair market value of long-term fixed
interest rate debt is also subject to interest rate risk. Generally, the fair
market value of fixed interest rate debt will increase as interest rates fall
and decrease as interest rates rise. The estimated fair value of Carmike's total
long-term fixed rate debt at December 31, 1999 was approximately $173 million. A
hypothetical 100 basis point decrease in the prevailing interest rates at
December 31, 1999 would result in an increase in fair value of total long-term
debt by approximately $10 million. Fair market values are based on estimates
made by investment bankers.
INTEREST RATE SWAPS: Carmike enters into interest rate swap agreements
to manage its exposure to interest rate changes. The swaps involve the exchange
of fixed and variable interest rate payments without exchanging the notional
principal amount. Payments or receipts on the agreements are recorded as
adjustments to interest expense. At December 31, 1999, Carmike had outstanding
interest rate swap agreements, maturing at various dates through 2003, with an
aggregate notional principal amount of $70 million. Under these agreements,
Carmike pays a fixed rate based on LIBOR and receives a floating interest rate.
These swaps effectively change Carmike's payment of interest on $70 million of
variable rate debt to fixed rate debt.
The fair values of these interest rate swap agreements represent the
estimated receipts or payments that would be made to terminate the agreements.
At December 31, 1999, Carmike would have received approximately $1.4 million to
terminate the agreements. A 1.0% decrease in LIBOR would decrease the amount
received by approximately $.7 million. The fair value is based on counterparty
quotes, considering current interest rates.
31
32
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities. Carmike expects to adopt
Statement No. 133 effective January 1, 2001. The Statement will require Carmike
to recognize all derivatives on the balance sheet at fair value. Derivatives
that are not hedges must be adjusted to fair value through income. If a
derivative is a hedge, depending on the nature of the hedge, changes in the fair
value of the derivative will either be offset against the change in fair value
of the hedged asset, liability, or firm commitment through earnings, or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. Carmike does not anticipate that the
adoption of Statement No. 133 will have a significant effect on its results of
operations or financial position.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Included in "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Risk Management and Market Sensitive
Instruments."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Consolidated Financial Statements for the years ended December 31, 1999, 1998
and 1997
Report of Ernst & Young LLP, Independent Auditors.....................F-1
Consolidated Balance Sheets...........................................F-2
Consolidated Statements of Operations.................................F-4
Consolidated Statements of Cash Flows.................................F-5
Consolidated Statements of Shareholders' Equity.......................F-6
Notes to Consolidated Financial Statements............................F-8
32
33
Report Of Independent Auditors
Board of Directors and Shareholders
Carmike Cinemas, Inc.
We have audited the accompanying consolidated balance sheets of Carmike
Cinemas, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended December 31,
1999. Our audits also included the financial statement schedule listed in
the index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the 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 audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Carmike Cinemas, Inc. and subsidiaries at December 31, 1999
and 1998 and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999,
in conformity with accounting principles generally accepted in the United
States.
Also, in our opinion, the related financial statement schedule, when
considered in relation to the financial statements taken as a whole,
presents fairly in all material respects the information set forth
therein.
/s/ Ernst & Young LLP
Columbus, Georgia
February 17, 2000, except for Note 5, as to which the date is April 10,
2000.
F-1
34
CONSOLIDATED BALANCE SHEETS
CARMIKE CINEMAS, INC. AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
DECEMBER 31
1999 1998
--------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,509 $ 17,771
Short-term investments 1,175 801
Accounts and notes receivable 2,638 522
Inventories 4,240 3,851
Recoverable income taxes 5,775 -0-
Prepaid expenses 10,257 5,886
--------- ---------
TOTAL CURRENT ASSETS 30,594 28,831
OTHER ASSETS
Investments in and advances to partnerships 14,270 20,334
Deferred income taxes -- Note 9 21,038 14,059
Other 10,542 3,753
--------- ---------
45,850 38,146
PROPERTY AND EQUIPMENT -- Notes 2, 4, 5, 6 and 10
Land 71,239 60,846
Buildings and improvements 262,542 261,887
Leasehold improvements 262,310 176,004
Leasehold interests 18,185 22,221
Equipment 250,323 212,976
--------- ---------
864,599 733,934
Accumulated depreciation and amortization (183,100) (160,322)
--------- ---------
681,499 573,612
EXCESS OF PURCHASE PRICE OVER NET
ASSETS OF BUSINESSES ACQUIRED --
Notes 2 and 4 49,551 56,954
--------- ---------
$ 807,494 $ 697,543
========= =========
F-2
35
DECEMBER 31
1999 1998
--------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 55,967 $ 45,533
Accrued expenses -- Notes 1 and 3 45,971 37,842
Current maturities of long-term indebtedness and
capital lease obligations 4,008 1,290
--------- --------
TOTAL CURRENT LIABILITIES 105,946 84,665
LONG-TERM LIABILITIES
Long-term debt, less current maturities -- Note 5 213,688 232,013
Senior Subordinated Notes - Note 5 200,000 -0-
Senior Notes -- Note 5 -0- 79,870
Capital lease obligations, less current maturities -- Note 6
52,639 38,587
Restructuring reserve, less current portion -- Note 3 24,615 30,099
Other 6,409 6,000
--------- --------
497,351 386,569
--------- --------
Commitments and contingencies -- Notes 3, 5, 6 and 10
SHAREHOLDERS' EQUITY -- Notes 4, 5, 7, and 8
5.5% Series A Senior Cumulative Convertible
Exchangeable Preferred Stock, $1.00 par value,
authorized 1,000,000 shares, issued and
outstanding 550,000 shares; involuntary
liquidation value of $ 55,000,000
550 550
Class A Common Stock, $.03 par value, one vote
per share, authorized 22,500,000 shares, issued
and outstanding 9,968,287 and 9,942,487 shares,
respectively 299 298
Class B Common Stock, $.03 par value, ten votes
per share, authorized 5,000,000 shares, issued
and outstanding 1,420,700 shares 43 43
Treasury Stock, at cost, 44,800 and -0- shares,
respectively (441) -0-
Paid-in capital 158,772 158,543
Retained earnings 44,974 66,875
--------- --------
204,197 226,309
--------- --------
$ 807,494 $697,543
========= ========
See accompanying notes
F-3
36
CONSOLIDATED STATEMENTS OF OPERATIONS
CARMIKE CINEMAS, INC. AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997
--------- --------- --------
Revenues:
Admissions $ 335,980 $ 330,534 $319,235
Concessions and other 150,945 151,034 139,363
--------- --------- --------
486,925 481,568 458,598
Costs and expenses:
Film exhibition costs 181,504 177,754 169,672
Concession costs 19,046 19,911 18,334
Other theatre operating costs 191,063 187,870 175,103
General and administrative expenses 7,316 7,115 6,352
Depreciation and amortization expenses 41,146 37,502 33,443
Impairments of long-lived assets -- Note 2 32,993 38,300 -0-
Restructuring charge -- Note 3 (2,671) 34,699 -0-
--------- --------- --------
470,397 503,151 402,904
--------- --------- --------
OPERATING INCOME (LOSS) 16,528 (21,583) 55,694
Interest expense 36,853 27,230 23,142
--------- --------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (20,325) (48,813) 32,552
Income tax expense (benefit) -- Note 9 (7,740) (18,166) 12,366
--------- --------- --------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (12,585) (30,647) 20,186
Extraordinary item (net of income taxes) -- Note 5 (6,291) -0- -0-
--------- --------- --------
NET INCOME (LOSS) (18,876) (30,647) 20,186
Preferred stock dividends (3,025) (332) -0-
--------- --------- --------
NET INCOME (LOSS) AVAILABLE FOR COMMON STOCK $ (21,901) $ (30,979) $ 20,186
========= ========= ========
Weighted average shares outstanding:
Basic 11,375 11,356 11,277
Effect of dilutive securities - employee stock options -0- -0- 89
--------- --------- --------
Diluted 11,375 11,356 11,366
========= ========= ========
Earnings (loss) per common share before extraordinary item:
Basic $ (1.37) $ (2.73) $ 1.79
========= ========= ========
Diluted $ (1.37) $ (2.73) $ 1.78
========= ========= ========
Earnings (loss) per common share:
Basic $ (1.93) $ (2.73) $ 1.79
========= ========= ========
Diluted $ (1.93) $ (2.73) $ 1.78
========= ========= ========
See accompanying notes.
F-4
37
CONSOLIDATED STATEMENTS OF CASH FLOWS
CARMIKE CINEMAS, INC. AND SUBSIDIARIES
(IN THOUSANDS)
YEARS ENDED DECEMBER 31
1999 1998 1997
----------- ----------- -----------
OPERATING ACTIVITIES
Net income (loss) $ (18,876) $ (30,647) $ 20,186
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 41,146 37,502 33,443
Impairment charges 32,993 38,300 -0-
Restructuring charge (2,671) 34,699 -0-
Deferred income taxes (6,979) (26,490) 7,011
Recoverable income taxes (5,775) -0- -0-
Gain on sales of property and equipment (2,765) (282) (2,202)
Other gains -0- (898) -0-
Extraordinary charge 10,146 -0- -0-
Changes in operating assets and liabilities:
Accounts and notes receivable and inventories (1,455) (533) (565)
Prepaid expenses (4,371) (438) (85)
Accounts payable 10,434 19,411 4,690
Accrued expenses and other liabilities 5,725 21,409 593
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 57,552 92,033 63,071
INVESTING ACTIVITIES
Purchases of property and equipment (154,689) (146,713) (126,144)
Purchases of assets from other theatre operators -0- -0- (11,647)
Proceeds from sales of property and equipment 5,069 6,007 8,729
Decrease (increase) in:
Short-term investments (374) 2,241 4,684
Other 372 121 (11,216)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (149,622) (138,344) (135,594)
FINANCING ACTIVITIES
Debt:
Additional borrowings, net of debt issuance costs 2,422,818 3,215,000 2,354,594
Repayments (including prepayment penalties) (2,337,724) (3,223,979) (2,273,674)
Issuance of Preferred Stock, net -0- 54,000 -0-
Preferred Stock dividends (3,025) -0- -0-
Issuance of Class A Common Stock 230 416 501
Repurchase of Class A Common Stock (441) -0- -0-
Recoverable construction allowances under capital leases
(1,050) 2,100 2,078
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 80,808 47,537 83,499
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (11,262) 1,226 10,976
Cash and cash equivalents at beginning of year 17,771 16,545 5,569
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 6,509 $ 17,771 $ 16,545
=========== =========== ===========
See accompanying notes.
F-5
38
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
CARMIKE CINEMAS, INC. AND SUBSIDIARIES
(IN THOUSANDS)
SERIES A SENIOR CUMULATIVE
CONVERTIBLE EXCHANGEABLE CLASS A
PREFERRED STOCK COMMON STOCK
----------------- -----------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
BALANCES AT DECEMBER 31, 1996 -0- $ -0- 9,759 $292
Issuance of Class A Common Stock on
exercise of stock options -- -- 31 1
Purchase of business -- Note 4 -- -- 129 5
Net loss -- -- -- --
---- ------ ------ ----
BALANCES AT DECEMBER 31, 1997 -0- -0- 9,919 298
Issuance of Class A Common Stock on
exercise of stock options -- -- 23 --
Issuance of Preferred Stock 550 550 -- --
Dividends on Preferred Stock -- -- -- --
Net income -- -- -- --
---- ------ ------ ----
BALANCES AT DECEMBER 31, 1998 550 550 9,942 298
ISSUANCE OF CLASS A COMMON STOCK ON
EXERCISE OF STOCK OPTIONS -- -- 26 1
PURCHASE OF TREASURY STOCK -- -- -- --
DIVIDENDS ON PREFERRED STOCK -- -- -- --
NET LOSS -- -- -- --
---- ------ ------ ----
BALANCES AT DECEMBER 31, 1999 550 $ 550 9,968 $299
==== ====== ====== ====
See accompanying notes.
F-6
39
CLASS B
COMMON STOCK TREASURY STOCK PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
- --------- --------- -------- ---------- ------------- ----------- ------------
1,421 $ 43 -- $ -0- $ 99,927 $ 77,668 $ 177,930
-- -- -- -- 500 -- 501
-- -- -- -- 4,250 -- 4,255
-- -- -- -- -- 20,187 20,187
----- -------- ----- ---------- ------------- ----------- ------------
1,421 43 -0- -0- 104,677 97,854 202,872
-- -- -- -- 416 -- 416
-- -- -- -- 53,450 -- 54,000
-- -- -- -- -- (332) (332)
-- -- -- -- -- (30,647) (30,647)
----- -------- ----- ---------- ------------- ----------- ------------
1,421 43 -0- -0- 158,543 66,875 226,309
-- -- -- -- 229 -- 230
-- -- (45) (441) -- -- (441)
-- -- -- -- -- (3,025) (3,025)
-- -- -- -- -- (18,876) (18,876)
----- -------- ----- ---------- ------------- ----------- ------------
1,421 $ 43 (45) $ (441) $ 158,772 $ 44,974 $ 204,197
===== ======== ===== ========== ============= =========== ============
F-7
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CARMIKE CINEMAS, INC. AND SUBSIDIARIES
DECEMBER 31, 1999
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
The primary business of the Company is the operation of motion picture theatres
which generate revenues principally through admissions and concessions sales.
Substantially all revenues are received in cash and generally recognized as
income at the point of sale. Nine major distributors in the motion picture
industry produced films which accounted for approximately 94%, 92% and 94% of
the Company's admission revenues in 1999, 1998 and 1997, respectively.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
CASH EQUIVALENTS: Cash equivalents are highly liquid investments consisting
primarily of money market accounts and investment grade, short-term debt
instruments and have maturities at the date of purchase of less than three
months. The Company limits the amount of its credit exposure to any one
commercial issue of debt instruments. Cash equivalents are stated at cost,
which represents the deposit amount plus interest credited to the account.
Deposits with banks are federally insured in limited amounts.
SHORT-TERM INVESTMENTS: Short-term investments consist principally of U.S.
Government securities with maturity dates of less than one year from the date
of purchase and are stated at cost, which approximates market.
INVENTORIES: Inventories, principally concessions and theatre supplies, are
stated at the lower of cost (first-in, first-out method) or market.
INVESTMENT IN PARTNERSHIPS: The Company is a partner in various partnerships
(two in 1999; three in both 1998 and 1997) which operate motion picture
theatres. The investments in these partnerships are accounted for by the equity
method, whereby the cost of the investment is adjusted to reflect the Company's
equity in the earnings or losses of the partnership less withdrawals made by
the Company. The Company's equity in the earnings (losses) of these
partnerships, prior to impairment charges, was approximately $(891,000),
$(616,000) and $243,000 in 1999, 1998 and 1997, respectively. These amounts are
included as "Concessions and other" in the accompanying Consolidated Statements
of Operations. Also see Note 2 "Impairments of Long-Lived Assets".
PROPERTY AND EQUIPMENT: Property and equipment are carried at cost or cost
adjusted for recognized impairments. Depreciation is computed by the
straight-line method for financial reporting purposes as follows:
Building and improvements 20-30 years
Leasehold improvements 15-30 years
Leasehold interests 15-30 years
Equipment 5-15 years
F-8
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company uses accelerated methods of depreciation for income tax purposes.
Amortization of assets recorded under capital leases is included with
depreciation expense in the accompanying Consolidated Statements of Operations.
ACCRUED EXPENSES: Accrued expenses include the following (in thousands):
DECEMBER 31
1999 1998
---------- ----------
Deferred revenues $ 13,413 $ 10,609
Deferred and other accrued rents 11,527 8,428
Restructuring reserves 3,728 4,600
Property taxes 4,982 4,303
Accrued interest 8,465 1,240
Other accruals 3,856 8,662
---------- ----------
$ 45,971 $ 37,842
========== ==========
ADVERTISING: The Company expenses advertising costs when incurred.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
EXCESS OF PURCHASE PRICE OVER NET ASSETS OF BUSINESSES ACQUIRED: The excess of
the purchase price over the net assets of businesses acquired is amortized on a
straight-line basis over a 40 year period. Accumulated amortization was
approximately $6 million and $5 million at December 31, 1999 and 1998,
respectively, and amortization expense was approximately $2 million for each of
1999, 1998 and 1997. In the event that facts and circumstances indicate that
the excess of the purchase price over the net assets of businesses acquired may
be impaired, an evaluation of continuing value would be performed. If an
evaluation is required, the estimated future undiscounted cash flows associated
with this asset would be compared to its carrying amount to determine if a
write down to market value or discounted cash flow value is required (See Note
2 -- Impairments of Long-Lived Assets).
INTEREST RATE SWAPS: The Company has entered into interest rate swap agreements
to modify the interest characteristics of a portion of its outstanding debt.
The agreements involve the exchange of amounts based on a variable interest
rate for amounts based on a fixed interest rate over the life of the agreements
without an exchange of the notional amounts upon which the payments are based.
The Company specifically designates interest rate swaps as hedges of debt
instruments and recognizes interest differentials as adjustments to interest
expense in the period they occur.
F-9
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTEREST RATE SWAPS (CONTINUED): The differential to be paid or received as
interest rates change is accrued and recognized as an adjustment of interest
expense related to the debt (the accrual accounting method). The related amount
payable to, or receivable from, counter-parties is included in other
liabilities or assets. The fair value of the swap agreements is not recognized
in the financial statements. If, in the future, an interest rate swap agreement
were terminated, any resulting gain or loss would be deferred and amortized to
interest expense over the remaining life of the hedged debt instrument. In the
event of early extinguishment of a designated debt obligation, any realized or
unrealized gain or loss from the swap would be recognized in income coincident
with the extinguishment.
BENEFIT PLANS: The Company has a non-qualified deferred compensation plan for
certain of its executive officers. Under this plan, the Company contributes ten
percent of the employee's taxable compensation to a secular trust designated
for the employee. The Company also has a discretionary benefit plan for certain
non-executive employees. Contributions to the plans are at the discretion of
the Company's executive management. Expenses related to these plans are not
material to the Company's operations.
STOCK BASED COMPENSATION: The Company has granted stock options to certain
employees for a fixed number of shares with an exercise price equal to the fair
value of the shares at the date of grant. The Company accounts for its stock
option grants in accordance with APB Opinion No. 25, Accounting for Stock
Issued to Employees ("APB 25"), and related interpretations because the Company
believes the alternative fair value accounting provided for under FASB
Statement No. 123, Accounting for Stock Based Compensation, requires the use of
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized for the stock option grants.
ACCOUNTING POLICIES NOT YET ADOPTED: In June 1998, the FASB issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities. The
Company expects to adopt the new Statement effective January 1, 2001. The
Statement will require the Company to recognize all derivatives on the balance
sheet at fair value. The Company does not anticipate that the adoption of this
Statement will have a significant effect on its results of operations or
financial position.
RECLASSIFICATIONS: Certain 1998 amounts in the accompanying consolidated
financial statements have been restated to conform to the current year's
presentation.
F-10
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES
NOTE 2 -- IMPAIRMENTS OF LONG-LIVED ASSETS
The Company accounts for its long-lived assets in accordance with FASB
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of ("Statement 121"). The Company reviews for
impairment of long-lived assets, and goodwill related to those assets, to be
held and used in the business whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
Company periodically reviews and monitors its internal management reports and
the competition in its markets for indicators of impairment of individual
theatres. The Company considers a trend of operating results that are not in
line with management's expectations to be its primary indicator of potential
impairment. An additional impairment indicator used by management is the
existence of competition in a market, either from third parties or from the
Company's own expansion, where the Company currently operates theatres. For
purposes of Statement 121, property and equipment are evaluated for impairment
at the theatre level, which management believes is the lowest level for which
there are identifiable cash flows. Goodwill is evaluated at a theatre and
market level. The Company deems a theatre to be impaired if a forecast of
undiscounted future operating cash flows directly related to the theatre,
including estimated disposal value if any, is less than its carrying amount. If
a theatre is determined to be impaired, the loss is measured as the amount by
which the carrying amount of the theatre exceeds its fair value. Fair value is
based on management's estimates which are based on using the best information
available, including prices for similar theatres or the results of valuation
techniques such as discounting estimated future cash flows as if the decision
to continue to use the impaired theatres was a new investment decision.
Considerable management judgment is necessary to estimate discounted future
cash flows. Accordingly, actual results could vary significantly from such
estimates.
Statement 121 also requires, among other provisions, that long-lived assets
held for disposal and certain identified intangibles be reported at the lower
of the asset's carrying amount or its fair value less costs to sell.
Recoverability of other long-lived assets, primarily investments in
unconsolidated affiliates and goodwill not identified with impaired theatres
covered by the above paragraph, will continue to be evaluated on a recurring
basis. The primary indicator of recoverability is the current or forecasted
profitability over the estimated remaining life of these assets. If
recoverability is unlikely based on the evaluation, the carrying amount is
written down to the fair value. In the future, additional adjustments could be
required.
In the fourth quarter of 1999, the Company identified impairments of asset
values for certain of its theatres (the "1999 Impairment Charge"). The 1999
Impairment Charge totaled approximately $28 million (approximately $17 million
after income taxes or $1.50 per share). This charge reduced the carrying value
of property and equipment by approximately $22 million (costs of approximately
$35 million less accumulated depreciation and amortization of approximately $13
million) and the excess of purchase price over net assets of business acquired
by approximately $6 million.
F-11
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES
NOTE 2 -- IMPAIRMENTS OF LONG-LIVED ASSETS (CONTINUED)
During the fourth quarter of 1999, the Company also identified an investment in
a joint venture as permanently impaired based on the joint venture's estimate
of future cash flows. The 50% owned joint venture is managed by the Company
under a management agreement and the Company prepares the joint venture's cash
flow estimates. The joint venture operates three movie theatre/entertainment
complexes. The approximate $5 million impairment charge (together with the 1999
Impairment Charge, collectively, the "1999 Impairment Charges") represents the
Company's pro-rata portion of the joint venture's impairment.
In the fourth quarter of 1998, the Company identified impairments of asset
values for certain of its theatres (the "1998 Impairment Charge"). The 1998
Impairment Charge totaled approximately $38 million (approximately $24 million
after income taxes or $2.12 per share). This charge reduced the carrying value
of property and equipment by approximately $29 million (costs of approximately
$49 million less accumulated depreciation and amortization of approximately $20
million) and the excess of purchase price over net assets of businesses
acquired by approximately $9 million.
The 1999 Impairment Charges and the 1998 Impairment Charge were primarily
caused by reductions in estimated theatre cash flows due to (i) the impact of
new or increased competition on certain of our older, auditorium-style
theatres, (ii) negative evaluation of the operating results produced from
theatres previously converted to Discount Theatres or (iii) inability to
improve a marginal theatre/entertainment center's operating results to a level
that would support the carrying value of the long-lived assets.
As a result of the reduced carrying amount of the impaired assets due to a 1996
impairment charge and the 1998 Impairment Charge, depreciation and amortization
expense was reduced as follows (in millions except per share amounts):
DEPRECIATION
AND NET OF PER
AMORTIZATION INCOME DILUTED
EXPENSE TAXES SHARE
------------ -------- -------
1999 $ 6.7 $ 4.2 $ .37
1998 3.5 2.2 .19
1997 3.8 2.4 .21
F-12
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES
NOTE 3 -- RESTRUCTURING CHARGES
In December 1998, the Company's Board of Directors approved a restructuring
plan involving the closure or disposition of a group of theatres in certain
markets that did not fit our operating and growth strategies (the
"Restructuring Plan"). In accordance with the Restructuring Plan, such theatres
were closed during 1999. The Company recognized a 1998 charge of approximately
$34.7 million (approximately $21.5 million after income taxes or $1.89 per
share) to establish reserves for the future cash expenditures related to these
theatres. The established reserves are primarily for future lease payments
payable in accordance with the terms of the lease agreements and for certain
lease related costs.
During June 1999, the Company revised its estimates of the total costs to be
incurred for its Restructuring Plan. The $2.7 million decrease in estimated
costs (approximately $1.7 million after income taxes or $.15 per share) was the
result of a lessor initiated early buyout of a lease included in the
Restructuring Plan. The early lease termination provides savings for the lease
payments, utilities and other associated lease costs which were expected to be
incurred over the remaining lease period at December 31, 1999. Disbursements
charged against the reserve were approximately $3.7 million during 1999. Future
disbursements of restructuring reserves are estimated as follows (in
thousands):
2000 $ 3,728
2001 3,386
2002 2,940
2003 2,936
2004 and thereafter 15,353
----------
$ 28,343
==========
Revenues during the years ended December 31, 1998 and 1997 for the theatres
included in the Restructuring Plan were approximately $8.7 million and $14.6
million, respectively. Operating losses during the years ended December 31,
1998 and 1997 for the theatres included in the Restructuring Plan were
approximately $3.6 million and $.5 million, respectively.
NOTE 4 -- ACQUISITIONS
The Company's acquisitions are accounted for under the purchase method of
accounting. Under the purchase method of accounting, the results of operations
of the acquired businesses are included in the accompanying consolidated
financial statements as of their respective acquisition dates. The assets and
liabilities of acquired businesses are included based on an allocation of the
purchase prices.
F-13
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES
NOTE 4 -- ACQUISITIONS (CONTINUED)
On May 23, 1997, the Company acquired certain theatres (19 theatres, 104
screens) from First International Theatres for approximately $17 million. The
First International Theatres acquisition purchase price included 128,986 shares
of the Company's Class A Common Stock with a fair market value of approximately
$4.25 million at the date of acquisition. The $6.1 million excess of purchase
price over net assets of businesses acquired has been recorded as an intangible
asset. Pro-forma results have not been presented as they are not significantly
different than reported amounts.
NOTE 5 -- INDEBTEDNESS
Indebtedness consists of the following (in thousands):
DECEMBER 31
1999 1998
---------- ----------
Revolving credit facility $ 140,000 $ 230,000
Term Loan B 74,625 -0-
Subordinated Notes 200,000 -0-
Senior Notes -0- 79,870
Industrial Revenue Bonds; payable in equal
installments through May 2006, with
interest rates ranging from 3.90% to 5.98% 2,034 2,285
---------- ----------
416,659 312,155
Less current maturities (2,971) (272)
Less Subordinated Notes
and Senior Notes (200,000) (79,870)
---------- ----------
$ 213,688 $ 232,013
========== ==========
RESTRUCTURING OF INDEBTEDNESS: In February 1999, the Company completed its
offering of $200 million of 9 3/8% Senior Subordinated Notes due 2009 (the
"Subordinated Notes"). Additionally, the Company amended and restated its 1997
Credit Agreement (as amended the "1999 Credit Agreement"). The 1999 Credit
Agreement provides for revolving credit availability of $200 million, matures
November 10, 2002 and bears interest (LIBOR plus 2.75% at December 31, 1999)
which adjusts based on certain defined financial ratios. At December 31, 1999,
the Company had $60 million available for borrowings under this facility. The
Company pays a commitment fee of 0.5% on the unused portion of the facility.
On February 25, 1999, the Company entered into a $75 million term loan (the
"Term Loan B"). Proceeds from the Term Loan B were used to reduce amounts
outstanding under the 1999 Credit Agreement. The loan amortizes in six years
through varying quarterly installments of principal (initial installments are
$187,500 a quarter through December 31, 2002). The Term Loan B is guaranteed by
all of the Company's wholly-owned subsidiaries.
F-14
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES
NOTE 5 -- INDEBTEDNESS (CONTINUED)
The Term Loan B will mature March 30, 2005 and bears interest (LIBOR plus 3.0%
at December 31, 1999) which also adjusts based on certain defined financial
ratios.
The 1999 Credit Agreement and the Term Loan B both contain certain restrictive
provisions which, among other things, limit additional indebtedness of the
Company, limit dividend and other restricted payments, require that certain
debt to capitalization ratios be maintained and require minimum levels of cash
flows.
Effective March 31, 2000, the Company amended its 1999 Credit Agreement, Term
Loan B and a lease facility to, among other things, adjust certain financial
ratios relative to past and future operating performance. The Amendment also
increases the variable interest rate for the 1999 Credit Agreement and the Term
Loan B by .5% (effective rate at March 31, 2000 of 9.13%, LIBOR plus 3.25% for
the 1999 Credit Agreement and 9.45%, LIBOR plus 3.5% for the Term Loan B).
Additionally, the Company agreed to secure these facilities with mortgages on
its owned theatres and leasehold mortgages on certain of its leased theatres by
November 1, 2000. If the Company cannot secure mortgages for theatres with
minimum levels of theatre cash flows, as defined, interest rates will increase
by an amount ranging from 25 basis points to 100 basis points.
The Subordinated Notes are general unsecured obligations of the Company and are
subordinate to existing indebtedness and substantially all future borrowings.
Certain of the Company's subsidiaries have unconditionally guaranteed this
debt. The Subordinated Notes mature on February 1, 2009 and bear interest at
the rate of 9 3/8% which is payable semi-annually in arrears on February 1 and
August 1 of each year. Prior to February 1, 2007, the Company may redeem
certain of the outstanding notes subject to certain defined limitations and
subject to prepayment penalties. The Subordinated Notes contain certain
restrictive provisions which, among other things, limit dividends and other
restricted payments.
The Company used the net proceeds from the issuance of the Subordinated Notes,
approximately $193.7 million, to redeem its then outstanding Senior Notes (see
discussion below) and to reduce the amounts outstanding under its revolving
credit agreement.
INTEREST RATE SWAPS: The Company's interest rate swap agreements changed
floating interest rate expense on amounts outstanding under the 1999 Credit
Agreement. Under one interest rate swap agreement, the Company has fixed $50
million of its floating rate debt through February 7, 2003. The effective rate
at December 31, 1999 was 5.2%. Under another interest rate swap agreement, the
Company has fixed $20 million of its floating rate debt through February 7,
2001 at an effective fixed rate of 5.5%.
SENIOR NOTES: At December 31, 1998, the Company had outstanding approximately
$80 million of various unsecured notes payable to institutional investors (the
"Senior Notes"). In February 1999, as discussed in Restructuring of
Indebtedness above, the Company redeemed all of its then outstanding Senior
Notes. The Company recognized an extraordinary charge in the first quarter of
F-15
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUEd CARMIKE CINEMAS, INC.
AND SUBSIDIARIES
NOTE 5 -- INDEBTEDNESS (CONTINUED)
1999 of approximately $10 million ($6 million after income taxes) for a
prepayment premium of approximately $9 million paid in connection with the
redemption of the then outstanding Senior Notes and the write-off of deferred
debt fees of approximately $1 million.
OTHER: On December 31, 1999, the Company had approximately $534 thousand of
unrestricted retained earnings available for dividends under its most
restrictive debt agreement.
Interest paid and interest capitalized were as follows (in thousands):
YEARS ENDED INTEREST INTEREST
DECEMBER 31 PAID CAPITALIZED
----------- ---------- -----------
1999 $ 32,759 $ 3,131
1998 26,068 4,537
1997 24,856 2,914
All amounts outstanding at December 31, 1999 under the 1999 Credit Agreement
have been classified as long-term in the accompanying Consolidated Balance
Sheets because the Company intends that at least that amount would remain
outstanding at all times during the next twelve months. Aggregate principal
payments on indebtedness as of December 31, 1999 are as follows (in thousands):
2000 $ 2,971
2001 750
2002 750
2003 15,000
2004 and thereafter 397,188
------------
$ 416,659
============
F-16
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES
NOTE 6 -- LEASES
Certain of the Company's theatres and equipment are leased under non-cancelable
leases expiring in various years through 2028. The theatre leases generally
provide, among other things, for the payment of fixed monthly rentals,
contingent rentals based on a percentage of revenue over a specified amount,
and the payment of property taxes, common area maintenance, insurance and
repairs. The Company, at its option, can renew a substantial portion of its
theatre leases, at the then fair rental rate, for various periods with the
maximum renewal period generally totaling 15 to 20 years.
Property and equipment includes the following amounts related to capital lease
assets (in thousands):
DECEMBER 31
1999 1998
---------- ----------
Buildings and improvements $ 57,076 $ 43,443
Equipment 2,877 2,877
---------- ----------
59,953 46,320
Less accumulated amortization (13,574) (12,565)
---------- ----------
$ 46,379 $ 33,755
========== ==========
The Company obtained property and equipment of approximately $15 million, $0
and $12 million under capital leases for 1999, 1998 and 1997, respectively.
Future minimum payments, by year and in the aggregate, under capital leases and
operating leases with terms over one year as of December 31, 1999 are as
follows (in thousands):
OPERATING CAPITAL
LEASES LEASES
---------- ----------
2000 $ 52,830 $ 7,507
2001 50,062 7,467
2002 47,352 7,528
2003 45,370 7,454
2004 42,145 7,636
Thereafter 330,819 101,493
---------- ----------
Total minimum lease
payments $ 568,578 139,085
==========
Less amounts representing
interest (85,409)
----------
Present value of future
minimum lease payments 53,676
Less current maturities (1,037)
----------
$ 52,639
==========
F-17
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES
NOTE 6 -- LEASES (CONTINUED)
Rent expense was approximately $59.6 million, $59.3 million, and $57.6 million
for 1999, 1998, and 1997, respectively.
The Company is a party to a master lease facility which provided approximately
$75 million for financing the development of new theatres. No amounts were
available for expenditures under this facility at December 31, 1999. The
facility, as amended in February 1999, has, among other things, financial and
operating covenants which are substantially the same as the Company's covenants
under its various bank agreements. Lease payments under this facility started
in November 1999 and extend for a period of 16 years. Lease payments under the
facility are also secured by a pledge of the Company's stock in its
subsidiaries.
NOTE 7 -- STOCK OPTION PLAN
The Company has stock option plans for shares of its Class A Common Stock. Key
employees were granted options at terms (purchase price, expiration date and
vesting schedule) established at the date of grant by a committee of the
Company's Board of Directors. Options granted through December 31, 1999 have
been granted at a price which approximated fair market value on the date of the
grant.
During 1998, the Board of Directors and shareholders approved a new stock
option plan (the "1998 Plan") covering 750,000 shares of Class A Common Stock
and approved the grant of non-qualified stock options for 335,000 shares of
Class A Common Stock at $27.125 per share, a price which approximated fair
market value on the date of the grant. At December 31, 1999, 409,000 shares
were available for grant under the 1998 Plan. The Company has also issued
options under a plan (the "1986 Plan") which covered 700,000 shares of Class A
Common Stock. No shares are available for grant under the 1986 Plan. During
1999, an option for 6,000 shares was granted at $14.00 per share and vested
immediately.
Pro forma information regarding net income and earnings per share is required
by Statement 123, and has been determined as if the Company had accounted for
its employee stock options under the fair value method of that Statement. The
fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1999 and 1998, respectively: risk-free interest rates of 5.78%
and 5.39%; dividend yields of 0%; volatility factors of the expected market
price of the Company's common stock of .314 and .226; and a weighted-average
expected life of the option of 5 years.
F-18
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES
NOTE 7 -- STOCK OPTION PLAN (CONTINUED)
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
granted during 1999 and 1998, respectively, $5.24 and $8.53 per share, is
amortized to expense over the options' vesting period. Pro forma stock based
compensation costs resulted in a 1999 pro forma loss of $22.5 million (or pro
forma net loss of $1.98 per share) and a 1998 pro forma loss of $31.5 million
(or pro forma net loss of $2.78 per share).
Changes in outstanding stock options were as follows (in thousands, except for
exercise price per share):
EXERCISE PRICE PER SHARE
-------------------------------------------------------------------------
$6.00 -
14.00 $18.00 $27.125 TOTAL
-------- -------- -------- --------
Stock options outstanding
at December 31, 1996 99 135 -- 234
Exercised (6) (25) -- (31)
-------- -------- -------- --------
Stock options outstanding
at December 31, 1997 93 110 -- 203
Issued -- -- 335 335
Exercised (1) (22) -- (23)
-------- -------- -------- --------
Stock options outstanding at
December 31, 1998 92 88 335 515
ISSUED 6 -- -- 6
FORFEITURES (15) -- -- (15)
EXERCISED (26) -- -- (26)
-------- -------- -------- --------
STOCK OPTIONS OUTSTANDING AT
DECEMBER 31, 1999 57 88 335 480
======== ======== ======== ========
At December 31, 1999, approximately 145,000 of the above options were
exercisable.
F-19
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES
NOTE 8 -- SHAREHOLDERS' EQUITY
The Company's authorized capital consists of 22.5 million shares of Class A
Common Stock, $.03 par value, 5 million shares of Class B Common Stock, $.03
par value, and one million shares of Preferred Stock, $1.00 par value. Each
share of Class A Common Stock entitles the holder to one vote per share,
whereas a share of Class B Common Stock entitles the holder to ten votes per
share. Each share of Class B Common Stock is entitled to cash dividends, when
declared, in an amount equal to 85% of the cash dividends payable on each
share of Class A Common Stock. Additionally, Class B Common Stock is
convertible at any time by the holder into an equal number of shares of Class A
Common Stock.
On November 22, 1998, the Company sold an aggregate of 550,000 shares of its
5.5% Series A Senior Cumulative Convertible Exchangeable Preferred Stock, par
value $1.00 per share (the "Series A Preferred Stock"), for an aggregate
purchase price of $55 million, approximately $54 million net of expenses.
The Series A Preferred Stock pays quarterly cash dividends at an annual rate of
5.5% and is convertible at the option of the holder, into the Company's Class A
Common Stock at $25.00 per share (subject to anti-dilution adjustments). The
Series A Preferred Stock is not subject to mandatory redemption or sinking fund
provisions. The Series A Preferred Stock is also exchangeable into subordinated
debt of the Company in certain instances at the option of the Company.
The Company has shares of Class A Common Stock reserved for future issuance as
follows (in thousands):
DECEMBER 31
1999 1998
---------- ----------
Stock option plan 889 930
Conversion rights of Series A Preferred
Stock 2,200 2,200
Conversion rights of Class B Common
Stock 1,421 1,421
---------- ----------
4,510 4,551
========== ==========
F-20
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES
NOTE 9-- INCOME TAXES
The Company accounts for income taxes in accordance with FASB Statement No.
109, Accounting for Income Taxes. Under Statement No. 109, the liability method
is used in accounting for income taxes. Under this method, deferred tax assets
and liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rate and laws that will be in effect when the differences are expected to
reverse.
The provision for income tax expense (benefit), before the $3.9 million benefit
for the extraordinary charge recognized in 1999, is summarized as follows (in
thousands):
YEARS ENDED DECEMBER 31
1999 1998 1997
---------- ---------- ----------
Current:
Federal $ (780) $ 6,926 $ 4,037
State 19 1,398 1,318
Deferred (6,979) (26,490) 7,011
---------- ---------- ----------
$ (7,740) $ (18,166) $ 12,366
========== ========== ==========
Significant components of the Company's deferred tax liabilities (assets) are
as follows (in thousands):
DECEMBER 31
1999 1998
---------- ----------
Alternative minimum tax credit
carryforwards $ (4,700) $ -0-
State income tax carryforwards (900) -0-
Financial statement bases of property
and equipment over (under) tax bases (5,241) (1,239)
Restructuring reserve (10,078) (13,186)
Deferred rent (2,312) (2,431)
Other 2,193 2,797
---------- ----------
$ (21,038) $ (14,059)
========== ==========
F-21
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES
NOTE 9 -- INCOME TAXES
A reconciliation of income tax expense (benefit), before the extraordinary
charge, at the federal income tax rate as reflected in the consolidated
financial statements follows (in thousands):
YEARS ENDED DECEMBER 31
1999 1998 1997
--------- --------- ---------
Income tax expense (benefit) at
statutory rates $ (6,911) $ (17,084) $ 11,393
State income taxes, net of federal
tax benefit/provision (805) (1,444) 1,375
Amortization of excess of purchase
price over net assets of business
acquired 95 430 106
Other items, net (119) (68) (508)
--------- --------- ---------
$ (7,740) $ (18,166) $ 12,366
========= ========= =========
Income taxes paid in 1999, 1998 and 1997 were approximately $3.9 million, $3.7
million and $8.1 million, respectively.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
The Company is subject to various claims and lawsuits arising in the ordinary
course of business. In the opinion of management, the ultimate resolution of
these matters will not have a material effect on the consolidated financial
statements of the Company.
The Company has gross commitments at December 31, 1999 totaling approximately
$41.0 million to build new theatres or to expand existing theatres. The Company
plans to fund the expenditures for such capital improvements through (i) draws
under its revolving credit facility (see Note 5), (ii) executing operating
leases or (iii) cash flows from operations.
The Company has executed letters of intent to sell for approximately $46.3
million, six theatres with a book value of approximately $42.0 million at
December 31, 1999. These theatres will be leased back from the purchaser under
a 20 year operating lease agreement. The resulting gain will be amortized over
the life of the leases. The leases contain renewal options and generally
provide that the Company will pay property taxes, common area maintenance,
insurance and repairs. The net proceeds from these transactions will be used to
reduce outstanding bank indebtedness and for operations.
F-22
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES
NOTE 11 -- FINANCIAL INSTRUMENTS
CONCENTRATIONS OF CREDIT RISK: Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist principally of
cash investments and short-term investments.
The Company maintains cash and cash equivalents and short-term investments and
certain other financial instruments with various financial institutions. These
financial institutions are located in the southeast and Company policy is
designed to limit exposure to any one institution. The Company performs
periodic evaluations of the relative credit standing of those financial
institutions that are considered in the Company's investment strategy.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amount reported in the balance sheets
for cash and cash equivalents approximates their fair value.
SHORT-TERM INVESTMENTS: The Company's short-term investments consist of U.S.
Treasury Notes with maturities of less than one year. The carrying value
approximates market at December 31, 1999 and 1998.
ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE: The carrying amounts reported in the
balance sheets for accounts receivable and accounts payable approximated their
fair value.
LONG-TERM DEBT: The carrying amount of the Term Loan B indebtedness
approximates fair value because the interest rates are based on floating rates
identified by reference to market rates. The fair value of the Subordinated
Notes, $173 million, is based on quoted market prices.
INTEREST RATE SWAP AGREEMENTS: The unrealized gain(loss) for the interest rate
swap agreements was approximately $1.4 million and ($1.3 million) at December
31, 1999 and 1998, respectively, based on evaluations made by the
counter-parties to the interest rate swap agreements. The Company does not
anticipate realization of this gain(loss) as the Company intends to hold the
interest rate swap agreements to maturity.
The Company is exposed to credit losses in the event of nonperformance by
counter-parties on interest rate swap agreements. The Company does not believe
there is a significant risk of nonperformance by any of the counter-parties to
these instruments and the Company monitors the financial stability of such
parties on a periodic basis.
F-23
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES
NOTE 12 -- CONDENSED FINANCIAL DATA
The Company and its wholly-owned subsidiaries have fully, unconditionally,
jointly and severally guaranteed the Company's obligations under the
Subordinated Notes (see Note 5 - Indebtedness). The Company has one subsidiary
and several unconsolidated affiliates which are not guarantors of the
Subordinated Notes. Separate financial statements and other disclosures of each
of the guarantors are not presented because management has determined that they
would not be material to investors. Consolidating separate financial data for
the guarantor subsidiaries is as follows:
1999 1998 1997
---------- ---------- ----------
Year Ended December 31,
Revenues $ 386,255 $ 388,005 $ 370,408
Operating income (loss)(1) 6,554 (35,328) 23,987
Net income (loss) before
extraordinary item (14,905) (32,783) 12,503
At December 31,
Assets
Current assets $ 11,682 $ 7,800 $ 16,790
Other assets 15,305 10,697 1,288
Property and equipment 517,851 433,462 385,038
Goodwill 33,553 37,641 4,778
---------- ---------- ----------
$ 578,391 $ 489,600 $ 407,894
========== ========== ==========
Liabilities and Equity
Current liabilities $ 15,426 $ 15,763 $ 14,775
Intercompany notes and
advances 302,435 213,830 112,426
Long-term liabilities 69,684 54,200 37,178
Equity 190,846 205,807 243,515
---------- ---------- ----------
$ 578,391 $ 489,600 $ 407,894
========== ========== ==========
(1) Net of parent company management and license fees of approximately
$30.3 million, $30.3 million, and $29.3 million for the years ended
December 31, 1999, 1998 and 1997, respectively.
F-24
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES
NOTE 13 -- QUARTERLY RESULTS (UNAUDITED)
(In thousands, except for per share data)
YEAR ENDED DECEMBER 31, 1999 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER TOTALS
- ---------------------------- ----------- ----------- ----------- ----------- ------
TOTAL REVENUES $ 97,716 $ 125,273 $ 144,830 $ 119,106 $ 486,925
OPERATING INCOME (LOSS) 3,525 15,493 23,368 (25,858) 16,528
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM (2,344) 3,905 8,496 (22,642) (12,585)
NET INCOME (LOSS) (8,635) 3,905 8,496 (22,642) (18,876)
BASIC AND DILUTED INCOME (LOSS)
PER COMMON SHARE BEFORE
EXTRAORDINARY ITEM (.27) .28 .68 (2.06) (1.37)
BASIC AND DILUTED INCOME (LOSS)
PER COMMON SHARE (.83) .28 .68 (2.06) (1.93)
Year Ended December 31, 1998
- ----------------------------
Total revenues $ 117,142 $ 110,698 $ 134,720 $ 119,008 $ 481,568
Operating income (loss) 12,435 7,063 20,921 (62,002) (21,583)
Net income (loss) 3,794 362 8,760 (43,563) (30,647)
Basic and diluted income (loss)
per common share .33 .03 .77 (3.86) (2.73)
Net income (loss) per common share calculations for each of the above quarters
is based on the weighted average number of shares outstanding for each period
and the sum of the quarters may not necessarily equal the net income (loss) per
common share amount for the year.
The fourth quarters of 1999 and 1998 include charges for the impairment of
long-lived assets. The fourth quarter of 1998 also includes a restructuring
charge. See Note 2 "Impairment of Long-Lived Assets" and Note 3 "Restructuring
Charges".
The second quarter of 1999 includes a $2.7 million decrease in estimated
charges to be incurred under the Restructuring Plan. See Note 3 "Restructuring
Charges".
F-25
58
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding the directors of Carmike is incorporated by
reference from the section entitled "Election of Directors" in the Proxy
Statement relating to the 2000 Annual Meeting of Stockholders of Carmike
(hereinafter, the "2000 Proxy Statement").
Information regarding the executive officers of Carmike is set forth
in Part I of this Report on Form 10-K pursuant to General Instruction G(3) of
Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
Information regarding executive compensation is incorporated by
reference from the section entitled "Executive Compensation and Other
Information" contained in the 2000 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference
from the sections entitled "Security Ownership of Certain Beneficial Holders"
and "Security Ownership of Management" contained in the 2000 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information regarding certain relationships and related transactions
is incorporated by reference from the section entitled "Certain Relationships
and Related Transactions" contained in the 2000 Proxy Statement.
33
59
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) and (2) Financial Statements and Financial Statement Schedules
The following consolidated financial statements of Carmike Cinemas,
Inc. are included in "Item 8. Financial Statements And Supplementary Data."
Financial Statements:
Report of Independent Auditors
Consolidated balance sheets -- December 31, 1999 and 1998
Consolidated statements of operations -- Years ended December
31, 1999, 1998 and 1997
Consolidated statements of cash flows -- Years ended December
31, 1999, 1998 and 1997
Consolidated statements of shareholders' equity -- Years
ended December 31, 1999, 1998 and 1997
Notes to consolidated financial statements -- December 31,
1999
This report also includes the following Financial Statement
Schedule:
Schedule II -- Valuation and Qualifying Accounts
All other financial statement schedules are omitted because they are
not applicable or not required under the related instructions, or because the
required information is shown either in the consolidated financial statements
or in the notes thereto.
(a)(3) Listing of Exhibits
Periodic reports, proxy statements and other information filed by
Carmike with the Commission pursuant to the informational requirements of the
Exchange Act may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, and at the following Regional Offices of the
Commission: Midwest Regional Office, Citicorp Center, Suite 1400, 14th Floor,
500 West Madison Street, Chicago, Illinois 60661-2511; and Northeast Regional
Office, Suite 1300, 13th Floor, 7 World Trade Center, New York, New York 10048.
Copies of such material can be obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549. The Commission also maintains a Web site
(http://www.sec.gov) that makes available reports, proxy statements and other
information regarding Carmike. Carmike's SEC file number reference is
Commission File No.1-11604.
34
60
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1 Amended and Restated Certificate of Incorporation of Carmike
(filed as Exhibit 3.1 to Carmike's Form 10-K for the year ended
December 31, 1998 (Commission File No. 1-11604) (the "1998 Form
10-K") and incorporated herein by reference).
3.2 Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of 5.5% Series A
Senior Cumulative Convertible Exchangeable Preferred Stock (filed
as Exhibit 3.2 to the 1998 Form 10-K and incorporated herein by
reference).
3.3 By-laws of Carmike (filed as Exhibit 3(b) to Carmike's Form 10-K
for the fiscal year ended December 31, 1987 (Commission File No.
1-11604), and incorporated herein by reference).
4.1 Indenture dated February 3, 1999 between Carmike and The Bank of
New York (filed as Exhibit 4.1 the 1998 Form 10-K and
incorporated herein by reference).
4.2 Exchange and Registration Rights Agreement dated February 3, 1999
between Carmike, Eastwynn Theatres, Inc., Wooden Nickel Pub, Inc.
and the Purchasers (as defined therein) (filed as Exhibit 4.2 to
the 1998 Form 10-K and incorporated herein by reference).
10.1 Stock Purchase Agreement dated November 22, 1998 between Carmike
and GS Capital Partners III, L.P. and certain of its affiliates
(filed as Exhibit 10.1 to the 1998 Form 10-K and incorporated
herein by reference).
10.2 $275,000,000 Amended and Restated Credit Agreement dated January
29, 1999 between Carmike, the Banks (as defined therein) and
Wachovia Bank, N.A (filed as Exhibit 10.2 to the 1998 Form 10-K
and incorporated herein by reference).
10.3 $75,000,000 Term Loan Credit Agreement dated February 25, 1999
between Carmike, the Lenders listed therein, Wachovia Bank, N.A.,
Goldman Sachs Credit Partners L.P and First Union National Bank
(filed as Exhibit 10.3 to the 1998 Form 10-K and incorporated
herein by reference).
10.4 Stock Purchase Agreement dated as of June 27, 1997 by and between
the shareholders of Morgan Creek Theatres, Inc.; shareholders of
SB Holdings, Inc.; members of RDL Consulting Limited Liability
Company; Morgan Creek Theatres, Inc.; SB Holdings, Inc.; RDL
Consulting Limited Liability Company; First International
Theatres; Carmike and Eastwynn Theatres, Inc. (filed as Exhibit 2
to Carmike's Form 10-Q for the fiscal quarter ended June 30, 1997
(Commission File No. 1-11604), and incorporated herein by
reference).
10.5* Carmike 1998 Class A Stock Option Plan, together with form of
Employee Nonqualified Stock Option Agreement (filed as Exhibit
10(p) to Carmike's Form 10-K for the year ended December 31, 1997
(Commission File No. 1-11604), and incorporated herein by
reference).
35
61
10.6* Carmike Class A Stock Option Plan, as amended, together with form
of Stock Option Agreement (filed as Exhibit 10(a) to Carmike's
Form 10-K for the year ended December 31, 1990 (Commission File
No. 1-11604), and incorporated herein by reference).
10.7* Carmike Deferred Compensation Agreement and Trust Agreement dated
as of January 1, 1990 (filed as Exhibit 10(u) to Carmike's Form
10-K for the year ended December 31, 1990, and incorporated
herein by reference).
10.8* Employment Agreement dated December 30, 1999 between C. L.
Patrick and Carmike.
10.9* Employment Agreement dated August 10, 1998 between Michael W.
Patrick and Carmike (filed as Exhibit 10.9 to the 1998 Form 10-K
and incorporated herein by reference).
10.10 Aircraft Lease dated July 1, 1983, as amended June 30, 1986, by
and between C.L.P. Equipment and Carmike (filed as Exhibit 10(h)
to Carmike's Registration Statement on Form S-1 (Registration No.
33-8007), and incorporated herein by reference).
10.11 Equipment Lease Agreement dated December 17, 1982 by and between
Michael W. Patrick and Carmike (Kingsport, Tennessee) (filed as
Exhibit 10(i) to Carmike's Registration Statement on Form S-1
(Registration No. 33-8007), and incorporated herein by
reference).
10.12 Equipment Lease Agreement dated January 29, 1983 by and between
Michael W. Patrick and Carmike (Valdosta, Georgia) (filed as
Exhibit 10(j) to Carmike's Registration Statement on Form S-1
(Registration No. 33-8007), and incorporated herein by
reference).
10.13 Equipment Lease Agreement dated November 23, 1983 by and between
Michael W. Patrick and Carmike (Nashville (Belle Meade),
Tennessee) (filed as Exhibit 10(k) to Carmike's Registration
Statement on Form S-1 (Registration No. 33-8007), and
incorporated herein by reference).
10.14 Equipment Lease Agreement dated December 17, 1982 by and between
Michael W. Patrick and Carmike (Opelika, Alabama) (filed as
Exhibit 10(l) to Carmike's Registration Statement on Form S-1
(Registration No. 33-8007), and incorporated herein by
reference).
10.15 Equipment Lease Agreement dated July 1, 1986 by and between
Michael W. Patrick and Carmike (Muskogee and Stillwater,
Oklahoma) (filed as Exhibit 10(m) to Carmike's Registration
Statement on Form S-1 (Registration No. 33-8007), and
incorporated herein by reference).
10.16 Equipment Lease Agreement dated December 17, 1982 by and between
C. L. Patrick and Carmike (Eastridge, Tennessee) (filed as
Exhibit 10(n) to Carmike's Registration Statement on Form S-1
(Registration No. 33-8007), and incorporated herein by
reference).
10.17 Summary of Extensions of Equipment Lease Agreements, which are
Exhibits 10(f), 10(g), 10(h), 10(i), and 10(k) (filed as Exhibit
10(o) to Carmike's Form 10-K for the
36
62
fiscal year ended December 31, 1987 (Commission File No.
1-11604), and incorporated herein by reference).
10.18 Summary of Extensions of the Equipment Lease Agreements, which
are Exhibits 10(f), 10(g), 10(h), 10(i), and 10(k) as extended as
shown in Exhibit 10(m) (filed as Exhibit 10(n) to Carmike's Form
10-K for the year ended December 31, 1991 (Commission File No.
1-11604), and incorporated herein by reference).
10.19 Summary of Extensions of Aircraft Lease Agreement and Equipment
Lease Agreement which are Exhibits 10(e) and 10(k) (filed as
Exhibit 10(o) to Carmike's Form 10-K for the year ended December
31, 1991 (Commission File No. 1-11604), and incorporated herein
by reference).
10.20 Amended and Restated Master Lease dated January 29, 1999 between
Movieplex Reality Leasing, L.L.C. and Carmike. (Portions of this
exhibit have been redacted and are subject to a confidential
treatment request filed with the Secretary of the SEC pursuant to
Rule 24b-2 under the Securities Exchange Act of 1934. The
redacted material was filed separately with the SEC)(filed as
Exhibit 10 to Carmike's Form 10-Q for the quarter ended September
30, 1999 (Commission File No. 1-11604) and incorporated herein by
reference).
10.21* Letter of employment dated July 6, 1999, between Carmike and
Martin A. Durant.
10.22* Deferred Compensation Agreement dated as of July 16, 1999 between
Carmike and Martin A. Durant.
10.23* Trust Agreement dared as of July 16, 1999, between Carmike,
Michael W. Patrick, F. Lee Champion, III and Larry M. Adams.
21 List of Subsidiaries.
23 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule (for Securities and Exchange Commission
use only).
27.2 Restated 1998 Financial Data Schedule (for Securities and
Exchange Commission use only).
- ------------
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
(b) Reports on Form 8-K
During the fiscal quarter ended December 31, 1999, Carmike filed a
Current Report on Form 8-K dated December 3, 1999 reporting information
under Items 5 and 7.
(c) Exhibits
The response to this portion of Item 14 is submitted as a separate
section of this report.
(d) Financial Statements Schedules
See Item 14(a) (1) and (2).
37
63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CARMIKE CINEMAS, INC.
Date: April 10, 2000 By: /s/ Michael W. Patrick
-------------------------------------------
Michael W. Patrick
President And Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated and as of the date indicated above.
Signature Title
--------- -----
/s/ C. L. Patrick Chairman of the Board
- ---------------------------------
C. L. Patrick
/s/ Michael W. Patrick President, Chief Executive
- -------------------------------- Officer and Director
Michael W. Patrick
/s/ Martin A. Durant Senior Vice President-Finance
- -------------------------------- Treasurer and Chief Financial Officer
Martin A. Durant (Principal Financial Officer)
/s/ Philip A. Smitley Assistant Vice President-Controller
- -------------------------------- (Principal Accounting Officer)
Philip A. Smitley
/s/ F. Lee Champion, III Senior Vice President-General
- -------------------------------- Counsel, Secretary and Director
F. Lee Champion, III
/s/ Elizabeth Cogan Fascitelli Director
- --------------------------------
Elizabeth Cogan Fascitelli
/s/ Richard A. Friedman Director
- --------------------------------
Richard A. Friedman
/s/ John W. Jordan, II Director
- --------------------------------
John W. Jordan, II
/s/ Carl L. Patrick, Jr. Director
- --------------------------------
Carl L. Patrick, Jr.
/s/ Carl E. Sanders Director
- --------------------------------
Carl E. Sanders
/s/ David W. Zalaznick Director
- --------------------------------
David W. Zalaznick
64
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
CARMIKE CINEMAS, INC. AND SUBSIDIARIES
DECEMBER 31, 1999
(IN THOUSANDS OF DOLLARS)
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------ ------------ --------------------------------- ------------ --------------
ADDITIONS
---------------------------------
BALANCE AT CHARGED TO COSTS CHARGED TO OTHER DEDUCTIONS - BALANCE AT END
DESCRIPTION BEGINNING OF AND EXPENSES ACCOUNTS - DESCRIBE OF PERIOD
PERIOD DESCRIBE
- ------------------------------------ ------------ ---------------- ---------------- ------------ --------------
Year Ended December 31, 1998:
Reserve for restructuring charge $ -0- $ 34,699 (1) $ -0- $ -0- $ 34,699
Year Ended December 31, 1999:
Reserve for restructuring charge $ 34,699 $ (2,671)(2) $ -0- $ (3,685)(3) $ 28,343
(1) Charge recorded in December 1998. See Note 3 of Notes to Consolidated
Financial Statements.
(2) Change in estimate of liabilities to be incurred. See Note 3 of Notes to
Consolidated Financial Statements.
(3) Net payments made during period, including $500,000 payment for early
lease termination. See Note 3 of Notes to Consolidated Financial
Statements.
Note: Prior to December 1998, there were no accounts meeting the requirements
for disclosure on this schedule.