Back to GetFilings.com
1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM l0-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, 2000
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. (DEBTOR-IN-POSSESSION)
(Exact Name Of Registrant As Specified in Its Charter)
DELAWARE 58-1469127
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
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:
NONE
Securities registered pursuant to Section 12(g) of the Act:
CLASS A COMMON STOCK, PAR VALUE $.03 PER SHARE
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 registrants 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 16, 2001, 10,018,287 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 $3,624,612. As of March 16, 2001, 1,370,700 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 2001 Annual Meeting of Stockholders are incorporated by reference into Part
III.
2
TABLE OF CONTENTS
PAGE
NUMBER
------
Part I
Item 1. Business................................................................................. 3
Item 2. Properties............................................................................... 17
Item 3. Legal Proceedings........................................................................ 18
Item 4. Submission of Matters to a Vote of Security Holders...................................... 18
Executive Officers of the Registrant................................................................ 18
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................... 20
Item 6. Selected Financial and Operating Data.................................................... 22
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.... 24
Item 7A. Quantitative and Qualitative Disclosures About Market Risk............................... 39
Item 8. Financial Statements and Supplementary Data.............................................. 39
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure..... 40
*Part III
Item 10. Directors and Executive Officers of the Registrant....................................... 40
Item 11. Executive Compensation................................................................... 40
Item 12 Security Ownership of Certain Beneficial Owners and Management........................... 40
Item 13 Certain Relationships and Related Transactions........................................... 40
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................... 41
*Incorporated by reference from 2001 Proxy Statement.
2
3
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 Cinemas, Inc. ("Carmike") is a premiere motion picture
exhibitor in the United States. As of December 31, 2000, the Company operated
352 theatres with an aggregate of 2,438 screens located in 35 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, 2000, 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.
RECENT DEVELOPMENTS
Proceedings Under Chapter 11 of the Bankruptcy Code
On August 8, 2000 (the "Petition Date") Carmike and its subsidiaries (Eastwynn
Theatres, Inc. ("Eastwynn"), Wooden Nickel Pub, Inc. ("Wooden Nickel") and
Military Services, Inc.
3
4
("Military Services") (collectively with Carmike, the "Debtors") filed voluntary
petitions for relief under Chapter 11 (the "Chapter 11 Cases") of title 11 of
the U.S. Code (the "Bankruptcy Code"). The Chapter 11 Cases are being jointly
administered for procedural purposes. The Debtors are currently operating their
businesses and managing their properties as debtors-in-possession pursuant to
the Bankruptcy Code.
Due to the Chapter 11 filing, substantially all of the Company's
liabilities as of the Petition Date are subject to compromise or other treatment
under a plan of reorganization. Generally, actions to enforce or otherwise
effect payment of pre-Chapter 11 liabilities are stayed while the Company and
its subsidiaries continue their business operations as debtors-in-possession.
(See Notes 1, 2 and 3 to the Consolidated Financial Statements for additional
details).
On August 23, 2000, the Office of the United States Trustee for the
District of Delaware (the "U.S. Trustee") appointed a statutory committee of
unsecured creditors (the "Creditors' Committee") to represent the interests of
the Debtors' unsecured creditors in the Chapter 11 Cases. The Creditors'
Committee has the right to review and object to certain business transactions
and may participate in the formulation of the Company's long-term business plan
and a plan of reorganization. The Debtors are required to reimburse certain fees
and expenses of the Creditors' Committee, including fees for attorneys and other
professionals, to the extent allowed by the Bankruptcy Court.
Subsequent to the commencement of the Chapter 11 Cases, the Debtors
sought and obtained several orders from the Bankruptcy Court which were intended
to stabilize their business and enable the Debtors to continue business
operations as debtors-in-possession. To date, the most significant of these
orders (i) permitted the Debtors to operate their consolidated cash management
system during the Chapter 11 Cases in substantially the same manner as it was
operated prior to the commencement of the Chapter 11 Cases; (ii) authorized
payment of pre-petition wages, vacation pay, and employee benefits and
reimbursement of employee business expenses; (iii) authorized payment of
pre-petition sales and use taxes owed by the Debtors; (iv) authorized the
Debtors to pay up to $2,250,000 of pre-petition obligations to critical vendors,
common carriers and workers' compensation insurance to aid the Debtors in
maintaining operation of their theatres and approximately $37 million to film
distributors (see Part 1 Item 1. Business--Film Licensing--Relationship with
Distributors); and (v) authorized debt service payments for the loan related to
Industrial Revenue Bonds issued by the Downtown Development Authority of
Columbus, Georgia.
As debtors-in-possession, the Debtors have the right, subject to
Bankruptcy Court approval and certain other limitations, to assume or reject
executory contracts and unexpired leases. In this context, "assumption" means
that the Debtors agree to perform their obligations and cure all existing
defaults under the contract or lease, and "rejection" means that the Debtors are
relieved from their obligations to perform further under the contract or lease
but are subject to a claim for damages for the breach thereof. Any damages
resulting from rejection of executory contracts and unexpired leases are treated
as general unsecured claims in the Chapter 11 Cases. As of March 16, 2001, the
Debtors, with the approval of the Bankruptcy Court, had rejected 119 theatre
location leases.
4
5
The Bankruptcy Code provides that the Debtors have an exclusive period
during which only they may propose and file and solicit acceptances of a plan of
reorganization. The exclusive period of the Debtors to propose a plan of
reorganization on application of the Debtors has been at the current time
extended to September 28, 2001. At any time after April 11, 2001, the Creditors'
Committee or the pre-petition lenders may require the Debtors to file a motion
with the Bankruptcy Court to confirm the definitive balance of the exclusivity
period. The Debtors have retained the financial advisory firm Dresdner Kleinwort
Wasserstein ("DKW") to assist them in developing a plan of reorganization and a
five-year business plan. If the Debtors fail to file a plan of reorganization
during the exclusive period, as extended, or, after such plan has been filed, if
the Debtors fail to obtain acceptance of such plan from the requisite impaired
classes of creditors and equity security holders during the exclusive
solicitation period, any party in interest, including a creditor, an equity
security holder, a committee of creditors or equity security holders, or an
indenture trustee, may file their own plan of reorganization for the Debtors.
After a plan of reorganization has been filed with the Bankruptcy
Court, the plan, along with a disclosure statement approved by the Bankruptcy
Court, will be sent to impaired creditors and equity security holders who are
entitled to vote. Following the solicitation period, the Bankruptcy Court will
consider whether to confirm the plan. In order to confirm a plan of
reorganization, the Bankruptcy Court, among other things, is required to find
that (i) with respect to each impaired class of creditors and equity security
holders, each holder in such class will, pursuant to the plan, receive at least
as much as such holder would receive in a liquidation, (ii) each impaired class
of creditors and equity security holders has accepted the plan by the requisite
vote (except as provided in the following sentence), and (iii) confirmation of
the plan is not likely to be followed by a liquidation or a need for further
financial reorganization of the Debtors or any successors to the Debtors unless
the plan proposes such liquidation or reorganization. If any impaired class of
creditors or equity security holders does not accept a plan and assuming that
all of the other requirements of the Bankruptcy Code are met, the proponent of
the plan may invoke the "cram down" provisions of the Bankruptcy Code. Under
these provisions, the Bankruptcy Court may confirm a plan notwithstanding the
non-acceptance of the plan by an impaired class of creditors or equity security
holders if certain requirements of the Bankruptcy Code are met. These
requirements may, among other things, necessitate payment in full for senior
classes of creditors before payment to a junior class can be made. A "cram down"
as well as other potential plans of reorganization could also result in holders
of the Company's capital stock receiving no value for their interests. Because
of such possibilities, the value of the Company's capital stock, including but
not limited to its Class A Common Stock, is highly speculative.
New York Stock Exchange Listing
In January, 2001, the Company's Class A Common Stock was delisted from
the New York Stock Exchange for failure to meet the continued listing
requirements concerning average global market capitalization and average share
price. The Class A Common Stock currently trades on the NASD's over-the-counter
Bulletin Board under the ticker symbol "CKECQ."
5
6
THEATRE OPERATIONS
Carmike's revenues are generated primarily from admissions and
concession 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, certain information regarding the
352 theatres and 2,438 screens operated by Carmike as of December 31, 2000:
STATE THEATRES SCREENS STATE THEATRES SCREENS
- ----- -------- ------- ----- -------- -------
Alabama........... 20 177 New Mexico......... 1 2
Arkansas.......... 11 95 New York........... 1 8
Colorado.......... 10 58 North Carolina..... 45 322
Delaware.......... 1 14 North Dakota....... 8 43
Florida........... 11 88 Ohio............... 6 39
Georgia........... 27 210 Oklahoma........... 11 56
Idaho............. 6 19 Pennsylvania....... 30 211
Illinois.......... 2 6 South Carolina..... 18 117
Iowa.............. 13 105 South Dakota....... 7 48
Kansas............ 1 12 Tennessee.......... 32 237
Kentucky.......... 10 51 Texas.............. 15 102
Louisiana......... 3 22 Utah............... 6 47
Maryland.......... 1 8 Virginia........... 12 73
Michigan.......... 1 5 Washington......... 1 12
Minnesota......... 11 83 West Virginia...... 4 28
Missouri.......... 1 8 Wisconsin.......... 2 18
Montana........... 15 80 Wyoming............ 3 13
Nebraska.......... 6 21 --- -----
352 2,438
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
smaller markets where Carmike is the only exhibitor in the market. At December
31, 2000, Carmike operated 43 theatres with 168 screens as Discount Theatres.
As of December 31, 2000, Carmike owned 84 of its theatres, had 235
ground and improvement leases and 30 ground leases. An additional three theatres
were operated by Carmike under shared ownership.
Carmike's theatre operations are under the supervision of its Chief
Operating Officer 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.
6
7
Carmike has 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.
Internet Ticket Sales
In the second quarter of 2000, Carmike entered into a contract with
Fandango the leading on-line movie ticketing venture. Fandango will offer
moviegoers comprehensive remote ticketing services, showtimes, reviews, and
movie trailers via the internet, telephone and wireless devices. Ultimately,
Fandango plans to also offer restaurant and parking information, as well as
advanced movie seating reservations and concession ordering. With the addition
of Carmike, Fandango is now the exclusive provider of these services for seven
of the United States premiere exhibitors, which consists of over 15,000 screens
and in 1999 accounted for approximately $700 million in ticket sales. Carmike
feels that the relationship with Fandango will allow the Company to offer
technology of the 21st century ensuring its patrons a convenient and pleasurable
movie going experience. The first trial run of on-line ticket sales for Carmike
is slated for the second quarter of 2001.
THEATRE DEVELOPMENT
Prior to the Chapter 11 Cases, Carmike's growth strategy primarily
involved 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 2000, Carmike opened 6 theatres with 96 screens and
retrofit 3 auditoriums at certain of its theatres. Capital expenditures during
2000 aggregated approximately $44.9 million, net of lease financings. At
December 31, 2000, Carmike had one theatre under construction that was completed
in the first quarter of 2001. Capital expenditures to complete this theatre will
amount to approximately $1.5 million.
The Company's Chapter 11 filing and the excessive number of screens due
to the industry's overbuilding of theatres in the last few years have been
significant influences on the Company's current growth strategy. Carmike is
committed to build two theatres in 2001 if the current leases on the two
theatres are assumed by the Company in the Chapter 11 Cases. If opportunities
exist where new construction will be profitable to the Company, we will consider
building additional theatres in future periods. Since the Petition Date, Carmike
has closed approximately 25% of its theatres and, with the assistance of DKW, is
analyzing the remaining theatres and evaluating approaches to optimize its
portfolio.
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.
7
8
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 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. 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").
8
9
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. The table below depicts the
Industry's top 10 films for 2000 compared to Carmike's top 10 films for 2000:
Industry Carmike Cinemas
-------- ---------------
1. Dr. Seuss' How the Grinch 1. Dr. Seuss' How the Grinch
Stole Christmas Stole Christmas
2. Mission Impossible 2 2. Mission Impossible 2
3. Gladiator 3. The Perfect Storm
4. The Perfect Storm 4. Scary Movie
5. Meet The Parents 5. Nutty Professor 2: The Klumps
6. X-Men 6. Big Mamma's House
7. Scary Movie 7. X-Men
8. What Lies Beneath 8. Gladiator
9. Dinosaur 9. Dinosaur
10. Erin Brockovich 10. What Lies Beneath
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. 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 ten major
distributors accounted for approximately 98.8% of Carmike's admission revenues
during the year ended December 31, 2000: Buena Vista, DreamWorks, Fox, MGM/UA,
Miramax, New Line Cinema, Paramount, Sony, Universal and Warner Brothers.
As of the Petition Date, film distributors held claims against Carmike
aggregating approximately $37 million. After the Debtors commenced their Chapter
11 Cases, several distributors elected to cease supplying the Debtors with new
film product until their claims against the Debtors for pre-petition film
exhibition fees were paid in full. Carmike negotiated an agreement with each of
its principal film distributors to repay their pre-petition claims for film
exhibition fees in full in 17 weekly installments. Based on these Motion Picture
Distributor Agreements, the film distributors began to supply the Debtors with
new film product again. Carmike's payments under the Motion Picture Distributor
Agreements began on September 18, 2000 and were concluded by December 26, 2000.
9
10
CONCESSIONS
Concession sales are Carmike's second largest revenue source after box
office admissions, constituting approximately 29% of total revenues for 2000.
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, hot dogs and
pretzels, at certain theatre locations. Carmike actively seeks to promote
concession 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 up-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
concession 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 and IQ-2000, which are 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 concession 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. IQ-2000 is our enhancement of the IQ-Zero system. IQ-2000
facilitates new services such as advanced ticket sales and Internet ticket
sales. Its expanded capacity will allow for future growth and more detailed data
tracking and trend analysis. IQ-2000 is the management information system in
Carmike's theatres built in 1999, 2000 and 2001. 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. Carmike operates two family entertainment
centers under the name Hollywood Connection(R) which feature multiplex theatres
and other forms of entertainment.
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.
10
11
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. 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. Competitors have built or are planning to build
theatres in certain areas in which Carmike operates, which have resulted and may
continue to result in excess capacity in such areas which adversely affects
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.
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
11
12
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, 2000, approximately
60% 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) trademark.
EMPLOYEES
As of December 31, 2000, Carmike had approximately 9,097 employees, of
which 53 are covered by collective bargaining agreements. In order to combat
uncertainties that may stem from the Chapter 11 Cases, reward employees for
shouldering any additional burdens that have been imposed by the Chapter 11
Cases and to maintain employee morale, the Company has implemented, with the
approval of the Bankruptcy Court, the Carmike Cinemas, Inc. Employee Retention
and Severance Plan. The Employee Retention and Severance Plan is one component
of the Company's comprehensive program designed to provide incentives to
management and other critical employees to remain in the Debtors' employment and
to work toward a successful reorganization of the Debtors' business. The other
components include the assumption, with the approval of the Bankruptcy Court, of
the pre-petition executory employment agreement of Carmike's chief executive
officer Michael W. Patrick, subject to certain modifications, and the
continuance of the Company's annual bonus plan in the ordinary course of
business (to the extent that bonus objectives can be met during the fiscal
year).
12
13
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.
Ability to Service Debt
During the pendency of the Chapter 11 proceedings, the Company is not
required to pay current interest on the majority of its outstanding
indebtedness. The Company has reached an agreement with its creditor
constituencies that provides for the payment of cash collateral and adequate
protection, as those terms are defined in the Bankruptcy Code. Payments for cash
collateral and adequate protection have been made to participants in the
Revolving Credit Facility, Term Loan B and Master Lease Facility. All of these
payments have been treated as reductions of the principal balances of the
Lenders' assorted secured claims against the Debtors. If the Master Lease
Facility is later determined to be an unexpired lease, all payments of such
amounts shall be applied to rental adjustments of the Debtors. The Company made
payments to the secured lenders in the amount of $8,272,821 on March 5, 2001 and
continues to make payments of $500,000 per month as adequate protection.
After a plan of reorganization has been confirmed, our ability to
service our indebtedness 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 or renovation 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 closing of certain underperforming theatres, we
believe that cash flow from operations, available cash, and sales of surplus
assets will be adequate to meet our future liquidity needs while the Company
operates under Chapter 11 protection.
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.
Due to the Chapter 11 filing, substantially all of the Company's
liabilities as of the Petition Date are subject to compromise or other treatment
under a plan of reorganization. If it is determined that the liabilities subject
to compromise in the Chapter 11 Cases exceed the fair value of the assets,
unsecured claims may be satisfied at less than 100% of their face value and the
equity interests of the Company's stockholders would be substantially (if not
completely)
13
14
diluted. It is impossible at this time to predict the actual recovery, if any,
to which creditors and stockholders may be entitled.
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.
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 to a
substantial degree depends on the availability of suitable motion pictures for
screening in our theatres and the appeal of such motion pictures in our theatre
markets. 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. 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. There is the potential for a Screen Actors Guild
strike in the summer of 2001. If the strike occurs it is possible there could be
problems encountered in the supply, quality and availability of film product.
This potential strike could disrupt operations for several months.
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 ten
distributors accounted for approximately 98.8% of our admission revenues for the
fiscal year ended December 31, 2000: Buena Vista, DreamWorks, Fox, MGM/UA,
Miramax, New Line Cinema, Paramount, Sony, Universal and Warner Brothers. 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.
14
15
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, 2000, approximately
60% 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 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. Further, we have closed certain theatres since the
commencement of the Chapter 11 Cases and our competitors or smaller,
entrepreneurial developers may purchase or lease the abandoned buildings and
reopen them as theatres in competition with us. 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 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. Because our theatres
depend upon discretionary consumer spending, they may be adversely affected by a
downturn in the economy.
Expansion Plans
Although greatly reduced, we have continued to expand our operations
through the development of new theatres and the expansion of existing theatres.
Developing new theatres
15
16
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.
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 add to its theatre portfolio on terms we
consider acceptable.
Future Capital Requirements
The availability of capital will continue to be extremely limited while
the Company is operating under the protection of Chapter 11 and thereafter. New
sources of financing are questionable and numerous uncertainties will continue
to exist until the Company has a confirmed plan of reorganization. Traditional
sources of financing new theatres through landlords may be unavailable for a
number of years.
Like others in our industry, we are 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. In the year 2001 we anticipate retrofitting
approximately 10 screens to strengthen our position in certain markets. We will
lose revenue from those screens while they are being renovated. 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 cannot assure you 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 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. Whenever events or changes in circumstances indicate
that the carrying amount of an asset or a group of assets may not be
recoverable, we review for impairment of long-lived assets and goodwill related
to those assets to be held and used in the business. 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 are required to recognize a charge to earnings.
16
17
In the fourth quarters of 2000 and 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 $21.2 million and $33 million, respectively,
in the fourth quarters of 2000 and 1999. These impairment charges reduce the
carrying value of approximately 18 theatres with approximately 130 screens for
2000 and 82 theatres with approximately 432 screens for 1999 and reduce our
investment in a joint venture which operates 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.
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, 2000, Carmike owned 84 of its theatres, had 235
ground and improvement leases and 30 ground leases. An additional three 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. As a result of the Chapter 11 Cases, the Company has the
right to reject unexpired leases of real property. (See Part 1, Item 1 of this
Form 10-K Report under the caption "Proceedings Under Chapter 11 of the
Bankruptcy Code").
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.
17
18
ITEM 3. LEGAL PROCEEDINGS.
CHAPTER 11 CASES
The Company and its subsidiaries commenced the Chapter 11 Cases on
August 8, 2000. Additional information relating to the Chapter 11 Cases is set
forth in Part I, Item 1 of this Form 10-K Report under the caption "Proceedings
Under Chapter 11 of the Bankruptcy Code" and in Notes 1, 2 and 3 of the Notes to
the Consolidated Financial Statements. Such information is incorporated herein
by reference.
OTHER 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, 2000.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information as of March 16, 2001
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......................... 82 Chairman of the Board of Directors
Michael W. Patrick................... 50 President, Chief Executive Officer and Director
Fred W. Van Noy...................... 44 Chief Operating Officer
Martin A. Durant..................... 52 Senior Vice President - Finance,
Treasurer and Chief Financial Officer
F. Lee Champion, III................. 50 Senior Vice President, General Counsel,
Secretary and Director
Anthony J. Rhead..................... 59 Senior Vice President -- Film
P. Lamar Fields...................... 46 Senior Vice President -- Real Estate
18
19
H. Madison Shirley................... 49 Senior Vice President -- Concessions and
Assistant Secretary
Marilyn B. Grant..................... 53 Vice President -- Advertising
Philip A. Smitley.................... 42 Assistant Vice President and Controller
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.
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
the position of Senior Vice President -- Operations. On November 21, 2000, he
was elected to his present position as Senior Vice President - Chief Operating
Officer.
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.
F. LEE CHAMPION, III joined Carmike on January 1, 1998 as Senior Vice
President, General Counsel and Secretary. In December 1998, he was elected a
director of Carmike. From October 1976 until he joined 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.
19
20
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.
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 NASD's over-the-counter Bulletin Board (OTCBB)
under the symbol "CKECQ." Trading in the Company's stock on the New York Stock
Exchange was suspended prior to the opening of the Exchange on Friday, January
12, 2001 because the Company had fallen below certain Exchange criteria for
continued listing. 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
---- ---
2000
First Quarter........................ $ 7 15/16 $ 5 7/16
Second Quarter....................... 6 1/16 3 7/16
Third Quarter........................ 4 1/16 11/16
Fourth Quarter....................... 7/8 5/16
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
20
21
On March 16, 2001, the last reported sale price of the Class A Common
Stock on the over-the-counter Bulletin Board was $0.50 per share. As of March
16, 2001, there were approximately 737 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 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.
Series A Preferred Stock dividends of $1.5 million are in arrears at December
31, 2000. The terms of the Stock Purchase Agreement dated November 22, 1998
between Carmike and GS Capital Partners III, L.P. and certain of its affiliates
(the "Preferred Stock Purchase Agreement") provide, with respect to dividend
arrearages, that the dividend accrued rate increases to 8.5%. In view of the
Company's having ceased making scheduled dividend payments on the Preferred
Stock after the Petition Date, the holders of the Series A Preferred Stock have
designated two additional directors to the Company's Board of Directors.
During fiscal year 2000, the Company did not make any sales of its
unregistered equity securities.
Carmike has never declared or paid any cash dividends on its Class A
Common Stock or Class B Common Stock. Additionally, after the Petition Date,
Carmike cannot declare dividends on any of its stock including the Series A
Preferred Stock during the pendency of the Chapter 11 Cases without Bankruptcy
Court approval. 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 7 of Notes to Consolidated Financial Statements regarding
restrictions in Carmike's debt instruments on Carmike's ability to pay
dividends.
21
22
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,
------------------------------------------------------------------
1996 1997 1998 1999 2000
(1) (2) (3) (3)(4) (3)(5)
-------- -------- -------- -------- --------
(IN MILLIONS EXCEPT PERCENTAGES, RATIOS AND OPERATING DATA)
STATEMENT OF INCOME DATA:
Revenues:
Admissions ......................................... $ 296.6 $ 319.2 $ 330.5 $ 336.0 $ 315.4
Concessions and other .............................. 130.1 139.4 151.1 150.9 146.9
-------- ------- -------- -------- --------
Total revenues ................................... 426.7 458.6 481.6 486.9 462.3
Costs and expenses:
Film exhibition costs .............................. 157.0 169.7 177.8 181.5 185.2
Concession costs ................................... 17.3 18.3 19.9 19.0 21.0
Other theatre operating costs ...................... 164.1 175.1 187.9 191.1 194.8
General and administrative ......................... 6.0 6.4 7.1 7.3 6.9
Depreciation and amortization ...................... 28.4 33.4 37.5 41.2 43.2
Impairment of long-lived
assets (6) ....................................... 45.4 -- 38.3 33.0 21.2
Restructuring charge (6) ........................... -- -- 34.7 (2.7) -0-
-------- ------- -------- -------- --------
418.2 402.9 503.2 470.4 472.3
-------- ------- -------- -------- --------
Operating income (loss) .......................... 8.5 55.7 (21.6) 16.5 (10.0)
Interest expense ..................................... 20.3 23.1 27.2 36.8 31.0
-------- ------- -------- -------- --------
Income (loss) before reorganization costs,
income taxes and extraordinary items ............... (11.8) 32.6 (48.8) (20.3) (41.0)
Reorganization costs ................................. -0- -0- -0- -0- 7.0
-------- ------- -------- -------- --------
Income (loss) before income taxes .................... (11.8) 32.6 (48.8) (20.3) (48.0)
Income tax expense (benefit) ......................... (4.5) 12.4 (18.2) (7.7) 25.6
-------- ------- -------- -------- --------
Net income (loss) before extraordinary
item ............................................... $ (7.3) $ 20.2 $ (30.6) $ (12.6) $ (73.6)
======== ======= ======== ======== ========
Weighted average common
Shares outstanding:
Basic ................................................ 11,174 11,277 11,356 11,375 11,344
======== ======= ======== ======== ========
Diluted .............................................. 11,174 11,366 11,356 11,375 11,344
======== ======= ======== ======== ========
Earnings (loss) per common share before extraordinary
item:
Basic ................................................ $ (0.65) $ 1.79 $ (2.73) $ (1.37) $ (6.62)
======== ======= ======== ======== ========
Diluted .............................................. $ (0.65) $ 1.78 $ (2.73) $ (1.37) $ (6.62)
======== ======= ======== ======== ========
22
23
AS OF DECEMBER 31,
-----------------------------------------------------------
1996 1997 1998 1999 2000
(5)
------- ------- ------- ------- -------
(IN MILLIONS, EXCEPT OPERATING DATA)
BALANCE SHEET DATA:
Cash and cash equivalents ............ $ 5.6 $ 16.5 $ 17.8 $ 9.8 $ 68.3
Property and equipment, net .......... 388.0 497.1 573.6 666.2 621.2
Total assets ......................... 489.4 620.0 697.5 808.4 777.0
Total long-term obligations,
including current maturities (7) ... 268.3 360.7 351.8 470.3 52.0
Total shareholders' equity ........... 178.0 202.9 226.3 204.2 129.1
OPERATING DATA:
Theatre locations (8) ................ 519 520 468 458 352
Screens (8) .......................... 2,518 2,720 2,658 2,848 2,438
Average screens per location ......... 4.9 5.2 5.7 6.2 6.9
Total attendance (in thousands) ...... 74,213 75,336 77,763 74,518 67,804
Total average screens in operation ... 2,476 2,644 2,733 2,800 2,643
Average ticket price ................. $ 4.00 $ 4.24 $ 4.25 $ 4.51 $ 4.65
Average concession per patron ........ $ 1.62 $ 1.68 $ 1.79 $ 1.84 $ 1.98
- ---------------
(1) During the year ended December 31, 1996, Carmike acquired, in various
acquisitions, 14 theatres with 79 screens.
(2) 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.
(3) Preferred stock dividends on the Series A Preferred Stock totaled
$332,000, $3,025,000 and $1,513,000 for the years ended December 31,
1998, 1999 and 2000, respectively. See Notes 2 and 10 of Notes to
Consolidated Financial Statements.
(4) Excludes an extraordinary charge of $6,291,000 (net of income taxes) or
$0.56 per diluted share.
(5) See Notes 1, 2 and 3 with respect to the Company's bankruptcy and
financial reporting in accordance with Statement of Position 90-7
"Financial Reporting by Entities in Reorganization under the Bankruptcy
Code". See Note 2 of Notes to Consolidated Financial Statements with
respect to reorganization costs incurred while in bankruptcy. See Note
11 for income taxes relative to valuation allowances for deferred
income tax debits.
(6) See Notes 2, 4 and 5 of Notes to Consolidated Financial Statements with
respect to impairments of long-lived assets and restructuring charges.
23
24
(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. Excludes 84 theatres and 394 screens at December 31, 2000, which
were closed by Carmike upon approval of the Bankruptcy Court of the
rejection of certain leases.
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. Carmike cautions that any forward-looking statements made by
the Company are not guarantees of future performance and 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. 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 other factors including, but
not limited to, the following:
- there can be no assurance that the cash and cash
equivalents on hand at December 31, 2000 and cash
generated by the Company from operations and from
debtor-in-possession financing, if any, will be
sufficient to fund the operations of the Company
until such time as the Company is able to propose a
plan of reorganization that will be acceptable to
creditors and other parties in interest and confirmed
by the Bankruptcy Court;
- there can be no assurance regarding any adverse
actions which may be taken by creditors or landlords
of the Company that may have the effect of preventing
or unduly delaying confirmation of a plan of
reorganization in connection with the Chapter 11
Cases;
- there can be no assurance that the Bankruptcy Court
will confirm the Company's plan of reorganization;
- there can be no assurance as to the overall viability
of the Company's long-term operational reorganization
and financial restructuring plan;
- there can be no assurance as to the Company's being
able to obtain sufficient financing sources to meet
future obligations;
24
25
- the Company may have difficulty in attracting patrons
or labor as a result of the Chapter 11 Cases;
- the Company may continue to have difficulty in
maintaining or creating new relationships with
suppliers or vendors as a result of the Chapter 11
Cases;
- an adverse determination in a legal proceeding,
whether currently asserted or arising in the future,
may have a material adverse effect on the Company's
financial position;
- there can be no assurance regarding the availability
of suitable motion pictures for exhibition in the
Company's markets;
- the Company faces significant competitive pressures;
- general economic and/or business conditions in the
movie industry may not be favorable such that the
Company's revenues and results of operation are
adversely affected;
- there can be no assurance as to the Company's ability
to achieve satisfactory levels of profitability and
cash flow from operations;
- there may not be available sufficient capital to
service the Company's debt obligations and to finance
the Company's business plans on terms satisfactory to
the Company;
- there can be no assurance as to the success of the
Company's marketing of certain assets and pursuit of
financing alternatives;
and the other factors set forth in "Item 1 Business--Factors that May Affect
Future Performance," as well as other factors detailed from time to time in
Carmike's filings with the Securities and Exchange Commission.
In addition, the Chapter 11 Cases may disrupt the Company's operations
and may result in a number of other operational difficulties, including the
following:
- the Company's ability to access capital markets will
likely be limited;
- the possibility of competing chapter 11 plans of
reorganization being filed for the Company;
- the Company's senior management may be required to
expend a substantial amount of time and effort
structuring a plan of reorganization, which could
have a disruptive impact on management's ability to
focus on the operation of the Company's business;
- the Company, notwithstanding its recently adopted
Employee Retention and Severance Plan, may be unable
to retain top management and other key personnel; and
25
26
- suppliers to the Company may stop providing supplies
or services to the Company or provide such supplies
or services only on "cash on delivery," "cash on
order" or other terms that could have an adverse
impact on the Company's cash flow.
By making these forward-looking statements, the Company 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 under the Federal securities laws.
THE INDUSTRY
The movie exhibition industry is currently facing significant
challenges, largely due to the effects of too many screens and relatively flat
box office receipts. The number of screens in the United States has increased
dramatically, growing from approximately 31,640 screens in 1997 to approximately
37,396 screens in 2000. Megaplexes, theatres with anywhere from 14 to 30 screens
in a single theatre, have became the industry standard in most major markets.
The megaplex format provides numerous benefits for theatre operators, including
allowing facilities (concession stands and restrooms) and operating costs (lease
rentals, utilities and personnel) to be allocated over a larger base of screens
and patrons. The megaplex theatres also contain increasingly costly
improvements, such as stadium seating, state-of-the-art projection and sound
systems and other expensive amenities. These megaplexes are not only competing
with each other but have quickly rendered many older multiplexes obsolete, and
exhibitors have not been able to dispose of or close their older facilities
quickly enough.
Audience figures have not increased on a level with the unprecedented
growth in screens. Attendance was relatively flat in 2000, with no blockbuster
films and a disappointing performance by the summer's movies. Box office
revenues have increased due to increased ticket prices, but the increase in
revenue has been diminished by the higher costs of operating so many screens in
addition to movie studios getting a larger portion of box office receipts due to
shorter film run times. The significant decay of older theatres and the
underperformance of many new builds have put pressure on industry-wide operating
results, operating margins, certain covenant requirements under bank facilities
and the market price of Carmike's and other exhibitors' stock.
CHAPTER 11 CASES
On August 8, 2000 (the "Petition Date"), Carmike and its subsidiaries
(Eastwynn Theatres, Inc. ("Eastwynn"), Wooden Nickel Pub, Inc. ("Wooden
Nickel"), and Military Services, Inc. ("Military Services") (collectively with
Carmike, the "Debtors") filed voluntary petitions to reorganize their business
under chapter 11 of title 11 of the U.S. Code (the "Bankruptcy Code"). The
filings ("Chapter 11 Cases") were made in the United States Bankruptcy Court for
the District of Delaware (the "Bankruptcy Court"). The Chapter 11 Cases are
being jointly administered for procedural purposes. On August 23, 2000, a
statutory committee of unsecured creditors (the "Creditors' Committee") was
appointed by the Office of the United States Trustee to represent the interests
of the Debtors' unsecured creditors in the Chapter 11 Cases.
26
27
In the Chapter 11 Cases, substantially all unsecured and partially
secured liabilities as of the Petition Date are subject to compromise or other
treatment under a plan of reorganization to be confirmed by the Bankruptcy Court
after submission to any required votes by affected parties. Generally, actions
to enforce or otherwise effect repayment of all pre-chapter 11 liabilities as
well as all pending litigation against the Debtors are stayed while the Debtors
continue their business operations as debtors-in-possession. On September 19,
2000, Wooden Nickel and Military Services, filed their bankruptcy schedules with
the Bankruptcy Court. Carmike and Eastwynn filed their schedules on October 18,
2000. The schedules set forth the assets and liabilities of the Debtors as of
the Petition Date as reflected in the Debtors' accounting records and the
schedules may be amended by the Debtors. Differences between the amounts
reflected in such schedules and claims filed by creditors will be investigated
and may be either amicably resolved or adjudicated before the Bankruptcy Court.
The ultimate amount and settlement terms for such liabilities are subject to an
approved plan of reorganization and accordingly are not presently determinable.
In addition to these schedules, the Debtors must file with the Bankruptcy Court
monthly operating reports that show, among other things, for each month cash
receipts and disbursements, net income, a balance sheet and a summary of unpaid
post-petition debts.
The Chapter 11 Cases resulted from a sequence of events and the
unforeseen effect that these events would have in the aggregate on the Company.
Surprisingly weak film performance during the summer of 2000 contributed to the
Company's revenues for the summer of 2000 significantly underachieving the
Company's internal projections. Like its competitors, the Company had ramped up
its costs by expending significant funds in building megaplexes and in making
improvements to existing theatres in order to attract and accommodate larger
audiences. Consequently, the effect of poor summer returns was substantial on
the Company in its efforts to comply with the financial covenants under its $200
million Revolving Credit Facility and $75 million Term Loan Credit Agreement
(the "Bank Facilities"). On June 30, 2000, the Company was in technical default
of certain financial covenants contained in the Bank Facilities and was unable
to negotiate amendments with the lenders to resolve these compliance issues, as
the Company had been able to do in the past. On July 28, 2000, the agents under
the Bank Facilities issued a Payment Blockage Notice to Carmike and the
indenture trustee for the 9 3/8% Subordinated Notes due 2009 (the "Subordinated
Notes") prohibiting payment by Carmike of the semi-annual interest payment in
the amount of $9,375,000 due to the holders of the Subordinated Notes on August
1, 2000. Faced with significant operating shortfalls, unavailability of credit
and problems dealing with the Company's lenders, among other things, the Company
filed for bankruptcy in order to continue its business.
The initial response of many of Carmike's vendors to the Chapter 11
filing was negative and, as a result, Carmike's operations were encumbered
during the two weeks immediately following the Petition Date. During those two
weeks, newspapers refused to run the Company's advertisements and then required
payments in advance of advertisement runs. Carmike to a large degree has relied
upon advertisements and movie schedules published in newspapers (in addition to
its website, Carmike.com) to inform customers of film selections and showtimes
in its theatres. In addition, during those two weeks, vendors stopped delivering
film and concessions, and certain film distributors stopped allocating films to
the Company. Also, customers were at first confused as to whether a Chapter 11
filing meant that the Company was no longer conducting business. In addition,
employee morale immediately after the Chapter 11 filing
27
28
declined as employees became uncertain as to the consequences of a Chapter 11
filing for them and the future of the Company.
As the Company made efforts to inform and reassure concerned parties
about the meaning of a Chapter 11 filing and obtained Bankruptcy Court approval
to repay certain immediate obligations, most of the vendor relationships were
restored and services resumed. The Company has been continuing its business
operations. After the two week hiatus, newspapers returned to running the
Company's advertisements and movie schedules. Additionally, vendors have resumed
film and concession deliveries, and, following the Company's settlement with the
film distributors, as approved by the Bankruptcy Court, the distributors
returned to supplying the Company with film product. In order to enhance
employee morale, the Company instituted the Employee Retention and Severance
Plan to encourage key employees to remain with the Company.
As a debtor-in-possession under Chapter 11, the Company can not pay
pre-petition debts without prior Bankruptcy Court approval. Subsequent to the
commencement of the Chapter 11 Cases, the Debtors sought and obtained several
orders from the Bankruptcy Court which were intended to stabilize their
business and enable the Debtors to continue business operations as
debtors-in-possession. To date, the most significant of these orders: (i)
permitted the Debtors to operate their consolidated cash management system
during the Chapter 11 Cases in substantially the same manner as it was operated
prior to the commencement of the Chapter 11 Cases; (ii) authorized payment of
pre-petition wages, vacation pay and employee benefits and reimbursement of
employee business expenses; (iii) authorized payment of pre-petition sales and
use taxes owed by the Debtors; (iv) authorized the Debtors to pay up to
$2,250,000 of pre-petition obligations to critical vendors, common carriers and
workers' compensation insurance to aid the Debtors in maintaining operation of
their theatres and approximately $37 million to film distributors as set forth
below; and (v) authorized debt service payments for the loan related to
Industrial Revenue Bonds issued by the Downtown Development Authority of
Columbus, Georgia.
As debtors-in-possession, the Debtors have the right, subject to
Bankruptcy Court approval and certain other limitations, to assume or reject
executory contracts and unexpired leases. In this context, "assumption" means
that the Debtors agree to perform their obligations and cure all existing
defaults under the contract or lease, and "rejection" means that the Debtors are
relieved from their obligations to perform further under the contract or lease
but are subject to a claim for damages for the breach thereof. Any damages
resulting from rejection of executory contracts and unexpired leases are treated
as general unsecured claims in the Chapter 11 Cases. The Debtors, have already
received approval from the Bankruptcy Court to reject theatre leases relating to
119 theatre locations of the Debtors. The 119 theatres approved for rejection
generated approximately $13.2 million and $6.4 million in theatre-level cash
flow losses for the years ended December 31, 2000 and 1999, respectively. Such
losses are measured by subtracting revenues generated at such theatre locations
from costs of operations (film exhibition costs, concession costs and other
theatre operating costs) for such theatres. The Debtors are continuing to review
their market strategy, geographic positions and theatre level profitability. As
a result of this continuing review, the Debtors may consider rejecting
additional leases for theatres that do not fall within the Debtors' market
strategy or geographic positioning or that do not perform at or above the
Company's expected theatre profitability level. The Debtors cannot presently
determine or reasonably estimate the ultimate liability that may result
28
29
from rejecting leases or from the filing of claims for any rejected contracts,
and no provisions have yet been made for these items.
The Bankruptcy Code provides that the Debtors have an exclusive period
during which only they may propose and file and solicit acceptances of a plan of
reorganization. The exclusive period of the Debtors to propose a plan of
reorganization on application of the Debtors has been at the current time
extended to September 28, 2001. At any time after April 11, 2001, the Creditors'
Committee or the pre-petition lenders may require the Debtors to file a motion
with the Bankruptcy Court to confirm the definitive balance of the exclusivity
period. The Debtors, subject to Bankruptcy Court approval, have retained a
financial advisory firm to assist it in, among other things, developing the
business plan and plan of reorganization. If the Debtors fail to obtain an
extension of the exclusive period or to file a plan of reorganization during the
exclusive period, as extended, or, after such plan has been filed, if the
Debtors fail to obtain acceptance of such plan from the requisite impaired
classes of creditors and equity security holders during the exclusive
solicitation period, any party in interest, including a creditor, an equity
security holder, a committee of creditors or equity security holders, or an
indenture trustee, may file their own plan of reorganization for the Debtors.
After a plan of reorganization has been filed with the Bankruptcy
Court, the plan, along with a disclosure statement approved by the Bankruptcy
Court, will be sent to impaired creditors and equity security holders who are
entitled to vote. Following the solicitation period, the Bankruptcy Court will
consider whether to confirm the plan. In order to confirm a plan of
reorganization, the Bankruptcy Court, among other things, is required to find
that (i) with respect to each impaired class of creditors and equity security
holders, each holder in such class has accepted the plan or will, pursuant to
the plan, receive at least as much as such holder would receive in a
liquidation, (ii) each impaired class of creditors and equity security holders
has accepted the plan by the requisite vote (except as provided in the following
sentence), and (iii) confirmation of the plan is not likely to be followed by a
liquidation or a need for further financial reorganization of the Debtors or any
successors to the Debtors unless the plan proposes such liquidation or
reorganization. If any impaired class of creditors or equity security holders
does not accept a plan and assuming that all of the other requirements of the
Bankruptcy Code are met, the proponent of the plan may invoke the "cram down"
provisions of the Bankruptcy Code. Under these provisions, the Bankruptcy Court
may confirm a plan notwithstanding the non-acceptance of the plan by an impaired
class of creditors or equity security holders if certain requirements of the
Bankruptcy Code are met. These requirements may, among other things, necessitate
payment in full for senior classes of creditors before payment to a junior class
can be made. A "cram down" as well as other potential plans of reorganization
could also result in holders of the Company's capital stock receiving no value
for their interests. Because of such possibilities, the value of the Company's
capital stock, including but not limited to its Class A Common Stock, is highly
speculative.
Since the Petition Date, the Debtors have continued to conduct business
in the ordinary course as debtors-in-possession under the protection of the
Bankruptcy Court. Management has had to stabilize the business of the Debtors
and must evaluate their operations before beginning the development of a
reorganization plan. Until a reorganization plan is confirmed by
29
30
the Bankruptcy Court, payments of pre-petition liabilities are limited to those
approved by the Bankruptcy Court.
The Debtors have retained the financial advisory firm DKW to assist it
in developing a plan of reorganization and a five-year business plan. In
connection with the formulation of a plan of reorganization, management together
with DKW, has been reviewing the performance of each of the Company's operations
and analyzing the valuation of the Company at various periods. In addition, with
the assistance of DKW, the Company has been identifying its underperforming
theatres and evaluating approaches to optimize its portfolio of existing
theatres.
In the Chapter 11 Cases, the Debtors may, with Bankruptcy Court
approval, sell assets and settle liabilities, including for amounts other than
those reflected in the financial statements. The administrative and
reorganization expense resulting from the Chapter 11 Cases will unfavorably
affect results. Moreover, future results may be adversely affected by other
claims and factors resulting from the Chapter 11 Cases.
As of the Petition Date, the trade creditors of the Debtors holding the
largest unpaid claims were the film distributors, with claims aggregating
approximately $37 million. After the Debtors commenced their Chapter 11 Cases,
several distributors elected to cease supplying the Debtors with new film
product until their claims against Debtors for pre-petition film exhibition fees
were paid in full. The Company negotiated an agreement with each of its
principal film distributors to repay their pre-petition claims for film
exhibition fees in full as critical vendors in 17 weekly installments ending
December 26, 2000, (collectively, the "Motion Picture Distributor Agreements").
The Bankruptcy Court approved each of the Motion Picture Distributor Agreements
at a hearing held on September 14, 2000. Based on the Motion Picture Distributor
Agreements, the film distributors have supplied the Debtors with new film
product again. Each of the principal film distributors has agreed to the terms
of the Motion Picture Distributor Agreements, which include provisions relating
to the payment of pre-petition claims as well as payments during the Chapter 11
Cases. A refusal by one or more of the film distributors to supply the Debtors
with films is likely to have a material adverse effect on the Debtors.
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.
30
31
Subsequent to the Petition Date, the Company identified certain owned
theatres and other leased theatres which have not yet been rejected but had
indicators of impairments. These theatres have been identified as impaired as a
result of decreased cash flows due to new competition in their markets or
management's plans relative to future operations. The Company has recognized
impairment charges of approximately $21.2 million (approximately $1.87 per
diluted share) for 18 theatres with 130 screens (the "2000 Impairment Charge").
Further asset impairments may occur as the Company rejects additional leases and
when the plan of reorganization is finalized and approved. These impairment
charges (the 2000 Impairment Charge plus impairment charges related to
reorganization - see Note 2--Proceedings Under Chapter 11) reduced the carrying
value of property and equipment by $24.2 million (costs of $34.4 million less
accumulated depreciation and amortization of $10.2 million) and the excess of
purchase price over net assets of businesses acquired by approximately $2.0
million.
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 diluted 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 operated three movie theatre/entertainment
complexes, which have closed as of December 31, 2000. The impairment charge of
approximately $5 million (approximately $3 million after income taxes or $.30
per diluted share) (together with the 1999 Impairment Charge, collectively, the
"1999 Impairment Charges") represents our pro-rata portion of the
joint-venture's 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 diluted 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.
31
32
As a result of the reduced carrying amount of the impaired assets due
to the 1998 and 1999 Impairment Charges, depreciation and amortization expense
for 2000, 1999, and 1998 was reduced by approximately $9 million, $7 million and
$4 million, respectively (2000 - approximately $9 million after income taxes or
$.81 per diluted share; 1999 - approximately $4 million after income taxes or
$.37 per diluted share; 1998 - approximately $2 million after income taxes or
$.19 per diluted share). Depreciation and amortization for 2001 will be reduced
by approximately $10 million as a result of the impairment charges.
As a result of the Chapter 11 Cases, the Company has delayed its plans
to retrofit or expand existing theatres using equipment that is held by the
Company. Also, the Company has significant amounts of equipment available for
removal or already removed from the theatres closed due to lease rejections. The
future fair value of this equipment (net book value of approximately $19.0
million at December 31, 2000) will be largely determined by the Company's
ability to build new theatres or retrofit and expand existing theatres in the
future. The future use of this equipment, and, therefore an estimate of its
future value, will not be finalized until the Company's bankruptcy plan is
finalized and approved by the Bankruptcy Court.
Carmike has approximately $46 million of excess of purchase price over
net assets of businesses acquired ("goodwill") recorded at December 31, 2000.
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, 2000 was evaluated by Carmike based on estimated
theatre and market level cash flows (see Note 4 of Notes to Consolidated
Financial Statements) and Carmike believes that the assigned life of goodwill is
appropriate.
The 2000 Impairment Charge, the 1999 Impairment Charges and the 1998
Impairment Charge are reflected as operating expenses in Carmike's Consolidated
Financial Statements.
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
"1998 Restructuring Plan"). In accordance with the 1998 Restructuring Plan, the
theatres were closed during 1999. Those theatres with remaining lease terms at
the Petition Date have been approved for rejection by the Bankruptcy Court.
Carmike has recognized a charge of approximately $35 million (approximately $21
million after income taxes or $1.89 per diluted 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.
32
33
During June 1999, Carmike revised its estimates of the total costs to
be incurred for its 1998 Restructuring Plan. The approximately $3 million
decrease in estimated costs (approximately $2 million after income taxes or $.15
per diluted share) was the result of a lessor initiated early buyout of a lease
included in the 1998 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. During 2000, the Company negotiated a settlement with a lessor that
eliminated future payments under the terms of the lease. In addition, a
stipulation was signed by the lessor in which the lessor released future claims
in exchange for the theatre equipment and leasehold improvements. The
reorganization reserve was reduced by a $755,000 credit to reorganization costs
for this transaction. Disbursements charged against the reserves established for
the 1998 Restructuring Plan were approximately $2.9 million and $3.7 million
during 2000 and 1999, respectively.
Revenues during the year ended December 31, 1998 for the theatres
closed under the 1998 Restructuring Plan were approximately $8.7 million.
Operating losses during the year ended December 31, 1998 for the theatres
included in the 1998 Restructuring Plan were approximately $3.6 million.
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,
--------------------------------------------------------
1996 1997 1998 1999(1) 2000
------ ------ ------ ------- ------
Revenues:
Admissions ............................. 69.5% 69.6% 68.6% 69.0% 68.2%
Concessions and other .................. 30.5 30.4 31.4 31.0 31.8
------ ------ ------ ------ ------
Total revenues ....................... 100.0 100.0 100.0 100.0 100.0
Costs and expenses:
Film exhibition costs(2) ............... 36.8 37.0 36.9 37.3 40.1
Concession costs ....................... 4.0 4.0 4.1 3.9 4.5
Other theatre operating costs .......... 38.4 38.2 39.0 39.2 42.2
General and administrative ............. 1.4 1.4 1.5 1.5 1.5
Depreciation and amortization .......... 6.7 7.3 7.8 8.4 9.3
Impairment of long-lived assets ........ 10.7 -- 8.0 6.8 4.6
Restructuring charge ................... -- -- 7.2 (.5) --
------ ------ ------ ------ ------
98.0 87.9 104.5 96.6 102.2
------ ------ ------ ------ ------
Operating income (loss) .............. 2.0 12.1 (4.5) 3.4 (2.2)
Interest expense .......................... 4.7 5.0 5.6 7.6 6.7
------ ------ ------ ------ ------
Income (loss) before reorganization costs,
income taxes and extraordinary items ... (2.7) 7.1 (10.1) (4.2) (8.9)
Reorganization costs ...................... -- -- -- -- 1.5
------ ------ ------ ------ ------
Income (loss) before income taxes ......... (2.7) 7.1 (10.1) (4.2) (10.4)
Income tax expense (benefit) .............. (1.0) 2.7 (3.8) (1.6) 5.5
------ ------ ------ ------ ------
Net income (loss) before
extraordinary item ..................... (1.7)% 4.4% (6.3)% (2.6)% (15.9)%
====== ====== ====== ====== ======
33
34
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1996 1997 1998 1999(1) 2000
------ ------ ------ ------- ------
Other information:
Film exhibition costs as % of
admissions revenue(2) .................. 52.9% 53.1% 53.8% 54.0% 58.7%
Concession costs as a % of
concession revenue ..................... 14.2% 14.4% 14.3% 14.0% 15.6%
- ------------
(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, 2000 Compared to Year Ended December 31, 1999
Total revenues for the year ended December 31, 2000 decreased to $462
million from $487 million. This decrease is due primarily to a decrease in
attendance of 9% partially offset by an increase in total dollars spent per
patron. The decrease in attendance was partially due to the uncertainty created
in the Company's filing for Chapter 11 protection and less than anticipated
acceptance of film product. When Carmike filed for Chapter 11 protection
numerous business interruptions were encountered, including: the loss of
newspaper advertisements, utility cut-offs, loss of film, employee resignations
and supplier cut-offs, that all had an effect on decreasing attendance.
Attendance per average screen was 25,654 for 2000 compared to 26,614 for 1999.
Revenue per average screen was $174,914 for 2000 compared to $173,902 for 1999.
Average admission prices increased 3.1% to $4.65 for 2000 compared to $4.51 the
previous year with the average concessions sale per patron increasing 7.6% to
$1.98 for 2000 from $1.84 for 1999.
Cost of theatre operations (film exhibition costs, concession costs and
other theatre operating costs) increased 2.3% to $401 million from $392 million
due (i) to increased film rent as a result of films that did not play for an
extended period of time, which provides greater percentage payments to the
distributors, (ii) increased lease costs due to theatres opened in 1999 and
2000, and (iii) increased startup costs for new theatres. Additionally, higher
costs were incurred due to the Chapter 11 Cases as film companies adjusted the
terms on their movies, newspapers changed the full contract rates for
advertising and concession items were purchased in local markets at retail
prices. As a percentage of revenue, cost of theatre operations increased from
80.4% of total revenues in 1999 to 86.8% of total revenues in 2000.
General and administrative costs were $6.9 million for 2000 and $7.3
million for 1999. As a percentage of total revenues, general and administrative
costs were 1.50% in both 2000 and 1999.
Depreciation and amortization increased 4.9% to $43 million from $41
million as a result of the new screens in operation from our expansions in 2000
and 1999. The 1998 and 1999 Impairment Charges reduced the values of property
and equipment and goodwill. These adjustments to cost reduced the amount of
depreciation and amortization recognized during 2000 by approximately $9.2
million.
Interest expense for the year ended December 31, 2000 decreased 16.2%
to $31 million from $37 million for the year ended December 31, 1999. The
Company stopped recording
34
35
interest expense relating to substantially all of its debt facilities effective
August 8, 2000 in accordance with the requirements of Statement of Position 90-7
"Financial Reporting by Entities In Reorganization under the Bankruptcy Code"
("SOP 90-7").
Income tax expense of $26 million was recorded in 2000 versus an income
tax benefit of $7.8 million recognized in 1999. In periods prior to June 30,
2000, the Company has recognized deferred income tax assets based on its ability
to implement certain tax planning strategies that would, if necessary, be
implemented to accelerate taxable amounts to offset deductible temporary
differences. These tax planning strategies primarily involved the Company's
ability to sell property to generate taxable gains. As a result of (i) the
Chapter 11 Cases and the Company's default on its Bank Facilities, (ii) changes
in the Company's projections of future operating results, and (iii) the limited
market for theatre sale/leaseback transactions, the Company no longer has the
ability to implement the tax planning strategies that would allow it to continue
to recognize certain of its deferred income tax assets. As a result the Company
recorded a valuation allowance of $41 million during 2000.
Reorganization costs of $7 million have been incurred since the
Petition Date and include $4 million of professional fees and $5 million of
asset impairments directly related to actions taken under the Chapter 11 Cases
including, among other things, lease rejections. These costs have been offset by
$2 million of interest income and gain on asset sales subsequent to the Petition
Date.
During the period ended March 31, 1999 the Company recognized an
extraordinary charge of $10.1 million ($6.3 million net of income tax benefit,
or $0.55 per diluted share) for the prepayment premiums paid in connection with
the redemption of senior notes and the elimination of certain deferred debt
costs related to indebtedness which was retired in February 1999.
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.
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.
35
36
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.
During the period ended March 31, 1999 the Company recognized an
extraordinary charge of $10.1 million ($6.3 million net of income tax benefit,
or $0.55 per diluted share) for the prepayment premiums paid in connection with
the redemption of senior notes and the elimination of certain deferred debt
costs related to indebtedness which was retired in February 1999.
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.
RISK MANAGEMENT AND MARKET SENSITIVE INSTRUMENTS
Carmike is exposed to various market risks. Prior to the Petition Date,
these exposures primarily relate to changes in interest rates. Substantially all
of the Company's interest is suspended during the bankruptcy.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities. Carmike adopted Statement No. 133
effective January 1, 2001. The Statement requires 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. The adoption of Statement No. 133 will not have a
significant effect on the Company's results of operations or financial position.
36
37
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
The Company's revenues are collected in cash and credit cards,
principally through admissions and theatre concessions. Because its revenues are
received in cash prior to the payment of related expenses, the Company has an
operating "float" which partially finances its operations. The Company had
working capital of $27.1 million as of December 31, 2000, compared to a working
capital deficit of $60.1 million at December 31, 1999. The improved working
capital recorded as of December 31, 2000 reflects $47.1 million in current
liabilities reported as "Liabilities Subject to Compromise". Including this
amount, the working capital deficit at December 31, 2000 would have been $20.0
million. These deficits were financed through the operating "float" and, prior
to the commencement of the Chapter 11 Cases, through borrowing availability
under Carmike's $200 million Revolving Credit Facility (the "Revolving Credit
Facility"). At December 31, 2000, the Company had approximately $71.8 million in
cash and cash equivalents and short-term investments on hand. No further amounts
were available for borrowings under Carmike's Revolving Credit Facility. As of
March 23, 2001, the Company had approximately $67 million in cash and cash
equivalents and short-term investments on hand.
Carmike's capital expenditures arise principally in connection with the
development of new theatres, renovation and expansion of existing theatres and
theatre acquisitions. During 2000, such capital expenditures totaled $44.9
million. The Company had one theatre under construction on December 31, 2000.
Capital expenditures to complete this theatre will amount to approximately $1.5
million.
Cash provided by operating activities was $27.2 million for the
twelve-months ended December 31, 2000, compared to cash provided by operating
activities of $59.6 million for the twelve-months ended December 31, 1999. The
decrease in cash flow from operating activities was primarily due to the
reduction in net income, partially offset by changes in operating assets and
liabilities. Net cash used in investing activities was $15.7 million for the
year ended December 31, 2000 as compared to $135.0 million in the prior year.
This decrease in cash used in investing activities was primarily due to the
decreased level of capital expenditures and receipt of proceeds from a sale and
leaseback transaction. For the year ended December 31, 2000 and 1999, cash
provided by financing activities was $47.0 million and $66.6 million,
respectively. The decrease was primarily due to reduced borrowings under the
Revolving Credit Facility.
Professional fees have averaged approximately $800,000 per month from the
Petition Date through December 31, 2000. Carmike will continue to incur
significant professional fees during the remainder of the Chapter 11 Cases.
FINANCIAL COVENANT COMPLIANCE CONCERNS; CHAPTER 11 CASES
Carmike's credit and leasing facilities contain certain restrictive
provisions which, among other things, limit additional indebtedness of the
Company, limit the payment of dividends and other defined restricted payments,
require that certain debt to capitalization ratios be maintained and require
minimum levels of defined cash flows. As previously reported, effective March
31, 2000, Carmike amended each of the Revolving Credit Facility, its $75 million
term loan ("Term Loan B and, together with the Revolving Credit Facility, the
"Bank Facilities") and a master
37
38
lease facility with Movieplex Reality Leasing, L.L.C. (the "Master Lease" and,
together with the Bank Facilities, the "Credit Facilities") 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 Bank Facilities were
increased, the base rent payable under the Master Lease was increased and
Carmike is required to permanently prepay the loans under the Bank Facilities in
an amount equal to 75% of annual excess cash flow, as defined. 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 Credit Facilities 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.
Carmike had not, as of the Petition Date, delivered any of the mortgages
required by the Credit Facilities.
During the second quarter of 2000, a shortfall in revenue and operating
profits caused a default of certain financial ratio covenants contained in the
Credit Facilities (as discussed in Note 3 of the Notes to the Consolidated
Financial Statements). On July 25, 2000, the agents under the Bank Facilities
delivered a notice of default to Carmike that declared an event of default under
the Bank Facilities based upon such technical noncompliance with financial
covenants. The notice expressly reserved the banks' rights and remedies under
the Bank Facilities. Thereafter, on July 28, 2000, the agents under the Bank
Facilities also issued a Payment Blockage Notice to Carmike and the indenture
trustee for Carmike's 9 3/8% Senior Subordinated Notes due 2009 (the
"Subordinated Notes") prohibiting payment by Carmike of the semi-annual interest
payment in the amount of $9,375,000 due to the holders of the Subordinated Notes
on August 1, 2000.
Carmike engaged in active discussions with its lead bank lender
beginning in June 2000 to obtain a waiver of the covenant noncompliance and
renegotiate the Credit Facilities to provide terms that would allow the Company
to achieve current and future compliance and allow the payment of semiannual
interest to holders of the Subordinated Notes. Carmike was unable to
successfully negotiate satisfactory covenant relief. As a result and in the
circumstances confronting Carmike, including the nonpayment of the interest
payment due to the Subordinated Note holders and operating shortfalls, on August
8, 2000, Carmike and its subsidiaries filed voluntary petitions to reorganize
their business under Chapter 11 of the Bankruptcy Code.
The Debtors are operating their businesses as debtors-in-possession
under chapter 11, and continuation of the Company as a going concern is
contingent upon its ability, among other things, to generate sufficient cash
from operations and obtain financing sources to meet future obligations. In
connection with the formulation of a plan of reorganization, management, along
with DKW, has been reviewing the performance of each of the Company's
operations. Under the Bankruptcy Code, the Debtors may elect to assume or reject
real estate leases, employment contracts, personal property leases, service
contracts and other executory pre-petition contracts, subject to Bankruptcy
Court approval. As previously discussed, to date the Debtors have received
approval to reject 119 theatre leases.
38
39
There is a question as to whether the Master Lease is a financing or a
true lease for bankruptcy law purposes. If the Master Lease is determined to be
a true lease, the Company would be required to make rent payments, as provided
for in the Master Lease, during the pendency of the Chapter 11 Cases. If the
Master Lease is determined to be a financing, the Debtors would not be required
to make rent payments as provided for under the Master Lease during the pendency
of the Chapter 11 Cases. The Company may, however, be required to make "adequate
protection" payments to compensate the landlord under the Master Lease for any
diminution in value of the properties during the pendency of the Chapter 11
Cases. On February 13, 2001, the agent for the Master Lease lenders commenced an
advisory proceeding in the Bankruptcy Court seeking a declaration that the
Master Lease is a true lease. The Company is currently in discussions with the
Master Lease lenders regarding the treatment of the Master Lease as a financing
or true lease.
The Company has been incurring and will continue to incur significant
professional fees and other restructuring costs. The Company anticipates that it
may incur additional impairments of long-lived assets in connection with the
Chapter 11 Cases and the ongoing restructuring of its business operations during
fiscal year 2001.
Both before and after the commencement of the Chapter 11 Cases, Carmike
has taken steps to restructure its operations and to improve profitability.
These steps include but are not limited to elimination of new movie theatre
development, curtailment of renovation and expansion of existing theatres,
increased management control over expenditures, aggressive marketing of surplus
assets and evaluations of capital sources and debt restructurings
The Company expects that cash and cash equivalents on hand and cash
flow from operations should provide it with sufficient liquidity to conduct its
operations while the Chapter 11 Cases are pending. The Company does not
currently anticipate the need for Debtor-In-Possession ("DIP") financing. Should
the Company determine at a later date there is a need for such financing, there
can be no assurance that DIP financing will be available to the Company on
satisfactory terms and conditions, if at all. Carmike's long-term liquidity and
the adequacy of Carmike's capital resources cannot be determined until a plan of
reorganization has been developed and confirmed by the Bankruptcy Court in
connection with the Chapter 11 Cases.
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, 2000, 1999
and 1998
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
39
40
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 (a debtor-in-possession as of August 8,
2000) as of December 31, 2000 and 1999, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of
the three years in the period ended December 31, 2000. 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, 2000
and 1999 and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 2000,
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.
The accompanying consolidated financial statements have been prepared
assuming that Carmike Cinemas, Inc. will continue as a going concern. As
more fully described in Notes 1 and 2, on August 8, 2000, the Company and
its subsidiaries filed voluntary petitions for relief under Chapter 11 of
title 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court
for the District of Delaware. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. Management is
in the process of developing a plan of reorganization for approval by the
U.S. Bankruptcy Court and the Company's creditors. In the event the plan
of reorganization is accepted, continuation of the business thereafter is
dependent on the Company's ability to achieve successful future
operations. The consolidated financial statements do not include any
adjustments to reflect the possible future effects on the recoverability
and classification of assets or the amounts and classification of
liabilities that may result from the outcome of these uncertainties.
Columbus, Georgia
March 15, 2000
/s/ Ernst & Young LLP
-------------------------
F-1
41
CONSOLIDATED BALANCE SHEETS
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
DECEMBER 31,
2000 1999
---------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 68,271 $ 9,761
Accounts and notes receivable 1,627 1,459
Inventories 4,029 4,240
Recoverable construction allowances--Note 6 13,392 15,259
Recoverable income taxes -0- 5,775
Prepaid expenses 7,109 10,257
---------- ----------
TOTAL CURRENT ASSETS 94,428 46,751
OTHER ASSETS
Investments in and advances to partnerships 8,747 14,270
Deferred income taxes-- Note 11 -0- 21,038
Other 6,702 10,542
---------- ----------
15,449 45,850
PROPERTY AND EQUIPMENT--Notes 2, 4, 7 and 8
Land 67,041 71,239
Buildings and improvements 200,898 247,283
Leasehold improvements 277,322 262,310
Leasehold interests 15,429 18,185
Equipment 255,931 250,323
---------- ----------
816,621 849,340
Accumulated depreciation and amortization (195,456) (183,100)
---------- ----------
621,165 666,240
EXCESS OF PURCHASE PRICE OVER NET ASSETS OF BUSINESSES
ACQUIRED--Note 4 45,991 49,551
---------- ----------
$ 777,033 $ 808,392
========== ==========
F-2
42
DECEMBER 31,
2000 1999
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 34,847 $ 56,677
Accrued expenses--Notes 1 and 3 29,903 46,159
Current maturities of long-term indebtedness and capital lease
obligations 2,569 4,008
---------- ----------
TOTAL CURRENT LIABILITIES 67,319 106,844
LONG-TERM LIABILITIES
Long-term debt, less $1,724 in current maturities and $455,239 classified as
subject to compromise at December 31,
2000--Notes 3 and 7 -0- 413,688
Capital lease obligations, less current maturities and $2,085
classified as subject to compromise at December 31,
2000--Note 8 49,430 52,639
Deferred income taxes--Note 11 1,927 -0-
Restructuring reserve, less $24,683 classified as subject to
compromise--Note 3 -0- 24,615
Other -0- 6,409
---------- ----------
51,357 497,351
LIABILITIES SUBJECT TO COMPROMISE--NOTE 3 529,236 -0-
COMMITMENTS AND CONTINGENCIES--NOTES 2,3, 5, 8 AND 12
SHAREHOLDERS' EQUITY--Notes 2, 9 and 10
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
10,018,287 and 9,968,287 shares, respectively 301 299
Class B Common Stock, $.03 par value, ten votes per share, authorized
5,000,000 shares, issued and outstanding 1,370,700 and 1,420,700 shares,
respectively 41 43
Treasury Stock, at cost, 44,800 (441) (441)
Paid-in capital 158,772 158,772
Retained earnings (deficit) (30,102) 44,974
---------- ----------
129,121 204,197
---------- ----------
$ 777,033 $ 808,392
========== ==========
See accompanying notes
F-3
43
CONSOLIDATED STATEMENTS OF OPERATIONS
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31,
2000 1999 1998
---------- ---------- ----------
Revenues:
Admissions $ 315,395 $ 335,980 $ 330,534
Concessions and other 146,902 150,945 151,034
---------- ---------- ----------
462,297 486,925 481,568
Costs and expenses:
Film exhibition costs 185,195 181,504 177,754
Concession costs 20,964 19,046 19,911
Other theatre operating costs 194,789 191,063 187,870
General and administrative expenses 6,889 7,316 7,115
Depreciation and amortization expenses 43,174 41,146 37,502
Impairments of long-lived assets--Note 2 and 4 21,250 32,993 38,300
Restructuring charge--Note 5 -0- (2,671) 34,699
---------- ---------- ----------
472,261 470,397 503,151
---------- ---------- ----------
OPERATING INCOME (LOSS) (9,964) 16,528 (21,583)
Interest expense (Contractual interest for the year ended
December 31, 2000 was $46,863) 31,009 36,853 27,230
---------- ---------- ----------
LOSS BEFORE REORGANIZATION COSTS, INCOME TAXES AND
EXTRAORDINARY ITEM (40,973) (20,325) (48,813)
Reorganization costs--Note 2 7,042 -0- -0-
---------- ---------- ----------
LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (48,015) (20,325) (48,813)
Income tax expense (benefit)--Note 9 25,548 (7,740) (18,166)
---------- ---------- ----------
NET LOSS BEFORE EXTRAORDINARY ITEM (73,563) (12,585) (30,647)
Extraordinary item (net of income taxes)--Note 7 -0- (6,291) -0-
---------- ---------- ----------
NET LOSS (73,563) (18,876) (30,647)
Preferred stock dividends (1,513) (3,025) (332)
---------- ---------- ----------
NET LOSS AVAILABLE FOR COMMON STOCK $ (75,076) $ (21,901) $ (30,979)
========== ========== ==========
Weighted average shares outstanding:
Basic and diluted 11,344 11,375 11,356
========== ========== ==========
Loss per common share before extraordinary item:
Basic and diluted $ (6.62) $ (1.37) $ (2.73)
========== ========== ==========
Loss per common share:
Basic and diluted $ (6.62) $ (1.93) $ (2.73)
========== ========== ==========
See accompanying notes
F-4
44
CONSOLIDATED STATEMENTS OF CASH FLOWS
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
2000 1999 1998
---------- ---------- ----------
OPERATING ACTIVITIES
Net loss $ (73,563) $ (18,876) $ (30,647)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 43,174 41,146 37,502
Impairment charges 26,134 32,993 38,300
Restructuring charge (755) (2,671) 34,699
Deferred income taxes 22,965 (6,979) (26,490)
Recoverable income taxes 5,775 (5,775) -0-
Gain on sales of property and equipment (3,018) (2,765) (282)
Other gains -0- -0- (898)
Extraordinary charge -0- 10,146 -0-
Changes in operating assets and liabilities:
Accounts and notes receivable and inventories 43 (276) (533)
Prepaid expenses 3,148 (4,371) (438)
Accounts payable 37,625 11,144 19,411
Accrued expenses and other liabilities 5,150 5,913 21,409
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES
BEFORE REORGANIZATION ITEMS 66,678 59,629 92,033
Reorganization items--Note 2 (39,497) -0- -0-
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 27,181 59,629 92,033
INVESTING ACTIVITIES
Purchases of property and equipment (44,948) (140,480) (146,713)
Proceeds from sales of property and equipment 4,473 5,069 6,007
Proceeds from sale/leaseback transaction--Note 8 23,589 -0- -0-
Decrease (increase) in:
Other 1,249 372 121
---------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (15,637) (135,039) (140,585)
FINANCING ACTIVITIES
Debt:
Additional borrowings, net of debt issuance costs 341,211 2,422,818 3,215,000
Repayments (including prepayment penalties) (294,599) (2,337,724) (3,223,979)
Issuance of Preferred Stock -0- -0- 54,000
Preferred stock dividends (1,513) (3,025) -0-
Issuance of Class A Common Stock -0- 230 416
Repurchase of Class A Common Stock -0- (441) -0-
Recoverable construction allowances under capital leases 1,867 (15,259) 2,100
---------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 46,966 66,599 47,537
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 58,510 (8,811) (1,015)
Cash and cash equivalents at beginning of year 9,761 18,572 19,587
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 68,271 $ 9,761 $ 18,572
========== ========== ==========
See accompanying notes
F-5
45
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
(IN THOUSANDS)
SERIES A SENIOR CUMULATIVE
CONVERTIBLE EXCHANGEABLE CLASS A
PREFERRED STOCK COMMON STOCK
---------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
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
Issuance of Class A Common Stock by
Conversion of Class B Common Stock -- -- 50 2
Dividends on Preferred Stock -- -- -- --
Net loss -- -- -- --
------ ------ ------ ------
BALANCES AT DECEMBER 31, 2000 550 $ 550 10,018 $ 301
====== ====== ====== ======
See accompanying notes
F-6
46
CLASS B
COMMON STOCK TREASURY STOCK PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
- ------ ----- ------ ------ -------- -------- ---------
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
(50) (2) -- -- -- -- --
-- -- -- -- -- (1,513) (1,513)
-- -- -- -- -- (73,563) (73,563)
- ------ ---- ---- ----- -------- -------- ---------
1,371 $ 41 (45) $(441) $158,772 $(30,102) $ 129,121
====== ==== ==== ===== ======== ======== =========
F-7
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
DECEMBER 31, 2000
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The accompanying consolidated financial statements of
Carmike Cinemas, Inc. ("Carmike") and its subsidiaries (collectively, the
"Company") have been prepared in accordance with generally accepted accounting
principles applicable to a going concern which contemplates continuity of
operations and realization of assets and liquidation of liabilities in the
normal course of business. As discussed in Note 2--Proceedings Under Chapter 11,
on August 8, 2000 (the "Petition Date"), Carmike and its subsidiaries, Eastwynn
Theatres, Inc. ("Eastwynn"), Wooden Nickel Pub, Inc. ("Wooden Nickel") and
Military Services, Inc. ("Military Services") (collectively with Carmike, the
"Debtors") filed voluntary petitions for relief under chapter 11 ("the "Chapter
11 Cases") of title 11 of the U.S. Code (the "Bankruptcy Code") in the United
States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court").
The Chapter 11 Cases are being jointly administered for procedural purposes
only. The Debtors are operating their respective businesses as
debtors-in-possession. On August 23, 2000, the Office of the United States
Trustee for the District of Delaware (the "U.S. Trustee") appointed an Official
Committee of Unsecured Creditors.
As a result of the Company's recurring losses, the Chapter 11 Cases and
circumstances relating to this event, including the Company's debt structure and
current economic conditions, realization of assets and liquidation of
liabilities are subject to significant uncertainty. These matters, among others,
raise substantial doubt about the Company's ability to continue as a going
concern. In the event a plan of reorganization is developed and is approved by
the Bankruptcy Court, continuation of the Company's business thereafter will be
dependent on the Company's ability to achieve successful operations. Management
is in the process of developing a plan of reorganization.
In connection with the Chapter 11 Cases, the Company is required to report in
accordance with Statement of Position 90-7 "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code" ("SOP 90-7") for financial statements
for the period beginning August 8, 2000 and thereafter. SOP 90-7 requires (i)
that pre-petition liabilities that are subject to compromise be segregated in
the Company's consolidated balance sheet as liabilities subject to compromise
and (ii) the identification of all transactions and events that are directly
associated with the reorganization of the Company in the consolidated statement
of operations. The liabilities are recorded in the amounts reflected on the
Debtors' books and records and are not necessarily the amounts that the
liabilities will ultimately be allowed by the Bankruptcy Court. Due to the
Company's Chapter 11 Cases, the value of certain of the Company's long-lived
assets has been impaired (see Note 2--Proceedings Under Chapter 11 and Note
4--Impairment of Long-Lived Assets). As additional leases are approved for
rejection by the Bankruptcy Court, additional long-lived asset impairments may
be recognized by the Company. Also, amounts reported on the accompanying
Consolidated Balance Sheets could materially change as a result of a plan of
reorganization, as such reported amounts currently do not give effect to
adjustments to the carrying value of the underlying assets or amounts of
liabilities that may ultimately result.
F-8
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BUSINESS: 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 are recognized as
income at the point of sale. Ten major distributors in the motion picture
industry produced films which accounted for approximately 98.8%, 97.8% and 98.1%
of the Company's admission revenues in 2000, 1999 and 1998, 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. At December 31, 2000, the
Company held cash and cash equivalents of approximately $3.5 million in accounts
that were frozen as a result of the Chapter 11 Cases. Such amounts are
classified as other long-term assets in the accompanying Balance Sheets. During
March 2001, these amounts were distributed to the Company's bank group as
reductions of amounts outstanding under the Bank Facilities.
SHORT-TERM INVESTMENTS: Short-term investments consist principally of U.S.
Government securities with maturity dates less than one year from 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 both 2000 and 1999; three in 1998) 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 losses of these partnerships, prior to
impairment charges, was approximately $(980,000), $(891,000) and $(616,000) in
2000, 1999 and 1998, respectively. These amounts are included as "Concessions
and other" in the accompanying Consolidated Statements of Operations. Also see
Note 4--Impairments of Long-Lived Assets.
F-9
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
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,
2000 1999
-------- --------
Deferred revenues $ 10,680 $ 13,413
Deferred and other accrued rents 8,754 11,527
Property taxes 2,972 4,982
Other accruals 7,497 4,044
Restructuring reserves -0- 3,728
Accrued interest -0- 8,465
-------- --------
$ 29,903 $ 46,159
======== ========
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 $8
million and $6 million at December 31, 2000 and 1999, respectively, and
amortization expense was $2 million for each of 2000, 1999 and 1998.
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 4--Impairments of Long-Lived
Assets).
F-10
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTEREST RATE SWAPS: Prior to the Petition Date, the Company entered into
interest rate swap agreements to modify the interest characteristics of a
portion of its outstanding debt. The agreements involved 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. 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.
See Note 3--Liabilities Subject to Compromise, for a discussion of the interest
rate swaps terminated at the Petition Date.
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.
Effective November 30, 2000, the Bankruptcy Court approved the Company's
retention and severance bonus plan. This plan, among other things, allows for
the payment of retention bonuses on February 28 and August 31 to certain
designated officers and employees. No amounts were paid under this plan in 2000.
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 ("Statement 123"), 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.
F-11
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING POLICIES NOT YET ADOPTED: In June 1998, the FASB issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities ("Statement
133"). The Company expects to adopt Statement 133, as amended, effective January
1, 2001. Statement 133 will require the Company to recognize all derivatives on
the balance sheet at fair value. The adoption of this Statement will not have a
significant effect on the Company's results of operations or financial position.
RECLASSIFICATIONS: Certain 1999 amounts in the accompanying consolidated
financial statements have been reclassified to conform to the current year's
presentation.
NOTE 2--PROCEEDINGS UNDER CHAPTER 11
As previously noted (see Note 1--Basis of Presentation), the Debtors have
operated under chapter 11 of the Bankruptcy Code since August 8, 2000. In the
Chapter 11 Cases, substantially all unsecured and partially secured liabilities
as of the Petition Date are subject to compromise or other treatment under a
plan of reorganization to be confirmed by the Bankruptcy Court after submission
to any required votes by affected parties. Generally, actions to enforce or
otherwise effect repayment of all pre-chapter 11 liabilities as well as all
pending litigation against the Debtors are stayed while the Debtors continue
their business operations as debtors-in-possession. On September 19, 2000,
Wooden Nickel and Military Services filed their bankruptcy schedules with the
Bankruptcy Court. Carmike and Eastwynn filed their schedules on October 18,
2000. The schedules set forth the assets and liabilities of the Debtors as of
the Petition Date as reflected in the Debtors' accounting records and the
schedules may be amended by the Debtors. Differences between the amounts
reflected in such schedules and claims filed by creditors will be investigated
and may be either amicably resolved or adjudicated before the Bankruptcy Court.
The ultimate amount and settlement terms for such liabilities are subject to an
approved plan of reorganization and accordingly are not presently determinable.
Under the Bankruptcy Code, the Debtors may elect to assume or reject real estate
leases, employment contracts, personal property leases, service contracts and
other executory pre-petition contracts, subject to Bankruptcy Court approval. As
of March 2, 2001, the Debtors have received approval from the Bankruptcy Court
to reject leases relating to 119 theater locations. The Debtors are continuing
to review their market strategy, geographic positions and theatre level
profitability. As a result of this continuing review, the Debtors may consider
rejecting additional leases for theatres that do not fall within the Debtors'
market strategy or geographic positioning or that do not perform at or above the
Company's expected theatre profitability level. The Debtors cannot presently
determine or reasonably estimate the ultimate liability that may result from
rejecting leases or from the filing of claims for any rejected contracts, and no
provisions have yet been made for these items in the financial statements.
F-12
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 2--PROCEEDINGS UNDER CHAPTER 11 (CONTINUED)
There is a question as to whether the Master Lease (as defined in Note
3--Liabilities Subject to Compromise) is a financing or a true lease for
bankruptcy law purposes. If the Master Lease is determined to be a true lease,
the Company would be required to make rent payments, as provided for in the
Master Lease, during the pendency of the Chapter 11 Cases. If the Master Lease
is determined to be a financing, the Debtors would not be required to make rent
payments as provided for under the Master Lease during the pendency of the
Chapter 11 Cases. However, the Company may be required to make "adequate
protection" payments to compensate the landlord under the Master Lease for any
diminution in value of the properties during the pendency of the Chapter 11
Cases. At December 31, 2000, the Company was not making monthly payments under
the Master Lease. On February 13, 2001, the agent for the Master Lease lenders
commenced an advisory proceeding in the Bankruptcy Court seeking a declaration
that the Master Lease is a true lease. The Company is currently in discussions
with the Master Lease lenders regarding the treatment of the Master Lease as a
financing or true lease.
The Company has received approval from the Bankruptcy Court to pay pre-petition
and post-petition employee wages, salaries, benefits and other employee
obligations. The Bankruptcy Court also approved orders granting authority, among
other things, to pay pre-petition claims of certain critical vendors and film
distributors. All other pre-petition liabilities at December 31, 2000 are
classified in the consolidated balance sheet as liabilities subject to
compromise (see Note 3--Liabilities Subject to Compromise). The Company has been
and intends to continue to pay post-petition claims of all vendors, film
distributors and other suppliers in the ordinary course of business.
As a result of the Chapter 11 Cases, no principal or interest payments will be
made on unsecured pre-petition debt. Payments may be required to be made on
secured pre-petition debt subject to Bankruptcy Court approval. On October 27,
2000, the Debtors received Bankruptcy Court approval to make debt service
payments for the loan related to Industrial Revenue Bonds issued by the Downtown
Development Authority of Columbus, Georgia. The amounts outstanding under these
bonds, approximately $1.7 million at December 31, 2000, are classified as
current maturities of long-term indebtedness in the accompanying condensed
consolidated balance sheets. The Company has reached an agreement with its
creditor constituencies that provides for the payment of cash collateral and
adequate protection, as those terms are defined in the Bankruptcy Code. The
Company made payments to the secured lenders in the amount of $8,272,821 on
March 5, 2001 and will make payments of $500,000 per month as adequate
protection payments. All of these payments are treated as principal payments
under the creditor agreement.
Additionally, after the Petition Date, the Company cannot declare dividends for
its 5.5% Series A Senior Cumulative Convertible Exchangeable Preferred Stock
(the "Preferred Stock"). Preferred Stock dividends of $1.5 million are in
arrears at December 31, 2000. The terms of the Preferred Stock agreement
provide, with respect to dividend arrearages, that the dividend accrued rate
increases to 8.5%. In view of the Company's having ceased making scheduled
dividend payments on the Preferred Stock after the Petition Date, the holders of
the Preferred Stock have designated two additional directors to the Company's
Board of Directors.
F-13
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 2--PROCEEDINGS UNDER CHAPTER 11 (CONTINUED)
Reorganization costs are directly associated with the reorganization proceedings
under the Company's Chapter 11 Cases. Included in such costs are approximately
$4.9 million of asset impairments (primarily equipment and leasehold
improvements) related to leased theatres for which the Bankruptcy Court has
approved lease rejections. Included in the reorganization related impairment
charge are amounts assigned to the net book value of equipment that has been
transferred to certain lessors to eliminate their deficiency claims for rejected
leases under the Chapter 11 Cases.
See Note 4--Impairments of Long-Lived Assets for further discussion of other
impairments recognized during 2000 and for information about the Company's FAS
121 impairment calculations.
Reorganization costs for the period of August 8, 2000 through December 31, 2000
are as follows (in thousands):
Professional fees $ 3,936
Asset impairments 4,884
Gain on sale of assets (1,108)
Other 468
Interest income (1,138)
--------
$ 7,042
========
Payments for pre-petition liabilities approved by the Bankruptcy Court are as
follows (in thousands):
Film distributors $ 37,247
Critical trade vendors 1,750
Workers' compensation 350
Common carriers 150
--------
$ 39,497
========
Cash provided (used in) reorganization costs for the period of August 8, 2000
through December 31, 2000 are as follows (in thousands):
Professional fees $ 885
Proceeds from sale of assets (2,317)
Interest Income (1,138)
Other 1,119
--------
$ (1,451)
========
F-14
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 3--LIABILITIES SUBJECT TO COMPROMISE
The principal categories of obligations classified as Liabilities Subject to
Compromise under the Chapter 11 Cases are identified below. The amounts in total
may vary significantly from the stated amounts of proofs of claims that
ultimately will be filed with the Bankruptcy Court, and may be subject to future
adjustments depending on Bankruptcy Court action, further developments with
respect to potential disputed claims, and determination as to the value of any
collateral securing claims or other events. Additional claims may arise from the
rejection of executory contracts and unexpired leases by the Debtors.
A summary of the principal categories of claims classified as Liabilities
Subject to Compromise at December 31, 2000 are as follows (in thousands):
Accounts payable $ 19,958
Accrued expenses 27,160
Restructuring reserves 24,683
Other liabilities 2,196
Revolving Credit Agreement 192,000
Term Loan B 71,273
Subordinated Notes 191,966
--------
$529,236
========
Prior to the Petition Date, the Company was in technical default of certain
financial ratio covenants contained in (a) the Amended and Restated Credit
Agreement among Carmike, certain banks and Wachovia Bank, NA as agent, dated as
of January 29, 1999, as amended (the "Revolving Credit Agreement") (b) the Term
Loan Credit Agreement among Carmike, certain lenders, Wachovia Bank, NA as
administrative agent, Goldman Sachs Credit Partners L.P., as syndication agent,
and First Union National Bank, as documentation agent, dated as of February 25,
1999, as amended (the "Term Loan B" and together with the Revolving Credit
Agreement, the "Bank Facilities") and the ( c) the Amended and Restated Master
Lease between Movieplex Realty Leasing L.L.C. as landlord and Carmike as tenant
dated January 29, 1999 (the "Master Lease" and, together with the "Bank
Facilities", the "Credit Facilities"). On July 25, 2000, the agents under the
Bank Facilities delivered a notice of default to Carmike that declared an event
of default under the Bank Facilities based upon such technical noncompliance
with financial covenants. The notice expressly reserved the banks' rights and
remedies under the Bank Facilities. Thereafter on July 28, 2000, the agents
under the Bank Facilities also issued a Payment Blockage Notice to Carmike of
the semi-annual interest payment in the amount of $9,375,000 due to the holders
of the Subordinated Notes on August 1, 2000. Also, the Chapter 11 Cases
constitute a default under the Subordinated Notes and Credit Facilities
agreements.
F-15
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 3--LIABILITIES SUBJECT TO COMPROMISE (CONTINUED)
Amounts outstanding under the Bank Facilities and the Subordinated Notes at the
Petition Date are classified as liabilities subject to compromise in the
accompanying financial statements until a plan of reorganization is approved and
implemented. Certain provisions of the Bankruptcy Code may relieve the Company
from its obligation to pay interest after the Petition Date. In accordance with
SOP 90-7, interest on secured claims will be accrued only to the extent that the
value of the underlying collateral exceeds the principal amount of any secured
claim. It has not been determined whether the collateral exceeds the principal
amount of any secured claim. Thus, under certain conditions, interest on
unsecured and under secured claims may not be required to be accrued. After the
Petition Date, the Company is prohibited from making contractual payments on its
outstanding long-term debt obligations absent a Bankruptcy Court order or until
conclusion of the Chapter 11 Cases and implementation of a plan of
reorganization allowing for such payments.
As a result of the Chapter 11 Cases, the agents under the Bank Facilities
terminated the Company's interest rate swap agreements. At December 31, 2000,
approximately $897,000 due the Company at the date of the termination of these
interest rate swap agreements is held by Wachovia Bank, N.A. and First Union
Bank as cash collateral for the outstanding indebtedness under the Bank
Facilities.
NOTE 4--IMPAIRMENTS OF LONG-LIVED ASSETS
The Company accounts for its long-lived assets in accordance with the FASB's
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 its 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, assets are evaluated for impairment at the theatre
level, which management believes is the lowest level for which there are
identifiable cash flows. 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.
F-16
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 4--IMPAIRMENTS OF LONG-LIVED ASSETS (CONTINUED)
As a result of the Chapter 11 Cases, the Company has delayed its plans to
retrofit or expand existing theatres using used equipment that is held by the
Company. Also, the Company has significant amounts of used equipment available
for removal or already removed from the theatres closed due to lease rejections.
The fair value of this equipment (net book value of approximately $19.0 million
at December 31, 2000) will be largely determined by the Company's ability to
build new theatres or retrofit and expand existing theatres in the future. The
future use of this equipment, and, therefore an estimate of its future value,
will not be finalized until the Company's bankruptcy plan is approved by the
Bankruptcy Court.
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, 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.
Subsequent to the Petition Date, the Company identified indicators of
impairments for several leased theatres that have not yet been rejected and
certain owned theatres. Additionally, several theatres have been identified as
impaired as a result of decreased cash flows due to new competition in their
markets. The Company has recognized impairment charges of approximately $21.2
($1.87 per diluted share) million for these theatre locations (the "2000
Impairment Charge"). Further asset impairments may occur as the Company rejects
additional leases and when the plan of reorganization is approved. These
impairment charges (the 2000 Impairment Charge plus impairment charges related
to reorganization - see Note 2--Proceedings Under Chapter 11) reduced the
carrying value of property and equipment by $24.2 million (costs of $34.4
million less accumulated depreciation and amortization of $10.2 million) and
excess of purchase price over net assets of businesses acquired by approximately
$2.0 million.
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 diluted share). This charge reduced the carrying
value of property and equipment by $22 million (costs of $35 million less
accumulated depreciation and amortization of $13 million) and the excess of
purchase price over net assets of businesses acquired by approximately $6
million.
F-17
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 4--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 operated three movie theater/entertainment
complexes which were closed as of December 31, 2000. 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 value
for certain of its theaters (the "1998 Impairment Charge"). The 1998 Impairment
Charge totaled approximately $38 million (approximately $24 million after income
taxes or $2.12 per diluted 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 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 the Company's older, auditorium-style
theatres (ii) the Company's negative evaluation of the operating results
produced from theatres previously converted to discount houses or (iii) the
inability to improve marginal theatre/entertainment centers' operating results
to a level that would support the carrying value of long-lived assets.
As a result of the reduced carrying amount of the impaired assets due to the
1999 Impairment Charge and the 1998 Impairment Charge, depreciation and
amortization expense was reduced as follows (in millions except per share
amounts):
DEPRECIATION AND
AMORTIZATION NET OF INCOME PER DILUTED
EXPENSE TAXES SHARE
---------------- ------------- -----------
2000 9.2 9.2 .81
1999 6.7 4.2 .37
1998 3.5 2.2 .19
F-18
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 5--RESTRUCTURING CHARGE
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 the Company's operating and growth strategies (the
"Restructuring Plan"). In accordance with the Restructuring Plan, such theatres
were closed during 1999. Those theatres with remaining lease terms at the
Petition Date have been approved for rejection by the Bankruptcy Court. The
Company has recognized a 1998 charge of approximately $34.7 million
(approximately $21.5 million after income taxes or $1.89 per diluted 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. The remaining reserves, $24.7 million at December 31, 2000, are
classified as Liabilities Subject to Compromise in the accompanying Balance
Sheets
During June 1999, the Company revised its estimate of the total costs to be
incurred for its restructuring plan approved in December 1998. The $2.7 million
decrease in estimated costs (approximately $1.7 million after income taxes or
$.15 diluted 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.
During 2000, the Company negotiated a settlement with a lessor that eliminated
future payments under the terms of the lease. In addition, a stipulation was
signed by the lessor in which the lessor released future claims in exchange for
the theatre equipment and leasehold improvements. The reorganization reserve was
reduced by a $755,000 credit to reorganization costs for this transaction.
Disbursements charged against the reserve were approximately $2.9 million and
$3.7 million during 2000 and 1999, respectively.
Revenues and operating losses during the year ended December 31, 1998 for the
theatres included in Restructuring Plan were approximately $8.7 million and $3.6
million, respectively.
NOTE 6--RECOVERABLE CONSTRUCTION ALLOWANCES
Carmike, under contractual agreements with certain lessors, is entitled to
reimbursement of certain theater construction related costs. Collection of these
amounts, $13.4 million at December 31, 2000, are based on the occurrence of
certain defined events. Certain lessors may dispute the requirements to
reimburse the Debtors' for such amounts. Amounts collected after the Petition
Date may be subject to liens and security interests granted to the banks under
the Credit Facilities. Pursuant to the Company's agreement with its pre-petition
lenders regarding adequate protection and use of cash collateral, the Company
has agreed to pay down the principal amount of indebtedness to such lenders by
the amount of net construction allowances collected during the Chapter 11 Cases
less the costs incurred by the Company during the Chapter 11 Cases.
F-19
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 7--INDEBTEDNESS
Due to the Company's failure to make scheduled payments, comply with certain
financial covenants and the commencement of the Chapter 11 Cases, the Company is
in default on substantially all of its debt obligations, except for its
Industrial Revenue Bonds, see Note 2--Proceedings Under Chapter 11 and Note
3--Liabilities Subject to Compromise. Except as otherwise may be determined by
the Bankruptcy Court, the automatic stay protection afforded by the Chapter 11
Cases prevents any action from being taken with regard to any of the defaults
under the pre-petition debt obligations. These obligations are classified as
Liabilities Subject to Compromise at December 31, 2000.
No interest has been paid or accrued on pre-petition indebtedness since the
Petition Date, and no principal payments have been made since that time with the
exception of amounts related to certain other indebtedness, including capital
leases and the Industrial Revenue Bonds.
Indebtedness consists of the following (in thousands):
DECEMBER 31,
2000 1999
---------- ----------
Revolving credit facility $ 192,000 $ 140,000
Term Loan B 71,273 74,625
Subordinated Notes 191,966 200,000
Industrial Revenue Bonds; payable in equal installments
through May 2006, with interest rates ranging from
3.90% to 5.98% 1,724 2,034
---------- ----------
456,963 416,659
Less amounts classified as Liabilities Subject to
Compromise (455,239) -0-
Less current maturities (1,724) (2,971)
Less Subordinated Notes -0- (200,000)
---------- ----------
$ -0- $ 213,688
========== ==========
1999 RESTRUCTURING OF INDEBTEDNESS: In February 1999, the Company completed its
offering of $200.0 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 "Revolving Credit Agreement"). The Revolving
Credit Agreement provided for revolving credit availability of $200 million,
with a defined interest rate based on LIBOR plus a spread.
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 Term Loan B has a defined
interest rate based on LIBOR plus a spread and is guaranteed by all of the
Company's wholly-owned subsidiaries.
The 9 3/8% Senior Subordinated Notes due 2009 (the "Subordinated Notes") were
issued by Carmike in the principal amount of $200 million and are guaranteed by
Eastwynn and Wooden Nickel.
F-20
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 7--INDEBTEDNESS (CONTINUED)
The Company used the net proceeds from the issuance of the Subordinated Notes,
approximately $193.7 million, to redeem its then outstanding Senior Notes and to
reduce the amounts outstanding under its revolving credit agreement. The Company
recognized an extraordinary charge in 1999 of approximately $10.2 million ($6.3
million after income taxes) for a prepayment premium of approximately $9.2
million paid in connection with the redemption of the Senior Notes and the
write-off of deferred debt fees of approximately $.9 million.
Effective March 31, 2000, the Company amended its Revolving Credit Agreement,
Term Loan B and a lease facility to, among other things, adjust certain
financial ratios relative to past and future operating performance.
Additionally, the Company agreed to secure these facilities with mortgages on
its owned theaters and leasehold mortgages on certain of its leased theaters.
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. The Subordinated Notes contain certain restrictive provisions
which, among other things, limit dividends and other restricted payments.
CAPITALIZED INTEREST: Prior to the Petition Date, the Company capitalized
interest in connection with its construction on long-lived assets. Interest paid
and interest capitalized were as follows (in thousands):
YEARS ENDED INTEREST INTEREST
DECEMBER 31, PAID CAPITALIZED
------------ -------- -----------
2000 $29,254 $ 1,500
1999 32,759 3,131
1998 26,068 4,537
NOTE 8--LEASES
Certain of the Company's theatres and equipment are leased under 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 15-20 years.
F-21
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 8--LEASES (CONTINUED)
Property and equipment includes the following amounts related to capital lease
assets (in thousands):
DECEMBER 31,
2000 1999
-------- --------
Buildings and improvements $ 50,989 $ 51,556
Less accumulated amortization (9,693) (8,185)
-------- --------
$ 41,296 $ 43,371
======== ========
The Company obtained property and equipment of approximately $15 million under
capital leases for 1999.
Future minimum payments, by year and in the aggregate, under capital leases and
operating leases with terms over one year and which had not been rejected by the
Company in the Chapter 11 Cases as of December 31, 2000 are as follows (in
thousands):
OPERATING CAPITAL
LEASES LEASES
--------- --------
2001 $ 42,826 $ 6,951
2002 41,433 7,012
2003 40,187 7,051
2004 38,241 7,233
2005 37,416 7,277
Thereafter 383,106 92,531
-------- --------
Total minimum lease payments $583,209 $128,055
========
Less amounts representing interest (77,780)
--------
Present value of future minimum lease payments 50,275
Less current maturities (845)
--------
$ 49,430
========
Rent expense was approximately $67.4 million, $59.6 million and $58.3 million
for 2000, 1999 and 1998, respectively.
During the year ended December 31, 2000, Carmike sold three theatres, with a net
book value of $22.8 million, for proceeds of $23.6 million. The theaters were
leased back from the purchaser under a 20-year operating lease agreement. Gains
realized from the sale leaseback transaction are recognized over the life of the
leases. The leases contain renewal options and generally provide that Carmike
will pay property taxes, common area maintenance, insurance and repairs. The net
proceeds from this transaction were used to reduce outstanding bank indebtedness
and for operations.
F-22
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 9--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, 2000, have
been 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. At
December 31, 2000, 6,000 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.
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 2000
and 1999, respectively: During 2000 and 1999, options for 403,000 shares and
6,000 shares were granted at $5.44 and $14.00 per share, respectively. Risk-free
interest rates of 6.65% and 5.78%; dividend yields of 0%; volatility factors of
the expected market price of the Company's common stock of 1.302 and .314; and a
weighted-average expected life of the option of 5.0 years.
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 2000 and 1999, respectively, $4.77 and $5.24 per share, is
amortized to expense over the options' vesting period. Pro forma stock based
compensation costs resulted in a 2000 pro forma loss of $75.9 million (or pro
forma net loss per diluted share of $6.70) and a 1999 pro forma loss of $22.5
million (or pro forma net loss per diluted share of $1.98).
F-23
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 9--STOCK OPTION PLAN (CONTINUED)
Changes in outstanding stock options were as follows (in thousands, except for
exercise price per share):
EXERCISE PRICE PER SHARE
------------------------------------------------------------
$6.00 -
$5.44 $14.00 $18.00 $27.125 TOTAL
----- ------- ------ ------- -----
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 -- 72 73 335 480
ISSUED 403 -- -- -- 403
FORFEITURES -- (66) -- -- (66)
EXERCISED -- -- -- -- --
---- ---- ---- ---- ----
STOCK OPTIONS OUTSTANDING AT
DECEMBER 31, 2000 403 6 73 335 817
==== ==== ==== ==== ====
At December 31, 2000, approximately 213,000 options were exercisable.
NOTE 10--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 is convertible, based on liquidation value, at the
option of the holder, into the Company's Class A Common Stock at $25.00 per
share (subject to anti-dilution adjustments).
F-24
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 10--SHAREHOLDERS' EQUITY (CONTINUED)
The Company has shares of Class A Common Stock reserved for future issuance as
follows (in thousands):
DECEMBER 31,
2000 1999
------ ------
Stock option plan 823 889
Conversion rights of Series A Preferred Stock 2,200 2,200
Conversion rights of Class B Common Stock 1,371 1,421
------ ------
4,394 4,510
====== ======
NOTE 11--INCOME TAXES
The Company accounts for income taxes in accordance with FASB Statement No. 109,
Accounting for Income Taxes ("Statement 109"). Under Statement 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.
In periods prior to June 30, 2000, the Company had recognized deferred income
tax assets based on its ability to generate future taxable income in amounts
sufficient to allow the utilization of the deductible temporary differences
which created those deferred tax assets. These tax planning strategies primarily
involved the Company's ability to sell property to generate gains. As a result
of (i) Chapter 11 Cases and the Company's default on its Bank Facilities, (ii)
changes in the Company's projections of future operating results, and (iii) the
limited market for theatre sale-leaseback transactions, the Company no longer
has the ability to implement the tax planning strategies that would allow it to
continue to recognize certain of its deferred income tax assets. Thus, the
Company provided a valuation allowance of approximately $41 million during the
year ended December 31, 2000.
F-25
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 11--INCOME TAXES (CONTINUED)
The provision for income tax expense (benefit) is summarized as follows (in
thousands):
DECEMBER 31,
2000 1999 1998
-------- -------- --------
Current:
Federal $ -0- $ (780) $ 6,926
State 1,150 19 1,398
Deferred 24,398 (6,979) (26,490)
-------- -------- --------
$ 25,548 $ (7,740) $(18,166)
======== ======== ========
Significant components of the Company's deferred tax liabilities (assets) and
valuation reserves are as follows (in thousands):
DECEMBER 31,
2000 1999
-------- --------
Alternative minimum tax credit carryforwards $ (4,700) $ (4,700)
Net operating loss carryforwards (19,471) (900)
Financial statement bases of property and equipment over
(under) tax bases (5,609) (5,241)
Restructuring reserve (8,935) (10,078)
Deferred rent (2,470) (2,312)
-------- --------
(41,185) (23,231)
Valuation reserves 40,951 -0-
Other deferred tax credits 2,161 2,193
-------- --------
$ 1,927 $(21,038)
======== ========
A reconciliation of income tax expense (benefit) at the federal income tax rate
and income tax expense (benefit) as reflected in the consolidated financial
statements follows (in thousands):
DECEMBER 31,
2000 1999 1998
-------- -------- --------
Income tax expense (benefit) at statutory rates $(16,325) $ (6,911) $(17,084)
State income taxes, net of federal tax benefit 759 (805) (1,444)
Increase in valuation reserve 40,951 -0- -0-
Amortization of excess of purchase price over
net assets of business acquired 94 95 430
Other items, net 69 (119) (68)
-------- -------- --------
$ 25,548 $ (7,740) $(18,166)
======== ======== ========
Income taxes paid in 2000, 1999 and 1998 were approximately $1.2 million, $3.9
million and $3.7 million, respectively.
F-26
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 11--INCOME TAXES (CONTINUED)
The Company has net operating loss carryovers of approximately $50 million which
expire in 2019 and 2020.
NOTE 12--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's capital commitments at December 31, 2000 are not material.
NOTE 13--FINANCIAL INSTRUMENTS
CONCENTRATIONS OF CREDIT RISK: Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist principally of
cash investments, short-term investments and recoverable construction
allowances.
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 southeastern United States 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.
RECOVERABLE CONSTRUCTION ALLOWANCES: The carrying amount reported in the balance
sheets for recoverable construction allowances approximates their fair value.
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 amounts of the Company's long-term debt borrowings
approximate their fair value. The fair values of the Company's long-term debt
are estimated using discounted cash flow analyses, based on the Company's
current incremental borrowing rates for similar types of borrowing arrangements.
F-27
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 14--CONDENSED FINANCIAL DATA
The Company and its wholly-owned subsidiaries have fully, unconditionally, and
jointly and severally guaranteed the Company's obligations under the
Subordinated Notes (see Note 7--Indebtedness). The Company has one subsidiary
and several unconsolidated affiliates that 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:
2000 1999 1998
---------- ---------- ----------
Year Ended December 31,
Revenues $ 371,826 $ 386,255 $ 388,005
Operating income (loss) (1) (3,080) 6,554 (35,328)
Net loss before extraordinary item (48,044) (14,905) (32,783)
At December 31,
Assets
Current assets $ 36,069 $ 11,682 $ 7,800
Other assets 3,642 15,305 10,697
Property and equipment 480,786 517,851 433,462
Goodwill 30,903 33,553 37,641
---------- ---------- ----------
$ 551,400 $ 578,391 $ 489,600
========== ========== ==========
Liabilities and Equity
Current liabilities $ 21,758 $ 15,426 $ 15,763
Intercompany notes and advances 320,073 302,435 213,830
Long-term liabilities 42,799 69,684 54,200
Liabilities subject to compromise 142,802 -0- -0-
Equity 23,968 190,846 205,807
---------- ---------- ----------
$ 551,400 $ 578,391 $ 489,600
========== ========== ==========
(1) Net of parent company management and license fees of approximately $21.8
million, $30.3 million and $30.3 million for the years ended December 31,
2000, 1999 and 1998, respectively.
F-28
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 15--QUARTERLY RESULTS (UNAUDITED)
(In thousands, except for per share data)
YEAR ENDED DECEMBER 31, 2000 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER TOTALS
- ---------------------------- ----------- ----------- ----------- ----------- ------
TOTAL REVENUES $ 101,535 $ 112,727 $ 127,858 $ 120,177 $ 462,297
OPERATING INCOME (LOSS) (1,090) 699 5,744 (15,317) (9,964)
NET LOSS (7,364) (40,205) (2,069) (23,295) (73,563)
BASIC AND DILUTED LOSS PER COMMON
SHARE (.72) (3.61) (.18) (2.11) (6.62)
YEAR ENDED DECEMBER 31, 1999
Total revenues 97,716 125,273 144,830 119,106 486,925
Operating income (loss) 3,525 15,493 23,368 (25,858) 16,525
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)
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 quarter of 2000 and 1999 includes a charge for the impairment of
long-lived assets. See Note 2--Proceedings Under Chapter 11 and Note
4--Impairments of Long-Lived Assets. The fourth quarter of 2000 includes a
decrease in the estimated property taxes payable of $2.0 million. The second
quarter of 1999 includes a $2.7 million decrease in estimated charges to be
incurred under the Restructuring Plan. See Note 5--Restructuring Charge.
F-29
69
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 2001 Annual Meeting of Stockholders of Carmike
(hereinafter, the "2001 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 2001 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 2001 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 2001 Proxy Statement.
40
70
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, 2000 and 1999
Consolidated statements of operations-- Years ended December
31, 2000, 1999 and 1998
Consolidated statements of cash flows -- Years ended December
31, 2000, 1999 and 1998
Consolidated statements of shareholders' equity -- Years ended
December 31, 2000, 1999 and 1998
Notes to consolidated financial statements-- December 31, 2000
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.
41
71
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, as amended.
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).
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).
42
72
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. (filed as Exhibit 10.8 to Carmike's Form 10-K for the year
ended December 31, 1999 (Commission File No. 1-11604 (the "1999 Form
10-K") and incorporated herein by reference).
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 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 fiscal year ended December 31, 1987
(Commission File No. 1-11604), and incorporated herein by reference).
43
73
10.17 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).
10.18 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).
10.19 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).
10.20* Letter of employment dated July 6, 1999, between Carmike and Martin A.
Durant (filed as Exhibit 10.21 to the 1999 Form 10-K and incorporated
herein by reference).
10.21* Trust Agreement dated as of July 16, 1999, between Carmike, Michael W.
Patrick, F. Lee Champion, III and Larry M. Adams (filed as Exhibit
10.23 to the 1999 Form 10-K and incorporated herein by reference).
10.22* Carmike Cinemas, Inc. Employee Retention and Severance Plan.
21 List of Subsidiaries.
23 Consent of Ernst & Young LLP.
- ------------
* 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
None
(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).
44
74
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: March 30, 2001 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 (Principal Financial Officer)
Martin A. Durant
/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
Director
- --------------------------------
Denis P. Cronin*
/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
Director
- --------------------------------
Jane L. Vris*
/s/ David W. Zalaznick Director
- --------------------------------
David W. Zalaznick
* The holders of the 5.5% Series A Senior Cumulative Convertible Exchangeable
Preferred Stock have designated Mr. Cronin and Ms. Vris as additional
directors to the Registrant's Board of Directors.
75
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
DECEMBER 31, 2000
(IN THOUSANDS OF DOLLARS)
COL. A COL. B COL. C COL. D COL. E
- -----------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
BALANCE AT CHARGED TO COSTS CHARGED TO OTHER BALANCE AT END
BEGINNING OF AND EXPENSES ACCOUNTS - DESCRIBE DEDUCTIONS - OF PERIOD
DESCRIPTION PERIOD DESCRIBE
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999:
Reserve for restructuring charge $ 34,699 (1) $ (2,671)(2) $ -0- $ (3,685)(3) $ 28,343
Year Ended December 31, 2000:
Reserve for restructuring charge $ 28,343 $ (775)(2) $ (24,683)(4) $ (2,885)(3) $ -0-
Valuation reserve for deferred
income tax assets $ -0- $ 40,951 (5) $ -0- $ -0- $ 40,951
(1) Charge recorded in December 1998. See Note 5 of Notes to
Consolidated Financial Statements.
(2) Change in estimate of liabilities to be incurred. See Note 5
of Notes to Consolidated Financial Statements.
(3) Net payments made during period, including $500,000 payment
for early lease termination in 1999. See Note 5 of Notes to
Consolidated Financial Statements.
(4) Amounts outstanding at the Petition Date have been classified
to Liabilities Subject to Compromise. All theatres covered by
the restructuring charge have been approved by the Bankruptcy
Court for lease rejection.
(5) Valuation reserve recorded in the year ended December 31,
2000. See Note 11 of Notes to Consolidated Financial
Statements.