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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
|X| Annualreport pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended DECEMBER 31, 2001 OR
| | Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
-------- --------
Commission File Number 000-14993
CARMIKE CINEMAS, INC.
(Exact Name Of Registrant As Specified in Its Charter)
DELAWARE 58-1469127
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
1301 FIRST AVENUE, COLUMBUS, GEORGIA 31901
(Address of Principal Executive Offices) (Zip Code)
(706) 576-3400
(Registrant's Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
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 registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K |_|
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes |X| No |_|
As of March 15, 2002, approximately 9,000,000 shares of Common Stock,
par value $.03 per share, were outstanding and the aggregate market value of the
shares of the Common Stock held by non-affiliates of the registrant was
approximately $21,688,967.40.
DOCUMENTS INCORPORATED BY REFERENCE
Specified portions of Carmike Cinemas, Inc.'s Proxy Statement relating
to the 2002 Annual Meeting of Stockholders are incorporated by reference into
Part III.
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.....................................................19
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........................................................................48
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..............................................48
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.....49
*PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT .....................................49
ITEM 11. EXECUTIVE COMPENSATION...................................................................49
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...........................49
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...........................................49
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K..........................50
*Incorporated by reference from 2002 Proxy Statement.
2
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" or the "Company") is a premiere motion
picture exhibitor in the United States. As of December 31, 2001, the Company
operated 323 theatres with an aggregate of 2,333 screens located in 35 states.
Carmike's theatres are primarily located in small to mid-sized communities
ranging in population size from approximately 8,000 to 500,000. As of December
31, 2001, management believes that Carmike was the sole exhibitor in
approximately 70% 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
From August 8, 2000 to January 31, 2002, Carmike operated its business
and managed its properties under the protection of the reorganization provisions
of chapter 11 of title 11 of the U.S. Code (the "Bankruptcy Code"). On August 8,
2000 (the "Petition Date") Carmike and its subsidiaries Eastwynn Theatres, Inc.,
Wooden Nickel Pub, Inc. and Military Services, Inc.
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(collectively, the "Debtors") filed voluntary petitions for relief under chapter
11 (the "Chapter 11 Cases") of the Bankruptcy Code. On January 4, 2002, the
United States Bankruptcy Court for the District of Delaware entered an order
confirming the Debtors' Amended Joint Plan of Reorganization Under Chapter 11 of
the Bankruptcy Code, dated as of November 14, 2001 (the "Plan"). The Plan became
effective on January 31, 2002 (the "Effective Date") and, on the Effective Date,
Carmike filed with the Secretary of State for the State of Delaware the Amended
and Restated Certificate of Incorporation (the "Restated Certificate"), which
cancelled all then existing Class A and Class B Common Stock and Preferred Stock
and established authorized capital stock of twenty million (20,000,000) shares
of reorganized Carmike Common Stock, par value $.03 per share, and one million
(1,000,000) shares of reorganized Carmike Preferred Stock, par value $1.00 per
share. The Company currently has only reorganized Carmike Common Stock
outstanding and has approximately nine million (9,000,000) shares of such stock
outstanding.
Material features of the Plan are:
- The Plan provides for the issuance or reservation for future
issuance of ten million (10,000,000) shares of reorganized
Carmike Common Stock in the aggregate.
- The holders of Carmike's cancelled Class A and Class B Common
Stock received in the aggregate 22.2% of the ten million
(10,000,000) shares of reorganized Carmike Common Stock.
- The holders of Carmike's cancelled 5.5% Series A Senior
Cumulative Convertible Exchangeable Preferred Stock (the
"Series A Preferred Stock") received in the aggregate 41.2% of
the ten million (10,000,000) shares of reorganized Carmike
Common Stock.
- Certain holders of $45,685,000 in aggregate principal amount
of the cancelled 9-3/8% Senior Subordinated Notes due 2009
issued by Carmike prior to the Chapter 11 Cases (the "Original
Senior Subordinated Notes") received in the aggregate 26.6% of
the ten million (10,000,000) shares of reorganized Carmike
Common Stock.
- Carmike reserved one million (1,000,000) shares of the
reorganized Carmike Common Stock for issuance under a new
management incentive plan (the "2002 Stock Plan").
- The holders of Bank Claims (as defined below) in the Chapter
11 Cases received New Bank Debt (as defined below) and cash in
the amount of approximately $35 million plus accrued and
unpaid post-petition interest on the Bank Claims from January
15, 2002 to the Effective Date. "Bank Claims" consisted of
claims of certain banks arising under: (i) the Amended and
Restated Credit Agreement among the Company, the banks party
thereto and Wachovia Bank, N.A., as agent, dated as of January
29, 1999, and amended as of March 31, 2000 and (ii) the Term
Loan Credit Agreement among the Company, the banks party
thereto, 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 as of July 13, 1999, and further
amended as of March 31, 2000, and certain related documents.
"New Bank Debt"
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consists of approximately $254 million and bears interest, at
the greater of: (a) at the option of Carmike, (i) a specified
base rate plus 3.5% or (ii) LIBOR plus 4.5%; and (b) 7.75% per
annum.
- Carmike issued $154,315,000 of its new 10-3/8% Senior
Subordinated Notes due 2009 (the "New Senior Subordinated
Notes") in exchange for $154,315,000 aggregate principal
amount of the claims in the Chapter 11 Cases concerning the
Original Senior Subordinated Notes.
- Certain of Carmike's underperforming theatres were closed.
Lease terminations and settlement agreements are being
negotiated for the resolution of lease termination claims, and
the restructuring or other disposition of lease obligations.
- General unsecured creditors will receive, cash and notes in
the aggregate of approximately $40,000,000 to $50,000,000 with
an annual interest rate of 9.4% in resolution of their allowed
claims under the Chapter 11 Cases.
Also on the Effective Date, the Company closed on a Revolving Credit
Agreement (the "Revolving Credit Agreement") totaling $50 million. The proceeds
of advances made under the Revolving Credit Agreement will be used to provide
working capital financing to the Company and its subsidiaries and for funds for
other general corporate purposes of the Company. The Company, on the Effective
Date, borrowed $20 million of the Revolving Credit Agreement in partial
repayment of its obligations under the Plan owing to the holders of the Bank
Claims. The terms of the $50 million Revolving Credit Agreement are set forth in
a Credit Agreement, dated as of January 31, 2002, among the Company, Eastwynn
Theatres, Inc., the various subsidiaries from time to time parties to the
agreement as credit parties, General Electric Capital Corporation as agent and
lender, the various banks or other financial institutions from time to time
parties to the agreement as lenders, and GECC Capital Markets Group, Inc. as
lead arranger.
The Company's Amended and Restated Bylaws provide that the Board of
Directors consists of ten (10) individuals. The Company has entered into a
stockholders agreement, dated as of January 31, 2002 (the "Stockholders'
Agreement"), with the following persons: Michael W. Patrick; GS Capital Partners
III, L.P.; GS Capital Partners III Offshore, L.P.; Goldman Sachs & Co.
Verwaltungs Gmbh; Bridge Street Fund 1998; Stone Street Fund 1998; The Jordan
Trust; TJT(B); TJT(B) (Bermuda) Investment Company LTD.; David W. Zalaznick and
Barbara Zalaznick, JT TEN; Leucadia Investors, Inc. and Leucadia National
Corporation (collectively, the "Signing Stockholders"). Based on all shares of
the Company's Common Stock outstanding as of the Effective Date, under the Plan,
the Signing Stockholders own (a) approximately 83.2% of the approximately nine
million (9,000,000) shares of Common Stock issued and outstanding on the
Effective Date and (b) approximately 82.7% if the calculation is made on a fully
diluted basis assuming that an additional one million (1,000,000) shares of the
Common Stock have been issued under the 2002 Stock Plan. The stockholders that
signed the Stockholders' Agreement have agreed to vote their shares of
reorganized Carmike Common Stock in favor of certain matters, such as certain
nominees to the Board of Directors and the 2002 Stock Plan, if they are
presented to the stockholders of the Company for approval. The Signing
Stockholders further agreed to certain transfer restrictions regarding their
shares of reorganized Carmike Common Stock. The parties to the Stockholders'
Agreement also signed a registration rights
5
agreement with the Company with provisions concerning demand registration for
resale of their shares of reorganized Carmike Common Stock under applicable
provisions of the Securities Act of 1933, as amended.
In connection with Carmike's reorganization, the Company reached an
agreement with MoviePlex Realty Leasing, L.L.C. ("MoviePlex") to restructure the
Amended and Restated Master Lease dated January 29, 1999 between Movieplex
Realty Leasing L.L.C. as landlord and Carmike as tenant (the "Original Master
Lease") and entered into the Second Amended and Restated Master Lease, dated as
of September 1, 2001 (the "New Master Lease"). Under the New Master Lease,
Carmike has entered into a new 15-year lease for the six MoviePlex properties
with an option to extend the term for an additional five years. The Original
Master Lease was terminated and pre-Chapter 11 Cases defaults under the Original
Master Lease were cured up to a maximum amount of $493,680. The initial first
twelve months base rent for the six theatres is an aggregate of $5.4 million per
annum ($450,000 per month), subject to periodic increases thereafter and certain
additional rent obligations such as percentage rent.
Over-the-Counter Bulletin Board Trading
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 subsequently traded on the NASD's
over-the-counter Bulletin Board under the ticker symbol "CKECQ" from January 17,
2001 to the Effective Date. On the Effective Date, the Class A Common Stock was
cancelled and extinguished, and the reorganized Carmike Common Stock began
trading under the symbol "CMKC" on the NASD's over-the-counter Bulletin Board.
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
323 theatres and 2,333 screens operated by Carmike as of December 31, 2001:
STATE THEATRES SCREENS STATE THEATRES SCREENS
- ----- -------- ------- ----- -------- -------
Alabama................18 163 New Mexico..............1 2
Arkansas...............11 95 New York................1 8
Colorado................9 57 North Carolina.........41 311
Delaware................1 14 North Dakota............7 40
Florida................10 80 Ohio....................6 39
Georgia................27 218 Oklahoma...............11 56
Idaho...................4 17 Pennsylvania...........25 189
Illinois................2 6 South Carolina.........15 105
Iowa...................12 99 South Dakota............5 35
Kansas..................1 12 Tennessee..............30 230
Kentucky...............10 51 Texas..................13 95
Louisiana...............3 22 Utah....................6 47
Maryland................1 8 Virginia...............12 73
Michigan................1 5 Washington..............1 12
Minnesota..............10 80 West Virginia...........4 28
Missouri................1 8 Wisconsin...............2 18
Montana................14 78 Wyoming.................3 13
Nebraska................5 19
323 2,333
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, 2001, Carmike operated 39 theatres with 154 screens as Discount Theatres.
As of December 31, 2001, Carmike owned 77 of its theatres and leased
242 of its theatres. An additional four theatres were operated by Carmike under
shared ownership. The total number of leases has decreased to 230, as of March
15, 2002, due to theatre lease rejections in the Chapter 11 Cases and lease
maturities.
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.
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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.
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 2001, Carmike opened one theatre with 16 screens. Capital
expenditures during 2001 aggregated approximately $9.2 million, net of lease
financings.
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 start construction of two theatres in 2002 if the legal issues
concerning two leases are resolved by the Company and the landlords. 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 26% of its theatres and 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.
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
8
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"). 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 2001 compared
to Carmike's top 10 films for 2001:
Industry Carmike Cinemas
-------- ---------------
1. Harry Potter Sorcerer's Stone 1. Rush Hour 2
2. Shrek 2. Harry Potter Sorcerer's Stone
3. Monsters, Inc. 3. Monsters, Inc.
4. Rush Hour 2 4. Shrek
5. Lord of the Rings: Fellowship of the Rings 5. Pearl Harbor
6. The Mummy Returns 6. Jurassic Park 3
7. Pearl Harbor 7. The Mummy Returns
8. Jurassic Park 3 8. Planet of the Apes
9. Planet of the Apes 9. Hannibal
10. Hannibal 10. The Fast and the Furious
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
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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 97.3% of Carmike's admission revenues
during the year ended December 31, 2001: 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.
Carmike believes its relationship with the studios has returned to normal.
CONCESSIONS
Concession sales are Carmike's second largest revenue source after box
office admissions, constituting approximately 31.8% of total revenues for 2001.
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. The Company receives a majority of its concessions
supplies from the following two vendors: ShowTime Concession Supply Inc. and The
Coca-Cola(R)Company.
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
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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 since
1999. 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 family 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.
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. During the Chapter
11 Cases, the Debtors received approval from the Bankruptcy Court to reject
theatre leases relating to 136 theatre locations of the Debtors. See Part II,
Item 7 of this form 10-K Report under the caption "Chapter 11 Cases".
In the past few years, the movie exhibition industry has faced
significant challenges, largely due to the effects of too many screens and a
relatively flat box office. The number of screens in the United States had
increased dramatically, growing from approximately 31,640 screens in 1997 to
approximately 37,396 screens in 2000. The industry did experience a modest
reduction in the total number of screens in the U.S. in 2001 to 36,764, a
decrease of approximately 1.7%. The total number of theatres in the U.S. however
has not dramatically increased, in 1997 there were 7,480 compared to 7,421 in
2000. The total number of theatres in
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the U.S. did decrease significantly in 2001 to 7,070, a decrease of
approximately 4.7%. See Part I, Item 7 of this Form 10-K Report under the
caption "The Industry".
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 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 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.
12
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, 2001, approximately
55% 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, 2001, Carmike had approximately 9,059 employees, of
which 47 are covered by collective bargaining agreements. In order to combat
uncertainties that may have stemmed from the Chapter 11 Cases, to reward key
employees for shouldering any additional burdens that had been imposed by the
Chapter 11 Cases and to maintain employee morale, the Company 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 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.
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.
13
Ability to Service Debt
After the Effective Date, 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 industry economic, financial, competitive,
legislative, regulatory and other factors that are beyond our control. Based
upon our current level of operations and the closing of certain underperforming
theatres, we believe that cash flow from operations, available cash, borrowings
under the Revolving Credit Agreement, and sales of surplus assets will be
adequate to meet our future liquidity needs.
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.
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 and year to year. 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 will likely adversely affect our
business and results of operations.
Dependence on Relationships with Motion Picture Distributors
Our business depends to a significant degree on maintaining good
relations with the major film distributors that license films to our theatres.
While there are numerous motion
14
picture distributors that provide quality first-run movies to the motion picture
exhibition industry, the following ten distributors accounted for approximately
97.3% of our admission revenues for the fiscal year ended December 31, 2001:
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 adversely
affect our business and results of operations.
Government Regulation
Like others in our industry, we are subject to certain federal, state
and local laws and regulations which limit the manner in which we may conduct
our business. The distribution of motion pictures is in large part regulated by
federal and state antitrust laws and has been the subject of numerous antitrust
cases. As a result of these laws and cases, we cannot ensure a supply of motion
pictures by entering into long term arrangements with major distributors.
Instead, we must compete for film licenses on a film by film and theatre by
theatre basis.
Our theatre operations are also subject to federal, state and local
laws governing matters such as construction, renovation and operation of our
theatres, as well as wages, working conditions, citizenship, and health and
sanitation requirements and licensing. We believe that our theatres are in
material compliance with these requirements. At December 31, 2001, approximately
55% 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
15
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 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 since
the Company emerged from bankruptcy. New sources of financing are questionable
and numerous uncertainties will continue to exist. 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 2002 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
16
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.
In the fourth quarters of 2001, 2000 and 1999, the Company 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 $132.2 million, $21.2 million and
$33.0 million, respectively, in the fourth quarters of 2001, 2000 and 1999.
These impairment charges reduce the carrying value of approximately 287 theatres
with 2,126 screens for 2001, approximately 18 theatres with 130 screens for 2000
and approximately 82 theatres with 432 screens for 1999. The impairment charges
additionally reduce the carrying value of a joint venture which operated three
movie theatre-entertainment complexes and equipment removed from theatres that
were closed or rejected during the Chapter 11 Cases. The impairment charge
recognized for 2001 was significantly larger than in prior years due to the
write-off of leasehold improvements on rejected theatres, the impact of closing
owned theatres, the diminished value of our entertainment centers and the
write-down of surplus equipment removed from closed theatres. Additionally, in
2001 the Company included the equipment in the theatre valuation calculations
based on the reduced capital building program in the future as well as the
excess supply of equipment in inventory.
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 and Chief Executive Officer.
Losing the services of one or more members of our senior management could
adversely affect our business and results of operations. We have a new five-year
employment agreement with Michael W. Patrick as Chief Executive Officer, the
term of which extends for one year each December 31, provided that neither
Carmike nor Mr. Patrick chooses not to so extend the agreement 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, 2001, Carmike owned 77 of its theatres and leased
242 of its theatres. An additional four theatres were operated by Carmike under
shared ownership.
17
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. During the pendency of the Chapter 11 Cases, the Company had
the right to reject unexpired leases of real property, of which those rejected
leases total 136.
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.
ITEM 3. LEGAL PROCEEDINGS.
CHAPTER 11 CASES
On August 8, 2000, the Company and its subsidiaries Eastwynn Theatres,
Inc., Wooden Nickel Pub, Inc. and Military Services, Inc. filed voluntary
petitions for protection under chapter 11 of the Bankruptcy Code. On November
14, 2001, the Company filed its Plan with the Bankruptcy Court. On January 3,
2002, the Bankruptcy Court approved the Company's Plan and an order was entered
confirming the Plan on January 4, 2002. The Effective Date for the Company's
emergence from the Chapter 11 Cases was January 31, 2002. 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 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, 2001.
18
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information as of March 15, 2002
regarding the executive officers of Carmike. For purposes of this section,
references to Carmike include Carmike's predecessor, Martin Theatres, Inc.
NAME AGE TITLE
- ---- --- -----
Michael W. Patrick...................51 President, Chief Executive Officer and Chairman of the
Board of Directors
Fred W. Van Noy......................45 Senior Vice President, Chief Operating Officer
Martin A. Durant.....................53 Senior Vice President - Finance,
Treasurer and Chief Financial Officer
Anthony J. Rhead.....................60 Senior Vice President-- Film and Secretary
P. Lamar Fields......................47 Senior Vice President-- Real Estate
H. Madison Shirley...................50 Senior Vice President-- Concessions and
Assistant Secretary
Marilyn B. Grant.....................54 Vice President-- Advertising
Philip A. Smitley....................43 Assistant Vice President and Controller
MICHAEL W. PATRICK has served as President of Carmike since October
1981, as a director of Carmike since April 1982, as Chief Executive Officer
since March 1989 and Chairman of the Board of Directors since January 2002. 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. In November 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.
19
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. He was elected Secretary in January 2002. Prior to joining
Carmike, he worked as a film booker for Plitt Theatres, Inc. from 1973 to 1981.
P. LAMAR FIELDS joined Carmike in January 1983 as Director of Real
Estate. He served in this position until 1985 when he became Vice President--
Development. In December 1997 he was elected to his present position of Senior
Vice President-- Real Estate.
H. MADISON SHIRLEY joined Carmike in 1976 as a theatre manager. He
served as a District Manager from 1983 to 1987 and as Director of Concessions
from 1987 until 1990. He became Vice President-- Concessions in 1990 and Senior
Vice President-- Concessions and Assistant Secretary in December 1997.
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.
Since January 31, 2002, the Company's Common Stock has traded on the
NASD's over-the-counter Bulletin Board (the "OTCBB") under the symbol "CMKC".
Carmike's pre-reorganization Class A Common Stock traded on the OTCBB under the
symbol "CKECQ" from January 17, 2001 until January 30, 2002. The Class A Common
Stock previously traded on the New York Stock Exchange under the symbol "CKE"
until trading in the Company's stock on the New York Stock Exchange was
suspended prior to trading on January 12, 2001 because the Company had fallen
below certain Exchange criteria for continued listing.
20
The following table sets forth the high and low sales prices of the Class A
Common Stock as reported by the OTCBB for the periods indicated in 2001
(beginning January 17, 2001) and by the New York Stock Exchange for the periods
indicated in 2000.
HIGH LOW
--------- ---------
2001
First Quarter.............. $ 0.75 $ 0.20
Second Quarter............. 0.67 0.33
Third Quarter.............. 0.57 0.34
Fourth Quarter............. 3.41 0.37
2000
First Quarter.............. $ 7 15/16 $ 5 7/16
Second Quarter............. 6 1/16 3 7/16
Third Quarter.............. 4 1/16 1 1/16
Fourth Quarter............. 7/8 5/16
One share of pre-reorganization Class A or Class B Common Stock of
Carmike is equal to 0.194925 of one share of reorganized Carmike Common Stock.
On March 15, 2002, the last reported sale price of the reorganized Common Stock
on the over-the-counter Bulletin Board was $15.90 per share. As of March 15,
2002, there were approximately 128 holders of record of Carmike's reorganized
Common Stock. Letters of Transmittal are still outstanding, once they are
received and processed by the Company's transfer agent the number of holders of
record will increase.
Prior to the reorganization on January 31, 2002, Carmike had 550,000
shares of Series A Preferred Stock, all of which were held by certain affiliates
of Goldman, Sachs & Co. Each share of the Series A Preferred Stock was
convertible into four shares of the pre-reorganization Class A Common Stock.
Series A Preferred Stock dividends of $7.0 million were in arrears at December
31, 2001. 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 on March 31, 2001 designated two additional directors
to the Company's Board of Directors. Upon the reorganization on January 31,
2002, the holders of the pre-reorganization Carmike Series A Preferred Stock
received 41.2% of the ten million (10,000,000) shares of reorganized Carmike
Common Stock on a fully diluted basis.
During fiscal year 2001, the Company did not make any sales of its
unregistered equity securities.
Carmike never declared or paid any cash dividends on its Class A or
Class B Common Stock. Additionally, Carmike could not 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 on its reorganized Common
Stock 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
Notes 10 and 12 of Notes to Consolidated Financial Statements regarding
restrictions in Carmike's debt instruments on Carmike's ability to pay
dividends.
21
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA.
The selected consolidated Statements of Operations 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,
-------------------------------------------------------------
1997 1998 1999 2000 2001
(1) (2) (2)(3) (2)(4) (4)
--------- --------- --------- --------- ---------
(IN MILLIONS EXCEPT PERCENTAGES, RATIOS AND OPERATING DATA)
STATEMENT OF OPERATIONS:
Revenues:
Admissions ............................................ $ 319.2 $ 330.5 $ 336.0 $ 315.4 $ 311.8
Concessions and other ................................. 139.4 151.1 150.9 146.9 145.1
--------- --------- --------- --------- ---------
Total revenues ................................... 458.6 481.6 486.9 462.3 456.9
Costs and expenses:
Film exhibition costs ................................. 169.7 177.8 181.5 185.2 171.2
Concession costs ...................................... 18.3 19.9 19.0 21.0 20.2
Other theatre operating costs ......................... 175.1 187.9 191.1 194.8 182.0
General and administrative ............................ 6.4 7.1 7.3 6.9 8.8
Depreciation and amortization ......................... 33.4 37.5 41.2 43.2 42.2
Impairment of long-lived assets (5) .................. -- 38.3 33.0 21.2 132.2
Restructuring charge (5) .............................. -- 34.7 (2.7) -0- -0-
--------- --------- --------- --------- ---------
402.9 503.2 470.4 472.3 556.6
--------- --------- --------- --------- ---------
Operating income (loss) ................................... 55.7 (21.6) 16.5 (10.0) (99.7)
Interest expense .......................................... 23.1 27.2 36.8 31.0 6.1
--------- --------- --------- --------- ---------
Income (loss) before reorganization costs, income
taxes and extraordinary item .......................... 32.6 (48.8) (20.3) (41.0) (105.8)
Reorganization costs ..................................... -0- -0- -0- 7.0 19.6
--------- --------- --------- --------- ---------
Income (loss) before income taxes and extraordinary
item .................................................. 32.6 (48.8) (20.3) (48.0) (125.4)
Income tax expense (benefit) .............................. 12.4 (18.2) (7.7) 25.6 -0-
--------- --------- --------- --------- ---------
Net income (loss) before extraordinary item
$ 20.2 $ (30.6) $ (12.6) $ (73.6) $ (125.4)
========= ========= ========= ========= =========
Weighted average common Shares outstanding:
Basic ..................................................... 11,277 11,356 11,375 11,344 11,344
========= ========= ========= ========= =========
Diluted ................................................... 11,366 11,356 11,375 11,344 11,344
========= ========= ========= ========= =========
Earnings (loss) per common share before extraordinary item:
Basic ..................................................... $ 1.79 $ (2.73) $ (1.37) $ (6.62) $ (11.05)
========= ========= ========= ========= =========
Diluted ................................................... $ 1.78 $ (2.73) $ (1.37) $ (6.62) $ (11.05)
========= ========= ========= ========= =========
22
AS OF DECEMBER 31,
-------------------------------------------------------------
1997 1998 1999 2000 2001
(4) (4)
--------- --------- --------- --------- ---------
(in millions, except operating data)
BALANCE SHEET DATA:
Cash and cash equivalents ................................. $ 2.5 $ 3.8 $ (4.2) $ 52.5 $ 94.2
Property and equipment, net (5) ........................... 497.1 573.6 666.2 621.2 460.1
Total assets .............................................. 606.0 683.5 794.4 761.3 617.8
Total long-term obligations, including
current maturities (6) ................................ 360.7 351.8 470.3 52.0 49.7
Total shareholders' equity ................................ 202.9 226.3 204.2 129.1 3.7
OPERATING DATA:
Theatre locations (7) ..................................... 520 468 458 352 323
Screens (7) ............................................... 2,720 2,658 2,848 2,438 2,333
Average screens per location .............................. 5.2 5.7 6.2 6.9 7.2
Total attendance (in thousands) ........................... 75,336 77,763 74,518 67,804 64,621
Total average screens in operation ........................ 2,644 2,733 2,800 2,643 2,386
Average ticket price ...................................... $ 4.24 $ 4.25 $ 4.51 $ 4.65 $ 4.83
Average concession per patron ............................. $ 1.68 $ 1.79 $ 1.84 $ 1.98 $ 2.10
(1) 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.
(2) 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.
(3) Excludes an extraordinary charge of $6,291,000 (net of income taxes) or
$0.56 per diluted share.
(4) 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 3 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.
(5) See Notes 2, 3 and 4 of Notes to Consolidated Financial Statements with
respect to impairments of long-lived assets and restructuring charges.
(6) Excludes long-term restructuring reserves and deferred income tax
liabilities; includes current maturities of long-term indebtedness and
capital lease obligations.
23
(7) 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. Excludes 17 theatres and 81 screens at
December 31, 2001, 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.
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, 2001, cash generated by the Company
from operations and cash available under the Revolving Credit
Agreement will be sufficient to fund the operations of the
Company;
- 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;
- 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;
24
- 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;
- economic and/or business conditions generally, and in the
movie industry, in particular, may not be favorable such that
the Company's revenues and results of operation are adversely
affected;
- acts of war, terrorism, catastrophe and other events beyond
the control of the Company which may adversely affect business
conditions or the Company's rights;
- 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 Company, notwithstanding its Employee Retention and
Severance Plan, may be unable to retain top management and
other key personnel;
- relationships with film suppliers; and
- 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.
25
THE INDUSTRY
In the past few years, the movie exhibition industry has faced
significant challenges, largely due to the effects of too many screens and a
relatively flat box office. The number of screens in the United States had
increased dramatically, growing from approximately 31,640 screens in 1997 to
approximately 37,396 screens in 2000. The industry did experience a modest
reduction in the total number of screens in the U.S. in 2001 to 36,764, a
decrease of approximately 1.7%. The total number of theatres in the U.S. however
has not dramatically increased, in 1997 there were 7,480 compared to 7,421 in
2000. The total number of theatres in the U.S. did decrease significantly in
2001 to 7,070, a decrease of approximately 4.7%. 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.
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.
Carmike has seen several of its competitors consolidate throughout 2001
and 2002. Regal Cinemas Inc., United Artists Theatre Co. and Edwards Theatres,
Inc., all of which had been operating under bankruptcy protection, were taken
over by Philip Anschutz. The new parent company for the three exhibitors is
Regal Entertainment Group. AMC Entertainment Inc. has received approval from the
U.S. Bankruptcy Court in Delaware to buy General Cinemas as part of General
Cinemas' Chapter 11 reorganization plan. Loews Cineplex Entertainment Corp., as
part of its confirmed Chapter 11 reorganization plan, will no longer be publicly
held. Under the terms of the plan, Onex Corp. and Oaktree Capital Management LLC
will privately hold 100% of the equity of the company. Smaller, independent
operators, in some markets, have reopened theatres that have been abandoned due
to Chapter 11 lease rejections.
CHAPTER 11 CASES
On August 8, 2000 (the "Petition Date") Carmike and its subsidiaries
Eastwynn Theatres, Inc., Wooden Nickel Pub, Inc. and Military Services, Inc.
(collectively, the "Debtors") filed voluntary petitions for relief under chapter
11 (the "Chapter 11 Cases") of title 11 of the U.S. Code. On January 4, 2002,
the United States Bankruptcy Court for the District of Delaware entered an order
confirming the Debtors' Amended Joint Plan of Reorganization Under Chapter 11 of
the Bankruptcy Code, dated as of November 14, 2001 (the "Plan"). The Plan became
effective on January 31, 2002 (the "Effective Date").
26
In the Chapter 11 Cases, substantially all unsecured and partially
secured liabilities as of the Petition Date were subject to compromise or other
treatment until a plan of reorganization was confirmed by the Bankruptcy Court.
Generally, actions to enforce or otherwise effect repayment of all pre-chapter
11 liabilities as well as all pending litigation against the Debtors were stayed
while the Debtors continued their business operations as debtors-in-possession.
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 then
$200 million Revolving Credit Facility and $75 million Term Loan Credit
Agreement (the "Pre-Reorganization Bank Facilities"). On June 30, 2000, the
Company was in technical default of certain financial covenants contained in the
Pre-Reorganization 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 Pre-Reorganization Bank
Facilities issued a Payment Blockage Notice to Carmike and the indenture trustee
for the 9-3/8% Senior Subordinated Notes due 2009 (the "Original Senior
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 Original Senior
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 Company could not pay pre-petition debts without prior Bankruptcy
Court approval during the Chapter 11 Cases. Immediately after 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 operations as debtors-in-possession. 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 had the right, subject to
Bankruptcy Court approval and certain other limitations, to assume or reject
executory contracts and unexpired leases during the Chapter 11 Cases. 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 were treated as general
27
unsecured claims in the Chapter 11 Cases. During the Chapter 11 Cases, the
Debtors received approval from the Bankruptcy Court to reject theatre leases
relating to 136 theatre locations of the Debtors. The 136 theatres approved for
rejection generated approximately $2.0 million and $13.5 million in
theatre-level cash flow losses for the years ended December 31, 2001 and 2000,
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 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.
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 the 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 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.
Also, during the Chapter 11 Cases, Carmike reached an agreement to
restructure its master lease facility with MoviePlex Realty Leasing, L.L.C.
("MoviePlex") and entered into the Second Amended and Restated Master Lease,
dated as of September 1, 2001 (the "New Master Lease"). Under the New Master
Lease, Carmike has entered into a new 15-year lease for the six MoviePlex
properties with an option to extend the term for an additional five years. The
Original MoviePlex Lease was terminated and prepetition defaults under the
Original MoviePlex Lease were cured up to a maximum amount of $493,680. The
initial first twelve months base rent for the six theatres is an aggregate of
$5.4 million per annum ($450,000 per month), subject to periodic increases
thereafter and certain additional rent obligations such as percentage rent.
Percentage rent is an amount equal to 12% of all revenue made in, from or at the
leased premises in excess of the Annual Breakpoint made by Carmike in the leased
premises during any lease year, and "Annual Breakpoint" is the amount which is
50% of the quotient obtained by dividing the base rent by 10%.
All past due rent, additional rent, and/or other sums due to MoviePlex
under the terms of the New Master Lease bears interest from the date which is
five days from the due date until paid by Carmike at the rate of 2% above the
published prime rate of Wachovia Bank, N.A., or its successor, not to exceed the
maximum rate of interest allowed by New York state law. Under the New Master
Lease, Carmike pays all real estate taxes with respect to the leased premises.
Carmike agrees, that upon the request of MoviePlex, it will subordinate its
rights under the New Master Lease to the interest of any ground lessor of the
land upon which one of the six properties is located to the lien of any mortgage
or deed of trust now or thereafter in force against the land and building of
which the leased premises are a part, except that Carmike's peaceable possession
of the leased premises will not be disturbed and its obligations under the New
Master Lease will
28
remain unchanged. Carmike agrees to indemnify MoviePlex against any claims,
demands, actions against MoviePlex arising out of Carmike's failure to perform
its obligations or observe any covenants under the repairs and maintenance
article of the New Master Lease, except arising from MoviePlex's negligence or
willful misconduct. Each of the Debtor subsidiaries has guaranteed Carmike's
payment of rents, charges and additional sums coming due under the New Master
Lease and performance of covenants and agreements contained in the New Master
Lease.
When the Plan became effective on January 31, 2002, Carmike filed with
the Secretary of State for the State of Delaware the Amended and Restated
Certificate of Incorporation (the "Restated Certificate"), which cancelled all
then existing Class A and Class B Common Stock and Preferred Stock and
established authorized capital stock of twenty million (20,000,000) shares of
reorganized Carmike Common Stock, par value $.03 per share, and one million
(1,000,000) shares of reorganized Carmike Preferred Stock, par value $1.00 per
share. The Company currently has only reorganized Carmike Common Stock
outstanding and has approximately nine million (9,000,000) shares of such stock
outstanding.
Material features of the Plan are:
- - The Plan provides for the issuance or reservation for future issuance
of ten million (10,000,000) shares of reorganized Carmike Common Stock
in the aggregate.
- - The holders of Carmike's cancelled Class A and Class B Common Stock
received in the aggregate 22.2% of the ten million (10,000,000) shares
of reorganized Carmike Common Stock.
- - The holders of Carmike's cancelled Series A Preferred Stock received
in the aggregate 41.2% of the ten million (10,000,000) shares of
reorganized Carmike Common Stock.
- - Certain holders of $45,685,000 in aggregate principal amount of the
cancelled 9-3/8% Senior Subordinated Notes due 2009 issued by Carmike
prior to the Chapter 11 Cases (the "Original Senior Subordinated
Notes") received in the aggregate 26.6% of the ten million
(10,000,000) shares of reorganized Carmike Common Stock.
- - Carmike reserved one million (1,000,000) shares of the reorganized
Carmike Common Stock for issuance under a new management incentive
plan (the "2002 Stock Plan") and 780,000 shares under the 2002 Stock
Plan have been issued to Michael W. Patrick pursuant to his new
employment agreement as Chief Executive Officer of the Company.
- - The holders of Bank Claims (as defined below) in the Chapter 11 Cases
received New Bank Debt (as defined below) and cash in the amount of
approximately $35 million plus accrued and unpaid post-petition
interest on the Bank Claims from January 15, 2002 to the Effective
Date. "Bank Claims" consisted of claims of certain banks arising
under: (i) the Amended and Restated Credit Agreement among the
Company, the banks party thereto and Wachovia Bank, N.A., as agent,
dated as of January 29, 1999, and amended as of March 31, 2000 and
(ii) the Term Loan Credit Agreement among the Company, the banks party
thereto, Wachovia Bank, NA., as administrative agent, Goldman Sachs
Credit Partners, L.P., as syndication agent, and First Union National
Bank, as
29
documentation agent, dated as of February 25, 1999, as amended as of
July 13, 1999, and further amended as of March 31, 2000, and certain
related documents. "New Bank Debt" consists of approximately $254
million and bears interest, at the greater of: (a) at the option of
Carmike, (i) a specified base rate plus 3.5% or (ii) LIBOR plus 4.5%;
and (b) 7.75% per annum.
- - Carmike issued $154,315,000 of its new 10-3/8% Senior Subordinated
Notes due 2009 (the "New Senior Subordinated Notes") in exchange for
$154,315,000 aggregate principal amount of the claims in the Chapter
11 Cases concerning the Original Senior Subordinated Notes.
- - 136 of Carmike's underperforming theatres were closed. Lease
terminations and settlement agreements are being negotiated for the
resolution of lease termination claims, and the restructuring or other
disposition of lease obligations.
- - General unsecured creditors will receive, cash and notes in the
aggregate of approximately $40,000,000 to $50,000,000 with an annual
interest rate of 9.4% in resolution of their allowed claims under the
Chapter 11 Cases.
On the Effective Date, the Company entered into a new Term Loan Credit
Agreement (the "Post-Confirmation Credit Agreement"), which governs the terms of
the New Bank Debt. The Company's subsidiaries have guaranteed the Company's
obligations under the Post-Confirmation Credit Agreement. The lenders under the
Post-Confirmation Credit Agreement have (i) a second priority, perfected lien on
owned real property and, to the extent landlord approval was obtained or not
required, leased real property of the Company and its subsidiaries; (ii) a
second priority, perfected security interest in the capital stock of all Company
subsidiaries; and (iii) a second priority, security interest in substantially
all personal property owned by the Company and its subsidiaries. All of the
security interests and liens that secure the New Bank Debt under the
Post-Confirmation Credit Agreement are junior and subordinate to the liens and
security interests of the collateral agent under the Revolving Credit Agreement
described below.
The final maturity date of the New Bank Debt loans under the
Post-Confirmation Credit Agreement is January 31, 2007. The principal payment
dates are June 30 and December 31 of each year, beginning June 30, 2002 and
ending June 30, 2006. In addition, the Post-Confirmation Credit Agreement
contains covenants that require the Company, among other things, to meet certain
financial ratios and that prohibit the Company from taking certain actions and
entering into certain transactions. There are also provisions in the
Post-Confirmation Credit Agreement as to when the Company must prepay portions
of the loans. See "Financial Covenant Compliance" below.
Also on the Effective Date, the Company closed on a Revolving Credit
Agreement (the "Revolving Credit Agreement") totaling $50 million. The proceeds
of advances under the Revolving Credit Agreement will be used to provide working
capital financing to the Company and its subsidiaries and for funds for other
general corporate purposes of the Company. The Company, on the Effective Date,
borrowed $20 million of the Revolving Credit Agreement in partial repayment of
its obligations owing to the banks under the Post-Confirmation Credit Agreement.
The terms of the Revolving Credit Agreement are set forth in a Credit Agreement,
30
dated as of January 31, 2002, among the Company, Eastwynn Theatres, Inc.,
General Electric Capital Corporation as agent and lender, GECC Capital Markets
Group, Inc. as lead arranger, the various subsidiaries from time to time parties
to the agreement as credit parties, and the various banks or other financial
institutions from time to time parties to the agreement as lenders.
The interest rate for borrowings under the Revolving Credit Agreement
is set from time to time at the Company's option (subject to certain conditions
set forth in the Credit Agreement) at either: (i) the Index Rate (as defined in
the Revolving Credit Agreement) plus 1.75% per annum or (ii) the applicable
LIBOR Rate (as defined in the Revolving Credit Agreement) plus 3.25% per annum,
based on the aggregate Revolving Credit Advances (as defined in the Revolving
Credit Agreement) outstanding from time to time. Borrowings under the Revolving
Credit Agreement are secured by first priority security interests in
substantially all tangible or intangible property of the Company (but does not
include certain equipment or real estate constituting premises subject to the
master leasing agreement with MoviePlex Realty Leasing, L.L.C.). The Company and
its subsidiary Eastwynn Theatres, Inc. (each a "Borrower") have guaranteed the
other's obligations under the Revolving Credit Agreement, and Company
subsidiaries Wooden Nickel Pub, Inc. and Military Services, Inc. also have
guaranteed the obligations under the Revolving Credit Agreement. Further, the
Revolving Credit Agreement contains covenants that, among other things, prohibit
the Company from taking certain actions and entering into certain transactions.
There are also provisions in the Revolving Credit Agreement as to when the
Company must prepay portions of the loans. See "Financial Covenant Compliance"
below.
In addition, on the Effective Date and pursuant to the Plan, the
Company issued $154,315,000 10-3/8% Senior Subordinated Notes due 2009 (the "New
Senior Subordinated Notes"), in exchange for $154,315,000 aggregate principal
amount of the Original Senior Subordinated Note Claims in the Company's
bankruptcy case relating to the Company's former 9-3/8% Senior Subordinated
Notes due 2009 (the "Original Senior Subordinated Notes"); the remaining
$45,685,000 in aggregate principal amount of the Original Notes were exchanged
under the Plan for shares of reorganized Company Common Stock, as previously
reported. The New Senior Subordinated Notes were issued pursuant to an
Indenture, dated as of January 31, 2002, among the Company, the subsidiary
guarantors named therein and Wilmington Trust Company, as Trustee (the
"Indenture"). The Company subsidiary guarantees of the New Senior Subordinated
Notes are junior and subordinated on the same basis as the New Senior
Subordinated Notes are junior and subordinated to the Company's Senior Debt (as
defined in the Indenture and includes the debt described above under the
Post-Confirmation and Revolving Credit Agreements). Interest at 10-3/8% per
annum from the issue date to maturity is payable on the New Senior Subordinated
Notes each February 1 and August 1, with the first interest payment date being
February 1, 2002. The New Senior Subordinated Notes are redeemable at the
Company's option under certain conditions on or after February 1, 2004. Further,
the Indenture contains covenants that, among other things, restricts the Company
in connection with the incurrence of additional indebtedness not including the
debt incurred under the Post-Confirmation and Revolving Credit Agreement as
described above, asset sales, changes of control and transactions with
affiliates.
The Company's Amended and Restated Bylaws, which became effective on
January 31, 2002, provide that the Board of Directors consists of ten (10)
individuals. The Company has entered into a stockholders agreement, dated as of
January 31, 2002 (the "Stockholders'
31
Agreement"), with the following persons: Michael W. Patrick; GS Capital Partners
III, L.P.; GS Capital Partners III Offshore, L.P.; Goldman Sachs & Co.
Verwaltungs Gmbh; Bridge Street Fund 1998; Stone Street Fund 1998; The Jordan
Trust; TJT(B); TJT(B) (Bermuda) Investment Company LTD.; David W. Zalaznick and
Barbara Zalaznick, JT TEN; Leucadia Investors, Inc. and Leucadia National
Corporation (collectively, the "Signing Stockholders"). Based on all shares of
the Company's Common Stock outstanding as of the Effective Date, under the Plan,
the Signing Stockholders own (a) approximately 83.2% of the approximately nine
million (9,000,000) shares of Common Stock issued and outstanding on the
Effective Date and (b) approximately 82.7% if the calculation is made on a fully
diluted basis assuming that an additional one million (1,000,000) shares of the
Common Stock have been issued under the new management incentive plan.
Pursuant to the Stockholders' Agreement, the Signing Stockholders
agreed to vote their shares of capital stock of the Company, during the term of
the agreement (as described below), in a manner necessary to elect the following
individuals to the Company's Board of Directors: (a) the Chief Executive Officer
("CEO") of the Company; (b) Carl Patrick, Jr., subject to certain conditions;
(c) three members designated by Jordan/Zalaznick Advisers, Inc., provided that
at least one of such designees is an Independent Director (as defined below);
(d) four members designated by GS Capital Partners III, L.P., provided that at
least one of such designees is an Independent Director; and (e) an individual
designated by the CEO and approved by a majority of the members of the Company's
board of directors who, if elected, will qualify as an Independent Director. In
the Stockholders' Agreement, an "Independent Director" means a person that (a)
holds less than 5% of the capital stock of the Company and (b) is not an
Affiliate (as defined therein) of a person who holds 5% or more of the capital
stock of the Company and (c) is not an officer or employee of the Company. The
term of the Stockholders' Agreement expires on the twenty-fifth month of the
Effective Date unless earlier terminated by a written agreement executed by the
Signing Stockholders (and/or their permitted transferees that have agreed to be
bound by the terms of the Stockholders' Agreement) holding at least 66.67% of
the shares of capital stock of the Company owned by all of the Signing
Stockholders (and any permitted transferees) at such time.
Also pursuant to the Stockholders' Agreement, the Signing Stockholders
agreed to vote their shares of capital stock of the Company in a manner
necessary to approve the Carmike Cinemas, Inc. 2002 Stock Plan at an annual or
special meeting of the Company's stockholders held within twelve months of the
Effective Date, and to support affirmative action with respect to and, if
presented for vote before the Company's stockholders, to vote for the Employment
Agreement between the Company and Michael W. Patrick as CEO.
In addition, the Signing Stockholders agreed that for twenty-five
months commencing on the Effective Date, they will not, directly or indirectly,
sell, offer to sell, grant any option to purchase or otherwise transfer or
dispose of any interest in the capital stock of the Company other than (a)
pursuant to an Extraordinary Transaction (as defined therein) such as the sale
of all or substantially all of the assets of the Company or a sale, merger,
consolidation or other transaction as a result of which the holders of the
voting stock of the Company immediately prior to such transaction would hold
less than 50% of the outstanding voting rights of the successor entity; (b) to a
parent company of the Signing Stockholder; (c) to a wholly owned subsidiary of
the Signing Stockholder or a wholly owned subsidiary of the parent company of
the Signing Stockholder; or (d) in the case of an individual Signing
Stockholder, to a family member;
32
provided, that with respect to each of the foregoing (b), (c) and (d), the
transferee agrees to become bound by the terms and conditions of the
Stockholders' Agreement.
Further pursuant to a registration rights agreement, dated as of
January 31, 2002, among the Company and the Signing Stockholders (the
"Registration Rights Agreement"), subject to certain exceptions, holders of
restricted shares of Common Stock (the "Registrable Securities") who are
signatories to the Registration Rights Agreement ("Holders") have the right to
require the Company to register under the Securities Act of 1933, as amended,
all or a part of the Registrable Securities held by such requesting Holders,
provided that the number of shares sought to be included in such registration
equals or exceeds, in the aggregate, 10% or more of the shares of Common Stock
then issued and outstanding (calculated on a fully diluted basis). Holders are
entitled to an unlimited number of such demand registrations provided that the
10% requirement described in the foregoing sentence can be satisfied. In
addition, subject to certain exceptions, Holders have the right to demand (an
unlimited number of times) inclusion of Registrable Securities that such Holders
beneficially own in registrations by the Company of securities either for its
own account or the account of a selling security holder.
Carmike believes the motion picture exhibition industry has stabilized
during the last eighteen months. All of the major exhibitors have experienced
some form of financial restructuring, capitalization change or downsizing. The
explosive growth of new theatre construction has slowed and numerous screens
have been taken out of the marketplace. Carmike's business plan and operations
strategy will center on slow focused growth through very selective theatre
construction, the addition of screens in markets where we already have a theatre
and the continuation of cost controls and inventory management that will ensure
maximum cash flow from operations. Additionally, the Company will focus on the
reduction of debt through required periodic amortization, sales of surplus real
estate and operating cash.
CRITICAL ACCOUNTING POLICIES
Carmike's Part II, Item 7. Management's Discussion and Analysis of
Financial Condition and Results of operations discusses Consolidated Financial
Statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the period. On an on-going basis,
management evaluates its estimates and judgements, including those related to
impairment of long-lived assets including goodwill, leasing transactions,
depreciation of property and equipment, income taxes and contingencies and
litigation. Management bases its estimates and judgements on historical
experience and on various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying value of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions and conditions.
Management believes the following critical accounting policies, among
others, affect its more significant judgements and estimates used in the
preparation of its consolidated financial statements.
33
Bankruptcy Matters
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"). SOP 90-7
requires, among other things, (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.
As debtors-in-possession, the Debtors had the right, subject to
Bankruptcy Court approval and certain other limitations, to assume or reject
executory contracts and unexpired leases during the Chapter 11 Cases. Any
damages resulting from rejection of executory contracts or unexpired leases were
treated as general unsecured claims in the Chapter 11 Cases. During the Chapter
11 Cases, the Debtors received approval from the Bankruptcy Court to reject
theatre lease relating to 136 theatre locations of the Debtors. The Debtors
cannot presently determine or reasonably estimate the ultimate liability that
may result from rejecting leases or from the filing for any rejected contracts,
and no provisions have yet been made for these items.
See Note 2 of Notes to Consolidated Financial Statements for additional
information regarding proceedings under Chapter 11.
Property and Equipment
Property and equipment are carried at cost. Assets held for disposal
are reported at the lower of the asset's carrying amount or its fair value less
costs to sell. Amortization of assets recorded under capital leases is included
with depreciation expense in the accompanying consolidated statements of
operations. The Company uses accelerated methods of depreciation for income tax
purposes. For financial reporting purposes, depreciation is computed on a
straight-line basis as follows:
Building and improvements 20-30 years
Leasehold improvements 15-30 years
Leasehold interests 15-30 years
Equipment 5-15 years
Impairment of Long Lived Assets, including Goodwill
The Company accounts for its long-lived assets in accordance with the
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of
("SFAS No. 121"). The Company reviews its long-lived assets including goodwill
related to those assets for impairment 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
34
Company's own expansion. For purposes of SFAS No. 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. Considerable judgment is necessary to estimate discounted future cash
flows. Accordingly, actual results could vary significantly from such estimates.
See "Assets Impairments" following for additional information regarding
the effects on the 2001, 2000 and 1999 consolidated financial statement.
Effective January 1, 2002, the Company will adopt Statement of
Financial Accounting Standards No. 142 ("SFAS No. 142"), Goodwill and Other
Intangible Assets. In general, SFAS No. 142 requires that during 2002 the
Company assess the fair value of the net assets underlying our acquisition
related goodwill on a business by business basis. Where that fair value is less
than the related carrying value, Carmike will be required to reduce the amount
of the goodwill. These reductions will be made retroactive to January 1, 2002.
SFAS No. 142 also requires that Carmike discontinue the amortization of its
acquisition related goodwill.
As of December 31, 2001, the Company's financial statements included
acquisition related goodwill of $23.4 million , net of previous amortization.
Although the process of implementing SFAS No. 142 will take several more months,
Carmike preliminarily believes that the adoption will not have a significant
effect on the its results of operations or financial position except the
reduction of amortization expenses of approximately $1.5 million in 2002.
Leases
The Company has various non-cancelable operating lease agreements. The
theatre leases generally provide for the payment of fixed monthly rentals,
property taxes, common area maintenance, insurance and repairs. Certain of these
leases provide for escalating lease payments over the terms of the leases.
Moreover, certain leases also include contingent rental fee based on a
percentage of sales. 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. For financial
statement purposes, the total amount of base rentals over the term of the leases
is charged to expense on the straight-line method over the lease terms. Rental
expense in excess of lease payments is recorded as a deferred rental liability.
Income Taxes
The Company uses the liability method of accounting for income taxes,
which requires recognition of temporary differences between financial statement
and income tax basis of assets and liabilities, measured by enacted tax rates.
35
The Company established a valuation allowance in accordance with the
provisions of FASB Statement No. 109, Accounting for Income Taxes. The Company
continually reviews the adequacy of the valuation allowance and recognizes that
benefits of deferred tax assets only as reassessment indicates that it is more
likely than not that the deferred tax assets will be realized.
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. As previously stated, Carmike accounts
for its long-lived assets in accordance with SFAS No. 121. Carmike reviews for
impairment of long-lived assets and goodwill related to those assets to be held
and used in the business whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Carmike also
periodically reviews and monitors its internal management reports and the
competition in its markets for indicators of impairment of individual theatres.
In the fourth quarter of 2001, 2000 and 1999, the Company identified
impairments of asset values for certain theatres and a joint venture investment
in three movie theatre-entertainment complexes. As a result, the Company
recognized a non-cash impairment charge of approximately $132.2 million, $21.2
million and $33.0 million, respectively, in the fourth quarters of 2001, 2000
and 1999. These impairment charges reduce the carrying value of approximately
287 theatres with 2,126 screens for 2001, approximately 18 theatres with 130
screens for 2000 and approximately 82 theatres with 432 screens for 1999. The
impairment charges additionally reduce the carrying value of a joint venture
which operated three movie theatre-entertainment complexes and equipment removed
from theatres that were closed or rejected during the Chapter 11 Cases. The
impairment charge recognized for 2001 was significantly larger than in prior
years due to the write-off of leasehold improvements on rejected theatres, the
impact of closing owned theatres, the diminished value of our entertainment
centers and the write-down of surplus equipment removed from closed or rejected
theatres. Additionally, in 2001 the Company included the equipment in the
theatre valuation calculations based on the reduced capital building program in
the future as well as the excess supply of equipment in inventory.
During the course of the Chapter 11 proceedings the Company had the
opportunity to reject leases on unprofitable leased theatres, to reassess the
longer term value in keeping some of its owned theatres operating and to remove
and store equipment taken from leased and owned theatres. During the fourth
quarter of 2001 the Company had sufficient information to assess the impact of
lease rejections, the closure of owned theatres, the future viability of our
entertainment centers and the effect of surplus equipment. As a result of these
reviews, in the fourth quarter of 2001, Carmike identified impairment of asset
values for 287 theatres and 2,126 screens (the "2001 Impairment Charge"). The
2001 Impairment Charge was significant and included a provision for the total
impairment of carrying value on 112 of the 136 leased theatres that were
rejected during the Chapter 11 Cases, the impairment of our two entertainment
centers, the impairment of equipment removed from leased and owned theatres and
the inclusion of
36
equipment in the valuation analysis for the theatres remaining in the Company's
portfolio. The Company has recognized impairment charges of $132.2 million
(approximately $(11.65) per diluted share). These impairment charges reduced the
carrying value of property and equipment by $148.6 million (cost of $214.2
million less accumulated depreciation and amortization of $86.5 million) and
goodwill by approximately $20.9 million. Included in reorganization costs is
$16.4 million for impairment charges on rejected theatres.
Subsequent to the Petition Date, the Company identified certain owned
theatres and other leased theatres which had 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").
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
goodwill 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. 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 goodwill 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 the Company prepares 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.
The 2001 Impairment Charge was primarily attributed to the rejection of
leases during the reorganization process, the decrease in value in our
entertainment centers, surplus equipment, the decrease in the fair market values
of owned property and inability to improve a marginal theatre's operating
results to a level that would support the carrying value of the long-lived
assets. The 2000 Impairment Charge and the 1999 Impairment Charges were
primarily caused by reductions in estimated theatre cash flows due to (i) the
impact of new or increased competition on certain 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.
37
As a result of the reduced carrying amount of the impaired assets due
to the 2001, 2000 and 1999 Impairment Charges, depreciation and amortization
expense for 2001, 2000 and 1999 was reduced by approximately $9.8 million, $9.2
million and $6.7 million, respectively (2001 - approximately $9.8 million after
income taxes or $.86 per diluted share; 2000 - approximately $9.2 million after
income taxes or $.81 per diluted share; and 1999 - approximately $4.2 million
after income taxes or $.37 per diluted share;). Depreciation and amortization
for 2002 will be reduced by approximately $18 million as a result of the
impairment charges. There can be no assurance that Carmike will not take
additional charges in the future related to the impairment of assets.
As a result of the Chapter 11 Cases, the Company has delayed its plans
to 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 $2.7 million at
December 31, 2001) 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, has been
considered in the impairment charge for 2001.
Carmike has approximately $23.4 million of goodwill recorded at
December 31, 2001. 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. Carmike evaluates goodwill for impairment in
accordance with the requirements of SFAS No. 121. The unimpaired goodwill at
December 31, 2001 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 2001 Impairment Charge, the 2000 Impairment Charges and the 1999
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.
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
38
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.
The theatres remaining under this restructuring charge were rejected
during the Chapter 11 proceedings. The remaining restructuring reserve will be
evaluated on the Effective Date of the Company's exit from the Chapter 11 Cases.
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,
---------------------------------------------------------
1997 1998 1999(1) 2000 2001
------ ------ -------- ------ ------
Revenues:
Admissions .............................................. 69.6% 68.6% 69.0% 68.2% 68.2%
Concessions and other ................................... 30.4 31.4 31.0 31.8 31.8
------ ------ ------ ------ ------
Total revenues ........................................ 100.0 100.0 100.0 100.0 100.0
Costs and expenses:
Film exhibition costs (2) ............................... 37.0 36.9 37.3 40.1 37.5
Concession costs ........................................ 4.0 4.1 3.9 4.5 4.4
Other theatre operating costs ........................... 38.2 39.0 39.2 42.2 39.9
General and administrative .............................. 1.4 1.5 1.5 1.5 1.9
Depreciation and amortization ........................... 7.3 7.8 8.4 9.3 9.2
Impairment of long-lived assets ......................... -- 8.0 6.8 4.6 28.9
Restructuring charge .................................... -- 7.2 (.5) -- --
------ ------ ------ ------ ------
87.9 104.5 96.6 102.2 121.8
------ ------ ------ ------ ------
Operating income (loss) ............................... 12.1 (4.5) 3.4 (2.2) (21.8)
Interest expense ........................................... 5.0 5.6 7.6 6.7 1.3
------ ------ ------ ------ ------
Income (loss) before reorganization costs,
income taxes and extraordinary items .................... 7.1 (10.1) (4.2) (8.9) (23.1)
Reorganization costs ....................................... -- -- -- 1.5 4.3
------ ------ ------ ------ ------
Income (loss) before income taxes and
extraordinary item ......................................... 7.1 (10.1) (4.2) (10.4) (27.4)
Income tax expense (benefit) ............................... 2.7 (3.8) (1.6) 5.5 --
------ ------ ------ ------ ------
Net income (loss) before
extraordinary item ...................................... 4.4% (6.3)% (2.6)% (15.9)% (27.4%
====== ====== ====== ====== ======
Other information:
Film exhibition costs as % of
admissions revenue (2) .................................. 53.1% 53.8% 54.0% 58.7% 54.9%
Concession costs as a % of
concession revenue ...................................... 14.4% 14.3% 14.0% 15.6% 14.8%
39
(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, 2001 Compared to Year Ended December 31, 2000
Total revenues for the year ended December 31, 2001 decreased to $457
million from $462 million. This decrease is primarily due to the reduction of
screens in the circuit partially offset by the increase in attendance per
screen. The decrease in screens is due to the rejection and closure of
non-profitable leased theatres as part of the Company's filing for Chapter 11
protection. Attendance per average screen was 27,083 for 2001 compared to 25,654
for 2000. Revenue per average screen was $191,513 for 2001 compared to $174,914
for 2000. Average admission prices increased 3.9% to $4.83 for 2001 compared to
$4.65 the previous year with the average concessions sale per patron increasing
6.1% to $2.10 for 2001 from $1.98 for 2000.
Cost of theatre operations (film exhibition costs, concession costs and
other theatre operating costs) decreased 7.0% to $373 million from $401 million
due (i) to decreased film rent as a result of films that did play for an
extended period of time, which provides lower percentage payments to the
distributors, (ii) reduced lease costs due to theatres closed in 2001 and (iii)
decreased operating costs due to closed theatres. As a percentage of revenue,
cost of theatre operations decreased from 86.8% of total revenues in 2000 to
81.6% of total revenues in 2001.
General and administrative costs were $8.8 million for 2001 and $6.9
million for 2000. As a percentage of total revenues, general and administrative
costs were 1.9% in 2001 and 1.5% in 2000.
Depreciation and amortization decreased 2.3% to $42 million from $43
million as a result of reduced screens in operation. The 2001 and 2000
Impairment Charges reduced the values of property and equipment and goodwill.
These adjustments to cost reduced the amount of depreciation and amortization
recognized during 2001 by approximately $9.8 million.
Interest expense for the year ended December 31, 2001 decreased 80.7%
to $6 million from $31 million for the year ended December 31, 2000. The Company
ceased recording interest expense relating to substantially all of its debt
facilities effective August 8, 2000 in accordance with the requirements of SOP
90-7.
The Company recognized no income tax expense or benefit in 2001 as
compared to tax expense of approximately $26 million in 2000 as a result of
being in a loss carryforward position in 2001 for income tax purposes.
Reorganization costs of $19.6 million have been incurred during 2001
and include $8.2 million of professional fees and $16.4 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
$3.0 million of interest income and gains on asset sales subsequent to the
Petition Date.
40
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 ceased recording 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
41
Company no longer had 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 were 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 were 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.
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 related to changes in interest rates. Substantially
all of the Company's interest was suspended during the bankruptcy. Since the
Effective Date, the Company has begun to pay interest and is again subject to
the market risk related to changes in interest rates.
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 did not have a
significant effect on the Company's results of operations or financial position.
In June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 141 Business Combinations ("SFAS No.
141"), which eliminates the pooling method of accounting for all business
combinations initiated after June 30, 2001 and addresses the initial recognition
and measurement of goodwill and other intangible assets
42
acquired in a business combination. The Company adopted SFAS No. 141 for
business combinations initiated after June 30, 2001. During 2001 the Company did
not transact any business combinations. Therefore, the adoption of SFAS No. 141
had no significant effects on the Company's results of operations or financial
position.
In June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
("SFAS No. 142"). Under SFAS No. 142, goodwill and indefinite lived intangible
assets are no longer amortized but are reviewed annually for impairment. The
Company will adopt the standard on January 1, 2002. The Company expects the
adoption of SFAS No. 142 will result in the reduction of amortization expense of
approximately $1.5 million in 2002.
In August 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets ("SFAS No. 144"), which addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets and supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of, and the accounting and
reporting provisions of APB Opinion No. 30, Reporting the Results of Operations
for a disposal of a segment of a business. The Company will adopt the standard
on January 1, 2002. The Company does not expect the adoption of the Statement
will have a significant impact on the Company's financial position and results
of operations.
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 $54.7 million as of December 31, 2001, compared to working
capital of $27.1 million at December 31, 2000. The improved working capital
recorded as of December 31, 2001 reflects the improvement in cash flow from
operations. At December 31, 2001, the Company had approximately $94.2 million in
cash and cash equivalents on hand. Substantially all of which was used to repay
pre-petition liabilities in connection with the Effective Date. As of March 22,
2002, the Company had approximately $25 million in cash and cash equivalents 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 2001, such capital expenditures totaled $9.2
million. In connection with the Revolving Credit Agreement, the Company will be
limited to capital expenditures, as defined, of $20 million in 2002 and $15
million in each of the next four years.
Cash provided by operating activities was $49.4 million for the
twelve-months ended December 31, 2001, compared to cash provided by operating
activities of $25.4 million for the twelve-months ended December 31, 2000. The
increase in cash flow from operating activities was primarily due to the
decrease in net loss as a result of non-cash impairment charges. Net cash used
in investing activities was $1.0 million for the year ended December 31, 2001 as
43
compared to $15.6 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 sales of long-term assets. For the
year ended December 31, 2001 cash used in financing activities was $6.8
million compared to cash provided by financing activities of $47.0 million for
the previous year. The decrease was primarily due to reduced borrowings under
the Old Revolving Credit Facility.
The Company's liquidity needs are funded by operating cash flow, sales
of surplus assets, availability under the Revolving Credit Agreement and short
term float. The exhibition industry is very seasonal with the studios normally
releasing their premiere film product during the holiday season or summer
months. This seasonal positioning of film product makes the Company's needs for
cash vary significantly from period to period. Additionally, the ultimate
performance of the film product, any time during the calendar year, will have
the most dramatic impact on the Company's cash needs.
The Company's ability to service its indebtedness will require a
significant amount of cash. Our ability to generate this cash will depend
largely on future operations. Based upon our current level of operations, we
believe that cash flow from operations, available cash, sales of surplus assets
and borrowings under the Revolving Credit Agreement will be adequate to meet our
liquidity needs.
The Company cannot make assurances, however, that its business will
continue to generate significant cash flow to fund its liquidity needs. We are
dependent to a large degree on the public's acceptance of the films released by
the studios. We are also subject to a high degree of competition and low
barriers of entry into our industry. In the future, we may need to refinance all
or a portion of our indebtedness on or before maturity. The Company cannot make
assurances that it will be able to refinance any of its indebtedness or raise
additional capital through other means, on commercially reasonable terms or at
all.
Contractual Obligations
PAYMENTS DUE BY PERIOD
One Year
or Less 2-3 Years 4-5 Years After 5 Years Total
----------------------------------------------------------------------
Term Loan -New Bank Debt (1) $ 20,000 $ 55,000 $ 60,000 $ 96,130 $ 231,130
Revolving Credit Agreement (2) -0- -0- 50,000 -0- 50,000
New Senior Subordinated Notes (3) -0- -0- -0- 154,315 154,315
General unsecured creditors (4) 5,000 10,000 10,000 15,000 40,000
Industrial Revenue Bond 522 1,043 739 -0- 2,304
Capital Lease Obligations (5) 6,600 13,373 13,388 84,509 117,870
Operating Leases (5) 40,608 76,458 71,153 365,707 553,926
----------------------------------------------------------------------
Total Contractual Cash Obligations $ 72,730 $ 155,874 $ 205,280 $ 715,661 $1,149,545
======================================================================
(1) Term Loan has required semi-annual principal payments each June 30 and
December 31 through June 30, 2006. The remaining principal balance
outstanding matures on January 15, 2007.
(2) The Revolving Credit Agreement has a maturity date of October 31,
2006. This presentation assumes the full $50 million commitment is
outstanding and payable.
(3) The maturity date for the New Senior Subordinated Notes is February 1,
2009.
(4) General unsecured creditors in the Chapter 11 Cases are due
semi-annual payments of $2.5 million plus interest with a maturity of
January 31, 2007.
44
(5) Includes obligations for theatres the Company had not closed or
rejected at December 31, 2001.
Professional fees have averaged approximately $712,000 per month from
the Petition Date through December 31, 2001. Carmike will continue to incur
significant professional fees during the remainder of the Chapter 11 Cases.
FINANCIAL COVENANT COMPLIANCE
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 reduction 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 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 2002.
Carmike's credit and leasing facilities contain certain restrictive
provisions which, among other things, limit additional indebtedness of the
Company, limit capital expenses, 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.
To secure the New Master Lease, Carmike granted MoviePlex an express
contract lien, in addition to MoviePlex's statutory lien as landlord, on and a
security interest in all equipment, inventory, fixtures and other personal
property which is located on the leased premises or used in connection therewith
and upon all proceeds thereof.
In the Event of Default (as defined below) by Carmike, MoviePlex has
the immediate option to terminate the New Master Lease and all rights of Carmike
thereunder and may then recover from Carmike: (a) the worth at the time of award
of any unpaid rent which had been earned at the time of such termination; plus
(b) the worth at the time of award of the amount by which the unpaid rent which
would have been earned after termination until the time of award exceeds the
amount of such rent loss which could have been reasonably avoided (as liquidated
damages); plus (c) the worth at the time of award of the amount by which the
unpaid rent for the balance of the New Master Lease term after the time of award
exceeds the amount of such rent loss which could be reasonably avoided (as
liquidated damages); plus (d) at MoviePlex's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time
under applicable law. A "Default" under the New Master Lease includes Carmike's
failure to pay rent or perform under certain conditions, Carmike's being
adjudged bankrupt or the judicial seizure of its assets, or the occurrence of a
Change of Control of Carmike. Under the New Master Lease, a "Change of Control"
is any event, transaction or occurrence as a result of which (i) the
stockholders of Carmike cease to own and control all of the economic and voting
rights associated with ownership of at least 30% of the outstanding capital
stock of all classes of Carmike on a fully diluted basis, or Carmike ceases to
own and control all of the economic and voting rights associated with all of the
outstanding capital stock of any of its Debtor subsidiaries
45
(except that a particular qualified buyer transaction is not a Change of Control
under the New Master Lease).
The New Master Lease has been collaterally assigned, like the Original
Master Lease was, to Wachovia Bank, N.A., in its capacity as Agent under the
Reimbursement Agreement dated as of November 20, 1997, as amended, among
MoviePlex, certain lenders (the "MoviePlex Lenders") and Wachovia Bank, as Agent
pursuant to a Mortgage and an Assignment of Rents as to each of six properties,
to secure MoviePlex's obligations to such MoviePlex Lenders under the
Reimbursement Agreement. At the end of the New Master Lease term, or if the
lease is terminated by reason of default by Carmike, the furniture, fixtures and
equipment located in the theatres will become the property of the MoviePlex
Lenders. In addition, the MoviePlex Lenders have released their liens on the
Debtors' other assets that secured the MoviePlex obligations.
If a default or Event of Default (as defined below) under the Revolving
Credit Agreement occurs and is continuing, then the Agent may (and at the
request of the requisite lenders shall) suspend the Revolving Credit Agreement
with respect to additional advances and/or the incurrence of additional letter
of credit obligations and may increase the interest rate applicable to the loans
and the letter of credit fees to the Default Rate (i.e., two percentage points
above the otherwise applicable rate). If an Event of Default under the Revolving
Credit Agreement occurs and is continuing, the Agent may (and at the request of
the requisite lenders shall) terminate the revolving loan facility with respect
to further advances or the incurrence of further letter of credit obligations
and may declare all or any portion of the obligations due and payable and
require that the letter of credit obligations be cash collateralized (except
that no declaration of such is required if any Borrower or Debtor Subsidiary
becomes subject to a bankruptcy proceeding). "Events of Default" under the
Revolving Credit Agreement include, among other events and subject to any
conditions set forth in the Revolving Credit Agreement: (a) a Borrower's failure
to pay principal or interest on the loans or other obligations when due and
payable or failure to reimburse Agent's expenses; (b) any credit party's or
Borrower's failure to perform or observe certain covenants, such as the
Borrowers' using the proceeds of the revolving loan and swing line advances
solely for refinancing the bank debt under the Post-Confirmation Credit
Agreement; (c) a credit party's breach or default with respect to the Indenture
or the Post-Confirmation Credit Agreement; or (d) the occurrence of a Change of
Control. A "Change of Control" under the Revolving Credit Agreement is similar
to such an event under the New Master Lease.
If an Event of Default under the Post-Confirmation Credit Agreement
occurs and is continuing, then, if requested by the required lenders, the
Administrative Agent shall terminate the commitments and declare the notes and
all amounts payable under the Post-Confirmation Credit Agreement due (except
that no declaration of such is required if Carmike or any of its subsidiaries
becomes subject to a bankruptcy proceeding). "Events of Default" under the
Post-Confirmation Credit Agreement include, among other events and subject to
any conditions in the Post-Confirmation Credit Agreement: (a) Carmike's failure
to pay principal or interest on the Loans or when due and payable or failure to
pay certain expenses; (b) Carmike's failure to perform or observe certain
covenants, such as compliance with certain funded debt to EBITDA and interest
coverage ratios; or (c) the occurrence of a Change of Control. A "Change of
Control" under the Post-Confirmation Credit Agreement is similar to such an
event under the New Master Lease.
46
If an Event of Default under the Indenture occurs and is continuing,
then the Trustee or the holders of at least 25% in principal amount of the then
outstanding New Senior Subordinated Notes may declare all the New Senior
Subordinated Notes to be due and payable immediately. "Events of Default" under
the Indenture include, among other events and subject to any conditions in the
Indenture: (a) the Company's failure to pay principal, interest or premium when
due on the New Senior Subordinated Notes, (b) Carmike's or any of certain
subsidiaries' failure to comply with the restrictions concerning certain
payments, incurrence of certain indebtedness and issuance of preferred stock,
offer to repurchase the New Senior Subordinated Notes upon a change of control,
assets sales, limitations on dividend and other payment restrictions affecting
subsidiaries, and merger, consolidation, sale of assets contained in the
Indenture, or (c) Carmike's default under the Plan Trade Payable (as defined in
the Indenture) or any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced certain Indebtedness (as
defined in the Indenture) for money borrowed by Carmike or any of certain
subsidiaries, which default (A) is caused by a failure to pay principal of, or
interest or premium, if any, on such Plan Trade Payables or Indebtedness prior
to the expiration of the grace period, if any on the date of such default (a
"Payment Default") or (B) results in the acceleration of such Indebtedness prior
to the express maturity thereof and, in each case, the principal amount of such
Plan Trade Payables or Indebtedness, together with the principal amount of any
other Plan Trade Payables or such Indebtedness which has so had a Payment
Default or the maturity of which has been so accelerated, aggregates $20.0
million or more.
RELATED PARTY TRANSACTIONS
Carmike has an aircraft lease agreement dated July 1, 1983, with C.L.P.
Equipment, a sole proprietorship of which C.L. Patrick is the owner, pursuant to
which Carmike paid $190,522 in the year ended December 31, 2001. Carmike
believes that this transaction is on terms no less favorable to Carmike than
terms available from unaffiliated parties in arm's-length transactions.
F. Lee Champion, III, Senior Vice President, General Counsel, Secretary
and a director of Carmike until December 31, 2001, owns 20% of Military
Services, Inc., a subsidiary of Carmike. Mr. Champion provides outside legal
services for the Company and is compensated on terms no less favorable to
Carmike than terms available from unaffiliated parties in arm's-length
transactions. Carl E. Sanders, a director of Carmike until April 9, 2001, is
Chairman of Troutman Sanders LLP, Atlanta, Georgia, which provided legal
services to Carmike during 2001 and is providing legal services to Carmike
during 2002.
Elizabeth C. Fascitelli and Richard A. Friedman are managing directors
of Goldman Sachs. Goldman Sachs and its subsidiaries have provided investment
banking and related financial services to Carmike during 2001 and are expected
to provide similar services to Carmike in 2002. Ms. Fascitelli and Mr. Friedman
initially were elected as directors of Carmike pursuant to a Stock Purchase
Agreement dated November 22, 1998 relating to the sale of the Series A Preferred
Stock, pursuant to which certain affiliates of Goldman Sachs purchased an
aggregate of 550,000 shares of the Series A Preferred Stock for an aggregate
purchase price of $55.0 million. The holders of the Series A Preferred Stock
received 41.2% of the ten million (10,000,000) shares of reorganized Carmike
Common Stock on January 31, 2002 provided for in the Plan, and Ms. Fascitelli
and Mr. Friedman have been designated by GS Capital Partners, III
47
pursuant to the Stockholders' Agreement to be a member of the Board of Directors
of the Company. See Part II, Item 7 of this Form 10-K Report under the caption
"Chapter 11 Cases".
On February 3, 1999, Carmike sold $200 million in principal amount of
Original Senior Subordinated Notes, of which $140 million in principal amount
was purchased by Goldman Sachs. Certain claims regarding these notes were
exchanged in the Chapter 11 Cases for the New Senior Subordinated Notes. In
addition, on February 25, 1999, Carmike entered into a $75 million Term Loan B
for which Goldman Sachs Credit Partners L.P., an affiliate of Goldman Sachs, was
a lead arranger and syndication agent.
As discussed in "Chapter 11 Cases" above, certain holders of
$45,685,000 in aggregate principal amount of the Original Senior Subordinated
Notes received in the aggregate 26.6% of the ten million (10,000,000) shares of
reorganized Carmike Common Stock provided for in the Plan. Each holder that
exchanged such notes for shares of reorganized Carmike Common Stock received
886,667 shares of reorganized Carmike Common Stock. These holders include: (a)
TJT (B) (Bermuda) Investment Company Ltd., a Bermuda company wholly owned by TJT
(B), of which Carmike director John W. Jordan, II is the sole trustee, (b)
Carmike director David W. Zalaznick and his wife Barbara Zalaznick, as joint
tenants, and (c) Leucadia National Corporation, of which Carmike director Ian M.
Cumming is also a director and Chairman.
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."
Interest paid on the Company's debt is largely subject to changes in
interest rates in the market. The Revolving Credit Agreement and the New Bank
Debt are based on a structure that is priced over an index or LIBOR rate option.
A substantial number of the Company's theatre leases are off-balance
sheet as required by Generally Accepted Accounting Principles for Operating
Leases. The cash commitments required for these leases have been included in the
contractual obligations schedule included in Part II, Item 7 of this Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Consolidated Financial Statements for the years ended December 31, 2001 and 2000
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
48
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Carmike Cinemas, Inc. (Debtor-In-Possession)
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, 2001 and 2000, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 2001. 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, 2001 and 2000 and the
consolidated results of operations and cash flows for each of the three years in
the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
Atlanta, Georgia
March 27, 2002
F-1
CONSOLIDATED BALANCE SHEETS
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
DECEMBER 31,
2001 2000
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 94,187 $ 52,522
Accounts and notes receivable 692 1,627
Inventories 3,072 4,029
Recoverable construction allowances 8,175 13,392
Prepaid expenses 5,140 7,109
--------- ---------
Total current assets 111,266 78,679
Other assets:
Investments in and advances to partnerships 7,095 8,747
Other (including restricted cash of $13,185 in 2001
and $3,500 in 2000) 15,984 6,702
--------- ---------
23,079 15,449
Property and equipment
Land 58,707 67,041
Buildings and improvements 146,728 200,898
Leasehold improvements 218,352 277,322
Leasehold interest 5,841 15,429
Equipment 179,619 255,931
--------- ---------
609,247 816,621
Accumulated depreciation and amortization (149,154) (195,456)
--------- ---------
460,093 621,165
Goodwill, net of accumulated amortization 23,354 45,991
--------- ---------
Total assets $ 617,792 $ 761,284
========= =========
F-2
DECEMBER 31,
2001 2000
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 22,291 $ 19,098
Accrued expenses 32,028 29,903
Current maturities of long-term indebtedness and
capital lease obligations 2,289 2,569
--------- ---------
Total current liabilities 56,608 51,570
Long-term liabilities:
Long-term debt, less $1,418 and $1,724 in current
maturities and $444,806 and $455,239 classified as
subject to compromise at December 31, 2001 and 2000 -0- -0-
Capital lease obligations, less current maturities and $3,120
and $2,364 classified as subject to compromise at December
31, 2001 and 2000 47,423 49,430
Restructuring reserve, less $24,668 and $24,683 classified as
subject to compromise at December 31, 2001 and 2000 -0- -0-
Deferred income taxes 1,927 1,927
--------- ---------
49,350 51,357
Liabilities subject to compromise 508,100 529,236
Commitments and Contingencies
Shareholders' equity:
5.5% Series A Senior Cumulative
Exchangeable Preferred Stock, $1.00 par value,
Authorized 1,000,000 shares, issued and
outstanding 550,000 shares, respectively;
involuntary liquidation value of $55,000 550 550
Class A Common Stock, $.03 par value, one vote per
share, authorized 22,500,000 shares, issued and
outstanding 10,018,287 shares, respectively 301 301
Class B Common Stock, $.03 par value, ten votes per
share, authorized 5,000,000 shares, issued and
outstanding 1,370,700 shares, respectively 41 41
Treasury Stock, at cost, 44,800 shares, respectively (441) (441)
Paid-in capital 158,772 158,772
Retained earnings (deficit) (155,489) (30,102)
--------- ---------
3,734 129,121
--------- ---------
Total liabilities and shareholders' equity $ 617,792 $ 761,284
========= =========
See accompanying notes
F-3
CONSOLIDATED STATEMENTS OF OPERATIONS
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31,
2001 2000 1999
---------- ---------- ----------
Revenues:
Admissions $ 311,818 $ 315,395 $ 335,980
Concessions and other 145,132 146,902 150,945
---------- ---------- ----------
456,950 462,297 486,925
Costs and expenses:
Film exhibition costs 171,207 185,195 181,504
Concession costs 20,184 20,964 19,046
Other theatre operating costs 182,054 194,789 191,063
General and administrative expenses 8,846 6,889 7,316
Depreciation and amortization expenses 42,153 43,174 41,146
Impairment charge 132,207 21,250 32,993
Change in estimated restructuring costs -0- -0- (2,671)
---------- ---------- ----------
556,651 472,261 470,397
---------- ---------- ----------
Operating income (loss) (99,701) (9,964) 16,528
Interest expense (Contractual interest for both
years ended December 31, 2001 and 2000 was $44,651) 6,138 31,009 36,853
---------- ---------- ----------
Net (loss) before reorganization costs,
Income taxes and extraordinary item (105,839) (40,973) (20,325)
Reorganization costs 19,548 7,042 -0-
---------- ---------- ----------
Net (loss) before income taxes and
extraordinary item (125,387) (48,015) (20,325)
Income tax (benefit) -0- 25,548 (7,740)
---------- ---------- ----------
Net (loss) before extraordinary item (125,387) (73,563) (12,585)
Extraordinary item (net of income taxes) -0- -0- (6,291)
---------- ---------- ----------
Net (loss) (125,387) (73,563) (18,876)
Preferred stock dividends -0- (1,513) (3,025)
---------- ---------- ----------
Net (loss) available for common stock $ (125,387) $ (75,076) $ (21,901)
========== ========== ==========
Weighted average shares outstanding:
Basic and diluted 11,344 11,344 11,375
========== ========== ==========
(Loss) per common share before extraordinary item:
Basic and diluted $ (11.05) $ (6.62) $ (1.37)
========== ========== ==========
(Loss) per common share:
Basic and diluted $ (11.05) $ (6.62) $ (1.93)
========== ========== ==========
See accompanying notes.
F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
2001 2000 1999
----------- ----------- ----------
OPERATING ACTIVITIES
Net (loss) $ (125,387) $ (73,563) $ (18,876)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 42,153 43,174 41,146
Impairment charges 132,207 26,134 32,993
Restructuring charge -0- (755) (2,671)
Deferred income taxes -0- 22,965 (6,979)
Non-cash reorganization items 9,064 -0- -0-
Recoverable income taxes -0- 5,775 (5,775)
Gain on sales of property and equipment -0- (3,018) (2,765)
Extraordinary charge -0- 3,021 10,146
Changes in operating assets and liabilities:
Accounts and notes receivable and inventories 3,544 43 (276)
Prepaid expenses and other assets (7,313) 3,148 (4,371)
Accounts payable 3,193 (6,642) 11,144
Accrued expenses and other liabilities (8,040) 5,150 5,913
----------- ----------- ----------
Net cash provided by operating activities 49,421 25,432 59,629
INVESTING ACTIVITIES
Purchases of property and equipment (9,191) (44,948) (140,480)
Proceeds from sales of property and equipment 8,197 4,473 5,069
Proceeds from sale/leaseback transaction -0- 23,589 -0-
Decrease (increase) in other -0- 1,249 372
----------- ----------- ----------
Net cash used in investing activities (994) (15,637) (135,039)
FINANCING ACTIVITIES
Debt:
Additional borrowings, net of debt issuance costs -0- 341,211 2,422,818
Repayments (including prepayment penalties) (11,979) (294,599) (2,337,724)
Issuance of Preferred Stock -0- -0- -0-
Preferred stock dividends -0- (1,513) (3,025)
Issuance of Class A Common Stock -0- -0- 230
Repurchase of Class A Common Stock -0- -0- (441)
Recoverable construction allowances under capital leases
5,217 1,867 (15,259)
----------- ----------- ----------
Net cash provided by (used in) financing activities (6,762) 46,966 66,599
----------- ----------- ----------
Increase (decrease) in cash and cash equivalents 41,665 56,761 (8,811)
Cash and cash equivalents at beginning of year 52,522 (4,239) 4,572
----------- ----------- ----------
Cash and cash equivalents at end of year $ 94,187 $ 52,522 $ (4,239)
=========== =========== ==========
See accompanying notes
F-5
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
----------------- ----------------- ------------ --------------
Balance 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 - - - -
----------------- ----------------- ------------ --------------
Balance 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 - - - -
----------------- ----------------- ------------ --------------
Balance at December 31, 2000 550 $ 550 10,018 $ 301
Issuance of Class A Common Stock on
exercise of stock options - - - -
Purchase of Treasury Stock - - - -
Dividends on Preferred Stock - - - -
Net (loss) - - - -
----------------- ----------------- ------------ --------------
Balance at December 31, 2001 550 $ 550 10,018 $ 301
================= ================= ============ ==============
See accompanying notes.
F-6
CLASS B
COMMON STOCK TREASURY STOCK PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
- -------------- -------------- ------------- --------------- ------------------ ----------------- --------------
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
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - (125,387) (125,387)
- -------------- -------------- ------------- --------------- ------------------ ----------------- -----------------
1,371 $ 41 (45) $ (441) $ 158,772 $ (155,489) $ 3,734
============== ============== ============= =============== ================== ================= ==================
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
DECEMBER 31, 2001
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
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. (collectively "the Company") filed voluntary petitions
for relief under Chapter 11 ("the "Chapter 11 Cases") of the United States
Bankruptcy Code. 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").
SOP 90-7 requires, among other things, (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.
DESCRIPTION OF BUSINESS
The primary business of the Company is the operation of motion picture theatres
which generate revenues principally through admissions and concessions sales.
The Company considers itself to be in a single segment. 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 97.3%, 98.8% and 97.8% of the Company's admission
revenues in 2001, 2000 and 1999, respectively.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.
CASH AND CASH EQUIVALENTS
Cash equivalents are highly liquid investments with original maturities of three
months or less and consist primarily of money market accounts and deposits. Cash
equivalents are stated at cost. Deposits with banks are federally insured in
limited amounts.
DEBT ISSUANCE COSTS
Costs related to the issuance of debt are capitalized and amortized to interest
expense over the term of the related debt prior to the Chapter 11 Cases.
Subsequent to the Chapter 11 Cases, these costs are included in the Consolidated
Balance Sheet in "Liabilities Subject to Compromise" along with the related debt
and are not being amortized.
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories, principally concessions and theatre supplies, are stated at the
lower of cost (first-in, first-out method) or market.
INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company is a partner in joint ventures that operate motion picture theatres.
The investments in these ventures 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.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost or cost adjusted for recognized
impairments. Assets held for disposal are reported at the lower of the asset's
carrying amount or its fair value less costs to sell. Amortization of assets
recorded under capital leases is included with depreciation expense in the
accompanying consolidated statements of operations. The Company uses accelerated
methods of depreciation for income tax purposes. For financial reporting
purposes, depreciation is computed on a straight-line basis as follows:
Building and improvements 20-30 years
Leasehold improvements 15-30 years
Leasehold interests 15-30 years
Equipment 5-15 years
GOODWILL
Goodwill represents the excess of purchase price over the fair value of net
tangible assets acquired and is amortized on a straight-line basis over 40
years. Accumulated amortization was $4.8 million and $7.8 million at December
31, 2001 and 2000, respectively, and amortization expense was $1.5 million for
each of 2001, 2000 and 1999.
IMPAIRMENT OF LONG LIVED ASSETS
The Company accounts for its long-lived assets in accordance with the Statement
of Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS No. 121").
The Company reviews its long-lived assets and goodwill related to those assets
for impairment 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 agreement 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. For purposes of SFAS No. 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
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. Considerable judgment is necessary to estimate discounted future cash
flows. Accordingly, actual results could vary significantly from such estimates.
Recoverability of investments in unconsolidated affiliates is evaluated on an
ongoing 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.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS No. 109").
Under SFAS No. 109, the liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rate and laws that will be in effect when
the differences are expected to reverse. Deferred tax assets are reduced by a
valuation allowance if it is more likely than not that some portion or all of
the deferred tax asset will not be realized.
ADVERTISING
The company expenses advertising costs when incurred.
STOCK BASED COMPENSATION
The Company accounts for its stock option grants in accordance with APB Opinion
No. 25, Accounting for Stock Issued to Employees ("APB 25'). 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.
EARNINGS PER SHARE
Basic earnings per share are presented in conformity with Statement of Financial
Accounting Standards No. 128, Earnings Per Share ("SFAS No. 128") for all
periods presented. In accordance with SFAS No. 128, basic net loss per common
share has been computed using the weighted-average number of shares of common
stock outstanding during the period. Diluted earnings per share is computed by
dividing net income by the weighted average number of common shares outstanding
plus common stock equivalents for each period. Options to purchase shares of
common stock were not included in the computed diluted earnings per share in
2001, 2000 or 1999 because the option exercise price was greater than the
average market price of the stock and the effect would be antidilutive. Shares
potentially issuable in connection with the 5.5% Series A Senior Cumulative
Convertible Exchangeable Preferred Stock (the "Preferred Stock") were not
included in the diluted earnings per share calculation in 2001, 2000 and 1999 as
their effect would be antidulutive.
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LEASES
The Company has various non-cancelable operating lease agreements. The theatre
leases generally provide for the payment of fixed monthly rentals, property
taxes, common area maintenance, insurance and repairs. Certain of these leases
provide for escalating lease payments over the terms of the leases. Moreover,
certain leases also include contingent rental fees based on a percentage of
sales. 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. For financial statement
purposes, the total amount of base rentals over the term of the leases is
charged to expense on the straight-line method over the lease terms. Rental
expense in excess of lease payments is recorded as a deferred rental liability.
DERIVATIVES
It is the Company's policy to recognize all derivative financial instruments,
such as interest rate swap contracts in the consolidated financial statements at
fair value regardless of the purpose or intent for holding the instrument.
Changes in the fair value of derivative financial instruments are either
periodically recorded in income or in shareholders' equity as a component of
comprehensive income depending on whether the derivative financial instrument
qualifies for hedge accounting, and if so, whether it qualifies as a fair value
hedge or cash flow hedge. Generally, changes in fair values of derivatives
accounted for as fair value hedges are recorded in income along with the
portions of the changes in the fair values of the hedged items that relate to
the hedges risk(s). Changes in fair values of derivatives accounted for as cash
flow hedges, to the extent they are effective as hedges, are recorded in
comprehensive income net of applicable deferred taxes. Changes in fair values of
derivatives, not qualifying as hedges, are reported in income. If an interest
rate swap agreement is 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 to 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.
RECLASSIFICATIONS
Certain amounts in the accompanying consolidated financial statements have been
reclassified to conform to the current year's presentation.
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS No. 133"). The Company adopted SFAS No. 133, as
amended, effective January 1, 2001. SFAS No. 133 requires the Company to
recognize all derivatives on the balance sheet at fair value. The adoption of
SFAS No. 133 did not have a significant effect on the Company's results of
operations or financial position.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 Business Combinations ("SFAS No. 141"),
which eliminates the pooling method of accounting for all business combinations
initiated after June 30, 2001 and addresses the initial recognition and
measurement of goodwill and other intangible assets acquired in a business
combination. The Company adopted SFAS No. 141 for business combinations
initiated after June 30, 2001. During 2001 the Company did not transact any
business combinations. Therefore, the adoption of SFAS No. 141 had no
significant effects on the Company's results of operations or financial
position.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
("SFAS No. 142"). Under SFAS No. 142, goodwill and indefinite lived intangible
assets are no longer amortized but are reviewed annually for impairment. The
Company expects the adoption of SFAS No. 142 will result in the reduction of
amortization expense of approximately $1.5 million in 2002. In general, SFAS No.
142 requires the Company to assess the fair value of the net assets underlying
our acquisition related goodwill on a theatre by theatre basis during 2002.
Reductions, if any, will be made retroactive to January 1, 2002.
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets ("SFAS No. 144"), which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of, and the accounting and reporting
provisions of APB Opinion No. 30, Reporting the Results of Operations for a
disposal of a segment of a business. The Company will adopt the standard on
January 1, 2002. The Company does not expect that the adoption of the Statement
will have a significant impact on the Company's financial position and results
of operations.
NOTE 2--PROCEEDINGS UNDER CHAPTER 11
On August 8, 2000 (the "Petition Date") Carmike and its subsidiaries Eastwynn
Theatres, Inc., Wooden Nickel Pub, Inc. and Military Services, Inc.
(collectively, the "Debtors") filed voluntary petitions for relief under chapter
11 (the "Chapter 11 Cases") of title 11 of the U.S. Code. On January 4, 2002,
the United States Bankruptcy Court for the District of Delaware entered an order
confirming the Debtors' Amended Joint Plan of Reorganization Under Chapter 11 of
the
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 2--PROCEEDINGS UNDER CHAPTER 11 (CONTINUED)
Bankruptcy Code, dated as of November 14, 2001 (the "Plan"). The Plan became
effective on January 31, 2002 (the "Effective Date").
In the Chapter 11 Cases, substantially all unsecured and partially secured
liabilities as of the Petition Date were subject to compromise or other
treatment until a plan of reorganization was confirmed by the Bankruptcy Court.
Generally, actions to enforce or otherwise effect repayment of all pre-chapter
11 liabilities as well as all pending litigation against the Debtors were stayed
while the Debtors continued their business operations as debtors-in-possession.
The Company could not pay pre-petition debts without prior Bankruptcy Court
approval during the Chapter 11 Cases. Immediately after 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 operations as debtors-in-possession. 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 had the right, subject to Bankruptcy Court
approval and certain other limitations, to assume or reject executory contracts
and unexpired leases during the Chapter 11 Cases. 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 were
treated as general unsecured claims in the Chapter 11 Cases. During the Chapter
11 Cases, the Debtors received approval from the Bankruptcy Court to reject
theatre leases relating to 136 theatre locations of the Debtors. 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.
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 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
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 2--PROCEEDINGS UNDER CHAPTER 11 (CONTINUED)
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 Preferred Stock. Preferred Stock dividends of $7.0 million and $2.3 million
are in arrears at December 31, 2001 and 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.
Also, during the Chapter 11 Cases, the Company reached an agreement to
restructure its master lease facility with MoviePlex Realty Leasing, L.L.C.
("MoviePlex") and entered into the Second Amended and Restated Master Lease,
dated as of September 1, 2001 (the "New Master Lease"). Under the New Master
Lease, Carmike has entered into a new 15-year lease for the six MoviePlex
properties with an option to extend the term for an additional five years. The
Original MoviePlex Lease was terminated and prepetition defaults of $493,680
under the Original MoviePlex Lease were paid. The initial first twelve months
base rent for the six theatres is an aggregate of $5.4 million per annum
($450,000 per month), subject to periodic increases thereafter and certain
additional rent obligations such as percentage rent.
All past due rent, additional rent, and/or other sums due to MoviePlex under the
terms of the New Master Lease bears interest from the date which is five days
from the due date until paid by Carmike at the rate of 2% above the published
prime rate of Wachovia Bank, N.A. Under the New Master Lease, Carmike pays all
real estate taxes with respect to the leased premises.
When the Plan became effective on January 31, 2002, Carmike filed with the
Secretary of State for the State of Delaware the Amended and Restated
Certificate of Incorporation (the "Restated Certificate"), which cancelled all
then existing Class A and Class B Common Stock and Preferred Stock of the
Company and established authorized capital stock of twenty million (20,000,000)
shares of reorganized Carmike Common Stock, par value $.03 per share, and one
million (1,000,000) shares of reorganized Carmike Preferred Stock, par value
$1.00 per share. The Company currently has only reorganized Carmike Common Stock
outstanding and has approximately nine million (9,000,000) shares of such stock
outstanding.
Material features of the Plan are:
- - The Plan provides for the issuance or reservation for future issuance
of ten million (10,000,000) shares of reorganized Carmike Common Stock
in the aggregate.
- - The holders of Carmike's cancelled Class and Class B Common Stock
received in the aggregate 22.2% of the ten million (10,000,000) shares
of reorganized Carmike Common Stock.
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 2--PROCEEDINGS UNDER CHAPTER 11 (CONTINUED)
- - The holders of Carmike's cancelled Series A Preferred Stock received in
the aggregate 41.2% of the ten million (10,000,000) shares of
reorganized Carmike Common Stock.
- - Certain holders of $45,685,000 in aggregate principal amount of the
cancelled 9-3/8% Senior Subordinated Notes due 2009 issued by Carmike
prior to the Chapter 11 Cases (the "Original Senior Subordinated
Notes") received in the aggregate 26.6% of the ten million (10,000,000)
shares of reorganized Carmike Common Stock.
- - Carmike reserved one million (1,000,000) shares of the reorganized
Carmike Common Stock for issuance under a new management incentive plan
(the "2002 Stock Plan") and 780,000 shares under the 2002 Stock Plan
have been issued to Michael W. Patrick pursuant to his new employment
agreement as Chief Executive Officer of the Company.
- - The holders of Bank Claims in the Chapter 11 Cases received New Bank
Debt and cash in the amount of approximately $35 million plus accrued
and unpaid post-petition interest on the Bank Claims from January 15,
2002 to the Effective Date. "Bank Claims" consisted of claims of
certain banks arising under: (i) the Amended and Restated Credit
Agreement, dated as of January 29, 1999, and amended as of March 31,
2000 and (ii) the Term Loan Credit Agreement dated as of February 25,
1999, as amended as of July 13, 1999, and further amended as of March
31, 2000, and certain related documents. "New Bank Debt" consists of
approximately $254 million and bears interest, at the greater of: (a)
at the option of Carmike, (i) a specified base rate plus 3.5% or (ii)
LIBOR plus 4.5%; and (b) 7.75% per annum.
- - Carmike issued $154,315,000 of its new 10-3/8% Senior Subordinated
Notes due 2009 (the "New Senior Subordinated Notes") in exchange for
$154,315,000 aggregate principal amount of the claims in the Chapter 11
Cases concerning the Original Senior Subordinated Notes.
- - 136 of Carmike's underperforming theatres were closed. Lease
terminations and settlement agreements are being negotiated for the
resolution of lease termination claims, and the restructuring or other
disposition of lease obligations.
- - General unsecured creditors will receive, cash and notes including
certain amounts included in liabilities subject to compromise with an
annual interest rate of 9.4% in resolution of their allowed claims
under the Chapter 11 Cases.
On the Effective Date, the Company entered into a new Term Loan Credit Agreement
(the "Post-Confirmation Credit Agreement"), which governs the terms of the New
Bank Debt. The Company's subsidiaries have guaranteed the Company's obligations
under the Post-Confirmation Credit Agreement. The lenders under the
Post-Confirmation Credit Agreement have (i) a second priority, perfected lien on
owned real property and, to the extent landlord approval was obtained or not
required, leased real property of the Company and its subsidiaries; (ii) a
second priority, perfected security interest in the capital stock of all Company
subsidiaries; and (iii) a second
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED CARMIKE CINEMAS, INC. AND
SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 2--PROCEEDINGS UNDER CHAPTER 11 (CONTINUED)
priority, security interest in substantially all personal property owned by the
Company and its subsidiaries. All of the security interests and liens that
secure the New Bank Debt under the Post-Confirmation Credit Agreement are junior
and subordinate to the liens and security interests of the collateral agent
under the Revolving Credit Agreement described below.
The final maturity date of the New Bank Debt loans under the Post-Confirmation
Credit Agreement is January 31, 2007. The principal payment dates are June 30
and December 31 of each year, beginning June 30, 2002 and ending June 30, 2006.
In addition, the Post-Confirmation Credit Agreement contains covenants that
require the Company, among other things, to meet certain financial ratios and
that prohibit the Company from taking certain actions and entering into certain
transactions. There are also provisions in the Post-Confirmation Credit
Agreement as to when the Company must prepay portions of the loans.
Also on the Effective Date, the Company closed on a Revolving Credit Agreement
(the "Revolving Credit Agreement") totaling $50 million. The proceeds of
advances under the Revolving Credit Agreement will be used to provide working
capital financing to the Company and its subsidiaries and for funds for other
general corporate purposes of the Company. The Company, on the Effective Date,
borrowed $20 million of the Revolving Credit Agreement in partial repayment of
its obligations owing to the banks under the Post-Confirmation Credit Agreement.
The terms of the Revolving Credit Agreement are set forth in a Credit Agreement,
dated as of January 31, 2002.
The interest rate for borrowings under the Revolving Credit Agreement is set
from time to time at the Company's option (subject to certain conditions set
forth in the Credit Agreement) at either: (i) the Index Rate (as defined in the
Revolving Credit Agreement) plus 1.75% per annum or (ii) the applicable LIBOR
Rate (as defined in the Revolving Credit Agreement) plus 3.25% per annum, based
on the aggregate Revolving Credit Advances (as defined in the Revolving Credit
Agreement) outstanding from time to time. Borrowings under the Revolving Credit
Agreement are secured by first priority security interests in substantially all
tangible or intangible property of the Company (but does not include certain
equipment or real estate constituting premises subject to the master leasing
agreement with MoviePlex Realty Leasing, L.L.C.). The Revolving Credit Agreement
contains covenants that, among other things, prohibit the Company from taking
certain actions and entering into certain transactions. There are also
provisions in the Revolving Credit Agreement as to when the Company must prepay
portions of the loans.
In addition, on the Effective Date and pursuant to the Plan, the Company issued
$154,315,000 10-3/8% Senior Subordinated Notes due 2009 (the "New Senior
Subordinated Notes"), in exchange for $154,315,000 aggregate principal amount of
the Original Senior Subordinated Note Claims in the Company's bankruptcy case
relating to the Company's former 9-3/8% Senior Subordinated Notes due 2009 (the
"Original Senior Subordinated Notes"); the remaining $45,685,000 in aggregate
principal amount of the Original Notes were exchanged under the Plan for shares
of reorganized Company Common Stock, as previously reported. The New Senior
Subordinated Notes were issued pursuant to an Indenture, dated as of January 31,
2002, among the Company, the subsidiary guarantors named therein and Wilmington
Trust Company, as Trustee (the "Indenture"). The Company subsidiary guarantees
of the New Senior Subordinated Notes are
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 2--PROCEEDINGS UNDER CHAPTER 11 (CONTINUED)
junior and subordinated on the same basis as the New Senior Subordinated Notes
are junior and subordinated to the Company's Senior Debt (as defined in the
Indenture and includes the debt described above under the Post-Confirmation and
Revolving Credit Agreements). Interest at 10-3/8% per annum from the issue date
to maturity is payable on the New Senior Subordinated Notes each February 1 and
August 1, with the first interest payment date being February 1, 2002. The New
Senior Subordinated Notes are redeemable at the Company's option under certain
conditions on or after February 1, 2004. Further, the Indenture contains
covenants that, among other things, restricts the Company in connection with the
incurrence of additional indebtedness not including the debt incurred under the
Post-Confirmation and Revolving Credit Agreement as described above, asset
sales, changes of control and transactions with affiliates.
The reorganization value of the assets of the Company immediately before the
Effective Date was greater than the total of all post-petition liabilities and
allowed claims and the Plan does not result in a change in ownership as defined
by Statement of Position 90-7; accordingly, the Company will continue to
recognize its historical basis of accounting. The following table illustrates
the effects of the reorganization as if the Company had recorded the
aforementioned adjustments as of December 31, 2001.
DECEMBER 31, 2001
ADJUSTMENTS PRO FORMA
AS REPORTED (UNAUDITED) (UNAUDITED)
-------------------------------------------------
Current assets $ 111,266 $ (83,225) $ 28,041
Other assets 15,984 15,984
Investment in affiliated entities 7,095 7,095
Property and equipment, net 460,093 460,093
Goodwill, net 23,354 23,354
-------------------------------------------------
Total assets 617,792 (83,225) 534,567
=================================================
Current liabilities 56,608 56,608
Capital lease obligations 47,423 47,423
Long-term debt -- 408,860 408,860
Deferred income taxes 1,927 1,927
Liabilities subject to compromise 508,100 (455,970) 52,130
-------------------------------------------------
Total liabilities 614,058 (47,110) 566,948
Preferred stock 550 (550) --
Class A Common Stock 301 (31) 270
Class B Common Stock 41 (41) --
Treasury Stock (441) 441 --
Paid-in capital 158,772 23,338 182,110
Retained earnings (deficit) (155,489) (59,272) (214,761)
-------------------------------------------------
Stockholders' equity 3,734 (36,115) (32,381)
-------------------------------------------------
Total of liabilities and shareholders'
equity $ 617,792 $ (83,225) $ 534,567
==================================================
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 3--REORGANIZATION AND RESTRUCTURING COSTS
Reorganization costs are directly associated with the reorganization proceedings
under the Company's Chapter 11 Cases. Under the Bankruptcy Code, the Company 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. The Company 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. Included in the
reorganization cost are impairment charge assigned to the net book value of
equipment that has been transferred to certain lessors to eliminate their
deficiency claims in the Chapter 11 Cases.
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. The Company incurred a charge of approximately $34.7
million (approximately $21.5 million after income taxes or $1.89 per diluted
share) in 1998 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, 2001
and 2000, are classified as liabilities subject to compromise in the
accompanying consolidated 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 expected to
be incurred over the remaining lease period. 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 which released
future claims in exchange for the theatre equipment and leasehold improvements.
The restructuring reserve was reduced by a $0.9 million credit to reorganization
costs for this transaction in December 2000. Payments charged against the
reserve were approximately $0 million, $2.9 million and $3.7 million during
2001, 2000 and 1999, respectively. Those theatres with remaining lease terms
at the Petition Date have been approved for rejection by the Bankruptcy Court.
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 3--REORGANIZATION AND RESTRUCTURING COSTS (CONTINUED)
Reorganization costs are as follows (in thousands):
DECEMBER 31,
2001 2000
--------------------------------
Professional fees $ 8,210 $ 3,936
Asset impairments 16,419 4,884
Gains on sales of assets (871) (1,108)
Retention payments 902 -
Interest income (2,240) (1,138)
Other (2,872) 468
--------------------------------
Total reorganization costs $ 19,548 $ 7,042
================================
Cash provided by (used in) reorganization costs are as follows (in thousands):
DECEMBER 31,
2001 2000
--------- ---------
Professional fees $ (7,927) $ (885)
Retention payments (619) -
Proceeds from sale of assets 8,197 2,317
Payment of pre-petition liabilities (15,534) (39,497)
Interest income 2,240 1,138
Other (886) (1,119)
--------- --------
$ (14,529) $(38,046)
========= ========
NOTE 4--IMPAIRMENTS OF LONG-LIVED ASSETS
Impairment charges for the years ended December 31 are as follows:
2001 2000 1999
--------------------------------------------
Impairment of fixed assets $ 93,615 $ 22,806 $21,572
Impairment of equipment 34,103 1,347 488
Impairment of goodwill 20,908 1,981 5,550
Impairment of joint ventures -- -- 5,383
--------------------------------------------
Total impairments $ 148,626 $ 26,134 $32,993
Amounts classified as reorganization (16,419) (4,884) -
--------------------------------------------
Impairment charge $ 132,207 $ 21,250 $32,993
============================================
In the fourth quarter of 2001, 2000 and 1999, the Company identified impairments
of asset values for certain theatres, two entertainment centers and a joint
venture investment in three movie theatre-entertainment complexes. As a result,
the Company recognized a non-cash impairment charge of approximately $132.2
million, $21.2 million and $33.0 million, respectively, in the fourth quarters
of 2001, 2000 and 1999. These impairment charges reduce the carrying value of
approximately 287 theatres with 2,126 screens for 2001, approximately 18
theatres with 130
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 4--IMPAIRMENTS OF LONG-LIVED ASSETS (CONTINUED)
screens for 2000 and approximately 82 theatres with 432 screens for 1999. The
impairment charge recognized for 2001 was significantly larger than in prior
years due to the write-off of leasehold improvements on rejected theatres, the
impact of closing owned theatres, the diminished value of our entertainment
centers and the write-down of surplus equipment removed from closed theatres.
Additionally, in 2001 the Company included the equipment in the theatre
valuation calculations based on the reduced capital building program in the
future as well as the excess supply of equipment in inventory. This change in
estimate related to including theatre equipment, accounted for approximately
$34.1 of the 2001 Impairment Charge.
During the course of the Chapter 11 proceedings the Company had the opportunity
to reject leases on unprofitable leased theatres, to reassess the longer term
value in keeping some of its owned theatres operating and to remove equipment
taken from leased and owned theatres. During the fourth quarter of 2001 the
Company had sufficient information to assess the impact of lease rejections, the
closure of owned theatres, the future viability of our entertainment centers and
the effect of surplus equipment. As a result of these reviews, in the fourth
quarter of 2001, Carmike identified impairment of asset values for 287 theatres
and 2,126 screens (the "2001 Impairment Charge"). The 2001 Impairment Charge was
significant and included a provision for the total impairment of carrying value
on 136 leased theatres that were rejected during the Chapter 11 Cases, the
impairment of our two entertainment centers, the impairment of equipment removed
from leased and owned theatres and the inclusion of equipment in the valuation
analysis for the theatres remaining in the Company's portfolio. The Company has
recognized an impairment charge of $132.2 million (approximately $11.65 per
diluted share). These impairment charges reduced the carrying value of property
and equipment by $148.6 million (cost of $214.2 million less accumulated
depreciation and amortization of $86.5 million) and goodwill by approximately
$20.9 million.
Subsequent to the Petition Date, the Company, in 2000, 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").
The 2000 Impairment Charge 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 goodwill 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. 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 goodwill by approximately $6
million.
F-20
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, 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 the Company prepares 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.
The 2001 Impairment Charge was primarily attributed to the rejection of leases
during the reorganization process, the decrease in value in our entertainment
centers, surplus equipment and the decrease in the fair market values of owned
property. The 2000 Impairment Charge and the 1999 Impairment Charges were
primarily caused by reductions in estimated theatre cash flows due to (i) the
impact of new or increased competition on certain older, auditorium-style
theatres, (ii) negative evaluation of the operating results produced from
theatres previously converted to Discount Theatres or (iii) inability to improve
a marginal theatre/entertainment center's operating results to a level that
would support the carrying value of the long-lived assets.
As a result of the reduced carrying amount of the impaired assets due to the
2000, 1999 and 1998 Impairment Charges, depreciation and amortization expense
for 2001, 2000 and 1999 was reduced by approximately $9.8 million, $9.2 million
and $6.7 million, respectively (2001 - approximately $9.8 million after income
taxes or $.86 per diluted share; 2000 - approximately $9.2 million after income
taxes or $.81 per diluted share; and 1999 - approximately $4.2 million after
income taxes or $.37 per diluted share). Depreciation and amortization for 2002
will be reduced by approximately $18 million as a result of the aggregate
impairment charges. There can be no assurance that Carmike will not take
additional charges in the future related to the impairment of assets.
NOTE 5--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.
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. 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.
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 5--LIABILITIES SUBJECT TO COMPROMISE (CONTINUED)
In March 2001, the Company 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. On March 5, 2001 the Company
paid secured lenders $8,272,821 and has made payments of $500,000 per month
beginning in March as adequate protection payments. All of these payments
allocated to the Revolving Credit and Term Loan B are treated as principal
payments under the applicable credit agreement. Amounts allocated to the Master
Lease are treated as post-petition rent and do not affect liabilities subject to
compromise.
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 was due to the Company at the date of the termination of
these interest rate swap agreements, August 8, 2000. This amount was applied as
cash collateral for the outstanding debt under the Bank Facilities.
The principal categories of claims classified as liabilities subject to
compromise at December 31, 2001 and 2000 are as follows (in thousands):
DECEMBER 31,
2001 2000
--------------------- --------------------
Accounts payable $ 14,970 $ 19,958
Accrued expenses 20,981 27,160
Restructuring reserves 24,668 24,683
Revolving credit agreement 184,392 192,000
Term loan B 68,448 71,273
Subordinated notes 191,966 191,966
Other 2,675 2,196
--------------------- --------------------
$ 508,100 $ 529,236
===================== ====================
Activity for pre-petition liabilities approved by the bankruptcy court,
including cash payments and other non-cash items, are as follows (in thousands):
DECEMBER 31,
2001 2000
-----------------------
Film distributors $ - $37,247
Revolving credit facility 7,608 --
Term Loan B 2,824 --
Subordinated Notes -- --
Property Taxes 2,969 --
Critical trade vendors 2,133 1,750
Workers' compensation -- 350
Common carriers -- 150
------- -------
Cash paid 15,534 39,497
Other non-cash itemS 5,602 --
------- -------
$21,136 $39,497
======= =======
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 6--INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company is a partner in joint ventures that operate motion picture theatres.
The Company's equity in the income or (loss) of these ventures, prior to
impairment charges, was approximately $(699,000), $(980,000) and $(891,000) in
2001, 2000 and 1999, respectively. These amounts are included as "Concessions
and other" in the accompanying consolidated statements of operations.
NOTE 7--PROPERTY AND EQUIPMENT
The Company obtained property and equipment under capital leases of
approximately zero and $15 million in 2001 and 2000, respectively. The following
amounts related to capital lease assets are included in property and equipment
(in thousands):
DECEMBER 31,
2001 2000
--------------------- ---------------------
Buildings and improvements $ 43,147 $ 50,989
Less accumulated amortization (8,685) (9,693)
--------------------- ---------------------
$ 34,462 $ 41,296
===================== =====================
During 2000, Carmike sold three theatres, with a net book value of $22.8
million, for proceeds of $23.6 million. The theaters sold in 2000 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.
NOTE 8--CAPITALIZED INTEREST
Prior to the Petition Date, the Company capitalized interest in connection with
its construction on long-lived assets. Interest incurred and interest
capitalized are as follows (in thousands):
INTEREST INTEREST
INCURRED CAPITALIZED
YEARS ENDED DECEMBER 31,
2001 $ 6,138 $ -
2000 29,254 1,500
1999 32,759 3,131
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 9--ACCRUED EXPENSES
Accrued expenses include the following (in thousands):
DECEMBER 31,
2001 2000
-------------------- --------------------
Deferred revenues $ 12,062 $ 10,680
Deferred and other accrued rents 5,545 8,754
Property taxes 6,847 2,972
Other accruals 7,574 7,497
-------------------- --------------------
$ 32,028 $ 29,903
==================== ====================
NOTE 10--DEBT
Debt consists of the following (in thousands):
DECEMBER 31,
2001 2000
--------------------- ---------------------
Revolving credit facility $ 184,392 $ 192,000
Term Loan B 68,448 71,273
Subordinated Notes 191,966 191,966
Industrial Revenue Bonds; payable in equal
installments through May 2006, with
interest rates
ranging from 53/4% to 7% 1,417 1,724
--------------------- ---------------------
446,223 456,963
Less:
Amounts classified as liabilities subject to (444,806) (455,239)
compromise
Current maturities (1,417) (1,724)
--------------------- ---------------------
$ -0- $ -0-
===================== =====================
In February 1999, the Company completed its offering of $200.0 million of 9 3/8%
Senior Subordinated Notes due 2009 (the "Subordinated Notes"). 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 are unconditionally guaranteed by Eastwynn and Wooden Nickel.
The Subordinated Notes are general unsecured obligations of the Company and are
subordinate to existing debt and substantially all future borrowings. The
Subordinated Notes contain certain restrictive provisions that may limit
dividends and other restricted payments.
The Company used the net proceeds from the issuance of the Subordinated Notes,
approximately $193.7 million, to redeem its then outstanding Senior Notes and to
reduce the amounts outstanding under its Revolving Credit Agreement. The Company
recognized an extraordinary charge in 2000 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.
F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 10--DEBT (CONTINUED)
See Note 2--Proceedings Under Chapter 11 for further discussion of debt.
NOTE 11--INCOME TAXES
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 that
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) its Chapter 11 filing 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 $40.9 and $83.1 million
during the years ended December 31, 2001 and 2000.
In connection with the reorganization, it is anticipated that the Company may
undergo an ownership change or changes within the meaning of Section 382 of the
Internal Revenue Code. Consequently, the ability of the Company to use the net
operating losses and credits may be severely limited and will be subject to an
annual limitation based on the product of the fair value of the Company
immediately after reorganization multiplied by the federal long-term tax exempt
bond rate.
For tax purposes, the discharge of the liabilities pursuant to the Chapter 11
Cases may result in income that is excluded from the Company's taxable income.
However, certain of the Company's tax attributes, including net operating loss
carryforwards and tax credits, may be reduced by the amount of cancellation of
debt income. To the extent the amount excluded exceeds these tax attributes, the
tax basis in the Company's property must be reduced by the amount of the
excluded cancellation of debt income. It is estimated that after the
reorganization, the Company will have approximately $148.4 million in net
operating loss carryovers and $6.04 million of alternative minimum tax
carryforwards.
The provision for income tax expense (benefit) is summarized as follows (in
thousands):
DECEMBER 31,
2001 2000
-------------------- --------------------
Current:
Federal $- $ -
State - 1,150
Deferred - 24,398
-------------------- --------------------
$- $25,548
==================== ====================
F-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 11--INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax liabilities (assets) and
valuation reserves are as follows (in thousands):
DECEMBER 31,
2001 2000
------------------ -----------------
Alternative minimum tax credit carryforwards $ (6,041) $ (4,700)
Net operating loss carryforwards (54,633) (19,471)
Financial statement bases of property and equipment over
(under) tax bases (36,396) (5,609)
Restructuring reserve (8,606) (8,935)
Deferred rent (1,152) (2,470)
Post-petition interest 23,877 -
------------------ ----------------
(82,951) (41,185)
Valuation reserves 83,143 40,951
Other deferred tax credits 1,735 2,161
------------------ -----------------
$ 1,927 $ 1,927
================== =================
It is anticipated that the Company will not pay income taxes in 2001. The
Company paid income taxes in 2000 and 1999 of approximately $1.2 million and
$3.9 million, respectively.
The Company has net operating loss carryovers of approximately $148.4 million,
which will begin to expire in the year 2020.
NOTE 12--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 the 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. Class B Common Stock is convertible at any time by the holder into
an equal number of shares of Class A Common Stock.
The Series A Preferred Stock pays quarterly cash dividends at an annual rate of
5.5% and is convertible at the option of the holder, into the Company's Class A
Common Stock at $25.00 per share (subject to anti-dilution adjustments). The
Series A Preferred Stock is not subject to mandatory redemption or sinking fund
provisions but does have involuntary liquidation rights for $55 million. Each
share of the Series A Preferred Stock is convertible into four shares of the
Class A Common Stock.
During the course of the Chapter 11 Cases, the Company could not declare
dividends for its Preferred Stock. Dividends of $7.0 million and $2.3 million on
Preferred Stock are in arrears at December 31, 2001 and 2000. The terms of the
Preferred Stock agreement provides that the
F-26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 12--SHAREHOLDERS' EQUITY (CONTINUED)
dividend rate increases to 8.5% for arrearages. As a result, the holders of the
Preferred Stock have designated two additional directors to the Company's Board
of Directors.
The Company has shares of Class A Common Stock reserved for future issuance as
follows (in thousands):
DECEMBER 31,
2001 2000
------ ------
Stock option plan $ 813 $ 823
Conversion rights of Series A Preferred Stock 2,200 2,200
Conversion rights of Class B Common Stock 1,371 1,371
------ ------
$4,384 $4,394
====== ======
See Note 2--Proceedings Under Chapter 11
STOCK OPTION PLANS
During 1998, the Board of Directors and Shareholders approved a new stock option
plan (the "1998 Plan") that provided for 750,000 shares of Class A Common Stock.
At December 31, 2001, 66,000 shares were available for grant under the 1998
Plan. The Company has also issued options under a plan (the "1986 Plan") that
provided for 700,000 shares of Class A Common Stock. No shares are available for
grant under the 1986 Plan.
Under the Company's 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, 2001 have
been at a price that approximated fair market value on the date of the grant.
Pro forma information regarding net income and earnings per share is required by
Statement of Financial Accounting Standards No. 123 (SFAS No. 123), and has been
determined as if the Company had accounted for its employee stock options under
the fair value method. The fair value for these options was estimated at the
date of grant using a Black-Scholes option valuation model. The Black-Scholes
option valuation model was developed for use in estimating the fair value of
traded options that 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 SFAS No. 123 purposes, the fair value of each
option grant and stock based award has been estimated as of the date of grant
using the Black-Scholes option pricing model with the following
F-27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 12--SHAREHOLDERS' EQUITY (CONTINUED)
weighted-average assumptions:
2001* 2000 1999
--------------- --------------- --------------
Expected life (years) N/A 5.0 5.0
Risk-free interest rate N/A 6.65% 5.78%
Dividend yield N/A 0.0% 0.0%
Expected volatility N/A 1.302 0.314
* No options were granted in 2001
The estimated fair value of the options granted during 2000 and 1999, was $4.77
and $5.24 per share, and is amortized to expense over the options' vesting
period. Had compensation cost been determined consistent with SFAS No. 123,
utilizing the assumptions detailed above, the Company's pro forma net loss and
pro forma basic loss per share would have increased to the following amounts:
2001 2000 1999
----------------- ----------------- ---------------
Net loss:
As reported......... $ (125,387) $ (75,076) $ (21,907)
Pro forma - for SFAS No. 123 (125,803) (75,931) (22,461)
Basic net loss per share
As reported......... $ (11.05) $ (6.62) $ (1.93)
Pro forma - for SFAS No. 123 (11.09) (6.70) (1.98)
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,
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
Issued -- -- -- -- --
Forfeitures -- -- (10) (60) (70)
Exercised -- -- -- -- --
------------ ------------ ------------- ------------ -----------
STOCK OPTIONS OUTSTANDING AT DECEMBER 31,
2001 403 6 63 275 747
============ ============ ============= ============ ===========
F-28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 12--SHAREHOLDERS' EQUITY (CONTINUED)
At December 31, 2001 613,000 options were exercisable.
NOTE 13--COMMITMENTS AND CONTIGENCIES
LEASES
Under the Bankruptcy Code, the Company may elect to assume or reject real estate
leases, subject to Bankruptcy Court approval. As of January 2002, the Company
has received approval from the Bankruptcy Court to reject leases relating to 136
theater locations over the course of the proceeding. The Company cannot
presently determine or reasonably estimate the ultimate liability that may
result from rejecting and no provisions have yet been made for these items in
the financial statements.
Future minimum payments 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, 2001, are as follows (in thousands):
OPERATING LEASES CAPITAL LEASES
------------------- -------------------
2002 $ 40,608 $ 6,600
2003 39,402 6,635
2004 37,056 6,738
2005 37,145 6,756
2006 34,008 6,632
Thereafter 365,707 84,509
------- --------
Total minimum lease payments $ 553,926 $117,870
=============
Less amounts representing interest (69,576)
---------
Present value of future minimum lease payments 48,294
Less current maturities (871)
---------
$ 47,423
=========
Rent expense was approximately $51.7 million, $67.4 million and $59.6 million
for 2001, 2000 and 1999, respectively. Included in rent expense is approximately
$3.5 million, $3.1 million and $3.8 million of contingent rental payments.
LITIGATION
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.
F-29
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. 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.
Combined separate financial data for the guarantor subsidiaries is as follows:
2001 2000 1999
------------------ ------------------ -----------------
Year ended December 31,
Revenues $ 364,973 $ 371,826 $ 386,255
Operating income (loss) (1) (67,832) (3,080) 6,554
Net loss before extraordinary item (108,328) (48,044) (14,905)
At December 31,
Assets:
Current assets 26,342 36,069 11,682
Other assets 3,709 3,642 15,305
Property and equipment 355,238 480,786 517,851
Goodwill 12,001 30,903 33,553
------------------ ------------------ -----------------
$ 397,290 $ 551,400 $ 578,391
Liabilities and equity:
Current liabilities $ 21,590 $ 21,758 $ 15,426
Intercompany notes and advances 278,516 320,073 302,435
Long-term liabilities 41,149 42,799 69,684
Liabilities Subject to Compromise 21,549 23,968 -
Equity 34,486 142,802 190,846
------------------ ------------------ -----------------
$ 397,290 $ 551,400 $ 578,391
================== ================== =================
(1) Net of parent company management and license fees of approximately $21.4
million, $21.8 million and $30.3 million for the years ended December 31,
2001, 2000 and 1999, respectively.
NOTE 15--FAIR VALUE OF FINANCIAL INSTRUMENTS
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
recoverable construction allowances.
The Company maintains cash and cash equivalents 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
standings of those financial institutions that are considered in the Company's
investment strategy.
F-30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTE 15--FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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 or 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 amount of the Company's long-term debt borrowings
have not been adjusted to fair value since the Petition Date as a result of the
Chapter 11 Cases.
NOTE 16--QUARTERLY RESULTS (UNAUDITED)
(In thousands, except for per share data)
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER TOTALS
--------------- --------------- ---------------- --------------- ----------------
YEAR ENDED DECEMBER 31, 2001
Total revenues $ 99,704 $ 108,877 $ 130,439 $ 117,930 $ 456,950
Operating income (loss) 1,931 5,980 15,130 (122,742) (99,701)
Net income (loss) (1,246) 2,275 11,096 (137,512) (125,387)
Basic and diluted income (loss) per
common share $ (0.11) $ 0.20 $ 0.97 $ (12.12) $ (11.05)
YEAR ENDED DECEMBER 31, 2000
Total revenues $ 101,535 $ 112,757 $ 127,828 $ 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)
Basis and diluted loss per common share $ (0.72) $ (3.61) $ (0.18) $ (2.11) $ (6.62)
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 2001 and 2000 includes a charge for the impairment of
long-lived assets as discussed in Note 4. The fourth quarter of 2001 includes a
decrease in the estimated property taxes payable of $2.0 million. The second
quarter of 2000 includes a $2.7 million decrease in estimated charges to be
incurred under the Restructuring Plan and a reduction of deferred income tax
assets as discussed in Note 11.
F-31
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 2002 Annual Meeting of Stockholders of Carmike
(hereinafter, the "2002 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 2002 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 2002 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 2002 Proxy Statement.
49
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, 2001 and 2000
Consolidated statements of operations-- Years ended December
31, 2001, 2000 and 1999
Consolidated statements of cash flows -- Years ended December
31, 2001, 2000 and 1999
Consolidated statements of shareholders' equity -- Years ended
December 31, 2001, 2000 and 1999
Notes to consolidated financial statements-- December 31, 2001
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.0-14993.
50
EXHIBIT
NUMBER DESCRIPTION
2.1 Debtors' Joint Amended Joint Plan of Reorganization Under Chapter 11 of
the Bankruptcy Code, dated November 14, 2001 (filed as Exhibit 99 to
Carmike's Current Report on Form 8-K filed November 19, 2001 and
incorporated herein by reference).
2.2 Debtors' Amended Disclosure Statement pursuant to Section 1125 of the
Bankruptcy Code dated November 14, 2001 (filed as Exhibit T-3E1 to
Carmike's Form T-3 filed on December 11, 2001 and incorporated herein
by reference).
3.1 Amended and Restated Certificate of Incorporation of Carmike (filed as
Exhibit 3.1 to Carmike's Amendment to Form 8-A filed January 31, 2002
and incorporated herein by reference).
3.2 Amended and Restated By-laws of Carmike (filed as Exhibit 3.2 to
Carmike's Amendment to Form 8-A filed January 31, 2002 and incorporated
herein by reference).
4.1 Indenture dated January 31, 2002 between Carmike, the subsidiary
guarantors named therein and Wilmington Trust Company, as Trustee.
4.2 Stockholders' Agreement, dated as of January 31, 2002 by and among
Carmike Cinemas, Inc. and certain stockholders (filed as Exhibit 99.2
to Amendment No. 1 to Schedule 13D of Goldman Sachs & Co., et. al.,
dated February 8, 2002 and incorporated herein by reference).
4.3 Registration Rights Agreement, dated as of January 31, 2002, by and
among Carmike Cinemas, Inc. and certain stockholders (filed as Exhibit
99.3 to Amendment No. 1 to Schedule 13D of Goldman Sachs & Co., et.
al., dated February 8, 2002 and incorporated herein by reference).
10.1 Term Loan Credit Agreement dated January 31, 2002 among Carmike
Cinemas, Inc., BNY Asset Solutions LLC as Administrative Agent, and the
various banks or other financial institutions from time to time parties
to the agreement as Lenders.
10.2 $50,000,000 Credit Agreement dated as of January 31, 2002 among Carmike
Cinemas, Inc., Eastwynn Theatres, Inc., General Electric Corporation as
Agent and Lender, GECC Capital Markets Group, Inc. as Lead Arranger,
the various subsidiaries from time to time parties to the agreement as
credit parties, and the various banks or other financial institutions
from time to time parties to the agreement as Lenders.
10.3 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).
51
EXHIBIT
NUMBER DESCRIPTION
10.4* 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).
10.5* Carmike Class A Stock Option Plan, as amended, together with form of
Stock Option Agreement (filed as Exhibit 10(a) to Carmike's Form 10-K
for the year ended December 31, 1990 (Commission File No. 1-11604), and
incorporated herein by reference).
10.6* 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).
10.7* 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).
10.8 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).
10.9 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).
10.10 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).
10.11 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).
10.12 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).
10.13 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).
10.14 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).
52
EXHIBIT
NUMBER DESCRIPTION
10.15 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).
10.16 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).
10.17 Second Amended and Restated Master Lease dated September 1, 2001
between MoviePlex Realty Leasing, L.L.C. and Carmike.
10.18* 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).
10.19* 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).
10.20* Carmike Cinemas, Inc. Employee Retention and Severance Plan (filed as
Exhibit 10.22 to the 2000 Form 10-K and incorporated herein by
reference).
10.21* Carmike Cinemas, Inc. 2002 Stock Plan (filed as Exhibit 4.2 to
Carmike's Form S-8 filed March 29, 2002 and incorporated herein by
reference).
21 List of Subsidiaries (filed as Exhibit 21 to Carmike's Form 10-K
for the year ended 2000 and incorporated herein by reference).
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
During the fiscal quarter ended December 31, 2001, Carmike filed a
Current Report on Form 8-K dated October 3, 2001 reporting information
under Items 5 and 7 and a Current Report on Form 8-K dated November 13,
2001 reporting information under Items 5 and 7.
(c) Exhibits
The response to this portion of Item 14 is submitted as a separate
section of this report.
(d) Financial Statements Schedules
See Item 14(a) (1) and (2).
53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CARMIKE CINEMAS, INC.
Date: April 1, 2002 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/ Michael W. Patrick President, Chief Executive
- -------------------------------------- Officer and Chairman of the Board of Directors
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/ Denis F. Cronin Director
- --------------------------------------
Denis F. Cronin
/s/ Ian M. Cumming Director
- --------------------------------------
Ian M. Cumming
/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/ C.L. Patrick Director
- --------------------------------------
C. L. Patrick
/s/ Carl L. Patrick, Jr. Director
- --------------------------------------
Carl L. Patrick, Jr.
/s/ Jane L. Vris Director
- --------------------------------------
Jane L. Vris
/s/ David W. Zalaznick Director
- --------------------------------------
David W. Zalaznick
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
DECEMBER 31, 2001
(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) $ - $ (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 $ - $ 40,951 (5) $ - $ - $ 40,951
Year Ended December 31, 2001:
Valuation reserve for deferred
income tax assets $ 40,951 $ 42,192 (6) $ - $ - $ 83,143
(1) Charge recorded in December 1998. See Note 3 of Notes to Consolidated
Financial Statements.
(2) Change in estimate of liabilities to be incurred. See Note 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.
(6) Valuation reserve recorded in the year ended December 31, 2001. See
Note 11 of Notes to Consolidated Financial Statements.