Back to GetFilings.com

Table of Contents

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-Q

(Mark One)

For the transition period from __________________________ to ___________________________

Commission file number 000-14993

CARMIKE CINEMAS, INC.
(Exact name of registrant as specified in its charter)

(706) 576-3400
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   x    No   o

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   o

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

Common Stock, $.03 par value —
     8,991,262 shares outstanding as of August 5, 2002

Table of Contents

PART I

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS (UNAUDITED)
CARMIKE CINEMAS, INC. and SUBSIDIARIES
(in thousands, except for share data)

See accompanying notes

2

Table of Contents

See accompanying notes

3

Table of Contents

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
CARMIKE CINEMAS, INC. and SUBSIDIARIES
(in thousands, except per share data)

See accompanying notes

4

Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
CARMIKE CINEMAS, INC. and SUBSIDIARIES
(in thousands)

See accompanying notes

5

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CARMIKE CINEMAS, INC. and SUBSIDIARIES
For the Six Months Ended June 30, 2002 and 2001

NOTE 1 — 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 reported in accordance with Statement of Position 90-7 Financial Reporting by Entities in Reorganization under the Bankruptcy Code (“SOP 90-7”) from August 8, 2000 through January 31, 2002. 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.

     On January 4, 2002, the United States Bankruptcy Court for the District of Delaware entered an order confirming the Company’s 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 “Reorganization Date”).

     Further, the Company’s accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals and bankruptcy related items) considered necessary for a fair presentation have been included. Operating results for the six month period ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002.

NOTE 2 — PROCEEDINGS UNDER CHAPTER 11

     In the chapter 11 cases, discussed above, 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 Company were stayed while the Company 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 Company sought and obtained several orders from the Bankruptcy Court which were intended to stabilize their business and enable the Company to continue operations as debtors-in-possession. The most significant of these orders: (i) permitted the Company 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

6

Table of Contents

expenses; (iii) authorized payment of pre-petition sales and use taxes owed by the Company; (iv) authorized the Company to pay up to $2,250,000 of pre-petition obligations to critical vendors, common carriers and workers’ compensation insurance to aid the Company in maintaining operation of their theatres and approximately $37 million to film distributors; and (v) authorized debt service payments for the loan related to Industrial Revenue Bonds issued by the Downtown Development Authority of Columbus, Georgia.

     As debtors-in-possession, the Company 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 Company agrees to perform their obligations and cure all existing defaults under the contract or lease, and “rejection” means that the Company is relieved from its obligations to perform further under the contract or lease but is 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 Company received approval from the Bankruptcy Court to reject theatre leases relating to 136 theatre locations of the Company. The Company estimated the ultimate liability that may result from rejecting leases. However, the ultimate liability may differ from such estimates based on settlements of claims that have or may be filed in the future for which provisions have not yet been made.

     As a result of the chapter 11 cases, no principal or interest payments were made on unsecured pre-petition debt. On October 27, 2000, the Company 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 reached an agreement with its creditor constituencies that provides for the payment of cash collateral and adequate protection, as those terms are defined in the Bankruptcy Code. The Company made payments to the secured lenders in the amount of $8,272,821 on March 5, 2001 and made 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 could not declare dividends for its Preferred Stock. Preferred Stock dividends of $7.0 million were in arrears at December 31, 2001. The terms of the Preferred Stock agreement provide, with respect to dividend arrearages, that the dividend accrual 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 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 bear interest from the date which is five days from the due date until paid by

7

Table of Contents

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, 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 8,991,262 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”). Under the 2002 Stock Plan 780,000 shares have been authorized for issuance to Michael W. Patrick pursuant to his new employment agreement as Chief Executive Officer of the Company, and 220,000 shares have been authorized for issuance to seven other members of senior management.
•		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 Reorganization 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

8

Table of Contents

		amount of the claims in the chapter 11 cases concerning the Original Senior Subordinated Notes.
•		136 of Carmike’s underperforming theatres were rejected. 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 payments in the aggregate of up to $53.8 million with an annual interest rate of 9.4% in resolution of their allowed claims in Carmike's reorganization, including claims for damages resulting from the rejection of executory contracts and unexpired leases. Of these claims, $36.7 million are disputed. As such, the Company's ultimate liability for these claims is uncertain and is subject to bankruptcy court resolution.

     On the Reorganization 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 payments of $10 million are due 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 Reorganization 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 Reorganization 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. As of June 30, 2002, the Company has repaid the borrowed $20 million and has no outstanding balance under the Revolving Credit Agreement.

     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 Revolving 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

9

Table of Contents

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 Reorganization 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’s 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 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 Agreements as described above, asset sales, changes of control and transactions with affiliates.

     The reorganization value of the assets of the Company immediately before the Reorganization 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.

     Reorganization costs for the six month periods ended June 30, 2002 and 2001 are as follows (in thousands):

NOTE 3 — LIABILITIES SUBJECT TO COMPROMISE

     The principal categories of obligations classified as Liabilities Subject to Compromise under the chapter 11 cases are identified below. The amounts in total may vary significantly from the

10

Table of Contents

stated amounts of proofs of claims 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.

     A summary of the principal categories of claims classified as Liabilities Subject to Compromise at June 30, 2002 and December 31, 2001 are as follows (in thousands):

NOTE 4 — DEBT

     Long-term debt as of December 31, 2001 and June 30, 2002 is as follows (in thousands):

11

Table of Contents

(2)		Also on the Reorganization Date, the Company entered into 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 Reorganization Date, borrowed $20 million of the Revolving Credit Facility in partial repayment of its obligations owing to the banks under the Post-Confirmation Credit Agreement. As of June 30, 2002, the Company has repaid the $20 million and has no outstanding balance under the Revolving Credit Agreement.
		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 Revolving Credit Agreement) at either: (i) a specified base rate plus 1.75% per annum or (ii) an adjusted LIBOR plus 3.25% per annum, based on the aggregate Revolving Credit Advances (as defined in the Revolving Credit Agreement) outstanding from time to time. The lenders under the Revolving Credit Agreement have certain security interests and liens on substantially all of Carmike’s assets. The Revolving Credit Agreement contains covenants that, among other things, prohibit the Company from taking certain actions and entering into certain transactions. The Revolving Credit Agreement terminates on October 31, 2006.
(3)		In addition, on the Reorganization Date and pursuant to the Plan, the Company issued $154,315,000 10 3/8% Senior Subordinated Notes due 2009, in exchange for $154,315,000 aggregate principal amount of the 9 3/8% Senior Subordinated Notes; the remaining $45,685,000 in aggregate principal amount of the 9 3/8% Senior Subordinated Notes were exchanged under the Plan for shares of reorganized Company Common Stock. Interest from the issue date to maturity is payable on the 10 3/8% Senior Subordinated Notes each February 1 and August 1, with the first interest payment date being February 1, 2002. The 10 3/8% Senior Subordinated Notes are redeemable at the Company’s option under certain conditions 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 Revolving Credit Agreement as described above, asset sales, changes of control and transactions with affiliates.

NOTE 5 — STOCKHOLDER’S EQUITY

     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 8,991,262 shares of reorganized Carmike Common Stock outstanding.

     The Plan provides for the issuances of reorganized Carmike Common Stock as follows:

	•		The holders of Carmike’s cancelled Class A and Class B Common Stock received in the aggregate 2,211,261 shares of reorganized Carmike Common Stock, which does not include shares associated with treasury stock.
	•		The holders of Carmike’s cancelled Series A Preferred Stock received in the aggregate 4,120,000 shares of reorganized Carmike Common Stock.

12

Table of Contents

	•		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 received in the aggregate 2,660,001 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 a grant for 780,000 shares under the 2002 Stock Plan was made to Michael W. Patrick. (see Note 8).

     An analysis of stockholders’ equity for the six months ended June 30, 2002 is as follows (in thousands):

NOTE 6 – EARNINGS PER SHARE

     The calculation of basic and diluted earnings per common share from continuing operations is as follows (in thousands except per share data):

NOTE 7 — INCOME TAXES

     The Company accounts for income taxes in accordance with FASB Statement No. 109, Accounting for Income Taxes. Under Statement No. 109, the liability method is used in

13

Table of Contents

accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rate and laws that will be in effect when the differences are expected to reverse.

     In 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 before 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 and the items discussed below, the Company will have approximately $127.1 million in federal and state net operating loss carryovers.

     The Company has recorded a benefit for taxes refundable under the “Job Creation and Worker Assistance Act of 2002” (the “Act”) of $14.7 million. The Act became effective on March 9, 2002 and among other things extends the carryback period for net operating losses from two to five years for taxpayers with net operating losses for any tax year ending during 2001 or 2002. The new provision also temporarily suspends the 90% limitation found in Internal Revenue Code Section 56(d)(1) on the use of net operating loss carrybacks arising in tax years ending in 2001 and 2002 for alternative minimum tax purposes. Therefore, taxpayers that have paid alternative minimum tax during any tax year in the carryback period, because of the 90% limitation on the use of net operating losses to offset alternative minimum taxable income, can utilize this provision to obtain a refund.

     The Company has offset in its U.S. Federal income returns Federal net operating loss carryback claims for the tax years 1996, 1997, and 1998 to obtain refunds (which were received in July 2002) of regular tax and alternative minimum tax of $8.3 million and $6.4 million, respectively. The alternative minimum tax credit carryover of $6.0 million will be reduced to zero as a result of the net operating loss carryback claims.

NOTE 8 — STOCK OPTION PLAN

     Under the 2002 Stock Plan, the Company granted the President and Chief Executive Officer, Michael W. Patrick, 780,000 shares of Common Stock on January 31, 2002, which will vest during a five year time period. The Company is recording compensation expense associated with this grant ratably over the five year time period. Compensation expense amounted to $534,000 and $801,000 in the quarters ended March 31, 2002 and June 30, 2002, respectively.

     In addition, in May 2002 the Company granted stock awards for up to 220,000 shares of Common Stock to certain key employees. The employees must attain certain performance measures in each of the next three years and the stock awards vest twenty-five months after the

14

Table of Contents

applicable annual performance measures are met. Compensation expense amounted to $199,000 in the quarter and six months ended June 30, 2002.

NOTE 9 — CONDENSED COMBINED FINANCIAL DATA FOR GUARANTOR SUBSIDIARIES

     Carmike’s subsidiaries, Eastwynn, Wooden Nickel and Military Services, fully, unconditionally, jointly and severally guarantee Carmike’s payment on the $154 million principal amount of New Senior Subordinated Notes.

     Eastwynn, Wooden Nickel and Military Services are direct, U.S. subsidiaries of Carmike. Carmike and the guarantor subsidiaries conduct substantially all of their operations on a consolidated basis. Separate financial statements of the guarantor subsidiaries are not presented because, in the opinion of management, such financial statements are not material to investors. Carmike also has several unconsolidated affiliates which are not guarantors of the New Senior Subordinated Notes and are inconsequential to Carmike on a consolidated basis.

     The following is summarized condensed combined financial information for the guarantor subsidiaries of Carmike (in thousands) (unaudited):

     Operating income and net income are net of intercompany management fees of approximately $12.0 million and $12.5 million for the three months ended June 30, 2002 and 2001, respectively. As previously noted (see Note 1 — Basis of Presentation and Note 2 — Proceedings Under Chapter 11), the guarantor subsidiaries also filed petitions for relief under chapter 11 of the United States Bankruptcy Code on August 8, 2000.

NOTE 10 — IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

     On January 1, 2002 we adopted Statement of Financial Accounting Standards (SFAS) 142, “Goodwill and Other Intangible Assets.” SFAS 142 provided that goodwill and other intangible assets with indefinite lives are no longer to be amortized. These assets are to be reviewed for impairment annually, or more frequently if impairment indicators are present. Separable intangible assets that have finite lives will continue to be amortized over their useful lives. The amortization provisions of SFAS 142 apply to goodwill and intangible assets acquired after June 30, 2001. Amortization of goodwill and intangible assets acquired prior to July 1, 2001 continued through December 31, 2001. During the second quarter of 2002, we determined that

15

Table of Contents

the required impairment testing related to the Company’s goodwill and other intangible assets did not require write-down of any such assets.

     The impact of goodwill amortization on net income (loss) was as follows: