UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

For the transition period from      to            

 

Commission file number 1-8747

 

 

AMC ENTERTAINMENT INC.

(Exact name of registrant as specified in its charter)

 

(816) 221-4000
(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   ý   No   o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)

Yes   o   No   ý

 

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

 

Title of Each Class of Common Stock		Number of Shares Outstanding as of December 30, 2004
Common Stock, 1 ¢ par value		1

 

 

AMC ENTERTAINMENT INC. AND SUBSIDIARIES

 

INDEX

 

			Page Number
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)		3
	Consolidated Statements of Operations		5
	Consolidated Balance Sheets		6
	Consolidated Statements of Cash Flows		7
	Notes to Consolidated Financial Statements		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		43
Item 4.	Controls and Procedures		44
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings		45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		47
Item 4.	Submission of Matters to a Vote of Security Holders		47
Item 6.	Exhibits		48
	Signatures		51

 

2

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements. (unaudited)

 

As discussed in its Annual Report on Form 10-K for the fifty-two weeks ended April 1, 2004, in connection with the fiscal 2004 annual audit of the AMC Entertainment Inc. consolidated financial statements, the Company, with the concurrence of its independent registered public accounting firm, determined that its financial statements for the thirteen and thirty-nine weeks ended January 1, 2004 as previously filed needed to be restated for the following items:

 

Foreign deferred tax assets:  The Company had previously recorded valuation allowances against deferred tax assets in foreign jurisdictions when it became clear, based on theatre impairments or other factors, that it would not be profitable in those jurisdictions. The Company has now determined that full valuation allowances should be recorded against deferred tax assets in all foreign jurisdictions when it is more likely than not that the deferred tax assets will not be realized.

 

The Company had historically evaluated the recoverability of its deferred tax assets for both domestic and foreign jurisdictions based on the weight of available positive evidence (evidence indicating that deferred taxes would be recoverable) and negative evidence (evidence indicating that deferred taxes would not be recoverable).  The Company believed it was following the guidance in paragraph 17(e) of Statement of Financial Accounting Standards No. 109 Accounting for Income Taxes and recorded valuation allowances for its domestic and foreign jurisdictions when the negative evidence outweighed the positive evidence, which the Company believed to be consistent with the “more likely than not” criteria in paragraph 17(e).

 

Consideration and appropriate weighting of positive and negative evidence is an inherently subjective process. The Company historically applied the more likely than not criteria with respect to foreign jurisdictions by recording valuation allowances against deferred income tax assets when it became clear, based on theatre impairments or other factors, that it would not be profitable in those jurisdictions.  Under this model the Company recorded a valuation allowance in France during fiscal 2001 when the theatre was impaired and in Sweden during fiscal 2002 when that theatre was impaired.

 

In consultation with its independent registered public accounting firm in connection with the annual audit of its 2004 financial statements, the Company determined that it should have given greater weight (than it originally had) to the objectively verifiable negative evidence in its foreign jurisdiction (e.g., start up losses).  With this greater weighting of the negative evidence, the Company concluded that it was “more likely than not” that the deferred income tax assets would not be realized.  As a result, the Company determined that its operations in foreign tax jurisdictions constituted “start-up” operations and therefore it was appropriate to record full valuation allowances on the results of operations until the “start-up” operations became profitable and therefore would provide a basis for increased weighting of positive future taxable income and reduced weighting of negative evidence relating to losses.

 

Accordingly, the Company has restated its financial statements for the thirteen and thirty-nine weeks ended January 1, 2004 to reflect additional valuation allowances on foreign deferred tax assets. The effects of such adjustments are summarized as follows:

 

		Thirteen Week Period October 3, 2003 through January 1, 2004			Thirty-nine Week Period April 4, 2003 through January 1, 2004
		(restated) (Predecessor)			(restated) (Predecessor)
Increase in income tax provision and net loss		$	3.95 million		$	6.15 million

 

Swedish tax benefits recorded in loss from discontinued operations:  During the thirty-nine weeks ended January 1, 2004, the Company recorded a $2,500,000 U.S. federal income tax benefit generated from a worthless stock deduction relating to the Company’s Sweden operations which were sold in that quarter.  The Company subsequently determined that the income tax benefit should have been recorded in the year ended March 28, 2002 (the period in which the Sweden investment was restructured and became worthless).

 

Accordingly, the Company has restated its financial statements for the thirteen and thirty-nine weeks ended January 1, 2004 to record the adjustment.  The adjustments (which is recorded in loss from discontinued operations) are summarized as follows:

 

		Thirteen Week Period October 3, 2003 through January 1, 2004			Thirty-nine Week Period April 4, 2003 through January 1, 2004
		(restated) (Predecessor)			(restated) (Predecessor)
Increase in loss from discontinued operations and net loss		$	2.50 million		$	2.50 million

 

3

 

Straight-line contingent rentals:  Rent expense for leases with rent escalation clauses are required to be recorded on a straight-line method under certain circumstances. The Company recently determined that it has one lease that has a clause for contingent rents in which case the contingency was virtually certain to occur. Rent expense for this lease should have been recorded on the straight-line method. Accordingly, the Company has restated its financial statements for the thirteen and thirty-nine weeks ended January 1, 2004 to reflect the straight-line method of recording the contingent portion of rent expense for this one lease. The effects of such adjustments are summarized as follows:

 

		Thirteen Week Period October 3, 2003 through January 1, 2004			Thirty-nine Week Period April 4, 2003 through January 1, 2004
		(restated) (Predecessor)			(restated) (Predecessor)
Increase in net loss		$	0.061 million		$	0.183 million

 

The following table sets forth the previously reported amounts and the restated amounts reflected in the accompanying Consolidated Financial Statements:

 

		Thirteen Week Periods						Thirty-nine Week Periods
(in thousands)		As Previously Reported October 3, 2003 through January 1, 2004			As Restated October 3, 2003 through January 1, 2004			As Previously Reported April 4, 2003 through January 1, 2004			As Restated April 4, 2003 through January 1, 2004
		(Predecessor)			(Predecessor)			(Predecessor)			(Predecessor)
Statement of Operations Data:
Rent		$	78,640		$	78,751		$	234,904		$	235,237
Total costs and expenses		432,839			432,950			1,273,257			1,273,590
Earnings from continuing operations before income taxes		20,459			20,348			52,360			52,027
Income tax provision		8,000			11,900			21,900			27,900
Earnings from continuing operations		12,459			8,448			30,460			24,127
Loss from discontinued operations		(741		)	(3,241		)	(1,331		)	(3,831		)
Net earnings		11,718			5,207			29,129			20,296
Earnings (loss) for shares of common stock		644			(5,867		)	602			(8,231		)

 

All previously reported amounts affected by the restatement that appear elsewhere in these consolidated financial statements have also been restated.

 

4

 

AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)

 

		Thirteen Week Periods (unaudited)									Thirty-nine Week Periods (unaudited)
		October 1, 2004 through December 30, 2004			October 1, 2004 through December 23, 2004			October 3, 2003 through January 1, 2004			From Inception July 16, 2004 through December 30, 2004			April 2, 2004 through December 23, 2004			April 4, 2003 through January 1, 2004
								(restated)									(restated)
		(Successor)			(Predecessor)			(Predecessor)			(Successor)			(Predecessor)			(Predecessor)
Revenues
Admissions		$	41,932		$	256,881		$	321,783		$	41,932		$	907,509		$	942,799
Concessions		16,445			99,435			119,776			16,445			344,685			356,159
Other theatre		1,817			16,761			14,839			1,817			46,840			39,821
NCN and other		1,420			14,235			15,204			1,420			38,811			41,319
Total revenues		61,614			387,312			471,602			61,614			1,337,845			1,380,098
Costs and Expenses
Film exhibition costs		22,694			135,671			170,727			22,694			485,018			510,675
Concession costs		1,959			12,633			13,138			1,959			41,244			39,948
Theatre operating expense		8,703			98,388			104,795			8,703			312,515			316,488
Rent		6,341			77,016			78,751			6,341			243,711			235,237
NCN and other		939			10,102			12,803			939			31,440			35,511
General and administrative:
Stock-based compensation		—			(5,345		)	533			—			—			1,702
Merger and acquisition costs		20,000			37,189			4,974			20,000			41,032			5,344
Other		1,382			8,970			11,537			1,382			34,554			34,570
Preopening expense		66			311			1,734			66			1,292			3,165
Theatre and other closure expense		132			437			2,078			132			10,758			3,812
Depreciation and amortization		3,272			29,739			32,405			3,272			92,091			89,619
Disposition of assets and other gains		—			(320		)	(525		)	—			(2,715		)	(2,481		)
Total costs and expenses		65,488			404,791			432,950			65,488			1,290,940			1,273,590
Other expense (income)
Interest expense
Corporate borrowings		10,392			27,954			16,253			14,686			66,851			48,182
Capital and financing lease obligations		90			2,403			2,512			90			7,408			8,022
Investment income		(1,630		)	(3,478		)	(461		)	(2,247		)	(6,476		)	(1,723		)
Total other expense		8,852			26,879			18,304			12,529			67,783			54,481
Earnings (loss) from continuing operations before income taxes		(12,726		)	(44,358		)	20,348			(16,403		)	(20,878		)	52,027
Income tax provision		1,500			700			11,900			1,500			15,000			27,900
Earnings (loss) from continuing operations		(14,226		)	(45,058		)	8,448			(17,903		)	(35,878		)	24,127
Loss from discontinued operations, net of income tax benefit		—			—			(3,241		)	—			—			(3,831		)
Net earnings (loss)		$	(14,226	)	$	(45,058	)	$	5,207		$	(17,903	)	$	(35,878	)	$	20,296
Preferred dividends		—			91,580			11,074			—			104,300			28,527
Loss for shares of common stock		$	(14,226	)	$	(136,638	)	$	(5,867	)	$	(17,903	)	$	(140,178	)	$	(8,231	)

 

See Notes to Consolidated Financial Statements.

 

5

 

AMC ENTERTAINMENT INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

 

 

		December 30, 2004			April 1, 2004
		(Successor)			(Predecessor)
		(Unaudited)
ASSETS
Current assets
Cash and equivalents		$	140,011		$	333,248
Receivables, net of allowance for doubtful accounts of $1,251 as of December 30, 2004 and $1,118 as of April 1, 2004		53,111			39,812
Other current assets		57,823			62,676
Total current assets		250,945			435,736
Property, net		963,552			777,277
Intangible assets, net		200,320			23,918
Goodwill		1,408,511			71,727
Deferred income taxes		64,787			143,944
Other long-term assets		80,115			53,932
Total assets		$	2,968,230		$	1,506,534
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
Accounts payable		$	138,537		$	107,234
Accrued expenses and other liabilities		174,900			112,386
Deferred revenues and income		89,035			76,131
Current maturities of corporate borrowings and capital and financing lease obligations		223,827			2,748
Total current liabilities		626,299			298,499
Corporate borrowings		943,336			686,431
Capital and financing lease obligations		60,085			58,533
Other long-term liabilities		420,940			182,467
Total liabilities		2,050,660			1,225,930
Commitments and contingencies
Stockholder’s equity:
Series A Convertible Preferred Stock, 66 2/3¢ par value; 0 shares issued and outstanding as of December 30, 2004 and 299,477 shares issued and outstanding as of April 1, 2004 (aggregate liquidation preference of $0 as of December 30, 2004 and $304,525 as of April 1, 2004)		—			200
Common Stock, 1 share issued as of December 30, 2004 with 1¢ par value and 33,889,753 shares issued as April 1, 2004 with 66 2/3¢ par value		—			22,593
Convertible Class B Stock, 66 2/3¢ par value; 0 shares issued and outstanding as of December 30, 2004 and 3,051,597 shares issued and outstanding as of April 1, 2004		—			2,035
Additional paid-in capital		934,901			469,498
Accumulated other comprehensive earnings (loss)		572			(1,993		)
Accumulated deficit		(17,903		)	(210,716		)
Common Stock in treasury, at cost, 77,997 shares as of April 1, 2004		—			(1,013		)
Total stockholder’s equity		917,570			280,604
Total liabilities and stockholder’s equity		$	2,968,230		$	1,506,534

 

See Notes to Consolidated Financial Statements.

 

6

 

AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

 

		Thirty-nine Week Periods (unaudited)
		From Inception July 16, 2004 through December 30, 2004			April 2, 2004 through December 23, 2004			April 4, 2003 through January 1, 2004
								(restated)
		(Successor)			(Predecessor)			(Predecessor)
INCREASE (DECREASE) IN CASH AND EQUIVALENTS
Cash flows from operating activities:
Net earnings (loss)		$	(17,903	)	$	(35,878	)	$	20,296
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depreciation and amortization		3,272			92,091			89,619
Non-cash portion of stock-based compensation		—			—			1,702
Non-cash portion of pension and postretirement expense		139			5,273			4,522
Deferred income taxes		1,090			10,578			24,590
Disposition of assets and other gains		—			(294		)	(2,481		)
Loss on sale-discontinued operations		—			—			5,591
Change in assets and liabilities, net of effects from acquisition of AMCE:
Receivables		2,023			(24,219		)	(15,663		)
Other assets		(13,823		)	20,438			(15,219		)
Accounts payable		1,096			1,540			35,818
Accrued expenses and other liabilities		34,335			60,098			32,630
Other, net		(1,902		)	12,027			4,084
Net cash provided by operating activities		8,327			141,654			185,489
Cash flows from investing activities:
Capital expenditures		(1,490		)	(66,155		)	(72,636		)
Acquisition of MegaStar Cinemas L.L.C., net of cash acquired		—			—			(13,049		)
Purchase of leased furniture, fixtures and equipment		—			—			(15,812		)
Payment on disposal – discontinued operations		—			—			(5,252		)
Increase in restricted cash		(456,762		)	(627,338		)	—
Release of restricted cash		456,762			—			—
Acquisition of AMCE, net of cash acquired		(1,268,564		)	—			—
Proceeds from disposition of long-term assets		—			277			1,946
Other, net		181			821			(9,105		)
Net cash used in investing activities		(1,269,873		)	(692,395		)	(113,908		)
Cash flows from financing activities:
Proceeds from issuance of 8 5/8% Senior Unsecured Fixed Rate Notes due 2012		250,000			250,000			—
Proceeds from issuance of Senior Unsecured Floating Rate Notes due 2010		205,000			205,000			—
Proceeds from issuance of 12% Senior Discount Notes due 2014		—			169,918			—
Principal payments under capital and financing lease obligations		(27		)	(2,020		)	(1,937		)
Change in cash overdrafts		27,827			3,710			(495		)
Change in construction payables		—			(2,234		)	(5,291		)
Cash portion of preferred dividends		—			(9,349		)	—
Capital contribution from Marquee Holdings Inc.		934,901			—			—
Deferred financing costs		(16,546		)	—			—
Proceeds from exercise of stock options		—			52			3,888
Treasury stock purchases and other		—			(333		)	(440		)
Net cash provided by (used in) financing activities		1,401,155			614,744			(4,275		)
Effect of exchange rate changes on cash and equivalents		402			(615		)	(946		)
Net increase in cash and equivalents		140,011			63,388			66,360
Cash and equivalents at beginning of period		—			333,248			244,412
Cash and equivalents at end of period		$	140,011		$	396,636		$	310,772
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (including amounts capitalized of $0, $658 and $2,423)		$	—		$	42,629		$	41,428
Income taxes paid, net of refunds		—			2,364			11,430
Schedule of non-cash investing and financing activities:
Assets capitalized under EITF 97-10		$	4,941		$	—		$	—
Preferred dividends		—			93,475			28,527
Issuance of Common Stock related to purchase of GC Companies, Inc.		—			2,021			—

 

See Notes to Consolidated Financial Statements.

 

7

 

AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2004
(Unaudited)

 

NOTE 1 - BASIS OF PRESENTATION

 

AMC Entertainment Inc. (“AMCE” or "the Company") is an intermediate holding company which, through its direct and indirect subsidiaries, including American Multi-Cinema, Inc. (“AMC”) and its subsidiaries, AMC Entertainment International, Inc. (“AMCEI”) and National Cinema Network, Inc. (“NCN”) (collectively with AMCE, unless the context otherwise requires, the “Company”), is principally involved in the theatrical exhibition business throughout North America and in China (Hong Kong), Japan, France, Portugal, Spain and the United Kingdom. The Company’s North American theatrical exhibition business is conducted through AMC and AMCEI. The Company’s International theatrical exhibition business is conducted through AMCEI. The Company is also involved in the business of providing on-screen advertising and other services to AMC and other theatre circuits through a wholly owned subsidiary, NCN.

 

The Company completed a merger on December 23, 2004 in which Marquee Holdings Inc. (“Holdings”) acquired the Company.  See Note 2 - Acquisitions for additional information regarding the merger.  Marquee Inc. (“Marquee”, or “Successor”) is a company formed on July 16, 2004.  On December 23, 2004, pursuant to a merger agreement, Marquee merged with AMCE (the “Predecessor”). Upon the consummation of the merger between Marquee Inc. and AMCE on December 23, 2004, Marquee Inc. was dissolved and renamed as AMCE, which is the legal name of the surviving reporting entity. The merger was treated as a purchase with Marquee being the “accounting acquiror” in accordance with Statement of Financial Accounting Standards No. 141 Business Combinations.  As a result, the Successor applied the purchase method of accounting to the separable assets, including goodwill, and liabilities of the accounting acquiree, AMCE, as of December 23, 2004, the merger date.  The consolidated financial statements presented herein are those of the accounting acquiror from its inception on July 16, 2004 through December 30, 2004, and those of its Predecessor, AMCE, for all prior periods through the merger date.

 

In association with the merger transaction discussed above, two merger entities were formed on July 16, 2004, Marquee Inc. and Holdings.  To finance the merger and related transactions, on August 18, 2004, (i) Marquee issued $250,000,000 aggregate principal amount of 8 5/8% senior unsecured fixed rate Notes due 2012 (“Fixed Notes due 2012”) and $205,000,000 aggregate principal amount of senior unsecured floating rate notes due 2010 (“Floating Notes due 2010”) and (ii) Holdings issued $304,000,000 aggregate principal amount at maturity of its 12% senior discount notes due 2014  (“Discount Notes due 2014”) for gross proceeds of $169,917,760.  The only operations of Marquee and Holdings prior to the Merger were related to these financings.  Because the Company was the primary beneficiary of the two merger entities which were considered variable interest entities as defined in FIN 46 (R), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, the Company was required to consolidate the merger entities’ operations and financial position into the Company’s financial statements as of and through the period ended December 23, 2004.  Upon consummation of the merger, Marquee was merged with and into AMCE and the letters of credit which gave rise to consolidation of the entities under FIN 46 were cancelled.  As such, Marquee’s operations and financial position are included within the Company’s Consolidated Financial Statements and Holding’s results of operations are included within the Predecessor Company’s Consolidated Financial Statements from its inception on July 16, 2004 through December 23, 2004.  Subsequent to December 23, 2004 AMCE deconsolidated Holdings’ assets and liabilities.

 

The results of operations of Holdings included within the Predecessor Company’s Consolidated Statements of Operations for the period from April 2, 2004 through December 23, 2004 include interest expense of $7,135,000 and interest income of $831,000.

 

Holdings is a holding company with no operations of its own and has no ability to service interest or principal on the Discount Notes due 2014 other than through any dividends it may receive from the Company.  The Company will be restricted, in certain circumstances, from paying dividends to Holdings by the terms of the indentures governing the Fixed Notes due 2012, the Floating Notes due 2010 and the Existing Subordinated Notes and the amended credit facility.  The Company has not guaranteed the indebtedness of Holdings nor pledged any of its assets as collateral.

 

The accompanying unaudited consolidated financial statements have been prepared in response to the requirements of Form 10-Q and should be read in conjunction with the Company’s annual report on Form 10-K/A for the year (52 weeks) ended April 1, 2004. In the opinion of management, these interim financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the Company’s financial position and results of operations. Due to the seasonal nature of the Company’s business, results for the thirty-nine weeks ended December 30, 2004 are not necessarily indicative of the results to be expected for the fiscal year (52 weeks) ending March 31, 2005.

 

The April 1, 2004 consolidated balance sheet data was derived from the audited balance sheet, but does not include all disclosures required by generally accepted accounting principles.

 

Certain amounts have been reclassified from prior period consolidated financial statements to conform with the current period presentation.

 

Under the Company’s cash management system, checks issued but not presented to banks frequently result in overdraft balances for accounting purposes and are classified within accounts payable in the balance sheet.  The amount of these checks included in accounts payable as of December 30, 2004 and April 1, 2004 was $51,274,000 and $19,737,000, respectively.

 

The consolidated financial statements include the accounts of AMCE and all of its subsidiaries.

 

8

 

NOTE 2 - - ACQUISITIONS

 

The Merger

 

On December 23, 2004, the Company completed a merger in which Holdings acquired the Company pursuant to an Agreement and Plan of Merger, dated as of July 22, 2004 (the “Merger Agreement”), by and among the Company, Holdings and Marquee. Marquee, a wholly owned subsidiary of Holdings, merged with and into the Company, with the Company remaining as the surviving entity (the “Merger”) and becoming a wholly owned subsidiary of Holdings.  The Merger was voted on and approved by the Company's shareholders on December 23, 2004.

 

Pursuant to the terms of the Merger Agreement, each issued and outstanding share of the Company’s Common Stock and Convertible Class B stock was converted into the right to receive $19.50 in cash and each issued and outstanding share of the Company’s Series A Convertible Preferred Stock was converted into the right to receive $2,727.27 in cash. The total amount of consideration paid in the Merger was approximately $1,665,200,000. The Company made payments to holders of its Common Stock, Convertible Class B Stock and Series A Convertible Preferred Stock in the aggregate amount of $1,647,300,000 and Holdings made payments of $17,900,000 to the holders of 1,451,525 vested in-the-money options and holders of 520,350 deferred stock units that vested upon closing the Merger. The Company has recorded $61,032,000 ($20,000,000 Successor and $41,032,000 Predecessor) of general and administrative expenses related to the Merger of which $37,061,000 were unpaid as of December 30, 2004. Included in these amounts are $20,000,000 of Successor transaction fees paid to J.P. Morgan Partners (BHCA), L.P. and Apollo Investment Fund V, L.P. and certain related investment funds, which were unpaid as of December 30, 2004.

 

The Company has accounted for the Merger as a purchase in accordance with Statement of Financial Accounting Standards No 141 Business Combinations with Marquee being the accounting acquiror and AMCE being the acquired entity. As such the financial information presented herein represents (i) the Consolidated Statements of Operations of the Successor for the thirteen week period ended December 30, 2004, the period from inception on July 16, 2004 through December 30, 2004 and the Consolidated Statements of Operations of the Predecessor for the twelve weeks ended December 23, 2004, the thirty-eight weeks ended December 23, 2004, the thirteen weeks ended January 1, 2004, and the thirty-nine weeks ended January 1, 2004, (ii) the Consolidated Balance Sheet of the Successor as of December 30, 2004 and the Consolidated Balance Sheet of the Predecessor as of April 1, 2004, and (iii) the Consolidated Statements of Cash Flows of the Successor for the period from inception on July 16, 2004 through December 30, 2004 and the Consolidated Statements of Cash Flows of the Predecessor for the thirty-eight weeks ended December 23, 2004, and the thirty-nine weeks ended January 1, 2004.

 

9

 

The following is a summary of the allocation of the purchase price to the estimated fair values of assets and liabilities acquired in the Merger.  The allocation of purchase price is based on a preliminary study performed by a valuation specialist and is subject to further analysis and completion:

 

Cash and equivalents		$		396,636
Other current assets		99,111
Property, net		965,034
Intangible assets		200,604
Goodwill		1,408,511
Deferred income taxes		65,599
Other long-term assets		65,852
Current liabilities		(341,633			)
Corporate borrowings		(709,283			)
Capital and financing lease obligations		(63,296			)
Other long-term liabilities		(421,935			)
Total estimated purchase price		$	1,665,200

 

Amounts recorded for goodwill are not subject to amortization, are expected to be allocated to each of the Company’s three operating segments (the reporting units) and are not expected to be deductible for tax purposes.  The Company will perform annual impairment tests for goodwill during its fourth fiscal quarter.

 

Intangible assets include $73,000,000 related to the AMC trademark and tradename, $61,326,000 related to favorable leases and $46,000,000 related to the Company’s Moviewatcher customer loyalty program.  These fair values are based on a preliminary study performed by a valuation specialist.  The AMC trademark and tradename is an indefinite-lived intangible asset which is not subject to amortization, but does require impairment evaluation during each reporting period to determine whether events and circumstances continue to support an indefinite useful life.  The weighted average amortization period for favorable leases is approximately thirteen years and the amortization period for the Moviewatcher customer loyalty program is eight years.

 

Amortization expense and accumulated amortization are as follows:

 

		Thirteen Week Period			Thirty-nine Week Period
(In thousands)		October 1, 2004 through December 30, 2004			From Inception July 16, 2004 through December 30, 2004
		(Successor)			(Successor)
Amortization expense of favorable leases		$	96		$	96
Amortization expense of loyalty program		111			111
Amortization of software		25			25
Total		$	232		$	232

 

(In thousands)						As of December 30, 2004
						(Successor)
Accumulated amortization of favorable leases						$	96
Accumulated amortization of loyalty program						111
Accumulated amortization of software						25
Total						$	232

 

Estimated amortization expense for the current and next five fiscal years is as follows:

 

(In thousands)		Favorable leases			Loyalty program			Total
		(Successor)			(Successor)			(Successor)
2005 (14 weeks)		$	1,345		$	1,548		$	2,893
2006		4,848			5,750			10,598
2007		4,800			5,750			10,550
2008		4,715			5,750			10,465
2009		4,678			5,750			10,428
2010		4,579			5,750			10,329

 

10

 

The unaudited pro forma financial information presented below sets forth the Company’s historical statements of operations for the periods indicated and give effect to the Merger and related debt issuances as adjusted for the related preliminary purchase price allocations as of the beginning of the respective periods.  Because the pro forma financial information gives effect to the Merger and related debt issuances as adjusted for the related preliminary purchase price allocations as of the beginning of the respective periods, all pro forma information is for the Successor.  Such information is presented for comparative purposes only and does not purport to represent what the Company’s results of operations would actually have been had these transactions occurred on the date indicated or to project its results of operations for any future period or date.

 

		Thirteen Week Periods						Thirty-nine Week Periods
(In thousands, except per share data)		Pro Forma October 1, 2004 through December 30, 2004			Pro Forma October 3, 2003 through January 1, 2004			Pro Forma April 2, 2004 through December 30, 2004			Pro Forma April 4, 2003 through January 1, 2004
		(Successor)			(Successor)			(Successor)			(Successor)
Revenues
Admissions		$	298,813		$	321,783		$	949,441		$	942,799
Concessions		115,880			119,776			361,130			356.159
Other theatre		18,578			14,839			48,657			39,821
NCN and other		15,655			15,204			40,231			41,319
Total Revenues		448,926			471,602			1,399,459			1,380,098
Expenses
Film exhibition costs		158,365			170,727			507,712			510,675
Concession costs		14,592			13,138			43,203			39,948
Theatre operating expense		107,091			104,795			321,218			316,488
Rent		79,330			74,388			237,299			222,148
NCN and other		11,041			12,803			32,379			35,511
General and administrative:
Stock-based compensation		(5,345		)	533			—			1,702
*Merger and acquisition costs		57,189			4,974			61,032			5,344
Other		10,352			11,537			35,936			34,570
Preopening expense		377			1,734			1,358			3,165
Theatre and other closure expense		569			2,078			10,890			3,812
Depreciation and amortization		43,287			43,538			127,905			123,018
Disposition of assets and other gains		(320		)	(525		)	(2,715		)	(2,481		)
Total costs and expenses		476,528			439,720			1,376,217			1,293,900
Other expense (income)
Interest expense
Corporate borrowings		29,049			25,031			81,604			74,516
Capital and financing lease obligations		2,493			2,512			7,498			8,022
Investment income		(3,500		)	(461		)	(6,498		)	(1,723		)
Total other expense		28,042			27,082			82,604			80,815
Earnings (loss) from continuing operations before income taxes		(55,644		)	4,800			(59,362		)	5,383
Income tax provision		4,300			5,700			7,800			9,200
Loss from continuing operations			(59,944	)		(900	)		(67,162	)		(3,817	)
Loss from discontinued operations, net of income tax benefit			—			(3,241	)		—			(3,831	)
Net loss		$	(59,944	)	$	(4,141	)	$	(67,162	)	$	(7,648	)

 

*  Represent non-recurring transaction costs for the Merger and related transactions.

11