-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SQftBU2bwZjwnuf/Z61ii8RWZJSDceXn21vLOddo/8CBUALs1qK8MdxFdB9nBU+l 8CFvhST6/JOYrrC9R7wEfw== 0000722077-97-000015.txt : 19970701 0000722077-97-000015.hdr.sgml : 19970701 ACCESSION NUMBER: 0000722077-97-000015 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970403 FILED AS OF DATE: 19970630 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMC ENTERTAINMENT INC CENTRAL INDEX KEY: 0000722077 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE THEATERS [7830] IRS NUMBER: 431304369 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08747 FILM NUMBER: 97633173 BUSINESS ADDRESS: STREET 1: 106 W 14TH ST STREET 2: P O BOX 419615 CITY: KANSAS CITY STATE: MO ZIP: 64141-6615 BUSINESS PHONE: 8162214000 10-K 1 1997 FORM 10-K ITEMS UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (mark one) [ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended April 3, 1997 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (no fee required) for the transition period from _________________ to ______________________ Commission File Number 1-8747 AMC ENTERTAINMENT INC. (Exact name of registrant as specified in its charter) Delaware 43-1304369 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 106 West 14th Street Kansas City, Missouri 64105-1977 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (816) 221-4000 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered Common Stock, 66 2/3 cents par value American Stock Exchange, Inc. Pacific Stock Exchange, Inc. $1.75 Cumulative Convertible Preferred Stock, 66 2/3 cents par value American Stock Exchange, Inc. 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 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. [ X ] The aggregate market value of the registrant's voting stock held by non- affiliates as of May 19, 1997 computed by reference to the closing price for such stock on the American Stock Exchange on such date, was $95,287,321. Number of Shares Title of Each Class of Common Stock Outstanding as of May 19, 1997 Common Stock, 66 2/3 cents par value 6,804,296 Class B Stock, 66 2/3 cents par value 11,157,000 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Stockholders' Report for the fiscal year ended April 3, 1997 (the "Report") are incorporated by reference into Parts I and II. AMC ENTERTAINMENT INC. AND SUBSIDIARIES 1997 FORM 10-K ANNUAL REPORT PART I PAGE NUMBER Item 1. Business 3 Item 2. Properties 9 Item 3. Legal Proceedings 9 Item 4. Submission of Matters to a Vote of Security Holders 10 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 10 Item 6. Selected Financial Data 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 8. Financial Statements and Supplementary Data 11 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures 11 PART III Item 10. Directors and Executive Officers of the Registrant 12 Item 11. Executive Compensation 14 Item 12. Security Ownership of Certain Beneficial Owners and Management 22 Item 13. Certain Relationships and Related Transactions 25 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 29 Signatures 30 PART I ITEM 1. BUSINESS (a) General Development of Business AMC Entertainment Inc. ("AMCE") is a holding company which, through its direct and indirect subsidiaries including American Multi-Cinema, Inc. ("AMC") and its subsidiaries (collectively with AMCE, unless the context otherwise requires, the "Company"), is principally involved in the operation of motion picture theatres throughout the United States and in Japan and Portugal. 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, National Cinema Network, Inc. ("NCN"). AMCE's predecessor was founded in Kansas City, Missouri in 1920 by the father of Mr. Stanley H. Durwood, the current Chairman of the Board and Chief Executive Officer of AMCE and AMC. AMCE was incorporated under the laws of the state of Delaware on June 13, 1983 and maintains its principal executive offices located at 106 West 14th Street, Kansas City, Missouri 64105-1977. Its telephone number at such address is (816) 221- 4000. (b) Financial Information about Industry Segments The Registrant operates exclusively in the motion picture exhibition industry. (c) Narrative Description of Business General The Company is one of the leading theatrical exhibition companies in North America. In the fiscal year ended April 3, 1997, the Company's revenues were $749,597,000. As of April 3, 1997, the Company operated 228 theatres with an aggregate of 1,957 screens located in 23 states, the District of Columbia, Portugal and Japan. Approximately 61% of the screens operated by the Company are located in Florida, California, Texas, Missouri and Michigan and approximately 73% of the Company's domestic screens are located in areas among the 20 largest "Areas of Dominant Influence" (television market areas as defined by Arbitron Company). The Company is an industry leader in the development and operation of "megaplex" and "multiplex" theatres, primarily in large metropolitan markets. Megaplex theatres are theatres having at least 14 screens with predominantly stadium-style seating (seating with an elevation between rows to provide unobstructed viewing). Multiplex theatres are theatres generally without stadium-style seating and having less than 14 screens. The Company believes that its strategy of developing megaplex theatres has prompted the current theatrical exhibition industry trend in the United States and Canada toward the development of larger theatre complexes. This trend has accelerated the obsolescence of many existing movie theatres by setting new standards for moviegoers, who have demonstrated their preference for the more attractive surroundings, wider variety of films, better customer services and more comfortable seating typical of megaplexes. In addition to providing a superior entertainment experience, megaplex theatres realize economies of scale by serving more patrons from common support facilities, thereby spreading costs over a higher revenue base. The Company's megaplex theatres have consistently ranked among its top grossing facilities on a per screen basis. During the fiscal year ended April 3, 1997, attendance per screen at the Company's megaplex theatres was 88,200 compared to 63,800 for the Company's multiplex theatres. (During 1995, the last period for which data is available, the theatrical exhibition industry in the United States averaged approximately 47,000 patrons per screen.) In addition, during the fiscal year ended April 3, 1997, average revenue per patron at the Company's megaplex theatres was $6.54 compared to $5.95 for its multiplex theatres, and operating cash flow before rent of the Company's megaplex theatres was 37% of the total revenues of such theatres, whereas operating cash flow before rent of the Company's multiplex theatres was 33% of total revenues of such theatres. As of April 3, 1997, 591 screens, or 30.2% of the Company's screens, were in megaplex and multiplex theatres with 14 or more screens and of these, 366 screens, or 18.7% of the Company's screens, were in megaplex theatres. The average number of screens per theatre operated by the Company is 8.6, compared to an average of 5.9 for the ten largest North American theatrical exhibition companies (based on number of screens) and 5.2 for all North American theatrical exhibition companies. The Company continually upgrades its theatre circuit by opening new theatres (primarily megaplex theatres), adding new screens to existing theatres and selectively closing unprofitable theatres. Since April 1995, the Company has opened 24 new theatres with 422 screens, representing 21.6% of its current number of screens, and has added 42 screens to existing theatres. Of these 422 screens, 366 screens were in 18 megaplex locations. Among these new theatres are the Company's first theatre in Japan, the Canal City 13, in Fukuoka, and its first theatre in Portugal, the Arrabida 20, in Porto. As of April 3, 1997, the Company had 21 new theatres under construction having an aggregate of 514 screens and was adding 44 screens to existing theatres. All of these theatres and screens will be located in the United States. Revenues for the Company are generated primarily from box office admissions and theatre concessions sales, which accounted for 66% and 30%, respectively, of fiscal 1997 revenues. The balance of the Company's revenues are generated primarily by the Company's on-screen advertising business, video games located in theatre lobbies and the rental of theatre auditoriums. Business Strategy The Company intends to expand its theatre circuit primarily by developing new theatres in major markets in the United States and select international markets. New theatres will primarily be megaplex theatres which will also be equipped with SONY Dynamic Digital SoundT (SDDST) and AMC LoveSeatT style seating (plush, high-backed seats with retractable armrests). Other amenities may include auditoriums with TORUST Compound Curved Screens and High Impact Theatre SystemsT (HITST), which enhance picture and sound quality, respectively. The Company's strategy of establishing megaplex theatres enhances attendance and concessions sales by enabling it to exhibit concurrently a variety of motion pictures attractive to different segments of the movie- going public. Megaplexes also allow the Company to match a particular motion picture's attendance patterns to the appropriate auditorium size (ranging from approximately 90 to 450 seats), thereby extending the run of a motion picture and providing superior theatre economics. The Company believes that megaplex theatres enhance its ability to license commercially popular motion pictures and to access economically prime real estate sites due to its desirability as an anchor tenant. The Company believes that the megaplex format will create a new replacement cycle for the industry. The new format raises moviegoers' expectations by providing superior viewing lines, comfort, picture and sound quality as well as increased choices of films and start times. The Company believes that consumers will increasingly choose theatres based on the quality of the movie-going experience rather than the location of the theatre. As a result, the Company believes that older, smaller theatres will become obsolete as the megaplex concept matures. The Company believes that significant market opportunities exist for development of modern megaplex and multiplex theatres in select international markets. The theatrical exhibition business has become increasingly global and box office receipts from international markets approximate those of the U.S. market and are rising at a faster rate. In addition, the production and distribution of feature films and demand for American motion pictures is increasing in many countries. The Company believes that its experience in developing and operating megaplex and multiplex theatres provides it with a significant advantage in developing megaplex and multiplex facilities in international markets and the Company intends to utilize this experience, as well as its existing relationships with domestic motion picture studios, to enter certain international markets. The Company's strategy in these markets is to operate leased theatres. Presently the Company's activities in international markets are directed toward Japan, Portugal, Spain, Hong Kong and Canada, which markets the Company believes are under screened. The Company will consider partnerships or joint ventures, where appropriate, to share risk and leverage resources. Such ventures may include interests in projects that include restaurant, retail and other concepts. The Company continually monitors its theatres to determine their performance and has improved the profitability of certain of its older theatres by converting them to "dollar houses," which display second-run movies and charge lower admission prices (ranging from $1.00 to $1.75). It operated 12 such theatres with 68 screens as of April 3, 1997 (3.5% of the Company's total screens). Other strategies for under performing theatres include selling them to discount operators and closing them. Divestiture strategies for theatres with longer leases include selling them to other exhibitors, closing them or converting such theatres to other uses and subleasing them. Theatre Circuit The following table sets forth information concerning additions and dispositions of theatres and screens during, and the number of theatres and screens operated as of the end of, the last five fiscal years. The Company adds and disposes of theatres based on industry conditions and its business strategy.
Changes in Theatres Operated Additions Dispositions Total Theatres Operated ---------------------- ---------------------- ------------ - ----------- Fiscal Year Number of Number of Number of Number of Number of Number of Ended Theatres Screens Theatres Screens Theatres Screens -------- -------- -------- -------- -------- -------- April 1, 1993 6 72 16 72 243 1,617 March 31, 1994 2 15 9 29 236 1,603 March 30, 1995 3 53 7 26 232 1,630 March 28, 1996 7 150 13 61 226 1,719 April 3, 1997 17 314 15 76 228 1,957 -------- -------- -------- -------- Total 35 604 60 264 ======== ======== ======== ========
The following table provides greater detail with respect to the Company's theatre circuit as of April 3, 1997.
Screens Total Total per Theatre Domestic Screens Theatres 1-13 14 + Florida 390 43 35 8 California 333 35 28 7 Texas 221 24 21 3 Missouri 127 13 10 3 Michigan 115 19 19 - Arizona 114 13 11 2 Pennsylvania 105 15 15 - Georgia 86 7 3 4 Colorado 65 9 9 - Ohio 62 5 3 2 Virginia 62 8 7 1 New Jersey 50 8 8 - Maryland 48 6 6 - Oklahoma 22 3 3 - North Carolina 22 1 - 1 Louisiana 20 3 3 - Washington 20 3 3 - New York 16 2 2 - Massachusetts 10 2 2 - District of Columbia 9 1 1 - Nebraska 8 2 2 - Illinois 8 1 1 - Kansas 6 1 1 - Delaware 5 2 2 - ----- ----- ----- ----- Total Domestic 1,924 226 195 31 ===== ===== ===== ===== International Japan 13 1 1 - Portugal 20 1 - 1 ----- ----- ----- ----- Total International 33 2 1 1 ===== ===== ===== ===== Total Circuit 1,957 228 196 32 ===== ===== ===== =====
As of April 3, 1997, the Company operated 18 megaplex theatres having an aggregate of 366 screens, representing 18.7% of its screens. Of the Company's 228 theatres and 1,957 screens operated as of April 3, 1997, AMC was the owner or lessee of 223 theatres with 1,909 screens; AMC Entertainment International, Inc., an AMCE subsidiary, leased one theatre with 13 screens and its subsidiary, Actividades Multi-Cinemas E Espectaculos, LDA, leased one theatre with 20 screens. AMC also operated three theatres with 15 screens owned by a third party. Film Licensing The Company predominantly licenses "first-run" motion pictures from distributors on a film-by-film and theatre-by-theatre basis. The Company obtains these licenses either by negotiations directly with, or by submitting bids to, distributors. Negotiations with distributors are based on several factors, including theatre location, competition, season of the year and motion picture content. Rental fees are paid by the Company under a negotiated license and are made on either a "firm terms" basis, where final terms are negotiated at the time of licensing, or are adjusted subsequent to the exhibition of a motion picture in a process known as "settlement." When motion pictures are licensed through a bidding process, the distributor decides whether to accept bids on a previewed basis or a non-previewed ("blind-bid") basis, subject to certain state law requirements. In most cases, the Company licenses its motion pictures on a previewed basis. When a film is bid on a previewed basis, exhibitors are permitted to review the film before bidding, whereas they are not permitted to do so when films are licensed on a non-previewed or "blind- bid" basis. Licenses entered into through both negotiated and bid processes typically state that rental fees shall be based on the higher of a gross receipts formula or a theatre admissions revenue sharing formula. Under a gross receipts formula, the distributor receives a specified percentage of box office receipts, with the percentages declining over the term of the run. First-run motion picture rental fees are generally the greater of (i) 70% of box office admissions, gradually declining to as low as 30% over a period of four to seven weeks, and (ii) a specified percentage (i.e. 90%) of the excess of box office receipts over a negotiated allowance for theatre expenses (commonly known as a "90/10" clause). Second-run motion picture rental fees typically begin at 35% of box office admissions and often decline to 30% after the first week. The Company may pay non-refundable guarantees of film rentals or make advance payments of film rentals, or both, in order to obtain a license in a negotiated or bid process, subject, in some cases, to a per capita minimum license fee. Because of the settlement process, negotiated licenses typically are more favorable to theatre operators with respect to the percentage of admissions revenue ultimately paid to license a motion picture. In the past few years, bidding has been used less frequently by the industry. Presently, the Company licenses substantially all of its films on a negotiated basis. The Company's business is dependent upon the availability of marketable motion pictures. There are several distributors which provide a substantial portion of quality first-run motion pictures to the exhibition industry. These include Buena Vista Pictures (Disney), Warner Bros. Distribution, SONY Pictures Releasing (Columbia Pictures and Tri- Star Pictures), Twentieth Century Fox, Universal Film Exchanges, Inc. and Paramount Pictures. There are numerous other distributors and no single distributor dominates the market. From year to year, the Company's revenues attributable to individual distributors may vary significantly depending upon the commercial success of each distributor's motion pictures in any given year. In fiscal 1997, no single distributor accounted for more than 12% of the motion pictures licensed by the Company or for more than 21% of the Company's box office admissions. Poor relationships with distributors, poor performance of motion pictures or disruption in the production of motion pictures by the major studios and/or independent producers may have an adverse effect upon the business of the Company. Some of the major distributors have announced their intention to reduce production of films. Concessions Concessions sales are the second largest source of revenue for the Company after box office admissions. Concessions items include popcorn, soft drinks, candy and other products. The Company's strategy emphasizes prominent and appealing concessions counters designed for rapid service and efficiency. The Company's primary concessions products are various sizes of popcorn, soft drinks, candy and hot dogs, all of which the Company sells at each of its theatres. However, different varieties of candy and soft drinks are offered at theatres based on preferences in that particular geographic region. The Company has also implemented "combo-meals" for children which offer a pre-selected assortment of concessions products. Newer megaplex theatres are designed to have more concessions service capacity per seat than multiplex theatres and typically have three concessions stands, with each stand having multiple service stations to make it easier to serve larger numbers of customers. In addition, the primary concessions stand in such theatres generally features the "pass- through" concept, which provides a staging area behind the concessions equipment to prepare concessions products. This permits the concessionist serving patrons to simply sell concessions items instead of also preparing them, thus providing more rapid service to customers. Strategic placement of large concessions stands within theatres heightens their visibility, aids in reducing the length of concessions lines and improves traffic flow around the concessions stands. Theatrical Exhibition Industry Overview Motion picture theatres are the primary initial distribution channel for new motion picture releases and the Company believes that the theatrical success of a motion picture is often the most important factor in establishing its value in the cable television, videocassette and other ancillary markets. The Company further believes that the emergence of new motion picture distribution channels has not adversely affected attendance at theatres and that these distribution channels do not provide an experience comparable to that of viewing a movie in a theatre. The Company believes that the public will continue to recognize the advantages of viewing a movie on a large screen with superior audio and visual quality, while enjoying a variety of concessions and sharing the experience with a larger audience. Annual domestic theatre attendance has averaged approximately one billion persons since the early 1960s. In 1996, estimated domestic attendance was 1.35 billion. Fluctuations and variances in year-to-year attendance are primarily related to the overall popularity and supply of motion pictures. The theatrical exhibition industry in North America is comprised of over 400 exhibitors, approximately 250 of which operate four or more screens. Based on the listing of exhibitors in the NATO 1996-97 Encyclopedia of Exhibitions, as of May 1, 1996, the ten largest exhibitors (in terms of number of screens) operated approximately 56% of the total screens, with no one exhibitor operating more than 10% of the total screens. Competition The Company competes against both local and national exhibitors, some of which may have substantially greater financial resources than the Company. There are over 400 companies competing in the domestic theatrical exhibition industry. Industry participants vary substantially in size, from small independent operators to large international chains. As of May 1, 1996, the ten largest motion picture exhibition companies operated approximately 56% of the total number of screens, based on the listing of exhibitors in the NATO 1996-1997 Encyclopedia of Exhibitions. The Company's theatres are subject to varying degrees of competition in the geographic areas in which they operate. Competition is often intense with respect to licensing motion pictures, attracting patrons and finding new theatre sites. Theatres operated by national and regional circuits and by smaller independent exhibitors compete aggressively with the Company's theatres. The Company believes that the principal competitive factors with respect to film licensing include licensing terms, seating capacity and location and condition of an exhibitor's theatres. The competition for patrons is dependent upon factors such as the availability of popular motion pictures, the location and number of theatres and screens in a market, the comfort and quality of the theatres and pricing. As with other exhibitors, the Company's smaller multiplex theatres are subject to being rendered obsolete through the introduction of new, competing megaplex theatres. The theatrical exhibition industry also faces competition from other distribution channels for filmed entertainment, such as cable television, pay per view and home video systems, as well as from all other forms of entertainment. 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. The consent decrees resulting from one of those cases, to which the Company was not a party, have a material impact on the industry and the Company. Those consent decrees bind certain major motion picture distributors and require the motion pictures of such distributors to be offered and licensed to exhibitors, including the Company, on a film- by-film and theatre-by-theatre basis. Consequently, the Company cannot assure itself of a supply of motion pictures by entering into long-term arrangements with major distributors, but must compete for its licenses on a film-by-film and theatre-by-theatre basis. Bids for new motion picture releases are made, at the discretion of the distributor (subject to state law requirements), either on a previewed basis or blind-bid basis. Certain states have enacted laws regulating the practice of blind-bidding. Management believes that it may be able to make better business decisions with respect to film licensing if it is able to preview motion pictures prior to bidding for them, and accordingly believes that it may be less able to capitalize on its expertise in those states which do not regulate blind-bidding. The Company is subject to the Americans with Disabilities Act of 1990 ("ADA") and believes that it is in substantial compliance with all current applicable regulations relating to accommodations for the disabled. The Company does not believe that compliance with ADA will have a material adverse effect on the Company. As the Company expands internationally, it becomes subject to regulation by foreign governments. There are significant differences between the theatrical exhibition industry regulatory environment in the United States and in international markets. Regulatory barriers affecting such matters as the size of theatres, the issuance of licenses and the ownership of land may restrict market entry. Vertical integration of production and exhibition companies in international markets may also have an adverse effect on the Company's ability to license motion pictures for international exhibition. The Company's initial attendance at its theatre in Japan was negatively impacted by film distributors in Japan who restricted the Company's ability to obtain film product until pproximately two weeks after its competitors had received it. This delay in releasing films to the Company generally has been eliminated. The Company's international operations also face the additional risks of fluctuating currency values. Quota systems used by some countries to protect their domestic film industry may adversely affect revenues from theatres that the Company develops in such markets. Such differences in industry structure and regulatory and trade practices may adversely affect the Company's ability to expand internationally or to operate at a profit following such expansion. Seasonality The theatrical exhibition industry is seasonal in nature, with the highest attendance and revenues occurring during the summer months and the holiday seasons. Employees As of April 3, 1997, the Company had approximately 1,800 full-time and 8,500 part-time employees. Approximately 11% of the part-time employees were minors paid the minimum wage. Fewer than one percent of the Company's employees, consisting primarily of motion picture projectionists, are represented by a union, the International Alliance of Theatrical Stagehand Employees and Motion Picture Machine Operators. The Company believes that its relationship with this union is satisfactory. As an employer covered by the ADA, the Company must make reasonable accommodations to the limitations of employees and qualified applicants with disabilities, provided that such reasonable accommodations do not pose an undue hardship on the operation of the Company's business. In addition, many of the Company's employees are covered by various government employment regulations, including minimum wage, overtime and working conditions regulations. ITEM 2. PROPERTIES Of the 228 theatres operated by the Company as of April 3, 1997, 14 theatres with 157 screens were owned, 14 theatres with 135 screens were leased pursuant to ground leases, 197 theatres with 1,650 screens were leased pursuant to building leases and three theatres with 15 screens were managed. The Company's leases generally have terms from 15 to 25 years, with options to extend the lease for up to 20 additional years. The leases typically require escalating minimum annual rent payments and additional rent payments based on a percentage of the leased theatre's revenue above a base amount and require the Company to pay for property taxes, maintenance, insurance and certain other property-related expenses. The Company leases its corporate headquarters, located in Kansas City, Missouri. Regional theatre and film licensing offices are leased in Los Angeles and Woodland Hills, California; Clearwater, Florida; and Voorhees, New Jersey. ITEM 3. LEGAL PROCEEDINGS In Re: AMC Shareholder Derivative Litigation, Chancery Court For New Castle County, Delaware (Civil Action No. 12855). On February 15, 1995, the court ordered the consolidation of two derivative actions filed against four persons who were then directors of the Company, Messrs. Stanley H. Durwood, Edward D. Durwood, Paul E. Vardeman and Charles J. Egan, Jr. and one of its former directors, Mr. Phillip Ean Cohen. The two cases were originally filed on January 27, 1993, by Mr. Scott C. Wallace and on April 16, 1993, by Mr. James M. Bird, respectively. On December 8, 1994, the court, pursuant to a stipulation by the parties, entered an order approving Mr. Wallace's withdrawal as a derivative plaintiff, granting the motion for intervention filed by Mr. Philip J. Bogosian, Auginco, Mr. Norman M. Werther and Ms. Ellen K. Werther, and authorizing the filing of the intervenors' complaint. The intervenors' complaint includes substantially the same allegations as the Wallace and Bird complaints. The two actions, as consolidated, are referred to below as the "Derivative Action." In the Derivative Action, plaintiffs allege breach of fiduciary duties of care, loyalty and candor, mismanagement, constructive fraud and waste of assets in connection with, among other allegations, the provision of film licensing, accounting and financial services to the Company by American Associated Enterprises ("AAE"), a partnership beneficially owned by Mr. Stanley H. Durwood and his children, certain other transactions with affiliates of the Company, termination payments to a former officer of the Company, certain transactions between the Company and National Cinema Supply Corporation, and a fee paid by a subsidiary of the Company to Mr. Cohen in connection with a transaction between the Company and TPI Entertainment, Inc. The Derivative Action seeks unspecified money damages and equitable relief and costs, including reasonable attorneys' fees. On February 9, 1995, the defendants filed a motion to dismiss the Derivative Action. Discovery has been stayed pending resolution of the motion to dismiss. On October 10, 1996, counsel for the parties in the Derivative Action entered into a Stipulation and Agreement of Compromise and Settlement (the "Derivative Action Settlement Agreement") providing for, among other things, the discharge and release of all claims against the defendants, members of the Durwood family and the Company relating to such transactions, the proposed settlement, a proposed merger between the Company and Durwood, Inc. ("DI"), a proposed secondary offering by members of the Durwood family and indemnification of defendants for their expenses, except claims for fraud, misrepresentation or omissions in connection with the secondary offering and claims relating to the implementation of the settlement. The Derivative Action Settlement Agreement provides, among other matters, (i) for the dissolution of AAE, the merger of DI into AMCE and the sale, within 12 months thereafter, of 3,000,000 shares of Common Stock by members of the Durwood family in a public underwritten secondary offering (which will only be made by means of a prospectus), (ii) for the payment by certain of the defendants of an aggregate of approximately $1.3 million to persons who were holders of Common Stock on January 2, 1996 (other than the defendants, DI or members of the Durwood family), (iii) for the nomination, for three annual meetings, of two additional outside directors (initially, Messrs. William T. Grant, II and John P. Mascotte (collectively with their replacements, if any, the "New Independent Directors")) to serve on AMCE's Board of Directors, whose biographical information has been furnished to plaintiffs' counsel and which persons, to be nominated, must be serving on the board of another public company or be a member of senior management of a publicly held company or a privately held company with $50 million in annual revenues, (iv) that Messrs. Stanley H. Durwood and Edward D. Durwood will cause the other members of the Durwood family to vote their shares with respect to the election and reelection of the New Independent Directors in the same proportion as votes cast by all stockholders not affiliated with AMCE, its directors and officers, (v) that the New Independent Directors will have the ability to approve or disapprove (a) any proposed transaction between AMCE and any of the Durwood family members, except with respect to compensation issues relating to Mr. Stanley H. Durwood or any other Durwood family member who is an officer of AMCE, which are to be governed by existing AMCE Board procedures, and (b) the hiring and compensation of any person related to Mr. Stanley H. Durwood who is not an officer of AMCE, and (vi) that the New Independent Directors, together with either Mr. Charles J. Egan, Jr. or Mr. Paul E. Vardeman, are to have the ability to approve or disapprove all other related-party transactions with all officers and 10% stockholders of AMCE. The Derivative Action Settlement Agreement provides that AMCE will pay the cost of providing notice of the settlement to its stockholders and for the fees of the settlement administrator who will be responsible for distributing the settlement amount to eligible stockholders. The Derivative Action Settlement Agreement requires court approval and is conditioned upon, among other things, the consummation of the merger with DI. It is not anticipated that a hearing to approve the Derivative Action Settlement Agreement will occur until the merger of DI into AMCE is consummated because such merger is a condition of the Derivative Action Settlement Agreement. In addition, from time to time the Company is involved in various legal proceedings arising from the ordinary course of its business operations, such as personal injury claims, employment matters and contractual disputes. The Company believes that its potential liability with respect to proceedings currently pending is not material in the aggregate to the Company's consolidated financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There has been no submission of matters to a vote of security holders during the fourteen weeks ended April 3, 1997. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS With respect to the market for the Company's common stock, market prices and stock ownership, reference is made to information contained on page 64 of the Report, under the headings "Stock Listing/Symbol", "Quarterly Common Stock Price Range" and "Stock Ownership," which information is incorporated herein by reference. AMCE's Certificate of Incorporation provides that holders of Common Stock and Class B Stock shall receive, pro rata per share, such cash dividends as may be declared from time to time by the AMCE Board of Directors. Certain provisions of the Indenture on the 9 1/2% Senior Subordinated Notes due 2009 and the Credit Facility govern the payment of dividends on and purchase by AMCE of its capital stock. Presently, it is not anticipated that the most restrictive of these provisions, set forth in the Credit Facility, will affect the ability of AMCE to pay dividends in the foreseeable future. Such restrictions are described in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" on page 31 of the Report, which information is incorporated herein by reference. Except for a $1.14 per share dividend declared in connection with a recapitalization that occurred in August 1992, AMCE has not declared a dividend on shares of Common Stock or Class B Stock since fiscal 1989. Any payment of cash dividends on Common Stock in the future will be at the discretion of the Board of Directors and will depend upon such factors as earnings levels, capital requirements, AMCE's financial condition and other factors deemed relevant by the Board of Directors. Currently, AMCE does not contemplate declaring or paying any dividends on its Common Stock or Class B Stock. ITEM 6. SELECTED FINANCIAL DATA Reference is made to information under the heading "Selected Financial Data" on page 20 of the Report, which information is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reference is made to information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 21 through 33 of the Report, which information is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated financial statements and notes thereto included on pages 36 through 61 of the Report and "Statements of Operations by Quarter" on page 62 of the Report are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Directors and Executive Officers of the Company are as follows:
Years Associated with the Name Age Positions - ------- ------- ---------- Company Stanley H. Durwood 76 Chairman of the Board, Chief Executive 51 Officer and Director (AMCE and AMC) Peter C. Brown 38 President (AMCE); Executive Vice 5 President (AMC); Chief Financial Officer and Director (AMCE and AMC) Philip M. Singleton 50 President (AMC); Executive 22 Vice President (AMCE); Chief Operating Officer and Director (AMCE and AMC) Charles J. Egan, Jr. 64 Director (AMCE) 10 William T. Grant, II 46 Director (AMCE) - John P. Mascotte 57 Director (AMCE) - Paul E. Vardeman 67 Director (AMCE) 13 Richard T. Walsh 43 Senior Vice President (AMC) 21 Richard J. King 48 Senior Vice President (AMC) 25 Rolando B. Rodriguez 37 Senior Vice President (AMC) 21 Richard L. Obert 57 Senior Vice President-Chief Accounting and Information Officer (AMCE and AMC) 8 Charles P. Stilley 42 President (AMC Realty, Inc.) 15 Richard M. Fay 47 President (AMC Film Marketing) 1 - --------------------- As of April 3, 1997. First elected to the AMCE Board on November 14, 1996. Includes years of service with the predecessor of the Company. Prior to January 10, 1997, Messrs. Brown and Singleton were serving as Executive Vice Presidents of both AMCE and AMC. They were appointed to their present positions as Presidents of AMCE and AMC, respectively, on January 10, 1997.
All directors are elected annually, and each holds office until his successor has been duly elected and qualified or his earlier resignation or removal. There are no family relationships between any Director and any Executive Officer of the Company. All current Executive Officers of the Company hold such offices at the pleasure of the AMCE Board of Directors, subject, in the case of Messrs. Stanley H. Durwood, Peter C. Brown, Philip M. Singleton and Richard M. Fay, to rights under their respective employment agreements. Mr. Stanley H. Durwood has served as a Director of AMCE from its organization on June 14, 1983, and of AMC since August 2, 1968. Mr. Durwood has served as Chairman of the Board of Directors of AMCE and AMC since February 1986, and has served as Chief Executive Officer of AMCE since June 1983, and of AMC since February 20, 1986. Mr. Durwood served as President of AMCE (i) from June 1983 through February 20, 1986, (ii) from May 1988 through June 1989, and (iii) from October 6, 1995 to January 10, 1997. Mr. Durwood served as President of AMC (i) from August 2, 1968 through February 20, 1986, (ii) from May 13, 1988 through November 8, 1990, and (iii) from October 6, 1995 to January 10, 1997. Mr. Durwood is a graduate of Harvard University. Mr. Peter C. Brown has served as a Director of AMCE and AMC since November 12, 1992. Mr. Brown was appointed President of AMCE on January 10, 1997. Mr. Brown served as Executive Vice President of AMCE from August 3, 1994 to January 10, 1997. Mr. Brown has served as Executive Vice President of AMC since August 3, 1994, and as Chief Financial Officer of AMCE and AMC since November 14, 1991. Mr. Brown served as Senior Vice President of AMCE and AMC from November 14, 1991 until his appointment as Executive Vice President in August 1994. Mr. Brown served as Treasurer of AMCE and AMC from September 28, 1992 through September 19, 1994. Prior to November 14, 1991, Mr. Brown served as a consultant to AMCE from October 1990 to October 1991. Mr. Brown is a graduate of the University of Kansas. Mr. Philip M. Singleton has served as a Director of AMCE and AMC since November 12, 1992. Mr. Singleton was appointed President of AMC on January 10, 1997. Mr. Singleton has served as Executive Vice President of AMCE since August 3, 1994 and as Chief Operating Officer of AMCE and AMC since November 14, 1991. Mr. Singleton served as Executive Vice President of AMC from August 3, 1994 to January 10, 1997. Mr. Singleton served as Senior Vice President of AMCE and AMC from November 14, 1991 until his appointment as Executive Vice President in August 1994. Prior to November 14, 1991, Mr. Singleton served as Vice President in charge of operations for the Southeast Division of AMC from May 10, 1982. Mr. Singleton holds an undergraduate degree from California State University, Sacramento, and an M.B.A. degree from the University of South Florida. Mr. Charles J. Egan, Jr., has served as a Director of AMCE since October 30, 1986. Mr. Egan is Vice President of Hallmark Cards, Incorporated, and was General Counsel of such company until December 31, 1996. Hallmark Cards, Incorporated is primarily engaged in the business of greeting cards and related social expressions products, Crayola crayons and the production of movies for television. Mr. Egan also serves as a member of the Board of Trustees, Treasurer and Chairman of the Finance Committee of the Kansas City Art Institute. Mr. Egan holds an A.B. degree from Harvard University and an LL.B. degree from Columbia University. Mr. William T. Grant, II has served as a Director of AMCE since November 14, 1996. Mr. Grant is Chairman of the Board, President, Chief Executive Officer and a Director of LabOne, Inc. and Chairman of the Board, Chief Executive Officer and a Director of Seafield Capital Corporation. Mr. Grant served as President of Seafield Capital Corporation from 1990 to 1993, at which time he became Chairman of the Board of Seafield Capital Corporation. LabOne, Inc. provides risk appraisal laboratory testing services to the insurance industries in the United States and Canada and is a subsidiary of Seafield Capital Corporation. Seafield Capital Corporation is a holding company whose subsidiaries operate primarily in the healthcare and insurance services areas. Mr. Grant also serves on the board of directors of Commerce Bancshares, Inc., Kansas City Power & Light Company, Business Men's Assurance Company of America and Response Oncology, Inc. Mr. Grant holds a B.A. degree from the University of Kansas and an M.B.A. degree from the Wharton School of Finance at the University of Pennsylvania. Mr. John P. Mascotte has served as a Director of AMCE since November 14, 1996. Mr. Mascotte is Chairman of the Board of Johnson & Higgins of Missouri, Inc., a privately held insurance broker. Mr. Mascotte is also a consultant to the First District, African Methodist Episcopal Church and was Chairman of the Heart of America 1996 United Way General Campaign. Prior thereto, Mr. Mascotte served as Chairman of the Board and Chief Executive Officer of The Continental Corporation, a large property- casualty insurer. Mr. Mascotte also serves on the board of directors of Hallmark Cards, Incorporated, Business Men's Assurance Company of America and American Home Products Corporation. In addition, from 1983 until 1996, Mr. Mascotte served on the board of directors of Chemical Banking Corporation. Mr. Mascotte holds B.S. degrees from St. Joseph's College, Rensselaer, Indiana, and an LL.B. degree from the University of Virginia. Mr. Mascotte is also a certified public accountant and a chartered life underwriter. Mr. Paul E. Vardeman has served as a Director of AMCE since June 14, 1983. Mr. Vardeman is a director, officer and shareholder of the law firm of Polsinelli, White, Vardeman & Shalton, P.C., Kansas City, Missouri, and has been associated with such law firm since 1982. Prior thereto, Mr. Vardeman served as a Judge of the Circuit Court of Jackson County, Missouri. Mr. Vardeman holds undergraduate and J.D. degrees from the University of Missouri - Kansas City. Mr. Richard T. Walsh has served as Senior Vice President in charge of operations for the West Division of AMC since July 1, 1994. Previously, Mr. Walsh served as Vice President in charge of operations for the Central Division of AMC from June 10, 1992, and as Vice President in charge of operations for the Midwest Division of AMC from December 1, 1988. Mr. Richard J. King has served as Senior Vice President in charge of operations for the Northeast Division of AMC since January 4, 1995. Previously, Mr. King served as Vice President in charge of operations for the Northeast Division of AMC from June 10, 1992, and as Vice President in charge of operations for the Southwest Division of AMC from October 30, 1986. Mr. Rolando B. Rodriguez has served as Senior Vice President in charge of operations for the South Division of AMC since April 2, 1996. Previously, Mr. Rodriguez served as Vice President and South Division Operations Manager of AMC from July 1, 1994, as Assistant South Division Operations Manager of AMC from February 12, 1993, as South Division Senior Operations Manager from March 29, 1992, and as South Division Operations Manager from August 6, 1989. Mr. Richard L. Obert has served as Senior Vice President-Chief Accounting and Information Officer of AMCE and AMC since November 9, 1995, and prior thereto served as Vice President and Chief Accounting Officer of AMCE and AMC from January 9, 1989. Mr. Charles P. Stilley has served as President of AMC Realty, Inc., a wholly owned subsidiary of AMC, since February 9, 1993, and prior thereto served as Senior Vice President of AMC Realty, Inc. from March 3, 1986. Mr. Richard M. Fay has served as President-AMC Film Marketing, a division of AMC, since September 8, 1995. Previously, Mr. Fay served as Senior Vice President and Assistant General Sales Manager of Sony Pictures from 1994 until he joined AMC. From 1991 to 1994, Mr. Fay served as Vice President and Head Film Buyer for the eastern division of United Artists Theatre Circuit, Inc. ITEM 11. EXECUTIVE COMPENSATION Compensation of Directors From March 29, 1996 through November 13, 1996, Messrs. Charles J. Egan, Jr. and Paul E. Vardeman received prorated annual cash compensation of $20,000 each for their service as members of the Boards of AMCE and AMC and $24,000 each for their service as members of the Audit Committee of the Boards of AMCE and AMC. They also received $900 per hour for attending meetings of (i) any board of directors on which they served, (ii) the Audit Committee after the twelfth meeting during the fiscal year and (iii) any other committee on which they served. Effective November 14, 1996, each of AMCE's non-employee directors receives an annual fee of $32,000 for service on the Board of Directors and an additional $4,000 for each committee of the Board on which he serves, and, in addition, receives $1,500 and $1,000, respectively, for each Board and Board committee meeting which he attends. For the fiscal year ended April 3, 1997, Messrs. Charles J. Egan, Jr., William T. Grant, II, John P. Mascotte and Paul E. Vardeman received $141,900, $64,000, $61,000 and $131,300, respectively, for their services. The Board of Directors has also authorized that Messrs. Charles J. Egan, Jr. and Paul E. Vardeman be paid reasonable compensation for their services as members of a special committee ("the Special Committee") appointed to consider a proposed merger of AMCE and DI. For fiscal year ended April 3, 1997, Messrs. Charles J. Egan, Jr. and Paul E. Vardeman each received $35,000 for their services related to the Special Committee. Compensation of Management The following table provides certain summary information concerning compensation paid or accrued by the Company to or on behalf of the Company's Chief Executive Officer and each of the four other most highly compensated Executive Officers of the Company (determined as of the end of the last fiscal year and hereafter referred to as the "Named Executive Officers") for the last three fiscal years ended April 3, 1997, March 28, 1996 and March 30, 1995, respectively.
Summary Compensation Table* Long-Term Compensation Awards-Securities ANNUAL COMPENSATION Underlying Fiscal Other Annual Options/ All Other Name and Principal Position Year Salary Bonus Compensation SARs(#) Compensation - ---------------------------- ------ ------- ------- -------------- ------ ----------- Stanley H. Durwood 1997 $527,322 $ - N/A 65,000 $ - Chief Executive Officer 1996 492,634 275,000 N/A - - 1995 452,088 108,949 N/A 22,500 - Peter C. Brown 1997 271,364 25,500 N/A 4,500 4,976 Chief Financial Officer 1996 257,439 137,500 N/A - 4,726 1995 234,836 55,433 N/A 4,500 4,657 Philip M. Singleton 1997 303,125 28,500 N/A 4,500 5,003 Chief Operating Officer 1996 285,311 154,000 N/A - 4,686 1995 273,247 64,149 N/A 4,500 4,663 Richard T. Walsh 1997 223,073 41,545 N/A 2,250 4,964 Senior Vice President 1996 207,204 80,000 N/A 2,250 4,620 1995 200,855 35,500 217,112 - 63,464 Richard M. Fay 1997 294,369 32,650 N/A 2,250 1,464 President-AMC Film 1996 150,049 55,000 66,283 - - Marketing 1995 - - - - -
[FN] N/A denotes not applicable. Fiscal 1996 includes a lump sum payment of $50,000 paid to Mr. Richard M. Fay for costs associated with relocation. Fiscal 1995 includes a lump sum payment and gross up of taxes on moving expenses totaling $209,408 paid to Mr. Richard T. Walsh. For the years presented, excluding Mr. Richard M. Fay in 1996 and Mr. Richard T. Walsh in 1995, perquisites and other personal benefits did not exceed the lesser of $50,000 or 10% of total annual salary and bonus. For fiscal 1997, All Other Compensation includes AMC's contributions under AMC's 401(k) Plan and Executive Savings Plan, both of which are defined contribution plans, in the aggregate amount of $4,976 for Mr. Peter C. Brown, $5,003 for Mr. Philip M. Singleton, $4,964 for Mr. Richard T. Walsh and $1,464 for Mr. Richard M. Fay. For fiscal 1996, All Other Compensation includes AMC's contributions to such plans in the aggregate amount of $4,726 for Mr. Peter C. Brown, $4,686 for Mr. Philip M. Singleton and $4,620 for Mr. Richard T. Walsh. For fiscal 1995, All Other Compensation includes AMC's contributions to two defined contribution savings plans in the amount of $4,657 for Mr. Peter C. Brown, $4,663 for Mr. Philip M. Singleton and $4,786 for Mr. Richard T. Walsh. In addition, moving expense for Mr. Richard T. Walsh is included in the amount of $58,678. * As of April 3, 1997, the Named Executive Officers held performance shares awards under the Company's 1994 Stock Option and Incentive Plan (the "1994 Incentive Plan") entitling them to receive shares of the Company's Common Stock at the end of a performance period from the date of grant upon satisfaction of certain goals. See "Long Term Incentive Plan". The number of shares issuable to each such person (and the value of such shares as of April 3, 1997) under awards in effect as of April 3, 1997 upon attainment of threshold, target and maximum performance goals is as follows: Threshold - Mr. Stanley H. Durwood - 30,000 shares ($596,250); Mr. Peter C. Brown - 6,000 shares ($119,250); Mr. Philip M. Singleton - 6,000 shares ($119,250); Mr. Richard T. Walsh - 3,000 shares ($59,625); and Mr. Richard M. Fay - 2,000 shares ($39,750); Target - Mr. Stanley H. Durwood - 45,000 shares ($894,375); Mr. Peter C. Brown - 9,000 Shares ($178,875); Mr. Philip M. Singleton - 9,000 shares ($178,875); Mr. Richard T. Walsh - 4,500 shares ($89,438); and Mr. Richard M. Fay - 3,000 shares ($59,625); Maximum - Mr. Stanley H. Durwood - 90,000 shares ($1,788,750); Mr. Peter C. Brown - 18,000 shares ($357,750); Mr. Philip M. Singleton - 18,000 shares ($357,750); Mr. Richard T. Walsh - 9,000 shares ($178,875); and Mr. Richard M. Fay - 6,000 shares ($119,250). Option Grants The following table provides certain information concerning individual grants of stock options made during the last completed fiscal year under the 1994 Incentive Plan to each of the Named Executive Officers.
Option/SAR Grants in Last Fiscal Year Number of % of Total Securities Options/SARs Potential Realizable Value at Underlying Granted to Assumed Annual Rates of Options/ Employees Exercise or Stock Price Appreciation for SARs in Fiscal Base Price Expiration Option Term ---------------------------- Name Granted Year ($/share) Date 5% ($) 10% ($) - -------------- ------------ ------------ --------- ---------- --------- ------------ Stanley H. Durwood 42,500 41.16% $24.50 4/02/06 $654,837 $1,659,484 22,500 21.79% 26.375 5/15/06 373,208 945,788 Peter C. Brown 4,500 4.36% 26.375 5/15/06 74,642 189,158 Philip M. Singleton 4,500 4.36% 26.375 5/15/06 74,642 189,158 Richard T. Walsh 2,250 2.18% 26.375 5/15/06 37,321 94,579 Richard M. Fay 2,250 2.18% 18.50 11/07/06 26,178 66,340
[FN] The stock options granted during the fiscal year ended April 3, 1997 are eligible for exercise based upon a vesting schedule. After the first anniversary of the grant date, 50% of the options will be eligible for exercise. After the second anniversary of the grant date, all options are fully vested. Vesting of options will accelerate upon the optionee's death, disability or retirement, or upon the optionee's termination of employment within one year after the occurrence of certain change in control events. The Compensation Committee of the Board of Directors may permit accelerated exercise of options if certain extraordinary events occur, such as a merger or liquidation of AMCE, the sale of substantially all of the assets of AMCE, a subsidiary or a division, or a change in control of AMCE. With the consent of the Compensation Committee, optionees may satisfy tax withholding obligations by electing to have shares otherwise issuable upon exercise of an option withheld. These columns show the hypothetical gains of "option spreads" of the outstanding options granted based on assumed annual compound stock appreciation rates of 5% and 10% over the options' terms. The 5% and 10% assumed rates of appreciation are mandated by the rules of the Securities and Exchange Commission (the "SEC") and do not represent the Company's estimate or projections of the future prices of AMCE's Common Stock. Option Exercises and Holdings The following table provides information with respect to the Named Executive Officers concerning the exercise of options during the last fiscal year and unexercised options held as of April 3, 1997. Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year End Option/SAR Values Value of Number of Unexercised Securities Underlying In-The-Money Unexercised Options/ Options/SARs at Shares Acquired SARs at FY-End (#) FY-End($) Name on Exercise Value Realized Exercisable Unexercisable Price Exercisable Unexercisable (shares) Stanley H. Durwood - - - 22,500 $26.375 $ - $ - 21,250 21,250 24.50 - - 22,500 - 11.75 182,813 - Peter C. Brown - - - 4,500 26.375 - - 4,500 - 11.75 36,563 - 112,500 37,500 9.250 1,195,313 398,438 Philip M. Singleton - - - 4,500 26.375 - - 4,500 - 11.75 36,563 - 112,500 37,500 9.250 1,195,313 398,438 Richard T. Walsh - - - 2,250 26.375 - - 1,125 1,125 14.50 6,047 6,047 22,500 7,500 9.375 236,250 78,750 Richard M. Fay - - - 2,250 18.50 - 3,094
[FN] Values for "in-the-money" outstanding options represent the positive spread between the respective exercise prices of the outstanding options and the value of AMCE's Common Stock as of April 3, 1997. Long-Term Incentive Plan The following table provides certain information concerning shares ("Performance Shares") issuable at the end of a performance period ending April 2, 1998 (the "Performance Period") at Threshold, Target and Maximum levels of performance under performance stock awards approved by the Compensation Committee during the last completed fiscal year for each of the Named Executive Officers.
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR Number of Shares, Performance or Units or Other Period Estimated Future Payout under Other until Maturation Non-stock Price-Based Plans Name Rights (#) or Payout Threshold(#) Target (#) Maximum (#) Stanley H. Durwood - - - - - Peter C. Brown - - - - - Philip M. Singleton - - - - - Richard T. Walsh - - - - - Richard M. Fay 6,000 2 years 2,000 3,000 6,000
[FN] Maximum number of shares issuable under awards made during the fiscal year. A participant's eligibility to receive up to one-half of the maximum number of Performance Shares issuable under an award is based upon changes in the "private market value per share" of AMCE's Common Stock ("PMVPS") over the Performance Period. PMVPS is determined on a fully diluted basis (assuming exercise of all outstanding shares of preferred stock, AMCE Class B Stock, options and other rights to acquire shares of AMCE Common Stock), based on a multiple of theatre EBITDA (theatre EBITDA is consolidated EBITDA less National Cinema Network, Inc. EBITDA), plus the book value of National Cinema Network, Inc., plus cash and equivalents, investments and investments in other long-term assets, less corporate borrowings, capital lease obligations and the carrying value of minority interests. EBITDA is earnings before interest, taxes, depreciation and amortization. National Cinema Network, Inc. is a subsidiary of AMCE. A participant's eligibility to receive up to the remaining one-half of the maximum number of Performance Shares issuable under an award is based upon changes in "total return to stockholders" ("TRS"), which is measured by increases in the market value of an investment in shares of Common Stock, assuming reinvestment of any dividends received. PMVPS and TRS are referred to individually and collectively herein as "Performance Criterion" and "Performance Criteria," respectively. Such Performance Criteria will be measured against changes in the Standard & Poor's 500 Index ("S&P 500") over the Performance Period. Required achievement levels over the Performance Period for both PMVPS and TRS are as set forth below: Maximum: 2,000 basis points higher than the percentage change in the S&P 500 over the Performance Period; Target: 750 basis points higher than the percentage change in the S&P 500 over the Performance Period; Threshold: No difference between the percentage change in the S&P 500 and the percentage change in the Performance Criterion over the Performance Period. Generally, no shares will be issued with respect to performance over the Performance Period as measured by a Performance Criterion if such performance does not at least meet the Threshold achievement level over the Performance Period. If performance as so measured by a Performance Criterion falls between the Threshold and Target achievement levels, the number of Performance Shares issuable under an Award with respect to that Performance Criterion will be determined to the nearest whole number of shares, so that the actual Award will be at the same percentage between the Threshold and Target award levels as the actual achievement level falls between the Threshold and Target achievement levels. Similarly, if performance falls between Target and Maximum achievement levels, the number of Performance Shares will be determined to the nearest whole number of shares, so that the actual award will be at the same percentage between the Target and Maximum award levels as the actual achievement level falls between the Target and Maximum levels. In no event will the number of Performance Shares issuable under an award with respect to a Performance Criterion exceed the number of Performance Shares issuable upon attaining the Maximum achievement level over the Performance Period with respect to such Performance Criterion. The right to receive Performance Shares will be accelerated and such Performance Shares issued, based on the achievement levels of the Performance Criteria measured to the date of termination, in the event of a participant's death, disability or retirement, or termination of employment within one year after the occurrence of certain change of control events. The Compensation Committee of AMCE's Board of Directors may waive performance goals if certain extraordinary events occur, such as a merger or liquidation of AMCE, the sale of substantially all of the assets of AMCE, a subsidiary or a division, or a change in control of AMCE. With the consent of the Compensation Committee, a Grantee may satisfy his tax withholding obligations by electing to have Performance Shares otherwise issuable withheld. Until Performance Shares are issued, participants have no dividend or voting rights with respect to Performance Shares. Defined Benefit Retirement and Supplemental Executive Retirement Plans AMC sponsors a defined benefit retirement plan (the "Retirement Plan") which provides benefits to certain employees of AMC and its subsidiaries based upon years of credited service and the highest consecutive five-year average annual remuneration for each participant. For purposes of calculating benefits, average annual compensation is limited by Section 401(a)(17) of the Internal Revenue Code (the "Code"), and is based upon wages, salaries and other amounts paid to the employee for personal services, excluding certain special compensation. A participant earns a vested right to an accrued benefit upon completion of five years of vesting service. AMC also sponsors a Supplemental Executive Retirement Plan to provide the same level of retirement benefits that would have been provided under the Retirement Plan had the federal tax law not been changed in the Omnibus Budget Reconciliation Act of 1993, which reduced the amount of compensation which can be taken into account in a qualified retirement plan from $235,840 (in 1993), the old limit, to $160,000 (in 1997). The following table shows the total estimated annual pension benefits (without regard to minimum benefits) payable to a covered participant under AMC's Retirement Plan and the Supplemental Executive Retirement Plan, assuming retirement in calendar 1997 at age 65 payable in the form of a single life annuity. The benefits are not subject to any deduction for Social Security or other offset amounts. The following table assumes the old limit would have been increased to $260,000 in 1997.
Highest Consecutive Five year Average Annual Compensation Years of Credited Service 15 20 25 30 35 $125,000 $17,716 $23,621 $29,527 $35,432 $41,337 150,000 21,466 28,621 35,777 42,932 50,087 175,000 25,216 33,621 42,027 50,432 58,837 200,000 28,966 38,621 48,277 57,932 67,587 225,000 32,716 43,621 54,527 65,432 76,337 260,000 37,966 50,621 63,277 75,932 88,587
As of April 3, 1997, the years of credited service under the Retirement Plan for each of the Named Executive Officers were: Mr. Peter C. Brown, 6 years, Mr. Philip M. Singleton, 23 years, Mr. Richard T. Walsh, 22 years; and Mr. Richard M. Fay, one year. The final amount distributed to Mr. Stanley H. Durwood in fiscal 1995 from the Company's Retirement Plan was $42,067, and was not included in the Summary Compensation Table. In addition, the benefit Mr. Stanley H. Durwood accrued under the Supplemental Executive Retirement Plan in fiscal 1997 was $76,590 and is not included in the Summary Compensation Table. AMC established a Retirement Enhancement Plan ("REP") with an effective date of March 29, 1996 for the benefit of officers who from time to time may be designated as eligible participants therein by the Board of Directors. The REP is a non-qualified deferred compensation plan designed to provide an unfunded retirement benefit to an eligible participant in an amount equal to (i) sixty percent (60%) of his or her average compensation (including paid and deferred incentive compensation) during the last three full years of employment, less (ii) the sum of (A) such participant's benefits under the Retirement Plan and Social Security, and (B) the amount of a straight life annuity commencing at the participant's normal retirement date attributable to AMC's contributions under the Supplemental Executive Retirement Plan, the 401(k) Savings Plan, the Non-qualified Deferred Compensation Plan and the Executive Savings Plan. The base amount in clause (i) will be reduced on a pro rata basis if the participant completes fewer than twenty-five (25) years of service. The REP benefit vests upon the Participant's attainment of age 55 or completion of fifteen (15) years of service, whichever is later, and may commence to a vested participant retiring on or after age 55 (who has participated in the plan for at least 5 years) on an actuarially reduced basis (6 2/3% for each of the first five years by which commencement precedes age 65 and an additional 3 1/3% for each year by which commencement precedes age 60). Benefits commence at a participant's normal retirement date (i.e., the later of age 65 or the participant's completion of five years of service with AMC) whether or not the participant continues to be employed by AMC. The accrued benefit payable upon total and permanent disability is not reduced by reason of early commencement. Participants become fully vested in their rights under the REP if their employment is terminated without cause or as a result of a change in control, as defined in the REP. No death, disability or retirement benefit is payable prior to a participant's early retirement date or prior to the date any severance payments to which the participant is entitled cease. Presently, Mr. Stanley H. Durwood, Mr. Peter C. Brown and Mr. Philip M. Singleton have been designated as eligible to participate in the REP. The amount payable to Mr. Durwood with respect to fiscal 1997 under the REP is $345,000. The estimated annual amounts that Mr. Brown and Mr. Singleton will be eligible to receive under the REP at age 65 are $207,000 and $199,000, respectively; such amounts are based on certain assumptions respecting their future compensation amounts and the amounts of AMC contributions under other plans. Actual amounts received by such individuals under the REP may be different than those estimated. Employment Contracts, Termination of Employment and Change in Control Arrangements Mr. Stanley H. Durwood has an employment agreement with AMCE and AMC dated January 26, 1996 retaining him as Chairman and Chief Executive Officer and President. It provides for an annual base salary of no less than $500,000, plus payments and awards under AMC's Executive Incentive Program ("EIP"), the 1994 Incentive Plan and other bonus plans in effect for Executive Officers at a level reflecting his position, plus such other amounts as may be paid under any other compensatory arrangement as determined in the sole discretion of the Compensation Committee. Mr. Durwood's current annual base salary is $540,000. The Company has also agreed to use its best efforts to provide Mr. Durwood up to $5,000,000 in life insurance and to pay the premiums thereon and taxes resulting from such payment. Mr. Durwood's employment agreement has a term of three years and is automatically extended one year on its anniversary date, January 26, so that as of such date each year the agreement has a three- year term. The employment agreement is terminable without severance if he engages in intentional misconduct or a knowing violation of law or breaches his duty of loyalty to the Company. The agreement also is terminable (i) by Mr. Durwood, in the event of the Company's breach, and (ii) by the Company, without cause or in the event of Mr. Durwood's death or disability, in each case with severance payments equal to three times the sum of his annual base salary in effect at the time of termination plus the average of annual incentive or discretionary cash bonuses paid during the three fiscal years preceding the year of termination. The Company may elect to pay such severance payments in monthly installments over a period of three years or in a lump sum after discounting such amount to its then present value. The aggregate amount payable under this employment agreement, assuming termination with severance occurred as of April 3, 1997, was approximately $1,763,000. Messrs. Peter C. Brown and Philip M. Singleton each have employment agreements with AMC dated September 26, 1994, providing for annual base salaries of no less than $227,000 and $266,000, respectively, and bonuses resulting from the EIP or other bonus arrangement, if any, as determined from time to time at the sole discretion of the Compensation Committee upon the recommendation of the Chairman of the Board. The current annual base salaries of Messrs. Brown and Singleton are $293,000 and $312,000, respectively. Each employment agreement has a term of two years. On each September 27, commencing in 1995, one year shall be added to the term of each employment agreement, so that each employment agreement shall always have a two-year term as of each anniversary date. Each employment agreement terminates without severance upon such employee's resignation, death or his disability as defined in his employment agreement, or upon AMC's good faith determination that such employee has been dishonest or has committed a breach of trust respecting AMC. AMC may terminate each employment agreement at any time, with severance payments in an amount equal to twice the annual base salary of such employee on the date of termination. Each employee may terminate his employment agreement if Mr. Stanley H. Durwood shall fail to control AMC as defined in the employment agreement and receive severance payments in an amount equal to twice his annual base salary on the date of termination. AMC may elect to pay any severance payments in a lump sum after discounting such amount to its then present value, or over a two-year period. The aggregate value of all severance benefits to be paid to such employee shall not exceed 299% of such employee's "base amount" as defined in the Code for the five-year period immediately preceding the date of termination. The aggregate amount payable under these employment agreements, assuming termination by reason of a change of control and payment in a lump sum as of April 3, 1997, was approximately $1,110,000. Mr. Richard M. Fay has an employment agreement with AMC dated April 16, 1996 which provides for an annual base salary of $275,000 and, in the first year of the employment agreement, an additional $50,000 for costs associated with relocation. Mr. Fay's current annual base salary is $280,000. Mr. Fay is also eligible to receive payments resulting from the EIP or other bonus arrangement, if any, as determined from time to time in the sole discretion of the Compensation Committee of the Board of Directors of AMC upon the recommendation of the Chief Executive Officer of AMC. The employment agreement has a term of three years, from September 8, 1995 through September 7, 1998. The employment agreement terminates without severance upon Mr. Fay's resignation, death or disability as defined in his employment agreement, or upon AMC's good faith determination that Mr. Fay has been dishonest or has committed a breach of trust respecting AMC. AMC may terminate the employment agreement at any time, with severance payments in an amount equal to, at AMC's option, either (i) Mr. Fay's base salary per month in effect at the time of termination, payable over the remaining term of his employment, or (ii) the net present value of the monthly payments described in (i) above, payable within 30 days of the date of termination. Any severance payable to Mr. Fay shall be reduced by any wages, compensation or income, cash or otherwise, received by Mr. Fay from sources other than AMC during the remaining term of his employment agreement following the date of termination. The aggregate amount payable under this employment agreement, assuming termination with severance occurred as of April 3, 1997, was approximately $372,000. As permitted by the 1994 Incentive Plan, stock options and Performance Share awards granted to participants thereunder provide for acceleration upon the termination of employment within one year after the occurrence of certain change in control events, whether such termination is voluntary or involuntary, or with or without cause. See " Option/SAR Grants in Last Fiscal Year" and " Long-Term Incentive Plans Awards in Last Fiscal Year." In addition, the Compensation Committee may permit acceleration upon the occurrence of certain extraordinary transactions which may not constitute a change of control. AMC maintains a severance pay plan for full-time salaried nonbargaining employees with at least 90 days of service. For an eligible employee who is subject to the Fair Labor Standards Act ("FLSA") overtime pay requirements (a "nonexempt eligible employee"), the plan provides for severance pay in the case of involuntary termination of employment due to layoff of the greater of two week's basic pay or one week's basic pay multiplied by the employee's full years of service up to no more than twelve weeks' basic pay. There is no severance pay for a voluntary termination, unless up to two weeks' pay is authorized in lieu of notice. There is no severance pay for an involuntary termination due to an employee's misconduct. Only two weeks' severance pay is paid for an involuntary termination due to substandard performance. For an eligible employee who is exempt from the FLSA overtime pay requirements, severance pay is discretionary (at the Department Head/Supervisor level), but will not be less than the amount that would be paid to a nonexempt eligible employee. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information as of May 19, 1997, with respect to beneficial owners of five percent or more of any class of the Company's voting securities: Name and Address Number of Shares Percent Title of Class of Beneficial Owner Beneficially Owned of Class Common Stock Durwood, Inc. 2,641,951 38.8% 106 West 14th Street Kansas City, MO 64105 Stanley H. Durwood 2,697,101 39.3% 106 West 14th Street Kansas City, MO 64105 Brian H. Durwood 2,641,951 38.8% 655 N.W. Altishan Place Beaverton, OR 97006 Edward D. Durwood 2,641,951 38.8% 3001 West 68th Street Shawnee Mission, KS 66208 Peter J. Durwood 2,641,951 38.8% 666 West End Avenue New York, NY 10025 Thomas A. Durwood 2,641,951 38.8% P. O. Box 7208 Rancho Santa Fe, CA 92067 Elissa D. Grodin 2,641,951 38.8% 187 Chestnut Hill Road Wilton, CT 06897 Carol D. Journagan 2,641,951 38.8% 1323 Granite Creek Drive Blue Springs, MO 64015 Vanguard Explorer Fund, Inc. 482,720 6.6% c/o The Vanguard Group of Investment Companies P.O Box 2600 Valley Forge, PA 19482-2600 Wellington Management Company, LLP 658,260 8.8% 75 State Street Boston, MA 02109 Class B Stock Durwood, Inc. 11,157,000 100% 106 West 14th Street Kansas City, MO 64105 [FN] The Revocable Trust Agreement of Mr. Stanley H. Durwood dated August 14, 1989, as amended (the "1989 Trust") and the 1992 Durwood, Inc. Voting Trust dated December 12, 1992 (the "1992 Trust") hold approximately 75% of the voting power of the outstanding capital stock of DI. Record ownership of the DI shares is in the name of the 1992 Trust, which has issued its voting trust certificates to the 1989 Trust. American Associated Enterprises ("AAE"), a Missouri limited partnership of which Mr. Stanley H. Durwood is the limited partner and his six children are the general partners, holds approximately 25% of the voting power in DI. Mr. Stanley H. Durwood is the sole director of DI and is Chairman of the Board, Chief Executive Officer and a Director of AMCE and AMC. Mr. Stanley H. Durwood is the sole acting trustee of the 1989 Trust and 1992 Trust and as such has sole voting power over the shares of AMCE stock held by DI; the named successor trustees under Mr. Stanley H. Durwood's trusts are Messrs. Charles J. Egan, Jr., a director of AMCE, and Raymond F. Beagle, general counsel to the Company. Under the terms of his revocable voting trust (the 1992 Trust), Mr. Stanley H. Durwood has all voting powers with respect to shares held therein during his lifetime. Thereafter, all voting rights with respect to such shares vest in his successor trustees and any additional trustees whom they might appoint, who shall exercise such rights by majority vote. Unless revoked by Mr. Stanley H. Durwood or otherwise terminated or extended in accordance with its terms, the 1992 Trust will terminate in 2030. Mr. Stanley H. Durwood may be deemed to share investment power with his children (the "Durwood Children") with respect to such shares held of record by DI. As reported in the Schedule 13Ds filed by Mr. Stanley H. Durwood and DI and by the Durwood Children and AAE, Mr. Stanley H. Durwood and the Durwood Children (the "Durwood Family Stockholders") have entered into an agreement (the "Durwood Family Settlement Agreement") expressing their intention to pursue certain transactions to dissolve AAE and to cause shares of AMCE held by DI to be distributed to members of the Durwood family through the merger of DI into AMCE (the "Merger"). Thereafter, the Durwood Family Stockholders intend to sell 3,000,000 shares of Common Stock in a secondary offering, which will be made only by means of a prospectus. If the proposed transactions are consummated, Mr. Stanley H. Durwood will retain approximately 4.5 million shares (or 100%) of Class B Stock and the Durwood Children will retain approximately 6.3 million shares of Common Stock, or 46.6% of the shares of that class (33.1% assuming full conversion of the Company's $1.75 Cumulative Convertible Preferred Stock (the "Convertible Preferred Stock")). Based on voting shares outstanding as of May 19, 1997, the shares of Class B to be retained by Mr. Stanley H. Durwood will represent 77.0% of the combined voting power of AMCE's voting stock (70.4% assuming full conversion of Convertible Preferred Stock). However, provisions of the Durwood Family Settlement Agreement could result in an adjustment (the "Share Adjustment") pursuant to which Mr. Stanley H. Durwood would deliver additional shares of stock to the Durwood Children. Mr. Stanley H. Durwood has agreed with the Durwood Children that if the price per share to the public of the 2.5 million shares of Common Stock proposed to be sold by the Durwood Children in a secondary offering following the Merger is less than $18, Mr. Stanley H. Durwood will pay the Durwood Children the difference between such sale price and $18 (net of applicable underwriting commissions), up to $20 million in aggregate amount, in shares of Common Stock, as an adjustment to the original allocation of shares to be received by the Durwood Children in the Merger. Mr. Stanley H. Durwood's holdings will diminish and the Durwood Children's holdings will increase if the Durwood Children acquire additional shares under such Share Adjustment. However, based on the number of shares of Common Stock and Class B Stock outstanding as of May 19, 1997, the Share Adjustment should not result in Mr. Stanley H. Durwood owning shares with less than 50% of the combined voting power of the outstanding stock of the Company unless the Durwood Family Stockholders determine to proceed with a secondary offering of the family's shares at a price to the public of less than approximately $6.95 per share. Mr. Stanley H. Durwood's voting control also will be diluted if he is obligated to dispose of shares to honor tax and other indemnity obligations made to the Durwood Children and AMCE in connection with the Merger and other related transactions, or if additional shares of Common Stock are issued under AMCE's existing employee benefit plans. The shares of Class B Stock owned of record by DI and beneficially owned by members of the Durwood family as indicated in footnote above are convertible into Common Stock on a share-for-share basis. The number and percentage of shares of Common Stock shown as beneficially owned do not give effect to the conversion option. The shares of Common Stock shown as beneficially owned by Mr. Stanley H. Durwood also included 150 shares owned by him directly and 55,000 shares subject to presently exercisable stock options. This is the number of shares of Common Stock that would be obtained upon conversion of Convertible Preferred Stock reported as owned by Vanguard Explorer Fund, Inc. in its Schedule 13G dated February 10, 1997. Vanguard Explorer Fund, Inc. reported that it has sole power to vote such shares and shared power to dispose of them. This is the number of shares of Common Stock reported as owned by Wellington Management Company, LLP in its Schedule 13G dated February 12, 1997, which number, AMCE has been supplementally advised, represents the number of shares that would be obtained upon conversion of Convertible Preferred Stock beneficially owned by Wellington Management Company, LLP. Of these shares (which, based on the report, are believed to include the shares owned by Vanguard Explorer Fund, Inc. referred to in note (4)), Wellington Management Company, LLP reports that it has shared voting power with respect to 37,584 shares and shared dispositive power with respect to 658,260 shares. Beneficial Ownership By Directors and Officers The following table sets forth certain information as of May 19, 1997, with respect to beneficial ownership by Directors and Executive Officers of the Company's Common Stock and Class B Stock. The amounts set forth below include the vested portion of 454,750 shares of Common Stock subject to options under the Company's 1983 and 1984 Stock Option Plan and the 1994 Incentive Plan held by Executive Officers. Unless otherwise indicated, the persons named are believed to have sole voting and investment power over the shares shown as beneficially owned by them. Name of Beneficial Amount and Nature Percent Title of Class Owner of Beneficial Ownership of Class Common Stock Stanley H. Durwood 2,697,101 39.3% Peter C. Brown 156,750 2.3% Philip M. Singleton 172,750 2.5% Richard T. Walsh 33,425 * John P. Mascotte 1,000 * Paul E. Vardeman 300 * All Directors and Executive Officers as a group (13 persons, including the individuals named above) 3,116,119 42.9% Class B Stock Stanley H. Durwood 11,157,000 100.0% ____________________________________ *Less than one percent. [FN] See Notes 1 and 2 under "Security Ownership of Certain Beneficial Owners and Management". Mr. Stanley H. Durwood has sole voting power over the shares held by DI but may be deemed to share investment power with respect to such shares with his children. The shares of Common Stock shown as beneficially owned by Mr. Stanley H. Durwood also include 150 shares owned by him directly and 55,000 shares subject to presently exercisable stock options. (2) Includes shares subject to presently exercisable options to purchase Common Stock under the Company's 1983 and 1984 Stock Option Plans and the 1994 Incentive Plan, as follows: Mr. Stanley H. Durwood - 55,000 shares; Mr. Peter C. Brown - 156,750 shares; Mr. Philip M. Singleton - 156,750 shares; and Mr. Richard T. Walsh - 33,375 shares and all executive officers as a group - 454,750 shares. Compliance with Section 16(a) of the Securities Exchange Act of 1934. Section 16(a) of the Securities Exchange Act of 1934 requires the Company's Executive Officers and Directors, and persons who own more than 10% of the Company's Common Stock and Convertible Preferred Stock, to file reports of ownership and changes in ownership with the SEC and the American and Pacific Stock Exchanges. Executive Officers, Directors and greater-than-10% beneficial owners are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such forms furnished to the Company, or written representations that no Forms 5 were required, the Company believes that during fiscal 1997 its Executive Officers, Directors and greater-than-10% beneficial owners complied with all Section 16(a) filing requirements applicable to them. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Certain Transactions Since their formation, AMCE and AMC have been members of an affiliated group of companies (the "DI affiliated group") beneficially owned by Mr. Stanley H. Durwood and members of his family. Mr. Stanley H. Durwood is President, Treasurer and the sole Director of DI and Chairman of the Board, Chief Executive Officer and a Director of AMCE and AMC. There have been transactions involving AMCE or its subsidiaries and the DI affiliated group in prior years. AMCE intends to ensure that all transactions with DI or other related parties are fair, reasonable and in the best interests of the Company. In that regard, the Audit Committee of the Board of Directors of AMCE reviews all material proposed transactions between the Company and DI or other related parties to determine that, in their best business judgment, such transactions meet that standard. The Company believes that all transactions described below with DI or other related parties are on terms at least as favorable to the Company as could have been obtained from an unaffiliated third party. The Audit Committee consists of Messrs. Egan, Grant and Mascotte, none of whom are officers or employees of the Company nor stockholders, directors, officers or employees of DI. Set forth below is a description of significant transactions which have occurred since March 29, 1996 or involve receivables that remain outstanding as of April 3, 1997. The Merger General. Upon the recommendation of a special committee of the Board of Directors consisting of Messrs. Charles J. Egan, Jr. and Paul E. Vardeman, the New Independent Directors and the Board of Directors have approved the Merger Agreement providing for the Merger of the Company and DI. The Merger has been sought by members of the Durwood Family Stockholders so that they may hold their interests in the Company directly instead of indirectly through DI and AAE. Consummation of the Merger also has been made a condition of settlement of the Derivative Action to which the Company and certain of its current and former directors are parties. See "Business of the Company - Legal Proceedings." Prior to consummation of the Merger, DI will convert 6,141,343 shares of Class Stock into an equivalent number of shares of Common Stock. Concurrent with the consummation of the Merger (and as a condition thereto), AAE will be liquidated. After giving effect to the Merger and liquidation of AAE, there will be issued and outstanding 5,015,657 shares of Class B Stock, representing (based on shares outstanding as of May 19, 1997) 79.5% of the voting interest in the Company, assuming no conversion of Convertible Preferred Stock, and 73.1% of the voting interest in the Company, assuming full conversion of Convertible Preferred Stock into Common Stock, all of which will be beneficially owned by Mr. Stanley H. Durwood, and (based on the number of such shares outstanding as of May 19, 1997) 12,945,639 shares of Common Stock, of which 8,767,223, or 67.7% of the outstanding shares of Common Stock, will be beneficially owned by the Durwood Children. Based on shares outstanding as of May 19, 1997, the shares of Common Stock to be held by the Durwood Children after the Merger will represent 13.9% of the voting interest in the Company, assuming no conversion of Convertible Preferred Stock, and 12.8% of the voting interest in the Company, assuming full conversion of Convertible Preferred Stock. Prior to the Effective Time of the Merger, all of DI's assets (other than its equity interest in the Company), consisting primarily of life insurance policies, cash and notes of Durwood family members and a former officer of the Company, will be contributed to Delta Properties, Inc. ("Delta"), a wholly-owned subsidiary of DI. In addition, DI's other subsidiaries, other than the Company and its subsidiaries, have been merged into Delta and Delta has agreed to assume DI's liabilities. Delta's stock will be distributed to DI's shareholders so that at the Effective Time DI's sole assets will consist of stock of the Company and its beneficial interest in certain tax credits and operating loss carryforwards. (As a result of certain provisions of the Merger Agreement and related agreements described below, the Company will not realize any benefit from such tax credits and operating loss carryforwards). If the Merger occurs, Mr. Stanley H. Durwood will indemnify the Company for all losses resulting from any breach by DI of the Merger Agreement or resulting from any liability of DI and for all taxes attributable to DI prior to the Effective Time and all losses in connection therewith. If the Merger does not occur, subject to certain limitations, Mr. Stanley H. Durwood and Delta will indemnify the Company against losses resulting from the breach by DI of the Merger Agreement. See "The Indemnification Agreement." Under the Merger Agreement, the Company will be responsible for paying 50% of its costs in connection with the Merger; the aggregate costs of the Company and DI are estimated to be approximately $2 million. If the Merger occurs, Mr. Stanley H. Durwood and Delta have agreed, subject to certain limitations, to indemnify the Company for all of DI's Merger expenses which are not paid prior to the Effective Time and for 50% of the Company's expenses in connection with the Merger. This obligation of Mr. Stanley H. Durwood may be offset by certain Credit Amounts (as defined below under "The Indemnification Agreement") resulting from the realization by the Company of tax benefits from the utilization of certain tax credits and operating loss carryforwards of DI. See "The Indemnification Agreement." If the Merger is not consummated for any reason (other than as a result of certain terminations by the Company's Board), DI will be responsible for all of its expenses and the Company's expenses in the Merger. If the Merger is not consummated as a result of certain terminations by the Company's Board of Directors, DI will be responsible for all of its expenses and 50% of the Company's expenses in the Merger. Mr. Stanley H. Durwood and Delta have agreed to indemnify the Company for any breach by DI of such obligation described in the preceding two sentences. As promptly as practicable after March 31, 2000, the Company will pay Mr. Stanley H. Durwood an amount equal to any Credit Amounts which have not been used to offset various of his obligations to the Company under the Stock Agreement, the Indemnification Agreement and the Registration Agreement, as such terms are defined below. If such benefits are realized after such date, the related Credit Amounts will be paid to Mr. Stanley H. Durwood when they are realized. See "The Indemnification Agreement; The Stock Agreement; and The Registration Agreement; Secondary Offering." For a period of three years after the Merger, the Durwood Children have agreed to give an irrevocable proxy to the Secretary and each Assistant Secretary of the Company to vote their shares of Common Stock in the election of directors for each candidate in the same proportionate manner as the aggregate votes cast in such elections by other holders of Common Stock not affiliated with the Company, its directors and officers. See "The Stock Agreement." If the Merger Agreement is not approved by the holders of a majority of shares of Common Stock present or represented by proxy and voting at the special meeting of stockholders to be held to consider the Merger, other than those shares held by DI, the Durwood Family Stockholders, their spouses, their children living in the same household and directors and officers of the Company, the Merger Agreement will be terminated and the Merger abandoned. The Registration Agreement; Secondary Offering. As a condition to the Merger, the Company and the Durwood Family Stockholders will enter into a registration agreement (the "Registration Agreement") pursuant to which the Durwood Family Stockholders will agree to sell at least 3,000,000 shares of Common Stock in a registered secondary offering and the Company will agree to file a registration statement with respect to such shares so that the registration statement becomes effective not more than twelve months and not less than six months after the Merger. Consummation of the secondary offering is subject to certain conditions and other rights of the parties. Subject to certain conditions, the expenses of the secondary offering will be borne by Mr. Stanley H. Durwood and Delta. This obligation may be offset by certain Credit Amounts resulting from the realization by the Company of tax benefits from the utilization of certain tax credits and operation loss carryforwards of DI. See "The Indemnification Agreement." Of the 3,000,000 shares of Common Stock to be sold in the secondary offering, 500,000 will be sold by Mr. Stanley H. Durwood or his charitable donees who may agree to participate in the secondary offering. Based on shares outstanding as of April 3, 1997 and after giving effect to the secondary offering (assuming such shares are sold to unaffiliated stockholders and disregarding shares which may be acquired by Mr. Stanley H. Durwood upon the exercise of employee stock options and shares which he may transfer to the Durwood Children under the Share Adjustment (as defined herein under "Security Ownership of Beneficial Owners"), (i) unaffiliated stockholders will own approximately 7.2 million, or 53.4%, of the outstanding shares of Common Stock, and their voting interest in the Company will have increased from 6.6% after the Merger to 12.3% after the Secondary Offering, assuming no conversion of Convertible Preferred Stock, and from 14.1% after the Merger to 19.8% after the Secondary Offering, assuming full conversion of Convertible Preferred Stock, (ii) Mr. Stanley H. Durwood will own approximately 4.5 million, or 100% of the outstanding, shares of Class B Stock, which will represent 77.0% of the voting interest in the Company, assuming no conversion of Convertible Preferred Stock, and 70.4% of the voting interest in the Company, assuming full conversion of Convertible Preferred Stock, and will be entitled to elect 75% of the Company's Board of Directors, and (iii) the Durwood Children will own in the aggregate approximately 6.3 million shares of Common Stock, which will represent 46.6% of the number of outstanding shares of that class and 10.7% of the voting interest in the Company, assuming no conversion of Convertible Preferred Stock, and 33.1% of the number of outstanding shares of the class, representing 9.8% of the voting interest in the Company, assuming full conversion of Convertible Preferred Stock. Holders of Common Stock are entitled to elect 25% of the Company's Board of Directors. The number of shares owned by Mr. Stanley H. Durwood could be further reduced and the shares owned by the Durwood Children increased as a result of other agreements among the Durwood Family Stockholders. See "Security Ownership of Beneficial Owners." The Indemnification Agreement. In connection with the Merger, Mr. Stanley H. Durwood, Delta and the Durwood Children have entered into an agreement (the "Indemnification Agreement") agreeing to indemnify the Company from certain losses and expenses. If the Merger occurs, (i) Mr. Stanley H. Durwood will indemnify the Company from losses resulting from any breach by DI of its representations, warranties and covenants in the Merger Agreement or based upon any liability of DI and for any taxes (or losses incurred by the Company in connection therewith) attributable to DI or its subsidiaries for taxable periods prior to the Effective Time, (ii) each of the Durwood Family Stockholders will (severally and not jointly) indemnify the Company for any losses which it might incur as a result of the breach by such party of certain tax related representations, warranties and covenants made by such party in the Stock Agreement and (iii) subject to certain conditions, Mr. Stanley H. Durwood and Delta will indemnify the Company from and against all of DI's Merger expenses that have not been paid prior to the Effective Time and 50% of the Company's Merger expenses. If the Merger does not occur, subject to certain conditions, Mr. Stanley H. Durwood and Delta will indemnify the Company from losses resulting from any breach by DI of its representations, warranties and covenants in the Merger Agreement. If the Merger is not consummated for any reason (other than as a result of certain terminations by the Company's Board of Directors), DI will be responsible for all of its expenses and the Company's expenses in the Merger. If the Merger is not consummated as a result of certain terminations by the Company's Board of Directors, DI will be responsible for all of its expenses and 50% of the Company's expenses in the Merger. Mr. Stanley H. Durwood and Delta have agreed to indemnify the Company for any breach by DI of such obligation described in the preceding two sentences. Mr. Stanley H. Durwood's obligations (i) to pay DI's unpaid expenses and 50% of the Company's Merger expenses if the Merger occurs, as required by the Indemnification Agreement, (ii) to pay the Company's expenses in the secondary offering, as required by the Registration Agreement, and (iii) to pay a $2 million penalty and 100% of the Company's Merger expenses if the secondary offering does not occur, as required by the Stock Agreement, may be offset by certain credit amounts resulting from net tax benefits realized by the Company from the utilization by the Company of DI's alternative minimum tax credit carryforwards and Missouri operating loss carryforwards ("Credit Amounts"). Any Credit Amount not so applied will be paid to Mr. Stanley H. Durwood promptly after March 31, 2000. Any Credit Amount that arises after March 31, 2000 also will be paid promptly to Mr. Stanley H. Durwood. The maximum amount of Credit Amounts that could be paid Mr. Durwood or could be used to offset his responsibilities to the Company is approximately $1,100,000, reduced by any amounts utilized on separate DI income tax returns for 1996 and the portion of 1997 prior to the Effective Time. In Connection with the Merger, the Company has agreed to indemnify the Durwood Children from losses resulting from any breach by the Company of any representation, warranty, covenant or agreement made by it in the Merger Agreement. The foregoing indemnification obligations generally will lapse on March 31, 2000. The Stock Agreement. As a condition precedent to the Merger, the Durwood Family Stockholders will enter into an agreement (the "Stock Agreement") which, for three years, limits the ability of the Durwood Children to deposit shares in a voting trust, solicit proxies, participate in election contests or make a proposal concerning an extraordinary transaction involving the Company. Under the Stock Agreement, the Durwood Children will also agree, among other matters, for a period of three years, (i) to grant an irrevocable proxy to the Secretary and each Assistant Secretary of the Company to vote their shares of Common Stock for each candidate to the Company's Board of Directors in the same proportion as the aggregate votes cast by all other stockholders not affiliated with the Company, its directors or officers and (ii) that the Company will have a right of first refusal with respect to any such shares the Durwood Children wish to sell in a transaction exempt from registration, except for such shares sold in brokers' transactions. The Stock Agreement obligates Mr. Stanley H. Durwood and Delta, whose shares will be distributed by DI to the Durwood Family Stockholders before the Merger, to pay the Company $2 million and to reimburse the Company for all of its Merger expenses if the Secondary Offering is not consummated within 12 months after the Merger. This obligation may be offset by certain Credit Amounts resulting from the realization by the Company of tax benefits from the utilization of certain tax credits and operating loss carryforwards of DI. See "The Indemnification Agreement." Periodically, the Company and DI reconcile any amounts owed by one company to the other. Charges to the intercompany account have included payments made by the Company on behalf of DI. The largest balance owed by DI and its subsidiaries to the Company during fiscal 1997 was $795,000. As of April 3, 1997, DI and its subsidiaries owed the Company $181,000. Ms. Marjorie D. Grant, a Vice President of AMC and the sister of Mr. Stanley H. Durwood, has an employment agreement with AMCE providing for an annual base salary of no less than $110,000, an automobile and, at the sole discretion of the Chief Executive Officer of AMCE, a year-end bonus. Ms. Grant's current annual base salary is $110,000. During fiscal 1997, Ms. Grant received a bonus of $10,000 and a lump sum payment in lieu of a base salary increase of $4,400. Ms. Grant's employment agreement, executed July 1, 1996, terminates on June 30, 1999, or upon her death or disability. The agreement provides that in the event Mr. Stanley H. Durwood fails to control the management of AMCE by reason of its sale, merger or consolidation, or because of his death or disability, or for any other reason, then AMCE and Ms. Grant would each have the option to terminate the agreement. In such event, AMCE would pay to Ms. Grant in cash a sum equal to the aggregate cash compensation, exclusive of bonus, to the end of the term of her employment under the agreement, after discounting such amount to its then present value using a discount rate equal to the prime rate of interest published in The Wall Street Journal on the date of termination. The aggregate amount payable under the employment agreement, assuming termination by reason of a change of control and payment in a lump sum as of April 3, 1997, was approximately $225,000. Since July 1992, Mr. Jeffery W. Journagan, a son-in-law of Mr. Stanley H. Durwood, has been employed by a subsidiary of AMCE. Mr. Journagan's current salary is approximately $82,540 and he received a bonus for fiscal 1997 in the amount of $7,500. During fiscal 1997, the Company retained Polsinelli, White, Vardeman & Shalton, P.C., to provide certain legal services to a subsidiary of AMCE. Mr. Vardeman, who is a director of AMCE, is a director, officer and shareholder of that firm. For a description of certain employment agreements between the Company and Messrs. Stanley H. Durwood, Peter C. Brown, Philip M. Singleton and Richard M. Fay, see " Employment Contracts, Termination of Employment and Change in Control Arrangements." PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) Financial Statements The following consolidated financial statements of the Registrant and its consolidated subsidiaries included in the Report are incorporated herein by reference in Item 8: Consolidated Balance Sheets - April 3, 1997 and March 28, 1996 Consolidated Statements of Operations - Fiscal years (53/52 weeks) ended April 3, 1997, March 28, 1996 and March 30, 1995 Consolidated Statements of Cash Flows - Fiscal years (53/52 weeks) ended April 3, 1997, March 28, 1996 and March 30, 1995 Consolidated Statements of Stockholders' Equity - Fiscal years (53/52 weeks) ended April 3, 1997, March 28, 1996 and March 30, 1995 Notes to Consolidated Financial Statements - Fiscal years (53/52 weeks) ended April 3, 1997, March 28, 1996 and March 30, 1995 (a)(2) Financial Statement Schedules The following consolidated financial statement schedule of the Registrant and its consolidated subsidiaries is filed pursuant to Item 14(d) (this schedule appears immediately following the signature page): Schedule II - Valuation and Qualifying Accounts and Reserves All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable, and therefore have been omitted. (b) Reports on Form 8-K On March 19, 1997, the Company filed a Form 8-K reporting under Item 5 its sale of 9 1/2% Senior Subordinated Notes due 2009 and an amendment to its Credit Facility. (c) Exhibits A list of exhibits required to be filed as part of this report on Form 10-K is set forth in the Exhibit Index, which immediately precedes such exhibits, and is incorporated herein by reference. 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. AMC ENTERTAINMENT INC. By: /s/ Stanley H. Durwood Stanley H. Durwood, Chairman of the Board 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 and in the capacities and on the dates indicated. /s/ Stanley H. Durwood Chairman of the Board, Chief June 30, 1997 Stanley H. Durwood Executive Officer and Director /s/ Charles J. Egan, Jr. Director June 30, 1997 Charles J. Egan, Jr. /s/ William T. Grant, II Director June 30, 1997 William T. Grant, II /s/ John P. Mascotte Director June 30, 1997 John P. Mascotte /s/ Paul E. Vardeman Director June 30, 1997 Paul E. Vardeman /s/ Peter C. Brown President, Chief Financial June 30, 1997 Peter C. Brown Officer and Director /s/ Philip M. Singleton Executive Vice President, Chief June 30, 1997 Philip M. Singleton Operating Officer and Director /s/ Richard L. Obert Senior Vice President - Chief June 30, 1997 Richard L. Obert Accounting and Information Officer REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of AMC Entertainment Inc. Kansas City, Missouri Our report on the consolidated financial statements of AMC Entertainment Inc. and subsidiaries has been incorporated by reference in this Form 10- K from page 35 of the 1997 Annual Report to Shareholders of AMC Entertainment Inc. and subsidiaries. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in Item 14(a)(2>) of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. /s/ Coopers & Lybrand L.L.P. Kansas City, Missouri May 16, 1997
AMC ENTERTAINMENT INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (in thousands) Additions Balance at Charged to Charged to Balance at Beginning Costs and Other End of Description of Period Expenses Accounts Deductions Period Year ended (53 Weeks) April 3, 1997 Allowance for doubtful accounts $ 801 $ 125 $ - $ 222 $ 704 Self insurance reserves 12,635 12,561 - 10,511 14,685 Reserve for future dispositions 2,107 534 - 427 2,214 Year ended (52 Weeks) March 28, 1996 Allowance for doubtful accounts $ 1,529 $ 526 $ - $ 1,254 $ 801 Self insurance reserves 12,029 10,458 - 9,852 12,635 Reserve for future dispositions 2,827 - - 720 2,107 Year ended (52 Weeks) March 30, 1995 Allowance for doubtful accounts $ 1,270 $ 744 $ - $ 485 $ 1,529 Self insurance reserves 11,005 11,263 - 10,239 12,029 Reserve for future dispositions 4,711 500 - 2,384 2,827 Valuation allowance for deferred tax assets 19,792 (19,792) - - -
EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION 2.1. Agreement and Plan of Merger dated as of March 31, 1997 between AMC Entertainment Inc. and Durwood, Inc. (together with Exhibit A, "Pre-Merger Action Plan") (Incorporated by reference from Exhibit 2.1 to AMCE's Registration Statement on Form S-4 (File No. 333-25755) filed April 24, 1997). 2.2. Form of Stock Agreement to be entered into among AMC Entertainment Inc. and Stanley H. Durwood, Carol D. Journagan, Edward D. Durwood, Thomas A. Durwood, Elissa D. Grodin, Brian H. Durwood and Peter J. Durwood ("Durwood Family Stockholders") (Incorporated by reference from Exhibit 2.2 to AMCE's Registration Statement on Form S-4 (File No. 333-25755) filed April 24, 1997). 2.3. Form of Registration Agreement to be entered into between AMC Entertainment Inc. and the Durwood Family Stockholders (Incorporated by reference from Exhibit 2.3 to AMCE's Registration Statement on Form S-4 (File No. 333-25755) filed April 24, 1997). 2.4.(a) Indemnification Agreement dated as of March 31, 1997 among AMC Entertainment, Inc., the Durwood Family Stockholders and Delta Properties, Inc., together with Exhibit B thereto (Escrow Agreement) (Incorporated by reference from Exhibit 2.4.(a) to AMCE's Registration Statement on Form S-4 (File No. 333-25755) filed April 24, 1997). 2.4.(b) Durwood Family Settlement Agreement (Incorporated by reference from Exhibit 99.1 to Schedule 13-D of Durwood, Inc. and Stanley H. Durwood filed May 8, 1996). 2.4.(c) First Amendment to Durwood Family Settlement Agreement (Incorporated by reference from Exhibit 2.4.(c) to AMCE's Registration Statement on Form S-4 (File No. 333-25755) filed April 24, 1997). 2.5. Articles of Merger dated March 31, 1994 between American Multi-Cinema, Inc. and its wholly owned subsidiaries, Cinema Enterprises, Inc. and Cinema Enterprises II, Inc. and related Plan and Agreement of Liquidation and Merger (Incorporated by reference from Exhibit 2 to AMCE's Form 10-K (File No. 1-8747) for the fiscal year ended March 31, 1994). 2.6. Stock Purchase, Release and Settlement Agreement dated January 10, 1997 between American Multi-Cinema, Inc. and H. Donald Busch respecting AMC Philadelphia, Inc. (Incorporated by reference from Exhibit 2.1 to AMCE's Form 10-Q (File No. 1-8747) for the quarter ended December 26, 1996). 2.7.(a) Plan and Agreement of Liquidation and Merger dated March 31, 1997 between AMC Realty, Inc. and its subsidiary, AMC Canton Realty, Inc. (Incorporated by reference from Exhibit 2.7.(a) to AMCE's Registration Statement on Form S-4 (File No. 333-25755) filed April 24, 1997). 2.7.(b) Certificate of Ownership and Merger dated March 31, 1997 between AMC Realty, Inc. and its subsidiary, AMC Canton Realty, Inc. (Incorporated by reference from Exhibit 2.7.(b) to AMCE's Registration Statement on Form S-4 (File No. 333-25755) filed April 24, 1997). 2.8.(a) Plan and Agreement of Liquidation and Merger dated March 31, 1997 between AMC Philadelphia, Inc. and its subsidiary, Budco Theatres, Inc. (Incorporated by reference from Exhibit 2.8.(a) to AMCE's Registration Statement on Form S-4 (File No. 333-25755) filed April 24, 1997). 2.8.(b) Certificate of Ownership and Merger dated March 31, 1997 between AMC Philadelphia, Inc. and its subsidiary, Budco Theatres, Inc. (Delaware) (Incorporated by reference from Exhibit 2.8.(b) to AMCE's Registration Statement on Form S-4 (File No. 333-25755) filed April 24, 1997). 2.8.(c) Articles of Merger dated March 31, 1997 between AMC Philadelphia, Inc. and Budco Theatres, Inc. (Pennsylvania) (Incorporated by reference from Exhibit 2.8.(c) to AMCE's Registration Statement on Form S-4 (File No. 333-25755) filed April 24, 1997). 2.9.(a) Plan and Agreement of Liquidation and Merger dated March 31, 1997 between American Multi-Cinema, Inc. and its subsidiary, AMC Philadelphia, Inc. (Incorporated by reference from Exhibit 2.9.(a) to AMCE's Registration Statement on Form S-4 (File No. 333-25755) filed April 24, 1997). 2.9.(b) Certificate of Ownership and Merger merging AMC Philadelphia, Inc., a Delaware corporation, into American Multi-Cinema, Inc., a Missouri corporation (Delaware) (Incorporated by reference from Exhibit 2.9.(b) to AMCE's Registration Statement on Form S-4 (File No. 333-25755) filed April 24, 1997). 2.9.(c) Articles of Merger between AMC Philadelphia, Inc., and American Multi-Cinema, Inc. (Missouri) (Incorporated by reference from Exhibit 2.9.(c) to AMCE's Registration Statement on Form S-4 (File No. 333-25755) filed April 24, 1997). 3.1. Amended and Restated Certificate of Incorporation of AMC Entertainment Inc. (Incorporated by reference from Exhibit 3.1 to Amendment No. 2 to AMCE's Registration Statement on Form S-2 (File No. 33-51693) filed February 18, 1994). 3.2. Certificate of Designations relating to $1.75 Cumulative Convertible Preferred Stock (Incorporated by reference from Exhibit 4.1 to AMCE's Form 8-K (File No. 1-8747) dated April 8, 1994). 3.3. Bylaws of AMC Entertainment Inc. (Incorporated by reference from Exhibit 3.3 to AMCE's Form 10-Q (File No. 0-12429) for the quarter ended December 26, 1996). 4.1.(a) Indenture among AMC Entertainment Inc., as issuer, American Multi-Cinema Inc., AMC Realty, Inc., Conservco, Inc., AMC Canton Realty, Inc., AMC Philadelphia, Inc., Budco Theatres, Inc. and Concord Cinema, Inc. (collectively "Guarantors") and United States Trust Company of New York, as Trustee, respecting AMC Entertainment Inc.'s 11 7/8% Senior Notes due 2000 (Incorporated by reference from Exhibit 4.3 to AMCE's Form 10-Q (File No. 0-12429) for the quarter ended July 2, 1992). 4.1.(b) First Supplemental Indenture dated as of March 31, 1993, pursuant to which AMC Film Marketing, Inc. became a Guarantor (Incorporated by reference from Exhibit 4.1(b) to AMCE's Form 10-K (File No. 1-8747) for the fiscal year ended April 1, 1993). 4.1.(c) Fourth Supplemental Indenture dated as of March 31,1994, pursuant to which American Multi-Cinema, Inc. assumed the obligations of Cinema Enterprises, Inc., Cinema Enterprises II, Inc. and Exhibition Enterprises Partnership under the Senior Subordinated Note Indenture and related guarantees of such entities (Incorporated by reference from Exhibit 4.2.(c) to AMCE's Form 10-K (File No. 1-8747) for the fiscal year ended March 31, 1994). 4.1.(d) Fifth Supplemental Indenture dated December 28,1995, respecting AMC Entertainment Inc.'s 11 7/8% Senior Notes due 2000 (Incorporated by reference from Exhibit 4.1(d) to AMCE's Registration Statement on Form S-4 (File No. 333-29155) filed June 13, 1997). 4.1.(e) Sixth Supplemental Indenture dated March 28, 1996, respecting AMC Entertainment Inc.'s 11 7/8% Senior Notes due 2000 (Incorporated by reference from Exhibit 4.2(d) to AMCE's Form 10-K (File No. 0-12429) for the fiscal year ended March 28, 1996). 4.2.(a) Indenture among AMC Entertainment Inc., as issuer, American Multi-Cinema, Inc., AMC Realty, Inc., Conservco, Inc., AMC Canton Realty, Inc., AMC Philadelphia, Inc., Budco Theatres, Inc. and Concord Cinema, Inc. (collectively "Guarantors") and The Bank of New York, as Trustee, respecting AMC Entertainment Inc.'s 12 5/8% Senior Subordinated Notes due 2002 (Incorporated by reference from Exhibit 4.4 to AMCE's Form 10-Q (File No. 0-12429) for the quarter ended July 2, 1992). 4.2.(b) First Supplemental Indenture dated as of March 31 , 1993, pursuant to which AMC Film Marketing, Inc. became a Guarantor (Incorporated by reference from Exhibit 4.2.(b) to AMCE's Form 10-K (File No. 1-8747) for the fiscal year ended April 1, 1993). 4.2.(c) Fourth Supplemental Indenture dated as of March 31,1994, pursuant to which American Multi-Cinema, Inc. assumed the obligations of Cinema Enterprises, Inc., Cinema Enterprises II, Inc. and Exhibition Enterprises Partnership under the Senior Subordinated Note Indenture and related guarantees of such entities (Incorporated by reference from Exhibit 4.2.(c) to AMCE's Form 10-K (File No. 1-8747) for the fiscal year ended March 31, 1994). 4.2.(d) Fifth Supplemental Indenture dated December 28,1995, respecting AMC Entertainment Inc.'s 12 5/8% Senior Subordinated Notes due 2002 (Incorporated by reference from Exhibit 4.2(d) to AMCE's Registration Statement on Form S-4 (File No. 333-29155) filed June 13, 1997). 4.2.(e) Sixth Supplemental Indenture dated March 28, 1996, respecting AMC Entertainment Inc.'s 12 5/8% Senior Subordinated Notes due 2002 (Incorporated by reference from Exhibit 4.2.(e) to AMCE's Form 10-K (File No. 0-12429) for the fiscal year ended March 28, 1996). 4.3. Amended and Restated Credit Agreement dated as of April 10, 1997, among AMC Entertainment Inc., as the Borrower, The Bank of Nova Scotia, as Administrative Agent and Bank of America National Trust and Savings Association, as Documentation Agent and Various Financial Institutions, as Lenders, together with the following exhibits thereto; significant subsidiary guarantee, form of notes, form of pledge agreement and form of subsidiary pledge agreement. (Incorporated by reference from Exhibit 4.3 to AMCE's Registration Statement on Form S-4 (File No. 333-25755) filed April 24, 1997). 4.4.(a) Indenture dated March 19, 1997, respecting AMC Entertainment Inc.'s 9 1/2% Senior Subordinated Notes due 2009 (Incorporated by reference from Exhibit 4.1 to AMCE's Form 8-K (File No. 1-8747) dated March 19, 1997). 4.4(b) Form of First Supplemental Indenture, respecting AMC Entertainment Inc.'s 9 1/2% Senior Subordinated Notes due 2009 (Incorporated by reference from Exhibit 4.4(b) to AMCE's Registration Statement on Form S-4 (File No. 333-29155) filed June 13, 1997). 4.5. Registration Rights Agreement respecting 9 1/2% Senior Subordinated Notes due 2009 (Incorporated by reference from Exhibit 4.2 to AMCE's Form 8-K (File No. 1-8747) dated March 19, 1997). 4.6. In accordance with Item 601(b)<4>(iii)(A) of Regulation S-K, certain instruments respecting long term debt of the Registrant have been omitted but will be furnished to the Commission upon request. 10.1. AMC Entertainment Inc. 1983 Stock Option Plan (Incorporated by reference from Exhibit 10.1 to AMCE's Form S-1 (File No. 2-84675) filed June 22, 1983). 10.2. Federal Income Tax Allocation Agreement dated as of July 1, 1983, between Durwood, Inc. and AMC Entertainment Inc. (Incorporated by reference from Exhibit 10.2 to AMCE's Form S-1 (File No. 2-84675) filed June 22, 1983). 10.3. AMC Entertainment Inc. 1984 Employee Stock Purchase Plan (Incorporated by reference from Exhibit 28.1 to AMCE's Form S-8 (File No. 2-97523) filed July 3, 1984). 10.4. AMC Entertainment Inc. 1984 Employee Stock Option Plan (Incorporated by reference from Exhibit 28.1 to AMCE's S-8 and S-3 (File No. 2-97522) filed July 3, 1984). 10.5.(a) AMC Entertainment Inc. 1994 Stock Option and Incentive Plan, as amended (Incorporated by reference from Exhibit 10.1 to AMCE's Form 10-Q (File No. 0-12429) for the quarter ended December 26, 1996). 10.5.(b) Form of Performance Stock Award Agreement (Incorporated by reference from Exhibit 10.5(d) to AMCE's Form 10-K (File No. 0-12429) for the fiscal year ended March 30, 1995). 10.5.(c) Form of Non-Qualified (NON-ISO) Stock Option Agreement (Incorporated by reference from Exhibit 10.2 to AMCE's Form 10-Q (File No. 0-12429) for the quarter ended December 26, 1996). 10.6. American Multi-Cinema, Inc. Savings Plan, a defined contribution 401(k) plan, restated January 1, 1989, as amended (Incorporated by reference from Exhibit 10.6 to AMCE's Form S-1 (File No. 33-48586) filed June 12, 1992, as amended). 10.7.(a) Defined Benefit Retirement Income Plan for Certain Employees of American Multi-Cinema, Inc. dated January 1, 1989, as amended (Incorporated by reference from Exhibit 10.7 to AMCE's Form S-1 (File No. 33-48586) filed June 12, 1992, as amended). 10.7.(b) AMC Supplemental Executive Retirement Plan dated January 1, 1994 (Incorporated by reference from Exhibit 10.7(b) to AMCE's Form 10-K (File No. 0-12429) for the fiscal year ended March 30, 1995). 10.8. Employment Agreement between American Multi-Cinema, Inc. and Philip M. Singleton (Incorporated by reference from Exhibit 10(a) to AMCE's Form 10-Q (File No. 1-8747) for the quarter ended September 29, 1994). 10.9. Employment Agreement between American Multi-Cinema, Inc. and Peter C. Brown (Incorporated by reference from Exhibit 10(b) to AMCE's Form 10-Q (File No.1-8747) for the quarter ended September 29, 1994). 10.10. Disability Compensation Provisions respecting Stanley H. Durwood (Incorporated by reference from Exhibit 10.12 to AMCE's Form S-1 (File No. 33-48586) filed June 12, 1992, as amended). 10.11. Executive Medical Expense Reimbursement and Supplemental Accidental Death or Dismemberment Insurance Plan, as restated effective as of February 1, 1991 (Incorporated by reference from Exhibit 10.13 to AMCE's Form S-1 (File No. 33-48586) filed June 12, 1992, as amended). 10.12. Division Operations Incentive Program (incorporated by reference from Exhibit 10.15 to AMCE's Form S-1 (File No. 33-48586) filed June 12, 1992, as amended). 10.13. Agreement and General Release between Edward D. Durwood and American Multi- Cinema, Inc. (Incorporated by reference from Exhibit 10.1 to AMCE's Form 10-Q (File No. 0-12429) for the quarter ended September 28, 1995). 10.14. Agreement and General Release between Donald P. Harris and American Multi-Cinema, Inc. (Incorporated by reference from Exhibit 10.2 to AMCE's Form 10-Q (File No. 0-12429) for the quarter ended September 28, 1995). 10.15. Partnership Interest Purchase Agreement dated May 28, 1993, among Exhibition Enterprises Partnership, Cinema Enterprises, Inc., Cinema Enterprises II, Inc., American Multi-Cinema, Inc., TPI Entertainment, Inc. and TPI Enterprises, Inc. (Incorporated by reference from Exhibit 10.29 to AMCE's Form 10-K (File No. 1-8747) for the fiscal year ended April 1, 1993). 10.16. Mutual Release and Indemnification Agreement dated May 28, 1993, among Exhibition Enterprises Partnership, Cinema Enterprises, Inc., American Multi-Cinema, Inc., TPI Entertainment, Inc. and TPI Enterprises, Inc. (Incorporated by reference from Exhibit 10.30 to AMCE's Form 10-K (File No. 1-8747) for the fiscal year ended April 1, 1993). 10.17. Assignment and Assumption Agreement between Cinema Enterprises II, Inc. and TPI Entertainment, Inc. (Incorporated by reference from Exhibit 10.31 to AMCE's Form 10-K (File No. 1-8747) for the fiscal year ended April 1, 1993). 10.18. Confidentiality Agreement dated May 28,1993, among TPI Entertainment, Inc., TPI Enterprises, Inc., Exhibition Enterprises Partnership, Cinema Enterprises, Inc., Cinema Enterprises II, Inc. and American Multi-Cinema, Inc. (Incorporated by reference from Exhibit 10.32 to AMCE's Form 10-K (File No. 1-8747) for the fiscal year ended April 1, 1993). 10.19. Termination Agreement dated May 28, 1993, among TPI Entertainment, Inc., TPI Enterprises, Inc. Exhibition Enterprises Partnership, American Multi-Cinema, Inc., Cinema Enterprises, Inc., AMC Entertainment Inc., Durwood, Inc., Stanley H. Durwood and Edward D. Durwood (Incorporated by reference from Exhibit 10.33 to AMCE's Form 10-K (File No. 1-8747) for the fiscal year ended April 1, 1993). 10.20. Promissory Note dated June 16, 1993, made by Thomas L. Velde and Katherine G. Terwilliger, husband and wife, payable to American Multi-Cinema, Inc. (Incorporated by reference from Exhibit 10.34 to AMCE's Form 10-K (File No. 1-8747) for the fiscal year ended April 1, 1993). 10.21. Second Mortgage dated June 16,1993, among Thomas L. Velde, Katherine G. Terwilliger and American Multi-Cinema, Inc. (Incorporated by reference from Exhibit 10.35 to AMCE's Form 10-K (File No. 1-8747) for the fiscal year ended April 1, 1993). 10.22. Summary of American Multi-Cinema, Inc. Executive Incentive Program (Incorporated by reference from Exhibit 10.36 to AMCE's Registration Statement on Form S-2 (File No. 33-51693) filed December 23, 1993). 10.23. AMC Non-Qualified Deferred Compensation Plans (Incorporated by reference from Exhibit 10.37 to Amendment No. 2 to AMCE's Registration Statement on Form S-2 (File No. 33-51693) filed February 18, 1994). 10.24. Employment Agreement between AMC Entertainment Inc., American Multi-Cinema, Inc. and Stanley H. Durwood (Incorporated by reference from Exhibit 10.32 to AMCE's Form 10-K (File No. 0-12429) for the fiscal year ended March 28, 1996). 10.25. Real Estate Contract dated November 1, 1995 among Richard M. Fay, Mary B. Fay and American Multi-Cinema, Inc. (Incorporated by reference from Exhibit 10.33 to AMCE's Form 10-K (File No. 0-12429) for the fiscal year ended March 28, 1996). 10.26. American Multi-Cinema, Inc. Retirement Enhancement Plan (Incorporated by reference from Exhibit 10.26 to AMCE's Registration Statement on Form S-4 (File No. 333-25755) filed April 24, 1997). 10.27. Employment Agreement between American Multi-Cinema, Inc. and Richard M. Fay (Incorporated by reference from Exhibit 10.1 to AMCE's Form 10-Q (File No. 0-12429) for the quarter ended June 27, 1996). 10.28. American Multi-Cinema, Inc. Executive Savings Plan (Incorporated by reference from Exhibit 10.28 to AMCE's Registration Statement on Form S-4 (File No. 333-25755) filed April 24, 1997). *11. Computation of Per Share Earnings. *13. Incorporated portions of the Annual Stockholders Report for the fiscal year ended April 3, 1997. 16. Letter regarding change in certifying accountant (Incorporated by reference from Exhibit 19.6 to AMCE's Form 10-Q (File No. 0-12429) for the quarter ended July 2, 1992). *21. Subsidiaries of AMC Entertainment Inc. *23 Consent of Coopers & Lybrand L.L.P. to the use of their report of independent accountants incorporated in Item 8 of this annual report. *27. Financial Data Schedule _______ * Filed herewith EX-11 2 COMPUTATION OF PER SHARE
EXHIBIT 11. AMC ENTERTAINMENT INC. AND SUBSIDIARIES STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS Year (53) Weeks Ended April 3, 1997 and Years (52 Weeks) Ended March 28, 1996 and March 30, 1995 (in thousands, except per share amounts) 1997 1996 1995 PRIMARY EARNINGS PER SHARE: Net earnings before extraordinary item $ 18,995 $ 27,371 $ 33,978 Extraordinary item - (19,350) - --------- -------- -------- Net earnings 18,995 8,021 33,978 Preferred dividends (5,907) (7,000) (7,000) --------- -------- -------- Net earnings for common shares $ 13,088 $1,021 $ 26,978 ========= ======== ======== Average shares for primary earnings per share: Weighted average number of shares outstanding 17,489 16,513 16,456 Stock options and other dilutive items 237 282 137 --------- -------- -------- Total shares outstanding 17,726 16,795 16,593 ========= ======== ======== Primary earnings per share before extraordinary item $.74 $ 1.21 $ 1.63 ========= ======== ======== Primary earnings per share $.74 $.06 $ 1.63 ========= ======== ======== FULLY DILUTED EARNINGS PER SHARE: Net earnings before extraordinary item $ 18,995 $ 27,371 $ 33,978 Extraordinary item - (19,350) - --------- -------- -------- Net earnings 18,995 8,021 33,978 Preferred dividends (5,907) (7,000) n/a --------- -------- -------- Net earnings for common shares $ 13,088 $1,021 $ 33,978 ========= ======== ======== Average shares for fully diluted earnings per share: Weighted average number of shares outstanding 17,489 16,513 16,456 Stock options and other dilutive items 451 518 157 Shares issuable upon conversion of preferred stock n/a n/a 6,896 --------- -------- -------- Total shares outstanding 17,940 17,031 23,509 ========= ======== ======== Fully diluted earnings per share before extraordinary item $.73 $1.20 $1.45 ========= ======== ======== Fully diluted earnings per share $.73 $0.06 $1.45 ========= ======== ======== Fully diluted earnings per share for 1997 and 1996 excludes conversion of preferred stock. Fully diluted earnings per share for 1995 includes conversion of preferred stock.
EX-13 3 INCORPOR ANUAL REPORT 1 AMC ENTERTAINMENT INC. 1997 ANNUAL REPORT [PHOTO] Where boundaries are erased, vision grows... 2 AMC ENTERTAINMENT INC. CORPORATE PROFILE AMC Entertainment Inc. is an entertainment company principally involved in motion picture exhibition in the U.S. through its largest operating subsidiary, American Multi-Cinema, Inc. The company is also involved in exhibition in select international markets. As of April 3, 1997, the company owned or operated 228 theatres with 1,957 screens in 23 states, the District of Columbia, Japan and Portugal. * 90 percent of AMC's screens have the #1 or #2 market share in their markets, in terms of box office gross. * 73 percent of AMC screens are located in the top 20 U.S. markets. * AMC's average screen count per theatre is 8.6 compared to the industry average of 5.2. * Almost 30 percent of AMC's screens are in theatres with 14 or more screens. AMC common stock trades on the American and Pacific Stock Exchanges under the symbol AEN. The preferred stock is traded on the American Stock Exchange under the symbol AEN Pr. The company is headquartered in Kansas City, Missouri. ABOUT THE COVER [PHOTO] AMC reaches beyond traditional boundaries and standard approaches to broaden vision, excite imagination and provide a total entertainment experience. TABLE OF CONTENTS Financial and Operating Highlights 1 Questions and Answers 4 Beyond Boundaries 6 Innovation 8 Expansion 14 AMC Theatre Locations 18 Financial Information 20 Investor Information 64 Corporate Officers and Directors 65 3 FINANCIAL AND OPERATING HIGHLIGHTS
(In thousands, except number April 3, March 28, March 30, March 31, April 1, of theatres and screens) 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------- Total revenues $749,597 $655,972 $563,344 $586,300 $403,775 EBITDA $112,948 $112,555 $ 88,942 $ 98,784 $ 57,345 Earnings before income taxes $ 31,895 $ 46,671 $ 24,978 $ 27,412 $ 13,146 Number of patrons 122,252 114,506 103,148 107,710 99,957 Number of theatres operated 228 226 232 236 243 Number of screens operated 1,957 1,719 1,630 1,603 1,617 Screens per theatre 8.6 7.6 7.0 6.8 6.7 Total Revenues EBITDA Earnings in millions in millions Before Income Taxes in millions [GRAPH] [GRAPH] [GRAPH] Fiscal year ending April 3, 1997 consists of 53 weeks. All other fiscal years have 52 weeks. Represents operating income plus depreciation and amortization plus estimated loss on future disposition of assets. Before extraordinary item. Includes managed and owned theatres.
AMC ENTERTAINMENT INC. ------------------------ 4 FROM THE CHAIRMAN To Our Shareholders The company achieved the highest revenues and cash flow in its history while opening a record 314 screens in 17 loca- tions, including two international theatres. Fiscal 1997 proved to be a significant year for AMC. The company achieved the highest revenues and cash flow in its history while opening a record 314 screens in 17 locations, including two international theatres. Thanks to the strength of our new megaplexes, we are now firmly positioned as a leading exhibitor in the United States with a growing international presence. Financial Highlights Total revenues increased 14.3 percent to a record $749.6 million from $656.0 million last year. Earnings before interest, taxes, depreciation and amortization (EBITDA) increased to a record $112.9 million. On a per share basis, earnings before extraordinary item, after deducting preferred dividends, were $0.74 in fiscal 1997, compared to $1.21 in fiscal 1996. After extraordinary item and preferred dividends, net earnings per share were $0.74, compared to net earnings of $0.06 per share last year. Our earnings this fiscal year were impacted by three factors. First, during the first nine months of the fiscal year, product from the company's key suppliers failed to deliver the box office results achieved in the prior year. Second, the company experienced expected start-up costs associated with the opening of 314 new AMC screens, including 268 megaplex screens. Third, general and administrative expenses increased, as anticipated, partially due to the company's strategic growth initiative in the United States and internationally. Looking ahead, we are encouraged by the potential of fiscal 1998, both in terms of the number of new AMC megaplexes coming on line and favorable product forecasts from our key film suppliers. Industry Highlights The continued success of the AMC megaplex concept has inspired an industry-wide movement to build larger theatres. Additionally, the supply of film product remains strong in response to the increasing worldwide demand for filmed entertainment. The recent success of the re-release of the Star Wars Trilogy underscores the importance of the theatrical window in creating a film's value and the brand awareness necessary for its success in ancillary markets. Growth Plan Our growth plan -- to build megaplexes in major U.S. markets and select international markets -- is on target. The success of the AMC megaplexes that we have opened validates our AMC ENTERTAINMENT INC. - ------------------------ 2 5 SHAREHOLDERS' REPORT direction and strategy. As we continue to increase the number of megaplexes in our circuit, we increase our ability to deliver the finest moviegoing experience possible and attract more customers in more markets worldwide. Included in our fiscal 1997 theatre openings was the record-breaking AMC Ontario Mills 30 in Ontario, California, the largest theatre in the world in terms of screen count. In addition, we opened two international theatres, the AMC Canal City 13 in Fukuoka, Japan, and the AMC Arrabida 20 in Porto, Portugal. Both of these theatres are the largest and among the most luxurious theatres in their countries. The Strength Of Our People This year we further strengthened our executive management team by expanding the leadership roles of Peter C. Brown and Philip M. Singleton. Peter Brown was elevated to president of AMC Entertainment Inc. In addition to his duties as AMCE president, Peter will continue to act as chief financial officer of the company and all subsidiaries. Phil Singleton was promoted to president of American Multi-Cinema, Inc., the theatrical exhibition arm and largest operating subsidiary. Both Peter and Phil will continue to report directly to me. The strength of any company rests in the talent and dedication of its people. Our growth would not be possible without the support of the entire AMC family, which now numbers more than 10,000 associates worldwide. I am confident in the strong leadership and immense talent of our worldwide team. Together, we create the finest moviegoing experience available anywhere in the world. AMC is well-positioned for continued growth and success. Our constant focus on the customer inspires us to challenge traditional approaches and to develop new industry standards. Where boundaries are erased, vision grows. We remain committed to changing the way the world sees movies(TM). Stanley H. Durwood Chairman of the Board and Chief Executive Officer [PHOTO] Stanley H. Durwood Our constant focus on the customer inspires us to challenge traditional approaches and to develop new industry standards. AMC ENTERTAINMENT INC. ------------------------ 3 6 FINANCIAL AND OPERATING Q+A PETER C. BROWN President and Chief Financial Officer, AMC Entertainment Inc. PHILIP M. SINGLETON President and Chief Operating Officer, American Multi-Cinema, Inc. QUESTION: WHAT DISTINGUISHES AMC FROM COMPETING THEATRE CIRCUITS? Brown: Since 1991, we have executed a series of financial transactions that have led us to become one of the most solidly capitalized companies in our industry. This sound financial base allows us to continue to invest confidently in what we feel will drive our valuation in the future, the AMC megaplex theatre. Singleton: Innovation is fundamental to the AMC culture and has always been our mainstay competitive advantage. For more than three decades we have sustained that advantage by constantly responding to the customer and continually developing new concepts that enhance the AMC moviegoing experience. QUESTION: WHAT INDICATORS DO YOU HAVE THAT AMC'S GROWTH PLAN IS ON TRACK? Singleton: Our latest innovation, the AMC megaplex, has become the industry benchmark. Other circuits are following our lead. Most importantly, our customers have overwhelmingly embraced our new concept, and our new megaplexes are performing very well. Virtually every megaplex that we have opened has become one of the industry's most successful in terms of attendance and film revenue. Brown: We look at several key measures to evaluate the success of our megaplexes, the four most significant of which are attendance per screen, total revenues per patron, theatre-level cash flow before rent margin, and return on assets. Our megaplexes have demonstrated superior results in every one of these key measures. AMC ENTERTAINMENT INC. - ------------------------ 4 7 QUESTIONS AND ANSWERS QUESTION: COULD YOU COMMENT ON THE RESULTS OF AMC'S GROWTH PLAN? Brown: This year we achieved our goal of adding 314 screens in 17 locations, including two international theatres in Japan and Portugal. Additionally, at the end of the fiscal year, we had another 558 screens in 25 locations under construction, indicating that we are well on our way toward our fiscal 1998 goal. QUESTION: WHAT IMPACT IS AMC'S EXPANSION HAVING ON THE FILM INDUSTRY? Singleton: As we open more high-performance megaplexes, the more attractive AMC becomes to film studios. Our goal is to have the screen capacity or "shelf space" to play all available film product. Studios need a strong theatrical opening of their films in an often-crowded marketplace to create the value or word-of-mouth demand for their film product. Consequently, studios are increasingly attracted to our growing portfolio of AMC megaplexes. QUESTION: WHAT ARE SOME OF YOUR CRITERIA FOR SELECTING FUTURE MEGAPLEX LOCATIONS? Singleton: We look for quality sites in densely populated urban markets. These sites should be sufficiently large to allow us to build a theatre with 20 to 30 screens, which would enable us to play nearly all available film product. We prefer to build our megaplexes in an atmosphere of entertainment-oriented retail where our customers can benefit from the synergy of shopping, dining and other leisure activities. QUESTION: IS AMC CONCERNED ABOUT A POTENTIAL FOR OVERSCREENING? Brown: AMC's growth strategy emphasizes quality over quantity. We believe that this type of approach will govern development activity. As we add new megaplexes, we are taking older-generation theatres off line, resulting in a smaller aggregate theatre count. QUESTION: HOW DOES AMC PLAN TO INCREASE ATTENDANCE? Singleton: New AMC megaplexes generate higher attendance and revenues per screen than many of our traditional multiplexes. We are growing attendance by changing our circuit portfolio to a megaplex profile, as well as by providing an outstanding AMC moviegoing experience for our patrons. QUESTION: WHAT MEASURES WERE TAKEN THIS YEAR TO INCREASE THE COMPANY'S VALUE? Brown: We continued to invest in our next-generation theatre, the AMC megaplex, both in the United States and internationally. This investment should enhance our position in the industry, increasing our market share and long-term value. [PHOTO] Peter C. Brown (L) Philip M. Singleton (R) AMC ENTERTAINMENT INC. ------------------------ 5 8 INNOVATION BEYOND BOUNDARIES AMC ENTERTAINMENT INC. - ------------------------ 6 9 EXPANSION AMC is changing the way the world sees movies(TM) by reaching beyond traditional boundaries and standard approaches to create not only a superior moviegoing experience, but a total entertainment experience. Where boundaries are erased, vision grows... AMC ENTERTAINMENT INC. ------------------------ 7 10 INNOVATION OUR MEGAPLEX THEATRES ARE SETTING THE INDUSTRY STANDARD FOR INNOVATION [PHOTO] The AMC Ontario Mills 30 theatre, the world's largest theatre by screen count. Even before you arrive at an AMC megaplex, the AMC entertainment experience begins. Music fills the parking lot, and at many locations, sidewalk entertainment, such as clowns and jugglers, delights patrons of all ages. If you have not taken advantage of AMC's TeleTicket(TM) sales system, an abundance of cashier stations expedites ticket purchases. Inside the theatre, personal touches are everywhere. From efficiently designed concession areas with delicious movie fare, to flowers and lotion in the ladies' room, AMC's commitment to customer enjoyment and comfort sets the tone. Inside the auditoriums, stadium seating guarantees that all seats are the "best in the house" by providing an unobstructed view of the screen. AMC's exclusive LoveSeat(TM)-style seating -- plush, cushioned, high-backed seats with double-wide, retractable cupholder armrests -- turns comfortable into cozy. AMC totally immerses you in movie magic with its exclusive High Impact Theatre System(TM) with wall-to-wall compound-curved Torus(TM) screens that offer maximum brilliance and clarity. Sony Dynamic Digital Sound(TM) surrounds you with an extraordinary audio environment. So sit back, settle in and enjoy the ultimate AMC entertainment experience. AMC ENTERTAINMENT INC. - ------------------------ 8 11 INNOVATION Innovation, the foundation of the AMC culture, has enabled AMC to maintain its competitive advantage for more than five decades. Today, AMC is clearly positioned at the forefront of the industry with its newest innovation, the megaplex. The record-breaking opening of the AMC Grand 24 in Dallas, Texas, in May 1995 launched the successful beginning of the AMC megaplex era. Now, 366 megaplex screens later, the company is rapidly becoming a circuit of megaplexes, theatres with 14 or more screens with predominately stadium-style seating, providing the finest moviegoing experience available. As of the end of the fiscal year, almost 30 percent of AMC's screens were in theatres with 14 or more screens. AMC's average screen count per theatre was 8.6 compared to the industry average of 5.2 screens. The AMC megaplex has become the customers' theatre of choice, as demonstrated by outstanding attendance levels and increased revenues. New AMC megaplexes are consistently among the top one percent of the highest-grossing theatres in the industry. [FN] Source: National Association of Theatre Owners "When we go to the movies, we expect the best seat in the house. I enjoy AMC's LoveSeat(TM)-style seating because I can relax comfortably and watch the film without distraction." John Justice Customer AMC West Oaks 14 Orlando, Florida [PHOTO] AMC's exclusive LoveSeat(TM) stadium-style seats are plush and high-backed with double-wide, cushioned and retractable cupholder armrests that lift so moviegoers can "cozy up." AMC Milestones 1963 Builds world's first multi-screen theatre in a mall. 1966 Introduces automated projection booths. 1969 Opens world's first six-screen theatre in Omaha, Nebraska. 1979 Establishes industry's first management training academy. 1981 Introduces cupholder armrests. 1982 Begins installation of computerized box offices. AMC ENTERTAINMENT INC. ------------------------ 9 12 INNOVATION "AMC's megaplexes are growing the moviegoing audience. With their many amenities, such as stadium seating, these theatres showcase our films in the best possible environment, resulting in higher atten- dance and grosses." Jeff Blake President Sony Distribution [PHOTO] The foyer of the AMC Arrabida 20 in Porto, Portugal, features a dramatic starlit scene. AMC's stadium-style seating ensures that every moviegoer has an unobstructed view of the screen. [PHOTO] For the fiscal year, on an annual attendance-per-screen basis, AMC megaplexes performed 96 percent higher than the industry average and 38 percent higher than traditional AMC multiplexes (theatres generally without stadium-style seating and having less than 14 screens). AMC megaplexes also generated 10 percent more revenue per patron than AMC multiplexes. Their margins, as measured by operating-cash-flow-before-rent, were 12.5 percent higher than traditional AMC multiplexes, further demonstrating their operational efficiency. Along with ticket sales, concession revenues are an important source of income for AMC. For the fiscal year, concession sales increased 14.5 percent over the prior year, and AMC megaplexes generated 13.5 percent more concession revenue per patron than traditional AMC multiplexes. [FN] Source: National Association of Theatre Owners AMC ENTERTAINMENT INC. - ------------------------ 10 13 INNOVATION AMC theatres continue to offer customers a broad selection of quality brand-name products. In addition to traditional movie fare, AMC continues to introduce new menu items such as frozen carbonated beverages, bottled water and fruit drinks, bulk candy and special variety packs for children. This year, AMC introduced an innovative concession design at many of its new megaplexes. The pass-through concession design increases efficiency and customer convenience by separating preparation and delivery, ensuring faster transaction times and service, and providing for maximum freshness. AMC enhances the overall moviegoing experience through a number of value-added national and local marketing programs. These programs have increased attendance, strengthened brand loyalty and increased revenues. Many of these AMC marketing programs have been recognized for their ingenuity and excellence. In fact, for the third consecutive year, AMC was honored with the industry's most coveted marketing and customer service awards at the 1997 National Association of Theatre Owners (NATO) ShoWest(R) convention held in Las Vegas. AMC theatre managers were recognized with The Hollywood Reporter T.E.A.M. (Theatre Excellence and Marketing) award, the NATO customer service award and the Eastman Kodak(R) marketing award. "AMC's culture encourages innovative customer service ideas that will continually improve the AMC experience. We're trained to focus on our customers, anticipate their needs and provide them with the finest entertainment experience possible." John Greiner Managing Director, AMC Burbank 28 Burbank, California Winner of the 1997 ShoWest(R) Customer Service Award [PHOTO] The AMC pass-through concession design separates preparation and delivery, ensuring faster transaction times and service, and providing for maximum freshness. AMC Milestones cont. 1985 Opens its first overseas theatre in England. 1987 Opens world's first 14-screen theatre in Century City, California. 1989 Develops proprietary High Impact Theatre System (HITS(TM)) for maximum sound reproduction. 1990 Establishes MovieWatcher(R) program, the first wide-scale program to reward frequent moviegoers. 1990 Pioneers an ATM-style ticketing system, allowing customers to use credit cards. 1991 Introduces unique "Silence is Golden(R)" program, encouraging patron courtesy. AMC ENTERTAINMENT INC. ------------------------ 11 14 INNOVATION [PHOTO] A conceptual drawing of the innovative AMC Maihama Station 16 in the world-class urban resort district of Maihama, Japan, next to Tokyo Disneyland(R) theme park. The company's premier marketing program, the AMC MovieWatcher(R) club, rewards frequent moviegoing and continues to be the only one of its kind in the industry. This year, the club achieved a significant membership milestone of one million avid AMC moviegoers. The MovieWatcher(R) club enhances AMC brand loyalty and provides AMC with an extensive lifestyle and demographic database for research, analysis and direct marketing programs. AMC continued to enhance national marketing programs by developing high-profile, third-party affiliations to cross-promote and drive incremental attendance. These affiliations include The Coca-Cola Company, Planet Hollywood International, Inc., Burger King Corporation and The Walt Disney World(R) Resort, as well as all major film studios. AMC also has established numerous major league sports tie-ins, including promotions with the National Football League(R) organization and the Super Bowl(R) game. AMC ENTERTAINMENT INC. - ------------------------ 12 15 INNOVATION AMC continually strives to be a responsible corporate citizen and a good neighbor in the communities it serves. AMC's "Read for the Stars(R)" program encourages children to read during the summer. This year, AMC worked with the U.S. Department of Education's "Read Write Now" program to promote tutorial reading programs during the summer. New AMC theatres open with a series of special fundraising events and benefits, usually tied in with film premieres that demonstrate a long-term commitment to serving the community. Nonprofit organizations such as Big Brothers/Big Sisters, as well as Variety Club and numerous other charities, have been the beneficiaries of such events. AMC is already at work on the next evolution of moviegoing. Programmable lobbies offering interactive experiences, trams to and from parking lots, improved comfort amenities and newer and faster ways to serve customers are already in design for AMC's next generation of world-class theatres. [PHOTO] AMC's 42nd Street 25 theatre in New York City's renowned Times Square will offer spectacular views and film imaging innovations. AMC Milestones cont. 1991 Introduces TeleTicket(TM) system, allowing patrons to purchase tickets in advance by telephone. 1992 Installs the largest Torus(TM) compound-curved screen in North America. 1994 Announces plans to install Sony Dynamic Digital Sound(TM) (SDDS(TM)) in all AMC auditoriums. 1995 Opens the AMC Grand 24 in Dallas, Texas, launching the era of the AMC megaplex. 1996 Begins exporting its new-generation theatre concept to the Pacific Rim. 1996 Opens world's largest theatre by screen count, the AMC Ontario Mills 30 in Ontario, California. AMC ENTERTAINMENT INC. ------------------------ 13 16 EXPANSION OUR EXPANSION BRINGS MORE MOVIES TO MORE PEOPLE WORLDWIDE Since its opening in December 1996, the AMC Arrabida 20 in Porto, Portugal, is that country's highest-grossing theatre. AMC's growth plan is on target. As of April 3, 1997, AMC had 1,957 screens in 228 theatres around the world. Of the 314 new screens the company added last year, 308 were in new locations and 6 were the expansion of an existing theatre. The company has another 558 screens in construction and expects to open approximately 700 screens by the end of fiscal 1998. As planned, AMC is replacing some older existing theatres with new-generation megaplexes. AMC's focus is on quality rather than quantity. The company continues to target sites in densely populated urban markets that can support a 20- to 30-screen theatre, which will dominate its market and generate higher returns. AMC ENTERTAINMENT INC. - ------------------------ 14 17 EXPANSION The company also targets locations near entertainment-oriented retail. Whether the theatre is the centerpiece of a mega-mall, such as the AMC Ontario Mills 30, or a free-standing theatre like the AMC Pleasure Island 10 (expanding to a 24-screen complex in fiscal 1998) at The Walt Disney World(R) Resort and adjacent to the Pleasure Island attraction, the combination of the AMC entertainment experience with shopping, dining and other leisure activities creates an extended entertainment event. Among AMC's fiscal 1997 highlights was the opening of the largest theatre in the world, the AMC Ontario Mills 30, near Los Angeles, which set a record for the highest opening weekend film gross in the history of the company. The AMC Norwalk 20, also in Los Angeles, opened last May and is consistently among the industry's top 10 highest-grossing theatres. Another new megaplex, the AMC Ahwatukee 24 in Phoenix, is the highest-grossing theatre in Arizona and among the top one percent of the industry's highest-grossing theatres. The AMC Lennox 24 in Columbus, Ohio, was among the top 10 theatres in the industry for each of the Star Wars Trilogy films. AMC's fiscal 1998 domestic expansion plans include the AMC Studio 30 in Houston, the largest of six 30-screen theatres that AMC plans to open during the year. Earlier this year, AMC announced that the company had signed a lease for a 25-screen theatre, the AMC 42nd Street 25, located in New York City's renowned Times Square. "As one of the key anchors of many of our Mills developments, AMC generates a huge attendance base, which has helped attract other entertain- ment-related businesses. AMC, like the Mills Corporation, is a quality, customer-oriented organi- zation. They have top-notch people who know how to build and operate the kind of theatres that keep customers coming back again and again." Laurence Siegel Chairman and Chief Executive Officer The Mills Corporation Shopping Center Developer [PHOTO] The AMC Ahwatukee 24 in Phoenix is the highest-grossing theatre in Arizona. Fiscal 1997 Openings AMC Canal City 13 Fukuoka, Japan April 20 AMC Carolina Pavilion 22 Charlotte May 10 AMC Norwalk 20 Los Angeles May 10 AMC Merchants Crossing 16 Fort Myers May 17 AMC Deerbrook 24 Houston May 24 AMC Palace 9 Fort Worth May 24 AMC Arrowhead 14 Phoenix August 2 AMC Celebration 2 Orlando October 25 AMC Tallahassee 20 Tallahassee November 15 AMC Ahwatukee 24 Phoenix December 13 AMC North DeKalb 16 Atlanta December 13 AMC Ontario Mills 30 Los Angeles December 13 AMC Lennox 24 Columbus December 18 AMC Arrabida 20 Porto, Portugal December 20 AMC Marina Pacifica 12 (6-screen expansion) Long Beach January 10 AMC West Oaks 14 Orlando March 21 AMC Indian River 24 Vero Beach March 28 AMC West Olive 16 St. Louis April 3 AMC ENTERTAINMENT INC. ------------------------ 15 18 EXPANSION Scheduled Fiscal 1998 Openings First Quarter AMC Fullerton 20 (10-screen expansion) Los Angeles AMC Huebner Oaks 24 San Antonio AMC Puente Hills 20 Los Angeles AMC Studio 30 Houston Second Quarter AMC BarryWoods 24 Kansas City AMC Mercado 20 San Jose AMC Oak View 24 Omaha AMC Orange Park 24 Jacksonville AMC Pleasure Island 24 (14-screen expansion) Orlando AMC Rolling Hills 20 (14-screen expansion) Los Angeles AMC Saratoga 14 San Jose Third Quarter AMC Arizona Center 24 Phoenix AMC Covina 30 Los Angeles [PHOTO] The AMC Canal City 13 in Fukuoka, Japan, has captured more than 50 percent of the market since its opening in April 1996. In April 1996, AMC began exporting its new-generation theatre concept with the opening of the AMC Canal City 13 theatre in Fukuoka, Japan. Since its opening, the theatre has captured more than 50 percent of the market. Overall moviegoing in Fukuoka has increased approximately 30 percent since the theatre opened. In December, the company opened the AMC Arrabida 20 in Porto, Portugal. The theatre is already the highest-grossing theatre in that country. AMC's global expansion plans include the Pacific Rim, western Europe and Canada. In addition to sites in Japan, Hong Kong, Spain and Portugal, the company also is monitoring sites in South Korea, China, Taiwan, Italy, France, Germany and the United Kingdom. These countries are greatly underscreened yet are active consumers of filmed entertainment. The continued increase in international box-office revenues combined with the AMC megaplex concept creates a tremendous growth opportunity in the international marketplace. AMC ENTERTAINMENT INC. - ------------------------ 16 19 EXPANSION Construction for the AMC Festival Walk 11 in Hong Kong will begin this summer with completion scheduled for spring 1998. The theatre, part of the renowned Festival Walk development, will have direct access to rail and subway transportation systems, making it easily accessible from as far away as mainland China. AMC will soon begin construction of the AMC Maihama Station 16 in the world-class urban resort district of Maihama, Japan and next to Tokyo Disneyland(R) theme park. The theatre is scheduled for completion in fall 1998 and will be the largest in Japan in terms of screen count and square footage. The company also announced plans to build three 24-screen theatres in Spain, which include two in Barcelona and one in the city of Palma on the island of Mallorca. The AMC Terrassa 24, north of Barcelona, will be AMC's next international theatre, scheduled to open in early 1998. The appeal of AMC's entertainment experience is universal. With each new megaplex opening, AMC is further establishing itself as the world's preeminent motion picture exhibitor and is changing the way the world sees movies(TM). "As a teenager I remember going to the AMC Northtown Mall 6 theatre in Dallas. That was 25 years ago, but I remember it being the newest and best thing going. Today, I go to the AMC Deerbrook 24 in Houston and take my own family. AMC continues to offer the best moviegoing experience available." Mary Lou Sinclair Customer AMC Deerbrook 24 Houston, Texas AMC has more than a third of the screens in the Houston market, including the AMC Deerbrook 24 theatre. [PHOTO] Scheduled Fiscal 1998 Openings Third Quarter cont. AMC First Colony 24 Houston AMC Grapevine 30 Dallas AMC Gulf Pointe 30 Houston AMC Highlands Ranch 24 Denver AMC Midlands 30 Chicago AMC Olathe 30 Kansas City AMC Southlake Pavilion 24 Atlanta AMC Southroads 20 Tulsa AMC Town Center 20 Kansas City AMC Westminster Promenade 24 Denver Fourth Quarter AMC Aventura 24 Miami AMC Cantera 30 Chicago AMC Esplanade 14 Phoenix AMC Hampton Town Center 24 Norfolk AMC Livonia 20 Detroit AMC Mesquite 30 Dallas AMC ENTERTAINMENT INC. ------------------------ 17 20 AMC THEATRE LOCATIONS Arizona Phoenix Ahwatukee 24 Arizona Center 24 Arrowhead 14 Bell Plaza 8 Esplanade 14 Fiesta Village 6 Gateway Village 10 Laguna Village 10 Lakes 6 Metro Village 6 Sunvalley Plaza 10 Three Fountains 4 Town & Country 6 Tucson El Con 6 Valencia 4 California Bakersfield Stockdale 6 Los Angeles Alondra 6 Burbank 14 Century City 14 Chino Town Square 10 Commercenter 6 Covina 30 Fine Arts 1 Fullerton 10 (20) Hermosa Beach 6 Main Place 6 Marina Pacifica 12 Media Center 6 Media Center 8 Montebello 10 Old Pasadena 8 Pine Square 16 Promenade 16 Puente East 4 Puente Hills 20 Puente Plaza 10 Rolling Hills 6 (20) Santa Monica 7 Victor Valley 10 Norwalk 20 Ontario Mills 30 San Diego La Jolla 12 Mission Valley 20 Santee Village 8 Wiegand Plaza 8 San Francisco Kabuki 8 Vallejo Plaza 6 San Jose Mercado 20 Milpitas 10 Oakridge 6 Saratoga 14 Sunnyvale 6 Town & Country 1 Colorado Colorado Springs Tiffany Square 6 Denver Buckingham 6 Colorado Plaza 6 Highlands Ranch 24 Seven Hills 10 Southbridge Plaza 8 Tiffany Plaza 6 Tivoli 12 Westminster 5 Westminster 6 Westminster Promenade 24 Delaware Philadelphia Area Cinema Center 3 Concord 2 District of Columbia Washington, D.C. Courthouse Plaza 8 Potomac Mills 15 Skyline Center 12 Union Station 9 Florida Gainesville Oaks 6 Oaks West 4 Jacksonville Orange Park 24 Regency 6 Regency Mall 8 Miami Aventura 24 Cocowalk 16 Coral Ridge 10 Fashion Island 16 Kendall Town & Country 10 Mall of the Americas 14 Ocean Walk 10 Omni 4 Omni 6 Ridge Plaza 8 Sheridan 12 South Dade 8 Orlando/Daytona Celebration 2 Fashion Village 8 Interstate 6 Lakes Square 12 Merritt 6 Merritt Square 7/12 Pleasure Island 10 (24) Volusia Square 8 West Oaks 14 Fort Myers Merchants Crossing 16 Tallahassee Tallahassee 20 Tampa/St. Petersburg Clearwater 5 Countryside 6 Crossroads Center 8 Horizon Park 4 Merchants Walk 10 Old Hyde Park 7 Regency 20 Sarasota 6 Sarasota Exp 7/12 Seminole 8 Tri-City Plaza 8 Twin Bays 4 Tyrone Square 6 Varsity 6 West Palm Beach Cross County 8 Indian River 24 Mizner Park 8 Georgia Atlanta Buckhead Backlot 6 Cobb Place 8 Colonial 18 Galleria 8 Mansell 14 North DeKalb 16 Northlake Festival 8 Phipps Plaza 14 Southlake Pavilion 24 Illinois Chicago Cantera 30 Midlands 30 Kansas Kansas City Oak Park 6 Olathe 30 Town Center 20 Louisiana New Orleans Galleria 8 Shreveport Bossier 6 St. Vincents 6 Maryland Washington, D.C. Area Academy 6 Academy 8 Carrollton 6 City Place 10 Country Club Mall 6 Rivertowne 12 Massachusetts Springfield Hampshire 6 Mountain Farms 4 Michigan Detroit Abbey 8 Americana West 6 Bel-Air Center 10 Eastland 2 Eastland Mall 5 Hampton 4 Laurel Park 10 Livonia 20 Maple 3 Old Orchard 3 Southfield City 12 Southland 4 Sterling Center 10 Towne 4 Wonderland 6 Woods Complex 6 Lansing Elmwood Plaza 8 Meridian 1/4 Meridian 5/8 Meridian Mall 6 Missouri Kansas City Bannister Square 6 BarryWoods 24 Crown Center 6 Independence 20 Metro North Plaza 6 Summit 4 Ward Parkway 22 St. Louis Crestwood Plaza 10 Esquire 7 Galleria 6 Northwest Square 10 Regency 8 Village 6 West Olive 16 Nebraska Omaha Oak View 24 Westroads 2 Westroads 6 New Jersey Metro New York Headquarters Plaza 10 Rockaway 6 Rockaway 7/12 Philadelphia Area Deptford 8 Marlton 8 Millside 4 Quakerbridge 4 Vineland 4 New York Buffalo Como 8 Maple Ridge 8 North Carolina Charlotte Carolina Pavilion 22 Ohio Columbus Dublin Village 18 Eastland Centre 8 Eastland Plaza 6 Lennox 24 Westerville 6 Oklahoma Oklahoma City Memorial Square 8 Northwest 8 Robinson Crossing 6 AMC ENTERTAINMENT INC. - ------------------------ 18 21 AMC theatre locations Tulsa Southroads 20 Pennsylvania Harrisburg Colonial Commons 9 Hampden Center 8 Wonderland 4 Philadelphia 25th Street 4 309 Cinema 9 Andorra 8 Anthony Wayne 2 Granite Run Mall 8 Marple 10 Olde City 2 Orleans 8 Painters Crossing 9 Quakertown 6 Tilghman Square 8 Woodhaven 10 Texas Dallas/Fort Worth Central Park 7 Forum 6 Glen Lakes 8 Grand 24 Grapevine 30 Green Oaks 8 Highland Park 4 Hulen 10 Irving 8 Mesquite 30 Palace 9 Prestonwood 5 Sundance 11 Towne Crossing 8 Houston Almeda Square 5 Commerce Park 8 Deerbrook 8 Deerbrook 24 Festival 6 First Colony 24 Greens Crossing 6 Gulf Pointe 30 Meyer Park 16 Northoaks 6 Studio 30 Town & Country 10 Westchase 5 Willowbrook 10 San Antonio Huebner Oaks 24 Rivercenter 9 Virginia Norfolk/Portsmouth/ Newport News Circle 4 Coliseum 4 Hampton Town Center 24 Lynnhaven 8 Newmarket 4 Patrick Henry 7 Washington Seattle/Tacoma Center Plaza 6 Narrows Plaza 8 Seatac 6 Japan Fukuoka Canal City 13 Portugal Porto Arrabida 20 [FN] As of 5/1/97 FY 1998 Opening FY 1998 Expansion AMC MARKETS SERVED UNITED STATES JAPAN PORTUGAL AMC ENTERTAINMENT INC. ------------------------ 19 22 SELECTED FINANCIAL DATA
April 3, March 28, March 30, March 31, April 1, (Dollars in thousands, except per share data) 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------ Statement of Operations Data: Total revenues $ 749,597 $655,972 $563,344 $ 586,300 $403,775 Total cost of operations 580,002 491,358 432,763 446,957 308,848 General and administrative 56,647 52,059 41,639 40,559 37,582 Depreciation and amortization 59,803 43,886 37,913 38,048 28,175 Estimated loss on future disposition of assets - - - - 2,500 --------------------------------------------------------------- Operating income 53,145 68,669 51,029 60,736 26,670 Interest expense 22,022 28,828 35,908 36,375 31,401 Investment income 856 7,052 10,013 1,156 8,239 Minority interest - - - 1,599 - Gain (loss) on disposition of assets (84) (222) (156) 296 9,638 --------------------------------------------------------------- Earnings before income taxes and extraordinary item 31,895 46,671 24,978 27,412 13,146 Income tax provision 12,900 19,300 (9,000) 12,100 5,400 --------------------------------------------------------------- Earnings before extraordinary item 18,995 27,371 33,978 15,312 7,746 Extraordinary item - (19,350) - - (6,483) --------------------------------------------------------------- Net earnings $ 18,995 $ 8,021 $ 33,978 $ 15,312 $ 1,263 =============================================================== Preferred dividends 5,907 7,000 7,000 538 256 --------------------------------------------------------------- Net earnings for common shares $ 13,088 $ 1,021 $ 26,978 $ 14,774 $ 1,007 =============================================================== Earnings per share before extraordinary item: Primary $ .74 $ 1.21 $ 1.63 $ .89 $ .46 Fully diluted $ .73 $ 1.20 $ 1.45 $ .89 $ .46 Earnings per share: Primary $ .74 $ .06 $ 1.63 $ .89 $ .06 Fully diluted $ .73 $ .06 $ 1.45 $ .89 $ .06 Common dividends per share $ - $ - $ - $ - $ 1.14 Weighted average number of shares outstanding: Primary 17,726 16,795 16,593 16,521 16,217 Fully diluted 17,940 17,031 23,509 16,550 16,217 Balance Sheet Data: Cash, equivalents and investments $ 24,715 $ 10,795 $140,377 $ 151,469 $ 50,106 Total assets 718,213 483,458 522,154 501,276 374,102 Total debt (including capital lease obligations) 373,724 188,172 267,504 268,188 255,302 Stockholders' equity 170,012 158,918 157,388 130,404 18,171 Other Financial Data: EBITDA $ 112,948 $112,555 $ 88,942 $ 98,784 $ 57,345 Cash flows provided by operating activities 134,074 96,847 44,366 63,680 29,062 Cash flows provided by (used in) investing activities (283,917) (66,848) 3,664 (111,505) 4,594 Cash flows provided by (used in) financing activities 163,982 (90,437) (9,116) 56,147 (21,022) Capital expenditures 253,380 120,796 56,403 10,651 8,786 Fiscal 1997, 1996, 1995 and 1994 include the effects from the acquisition of Exhibition Enterprises Partnership on May 28, 1993. Fiscal 1997 consists of 53 weeks. All other fiscal years have 52 weeks. Fiscal 1993 includes a $6,483 extraordinary loss equal to $.40 per common share. Fiscal 1996 includes a $19,350 extraordinary loss equal to $1.15 per common share. Represents operating income plus depreciation and amortization plus estimated loss on future disposition of assets. EBITDA is a financial measure commonly used in the Company's industry and should not be construed as an alternative to operating income (as determined in accordance with GAAP). EBITDA as determined by the Company, may not be comparable to EBITDA as reported by other companies. In addition, EBITDA is not intended to represent cash flow and does not represent the measure of cash available for discretionary uses. EBITDA is a non-GAAP measure, but has been used by lenders and stockholders as additional information for estimating the Company's value and evaluating its ability to service debt.
AMC ENTERTAINMENT INC. - ------------------------ 20 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OPERATING RESULTS As a result of the commencement of international operations during fiscal 1997, the Company is disaggregating its domestic and international exhibition operations and the Company's on-screen advertising and other business in order to provide more information as to the Company's revenues, cost of operations, depreciation and amortization, and general and administrative expenses as set forth in the table below for the fifty-three and fifty-two week periods ended April 3, 1997 and March 28, 1996.
53 Weeks Ended 52 Weeks Ended -------------------------------------------------- April 3, March 28, (Dollars in thousands) 1997 1996 % Change - -------------------------------------------------------------------------------------------------------------------- Revenues Domestic Admissions $479,629 $431,361 11.2% Concessions 222,945 196,645 13.4 Other 15,763 15,096 4.4 ---------------------------------------------- 718,337 643,102 11.7 International Admissions 13,322 - - Concessions 2,222 - - Other 49 - - ---------------------------------------------- 15,593 - - On-screen advertising and other 15,667 12,870 21.7 ---------------------------------------------- Total revenues $749,597 $655,972 14.3% ============================================== Cost of Operations Domestic Film rentals $239,480 $215,099 11.3% Concession costs 36,045 30,417 18.5 Rent 75,116 64,813 15.9 Other 198,555 172,087 15.4 ---------------------------------------------- 549,196 482,416 13.8 International Film rentals 7,719 - - Concession costs 703 - - Rent 4,945 - - Other 5,377 - - ---------------------------------------------- 18,744 - - On-screen advertising and other 12,062 8,942 34.9 ---------------------------------------------- Total cost of operations $580,002 $491,358 18.0% ==============================================
AMC ENTERTAINMENT INC. ------------------------ 21 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
53 Weeks Ended 52 Weeks Ended ------------------------------------------------ April 3, March 28, (Dollars in thousands) 1997 1996 % Change - ------------------------------------------------------------------------------------------------------------------ General and Administrative Domestic and corporate $45,558 $44,200 3.1% International 6,864 4,550 50.9 On-screen advertising and other 4,225 3,309 27.7 ------------------------------------------- Total general and administrative $56,647 $52,059 8.8% =========================================== Depreciation and Amortization Domestic and corporate $56,623 $42,550 33.1% International 1,436 - - On-screen advertising and other 1,744 1,336 30.5 ------------------------------------------- Total depreciation and amortization $59,803 $43,886 36.3% ===========================================
YEARS (53/52 WEEKS) ENDED APRIL 3, 1997 AND MARCH 28, 1996 Revenues. Total revenues increased 14.3%, or $93,625,000, during the year (53 weeks) ended April 3, 1997 compared to the year (52 weeks) ended March 28, 1996. Total domestic revenues increased 11.7%, or $75,235,000, from the prior year. Admissions revenues increased 11.2%, or $48,268,000, due to a 6.4% increase in attendance, which contributed $27,658,000 of the increase, and a 4.7% increase in average ticket prices, which contributed $20,610,000 of the increase. The increase in attendance was due primarily to the Company's megaplex theatres (theatres having at least 14 screens with predominately stadium-style seating). Attendance at megaplex theatres increased during the year as a result of the addition of 12 new megaplex theatres with 248 screens and from the operation for a full fiscal year of the Company's remaining five domestic megaplex theatres with 98 screens that were opened in fiscal 1996. The increase in attendance from megaplex theatres was partially offset by a decrease in attendance at multiplex theatres (theatres generally without stadium-style seating and having less than 14 screens) and the closure or sale of 15 theatres with 76 screens. Attendance at multiplex theatres decreased as a result of competitive factors. Also, during the first nine months of the fiscal year, attendance at all theatres was impacted by film product from the Company's key suppliers which did not deliver the results achieved in the prior fiscal year. The increase in average ticket prices is due to price increases and the growing number of megaplexes in the Company's circuit, which yield higher average ticket prices than multiplexes. Concessions revenues at domestic theatres increased by 13.4%, or $26,300,000, due to a 6.9% increase in average concessions per patron, which contributed $13,692,000 of the increase, and the increase in total attendance, which contributed $12,608,000 of the increase. The increase in average concessions per AMC ENTERTAINMENT INC. - ------------------------ 22 25 patron is attributable to the introduction of new concessions products and the increasing number of megaplexes in the Company's circuit, where concession spending per patron is higher than multiplex theatres. Total international revenues were the result of admissions and concessions revenues from the Company's two international theatres, the Canal City 13 located in Fukuoka, Japan and the Arrabida 20 located in Porto, Portugal, which opened during the first and third quarters of fiscal 1997, respectively. Admissions and concessions revenues accounted for 85% and 14% of total international revenues, respectively. The Company's initial attendance at the Canal City 13 was negatively impacted by film distributors in Japan who restricted the Company's ability to obtain film product until approximately two weeks after its competitors had received it. This delay in releasing films to the Company has generally been eliminated. On-screen advertising and other revenues increased 21.7%, or $2,797,000, due primarily to an increase in the number of screens served by the Company's on-screen advertising business, a result of its expansion program. Cost of Operations. Total cost of operations increased 18.0%, or $88,644,000, during the year (53 weeks) ended April 3, 1997 compared to the year (52 weeks) ended March 28, 1996. Total domestic cost of operations increased 13.8%, or $66,780,000, from the prior year. Film rentals expense increased 11.3%, or $24,381,000, due to higher admissions revenues. As a percentage of admissions revenues, film rentals expense was 49.9% in each year. The 18.5%, or $5,628,000, increase in concession costs is attributable to the increase in concessions revenues. As a percentage of concessions revenues, concession costs increased from 15.5% to 16.2% due primarily to increases in raw popcorn costs and the lower margins on new concessions products. Rent expense increased 15.9%, or $10,303,000, due to the higher number of screens in operation. Other cost of operations increased 15.4%, or $26,468,000, from the prior year due to the higher number of screens in operation, $1,825,000 of advertising expenses associated with the opening of new theatres and higher expenses associated with the Company's theatre management development program. Total international cost of operations were the result of expenses associated with the Company's new theatres in Japan and Portugal. As a percentage of admissions revenues, film rentals expense was 57.9% primarily because film rentals in Japan are generally higher than those domestically. Concession costs were 31.6% of concessions revenues due to the high procurement costs of concessions products sourced from the United States. As a percentage of total revenues, rent expense was 31.7% as a result of low attendance and admissions revenues and the higher real estate costs in Japan. AMC ENTERTAINMENT INC. ------------------------ 23 26 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS On-screen advertising and other cost of operations increased 34.9%, or $3,120,000, as a result of the higher number of screens served and related start-up expenses. General and Administrative. General and administrative expenses increased 8.8%, or $4,588,000, during the year (53 weeks) ended April 3, 1997. Domestic and corporate general and administrative expenses increased 3.1%, or $1,358,000, primarily due to increases in costs associated with the Company's development of theatres and increased pension and retirement expenses of $1,992,000. These increases were partially offset by a decrease of $3,500,000 in the current year's bonus expense and severance payments of $967,000 for two former executive officers made during the prior year. International general and administrative expenses increased 50.9%, or $2,314,000, due primarily to increases in costs associated with the Company's development of new theatres and other expenses to support the Company's international operations and expansion plan. General and administrative expenses associated with on-screen advertising and other increased 27.7%, or $916,000, due primarily to an increase in payroll and related costs to support the expansion program at the Company's on-screen advertising business. Depreciation and Amortization. Depreciation and amortization increased 36.3%, or $15,917,000, during the year (53 weeks) ended April 3, 1997. This increase was caused by an increase in employed theatre assets resulting from the Company's expansion plan and an impairment loss of $7,231,000 due to expected declines in future cash flows of certain theatres. Operating income. Operating income decreased 22.6%, or $15,524,000, during the year (53 weeks) ended April 3, 1997. The decrease in operating income is attributable to the attendance and revenue decline at multiplex theatres and an increase in domestic and corporate general and administrative expenses of $1,358,000, the effects of which were partially offset by an increase in attendance and revenues at megaplex theatres. Additionally, operating income was reduced by operating losses of $4,587,000 from the Company's international theatres in Japan and Portugal, an increase in international general and administrative expenses of $2,314,000 and an increase in operating losses of $1,647,000 from the Company's on-screen advertising business. Interest Expense. Interest expense decreased 23.6%, or $6,806,000, during the year (53 weeks) ended April 3, 1997 compared to the prior year. The decrease in interest expense resulted from lower rates under the Company's AMC ENTERTAINMENT INC. - ------------------------ 24 27 $425 million credit facility (the "Credit Facility"), which was partially offset by an increase in average outstanding borrowings related to the Company's expansion plan. Investment Income. Investment income decreased 87.9%, or $6,196,000, during the year (53 weeks) ended April 3, 1997 due to a decrease in outstanding cash and investments compared to the prior year. Cash and investments decreased as a result of the Company's redemption of substantially all of its 11 7/8% Senior Notes due 2000 ("Senior Notes") and 12 5/8% Senior Subordinated Notes due 2002 ("12 5/8% Senior Subordinated Notes") on December 28, 1995. Earnings Before Income Taxes and Extraordinary Item. Earnings before income taxes and extraordinary item decreased by 31.7%, or $14,776,000, during the year (53 weeks) ended April 3, 1997 due primarily to the $15,524,000 decrease in operating income. Net Earnings. Net earnings before extraordinary item decreased $8,376,000 during the year (53 weeks) ended April 3, 1997 to $18,995,000 from $27,371,000 in the prior year. Net earnings for the period were $18,995,000 compared to $8,021,000 in the prior year, which included an extraordinary item (a loss of $19,350,000 in connection with the early extinguishment of debt). Net earnings before extraordinary item per common share, after deducting preferred dividends, was $.74 compared to $1.21 for the prior year. Net earnings per common share, after deducting preferred dividends, was $.74 compared to $.06 for the prior year.
52 Weeks Ended 52 Weeks Ended ------------------------------------------------------------------------ March 28, % of Total March 30, % of Total (Dollars in thousands) 1996 Revenues 1995 Revenues - ---------------------------------------------------------------------------------------------------------------------- Revenues Admissions $431,361 66% $371,145 66% Concessions 196,645 30 169,120 30 Other 27,966 4 23,079 4 ------------------------------------------------------------------------ Total $655,972 100% $563,344 100% ======================================================================== Cost of Operations Film rentals $215,099 33% $182,669 33% Concession costs 30,417 5 24,383 4 Rent 64,813 10 60,076 11 Other 181,029 27 165,635 29 ------------------------------------------------------------------------ Total $491,358 75% $432,763 77% ========================================================================
AMC ENTERTAINMENT INC. ------------------------ 25 28 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONTITION AND RESULTS OF OPERATIONS YEARS (52 WEEKS) ENDED MARCH 28, 1996 AND MARCH 30, 1995 Revenues. Total revenues for the year (52 weeks) ended March 28, 1996 increased 16.4%, or $92,628,000, to $655,972,000 compared to $563,344,000 for the year (52 weeks) ended March 30, 1995. Admissions revenues increased 16.2%, or $60,216,000, due to a 11.1% increase in attendance, which contributed $41,151,000 of the increase, and a 4.4% increase in average ticket prices, which contributed $19,065,000 of the increase. The increase in attendance resulted from the popularity of films licensed during fiscal 1996 and the net addition of 89 screens since fiscal 1995 at new and higher performing locations. Attendance during the prior year was impacted by a dispute with a major distributor over film licensing terms, which resulted in the Company's licensing that distributor's films for a smaller number of its theatres than it otherwise would have. In fiscal 1996, the Company licensed that distributor's films for what it considers to be a more acceptable number of the Company's theatres. Concessions revenues increased by 16.3%, or $27,525,000, due to the increase in total attendance, which caused an increase of $18,752,000, and a 6.9% increase in average concessions per patron, which contributed $8,773,000 of the increase. Cost of Operations. Total cost of operations increased 13.5%, or $58,595,000, in fiscal 1996 to $491,358,000 from $432,763,000 in fiscal 1995. As a percentage of total revenues, cost of operations was 75% and 77% in fiscal 1996 and 1995, respectively. Film rentals expense increased 17.8%, or $32,430,000, in fiscal 1996 due to higher attendance levels, which contributed $29,637,000 of the increase, and an increase in the percentage of admissions paid to film distributors, which caused an increase of $2,793,000. Concessions costs, rent and other costs of operations increased 10.5%, or $26,165,000, from the prior year due to increases in payroll of $6,641,000, concession costs of $6,034,000, rent of $4,737,000 and other theatre operating expenses associated with the increase in admissions and concessions revenues and from the higher number of screens in operation. General and Administrative. General and administrative expenses increased 25.0%, or $10,420,000, to $52,059,000 in fiscal 1996 from $41,639,000 in fiscal 1995. The increase in general and administrative expenses is primarily attributable to payroll and other costs associated with the Company's development of theatres in the United States and certain international markets, additional bonus expenses of $3,074,000 related to improved profitability of the Company and severance payments of $967,000 for two former executive officers. As a percentage of total revenues, general and administrative expenses increased to 7.9% in fiscal 1996 from 7.4% in fiscal 1995. Depreciation and Amortization. Depreciation and amortization increased 15.8%, or $5,973,000, to $43,886,000 in fiscal 1996 from $37,913,000 in fiscal 1995. This increase resulted primarily from the reduction, effective December 30, 1994, in the estimated lives of lease rights and location premiums on certain smaller theatres to AMC ENTERTAINMENT INC. - ----------------------- 26 29 correspond to the base terms of the theatre leases, an increase in employed theatre assets and the recognition of an impairment loss of $1,799,000 in connection with the adoption of Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of. Interest Expense. Interest expense decreased 19.7%, or $7,080,000, to $28,828,000 in fiscal 1996 from $35,908,000 in fiscal 1995. The decrease in interest expense resulted from lower interest rates under the Company's Credit Facility as compared to the rates under the Senior Notes and 12 5/8% Senior Subordinated Notes. Investment Income. Investment income decreased 29.6%, or $2,961,000, to $7,052,000 in fiscal 1996 from $10,013,000 in fiscal 1995 due primarily to a net gain of $1,407,000 recorded in fiscal 1995 from the sales of stock of TPI Enterprises, Inc. and AmeriHealth, Inc. and a decrease of $1,513,000 in interest income in fiscal 1996. Earnings Before Income Taxes and Extraordinary Item. Earnings before income taxes and extraordinary item increased 86.8%, or $21,693,000, to $46,671,000 in fiscal 1996 from $24,978,000 in fiscal 1995. The Company recorded a $19,350,000 extraordinary loss, net of income tax benefit of $13,400,000, related to extinguishment of debt in fiscal 1996. Net Earnings. For the year (52 weeks) ended March 28, 1996, the Company recorded net earnings of $8,021,000, a $25,957,000 decrease from net earnings of $33,978,000 for the year (52 weeks) ended March 30, 1995. Net earnings per common share, after deducting $7,000,000 of preferred dividends, was $.06 in fiscal 1996 compared to $1.63 in fiscal 1995. The decrease in net earnings was impacted by an extraordinary loss of $19,350,000 incurred as a result of the Company's repurchase of Senior Notes and 12 5/8% Senior Subordinated Notes in fiscal 1996. Also, in fiscal 1996 the Company had a tax expense of $19,300,000, as opposed to a tax benefit of $9,000,000 in fiscal 1995. The fiscal 1995 tax benefit resulted from a $19,792,000 reduction in the deferred tax valuation allowance established under Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. Earnings per share before extraordinary item, after deduction of preferred dividends, was $1.21 in fiscal 1996 compared to $1.63 in fiscal 1995. LIQUIDITY AND CAPITAL RESOURCES The forward-looking statements included in this section, which reflect management's best judgment based on factors currently known, involve risks and uncertainties. Actual results could differ materially from those anticipated in the forward-looking statements included herein as a result of a number of factors, including but not limited to the Company's ability to enter into various financing programs, competition from other companies, changes in AMC ENTERTAINMENT INC. ------------------------ 27 30 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS economic climate, increase in demand for real estate, demographic changes, changes in real estate, zoning and tax laws, the performance of films licensed by the Company and other risks and uncertainties. The Company's revenues are collected in cash, principally through box office admissions and theatre concessions sales. The Company has an operating "float" which partially finances its operations and which generally permits the Company to maintain a smaller amount of working capital capacity. This float exists because admissions revenues are received in cash, while exhibition costs (primarily film rentals) are ordinarily paid to distributors from 30 to 45 days following receipt of box office admission revenues. The Company is only occasionally required to make advance payments or non-refundable guarantees of film rentals. Film distributors generally release films which they anticipate will be the most successful during the summer and holiday seasons. Consequently, the Company typically generates higher revenues during such periods. Cash flows from operating activities, as reflected in the Consolidated Statements of Cash Flows, was $134,074,000, $96,847,000 and $44,366,000 in fiscal years 1997, 1996 and 1995, respectively. During fiscal 1997, the Company had capital expenditures of $253,380,000 primarily for the development of new theatres and the addition of screens at existing locations. The Company has continued its expansion plan by opening 14 leased theatres with 244 screens, two owned theatres with 46 screens and one theatre with 24 screens leased pursuant to a ground lease. Included in these openings is the Company's first theatre in Japan, the Canal City 13 in Fukuoka, which opened in April 1996, and the Company's first theatre in Portugal, the Arrabida 20 in Porto, which opened in late December 1996. In addition, the Company closed or sold 14 leased theatres with 72 screens and one owned theatre with four screens, resulting in a circuit total of 1,957 screens in 228 theatres as of April 3, 1997. The Company has plans to open approximately 700 screens during fiscal 1998. If these planned screens are opened as scheduled, the Company estimates that total capital expenditures for fiscal 1998 will aggregate approximately $425 million. Included in these amounts are assets which the Company may place into sale/leaseback or other comparable financing programs which will have the effect of reducing the Company's net cash outlays. As of April 3, 1997, the Company had under construction 15 new leased theatre locations totaling 362 screens, four new owned theatres with 104 screens, two theatres with 48 screens leased pursuant to a ground lease and additions to four existing theatres for 44 new screens. All of these theatres and screens will be located in the United States. On December 28, 1995, the Company completed the redemption of substantially all of its Senior Notes and 12 5/8% Senior Subordinated Notes. The Company redeemed $99,383,000 of the Senior Notes at a total price of AMC ENTERTAINMENT INC. - ------------------------ 28 31 $1,117.90 per $1,000 principal amount and $95,096,000 of the 12 5/8% Senior Subordinated Notes at a total price of $1,144.95 per $1,000 principal amount. The Company utilized cash and investments along with borrowings of $130,000,000 on a credit facility to redeem the Senior Notes and the 12 5/8% Senior Subordinated Notes. As a part of the refinancing plan, the Company entered into the Credit Facility, which was subsequently amended and restated as of April 10, 1997. The Credit Facility, permits borrowings at interest rates based on either the bank's base rate or LIBOR and requires an annual commitment fee based on margin ratios that could result in a rate of .1875% to .375% on the unused portion of the commitment. The Credit Facility matures in 2004. The commitment thereunder will reduce by $25 million on each of December 31, 2002, March 31, 2003, June 30, 2003 and September 30, 2003 and by $50 million on December 31, 2003. As of April 3, 1997, the Company had outstanding borrowings of $110,000,000 under the Credit Facility at an average interest rate of 6.4% per annum. Covenants of the Credit Facility, as amended and restated, impose limitations on the incurrence of additional indebtedness, creation of liens, change of control, transactions with affiliates, mergers, investments, guaranties, asset sales, business activities and pledges. The Company is required to maintain (i) a maximum net indebtedness to consolidated EBITDA ratio, as defined in the Credit Facility (generally, the ratio of the principal amount of outstanding indebtedness (less cash and equivalents) to earnings before interest, taxes, depreciation, amortization and other noncash charges), of 5.25 to 1 during the first four years of the Credit Facility, a ratio of 4.75 to 1 during the fifth year, a ratio of 4.25 to 1 in the sixth year and a ratio of 4.0 to 1 thereafter, and a (ii) minimum cash flow coverage ratio, as defined in the Credit Facility (generally, the ratio of consolidated EBITDA for the most recent four quarters to the sum of (A) consolidated interest expense for such period, (B) amounts paid as dividends, for the optional repurchase or redemption of subordinated debt or capital stock, or with respect to the principal amount of capital lease obligations during such period, plus (C) the current portion of debt with an original maturity exceeding one year), of 1.40 to 1. If the Company prepays, defeases or repurchases more than $10 million of the Notes (as defined below) or any other subordinated debt incurred after April 10, 1997, it is required to maintain a maximum net senior indebtedness to EBITDA ratio, as defined in the Credit Facility, of 4.5 to 1 during the first four years of the Credit Facility and 4.0 to 1 thereafter. As of April 3, 1997, the Company was in compliance with all financial covenants relating to the Credit Facility. Prior to its April 10, 1997 amendment and restatement, the Credit Facility contained a covenant that generally limited the Company's capital expenditures. This covenant has been eliminated. AMC ENTERTAINMENT INC. ------------------------ 29 32 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS On March 19, 1997, the Company sold $200 million aggregate principal amount of 9 1/2% Senior Subordinated Notes due 2009 (the "Notes"). Net proceeds from the issuance of the Notes (approximately $193.8 million) were used to reduce borrowings under the Credit Facility. Amounts repaid under the Credit Facility will again be available for borrowing thereunder, and the Company intends to utilize this increased availability to continue with its current expansion program. The Notes bear interest at the rate of 9 1/2% per annum, payable in March and September. The Notes are redeemable at the option of the Company, in whole or in part, at any time on or after March 15, 2002 at 104.75% of the principal amount thereof, declining ratably to 100% of the principal amount thereof on or after March 15, 2006, plus in each case interest accrued to the redemption date. Upon a change of control (as defined in the Note Indenture), each holder of the Notes will have the right to require the Company to repurchase such holder's Notes at a price equal to 101% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase. The Notes are subordinated to all existing and future senior indebtedness (as defined in the Note Indenture) of the Company. The Company has agreed to use its best efforts to (i) file and cause to become effective by August 16, 1997, a registration statement relating to a registered offer to exchange the Notes (the "Exchange Offer") for notes of AMCE with terms identical in all material respects to the Notes and (ii) cause the Exchange Offer to be consummated by September 15, 1997. If the Exchange Offer registration statement is not declared effective by August 16, 1997, the Company has agreed that in lieu thereof it will use its best efforts to cause to become effective by September 15, 1997 a shelf registration statement with respect to the Notes. In the event that either (a) the Exchange Offer registration statement is not filed on or prior to June 17, 1997, (b) the Exchange Offer registration statement is not declared effective on or prior to August 16, 1997 or (c) the Exchange Offer is not consummated or a shelf registration statement, with respect to the Notes, is not declared effective on or prior to September 15, 1997, the interest rate borne by the Notes will increase by 0.50% per annum following June 17, 1997 in the case of clause (a) above, following August 16, 1997 in the case of clause (b) above and following September 15, 1997 in the case of clause (c) above. The aggregate amount of such increase will in no event exceed 1.00% per annum. Upon (x) the filing of the Exchange Offer registration statement after June 17, 1997, (y) the effectiveness of the Exchange Offer registration statement after August 16, 1997 or (z) the consummation of the Exchange Offer or the effectiveness of a shelf registration statement, as the case may be, after September 15, 1997, the interest rate borne by the Notes from the date of filing, effectiveness or consummation, as the case may be, will be reduced to 9 1/2%. The Exchange Offer registration statement was filed on June 13, 1997. AMC ENTERTAINMENT INC. - ------------------------ 30 33 The Note Indenture contains certain covenants that, among other things, restrict the ability of the Company and its subsidiaries to: incur additional indebtedness; pay dividends or make distributions in respect of their capital stock; purchase or redeem capital stock; enter into transactions with stockholders or certain affiliates; or consolidate, merge or sell all or substantially all of the Company's assets, other than in certain transactions between the Company and one or more of its wholly-owned subsidiaries and other than a proposed merger between the Company and its majority stockholder, Durwood, Inc. (see discussion below). All of these limitations are subject to a number of important qualifications. The Note Indenture does not impose any limitation on the incurrence by the Company and its subsidiaries of liabilities that are not considered "Indebtedness" under the Note Indenture, such as those that would be incurred under certain sale/leaseback transactions; nor does the Note Indenture impose any limitation on the amount of liabilities incurred by subsidiaries, if any, that might be designated as Unrestricted Subsidiaries (as defined therein). Furthermore, there are no restrictions on the ability of the Company and its subsidiaries to make advances to, or invest in, other entities (including unaffiliated entities) and no restrictions on the ability of the Company's subsidiaries to enter into agreements restricting their ability to pay dividends or otherwise transfer funds to the Company. If the Notes attain "investment grade status" (as defined in the Note Indenture), the covenants in the Note Indenture limiting the Company's ability to incur indebtedness, pay dividends, acquire stock or engage in transactions with affiliates will cease to apply. The Company believes that cash generated from operations, existing cash and equivalents, amounts received from sale/leaseback or other comparable financing programs which the Company is currently pursuing and the unused commitment amount under its Credit Facility will be sufficient to fund operations and planned capital expenditures through the end of fiscal 1998. During the year (53 weeks) ended April 3, 1997, various holders of the Company's $1.75 Cumulative Convertible Preferred Stock (the "Convertible Preferred Stock") converted 696,400 shares into 1,200,589 shares of Common Stock at a conversion rate of 1.724 shares of Common Stock for each share of Convertible Preferred Stock. Convertible Preferred Stock dividend payments decreased 14.4%, or $1,007,000, to $5,993,000 for the year (53 weeks) ended April 3, 1997 from $7,000,000 in the prior year as a result of the conversions. Future conversions will continue to reduce the amount of dividends paid by the Company and increase the number of shares of Common Stock outstanding. The Convertible Preferred Stock is redeemable in whole or in part, at the option of the Company, at a current redemption price of $26 per share, declining by $.25 per share on March 15 of each year until March 15, 2001, AMC ENTERTAINMENT INC. ------------------------ 31 34 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS when such price will become fixed at $25. Shares called for redemption may be converted by the holders thereof prior to the redemption date. On January 10, 1997, the Company purchased the 20% minority interest in the common stock of AMC Philadelphia, Inc., an 80% owned subsidiary, for $7,400,000 in cash. The Company utilized borrowings on its Credit Facility to finance the purchase. Management does not believe that the acquisition will have a significant effect on the Company's results of operations. OTHER The Board of Directors has approved an agreement (the "Merger Agreement") providing for the merger of the Company and its principal stockholder, Durwood, Inc. ("DI"), with the Company remaining as the surviving entity (the "Merger"). The Merger has been sought by members of the Durwood family so that they may hold their interests in the Company directly instead of indirectly through DI and a related entity. In the Merger, stockholders of DI would exchange their shares of DI stock for shares of the Company's stock. Although the outstanding shares of the Company's Common Stock will increase and the outstanding shares of its Class B Stock will decrease if the Merger is effected, no aggregate increase in total outstanding shares will occur because the shares of the Company owned by DI will be canceled and the shares of the Company held by other stockholders would not be exchanged in the Merger. A condition to the Merger is that the Merger Agreement receive approval of the holders of a majority of the shares of Common Stock other than DI, the Durwood family, their spouses and children and officers and directors of the Company. DI is primarily a holding company with no significant operations or assets other than its equity interest in the Company. Management expects that the Merger will be accounted for as a corporate reorganization and that, accordingly, the recorded balances for consolidated assets, liabilities, total stockholders' equity and results of operations of the Company would not be affected. If the Merger occurs, the Company will be responsible for paying 50% of its costs in connection with the Merger; the aggregate merger costs for both the Company and DI are estimated to be approximately $2 million. Management does not believe that the transaction will have a significant effect on the Company's financial condition, liquidity or capital resources. The Company is in the process of modifying its computer applications to ensure their continuing functionality for the "Year 2000" and beyond. At the present time the Company estimates that expenses related to this project will total approximately $1.5 million to $2.0 million. These total estimated expenses are expected to be incurred during fiscal years 1998 and 1999. AMC ENTERTAINMENT INC. - ------------------------ 32 35 Congress passed legislation to increase the federal minimum hourly wage paid to hourly wage employees over a two-year period. This legislation will increase the aggregate average hourly wage paid by the Company. The Company intends to relieve the cost pressure from the minimum wage increase by pursuing better labor and operating efficiencies as well as some price adjustments for theatres in certain markets. Such legislation is not expected to have a material adverse effect on the Company's results of operations, liquidity or financial condition. IMPACT OF INFLATION Historically, the principal impact of inflation and changing prices upon the Company has been to increase the costs of the construction of new theatres, the purchase of theatre equipment and the utility and labor costs incurred in connection with continuing theatre operations. Film rentals expense, the largest cost of operations of the Company, is customarily paid as a percentage of admissions revenues and hence, while the film rentals expense may increase on an absolute basis, the percentage of admissions revenues represented by such expense is not directly affected by inflation. Except as set forth above, inflation and changing prices have not had a significant impact on the Company's total revenues and results of operations. RECENTLY ISSUED FINANCIAL ACCOUNTING PRONOUNCEMENTS During fiscal 1996, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation. The Statement allows companies to measure compensation cost in connection with employee stock compensation plans using a fair value based method or to continue to use an intrinsic value based method to account for stock options and awards. The Company has chosen to continue using the intrinsic value based method while adopting the disclosure-only provisions of the pronouncement. During fiscal 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 ("SFAS 128"), Earnings per Share. SFAS 128 eliminates the presentation of primary and fully diluted earnings per share ("EPS") and requires presentation of basic and diluted EPS. The principal difference between primary and basic EPS is that common stock equivalents are not included with the weighted average number of shares outstanding used in the computation of basic EPS. Diluted EPS is computed similarly to fully diluted EPS. SFAS 128 is effective for periods ending after December 15, 1997, including interim periods, and requires restatement of all prior-period EPS data. Early adoption is not permitted. Management has not yet determined the impact that this statement will have on the Company. AMC ENTERTAINMENT INC. ------------------------ 33 36 RESPONSIBILITY FOR PREPARATION OF FINANCIAL STATEMENTS TO THE STOCKHOLDERS OF AMC ENTERTAINMENT INC. The accompanying consolidated financial statements and related notes of AMC Entertainment Inc. and subsidiaries were prepared by management in conformity with generally accepted accounting principles appropriate in the circumstances. In preparing the financial statements, management has made judgments and estimates based on currently available information. Management is responsible for the information; representations contained elsewhere in this Annual Report are consistent with the financial statements. The Company has a formalized system of internal accounting controls designed to provide reasonable assurance that assets are safeguarded and that its financial records are reliable. Management monitors the system for compliance to measure its effectiveness and recommends possible improvements. In addition, as part of their audit of the consolidated financial statements, the Company's independent accountants review and test the internal accounting controls on a selected basis to establish a basis of reliance in determining the nature, extent and timing of audit tests to be applied. The Board of Directors oversees financial reporting and internal accounting control through its Audit Committee. This committee meets (jointly and separately) with the independent accountants, management and internal auditor to monitor the proper discharge of responsibilities relative to internal accounting controls and consolidated financial statements. /s/ Peter C. Brown Peter C. Brown President and Chief Financial Officer AMC ENTERTAINMENT INC. - ------------------------ 34 37 REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF AMC ENTERTAINMENT INC. KANSAS CITY, MISSOURI We have audited the accompanying consolidated balance sheets of AMC Entertainment Inc. and subsidiaries as of April 3, 1997 and March 28, 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for the year (53 weeks) ended April 3, 1997 and the years (52 weeks) ended March 28, 1996 and March 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of AMC Entertainment Inc. and subsidiaries as of April 3, 1997 and March 28, 1996, and the consolidated results of their operations and their cash flows for the year (53 weeks) ended April 3, 1997 and the years (52 weeks) ended March 28, 1996 and March 30, 1995, in conformity with generally accepted accounting principles. /s/ Cooper & Lybrand L.L.P. Kansas City, Missouri May 16, 1997 AMC ENTERTAINMENT INC. ------------------------ 35 38 CONSOLIDATED STATEMENTS OF OPERATIONS
53 Weeks Ended 52 Weeks Ended 52 Weeks Ended -------------------------------------------------- April 3, March 28, March 30, (In thousands, except per share amount) 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------- Revenues Admissions $492,951 $431,361 $371,145 Concessions 225,167 196,645 169,120 Other 31,479 27,966 23,079 ----------------------------------------------- Total revenues 749,597 655,972 563,344 Expenses Film rentals 247,199 215,099 182,669 Concession costs 36,748 30,417 24,383 Other 296,055 245,842 225,711 ----------------------------------------------- Total cost of operations 580,002 491,358 432,763 General and administrative 56,647 52,059 41,639 Depreciation and amortization 59,803 43,886 37,913 ----------------------------------------------- Total expenses 696,452 587,303 512,315 ----------------------------------------------- Operating income 53,145 68,669 51,029 Other expense (income) Interest expense Corporate borrowings 12,016 18,099 24,502 Capital lease obligations 10,006 10,729 11,406 Investment income (856) (7,052) (10,013) Loss on disposition of assets 84 222 156 ----------------------------------------------- Earnings before income taxes and extraordinary item 31,895 46,671 24,978 Income tax provision 12,900 19,300 (9,000) ----------------------------------------------- Earnings before extraordinary item 18,995 27,371 33,978 Extraordinary item - Loss on extinguishment of debt (net of income tax benefit of $13,400) - (19,350) - ----------------------------------------------- Net earnings $ 18,995 $ 8,021 $ 33,978 =============================================== Preferred dividends 5,907 7,000 7,000 ----------------------------------------------- Net earnings for common shares $ 13,088 $ 1,021 $ 26,978 =============================================== Earnings per share before extraordinary item: Primary $ .74 $ 1.21 $ 1.63 =============================================== Fully diluted $ .73 $ 1.20 $ 1.45 =============================================== Earnings per share: Primary $ .74 $ .06 $ 1.63 =============================================== Fully diluted $ .73 $ .06 $ 1.45 =============================================== See Notes to Consolidated Financial Statements.
AMC ENTERTAINMENT INC. - ------------------------ 36 39 CONSOLIDATED BALANCE SHEETS
April 3, March 28, (In thousands, except share amounts) 1997 1996 - ------------------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and equivalents $ 24,715 $ 10,795 Receivables, net of allowance for doubtful accounts of $704 as of April 3, 1997 and $801 as of March 28, 1996 42,188 20,503 Other current assets 16,769 15,179 ---------------------------- Total current assets 83,672 46,477 Property, net 543,058 355,485 Intangible assets, net 28,679 36,483 Other long-term assets 62,804 45,013 ---------------------------- Total assets $718,213 $483,458 ============================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 88,367 $ 59,353 Accrued expenses and other liabilities 42,459 43,319 Current maturities of corporate borrowings and capital lease obligations 3,441 2,904 ---------------------------- Total current liabilities 134,267 105,576 Corporate borrowings 315,046 126,127 Capital lease obligations 55,237 59,141 Other long-term liabilities 43,651 33,696 ---------------------------- Total liabilities 548,201 324,540 Commitments and contingencies Stockholders' equity: $1.75 Cumulative Convertible Preferred Stock, 66 2/3 cents par value; 3,303,600 and 4,000,000 shares issued and outstanding as of April 3, 1997, and March 28, 1996, respectively (aggregate liquidation preference of $82,590 and $100,000 as of April 3, 1997 and March 28, 1996, respectively) 2,202 2,667 Common Stock, 66 2/3 cents par value; 6,,604,469 and 5,388,880 shares issued as of April 3, 1997, and March 28, 1996, respectively 4,403 3,593 Convertible Class B Stock, 66 2/3 cents par value; 11,157,000 shares issued and outstanding 7,438 7,438 Additional paid-in capital 107,781 107,986 Foreign currency translation adjustment (2,048) - Retained earnings 50,605 37,603 ---------------------------- 170,381 159,287 Less - Common Stock in treasury, at cost, 20,500 shares as of April 3, 1997 and March 28, 1996 369 369 ---------------------------- Total stockholders' equity 170,012 158,918 ---------------------------- Total liabilities and stockholders' equity $718,213 $483,458 ============================ See Notes to Consolidated Financial Statements.
AMC ENTERTAINMENT INC. ------------------------ 37 40 CONSOLIDATED STATEMENTS OF CASH FLOWS
53 Weeks Ended 52 Weeks Ended 52 Weeks Ended --------------------------------------------------- April 3, March 28, March 30, (In thousands) 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------- Increase (Decrease) in Cash and Equivalents Cash flows from operating activities: Net earnings $ 18,995 $ 8,021 $ 33,978 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 59,803 43,886 37,913 Deferred income taxes (2,476) (1,328) (21,285) Gain on sale of available for sale investments - - (1,407) Extraordinary item - 19,350 - Loss on sale of long-term assets 84 222 156 Change in assets and liabilities: Receivables (609) (1,537) 807 Other current assets 1,578 10,167 (578) Accounts payable 41,486 7,458 341 Accrued expenses and other liabilities 12,441 7,640 (5,763) Other, net 2,772 2,968 204 ----------------------------------------------- Total adjustments 115,079 88,826 10,388 ----------------------------------------------- Net cash provided by operating activities 134,074 96,847 44,366 ----------------------------------------------- Cash flows from investing activities: Capital expenditures (253,380) (120,796) (56,403) Purchase of real estate investment (7,692) - - Acquisition of minority interest (7,400) - - Purchases of available for sale investments - (424,134) (314,368) Proceeds from maturities of available for sale investments - 493,278 364,374 Proceeds from sales of available for sale investments - - 11,689 Proceeds from disposition of long-term assets 15,054 2,243 70 Net change in refundable construction advances (21,076) (10,394) (182) Other, net (9,423) (7,045) (1,516) ----------------------------------------------- Net cash provided by (used in) investing activities (283,917) (66,848) 3,664 ----------------------------------------------- Cash flows from financing activities: Net borrowings (repayments) under revolving credit facility (10,000) 120,000 - Proceeds from issuance of 9 1/2% Senior Subordinated Notes 198,938 - - Principal payments under capital lease obligations (2,835) (2,455) (2,088) Repurchase of 11 7/8% Senior and 12 5/8% Senior Subordinated Notes - (220,734) - Cash overdrafts (11,673) 22,848 - Other repayments - (404) (34) Proceeds from exercise of stock options 140 878 239 Dividends paid on preferred stock (5,993) (7,000) (7,233) Deferred financing costs and other (4,595) (3,570) - ----------------------------------------------- Net cash provided by (used in) financing activities 163,982 (90,437) (9,116) ----------------------------------------------- Effect of exchange rate changes on cash and equivalents (219) - - ----------------------------------------------- Net increase (decrease) in cash and equivalents 13,920 (60,438) 38,914 Cash and equivalents at beginning of year 10,795 71,233 32,319 ----------------------------------------------- Cash and equivalents at end of year $ 24,715 $ 10,795 $ 71,233 ===============================================
AMC ENTERTAINMENT INC. - ------------------------ 38 41 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: During 1995, capital lease obligations of $1,363 were incurred in connection with property acquired. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
53 Weeks Ended 52 Weeks Ended 52 Weeks Ended --------------------------------------------------- April 3, March 28, March 30, (In thousands) 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------- Cash paid during the period for: Interest (net of amounts capitalized of $3,344, $3,003 and $870) $24,188 $34,775 $35,878 Income taxes, net 6,285 9,787 14,822 See Notes to Consolidated Financial Statements.
AMC ENTERTAINMENT INC. ------------------------ 39 42 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Preferred Stock Common Stock (In thousands, except share and per share amounts) Shares Amount Shares Amount - ------------------------------------------------------------------------------------------------------------------------ Balance, April 1, 1994 4,000,000 $2,667 5,266,830 $3,511 Net earnings - - - - Exercise of options on Common Stock - - 39,550 27 Dividends declared: $1.75 Preferred Stock - - - - --------------------------------------------------------------- Balance, March 30, 1995 4,000,000 2,667 5,306,380 3,538 Net earnings - - - - Exercise of options on Common Stock - - 82,500 55 Dividends declared: $1.75 Preferred Stock - - - - Acquisition of Common Stock in Treasury - - - - --------------------------------------------------------------- Balance, March 28, 1996 4,000,000 2,667 5,388,880 3,593 Net earnings - - - - Exercise of options on Common Stock - - 15,000 10 Preferred Stock conversions (696,400) (465) 1,200,589 800 Dividends declared: $1.75 Preferred Stock - - - - Foreign currency translation adjustment - - - - --------------------------------------------------------------- Balance, April 3, 1997 3,303,600 $2,202 6,604,469 $4,403 =============================================================== See Notes to Consolidated Financial Statements. AMC ENTERTAINMENT INC. - ------------------------ 40 43 Additional Foreign Currency Class B Stock Paid-in Translation Shares Amount Capital Adjustment - ------------------------------------------------------------------------------------------------------------------------------ Balance, April 1, 1994 11,157,000 $7,438 $106,951 $ - Net earnings - - - - Exercise of options on Common Stock - - 212 - Dividends declared: $1.75 Preferred Stock - - - - ---------------------------------------------------------------------- Balance, March 30, 1995 11,157,000 7,438 107,163 - Net earnings - - - - Exercise of options on Common Stock - - 823 - Dividends declared: $1.75 Preferred Stock - - - - Acquisition of Common Stock in Treasury - - - - ---------------------------------------------------------------------- Balance, March 28, 1996 11,157,000 7,438 107,986 - Net earnings - - - - Exercise of options on Common Stock - - 130 - Preferred Stock conversions - - (335) - Dividends declared: $1.75 Preferred Stock - - - - Foreign currency translation adjustment - - - (2,048) ---------------------------------------------------------------------- Balance, April 3, 1997 11,157,000 $7,438 $107,781 $(2,048) ====================================================================== Common Stock Total Retained in Treasury Stockholders' Earnings Shares Amount Equity - ------------------------------------------------------------------------------------------------------------------------ Balance, April 1, 1994 $ 9,837 - $ - $130,404 Net earnings 33,978 - - 33,978 Exercise of options on Common Stock - - - 239 Dividends declared: $1.75 Preferred Stock (7,233) - - (7,233) -------------------------------------------------------------- Balance, March 30, 1995 36,582 - - 157,388 Net earnings 8,021 - - 8,021 Exercise of options on Common Stock - - - 878 Dividends declared: $1.75 Preferred Stock (7,000) - - (7,000) Acquisition of Common Stock in Treasury - 20,500 (369) (369) -------------------------------------------------------------- Balance, March 28, 1996 37,603 20,500 (369) 158,918 Net earnings 18,995 - - 18,995 Exercise of options on Common Stock - - - 140 Preferred Stock conversions - - - - Dividends declared: $1.75 Preferred Stock (5,993) - - (5,993) Foreign currency translation adjustment - - - (2,048) -------------------------------------------------------------- Balance, April 3, 1997 $50,605 20,500 $ (369) $170,012 ==============================================================
AMC ENTERTAINMENT INC. ------------------------ 41 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year (53 Weeks) Ended April 3, 1997 and Years (52 Weeks) Ended March 28, 1996 and March 30, 1995 NOTE 1 - THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES AMC Entertainment Inc. ("AMCE") is a holding company, which through its direct and indirect subsidiaries, including American Multi-Cinema, Inc. ("AMC") and its subsidiaries (collectively with AMCE, unless the context otherwise requires, the "Company"), is principally involved in the operation of motion picture theatres throughout the United States and in Japan and Portugal. 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, National Cinema Network, Inc. Approximately 78% of AMCE's outstanding voting securities are owned by Durwood, Inc. ("DI"). See Note 12 for further description of AMCE's transactions with DI. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management's knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results. Principles of Consolidation: The consolidated financial statements include the accounts of AMCE and all subsidiaries. All significant intercompany balances and transactions have been eliminated. Fiscal Year: The Company has a 52/53 week fiscal year ending on the Thursday closest to the last day of March. The 1997 fiscal year reflects a 53 week period, fiscal years 1996 and 1995 each reflect a 52 week period. Fiscal year 1998 will reflect a 52 week period. Revenues and Film Rental Costs: Revenues are recognized when admissions and concessions sales are received at the theatres. Film rental costs are recognized based on the applicable box office receipts and the terms of the film licenses. Cash and Equivalents: Cash and equivalents consists of cash on hand and temporary cash investments with original maturities of less than thirty days. The Company invests excess cash in deposits with major banks and in temporary cash investments. Such investments are made only in instruments issued or enhanced by high quality financial institutions (investment grade or better). Amounts invested in a single institution are limited to minimize risk. 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. AMC ENTERTAINMENT INC. - ------------------------ 42 45 The amount of these checks included in accounts payable as of April 3, 1997 and March 28, 1996 was $11,175,000 and $22,848,000, respectively. Investments: For purposes of determining gross realized gains and losses, the cost of investment securities sold is determined upon specific identification. Proceeds and gross realized gains from the sales in 1995 of equity securities classified as other long-term assets as of March 31, 1994 were $11,689,000 and $1,407,000, respectively. Refundable Construction Advances: Included in receivables as of April 3, 1997 and March 28, 1996 is $33,193,000 and $12,117,000, respectively, due from developers to fund a portion of the construction costs of new theatres that are to be operated by the Company pursuant to lease agreements. These amounts are repaid by the developers either during construction or shortly after completion. Property: Property is recorded at cost. The Company uses the straight-line method in computing depreciation and amortization for financial reporting purposes and accelerated methods, with respect to certain assets, for income tax purposes. The estimated useful lives are generally as follows: Buildings and improvements 20 to 40 years Leasehold improvements 5 to 25 years Furniture, fixtures and equipment 3 to 10 years Expenditures for additions (including interest during construction), major renewals and betterments are capitalized, and expenditures for maintenance and repairs are charged to expense as incurred. The cost of assets retired or otherwise disposed of and the related accumulated depreciation are eliminated from the accounts in the year of disposal. Gains or losses resulting from property disposals are credited or charged to operations currently. Intangible Assets: Intangible assets are recorded at cost and are comprised of lease rights, which are amounts assigned to theatre leases assumed under favorable terms, and location premiums on acquired theatres which are being amortized on a straight-line basis over the estimated remaining useful life of the theatre. Accumulated amortization on intangible assets was approximately $41,690,000 and $36,035,000 as of April 3, 1997 and March 28, 1996, respectively. Effective December 30, 1994, the Company reduced the estimated lives of lease rights and location premiums on certain smaller theatres to correspond to the base terms of the theatre leases. This change in accounting estimate was made to better match the estimated life of the intangible assets with the life of the theatre due to the Company's strategic plans to primarily own and operate larger theatres. The effect of this change in estimate was to increase amortization expense in 1995 by $1,542,000 and decrease net earnings by $876,000, or $.05 per share. AMC ENTERTAINMENT INC. ------------------------ 43 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year (53 Weeks) Ended April 3, 1997 and Years (52 Weeks) Ended March 28, 1996 Other Long-term Assets: Other long-term assets are comprised principally of costs incurred in connection with the issuance of debt securities which are being amortized over the respective life of the issue; investments in real estate; investments in partnerships and corporate joint ventures accounted for under the equity method; preopening costs relating to new theatres which are being amortized over two years; and long-term deferred income taxes. Foreign Currency Translation: The financial statements of subsidiaries outside the United States are generally measured using the local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at the rates of exchange at the balance sheet date. Income and expense items are translated at average rates of exchange. The resultant translation adjustments are included in foreign currency translation adjustment, a separate component of stockholders' equity. Gains and losses from foreign currency transactions of these subsidiaries are included in net earnings and have not been material. Income Taxes: Income taxes are calculated in accordance with Statement of Financial Accounting Standards No. 109 ("SFAS 109"), Accounting for Income Taxes. The statement requires that deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. Earnings per Share: Primary earnings per share is computed by dividing net earnings for common shares by the sum of the weighted average number of common shares outstanding and outstanding stock options, when their effect is dilutive. The average shares used in the computations were 17,726,000 in 1997, 16,795,000 in 1996 and 16,593,000 in 1995. On a fully diluted basis, both net earnings and shares outstanding are adjusted to assume the conversion of $1.75 Cumulative Convertible Preferred Stock, if dilutive. The average shares used in the computations were 17,940,000 in 1997, 17,031,000 in 1996 and 23,509,000 in 1995. Changes in Accounting Principles: During fiscal 1996, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation. The Statement allows companies to measure compensation cost in connection with employee stock compensation plans using a fair value based method or to continue to use an intrinsic value based method to account for stock options and awards. The Company has chosen to continue using the intrinsic value based method while adopting the disclosure-only provisions of the pronouncement. AMC ENTERTAINMENT INC. - ------------------------ 44 47 During the fourth quarter of fiscal 1996, the Company adopted 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 121"). This Statement establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles and goodwill related to those assets to be held and used. In connection with the adoption of this Statement, the Company reviewed the assets and related intangibles of its motion picture theatres for impairment on a disaggregated basis. The expected future cash flows of certain theatres, undiscounted and without interest charges, were less than the carrying value of the assets. As a result, the Company recognized an impairment loss of $1,799,000. The impairment loss represents the amount by which the carrying value of the theatre assets, including intangibles, exceeded the estimated fair value of those assets. The estimated fair value of assets was determined as the present value of estimated expected future cash flows. The loss is included in depreciation and amortization in the Consolidated Statements of Operations. During fiscal 1997, the Company continued to review the assets and related intangibles of its motion picture theatres for impairment in accordance with the provisions of SFAS 121. As a result of expected declines in future cash flows of certain theatres, the Company recognized an impairment loss of $7,231,000 which is included in depreciation and amortization in the Consolidated Statements of Operations. During fiscal 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 ("SFAS 128"), Earnings per Share. SFAS 128 eliminates the presentation of primary and fully diluted earnings per share ("EPS") and requires presentation of basic and diluted EPS. The principal difference between primary and basic EPS is that common stock equivalents are not included with the weighted average number of shares outstanding used in the computation of basic EPS. Diluted EPS is computed similarly to fully diluted EPS. SFAS 128 is effective for periods ending after December 15, 1997, including interim periods, and requires restatement of all prior-period EPS data. Early adoption is not permitted. Management has not yet determined the impact that this statement will have on the Company. Presentation: Certain amounts have been reclassified from prior period consolidated financial statements to conform with the current year presentation. NOTE 2 - ACQUISITION On January 10, 1997, the Company purchased the 20% minority interest in the common stock of AMC Philadelphia, Inc., an 80% owned subsidiary, for $7,400,000 in cash. The acquisition has been accounted for using the purchase method of accounting. The excess of the purchase price over the fair value of the assets acquired is AMC ENTERTAINMENT INC. ------------------------ 45 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year (53 Weeks) Ended April 3, 1997 and Years (52 Weeks) Ended March 28, 1996 and March 30, 1995 being amortized on a straight-line basis over the estimated useful life of the assets acquired. NOTE 3 - PROPERTY A summary of property is as follows:
(In thousands) 1997 1996 - ------------------------------------------------------------------------------------------------------------ Property owned: Land $ 60,090 $ 35,610 Buildings and improvements 221,396 146,061 Furniture, fixtures and equipment 264,619 205,761 Leasehold improvements 211,720 146,152 -------------------------- 757,825 533,584 Less-accumulated depreciation and amortization 246,476 213,654 -------------------------- 511,349 319,930 Property leased under capital leases: Buildings 66,074 67,274 Less-accumulated amortization 34,365 31,719 -------------------------- 31,709 35,555 -------------------------- $543,058 $355,485 ========================== Included in property is $83,558,000 and $35,289,000 of construction in progress as of April 3, 1997 and March 28, 1996, respectively. AMC ENTERTAINMENT INC. - ------------------------ 46 49 NOTE 4 - OTHER ASSETS AND LIABILITIES Other assets and liabilities consist of the following:
(In thousands): 1997 1996 - ------------------------------------------------------------------------------------------------------------ Other current assets: Prepaid rent $ 7,366 $ 6,412 Prepaid income taxes - 3,074 Deferred income taxes 6,376 3,207 Other 3,027 2,486 ------------------------- $16,769 $15,179 ========================= Other long-term assets: Investments in real estate $15,329 $ 6,922 Investments in partnerships and corporate joint ventures 733 1,121 Deferred charges, net 12,147 6,203 Deferred income taxes 23,813 24,506 Preopening costs 6,519 2,636 Other 4,263 3,625 ------------------------- $62,804 $45,013 ========================= Accrued expenses and other liabilities: Taxes other than income $10,030 $ 7,110 Income taxes 6,017 - Interest 1,512 841 Payroll and vacation 4,982 6,149 Casualty claims and premiums 4,655 2,034 Deferred income 8,911 11,634 Accrued bonus 3,974 7,634 Other 2,378 7,917 ------------------------- $42,459 $43,319 =========================
AMC ENTERTAINMENT INC. ------------------------ 47 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year (53 Weeks) Ended April 3, 1997 and Years (52 Weeks) Ended March 28, 1996 and March 30, 1995 NOTE 5 - CORPORATE BORROWINGS AND CAPITAL LEASE OBLIGATIONS A summary of corporate borrowings and capital lease obligations is as follows:
(In thousands) 1997 1996 - ------------------------------------------------------------------------------------------------------------ $425 million revolving Credit Facility due 2004 $110,000 $120,000 11 7/8% Senior Notes due 2000 615 614 9 1/2% Senior Subordinated Notes due 2009 198,940 - 12 5/8% Senior Subordinated Notes due 2002 4,882 4,878 Capital lease obligations, interest ranging from 7 1/4% to 20% 58,652 62,022 Other indebtedness 635 658 -------------------------- Total 373,724 188,172 Less-current maturities 3,441 2,904 -------------------------- $370,283 $185,268 ==========================
On December 28, 1995, the Company completed the redemption of $99,383,000 of its outstanding 11 7/8% Senior Notes due 2000 at a price of $1,117.90 per $1,000 principal amount and $95,096,000 of its outstanding 12 5/8% Senior Subordinated Notes due 2002 at a price of $1,144.95 per $1,000 principal amount. In addition, the terms of the Indentures governing the remaining Senior and Senior Subordinated Notes were amended to eliminate certain restrictive covenants. Sources of funds for the redemption were cash and investments on hand and borrowings on a credit facility. Premiums paid to redeem the Senior and Senior Subordinated Notes, together with the write-off of unamortized debt issue costs and other costs directly related to the debt redemptions, resulted in an extraordinary loss of $19,350,000, net of income tax benefit of $13,400,000. The extraordinary loss reduced earnings per share by $1.15 for the year (52 weeks) ended March 28, 1996. As a part of the refinancing plan, the Company entered into a $425 million credit facility (the "Credit Facility"), which was amended and restated as of April 10, 1997. The Credit Facility permits borrowings at interest rates based on either the bank's base rate or LIBOR and requires an annual commitment fee based on margin ratios that could result in a rate of .1875% to .375% on the unused portion of the commitment. The Credit Facility matures in 2004. The commitment thereunder will reduce by $25 million on each of December 31, 2002, March 31, 2003, June 30, 2003 and September 30, 2003 and by $50 million on December 31, 2003. As of April 3, 1997, the Company had outstanding borrowings of $110,000,000 under the Credit Facility at an average interest rate of 6.4% per annum. AMC ENTERTAINMENT INC. - ------------------------ 48 51 Covenants of the Credit Facility impose limitations on the incurrence of additional indebtedness, creation of liens, change of control, transactions with affiliates, mergers, investments, guaranties, asset sales, business activities and pledges. The Company is also required to maintain certain financial covenants, as defined in the Credit Facility. As of April 3, 1997, the Company was in compliance with all financial covenants relating to the Credit Facility. Prior to its April 10, 1997 amendment and restatement, the Credit Facility contained a covenant that generally limited the Company's capital expenditures. This covenant has been eliminated. Costs related to the establishment of the Credit Facility were capitalized and are charged to interest expense over the life of the Credit Facility. Unamortized issuance costs of $2,821,000 as of April 3, 1997 are included in other long-term assets. On March 19, 1997, the Company sold $200 million of Senior Subordinated Notes due 2009 (the "Notes"). The Notes bear interest at the rate of 9 1/2% per annum, payable in March and September. The Notes are redeemable at the option of the Company, in whole or in part, at any time on or after March 15, 2002 at 104.75% of the principal amount thereof, declining ratably to 100% of the principal amount thereof on or after March 15, 2006, plus in each case interest accrued to the redemption date. Upon a change of control (as defined in the Note Indenture), each holder of the Notes will have the right to require the Company to repurchase such holder's Notes at a price equal to 101% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase. The Notes are subordinated to all existing and future senior indebtedness (as defined in the Note Indenture) of the Company. The Note Indenture contains certain covenants that, among other things, restrict the ability of the Company and its subsidiaries to incur additional indebtedness and pay dividends or make distributions in respect of their capital stock. If the Notes attain "investment grade status" (as defined in the Note Indenture), the covenants in the Note Indenture limiting the Company's ability to incur additional indebtedness and pay dividends will cease to apply. As of April 3, 1997, the Company was in compliance with all financial covenants relating to the Note Indenture. The Note Indenture also requires the Company to use its best efforts to consummate a registered offer to exchange the Notes (the "Exchange Offer") for notes of AMCE with terms identical in all material respects to the Notes or cause a shelf registration statement with respect to the Notes to become effective. In the event that certain filing deadlines as specified in the Note Indenture are not met, the interest rate borne by the Notes could increase as much as 1.0% per annum. The Company anticipates meeting its filing deadlines. AMC ENTERTAINMENT INC. ------------------------ 49 52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year (53 Weeks) Ended April 3, 1997 and Years (52 Weeks) Ended March 28, 1996 and March 30, 1995 The discount on the Notes is being amortized to interest expense following the interest method of amortization. Costs related to the issuance of the Notes were capitalized and are charged to interest expense, following the interest method, over the life of the securities. Unamortized issuance costs of $4,572,000 as of April 3, 1997 are included in other long-term assets. Minimum annual payments required under existing capital lease obligations (net present value thereof) and maturities of corporate borrowings as of April 3, 1997, are as follows:
Capital Lease Obligations -------------------------------------- Minimum Net Lease Less Present Corporate (In thousands) Payments Interest Value Borrowings Total - ------------------------------------------------------------------------------------------------------------------------ 1998 $ 12,795 $ 9,380 $ 3,415 $ 26 $ 3,441 1999 12,800 8,715 4,085 30 4,115 2000 12,211 8,026 4,185 34 4,219 2001 11,939 7,294 4,645 653 5,298 2002 11,110 6,529 4,581 43 4,624 Thereafter 70,161 32,420 37,741 314,286 352,027 -------------------------------------------------------------------- Total $131,016 $72,364 $58,652 $315,072 $373,724 ====================================================================
The Company maintains a letter of credit in the normal course of its business. The unused portion of the letter of credit was $2,378,000 as of April 3, 1997. NOTE 6 - STOCKHOLDERS' EQUITY The authorized Common Stock of AMCE consists of two classes of stock. Except for the election of directors, each holder of Common Stock (66 2/3 cents par value; 45,000,000 shares authorized) is entitled to one vote per share, and each holder of Class B Stock (66 2/3 cents par value; 30,000,000 shares authorized) is entitled to 10 votes per share. Common stockholders voting as a class are presently entitled to elect two of the seven members of AMCE's Board of Directors with Class B stockholders electing the remainder. Holders of the Company's stock have no pre-emptive or subscription rights and there are no restrictions with respect to transferability. Holders of the Common Stock have no conversion rights, but holders of Class B Stock may elect to convert at any time on a share-for-share basis into Common Stock. The Company has authorized 10,000,000 shares of Preferred Stock (66 2/3 cents par value), of which 3,303,600 shares of $1.75 Cumulative Convertible Preferred Stock (66 2/3 cents par value) (the "Convertible Preferred Stock") are issued and outstanding. Dividends are payable quarterly at an annual rate of $1.75 per share. AMC ENTERTAINMENT INC. - ------------------------ 50 53 The Convertible Preferred Stock has preference in liquidation in the amount of $25 per share plus accrued and unpaid dividends. The Convertible Preferred Stock is convertible at the option of the holder into shares of Common Stock at a conversion price of $14.50 per share of Common Stock, subject to change in certain events. In lieu of conversion the Company may, at its option, pay to the holder cash equal to the then market value of the Common Stock. The Company may redeem in whole or in part the Convertible Preferred Stock at a redemption price beginning at $26.00 per share, declining ratably to $25.00 per share after March 15, 2001. During 1997, various holders of the Company's Convertible Preferred Stock converted 696,400 shares into 1,200,589 shares of Common Stock at a conversion rate of 1.724 shares of Common Stock for each share of Convertible Preferred Stock. Stock-Based Compensation Plans In June 1983, AMCE adopted a stock option plan (the "1983 Plan") for selected employees. This plan provided for the grant of rights to purchase shares of Common Stock under both incentive and non-incentive stock option agreements. The number of shares which could be sold under the plan could not exceed 750,000 shares. The 1983 Plan provided that the exercise price could not be less than the fair market value of the stock at the date of grant and unexercised options expired no later than ten years after date of grant. Pursuant to the terms of the 1983 Plan, no further options may be granted under this plan. In September 1984, AMCE adopted a non-qualified stock option plan (the "1984 Plan"). This plan provided for the grant of rights to purchase shares of Common Stock under non-qualified stock option agreements. The number of shares which could be sold under the plan could not exceed 750,000 shares. The 1984 Plan provided that the exercise price would be determined by the Company's Stock Option Committee and that the options expired no later than ten years after date of grant. Pursuant to the terms of the 1984 Plan, no further options may be granted under this plan. In November 1994, AMCE adopted a stock option and incentive plan (the "1994 Plan"). This plan provides for three basic types of awards: (i) grants of stock options which are either incentive or non-qualified stock options, (ii) grants of stock awards, which may be either performance or restricted stock awards, and (iii) performance unit awards. The number of shares of Common Stock which may be sold or granted under the plan may not exceed 1,000,000 shares. The 1994 Plan provides that the exercise price for stock options may not be less than the fair market value of the stock at the date of grant and unexercised options expire no later than ten years after date of grant. Options issued under the 1994 Plan vest over two years from the date of issuance. AMC ENTERTAINMENT INC. ------------------------ 51 54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year (53 Weeks) Ended April 3, 1997 and Years (52 Weeks) Ended March 28, 1996 and March 30, 1995 The Company has adopted the disclosure-only provisions of SFAS 123. As permitted by SFAS 123, the Company has chosen to continue to account for stock-based compensation using the intrinsic value method. Accordingly, no compensation expense has been recognized for the Company's stock-based compensation plans other than for performance-based stock awards. In 1997 and 1996, the Company granted to certain individuals stock awards which are issuable at the end of a performance period ending April 2, 1998 based on certain performance criteria. The number of shares which may be issued at the end of the performance period ranges from zero to 216,000. The Company recognized compensation expense for performance stock awards of $586,000 and $772,000 in 1997 and 1996, respectively. Had compensation expense for the Company's plans been determined based on the fair value at the grant dates for stock options and awards granted in 1997 and 1996, the Company's net earnings and net earnings for common shares would have been different. The pro forma amounts under SFAS 123 are indicated below:
(In thousands except per share amounts) 1997 1996 - ------------------------------------------------------------------------------------------------------------------ Net earnings As reported $18,995 $8,021 Pro forma $18,664 $8,210 Net earnings per common share As reported $ .74 $ .06 Pro forma $ .72 $ .07
The following table reflects the weighted average fair value per option granted during the year, as well as the significant weighted average assumptions used in determining fair value using the Black-Scholes option-pricing model:
1997 1996 - ------------------------------------------------------------------------------------------------------------------ Fair value on grant date $11.63 $ 6.96 Risk-free interest rate 6.24% 5.64% Expected life (years) 5 5 Expected volatility 42.9 % 46.0 % Expected dividend yield - -
AMC ENTERTAINMENT INC. - ------------------------ 52 55 A summary of stock option activity under all plans is as follows:
1997 1996 1995 -------------------------------------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Number Exercise Price Number Exercise Price Number Exercise Price of Shares Per Share of Shares Per Share of Shares Per Share -------------------------------------------------------------------------------------------- Outstanding at beginning of year 487,500 $ 9.67 776,500 $ 9.57 813,300 $ 9.29 Granted 103,250 $ 24.80 23,250 $ 14.50 36,500 $ 11.75 Canceled (17,250) $ 10.04 (229,750) $ 9.46 (33,750) $ 9.38 Exercised (15,000) $ 9.375 (82,500) $ 10.65 (39,550) $ 6.01 -------------------------------------------------------------------------------------------- Outstanding at end of year 558,500 $ 12.47 487,500 $ 9.67 776,500 $ 9.57 ============================================================================================ Exercisable at end of year 365,875 $ 10.51 233,250 $ 9.45 230,000 $ 9.79 ============================================================================================ Available for grant at end of year 630,500 746,500 817,500 ============================================================================================
The following table summarizes information about stock options as of April 3, 1997:
Outstanding Stock Options Exercisable Stock Options - ---------------------------------------------------------------------------------------------------------------------------- Weighted-Average Range of Number Remaining Weighted-Average Number Weighted-Average Exercise Prices of Shares Contractual Life Exercise Price of Shares Exercise Price $ 9.25 to $ 11.75 436,500 6.3 years $ 9.46 335,250 $ 9.51 $ 14.50 to $ 18.50 29,250 8.7 years $ 15.94 9,375 $ 14.50 $ 24.50 to $ 26.375 92,750 9.1 years $ 25.52 21,250 $ 24.50 - ---------------------------------------------------------------------------------------------------------------------------- $ 9.25 to $ 26.375 558,500 6.9 years $ 12.47 365,875 $ 10.51 ============================================================================================================================
AMC ENTERTAINMENT INC. ------------------------ 53 56 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year (53 Weeks) Ended April 3, 1997 and Years (52 Weeks) Ended March 28, 1996 and March 30, 1995 NOTE 7 - INCOME TAXES Income taxes reflected in the Consolidated Statements of Operations for the three years ended April 3, 1997 are as follows:
(In thousands) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------ Current: Federal $ 11,418 $ 5,134 $ 7,738 State 3,958 2,094 4,547 --------------------------------------------- Total current 15,376 7,228 12,285 Deferred: Federal (2,114) (1,121) (1,238) State (362) (207) (255) Change in valuation allowance - - (19,792) --------------------------------------------- Total deferred (2,476) (1,328) (21,285) --------------------------------------------- Total provision 12,900 5,900 (9,000) Tax benefit of extraordinary item - extinguishment of debt - 13,400 - --------------------------------------------- Total provision before extraordinary item $ 12,900 $ 19,300 $ (9,000) =============================================
The effective tax rate on income before extraordinary items was 40.4%, 41.4%, and (36.0%) in 1997, 1996 and 1995, respectively. The difference between the effective rate and the U.S. federal income tax statutory rate of 35% is accounted for as follows:
(In thousands) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------ Tax on earnings before provision for income tax and extraordinary item at statutory rates $ 11,163 $ 16,335 $ 8,742 Add (subtract) tax effect of: State income taxes, net of federal tax benefit 2,258 3,163 2,973 Change in valuation allowance - - (19,792) Other, net (521) (198) (923) -------------------------------------------- Income tax provision $ 12,900 $ 19,300 $ (9,000) ============================================
AMC ENTERTAINMENT INC. - ------------------------ 54 57 The significant components of deferred income tax assets and liabilities as of April 3, 1997 and March 28, 1996 are as follows:
1997 1996 ---------------------------------------------------------------- Deferred Income Tax Deferred Income Tax (In thousands) Assets Liabilities Assets Liabilities - -------------------------------------------------------------------------------------------------------------------------- Accrued reserves and liabilities $ 9,189 $ 179 $ 5,323 $ 343 Investments in partnerships - 495 - 419 Capital lease obligations 11,464 - 10,852 - Depreciation 5,587 - 7,842 - Deferred rents 6,254 - 5,266 - Other 550 2,181 683 1,491 ---------------------------------------------------------------- Total 33,044 2,855 29,966 2,253 Less: Current deferred income taxes 6,586 210 3,702 495 ---------------------------------------------------------------- Total noncurrent deferred income taxes $ 26,458 $ 2,645 $ 26,264 $ 1,758 ================================================================ Net noncurrent deferred income taxes $ 23,813 $ 24,506 ================================================================
SFAS 109 requires that a valuation allowance be provided against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Based upon positive earnings in recent years and the expectation that taxable income will continue for the foreseeable future, management believes it is more likely than not that the Company will realize its deferred tax assets and, accordingly, no valuation allowance has been provided as of April 3, 1997 and March 28, 1996. NOTE 8 - LEASES The majority of the Company's operations are conducted in premises occupied under lease agreements with base terms ranging generally from 15 to 25 years, with certain leases containing options to extend the leases for up to an additional 20 years. The leases provide for fixed rentals and/or rentals based on revenues with a guaranteed minimum. The Company also leases certain equipment under leases expiring at various dates. The majority of the leases provide that the Company will pay all, or substantially all, taxes, maintenance, insurance and certain other operating expenses. Assets held under capital lease obligations are included in property. Performance under some leases has been guaranteed by DI. AMC ENTERTAINMENT INC. ------------------------ 55 58 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year (53 Weeks) Ended April 3, 1997 and Years (52 Weeks) Ended March 28, 1996 and March 30, 1995 Following is a schedule, by year, of future minimum rental payments required under existing operating leases that have initial or remaining non-cancellable terms in excess of one year as of April 3, 1997:
(In thousands) - -------------------------------------------------------------------------------- 1998 $ 68,551 1999 69,070 2000 68,406 2001 66,388 2002 63,748 Thereafter 722,341 ---------- Total minimum payments required $1,058,504 ==========
The Company has entered into agreements to lease space for the operation of theatres not yet fully constructed. The scheduled completion of construction and theatre openings are at various dates during fiscal 1998. The future minimum rental payments required under the terms of these leases total approximately $429 million. In addition, the Company entered into a master lease agreement during fiscal 1997 for three theatres with an expected cost of approximately $81 million. Rental amounts will be based on the final construction costs of the theatres and the lessor's cost of funds and will be finalized as the theatres open. The initial lease term under the agreement will be three years. The master lease agreement provides for a substantial residual value guarantee by the Company and includes purchase and renewal options. The Company expects these leases to be classified as operating leases. The Company records rent expense on a straight-line basis over the term of the lease. Included in long-term liabilities as of April 3, 1997 and March 28, 1996 is $16,278,000 and $12,858,000, respectively, of deferred rent representing pro rata future minimum rental payments for leases with scheduled rent increases. Rent expense is summarized as follows:
(In thousands) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------ Minimum rentals $ 80,670 $ 64,657 $ 59,790 Percentage rentals based on revenues 2,008 2,354 1,970 -------------------------------------------- $ 82,678 $ 67,011 $ 61,760 ============================================
AMC ENTERTAINMENT INC. - ------------------------ 56 59 NOTE 9 - EMPLOYEE BENEFIT PLANS The Company sponsors a non-contributory defined benefit pension plan covering, after a minimum of one year of employment, all employees age 21 or older, who have completed 1,000 hours of service in their first twelve months of employment or in a calendar year and who are not covered by a collective bargaining agreement. The plan calls for benefits to be paid to eligible employees at retirement based primarily upon years of credited service with the Company (not exceeding thirty-five) and the employee's highest five year average compensation. Contributions to the plan reflect benefits attributed to employees' services to date, as well as services expected to be earned in the future. Plan assets are invested in a group annuity contract with an insurance company pursuant to which the plan's benefits are paid to retired and terminated employees and the beneficiaries of deceased employees. The following table sets forth the plan's funded status as of December 31, 1996 and 1995 (plan valuation dates) and the amounts included in the Consolidated Balance Sheets as of April 3, 1997 and March 28, 1996:
(In thousands) 1997 1996 - ------------------------------------------------------------------------------------------------------------ Actuarial present value of accumulated benefit obligation, including vested benefits of $11,139 and $10,041 $ 11,309 $ 10,205 =========================== Projected benefit obligation for service rendered to date $ 18,489 $ 17,051 Plan assets at fair value (10,857) (9,580) --------------------------- Projected benefit obligation in excess of plan assets 7,632 7,471 Unrecognized net loss from past experience different from that assumed and effects of changes in assumptions (686) (1,509) Unrecognized net obligation upon adoption being recognized over 15 years (1,411) (1,588) --------------------------- Pension liability $ 5,535 $ 4,374 ===========================
Net pension expense includes the following components:
(In thousands) 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------- Service cost $ 1,191 $ 855 $ 1,261 Interest cost 1,188 966 971 Actual return on plan assets (1,218) (1,630) 55 Net amortization and deferral 563 1,096 (190) ------------------------------------------- Net pension expense $ 1,724 $ 1,287 $ 2,097 ===========================================
The Company also sponsors a non-contributory Supplemental Executive Retirement Plan (the "SERP") which provides certain employees additional pension benefits. The actuarial present value of accumulated plan benefits related to the SERP was $569,000 and $379,000 as of April 3, 1997 and March 28, 1996, respectively, which is reflected in the Consolidated Balance Sheets. AMC ENTERTAINMENT INC. ------------------------ 57 60 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year (53 Weeks) Ended April 3, 1997, and Years (52 Weeks) Ended March 28, 1996 and March 30, 1995 The weighted average discount rate used to measure the plans' projected benefit obligations was 7.0% for 1997 and 1996 and 7.75% in 1995. The rate of increase in future compensation levels was 6.0% for 1997, 1996 and 1995 and the expected long-term rate of return on assets was 8.5% for 1997, 1996 and 1995. A limited number of employees are covered by collective bargaining agreements under which payments are made to a union-administered fund. The Company sponsors a voluntary thrift savings plan covering the same employees eligible for the pension plan. Since inception of the savings plan, the Company has matched 50% of each eligible employee's elective contributions, limited to 3% of the employee's salary. The Company's expense under the thrift savings plan was $1,270,000, $1,032,000 and $1,015,000 for 1997, 1996 and 1995, respectively. The Company currently offers eligible retirees the opportunity to participate in a health plan (medical and dental) and a life insurance plan. Substantially all employees may become eligible for these benefits provided that the employee must be at least 55 years of age and have 15 years of credited service at retirement. The health plan is contributory, with retiree contributions adjusted annually; the life insurance plan is noncontributory. The accounting for the health plan anticipates future modifications to the cost-sharing provisions to provide for retiree premium contributions of approximately 20% of total premiums, increases in deductibles and co-insurance at the medical inflation rate and coordination with Medicare. Retiree health and life insurance plans are not funded. The Company is amortizing the transition obligation on the straight-line method over a period of 20 years. The following table sets forth the plans' accumulated postretirement benefit obligation reconciled with the amounts included in the Consolidated Balance Sheets as of April 3, 1997 and March 28, 1996:
(In thousands) 1997 1996 - ----------------------------------------------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $ 618 $ 557 Fully eligible active plan participants 513 438 Other active plan participants 1,777 1,292 ------------------------- Accumulated postretirement benefit obligation 2,908 2,287 Unrecognized net obligation upon adoption being recognized over 20 years (697) (747) Unrecognized gain (loss) (190) 105 ------------------------- Postretirement benefit liability $ 2,021 $ 1,645 =========================
AMC ENTERTAINMENT INC. - ------------------------ 58 61 Postretirement expense includes the following components:
(In thousands) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------ Service cost $ 199 $ 192 $ 188 Interest cost 172 208 202 Net amortization and deferral 50 66 66 ----------------------------------------- Postretirement expense $ 421 $ 466 $ 456 =========================================
For measurement purposes, the annual rate of increase in the per capita cost of covered health care benefits assumed for 1997 was 7.5% for medical and 4.75% for dental. The rates were assumed to decrease gradually to 5.0% for medical and 3.0% for dental at 2020 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. Increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of April 3, 1997 by $862,000 and the aggregate of the service and interest cost components of postretirement expense for 1997 by $164,000. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.0% for 1997 and 1996 and 7.75% for 1995. NOTE 10 - CONTINGENCIES The Company, in the normal course of business, is party to various legal actions. Management believes that the potential exposure, if any, from such matters would not have a material adverse effect on the financial condition, cash flows or results of operations of the Company. NOTE 11 - FUTURE DISPOSITION OF ASSETS The Company has provided reserves for estimated losses from discontinuing the operation of fast food restaurants, for theatres which have been or are expected to be closed and for other future dispositions of assets. In conjunction with the opening of certain new theatres in fiscal 1986 through 1988, the Company expanded its food services by leasing additional space adjacent to those theatres to operate specialty fast food restaurants. The Company discontinued operating the restaurants due to unprofitability. The Company continues to sub-lease or to convert to other uses the space leased for these restaurants. The Company is obligated under long-term lease commitments with remaining terms of up to eleven years. As of April 3, 1997, the base rents aggregate approximately $779,000 annually, and $7,150,000 over the remaining term of the leases. As of April 3, 1997, the Company has subleased approximately 55% of the space with remaining terms ranging from 2 months to 68 months. Non-cancellable subleases currently aggregate approximately $496,000 annually, and $4,216,000 over the remaining term of the subleases. AMC ENTERTAINMENT INC. ------------------------ 59 62 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year (53 Weeks) Ended April 3, 1997 and Years (52 Weeks) Ended March 28, 1996 and March 30, 1995 NOTE 12 - TRANSACTIONS WITH DURWOOD, INC. The Company and DI maintain intercompany accounts. Charges to the intercompany accounts include the allocation of AMC general and administrative expense of $116,000 in 1996 and 1995 and payments made by AMC on behalf of DI. There were no general and administrative allocations in 1997. DI and non-AMCE subsidiaries owed the Company $181,000 and $795,000 as of April 3, 1997 and March 28, 1996, respectively. The Board of Directors has approved an agreement providing for the Merger of the Company and DI, with the Company remaining as the surviving entity. The Merger has been sought by members of the Durwood family so that they may hold their interests in the Company directly instead of indirectly through DI and a related entity. In the Merger, stockholders of DI would exchange their shares of DI stock for shares of the Company's stock. Although the outstanding shares of the Company's Common Stock will increase and the outstanding shares of its Class B Stock will decrease if the Merger is effected, no aggregate increase in total outstanding shares will occur because the shares of the Company owned by DI will be canceled and the shares of the Company held by other stockholders would not be exchanged in the Merger. A condition to the Merger is that the Merger Agreement receive approval of the holders of a majority of the shares of Common Stock other than DI, the Durwood family, their spouses and children and officers and directors of the Company. DI is primarily a holding company with no significant operations or assets other than its equity interest in the Company. Management expects that the Merger will be accounted for as a corporate reorganization and that, accordingly, the recorded balances for consolidated assets, liabilities, total stockholders' equity and results of operations of the Company would not be affected. If the Merger occurs, the Company will be responsible for paying 50% of the costs in connection with the Merger; the aggregate merger costs for both the company and DI are estimated to be approximately $2 million. Management does not believe that the transaction will have a significant effect on the Company's financial condition, liquidity or capital resources. AMC ENTERTAINMENT INC. - ------------------------ 60 63 NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it was practicable to estimate that value. The carrying value of cash and equivalents and investments in debt securities approximates fair value because of the short duration of those instruments. The fair value of publicly held corporate borrowings was based upon quoted market prices. For other corporate borrowings, the fair value was based upon rates available to the Company from bank loan agreements or rates based upon the estimated premium over U.S. treasury notes with similar average maturities. The estimated fair values of the Company's financial instruments are as follows:
1997 1996 -------------------------------------------------------------- Carrying Fair Carrying Fair (In thousands) Amount Value Amount Value - ------------------------------------------------------------------------------------------------------------------ Financial assets: Cash and equivalents $ 24,715 $ 24,715 $ 10,795 $ 10,795 Financial liabilities: Cash overdrafts $ 11,175 $ 11,175 $ 22,848 $ 22,848 Corporate borrowings 315,072 315,804 126,150 126,992
AMC ENTERTAINMENT INC. ------------------------ 61 64 STATEMENTS OF OPERATIONS BY QUARTER
June 27, June 29, Sept. 26, Sept. 28, (In thousands, except per share amounts) (Unaudited) 1996 1995 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------ Total revenues $ 161,927 $ 153,409 $ 202,436 $ 184,482 Total cost of operations 132,821 118,738 155,593 135,497 General and administrative 13,025 11,085 11,647 14,497 Depreciation and amortization 11,674 9,972 12,740 10,471 --------------------------------------------------------------------- Operating income 4,407 13,614 22,456 24,017 Interest expense 4,909 8,309 4,852 8,318 Investment income 182 2,226 139 2,440 Gain (loss) on disposition of assets 18 (15) (49) (123) --------------------------------------------------------------------- Earnings (loss) before income taxes and extraordinary item (302) 7,516 17,694 18,016 Income tax provision (125) 3,100 7,125 7,400 --------------------------------------------------------------------- Earnings (loss) before extraordinary item (177) 4,416 10,569 10,616 Extraordinary item - Loss on extinguishment of debt (net of income tax benefit of $13,400) - - - - --------------------------------------------------------------------- Net earnings (loss) $ (177) $ 4,416 $ 10,569 $ 10,616 ===================================================================== Preferred dividends 1,546 1,750 1,454 1,750 --------------------------------------------------------------------- Net earnings (loss) for common shares $ (1,723) $ 2,666 $ 9,115 $ 8,866 ===================================================================== Earnings (loss) per share before extraordinary item: Primary $ (.10) $ .16 $ .51 $ .53 ===================================================================== Fully diluted $ (.10) $ .16 $ .44 $ .45 ===================================================================== Earnings (loss) per share: Primary $ (.10) $ .16 $ .51 $ .53 ===================================================================== Fully diluted $ (.10) $ .16 $ .44 $ .45 ===================================================================== During the fourth quarter of 1996, the Company adopted Statement of Financial Accounting Standards No. 121 ("SFAS 121"), Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of. As a result, the Company recognized an impairment loss under SFAS 121 of $1,799. During the fourth quarter of 1997, the Company recognized an impairment loss under SFAS 121 of $7,231. Fiscal year 1997 consists of 53 weeks and the fiscal quarter ended April 3, 1997 consists of 14 weeks. AMC ENTERTAINMENT INC. - ------------------------ 62 65 Dec. 26, Dec. 28, April 3, 1996 1995 1997 - ------------------------------------------------------------------------------------------------------------------------------ Total revenues $ 163,192 $ 154,970 $ 222,042 Total cost of operations 130,464 118,252 161,124 General and administrative 13,910 11,437 18,065 Depreciation and amortization 13,129 10,399 22,260 --------------------------------------------------------- Operating income 5,689 14,882 20,593 Interest expense 5,275 7,883 6,986 Investment income 343 1,958 192 Gain (loss) on disposition of assets (53) 159 - --------------------------------------------------------- Earnings (loss) before income taxes and extraordinary item 704 9,116 13,799 Income tax provision 285 3,800 5,615 --------------------------------------------------------- Earnings (loss) before extraordinary item 419 5,316 8,184 Extraordinary item - Loss on extinguishment of debt (net of income tax benefit of $13,400) - (19,350) - --------------------------------------------------------- Net earnings (loss) $ 419 $ (14,034) $ 8,184 ========================================================= Preferred dividends 1,454 1,750 1,453 --------------------------------------------------------- Net earnings (loss) for common shares $ (1,035) $ (15,784) $ 6,731 ========================================================= Earnings (loss) per share before extraordinary item: Primary $ (.06) $ .21 $ .38 ========================================================= Fully diluted $ (.06) $ .21 $ .34 ========================================================= Earnings (loss) per share: Primary $ (.06) $ (.93) $ .38 ========================================================= Fully diluted $ (.06) $ (.93) $ .34 ========================================================= AMC ENTERTAINMENT INC. ------------------------ 63 66 March 28, Fiscal Year 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------ Total revenues $ 163,111 $ 749,597 $ 655,972 Total cost of operations 118,871 580,002 491,358 General and administrative 15,040 56,647 52,059 Depreciation and amortization 13,044 59,803 43,886 --------------------------------------------------------- Operating income 16,156 53,145 68,669 Interest expense 4,318 22,022 28,828 Investment income 428 856 7,052 Gain (loss) on disposition of assets (243) (84) (222) --------------------------------------------------------- Earnings (loss) before income taxes and extraordinary item 12,023 31,895 46,671 Income tax provision 5,000 12,900 19,300 --------------------------------------------------------- Earnings (loss) before extraordinary item 7,023 18,995 27,371 Extraordinary item - Loss on extinguishment of debt (net of income tax benefit of $13,400) - - (19,350) --------------------------------------------------------- Net earnings (loss) $ 7,023 $ 18,995 $ 8,021 ========================================================= Preferred dividends 1,750 5,907 7,000 --------------------------------------------------------- Net earnings (loss) for common shares $ 5,273 $ 13,088 $ 1,021 ========================================================= Earnings (loss) per share before extraordinary item: Primary $ .31 $ .74 $ 1.21 ========================================================= Fully diluted $ .29 $ .73 $ 1.20 ========================================================= Earnings (loss) per share: Primary $ .31 $ .74 $ .06 ========================================================= Fully diluted $ .29 $ .73 $ .06 =========================================================
AMC ENTERTAINMENT INC. ------------------------ 63 67 INVESTOR INFORMATION Stock Listing/Symbol AMC Entertainment Inc. Common Stock is traded on the American and Pacific Stock Exchanges under the symbol AEN. The Preferred Stock is traded on the American Stock Exchange under the symbol AEN Pr. There is no established public trading market for Convertible Class B Stock. Quarterly Common Stock Price Range
Fiscal 1997 Fiscal 1996 ------------------------------------------------------ High Low High Low ------------------------------------------------------ First Quarter $ 33.87 $ 23.12 $ 14.50 $ 11.00 Second Quarter 27.87 15.87 18.12 13.50 Third Quarter 19.50 13.75 23.50 17.62 Fourth Quarter 20.25 13.87 24.12 19.25 Year $ 33.87 $ 13.75 $ 24.12 $ 11.00 (As reported on the American Stock Exchange)
Stock Ownership At the end of fiscal 1997, the Company had 6,583,969 common shares of Common Stock outstanding, 42.9% of which were beneficially owned by company management. There were 470 shareholders of record on May 19, 1997. At the end of fiscal 1997, the Company had 11,157,000 shares of Convertible Class B outstanding, 100% of which were beneficially owned by Company management. There was one shareholder of record on May 19, 1997. SEC Form 1O-K A copy of the report to the Securities and Exchange Commission on Form 10-K may be obtained without charge upon written request to the Finance Department at AMC headquarters. Annual Meeting The annual meeting of stockholders will be held on Thursday, November 13, 1997, at 11a.m. cst. Location will be announced at a later date. Quarterly Calendar The Company has a 52/53 week fiscal year ending on the Thursday closest to the last day of March. Fiscal 1998 quarter-end dates will be July 3, October 2, January 1 and April 2. Fiscal 1998 will be a 52 week year. Quarterly results usually are announced approximately four weeks after the close of the quarter. Registrar and Transfer Agent UMB Bank, n.a., Securities Transfer Division 928 Grand Avenue, 13th Floor, P.O. Box 410064 Kansas City, Missouri 64141-6226 Corporate Offices AMC Entertainment Inc., 106 West 14th Street P.O. Box 419615, Kansas City, Missouri 64141-6615 (816) 221-4000 Independent Public Accountants Coopers & Lybrand L.L.P., Kansas City, Missouri Additional Information For additional information on AMC Entertainment Inc., please contact: Craig R. Ramsey, Vice President, Finance AMC Entertainment Inc.,106 West 14th Street P.O. Box 419615, Kansas City, Missouri 64141-6615 (816) 221-4000 AMC ENTERTAINMENT INC. - ------------------------ 64 68 CORPORATE OFFICERS AND DIRECTORS Corporate Officers AMC Entertainment Inc. Stanley H. Durwood Chairman of the Board and Chief Executive Officer Peter C. Brown President and Chief Financial Officer Richard L. Obert Senior Vice President and Chief Accounting and Information Officer James V. Beynon Vice President and Treasurer Craig R. Ramsey Vice President, Finance Nancy L. Gallagher Vice President and Corporate Secretary American Multi-Cinema, Inc. Philip M. Singleton President and Chief Operating Officer John D. McDonald Senior Vice President, Corporate Operations Richard J. King Senior Vice President, Northeast Operations Rolando B. Rodriguez Senior Vice President, South Operations Richard T. Walsh Senior Vice President, West Operations AMC Entertainment International, Inc. Gary S. Thyer Vice President, International Operations Mark A. McDonald Senior Vice President, Asia Operations Bruno B. Frydman President, AMC Europe S.A. Centertainment, Inc. Charles P. Stilley President Sam J. Giordano Executive Vice President, Design and Construction Nicholas A. Bashkiroff Vice President, Development AMC Film Marketing Richard M. Fay President National Cinema Network, Inc. Robert E. Martin President Board of Directors Stanley H. Durwood Chairman of the Board and Chief Executive Officer AMC Entertainment Inc. Peter C. Brown President and Chief Financial Officer AMC Entertainment Inc. Philip M. Singleton President and Chief Operating Officer American Multi-Cinema, Inc. Charles J. Egan, Jr. Vice President Hallmark Cards, Incorporated William T. Grant, II Chairman, President and Chief Executive Officer LabOne, Inc. John P. Mascotte President and Chief Executive Officer Blue Cross and Blue Shield of Kansas City, Inc. Paul E. Vardeman Shareholder and Director Polsinelli, White, Vardeman and Shalton, P.C. AMC ENTERTAINMENT INC. ------------------------ 65 EX-21 4 SUBSIDIARIES EXHIBIT 21. AMC ENTERTAINMENT INC. AND SUBSIDIARIES AMC ENTERTAINMENT INC. American Multi-Cinema, Inc. AMC Realty, Inc. Centertainment, Inc. AMC Entertainment International, Inc. AMC Entertainment International Limited AMC Entertainment EspaZa S.A. Actividades Multi-Cinemas E Espectaculos, LDA AMC Theatres of U.K., Limited AMC De Mexico, S.A., De C.V. AMC Europe S.A. National Cinema Network, Inc. All subsidiaries are wholly-owned. EX-23 5 CONSENT EXHIBIT 23. CONSENT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of AMC Entertainment Inc. Kansas City, Missouri We consent to the incorporation by reference in the registration statement of AMC Entertainment Inc. on Form S-8 (File Nos. 33-58129, 2- 92048, 2-97522 and 2-97523) of our report dated May 16, 1997, on our audits of the consolidated financial statements and financial statement schedule of AMC Entertainment Inc. as of April 3, 1997 and March 28, 1996, and for each of the three years (53/52 weeks) ended April 3, 1997, which report is incorporated by reference in this Annual Report on Form 10-K. /s/ Coopers & Lybrand Kansas City, Missouri June 30, 1997 EX-27 6 FDS97
5 The schedule contains summary financial information extracted from the Consolidated Financial Statements of AMC Entertainment Inc. and Subsidiaries as of and for the fifty-three weeks ended April 3, 1997, submitted in response to the requirements to Form 10-K and is qualified in its entirety by reference to such financial statements. YEAR APR-03-1997 APR-03-1997 24,715 0 42,892 704 0 83,672 823,899 280,841 718,213 134,267 370,283 0 2,202 11,841 155,969 718,213 225,167 749,597 36,748 580,002 59,803 0 22,022 31,895 12,900 18,995 0 0 0 18,995 .74 .73
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