-----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, RM2MXkQxNtpv20lofMAHcYkN4b5dHcWaFb3rouVRBeQrW9or3eOxz0pqy4J39FNJ nz5xt+I6yWPwiqGumJfcig== 0000950144-01-502422.txt : 20010516 0000950144-01-502422.hdr.sgml : 20010516 ACCESSION NUMBER: 0000950144-01-502422 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARMIKE CINEMAS INC CENTRAL INDEX KEY: 0000799088 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE THEATERS [7830] IRS NUMBER: 581469127 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11604 FILM NUMBER: 1637717 BUSINESS ADDRESS: STREET 1: 1301 FIRST AVE CITY: COLUMBUS STATE: GA ZIP: 31901 BUSINESS PHONE: 7065763400 MAIL ADDRESS: STREET 1: P O BOX 391 CITY: COLUMBUS STATE: GA ZIP: 31994 10-Q 1 g69326e10-q.txt CARMIKE CINEMAS, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended MARCH 31, 2001 -------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _________ Commission file number 0-11604 ------- CARMIKE CINEMAS, INC. Debtor-In-Possession (Exact name of registrant as specified in its charter) DELAWARE 58-1469127 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1301 FIRST AVENUE, COLUMBUS, GEORGIA 31901-2109 (Address of Principal Executive Offices) (Zip Code) (706) 576-3400 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class A Common Stock, $.03 par value -- 10,018,287 shares outstanding as of May 10, 2001 Class B Common Stock, $.03 par value -- 1,370,700 shares outstanding as of May 10, 2001 2 PART I ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS (UNAUDITED) CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) (IN THOUSANDS, EXCEPT FOR SHARE DATA)
MARCH 31, DECEMBER 31, 2001 2000 --------- ------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 59,454 $ 68,271 Accounts and notes receivable 1,473 1,627 Inventories 3,625 4,029 Recoverable construction allowances-- Note 5 11,618 13,392 Prepaid expenses 5,192 7,109 --------- --------- TOTAL CURRENT ASSETS 81,362 94,428 OTHER ASSETS Investments in and advances to partnerships 8,599 8,747 Other 8,668 6,702 --------- --------- 17,267 15,449 PROPERTY AND EQUIPMENT Land 66,027 67,041 Buildings and improvements 197,945 197,687 Leasehold improvements 280,764 279,488 Leasehold interests 15,429 15,429 Equipment 258,048 256,976 --------- --------- 818,213 816,621 Accumulated depreciation and amortization (205,675) (195,456) --------- --------- 612,538 621,165 EXCESS OF PURCHASE PRICE OVER NET ASSETS OF BUSINESSES ACQUIRED 45,596 45,991 --------- --------- $ 756,763 $ 777,033 ========= =========
See accompanying notes 2 3
MARCH 31, DECEMBER 31, 2001 2000 --------- ------------ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 22,584 $ 34,847 Accrued expenses 31,255 29,903 Current maturities of long-term indebtedness and capital lease obligations 2,536 2,569 --------- --------- TOTAL CURRENT LIABILITIES 56,375 67,319 LONG-TERM LIABILITIES Long-term debt, less $1,648 and $1,724 in current maturities and $448,403 and $455,239 classified as subject to compromise at March 31, 2001 and December 31, 2000, respectively--Notes 2 and 3 -0- -0- Capital lease obligations, less current maturities and $2,085 classified as subject to compromise at March 31, 2001 and December 31, 2000, respectively--Notes 2 and 3 49,130 49,430 Deferred income taxes - Note 4 1,927 1,927 --------- --------- 51,057 51,357 LIABILITIES SUBJECT TO COMPROMISE - Note 3 521,456 529,236 SHAREHOLDERS' EQUITY 5.5% Series A Senior Cumulative Convertible Exchangeable Preferred Stock, $1.00 par value, authorized 1,000,000 shares, issued and outstanding 550,000 shares; involuntary liquidation value of $55,000,000 550 550 Class A Common Stock, $.03 par value, one vote per share, authorized 22,500,000 shares, issued and outstanding 10,018,287 shares 301 301 Class B Common Stock, $.03 par value, ten votes per share, authorized 5,000,000 shares, issued and outstanding 1,370,700 shares 41 41 Treasury Stock, at cost, 44,800 shares (441) (441) Paid-in capital 158,772 158,772 Retained earnings (deficit) (31,348) (30,102) --------- --------- 127,875 129,121 --------- --------- $ 756,763 $ 777,033 ========= =========
See accompanying notes 3 4 CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, 2001 2000 --------- --------- Revenues: Admissions $ 68,468 $ 68,556 Concessions and other 31,236 32,979 --------- --------- 99,704 101,535 Costs and expenses: Film exhibition costs 34,776 36,280 Concession costs 4,147 3,980 Other theatre operating costs 46,444 49,626 General and administrative expenses 1,624 1,685 Depreciation and amortization expenses 10,782 11,054 --------- --------- 97,773 102,625 --------- --------- OPERATING INCOME (LOSS) 1,931 (1,090) Interest expense (Contractual interest for the three month period ended March 31, 2001 was $12,849) (1,611) (10,788) --------- --------- INCOME (LOSS) BEFORE REORGANIZATION COSTS AND INCOME TAXES 320 (11,878) Reorganization costs--Note 2 1,566 -0- --------- --------- LOSS BEFORE INCOME TAXES (1,246) (11,878) Income tax benefit -0- (4,514) --------- --------- NET LOSS (1,246) (7,364) Preferred stock dividends -0- (756) --------- --------- NET LOSS AVAILABLE FOR COMMON STOCK $ (1,246) $ (8,120) ========= ========= Weighted average shares outstanding: Basic and diluted 11,389 11,344 ========= ========= Loss per common share: Basic and diluted $ (0.11) $ (.72) ========= =========
See accompanying notes 4 5 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, 2001 2000 --------- --------- OPERATING ACTIVITIES Net loss $ (1,246) $ (7,364) Adjustments to reconcile net loss to net cash provided by (used by) operating activities: Depreciation and amortization 10,782 11,054 Deferred income taxes -0- (2,690) Recoverable income taxes -0- (972) Gain on sales of property and equipment (851) (546) Changes in other assets and liabilities (1,690) (1,006) Changes in operating assets and liabilities: Accounts and notes receivable and inventories 558 (189) Prepaid expenses 1,917 (5,278) Accounts payable (12,263) 33 Accrued expenses and other liabilities 1,352 (4,573) --------- --------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES BEFORE REORGANIZATION ITEMS (1,441) (11,531) Reorganization items (7,780) -0- --------- --------- NET CASH USED IN OPERATING ACTIVITIES (9,221) (11,531) INVESTING ACTIVITIES Purchases of property and equipment (2,990) (19,709) Proceeds from sales of property and equipment 1,953 546 Proceeds from sale/leaseback transaction--Note 6 -0- 23,283 Decrease (increase) in: Short-term investments -0- (8,773) Other (333) (373) --------- --------- NET CASH USED IN INVESTING ACTIVITIES (1,370) (5,026) FINANCING ACTIVITIES Debt: Additional borrowings -0- 149,500 Repayments -0- (127,391) Payment of preferred dividends -0- (756) Recoverable construction allowances under capital leases 1,774 (4,729) --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES 1,774 16,624 --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (8,817) 67 Cash and cash equivalents at beginning of period 68,271 6,509 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 59,454 $ 6,576 ========= =========
See accompanying notes 5 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CARMIKE CINEMAS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 NOTE 1 -- BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Carmike Cinemas, Inc. ("Carmike") and its subsidiaries (collectively, the "Company") have been prepared in accordance with accounting principles generally accepted in the United States applicable to a going concern which contemplates continuity of operations and realization of assets and liquidation of liabilities in the normal course of business. As discussed in Note 2 - Proceedings Under Chapter 11, on August 8, 2000 (the "Petition Date"), Carmike and its subsidiaries, Eastwynn Theatres, Inc. ("Eastwynn"), Wooden Nickel Pub, Inc. ("Wooden Nickel") and Military Services, Inc. ("Military Services") (collectively with Carmike, the "Debtors") filed voluntary petitions for relief under chapter 11 (the "Chapter 11 Cases") of title 11 of the United States Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). The Chapter 11 Cases are being jointly administered for procedural purposes only. The Debtors are operating their respective businesses as debtors-in-possession. On August 23, 2000, the Office of the United States Trustee for the District of Delaware (the "U.S. Trustee") appointed an Official Committee of Unsecured Creditors. As a result of the Company's recurring losses, the Chapter 11 Cases and circumstances relating to this event, including the Company's debt structure and current economic conditions, realization of assets and liquidation of liabilities are subject to significant uncertainty. In the event a plan of reorganization is developed and is approved by the Bankruptcy Court, continuation of the Company's business thereafter will be dependent on the Company's ability to achieve successful future operations. Management intends to develop and submit for acceptance and approval a plan of reorganization. In this regard, with the assistance of Dresdner Kleinwort Wasserstein, Inc. ("DKW"), the Company's financial advisors, the Company has developed, and on April 18, 2001 submitted for review by the Creditor's Committee and the pre-petition lenders, a proposed five-year business plan for the Company. Management expects to use this business plan as the basis for the development of a plan of reorganization. In connection with the Chapter 11 Cases, the Company is required to report in accordance with Statement of Position 90-7 "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7") for financial statements for the period beginning August 8, 2000 and thereafter. SOP 90-7 requires that pre-petition liabilities that are subject to compromise be segregated in the Company's consolidated balance sheet as liabilities subject to compromise and the identification of all transactions and events that are directly associated with the reorganization of the Company in the consolidated statement of operations. The liabilities are recorded in the amounts reflected on the Debtors' books and records and are not necessarily the amount that the liabilities will ultimately be allowed by the Bankruptcy Court. Due to the Company's Chapter 11 Cases, the value of certain of the Company's long-lived assets has been impaired (see Note 2 - Proceedings Under Chapter 11). As additional leases are approved for rejection by the Bankruptcy Court, additional long-lived asset impairments may be taken. Also, 6 7 amounts reported on the consolidated condensed balance sheet could materially change as a result of a plan of reorganization, as such reported amounts currently do not give effect to adjustments to the carrying value of the underlying assets or amounts of liabilities that may ultimately result. Further, the Company's accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals and bankruptcy related items) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. For further information, refer to the consolidated financial statements and footnotes thereto included in Carmike's Annual Report on Form 10-K for the year ended December 31, 2000. NOTE 2 -- PROCEEDINGS UNDER CHAPTER 11 As previously noted (see Note 1 - Basis of Presentation), the Debtors have operated under chapter 11 of the Bankruptcy Code since August 8, 2000. In the Chapter 11 Cases, substantially all liabilities as of the Petition Date are subject to compromise or other treatment under a plan of reorganization to be confirmed by the Bankruptcy Court after submission to any required vote by affected parties. Generally, actions to enforce or otherwise effect repayment of all pre-chapter 11 liabilities as well as all pending litigation against the Debtors are stayed while the Debtors continue their business operations as debtors-in-possession. On September 19, 2000, Wooden Nickel and Military Services, filed their bankruptcy schedules with the Bankruptcy Court. Carmike and Eastwynn filed their schedules on October 18, 2000. On April 16, 2001, the Debtors filed amended schedules. The schedules set forth the assets and liabilities of the Debtors as of the Petition Date as reflected in the Debtors' accounting records and the schedules may be amended by the Debtors. Differences between the amounts reflected in such schedules and claims filed by creditors will be investigated and may be either amicably resolved or adjudicated before the Bankruptcy Court. The ultimate amount and settlement terms for such liabilities are subject to an approved plan of reorganization and accordingly are not presently determinable. Under the Bankruptcy Code, the Debtors may elect to assume or reject real estate leases, employment contracts, personal property leases, service contracts and other executory prepetition contracts, subject to Bankruptcy Court approval. The Debtors have already received approval from the Bankruptcy Court to reject leases relating to 119 theatre locations of the Debtors. The Debtors are continuing to review their market strategy, geographic positions and theatre level profitability. As a result of this continuing review, the Debtors may consider rejecting additional leases for theatres that do not fall within the Debtors' market strategy or geographic positioning or that do not perform at or above the Company's expected theatre profitability level. The Debtors cannot presently determine or reasonably estimate the ultimate liability that may result from rejecting leases or from the filing of claims for any rejected contracts, and no provisions have yet been made for these items in the financial statements. 7 8 On February 13, 2001 the agent for the lenders under the master lease facility with MoviePlex Realty Leasing L.L.C. (the "Master Lease") commenced an adversary proceeding in the Bankruptcy Court seeking a declaration that the Master Lease is a true lease. The Company has agreed to an interim settlement regarding the Master Lease. As part of the interim settlement between the Company and the Master Lease lenders, the Master Lease will be deemed a true lease for bankruptcy law purposes. Once the interim settlement becomes effective, the Company will make an initial payment in satisfaction of all post-petition rent due under the Master Lease through March 31, 2001 and will make monthly rent payments at a reduced rate. The term of the interim settlement expires on August 31, 2001, but may be extended. The Company has received approval from the Bankruptcy Court to pay prepetition and postpetition employee wages, salaries, benefits and other employee obligations. The Bankruptcy Court also approved orders granting authority, among other things, to pay prepetition claims of certain critical vendors and film distributors. All other prepetition liabilities at March 31, 2001 are classified in the condensed consolidated balance sheet as liabilities subject to compromise (see Note 3 - Liabilities Subject to Compromise). The Company has been and intends to continue to pay postpetition claims of all vendors, film distributors and other suppliers in the ordinary course of business. As a debtor-in-possession under chapter 11, the Company cannot pay pre-petition debts without prior Bankruptcy Court approval. Payments may be required to be made on secured prepetition debt subject to Bankruptcy Court approval. On October 27, 2000, the Debtors received Bankruptcy Court approval to make debt service payments for the loan related to Industrial Revenue Bonds issued by the Downtown Development Authority of Columbus, Georgia. The amount outstanding under these bonds, $1.6 million at March 31, 2001 are classified as current maturities of long-term indebtedness in the accompanying condensed consolidated balance sheets. The Company has reached an agreement with its pre-petition lenders that provides for the payment of cash collateral and adequate protection, as those terms are defined in the Bankruptcy Code. The Company made payments to the secured lenders in the amount of $8,272,821 on March 5, 2001 and will make payments of $500,000 per month as adequate protection payments. All of these payments allocated to the Revolving Credit and Term Loan B are treated as principal payments under the applicable credit agreement. Amounts allocated to the Master Lease are treated as post-petition rent. Additionally, during the Chapter 11 Cases, the Company cannot declare dividends on its 5.5% Series A Senior Cumulative Convertible Exchangeable Preferred Stock (the "Preferred Stock"). Preferred Stock dividends of approximately $2.3 million are in arrears at March 31, 2001. The terms of the Preferred Stock agreement provide, with respect to dividend arrearages, that the dividend accrued rate increases to 8.5%. In view of the Company's having ceased making scheduled dividend payments on the Preferred Stock after the Petition Date, the holders of the Preferred Stock have designated two additional directors to the Company's Board of Directors. 8 9 Reorganization costs are costs that are directly associated with the Company's Chapter 11 Cases reorganization proceedings. Reorganization costs for the period of January 1 through March 31, 2001 are as follows (in thousands): Professional fees $ 2,270 Gain on sale of assets (851) Interest income (626) Other 773 ------- $ 1,566 =======
Cash provided (used in) reorganization costs for the period of January 1 through March 31, 2001 are as follows (in thousands): Professional fees $(1,025) Proceeds from sale of assets 1,953 Interest income 626 Other (6,845) ------- $(5,291) =======
NOTE 3 -- LIABILITIES SUBJECT TO COMPROMISE The principal categories of obligations classified as Liabilities Subject to Compromise under the Chapter 11 Cases are identified below. The amounts in total may vary significantly from the stated amounts of proofs of claims filed with the Bankruptcy Court, and may be subject to future adjustments depending on Bankruptcy Court action, further developments with respect to potential disputed claims, and determination as to the value of any collateral securing claims or other events. Additional claims may arise from the rejection of executory contracts and unexpired leases by the Debtors. A summary of the principal categories of claims classified as liabilities subject to compromise at March 31, 2001 are as follows (in thousands): Accounts payable $ 19,958 Accrued expenses 26,231 Restructuring reserves 24,668 Other liabilities 2,196 Revolving Credit Agreement 187,022 Term Loan B 69,415 Subordinated Notes 191,966 --------- $ 521,456 =========
Amounts outstanding under (a) the Amended and Restated Credit Agreement among Carmike, certain banks and Wachovia Bank, N.A., as agent, dated as of January 29, 1999, as amended (the "Revolving Credit Agreement"), (b) the Term Loan Credit Agreement among Carmike, certain lenders, Wachovia Bank, N.A., as administrative agent, Goldman Sachs Credit Partners L.P., as 9 10 syndication agent, and First Union National Bank, as documentation agent, dated as of February 25, 1999, as amended (the "Term Loan B" and together with the Revolving Credit Agreement, the "Bank Facilities") and (c) the 9 3/8% Subordinated Notes due 2009 ("Subordinated Notes") at the Petition Date are classified as Liabilities Subject to Compromise in the accompanying financial statements until a plan of reorganization is approved and implemented. Certain provisions of the Bankruptcy Code may relieve the Company from its obligation to pay interest after the Petition Date. In accordance with SOP 90-7, interest on secured claims will be accrued only to the extent that the value of the underlying collateral exceeds the principal amount of the secured claim. It has not been determined whether the collateral exceeds the principal amount of any secured claim. Thus, under certain conditions, interest on secured claims may not be required to be accrued. After the Petition Date, the Company is prohibited from making contractual payments on its outstanding long-term debt obligations absent a Bankruptcy Court order or until conclusion of the Chapter 11 Cases and implementation of a plan of reorganization allowing for such payments. NOTE 4 -- INCOME TAXES The Company accounts for income taxes in accordance with FASB Statement No. 109, Accounting for Income Taxes. Under Statement No. 109, the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rate and laws that will be in effect when the differences are expected to reverse. In periods prior to June 30, 2000, the Company has recognized deferred income tax assets based on its ability to implement certain tax planning strategies that would, if necessary, be implemented to accelerate taxable amounts to offset deductible temporary differences. These tax planning strategies primarily involved the Company's ability to sell property to generate taxable gains. As a result of (i) the Chapter 11 Cases and the Company's default on its Bank Facilities, (ii) changes in the Company's projections of future operating results, and (iii) the limited market for theatre sale-leaseback transactions, the Company no longer has the ability to implement the tax planning strategies that would allow it to continue to recognize certain of its deferred income tax assets. Thus, the Company provided an additional valuation allowance of approximately $462,000 during the three months ended March 31, 2001. 10 11 Significant components of the Company's deferred tax liabilities (assets) and valuation reserves are as follows (in thousands):
MARCH 31, DECEMBER 31, 2001 2000 --------- ------------ Alternative minimum tax credit carryforwards $ (4,700) $ (4,700) Net operating loss carryforwards (21,537) (19,471) Financial statement bases of property and equipment over (under) tax bases (4,041) (5,609) Restructuring reserve (8,853) (8,935) Deferred rent (2,516) (2,470) --------- --------- (41,647) (41,185) Valuation reserves 41,413 40,951 Other deferred tax credits 2,161 2,161 --------- --------- $ 1,927 $ 1,927 ========= =========
NOTE 5 -- RECOVERABLE CONSTRUCTION ALLOWANCES Carmike, under contractual agreements with certain lessors, is entitled to reimbursement of certain theatre construction related costs. Collection of these amounts, $11.6 million at March 31, 2001, are based on the occurrence of certain defined events. Certain lessors may dispute the requirements to reimburse the Debtors for such amounts. Amounts collected after the Petition Date (approximately $1.8 million) may be subject to liens and security interests granted to the banks under the Credit Facilities and are currently classified as long-term assets. Pursuant to the Company's agreement with its pre-petition lenders regarding adequate protection and use of cash collateral, the Company has agreed to pay down the principal amount of indebtedness to such lenders by the amount of net construction allowances collected during the Chapter 11 Cases less the costs incurred by the Company during the Chapter 11 Cases. NOTE 6 -- SALE/LEASEBACK TRANSACTION During the period ended March 31, 2000, the Company sold three theatres, with a net book value of $22.6 million, for $23.3 million. The theatres were leased back from the purchaser under a 20 year operating lease agreement. Gains realized from sale/leaseback transactions are recognized over the life of the leases. The leases contain renewal options and generally provide that the Company will pay property taxes, common area maintenance, insurance and repairs. The net proceeds from these transactions was used to reduce outstanding bank indebtedness and for operations. 11 12 NOTE 7 -- EARNINGS PER SHARE
THREE MONTHS ENDED MARCH 31, 2001 2000 --------- --------- Weighted average shares outstanding (in thousands): Basic 11,389 11,344 Effect of dilutive securities - employee stock options -0- -0- --------- --------- Diluted 11,389 11,344 ========= ========= Earnings (loss) per common share: Basic and diluted $ (0.11) $ (0.72) ========= =========
NOTE 8 -- CONDENSED COMBINED FINANCIAL DATA FOR GUARANTOR SUBSIDIARIES Carmike's wholly owned subsidiaries, Eastwynn and Wooden Nickel, fully, unconditionally, jointly and severally guarantee Carmike's $200 million principal amount of Subordinated Notes (see Note 3 - Liabilities Subject to Compromise). Eastwynn and Wooden Nickel are direct, wholly owned U.S. subsidiaries of Carmike. Carmike and the guarantor subsidiaries conduct substantially all of the operations of Carmike and its subsidiaries on a consolidated basis. Separate financial statements of the guarantor subsidiaries are not presented because, in the opinion of management, such financial statements are not material to investors. Carmike also has a partially owned subsidiary and several unconsolidated affiliates which are not guarantors of the Subordinated Notes and are inconsequential to Carmike on a consolidated basis. The following is summarized condensed combined financial information (in accordance with Rule 1-02(bb) of Regulation S-X) for the guarantor subsidiaries of Carmike (in thousands) (unaudited):
MARCH 31, 2001 --------- Current assets $ 27,874 Current liabilities 17,312 Noncurrent assets 509,045 Noncurrent liabilities 378,044
THREE MONTHS ENDED MARCH 31, 2001 2000 --------- --------- Revenues $ 79,587 $ 81,926 Operating income (loss) (246) (6,086) Net loss (1,252) (8,188)
12 13 Operating income (loss) included intercompany management fees of approximately $4.7 million and $4.8 million for the three months ended March 31, 2001 and 2000, respectively. As previously noted (see Note 1 - Basis of Presentation and Note 2 - Proceedings Under Chapter 11), the guarantor subsidiaries also filed petitions for relief under Chapter 11 of the United States Bankruptcy Code on August 8, 2000. NOTE 9 -- IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. The Statement requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The adoption of Statement No. 133 on January 1, 2001 had no impact on the Company's financial position or operating results. NOTE 10 -- RECLASSIFICATIONS Certain 2000 amounts in the accompanying condensed consolidated balance sheets have been reclassified to conform to the current period's presentation. 13 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RISK FACTORS AND CAUTIONARY STATEMENTS The following discussion and analysis should be read in conjunction with financial statements and the notes thereto of Carmike Cinemas, Inc. ("Carmike") and its subsidiaries (collectively, the "Company") included herein and on Form 10-K for the fiscal year ended December 31, 2000. This Report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including, in particular, forward-looking statements under the headings "Item 1. Financial Statements" and "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations." These statements appear in a number of places in this Report and include statements regarding the Company's intent, belief or current expectations with respect to (i) its financing plans, (ii) trends affecting its financial condition or results of operations, (iii) the impact of competition, and (iv) the impact of the Chapter 11 Cases (as defined below). The words "expect," "anticipate," "intend," "plan," "believe," "seek," "estimate," and similar expressions are intended to identify such forward-looking statements; however, this Report also contains other forward-looking statements in addition to historical information. The Company cautions that any forward-looking statements made by the Company are not guarantees of future performance and that there are various important factors that could cause actual results to differ materially from those indicated in the forward-looking statements; accordingly, there can be no assurance that such indicated results will be realized. Factors which could cause the Company's actual results in future periods to differ materially include, but are not limited to, the following: - there can be no assurance that the cash and cash equivalents on hand at March 31, 2001 and cash generated by the Company from operations and from debtor-in-possession financing, if any, will be sufficient to fund the operations of the Company until such time as the Company is able to propose a plan of reorganization that will be acceptable to creditors and other parties in interest and confirmed by the Bankruptcy Court; - there can be no assurance regarding any adverse actions which may be taken by creditors or landlords of the Company that may have the effect of preventing or unduly delaying confirmation of a plan of reorganization in connection with the Chapter 11 Cases; - there can be no assurance that the Bankruptcy Court will confirm the Company's plan of reorganization; - there can be no assurance as to the overall viability of the Company's long-term operational reorganization and financial restructuring plan; - there can be no assurance as to the Company's being able to obtain sufficient financing sources to meet future obligations; 14 15 - the Company may have difficulty in attracting patrons or labor as a result of the Chapter 11 Cases; - the Company may have difficulty in maintaining or creating new relationships with suppliers or vendors as a result of the Chapter 11 Cases; - an adverse determination in a legal proceeding, whether currently asserted or arising in the future, may have a material adverse effect on the Company's financial position; - there can be no assurance regarding the availability of suitable motion pictures for exhibition in the Company's markets; - the Company faces significant competitive pressures; - business conditions in the movie industry may not be favorable; - there can be no assurance as to the Company's ability to achieve satisfactory levels of profitability and cash flow from operations; - there may not be available sufficient capital to service the Company's debt obligations and to finance the Company's business plans on terms satisfactory to the Company; - there can be no assurance as to the success of the Company's marketing of certain assets and pursuit of financing alternatives; - there is the potential for a Screen Actors Guild strike in the summer of 2001. If the strike occurs it is possible there could be problems encountered in the supply, quality and availability of film product; and the other factors detailed from time to time in Carmike's filings with the Securities and Exchange Commission, including Carmike's Annual Report on Form 10-K for the year ended December 31, 2000. In addition, the Chapter 11 Cases may disrupt the Company's operations and may result in a number of other operational difficulties, including the following: - the Company's ability to access capital markets will likely be limited; - the possibility of competing Chapter 11 plans of reorganization being filed for the Company; - the Company's senior management may be required to expend a substantial amount of time and effort structuring a plan of reorganization, 15 16 which could have a disruptive impact on management's ability to focus on the operation of the Company's business; - the Company, notwithstanding its recently adopted Employee Retention and Severance Plan, may be unable to retain top management and other key personnel; and - suppliers to the Company may stop providing supplies or services to the Company or provide such supplies or services only on "cash on delivery," "cash on order" or other terms that could have an adverse impact on the Company's cash flow. By making these forward-looking statements, the Company does not undertake to update them in any manner except as may be required by its disclosure obligations in filings it makes with the Securities and Exchange Commission under the Federal securities laws. THE INDUSTRY The movie exhibition industry is currently facing significant challenges, largely due to the effects of too many screens and relatively flat box office receipts. The number of screens in the United States has increased dramatically, growing from approximately 31,640 screens in 1997 to approximately 37,396 screens in 2000. Megaplexes, theatres with anywhere from 14 to 30 screens in a single theatre, have became the industry standard in most major markets. The megaplex format provides numerous benefits for theatre operators, including allowing facilities (concession stands and restrooms) and operating costs (lease rentals, utilities and personnel) to be allocated over a larger base of screens and patrons. The megaplex theatres also contain increasingly costly improvements, such as stadium seating, state-of-the-art projection and sound systems and other expensive amenities. These megaplexes are not only competing with each other but have quickly rendered many older multiplexes obsolete, and exhibitors have not been able to dispose of or close their older facilities quickly enough. Audience figures have not increased on a level with the unprecedented growth in screens. Attendance was relatively flat in 2000, with no blockbuster films and a disappointing performance by the summer's movies. Box office revenues have increased due to increased ticket prices, but the increase in revenue has been diminished by the higher costs of operating so many screens in addition to movie studios getting a larger portion of box office receipts due to shorter run times. The significant decay of older theatres and the underperformance of many new builds have put pressure on industry-wide operating results, operating margins, certain covenant requirements under bank facilities and the market price of Carmike's and other exhibitors' stock. CHAPTER 11 CASES On August 8, 2000 (the "Petition Date"), Carmike and its subsidiaries Eastwynn Theatres, Inc. ("Eastwynn"), Wooden Nickel Pub, Inc. ("Wooden Nickel"), and Military Services, Inc. ("Military Services") (collectively with Carmike, the "Debtors") filed voluntary petitions for 16 17 relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code"). The filings ("Chapter 11 Cases") were made in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). The Chapter 11 Cases are being jointly administered for procedural purposes. On August 23, 2000, a statutory committee of unsecured creditors (the "Creditors' Committee") was appointed by the Office of the United States Trustee to represent the interests of the Debtors' unsecured creditors in the Chapter 11 Cases. In the Chapter 11 Cases, substantially all unsecured and partially secured liabilities as of the Petition Date are subject to compromise or other treatment under a plan of reorganization. Generally, actions to enforce or otherwise effect repayment of all pre-chapter 11 liabilities as well as all pending litigation against the Debtors are stayed while the Debtors continue their business operations as debtors-in-possession. On September 19, 2000, Wooden Nickel and Military Services, filed their bankruptcy schedules with the Bankruptcy Court. Carmike and Eastwynn filed their schedules on October 18, 2000. On April 16, 2001, the Debtors filed amended schedules. The schedules set forth the assets and liabilities of the Debtors as of the Petition Date as reflected in the Debtors' accounting records and the schedules may be amended by the Debtors. Differences between the amounts reflected in such schedules and claims filed by creditors will be investigated and may be either amicably resolved or adjudicated before the Bankruptcy Court. The ultimate amount and settlement terms for such liabilities are subject to an approved plan of reorganization and accordingly are not presently determinable. In addition to these schedules, the Debtors must file with the Bankruptcy Court monthly operating reports that show, among other things, for each month cash receipts and disbursements, net income, a balance sheet and a summary of unpaid post-petition debts. As a debtor-in-possession under chapter 11, the Company cannot pay pre-petition debts without prior Bankruptcy Court approval. Subsequent to the commencement of the Chapter 11 Cases, the Debtors sought and obtained several orders from the Bankruptcy Court which were intended to stabilize their business and enable the Debtors to continue business operations as debtors-in-possession. To date, the most significant of these orders: (i) permitted the Debtors to operate their consolidated cash management system during the Chapter 11 Cases in substantially the same manner as it was operated prior to the commencement of the Chapter 11 Cases; (ii) authorized payment of pre-petition wages, vacation pay and employee benefits and reimbursement of employee business expenses; (iii) authorized payment of pre-petition sales and use taxes owed by the Debtors; (iv) authorized the Debtors to pay up to $2,250,000 of pre-petition obligations to critical vendors, common carriers and workers' compensation insurance to aid the Debtors in maintaining operation of their theatres and approximately $37 million to film distributors; and (v) authorized debt service payments for the loan related to Industrial Revenue Bonds issued by the Downtown Development Authority of Columbus, Georgia. As debtors-in-possession, the Debtors have the right, subject to Bankruptcy Court approval and certain other limitations, to assume or reject executory contracts and unexpired leases. In this context, "assumption" means that the Debtors agree to perform their obligations and cure all existing defaults under the contract or lease, and "rejection" means that the Debtors are relieved from their obligations to perform further under the contract or lease but are subject to a claim for damages for the breach thereof. Any damages resulting from rejection of executory contracts and unexpired leases are treated as general unsecured claims in the Chapter 11 Cases. The 17 18 Debtors, have already received approval from the Bankruptcy Court to reject theatre leases relating to 119 theatre locations of the Debtors. The 119 theatres approved for rejection generated approximately $0.43 million and $3.94 million in theatre-level cash flow losses for the three months ended March 31, 2001 and 2000, respectively. Such losses are measured by subtracting revenues generated at such theatre locations from costs of operations (film exhibition costs, concession costs and other theatre operating costs) for such theatres. The Debtors are continuing to review their market strategy, geographic positions and theatre level profitability. As a result of this continuing review, the Debtors may consider rejecting additional leases for theatres that do not fall within the Debtors' market strategy or geographic positioning or that do not perform at or above the Company's expected theatre profitability level. The Debtors cannot presently determine or reasonably estimate the ultimate liability that may result from rejecting leases or from the filing of claims for any rejected contracts, and no provisions have yet been made for these items. The Bankruptcy Code provides that the Debtors have an exclusive period during which only they may propose and file and solicit acceptances of a plan of reorganization. A plan of reorganization sets forth the means for satisfying claims and interests in the Debtors, including the liabilities subject to compromise. The exclusive period of the Debtors to propose a plan of reorganization on application of the Debtors has been at the current time extended to September 28, 2001. At any time after April 11, 2001, the Creditors' Committee or the pre-petition lenders may require the Debtors to file a motion with the Bankruptcy Court to confirm the definitive balance of the exclusivity period. The Debtors have retained the financial advisory firm Dresdner Kleinwort Wasserstein ("DKW") to assist it in, among other things, developing a five-year business plan and plan of reorganization. On April 18, 2001, the Debtors submitted a five-year business plan to the Creditor's Committee and the pre-petition lenders for their review. Management expects to use this business plan as the basis for the development of a plan of reorganization. If the Debtors fail to file a plan of reorganization during the exclusive period, as extended, or, after such plan has been filed, if the Debtors fail to obtain acceptance of such plan from the requisite impaired classes of creditors and equity security holders during the exclusive solicitation period, any party in interest, including a creditor, an equity security holder, a committee of creditors or equity security holders, or an indenture trustee, may file their own chapter 11 plan for the Debtors. After a plan of reorganization has been filed with the Bankruptcy Court, the plan, along with a disclosure statement approved by the Bankruptcy Court, will be sent to impaired creditors and equity security holders who are entitled to vote. Following the solicitation period, the Bankruptcy Court will consider whether to confirm the plan. In order to confirm a plan of reorganization, the Bankruptcy Court, among other things, is required to find that (i) with respect to each impaired class of creditors and equity security holders, each holder in such class has accepted the plan or will, pursuant to the plan, receive at least as much as such holder would receive in a liquidation, (ii) each impaired class of creditors and equity security holders has accepted the plan by the requisite vote (except as provided in the following sentence), and (iii) confirmation of the plan is not likely to be followed by a liquidation or a need for further financial reorganization of the Debtors or any successors to the Debtors unless the plan proposes such liquidation or reorganization. If any impaired class of creditors or equity security holders 18 19 does not accept a plan and assuming that all of the other requirements of the Bankruptcy Code are met, the proponent of the plan may invoke the "cram down" provisions of the Bankruptcy Code. Under these provisions, the Bankruptcy Court may confirm a plan notwithstanding the non-acceptance of the plan by an impaired class of creditors or equity security holders if certain requirements of the Bankruptcy Code are met. These requirements may, among other things, necessitate payment in full for senior classes of creditors before payment to a junior class can be made. Accordingly, the value of the Company's capital stock, including but not limited to its Class A Common Stock, is highly speculative. In the Chapter 11 Cases, the Debtors may, with Bankruptcy Court approval, sell assets and settle liabilities, including for amounts other than those reflected in the financial statements. The administrative and reorganization expense resulting from the Chapter 11 Cases will unfavorably affect results. Moreover, future results may be adversely affected by other claims and factors resulting from the Chapter 11 Cases. As described above in Note 2 - Proceeding Under Chapter 11, the Company has reached a cash collateral and adequate protection agreement with the pre-petition lenders and an interim settlement relating to the Master Lease. COMPARISON OF THREE MONTHS ENDED MARCH 31, 2001 AND MARCH 31, 2000 RESULTS OF OPERATIONS Total revenues for the quarter ended March 31, 2001 decreased 1.8% to $99.7 million from $101.5 million for the quarter ended March 31, 2000. For the quarter ended March 31, 2001, the Company's average admission price was $4.79, its average concession sale per patron was $2.02 and the attendance per average screen was 5,855 compared to 5,465 for the quarter ended March 31, 2000. The increase in attendance, partially aided by per patron increases in admissions and concessions, resulted in an increase of revenue per average screen of 14.0% to $40,829. For the quarter ended March 31, 2000, the Company's average admission price was $4.43, its average concession sale per patron was $1.92 and the revenue per average screen was $35,815. Carmike operated 350 theatres with 2,445 screens at March 31, 2001 compared to 447 theatres with 2,821 screens at March 31, 2000. Costs of operations (film exhibition costs, concession costs and other theatre operating costs) decreased 5.0% from $89.9 million for the quarter ended March 31, 2000 to $85.4 million for the quarter ended March 31, 2001. Film exhibition costs decreased as a percentage of expense to total admissions revenue. Concessions costs were $4.1 million for the quarter ended March 31, 2001, compared to $4.0 million for the quarter ended March 31, 2000. Other theatre costs for the quarter ended March 31, 2001 decreased 6.5% to $46.4 million from $49.6 million for the same period in 2000. This decrease was the result of a 14% reduction in rent expense related to natural attrition and the rejection of 119 theatre leases. As a percentage of total revenues, cost of operations decreased to 85.6% of total revenues in the quarter ended March 31, 2001 from 88.5% for the quarter ended March 31, 2000, largely due to the elimination of underperforming theatres. 19 20 Depreciation and amortization decreased 2.7% from $11.1 million for the quarter ended March 31, 2000 to $10.8 million for the quarter ended March 31, 2001. This decrease primarily results from lowering the carrying values of property and equipment as discussed in Note 4 - Impairment of Long-Lived Assets in the Annual Report on Form 10-K for the year ended December 31, 2000. Interest expense for the quarter ended March 31, 2001 decreased 85.2% to $1.6 million from $10.8 million for the quarter ended March 31, 2000. The Company stopped recording interest expense relating to substantially all of its debt facilities effective August 8, 2000 in accordance with the requirements of Statement of Position 90-7 "Financial Reporting by Entities In Reorganization under the Bankruptcy Code" ("SOP 90-7"). An income tax benefit of $4.5 million was recognized in the three-month period ended March 31, 2000. In periods prior to June 30, 2000, the Company has recognized deferred income tax assets based on its ability to implement certain tax planning strategies that would, if necessary, be implemented to accelerate taxable amounts to offset deductible temporary differences. These tax planning strategies primarily involved the Company's ability to sell property to generate taxable gains. As a result of (i) the Chapter 11 Cases and the Company's default on its Bank Facilities, (ii) changes in the Company's projections for future operating results and (iii) the limited market for theatre sale/leaseback transactions, the Company no longer has the ability to implement the tax planning strategies that would allow it to continue to recognize certain of its deferred income tax assets. Therefore, no income tax benefit was recognized in the three-month period ended March 31, 2001. In addition, the Company has a valuation allowance of $41.4 million in the aggregate at March 31, 2001. LIQUIDITY AND CAPITAL RESOURCES The Company's revenues are collected in cash and credit cards, principally through admissions and theatre concessions. Because its revenues are received in cash prior to the payment of related expenses, the Company has an operating "float" which partially finances its operations. The Company had working capital of $25.0 million as of March 31, 2001, compared to a working capital of $27.1 million at December 31, 2000. The working capital recorded as of March 31, 2001 excludes $46.2 million in current liabilities reported as "Liabilities Subject to Compromise." Including this amount, the working capital deficit at March 31, 2001 would have been $21.2 million. These deficits were financed through the operating "float" and, prior to the commencement of the Chapter 11 Cases, through borrowing availability under Carmike's $200 million Revolving Credit Facility (the "Revolving Credit Facility"). At March 31, 2001, the Company had approximately $59.5 million in cash and cash equivalents. No further amounts were available for borrowings under Carmike's Revolving Credit Facility. As of May 4, 2001, the Company had approximately $60.2 million in cash and cash equivalents. Carmike's capital expenditures arise principally in connection with the development of new theatres, renovation and expansion of existing theatres. During the first three months of 2001, such capital expenditures totaled approximately $3 million. 20 21 Cash used in operating activities, before reorganization items, was $1.4 million for the three months ended March 31, 2001, compared to cash used in operating activities of $11.5 million for the three months ended March 31, 2000. Reorganization items used cash of $7.8 million. Including this amount the cash used in operating activities was $9.2 million. The decrease in cash used in operating activities was primarily due to the decrease in net losses and changes in operating assets and liabilities. Net cash used in investing activities was $1.4 million for the three months ended March 31, 2001 as compared to $5.0 million in the prior year period. The decrease in cash used in investing activities was primarily due to the decreased level of capital expenditures. For the three month periods ended March 31, 2001 and 2000, cash provided by financing activities was $1.8 million and $16.6 million, respectively. The decrease was primarily due to reduced borrowings under the Revolving Credit Facility. Professional fees have averaged approximately $750,000 per month from the Petition Date through March 31, 2001. Carmike will continue to incur significant professional fees during the remainder of the Chapter 11 Cases. The Company expects that cash and cash equivalents on hand and cash flow from operations should provide it with sufficient liquidity to conduct its operations while the Chapter 11 Cases are pending. The Company does not currently anticipate the need for Debtor-In-Possession ("DIP") financing. Should the Company determine at a later date there is a need for such financing, there can be no assurance that DIP financing will be available to the Company on satisfactory terms and conditions, if at all. Carmike's long-term liquidity and the adequacy of Carmike's capital resources cannot be determined until a plan of reorganization has been developed and confirmed by the Bankruptcy Court in connection with the Chapter 11 Cases. FINANCIAL COVENANT COMPLIANCE CONCERNS; CHAPTER 11 CASES Carmike's credit and leasing facilities contain certain restrictive provisions which, among other things, limit additional indebtedness of the Company, limit the payment of dividends and other defined restricted payments, require that certain debt to capitalization ratios be maintained and require minimum levels of defined cash flows. As previously reported, effective March 31, 2000, Carmike amended each of the Revolving Credit Facility, its $75 million term loan ("Term Loan B" and, together with the Revolving Credit Facility, the "Bank Facilities") and a master lease facility with Movieplex Reality Leasing, L.L.C. (the "Master Lease" and, together with the Bank Facilities, the "Credit Facilities") to, among other things, adjust certain financial ratios relative to past and future operating performance and to add a new covenant as to the ratio of Carmike's funded debt plus rental expense to Carmike's cash flow plus rental expense. In connection with these amendments, the interest rates under the Bank Facilities were increased, the base rent payable under the Master Lease was increased and Carmike is required to permanently prepay the loans under the Bank Facilities in an amount equal to 75% of annual excess cash flow, as defined. In addition, the amendments reduced the amount of investments Carmike can make to $10 million in the aggregate and limited Carmike's net capital expenditures to $25 million in 2000 and $35 million in 2001 and 2002. In order to obtain these amendments, Carmike agreed to secure the Credit Facilities with mortgages on its owned theatres and leasehold mortgages on certain of its leased theatres, to the extent it can obtain the landlord's consent to such a leasehold mortgage. Carmike had not, as of the Petition Date, delivered any of the mortgages required by the Credit Facilities. 21 22 During the second quarter of 2000, a shortfall in revenue and operating profits caused a default of certain financial ratio covenants contained in the Credit Facilities. On July 25, 2000, the agents under the Bank Facilities delivered a notice of default to Carmike that declared an event of default under the Bank Facilities based upon such technical noncompliance with financial covenants. The notice expressly reserved the banks' rights and remedies under the Bank Facilities. Thereafter, on July 28, 2000, the agents under the Bank Facilities also issued a Payment Blockage Notice to Carmike and the indenture trustee for Carmike's 9 3/8% Senior Subordinated Notes due 2009 (the "Subordinated Notes") prohibiting payment by Carmike of the semi-annual interest payment in the amount of $9,375,000 due to the holders of the Subordinated Notes on August 1, 2000. Carmike engaged in active discussions with its lead bank lender beginning in June 2000 to obtain a waiver of the covenant noncompliance and renegotiate the Credit Facilities to provide terms that would allow the Company to achieve current and future compliance and allow the payment of semiannual interest to holders of the Subordinated Notes. Carmike was unable to successfully negotiate satisfactory covenant relief. As a result and in the circumstances confronting Carmike, including the nonpayment of the interest payment due to the Subordinated Note holders and operating shortfalls, on August 8, 2000, Carmike and its subsidiaries filed voluntary petitions to reorganize their business under Chapter 11 of the Bankruptcy Code. The Debtors are operating their businesses as debtors-in-possession under Chapter 11, and continuation of the Company as a going concern is contingent upon its ability, among other things, to generate sufficient cash from operations and obtain financing sources to meet future obligations. In connection with the formulation of a plan of reorganization, management, along with DKW, has been reviewing the performance of each of the Company's theatres. Under the Bankruptcy Code, the Debtors may elect to assume or reject real estate leases, employment contracts, personal property leases, service contracts and other executory prepetition contracts, subject to Bankruptcy Court approval. As previously discussed, to date the Debtors have received approval to reject 119 theatre leases. On February 13, 2001 the agent for the lenders under the master lease facility with MoviePlex Realty Leasing L.L.C. (the "Master Lease") commenced an adversary proceeding in the Bankruptcy Court seeking a declaration that the Master Lease is a true lease. The Company has agreed to an interim settlement regarding the Master Lease. As part of the interim settlement, the Master Lease will be deemed a true lease for bankruptcy law purposes. Once the interim settlement becomes effective the Company will make an initial payment in satisfaction of all post-petition rent due under the Master Lease through March 31, 2001 and will make monthly rent payments at a reduced rate. The term of the interim settlement expires on August 31, 2001, but may be extended. The Company has been incurring and will continue to incur significant professional fees and other restructuring costs. The Company anticipates that it may incur additional impairments of long-lived assets in connection with the Chapter 11 Cases and the ongoing restructuring of its business operations during fiscal year 2001. 22 23 Both before and after the commencement of the Chapter 11 Cases, Carmike has taken steps to restructure its operations and to improve profitability. These steps include but are not limited to elimination of new movie theatre development, curtailment of renovation and expansion of existing theatres, increased management control over expenditures, aggressive marketing of surplus assets and evaluations of capital sources and debt restructurings. SEASONALITY The Company's revenues are usually seasonal, coinciding with the timing of releases of motion pictures by the major distributors. Generally, the most marketable motion pictures are released during the summer and the Thanksgiving through year-end holiday season. The unexpected emergence of a hit film during other periods can alter the traditional trend. The timing of movie releases can have a significant effect on the Company's results of operations, and the results of one quarter are not necessarily indicative of results for the next quarter. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Carmike is exposed to various market risks. Prior to the Petition Date, these exposures primarily relate to change in interest rates. Substantially all of the Company's interest obligations are suspended during the bankruptcy. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On August 8, 2000, the Debtors filed voluntary petitions in the Bankruptcy Court for protection under Chapter 11 of the Bankruptcy Code (See Part I, Item 2 herein). The Debtors are presently operating their businesses as debtors-in-possession. ITEM 3. DEFAULTS UPON SENIOR SECURITIES See "Financial Covenant Compliance Concerns; Chapter 11 Cases" in Part I, Item 2 herein. In addition, since the Petition Date, the Company has not made any interest payments due under the Subordinated Notes or dividend payments to the holders of the Series A Preferred Stock and, as a result of the filing of the Chapter 11 Cases, will not make principal or interest payments on indebtedness incurred by the Company prior to the Petition Date or dividend payments until a plan of reorganization defining the payment terms has been approved by the Bankruptcy Court. ITEM 5. OTHER INFORMATION See Notes 2 and 3 of Notes to the Consolidated Financial Statements in Part I, Item 1 herein. 23 24 Carmike's Class A Common Stock, par value $.03 per share (the "Class A Common Stock"), is traded on the NASD's over-the-counter Bulletin Board (OTCBB) under the symbol "CKECQ." Trading in the Company's stock on the New York Stock Exchange was suspended prior to the opening of the Exchange on Friday, January 12, 2001 because the Company had fallen below certain Exchange criteria for continued listing. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Listing of Exhibits
Number Description ------ ----------- 10 Amendment to the Employment Agreement between Carmike Cinemas, Inc. and Michael W. Patrick
(b) Reports on Form 8-K None. 24 25 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CARMIKE CINEMAS, INC. (Registrant) Date: May 15, 2001 By: /s/ Michael W. Patrick ------------------------------------- Michael W. Patrick President and Chief Executive Officer Date: May 15, 2001 By: /s/ Martin A. Durant ------------------------------------- Martin A. Durant Senior Vice President -- Finance Treasurer and Chief Financial Officer 25 EX-10 2 g69326ex10.txt AMENDMENT TO THE EMPLOYMENT AGREEMENT 1 EXHIBIT 10 AMENDMENT TO THE EMPLOYMENT AGREEMENT BETWEEN CARMIKE CINEMAS, INC. AND MICHAEL W. PATRICK This Amendment to the Employment Agreement dated August 10, 1998, between Carmike Cinemas, Inc. ("Company") and Michael W. Patrick ("Executive") is made this 31st day of January, 2001 between the Company and the Executive. WHEREAS, the Company and Executive previously entered into an employment agreement regarding the terms and conditions of Executive's employment with the Company; and WHEREAS, the Company filed a petition under chapter 11 of title 11 of the United States Code ("the Bankruptcy Code") on August 8, 2000 ("Petition Date") and, in connection with such case, greatly desires to retain the knowledge, experience and services of the Executive; and WHEREAS, the Company and Executive desire to have the employment agreement assumed by the Company pursuant to an order of the bankruptcy court; NOW, THEREFORE, the Employment Agreement is hereby amended as follows: 1. Section 6(b) is amended by adding a new sentence at the end thereof to read as follows: Notwithstanding the foregoing provisions of this Section 6(b), a Change in Control shall not be deemed to have occurred as a result of the Company's commencement of a case under chapter 11 of the Bankruptcy Code or any action taken in accordance with and as explicitly provided in any plan under chapter 11 approved by the Bankruptcy Court with respect to the Company. 2. Section 6(c) is amended by adding a new sentence at the end thereof to read as follows: Notwithstanding the foregoing provisions of this Section 6(c), in the event the Executive is entitled to receive severance pay under this Agreement, the fourth year of severance pay to which the Executive may be entitled shall be subject to reduction by the amount of salary the Executive receives from other employment during the fourth year following the Executive's termination of employment with the Company. 3. Section 6(d) is amended by added a new sentence at the end thereof to read as follows: Notwithstanding the foregoing provisions of this Section 6(d), the Executive shall not have Good Reason solely as a result of the Company's 2 commencement of proceedings under chapter 11 of the Bankruptcy Code or any delay in the assumption of the Employment Agreement. 4. A new Section 6(e) is added to read as follows: In the event of Executive's involuntary termination of employment with the Company (other than by reason of death, disability or for Cause) or resignation for Good Reason, in either case prior to or after a Change in Control, Executive shall be entitled to a lump sum payment equal to the Executive's salary and, if applicable, the target bonus (to the extent consistent with the target bonus for fiscal year 2001) for the year of termination, multiplied by three. In the event that the Executive remains unemployed as of the third anniversary of any such termination of employment, the Executive shall receive additional severance pay equal to one additional year of salary plus the amount of the Executive's target bonus for the year of termination, which shall be payable monthly in accordance with the Company's payroll practices with respect to its officers and which shall be reduced by the amount of salary and bonuses, if any, received by the Executive with respect to any other employment during the fourth year following the Executive's termination of employment with the Company. 5. This Amendment shall be effective as of January 1, 2001, subject to approval by the Bankruptcy Court. 6. This Amendment shall be binding upon the Company and its successors (including any trustee in bankruptcy) and may only be amended in writing which is executed by both parties. In witness whereof, the parties have executed this Amendment as of this 31st day of January, 2001. CARMIKE CINEMAS, INC. By: ---------------------------------------- Name: Martin A. Durant Title: Chief Financial Officer MICHAEL W. PATRICK -------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----