-----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, Hfgjl3JvpLsxExRIwSvONbDLAUIYMmKbCM+7GIwmlyJr/IEq1AqdDszCWsPKOqiY 9zWeZqH2N1imrY8PhpMX2g== 0000950144-99-012938.txt : 19991115 0000950144-99-012938.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950144-99-012938 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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: 99750215 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 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 SEPTEMBER 30, 1999 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 0-14993 ------- CARMIKE CINEMAS, INC. (Exact name of registrant as specified in its charter)
DELAWARE 58-1469127 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 1301 FIRST AVENUE, COLUMBUS, GEORGIA 31901-2109 (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 -- 9,948,487 shares outstanding as of November 1, 1999 Class B Common Stock, $.03 par value -- l,420,700 shares outstanding as of November 1, 1999 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements CARMIKE CINEMAS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1999 1998 ------------- ------------ (Unaudited) (000's omitted) ASSETS CURRENT ASSETS Cash and cash equivalents $ 5,180 $ 17,771 Short-term investments 936 801 Accounts and notes receivable 4,691 522 Inventories 4,257 3,851 Prepaid expenses 17,027 5,886 ------------- ------------ TOTAL CURRENT ASSETS 32,091 28,831 OTHER ASSETS 40,129 38,146 PROPERTY AND EQUIPMENT - Net of accumulated depreciation and amortization 684,752 573,612 EXCESS OF COST OVER FAIR VALUE OF TANGIBLE ASSETS ACQUIRED 55,598 56,954 ------------- ------------ $ 812,570 $ 697,543 ============= ============
2 3
September 30, December 31, 1999 1998 -------------- ------------- (Unaudited) (000's omitted) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 70,033 $ 45,533 Accrued expenses 34,222 37,842 Current maturities of long-term debt and capital lease obligations 2,033 1,290 -------------- ------------- TOTAL CURRENT LIABILITIES 106,288 84,665 LONG-TERM LIABILITIES Long-term debt - less current maturities - Note B 397,476 232,013 Senior notes 0 79,870 Capital lease obligations - less current maturities 53,024 38,587 Restructuring reserve - less current portion 24,933 30,099 Other 2,969 6,000 -------------- ------------- TOTAL LONG-TERM LIABILITIES 478,402 386,569 SHAREHOLDERS' EQUITY 5.5% Series A Senior Cumulative Convertible Exchangeable Preferred Stock, $1.00 par value, four votes per share, 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 9,956,487 and 9,942,487 shares, respectively 299 298 Class B Common Stock, $.03 par value, ten votes per share, authorized 5,000,000 shares, issued and outstanding 1,420,700 shares 43 43 Treasury Stock, 11,800 shares at cost (154) 0 Paid-in capital 158,772 158,543 Retained earnings 68,370 66,875 -------------- ------------- 227,880 226,309 -------------- ------------- $ 812,570 $ 697,543 ============== =============
See accompanying notes to condensed consolidated financial statements. 3 4 CARMIKE CINEMAS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 -------- -------- --------- -------- (000's omitted except per share data) REVENUES Admissions $101,159 $ 92,126 $ 255,227 $248,777 Concessions and other 43,671 42,594 112,592 113,783 -------- -------- --------- -------- 144,830 134,720 367,819 362,560 COSTS AND EXPENSES Film exhibition costs 50,910 47,027 135,025 132,128 Concession costs 6,027 5,445 14,730 15,056 Cost of operations 51,913 49,738 142,532 141,795 General and administrative 1,877 1,820 5,530 5,319 Depreciation and amortization 10,735 9,769 30,287 27,843 Change in estimated restructuring costs (Note C) 0 0 (2,671) 0 -------- -------- --------- -------- 121,462 113,799 325,433 322,141 -------- -------- --------- -------- OPERATING INCOME 23,368 20,921 42,386 40,419 Interest expense 9,665 6,792 26,166 19,586 -------- -------- --------- -------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 13,703 14,129 16,220 20,833 Income tax expense 5,207 5,369 6,164 7,917 -------- -------- --------- -------- NET INCOME BEFORE EXTRAORDINARY ITEM 8,496 8,760 10,056 12,916 Extraordinary item (net of income tax benefit of $3,856) - (Note D) 0 0 (6,291) 0 -------- -------- --------- -------- NET INCOME 8,496 8,760 3,765 12,916 Preferred stock dividends 757 0 2,269 0 -------- -------- --------- -------- NET INCOME AVAILABLE FOR COMMON SHARES $ 7,739 $ 8,760 $ 1,496 $ 12,916 ======== ======== ========= ======== Earnings per common share before Extraordinary item Basic $ .68 $ .77 $ .68 $ 1.14 Diluted $ .68 $ .77 $ .68 $ 1.13 Earnings per common share Basic $ .68 $ .77 $ .13 $ 1.14 Diluted $ .68 $ .77 $ .13 $ 1.13
See accompanying notes to condensed consolidated financial statements. 4 5 CARMIKE CINEMAS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, 1999 1998 --------- ----------- (000's omitted) OPERATING ACTIVITIES Net income $ 3,765 $ 12,916 Items which did not use cash: Depreciation and amortization 30,287 27,843 Deferred income taxes 3,400 2,000 Gain on sale of assets (2,019) (1,257) Changes in other assets and liabilities (10,179) 0 Changes in operating assets and liabilities: Accounts and notes receivable and inventories (4,575) (3,095) Prepaid expenses (11,141) (461) Accounts payable 24,500 (5,159) Accrued expenses (856) 4,604 --------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 33,182 37,391 INVESTING ACTIVITIES Purchases of property and equipment (141,920) (107,841) Disposals of property and equipment 3,867 1,682 Decrease (increase) in: Short-term investments (135) 2,242 Other 700 519 --------- ----------- NET CASH USED IN INVESTING ACTIVITIES (137,488) (103,398) FINANCING ACTIVITIES Debt and other liabilities: Borrowings under revolving credit line 322,300 2,317,500 Repayments of revolving credit line (430,500) (2,246,000) Borrowings under other long-term agreements 289,995 0 Payments of other long term borrowings (81,022) (18,710) Debt issuance cost (8,905) 0 Issuance of Class A Common Stock 1 415 Purchase of Treasury Stock (154) 0 Due from lessor under capital leases 0 2,100 --------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 91,715 55,305 --------- ----------- DECREASE IN CASH AND CASH EQUIVALENTS (12,591) (10,702) Cash and cash equivalents at beginning of period 17,771 16,545 --------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,180 $ 5,843 ========= ===========
See accompanying notes to condensed consolidated financial statements. 5 6 CARMIKE CINEMAS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) September 30, 1999 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Carmike Cinemas, Inc. ("Carmike" or the "Company") 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) considered necessary for a fair presentation have been included. Operating results for the three and nine-month periods ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. NOTE B -- INDEBTEDNESS Long-term debt and senior notes consists of the following (in thousands):
September 30, December 31, 1999 1998 -------------- ------------- Revolving Credit Facility $ 121,800 $ 230,000 9 3/8% Senior Subordinated Notes due 2009 200,000 0 Term Loan B which matures March 31, 2005 74,625 0 Industrial Revenue Bonds; payable in equal installments through May 2006, with interest rates ranging from 3.90% to 5.98% 2,080 2,285 Senior notes 0 79,870 -------------- ------------- 398,505 312,155 Less current maturities (1,029) (272) -------------- ------------- $ 397,476 $ 311,883 ============== =============
In February 1999, the Company completed a private offering of $200.0 million of 9 3/8% Senior Subordinated Notes due 2009 (the "Subordinated Notes"). The unregistered Subordinated Notes were subsequently exchanged for registered Subordinated Notes in July, 1999. The Company's wholly-owned subsidiaries have fully, unconditionally, jointly and severally guaranteed the Subordinated Notes. Additionally, on January 29, 1999 the Company amended and restated its 1997 credit agreement (as amended and restated, the "Revolving Credit Facility"). The Revolving Credit Facility provides for revolving credit availability of $200.0 million and matures November 10, 2002. The interest rate and commitment fees on the Revolving Credit Facility vary based on certain financial ratios as set forth in the Revolving Credit Facility Agreement. The aggregate effective interest rate on the Revolving Credit Facility was 7.6% at September 30, 1999. 6 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued CARMIKE CINEMAS, INC. and SUBSIDIARIES NOTE B - INDEBTEDNESS (CONTINUED) The Revolving Credit Facility allowed for the February 25, 1999 issuance of a separate $75.0 million Term Loan B Facility (the "Term Loan B"). The Term Loan B will mature March 30, 2005 and bears interest at LIBOR plus 2.75%. The Company used the net proceeds from the issuance of the Subordinated Notes, approximately $193.7 million, to redeem its then outstanding Senior Notes and to reduce the amounts outstanding under the Revolving Credit Facility. Interest accrues on the Term Loan B at a floating rate per annum initially equal to, at Carmike's option, either: (1) the Base Rate, as defined, plus 1.75%, or (2) the Adjusted LIBOR Rate plus 2.75%. The applicable margins over the index used to determine the interest rate are adjustable from time to time following the fiscal quarter ended June 30, 1999 based upon certain financial ratios as set forth in the Term Loan B Agreement. The aggregate effective interest rate on the Term Loan B was 8.1% at September 30, 1999. In addition, the Revolving Credit Facility and Term Loan B contain certain restrictive provisions which, among other things, limit additional indebtedness of the Company, limit dividends and other restricted payments, require that certain debt to capitalization ratios be maintained and require minimum levels of cash flows. Carmike is required to make prepayments of the Revolving Credit Facility and Term Loan B, on a pro rata basis, with the net cash proceeds of asset sales, excess cash flows, as defined, or the sale of any new equity securities. The maximum available borrowings under the Revolving Credit Facility will be reduced by the amount of any such prepayments, but in no event below $150.0 million. The Revolving Credit Facility and the Term Loan B rank pari passu. INTEREST RATE SWAPS: The Company has entered into interest rate swap agreements to modify the interest characteristics of a portion of its outstanding debt. The agreements involve the exchange of amounts based on a variable interest rate for amounts based on a fixed interest rate over the life of the agreements without an exchange of the notional amounts upon which the payments are based. The Company specifically designates interest rate swaps as hedges of debt instruments and recognizes interest differentials as adjustments to interest expense in the period they occur. The differential to be paid or received as interest rates change is accrued and recognized as an adjustment of interest expense related to the debt (the accrual accounting method). The related amount payable to, or receivable from, counter-parties is included in other liabilities or assets. The fair value of the swap agreements is not recognized in the financial statements. If, in the future, an interest rate swap agreement were terminated, any resulting gain or loss would be deferred and amortized to interest expense over the remaining life of the hedge debt instrument. In the event of early extinguishment of a designated debt obligation, any realized or unrealized gain or loss from the swap would be recognized in income coincident with the extinguishment. The interest rate swap agreements changed floating interest rate expense on amounts outstanding under the Revolving Credit Facility. Under one interest rate swap agreement, the Company has fixed $50.0 million of its floating rate debt through February 7, 2003. This swap agreement was amended effective August 9, 1999. Under the amended agreement the effective rate at September 30, 1999 was 7.455%, equal to a fixed rate of 5.205% plus the margin the Company pays over LIBOR (2.25% at September 30, 1999). Under another interest rate swap agreement, the Company has fixed $20.0 million of its floating rate debt through February 7, 2001 at a fixed rate of 5.503% plus the margin the Company pays over LIBOR (2.25% at September 30, 1999) for a total effective rate of 7.753%. 7 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued CARMIKE CINEMAS, INC. and SUBSIDIARIES NOTE B - INDEBTEDNESS (CONTINUED) The Company is exposed to credit losses in the event of non-performance by counter-parties on interest rate swap agreements. The Company does not believe there is a significant risk of non-performance by any of the counter-parties to these instruments and the Company monitors the financial stability of such parties on a periodic basis. NOTE C - RESTRUCTURING COSTS During June 1999, the Company revised its estimate of the total costs to be incurred for its restructuring plan approved in December 1998. The $2.7 million decrease in estimated costs (approximately $1.7 million after income taxes or $.15 per diluted share) was the result of a lessor initiated early buyout of a lease included in the restructuring plan. The early lease termination provides savings for the lease payments, utilities and other associated lease costs which were expected to be incurred over the remaining lease period at December 31, 1998. NOTE D - EXTRAORDINARY CHARGE In connection with the restructuring of indebtedness discussed in Note B - Indebtedness, the Company retired its then outstanding senior notes totaling $79.9 million. The Company recognized an extraordinary charge of $6.3 million ($10.1 million less applicable income taxes) for (a) a prepayment premium ($9.2 million) paid in connection with the redemption of the senior notes, and (b) the elimination of deferred debt costs ($.9 million) on retired indebtedness. NOTE E -- EARNINGS PER SHARE
Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Weighted average shares outstanding Basic 11,389 11,362 11,378 11,355 Effect of dilutive securities - Employee stock options 14 53 25 70 ---------- ---------- ---------- ---------- Diluted 11,403 11,415 11,403 11,425 ========== ========== ========== ========== Earnings per common share before extraordinary item Basic $ .68 $ .77 $ .68 $ 1.14 Diluted $ .68 $ .77 $ .68 $ 1.13 Earnings per common share Basic $ .68 $ .77 $ .13 $ 1.14 Diluted $ .68 $ .77 $ .13 $ 1.13
8 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued CARMIKE CINEMAS, INC. and SUBSIDIARIES NOTE F - CONDENSED COMBINED FINANCIAL DATA FOR GUARANTOR SUBSIDIARIES The Company's principal operating subsidiaries fully, unconditionally, jointly and severally guarantee the Company's $200 million 9 3/8% Senior Subordinated Notes (see Note B - Indebtedness). The guarantor subsidiaries are direct, wholly owned U.S. subsidiaries of the Company. The Company and the guarantor subsidiaries conduct substantially all of the operations of the Company 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. The Company also has a partially owned subsidiary and several unconsolidated affiliates which are not guarantors and are inconsequential to the Company on a consolidated basis. Following is summarized condensed combined financial information (in accordance with Rule 1-02(bb) of Regulation S-X) at September 30, 1999 and for the nine month period then ended for the guarantor subsidiaries of the Company (in thousands):
September 30, 1999 ------------------ Current assets $ 13,829 Current liabilities 14,713 Noncurrent assets 566,154 Noncurrent liabilities 361,722
Nine months ended September 30 1999 1998 -------------- ------------- Revenues $ 292,996 $ 291,825 Operating income 15,680 13,487 Net income (loss) (1,437) 471
9 10 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion of the Company's financial condition and results of operations should be read in conjunction with the financial information included herein and the Company's annual report on Form 10-K for the fiscal year ended December 31, 1998 (the "1998 Form 10-K"), as filed with the Securities and Exchange Commission (the "SEC"). Except for the historical information contained herein, the following discussion contains forward-looking statements that involve a number of risks and uncertainties. Factors which could cause the Company's actual results in future periods to differ materially include, but are not limited to, the availability of suitable motion pictures for exhibition in the Company's markets, and the performance of films licensed by the Company; competitive pressures in the motion picture exhibition industry, including the increasing development of megaplexes and stadium-style theatres by some exhibitors; the availability of opportunities for expansion; the Company's substantial leverage, and the availability of financial resources and financing programs; demographic changes; and general economic conditions, including adverse changes in inflation and prevailing interest rates; as well as those discussed or identified from time to time in the Company's filings with the SEC, including, but not limited to, the Company's 1998 Form 10-K. COMPARISON OF THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998 RESULTS OF OPERATIONS Total revenues for the quarter ended September 30, 1999 increased 7.5% to $144.8 million from $134.7 million for the quarter ended September 30, 1998. This increase consists of a $9.0 million increase in admissions and a $1.1 million increase in concessions and other. For the quarter ended September 30, 1999, the Company's average admission price was $4.69, its average concession sale per patron was $1.89 and the attendance per average screen was relatively flat at 7,936 compared to 7,956 for the quarter ended September 30, 1998. These factors contributed to increasing revenue per average screen 8.8% to $53,246. For the quarter ended September 30, 1998, the Company's average admission price was $4.21, its average concession sale per patron was $1.79 and the revenue per average screen was $48,936. The increases are attributed to additional revenues generated from increased ticket and concession sales per patron and improved facilities resulting from the Company's expansion and re-screening projects. Costs of operations (film exhibition costs, concession costs and other theatre operating costs) increased 6.5% from $102.2 million for the quarter ended September 30, 1998 to $108.9 million for the quarter ended September 30, 1999. This dollar increase is due to higher admissions revenue which forced film exhibition costs up accordingly. Concessions costs were up slightly at $6.0 million for the quarter ended September 30, 1999, compared to $5.4 million for the quarter ended September 30, 1998. Other theatre costs for the quarter ended September 30, 1999 increased 4.4% to $51.9 million from $49.7 million for the same period in 1998. This increase was the result of individually immaterial increases in salaries, supplies and utilities related to higher attendance. As a percentage of total revenues, cost of operations decreased to 75.2% of total revenues in the quarter ended September 30, 1999 from 75.9% for the quarter ended September 30, 1998, largely due to the amount of fixed costs which do not fluctuate with changes in revenues or attendance. 10 11 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. COMPARISON OF THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998 Total revenues for the nine months ended September 30, 1999 increased 1.4% to $367.8 million from $362.6 million for the nine months ended September 30, 1998. This increase consists of a $6.5 million increase in admissions and a $1.2 million decrease in concessions and other. The increases in admissions are primarily attributable to an increase in admission pricing as well as the mix of tickets sold in the various pricing categories (adults, children and matinee). These increases are partially offset by a 3.1% reduction in attendance to 56.7 million patrons for the nine months ended September 30, 1999 versus 58.5 million patrons during the same period in 1998. The major declines in attendance occurred in the first four months of 1999, when attendance was down 12.5% over 1998 levels. For the nine months ended September 30, 1999, the Company's average admission price was $4.50, its average concession sale per patron was $1.81 and revenue per average screen was $134,732. For the nine months ended September 30, 1998, the Company's average admission price was $4.25, its average concession sale per patron was $1.78 and revenue per average screen was $132,612. Costs of operations for the nine months ended September 30, 1999 increased 1.1% from $289.0 million for the nine months ended September 30, 1998 to $292.3 million. This increase is directly related to higher revenue generation. Film exhibition costs were $135.0 million, or 52.9% of admissions, as compared to $132.1 million, or 53.1% of admissions in 1998. Concession costs decreased to $14.7 million for the nine months ended September 30, 1999 from $15.1 million for the same period in 1998. This decrease is due to the lower attendance during the first four months of 1999. Other theatre costs for the nine months ended September 30, 1999 were relatively flat at $142.5 million compared to $141.8 million for the nine months ended September 30, 1998. There were no individually material changes in salaries, supplies and utilities which would require itemized disclosure. As a percentage of total revenues, cost of operations decreased to 79.5% in the first nine months of 1999 from 79.7% in the first nine months of 1998. Depreciation and amortization increased 9.2% from $9.8 million for the quarter ended September 30, 1998 to $10.7 million for the quarter ended September 30, 1999. This increase is due to the newer theatres brought on line through the period, partially offset by the reduced depreciation expense from the reduction in asset values as a result of the impairment charge recognized in 1998. Depreciation and amortization for the nine months ended September 30, 1999 increased 9.0% to $30.3 million from $27.8 million for the nine months ended September 30, 1998. This increase is also due to the reasons enumerated above. Interest expense for the quarter ended September 30, 1999 increased 42.6% to $9.7 million from $6.8 million for the quarter ended September 30, 1998. This increase is due to higher levels of average indebtedness outstanding and to a higher aggregate cost of debt of 8.5% versus the aggregate cost of debt of 6.6% in the quarter ended September 30, 1998. Interest expense for the nine months ended September 30, 1999 increased 33.7% to $26.2 million from $19.6 million for the nine months ended September 30, 1998 for the reasons stated above. During the quarter ended June 30, 1999, the Company recorded a decrease in the estimated restructuring costs reported in the fourth quarter of 1998 (see the Company's 1998 Annual Report and the 1998 Form 10-K). This credit was the result of a lessor initiated early buyout of a lease on one of the properties included in the restructuring plan. The amount of this credit was $2.7 million, or $1.7 million net of income taxes. 11 12 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS During the period ended March 31, 1999, the Company recognized an extraordinary charge of $10.1 million ($6.3 million net of income tax benefit, or $.55 per diluted share) for the prepayment premiums paid in connection with the redemption of senior notes and the elimination of certain deferred debt costs related to indebtedness which was retired in February 1999. LIQUIDITY AND CAPITAL RESOURCES The Company's revenues are collected in cash, principally through box office 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 deficits of $74.2 million and $55.8 million at September 30, 1999 and December 31, 1998, respectively. These deficits are financed through the operating "float" and through borrowing availability under the Revolving Credit Facility. At September 30, 1999, the Company had approximately $5.2 million in cash and short-term investments on hand and approximately $78.2 million was available under the Company's Revolving Credit Facility. The Company's credit 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 cash flows. On August 13, 1999, the Board of Directors of the Company authorized a stock repurchase program for the repurchase, from time to time, of approximately $4.0 million of Class A Common Stock to be held as treasury stock. As of September 30, 1999, the Company has purchased 11,800 shares of Class A Common Stock at an average purchase price of $13.05 per share. The Company's capital expenditures arise principally in connection with the development of new theatres, renovation and expansion of existing theatres and theatre acquisitions. During the first nine months of 1999, such capital expenditures totaled $141.9 million. The Company estimates that total capital expenditures for 1999 will be approximately $155.0 million. The Company's expansion plans for 1999 continue to focus on small to mid-sized communities ranging in population size from 75,000 to 250,000 which can support the development of multiplex theatres. The Company's prototype multiplex theatre can be adapted and sized to fit varying populations and is designed to support a community base of 40,000 people per screen. Cash provided by operating activities was $33.2 million for the nine months ended September 30, 1999, compared to cash provided by operating activities of $37.4 million for the nine months ended September 30, 1998. The decrease in cash flow from operating activities was primarily due to an increase in accounts receivable and prepaid expenses which was partially offset by an increase in accounts payable. Net cash used in investing activities was $137.5 million for the nine months ended September 30, 1999 as compared to $103.4 million in the prior year period. This increase in cash used in investing activities was primarily due to the increased level of capital expenditures. For the nine month periods ended September 30, 1999 and 1998, cash provided by financing activities was $91.7 million and $55.3 million, respectively. The increase in cash provided by financing activities was primarily due to the sale of $200.0 million aggregate principal amount of the Company's 9 3/8% Senior Subordinated Notes and borrowings of $75.0 million under the new Term Loan B facility, net of repayments on the Revolving Credit Facility. The Company believes that its presently anticipated capital needs for theatre construction, renovation, stock repurchase and possible acquisitions will be satisfied by the cash and cash equivalents and short-term investments on hand, borrowings under the revolving credit line (see Note B of the Notes to Condensed 12 13 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Consolidated Financial Item Statements (Unaudited) herein), additional sale of debt and/or equity securities, additional bank financings and other forms of long-term debt, internally generated cash flow and, where appropriate, future lease financings or sale/leasebacks of theatre properties. On October 31, 1999, the Company had approximately $7.1 million in cash and short term investments on hand and approximately $45 million was available under the Company's revolving credit line. No assurance can be given that the Company's business will generate sufficient cash flows from operations, that currently anticipated revenue growth and operating improvements will be realized or that future capital will be available to the Company in an amount sufficient to enable the Company to pay its indebtedness or to fund its other liquidity needs. YEAR 2000 The Year 2000 issue refers generally to the data structure and processing problem that may prevent systems from properly recognizing dates after the year 1999. The Year 2000 issue affects information technology ("IT") systems, such as computer programs and various types of electronic equipment that process date information by using only two digits rather than four digits to define the applicable year, and thus may recognize a date using "00" as the year 1900 rather than the year 2000. The issue also affects some non-IT systems, such as devices which rely on a microcontroller to process the date information. The Year 2000 issue could result in system failures or miscalculations, causing disruptions of a company's operations. Moreover, even if a company's systems are Year 2000 compliant, a problem may exist to the extent that the data that such systems process is not. Carmike implemented a Year 2000 compliance program designed to ensure that Carmike's computer systems and applications will function properly beyond 1999. Carmike's Year 2000 compliance program has three phases: (1) identification, (2) remediation (including modification, upgrading and replacement) and (3) testing. Carmike's Year 2000 compliance program is an ongoing process involving continual evaluation and may be subject to a change in response to new developments. Carmike has three material internal IT systems: (1) its accounting system, (2) its proprietary IQ-Zero point-of-sale system and (3) a film system through which Carmike manages the booking of the films shown in its theatres. Carmike has completed the identification, remediation and testing phases with respect to all three of these systems. Carmike has conducted a survey of its theatres and has not identified any non-IT systems the failure of which to be Year 2000 compliant would have a material adverse effect on Carmike's business, operating results or financial condition. Carmike has surveyed its material vendors and suppliers (including concession, technical and film suppliers) and the financial institutions with whom it has material relationships. Based on such survey, Carmike is not aware of any material third-party Year 2000 risks. The cost of remediation of problems related to Year 2000 issues was less than $50,000. This cost includes the cost of upgrading the Company's film system. As of September 30, 1999, this plan has been completed and all components are in compliance with Year 2000 issues. If Carmike's internal IT systems do not function properly beyond 1999, Carmike plans to operate such systems manually until any Year 2000 issues are remediated. Such remediation may result in loss of data and information and increased costs of operations. In addition, if the IQ-Zero system failed to operate properly due to Year 2000 problems, local management staff may not be able to focus their attention on their customers and theatre needs. Carmike expects to maintain close contact with the third parties with whom Carmike has material 13 14 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS relationships, such as vendors, suppliers and financial institutions, to ensure that such third parties' Year 2000 issues do not affect Carmike's operations. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's fixed interest rate risk for long-term debt is limited to the Company's $200 million 9 3/8% senior subordinated notes. As of September 30, 1999 the market value of these notes has decreased approximately 7% since their issuance in February 1999. There have been no material changes in the interest rates for the Company's floating rate debt from those rates effective when the Company restructured its outstanding indebtedness (See Note B of the Notes to Consolidated Financial Statements (Unaudited)). 14 15 PART II. OTHER INFORMATION ITEM 5. Exhibits and Reports on Form 8-K. (a) Exhibits 27 - Financial Data Schedule (for SEC use only) (b) Reports on Form 8-K The Company filed a current report on Form 8-K on August 13, 1999, reporting under Item 5 the authorization of a stock repurchase plan as well as second quarter financial results. 15 16 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: November 8, 1999 By: /s/ Michael W. Patrick ------------------------ ------------------------------- Michael W. Patrick - President (Chief Executive Officer) Date: November 8, 1999 By: /s/ Martin A. Durant ------------------------ ------------------------------- Martin A. Durant - Senior Vice President-Finance Treasurer (Chief Financial Officer) 16 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF CARMIKE CINEMAS, INC. FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 5,180 936 4,691 0 4,257 32,091 870,896 186,144 812,570 106,288 256,109 0 550 342 226,988 812,570 112,592 367,819 14,730 292,287 33,146 0 26,166 16,220 6,164 10,056 0 (6,291) 0 1,496 .13 .13 Extraordinary item - In connection with the restructuring indebtedness the Company recognized a charge of $6.3 million ($10.1 million less applicable income taxes) for (a) a prepayment premium (9.2 million) paid in connection with the redemption of the senior notes, and (b) the elimination of deferred debt costs ($.9 million) on retired indebtedness. Other expenses - The Company revised its estimate of the total costs to be incurred for its restructuring plan approved in December 1998. The $2.7 million decrease in estimated costs (approximately $1.7 million after income taxes or $.15 per diluted share) was the result of a lessor initiated early buyout of a lease included in the restructuring plan.
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