**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

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**FORM 10-Q**

**(Mark One)**

x                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

**Forthe quarterly period ended June 28, 2007**

**OR**

o                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

**Forthe transition period from*      *   to*      *   **

**Commissionfile number 1-33344**

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**MARQUEE HOLDINGS INC.**

(Exact name of registrantas specified in its charter)

| **Delaware**                                                      |   | **77-0642885**                         |
|-------------------------------------------------------------------|--------|----------------------------------------|
| (State or other  jurisdiction of   incorporation or organization) |   | (I.R.S. Employer   Identification No.) |
| **920 Main   Kansas City, Missouri**                              |   | **64105**                              |
| (Address of  principal executive offices)                         |   | (Zip Code)                             |

 

**(816) 221-4000**

(Registrant’s telephonenumber, including area code)

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Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days.

Yes    x            No    o

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the ExchangeAct. (Check one):

| Large accelerated filer o |   | Accelerated filer  o |   | Non-accelerated filer x |
|---------------------------|--------|----------------------|--------|-------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).

Yes    o            No    x

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

| Title of Each Class of Common Stock | ** ** | **Number of Shares  Outstanding as of June 28, 2007** | ** ** |
|-------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------|------------|
| Common Stock, 1¢ par value                                   |       |                                                                                     | 1          |   |   |
|                                                                   |            |                                                                                          |            |  |  |

 

 

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**MARQUEEHOLDINGS INC. AND SUBSIDIARY**

**INDEX**

|              | ** ** | ** **                                                                                      | ** ** | **Page  Number** | ** ** |
|--------------|------------|-------------------------------------------------------------------------------------------------|------------|------------------|------------|
| ** **   | ** ** | **PART I—FINANCIAL  INFORMATION**                                                     |       |             |       |   |   |
| **Item 1.**  | ** ** | **Financial Statements  (unaudited)**                                                           |       |             | 3          |   |   |
|         |       | Consolidated  Statements of Operations                                                          |       |             | 3          |   |   |
|         |       | Consolidated  Balance Sheets                                                                    |       |             | 4          |   |   |
|         |       | Consolidated  Statements of Cash Flows                                                          |       |             | 5          |   |   |
|         |       | Notes  to Consolidated Financial Statements                                                     |       |             | 6          |   |   |
| **Item 2.**  | ** ** | **Management’s Discussion and  Analysis of Financial Condition and Results of Operations** |       |             | 23         |   |   |
| **Item 3.**  | ** ** | **Quantitative and Qualitative Disclosures About Market  Risk**                                 |       |             | 35         |   |   |
| **Item 4T.** | ** ** | **Controls  and Procedures**                                                                    |       |             | 37         |   |   |
| ** **   | ** ** | **PART II—OTHER  INFORMATION**                                                        |       |             |       |   |   |
| **Item 1.**  | ** ** | **Legal  Proceedings**                                                                          |       |             | 38         |   |   |
| **Item 4.**  | ** ** | **Submission of Matters to a  Vote of Security Holders**                                        |       |             | 38         |   |   |
| **Item 6.**  | ** ** | **Exhibits**                                                                                    |       |             | 38         |   |   |
|         | ** ** | **Signatures**                                                                                  |       |             | 40         |   |   |

 

2

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**PART I—FINANCIALINFORMATION**

**Item 1.**                        FinancialStatements. (Unaudited)

**MARQUEE HOLDINGS INC. AND SUBSIDIARYCONSOLIDATED STATEMENTS OF OPERATIONS(in thousands)**

|                                                                     | ** ** | **Thirteen Weeks Ended** | ** ** |
|---------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                          | ** ** | **June 28,  2007**            | ** ** | **June 29,  2006** | ** ** |
| ** **                                                          | ** ** | **(unaudited)**                    | ** ** |
| Revenues                                                            |       |                               |       |   |   |
| Admissions                                                          |       | $                                  | 416,874    |   | $ | 435,640 |   |
| Concessions                                                         |       | 184,227                            |       | 181,044 |   |
| Other revenue                                                       |       | 21,391                             |       | 29,150 |   |
| Total revenues                                                      |       | 622,492                            |       | 645,834 |   |
| Costs and Expenses                                                  |       |                               |       |   |   |
| Film exhibition  costs                                              |       | 221,847                            |       | 227,951 |   |
| Concession costs                                                    |       | 22,187                             |       | 22,015 |   |
| Operating expense                                                   |       | 156,525                            |       | 155,181 |   |
| Rent                                                                |       | 112,708                            |       | 112,319 |   |
| General and  administrative:                                        |       |                               |       |   |   |
| Merger,  acquisition and transaction costs                          |       | 4,172                              |       | 3,752 |   |
| Management fee                                                      |       | 1,250                              |       | 1,250 |   |
| Other                                                               |       | 13,088                             |       | 15,773 |   |
| Preopening  expense                                                 |       | 2,085                              |       | 1,042 |   |
| Theatre and other  closure (income) expense                         |       | (14,828                            | )          | 2,043 |   |
| Depreciation and  amortization                                      |       | 63,689                             |       | 63,896 |   |
| Disposition of  assets and other losses                             |       | —                             |       | 1,436 |   |
| Total costs and  expenses                                           |       | 582,723                            |       | 606,658 |   |
| Other expense  (income)                                             |       |                               |       |   |   |
| Other                                                               |       | (3,397                             | )          | (1,460 | ) |
| Interest expense                                                    |       |                               |       |   |   |
| Corporate  borrowings                                               |       | 43,098                             |       | 56,200 |   |
| Capital and  financing lease obligations                            |       | 1,665                              |       | 1,328 |   |
| Equity in  (earnings) losses of non-consolidated entities           |       | (2,253                             | )          | 2,157 |   |
| Investment income                                                   |       | (19,286                            | )          | (2,528 | ) |
| Total other  expense                                                |       | 19,827                             |       | 55,697 |   |
| Earnings (loss) from  continuing operations before income taxes     |       | 19,942                             |       | (16,521 | ) |
| Income tax provision                                                |       | 4,000                              |       | 300 |   |
| Earnings (loss) from  continuing operations                         |       | 15,942                             |       | (16,821 | ) |
| Earnings from  discontinued operations, net of income tax provision |       | —                             |       | 2,679 |   |
| Net earnings (loss)                                                 |       | $                                  | 15,942     |   | $ | (14,142 | ) |

 

*See Notes toConsolidated Financial Statements.*

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**MARQUEE HOLDINGS INC. AND SUBSIDIARYCONSOLIDATED BALANCE SHEETS(in thousands, except share data)**

|                                                                                                                                                                         | ** ** | **June 28,  2007** | ** ** | **March 29,  2007** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|--------------------------|------------|
| ** **                                                                                                                                                              | ** ** | **(unaudited)**         | ** ** |
| **ASSETS**                                                                                                                                                              |       |                    |       |                     |       |
| Current assets:                                                                                                                                                         |       |                    |       |                     |       |
| Cash and equivalents                                                                                                                                                    |       | $                       | 90,210     |                     | $          | 319,533 |   |
| Receivables, net of allowance for doubtful accounts  of $1,223  as of June 28, 2007 and $1,221 as of March 29, 2007                                           |       | 73,251                  |       | 62,279                   |       |
| Other current assets                                                                                                                                                    |       | 49,057                  |       | 30,402                   |       |
| Total current assets                                                                                                                                                    |       | 212,518                 |       | 412,214                  |       |
| Property, net                                                                                                                                                           |       | 1,299,293               |       | 1,298,823                |       |
| Intangible assets, net                                                                                                                                                  |       | 226,477                 |       | 234,176                  |       |
| Goodwill                                                                                                                                                                |       | 2,061,553               |       | 2,066,853                |       |
| Other long-term assets                                                                                                                                                  |       | 105,665                 |       | 98,783                   |       |
| Noncurrent assets held for sale                                                                                                                                         |       | 2,300                   |       | 7,300                    |       |
| Total assets                                                                                                                                                            |       | $                       | 3,907,806  |                     | $          | 4,118,149 |   |
| **LIABILITIES AND STOCKHOLDER’S  EQUITY**                                                                                                                          | ** ** | ** **              | ** ** | ** **               | ** ** |
| Current liabilities:                                                                                                                                                    |       |                    |       |                     |       |
| Accounts payable                                                                                                                                                        |       | $                       | 177,355    |                     | $          | 162,686 |   |
| Accrued expenses and other liabilities                                                                                                                                  |       | 153,642                 |       | 138,293                  |       |
| Deferred revenues and income                                                                                                                                            |       | 123,362                 |       | 127,334                  |       |
| Current maturities of corporate borrowings and  capital and financing lease obligations                                                                            |       | 16,685                  |       | 24,271                   |       |
| Total current liabilities                                                                                                                                               |       | 471,044                 |       | 452,584                  |       |
| Corporate borrowings                                                                                                                                                    |       | 1,851,379               |       | 1,843,859                |       |
| Capital and financing lease obligations                                                                                                                                 |       | 70,618                  |       | 49,665                   |       |
| Deferred revenues—for exhibitor services agreement                                                                                                                 |       | 230,472                 |       | 231,045                  |       |
| Other long-term liabilities                                                                                                                                             |       | 375,993                 |       | 373,943                  |       |
| Total liabilities                                                                                                                                                       |       | 2,999,506               |       | 2,951,096                |       |
| Stockholder’s equity:                                                                                                                                              |       |                    |       |                     |       |
| Common Stock, 1 share issued as of June 28, 2007  with 1¢ par value                                                                                           |       | —                  |       | —                   |       |
| Class A-1 Common Stock voting ($.01 par  value, 1,500,000 shares authorized; 382,475.00000 shares issued and  outstanding as of March 29, 2007)               |       | —                  |       | 4                        |       |
| Class A-2 Common Stock voting ($.01 par  value, 1,500,000 shares authorized; 382,475.00000 shares issued and  outstanding as of March 29, 2007)               |       | —                  |       | 4                        |       |
| Class N Common Stock nonvoting ($.01 par value,  375,000 shares authorized; 5,128.77496 shares issued and outstanding as of  March 29, 2007)                  |       | —                  |       | —                   |       |
| Class L-1 Common Stock voting ($.01 par  value, 1,500,000 shares authorized; 256,085.61252 shares issued and  outstanding as of March 29, 2007)               |       | —                  |       | 3                        |       |
| Class L-2 Common Stock voting ($.01 par  value, 1,500,000 shares authorized; 256,085.61252 shares issued and  outstanding as of March 29, 2007, respectively) |       | —                  |       | 3                        |       |
| Additional paid-in capital                                                                                                                                              |       | 1,045,295               |       | 1,314,579                |       |
| Accumulated other comprehensive loss                                                                                                                                    |       | (3,858                  | )          | (3,834                   | )          |
| Accumulated deficit                                                                                                                                                     |       | (133,137                | )          | (143,706                 | )          |
| Total stockholder’s equity                                                                                                                                         |       | 908,300                 |       | 1,167,053                |       |
| Total  liabilities and stockholder’s equity                                                                                                                        |       | $                       | 3,907,806  |                     | $          | 4,118,149 |   |

 

*See Notes toConsolidated Financial Statements.*

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**MARQUEE HOLDINGS INC. ANDSUBSIDIARY**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(in thousands)**

|                                                                                             | ** ** | **Thirteen Weeks Ended** | ** ** |
|---------------------------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                                  | ** ** | **June 28,  2007**            | ** ** | **June 29,  2006** | ** ** |
| ** **                                                                                  | ** ** | **(unaudited)**                    | ** ** |
| **INCREASE (DECREASE) IN CASH AND EQUIVALENTS**                                             |       |                               |       |   |   |
| **Cash flows from operating activities:**                                                   |       |                               |       |   |   |
| Net earnings (loss)                                                                         |       | $                                  | 15,942     |   | $ | (14,142 | ) |
| Adjustments to reconcile net earnings (loss) to net  cash provided by operating activities: |       |                               |       |   |   |
| Depreciation and  amortization                                                              |       | 63,689                             |       | 64,441 |   |
| Amortization of discount  on corporate borrowings                                           |       | 6,885                              |       | 5,469 |   |
| Non-cash portion of  stock-based compensation                                               |       | 500                                |       | 1,020 |   |
| Non-cash portion of  pension and postretirement expense                                     |       | 356                                |       | 1,611 |   |
| Deferred income taxes                                                                       |       | —                             |       | (854 | ) |
| Equity in (earnings)  losses from investments, net of distributions                         |       | (177                               | )          | 2,157 |   |
| Disposition of assets and  other gains                                                      |       | (15,744                            | )          | (103 | ) |
| Change in assets and  liabilities, net of effects from Merger:                              |       |                               |       |   |   |
| Receivables                                                                                 |       | 8,319                              |       | (2,764 | ) |
| Other assets                                                                                |       | (8,592                             | )          | (4,440 | ) |
| Accounts payable                                                                            |       | 1,405                              |       | 21,525 |   |
| Accrued expenses and  other liabilities                                                     |       | (1,929                             | )          | 19,291 |   |
| Other, net                                                                                  |       | 2,084                              |       | 2,727 |   |
| Net cash provided by  operating activities                                                  |       | 72,738                             |       | 95,938 |   |
| **Cash flows from investing activities:**                                                   |       |                               |       |   |   |
| Capital expenditures                                                                        |       | (33,894                            | )          | (32,843 | ) |
| Construction project  costs reimbursable by landlord                                        |       | (2,507                             | )          | — |   |
| Net change in  reimbursable construction advances                                           |       | (8,822                             | )          | 749 |   |
| Partnership investments                                                                     |       | (3,885                             | )          | — |   |
| Proceeds from disposition  of Fandango                                                      |       | 17,744                             |       | — |   |
| Proceeds on disposition  of long-term assets                                                |       | —                             |       | 30,667 |   |
| Proceeds from disposal-discontinued  operations                                             |       | —                             |       | 35,446 |   |
| Purchases of  software and other computer equipment                                         |       | (3,971                             | )          | (1,246 | ) |
| Other, net                                                                                  |       | (513                               | )          | (3,945 | ) |
| Net cash provided by  (used in) investing activities                                        |       | (35,848                            | )          | 28,828 |   |
| **Cash flows from financing activities:**                                                   |       |                               |       |   |   |
| Construction project  costs reimbursed by landlord                                          |       | 9,308                              |       | — |   |
| Repayment of Cinemex  Credit Facility                                                       |       | (7,640                             | )          | (602 | ) |
| Principal payments under  capital and financing lease obligations                           |       | (1,015                             | )          | (955 | ) |
| Principal payments under  mortgage                                                          |       | (31                                | )          | (27 | ) |
| Principal payments on  Term Loan B                                                          |       | (1,625                             | )          | (1,625 | ) |
| Change in construction  payables                                                            |       | 10,455                             |       | (9,195 | ) |
| Dividends paid to Parent                                                                    |       | (270,588                           | )          | — |   |
| Deferred financing costs                                                                    |       | (4,360                             | )          | (1,777 | ) |
| Net cash used in  financing activities                                                      |       | (265,496                           | )          | (14,181 | ) |
| Effect of exchange rate  changes on cash and equivalents                                    |       | (717                               | )          | 2,826 |   |
| **Net  increase (decrease) in cash and equivalents**                                        |       | (229,323                           | )          | 113,411 |   |
| **Cash and  equivalents at beginning of period**                                            |       | 319,533                            |       | 232,366 |   |
| **Cash and  equivalents at end of period**                                                  |       | $                                  | 90,210     |   | $ | 345,777 |   |
| **SUPPLEMENTAL DISCLOSURES OF CASH FLOW  INFORMATION**                                      |       |                               |       |   |   |
| **Cash paid during the period for:**                                                        |       |                               |       |   |   |
| Interest (including  amounts capitalized of $386 and $276)                                  |       | $                                  | 16,567     |   | $ | 17,366 |   |
| Income taxes paid                                                                           |       | 9,895                              |       | 732 |   |
| **Schedule  of non-cash investing and financing activities:**                               |       |                               |       |   |   |
| Assets capitalized under EITF 97-10                                                         |       | $                                  | 13,000     |   | $ | — |   |

 

*See Notes to ConsolidatedFinancial Statements.*

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**MARQUEE HOLDINGS INC. AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS**June 28,2007(Unaudited)

**NOTE 1—BASIS OFPRESENTATION**

Marquee Holdings Inc. (“Holdings”) is an intermediateholding company owned by AMC Entertainment Holdings, Inc. (“Parent”), anentity created on June 6, 2007, and the principal stockholder of Holdings.Holdings was formed for the purpose of acquiring AMC Entertainment Inc. (“AMCE”)pursuant to a definitive merger agreement approved by AMCE’s Board of Directorson July 22, 2004. Holdings is a holding company with no operations of itsown and it has one direct subsidiary, AMCE.

On June 11, 2007, Marquee Merger Sub Inc. (“mergersub”), a wholly-owned subsidiary of Parent, merged with and into Holdings, withHoldings continuing as the surviving corporation (the “holdco merger”). As aresult of the holdco merger, (i) Holdings became a wholly owned subsidiaryof Parent, a newly formed entity controlled by J.P. Morgan Partners, LLC,Apollo Management, L.P. and certain related investment funds and affiliates ofBain Capital Partners, The Carlyle Group and Spectrum Equity Investors(collectively with J.P. Morgan Partners, LLC and Apollo Management, L.P., the “Sponsors”),(ii) each share of Holdings’ common stock that was issued and outstandingimmediately prior to the effective time of the holdco merger was automaticallyconverted into a substantially identical share of common stock of Parent, and (iii) asfurther described in this report, each of Holdings’ governance agreements wassuperseded by a substantially identical governance agreement entered into byand among Parent, the Sponsors and Holdings’ other stockholders. The holdcomerger was effected by the Sponsors to facilitate a previously announced debtfinancing by Parent and a related dividend to Parent.

AMCE, through its direct and indirect subsidiaries,including American Multi-Cinema, Inc. (“AMC”) and its subsidiaries,Grupo Cinemex, S.A. de C.V. (“Cinemex”) and AMCE Entertainment International, Inc.(“AMCEI”) and its subsidiaries (collectively with Holdings and AMCE, unless thecontext otherwise requires, the “Company”), is principally involved in thetheatrical exhibition business and owns, operates or has interests in theatreslocated in the United States and Canada (“U.S. and Canada”) and in Mexico,Argentina, Brazil, Chile, Uruguay, China (Hong Kong), France, and the UnitedKingdom. The Company’s U.S. and Canada theatrical exhibition business isconducted through AMC and AMCEI. The Company’s International theatricalexhibition business is conducted primarily through Cinemex and AMCEI. SeeNote 2 for a discussion of the Merger with Loews on January 26, 2006.

The accompanying unaudited consolidated financialstatements have been prepared in response to the requirements of Form 10-Qand should be read in conjunction with Holdings’ annual report on Form 10-Kfor the year (52 weeks) ended March 29, 2007. In the opinion ofmanagement, these interim financial statements reflect all adjustments(consisting of normal recurring adjustments) necessary for a fair statement ofthe Company’s financial position and results of operations. Due to the seasonalnature of the Company’s business, results for the thirteen weeks ended June 28,2007 are not necessarily indicative of the results to be expected for thefiscal year (53 weeks) ending April 3, 2008.

The March 29, 2007 consolidated balance sheetdata was derived from the audited balance sheet included in the Form 10-K,but does not include all disclosures required by generally accepted accountingprinciples.

Certain amounts have beenreclassified from prior period consolidated financial statements to conform withthe current period presentation.

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**NOTE 2—ACQUISITIONS**

On June 20, 2005, Holdings entered into a mergeragreement with LCE Holdings, Inc. (“LCE Holdings”), the parent of LoewsCineplex Entertainment Corporation (“Loews”), pursuant to which LCE Holdings mergedwith and into Holdings, with Holdings continuing as the holding company for themerged businesses, and Loews merged with and into AMCE, with AMCE continuingafter the merger (the “Merger” and collectively, the “Mergers”). Thetransaction closed on January 26, 2006. Upon completion of the Mergers,the stockholders of Holdings immediately prior to the Mergers, includingaffiliates of J.P. Morgan Partners, LLC and Apollo Management, L.P., heldapproximately 60% of the outstanding capital stock of Holdings, and thestockholders of LCE Holdings immediately prior to the Merger, including affiliatesof Bain Capital Partners, LLC, The Carlyle Group and Spectrum Equity Investors,held approximately 40% of the outstanding capital stock of Holdings.

The Company has accountedfor the Merger as a purchase in accordance with SFAS No. 141, *Business Combinations,* for an estimatedpurchase price of $537,171,000. Results of operations of Loews are included inthe Company’s Consolidated Statements of Operations from January 26, 2006.The acquisition included 112 theatres with 1,308 screens in the United States,40 theatres with 443 screens in Mexico (Cinemex), 4 managed/joint venturetheatres with 55 screens in the United States and a 50% interest in YelmoCineplex, S.L. (“Yelmo”), which operated 27 theatres with 311 screens in Spainthat was accounted for using the equity method until December 2006 whenthe Company disposed of its investment in Yelmo. The Merger did not constitutea change in control.

**NOTE 3—DISCONTINUEDOPERATIONS**

On May 11, 2006, the Company sold two of itswholly owned subsidiaries, AMC Entertainment España S.A. and Actividades MultiCinemeas E Espectáculos, LDA (collectively “Iberia”), which owned and operated4 theatres with 86 screens in Spain and 1 theatre with 20 screens in Portugal,for a cash sales price of $35,446,000. At the date of the sale these operationsdid not meet the criteria for discontinued operations because of continuinginvolvement in the region through an equity method investment in Yelmo. In December 2006,the Company disposed of its investment in Yelmo, which owned and operated 27theatres with 310 screens in Spain, for proceeds of $52,137,000. There was nogain or loss recorded on the sale of Yelmo. The Company no longer has continuinginvolvement in the region as a result of the sale of Yelmo and the results ofthe operations in Iberia have been classified as discontinued operations as theCompany no longer has operations or significant cash flows from the Iberiacomponent.

Information presented for all periods reflects thediscontinued classification. All affected amounts within the consolidatedfinancial statements have been adjusted accordingly. The results of operationsof the Iberia theatres were previously reported in the Company’s Internationaltheatrical exhibition operating segment. The Company has recorded a gain onsale of Iberia of approximately $2,889,000 during fiscal 2007 which is includedin discontinued operations. Goodwill of $11,712,000 was allocated to the Iberiatheatres in connection with the sale.

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Componentsof amounts reflected as earnings from discontinued operations for Iberia in theCompany’s Consolidated Statements of Operations are presented in the followingtable:

**Statements of operations data (in thousands):**

|                                        | ** ** | **Thirteen Weeks  Ended June 29,  2006** | ** ** |
|----------------------------------------|------------|---------------------------------------------------------|------------|
| Revenues                               |       |                                                    |       |   |   |
| Admissions                             |       |                                                    | $          | 3,892 |   |   |
| Concessions                            |       |                                                    | 1,292      |   |   |
| Other revenue                          |       |                                                    | 172        |   |   |
| Total revenues                         |       |                                                    | 5,356      |   |   |
| Costs and  Expenses                    |       |                                                    |       |   |   |
| Film exhibition costs                  |       |                                                    | 1,901      |   |   |
| Concession costs                       |       |                                                    | 255        |   |   |
| Operating expense                      |       |                                                    | 1,189      |   |   |
| Rent                                   |       |                                                    | 1,410      |   |   |
| General and administrative—other  |       |                                                    | 50         |   |   |
| Depreciation and amortization          |       |                                                    | 545        |   |   |
| Disposition of assets and other gains  |       |                                                    | (2,889     | ) |   |
| Total costs and expenses               |       |                                                    | 2,461      |   |   |
| Interest expense                       |       |                                                    | 220        |   |   |
| Investment income                      |       |                                                    | (4         | ) |   |
| Total other expense                    |       |                                                    | 216        |   |   |
| Earnings before  income taxes          |       |                                                    | 2,679      |   |   |
| Income tax  provision                  |       |                                                    | —     |   |   |
| Earnings from  discontinued operations |       |                                                    | $          | 2,679 |   |   |

 

**NOTE 4—COMPREHENSIVEEARNINGS (LOSS)**

Thecomponents of comprehensive earnings (loss) are as follows (in thousands):

|                                                              | ** ** | **Thirteen Weeks Ended** | ** ** |
|--------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                   | ** ** | **June 28,  2007**            | ** ** | **June 29,  2006** | ** ** |
| Net earnings  (loss)                                         |       | $                                  | 15,942     |   | $ | (14,142 | ) |
| Foreign currency  translation adjustment                     |       | (574                               | )          | (9,376 | ) |
| Pension liability  adjustments                               |       | (283                               | )          | — |   |
| Decrease in  unrealized gain on Cinemex derivative           |       | (63                                | )          | — |   |
| Decrease in  unrealized loss on Cinemex swap agreement       |       | 699                                |       | 456 |   |
| Increase in  unrealized gain on marketable equity securities |       | 197                                |       | — |   |
| Total comprehensive  earnings (loss)                         |       | $                                  | 15,918     |   | $ | (23,062 | ) |

 

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**NOTE5—GOODWILL AND OTHER INTANGIBLE ASSETS**

Activityof goodwill by operating segment is presented below.

| (In thousands)                   | ** ** | **U.S. and  Canada** | ** ** | **International** | ** ** | **Total** | ** ** |
|---------------------------------------|------------|---------------------------|------------|-------------------|------------|-----------|------------|
| Balance as of  March 29, 2007    |       | $                         | 1,870,998  |              |       | $         | 195,855    |   |   | $ | 2,066,853 |   |
| Currency  translation adjustment      |       | —                    |       |              | 4,763      |      |       | 4,763 |   |
| Fair value  adjustments LCE(1)        |       | (4,690                    | )          |              | —     |      |       | (4,690 | ) |
| Fair value  adjustment FIN 48(2) |       | (5,373                    | )          |              | —     |      |       | (5,373 | ) |
| Balance as of  June 28, 2007     |       | $                         | 1,860,935  |              |       | $         | 200,618    |   |   | $ | 2,061,553 |   |

----

(1)          Adjustmentsto fair value relate to the release of valuation allowance initially recordedin purchase accounting for deferred tax assets related to net operating losscarryforwards that are expected to be utilized on the 2008 tax return.

(2)          Adjustmentrelates to the cumulative effect of the change on accumulated deficit for theadoption of FIN 48. See Note 11—Income Taxes.

|                                                        | ** ** | ** **                      | ** ** | **June 28, 2007**     | ** ** | **March 29, 2007**  | ** ** |
|--------------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|-------------------------------|------------|
| **(In thousands)**                                | ** ** | **Remaining  Useful Life** | ** ** | **Gross Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Gross Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** |
| Acquired  Intangible Assets:                           |       |                            |       |                            |       |                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Amortizable Intangible Assets:                         |       |                            |       |                            |       |                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Favorable leases                                       |       | 1 to  13 years                  |       |                            | $          | 117,766                       |       |   |   | $ | (28,068 | ) |   |   | $ | 117,607 |   |   |   | $ | (25,448 | ) |   |
| Loyalty program                                        |       | 3  years                        |       |                            | 46,000     |                          |       |   | (25,081 | ) |   |   | 46,000 |   |   |   | (23,460 | ) |   |
| LCE trade name                                         |       | 4  years                        |       |                            | 2,300      |                          |       |   | (650 | ) |   |   | 2,300 |   |   |   | (540 | ) |   |
| LCE/Cinemex advertising and management  contracts |       | 2 to  24 years                  |       |                            | 52,051     |                          |       |   | (21,232 | ) |   |   | 51,692 |   |   |   | (17,510 | ) |   |
| Other intangible assets                                |       | 1 to  15 years                  |       |                            | 23,526     |                          |       |   | (21,232 | ) |   |   | 23,526 |   |   |   | (20,935 | ) |   |
| Total, amortizable                                     |       |                            |       |                            | $          | 241,643                       |       |   |   | $ | (96,263 | ) |   |   | $ | 241,125 |   |   |   | $ | (87,893 | ) |   |
| Unamortized Intangible Assets:                         |       |                            |       |                            |       |                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| AMC trademark                                          |       |                            |       |                            | $          | 74,000                        |       |   |   |   |   |   |   | $ | 74,000 |   |   |   |   |   |   |
| Cinemex trademark                                      |       |                            |       |                            | 7,097      |                          |       |   |   |   |   |   | 6,944 |   |   |   |   |   |   |
| Total,  unamortized                                    |       |                            |       |                            | $          | 81,097                        |       |   |   |   |   |   |   | $ | 80,944 |   |   |   |   |   |   |

 

Amortizationexpense associated with the intangible assets noted above is as follows:

|                        | ** ** | **Thirteen Weeks Ended** | ** ** |
|------------------------|------------|------------------------------------|------------|
| ** **             | ** ** | **June 28,  2007**            | ** ** | **June 29,  2006** | ** ** |
| Recorded  Amortization |       |                               | $          | 8,269 |   |   | $ | 10,299 |   |
|                        |            |                                    |            |  |  |  |  |  |  |

 

Estimatedamortization expense for the next five fiscal years for intangible assets ownedas of June 28, 2007 is projected below:

| (In thousands)             | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| Projected  amortization expense |       | $        | 28,406     |     | $          | 22,195   |       | $        | 16,494     |     | $          | 14,540 |   | $ | 13,416 |   |
|                                 |            |          |            |          |            |          |            |          |            |          |            |  |  |  |  |  |

 

**NOTE 6—STOCKHOLDER’SEQUITY**

On June 11, 2007,merger sub, a wholly-owned subsidiary of Parent, merged with and into Holdings,with Holdings continuing as the surviving corporation. As a result of theholdco merger, (i) Holdings became a wholly owned subsidiary of Parent, anewly formed entity controlled by the Sponsors, (ii) each 

9

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share of Holdings’common stock that was issued and outstanding immediately prior to the effectivetime of the holdco merger was automatically converted into a substantiallyidentical share of common stock of Parent, and (iii) as further describedin this report, each of Holdings’ governance agreements was superseded by asubstantially identical governance agreement entered into by and among Parent,the Sponsors and Holdings’ other stockholders. The holdco merger was effectedby the Sponsors to facilitate a previously announced debt financing by Parentand a related dividend to Parent. Holdings used cash derived from AMCE to pay adividend to Parent of $270,588,000, which reduced additional paid-in capitalduring the thirteen weeks ended June 28, 2007. Holdings reclassified$14,000 of par value on the converted common stock to additional paid-incapital in connection with the holdco merger during the thirteen weeks ended June 28,2007.

Holdings accounts for stock options using the fairvalue method of accounting as prescribed by SFAS 123(R) and SAB 107and has valued the options using the Black-Scholes formula. Holdings hasrecorded $500,000 and $1,020,000 of stock-based compensation expenserelated to these options within General and Administrative: Other, during thethirteen weeks ended June 28, 2007 and June 29, 2006, respectively,and has recognized an income tax benefit of $0 in its Consolidated Statementsof Operations during the thirteen weeks ended June 28, 2007 and June 29,2006. One of the holders of Parent’s stock options has written put rightsdeemed to be in the holder’s control associated with his options whereby he canrequire Holdings to repurchase his options. These liability-classified optionsare required to be remeasured during each reporting period. A liability of$6,339,000 and $7,130,000 is recorded within other long term liabilities in theConsolidated Balance Sheets as of June 28, 2007 and March 29, 2007,respectively, for all options containing written put rights. The Companyaccounts for stock options using the fair value method of accounting asprescribed by SFAS 123(R) and SAB 107 and has valued the options using theBlack-Scholes formula including a contemporaneous valuation by an unrelatedspecialist as of June 28, 2007 which indicated a fair value price pershare of the underlying shares of $1,300 per share. On June 12, 2007, the holderof the liability classified options exercised options on 500 shares at anexercise price of $1,000 per share, which was paid to Parent. Holdingsreclassified $412,000 of liability—classified options to additional paid-incapital in connection with the exercise. Holdings made adjustments to reducethe liability associated with the exercised options and to reduce stock-basedcompensation expense by $23,000 during the thirteen weeks ended June 28,2007. Holdings made adjustments to reduce the liability associated with theunexercised liability-classified options and to reduce stock-based compensationexpense by $355,000 during the thirteen weeks ended June 28, 2007, basedon declines in the estimated fair value of the outstanding options. Inconnection with the holdco merger, on June 11, 2007, Parent adopted anamended and restated 2004 stock option plan (f/k/a the 2004 Stock Option Planof Marquee Holdings Inc.), originally adopted by Holdings on December 22,2004 and previously amended by Holdings on November 7, 2006. Because theemployees to whom the options were granted are employed by Holdings, Holdingscontinues to reflect the stock-based compensation expense associated with theoptions within its consolidated statement of operations. The option exerciseprice per share of $1,000 was adjusted to $491 per share pursuant to the 2004Stock Option Plan to give effect to the payment of a one time non-recurringdividend paid by Parent on June 15, 2007 of $652,800,000 to the holders ofits 1,282,750 shares of common stock.

The Company’s Chairman of the Board, President andChief Executive Officer, Peter C. Brown has an amended and restated employmentagreement that generally will revert to his prior agreement in the event thatan initial public offering of Parent does not occur on or before December 31,2007. In the event of an initial public offering on or before December 31,2007, within 15 days after such initial public offering, Mr. Brown shallreceive a grant of restricted stock or restricted stock units having a value of$2,567,000 on the date of grant based on the initial public offering price. Thisgrant was an inducement for Mr. Brown to enter into his amended andrestated employment agreement, whereby the term of his employment would beshorter than in his prior employment agreement and he would be subject tocertain restrictive covenants that did not exist in his current employmentagreement. Such grant shall vest in three equal annual installments on thefirst three anniversaries of the grant date. 

10

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On June 12, 2007 the Company announced that ithad completed a solicitation of consents from holders of its 12% SeniorDiscount Notes due 2014 (the “Discount Notes due 2014”), and that it hadreceived consents from holders of $301.9 million in aggregate principalamount at maturity of the Discount Notes due 2014 representing 99.32% of theoutstanding Discount Notes due 2014 to adopt a proposed amendment (the “Amendment”)to the indenture pursuant to which the Discount Notes due 2014 were issued. Inconnection with the receipt of consents, Holdings paid an aggregate consent feeof approximately $4,360,000, representing a consent fee of $14.44 for each$1,000 in principal amount at maturity of Discount Notes due 2014 as to whichconsents were delivered. Accordingly, the requisite consents to adopt theAmendment were received, and a supplemental indenture to effect the Amendmentwas executed by Holdings and the trustee under the indenture. The Amendmentrevised the restricted payments covenant to permit Holdings to make restrictedpayments in an aggregate amount of $275,000,000 prior to making anelection to pay cash interest on its Discount Notes due 2014. The Amendmentalso contains a covenant by Holdings to make an election on August 15,2007, the next semi-annual accretion date under the indenture, to pay cashinterest on the Discount Notes due 2014. As a result, Holdings is required tomake its first cash interest payment on the Discount Notes due 2014 on February 15,2008.

Asdiscussed in Note 11—Income Taxes, the Company adopted the provisions ofFIN 48. The cumulative effect of the change on adoption to accumulateddeficit was $5,373,000 which increased accumulated deficit.

**NOTE 7—INVESTMENTS**

Investments in non-consolidated affiliates andcertain other investments accounted for under the equity method generallyinclude all entities in which the Company or its subsidiaries have significantinfluence, but not more than 50% voting control. Investments in non-consolidatedaffiliates as of June 28, 2007, include an 18.6% interest in NationalCineMedia, LLC, a 50% equity interest in HGCSA, a 50% interest in threedomestic motion picture theatres, a 26% equity interest in Movietickets.com,and beginning in fiscal 2008 a 33.3% interest in Digital Cinema ImplementationPartners, LLC. Investments as of June 29, 2006 also include a 50% equity interestin Yelmo, which was disposed of in December 2006.

Condensed financial information of our significantnon-consolidated equity method investments is shown below. Amounts are presentedunder U.S. GAAP for the periods of ownership by the Company.

OperatingResults:

|                                                          | ** ** | **13 Weeks Ended** | ** ** |
|----------------------------------------------------------|------------|------------------------------|------------|
| **(In thousands)**                                  | ** ** | **June 28,  2007**      | ** ** | **June 29,  2006** | ** ** |
| Revenues                                                 |       |                         | $          | 106,967 |   |   |   | $ | 103,583 |   |   |
| Operating  costs & expenses                     |       |                         | 75,012     |   |   |   | 106,173 |   |   |
| Net earnings (loss)                                      |       |                         | $          | 31,955 |   |   |   | $ | (2,590 | ) |   |
| The Company’s recorded equity in (earnings) loss(1) |       |                         | $          | (2,253 | ) |   |   | $ | 2,154 |   |   |

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(1)          Certain differences inthe Company’s recorded investment over its proportional ownership share areamortized to equity in earnings or losses over the estimated useful life of theunderlying assets or liabilities. The recorded equity in earnings of NCMfollowing the IPO of NCM, Inc. do not include undistributed equity inearnings. The Company considered the excess distribution received followingNCM, Inc.’s IPO as an advance on NCM’s future earnings. As a result, theCompany will not recognize any undistributed equity in earnings of NCM untilNCM’s future net earnings equal the amount of the excess distribution. Distributedearnings from NCM included in equity in earnings were $1,810,000 during thethirteen weeks ended June 28, 2007.

11

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In May 2007the Company disposed of its investment in Fandango, accounted for using thecost method, for total expected proceeds of approximately $20 million, of which$17.7 million was received in May 2007, and has recorded a gain on thesale included in investment income of approximately $15.7 million.

**NOTE 8—CAPITAL ANDFINANCING LEASE OBLIGATION**

Occasionally, the Companyis responsible for the construction of leased theatres and for paying projectcosts that are in excess of an agreed upon amount to be reimbursed from thedeveloper. Emerging Issues Task Force (EITF) Issue No. 97-10 *The Effect of Lessee Involvement in AssetConstruction* requires the Company to be considered the owner (foraccounting purposes) of these types of projects during the construction period,and therefore the Company is required to assess these projects upon completionof construction for sale and leaseback accounting under SFAS No. 98 *Accounting for Leases.* The Company recorded additions to itsfinancing lease obligations of $21,841,000 during the thirteen weeks ended June 28,2007 for one theatre that opened during this period.

**NOTE 9—THEATRE ANDOTHER CLOSURE AND DISPOSITION OF ASSETS**

Arollforward of reserves for theatre and other closure is as follows (inthousands):

|                                                             | ** ** | **Thirteen Weeks Ended** | ** ** | **Thirteen Weeks Ended** | ** ** |
|-------------------------------------------------------------|------------|------------------------------------|------------|------------------------------------|------------|
| ** **                                                  | ** ** | **June 28, 2007**        | ** ** | **June 29, 2006**        | ** ** |
| ** **                                                  | ** ** | **Theatre  and  Other**            | ** ** | **Merger  Exit  costs**            | ** ** | **Total** | ** ** | **Theatre  and  Other** | ** ** | **Merger  Exit  costs** | ** ** | **Total** | ** ** |
| Beginning balance                                           |       | $                                  | 17,621     |                               | $          | 1,274 |   | $ | 18,895 |   | $ | 21,716 |   | $ | 4,618 |   | $ | 26,334 |   |
| Theatre and other  closure expense (income)(1)              |       | (14,491                            | )          | (337                               | )          | (14,828 | ) | 1,920 |   | 123 |   | 2,043 |   |
| Transfer of  deferred rent and capital lease obligations(1) |       | 5,101                              |       | —                             |       | 5,101 |   | — |   | — |   | — |   |
| Cash (payments)  receipts(1)                                |       | 8,413                              |       | (471                               | )          | 7,942 |   | (4,956 | ) | (749 | ) | (5,705 | ) |
| Ending balance                                              |       | $                                  | 16,644     |                               | $          | 466 |   | $ | 17,110 |   | $ | 18,680 |   | $ | 3,992 |   | $ | 22,672 |   |

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(1)          During the thirteenweeks ended June 28, 2007, the Company recognized ($14,828,000) of theatreand other closure income due primarily to lease terminations negotiated onfavorable terms at two of its theatres that were closed during the thirteenweeks ended June 28, 2007. The Company received cash payments of $10million in connection with these terminations.

The Company recorded a $4,845,000 liability related tothe closure of Loews’ duplicate administrative facilities in connection withthe Mergers as part of purchase accounting. The remaining unpaid balance isincluded above as a component of Merger Exit costs.

Theatre and other closure reserves for leases thathave not been terminated are recorded at the present value of the future contractualcommitments for the base rents, taxes and maintenance.

12

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Theatreclosure reserves at June 28, 2007 by operating segment are as follows (inthousands):

|                                        | ** ** | **June 28,  2007** | ** ** |
|----------------------------------------|------------|-------------------------|------------|
| U.S. and Canada  Theatrical Exhibition |       | $                       | 15,979     |   |
| International Theatrical  Exhibition   |       | 532                     |       |
| Other                                  |       | 63                      |       |
| Total segment  reserves                |       | 16,574                  |       |
| Corporate                              |       | 536                     |       |
|                                   |       | $                       | 17,110     |   |

 

**NOTE 10—RESTRUCTURING**

The Company recognizes restructuring charges basedupon the nature of the costs incurred. Costs resulting from one-time terminationbenefits where employees are not required to render future service to receivethe benefits are recognized and a liability is recorded when management commitsto a plan of termination which identifies the number of employees to beterminated, their job classifications, locations, expected termination datesand when the plan is communicated to the employees and establishes the detailedterms of the benefits to be received by employees.

If employees are required to render service until theyare terminated in order to receive the termination benefits, the benefits aremeasured at the fair value of the costs and related liabilities at thecommunication date and are recognized ratably over the future service periodfrom the communication date.

The Company recorded a liability of $25,846,000related to one-time termination benefits and other costs for the displacementof approximately 230 associates in connection with the Mergers as part of purchaseaccounting.

Asummary of restructuring activity, is set forth below (in thousands):

|                         | ** ** | **Thirteen Weeks Ended**                                                                              | ** ** |
|-------------------------|------------|-----------------------------------------------------------------------------------------------------------------|------------|
| ** **              | ** ** | **       June 28, 2007       ** | ** ** |
| **(In thousands)** | ** ** | **Merger  Severance  Benefits**                                                                                 | ** ** |
| Beginning balance       |       |                                                                                                            | $          | 369 |   |   |
| Payments                |       |                                                                                                            | (287       | ) |   |
| Ending balance          |       |                                                                                                            | $          | 82 |   |   |

 

Restructuringreserves at June 28, 2007 by operating segment are as follows (inthousands):

|                                        | ** ** | **June 28,  2007** | ** ** | **March 29,  2007** | ** ** |
|----------------------------------------|------------|-------------------------|------------|--------------------------|------------|
| U.S. and Canada  Theatrical Exhibition |       |                    | $          | —                   |       |   |   | $ | — |   |   |
| International  Theatrical Exhibition   |       |                    | —     |                     |       |   | — |   |   |
| Other                                  |       |                    | —     |                     |       |   | — |   |   |
| Total Segment reserves                 |       |                    | —     |                     |       |   | — |   |   |
| Corporate                              |       |                    | 82         |                     |       |   | 369 |   |   |
|                                   |       |                    | $          | 82                       |       |   |   | $ | 369 |   |   |

 

 

13

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**NOTE 11—INCOMETAXES**

**Effective incometax rate**

Thedifference between the effective tax rate on earnings before income taxes andthe U.S. federal income tax statutory rate is as follows:

|                                                 | ** ** | **Thirteen Weeks Ended** | ** ** |
|-------------------------------------------------|------------|------------------------------------|------------|
| ** **                                      | ** ** | **June 28,  2007**            | ** ** | **June 29,  2006** | ** ** |
| Federal statutory rate                          |       |                               | 35.0       | % |   |   | 35.0 | % |   |
| Valuation allowance                             |       |                               | (25.4      | ) |   |   | (32.7 | ) |   |
| State income taxes, net  of federal tax benefit |       |                               | 9.0        |   |   |   | (1.0 | ) |   |
| Other, net                                      |       |                               | 1.4        |   |   |   | (3.5 | ) |   |
| Effective tax rate                              |       |                               | 20.0       | % |   |   | (2.2 | )% |   |

 

The Company accounts for income taxes in accordancewith SFAS No. 109, Statement of Financial Accounting Standards (“SFAS No. 109”),*Accounting for Income Taxes,*which requires that deferred tax assets and liabilities be recognized, usingenacted tax rates, for the tax effect of temporary differences between thefinancial reporting and tax bases of recorded assets and liabilities.SFAS 109 also requires that deferred tax assets be reduced by a valuationallowance if it is more likely than not that some or all of the deferred taxassets will not be realized.

Based upon the consideration of all availableevidence, the Company has provided a valuation allowance on its net deferredtax assets. The Company continues to record a full valuation allowance againstits net deferred tax assets due to the uncertainty regarding the ultimaterealization of those assets in all taxing jurisdictions.

The Company determines income tax expense for interimperiods by applying SFAS No. 109 and APB Opinion No. 28,*Interim Financial Reporting*,which prescribes the use of the full year’s estimated effective tax rate infinancial statements for interim periods. As such, permanent differences suchas state income taxes and changes in valuation allowance impact the Company’seffective tax rate. During the current period, income tax expense differed fromthe expected tax expense using the U.S. federal statutory tax rate of 35%primarily due to the change in valuation allowance recorded against netdeferred tax assets. The prior year disposition of Portugal and Spainoperations did not have a material impact on the income tax provision, as thetax benefit derived from the sale was fully offset by an increase in thevaluation allowance.

**Uncertain taxpositions**

Effective March 30, 2007, the Company adoptedFASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—aninterpretation of FASB No. 109” (“FIN 48”). This interpretation clarifiesthe accounting for uncertainty in income taxes recognized in an entity’sfinancial statements. FIN 48 indicates that the impact from adoptionshould be reflected as a cumulative effect adjustment from a change in accountingprinciple to the beginning retained earnings amount reported for that fiscal year,unless the amount related to a previous business combination, in which case theimpact would be recorded as an adjustment to the purchase price allocation forthe previous business combination. The adjustment to the purchase price wouldfirst reduce remaining goodwill and identified intangibles related to thebusiness combination and the residual would be reflected as a cumulative effectadjustment to beginning retained earnings.

Prior to the adoption of FIN 48, the Company’sfinancial statements did not include any tax contingencies, since a fullvaluation allowance was recorded against net deferred tax assets. As a resultof the adoption of FIN 48, the Company recorded a $5.3 millionincrease in current deferred tax assets, a $5.3 million reduction ofgoodwill, a $5.3 million current FIN 48 liability and a$5.3 million charge to the 

14

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beginning accumulateddeficit that is reported as a cumulative effect adjustment for a change in accountingprinciple to the opening balance sheet position of stockholder’s accumulateddeficit at March 30, 2007. 

The amount of gross unrecognized tax benefits as of March 30,2007 is $44.1 million. The amount of gross unrecognized tax benefitsrelated to uncertainties that are estimated to take more than 12 months toresolve is $38.8 million. The Company’s effective tax rate would not beimpacted by the ultimate resolution of the uncertain tax positions because ofthe retention of a full allowance against the net deferred tax assets. Theamount of unrecognized tax benefits did not change as of June 28, 2007.

The Company recognizes income tax-related interestexpense and penalties as income tax expense and selling, general, and administrativeexpense, respectively. As of March 30, 2007 the company did not have anyinterest or penalties accrued associated with unrecognized tax benefits. Theliabilities for interest and penalties did not change as of June 28, 2007.

It is not expected that the amount of unrecognized taxbenefits will change significantly during the next 12 months and the Companydoes not expect any impact on its results of operations or financial position.

The Company or one of itssubsidiaries files income tax returns in the U.S. federal jurisdiction, andvarious state and foreign jurisdictions. The IRS examination of the tax yearsFebruary 28, 2002 through December 31, 2003 for the former LoewsEntertainment Corporation and subsidiaries was concluded during fiscal 2007. AnIRS examination for the tax year ended March 31, 2005 began during 2007. TheIRS is currently evaluating a pre-filing agreement that the Company requestedfor a transaction entered into during the year ended March 29, 2007. As ofJune 28, 2007, the IRS has not proposed any adjustments. Generally taxyears beginning after March 28, 2002 are still open to examination byvarious taxing authorities. Additionally the company has NOL carryforwards fortax years ended October 31, 2000 through March 28, 2002 in the U.S.and various state jurisdictions which have carryforwards of varying lengths oftime. These NOL’s are subject to adjustment based on the statute of limitationsof the return in which they are utilized, not the year in which they aregenerated. Various state, local and foreign income tax returns are also underexamination by taxing authorities. The company does not believe that theoutcome of any examination will have a material impact on its financialstatements.

**NOTE 12—EMPLOYEE BENEFIT PLANS**

The Company sponsors afrozen non-contributory qualified defined benefit pension plan generallycovering all employees age 21 or older who have completed at least1,000 hours of service in their first twelve months of employment, or in acalendar year ending thereafter, and who are not covered by a collectivebargaining agreement. The Company also offers eligible retirees the opportunityto participate in a health plan (medical and dental) and a life insurance plan.An employee may become eligible for these benefits at retirement provided theemployee is at least age 55 and has at least 15 years of credited serviceafter age 40. The Company also sponsors a postretirement deferred compensationplan.

The Company expects tomake an annual pension contribution of up to $3,000,000 during its secondquarter of fiscal 2008.

The measurement date usedto determine pension and other postretirement benefits is January 1 of thefiscal year for which measurements are made.

15

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Netperiodic benefit cost recognized for the plans during the thirteen weeks ended June 28,2007 and June 29, 2006 consists of the following:

|                                           | ** ** | **Pension Benefits** | ** ** | **Other Benefits** | ** ** |
|-------------------------------------------|------------|---------------------------|------------|-------------------------|------------|
| **(In thousands)**                   | ** ** | **June 28,  2007**   | ** ** | **June 29,  2006** | ** ** | **June 28,  2007** | ** ** | **June 29,  2006** | ** ** |
| Components of net  periodic benefit cost: |       |                      |       |                    |       |   |   |   |   |   |   |   |   |
| Service cost                              |       | $                         | 91         |                    | $          | 797 |   |   | $ | 208 |   |   |   | $ | 228 |   |   |
| Interest cost                             |       | 1,100                     |       | 1,315                   |       |   | 381 |   |   |   | 387 |   |   |
| Expected return on plan  assets           |       | (1,151                    | )          | (1,116                  | )          |   | — |   |   |   | — |   |   |
| Amortization of gain                      |       | (283                      | )          | —                  |       |   | — |   |   |   | — |   |   |
| Amortization of  transition obligation    |       | 10                        |       | —                  |       |   | — |   |   |   | — |   |   |
| Net periodic benefit cost (income)        |       | $                         | (233       | )                       | $          | 996 |   |   | $ | 589 |   |   |   | $ | 615 |   |   |

 

**NOTE 13—OPERATING SEGMENTS**

Informationabout the Company’s operations by operating segment is as follows (inthousands):

|                                       | ** ** | **Thirteen Weeks Ended** | ** ** |
|---------------------------------------|------------|------------------------------------|------------|
| ** **                            | ** ** | **June 28,  2007**            | ** ** | **June 29,  2006** | ** ** |
| **Revenues**                          | ** ** | ** **                         | ** ** | ** ** | ** ** |
| U.S. and Canada theatrical exhibition |       | $                                  | 570,573    |   | $ | 597,691 |   |
| International theatrical exhibition   |       | 51,919                             |       | 48,129 |   |
| Other                                 |       | —                             |       | 14 |   |
| Total revenues                        |       | $                                  | 622,492    |   | $ | 645,834 |   |
| **Segment Adjusted EBITDA**           | ** ** | ** **                         | ** ** | ** ** | ** ** |
| U.S. and Canada theatrical exhibition |       | $                                  | 95,885     |   | $ | 116,247 |   |
| International theatrical exhibition   |       | 15,647                             |       | 13,992 |   |
| Other                                 |       | (156                               | )          | (411 | ) |
| Segment Adjusted EBITDA               |       | $                                  | 111,376    |   | $ | 129,828 |   |

 

Areconciliation of earnings (loss) from continuing operations before incometaxes to Segment Adjusted EBITDA is as follows (in thousands):

|                                                                 | ** ** | **Thirteen Weeks Ended** | ** ** |
|-----------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                      | ** ** | **June 28,  2007**            | ** ** | **June 29,  2006** | ** ** |
| Earnings (loss)  from continuing operations before income taxes |       | $                                  | 19,942     |   | $ | (16,521 | ) |
| Plus:                                                           |       |                               |       |   |   |
| Interest expense                                                |       | 44,763                             |       | 57,528 |   |
| Depreciation and amortization                                   |       | 63,689                             |       | 63,896 |   |
| Preopening expense                                              |       | 2,085                              |       | 1,042 |   |
| Theatre and other closure expense                               |       | (14,828                            | )          | 2,043 |   |
| Disposition of assets and other losses                          |       | —                             |       | 1,436 |   |
| Equity in non-consolidated entities                             |       | (2,253                             | )          | 2,157 |   |
| Investment income                                               |       | (19,286                            | )          | (2,528 | ) |
| Other income(1)                                                 |       | (1,246                             | )          | — |   |
| General and administrative expense—unallocated:            |       |                               |       |   |   |
| Merger and acquisition costs                                    |       | 4,172                              |       | 3,752 |   |
| Management fee                                                  |       | 1,250                              |       | 1,250 |   |
| Other(2)                                                        |       | 13,088                             |       | 15,773 |   |
| Segment Adjusted EBITDA                                         |       | $                                  | 111,376    |   | $ | 129,828 |   |

 

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(1)          Other income iscomprised of recoveries for property loss related to Hurricane Katrina.

(2)          Includesstock-based compensation expense of $500,000 and $1,020,000 for thethirteen weeks ended June 28, 2007 and June 29, 2006, respectively.

**NOTE 14—COMMITMENTS AND CONTINGENCIES**

The Company, in the normalcourse of business, is party to various legal actions. Except as describedbelow, management believes that the potential exposure, if any, from suchmatters would not have a material adverse effect on the financial condition,cash flows or results of operations of the Company.

*United States of Americav. AMC Entertainment Inc. and American Multi Cinema, Inc.*(No. 9901034 FMC (SHx), filed in the U.S. District Court for the Central District ofCalifornia). On January 29, 1999, the Department of Justice (the “Department”)filed suit alleging that AMCE’s stadium style theatres violate the ADA andrelated regulations. The Department alleged that AMCE had failed to providepersons in wheelchairs seating arrangements with lines of sight comparable tothe general public. The Department alleged various non-line of sight violationsas well. The Department sought declaratory and injunctive relief regardingexisting and future theatres with stadium style seating, compensatory damagesin the approximate amount of $75,000 and a civil penalty of $110,000.

On November 20, 2002the trial court entered summary judgment in favor of the Justice Department onthe line of sight aspects of this case and on January 10, 2006, the trialcourt ruled in favor of the Department regarding the appropriate remedy. In itsdecision, the court issued a comprehensive order regarding line of sight andother related remedies. AMCE estimates that the cost of the betterments relatedto the remedies for line of sight violations of the ADA will be$21 million, which is expected to be incurred over a 4-5 yearterm. Through June 28, 2007 AMCE has not incurred any of these costs. Additionally,the order calls for payments of $300,000 to the United States and individualcomplainants. AMCE has appealed the court’s order to the Ninth Circuit Court ofAppeals and anticipates a decision this calendar year.

As a result of the January 10,2006 order AMCE, estimates the range of the loss to be between $349,000 and$444,000. Accordingly, AMCE has recorded the related liability of approximately$349,000.

On January 21, 2003,the trial court entered summary judgment in favor of the Department on non-lineof sight aspects of the case, which involve such matters as parking areas,signage, ramps, location of toilets, counter heights, ramp slopes, companionseating and the location and size of handrails. On December 5, 2003, thetrial court entered a consent order and final existing judgment on non-line ofsight issues under which AMCE agreed to remedy certain violations at its stadium-styletheatres and at certain theatres it may open in the future. Currently AMCEestimates that these betterments will be required at approximately 140 stadium-styletheatres. AMC estimates that the total cost of these betterments will be$47.5 million, which is expected to be incurred over the remaining term ofthe consent order of eighteen months or as extended by agreement between theparties. Through June 28, 2007 AMCE has incurred approximately $14.4million of these costs. The estimate is based on actual costs incurred on remediationwork completed to date. The actual costs of betterments may vary based on theresults of surveys of the remaining theatres.

The Company is a party tovarious other legal proceedings in the ordinary course of business, none ofwhich is expected to have a material adverse effect on us.

**NOTE 15—NEW ACCOUNTING PRONOUNCEMENTS**

In February 2007, theFASB issued SFAS No. 159, “The Fair Value Option for Financial Assets andFinancial Liabilities, including an amendment of FASB Statement No. 115”(SFAS 159). SFAS 159 permits entities to choose to measure manyfinancial instruments and certain other items at fair value that are 

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notcurrently required to be measured at fair value. Unrealized gains and losses onitems for which the fair value option has been elected are reported inearnings. SFAS 159 does not affect any existing accounting literature thatrequires certain assets and liabilities to be carried at fair value. TheCompany will be required to adopt this standard in the first quarter of fiscal2009. Management is currently evaluating the requirements of SFAS 159 andhas not yet determined the impact on the consolidated financial statements.

***In September 2006, the FASB releasedSFAS No. 157,******FairValue Measurements******whichprovides enhanced guidance for using fair value to measure assets andliabilities. The standard applies whenever other standards require (or permit)assets or liabilities to be measured at fair value. It does not expand the useof fair value in any new circumstances. Under the standard, fair value refersto the price that would be received to sell an asset or paid to transfer aliability in an orderly transaction between market participants in the marketin which the reporting entity transacts business. It clarifies the principlethat fair value should be based on the assumptions market participants woulduse when pricing the asset or liability. SFAS No. 157 is effective for financialstatements issued for fiscal years beginning after November 15, 2007, andinterim periods within those fiscal years, or the first quarter of fiscal 2009for the Company. Early adoption is permitted. The Company does not anticipatethis standard having a material effect on its consolidated financialstatements.***

***In July 2006, the FASB released FASB Interpretation No. 48,******Accountingfor Uncertainty in Income Taxes—an Interpretation of FASB Statement 109******(“FIN 48” or the“Interpretation”), which clarifies the accounting for uncertainty in incometaxes recognized in companies’ financial statements in accordance with FASBStatement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes arecognition threshold and measurement attribute for the financial statementrecognition and measurement of a tax position taken or expected to be taken ina tax return. The evaluation of a tax position in accordance with FIN 48is a two-step process. The first step is recognition whereby companies must determinewhether it is more likely than not that a tax position will be sustained uponexamination. The second step is measurement whereby a tax position that meetsthe more-likely-than-not recognition threshold is measured to determine theamount of benefit to recognize in the financial statements. The interpretationalso provides guidance on derecognition of recognized tax benefits, classification,interest and penalties, accounting in interim periods, disclosure andtransition. FIN 48 is effective for fiscal years beginning afterDecember 15, 2006. The Company adopted the new requirements in the firstquarter of fiscal 2008. As a result of the adoption of FIN 48, the Companyrecorded a $5.3 million increase in current deferred tax assets, a$5.3 million reduction of goodwill, a $5.3 million currentFIN 48 liability and a $5.3 million charge to the beginningaccumulated deficit that is reported as a cumulative effect adjustment for achange in accounting principle to the opening balance sheet position ofstockholder’s accumulated deficit at March 30, 2007. See Note 11—IncomeTaxes.***

**NOTE 16—RELATED PARTY TRANSACTIONS**

***Governance Agreements***

In connection with theMergers, Holdings, the Sponsors and the other pre-existing stockholders ofHoldings, as applicable, entered into various agreements defining the rights ofHoldings’ stockholders with respect to voting, governance and ownership andtransfer of the stock of Holdings, including a Second Amended and RestatedCertificate of Incorporation of Holdings, a Second Amended and Restated StockholdersAgreement, a Voting Agreement among Holdings and the pre-existing stockholdersof Holdings, a Voting Agreement among Holdings and the former stockholders ofLCE Holdings and an Amended and Restated Management Stockholders Agreementamong Holdings and certain members of management of Holdings who arestockholders of Holdings. These agreements terminated on June 11, 2007,the date of the holdco merger, and were superseded by substantially identicalagreements entered into by the Parent, the Sponsors and our other stockholders (collectively,the “Governance Agreements”).

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The Governance Agreementsprovide that the Board of Directors for the Parent will consist of up to ninedirectors, two of whom are designated by JPMP, two of whom are designated byApollo, one of whom is the Chief Executive Officer of the Parent, one of whom isdesignated by Carlyle, one of whom is designated by Bain, one of whom isdesignated by Spectrum and one of whom is designated by Bain, Carlyle andSpectrum, voting together, so long as such designee is consented to by each ofBain and Carlyle. Each of the directors respectively designated by JPMP,Apollo, Bain, Carlyle and Spectrum have three votes on all matters placedbefore the Board of Directors of the Parent, Holdings and AMCE and the ChiefExecutive Officer of the Parent and the director designated by Bain, Carlyle,and Spectrum voting together will have one vote each. The number of directorsrespectively designated by the Sponsors will be reduced upon a decrease in suchSponsors’ ownership in the Parent below certain thresholds.

TheVoting Agreement among the Parent and the pre-existing stockholders of the Parentprovides that, until the fifth anniversary of the Mergers (the “Blockout Period”),the former continuing stockholders of the Parent (other than Apollo and JPMP) willgenerally vote their voting shares of capital stock of the Parent in favor ofany matter in proportion to the shares of capital stock of Apollo and JPMP votedin favor of such matter, except in certain specified instances. The VotingAgreement among the Parent and the former stockholders of LCE further providedthat during the Blockout Period, the former LCE stockholders would generallyvote their voting shares of capital stock of the Parent on any matter asdirected by any two of Bain, Carlyle and Spectrum, except in certain specifiedinstances. In addition, certain actions of the Parent, including, but notlimited to, change in control transactions, acquisition or dispositiontransactions with a value in excess of $10.0 million, the settlement ofclaims or litigation in excess of $2.5 million, an initial public offeringof the Parent, hiring or firing a chief executive officer, chief financialofficer or chief operating officer, incurring or refinancing indebtedness inexcess of $5.0 million or engaging in new lines of business, required theapproval of either (i) any three of JPMP, Apollo, Carlyle or Bain or (ii) Spectrumand (a) either JPMP or Apollo and (b) either Bain or Carlyle (the “RequisiteStockholder Majority”) if at such time the Sponsors collectively held at leasta majority of the Parent’s voting shares.

Prior to the earlier ofthe end of the Blockout Period and the completion of an initial public offeringof the capital stock of the Parent or AMCE, the Governance Agreements prohibitthe Sponsors and the other pre-existing stockholders of the Parent from transferringany of their interests in the Parent, other than (i) certain permittedtransfers to affiliates or to persons approved of by the Sponsors and (ii) transfersafter the Blockout Period subject to the rights described below.

The Governance Agreementsset forth additional transfer provisions for the Sponsors and the otherpre-existing stockholders of the Parent with respect to the interests in the Parent,including the following:

*Right of firstoffer.**  *Afterthe Blockout Date and prior to an initial public offering, the Parent and, inthe event the Parent does not exercise its right of first offer, each of theSponsors and the other preexisting stockholders of the Parent, have a right offirst offer to purchase (on a pro rata basis in the case of the stockholders)all or any portion of the shares of the Parent that a Sponsor or other formercontinuing stockholder of the Parent is proposing to sell to a third party atthe price and on the terms and conditions offered by such third party.

*Drag-along rights.**  *If, prior to an initial public offering,Sponsors constituting a Requisite Stockholder Majority propose to transfershares of the Parent to an independent third party in a bona fide arm’s-lengthtransaction or series of transactions that results in a sale of all orsubstantially all of the Parent, such Sponsors may elect to require each of theother stockholders of the Parent to transfer to such third party all of itsshares at the purchase price and upon the other terms and subject to theconditions of the sale.

*Tag-along rights.**  *Subject to the right of first offerdescribed above, if any Sponsor or other former continuing stockholder of the Parentproposes to transfer shares of the Parent held by it, then such 

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stock-holder mustgive notice to each other stockholder, who will have the right to participateon a pro rata basis in the proposed transfer on the terms and conditionsoffered by the proposed purchaser.

*Participant rights.**  *On or prior to an initial public offering,the Sponsors and the other pre-existing stockholders of the Parent have the prorata right to subscribe to any issuance by the Parent or any subsidiary ofshares of its capital stock or any securities exercisable, convertible orexchangeable for shares of its capital stock, subject to certain exceptions.

The Governance Agreementsalso provide for certain registration rights in the event of an initial publicoffering of the Parent, including the following:

*Demand rights.**  *Subject to the consent of at least two ofany of JPMP, Apollo, Carlyle and Bain during the first two years following aninitial public offering, each Sponsor has the right at any time following aninitial public offering to make a written request to the Parent forregistration under the Securities Act of part or all of the registrable equityinterests held by such stockholders at the Parent’ expense, subject to certainlimitations. Subject to the same consent requirement, the other pre-existingstockholders of the Parent as a group have the right at any time following aninitial public offering to make one written request to the Parent forregistration under the Securities Act of part or all of the registrable equityinterests held by such stockholders with an aggregate offering price to thepublic of at least $200 million.

*Piggyback rights.**  *If the Parent at any time proposes toregister under the Securities Act any equity interests on a form and in amanner which would permit registration of the registrable equity interests heldby stockholders of the Parent for sale to the public under the Securities Act, theParent must give written notice of the proposed registration to each stockholder,who will have the right to request that any part of its registrable equityinterests be included in such registration, subject to certain limitations.

*Holdback agreements.**  *Each stockholder has agreed that it willnot offer for public sale any equity interests during a period not to exceed90 days (180 days in the case of an initial public offering) afterthe effective date of any registration statement filed by the Parent inconnection with an underwritten public offering (except as part of suchunderwritten registration or as otherwise permitted by such underwriters),subject to certain limitations.

**Amended andRestated Fee Agreement**

In connection with theMergers, Holdings, AMCE and the Sponsors entered into an Amended and RestatedFee Agreement, which provided for an annual management fee of$5.0 million, payable quarterly and in advance to each Sponsor, on a prorata basis, for the twelve year duration of the agreement, as well asreimbursements for each Sponsor’s respective out-of-pocket expenses inconnection with the management services provided under the agreement. Inaddition, the fee agreement provided for reimbursements by AMCE to the Sponsorsfor their out-of-pocket expenses and to Holdings of up to $3.5 million forfees payable by Holdings in any single fiscal year in order to maintain AMCE’sand its corporate existence, corporate overhead expenses and salaries or othercompensation of certain employees. The Amended and Restated Fee Agreementterminated on June 11, 2007, the date of the holdco merger, and wassuperseded by a substantially identical agreement entered into by AMCEntertainment Holdings, Inc., Holdings, AMC, the Sponsors and other stockholders.

Upon the consummation of achange in control transaction or an initial public offering, each of theSponsors will receive, in lieu of quarterly payments of the annual managementfee, a fee equal to the net present value of the aggregate annual managementfee that would have been payable to the Sponsors during the remainder of theterm of the fee agreement (assuming a twelve year term from the date of theoriginal fee agreement), calculated using the treasury rate having a finalmaturity date that is closest to the twelfth anniversary of the date of theoriginal fee agreement date.

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The fee agreement alsoprovides that AMCE will indemnify the Sponsors against all losses, claims,damages and liabilities arising in connection with the management servicesprovided by the Sponsors under the fee agreement.

Holdings was owned indirectlyby the Sponsors, other co-investors and by certain members of management throughtheir interests in the Parent as follows: JPMP (20.784%); Apollo (20.784%);Bain Capital Partners (15.090%); The Carlyle Group (15.090%); Spectrum EquityInvestors (9.764%); Weston Presidio Capital IV, L.P. and WPC Entrepreneur FundII, L.P. (3.899%); Co-Investment Partners, L.P. (3.899%); Caisse de Depot etPlacement du Quebec (3.120%); AlpInvest Partners CS Investments 2003 C.V., AlpInvestPartners Later Stage Co-Investments Custodian II B.V. and AlpInvest PartnersLater Stage Co-Investments Custodian IIA B.V. (2.730%); SSB Capital Partners(Master Fund) I, L.P. (1.950%); CSFB Strategic Partners Holdings II, L.P., CSFBStrategic Partners Parallel Holdings II, L.P., CSFB Credit Opportunities Fund(Employee), L.P. and CSFB Credit Opportunities Fund (Helios), L.P. (1.560%);Credit Suisse Anlagestiftung, Pearl Holding Limited, Vega Invest (Guernsey)Limited and Partners Group Private Equity Performance Holding Limited (0.780%);Screen Investors 2004, LLC (0.152%); and members of management (0.400%)(1).

**Control Arrangement**

The Sponsors have theability to control the Company’s affairs and policies and the election of directorsand appointment of management.

**Continuing ServiceAgreement**

In connection with thetermination of an employment agreement with Loews, the Company is paying Mr. TravisReid severance of $87,500 per month for 18 months following the closing ofthe Mergers, paid him a lump sum payment of $1,575,000, and provided outplacementassistance and automobile benefits through December 31, 2006. In addition,in order to facilitate integration following the Mergers, the Company enteredinto an agreement with Mr. Reid, whereby Mr. Reid provided certaintransitional consulting services to the Company and reported to Mr. PeterC. Brown, the Company’s Chief Executive Officer. Pursuant to thecontinuing service agreement, the Company paid Mr. Reid a consulting feefor each month of service at the following rate: $50,000 for each of the firstfour months, $33,333 for each of the next four months and $16,667 for the finalfive months. The continuing services agreement terminated in February 2007.

**Option Grant toTravis Reid**

Pursuant to his ContinuingService Agreement, effective as of January 26, 2006, Holdings has grantedMr. Reid an option under the Holdings 2004 Stock Option Plan to acquireClass N Common Stock at an exercise price not less than the fair marketvalue (as determined by the Board of Directors of Holdings) on the date ofgrant. The option is subject to other terms and conditions substantiallysimilar to the terms of Holdings options currently held by employees and isalso subject to the Management Stockholders Agreement. The option vests inthree installments on December 23, 2006, 2007 and 2008, and vests in fullupon a change of control of Holdings or AMCE.

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(1) All percentage ownerships are approximate and also reflect Parentownership structure.

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**Cinemex**

Cinemex from time to time purchases services or entersinto arrangements with parties related to its employees. For example, MiguelAngel Dávila, Chief Executive Officer and President of Cinemex and on the boardof Cinemex, and Adolfo Fastlicht Kurián, a Director of Cinemex, are minorityinvestors in the construction of the new shopping center where one of Cinemex’snew theatres opened in December 2004. Mr. Kurián’s father is thegeneral manager of three construction companies that provide theatre constructionservices to Cinemex and Mr. Kurián is an investor in these companies. Inaddition, Cinemex signed a waiver to allow a McDonald’s restaurant owned by Mr. Kurián’swife to open in a shopping center where, under the lease, the landlord wasprohibited from leasing space to a business that would compete with the theatre’sconcessions. A relative of Mr. Dávila is the manager of Consultores enInformación Electrónica, S.A. de C.V., the company which renders web hosting,electronic marketing, e-mail and software services to one of Cinemex’ssubsidiaries. This arrangement may be terminated by Cinemex upon 30-daysnotice.

**Market MakingTransactions**

On August 18, 2004, Holdings sold $304,000,000 inaggregate principal amount at maturity of its Senior Discount Notes due 2014.On the same date, Marquee sold $250,000,000 in aggregate principal amount ofits 85¤8%Senior Notes due 2012 and $205,000,000 in aggregate principal amount of itsSenior Floating Notes due 2010 (Collectively, the “Senior Notes”). J.P. MorganSecurities Inc., an affiliate of JPMP which owned approximately 20.8% ofHoldings, was an initial purchaser of both the Holdco Notes and the SeniorNotes.

On January 26, 2006AMCE sold $325,000,000 in aggregate principal amount of its 11% Senior SubordinatedNotes due 2016. JP Morgan Securities Inc., an affiliate of JPMP whichowned approximately 20.8% of Holdings, was an initial purchaser of these notes.Credit Suisse Securities (USA) LLC, whose affiliates owned approximately 1.6%of Holdings, was also an initial purchaser of these notes.

**NOTE 17—SUBSEQUENTEVENT**

On July 5, 2007 the Company disposed of itsinvestment in Hoyts General Cinemas South America (“HGCSA”), a partnership thatoperated 17 theatres in South America, for sales proceeds of $28,682,000. TheCompany’s recorded investment in HGCSA was $11,446,000 as of June 28, 2007.The Company expects to record a pre-tax gain on this disposition ofapproximately $17,000,000.

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**Item 2.**                        Management’sDiscussion and Analysis of Financial Condition and Results of Operations.

**Forward LookingStatements**

In addition tohistorical information, this Report on Form 10-Q contains “forward-lookingstatements” within the meaning of Section 27A of the Securities Act of1933, as amended, or the Securities Act, and Section 21E of the SecuritiesExchange Act of 1934, as amended, or the Exchange Act. The words “forecast,” “estimate,”“project,” “intend,” “expect,” “should,” “believe” and similar expressions areintended to identify forward-looking statements. These forward-lookingstatements involve known and unknown risks, uncertainties, assumptions andother factors, including those discussed in “Management’s Discussion andAnalysis of Financial Condition and Results of Operations of MarqueeHoldings Inc.,” which may cause our actual results, performance orachievements to be materially different from any future results, performance orachievements expressed or implied by such forward-looking statements.These risks and uncertainties include, but are not limited to, the following:

·       national,regional and local economic conditions that may affect the markets in which weoperate;

·       thelevels of expenditures on entertainment in general and movie theatres inparticular;

·       increasedcompetition within movie exhibition or other competitive entertainment mediums;

·       technologicalchanges and innovations, including alternative methods for delivering movies toconsumers;

·       thepopularity of theatre attendance and major motion picture releases;

·       shiftsin population and other demographics;

·       ourability to renew expiring contracts at favorable rates, or to replace them withnew contracts that are comparably favorable to us;

·       ourneed for, and ability to obtain, additional funding for acquisitions andoperations;

·       risksand uncertainties relating to our significant indebtedness;

·       fluctuationsin operating costs;

·       capitalexpenditure requirements;

·       changesin interest rates; and

·       changesin accounting principles, policies or guidelines.

This list of factors that may affect futureperformance and the accuracy of forward-looking statements isillustrative but not exhaustive. In addition, new risks and uncertainties mayarise from time to time. Accordingly, all forward-looking statementsshould be evaluated with an understanding of their inherent uncertainty.

Readers are urged to consider these factors carefullyin evaluating the forward-looking statements. For further informationabout these and other risks and uncertainties, see Item 1A. “Risk Factors” inour Annual Report on Form 10-K for the fiscal year ended March 29,2007.

All subsequent written andoral forward-looking statements attributable to us or persons acting onour behalf are expressly qualified in their entirety by these cautionarystatements. The forward-looking statements included herein are made onlyas of the date of this Quarterly Report on Form 10-Q, and we do notundertake any obligation to release publicly any revisions to such forward-lookingstatements to reflect events or circumstances after the date hereof or toreflect the occurrence of unanticipated events.

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**Overview**

We are one of the world’s leading theatricalexhibition companies. During the first quarter of fiscal 2008, we opened threenew theatres with 46 screens in the U.S. and closed five theatres with 60screens in the U.S. As of June 28, 2007, we owned, operated or hadinterests in 377 theatres and 5,300 screens with 87%, or 4,597 of our screensin the U.S. and Canada, and 13%, or 703 of our screens in Mexico, Argentina,Brazil, Chile, Uruguay, China (Hong Kong), France and the United Kingdom.

Our principal direct and indirect owned subsidiariesare AMC Entertainment Inc., American Multi-Cinema, Inc. (“AMC”),Grupo Cinemex, S.A. de C.V. (“Cinemex”) and AMC Entertainment International, Inc.(“AMCEI”). We conduct our U.S. and Canada theatrical exhibition businessthrough AMC and its subsidiaries and AMCEI and its subsidiaries. We are operatingtheatres outside the United States primarily through Cinemex and AMCEI and itssubsidiaries.

On March 29, 2005, AMC Entertainment, along withRegal Entertainment Group (“Regal”), combined our respective cinema screenadvertising businesses into a new joint venture company called National CineMedia,LLC (“NCM”). The new company engages in the marketing and sale of cinema advertisingand promotions products; business communications and training services; and thedistribution of digital alternative content. We record our share of on-screenadvertising revenues generated by NCM in other theatre revenues. We contributedfixed assets and exhibitor agreements of our cinema screen advertisingsubsidiary National Cinema Network, Inc. (“NCN”) to NCM. We also includedgoodwill (recorded in connection with the merger with Marquee) in the costassigned to our investment in NCM. Additionally, we paid termination benefitsrelated to the displacement of certain NCN associates. In consideration of theNCN contributions described above, NCM issued a 37% interest in its Class Aunits to NCN. Since that date, our interest in NCM has declined to 18.6% due tothe entry of new investors. On February 13, 2007, NCM, Inc., a newly-formedentity that serves as the sole manager of NCM, announced the pricing of itsinitial public offering of 42,000,000 shares of common stock at a price of$21.00 per share. Subsequent to the NCM, Inc. IPO, we hold a 18.6%interest in NCM. AMCE received net proceeds upon completion of the NCM initialpublic offering of $517.1 million. We used the net proceeds from the NCMinitial public offering, along with cash on hand, to redeem certain of ournotes; on March 19, 2007 we redeemed $212.8 million aggregate principalamount of our 91¤2%senior subordinated notes due 2011 at 100% of principal value, on March 23,2007 we redeemed $205.0 million aggregate principal amount of our seniorfloating rate notes due 2010 at 103% of principal value and on March 23,2007 we redeemed $175.0 million aggregate principal amount of our 97¤8%senior subordinated notes due 2012 at 104.938% of principal value. Our loss onredemption of these notes including call premiums and the write off ofunamortized deferred charges and premiums, was $3.5 million.

In connection with the completion of NCM, Inc.’sIPO, we also entered into an Exhibitor Services Agreement (“ESA”) with NCMwhereby in exchange for approximately $231.3 million, we agreed to modifyNCM’s payment obligations under the prior Exhibitor Services Agreement. We haverecorded the payment received for modification of the ESA as deferred revenuesin our consolidated financial statements. The ESA provides a term of30 years for advertising and approximately five year terms (with automaticrenewal provisions) for meeting event and digital programming services, andprovides NCM with a five year right of first refusal for the services beginningone year prior to the end of the term. The ESA also changed the basis uponwhich we are paid by NCM from a percentage of revenues associated withadvertising contracts entered into by NCM to a monthly theatre access fee. Thetheatre access fee is now composed of a fixed payment per patron and a fixedpayment per digital screen, which increases by 8% every five years starting atthe end of fiscal 2011 for payments per patron and by 5% annually starting atthe end of fiscal 2007 for payments per digital screen. The theatre access feepaid in the aggregate to us, Regal and Cinemark will not be less than 12% ofNCM’s aggregate advertising revenue, or it will be adjusted upward to meet thisminimum payment.

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In May 2006, AMCEI and its subsidiary AMCEntertainment International Limited sold their interests in AMC EntertainmentEspaña S.A., which owned and operated 4 theatres with 86 screens in Spain, andActividades Multi-Cinemas E Espectáculos, LDA, which owned and operated 1theatre with 20 screens in Portugal. These operations have been classifiedas discontinued operations as a result of our disposition of Yelmo Cineplex,S.L., or Yelmo, in December 2006 as we no longer have continuing involvementin the region.

In December 2006 we disposed of our equity methodinvestment in Yelmo, which owned and operated 27 theaters with 310 screens inSpain on the date of sale.

On November 7, 2006, our Board of Directorsapproved an amendment to freeze our Defined Benefit Retirement Income Plan,Supplemental Executive Retirement Plan and Retirement Enhancement Plan (the “Plans”)as of December 31, 2006. On December 20, 2006 we amended and restatedthe Plans to implement the freeze as of December 31, 2006. As a result ofthe freeze there will be no further benefits accrued after December 31,2006, but continued vesting for associates with less than five years of vestingservice. We will continue to fund existing benefit obligations and there willbe no new participants in the future. As a result of amending and restating thePlans to implement the freeze, we recognized a curtailment gain of $11.0 millionin our consolidated financial statements which reduced our pension expense forfiscal 2007.

In May 2007 we disposed of our investment inFandango for total expected proceeds of approximately $20 million, ofwhich $17.7 million was received in May 2007, and have recorded a gain onthe sale, included in investment income, of approximately $15.7 million.

For financial reporting purposes we have threesegments, (1) U.S. and Canada theatrical exhibition, (2) Internationaltheatrical exhibition and (3) Other, with the most significant activity in“Other” related to on-screen advertising.

Our U.S. and Canada and International theatricalexhibition revenues are generated primarily from box office admissions andtheatre concession sales. The balance of our revenues are generated from ancillarysources, including on-screen advertising, rental of theatre auditoriums, feesand other revenues generated from the sale of gift certificates and theatretickets and arcade games located in theatre lobbies.

Box office admissions are our largest source ofrevenue. We predominantly license “first-run” motion pictures from distributorsowned by major film production companies and from independent distributors. Welicense films on a film-by-film and theatre-by-theatre basis. Film exhibitioncosts are accrued based on the applicable admissions revenues and estimates ofthe final settlement pursuant to our film licenses. Licenses that we enter intotypically state that rental fees are based on either aggregate termsestablished prior to the opening of the picture or on a mutually agreedsettlement upon the conclusion of the picture run. Under an aggregate termsformula, we pay the distributor a specified percentage of box office receipts.The settlement process allows for negotiation based upon how a film actuallyperforms.

Concessions sales are our second largest source ofrevenue after box office admissions. Concessions items include popcorn, softdrinks, candy, hot dogs and other products. We negotiate prices for our concessionsproducts and supplies directly with concessions vendors on a national orregional basis to obtain high volume discounts or bulk rates and marketing incentives.

Our revenues are dependent upon the timing andpopularity of motion picture releases by distributors. The most marketablemotion pictures are usually released during the summer and the year-end holidayseasons. Therefore, our business can be seasonal, with higher attendance andrevenues generally occurring during the summer months and holiday seasons. Ourresults of operations may vary significantly from quarter to quarter.

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During fiscal 2007, films licensed from our elevenlargest distributors based on revenues accounted for approximately 95% of ourU.S. and Canada admissions revenues. Our revenues attributable to individualdistributors may vary significantly from year to year depending upon thecommercial success of each distributor’s motion pictures in any given year.

During the period from 1990 to 2006, the annual numberof first-run motion pictures released by distributors in the United Statesranged from a low of 370 in 1995 to a high of 599 in 2006, according to MotionPicture Association 2006 MPA Market Statistics.

We continually upgrade thequality of our theatre circuit by adding new screens through new builds(including expansions) and acquisitions and by disposing of older screensthrough closures and sales. We are an industry leader in the development andoperation of megaplex theatres, typically defined as a theatre having 14 ormore screens and offering amenities to enhance the movie-going experience, suchas stadium seating providing unobstructed viewing, digital sound and enhancedseat design. We believe our introduction of the megaplex concept to NorthAmerica in 1995 has led to the current industry replacement cycle, which hasaccelerated the obsolescence of older, smaller theatres by setting newstandards for moviegoers. From 1995 through June 28, 2007, AMCEntertainment and Loews added 202 theatres with 3,643 new screens,acquired 431 theatres with 3,007 screens and disposed of 684 theatres with 4,159screens. As of June 28, 2007, approximately 73% of our screens in the U.S.and Canada were located in megaplex theatres.

*Stock-BasedCompensation*

We account for stock-based employee compensationarrangements in accordance with the provisions of SFAS No. 123(R), “Shared-BasedPayment (Revised)”and Staff Accounting Bulletin No 107 “Share Based Payments”.Under SFAS 123(R), compensation cost is calculated on the date of thegrant and then amortized over the vesting period. The fair value of each stockoption was estimated on the grant date using the Black-Scholes optionpricing model using the following assumptions: common stock value on the grantdate, risk-free interest rate, expected term, expected volatility, and dividendyield. Option awards which require classification as a liability underFAS 123R are revalued at each subsequent reporting date using the Black-Scholesmodel.

We granted 38,876.72873 options on December 23,2004 and 600 options on January 26, 2006 to employees to acquire our commonstock. The fair value of these options on their respective grant dates was$22,373,000 and $138,000. All of these options are equity classified except for7,684.57447 unexercised options granted on December 23, 2004 which areclassified as a liability.

The holder of options which are classified as aliability exercised options on 500 shares during the thirteen weeks endedJune 28, 2007.

The common stock value used to estimate the fair valueof each option on the December 23, 2004 grant date was based upon a contemporaneousthird party arms-length transaction on December 23, 2004 in which wesold 769,350 shares of our common stock for $1,000 per share to unrelatedparties. Accordingly, because we had contemporaneous objective evidence of thefair value of our common stock on December 23, 2004, we did not obtain acontemporaneous valuation by an unrelated valuation specialist.

For the 7,684.57447 option awards classified asliabilities, the Company revalued the options at each period end following thegrant date using the Black-Scholes model. As discussed in Note 6 toour financial statements, for the period ended June 28, 2007 the Company reporteda liability for these options of $6,339,000. In valuing this liability, theCompany used a fair value of common stock of $1,300 per share, which was basedon a contemporaneous valuation by an unrelated valuation specialist as ofJune 28, 2007.

Our Chairman of the Board,President and Chief Executive Officer, Peter C. Brown has an amended andrestated employment agreement that generally will revert to his prior agreementif an initial public of

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feringof Parent does not occur on or before December 31, 2007. In the event ofan initial public offering on or before December 31, 2007, within15 days after such initial public offering, Mr. Brown shall receive agrant of restricted stock or restricted stock units having a value of$2,567,000 on the date of grant, based on the initial public offering price.This grant was an inducement for Mr. Brown to enter into his amended and restatedemployment agreement, whereby the term of his employment would be shorter thanin his current employment agreement and he would be subject to certainrestrictive covenants that did not exist in his prior employment agreement.Such grant shall vest in three equal annual installments on the first threeanniversaries of the grant date. We expect that we would incur annual stock-basedcompensation expense of $856,000 related to these awards for three years fromthe date of grant in the event of an initial public offering on or beforeDecember 31, 2007.

**Operating Results**

Setforth in the table below is a summary of revenues, costs and expensesattributable to the Company’s U.S. and Canada and International theatricalexhibition operations and Other businesses. Reference is made to Note 13to the Notes to Consolidated Financial Statements for additional informationabout our operations by operating segment.

|                                            | ** ** | **Thirteen Weeks Ended**                                           | ** ** |
|--------------------------------------------|------------|------------------------------------------------------------------------------|------------|
| ** **                                 | ** ** | **June 28,  2007**                                                      | ** ** | **June 29  2006** | ** ** | **% Change** | ** ** |
| ** **                                 | ** ** | **(thousands of dollars, except   operating data)** | ** ** |
| **Revenues**                               | ** ** |                                                                         |       | ** ** | ** ** |   | ** ** | ** ** |   |
| U.S. and Canada theatrical exhibition      |       |                                                                         |       | ** ** | ** ** |   |   |   |   |
| Admissions                                 |       | $                                                                            | 388,685    |   | $ | 408,839 | ** ** |   | (4.9 | )% |   |
| Concessions                                |       | 165,348                                                                      |       | 164,309 | ** ** |   | 0.6 | % |   |
| Other theatre                              |       | 16,540                                                                       |       | 24,543 | ** ** |   | (32.6 | )% |   |
|                                       |       | 570,573                                                                      |       | 597,691 | ** ** |   | (4.5 | )% |   |
| International theatrical exhibition        |       |                                                                         |       | ** ** | ** ** |   |   |   |   |
| Admissions                                 |       | 28,189                                                                       |       | 26,801 | ** ** |   | 5.2 | % |   |
| Concessions                                |       | 18,879                                                                       |       | 16,735 | ** ** |   | 12.8 | % |   |
| Other theatre                              |       | 4,851                                                                        |       | 4,593 | ** ** |   | 5.6 | % |   |
|                                       |       | 51,919                                                                       |       | 48,129 | ** ** |   | 7.9 | % |   |
| Other                                      |       | —                                                                       |       | 14 | ** ** |   | * |   |   |
| Total revenues                             |       | $                                                                            | 622,492    |   | $ | 645,834 | ** ** |   | (3.6 | )% |   |
| **Cost of Operations**                     | ** ** |                                                                         |       | ** ** | ** ** |   | ** ** | ** ** |   |
| U.S. and Canada theatrical exhibition      |       |                                                                         |       | ** ** | ** ** |   |   |   |   |
| Film exhibition costs                      |       | $                                                                            | 209,479    |   | $ | 216,116 | ** ** |   | (3.1 | )% |   |
| Concession costs                           |       | 17,725                                                                       |       | 18,074 | ** ** |   | (1.9 | )% |   |
| Theatre operating expense                  |       | 144,228                                                                      |       | 143,147 | ** ** |   | 0.8 | % |   |
| Rent                                       |       | 105,407                                                                      |       | 105,567 | ** ** |   | (0.2 | )% |   |
| Preopening expense                         |       | 1,965                                                                        |       | 565 | ** ** |   | * |   |   |
| Theatre and other closure (income) expense |       | (14,838                                                                      | )          | 2,010 | ** ** |   | * |   |   |
|                                       |       | 463,966                                                                      |       | 485,479 | ** ** |   | (4.4 | )% |   |
| International theatrical exhibition        |       |                                                                         |       | ** ** | ** ** |   |   |   |   |
| Film exhibition costs                      |       | 12,368                                                                       |       | 11,835 | ** ** |   | 4.5 | % |   |
| Concession costs                           |       | 4,462                                                                        |       | 3,941 | ** ** |   | 13.2 | % |   |
| Theatre operating expense                  |       | 12,141                                                                       |       | 11,609 | ** ** |   | 4.6 | % |   |
| Rent                                       |       | 7,301                                                                        |       | 6,752 | ** ** |   | 8.1 | % |   |
| Preopening expense                         |       | 120                                                                          |       | 477 | ** ** |   | (74.8 | )% |   |
| Theatre closure                            |       | 10                                                                           |       | 33 | ** ** |   | (69.7 | )% |   |
|                                       |       | 36,402                                                                       |       | 34,647 | ** ** |   | 5.1 | % |   |
| Other                                      |       | 156                                                                          |       | 425 | ** ** |   | (63.3 | )% |   |
| General and administrative expense:        |       |                                                                         |       | ** ** | ** ** |   |   |   |   |
| Merger, acquisition and transaction costs  |       | 4,172                                                                        |       | 3,752 | ** ** |   | 11.2 | % |   |
| Management Fee                             |       | 1,250                                                                        |       | 1,250 | ** ** |   | 0.0 | % |   |

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| Other                                  |   | 13,088 |    | 15,773 | ** ** |    | (17.0      | )%     |   |
|----------------------------------------|--------|--------|---------|--------|------------|---------|------------|--------|--------|
| Depreciation and amortization          |   | 63,689 |    | 63,896 | ** ** |    | (0.3       | )%     |   |
| Disposition of assets and other losses |   | — |    | 1,436  | ** ** |    | *          |   |   |
| Total costs and expenses               |   | $      | 582,723 |   | $          | 606,658 | ** ** |   | (3.9   | )% |   |
|                                        |        |        |         |        |            |         |            |        |        |  |  |

 

|                                                          | ** ** | **Thirteen Weeks  Ended June 28, 2007** | ** ** | **Thirteen Weeks  Ended June 29, 2006** | ** ** |
|----------------------------------------------------------|------------|-------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| **Operating Data (at period end):**                      |       |                                                        |       |                                                        |       |   |   |   |   |
| Screen additions                                         |       |                                                        | 46         |                                                        |       |   | 30 |   |   |
| Screen dispositions                                      |       |                                                        | 60         |                                                        |       |   | 180 |   |   |
| Average  screens—continuing operations(1)           |       |                                                        | 5,075      |                                                        |       |   | 5,139 |   |   |
| Number of screens  operated(2)                           |       |                                                        | 5,300      |                                                        |       |   | 5,601 |   |   |
| Number of theatres  operated(2)                          |       |                                                        | 377        |                                                        |       |   | 411 |   |   |
| Screens per theatre                                      |       |                                                        | 14.1       |                                                        |       |   | 13.6 |   |   |
| Attendance—continuing operations(1)  (in thousands) |       |                                                        | 59,970     |                                                        |       |   | 64,969 |   |   |

 

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(1)          Includes consolidatedtheatres only.

(2)          Excludes 6 theatres with78 screens held for disposal in connection with approval of the Mergers at June 29,2006.

*                    Percentagechange in excess of 100%

**Thirteen weeksEnded June 28, 2007 and June 29, 2006**

**Revenues.****  **Total revenues decreased 3.6%, or$23,342,000, during the thirteen weeks ended June 28, 2007 compared to thethirteen weeks ended June 29, 2006.

U.S. and Canada theatricalexhibition revenues decreased 4.5%, or $27,118,000, during the thirteen weeksended June 28, 2007 compared to the thirteen weeks ended June 29,2006. Admissions revenues decreased 4.9%, or $20,154,000, during the thirteenweeks ended June 28, 2007 compared to the thirteen weeks ended June 29,2006, due to a 9% decrease in attendance, partially offset by a 4.5% increasein average ticket prices. We believe there were several contributing factors: (1) Admissionsrevenues at comparable theatres (theatres opened on or before the first quarterof fiscal 2007) decreased 4.8%, or $18,922,000, during the thirteen weeks endedJune 28, 2007 from the comparable period last year. Based upon availableindustry sources, box office revenues of industry comparable theatres in themarkets where we operate decreased 3.5% over the same period. This differenceis due to several factors, including the strong prior year performance of ourcomparable theatres (which increased 5.6%) versus industry comparable theatres(which increased 3.6%) during the thirteen weeks ended June 29, 2006compared to the thirteen week period ended June 30, 2005. Fluctuationssuch as this result from changes in distribution and performance of filmsreleased between periods. In certain circumstances, high-grossing films expandthe overall market size due to the increase in number of prints released. Eventhough our box office performance on such films increases due to the film’spopularity, the market expansion from these high grossing films can dilute ouroverall performance against the industry. This occurred during the thirteenweeks ended June 28, 2007 with the release of three very popular,mainstream movies that were each distributed to over 4,000 theatres andproduced box office admissions revenues in the United States and Canada ofapproximately $915 million. 2) Based upon available industry sources, theadmissions revenues of our net new builds (admissions revenues from new theatres—$13,522,000—lessadmissions revenues of closed theatres—$7,454,000—and less admissions revenuesof dispositions mandated by the Department of Justice in the Loews merger—$7,300,000—,was less than the contribution of net new builds for the overall industry. Theincrease in average ticket price was primarily due to our practice of periodicallyreviewing ticket prices and the discounts we offer and making selectiveadjustments based upon such factors as gen

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eralinflationary trends and conditions in local markets. Concessions revenuesincreased 0.6%, or $1,039,000, during the thirteen weeks ended June 28,2007 compared to the thirteen weeks ended June 29, 2006 due to a 10.6%increase in average concessions per patron related to price increases and an increasein units sold per patron, offset by the decrease in attendance. Other theatrerevenues decreased 33.2%, or $8,147,000, during the thirteen weeks ended June 28,2007 compared to the thirteen weeks ended June 29, 2006. Included in othertheatre revenues are our share of on-screen advertising revenues generated byNCM. The decrease in other theatre revenues was primarily due to decreases inon-screen advertising revenues as a result of the new Exhibitor ServicesAgreement with NCM.

International theatricalexhibition revenues increased 7.9%, or $3,790,000, during the thirteen weeksended June 28, 2007 compared to the thirteen weeks ended June 29,2006. Admissions revenues increased by 5.2%, or $1,388,000, due to a 4.7%increase in average ticket price and a 0.5% increase in attendance. We opened 2theatres with 21 screens in Mexico since June 29, 2006. Concessionsrevenues increased 12.8%, or $2,144,000, due to a 12.3% increase in concessionsper patron and the increase in attendance. Concessions per patron increased inMexico due primarily to price increases and increased promotions which helpedto increase transaction size and incidence of purchase. International revenueswere positively impacted by a weaker U.S. dollar, although this did notcontribute materially to our consolidated earnings from continuing operations.

**Costs and expenses.****  **Total costs and expenses decreased 3.9%, or$23,935,000, during the thirteen weeks ended June 28, 2007 compared to thethirteen weeks ended June 29, 2006.

U.S. and Canada theatricalexhibition costs and expenses decreased 2.4%, or $11,677,000, during the thirteenweeks ended June 28, 2007 compared to the thirteen weeks ended June 29,2006. Film exhibition costs decreased 3.1%, or $6,637,000, during the thirteenweeks ended June 28, 2007 compared to the thirteen weeks ended June 29,2006 due to the decrease in admissions revenues, offset by an increase in thepercentage of admissions paid to film distributors. As a percentage ofadmissions revenues, film exhibition costs were 53.9% in the current period ascompared with 52.9% in the prior period due to the release of three verypopular, mainstream movies during the thirteen weeks ended June 28, 2007whose popularity and audience appeal drove higher percentage film rent termsthan experienced during the thirteen weeks ended June 29, 2006. Highergrossing movies generally carry higher film terms as a percentage of admissionsrevenues than lower grossing movies. Concession costs decreased 1.9%, or$349,000, during the thirteen weeks ended June 28, 2007 compared to thethirteen weeks ended June 29, 2006 due to the decrease in concession costsas a percentage of concessions revenues, partially offset by the increase inconcession revenues. As a percentage of concessions revenues, concession costswere 10.7% in the current period compared with 11.0% in the prior period. As apercentage of revenues, theatre operating expense was 25.3% in the current periodas compared to 24.0% in the prior period. Preopening expense increased$1,400,000 during the thirteen weeks ended June 28, 2007 due primarily tothe increase in screen additions during the period. Rent expense decreased0.2%, or $160,000, during the thirteen weeks ended June 28, 2007 comparedto the thirteen weeks ended June 29, 2006. During the thirteen weeks endedJune 28, 2007, we recognized $14,838,000 of theatre and other closureincome due primarily to lease terminations negotiated on favorable terms fortwo of our theatres that were closed during the thirteen weeks ended June 28,2007. During the thirteen weeks ended June 29, 2006, we recognized$2,010,000 of theatre and other closure expense related primarily to the closureof one theatre with 8 screens and to accretion of the closure liability relatedto theatres closed during prior periods.

International theatricalexhibition costs and expenses increased 5.1%, or $1,755,000, during the thirteenweeks ended June 28, 2007 compared to the thirteen weeks ended June 29,2006. Film exhibition costs increased 4.5%, or $533,000, during the thirteenweeks ended June 28, 2007 compared to the thirteen weeks ended June 29,2006 due to the increase in admissions revenues, partially offset by a decreasein the percentage of admissions paid to film distributors. Concession costs increased$521,000 during the thirteen weeks ended June 28, 2007 compared to thethirteen weeks ended June 29, 2006 due to the increase in 

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concessionrevenues. As a percentage of concessions revenues, concession costs were 23.6%in the current period compared with 23.5% in the prior period. As a percentageof revenues, theatre operating expense was 23.4% in the current period comparedto 24.1% in the prior period. Rent expense increased 8.1%, or $549,000, duringthe thirteen weeks ended June 28, 2007 compared to the thirteen weeksended June 29, 2006 primarily due to the opening of 2 theatres with 21screens in Mexico since June 29, 2006. International costs and expenseswere negatively impacted by a weaker U.S. dollar, although this did notcontribute materially to our consolidated earnings from continuing operations.We continually monitor the performance of our international theatres, andfactors such as changing consumer preferences for filmed entertainment ininternational markets and our inability to sublease vacant retail space couldnegatively impact operating results and result in future closures, sales,dispositions and theatre closure charges prior to expiration of underlyinglease agreements.

**General and Administrative Expense:**

**Merger, acquisition andtransaction costs.****  **Merger,acquisition and transaction costs increased $420,000 from $3,752,000 to$4,172,000 during the thirteen weeks ended June 28, 2007 compared to the thirteenweeks ended June 29, 2006. Current period costs are primarily comprised ofprofessional and consulting expenses related to a proposed initial publicoffering of common stock that was withdrawn on June 19, 2007 andpreacquisition expenses for casualty insurance losses related to the Mergerwith Loews.

**Management fees.****  **Management fees were unchanged during thethirteen weeks ended June 28, 2007. Management fees of $1,250,000 are paidquarterly, in advance, to our Sponsors in exchange for consulting and otherservices.

**Other.****  **Other general and administrative expensedecreased 17.0%, or $2,685,000, during the thirteen weeks ended June 28,2007 compared to the thirteen weeks ended June 29, 2006. The decrease inother general and administrative expenses is primarily due to a decrease inpension expense of $1,229,000 related to an amendment to freeze our Plans as ofDecember 31, 2006 and a decrease in incentive compensation of $718,000related to declines in operating performance. Additionally, stock compensationexpense decreased $520,000 during the thirteen weeks ended June 28, 2007compared to the thirteen weeks ended June 29, 2006 due to the acceleratedvesting of certain options as a result of entry into a separation and generalrelease agreement with the holder of these options during the thirteen weeksended March 29, 2007. As a result of the accelerated vesting during theprior year, there is no expense related to these options during the currentyear.

**Depreciation andAmortization.****  **Depreciationand amortization decreased 0.3%, or $207,000, compared to the prior period.

**Disposition of Assets andOther Losses.****  **Dispositionof assets and other losses were $0 in the current period compared to $1,436,000in the prior period. The prior period includes $1,350,000, of settlements receivedrelated to fireproofing litigation recoveries at various theatres and a loss onthe dispositions of theatres in the United States as required by and inconnection with the Mergers of $2,570,000.

**Other Income.****  **Other income includes $1,754,000 and$1,460,000 of income related to the derecognition of stored value card liabilitiesas to which we believe future redemption to be remote, during the thirteenweeks ended June 28, 2007 and June 29, 2006, respectively. Otherincome includes insurance recoveries related to Hurricane Katrina of $1,246,000for property losses in excess of property carrying cost and $397,000 forbusiness interruption during the thirteen weeks ended June 28, 2007.

**Interest Expense.****  **Interest expense decreased 22.2%, or$12,765,000, primarily due to decreased borrowings.

AMC received net proceedsupon completion of the NCM initial public offering and debt financing of$517,122,000. We used the net proceeds from the NCM initial public offering, alongwith cash on hand, to redeem our 91¤2% seniorsubordinated notes due 2011 (the “Notes due 2011”), our senior floating rate 

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notesdue 2010 (the “Floating Notes due 2010”) and 97¤8% seniorsubordinated notes due 2012 (the “Notes due 2012”). On March 19, 2007 weredeemed $212,811,000 aggregate principal amount of our Notes due 2011 at 100%of principal value, on March 23, 2007 we redeemed $205,000,000 aggregateprincipal amount of our Floating Notes due 2010 at 103% of principal value andon March 23, 2007 we redeemed $175,000,000 aggregate principal amount ofour Notes due 2012 at 104.938% of principal value.

**Equity in (Earnings)Losses of Non-Consolidated Entities.****  ****Equity in earnings of non-consolidatedentities were ($2,253,000) in the current period compared to losses of$2,157,000 in the prior period. Equity in (earnings) losses related to ourinvestment in National CineMedia, LLC were ($1,810,000) and $1,308,000 for thethirteen weeks ended June 28, 2007 and June 29, 2006, respectively. Equityin losses related to Yelmo were $1,093,000 during the thirteen weeks ended June 29,2006.**

**Investment Income.****  **Investment income was $19,286,000 for thethirteen weeks ended June 28, 2007 compared to $2,528,000 for the thirteenweeks ended June 29, 2006. The thirteen weeks ended June 28, 2007includes a gain on the sale of our investment in Fandango of $15,744,000. Interestincome increased $**872,000**from the prior period due primarily to higher rates of interest earned on cashand equivalents available for investment.

**Income Tax Provision.****  **The provision for income taxes fromcontinuing operations was $4,0**00,000** for the thirteen weeksended June 28, 2007 and $**300,000** for the thirteen weeksended June 29, 2006 due primarily to the increase in earnings fromcontinuing operations before income taxes. See Note 11—Income Taxes.

**Earnings from DiscontinuedOperations, Net.****  **OnMay 11, 2006, we sold our operations in Iberia, including 4 theatres with86 screens in Spain and 1 theatre with 20 screens in Portugal. At the date ofthe sale these operations did not meet the criteria for discontinued operationsbecause of continuing involvement in the region through an equity methodinvestment in Yelmo. In December 2006, we disposed of our investment inYelmo, including 27 theatres with 310 screens in Spain, and the results of theoperations in Iberia have now been classified as discontinued operations. SeeNote 3—Discontinued Operations for the components of the earnings fromdiscontinued operations.

**Net Earnings (Loss)  **Netearnings (loss) was $15,942,000 and ($14,142,000) for the thirteen weeks ended June 28,2007 and June 29, 2006, respectively.

**LIQUIDITY AND CAPITAL RESOURCES**

Our consolidated revenuesare primarily collected in cash, principally through box office admissions andtheatre concessions sales. We have an operating “float” which partiallyfinances our operations and which generally permits us to maintain a smalleramount of working capital capacity. This float exists because admissionsrevenues are received in cash, while exhibition costs (primarily film rentals)are ordinarily paid to distributors from 20 to 45 days following receiptof box office admissions revenues. Film distributors generally release thefilms which they anticipate will be the most successful during the summer andholiday seasons. Consequently, we typically generate higher revenues duringsuch periods.

**Holding Company Status**

Holdings is a holdingcompany with no operations of its own and has no ability to service interest orprincipal on its indebtedness or pay dividends other than through any dividendsit may receive from its subsidiaries. Under certain circumstances, AMCEntertainment is restricted from paying dividends to Holdings by the terms ofthe indentures relating to its notes and its senior secured credit facility.AMC Entertainment’s senior secured credit facility and note indentures containprovisions which limit the amount of dividends and advances which it may pay ormake to Holdings. Under the most restrictive of these provisions, set forth inthe note indenture for the 85¤8% Senior FixedRate notes due 2012, (the “Fixed Notes due 2012”) the amount of loans anddividends which AMC Entertainment could make to Holdings may not exceed $186 millionin the aggregate as of June 28, 2007. Under the note indentures, a loan toHold

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ingswould have to be on terms no less favorable to AMC Entertainment than could beobtained in a comparable transaction on an arm’s length basis with anunaffiliated third party and be in the best interest of AMC Entertainment.Provided no event of default has occurred or would result, the senior securedcredit facility also permits AMC Entertainment to pay cash dividends toHoldings for specified purposes, including indemnification claims, taxes, up to$4 million annually for operating expenses, repurchases of equity awards tosatisfy tax withholding obligations, specified management fees, fees andexpenses of permitted equity and debt offerings and to pay for the repurchaseof stock from employees, directors and consultants under benefit plans up tospecified amounts. Depending on the net senior secured leverage ratio, as definedin the senior secured credit facility, AMC Entertainment may also pay Holdingsa portion of net cash proceeds from specified assets sales.

Cash flows provided byoperating activities, as reflected in the Consolidated Statements of CashFlows, were $72,738,000 and $95,938,000 during the thirteen weeks ended June 28,2007 and June 29, 2006, respectively. The decrease in operating cash flowsduring the thirteen weeks ended June 28, 2007 is primarily due to declinesin accounts payable related primarily to the timing of certain payments. We hadworking capital deficits as of June 28, 2007 and March 29, 2007 of$258,526,000 and $40,370,000, respectively. We have the ability to borrowagainst our credit facility to meet obligations as they come due (subject tolimitations on the incurrence of indebtedness in our various debt instruments)and had approximately $177,631,000 and $177,500,000 available on our creditfacility to meet these obligations for the periods ended June 28, 2007 andMarch 29, 2007, respectively.

On June 12, 2007 weentered into an amendment (the “Amendment”) to the indenture for our 12% SeniorDiscount Notes due 2014 (the “Discount Notes due 2014”). The Amendment requiresus to make an election on August 15, 2007, the next semi-annual accretiondate under the indenture, to pay cash interest on the Discount Notes due 2014. Asa result, we will be required to make our first cash interest payment on theDiscount Notes due 2014 on February 15, 2008. We expect that our annualcash interest payments on the Discount Notes due 2014 will be approximately$28,895,000 subsequent to the required cash payment election.

During the first quarterof fiscal 2008, we closed 5 theatres with 60 screens in the U.S. and opened 3 newtheatres with 46 screens in the U.S., resulting in a circuit total of 377theatres and 5,300 screens.

**Cash Flows from Investing Activities**

Cash provided by (used in)investing activities, as reflected in the Consolidated Statements of Cash Flowswere ($35,848,000) and $28,828,000, during the thirteen weeks endedJune 28, 2007 and June 29, 2006, respectively. As of June 28,2007, we had construction in progress of $21,725,000. We had 5 U.S. theatreswith a total of 66 screens under construction on June 28, 2007 that weexpect to open in fiscal 2008. Cash outflows from investing activities includecapital expenditures of $33,894,000 and $32,843,000 during the thirteen weeksended June 28, 2007 and June 29, 2006, respectively. We expect thatour gross capital expenditures in fiscal 2008 will be approximately$155,000,000.

In March 2007, theboard of directors of Fandango, Inc. (“Fandango”), an online movieticketing company in which we owned approximately 8.4% of the outstandingcommon stock on an as converted basis as of March 29, 2007, approved anAgreement and Plan of Merger (the “Fandango Merger Agreement”), which wasadopted and approved by its stockholders. Pursuant to the Fandango MergerAgreement, we and the other existing stockholders sold our interests inFandango to Comcast Corporation. The transaction closed in May of 2007. Inconnection with the transaction, we received an equity earn up which raised ourinterest in Fandango to approximately 10.4% of the outstanding common stock onan as converted basis immediately prior to the sale of our shares. Pursuant tothe terms of the Fandango Merger Agreement and subject to certain closingadjustments, we estimate that we will receive a total of approximately$20,000,000 in cash consideration in connection with the sale of our interestin Fandango of which $17,744,000 was received during the thirteen weeks endedJune 28, 2007.

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In May 2006, AMCEI and its subsidiary AMCEntertainment International Limited sold its interests in AMC EntertainmentEspaña S.A., which owned and operated 4 theatres with 86 screens in Spain, andActividades Multi-Cinemas E Espectáculos, LDA, which owned and operated 1theatre with 20 screens in Portugal for a net sales price of approximately$35,446,000.

During the thirteen weeks ended June 29, 2006, wesold four theatres with 42 screens in the U.S. as required by and in connectionwith the approval of the Mergers for an aggregate sales price of $30,667,000.

We fund the costs of constructing new theatres usingexisting cash balances, cash generated from operations or borrowed funds, asnecessary. We generally lease our theatres pursuant to long-term non-cancelableoperating leases which may require the developer, who owns the property, toreimburse us for a portion of the construction costs. However, we may decide toown the real estate assets of new theatres and, following construction, selland leaseback the real estate assets pursuant to long-term non-cancelableoperating leases. We may also decide to sell certain real estate assets that wecurrently own where the value of the real estate may be greater than the valuegenerated by our theatre operations.

Historically, we have either paid for or leased theequipment used in a theatre.

On July 5, 2007 wedisposed of our investment in HGCSA, a partnership that operated 17 theatres inSouth America, for sales proceeds of $28,282,000.

**Cash Flows fromFinancing Activities**

Cash flows used infinancing activities, as reflected in the Consolidated Statement of Cash Flows,were ($265,496,000) and $(14,181,000) during the thirteen weeks ended June 28,2007 and June 29, 2006, respectively.

During the thirteen weeks ended June 28, 2007 wepaid a dividend of $270,588,000 to our stockholder AMC Entertainment Holdings, Inc.and paid $4,360,000 in deferred financing costs related to a consent solicitationfrom holders of our Discount Notes due 2014.

Reference is made to Management’s Discussion andAnalysis of Financial Condition and Results of Operations—Liquidity and CapitalResources in our Annual Report on Form 10-K for the fiscal yearended March 29, 2007 for certain information about our New CreditFacility, the Cinemex Credit Facility, our 8% Senior Subordinated Notes due2014 (the “Notes due 2014”), 11% Senior Subordinated Notes due 2016 (the “Notesdue 2016”), 8 5/8% Senior Notes due 2012 (the “Fixed Notes due 2012”) andDiscount Notes due 2014.

The New Credit Facility is with a syndicate of banksand other financial institutions and provides financing of up to $850,000,000,consisting of a $650,000,000 term loan facility with a maturity of seven yearsand a $200,000,000 revolving credit facility with a maturity of six years. Therevolving credit facility includes borrowing capacity available for Mexicanpeso-denominated revolving loans, for letters of credit and for swinglineborrowings on same-day notice. As of June 28, 2007, we had no borrowingsunder the revolving credit facility and $641,875,000 was outstanding under theterm loan facility at an interest rate of 7.07%.

Borrowings under the Senior Secured Credit Facilitybear interest at a rate equal to an applicable margin plus, at our option,either a base rate or LIBOR. On March 13, 2007, we amended the Senior SecuredCredit Facility to, among other things, lower the interest rates related to ourterm loan, reduce our unused commitment fee and amend the change of controldefinition so that an initial public offering and related transactions wouldnot constitute a change of control. The current applicable margin for borrowingsunder the revolving credit facility is 0.75% with respect to base rateborrowings and 1.75% with respect to LIBOR borrowings, and the currentapplicable margin for borrowings under the term loan facility is 0.75% withrespect to base rate borrowings and 1.75% with respect to LIBOR borrowings. Theapplicable margin for such borrowings may be reduced, subject to AMCEntertainment attaining certain 

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leverage ratios. Inaddition to paying interest on outstanding principal under the Senior SecuredCredit Facility, AMC Entertainment is required to pay a commitment fee to thelenders under the revolving credit facility in respect of the unutilizedcommitments thereunder at a rate equal to 0.25%. It will also pay customaryletter of credit fees. AMC Entertainment may voluntarily repay outstandingloans under the New Credit Facility at any time without premium or penalty,other than customary “breakage” costs with respect to LIBOR loans. AMCEntertainment is required to repay $1,625,000 of the term loan quarterly,beginning March 30, 2006 through September 30, 2012, with any remainingbalance due on January 26, 2013.

The indentures relating to our outstanding notes allowus to incur all permitted indebtedness (as defined therein) withoutrestriction, which includes all amounts borrowed under our credit facility. Theindentures also allow us to incur any amount of additional debt as long as wecan satisfy the coverage ratio of each indenture, after giving effect to theevent on a pro forma basis (under the indentures for the Fixed Notes due 2012,Notes due 2014, Notes due 2016 and Discount Notes due 2014). Under theindenture relating to the Discount Notes due 2014, the most restrictive of theindentures, we could borrow approximately $1,352.2 million as of June 28,2007 in addition to permitted indebtedness (assuming an interest rate of 10% onthe additional borrowings). If we cannot satisfy the coverage ratios of theindentures, generally we can incur, in addition to amounts borrowed under thecredit facility, no more than $100,000,000 of new “permitted indebtedness”under the terms of the indentures relating to the Fixed Notes due 2012, Notesdue 2014, Notes due 2016 and Discount Notes due 2014.

The indentures relating to the above-describednotes also contain covenants limiting dividends, purchases or redemptions ofstock, transactions with affiliates, and mergers and sales of assets, andrequire us to make an offer to purchase the notes upon the occurrence of a changein control, as defined in the indentures. Upon a change of control (as definedin the indentures), we would be required to make an offer to repurchase all ofthe outstanding Notes due 2016, Notes due 2014, Fixed Notes due 2012, and theDiscount Notes due 2014, at a price equal to 101% of the principal amountthereof plus accrued and unpaid interest to the date of repurchase.

As of June 28, 2007, we were in compliance withall financial covenants relating to the New Credit Facility, the Cinemex CreditFacility, the Notes due 2016, Notes due 2014, the Fixed Notes due 2012, and theDiscount Notes due 2014.

We believe that cashgenerated from operations and existing cash and equivalents will be sufficientto fund operations and planned capital expenditures and potential acquisitionsfor at least the next twelve months and enable us to maintain compliance withcovenants related to the new Credit Facility and the notes.

**Commitments andContingencies**

The Company hascommitments and contingencies for capital and financing leases, corporate borrowings,operating leases, capital related betterments and pension funding that weresummarized in a table in the Company’s Form 10-K for the year endedMarch 29, 2007. Since March 29, 2007 there have been no material changesto the commitments and contingencies of the Company outside the ordinary courseof business, except as discussed in the following paragraph.

As discussed in Note11—Income Taxes, the Company adopted FASB Interpretation No. 48, “Accountingfor Uncertainty in Income Taxes—an interpretation of FASB No. 109”. AtMarch 30, 2007, the Company had a liability for unrecognized benefits of$44.1 million, of which approximately $5.3 million is expected to be offsetfrom the Company’s pool of net operating loss carryforwards within the next 12months. For the remaining liability, the Company is unable to reasonablydetermine when settlement with taxing authorities will occur.

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**NEW ACCOUNTINGPRONOUNCEMENTS**

In February 2007, the FASB issued SFAS No. 159,“The Fair Value Option for Financial Assets and Financial Liabilities,including an amendment of FASB Statement No. 115” (SFAS 159).SFAS 159 permits entities to choose to measure many financial instrumentsand certain other items at fair value that are not currently required to be measuredat fair value. Unrealized gains and losses on items for which the fair valueoption has been elected are reported in earnings. SFAS 159 does notaffect any existing accounting literature that requires certain assets andliabilities to be carried at fair value. We will be required to adopt thisstandard in the first quarter of fiscal 2009. Management is currentlyevaluating the requirements of SFAS 159 and has not yet determined theimpact on the consolidated financial statements.

In September 2006, the FASB released SFAS No. 157,*Fair Value Measurements* whichprovides enhanced guidance for using fair value to measure assets andliabilities. The standard applies whenever other standards require (or permit)assets or liabilities to be measured at fair value. It does not expand the useof fair value in any new circumstances. Under the standard, fair value refersto the price that would be received to sell an asset or paid to transfer aliability in an orderly transaction between market participants in the marketin which the reporting entity transacts. It clarifies the principle that fairvalue should be based on the assumptions market participants would use whenpricing the asset or liability. SFAS No. 157 is effective for financialstatements issued for fiscal years beginning after November 15, 2007, andinterim periods within those fiscal years, or the first quarter of fiscal 2009for AMCE. Early adoption is permitted. We do not anticipate this standardhaving a material effect on our consolidated financial statements.

In July 2006, the FASB released FASBInterpretation No. 48, *Accounting forUncertainty in Income Taxes—an Interpretation of FASB Statement 109*(“FIN 48” or the “Interpretation”), which clarifies the accounting for uncertaintyin income taxes recognized in companies’ financial statements in accordancewith FASB Statement No. 109, “Accounting for Income Taxes.” FIN 48prescribes a recognition threshold and measurement attribute for the financialstatement recognition and measurement of a tax position taken or expected to betaken in a tax return. The evaluation of a tax position in accordance with FIN48 is a two-step process. The first step is recognition whereby companies mustdetermine whether it is more likely than not that a tax position will besustained upon examination. The second step is measurement whereby a taxposition that meets the more-likely-than-not recognition threshold is measuredto determine the amount of benefit to recognize in the financial statements. Theinterpretation also provides guidance on derecognition of recognized taxbenefits, classification, interest and penalties, accounting in interimperiods, disclosure and transition. FIN 48 is effective for fiscal yearsbeginning after December 15, 2006. We adopted the new requirements in thefirst quarter of fiscal 2008. ***As a result of the adoption ofFIN 48, we recorded a $5.3 million increase in current deferred taxassets, a $5.3 million reduction of goodwill, a $5.3 million currentFIN 48 liability and a $5.3 million charge to the beginningaccumulated deficit that is reported as a cumulative effect adjustment for achange in accounting principle to the opening balance sheet position ofstockholder’s accumulated deficit at March 30, 2007***. SeeNote 11—Income Taxes.

**Item 3.**                        Quantitativeand Qualitative Disclosures about Market Risk

We are exposed to variousmarket risks including interest rate risk and foreign currency exchange raterisk. We do not hold any significant derivative financial interests.

**Derivatives**

On July 28, 2003, Grupo Cinemex entered into aninterest rate swap agreement with a maturity of December 26, 2007 tomanage its exposure to interest rate movements by effectively converting itsprevious long-term senior secured credit facility from a variable to a fixedrate. The notional amount of the interest rate swap reduces in accordance withthe repayment provisions of Grupo Cinemex’s previous long-term senior securedcredit facility. Although this senior secured facility was repaid on August 13,2004, the swap agreement remains outstanding and was redesignated as a hedge ofthe Grupo Cinemex Term Loan.

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The face amount of the interest rate swap on June 28,2007 was 225 million Mexican pesos ($20.8 million). The swap agreement providesfor the exchange of variable rate payments for fixed rate payments without theeffect of leverage and without the exchange of the underlying face amount. Thevariable rate is based on the 28-day TIIE rate and the fixed rate is8.5%. The fair market value of the interest rate swap was a liability of$67,000 as of June 28, 2007.

On August 5,2005, Grupo Cinemex entered into a new interest rate swap with a face amount of382.8 million Mexican pesos ($35.1 million) as a complement to the July 28,2003 interest rate swap noted above. This interest rate swap is complementaryto the interest rate swap entered into on July 28, 2003 and increases inthe same amount of the decrease in the interest rate swap entered into on July 28,2003 to hedge the complete credit. The face amount of the interest rate swap onJune 28, 2007 was 795.5 million Mexican pesos ($73.7 million). Thenew interest rate swap was entered into in order to hedge the outstanding debtbalance not covered by the July 28, 2003 interest rate swap. This newinterest rate swap provides for the exchange of variable rate payment for fixedrate payments. The variable rate is based on the 28-day TIIE rate and thefixed rate is 9.89%. The fair market value of this interest rate swap was aliability of $2,242,000 as of June 28, 2007.

We are exposed to credit loss in the event ofnon-performance by the counterparties to the interest rate swap agreements.However, we do not anticipate non-performance by the counterparties.

***Market risk on variable-ratefinancial instruments.****  *Wemaintain a $850,000,000 senior secured credit facility, comprised of a$200,000,000 revolving credit facility and a $650,000,000 term loan facility,which permits borrowings at a rate equal to an applicable margin plus, at ouroption, either a base rate or LIBOR. Increases in market interest rates wouldcause interest expense to increase and earnings before income taxes todecrease. The change in interest expense and earnings before income taxes wouldbe dependent upon the weighted average outstanding borrowings during thereporting period following an increase in market interest rates. We had noborrowings on our new revolving credit facility as of June 28, 2007 andhad $641,875,000 outstanding under the term loan facility on June 28,2007. Therefore, a 100 basis point increase in market interest rates would haveincreased or decreased interest expense on the new credit facility by$1,605,000 during the thirteen weeks ended June 28, 2007.

***Market risk on fixed-ratefinancial instruments.****  *Includedin long-term debt are $325,000,000 of our Notes due 2016, $300,000,000 of ourNotes due 2014, $250,000,000 of our Fixed Notes due 2012 and $237,257,000carrying value of our Discount Notes due 2014. Increases in market interestrates would generally cause a decrease in the fair value of the Notes due 2016,Notes due 2014, Fixed Notes due 2012 and Discount Notes due 2014 and a decreasein market interest rates would generally cause an increase in fair value of theNotes due 2016, Notes due 2014, Fixed Notes due 2012 and Discount Notes due2014.

***Foreign currency exchange rates.****  *We currently operate theatres in Canada,Mexico, Argentina, Brazil, Chile, Uruguay, France and the United Kingdom. As aresult of these operations, we have assets, liabilities, revenues and expensesdenominated in foreign currencies. The strengthening of the U.S. dollar againstthe respective currencies causes a decrease in the carrying values of assets,liabilities, revenues and expenses denominated in such foreign currencies andthe weakening of the U.S. dollar against the respective currencies causes anincrease in the carrying values of these items. The increases and decreases inassets, liabilities, revenues and expenses are included in accumulated othercomprehensive income. Changes in foreign currency exchange rates also impactthe comparability of earnings in these countries on a year-to-year basis. Asthe U.S. dollar strengthens, comparative translated earnings decrease, and asthe U.S. dollar weakens comparative translated earnings from foreign operationsincrease. Although we do not currently hedge against foreign currency exchangerate risk, we do not intend to repatriate funds from the operations of ourinternational theatres but instead intend to use them to fund current andfuture operations. A 10% fluctuation in the value of the U.S. dollar againstall foreign currencies of countries where we currently operate theatres wouldeither increase or decrease earnings before income taxes and accumu

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lated othercomprehensive income (loss) by approximately $2,000 and $41,291,000,respectively, as of June 28, 2007.

**Item 4T.**                Controlsand Procedures.

(a)          Evaluation of disclosurecontrols and procedures.

The Company maintains a set of disclosure controls andprocedures designed to ensure that material information required to bedisclosed in its filings under the Securities Exchange Act of 1934 is recorded,processed, summarized and reported within the time periods specified in theSecurities and Exchange Commission’s rules and forms and that materialinformation is accumulated and communicated to the Company’s management,including its Chief Executive Officer and Chief Financial Officer, asappropriate, to allow timely decisions regarding required disclosure. TheCompany’s Chief Executive Officer and Chief Financial Officer have evaluatedthese disclosure controls and procedures as of the end of the period covered bythis Quarterly Report on Form 10-Q and have determined that suchdisclosure controls and procedures were effective.

(b)         Changes in internalcontrols.

There has been no change in our internal control overfinancial reporting during our most recent fiscal quarter that has materiallyaffected, or is reasonably likely to materially affect, our internal controlover financial reporting.

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**PART II—OTHERINFORMATION**

**Item 1.**                        LegalProceedings

Reference is made to Part I. Item 3. LegalProceedings in our Annual Report on Form 10-K for the fiscal year ended March 29,2007 for information on certain litigation to which we are a party.

One of the cases referred to in our Annual report on Form 10-Kis *American Multi Cinema, Inc. v. Midwest DrywallCompany, Inc. (No. CV07-00171).*We received settlements of$562,500 related to this matter during July of fiscal 2008.

We are a party to variousother legal proceedings in the ordinary course of business, none of which isexpected to have a material adverse effect on us.

**Item 4.**                        Submissionof Matters to a Vote of Security Holders.

In June 2007 the Requisite Stockholder majorityof Marquee Holdings Inc. unanimously approved the merger agreement and otherrelated ancillary agreements in connection with the holdco merger wherebyHoldings became a wholly owned subsidiary of Parent.

In June 2007 the Requisite Stockholder majorityof Marquee Holdings Inc. unanimously approved the supplemental indenture by andbetween Holdings and HSBC Bank USA, National Association, as trustee, amendingthat certain indenture, dated as of August 18, 2004, pursuant to whichHoldings’ 12% Senior Discount Notes due 2014 were issued.

In June 2007 the Requisite Stockholder majorityof Marquee Holdings Inc. unanimously approved an amended and restated employmentagreement among Parent, Holdings, AMCE and Peter C. Brown, who has served asthe Chairman of the Board, Chief Executive Officer and President of each ofHoldings and AMCE since December 2004.

In June 2007the Requisite Stockholder majority of Marquee Holdings Inc. unanimouslyapproved an employment separation and general release agreement among Holdings,AMCE, AMC and Philip M. Singleton, as amended by the first amendment to theemployment separation and general release agreement, whereby Mr. Singletonresigned from his positions with Holdings and its affiliates.

**Item 6.**                        Exhibits.

**EXHIBITINDEX**
| EXHIBIT NUMBER | ** ** | **DESCRIPTION**                                                                                                                                                                                                                                                                       | ** ** | ** ** |
|---------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
| 2.1                 |       | Agreement and Plan of Merger, dated June 20,  2005, by and among Marquee Holdings Inc. and LCE Holdings, Inc.  (incorporated by reference from Exhibit 2.1 to the Company’s Form 8-K  filed on June 24, 2005).                                     |
| 2.2                 |       | Agreement and Plan of  Merger, dated as of July 22, 2004 by and among Marquee Holdings Inc.,  Marquee Inc. and AMC Entertainment Inc. (incorporated by reference from  Exhibit 2.1 to Form 8-K filed June 23, 2004).                                              |
| 2.3                 |       | Agreement and Plan of  Merger, dated June 11, 2007, by and among AMC Entertainment  Holdings, Inc., Marquee Holdings Inc., and Marquee Merger Sub Inc.  (incorporated by reference from Exhibit 2.1 to the Company’s  Form 8-K filed on June 13, 2007). |
| 3.1                 |       | Third Amended and  Restated Certificate of Incorporation of Marquee Holdings Inc. (incorporated  by reference from Exhibit 3.1 to the Company’s Form 8-K filed on  June 13, 2007).                                                                                |

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| 3.2   |   | Third Amended and Restated Bylaws of Marquee  Holdings Inc. (incorporated by reference from Exhibit 3.2 to the  Company’s Form 8-K filed on June 13, 2007).                       |
|-------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *31.1 |   | Third Amended and  Restated Certificate of Incorporation of Marquee Holdings Inc. (incorporated  by reference from Exhibit 3.1 to the Company’s Form 8-K filed on  June 13, 2007. |
| *31.2 |   | Third Amended and  Restated Bylaws of Marquee Holdings Inc. (incorporated by reference from  Exhibit 3.2 to the Company’s Form 8-K filed on June 13, 2007.                        |
| *32.1 |   | Section 906  Certifications of Peter C. Brown (Chief Executive Officer) and Craig R.  Ramsey (Chief Financial Officer) furnished in accordance with Securities Act  Release 33-8212.   |

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*                    Filed herewith

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|                            | **MARQUEE HOLDINGS INC.**             |
|----------------------------|---------------------------------------|
| Date: August 7,  2007 | /s/ PETER C. BROWN                    |
|                       | Peter C. Brown                        |
|                       | Chairman of the Board,                |
|                       | Chief Executive Officer and President |
| Date: August 7,  2007 | /s/ CRAIG R. RAMSEY                   |
|                       | Craig R. Ramsey                       |
|                       | Executive Vice President and          |
|                       | Chief Financial Officer               |

 

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