Quarterly Report (10-q)

Date : 11/07/2019 @ 1:22PM
Source : Edgar (US Regulatory)
Stock : AMC Entertainment Holdings Inc (AMC)
Quote : 8.23  0.18 (2.24%) @ 9:50PM
AMC Entertainment share price Chart
After Hours
Last Trade
Last $ 8.20 ▼ -0.03 (-0.36%)

Quarterly Report (10-q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-33892

AMC ENTERTAINMENT HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

26-0303916
(I.R.S. Employer
Identification No.)

One AMC Way
11500 Ash Street, Leawood, KS
(Address of principal executive offices)


66211
(Zip Code)

Registrant’s telephone number, including area code: (913213-2000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer 

Accelerated filer  

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standard provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Class A common stock

AMC

New York Stock Exchange

Title of each class of common stock

   

Number of shares
outstanding as of November 1, 2019

Class A common stock
Class B common stock

52,080,077

51,769,784

AMC ENTERTAINMENT HOLDINGS, INC.

INDEX

Page
Number

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

3

Condensed Consolidated Statements of Operations

3

Condensed Consolidated Statements of Comprehensive Loss

4

Condensed Consolidated Balance Sheets

5

Condensed Consolidated Statements of Cash Flows

6

Notes to Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

48

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

74

Item 4.

Controls and Procedures

75

PART II—OTHER INFORMATION

Item 1.

Legal Proceedings

76

Item 1A.

Risk Factors

76

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

76

Item 3.

Defaults Upon Senior Securities

76

Item 5.

Other Information

76

Item 6.

Exhibits

77

Signatures

78

2

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements. (Unaudited)

AMC ENTERTAINMENT HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

Nine Months Ended

(In millions, except share and per share amounts)

    

September 30, 2019

    

September 30, 2018

    

September 30, 2019

    

September 30, 2018

(unaudited)

(unaudited)

Revenues

Admissions

$

797.3

$

751.4

$

2,424.3

$

2,522.7

Food and beverage

 

420.0

 

384.8

 

1,281.3

 

1,236.4

Other theatre

 

99.5

 

85.2

 

317.7

 

288.4

Total revenues

1,316.8

1,221.4

4,023.3

4,047.5

Operating costs and expenses

Film exhibition costs

416.8

378.8

 

1,264.6

 

1,276.7

Food and beverage costs

 

67.2

 

63.6

 

205.1

 

202.0

Operating expense, excluding depreciation and amortization below

 

419.0

 

400.5

 

1,259.2

 

1,236.9

Rent

 

238.7

 

203.7

 

726.6

 

593.1

General and administrative:

Merger, acquisition and other costs

 

4.7

 

18.1

 

11.2

 

27.1

Other, excluding depreciation and amortization below

 

37.5

 

48.4

 

126.9

 

135.6

Depreciation and amortization

112.1

130.2

337.1

398.4

Operating costs and expenses

 

1,296.0

1,243.3

 

3,930.7

3,869.8

Operating income (loss)

20.8

(21.9)

92.6

177.7

Other expense (income):

Other expense (income)

 

(1.3)

 

54.1

 

5.1

 

57.5

Interest expense:

Corporate borrowings

 

73.2

 

64.3

 

218.7

 

188.2

Capital and financing lease obligations

 

1.8

 

9.4

 

6.0

 

29.5

Non-cash NCM exhibitor services agreement

10.1

10.3

30.4

31.2

Equity in earnings of non-consolidated entities

 

(7.5)

 

(70.0)

 

(24.2)

 

(74.0)

Investment income

 

(0.5)

 

(0.7)

 

(18.7)

 

(7.4)

Total other expense

 

75.8

67.4

 

217.3

225.0

Loss before income taxes

 

(55.0)

(89.3)

 

(124.7)

(47.3)

Income tax provision (benefit)

 

(0.2)

 

11.1

 

10.9

13.2

Net loss

$

(54.8)

$

(100.4)

$

(135.6)

$

(60.5)

Loss per share:

Basic

$

(0.53)

$

(0.82)

$

(1.31)

$

(0.48)

Diluted

$

(0.53)

$

(0.82)

$

(1.31)

$

(0.48)

Average shares outstanding:

Basic (in thousands)

103,850

123,126

103,826

126,386

Diluted (in thousands)

103,850

123,126

103,826

126,386

See Notes to Condensed Consolidated Financial Statements.

3

AMC ENTERTAINMENT HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Three Months Ended

Nine Months Ended

(In millions)

    

September 30, 2019

    

September 30, 2018

    

September 30, 2019

    

September 30, 2018

Net loss

$

(54.8)

$

(100.4)

$

(135.6)

$

(60.5)

Other comprehensive income (loss):

Unrealized foreign currency translation adjustment, net of tax

 

(68.2)

 

(5.7)

 

(102.9)

 

(101.6)

Realized loss on foreign currency transactions reclassified into other expense, net of tax

0.6

1.0

Pension and other benefit adjustments:

Net gain (loss) arising during the period, net of tax

 

0.1

 

0.1

 

0.2

 

(1.3)

Equity method investee's cash flow hedge:

Unrealized net holding gain (loss) arising during the period, net of tax

 

 

 

(0.1)

 

0.2

Realized net gain reclassified into equity in earnings of non-consolidated entities, net of tax

(1.9)

(2.2)

Other comprehensive loss

 

(68.1)

 

(7.5)

 

(102.2)

 

(103.9)

Total comprehensive loss

$

(122.9)

$

(107.9)

$

(237.8)

$

(164.4)

See Notes to Condensed Consolidated Financial Statements.

4

AMC ENTERTAINMENT HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In millions, except share data)

    

September 30, 2019

    

December 31, 2018

 

ASSETS

Current assets:

Cash and cash equivalents

$

100.4

$

313.3

Restricted cash

10.2

10.7

Receivables, net

 

157.9

 

259.5

Other current assets

 

180.2

 

197.8

Total current assets

 

448.7

 

781.3

Property, net

 

2,581.4

 

3,039.6

Operating lease right-of-use assets, net

4,794.9

Intangible assets, net

 

193.9

 

352.1

Goodwill

 

4,693.8

 

4,788.7

Deferred tax asset, net

 

30.7

 

28.6

Other long-term assets

 

537.9

 

505.5

Total assets

$

13,281.3

$

9,495.8

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

361.6

$

452.6

Accrued expenses and other liabilities

 

338.6

 

378.5

Deferred revenues and income

 

347.5

 

414.8

Current maturities of corporate borrowings

 

21.4

 

15.2

Current maturities of finance lease liabilities

10.0

Current maturities of operating lease liabilities

568.1

Current maturities of capital and financing lease obligations

67.0

Total current liabilities

 

1,647.2

 

1,328.1

Corporate borrowings

 

4,710.1

 

4,707.8

Finance lease liabilities

89.5

493.2

Operating lease liabilities

4,857.6

Exhibitor services agreement

 

553.8

 

564.0

Deferred tax liability, net

 

49.8

 

41.6

Other long-term liabilities

 

190.0

 

963.1

Total liabilities

 

12,098.0

 

8,097.8

Commitments and contingencies

Class A common stock (temporary equity) ($.01 par value, 0 shares issued; 0 shares outstanding as of September 30, 2019 and 75,712 shares issued; 38,943 shares outstanding as of December 31, 2018)

 

 

0.4

Stockholders’ equity:

Class A common stock ($.01 par value, 524,173,073 shares authorized; 55,812,702 shares issued and 52,080,077 outstanding as of September 30, 2019; 55,401,325 shares issued and 51,705,469 outstanding as of December 31, 2018)

 

0.5

 

0.5

Class B common stock ($.01 par value, 75,826,927 shares authorized; 51,769,784 shares issued and outstanding as of September 30, 2019 and December 31, 2018)

 

0.5

 

0.5

Additional paid-in capital

 

2,008.9

 

1,998.4

Treasury stock (3,732,625 shares as of September 30, 2019 and December 31, 2018, at cost)

 

(56.4)

 

(56.4)

Accumulated other comprehensive income (loss)

 

(96.7)

 

5.5

Accumulated deficit

 

(673.5)

 

(550.9)

Total stockholders’ equity

 

1,183.3

 

1,397.6

Total liabilities and stockholders’ equity

$

13,281.3

$

9,495.8

See Notes to Condensed Consolidated Financial Statements.

5

AMC ENTERTAINMENT HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

(In millions)

September 30, 2019

September 30, 2018

Cash flows from operating activities:

(Unaudited)

Net loss

$

(135.6)

$

(60.5)

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization

337.1

398.4

Deferred income taxes

7.0

(3.5)

Amortization of net discount (premium) on corporate borrowings

8.1

(2.1)

Amortization of deferred charges to interest expense

11.8

11.5

Non-cash portion of stock-based compensation

11.5

10.9

Gain on dispositions

(16.0)

(2.9)

Gain on disposition of NCM

(30.0)

(Gain) loss on derivative asset and derivative liability

(15.4)

54.1

Loss on repayment of indebtedness

16.6

Equity in earnings from non-consolidated entities, net of distributions

(10.2)

(32.4)

NCM held-for-sale impairment loss

16.0

Landlord contributions

89.0

100.1

Non-cash rent - purchase accounting

19.5

Deferred rent

(45.3)

(81.3)

Net periodic benefit cost

1.3

0.5

Change in assets and liabilities, excluding acquisitions:

Receivables

93.8

117.1

Other assets

(3.2)

8.9

Accounts payable

(101.2)

(191.0)

Accrued expenses and other liabilities

(55.4)

(13.5)

Other, net

(3.2)

(1.5)

Net cash provided by operating activities

210.2

298.8

Cash flows from investing activities:

Capital expenditures

(348.2)

(374.9)

Proceeds from sale leaseback transactions

50.1

Proceeds from disposition of NCM

162.5

Proceeds from Screenvision merger

45.8

Acquisition of theatre assets

(11.8)

Proceeds from disposition of long-term assets

21.4

13.9

Investments in non-consolidated entities, net

(9.5)

(11.0)

Other, net

(0.3)

(0.7)

Net cash used in investing activities

(348.4)

(114.3)

Cash flows from financing activities:

Proceeds from issuance of Term Loan due 2026

1,990.0

Payment of principal Senior Secured Notes due 2023

(230.0)

Payment of principal Senior Subordinated Notes due 2022

(375.0)

Call premiums paid for Senior Secured Notes due 2023 and Senior Subordinated Notes due 2022

(15.9)

Principal payment of Term Loans due 2022 and 2023

(1,338.5)

Proceeds from issuance of Senior Unsecured Convertible Notes due 2024

600.0

Borrowings (repayments) under revolving credit facilities

(1.7)

6.6

Scheduled principal payments under Term Loans

(16.9)

(10.3)

Principal payments under capital and financing lease obligations

(8.5)

(53.5)

Cash used to pay for debt financing costs

(11.7)

(14.3)

Cash used to pay dividends

(63.4)

(237.4)

Taxes paid for restricted unit withholdings

(1.3)

(1.7)

Retirement of Class B common stock

(422.9)

Purchase of treasury stock

(21.8)

6

Net cash used in financing activities

(72.9)

(155.3)

Effect of exchange rate changes on cash and cash equivalents and restricted cash

(2.3)

(3.2)

Net increase (decrease) in cash and cash equivalents and restricted cash

(213.4)

26.0

Cash and cash equivalents and restricted cash at beginning of period

324.0

318.3

Cash and cash equivalents and restricted cash at end of period

$

110.6

$

344.3

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the period for:

Interest (including amounts capitalized of $0.6 million and $0.4 million)

$

184.1

$

175.1

Income taxes paid, net

$

0.1

$

9.9

Schedule of non-cash activities:

Investment in NCM (See Note 5—Investments)

$

1.6

$

(6.3)

Construction payables at period end

$

89.1

$

102.3

See Notes to Condensed Consolidated Financial Statements.

7

AMC ENTERTAINMENT HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(Unaudited)

NOTE 1—BASIS OF PRESENTATION

AMC Entertainment Holdings, Inc. (“Holdings”), through its direct and indirect subsidiaries, including American Multi-Cinema, Inc. and its subsidiaries, (collectively with Holdings, unless the context otherwise requires, the “Company” or “AMC”), is principally involved in the theatrical exhibition business and owns, operates or has interests in theatres located in the United States and Europe. Holdings is an indirect subsidiary of Dalian Wanda Group Co., Ltd. (“Wanda”), a Chinese private conglomerate.

As of September 30, 2019, Wanda owned approximately 49.85% of Holdings’ outstanding common stock and 74.89% of the combined voting power of Holdings’ outstanding common stock and has the power to control Holdings’ affairs and policies, including with respect to the election of directors (and, through the election of directors, the appointment of management), entering into mergers, sales of substantially all of the Company’s assets and other extraordinary transactions.

Use of Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Principles of Consolidation: The accompanying unaudited condensed consolidated financial statements include the accounts of AMC, as discussed above, and should be read in conjunction with the Company’s Annual Report on Form 10–K for the year ended December 31, 2018. The accompanying condensed consolidated balance sheet as of December 31, 2018, which was derived from audited financial statements, and the unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10–Q. Accordingly, they do not include all of the information and footnotes required by the accounting principles generally accepted in the United States of America for complete consolidated financial statements. In the opinion of management, these interim financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the Company’s financial position and results of operations. All significant intercompany balances and transactions have been eliminated in consolidation. There are no noncontrolling interests in the Company’s consolidated subsidiaries; consequently, all of its stockholders’ equity, net earnings (loss) and total comprehensive income (loss) for the periods presented are attributable to controlling interests. Due to the seasonal nature of the Company’s business, results for the nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019. The Company manages its business under two reportable segments for its theatrical exhibition operations, U.S. Markets and International Markets.

Accumulated depreciation and amortization: Accumulated depreciation was $1,708.1 million and $1,697.1 million at September 30, 2019 and December 31, 2018, respectively, related to property. Accumulated amortization of intangible assets was $21.3 million and $72.9 million at September 30, 2019 and December 31, 2018, respectively.

8

Other expense (income): The following table sets forth the components of other expense (income):

Three Months Ended

Nine Months Ended

(In thousands)

September 30, 2019

September 30, 2018

September 30, 2019

September 30, 2018

Derivative liability fair value adjustment for embedded conversion feature in the Convertible Notes due 2024

$

5.7

$

54.1

$

(14.9)

$

54.1

Derivative asset fair value adjustment for contingent call option related to the Class B common stock purchase and cancellation agreement

(8.5)

(0.5)

Loss on Pound sterling forward contract

0.7

1.7

0.4

Foreign currency transactions losses

0.1

0.7

1.1

Non-operating components of net periodic benefit cost

0.3

0.8

0.1

Loss on repayment of indebtedness

16.6

Fees related to modification of term loans

0.4

0.4

Other

0.4

(0.4)

0.7

1.4

Total other expense (income)

$

(1.3)

$

54.1

$

5.1

$

57.5

Accounting Pronouncements Recently Adopted

Leases.The Company adopted the guidance of ASU No. 2016-02, Leases (“ASC 842”) as of January 1, 2019 using the modified retrospective transition approach with the cumulative effect recognized at the date of initial application. The comparative information in the prior year has not been adjusted and continues to be reported under ASC 840, Leases, which was the accounting standard in effect for that period. ASC 842 requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the condensed consolidated statements of operations. See Note 2Leases for the required disclosures of the nature, amount, timing, and uncertainty of cash flows arising from leases.

Accounting Pronouncements Issued Not Yet Adopted

Financial Instruments. In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which provides new guidance regarding the measurement and recognition of credit impairment for certain financial assets. Such guidance will impact how the Company determines its allowance for estimated uncollectible receivables and evaluates its available-for-sale investments for impairment. ASU 2016-13 is effective for the Company in the first quarter of 2020. The Company is currently evaluating the effect that ASU 2016-13 will have on its consolidated financial statements and related disclosures.

Fair Value Measurement. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework–Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which eliminates, adds, and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for the Company in the first quarter of 2020. Early adoption is permitted. The Company plans to adopt ASU 2018-13 in the first quarter of 2020.

Cloud Computing Arrangement. In August 2018, the FASB issued ASU 2018-15, Intangibles–Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU 2018-15 requires a customer in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation, setup, and other upfront costs to capitalize as assets or expense as incurred. ASU 2018-15 is effective for the Company in the first quarter of 2020. Early adoption is permitted. Entities

9

have the option to apply the guidance prospectively to all implementation costs incurred after the date of adoption or retrospectively in accordance with ASC 250-10-45. The Company expects to adopt prospectively and is currently evaluating the effect that ASU 2018-15 will have on its consolidated financial statements and related disclosures.

NOTE 2—LEASES

The Company adopted ASC 842 on January 1, 2019 using the modified retrospective transition method; and therefore, the comparative information has not been adjusted for the three months and nine months ended September 30, 2018 or as of December 31, 2018. Upon transition to the new standard, the Company elected the package of practical expedients, which permitted the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs.

The Company leases theatres and equipment under operating and finance leases. The majority of the Company’s operations are conducted in premises occupied under lease agreements with initial base terms ranging generally from 12 to 15 years, with certain leases containing options to extend the leases for up to an additional 20 years. The Company typically does not believe that exercise of the renewal options is reasonably assured at the inception of the lease agreements and, therefore, considers the initial base term as the lease term. Lease terms vary but generally the leases provide for fixed and escalating rentals, contingent escalating rentals based on the Consumer Price Index and other indexes not to exceed certain specified amounts and variable rentals based on a percentage of revenues. The Company often receives contributions from landlords for renovations at existing locations. The Company records the amounts received from landlords as an adjustment to the right-of-use asset and amortizes the balance as a reduction to rent expense over the base term of the lease agreement.

Operating lease right-of-use assets and lease liabilities were recognized at commencement date based on the present value of minimum lease payments over the remaining lease term. The minimum lease payments include base rent and other fixed payments, including fixed maintenance costs. The Company’s leases have remaining lease terms of approximately 1 year to 25 years, which may include the option to extend the lease when it is reasonably certain the Company will exercise that option. The present value of the lease payments is calculated using the incremental borrowing rate for operating leases, which was determined using a portfolio approach based on the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. Operating lease expense is recognized on a straight-line basis over the lease term.

The Company elected the practical expedient to not separate lease and non-lease components and also elected the short-term practical expedient for all leases that qualify. As a result, the Company will not recognize right-of-use assets or liabilities for short-term leases that qualify for the short-term practical expedient, but instead will recognize the lease payments as lease cost on a straight-line basis over the lease term. The Company’s lease agreements do not contain residual value guarantees. Short-term leases and sublease arrangements are immaterial. Equipment leases primarily consist of digital projectors and food and beverage equipment.

As a result of adopting ASC 842, the Company’s condensed consolidated balance sheet includes additional operating ROU assets and total operating lease liabilities of $4,794.9 million and $5,425.7 million, respectively, at September 30, 2019. The difference between the ROU assets and total lease liabilities upon initial measurement at January 1, 2019 was primarily due to the reclassification of: (i) deferred rent, landlord allowances, unfavorable lease balances, and theatre closure liabilities previously recorded in other long-term liabilities; (ii) current portions of theatre closure liabilities previously recorded in accrued expenses and other liabilities; (iii) favorable lease balances previously recorded in intangible assets; and, (iv) prepaid rents recorded in other current assets within the condensed consolidated balance sheets as an offset or addition to the opening ROU asset balances, as required by ASC 842.

10

The following table provides the operating and finance ROU assets and lease liabilities:

(In millions)

Balance Sheet Classification

September 30, 2019

Assets

Operating lease right-of-use assets (1)

Operating lease right-of-use assets

$

4,794.9

Finance lease right-of-use assets (2)

Property, net

72.4

Total leased assets

$

4,867.3

Liabilities

Current

Operating lease liabilities (1)

Current maturities of operating lease liabilities

$

568.1

Finance lease liabilities (2)

Current maturities of finance lease liabilities

10.0

Noncurrent

Operating lease liabilities (1)

Operating lease liabilities

4,857.6

Finance lease liabilities (2)

Finance lease liabilities

89.5

Total lease liabilities

$

5,525.2

(1)Included in the operating lease right-of-use assets and operating lease liabilities are assets and liabilities for leases related to previous build-to-suit failed sale leaseback transactions, that were derecognized and recorded as a cumulative effect adjustment to accumulated deficit upon adoption of ASC 842. These leases were classified and remeasured at January 1, 2019 as operating right-of-use assets and operating lease liabilities.

(2)Corresponding with the adoption of ASC 842, the Company renamed previously classified capital lease assets and capital lease obligations under ASC 840 as finance lease right-of-use assets and finance lease liabilities, respectively. The Company recognized the finance lease right-of-use assets and finance lease liabilities on January 1, 2019 at the carrying amount of the capital lease asset and capital lease obligation as of December 31, 2018.

The cumulative effect adjustment to accumulated deficit at January 1, 2019 is as follows:

Accumulated

(In millions)

Deficit

Balance as of December 31, 2018

$

(550.9)

Derecognition of existing assets for certain sale leaseback transactions previously recorded in property, net

(405.9)

Derecognition of existing liabilities for certain sale leaseback transactions previously recorded in current maturities of corporate borrowings and capital and financing lease obligations

427.5

Derecognition of deferred gains from the sale leaseback transactions previously recorded in other long-term liabilities

102.4

Difference in fair value compared to the basis of the right-of-use assets for previously impaired asset groups

(49.0)

Deferred taxes

1.2

Cumulative effect adjustment to accumulated deficit

76.2

Balance as of January 1, 2019

$

(474.7)

11

The following is the impact of the adoption of ASC 842 on the Company’s condensed consolidated statement of operations for the three months ended September 30, 2019:

Three Months Ended September 30, 2019

Without Adoption of

U.S. Markets

International Markets

(In millions)

ASC 842

Adjustments

Adjustments

As Reported

Operating costs and expenses

Rent (1)(2)(4)

$

209.9

$

17.4

$

11.4

$

238.7

Depreciation and amortization (2)(3)

136.1

(13.4)

(10.6)

112.1

Operating costs and expenses

1,291.2

4.0

0.8

1,296.0

Operating income

25.6

(4.0)

(0.8)

20.8

Other expense (income)

Interest expense:

Capital and financing lease obligations (1)

8.7

(3.3)

(3.6)

1.8

Net loss

(56.9)

(0.7)

2.8

(54.8)

(1)Cash rent payments for build-to-suit failed sale leasebacks of $11.0 million and $9.9 million for U.S. Markets and International Markets, respectively, are accounted for as operating leases under ASC 842 that were previously accounted for as financing leases under ASC 840.

(2)Non-cash amortization expense for favorable lease terms of $4.6 million and $1.5 million, for U.S. Markets and International Markets, respectively, reclassified to rent expense and amortized over the shorter base lease term under ASC 842.

(3)Depreciation on build-to-suit failed sale leaseback buildings that are eliminated upon adoption of ASC 842.

(4)Amortization of deferred gains on sale leaseback transactions of $1.8 million for U.S. Markets is eliminated upon adoption of ASC 842.

The following is the impact of the adoption of ASC 842 on the Company’s condensed consolidated statement of operations for the nine months ended September 30, 2019:

Nine Months Ended September 30, 2019

Without Adoption of

U.S. Markets

International Markets

(In millions)

ASC 842

Adjustments

Adjustments

As Reported

Operating costs and expenses

Rent (1)(2)(4)

$

639.0

$

52.1

$

35.5

$

726.6

Depreciation and amortization (2)(3)

409.1

(40.2)

(31.8)

337.1

Operating costs and expenses

3,915.1

11.9

3.7

3,930.7

Operating income

108.2

(11.9)

(3.7)

92.6

Other expense (income)

Interest expense:

Capital and financing lease obligations (1)

26.7

(9.9)

(10.8)

6.0

Net loss

(140.7)

(2.0)

7.1

(135.6)

(1) Cash rent payments for build-to-suit failed sale leasebacks of $33.0 million and $29.7 million for U.S. Markets and International Markets, respectively, are accounted for as operating leases under ASC 842 that were previously accounted for as financing leases under ASC 840.

(2) Non-cash amortization expense for favorable lease terms of $13.7 million and $5.8 million, for U.S. Markets and International Markets, respectively, reclassified to rent expense and amortized over the shorter base lease term under ASC 842.

(3) Depreciation on build-to-suit failed sale leaseback buildings that are eliminated upon adoption of ASC 842.

(4) Amortization of deferred gains on sale leaseback transactions of $5.4 million for U.S. markets is eliminated upon adoption of ASC 842.

12

The following table reflects the lease costs for the three and nine months ended September 30, 2019:

Condensed Consolidated

Three Months Ended

Nine Months Ended

(In millions)

Statement of Operations

September 30, 2019

September 30, 2019

Operating lease cost

Theatre properties

Rent

$

219.0

$

658.6

Theatre properties

Operating expense

1.6

4.5

Equipment

Operating expense

3.5

10.5

Office and other

General and administrative: other

1.4

4.1

Finance lease cost

Amortization of finance lease assets

Depreciation and amortization

2.1

7.3

Interest on lease liabilities

Finance lease liabilities

1.8

6.0

Variable lease cost

Theatre properties

Rent

19.7

68.0

Equipment

Operating expense

7.4

37.2

Total lease cost

$

256.5

$

796.2

The following table represents the weighted-average remaining lease term and discount rate as of September 30, 2019:

As of September 30, 2019

Weighted Average

Weighted Average

Remaining

Discount

Lease Term and Discount Rate

Lease Term (years)

Rate

Operating leases

10.2

7.2%

Finance leases

12.9

6.5%

Cash flow and supplemental information is presented below:

Nine Months Ended

(In millions)

September 30, 2019

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows used in finance leases

$

(6.0)

Operating cash flows used in operating leases

(703.5)

Financing cash flows used in finance leases

(8.5)

Landlord contributions:

Operating cashflows provided by operating leases

89.0

Supplemental disclosure of noncash leasing activities:

Right-of-use assets obtained in exchange for new operating lease liabilities (1)

304.4

(1) Includes lease extensions and an option exercise.

13

Minimum annual payments required under existing operating and finance lease liabilities, (net present value thereof) as of September 30, 2019 are as follows:

Operating Lease

Financing Lease

(In millions)

Payments (1)(2)

Payments

Three months ending December 31, 2019

$

234.1

$

4.0

2020

927.3

16.1

2021

872.1

15.1

2022

811.4

14.6

2023

720.8

11.5

2024

644.5

10.3

Thereafter

3,550.8

77.2

Total lease payments

7,761.0

148.8

Less imputed interest

(2,335.3)

(49.3)

Total

$

5,425.7

$

99.5

(1)Included in this column upon adoption of ASC 842 are liabilities for leases that were previously classified as build-to-suit failed sale leaseback transactions that were included in the capital and finance lease obligations columns in the prior year.

(2)Included in this column upon adoption of ASC 842 are fixed executory costs that were previously excluded as part of the minimum lease payments. Fixed executory costs, which primarily consist of common area maintenance, insurance and taxes that meet the classification of fixed payments are included as part of the minimum lease payments.

As of September 30, 2019, the Company had signed additional operating lease agreements for 14 theatres that have not yet commenced of approximately $308.1 million, which are expected to commence between 2019 and 2022, and carry lease terms of approximately 5 to 25 years. The timing of lease commencement is dependent on the landlord providing the Company with control and access to the related facility.

Minimum annual payments required under operating lease liabilities and capital and failed sale leaseback, finance lease obligations, (net present value thereof) that have initial or remaining non-cancelable terms in excess of one year as of December 31, 2018 were as follows:

Capital and Finance Lease Obligations

Minimum Operating

Minimum Lease

(In millions)

Lease Payments

Payments

Less Interest

Principal

2019

$

810.2

$

100.7

$

33.7

$

67.0

2020

801.9

96.6

29.4

67.2

2021

748.9

87.8

25.2

62.6

2022

687.5

82.7

21.1

61.6

2023

597.1

70.4

17.3

53.1

Thereafter

3,367.6

331.5

82.7

248.8

Total minimum payments required

$

7,013.2

$

769.7

$

209.4

$

560.3

During the nine months ended September 30, 2018, the Company modified the terms of an existing operating lease to reduce the lease term. The Company received a $35.0 million incentive from the landlord to enter into the new lease agreement. The Company has recorded amortization of the lease incentive as a reduction to rent expense on a straight-line basis over the remaining lease term which reduced rent expense by $0 and $35.0 million during the three and nine months ended September 30, 2018.

14

NOTE 3—REVENUE RECOGNITION

Disaggregation of Revenue: Revenue is disaggregated in the following tables by major revenue types and by timing of revenue recognition:

Three Months Ended

Three Months Ended

(In millions)

September 30, 2019

September 30, 2018

Major revenue types

Admissions

$

797.3

$

751.4

Food and beverage

420.0

384.8

Other theatre:

Advertising

32.1

31.2

Other theatre

67.4

54.0

Other theatre

99.5

85.2

Total revenues

$

1,316.8

$

1,221.4

Three Months Ended

Three Months Ended

(In millions)

September 30, 2019

September 30, 2018

Timing of revenue recognition

Products and services transferred at a point in time

$

1,215.2

$

1,162.4

Products and services transferred over time (1)

101.6

59.0

Total revenues

$

1,316.8

$

1,221.4

(1)Amounts primarily include subscription and advertising revenues.

Nine Months Ended

Nine Months Ended

(In millions)

September 30, 2019

September 30, 2018

Major revenue types

Admissions

$

2,424.3

$

2,522.7

Food and beverage

1,281.3

1,236.4

Other theatre:

Advertising

102.3

102.5

Other theatre

215.4

185.9

Other theatre

317.7

288.4

Total revenues

$

4,023.3

$

4,047.5

Nine Months Ended

Nine Months Ended

(In millions)

September 30, 2019

September 30, 2018

Timing of revenue recognition

Products and services transferred at a point in time

$

3,735.4

$

3,891.8

Products and services transferred over time (1)

287.9

155.7

Total revenues

$

4,023.3

$

4,047.5

(1) Amounts primarily include subscription and advertising revenues.

The following tables provide the balances of receivables and deferred revenue income:

(In millions)

September 30, 2019

December 31, 2018

Current assets:

Receivables related to contracts with customers

$

62.1

$

183.2

Miscellaneous receivables

95.8

76.3

Receivables, net

$

157.9

$

259.5

15

(In millions)

September 30, 2019

December 31, 2018

Current liabilities:

Deferred revenue related to contracts with customers

$

345.7

$

412.8

Miscellaneous deferred income

1.8

2.0

Deferred revenue and income

$

347.5

$

414.8

The significant changes in contract liabilities with customers included in deferred revenues and income are as follows:

Deferred Revenues

Related to Contracts

(In millions)

with Customers

Balance as of December 31, 2018

$

412.8

Cash received in advance (1)

253.6

Customer loyalty rewards accumulated, net of expirations:

Admission revenues (2)

22.7

Food and beverage (2)

49.5

Other theatre (2)

2.1

Reclassification to revenue as the result of performance obligations satisfied:

Admission revenues (3)

(250.5)

Food and beverage (3)

(73.0)

Other theatre (4)

(68.0)

Disposition of Austria theatres

(1.5)

Foreign currency translation adjustment

(2.0)

Balance as of September 30, 2019

$

345.7

(1)Includes movie tickets, food and beverage, gift cards, exchange tickets, and AMC Stubs® loyalty membership fees.

(2)Amount of rewards accumulated, net of expirations, that are attributed to AMC Stubs® and other loyalty programs.

(3)Amount of rewards redeemed that are attributed to gift cards, exchange tickets, movie tickets, AMC Stubs® loyalty programs and other loyalty programs.

(4)Amounts relate to income from non-redeemed or partially redeemed gift cards, non-redeemed exchange tickets, AMC Stubs® loyalty membership fees and other loyalty programs.

The significant changes to contract liabilities included in the exhibitor services agreement, classified as long-term liabilities in the condensed consolidated balance sheets, are as follows:

Exhibitor Services

(In millions)

Agreement

Balance as of December 31, 2018

$

564.0

Common Unit Adjustment–additions of common units (1)

1.4

Reclassification of the beginning balance to other theatre revenue, as the result of performance obligations satisfied

(11.6)

Balance as of September 30, 2019

$

553.8

(1)Represents the fair value amount of the National CineMedia, LLC (“NCM”) common units that were received under the annual Common Unit Adjustment (“CUA”). Such amount will increase the deferred revenues that are being amortized to other theatre revenues over the remainder of the 30-year term of the Exhibitor Service Agreement (“ESA”) ending in February 2037. See Note 5—Investments for further information.

16

Transaction Price Allocated to the Remaining Performance Obligations: The following table includes the amount of NCM ESA, included in exhibitor services agreement in the Company’s condensed consolidated balance sheets, that is expected to be recognized as revenues in the future related to performance obligations that are unsatisfied as of September 30, 2019:

(In millions)

Exhibitor services agreement

Three Months ending December 31, 2019

$

4.1

Year Ended 2020

16.9

Year Ended 2021

18.1

Year Ended 2022

19.5

Year Ended 2023

20.9

Year Ended 2024

22.5

Years Ended 2025 through February 2037

451.8

Total

$

553.8

The total amount of non-redeemed gifts cards and exchange tickets included in deferred revenues and income as of September 30, 2019 was $257.8 million. This will be recognized as revenues as the gift cards and exchange tickets are redeemed or as the non-redeemed gift card and exchange ticket revenues are recognized in proportion to the pattern of actual redemptions, which is estimated to occur over the next 24 months.

As of September 30, 2019, the amount of deferred revenue allocated to the AMC Stubs® loyalty programs included in deferred revenues and income was $56.2 million. The earned points will be recognized as revenue as the points are redeemed, which is estimated to occur over the next 24 months. The annual membership fee is recognized ratably over the one-year membership period.

The Company applies the practical expedient in ASC 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less.

NOTE 4—GOODWILL

The following table summarizes the changes in goodwill by reporting unit for the nine months ended September 30, 2019:

(In millions)

    

Domestic Theatres

 

International Theatres

Total

Balance as of December 31, 2018

$

3,072.6

$

1,716.1

$

4,788.7

Currency translation adjustment

(94.9)

(94.9)

Balance as of September 30, 2019

$

3,072.6

$

1,621.2

$

4,693.8

The Company evaluates goodwill for impairment annually as of the beginning of the fourth fiscal quarter and any time an event occurs or circumstances change that would more likely than not reduce the fair value for a reporting unit below its carrying amount. The impairment test for goodwill involves estimating the fair value of the reporting unit and comparing that value to its carrying value. If the estimated fair value of the reporting unit is less than its carrying value, the difference is recorded as goodwill impairment charge, not to exceed the total amount of goodwill allocated to that reporting unit.

Prior to January 1, 2019, the Company had three reporting units, Domestic Theatres, Odeon Theatres and Nordic Theatres. Effective January 1, 2019, the Company combined the Odeon Theatres and Nordic Theatres into a single reporting unit, International Theatres, to reflect how the international business is now managed. The Company tested goodwill for impairment both prior to and subsequent to the combining of these reporting units into the single reporting unit.

A decline in the common stock price and the resulting impact on market capitalization is one of several factors considered when making this evaluation. Based on recent sustained declines in the trading price of the Company’s Class A common stock, the Company performed a Step 1 quantitative goodwill impairment test of the Domestic and International reporting units as of September 30, 2019.

In performing the Step 1 quantitative goodwill impairment test as of September 30, 2019, the Company used an

17

enterprise value approach to measure fair value of the reporting units, as compared to an equity value approach used previously. This change in estimate is preferable due to the impact of the change in the capital structure of the Domestic Theatres reporting unit late in the third quarter of 2018 as a result of the issuance of $600 million of the Company’s Senior Unsecured Notes due 2024, the negative equity value carrying amount for the Domestic Theatres reporting unit, and the decline in the market capitalization since May 2019, which has increased the Company’s leverage ratio. See additional discussion in Note 6Corporate Borrowings.

The enterprise fair values of the Domestic Theatres and International Theatres reporting units exceeded their carrying values by approximately 9.9% and 11.8%, respectively. Accordingly, there was no goodwill impairment recorded as of September 30, 2019. The Domestic Theatres reporting unit to which $3.1 billion of goodwill is allocated had a negative equity value carrying amount as of September 30, 2019.

NOTE 5—INVESTMENTS

Investments in non-consolidated affiliates and certain other investments accounted for under the equity method generally include all entities in which the Company or its subsidiaries have significant influence, but not more than 50% voting control, and are recorded in the condensed consolidated balance sheets in other long-term assets. Investments in non-consolidated affiliates as of September 30, 2019 include interests in Digital Cinema Implementation Partners, LLC (“DCIP”) of 29.0%, Digital Cinema Distribution Coalition, LLC (“DCDC”) of 14.6%, AC JV, LLC (“AC JV”) owner of Fathom Events, of 32.0%, SV Holdco LLC, owner of Screenvision, 18.2%, Digital Cinema Media Ltd. (“DCM”) of 50.0%, and Saudi Cinema Company LLC (“SCC”) of 10.0%. The Company also has partnership interests in four U.S. motion picture theatres (“Theatre Partnerships”) and approximately 50.0% interest in 58 theatres in Europe (“Nordic theatre JVs”) acquired in the Odeon and UCI Cinemas Holdings Limited (“Odeon”) and Nordic Cinema Group Holding AB (“Nordic”) acquisitions. Indebtedness held by equity method investees is non-recourse to the Company.

NCM Transaction. In March 2019, the NCM CUA resulted in a positive adjustment of 197,118 common units for the Company. The Company received the units and recorded the common units as an addition to deferred revenues for the ESA at fair value of $1.3 million, based upon a price per share of National CineMedia, Inc. (“NCM, Inc.”) of $7.24 on March 14, 2019. The Company does not have significant influence over this entity and the investment is recorded at fair value each period.

Equity in Earnings of Non-Consolidated Entities

Aggregated condensed financial information of the Company’s significant non-consolidated equity method investment (DCIP) is shown below:

 

Three Months Ended

Nine Months Ended

(In millions)

    

September 30, 2019

    

September 30, 2018

    

September 30, 2019

    

September 30, 2018

Revenues

 

$

40.1

 

$

43.4

 

$

125.8

 

$

127.0

Operating costs and expenses

17.8

19.1

56.5

59.0

Net earnings

 

$

22.3

 

$

24.3

 

$

69.3

 

$

68.0

The components of the Company’s recorded equity in earnings of non-consolidated entities are as follows:

Three Months Ended

Nine Months Ended

(In millions)

    

September 30, 2019

    

September 30, 2018

    

September 30, 2019

    

September 30, 2018

NCM and NCM, Inc.

$

$

28.9

$

$

17.3

DCIP

 

6.5

 

7.4

 

21.1

 

20.9

Screenvision

30.1

30.5

Other

 

1.0

 

3.6

 

3.1

 

5.3

The Company’s recorded equity in earnings

$

7.5

$

70.0

$

24.2

$

74.0

18

Related Party Transactions

The Company recorded the following related party transactions with equity method investees:

As of

    

As of

(In millions)

September 30, 2019

    

December 31, 2018

Due from DCM for on-screen advertising revenue

$

2.0

$

2.8

Loan receivable from DCM

0.7

0.6

Due from DCIP for warranty expenditures

3.5

3.4

Deferred rent liability for digital projectors related to DCIP

(7.8)

Due to AC JV for Fathom Events programming

(1.6)

(2.5)

Due from Screenvision for on-screen advertising revenue

1.9

2.7

Due from Nordic JVs

1.6

2.6

Due to Nordic JVs for management services

(1.6)

(1.7)

Due from SCC related to the joint venture

6.3

Three Months Ended

Nine Months Ended

(In millions)

Condensed Consolidated Statement of Operations

September 30, 2019

   

September 30, 2018

September 30, 2019

   

September 30, 2018

DCM screen advertising revenues

Other revenues

$

5.5

$

4.2

$

14.7

$

13.4

DCIP equipment rental expense (1)

Operating expense