Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

August 1, 2016

10-Q: Quarterly report pursuant to Section 13 or 15(d)

Published on August 1, 2016

 

 

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 June 30, 2016

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: (913) 213‑2000

 


 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b‑2 of the Exchange Act.

 

 

 

 

 

Large accelerated filer 

Accelerated filer  

Non‑accelerated filer 
(Do not check if a
smaller reporting company)

Smaller reporting company 

 

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.

 

 

 

Title of each class of common stock

   

Number of shares
outstanding as of July 17, 2016

  Class A common stock
Class B common stock

 

21,613,532
75,826,927

 

 

 

 

 


 

AMC ENTERTAINMENT HOLDINGS, INC.

 

INDEX

 

 

 

Page
Number

 

PART I—FINANCIAL INFORMATION

 

Item 1. 

Financial Statements (Unaudited)

3

 

Consolidated Statements of Operations

3

 

Consolidated Statements of Comprehensive Income

4

 

Consolidated Balance Sheets

5

 

Consolidated Statements of Cash Flows

6

 

Notes to Consolidated Financial Statements

7

Item 2. 

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

35

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

52

Item 4. 

Controls and Procedures

52

 

PART II—OTHER INFORMATION

 

Item 1. 

Legal Proceedings

54

Item 1A. 

Risk Factors

54

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

54

Item 3. 

Defaults Upon Senior Securities

54

Item 4. 

Mine Safety Disclosures

54

Item 5. 

Other Information

54

Item 6. 

Exhibits

55

 

Signatures

56

 

 

 

2


 

PART I—FINANCIAL INFORMATION

 

Item 1.  Financial Statements. (Unaudited)

 

AMC ENTERTAINMENT HOLDINGS, INC.

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

    

June 30, 2016

    

June 30, 2015

    

June 30, 2016

    

June 30, 2015

 

 

 

(unaudited)

 

(unaudited)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Admissions

 

$

481,234

 

$

533,382

 

$

963,808

 

$

952,076

 

Food and beverage

 

 

243,546

 

 

250,516

 

 

487,698

 

 

451,040

 

Other theatre

 

 

39,182

 

 

37,181

 

 

78,473

 

 

71,087

 

Total revenues

 

 

763,962

 

 

821,079

 

 

1,529,979

 

 

1,474,203

 

Operating costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Film exhibition costs

 

 

262,940

 

 

295,416

 

 

525,294

 

 

518,504

 

Food and beverage costs

 

 

34,100

 

 

35,807

 

 

68,065

 

 

64,315

 

Operating expense

 

 

200,026

 

 

205,414

 

 

402,339

 

 

392,672

 

Rent

 

 

122,819

 

 

115,022

 

 

247,403

 

 

232,943

 

General and administrative:

 

 

 

 

 

 

 

 

 

 

 

 

 

Merger, acquisition and transaction costs

 

 

5,548

 

 

261

 

 

10,152

 

 

1,839

 

Other

 

 

20,634

 

 

17,737

 

 

39,150

 

 

22,678

 

Depreciation and amortization

 

 

62,291

 

 

57,249

 

 

122,721

 

 

115,026

 

Operating costs and expenses

 

 

708,358

 

 

726,906

 

 

1,415,124

 

 

1,347,977

 

Operating income

 

 

55,604

 

 

94,173

 

 

114,855

 

 

126,226

 

Other expense (income):

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expense (income)

 

 

(110)

 

 

9,273

 

 

(84)

 

 

9,273

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate borrowings

 

 

24,888

 

 

24,717

 

 

49,755

 

 

50,796

 

Capital and financing lease obligations

 

 

2,147

 

 

2,331

 

 

4,342

 

 

4,704

 

Equity in earnings of non-consolidated entities

 

 

(11,849)

 

 

(9,362)

 

 

(16,113)

 

 

(10,686)

 

Investment expense (income)

 

 

176

 

 

(59)

 

 

(9,778)

 

 

(5,202)

 

Total other expense

 

 

15,252

 

 

26,900

 

 

28,122

 

 

48,885

 

Earnings before income taxes

 

 

40,352

 

 

67,273

 

 

86,733

 

 

77,341

 

Income tax provision

 

 

16,385

 

 

23,350

 

 

34,475

 

 

27,280

 

Net earnings

 

$

23,967

 

$

43,923

 

$

52,258

 

$

50,061

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.24

 

$

0.45

 

$

0.53

 

$

0.51

 

Diluted

 

$

0.24

 

$

0.45

 

$

0.53

 

$

0.51

 

Average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

98,194

 

 

97,978

 

 

98,197

 

 

97,949

 

Diluted

 

 

98,304

 

 

98,037

 

 

98,237

 

 

97,987

 

Dividends declared per basic and diluted common share

 

$

0.20

 

$

0.20

 

$

0.40

 

$

0.40

 

 

See Notes to Consolidated Financial Statements.

3


 

AMC ENTERTAINMENT HOLDINGS, INC.

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

    

June 30, 2016

    

June 30, 2015

    

June 30, 2016

    

June 30, 2015

 

 

 

(unaudited)

 

(unaudited)

 

Net earnings

 

$

23,967

 

$

43,923

 

$

52,258

 

$

50,061

 

Unrealized foreign currency translation adjustment, net of tax

 

 

677

 

 

(695)

 

 

606

 

 

281

 

Pension and other benefit adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss arising during the period, net of tax

 

 

 —

 

 

 —

 

 

 —

 

 

(45)

 

Prior service credit arising during the period, net of tax

 

 

 —

 

 

 —

 

 

 —

 

 

746

 

Amortization of net (gain) loss reclassified into general and administrative: other, net of tax

 

 

4

 

 

6

 

 

8

 

 

(1,693)

 

Amortization of prior service credit reclassified into general and administrative: other, net of tax

 

 

 —

 

 

 —

 

 

 —

 

 

(1,762)

 

Curtailment gain reclassified into general and administrative: other, net of tax

 

 

 —

 

 

 —

 

 

 —

 

 

(7,239)

 

Settlement gain reclassified into general and administrative: other, net of tax

 

 

 —

 

 

 —

 

 

 —

 

 

(175)

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

74

 

 

(382)

 

 

413

 

 

443

 

Realized net (gain) loss reclassified into investment income, net of tax

 

 

1

 

 

(145)

 

 

(1,782)

 

 

(149)

 

Equity method investees' cash flow hedge:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized net holding gain arising during the period, net of tax

 

 

(174)

 

 

(21)

 

 

(642)

 

 

(382)

 

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

 

 

92

 

 

117

 

 

189

 

 

239

 

Other comprehensive income (loss)

 

 

674

 

 

(1,120)

 

 

(1,208)

 

 

(9,736)

 

Total comprehensive income

 

$

24,641

 

$

42,803

 

$

51,050

 

$

40,325

 

 

 

See Notes to Consolidated Financial Statements.

4


 

AMC ENTERTAINMENT HOLDINGS, INC.

 

CONSOLIDATED BALANCE SHEETS

 

(in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

    

June 30, 2016

    

December 31, 2015

 

 

 

(unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and equivalents

 

$

93,316

 

$

211,250

 

Receivables, net

 

 

67,231

 

 

105,509

 

Other current assets

 

 

94,925

 

 

97,608

 

Total current assets

 

 

255,472

 

 

414,367

 

Property, net

 

 

1,447,997

 

 

1,401,928

 

Intangible assets, net

 

 

233,329

 

 

237,376

 

Goodwill

 

 

2,410,713

 

 

2,406,691

 

Deferred tax asset

 

 

92,659

 

 

126,198

 

Other long-term assets

 

 

508,371

 

 

501,757

 

Total assets

 

$

4,948,541

 

$

5,088,317

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

298,456

 

$

313,025

 

Accrued expenses and other liabilities

 

 

131,877

 

 

158,664

 

Deferred revenues and income

 

 

170,833

 

 

221,679

 

Current maturities of corporate borrowings and capital and financing lease obligations

 

 

19,196

 

 

18,786

 

Total current liabilities

 

 

620,362

 

 

712,154

 

Corporate borrowings

 

 

1,824,775

 

 

1,902,598

 

Capital and financing lease obligations

 

 

88,664

 

 

93,273

 

Exhibitor services agreement

 

 

368,421

 

 

377,599

 

Other long-term liabilities

 

 

492,393

 

 

462,626

 

Total liabilities

 

 

3,394,615

 

 

3,548,250

 

Commitments and contingencies

 

 

 

 

 

 

 

Class A common stock (temporary equity) ($.01 par value, 140,014 shares issued and 103,245 shares outstanding as of June 30, 2016; 167,211 shares issued and 130,442 shares outstanding as of December 31, 2015)

 

 

1,080

 

 

1,364

 

Stockholders’ equity:

 

 

 

 

 

 

 

Class A common stock ($.01 par value, 524,173,073 shares authorized; 21,510,287 shares issued and outstanding as of June 30, 2016;  21,445,090 shares issued and outstanding as of December 31, 2015)

 

 

215

 

 

214

 

Class B common stock ($.01 par value, 75,826,927 shares authorized; 75,826,927 shares issued and outstanding as of June 30, 2016 and December 31, 2015)

 

 

758

 

 

758

 

Additional paid-in capital

 

 

1,185,539

 

 

1,182,923

 

Treasury stock (36,769 shares as of June 30, 2016 and December 31, 2015, at cost)

 

 

(680)

 

 

(680)

 

Accumulated other comprehensive income

 

 

1,596

 

 

2,804

 

Accumulated earnings

 

 

365,418

 

 

352,684

 

Total stockholders’ equity

 

 

1,552,846

 

 

1,538,703

 

Total liabilities and stockholders’ equity

 

$

4,948,541

 

$

5,088,317

 

 

See Notes to Consolidated Financial Statements.

5


 

AMC ENTERTAINMENT HOLDINGS, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

    

June 30, 2016

    

June 30, 2015

 

 

 

(unaudited)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net earnings

 

$

52,258

 

$

50,061

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

 

122,721

 

 

115,026

 

Amortization of net premium on corporate borrowings

 

 

116

 

 

660

 

Deferred income taxes

 

 

28,835

 

 

28,624

 

Theatre and other closure expense

 

 

2,625

 

 

2,311

 

Loss (gain) on dispositions

 

 

(3,025)

 

 

281

 

Stock-based compensation

 

 

2,804

 

 

7,178

 

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

 

 

(5,060)

 

 

(267)

 

Landlord contributions

 

 

47,846

 

 

23,717

 

Deferred rent

 

 

(14,961)

 

 

(12,220)

 

Net periodic benefit credit

 

 

398

 

 

(18,003)

 

Change in assets and liabilities, excluding acquisitions:

 

 

 

 

 

 

 

Receivables

 

 

38,511

 

 

33,170

 

Other assets

 

 

(3,032)

 

 

(8,626)

 

Accounts payable

 

 

(46,869)

 

 

5,754

 

Accrued expenses and other liabilities

 

 

(91,697)

 

 

(31,469)

 

Other, net

 

 

2,478

 

 

(3,282)

 

Net cash provided by operating activities

 

 

133,948

 

 

192,915

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Capital expenditures

 

 

(140,325)

 

 

(143,757)

 

Acquisition of Starplex Cinemas, net of cash acquired

 

 

400

 

 

 

Investments in non-consolidated entities, net

 

 

(6,836)

 

 

(192)

 

Proceeds from disposition of long-term assets

 

 

18,924

 

 

604

 

Other, net

 

 

(161)

 

 

(915)

 

Net cash used in investing activities

 

 

(127,998)

 

 

(144,260)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from issuance of Senior Subordinated Notes due 2025

 

 

 —

 

 

600,000

 

Payments under revolver credit facility

 

 

(75,000)

 

 

 —

 

Repurchase of Senior Subordinated Notes due 2020

 

 

 —

 

 

(626,114)

 

Cash used to pay dividends

 

 

(39,442)

 

 

(39,301)

 

Deferred financing costs

 

 

(777)

 

 

(11,009)

 

Principal payments under capital and financing lease obligations

 

 

(4,199)

 

 

(3,826)

 

Principal payments under Term Loan

 

 

(4,403)

 

 

(3,875)

 

Principal amount of coupon payment under Senior Subordinated Notes due 2020

 

 

 —

 

 

(3,357)

 

Net cash used in financing activities

 

 

(123,821)

 

 

(87,482)

 

Effect of exchange rate changes on cash and equivalents

 

 

(63)

 

 

(39)

 

Net decrease in cash and equivalents

 

 

(117,934)

 

 

(38,866)

 

Cash and equivalents at beginning of period

 

 

211,250

 

 

218,206

 

Cash and equivalents at end of period

 

$

93,316

 

$

179,340

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

Interest (net of amounts capitalized of $80 and $87)

 

$

51,449

 

$

53,939

 

Income taxes paid (refunded), net

 

 

4,090

 

 

(1,130)

 

Schedule of non-cash operating and investing activities:

 

 

 

 

 

 

 

Investment in NCM (See Note 3-Investments)

 

$

 —

 

$

6,812

 

 

See Notes to Consolidated Financial Statements.

6


 

AMC ENTERTAINMENT HOLDINGS, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

June 30, 2016

 

(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 primarily located in the United States. Holdings is an indirect subsidiary of Dalian Wanda Group Co., Ltd. (“Wanda”), a Chinese private conglomerate.

 

On March 31, 2016, AMC Entertainment Inc. (“AMCE”) merged with and into Holdings, its direct parent company. In connection with the merger, Holdings assumed all of the obligations of AMCE pursuant to the indentures to the 5.875% Senior Subordinated Notes due 2022 (“Notes due 2022”), the 5.75% Senior Subordinated Notes due 2025 (“Notes due 2025”) and the Credit Agreement, dated as of April 30, 2013 (as subsequently amended).

 

As of June 30, 2016, Wanda owned approximately 77.82% of Holdings’ outstanding common stock and 91.32% 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 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are used for, but not limited to: (1) Impairments, (2) Film exhibition costs, (3) Income and operating taxes, (4) Theatre and other closure expense, and (5) Gift card and exchange ticket income. Actual results could differ from those estimates.

 

Principles of Consolidation:  The accompanying unaudited consolidated financial statements include the accounts of Holdings and all subsidiaries, as discussed above, and should be read in conjunction with the Company’s Annual Report on Form 10-K for the twelve months ended December 31, 2015. The accompanying consolidated balance sheet as of December 31, 2015, which was derived from audited financial statements, and the unaudited 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 (minority) interests in the Company’s consolidated subsidiaries; consequently, all of its stockholders’ equity, net earnings and total comprehensive income for the periods presented are attributable to controlling interests. Due to the seasonal nature of the Company’s business, results for the six months ended June 30, 2016 are not necessarily indicative of the results to be expected for the twelve months ending December 31, 2016. The Company manages its business under one reportable segment called Theatrical Exhibition.

 

7


 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

(In thousands)

 

June 30, 2016

 

June 30, 2015

 

June 30, 2016

 

June 30, 2015

Loss on redemption of 9.75% Senior Subordinated Notes due 2020

 

$

 —

 

$

9,273

 

$

 —

 

$

9,273

Other

 

 

(110)

 

 

 —

 

 

(84)

 

 

 —

Other expense (income)

 

$

(110)

 

$

9,273

 

$

(84)

 

$

9,273

 

Changes in Accounting Principles:  The Company adopted the provisions of Accounting Standards Update (“ASU”) No. 2015-03 and 2015-15, Interest-Imputation of Interest (Subtopic 835-30) as of the beginning of 2016 on a retrospective basis. As a result of the adoption of ASU No. 2015-03 and ASU No. 2015-15, the Company reclassified $21,768,000 of debt issuance costs for its term loan and senior subordinated notes from other long-term assets to corporate borrowings in the Consolidated Balance Sheet as of December 31, 2015. The Company continues to defer and present its debt issuance costs related to its line-of-credit arrangement as an asset regardless of whether there are any outstanding borrowings on the line-of-credit arrangement as provided in ASU No. 2015-15.

 

During the three months ended June 30, 2016, the Company early adopted the provisions of ASU No. 2016-09, Compensation – Stock Compensation Improvements to Employee Share-Based Payment Accounting as of the beginning of 2016. The effect of adopting ASU 2016-09 is reflected in Stockholders’ Equity in the Consolidated Balance Sheets on a modified retrospective basis through a cumulative-effect adjustment. This guidance simplifies several aspects of the accounting for share-based payment awards to employees including accounting for income taxes, forfeitures, statutory tax withholding requirements and classification in the statement of cash flows. As permitted under ASU 2016-09, the Company has elected to account for forfeitures in compensation cost when they occur. A summary of the changes made to the Consolidated Balance Sheets at December 31, 2015, is included in the following table:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

As Filed

   

Updated

Additional paid-in capital

 

$  

1,183,218

   

$  

1,182,923

Accumulated earnings

 

 

352,389

   

 

352,684

 

 

 

 

NOTE 2—ACQUISITION

In December 2015, the Company completed the acquisition of SMH Theatres, Inc. (“Starplex Cinemas”) for cash. The purchase price for Starplex Cinemas was $172,172,000, net of cash acquired, and was subject to working capital and other purchase price adjustments as described in the stock purchase agreement. Starplex Cinemas operated 33 theatres with 346 screens in small and mid‑size markets in 12 states, which further complements the Company’s large market portfolio. The Company expects to realize synergies and cost savings related to this acquisition as a result of purchasing and procurement economies of scale and general and administrative expense savings, particularly with respect to the consolidation of corporate related functions and elimination of redundancies.

The acquisition is being treated as a purchase in accordance with Accounting Standards Codification, (“ASC”) 805, Business Combinations, which requires allocation of the purchase price to the estimated fair values of assets and liabilities acquired in the transaction. The allocation of purchase price is based on management’s judgment after evaluating several factors, including bid prices from potential buyers and a preliminary valuation assessment. The allocation of purchase price is preliminary and subject to changes as an appraisal of both tangible and intangible assets and liabilities is finalized, working capital and other purchase price adjustments are completed and additional information regarding the tax bases of assets and liabilities becomes available. The following is a summary of a preliminary allocation of the purchase price:

8


 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

    

December 31, 2015

 

Changes

 

June 30, 2016

 

Cash

 

$

2,119

 

$

400

 

$

2,519

 

Receivables

 

 

2,001

 

 

(140)

 

 

1,861

 

Other current assets

 

 

4,806

 

 

(178)

 

 

4,628

 

Property (1)

 

 

50,810

 

 

1,329

 

 

52,139

 

Intangible assets (2)

 

 

21,080

 

 

400

 

 

21,480

 

Goodwill (3)

 

 

116,891

 

 

4,022

 

 

120,913

 

Other long-term assets

 

 

290

 

 

 —

 

 

290

 

Accounts payable

 

 

(4,211)

 

 

 —

 

 

(4,211)

 

Accrued expenses and other liabilities

 

 

(4,689)

 

 

(466)

 

 

(5,155)

 

Deferred revenues and income

 

 

(2,295)

 

 

(172)

 

 

(2,467)

 

Deferred tax liability

 

 

(10,610)

 

 

(5,476)

 

 

(16,086)

 

Other long-term liabilities (4)

 

 

(1,220)

 

 

 —

 

 

(1,220)

 

Total estimated purchase price

 

$

174,972

 

$

(281)

 

$

174,691

 


(1)

Amounts recorded for property include land, buildings, leasehold improvements, furniture, fixtures and equipment.

 

(2)

Amounts recorded for intangible assets includes favorable leases, a non‑compete agreement and trade name.

 

(3)

Amounts recorded for goodwill are generally not expected to be deductible for tax purposes.

 

(4)

Amounts recorded for other long‑term liabilities consist of an unfavorable lease.

 

The fair value measurement of tangible and intangible assets and liabilities were based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value measurement hierarchy. Level 3 fair market values were determined using a variety of information, including estimated future cash flows, appraisals, and market comparables.

 

During the six months ended June 30, 2016, the Company incurred integration and acquisition‑related costs for Starplex Cinemas of approximately $1,390,000, which were included in general and administrative expense: merger, acquisition and transaction costs in the Consolidated Statements of Operations. The Company’s operating results for the six months ended June 30, 2015 were not materially impacted by this acquisition.

 

In connection with the acquisition of Starplex Cinemas, the Company classified two Starplex Cinemas theatres with 22 screens as held for sale as of December 31, 2015, that were divested in January 2016 as required by the Antitrust Division of the United States Department of Justice. Assets held for sale of approximately $5,390,000 were classified as other current assets in the Company’s Consolidated Balance Sheets at December 31, 2015.

 

As of June 30, 2016, the Company recorded amounts due from Starplex of $281,000 that relate to preliminary working capital adjustments and reduced the total estimated purchase price.

 

Activity of goodwill is presented below:

 

 

 

 

 

 

(In thousands)

    

Total

 

Balance as of December 31, 2015

 

$

2,406,691

 

Adjustments to acquisition of Starplex Cinemas (see table above)

 

 

4,022

 

Balance as of June 30, 2016

 

$

2,410,713

 

 

 

NOTE 3—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 Consolidated Balance Sheets in other long-term assets. Investments in non-consolidated affiliates as of June 30, 2016, include a 17.40% interest in National CineMedia, LLC (“NCM” or “NCM LLC”), a 29% interest in Digital Cinema Implementation Partners, LLC (“DCIP”), a 15.45% interest in Digital Cinema Distribution Coalition, LLC (“DCDC”), a 50% interest in Open Road Releasing, LLC, operator of Open Road Films, LLC (“Open Road Films”), a 32% interest in AC JV, LLC (“AC JV”), owner of Fathom Events, and a 50% interest in

9


 

two U.S. motion picture theatres and one IMAX screen. Indebtedness held by equity method investees is non-recourse to the Company.

 

RealD Inc. Common Stock.  The Company sold all of its 1,222,780 shares in RealD Inc. during the six months ended June 30, 2016 and recognized a gain on sale of $3,008,000.

 

Equity in Earnings (Losses) of Non‑Consolidated Entities

 

Aggregated condensed financial information of the Company’s significant non-consolidated equity method investments is shown below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

(In thousands)

    

June 30, 2016

    

June 30, 2015

    

June 30, 2016

    

June 30, 2015

 

Revenues

 

$

160,157

 

$

161,352

 

$

277,001

 

$

278,993

 

Operating costs and expenses

 

 

104,681

 

 

102,431

 

 

210,523

 

 

241,328

 

Net earnings

 

$

55,476

 

$

58,921

 

$

66,478

 

$

37,665

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

(In thousands)

    

June 30, 2016

    

June 30, 2015

    

June 30, 2016

    

June 30, 2015

 

National CineMedia, LLC

 

$

4,969

 

$

5,568

 

$

2,852

 

$

(1,071)

 

Digital Cinema Implementation Partners, LLC

 

 

6,858

 

 

5,162

 

 

12,622

 

 

10,591

 

Open Road Releasing, LLC

 

 

 —

 

 

(1,716)

 

 

 —

 

 

(430)

 

AC JV, LLC

 

 

(180)

 

 

188

 

 

79

 

 

1,226

 

Other

 

 

202

 

 

160

 

 

560

 

 

370

 

The Company’s recorded equity in earnings

 

$

11,849

 

$

9,362

 

$

16,113

 

$

10,686

 

 

 

NCM Transactions.  As of June 30, 2016, the Company owns 23,862,988 common membership units, or a 17.40% interest, in NCM and 200,000 common shares of NCM, Inc. The estimated fair market value of the common units in NCM and the common stock investment in NCM, Inc. was approximately $372,495,000, based on the publically quoted price per share of NCM, Inc. on June 30, 2016 of $15.48 per share.

 

The Company recorded the following transactions with NCM:

 

 

 

 

 

 

 

 

 

 

 

As of

 

As of

 

(In thousands)

    

June 30, 2016

    

December 31, 2015

 

Due from NCM for on-screen advertising revenue

 

$

2,559

 

$

2,406

 

Due to NCM for Exhibitor Services Agreement

 

 

1,294

 

 

1,226

 

Promissory note payable to NCM

 

 

5,555

 

 

5,555

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

(In thousands)

 

June 30, 2016

 

June 30, 2015

 

June 30, 2016

 

June 30, 2015

Net NCM screen advertising revenues

 

$

10,143

 

$

9,323

 

$

20,682

 

$

17,971

NCM beverage advertising expense

 

 

1,475

 

 

3,001

 

 

2,984

 

 

5,515

 

 

10


 

The Company recorded the following changes in the carrying amount of its investment in NCM and equity in losses of NCM during the six months ended June 30, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Exhibitor

    

Other

    

 

    

Equity in

    

 

 

 

 

 

Investment

 

Services

 

Comprehensive

 

Cash

 

(Earnings)

 

Advertising

 

(In thousands)

 

in NCM(1)

 

Agreement(2)

 

(Income)

 

Received

 

Losses

 

(Revenue)

 

Ending balance at December 31, 2015

 

$

327,471

 

$

(377,599)

 

$

(4,014)

 

 

 

 

 

 

 

 

 

 

Receipt of excess cash distributions 

 

 

(10,510)

 

 

 —

 

 

 —

 

$

10,510

 

$

 —

 

$

 —

 

Reclassify book value of NCM, Inc. shares

 

 

408

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Amortization of deferred revenue

 

 

 —

 

 

9,178

 

 

 —

 

 

 —

 

 

 —

 

 

(9,178)

 

Equity in losses and loss from amortization of basis difference (3)(4)

 

 

2,852

 

 

 —

 

 

 —

 

 

 —

 

 

(2,852)

 

 

 —

 

For the period ended or balance as of June 30, 2016

 

$

320,221

 

$

(368,421)

 

$

(4,014)

 

$

10,510

 

$

(2,852)

 

$

(9,178)

 

 


(1)

The following table represents AMC’s investment in common membership units including units received under the Common Unit Adjustment Agreement dated as of February 13, 2007:

 

 

 

 

 

 

 

 

    

Common

 

 

 

Membership Units

 

 

    

Tranche 1

    

Tranche 2 (a)

 

Beginning balance at December 31, 2012

 

17,323,782

 

 —

 

Additional units received in June 30, 2013

 

 —

 

1,728,988

 

Additional units received in June 30, 2014

 

 —

 

141,731

 

Additional units received in June 30, 2015

 

 —

 

469,163

 

Additional units received in December 31, 2015

 

 —

 

4,399,324

 

Units exchange for NCM, Inc. shares in December 2015

 

 —

 

(200,000)

 

Ending balance at June 30, 2016

 

17,323,782

 

6,539,206

 


(a)

The additional units received in June 2013, June 2014, June 2015 and December 2015 were measured at fair value (Level 1) using NCM, Inc.’s stock price of $15.22, $15.08, $14.52 and $15.75, respectively.

 

(2)

Represents the unamortized portion of the Exhibitor Services Agreement (“ESA”) with NCM. Such amounts are being amortized to other theatre revenues over the remainder of the 30 year term of the ESA ending in 2036, using a units‑of‑revenue method, as described in ASC 470‑10‑35 (formerly EITF 88‑18, Sales of Future Revenues).

 

(3)

Represents percentage ownership of NCM’s losses on both Tranche 1 and Tranche 2 Investments.

 

(4)

Certain differences between the Company’s carrying value and the Company’s share of NCM’s membership equity have been identified and are amortized to equity in earnings over the respective lives of the assets and liabilities.

 

During the six months ended June 30, 2016 and June 30, 2015, the Company received payments of $7,218,000 and $5,352,000, respectively, related to the NCM tax receivable agreement. The receipts are recorded in investment income, net of related amortization for the NCM tax receivable agreement intangible asset.

 

DCIP Transactions.  The Company pays equipment rent monthly and records the equipment rental expense on a straight‑line basis over 12 years.

 

The Company recorded the following transactions with DCIP:

 

 

 

 

 

 

 

 

 

 

 

As of

    

As of

 

(In thousands)

    

June 30, 2016

    

December 31, 2015

 

 

 

 

 

 

 

Due from DCIP for equipment and warranty purchases

 

$

1,831

 

$

1,460

 

Deferred rent liability for digital projectors

 

 

8,572

 

 

8,725

 

 

 

11


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

(In thousands)

 

June 30, 2016

 

June 30, 2015

 

June 30, 2016

 

June 30, 2015

Operating expense:

 

 

 

 

 

 

 

 

 

 

Digital equipment rental expense

 

$

1,223

 

$

1,382

 

$

2,464

 

$

2,676

 

 

Open Road Films Transactions.  During the three months and six months ended June 30, 2016 and June 30, 2015, the Company continued to suspend equity method accounting for its investment in Open Road Films as the investment in Open Road Films had reached the Company’s remaining capital commitment. On April 1, 2016, the Company funded $3,000,000 of the capital commitment, on June 1, 2016, funded $1,750,000 of the capital commitment, on June 22, 2016, funded $1,750,000 of the capital commitment and on July 1, 2016, funded the remaining $3,500,000 of the capital commitment. The Company’s share of cumulative losses from Open Road Films in excess of the Company’s capital commitment was $27,061,000 as of June 30, 2016 and $14,422,000 as of December 31, 2015.

 

The Company recorded the following transactions with Open Road Films:

 

 

 

 

 

 

 

 

 

 

 

As of

 

As of

 

(In thousands)

    

June 30, 2016

    

December 31, 2015

 

Due from Open Road Films

 

$

4,142

 

$

2,472

 

Film rent payable to Open Road Films

 

 

72

 

 

1,061

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

(In thousands)

 

June 30, 2016

 

June 30, 2015

 

June 30, 2016

 

June 30, 2015

 

Film exhibition costs:

 

 

 

 

 

 

 

 

 

 

Gross film exhibition cost on Open Road Films

 

$

2,120

 

$

2,040

 

$

5,700

 

$

3,440

 

 

AC JV Transactions.    The Company recorded the following transactions with AC JV:

 

 

 

 

 

 

 

 

 

 

 

As of

    

As of

 

(In thousands)

    

June 30, 2016

    

December 31, 2015

 

Due to AC JV for Fathom Events programming

 

$

488

 

$

445

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

(In thousands)

    

June 30, 2016

    

June 30, 2015

    

June 30, 2016

    

June 30, 2015

 

Film exhibition costs:

 

 

 

 

 

 

 

 

 

 

Gross exhibition cost on Fathom Events programming

 

$

1,744

 

$

1,483

 

$

3,723

 

$

4,069

 

 

 

NOTE 4—STOCKHOLDERS’ EQUITY

 

Common Stock Rights and Privileges

 

The rights of the holders of Holdings’ Class A common stock and Holdings’ Class B common stock are identical, except with respect to voting and conversion applicable to the Class B common stock. Holders of Holdings’ Class A common stock are entitled to one vote per share and holders of Holdings’ Class B common stock are entitled to three votes per share. Holders of Class A common stock and Class B common stock will share ratably (based on the number of shares of common stock held) in any dividend declared by its board of directors, subject to any preferential rights of any outstanding preferred stock. The Class A common stock is not convertible into any other shares of Holdings’ capital stock. Each share of Class B common stock is convertible at any time at the option of the holder into one share of Class A common stock. In addition, each share of Class B common stock shall convert automatically into one share of Class A common stock upon any transfer, whether or not for value, except for certain transfers described in Holdings’ certificate of incorporation.

 

12


 

Dividends

 

The following is a summary of dividends and dividend equivalents paid to stockholders during the six months ended June 30, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount per

 

Total Amount

 

    

 

    

 

    

Share of

    

Declared

Declaration Date

 

Record Date

 

Date Paid

 

Common Stock

 

(In thousands)

February 25, 2016

 

March 7, 2016

 

March 21, 2016

 

 

0.20

 

$

19,762

April 27, 2016

 

June 6, 2016

 

June 20, 2016

 

 

0.20

 

 

19,762

 

During the six months ended June 30, 2016, the Company paid dividends and dividend equivalents of $39,442,000, decreased additional paid-in capital for 20,805 shares surrendered to pay payroll and income taxes by $472,000 and accrued $247,000 for the remaining unpaid dividends at June 30, 2016. The aggregate dividends paid for Class A common stock, Class B common stock, and dividend equivalents were approximately $8,646,000, $30,330,000 and $466,000, respectively, during the six months ended June 30, 2016.

 

Related Party Transaction

 

As of June 30, 2016 and December 31, 2015, the Company recorded a receivable due from Wanda of $299,000 and $141,000, respectively, for reimbursement of general administrative and other expense incurred on behalf of Wanda.

 

Temporary Equity

 

Certain members of management have the right to require Holdings to repurchase the Class A common stock held by them under certain limited circumstances pursuant to the terms of a stockholders agreement. Beginning on January 1, 2016 (or upon the termination of a management stockholder’s employment by the Company without cause, by the management stockholder for good reason, or due to the management stockholder’s death or disability) management stockholders will have the right, in limited circumstances, to require Holdings to purchase shares that are not fully and freely tradeable at a price equal to the price per share paid by such management stockholder with appropriate adjustments for any subsequent events such as dividends, splits, or combinations. The shares of Class A common stock, subject to the stockholder agreement, are classified as temporary equity, apart from permanent equity, as a result of the contingent redemption feature contained in the stockholder agreement. The Company determined the amount reflected in temporary equity for the Class A common stock based on the price paid per share by the management stockholders and Wanda on August 30, 2012, the date Wanda acquired Holdings.

 

During the six months ended June 30, 2016, a former employee who held 27,197 shares, relinquished his put right, therefore the related share amount of $284,000 was reclassified to additional paid-in capital, a component of stockholders’ equity.

 

Stock‑Based Compensation

 

Holdings adopted a stock‑based compensation plan in December of 2013.

 

The Company recognized stock-based compensation expense of $1,717,000 and $1,439,000 within general and administrative: other during the three months ended June 30, 2016 and June 30, 2015, respectively, and $2,804,000 and $7,178,000 during the six months ended June 30, 2016 and June 30, 2015, respectively. The Company’s financial statements reflect an increase to additional paid-in capital related to stock-based compensation of $2,804,000 during the six months ended June 30, 2016. As of June 30, 2016, there was approximately $13,014,000 of total estimated unrecognized compensation cost, assuming attainment of the performance targets at 100%, related to stock-based compensation arrangements expected to be recognized during the remainder of calendar 2016, calendar 2017 and calendar 2018. The Company expects to recognize compensation cost of $3,438,000 during the remainder of calendar 2016 and $4,788,000 during each calendar 2017 and calendar 2018.

 

13


 

2013 Equity Incentive Plan

 

The 2013 Equity Incentive Plan provides for grants of non‑qualified stock options, incentive stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance stock units, stock awards, and cash performance awards. The maximum number of shares of Holdings’ common stock available for delivery pursuant to awards granted under the 2013 Equity Incentive Plan is 9,474,000 shares. At June 30, 2016, the aggregate number of shares of Holdings’ common stock remaining available for grant was 7,680,827 shares.

 

Awards Granted in 2016

 

During the six months ended June 30, 2016, Holdings’ Board of Directors approved awards of stock, restricted stock units (“RSUs”), and performance stock units (“PSUs”) to certain of the Company’s employees and directors under the 2013 Equity Incentive Plan. The fair value of the stock at the grant dates of January 4, 2016, February 24, 2016 and March 1, 2016 was $23.17, $22.55 and $24.88 per share, respectively, and was based on the closing price of Holdings’ stock.

 

The award agreements generally had the following features:

 

·

Stock Award:  On January 4, 2016, 4 members of Holdings’ Board of Directors were granted an award of 4,260 fully vested shares of Class A common stock each, and on February 24, 2016, 1 member of Holdings’ Board of Directors was granted an award of 4,302 fully vested shares of Class A common stock, for a total award of 21,342 shares. The Company recognized approximately $492,000 of expense in general and administrative: other expense during the six months ended June 30, 2016, in connection with these share grants.

 

·

Restricted Stock Unit Awards:  On March 1, 2016, RSU awards of 145,739 units were granted to certain members of management. Each RSU represents the right to receive one share of Class A common stock at a future date. The RSUs vest over 3 years with 1/3 vesting on each of January 2, 2017, 2018 and 2019. The RSUs will be settled within 30 days of vesting. A dividend equivalent equal to the amount paid in respect of one share of Class A common stock underlying the RSUs began to accrue with respect to the RSUs on the date of grant. Such accrued dividend equivalents are paid to the holder upon vesting of the RSUs. The grant date fair value was $3,626,000 based on a stock price of $24.88 on March 1, 2016. The Company recognized approximately $479,000 of expense in general and administrative: other expense during the six months ended June 30, 2016, in connection with these awards.

 

On March 1, 2016, RSU awards of 135,981 units were granted to certain executive officers covered by Section 162(m) of the Internal Revenue Code. The RSUs will be forfeited if Holdings does not achieve a specified cash flow from operating activities target for each of the twelve months ending December 31, 2016, 2017 and 2018. The RSUs vest over 3 years with 1/3 vesting in each of 2017, 2018 and 2019 if cash flow from operating activities target is met. The vested RSUs will be settled within 30 days of vesting. A dividend equivalent equal to the amount paid in respect of one share of Class A common stock underlying the RSUs began to accrue with respect to the RSUs on the date of grant. Such accrued dividend equivalents are paid to the holder upon vesting of the RSUs. The grant date fair value was $3,383,000 based on the probable outcome of the performance targets and a stock price of $24.88 on March 1, 2016. The Company recognized expense for these awards of $451,000 in general and administrative: other expense, during the six months ended June 30, 2016, based on current estimates that the performance condition for all years is expected to be achieved.

 

14


 

·

Performance Stock Unit Award: On March 1, 2016, PSU awards were granted to certain members of management and executive officers, with both a three year cumulative free cash flow and net income performance target condition and a service condition, covering a performance period beginning January 1, 2016 and ending on December 31, 2018. The PSUs will vest ratably based on a scale ranging from 80% to 120% of the performance target with the vested amount ranging from 30% to 150%. If the performance target is met at 100%, the PSU awards granted on March 1, 2016 will be 280,417 units. No PSUs will vest if Holdings does not achieve the three year cumulative free cash flow and net income minimum performance target or the participant’s service does not continue through the last day of the performance period. The vested PSUs will be settled within 30 days of vesting. A dividend equivalent equal to the amount paid in respect of one share of Class A common stock underlying the PSUs began to accrue with respect to the PSUs on the date of grant. Such accrued dividend equivalents are paid to the holder upon vesting of the PSUs. Assuming attainment of the performance target at 100%, the Company recognized expense for these awards of approximately $821,000 during the six months ended June 30, 2016 and will recognize $2,052,000 in general and administrative: other expense during the twelve months ending December 31, 2016. The grant date fair value was $7,009,000 based on the probable outcome of the performance conditions and a stock price of $24.88 on March 1, 2016.

 

·

Performance Stock Unit Transition Award:  In recognition of the shift from one year to three year performance periods for annual equity awards, on March 1, 2016, PSU transition awards were granted to certain members of management and executive officers, with both a 2016 free cash flow and net income performance target condition and a service condition, covering a performance period beginning January 1, 2016 and ending on December 31, 2016. The PSUs will vest ratably based on a scale ranging from 80% to 120% of the performance target with the vested amount ranging from 30% to 150%. If the performance target is met at 100%, the transition PSU awards granted on March 1, 2016 will be 54,373 units. No PSUs will vest if Holdings does not achieve the free cash flow or net income minimum performance target or the participant’s service does not continue through the last day of the performance period. The vested PSUs will be settled within 30 days of vesting. A dividend equivalent equal to the amount paid in respect of one share of Class A common stock underlying the PSUs began to accrue with respect to the PSUs on the date of grant. Such accrued dividend equivalents are paid to the holder upon vesting of the PSUs. Assuming attainment of the performance target at 100%, the Company recognized $541,000 during the six months ended June 30, 2016 and will recognize expense for these awards of approximately $1,353,000 in general and administrative: other expense during the twelve months ending December 31, 2016. The grant date fair value was $1,360,000 based on the probable outcome of the performance condition and a stock price of $24.88 on March 1, 2016.

 

The following table represents the nonvested RSU and PSU activity for the six months ended June 30, 2016:

 

 

 

 

 

 

 

 

 

    

 

    

Weighted

 

 

 

 

 

Average

 

 

 

Shares of RSU

 

Grant Date

 

 

 

and PSU

 

Fair Value

 

Beginning balance at January 1,2016

 

19,226

 

$

29.59

 

Granted(1)

 

618,092

 

 

24.88

 

Vested

 

(19,226)

 

 

29.59

 

Forfeited

 

(2,885)

 

 

24.88

 

Nonvested at June 30, 2016

 

615,207

 

$

24.88

 

 


(1)