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) |
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☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2016 |
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OR |
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☐ |
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 |
26‑0303916 |
One AMC Way |
|
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 ☐ |
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 |
|
Class A common stock |
21,613,532 |
AMC ENTERTAINMENT HOLDINGS, INC.
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Page |
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3 |
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3 |
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4 |
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5 |
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6 |
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7 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
35 |
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52 |
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52 |
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54 |
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54 |
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54 |
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54 |
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54 |
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54 |
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55 |
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56 |
2
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 |
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||||||||
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June 30, 2016 |
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June 30, 2015 |
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June 30, 2016 |
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June 30, 2015 |
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||||
|
|
(unaudited) |
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(unaudited) |
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||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
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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 |
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Operating costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
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Film exhibition costs |
|
|
262,940 |
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|
295,416 |
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|
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 |
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|
247,403 |
|
|
232,943 |
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General and administrative: |
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|
|
|
|
|
|
|
|
|
|
|
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Merger, acquisition and transaction costs |
|
|
5,548 |
|
|
261 |
|
|
10,152 |
|
|
1,839 |
|
Other |
|
|
20,634 |
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|
17,737 |
|
|
39,150 |
|
|
22,678 |
|
Depreciation and amortization |
|
|
62,291 |
|
|
57,249 |
|
|
122,721 |
|
|
115,026 |
|
Operating costs and expenses |
|
|
708,358 |
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|
726,906 |
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|
1,415,124 |
|
|
1,347,977 |
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Operating income |
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|
55,604 |
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|
94,173 |
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|
114,855 |
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|
126,226 |
|
Other expense (income): |
|
|
|
|
|
|
|
|
|
|
|
|
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Other expense (income) |
|
|
(110) |
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|
9,273 |
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|
(84) |
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|
9,273 |
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Interest expense: |
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|
|
|
|
|
|
|
|
|
|
|
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Corporate borrowings |
|
|
24,888 |
|
|
24,717 |
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|
49,755 |
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|
50,796 |
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Capital and financing lease obligations |
|
|
2,147 |
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|
2,331 |
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|
4,342 |
|
|
4,704 |
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Equity in earnings of non-consolidated entities |
|
|
(11,849) |
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|
(9,362) |
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(16,113) |
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|
(10,686) |
|
Investment expense (income) |
|
|
176 |
|
|
(59) |
|
|
(9,778) |
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(5,202) |
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Total other expense |
|
|
15,252 |
|
|
26,900 |
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|
28,122 |
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|
48,885 |
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Earnings before income taxes |
|
|
40,352 |
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|
67,273 |
|
|
86,733 |
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|
77,341 |
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Income tax provision |
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|
16,385 |
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|
23,350 |
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34,475 |
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|
27,280 |
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Net earnings |
|
$ |
23,967 |
|
$ |
43,923 |
|
$ |
52,258 |
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$ |
50,061 |
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Earnings per share: |
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|
|
|
|
|
|
|
|
|
|
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Basic |
|
$ |
0.24 |
|
$ |
0.45 |
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$ |
0.53 |
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$ |
0.51 |
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Diluted |
|
$ |
0.24 |
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$ |
0.45 |
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$ |
0.53 |
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$ |
0.51 |
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Average shares outstanding |
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|
|
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Basic |
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|
98,194 |
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|
97,978 |
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|
98,197 |
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|
97,949 |
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Diluted |
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|
98,304 |
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|
98,037 |
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|
98,237 |
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|
97,987 |
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Dividends declared per basic and diluted common share |
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$ |
0.20 |
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$ |
0.20 |
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$ |
0.40 |
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$ |
0.40 |
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See Notes to Consolidated Financial Statements.
3
AMC ENTERTAINMENT HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
|
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Three Months Ended |
|
Six Months Ended |
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|
June 30, 2016 |
|
June 30, 2015 |
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June 30, 2016 |
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June 30, 2015 |
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||||
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(unaudited) |
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(unaudited) |
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Net earnings |
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$ |
23,967 |
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$ |
43,923 |
|
$ |
52,258 |
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$ |
50,061 |
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Unrealized foreign currency translation adjustment, net of tax |
|
|
677 |
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(695) |
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|
606 |
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|
281 |
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Pension and other benefit adjustments: |
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|
|
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Net loss arising during the period, net of tax |
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|
— |
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— |
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— |
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(45) |
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Prior service credit arising during the period, net of tax |
|
|
— |
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|
— |
|
|
— |
|
|
746 |
|
Amortization of net (gain) loss reclassified into general and administrative: other, net of tax |
|
|
4 |
|
|
6 |
|
|
8 |
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|
(1,693) |
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Amortization of prior service credit reclassified into general and administrative: other, net of tax |
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|
— |
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— |
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— |
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(1,762) |
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Curtailment gain reclassified into general and administrative: other, net of tax |
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|
— |
|
|
— |
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— |
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(7,239) |
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Settlement gain reclassified into general and administrative: other, net of tax |
|
|
— |
|
|
— |
|
|
— |
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(175) |
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Marketable securities: |
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|
|
|
|
|
|
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Unrealized net holding gain (loss) arising during the period, net of tax |
|
|
74 |
|
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(382) |
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|
413 |
|
|
443 |
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Realized net (gain) loss reclassified into investment income, net of tax |
|
|
1 |
|
|
(145) |
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|
(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) |
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Total comprehensive income |
|
$ |
24,641 |
|
$ |
42,803 |
|
$ |
51,050 |
|
$ |
40,325 |
|
See Notes to Consolidated Financial Statements.
4
AMC ENTERTAINMENT HOLDINGS, INC.
(in thousands, except share data)
|
|
June 30, 2016 |
|
December 31, 2015 |
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(unaudited) |
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ASSETS |
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|
|
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Current assets: |
|
|
|
|
|
|
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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 |
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Intangible assets, net |
|
|
233,329 |
|
|
237,376 |
|
Goodwill |
|
|
2,410,713 |
|
|
2,406,691 |
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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: |
|
|
|
|
|
|
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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 |
|
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|
|
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:
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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. |
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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.
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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. |
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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:
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|
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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) |