10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on November 9, 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 September 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 |
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.
|
|
Page |
|
|
|
3 |
||
|
3 |
|
|
4 |
|
|
5 |
|
|
6 |
|
|
7 |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
36 |
|
55 |
||
55 |
||
|
|
|
57 |
||
57 |
||
58 |
||
58 |
||
58 |
||
58 |
||
59 |
||
|
61 |
2
Item 1. Financial Statements. (Unaudited)
AMC ENTERTAINMENT HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
September 30, 2016 |
|
September 30, 2015 |
|
September 30, 2016 |
|
September 30, 2015 |
|
||||
|
|
(unaudited) |
|
(unaudited) |
|
||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
Admissions |
|
$ |
496,729 |
|
$ |
441,262 |
|
$ |
1,460,537 |
|
$ |
1,393,338 |
|
Food and beverage |
|
|
248,889 |
|
|
216,764 |
|
|
736,587 |
|
|
667,804 |
|
Other theatre |
|
|
34,153 |
|
|
30,814 |
|
|
112,626 |
|
|
101,901 |
|
Total revenues |
|
|
779,771 |
|
|
688,840 |
|
|
2,309,750 |
|
|
2,163,043 |
|
Operating costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Film exhibition costs |
|
|
259,069 |
|
|
233,390 |
|
|
784,363 |
|
|
751,894 |
|
Food and beverage costs |
|
|
33,949 |
|
|
31,080 |
|
|
102,014 |
|
|
95,395 |
|
Operating expense |
|
|
211,554 |
|
|
195,505 |
|
|
613,893 |
|
|
588,177 |
|
Rent |
|
|
121,904 |
|
|
115,861 |
|
|
369,307 |
|
|
348,804 |
|
General and administrative: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger, acquisition and transaction costs |
|
|
4,961 |
|
|
751 |
|
|
15,113 |
|
|
2,590 |
|
Other |
|
|
19,785 |
|
|
18,706 |
|
|
58,935 |
|
|
41,384 |
|
Depreciation and amortization |
|
|
63,025 |
|
|
58,008 |
|
|
185,746 |
|
|
173,034 |
|
Operating costs and expenses |
|
|
714,247 |
|
|
653,301 |
|
|
2,129,371 |
|
|
2,001,278 |
|
Operating income |
|
|
65,524 |
|
|
35,539 |
|
|
180,379 |
|
|
161,765 |
|
Other expense (income): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense (income) |
|
|
79 |
|
|
— |
|
|
(5) |
|
|
9,273 |
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate borrowings |
|
|
24,679 |
|
|
22,682 |
|
|
74,434 |
|
|
73,478 |
|
Capital and financing lease obligations |
|
|
2,099 |
|
|
2,286 |
|
|
6,441 |
|
|
6,990 |
|
Equity in earnings of non-consolidated entities |
|
|
(12,030) |
|
|
(10,850) |
|
|
(28,143) |
|
|
(21,536) |
|
Investment expense (income) |
|
|
176 |
|
|
163 |
|
|
(9,602) |
|
|
(5,039) |
|
Total other expense |
|
|
15,003 |
|
|
14,281 |
|
|
43,125 |
|
|
63,166 |
|
Earnings before income taxes |
|
|
50,521 |
|
|
21,258 |
|
|
137,254 |
|
|
98,599 |
|
Income tax provision |
|
|
20,085 |
|
|
9,080 |
|
|
54,560 |
|
|
36,360 |
|
Net earnings |
|
$ |
30,436 |
|
$ |
12,178 |
|
$ |
82,694 |
|
$ |
62,239 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.31 |
|
$ |
0.12 |
|
$ |
0.84 |
|
$ |
0.64 |
|
Diluted |
|
$ |
0.31 |
|
$ |
0.12 |
|
$ |
0.84 |
|
$ |
0.63 |
|
Average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
98,194 |
|
|
97,978 |
|
|
98,196 |
|
|
97,959 |
|
Diluted |
|
|
98,284 |
|
|
98,073 |
|
|
98,211 |
|
|
98,024 |
|
Dividends declared per basic and diluted common share |
|
$ |
0.20 |
|
$ |
0.20 |
|
$ |
0.60 |
|
$ |
0.60 |
|
See Notes to Consolidated Financial Statements.
3
AMC ENTERTAINMENT HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
September 30, 2016 |
|
September 30, 2015 |
|
September 30, 2016 |
|
September 30, 2015 |
|
||||
|
|
(unaudited) |
|
(Unaudited) |
|
||||||||
Net earnings |
|
$ |
30,436 |
|
$ |
12,178 |
|
$ |
82,694 |
|
$ |
62,239 |
|
Unrealized foreign currency translation adjustment, net of tax |
|
|
160 |
|
|
700 |
|
|
766 |
|
|
981 |
|
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 |
|
|
5 |
|
|
7 |
|
|
13 |
|
|
(1,686) |
|
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 |
|
|
144 |
|
|
(2,311) |
|
|
557 |
|
|
(1,868) |
|
Realized net (gain) loss reclassified into investment income, net of tax |
|
|
(1) |
|
|
(5) |
|
|
(1,783) |
|
|
(154) |
|
Equity method investees' cash flow hedge: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized net holding gain arising during the period, net of tax |
|
|
80 |
|
|
(465) |
|
|
(562) |
|
|
(847) |
|
Realized net loss reclassified into equity in earnings of non-consolidated entities, net of tax |
|
|
86 |
|
|
112 |
|
|
275 |
|
|
351 |
|
Other comprehensive income (loss) |
|
|
474 |
|
|
(1,962) |
|
|
(734) |
|
|
(11,698) |
|
Total comprehensive income |
|
$ |
30,910 |
|
$ |
10,216 |
|
$ |
81,960 |
|
$ |
50,541 |
|
See Notes to Consolidated Financial Statements.
4
AMC ENTERTAINMENT HOLDINGS, INC.
(in thousands, except share data)
|
|
September 30, 2016 |
|
December 31, 2015 |
|
||
|
|
(unaudited) |
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash and equivalents |
|
$ |
46,312 |
|
$ |
211,250 |
|
Receivables, net |
|
|
57,741 |
|
|
105,509 |
|
Other current assets |
|
|
91,574 |
|
|
97,608 |
|
Total current assets |
|
|
195,627 |
|
|
414,367 |
|
Property, net |
|
|
1,537,951 |
|
|
1,401,928 |
|
Intangible assets, net |
|
|
231,179 |
|
|
237,376 |
|
Goodwill |
|
|
2,410,713 |
|
|
2,406,691 |
|
Deferred tax asset |
|
|
75,557 |
|
|
126,198 |
|
Other long-term assets |
|
|
518,229 |
|
|
501,757 |
|
Total assets |
|
$ |
4,969,256 |
|
$ |
5,088,317 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
Accounts payable |
|
$ |
261,447 |
|
$ |
313,025 |
|
Accrued expenses and other liabilities |
|
|
151,573 |
|
|
158,664 |
|
Deferred revenues and income |
|
|
162,737 |
|
|
221,679 |
|
Current maturities of corporate borrowings and capital and financing lease obligations |
|
|
19,400 |
|
|
18,786 |
|
Total current liabilities |
|
|
595,157 |
|
|
712,154 |
|
Corporate borrowings |
|
|
1,843,339 |
|
|
1,902,598 |
|
Capital and financing lease obligations |
|
|
86,289 |
|
|
93,273 |
|
Exhibitor services agreement |
|
|
363,833 |
|
|
377,599 |
|
Other long-term liabilities |
|
|
513,857 |
|
|
462,626 |
|
Total liabilities |
|
|
3,402,475 |
|
|
3,548,250 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
Class A common stock (temporary equity) ($.01 par value, 140,014 shares issued and 103,245 shares outstanding as of September 30, 2016; 167,211 shares issued and 130,442 shares outstanding as of December 31, 2015) |
|
|
1,080 |
|
|
1,364 |
|
Stockholders’ equity: |
|
|
|
|
|
|
|
Class A common stock ($.01 par value, 524,173,073 shares authorized; 21,510,287 shares issued and outstanding as of September 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 September 30, 2016 and December 31, 2015) |
|
|
758 |
|
|
758 |
|
Additional paid-in capital |
|
|
1,187,244 |
|
|
1,182,923 |
|
Treasury stock (36,769 shares as of September 30, 2016 and December 31, 2015, at cost) |
|
|
(680) |
|
|
(680) |
|
Accumulated other comprehensive income |
|
|
2,070 |
|
|
2,804 |
|
Accumulated earnings |
|
|
376,094 |
|
|
352,684 |
|
Total stockholders’ equity |
|
|
1,565,701 |
|
|
1,538,703 |
|
Total liabilities and stockholders’ equity |
|
$ |
4,969,256 |
|
$ |
5,088,317 |
|
See Notes to Consolidated Financial Statements.
5
AMC ENTERTAINMENT HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
Nine Months Ended |
|
||||
|
|
September 30, 2016 |
|
September 30, 2015 |
|
||
|
|
(unaudited) |
|
||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
Net earnings |
|
$ |
82,694 |
|
$ |
62,239 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
185,746 |
|
|
173,034 |
|
Amortization of net premium on corporate borrowings |
|
|
174 |
|
|
674 |
|
Deferred income taxes |
|
|
45,636 |
|
|
17,671 |
|
Theatre and other closure expense |
|
|
3,576 |
|
|
3,911 |
|
Loss (gain) on dispositions |
|
|
(2,658) |
|
|
281 |
|
Stock-based compensation |
|
|
4,509 |
|
|
9,377 |
|
Equity in earnings and losses from non-consolidated entities, net of distributions |
|
|
(13,689) |
|
|
(2,561) |
|
Landlord contributions |
|
|
77,348 |
|
|
43,224 |
|
Deferred rent |
|
|
(23,452) |
|
|
(18,272) |
|
Net periodic benefit credit |
|
|
597 |
|
|
(18,089) |
|
Change in assets and liabilities, excluding acquisitions: |
|
|
|
|
|
|
|
Receivables |
|
|
51,723 |
|
|
52,532 |
|
Other assets |
|
|
303 |
|
|
205 |
|
Accounts payable |
|
|
(116,950) |
|
|
(69,844) |
|
Accrued expenses and other liabilities |
|
|
(87,227) |
|
|
(42,277) |
|
Other, net |
|
|
3,004 |
|
|
(2,880) |
|
Net cash provided by operating activities |
|
|
211,334 |
|
|
209,225 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
Capital expenditures |
|
|
(256,599) |
|
|
(215,574) |
|
Acquisition of Starplex Cinemas, net of cash acquired |
|
|
681 |
|
|
— |
|
Investments in non-consolidated entities, net |
|
|
(10,480) |
|
|
(958) |
|
Proceeds from disposition of long-term assets |
|
|
19,365 |
|
|
604 |
|
Other, net |
|
|
(1,252) |
|
|
(1,158) |
|
Net cash used in investing activities |
|
|
(248,285) |
|
|
(217,086) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
Proceeds from issuance of Senior Subordinated Notes due 2025 |
|
|
— |
|
|
600,000 |
|
Payments under revolver credit facility, net of borrowings |
|
|
(55,000) |
|
|
— |
|
Repurchase of Senior Subordinated Notes due 2020 |
|
|
— |
|
|
(626,114) |
|
Cash used to pay dividends |
|
|
(59,081) |
|
|
(59,012) |
|
Deferred financing costs |
|
|
(821) |
|
|
(11,978) |
|
Principal payments under capital and financing lease obligations |
|
|
(6,370) |
|
|
(5,811) |
|
Principal payments under Term Loan |
|
|
(6,605) |
|
|
(5,813) |
|
Principal amount of coupon payment under Senior Subordinated Notes due 2020 |
|
|
— |
|
|
(3,357) |
|
Net cash used in financing activities |
|
|
(127,877) |
|
|
(112,085) |
|
Effect of exchange rate changes on cash and equivalents |
|
|
(110) |
|
|
(321) |
|
Net decrease in cash and equivalents |
|
|
(164,938) |
|
|
(120,267) |
|
Cash and equivalents at beginning of period |
|
|
211,250 |
|
|
218,206 |
|
Cash and equivalents at end of period |
|
$ |
46,312 |
|
$ |
97,939 |
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
Interest (net of amounts capitalized of $142 and $122) |
|
$ |
67,873 |
|
$ |
76,301 |
|
Income taxes paid (refunded), net |
|
|
4,592 |
|
|
(1,028) |
|
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
September 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 September 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 nine months ended September 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 |
|
Nine Months Ended |
||||||||
(In thousands) |
|
September 30, 2016 |
|
September 30, 2015 |
|
September 30, 2016 |
|
September 30, 2015 |
||||
Loss on redemption of 9.75% Senior Subordinated Notes due 2020 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
9,273 |
Other |
|
|
79 |
|
|
— |
|
|
(5) |
|
|
— |
Other expense (income) |
|
$ |
79 |
|
$ |
— |
|
$ |
(5) |
|
$ |
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 nine months ended September 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 |
|
September 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.
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.
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 September 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 September 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 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 nine months ended September 30, 2016 and recognized a gain on sale of $3,008,000.
9
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 |
|
Nine Months Ended |
|
||||||||
(In thousands) |
|
September 30, 2016 |
|
September 30, 2015 |
|
September 30, 2016 |
|
September 30, 2015 |
|
||||
Revenues |
|
$ |
161,774 |
|
$ |
154,838 |
|
$ |
438,775 |
|
$ |
433,831 |
|
Operating costs and expenses |
|
|
110,924 |
|
|
99,850 |
|
|
321,447 |
|
|
341,178 |
|
Net earnings |
|
$ |
50,850 |
|
$ |
54,988 |
|
$ |
117,328 |
|
$ |
92,653 |
|
The components of the Company’s recorded equity in earnings (losses) of non-consolidated entities are as follows:
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
(In thousands) |
|
September 30, 2016 |
|
September 30, 2015 |
|
September 30, 2016 |
|
September 30, 2015 |
|
||||
National CineMedia, LLC |
|
$ |
3,350 |
|
$ |
4,431 |
|
$ |
6,202 |
|
$ |
3,360 |
|
Digital Cinema Implementation Partners, LLC |
|
|
7,944 |
|
|
6,253 |
|
|
20,566 |
|
|
16,844 |
|
Open Road Releasing, LLC |
|
|
— |
|
|
— |
|
|
— |
|
|
(430) |
|
AC JV, LLC |
|
|
107 |
|
|
(243) |
|
|
186 |
|
|
983 |
|
Other |
|
|
629 |
|
|
409 |
|
|
1,189 |
|
|
779 |
|
The Company’s recorded equity in earnings |
|
$ |
12,030 |
|
$ |
10,850 |
|
$ |
28,143 |
|
$ |
21,536 |
|
NCM Transactions. As of September 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 $354,207,000, based on the publically quoted price per share of NCM, Inc. on September 30, 2016 of $14.72 per share.
The Company recorded the following transactions with NCM:
|
|
As of |
|
As of |
|
||
(In thousands) |
|
September 30, 2016 |
|
December 31, 2015 |
|
||
Due from NCM for on-screen advertising revenue |
|
$ |
1,585 |
|
$ |
2,406 |
|
Due to NCM for Exhibitor Services Agreement |
|
|
763 |
|
|
1,226 |
|
Promissory note payable to NCM |
|
|
5,555 |
|
|
5,555 |
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
(In thousands) |
|
September 30, 2016 |
|
September 30, 2015 |
|
September 30, 2016 |
|
September 30, 2015 |
|
||||
Other theatre revenues: |
|
|
|
|
|
|
|
|
|
|
|
||
Net NCM screen advertising revenues |
|
$ |
10,441 |
|
$ |
8,756 |
|
$ |
31,123 |
|
$ |
26,727 |
|
Operating expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
NCM beverage advertising expense |
|
|
1,532 |
|
|
1,321 |
|
|
4,516 |
|
|
6,836 |
|
10
The Company recorded the following changes in the carrying amount of its investment in NCM and equity in losses of NCM during the nine months ended September 30, 2016:
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
Exhibitor |
|
Other |
|
|
|
|
|
|
|
|
|
|
||
|
|
Investment |
|
Services |
|
Comprehensive |
|
Cash |
|
Equity in |
|
Advertising |
|
||||||
(In thousands) |
|
in NCM(1) |
|
Agreement(2) |
|
(Income) |
|
Received |
|
Earnings |
|
(Revenue) |
|
||||||
Ending balance at December 31, 2015 |
|
$ |
327,471 |
|
$ |
(377,599) |
|
$ |
(4,014) |
|
|
|
|
|
|
|
|
|
|
Receipt of excess cash distributions |
|
|
(13,703) |
|
|
— |
|
|
— |
|
$ |
13,703 |
|
$ |
— |
|
$ |
— |
|
Reclassify book value of NCM, Inc. shares |
|
|
408 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Amortization of deferred revenue |
|
|
— |
|
|
13,766 |
|
|
— |
|
|
— |
|
|
— |
|
|
(13,766) |
|
Equity in earnings and loss from amortization of basis difference (3)(4) |
|
|
6,202 |
|
|
— |
|
|
— |
|
|
— |
|
|
(6,202) |
|
|
— |
|
For the period ended or balance as of September 30, 2016 |
|
$ |
320,378 |
|
$ |
(363,833) |
|
$ |
(4,014) |
|
$ |
13,703 |
|
$ |
(6,202) |
|
$ |
(13,766) |
|
(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 exchanged for NCM, Inc. shares in December 2015 |
|
— |
|
(200,000) |
|
Ending balance at September 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 earnings 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 nine months ended September 30, 2016 and September 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) |
|
September 30, 2016 |
|
December 31, 2015 |
|
||
|
|
|
|
|
|
||
Due from DCIP for equipment and warranty purchases |
|
$ |
1,943 |
|
$ |
1,460 |
|
Deferred rent liability for digital projectors |
|
|
8,495 |
|
|
8,725 |
|
11
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||
(In thousands) |
|
September 30, 2016 |
|
September 30, 2015 |
|
September 30, 2016 |
|
September 30, 2015 |
||||
Operating expense: |
|
|
|
|
|
|
|
|
|
|
||
Digital equipment rental expense |
|
$ |
1,375 |
|
$ |
1,350 |
|
$ |
3,839 |
|
$ |
4,026 |
Open Road Films Transactions. During the three and nine months ended September 30, 2016 and September 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 $34,122,000 as of September 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) |
|
September 30, 2016 |
|
December 31, 2015 |
|
||
Due from Open Road Films |
|
$ |
4,394 |
|
$ |
2,472 |
|
Film rent payable to Open Road Films |
|
|
1,313 |
|
|
1,061 |
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
(In thousands) |
|
September 30, 2016 |
|
September 30, 2015 |
|
September 30, 2016 |
|
September 30, 2015 |
|
||||
Film exhibition costs: |
|
|
|
|
|
|
|
|
|
|
|||
Gross film exhibition cost on Open Road Films |
|
$ |
1,400 |
|
$ |
660 |
|
$ |
7,100 |
|
$ |
4,100 |
|
AC JV Transactions. The Company recorded the following transactions with AC JV:
|
|
As of |
|
As of |
|
||
(In thousands) |
|
September 30, 2016 |
|
December 31, 2015 |
|
||
Due from AC JV |
|
$ |
42 |
|
$ |
109 |
|
Due to AC JV for Fathom Events programming |
|
|
642 |
|
|
445 |
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
(In thousands) |
|
September 30, 2016 |
|
September 30, 2015 |
|
September 30, 2016 |
|
September 30, 2015 |
|
||||
Film exhibition costs: |
|
|
|
|
|
|
|
|
|
|
|||
Gross exhibition cost on Fathom Events programming |
|
$ |
2,058 |
|