Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

August 8, 2017

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

Published on August 8, 2017

 

 

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, 2017

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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

Large accelerated filer ☐

Accelerated filer ☒ 

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

Smaller reporting company ☐

 

Emerging growth company ☐

 

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

 

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

 

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

 

 

 

Title of each class of common stock

   

Number of shares
outstanding as of July 31, 2017

  Class A common stock
Class B common stock

 

55,078,572

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 (Loss)

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

46

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

75

Item 4. 

Controls and Procedures

75

 

PART II—OTHER INFORMATION

 

Item 1. 

Legal Proceedings

76

Item 1A. 

Risk Factors

76

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

76

Item 3. 

Defaults Upon Senior Securities

76

Item 4. 

Mine Safety Disclosures

76

Item 5. 

Other Information

76

Item 6. 

Exhibits

77

 

Signatures

78

 

 

 

2


 

PART I—FINANCIAL INFORMATION

 

Item 1.  Financial Statements. (Unaudited)

 

AMC ENTERTAINMENT HOLDINGS, INC.

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

(in millions, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

    

June 30, 2017

    

June 30, 2016

    

June 30, 2017

    

June 30, 2016

 

 

(unaudited)

 

(unaudited)

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Admissions

 

$

761.4

 

$

481.2

 

$

1,578.9

 

$

963.8

Food and beverage

 

 

374.1

 

 

243.6

 

 

771.7

 

 

487.7

Other theatre

 

 

66.8

 

 

39.2

 

 

133.1

 

 

78.5

Total revenues

 

 

1,202.3

 

 

764.0

 

 

2,483.7

 

 

1,530.0

Operating costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

Film exhibition costs

 

 

379.8

 

 

263.0

 

 

799.4

 

 

525.3

Food and beverage costs

 

 

62.1

 

 

34.1

 

 

121.9

 

 

68.1

Operating expense

 

 

389.2

 

 

200.0

 

 

745.6

 

 

402.3

Rent

 

 

199.8

 

 

122.8

 

 

390.2

 

 

247.4

General and administrative:

 

 

 

 

 

 

 

 

 

 

 

 

Merger, acquisition and transaction costs

 

 

11.5

 

 

5.6

 

 

51.7

 

 

10.2

Other

 

 

46.2

 

 

20.6

 

 

80.6

 

 

39.1

Depreciation and amortization

 

 

133.3

 

 

62.3

 

 

258.6

 

 

122.7

Operating costs and expenses

 

 

1,221.9

 

 

708.4

 

 

2,448.0

 

 

1,415.1

Operating income (loss)

 

 

(19.6)

 

 

55.6

 

 

35.7

 

 

114.9

Other expense (income):

 

 

 

 

 

 

 

 

 

 

 

 

Other expense (income)

 

 

1.0

 

 

(0.1)

 

 

(1.7)

 

 

(0.1)

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Corporate borrowings

 

 

59.6

 

 

24.9

 

 

110.9

 

 

49.8

Capital and financing lease obligations

 

 

10.3

 

 

2.1

 

 

21.1

 

 

4.3

Equity in (earnings) loss of non-consolidated entities

 

 

195.0

 

 

(11.9)

 

 

197.3

 

 

(16.1)

Investment (income) expense

 

 

0.6

 

 

0.2

 

 

(5.0)

 

 

(9.8)

Total other expense

 

 

266.5

 

 

15.2

 

 

322.6

 

 

28.1

Earnings (loss) before income taxes

 

 

(286.1)

 

 

40.4

 

 

(286.9)

 

 

86.8

Income tax provision (benefit)

 

 

(109.6)

 

 

16.4

 

 

(118.8)

 

 

34.5

Net earnings (loss)

 

$

(176.5)

 

$

24.0

 

$

(168.1)

 

$

52.3

Earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(1.35)

 

$

0.24

 

$

(1.33)

 

$

0.53

Diluted

 

$

(1.35)

 

$

0.24

 

$

(1.33)

 

$

0.53

Average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic (in thousands)

 

 

131,166

 

 

98,194

 

 

126,290

 

 

98,197

Diluted (in thousands)

 

 

131,166

 

 

98,304

 

 

126,290

 

 

98,237

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 (LOSS)

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

    

June 30, 2017

    

June 30, 2016

    

June 30, 2017

    

June 30, 2016

 

 

(unaudited)

 

(Unaudited)

Net earnings (loss)

 

$

(176.5)

 

$

24.0

 

$

(168.1)

 

$

52.3

Unrealized foreign currency translation adjustment, net of tax

 

 

77.1

 

 

0.7

 

 

74.9

 

 

0.6

Pension and other benefit adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

(0.6)

 

 

 —

 

 

(0.5)

 

 

 —

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

0.1

 

 

0.1

 

 

0.3

 

 

0.4

Realized net gain reclassified into investment income, net of tax

 

 

(0.1)

 

 

 —

 

 

(0.1)

 

 

(1.8)

Equity method investees' cash flow hedge:

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

(0.1)

 

 

(0.2)

 

 

(0.1)

 

 

(0.6)

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

 

 

0.1

 

 

0.1

 

 

0.1

 

 

0.2

Other comprehensive income (loss)

 

 

76.5

 

 

0.7

 

 

74.6

 

 

(1.2)

Total comprehensive income (loss)

 

$

(100.0)

 

$

24.7

 

$

(93.5)

 

$

51.1

 

 

See Notes to Consolidated Financial Statements.

4


 

AMC ENTERTAINMENT HOLDINGS, INC.

 

CONSOLIDATED BALANCE SHEETS

 

(Unaudited in millions, except share data)

 

 

 

 

 

 

 

 

 

 

    

June 30, 2017

    

December 31, 2016

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and equivalents

 

$

127.8

 

$

207.1

 

Restricted cash

 

 

6.5

 

 

 —

 

Receivables, net

 

 

153.8

 

 

213.6

 

Assets held for sale

 

 

110.5

 

 

70.4

 

Other current assets

 

 

223.7

 

 

192.5

 

Total current assets

 

 

622.3

 

 

683.6

 

Property, net

 

 

3,254.0

 

 

3,035.9

 

Intangible assets, net

 

 

389.4

 

 

365.1

 

Goodwill

 

 

4,832.2

 

 

3,933.0

 

Deferred tax asset

 

 

204.7

 

 

90.4

 

Other long-term assets

 

 

509.1

 

 

533.8

 

Total assets

 

$

9,811.7

 

$

8,641.8

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

477.8

 

$

501.8

 

Accrued expenses and other liabilities

 

 

289.8

 

 

329.0

 

Deferred revenues and income

 

 

292.8

 

 

277.2

 

Current maturities of corporate borrowings and capital and financing lease obligations

 

 

86.2

 

 

81.2

 

Total current liabilities

 

 

1,146.6

 

 

1,189.2

 

Corporate borrowings

 

 

4,249.1

 

 

3,745.8

 

Capital and financing lease obligations

 

 

599.1

 

 

609.3

 

Exhibitor services agreement

 

 

545.9

 

 

359.3

 

Deferred tax liability

 

 

46.9

 

 

21.0

 

Other long-term liabilities

 

 

746.6

 

 

706.5

 

Total liabilities

 

 

7,334.2

 

 

6,631.1

 

Commitments and contingencies

 

 

 

 

 

 

 

Class A common stock (temporary equity) ($.01 par value, 112,817 shares issued; 76,048 shares outstanding as of June 30, 2017 and 140,014 shares issued; 103,245 shares outstanding as of December 31, 2016 )

 

 

0.8

 

 

1.1

 

Stockholders’ equity:

 

 

 

 

 

 

 

Class A common stock ($.01 par value, 524,173,073 shares authorized; 55,002,524 shares issued and outstanding as of June 30, 2017; 34,236,561 shares issued and outstanding as of December 31, 2016)

 

 

0.6

 

 

0.3

 

Class B common stock ($.01 par value, 75,826,927 shares authorized; 75,826,927 shares issued and outstanding as of June 30, 2017 and December 31, 2016)

 

 

0.8

 

 

0.8

 

Additional paid-in capital

 

 

2,240.3

 

 

1,627.3

 

Treasury stock (36,769 shares as of June 30, 2017 and December 31, 2016, at cost)

 

 

(0.7)

 

 

(0.7)

 

Accumulated other comprehensive income (loss)

 

 

72.1

 

 

(2.5)

 

Accumulated earnings

 

 

163.6

 

 

384.4

 

Total stockholders’ equity

 

 

2,476.7

 

 

2,009.6

 

Total liabilities and stockholders’ equity

 

$

9,811.7

 

$

8,641.8

 

 

See Notes to Consolidated Financial Statements.

5


 

AMC ENTERTAINMENT HOLDINGS, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(in millions)

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

June 30, 2017

 

June 30, 2016

 

 

(unaudited)

Cash flows from operating activities:

 

 

 

 

 

 

Net earnings (loss)

 

$

(168.1)

 

$

52.3

Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

258.6

 

 

122.7

Loss on NCM charged to merger, acquisition and transaction costs

 

 

22.6

 

 

 —

Loss on extinguishment of debt

 

 

0.5

 

 

Deferred income taxes

 

 

(118.3)

 

 

28.8

Amortization of net premium on corporate borrowings

 

 

(1.1)

 

 

0.1

Amortization of deferred charges to interest expense

 

 

5.6

 

 

2.6

Theatre and other closure expense

 

 

1.7

 

 

2.6

Non-cash portion of stock-based compensation

 

 

4.0

 

 

2.8

Gain on dispositions

 

 

(3.6)

 

 

(3.0)

Repayment of Nordic interest rate swaps

 

 

(2.7)

 

 

 —

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

 

 

13.9

 

 

(5.1)

NCM other-than-temporary impairment loss

 

 

204.5

 

 

 —

Landlord contributions

 

 

42.8

 

 

47.8

Deferred rent

 

 

(22.5)

 

 

(15.0)

Net periodic benefit cost (credit)

 

 

0.3

 

 

0.4

Change in assets and liabilities, excluding acquisitions:

 

 

 

 

 

 

Receivables

 

 

78.4

 

 

38.5

Other assets

 

 

(8.2)

 

 

(3.0)

Accounts payable

 

 

(98.0)

 

 

(46.9)

Accrued expenses and other liabilities

 

 

(105.8)

 

 

(91.7)

Other, net

 

 

5.2

 

 

0.1

Net cash provided by operating activities

 

 

109.8

 

 

134.0

Cash flows from investing activities:

 

 

 

 

 

 

Capital expenditures

 

 

(318.0)

 

 

(140.3)

Acquisition of Nordic Cinemas Group, net of cash acquired

 

 

(584.4)

 

 

 —

Acquisition of Carmike Cinemas, Inc., net of cash acquired

 

 

0.1

 

 

 —

Acquisition of Starplex Cinemas

 

 

 —

 

 

0.4

Proceeds from disposition of long-term assets

 

 

22.4

 

 

18.9

Investments in non-consolidated entities, net

 

 

0.7

 

 

(6.8)

Other, net

 

 

(2.8)

 

 

(0.2)

Net cash used in investing activities

 

 

(882.0)

 

 

(128.0)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from issuance of Senior Subordinated Sterling Notes due 2024

 

 

327.8

 

 

 —

Proceeds from issuance of Senior Subordinated Notes due 2027

 

 

475.0

 

 

 —

Payment of Nordic SEK Term Loan

 

 

(144.4)

 

 

 —

Payment of Nordic EUR Term Loan

 

 

(169.5)

 

 

 —

Net proceeds from equity offering

 

 

616.8

 

 

 —

Borrowings under (repayments) Revolving Credit Facility

 

 

50.0

 

 

(75.0)

Principal payment of Bridge Loan due 2017

 

 

(350.0)

 

 

 —

Principal payments under Term Loan

 

 

(5.7)

 

 

(4.4)

Principal payments under capital and financing lease obligations

 

 

(36.8)

 

 

(4.2)

Cash used to pay for deferred financing costs

 

 

(29.5)

 

 

(0.8)

Cash used to pay dividends

 

 

(52.5)

 

 

(39.4)

Net cash provided by (used in) financing activities

 

 

681.2

 

 

(123.8)

Effect of exchange rate changes on cash and equivalents

 

 

11.7

 

 

(0.1)

Net decrease in cash and equivalents

 

 

(79.3)

 

 

(117.9)

Cash and equivalents at beginning of period

 

 

207.1

 

 

211.2

Cash and equivalents at end of period

 

$

127.8

 

$

93.3

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Interest (including amounts capitalized of $0.1 million and $0.1 million)

 

$

126.8

 

$

51.4

Income taxes paid, net

 

$

6.5

 

$

4.1

Schedule of non-cash operating and investing activities:

 

 

 

 

 

 

Investment in NCM (See Note 3-Investments)

 

$

235.2

 

$

 —

See Note 2-Acquisitions for non-cash activities related to acquisitions

 

 

 

 

 

 

 

See Notes to Consolidated Financial Statements.

6


 

AMC ENTERTAINMENT HOLDINGS, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

June 30, 2017

 

(Unaudited)

 

NOTE 1—BASIS OF PRESENTATION

 

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

 

As of June 30, 2017, Wanda owned approximately 57.92% of Holdings’ outstanding common stock and 80.51% 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) Fair value of acquired assets and liabilities, 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 year ended December 31, 2016. The accompanying consolidated balance sheet as of December 31, 2016, 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 (loss) for the periods presented are attributable to controlling interests. Due to the seasonal nature of the Company’s business, results for the year-to-date period ended June 30, 2017 are not necessarily indicative of the results to be expected for the year ending December 31, 2017. The Company manages its business under two reportable segments for its theatrical exhibition operations, U.S. markets and International markets.

 

Presentation:  In the Consolidated Balance Sheets, assets held for sale within current assets have been presented separately from other current assets in the current year presentation with conforming reclassifications made for the prior period presentation.

 

Accumulated depreciation and amortization: Accumulated depreciation was $994.9 million and $792.3 million, at June 30, 2017 and December 31, 2016, respectively, related to property. Accumulated amortization of intangible assets was $45.1 million and $35.4 million, at June 30, 2017 and December 31, 2016, respectively.

 

 

 

 

7


 

NOTE 2—ACQUISITIONS

 

Nordic Cinema Group Holding AB

 

On March 28, 2017, the Company completed the acquisition of Nordic Cinema Group Holding AB (“Nordic”) for cash. The purchase price for Nordic was approximately SEK 5,756 million ($654.9 million), which includes payment of interest on the equity value and repayment of shareholder loans. As a result of the acquisition, the Company assumed the indebtedness of Nordic of approximately SEK 1,269 million ($144.4 million) and indebtedness of approximately €156 million ($169.5 million) as of March 28, 2017, which was refinanced subsequent to the acquisition. The Company also assumed approximately SEK 13.5 million ($1.6 million) and approximately €1.0 million ($1.1 million) of interest rate swaps related to the indebtedness which were repaid following the acquisition. All amounts have been converted into US Dollar amounts assuming an SEK/USD exchange rate of 0.11378 and an EUR/USD exchange rate of 1.0865, which were the exchange rates on March 27, 2017. Nordic operated 71 theatres, 467 screens, and approximately 67,000 seats in nearly 50 large and medium-sized cities in the Nordic and Baltic nations, and holds a substantial minority investment in another 51 associated theatres with 216 screens, to which Nordic provides a variety of shared services. Nordic is the largest theatre operator in Scandinavia and the Nordic and Baltic Regions of Europe. Nordic operates in seven countries in the northern region of Europe: Sweden, Finland, Estonia, Latvia, Lithuania, Norway, and Denmark.

 

The acquisition is being treated as a purchase in accordance with Accounting Standards Codification Topic 805, Business Combinations (“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 a preliminary valuation assessment. Because the values assigned to assets acquired and liabilities assumed are based on preliminary estimates of fair value available as of the date of this Quarterly Report on Form 10-Q, amounts may be adjusted during the measurement period of up to twelve months from the date of acquisition as further information becomes available. Any changes in the fair values of assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill. The allocation of purchase price is preliminary and subject to changes as appraisals of tangible and intangible assets and liabilities including working capital are finalized, purchase price adjustments are completed and additional information regarding the tax bases of assets and liabilities at the acquisition date becomes available. The following is a summary of a preliminary allocation of the purchase price:

 

 

 

 

 

 

 

 

 

 

 

(In millions)

    

March 28, 2017

 

Changes

 

June 30, 2017

Cash

 

$

70.5

 

$

0.9

 

$

71.4

Restricted cash

 

 

 —

 

 

5.9

 

 

5.9

Receivables

 

 

25.0

 

 

(11.6)

 

 

13.4

Other current assets

 

 

14.0

 

 

8.9

 

 

22.9

Property (1)

 

 

89.8

 

 

53.1

 

 

142.9

Intangible assets (1) (4)

 

 

 —

 

 

24.9

 

 

24.9

Goodwill (2)

 

 

872.1

 

 

(78.5)

 

 

793.6

Deferred tax asset

 

 

5.5

 

 

(5.1)

 

 

0.4

Other long-term assets

 

 

41.0

 

 

27.5

 

 

68.5

Accounts payable

 

 

(30.3)

 

 

0.1

 

 

(30.2)

Accrued expenses and other liabilities

 

 

(26.5)

 

 

(6.0)

 

 

(32.5)

Deferred revenues and income

 

 

(43.5)

 

 

 —

 

 

(43.5)

Term Loan Facility (SEK)

 

 

(144.4)

 

 

 —

 

 

(144.4)

Term Loan Facility (EUR)

 

 

(169.5)

 

 

 —

 

 

(169.5)

Capital lease and financing lease obligations (1)(3)

 

 

(29.2)

 

 

14.1

 

 

(15.1)

Deferred tax liability

 

 

(5.2)

 

 

(17.5)

 

 

(22.7)

Other long-term liabilities (5)

 

 

(14.4)

 

 

(16.7)

 

 

(31.1)

Total estimated purchase price

 

$

654.9

 

$

 —

 

$

654.9


(1)

Amounts recorded for property include land, buildings, capital lease assets, leasehold improvements, furniture, fixtures and equipment. During the three months ended June 30, 2017, the Company recorded measurement period adjustments primarily related to the preliminary valuation of property, intangible assets, equity method investments, financing lease obligations and related tax adjustments.

 

(2)

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

8


 

 

(3)

Including current portion of approximately $3.5 million.

 

(4)

Additional information for intangible assets acquired on March 28, 2017 is presented below:

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

Gross

(In millions)

 

Amortization Period

 

Carrying Amount

Acquired intangible assets:

 

 

 

 

 

 

Amortizable intangible assets:

 

 

 

 

 

 

Favorable leases

 

 

1.3 years

 

$

0.5

Favorable subleases

 

 

4.5 years

 

 

1.3

Screen advertising agreement

 

 

5.0 years

 

 

12.2

Trade name agreement

 

 

4.0 years

 

 

1.0

Total, amortizable

 

 

4.8 years

 

$

15.0

Unamortized intangible assets:

 

 

 

 

 

 

Trade names

 

 

 

 

$

9.9

 

(5)

Amounts recorded for other long-term liabilities include unfavorable leases of approximately $17.3 million.

 

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.

 

The purchase price paid by the Company in the acquisition resulted in recognition of goodwill because it exceeded the estimated fair value of the assets acquired and liabilities assumed. The Company paid a price in excess of estimated fair value of the assets acquired and liabilities assumed because the acquisition of Nordic enhances its position as the largest movie exhibition company in Europe and broadens and diversifies its European platform. The Company also expects to realize synergy and cost savings related to the acquisition because of purchasing and procurement economies of scale. 

 

During the three and six months ended June 30, 2017, the Company incurred acquisition-related and transition costs for Nordic of approximately $1.8 million and $9.4 million, respectively, which were included in general and administrative expense: merger, acquisition and transaction costs in the Consolidated Statements of Operations. The revenues for Nordic during the three and six months ended June 30, 2017 were $69.9 million and $72.4 million, respectively, and net earnings (loss) was an immaterial amount for the three and six months ended June 30, 2017.

 

Odeon and UCI Cinemas Holdings Limited.

 

On November 30, 2016, the Company completed the acquisition of Odeon and UCI Cinemas Holdings Limited. (“Odeon”) for approximately £510.4 million ($637.1 million) comprised of cash of approximately £384.8 million ($480.3 million) and 4,536,466 shares of the Company’s Class A common stock with a fair value of approximately £125.6 million ($156.7 million) based on a closing share price of $34.55 per share on November 29, 2016. The amounts set forth above are based on a GBP/USD exchange rate of approximately 1.25 on November 30, 2016. As of November 30, 2016, Odeon operated 244 theatres and 2,243 screens in four major European markets: United Kingdom, Spain, Italy, and Germany; and three smaller markets: Austria, Portugal and Ireland.

 

9


 

The acquisition is being treated as a purchase in accordance with 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 a preliminary valuation assessment. Because the values assigned to assets acquired and liabilities assumed are based on preliminary estimates of fair value available as of the date of the Annual Report on Form 10-K, amounts may be adjusted during the measurement period of up to twelve months from the date of acquisition as further information becomes available. Any changes in the fair values of assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill. The allocation of purchase price is preliminary and subject to changes as appraisals of tangible and intangible assets and liabilities including working capital are finalized, purchase price adjustments are completed and additional information regarding the tax bases of assets and liabilities at the acquisition date becomes available. The following is a summary of a preliminary allocation of the purchase price:

 

 

 

 

 

 

 

 

 

 

 

(In millions)

    

November 30, 2016

 

Changes

 

June 30, 2017

Cash

 

$

41.6

 

$

 —

 

$

41.6

Receivables

 

 

26.2

 

 

 —

 

 

26.2

Other current assets

 

 

58.1

 

 

 —

 

 

58.1

Property (1)

 

 

755.9

 

 

(20.1)

 

 

735.8

Intangible assets (2)

 

 

112.1

 

 

 —

 

 

112.1

Goodwill (3)

 

 

898.6

 

 

22.1

 

 

920.7

Deferred tax asset

 

 

18.7

 

 

 —

 

 

18.7

Other long-term assets

 

 

29.6

 

 

 —

 

 

29.6

Accounts payable

 

 

(78.9)

 

 

 —

 

 

(78.9)

Accrued expenses and other liabilities

 

 

(118.2)

 

 

 —

 

 

(118.2)

Deferred revenues and income

 

 

(20.4)

 

 

 —

 

 

(20.4)

9% Senior Secured Note GBP due 2018

 

 

(382.9)

 

 

 —

 

 

(382.9)

4.93% Senior Secured Note EUR due 2018

 

 

(213.7)

 

 

 —

 

 

(213.7)

Capital lease and financing lease obligations (4)

 

 

(365.3)

 

 

(2.0)

 

 

(367.3)

Deferred tax liability

 

 

(21.3)

 

 

 —

 

 

(21.3)

Other long-term liabilities (5)

 

 

(103.0)

 

 

 —

 

 

(103.0)

Total estimated purchase price

 

$

637.1

 

$

 —

 

$

637.1


(1)

Amounts recorded for property include land, buildings, capital lease assets, leasehold improvements, furniture, fixtures and equipment. During the six months ended June 30, 2017, the Company recorded measurement period adjustments primarily related to the preliminary valuation of property and financing lease obligations. During the six months ended June 30, 2017, the Company sold one theatre and reduced the carrying value to fair value.

 

(2)

Amounts recorded for intangible assets include favorable leases, management agreements and trade names.

 

(3)

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

 

(4)

Including current portion of approximately $26.4 million.

 

(5)

 Amounts recorded for other long-term liabilities include unfavorable leases of approximately $48.3 million.

 

The preliminary 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 that the Company is still reviewing.

 

The purchase price paid by the Company in the acquisition resulted in recognition of goodwill because it exceeded the estimated fair value of the assets acquired and liabilities assumed. The Company paid a price in excess of estimated fair value of the assets acquired and liabilities assumed because the acquisition of Odeon allows considerable opportunity in the European markets where it operates to leverage theatre renovations, including power recliners, enhanced food and beverage offerings and premium large format  experiences, among others, to drive future growth and value. Odeon also provides the Company with a strong and scalable platform to pursue future international growth opportunities. The Company also expects to realize synergy and cost savings related to the acquisition because of

10


 

purchasing and procurement economies of scale. 

 

During the three and six months ended June 30, 2017 the Company incurred acquisition-related and transition costs for Odeon of approximately $0.9 million and $4.8 million, respectively, which were included in general and administrative expense: merger, acquisition and transaction costs in the Consolidated Statements of Operations. The revenues for Odeon during the three and six months ended June 30, 2017 were $223.6 million and $508.8 million, respectively, and the net loss was $23.1 million and $5.5 million, respectively.  

 

Carmike Cinemas, Inc.

 

On December 21, 2016, the Company completed the acquisition of Carmike Cinemas, Inc. (“Carmike”) for approximately $858.2 million comprised of cash of approximately $584.3 million and 8,189,808 shares of the Company’s Class A common stock with a fair value of approximately $273.9 million (based on a closing share price of $33.45 per share on December 20, 2016). The Company also assumed debt of $230.0 million aggregate principal amount of 6.00% Senior Secured Notes due June 15, 2023 (the “Senior Secured Notes due 2023”). As of December 21, 2016, Carmike operated 271 theatres and 2,923 screens located in 41 states.

 

The acquisition is being treated as a purchase in accordance with 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 a preliminary valuation assessment. Because the values assigned to assets acquired and liabilities assumed are based on preliminary estimates of fair value available as of the date of the Annual Report on Form 10-K, amounts may be adjusted during the measurement period of up to twelve months from the date of acquisition as further information becomes available. Any changes in the fair values of assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill. The allocation of purchase price is preliminary and subject to changes as appraisals of tangible and intangible assets and liabilities including working capital are finalized, purchase price adjustments are completed and additional information regarding the tax bases of assets and liabilities at the acquisition date becomes available. The following is a summary of a preliminary allocation of the purchase price:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In millions)

    

December 21, 2016

 

Changes

 

June 30, 2017

Cash

 

$

86.5

 

$

0.1

 

$

86.6

Receivables

 

 

12.3

 

 

 —

 

 

12.3

Other current assets

 

 

14.2

 

 

 —

 

 

14.2

Property (1)

 

 

719.6

 

 

(0.4)

 

 

719.2

Intangible assets (2)

 

 

25.9

 

 

 —

 

 

25.9

Goodwill (3)

 

 

624.8

 

 

0.3

 

 

625.1

Other long-term assets

 

 

19.4

 

 

 —

 

 

19.4

Accounts payable

 

 

(37.0)

 

 

 —

 

 

(37.0)

Accrued expenses and other liabilities

 

 

(53.0)

 

 

 —

 

 

(53.0)

Deferred revenues and income

 

 

(19.9)

 

 

 —

 

 

(19.9)

Deferred tax liability

 

 

(19.5)

 

 

 —

 

 

(19.5)

6% Senior Secured Notes due 2023

 

 

(242.1)

 

 

 —

 

 

(242.1)

Capital and financing lease obligations (4)

 

 

(222.0)

 

 

 —

 

 

(222.0)

Other long-term liabilities (5)

 

 

(51.0)

 

 

 —

 

 

(51.0)

Total estimated purchase price

 

$

858.2

 

$

 —

 

$

858.2

 


(1)

Amounts recorded for property includes land, buildings, capital lease assets, leasehold improvements, furniture, fixtures and equipment. During the six months ended June 30, 2017, the Company sold 13 theatres and reduced the carrying value to fair value.

 

(2)

Amounts recorded for intangible assets include favorable leases and trade name.

 

(3)

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

 

(4)

 Including current portion of approximately $30.4 million.

 

11


 

 

(5)

Amounts recorded for other long-term liabilities include unfavorable leases of approximately $51.0 million.

 

The preliminary 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 that the Company is still reviewing.

 

The purchase price paid by the Company in the acquisition resulted in recognition of goodwill because it exceeded the estimated fair value of the assets acquired and liabilities assumed. The Company paid a price in excess of estimated fair value of the assets acquired and liabilities assumed because the acquisition of Carmike increased and diversified its domestic footprint and made the Company the largest theatre operator in the United States in terms of revenues and offers a unique opportunity to introduce guest-focused strategic initiatives to millions of Carmike’s movie-goers. The Company also expects to realize significant synergy and cost savings related to the acquisition because 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. 

 

During the three and six months ended June 30, 2017, the Company incurred acquisition-related and transition costs for Carmike of approximately $7.2 million and $13.1 million, respectively, which were included in general and administrative expense: merger, acquisition and transaction costs in the Consolidated Statements of Operations. Carmike was acquired on December 21, 2016 and the Company immediately began integrating the operations. The revenues for the three and six months ended June 30, 2017 were $168.8 million and $368.0 million, respectively, and the net earnings (loss) was $(7.3) million and $5.0 million, respectively.

 

Department of Justice Final Judgment - In connection with the acquisition of Carmike the Company entered into a Final Judgment with the United States Department of Justice (“DOJ”) on March  7, 2017, pursuant to which the Company agreed to take certain actions to enable it to complete its acquisition of Carmike, including divest 17 movie theatres (and certain related assets) in the 15 local markets where the Company and Carmike are direct competitors to one or more acquirers acceptable to the DOJ (the Company received gross proceeds of $25.1 million related to divested theatre assets that were held for sale and sold during the three months ended June 30, 2017); establish firewalls to ensure the Company does not obtain National CineMedia, LLC’s (“NCM” or “NCM LLC”), Screenvision’s or other exhibitors competitively sensitive information; relinquish seats on NCM’s board of directors and all other NCM governance rights; and transfer 24 theatres comprising 384 screens (which represent less than 2% of NCM’s total network) to the Screenvision network. This includes five Carmike theatres that implemented the Screenvision network prior to completion of the Carmike acquisition, an AMC theatre required to extend its existing term with the Screenvision network, and an AMC theatre that was also included in the divestitures. The settlement agreement also requires the Company to divest the majority of its equity interests in National CineMedia, Inc. (“NCMI”) common shares and NCM LLC common units so that by June 20, 2019, it owns no more than 4.99% of NCM’s outstanding equity interests per the following schedule: (i) on or before December 20, 2017, AMC must own no more than 15% of NCM’s outstanding equity interests (as of June 30, 2017, the Company classified a portion of its investment in NCM as assets held for sale of $110.5 million); (ii) on or before December 20, 2018, AMC must own no more than 7.5% of NCM’s outstanding equity interests; and (iii) on or before June 20, 2019 AMC must own no more than 4.99% of NCM’s outstanding equity interests. In addition, in accordance with the terms of the settlement, effective December 20, 2016, Craig R. Ramsey, executive vice president and Chief Financial Officer of the Company, resigned his position as a member of the Board of Directors of National CineMedia, Inc.

 

12


 

Goodwill activity is presented below:

 

 

 

 

 

 

 

 

 

 

 

(In millions)

    

U.S. Markets

 

International Markets

 

Total

Balance as of December 31, 2016

 

$

3,044.8

 

$

888.2

 

$

3,933.0

Acquisition of Nordic

 

 

 —

 

 

872.1

 

 

872.1

Adjustments to acquisition of Nordic Cinemas (1)

 

 

 —

 

 

(78.5)

 

 

(78.5)

Adjustments to acquisition of Odeon Cinemas (1)

 

 

 —

 

 

22.1

 

 

22.1

Adjustments to acquisition of Carmike Cinemas (1)

 

 

0.3

 

 

 —

 

 

0.3

Effect of foreign currency exchange

 

 

 —

 

 

83.2

 

 

83.2

Balance as of June 30, 2017

 

$

3,045.1

 

$

1,787.1

 

$

4,832.2


(1)

For adjustments to goodwill see respective tables above.

 

 

Pro Forma Results of Operations (Unaudited)

 

The following selected comparative unaudited pro forma results of operation information for the three months and six months ended June 30, 2017 and June 30, 2016 assumes that the Odeon, Carmike, and Nordic acquisitions occurred at the beginning of 2016, and reflects the full results of operations for the years presented. The pro forma results have been prepared for comparative purposes only and do not purport to indicate the results of operations which would actually have occurred had the combination been in effect on the dates indicated, or which may occur in the future. These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Odeon, Carmike, and Nordic to reflect the preliminary fair value adjustments to property and equipment and financing obligations. The pro forma financial information presented includes the effects of adjustments related to preliminary values assigned to long-lived assets, including depreciation charges from acquired property and equipment, interest expense and incremental shares issued from financing the acquisitions and the related income tax effects and the elimination of Carmike and AMC historical revenues and expenses for theatres in markets that were divested as required by the Department of Justice. Merger, acquisition and transaction costs directly related to the acquisitions have not been removed as provided in ASC 805, Business Combinations.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro Forma Three Months Ended

 

Pro Forma Six Months Ended

 

 

June 30,

 

June 30,

(In millions)

 

2017

 

2016

 

2017

 

2016

Revenues

 

$

1,201.1

 

$

1,243.3

 

$

2,560.5

 

$

2,601.3

Operating income (loss)

 

$

(22.1)

 

$

20.4

 

$

42.7

 

$

124.5

Net earnings (loss)

 

$

(178.1)

 

$

(66.2)

 

$

(173.0)

 

$

(68.6)

Income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(1.36)

 

$

(0.50)

 

$

(1.37)

 

$

(0.52)

Diluted

 

$

(1.36)

 

$

(0.50)

 

$

(1.37)

 

$

(0.52)

 

 

 

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, 2017 include a 24.7% interest in NCM, a 29.0% interest in Digital Cinema Implementation Partners, LLC (“DCIP”), a 14.6% interest in Digital Cinema Distribution Coalition, LLC (“DCDC”), a 50.0% interest in Open Road Releasing, LLC, operator of Open Road Films, LLC (“Open Road Films”), a 32.0% interest in AC JV, LLC (“AC JV”), owner of Fathom Events, a 16.8% interest in SV Holdco, owner of Screenvision, a 50.0% interest in Digital Cinema Media (“DCM”), 50.0% interest in five U.S. motion picture theatres and one IMAX® screen and approximately 50.0% interest in 51 theatres in Europe acquired in the Nordic acquisition. Indebtedness held by equity method investees is non-recourse to the Company.

 

13


 

RealD Inc. Common Stock.  During the six months ended June 30, 2016, the Company sold all of its 1,222,780 shares in RealD Inc. and recognized a gain on sale of $3.0 million.

 

Equity in Earnings (Losses) of Non-Consolidated Entities

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

(In millions)

    

June 30, 2017

    

June 30, 2016

    

June 30, 2017

    

June 30, 2016

Revenues

 

$

144.2

 

$

160.2

 

$

261.6

 

$

277.0

Operating costs and expenses

 

 

103.2

 

 

104.7

 

 

204.3

 

 

210.5

Net earnings

 

$

41.0

 

$

55.5

 

$

57.3

 

$

66.5

 

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 millions)

    

June 30, 2017

    

June 30, 2016

    

June 30, 2017

    

June 30, 2016

National CineMedia, LLC

 

$

(198.5)

 

$

5.0

 

$

(204.5)

 

$

2.9

Digital Cinema Implementation Partners, LLC

 

 

7.8

 

 

6.9

 

 

15.2

 

 

12.6

Other

 

 

(4.3)

 

 

 —

 

 

(8.0)

 

 

0.6

The Company’s recorded equity in earnings (loss)

 

$

(195.0)

 

$

11.9

 

$

(197.3)

 

$

16.1

 


1)

Equity in (earnings) losses of non-consolidated entities includes an  other-than-temporary impairment of the Company’s investment in NCM, LLC and NCM, Inc. of $202.6 million and $204.5 million for the three months and six months ended June 30, 2017. The other-than-temporary impairment charge under the U.S. markets segment reflects recording our units and shares at the publicly quoted per share price on June 30, 2017 of $7.42 based on the Company’s determination that the decline in the price per share during the quarter was other than temporary.

 

NCM Transactions.  As of June 30, 2017, the Company owned 37,992,630 common membership units, or a 24.7% interest, in NCM LLC and 200,000 common shares of NCM, Inc. The estimated fair market value of the common units in NCM LLC and the common stock investment in NCM, Inc. was approximately $283.4 million based on the publicly quoted price per share of NCM, Inc. on June 30, 2017 of $7.42 per share.

 

The Company recorded the following related party transactions with NCM:

 

 

 

 

 

 

 

 

 

 

 

As of

 

As of

 

(In millions)

    

June 30, 2017

    

December 31, 2016

 

Due from NCM for on-screen advertising revenue

 

$

2.4

 

$

2.6

 

Due to NCM for Exhibitor Services Agreement

 

 

1.1

 

 

1.4

 

Promissory note payable to NCM

 

 

4.2

 

 

4.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

(In millions)

 

June 30, 2017

   

June 30, 2016

   

June 30, 2017

   

June 30, 2016

Net NCM screen advertising revenues

 

$

19.4

 

$

10.1

 

$

31.0

 

$

20.7

NCM beverage advertising expense

 

 

1.7

 

 

1.5

 

 

3.6

 

 

3.0

 

 

14


 

The Company recorded the following changes in the carrying amount of its investment in NCM, LLC and equity in losses of NCM, LLC during the six months ended June 30, 2017: