10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on August 8, 2019
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One) |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended | |
OR | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to | |
Commission file number
(Exact name of registrant as specified in its charter)
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Registrant’s telephone number, including area code: (
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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.
Accelerated filer ☐ |
Non-accelerated filer ☐ |
Smaller reporting company
Emerging growth company |
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standard provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol |
Name of each exchange on which registered |
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Title of each class of common stock |
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Number of shares |
Class A common stock |
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AMC ENTERTAINMENT HOLDINGS, INC.
INDEX
Page |
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3 |
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Condensed Consolidated Statements of Operations |
3 |
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Condensed Consolidated Statements of Comprehensive Income (Loss) |
4 |
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Condensed Consolidated Balance Sheets |
5 |
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Condensed Consolidated Statements of Cash Flows |
6 |
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8 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
48 |
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71 |
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72 |
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73 |
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73 |
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73 |
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73 |
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73 |
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74 |
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75 |
2
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements. (Unaudited)
AMC ENTERTAINMENT HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended |
Six Months Ended |
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(in millions, except share and per share amounts) |
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June 30, 2019 |
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June 30, 2018 |
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June 30, 2019 |
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June 30, 2018 |
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(unaudited) |
(unaudited) |
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Revenues |
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Admissions |
$ |
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$ |
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$ |
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$ |
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Food and beverage |
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Other theatre |
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Total revenues |
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Operating costs and expenses |
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Film exhibition costs |
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Food and beverage costs |
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Operating expense, excluding depreciation and amortization below |
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Rent |
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General and administrative: |
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Merger, acquisition and transaction costs |
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Other, excluding depreciation and amortization below |
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Depreciation and amortization |
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Operating costs and expenses |
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Operating income |
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Other expense (income): |
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Other expense (income) |
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( |
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Interest expense: |
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Corporate borrowings |
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Capital and financing lease obligations |
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Non-cash NCM exhibitor services agreement |
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Equity in earnings of non-consolidated entities |
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( |
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( |
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( |
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( |
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Investment income |
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( |
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( |
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( |
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( |
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Total other expense |
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Earnings (loss) before income taxes |
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( |
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Income tax provision (benefit) |
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( |
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Net earnings (loss) |
$ |
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$ |
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$ |
( |
$ |
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Earnings (loss) per share: |
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Basic |
$ |
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$ |
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$ |
( |
$ |
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Diluted |
$ |
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$ |
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$ |
( |
$ |
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Average shares outstanding: |
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Basic (in thousands) |
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Diluted (in thousands) |
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See Notes to Condensed Consolidated Financial Statements.
3
AMC ENTERTAINMENT HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three Months Ended |
Six Months Ended |
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(in millions) |
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June 30, 2019 |
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June 30, 2018 |
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June 30, 2019 |
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June 30, 2018 |
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Net earnings (loss) |
$ |
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$ |
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$ |
( |
$ |
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Other comprehensive income (loss) |
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Unrealized foreign currency translation adjustment |
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( |
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( |
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( |
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( |
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Realized loss on foreign currency transactions reclassified into other expense, net of tax |
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Pension and other benefit adjustments: |
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Net gain (loss) arising during the period, net of tax |
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( |
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( |
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Equity method investees' cash flow hedge: |
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Unrealized net holding gain (loss) arising during the period, net of tax |
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( |
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— |
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( |
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Realized net gain reclassified into equity in earnings of non-consolidated entities, net of tax |
— |
( |
— |
( |
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Other comprehensive loss |
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( |
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( |
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( |
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( |
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Total comprehensive income (loss) |
$ |
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$ |
( |
$ |
( |
$ |
( |
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See Notes to Condensed Consolidated Financial Statements.
4
AMC ENTERTAINMENT HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except share data) |
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June 30, 2019 |
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December 31, 2018 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ |
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$ |
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Restricted cash |
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Receivables, net |
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Other current assets |
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Total current assets |
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Property, net |
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Operating right-of-use assets, net |
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— |
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Intangible assets, net |
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Goodwill |
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Deferred tax asset, net |
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Other long-term assets |
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Total assets |
$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
$ |
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$ |
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Accrued expenses and other liabilities |
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Deferred revenues and income |
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Current maturities of corporate borrowings |
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Current maturities of finance lease liabilities |
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— |
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Current maturities of operating lease liabilities |
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— |
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Current maturities of capital and financing lease obligations |
— |
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Total current liabilities |
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Corporate borrowings |
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Finance lease liabilities |
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Operating lease liabilities |
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— |
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Exhibitor services agreement |
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Deferred tax liability, net |
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Other long-term liabilities |
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Total liabilities |
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Commitments and contingencies |
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Class A common stock (temporary equity) ($ |
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— |
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Stockholders’ equity: |
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Class A common stock ($ |
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Class B common stock ($ |
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Additional paid-in capital |
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Treasury stock ( |
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( |
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( |
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Accumulated other comprehensive income (loss) |
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( |
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Accumulated deficit |
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( |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
$ |
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$ |
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See Notes to Condensed Consolidated Financial Statements.
5
AMC ENTERTAINMENT HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Six Months Ended |
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June 30, 2019 |
June 30, 2018 |
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Cash flows from operating activities: |
(Unaudited) |
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Net earnings (loss) |
$ |
( |
$ |
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Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: |
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Depreciation and amortization |
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Deferred income taxes |
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( |
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Amortization of net discount (premium) on corporate borrowings |
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( |
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Amortization of deferred charges to interest expense |
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Non-cash portion of stock-based compensation |
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Gain on dispositions |
( |
( |
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Gain on disposition of NCM |
— |
( |
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Gain on derivative asset and derivative liability |
( |
— |
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Loss on repayment of indebtedness |
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— |
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Equity in (earnings) loss from non-consolidated entities, net of distributions |
( |
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NCM held-for-sale impairment loss |
— |
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Landlord contributions |
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Non-cash rent - purchase accounting |
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— |
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Deferred rent |
( |
( |
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Net periodic benefit cost |
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Change in assets and liabilities, excluding acquisitions: |
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Receivables |
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Other assets |
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( |
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Accounts payable |
( |
( |
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Accrued expenses and other liabilities |
( |
( |
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Other, net |
( |
( |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Capital expenditures |
( |
( |
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Proceeds from sale leaseback transactions |
— |
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Proceeds from disposition of NCM |
— |
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Acquisition of theatre assets |
( |
— |
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Proceeds from disposition of long-term assets |
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Investments in non-consolidated entities, net |
( |
( |
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Other, net |
( |
( |
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Net cash used in investing activities |
( |
( |
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Cash flows from financing activities: |
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Proceeds from issuance of Term Loan due 2026 |
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— |
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Payment of principal Senior Secured Notes due 2023 |
( |
— |
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Payment of principal Senior Subordinated Notes due 2022 |
( |
— |
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Call premiums paid for Senior Secured Notes due 2023 and Senior Subordinated Notes due 2022 |
( |
— |
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Principal payment of Term Loans due 2022 and 2023 |
( |
— |
||||
Repayments under revolving credit facilities |
( |
— |
||||
Scheduled principal payments under Term Loans |
( |
( |
||||
Principal payments under capital and financing lease obligations |
( |
( |
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Cash used to pay for debt financing costs |
( |
( |
||||
Cash used to pay dividends |
( |
( |
||||
Taxes paid for restricted unit withholdings |
( |
( |
||||
Purchase of treasury stock |
— |
( |
||||
Net cash used in financing activities |
( |
( |
||||
6
Effect of exchange rate changes on cash and cash equivalents and restricted cash |
( |
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Net increase (decrease) in cash and cash equivalents and restricted cash |
( |
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Cash and cash equivalents and restricted cash at beginning of period |
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Cash and cash equivalents and restricted cash at end of period |
$ |
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$ |
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
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Cash paid during the period for: |
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Interest (including amounts capitalized of $ |
$ |
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$ |
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Income taxes paid (received), net |
$ |
( |
$ |
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Schedule of non-cash activities: |
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Investment in NCM (See Note 5—Investments) |
$ |
|
$ |
( |
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Construction payables at period end |
$ |
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$ |
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Accrued treasury stock payable at period end |
$ |
— |
$ |
|
See Notes to Condensed Consolidated Financial Statements.
7
AMC ENTERTAINMENT HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2019
(Unaudited)
NOTE 1—BASIS OF PRESENTATION
AMC Entertainment Holdings, Inc. (“Holdings”), through its direct and indirect subsidiaries, including American Multi-Cinema, Inc. and its subsidiaries, (collectively with Holdings, unless the context otherwise requires, the “Company” or “AMC”), is principally involved in the theatrical exhibition business and owns, operates or has interests in theatres located in the United States and Europe. Holdings is an indirect subsidiary of Dalian Wanda Group Co., Ltd. (“Wanda”), a Chinese private conglomerate.
As of June 30, 2019, Wanda owned approximately
Use of Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Principles of Consolidation: The accompanying unaudited condensed consolidated financial statements include the accounts of 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, 2018. The accompanying condensed consolidated balance sheet as of December 31, 2018, which was derived from audited financial statements, and the unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10–Q. Accordingly, they do not include all of the information and footnotes required by the accounting principles generally accepted in the United States of America for complete consolidated financial statements. In the opinion of management, these interim financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the Company’s financial position and results of operations. All significant intercompany balances and transactions have been eliminated in consolidation. There are
Accumulated depreciation and amortization: Accumulated depreciation was $
8
Other expense (income): The following table sets forth the components of other expense (income):
Three Months Ended |
Six Months Ended |
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(In thousands) |
June 30, 2019 |
June 30, 2018 |
June 30, 2019 |
June 30, 2018 |
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Derivative liability fair value adjustment for embedded conversion feature in the Convertible Notes due 2024 |
$ |
( |
$ |
— |
$ |
( |
$ |
— |
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Derivative asset fair value adjustment for contingent call option related to the Class B common stock purchase and cancellation agreement |
( |
— |
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— |
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Loss on Pound sterling forward contract |
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Foreign currency transactions losses |
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Non-operating components of net periodic benefit cost |
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Loss on repayment of indebtedness |
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— |
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— |
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Other |
( |
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Total other expense (income) |
$ |
( |
$ |
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$ |
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$ |
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Accounting Pronouncements Recently Adopted
Leases.The Company adopted the guidance of ASU No. 2016-02, Leases (“ASC 842”) as of January 1, 2019 using the modified retrospective transition approach with the cumulative effect recognized at the date of initial application. The comparative information in the prior year has not been adjusted and continues to be reported under ASC 840, Leases, which was the accounting standard in effect for that period. ASC 842 requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. See Note 2—Leases for the required disclosures of the nature, amount, timing, and uncertainty of cash flows arising from leases.
Accounting Pronouncements Issued Not Yet Adopted
Financial Instruments. In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which provides new guidance regarding the measurement and recognition of credit impairment for certain financial assets. Such guidance will impact how the Company determines its allowance for estimated uncollectible receivables and evaluates its available-for-sale investments for impairment. ASU 2016-13 is effective for the Company in the first quarter of 2020. The Company is currently evaluating the effect that ASU 2016-13 will have on its consolidated financial statements and related disclosures.
Fair Value Measurement. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework–Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which eliminates, adds, and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for the Company in the first quarter of 2020. Early adoption is permitted. The Company is currently evaluating the effect that ASU 2018-13 will have on its fair value measurement disclosures.
Cloud Computing Arrangement. In August 2018, the FASB issued ASU 2018-15, Intangibles–Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU 2018-15 requires a customer in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation, setup, and other upfront costs to capitalize as assets or expense as incurred. ASU 2018-15 is effective for the Company in the first quarter of 2020. Early adoption is permitted. Entities have the option to apply the guidance prospectively to all implementation costs incurred after the date of adoption or
9
retrospectively in accordance with ASC 250-10-45. The Company is currently evaluating the effect that ASU 2018-15 will have on its consolidated financial statements.
NOTE 2—LEASES
The Company adopted ASC 842 on January 1, 2019 using the modified retrospective transition method; and therefore, the comparative information has not been adjusted for the three months and six months ended June 30, 2018 or as of December 31, 2018. Upon transition to the new standard, the Company elected the package of practical expedients, which permitted the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs.
The Company leases theatres and equipment under operating and finance leases. The majority of the Company’s operations are conducted in premises occupied under lease agreements with initial base terms ranging generally from
Operating lease right-of-use assets and lease liabilities were recognized at commencement date based on the present value of minimum lease payments over the remaining lease term. The minimum lease payments include base rent and other fixed payments, including fixed maintenance costs. The Company’s leases have remaining lease terms of approximately
The Company elected the practical expedient to not separate lease and non-lease components and also elected the short-term practical expedient for all leases that qualify. As a result, the Company will not recognize right-of-use assets or liabilities for short-term leases that qualify for the short-term practical expedient, but instead will recognize the lease payments as lease cost on a straight-line basis over the lease term. The Company’s lease agreements do not contain residual value guarantees. Short-term leases and sublease arrangements are immaterial. Equipment leases primarily consist of digital projectors and food and beverage equipment.
As a result of adopting ASC 842, the Company’s condensed consolidated balance sheet includes additional operating ROU assets and total operating lease liabilities of $
10
The following table provides the operating and finance ROU assets and lease liabilities:
(In millions) |
Balance Sheet Classification |
June 30, 2019 |
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Assets |
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Operating lease right-of-use assets (1) |
Operating lease right-of-use assets |
$ |
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Finance lease right-of-use assets (2) |
Property, net |
|
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Total leased assets |
$ |
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Liabilities |
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Current |
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Operating lease liabilities (1) |
Current maturities of operating lease liabilities |
$ |
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Finance lease liabilities (2) |
Current maturities of finance lease liabilities |
|
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Noncurrent |
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Operating lease liabilities (1) |
Operating lease liabilities |
|
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Finance lease liabilities (2) |
Finance lease liabilities |
|
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Total lease liabilities |
$ |
|
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The cumulative effect adjustment to accumulated deficit at January 1, 2019 is as follows:
Accumulated |
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(In millions) |
Deficit |
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Balance as of December 31, 2018 |
$ |
( |
|
Derecognition of existing assets for certain sale leaseback transactions previously recorded in property, net |
( |
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Derecognition of existing liabilities for certain sale leaseback transactions previously recorded in current maturities of corporate borrowings and capital and financing lease obligations |
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Derecognition of deferred gains from the sale and leaseback transactions previously recorded in other long-term liabilities |
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Difference in fair value compared to the basis of the right-of-use assets for previously impaired asset groups |
( |
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Deferred taxes |
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Cumulative effect adjustment to accumulated deficit |
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Balance as of January 1, 2019 |
$ |
( |
|
11
The following is the impact of the adoption of ASC 842 on the Company’s condensed consolidated statement of operations for the three months ended June 30, 2019:
Three Months Ended June 30, 2019 |
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Without Adoption of |
U.S. Markets |
International Markets |
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(In millions) |
ASC 842 |
Adjustments |
Adjustments |
As Reported |
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Operating costs and expenses |
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Rent (1)(2)(4) |
$ |
|
$ |
|
$ |
|
$ |
|
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Depreciation and amortization (2)(3) |
|
( |
( |
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Operating costs and expenses |
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Operating income |
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( |
( |
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Other expense (income) |
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Interest expense: |
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Capital and financing lease obligations (1) |
|
( |
( |
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Net earnings |
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( |
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The following is the impact of the adoption of ASC 842 on the Company’s condensed consolidated statement of operations for the six months ended June 30, 2019:
Six Months Ended June 30, 2019 |
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Without Adoption of |
U.S. Markets |
International Markets |
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(In millions) |
ASC 842 |
Adjustments |
Adjustments |
As Reported |
||||||||
Operating costs and expenses |
||||||||||||
Rent (1)(2)(4) |
$ |
|
$ |
|
$ |
|
$ |
|
||||
Depreciation and amortization (2)(3) |
|
( |
( |
|
||||||||
Operating costs and expenses |
|
|
|
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Operating income |
|
( |
( |
|
||||||||
Other expense (income) |
||||||||||||
Interest expense: |
||||||||||||
Capital and financing lease obligations (1) |
|
( |
( |
|
||||||||
Net loss |
( |
( |
|
( |
||||||||
| (1) |
Cash rent payments for build-to-suit failed sale leasebacks of $ |
| (2) |
Non-cash amortization expense for favorable lease terms of $ |
| (3) | Depreciation on build-to-suit failed sale leaseback buildings that are eliminated upon adoption of ASC 842. |
12
| (4) |
Amortization of deferred gains on sale leaseback transactions of $ |
The following table reflects the lease costs for the three and six months ended June 30, 2019:
Condensed Consolidated |
Three Months Ended |
Six Months Ended |
||||||
(In millions) |
Statement of Operations |
June 30, 2019 |
June 30, 2019 |
|||||
Operating lease cost |
||||||||
Theatre properties |
Rent |
$ |
|
$ |
|
|||
Theatre properties |
Operating expense |
|
|
|||||
Equipment |
Operating expense |
|
|
|||||
Office and other |
General and administrative: other |
|
|
|||||
Finance lease cost |
||||||||
Amortization of finance lease assets |
Depreciation and amortization |
|
|
|||||
Interest on lease liabilities |
Finance lease liabilities |
|
|
|||||
Variable lease cost |
||||||||
Theatre properties |
Rent |
|
|
|||||
Equipment |
Operating expense |
|
|
|||||
Total lease cost |
$ |
|
$ |
|
||||
The following table represents the weighted-average remaining lease term and discount rate as of June 30, 2019: