10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on June 9, 2020
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.
Large 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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EXPLANATORY NOTE
AMC Entertainment Holdings, Inc., (the “Company”), is filing this Form 10-Q for the period ended March 31, 2020 after the May 11, 2020 deadline in reliance on the 45-day extension provided by the Securities and Exchange Commission’s Order Under Section 36 of the Securities Exchange Act of 1934, as amended (the “Exchange Act” Modifying Exemptions from the Reporting Delivery Requirements for Public Companies dated March 25, 2020 (Release No. 34-88465) (the “Order”) due to the circumstances related to the COVID-19 pandemic. COVID-19 has created substantial disruption in the Company’s operations including the suspension of all theatre operations worldwide resulting in the cessation of essentially all revenues. As a result, all corporate-level employees have been either fully or partially furloughed, significantly limiting the resources available to prepare the Form 10-Q. Furthermore, to the extent corporate-level employees continue to work, they are working from home which has decreased efficiency in fulfilling the tasks necessary to complete the Form 10-Q. Due to these operational challenges, the Company could not file this Form 10-Q within the time period specified under the Exchange Act. Pursuant to the requirements of the Order, the Company filed a Form 8-K with the SEC on April 29, 2020 indicating its intention to rely upon the Order with respect to the filing of this Form 10-Q which is being filed within the 45-day extension period provided by the Order.
AMC ENTERTAINMENT HOLDINGS, INC.
INDEX
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5 |
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6 |
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7 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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59 |
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60 |
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PART I—FINANCIAL INFORMATION
Item 1. Financial Statements. (Unaudited)
AMC ENTERTAINMENT HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended |
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(In millions, except share and per share amounts) |
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March 31, 2020 |
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March 31, 2019 |
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(unaudited) |
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Revenues |
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Admissions |
$ |
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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 other costs |
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Other, excluding depreciation and amortization below |
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Depreciation and amortization |
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Impairment of long-lived assets, indefinite-lived intangible assets and goodwill |
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— |
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Operating costs and expenses |
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Operating loss |
( |
( |
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Other expense (income): |
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Other expense |
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Interest expense: |
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Corporate borrowings |
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Finance lease obligations |
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Non-cash NCM exhibitor services agreement |
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Equity in (earnings) loss of non-consolidated entities |
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( |
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Investment expense (income) |
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( |
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Total other expense, net |
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Loss before income taxes |
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( |
( |
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Income tax provision |
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Net loss |
$ |
( |
$ |
( |
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Loss per share: |
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Basic |
$ |
( |
$ |
( |
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Diluted |
$ |
( |
$ |
( |
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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 LOSS
Three Months Ended |
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(In millions) |
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March 31, 2020 |
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March 31, 2019 |
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(unaudited) |
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Net loss |
$ |
( |
$ |
( |
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Other comprehensive loss: |
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Unrealized foreign currency translation adjustments |
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( |
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( |
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Realized loss on foreign currency transactions reclassified into other expense |
— |
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Pension adjustments: |
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Realized net loss reclassified into other expense, net of tax |
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Equity method investee's cash flow hedge: |
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Unrealized net holding loss arising during the period |
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— |
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( |
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Other comprehensive loss |
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( |
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( |
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Total comprehensive loss |
$ |
( |
$ |
( |
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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March 31, 2020 |
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December 31, 2019 |
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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 lease right-of-use assets, net |
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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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Current maturities of operating lease liabilities |
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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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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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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 loss |
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( |
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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 (deficit) |
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( |
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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
Three Months Ended |
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(In millions) |
March 31, 2020 |
March 31, 2019 |
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Cash flows from operating activities: |
(unaudited) |
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Net loss |
$ |
( |
$ |
( |
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Adjustments to reconcile net 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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Impairment of long-lived assets, indefinite-lived intangible assets and goodwill |
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— |
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Amortization of net discount on corporate borrowings |
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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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Loss on derivative asset and derivative liability |
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Equity in loss from non-consolidated entities, net of distributions |
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— |
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Landlord contributions |
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Other non-cash rent |
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Deferred rent |
( |
( |
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Net periodic benefit cost |
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Change in assets and liabilities: |
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Receivables |
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Other assets |
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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 (used in) operating activities |
( |
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Cash flows from investing activities: |
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Capital expenditures |
( |
( |
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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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( |
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Net cash used in investing activities |
( |
( |
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Cash flows from financing activities: |
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Borrowings (repayments) under revolving credit facilities |
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( |
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Scheduled principal payments under Term Loans |
( |
( |
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Principal payments under finance lease obligations |
( |
( |
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Cash used to pay for deferred financing costs |
( |
— |
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Cash used to pay dividends |
( |
( |
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Taxes paid for restricted unit withholdings |
( |
( |
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Net cash provided by (used in) financing activities |
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( |
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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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( |
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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, net |
$ |
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$ |
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Schedule of non-cash activities: |
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Investment in NCM |
$ |
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$ |
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Construction payables at period end |
$ |
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$ |
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See Notes to Condensed Consolidated Financial Statements.
6
AMC ENTERTAINMENT HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(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 March 31, 2020, Wanda owned approximately
Temporarily Suspended Operations. As of or before March 17, 2020, the Company temporarily suspended all theatre operations in its U.S. markets and International markets in compliance with local, state, and federal governmental restrictions and recommendations on social gatherings to prevent the spread of COVID-19 and as a precaution to help ensure the health and safety of the Company’s guests and theatre staff. As a result of these temporarily suspended operations, the Company’s revenues and expenses for the three months ended March 31, 2020 are significantly lower than the revenues and expenses for the three months ended March 31, 2019. The Company will continue to monitor this situation closely and remain flexible on reopening its theatres in accordance with the Centers for Disease Control and Prevention and governmental directives.
Liquidity. In response to the COVID-19 pandemic, the Company has taken and is continuing to take significant steps to preserve cash by eliminating non-essential costs, including reductions to executive compensation and elements of its fixed cost structure:
● | Suspended non-essential operating expenditures, including marketing & promotional and travel and entertainment expenses; and where possible, for example: utilities, reduced essential operating expenditures to minimum levels necessary while theatres are closed. |
● | Terminated or deferred all non-essential capital expenditures to minimum levels necessary while theatres are closed. |
● |
Implemented measures to reduce corporate-level employment costs, including full or partial furloughs of all corporate-level Company employees, including senior executives, with individual work load and salary reductions ranging from |
● | All domestic theatre-level crew members have been fully furloughed and theatre-level management has been reduced to the minimum level necessary to begin resumption of operations when permitted. Similar efforts to reduce theatre-level and corporate employment costs are being undertaken internationally consistent with applicable laws across the jurisdictions in which the Company operates. |
● | Working with the Company’s landlords, vendors, and other business partners to manage, defer, and/or abate the related rent expenses and operating expenses during the disruptions caused by the COVID-19 pandemic. |
● | Introduced an active cash management process, which, among other things, requires senior management approval of all outgoing payments. |
● |
The Company does not expect to continue dividend payments which, when considered in tandem with the dividend decrease of $ |
● | The Company does not expect to make purchases under its recently authorized stock repurchase program for the duration of 2020. |
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed
7
into law. The CARES Act provides opportunities for additional liquidity, loan guarantees, and other government programs to support companies affected by the COVID-19 pandemic and their employees. Based on the Company’s preliminary analysis of the CARES Act, the Company expects to recognize the following benefits:
● | Approximately $ |
● | Deferral of social security payroll tax matches that would otherwise be required in 2020. |
● | Receipt of a payroll tax credit in 2020 for expenses related to paying wages and health benefits to employees who are not working as a result of temporarily suspended operations and reduced receipts associated with COVID-19. |
The Company intends to seek any available potential benefits under the CARES Act, including loans, investments or guarantees, and any other such current or future government programs for which the Company qualifies domestically and internationally, including those described above. The Company cannot predict the manner in which such benefits will be allocated or administered, and the Company cannot assure the reader that it will be able to access such benefits in a timely manner or at all.
The Company believes its cash balance as of March 31, 2020 was sufficient to withstand a global suspension of operations until a partial reopening in July 2020. After giving effect to the proceeds of $
While the Company has used its best estimates based on currently available information, the Company cannot assure the reader that its assumptions used to estimate its liquidity requirements will be correct—including but not limited to attendance, food and beverage revenues, rent relief, cost savings, and capital expenditures—because the Company has never previously experienced a complete cessation of its operations, and as a consequence, its ability to be predictive is uncertain. If the Company does not recommence operations within its estimated timeline, the Company will require additional capital and may also require additional financing if, for example, its operations do not generate the expected revenues or a recurrence of COVID-19 were to cause another suspension of operations. Such additional financing may not be available on favorable terms or at all. Due to these factors, substantial doubt exists about the Company’s ability to continue as a going concern for a reasonable period of time.
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 AMC, 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, 2019. The accompanying condensed consolidated balance sheet as of December 31, 2019, 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
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ended March 31, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020. The Company manages its business under
Accumulated other comprehensive loss. The following table presents the change in accumulated other comprehensive loss by component:
Pension and |
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Foreign |
Other |
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(In millions) |
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Currency |
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Benefits |
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Total |
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Balance December 31, 2019 |
$ |
( |
$ |
( |
$ |
( |
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Other comprehensive loss before reclassifications |
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( |
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— |
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( |
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Amounts reclassified from accumulated other comprehensive loss |
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— |
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Balance March 31, 2020 |
$ |
( |
$ |
( |
$ |
( |
Accumulated depreciation and amortization. Accumulated depreciation was $
Other expense. The following table sets forth the components of other expense:
Three Months Ended |
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(In thousands) |
March 31, 2020 |
March 31, 2019 |
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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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Credit losses related to contingent lease guarantees |
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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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Fees related to modification of term loans |
— |
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Other |
— |
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Total other expense |
$ |
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$ |
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Impairments. The following table summarizes the Company’s assets that were impaired:
Three Months Ended |
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March 31, |
March 31, |
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(In millions) |
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2020 |
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2019 |
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Impairment of long-lived assets |
$ |
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$ |
— |
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Impairment of indefinite-lived intangible assets |
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— |
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Impairment of definite-lived intangible assets |
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— |
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Impairment of goodwill (1) |
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— |
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Investment expense |
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— |
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Total impairment loss |
$ |
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$ |
— |
(1) | See Note 4—Goodwill for information regarding goodwill impairment. |
The Company evaluates definite-lived and indefinite-lived intangible assets for impairment annually or more frequently as specific events or circumstances dictate or changes in circumstances indicate that the carrying amount of the asset group may not be fully recoverable.
During the three months ended March 31, 2020, the Company recorded non-cash impairment of long-lived assets of $
9
recorded impairment losses related to definite-lived intangible assets of $
During the three months ended March 31, 2020, the Company performed a quantitative impairment evaluation of its indefinite-lived intangible assets related to the AMC, Odeon and Nordic tradenames and recorded impairment charges of $
Accounting Pronouncements Recently Adopted
Financial Instruments. In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 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 impacts how the Company determines its allowance for estimated uncollectible receivables and also contingent lease guarantees, where the Company remains contingently liable for lease payments under certain leases of theatres that it previously divested, in the event that such assignees are unable to fulfill their future lease payment obligations. ASU 2016-13 was effective for the Company in the first quarter of 2020. The Company recognized the cumulative effect upon adoption of the new standard related to credit losses for contingent lease guarantees of $
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 are no longer required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but are required to disclose the range and weighted average used to develop significant observable inputs for Level 3 fair value measurements. The fair value measurement disclosure requirements of ASU 2018-13 was effective for the Company in the first quarter of 2020. See Note 9—Fair Value Measurements for the required disclosures for Level 3 fair value measurements.
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 was effective for the Company in the first quarter of 2020. Entities have the option to apply the guidance prospectively to all implementation costs incurred after the date of adoption or retrospectively in accordance with ASC 250-10-45. The Company adopted ASU 2018-15 prospectively and the adoption of ASU 2018-15 did not have a material impact on the Company’s consolidated financial statements and related disclosures.
Accounting Pronouncements Issued Not Yet Adopted
Income Taxes. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to improve consistency and simplify several areas of existing guidance. ASU 2019-12 removes certain exceptions to the general principles related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also clarifies the accounting for transactions that result in a step-up in the tax basis for goodwill. ASU 2019-12 is effective for the Company in the first quarter of 2021. Early adoption is permitted. The Company is currently evaluating the effect that ASU 2019-12 will have on its consolidated financial statements.
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NOTE 2—LEASES
The Company leases theatres and equipment under operating and finance leases. The Company typically does not believe that exercise of the renewal options is reasonably assured at the inception of the lease agreements and, therefore, considers the initial base term as the lease term. Lease terms vary but generally the leases provide for fixed and escalating rentals, contingent escalating rentals based on the Consumer Price Index and other indexes not to exceed certain specified amounts and variable rentals based on a percentage of revenues. The Company often receives contributions from landlords for renovations at existing locations. The Company records the amounts received from landlords as an adjustment to the right-of-use asset and amortizes the balance as a reduction to rent expense over the base term of the lease agreement. Equipment leases primarily consist of digital projectors and food and beverage equipment.
The following table reflects the lease costs for the three months ended March 31, 2020 and March 31, 2019:
Three Months Ended |
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(In millions) |
Consolidated Statement of Operations |
March 31, 2020 |
March 31, 2019 |
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Operating lease cost |
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Theatre properties |
Rent |
$ |
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$ |
|
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Theatre properties |
Operating expense |
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Equipment |
Operating expense |
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Office and other |
General and administrative: other |
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Finance lease cost |
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Amortization of finance lease assets |
Depreciation and amortization |
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Interest expense on lease liabilities |
Finance lease obligations |
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Variable lease cost |
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Theatre properties |
Rent |
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Equipment |
Operating expense |
|
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Total lease cost |
$ |
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$ |
|
Cash flow and supplemental information is presented below:
Three Months Ended |
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(In millions) |
March 31, 2020 |
March 31, 2019 |
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Cash paid for amounts included in the measurement of lease liabilities: |
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Operating cash flows used in finance leases |
$ |
( |
$ |
( |
||
Operating cash flows used in operating leases (1) |
( |
( |
||||
Financing cash flows used in finance leases |
( |
( |
||||
Landlord contributions: |
||||||
Operating cashflows provided by operating leases |
|
|
||||
Supplemental disclosure of noncash leasing activities: |
||||||
Right-of-use assets obtained in exchange for new operating lease liabilities (2) |
|
|
(1) |
Reflects contractual amounts due to be paid in cash. For the three months ended March 31, 2020, the Company deferred cash payments of $ |
(2) | Includes lease extensions and option exercises. |
The following table represents the weighted-average remaining lease term and discount rate as of March 31, 2020:
As of March 31, 2020 |
||||||
Weighted Average |
Weighted Average |
|||||
Remaining |
Discount |
|||||
Lease Term and Discount Rate |
Lease Term (years) |
Rate |
||||
Operating leases |
||||||
Finance leases |
As of March 31, 2020, the Company had signed additional operating lease agreements for
11
not yet commenced of approximately $
NOTE 3—REVENUE RECOGNITION
Disaggregation of Revenue. Revenue is disaggregated in the following tables by major revenue types and by timing of revenue recognition:
Three Months Ended |
Three Months Ended |
|||||
(In millions) |
March 31, 2020 |
March 31, 2019 |
||||
Major revenue types |
||||||
Admissions |
$ |
|
$ |
|
||
Food and beverage |
|
|
||||
Other theatre: |
||||||
Advertising |
|
|
||||
Other theatre |
|
|
||||
Other theatre |
|
|
||||
Total revenues |
$ |
|
$ |
|
Three Months Ended |
||||||
(In millions) |
March 31, 2020 |
March 31, 2019 |
||||
Timing of revenue recognition |
||||||
Products and services transferred at a point in time |
$ |
|
$ |
|
||
Products and services transferred over time (1) |
|
|
||||
Total revenues |
$ |
|
$ |
|
The following tables provide the balances of receivables and deferred revenue income:
(In millions) |
March 31, 2020 |
December 31, 2019 |
||||
Current assets: |
||||||
Receivables related to contracts with customers |
$ |
|
$ |
|
||
Miscellaneous receivables |
|
|
||||
Receivables, net |
$ |
|
$ |
|
(In millions) |
March 31, 2020 |
December 31, 2019 |
||||
Current liabilities: |
||||||
Deferred revenue related to contracts with customers |
$ |
|
$ |
|
||
Miscellaneous deferred income |
|
|
||||
Deferred revenue and income |
$ |
|
$ |
|
12
The significant changes in contract liabilities with customers included in deferred revenues and income are as follows:
Deferred Revenues |
|||
Related to Contracts |
|||
(In millions) |
with Customers |
||
Balance December 31, 2019 |
$ |
|
|
Cash received in advance (1) |
|
||
Customer loyalty rewards accumulated, net of expirations: |
|||
Admission revenues (2) |
|
||
Food and beverage (2) |
|
||
Other theatre (2) |
( |
||
Reclassification to revenue as the result of performance obligations satisfied: |
|||
Admission revenues (3) |
( |
||
Food and beverage (3) |
( |
||
Other theatre (4) |
( |
||
Foreign currency translation adjustment |
( |
||
Balance March 31, 2020 |
$ |
|
The Company suspended the recognition of deferred revenues related to certain loyalty programs, gift cards, and exchange tickets during the period in which its operations are temporarily suspended.
The significant changes to contract liabilities included in the exhibitor services agreement, classified as long-term liabilities in the condensed consolidated balance sheets, are as follows:
Exhibitor Services |
|||
(In millions) |
Agreement |
||
Balance December 31, 2019 |
$ |
|
|
Common Unit Adjustment–additions of common units (1) |
|
||
Reclassification of the beginning balance to other theatre revenue, as the result of performance obligations satisfied |
( |
||
Balance March 31, 2020 |
$ |
|
Gift cards and exchange tickets. The total amount of non-redeemed gifts cards and exchange tickets included in deferred revenues and income as of March 31, 2020 was $
Loyalty programs. As of March 31, 2020, the amount of deferred revenue allocated to the loyalty programs included in deferred revenues and income was $
The Company applies the practical expedient in ASC 606-10-50-14 and does not disclose information about
13
remaining performance obligations that have original expected durations of one year or less.
NOTE 4—GOODWILL
The following table summarizes the changes in goodwill by reporting unit for the three months ended March 31, 2020:
(In millions) |
|
Domestic Theatres |
|
International Theatres |
Total |
||||
Balance December 31, 2019 |
$ |
|
$ |
|
$ |
|
|||
Impairment adjustment |
( |
( |
( |
||||||
Currency translation adjustment |
— |
( |
( |
||||||
Balance March 31, 2020 |
$ |
|
$ |
|
$ |
|
The Company evaluates goodwill recorded at the Company’s
A decline in the common stock price and prices of the Company’s corporate borrowings and the resulting impact on market capitalization are two of several factors considered when making this evaluation. Based on sustained declines during 2020 in the Company’s enterprise market capitalization and the temporary suspension of operations at all the Company’s theatres on or before March 17, 2020 due to the COVID-19 pandemic, the Company performed a Step 1 quantitative goodwill impairment test of the Domestic and International reporting units as of March 31, 2020.
In performing the Step 1 quantitative goodwill impairment test as of March 31, 2020, the Company used an enterprise value approach to measure fair value of the reporting units. See Note 9—Fair Value Measurements for a discussion of the valuation methodology. The enterprise fair values of the Domestic Theatres and International Theatres reporting units were less than their carrying values and goodwill impairment charges of $
NOTE 5—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
Equity in Earnings of Non-Consolidated Entities
Aggregated condensed financial information of the Company’s significant non-consolidated equity method investment (DCIP) is shown below:
|
Three Months Ended |
|||||
(In millions) |
|
March 31, 2020 |
|
March 31, 2019 |
||
Revenues |
|
$ |
|
|
$ |
|
Operating costs and expenses |
|
|
||||
Net earnings (loss) |
|
$ |
( |
|
$ |
|
14
The components of the Company’s recorded equity in earnings (loss) of non-consolidated entities are as follows:
Three Months Ended |
||||||
(In millions) |
|
March 31, 2020 |
|
March 31, 2019 |
||
DCIP |
$ |
( |
$ |
|
||
Other |
|
( |
|
|
||
The Company’s recorded equity in earnings (loss) |
$ |
( |
$ |
|
Related Party Transactions
The Company recorded the following related party transactions with equity method investees:
As of |
|
As of |
||||
(In millions) |
March 31, 2020 |
|
December 31, 2019 |
|||
Due from DCM for on-screen advertising revenue |
$ |
|
$ |
|
||
Loan receivable from DCM |
|
|
||||
Due from DCIP for warranty expenditures |
— |
|
||||
Due to AC JV for Fathom Events programming |
( |
( |
||||
Due from Screenvision for on-screen advertising revenue |
|
|
||||
Due from Nordic JVs |
|
|
||||
Due to Nordic JVs for management services |
( |
( |
||||
Due from SCC related to the joint venture |
|
|
||||
Due to U.S. theatre partnerships |
( |
( |
Three Months Ended |
||||||||
(In millions) |
Condensed Consolidated Statement of Operations |
March 31, 2020 |
|
March 31, 2019 |
||||
DCM screen advertising revenues |
Other revenues |
$ |
$ |
|||||
DCIP equipment rental expense |
Operating expense |
|||||||
Gross exhibition cost on AC JV Fathom Events programming |
Film exhibition costs |
|
||||||
Screenvision screen advertising revenues |
Other revenues |
15
NOTE 6—CORPORATE BORROWINGS
A summary of the carrying value of corporate borrowings and capital and finance lease obligations is as follows:
(In millions) |
|
March 31, 2020 |
|
December 31, 2019 |
||
Senior Secured Credit Facility-Term Loan due 2026 ( |
$ |
|
$ |
|
||
Revolving Credit Facility Due 2024 ( |
|
— |
||||
Odeon Revolving Credit Facility Due 2022 ( |
|
— |
||||
Odeon Revolving Credit Facility Due 2022 ( |
|
— |
||||
|
|
|||||
|
|
|||||
|
|
|||||
|
|
|||||
|
|
|||||
$ |
|
$ |
|
|||
Finance lease obligations |
|
|
|
|
||
Debt issuance costs |
( |
( |
||||
Net discounts |
( |
( |
||||
Derivative liability |
— |
|
||||
$ |
|
$ |
|
|||
Less: |
||||||
Current maturities corporate borrowings |
( |
|
( |
|||
Current maturities finance lease obligations |
( |
( |
||||
$ |
|
$ |
|
Senior Unsecured Convertible Notes due 2024
The table below sets forth the carrying value of the Senior Unsecured Convertible Notes due 2024:
Carrying Value |
Increase |
Carrying Value |
|||||||
as of |
to Expense |
as of |
|||||||
(In millions) |
December 31, 2019 |
(Income) |
March 31, 2020 |
||||||
Principal balance |
$ |
|
$ |
— |
$ |
|
|||
Discount |
( |
|
( |
||||||
Debt issuance costs |
( |
|
( |
||||||
Derivative liability |
|
( |
— |
||||||
Carrying value |
$ |
|
$ |
|
$ |
|
On September 14, 2018, the Company issued $
The Company bifurcated the conversion feature from the principal balance of the Convertible Notes due 2024 as a derivative liability because (1) a conversion feature is not clearly and closely related to the debt instrument and the reset of the conversion price discussed in the following paragraph causes the conversion feature to not be considered indexed to the Company’s equity, (2) the conversion feature standing alone meets the definition of a derivative, and (3) the Convertible Notes due 2024 are not remeasured at fair value each reporting period with changes in fair value recorded in the condensed consolidated statement of operations. The initial derivative liability of $
16
The derivative liability is remeasured at fair value each reporting period with changes in fair value recorded in the condensed consolidated statements of operations as other expense or income. See Note 9—Fair Value Measurements for a discussion of the valuation methodology. For the three months ended March 31, 2020 and March 31, 2019, this resulted in other expense (income) of $(