10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on August 6, 2020
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One) |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the quarterly period ended | |
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
(Exact name of registrant as specified in its charter)
|
|
|
|
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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol |
Name of each exchange on which registered |
||
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Title of each class of common stock |
|
Number of shares |
Class A common stock |
|
|
AMC ENTERTAINMENT HOLDINGS, INC.
INDEX
Page |
||
3 |
||
3 |
||
Condensed Consolidated Statements of Comprehensive Income (Loss) |
4 |
|
5 |
||
6 |
||
8 |
||
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
46 |
|
75 |
||
76 |
||
78 |
||
78 |
||
78 |
||
78 |
||
78 |
||
79 |
||
82 |
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 |
|||||||||||
(In millions, except share and per share amounts) |
|
June 30, 2020 |
|
June 30, 2019 |
|
June 30, 2020 |
|
June 30, 2019 |
||||
(unaudited) |
(unaudited) |
|||||||||||
Revenues |
||||||||||||
Admissions |
$ |
|
$ |
|
$ |
|
$ |
|
||||
Food and beverage |
|
|
|
|
|
|
|
|
||||
Other theatre |
|
|
|
|
|
|
|
|
||||
Total revenues |
|
|
|
|
||||||||
Operating costs and expenses |
||||||||||||
Film exhibition costs |
|
|
|
|
|
|
||||||
Food and beverage costs |
|
|
|
|
|
|
|
|
||||
Operating expense, excluding depreciation and amortization below |
|
|
|
|
|
|
|
|
||||
Rent |
|
|
|
|
|
|
|
|
||||
General and administrative: |
||||||||||||
Merger, acquisition and other costs |
|
|
|
|
|
|
|
|
||||
Other, excluding depreciation and amortization below |
|
|
|
|
|
|
|
|
||||
Depreciation and amortization |
|
|
|
|
||||||||
Impairment of long-lived assets, indefinite-lived intangible assets and goodwill |
|
— |
|
— |
|
|
|
— |
||||
Operating costs and expenses |
|
|
|
|
|
|
||||||
Operating income (loss) |
( |
|
( |
|
||||||||
Other expense (income): |
||||||||||||
Other expense (income): |
|
( |
|
( |
|
|
|
|
||||
Interest expense: |
||||||||||||
Corporate borrowings |
|
|
|
|
|
|
|
|
||||
Finance lease obligations |
|
|
|
|
|
|
|
|
||||
Non-cash NCM exhibitor services agreement |
|
|
|
|
||||||||
Equity in (earnings) loss of non-consolidated entities |
|
|
|
( |
|
|
|
( |
||||
Investment expense (income) |
|
( |
|
( |
|
|
|
( |
||||
Total other expense, net |
|
|
|
|
|
|
||||||
Earnings (loss) before income taxes |
|
( |
|
|
( |
( |
||||||
Income tax provision (benefit) |
|
( |
|
|
|
|
|
|||||
Net earnings (loss) |
$ |
( |
$ |
|
$ |
( |
$ |
( |
||||
Earnings (loss) per share: |
||||||||||||
Basic |
$ |
( |
$ |
|
$ |
( |
$ |
( |
||||
Diluted |
$ |
( |
$ |
|
$ |
( |
$ |
( |
||||
Average shares outstanding: |
||||||||||||
Basic (in thousands) |
|
|
|
|
||||||||
Diluted (in thousands) |
|
|
|
|
||||||||
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 |
|||||||||||
(In millions) |
|
June 30, 2020 |
|
June 30, 2019 |
|
June 30, 2020 |
|
June 30, 2019 |
||||
(unaudited) |
(unaudited) |
|||||||||||
Net earnings (loss) |
$ |
( |
$ |
|
$ |
( |
$ |
( |
||||
Other comprehensive income (loss): |
||||||||||||
Unrealized foreign currency translation adjustments |
|
|
|
( |
|
( |
|
( |
||||
Realized loss on foreign currency transactions reclassified into other expense |
— |
|
— |
|
||||||||
Pension adjustments: |
||||||||||||
Realized net loss reclassified into other expense, net of tax |
|
|
|
|
|
|
|
|
||||
Equity method investee's cash flow hedge: |
||||||||||||
Unrealized net holding loss arising during the period |
|
— |
|
( |
|
— |
|
( |
||||
Other comprehensive income (loss) |
|
|
|
( |
|
( |
|
( |
||||
Total comprehensive income (loss) |
$ |
( |
$ |
|
$ |
( |
$ |
( |
||||
See Notes to Condensed Consolidated Financial Statements.
4
AMC ENTERTAINMENT HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except share data) |
|
June 30, 2020 |
|
December 31, 2019 |
|
||
ASSETS |
|||||||
Current assets: |
|||||||
Cash and cash equivalents |
$ |
|
$ |
|
|||
Restricted cash |
|
|
|||||
Receivables, net |
|
|
|
|
|||
Other current assets |
|
|
|
|
|||
Total current assets |
|
|
|
|
|||
Property, net |
|
|
|
|
|||
Operating lease right-of-use assets, net |
|
|
|||||
Intangible assets, net |
|
|
|
|
|||
Goodwill |
|
|
|
|
|||
Deferred tax asset, net |
|
|
|
|
|||
Other long-term assets |
|
|
|
|
|||
Total assets |
$ |
|
$ |
|
|||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|||||||
Current liabilities: |
|||||||
Accounts payable |
$ |
|
$ |
|
|||
Accrued expenses and other liabilities |
|
|
|
|
|||
Deferred revenues and income |
|
|
|
|
|||
Current maturities of corporate borrowings |
|
|
|
|
|||
Current maturities of finance lease liabilities |
|
|
|||||
Current maturities of operating lease liabilities |
|
|
|||||
Total current liabilities |
|
|
|
|
|||
Corporate borrowings |
|
|
|
|
|||
Finance lease liabilities |
|
|
|||||
Operating lease liabilities |
|
|
|||||
Exhibitor services agreement |
|
|
|
|
|||
Deferred tax liability, net |
|
|
|
|
|||
Other long-term liabilities |
|
|
|
|
|||
Total liabilities |
|
|
|
|
|||
Commitments and contingencies |
|||||||
Stockholders’ equity: |
|||||||
Class A common stock ($ |
|
|
|
|
|||
Class B common stock ($ |
|
|
|
|
|||
Additional paid-in capital |
|
|
|
|
|||
Treasury stock ( |
|
( |
|
( |
|||
Accumulated other comprehensive loss |
|
( |
|
( |
|||
Accumulated deficit |
|
( |
|
( |
|||
Total stockholders’ equity (deficit) |
|
( |
|
|
|||
Total liabilities and stockholders’ equity |
$ |
|
$ |
|
|||
See Notes to Condensed Consolidated Financial Statements.
5
AMC ENTERTAINMENT HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended |
||||||
(In millions) |
June 30, 2020 |
June 30, 2019 |
||||
Cash flows from operating activities: |
(unaudited) |
|||||
Net loss |
$ |
( |
$ |
( |
||
Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||
Depreciation and amortization |
|
|
||||
Deferred income taxes |
|
|
||||
Impairment of long-lived assets, indefinite-lived intangible assets and goodwill |
|
— |
||||
Amortization of net discount on corporate borrowings |
|
|
||||
Amortization of deferred charges to interest expense |
|
|
||||
Non-cash portion of stock-based compensation |
|
|
||||
Gain on dispositions |
( |
( |
||||
(Gain) loss on derivative asset and derivative liability |
|
( |
||||
Loss on repayment of indebtedness |
— |
|
||||
Equity in (earnings) loss from non-consolidated entities, net of distributions |
|
( |
||||
Landlord contributions |
|
|
||||
Other non-cash rent |
( |
|
||||
Deferred rent |
( |
( |
||||
Net periodic benefit cost |
|
|
||||
Change in assets and liabilities: |
||||||
Receivables |
|
|
||||
Other assets |
|
|
||||
Accounts payable |
( |
( |
||||
Accrued expenses and other liabilities |
( |
( |
||||
Other, net |
|
( |
||||
Net cash provided by (used in) operating activities |
( |
|
||||
Cash flows from investing activities: |
||||||
Capital expenditures |
( |
( |
||||
Acquisition of theatre assets |
— |
( |
||||
Proceeds from disposition of long-term assets |
|
|
||||
Investments in non-consolidated entities, net |
( |
( |
||||
Other, net |
|
( |
||||
Net cash used in investing activities |
( |
( |
||||
Cash flows from financing activities: |
||||||
Proceeds from issuance of Term Loan due 2026 |
— |
|
||||
Payment of principal Senior Secured Notes due 2023 |
— |
( |
||||
Payment of principal Senior Subordinated Notes due 2022 |
— |
( |
||||
Call premiums paid for Senior Secured Notes due 2023 and Senior Subordinated Notes due 2022 |
— |
( |
||||
Principal payment of Term Loans due 2022 and 2023 |
— |
( |
||||
Proceeds from issuance of First Lien Notes due 2025 |
|
— |
||||
Borrowings (repayments) under revolving credit facilities |
|
( |
||||
Scheduled principal payments under Term Loans |
( |
( |
||||
Principal payments under finance lease obligations |
( |
( |
||||
Cash used to pay for deferred financing costs |
( |
( |
||||
Cash used to pay dividends |
( |
( |
||||
Taxes paid for restricted unit withholdings |
( |
( |
||||
Net cash provided by (used in) financing activities |
|
( |
||||
Effect of exchange rate changes on cash and cash equivalents and restricted cash |
( |
( |
||||
Net increase (decrease) in cash and cash equivalents and restricted cash |
|
( |
||||
6
Cash and cash equivalents and restricted cash at beginning of period |
|
|
||||
Cash and cash equivalents and restricted cash at end of period |
$ |
|
$ |
|
||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
||||||
Cash paid during the period for: |
||||||
Interest (including amounts capitalized of $ |
$ |
|
$ |
|
||
Income taxes received, net |
$ |
( |
$ |
( |
||
Schedule of non-cash activities: |
||||||
Investment in NCM |
$ |
|
$ |
|
||
Construction payables at period end |
$ |
|
$ |
|
See Notes to Condensed Consolidated Financial Statements.
7
AMC ENTERTAINMENT HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 June 30, 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 and six months ended June 30, 2020 are significantly lower than the revenues and expenses for the three and six months ended June 30, 2019. The theatre operations in the U.S. markets remained suspended for the entire second quarter of 2020. The Company resumed limited operations in the International markets in early June. As of June 30, 2020, the Company had resumed operations at
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. |
| ● | Since April 24, 2020, the Company has been prohibited from making dividend payments in accordance with the covenant suspension conditions in its Senior Secured Credit Agreement. The Company had also previously |
8
|
elected to decrease the dividend paid in the first quarter of 2020 by $ |
| ● | The Company is prohibited from making purchases under its recently authorized stock repurchase program in accordance with the covenant suspension conditions in its Senior Secured Credit Agreement. |
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed 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 June 30, 2020, cash generated from operating activities, the proceeds from the issuance on July 31, 2020 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.
9
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
Accumulated other comprehensive loss. The following table presents the change in accumulated other comprehensive loss by component:
Pension and |
|
|||||||||
Foreign |
Other |
|
||||||||
(In millions) |
|
Currency |
|
Benefits |
|
Total |
|
|||
Balance December 31, 2019 |
$ |
( |
$ |
( |
$ |
( |
||||
Other comprehensive loss before reclassifications |
|
( |
|
— |
|
( |
||||
Amounts reclassified from accumulated other comprehensive loss |
|
— |
|
|
|
|
||||
Balance June 30, 2020 |
$ |
( |
$ |
( |
$ |
( |
||||
Accumulated depreciation and amortization. Accumulated depreciation was $
Other expense (income). The following table sets forth the components of other expense (income):
Three Months Ended |
Six Months Ended |
|||||||||||
(In millions) |
June 30, 2020 |
June 30, 2019 |
June 30, 2020 |
June 30, 2019 |
||||||||
Derivative liability fair value adjustment for embedded conversion feature in the Convertible Notes due 2024 |
$ |
— |
$ |
( |
$ |
( |
$ |
( |
||||
Derivative asset fair value adjustment for contingent call option related to the Class B common stock purchase and cancellation agreement |
( |
( |
|
|
||||||||
Credit losses related to contingent lease guarantees |
|
— |
|
— |
||||||||
International governmental assistance due to COVID-19 |
( |
— |
( |
— |
||||||||
Loss on Pound sterling forward contract |
— |
|
— |
|
||||||||
Foreign currency transactions losses |
( |
|
( |
|
||||||||
Non-operating components of net periodic benefit cost |
|
|
|
|
||||||||
Loss on repayment of indebtedness |
— |
|
— |
|
||||||||
Financing fees related to modification of debt agreements |
|
— |
|
— |
||||||||
Other |
( |
( |
( |
|
||||||||
Total other expense (income) |
$ |
( |
$ |
( |
$ |
|
$ |
|
||||
10
Impairments. The following table summarizes the Company’s assets that were impaired:
Three Months Ended |
Six Months Ended |
|||||||||||
June 30, |
June 30, |
June 30, |
June 30, |
|||||||||
(In millions) |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
||||
Impairment of long-lived assets |
$ |
— |
$ |
— |
$ |
|
$ |
— |
||||
Impairment of indefinite-lived intangible assets |
— |
— |
|
— |
||||||||
Impairment of definite-lived intangible assets |
— |
— |
|
— |
||||||||
Impairment of goodwill (1) |
— |
— |
|
— |
||||||||
Investment expense |
— |
— |
|
— |
||||||||
Total impairment loss |
$ |
— |
$ |
— |
$ |
|
$ |
— |
||||
| (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 and six months ended June 30, 2020, the Company recorded non-cash impairment of long-lived assets of $
At March 31, 2020, the Company performed a quantitative impairment evaluation of its indefinite-lived intangible assets related to the AMC, Odeon and Nordic tradenames. The Company 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
11
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.
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 certain at the lease commencement 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 Company received, or is in process of negotiating, rent concessions provided by the lessors that aided, or will aid, in mitigating the economic effects of COVID-19. These concessions primarily consist of rent abatements and the deferral of rent payments. In instances where there were no substantive changes to the lease terms, i.e., modifications that resulted in total payments of the modified lease being substantially the same or less than the total payments of the existing lease, the Company elected the relief as provided by the FASB staff related to the accounting for certain lease concessions. The Company elected not to account for these concessions as a lease modification, and therefore the Company has remeasured the related lease liability and right of use asset but did not reassess the lease classification or change the discount rate to the current rate in effect upon the remeasurement. The deferred payment amounts have been recorded in the Company’s lease liabilities to reflect the change in the timing of payments. As of June 30, 2020, approximately $
12
The following table reflects the lease costs for the three and six months ended June 30, 2020 and June 30, 2019:
Three Months Ended |
Six Months Ended |
|||||||||||||
Consolidated Statement |
June 30, |
June 30, |
June 30, |
June 30, |
||||||||||
(In millions) |
of Operations |
2020 |
2019 |
2020 |
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 expense on lease liabilities |
Finance lease obligations |
|
|
|
|
|||||||||
Variable lease cost |
||||||||||||||
Theatre properties |
Rent |
|
|
|
|
|||||||||
Equipment |
Operating expense |
( |
|
|
|
|||||||||
Total lease cost |
$ |
|
$ |
|
$ |
|
$ |
|
||||||
Cash flow and supplemental information is presented below:
Six Months Ended |
||||||
(In millions) |
2020 |
2019 |
||||
Cash paid for amounts included in the measurement of lease liabilities: |
||||||
Operating cash flows used in finance leases |
$ |
( |
$ |
( |
||
Operating cash flows used in operating leases |
( |
( |
||||
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 (1) |
|
|
||||
| (1) | Includes lease extensions and option exercises. |
The following table represents the weighted-average remaining lease term and discount rate as of June 30, 2020:
As of June 30, 2020 |
||||||
Weighted Average |
Weighted Average |
|||||
Remaining |
Discount |
|||||
Lease Term and Discount Rate |
Lease Term (years) |
Rate |
||||
Operating leases |
||||||
Finance leases |
||||||
13
Minimum annual payments required under existing operating and finance lease liabilities (net present value thereof), as of June 30, 2020, are as follows:
Operating Lease |
Financing Lease |
|||||
(In millions) |
Payments |
Payments |
||||
Six months ending December 31, 2020 |
$ |
|
$ |
|
||
2021 |
|
|
||||
2022 |
|
|
||||
2023 |
|
|
||||
2024 |
|
|
||||
2025 |
|
|
||||
Thereafter |
|
|
||||
Total lease payments |
|
|
||||
Less imputed interest |
( |
( |
||||
Total |
$ |
|
$ |
|
||
As of June 30, 2020, the Company had signed additional operating lease agreements for
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 |
Six Months Ended |
|||||||||||
(In millions) |
June 30, 2020 |
June 30, 2019 |
June 30, 2020 |
June 30, 2019 |
||||||||
Major revenue types |
||||||||||||
Admissions |
$ |
|
$ |
|
$ |
|
$ |
|
||||
Food and beverage |
|
|
|
|
||||||||
Other theatre: |
||||||||||||
Advertising |
|
|
|
|
||||||||
Other theatre |
|
|
|
|
||||||||
Other theatre |
|
|
|
|
||||||||
Total revenues |
$ |
|
$ |
|
$ |
|
$ |
|
||||
Three Months Ended |
Six Months Ended |
|||||||||||
(In millions) |
June 30, 2020 |
June 30, 2019 |
June 30, 2020 |
June 30, 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) |
June 30, 2020 |
December 31, 2019 |
||||
Current assets: |
||||||
Receivables related to contracts with customers |
$ |
|
$ |
|
||
Miscellaneous receivables |
|
|
||||
Receivables, net |
$ |
|
$ |
|
||
14
(In millions) |
June 30, 2020 |
December 31, 2019 |
||||
Current liabilities: |
||||||
Deferred revenue related to contracts with customers |
$ |
|
$ |
|
||
Miscellaneous deferred income |
|
|
||||
Deferred revenue and income |
$ |
|
$ |
|
||
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 June 30, 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 June 30, 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 June 30, 2020 was $
15
Loyalty programs. As of June 30, 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 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 six months ended June 30, 2020:
(In millions) |
|
Domestic Theatres |
|
International Theatres |
Total |
||||
Balance December 31, 2019 |
$ |
|
$ |
|
$ |
|
|||
Impairment adjustment |
( |
( |
( |
||||||
Currency translation adjustment |
— |
( |
( |
||||||
Balance June 30, 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 the first quarter of 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 $
In accordance with ASC 350-20-35-30, the Company performed an assessment to determine whether there were any events or changes in circumstances that would warrant an interim ASC 350 impairment analysis as of June 30, 2020. Given the temporary suspension of operations during the second quarter of 2020, the Company performed a qualitative impairment test to evaluate whether it is more likely than not that the fair value of the Company’s
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
16
Fathom Events, of
Equity in Earnings (Loss) 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 |
Six Months Ended |
||||||||||
(In millions) |
|
June 30, 2020 |
|
June 30, 2019 |
|
June 30, 2020 |
|
June 30, 2019 |
||||
Revenues |
|
$ |
( |
|
$ |
|
|
$ |
|
|
$ |
|
Operating costs and expenses |
|
|
|
|
||||||||
Net earnings (loss) |
|
$ |
( |
|
$ |
|
|
$ |
( |
|
$ |
|
The components of the Company’s recorded equity in earnings (loss) of non-consolidated entities are as follows:
Three Months Ended |
Six Months Ended |
|||||||||||
(In millions) |
|
June 30, 2020 |
|
June 30, 2019 |
|
June 30, 2020 |
|
June 30, 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) |
June 30, 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 |
Six Months Ended |
|||||||||||||
(In millions) |
Condensed Consolidated Statement of Operations |
June 30, 2020 |
|
June 30, 2019 |
June 30, 2020 |
|
June 30, 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 |
— |
||||||||||||
17
NOTE 6—CORPORATE BORROWINGS
A summary of the carrying value of corporate borrowings and finance lease obligations is as follows:
(In millions) |
|
June 30, 2020 |
|
December 31, 2019 |
||
Senior Secured Credit Facility-Term Loan due 2026 ( |
$ |
|
$ |
|
||
Revolving Credit Facility Due 2024 (range of |
|
— |
||||
|
— |
|||||
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 |
( |
( |
||||
$ |
|
$ |
|
|||
The following table provides the principal payments required and maturities of corporate borrowings as of June 30, 2020:
Principal |
|||
Amount of |
|||
Corporate |
|||
(In millions) |
|
Borrowings |
|
Six months ended December 31, 2020 |
$ |
|
|
2021 |
|
||
2022 |
|
|
|
2023 |
|
|
|
2024 |
|
|
|
2025 |
|
|
|
Thereafter |
|
|
|
Total |
$ |
|
|
The Company recorded other expense related to financing fees of $
Senior Secured Credit Facility
On April 23, 2020, the Company entered into the Seventh Amendment to the Senior Secured Credit Facility with the lenders from time to time party thereto and Citicorp North America, Inc., as administrative agent (the “Senior Secured Credit Facility Amendment”) amending the Credit Agreement dated April 30, 2013, as amended, pursuant to which the requisite lenders thereunder granted a waiver of the maintenance covenant thereunder for the period from and after the effective date of the Senior Secured Credit Facility Amendment to and including the earlier of (a) March 31, 2021 and (b) the day immediately preceding the last day of the Test Period (as defined in the Senior Secured Credit Facility Agreement) during which the Company has delivered a Financial Covenant Election (as defined in the Senior Secured Credit Facility Agreement) to the administrative agent under the Senior Secured Credit Facility Agreement (such period, the “Covenant Suspension Period”). During the Covenant Suspension Period, the Company will not, and
18
will not permit any of its restricted subsidiaries to, make certain restricted payments and shall maintain Liquidity (as defined in the Senior Secured Credit Facility Amendment) of no less than $
Odeon Revolving Credit Facility
On April 24, 2020, Odeon Cinemas Group Limited entered into an amendment to the Odeon Revolving Credit Facility with Lloyds Bank PLC as agent (the “Odeon Amendment”), pursuant to the requisite lenders thereunder granted a waiver of the maintenance covenant thereunder for the period from and after the effective date of the Odeon Amendment to and including the earlier of (a) March 31, 2021 and (b) the day immediately preceding the last day of the Relevant Period (as defined in the Odeon Amendment) during which Odeon Cinemas Group Limited has delivered a Financial Covenant Election (as defined in the Odeon Amendment) to the agent (the “Odeon Covenant Suspension Period”). During the Odeon Covenant Suspension Period, Odeon Cinemas Group Limited will not, and will not permit any of its subsidiaries to, make certain restricted payments including payment on shareholder loans, provided that cash payments of interest with respect to shareholder loans will be permitted. Additionally, lenders granted a waiver such that certain events or circumstances resulting from COVID-19 virus occurring prior to the Odeon Amendment and continuing will be deemed not to constitute an event of default under the Odeon Revolving Credit Facility.
First Lien Notes due 2025
On April 24, 2020, the Company issued $
The First Lien Notes due 2025 are general senior secured obligations of the Company and are fully and unconditionally guaranteed on a joint and several senior secured basis by all of the Company’s existing and future subsidiaries that guarantee the Company’s other indebtedness, including the Company’s Senior Secured Credit Facility. The First Lien Notes due 2025 are secured, on a pari passu basis with the Senior Secured Credit Facility, on a first-priority basis by substantially all of the tangible and intangible assets owned by the Company and guarantors that secure obligations under the Senior Secured Credit Facility including pledges of capital stock of certain of the Company’s and the guarantor’s wholly-owned material subsidiaries (but limited to
The Company may redeem some or all of the First Lien Notes due 2025 at any time on or after April 15, 2022, at the redemption prices set forth in the First Lien Notes Indenture. In addition, the Company may redeem up to
19
aggregate principal amount and accrued and unpaid interest to, but not including, the date of redemption.
The First Lien Notes Indenture contains covenants that limit the Company’s ability to, among other things: (i) incur additional indebtedness, including additional senior indebtedness; (ii) pay dividends on or make other distributions in respect of its capital stock; (iii) purchase or redeem capital stock or prepay subordinated debt or other junior securities; (iv) create liens ranking pari passu in right of payment with or subordinated in right of payment to First Lien Notes due 2025; (v) enter into certain transactions with its affiliates; and (vi) merge or consolidate with other companies or transfer all or substantially all of its assets. These covenants are subject to a number of important limitations and exceptions. The First Lien Notes Indenture also provides for events of default, which, if any of them occurs, would permit or require the principal, premium, if any, interest and any other monetary obligations on all the then outstanding First Lien Notes due 2025 to be due and payable immediately.
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) |
June 30, 2020 |
||||||
Principal balance |
$ |
|
$ |
— |
$ |
|
|||
Discount |
( |
|
( |
||||||
Debt issuance costs |
( |
|
( |
||||||
Derivative liability |
|
( |
— |
||||||
Carrying value |
$ |
|
$ |
|
$ |
|
|||
On September 14, 2018, the Company issued $
On April 24, 2020, the Company entered into a supplemental indenture (the “Supplemental Indenture”) to the Convertible Notes due 2024 indenture, dated as of September 14, 2018. The Supplemental Indenture amended the debt covenant under the Convertible Notes Indenture to permit the Company to issue the First Lien Notes due 2025, among other changes.
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 $
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 June 30, 2020 and June 30, 2019, this resulted in other income of $
Upon conversion by a holder of the Convertible Notes due 2024, the Company shall deliver, at its election, either cash, shares of the Company’s Class A common stock or a combination of cash and shares of the Company’s Class A common stock at a conversion rate of
20
(which represents an initial conversion price of $
The Company has the option to redeem the Convertible Notes due 2024 for cash on or after the fifth anniversary of issuance at par if the price for the Company’s Class A common stock is equal to or greater than
With certain exceptions, upon a change of control of the Company or if the Company’s Class A common stock is not listed for trading on The New York Stock Exchange, The NASDAQ Global Select Market or The NASDAQ Global Market, the holders of the Convertible Notes due 2024 may require that the Company repurchase in cash all or part of the principal amount of the Convertible Notes due 2024 at a purchase price equal to the principal amount plus accrued and unpaid interest up to, but excluding, the date of repurchase. The Indenture includes restrictive covenants that, subject to specified exceptions and parameters, limit the ability of the Company to incur additional debt and limit the ability of the Company to incur liens with respect to the Company’s senior subordinated notes or any debt incurred to refinance the Company’s senior subordinated notes. The Indenture also includes customary events of default, which may result in the acceleration of the maturity of the Convertible Notes due 2024 under the Indenture.
21
NOTE 7—STOCKHOLDERS’ EQUITY
Dividends
The following is a summary of dividends and dividend equivalents declared to stockholders during the three and six months ended June 30, 2020:
Amount per |
Total Amount |
|||||||||
|
|
|
Share of |
|
Declared |
|||||
Declaration Date |
Record Date |
Date Paid |
Common Stock |
(In millions) |
||||||
February 26, 2020 |
March 9, 2020 |
March 23, 2020 |
$ |
|
$ |
|
||||
Related Party Transactions
As of June 30, 2020 and December 31, 2019, the Company recorded a receivable due from Wanda of $
On September 14, 2018, the Company entered into the Investment Agreement with Silver Lake Alpine, L.P., an affiliate of Silver Lake Group, L.L.C. (“Silver Lake”), relating to the issuance to Silver Lake (or its designated affiliates) of $
On September 14, 2018, the Company, Silver Lake and Wanda entered into a Right of First Refusal Agreement (the “ ROFR Agreement ”), which provides Silver Lake certain rights to purchase shares of the Company’s common stock that Wanda proposes to sell during a period of
On September 14, 2018, the Company used the proceeds from the Convertible Notes due 2024, and pursuant to a stock repurchase agreement between the Company and Wanda, repurchased
22
Condensed Consolidated Statements of Stockholders’ Equity
For the Six Months Ended June 30, 2020
Accumulated |
|||||||||||||||||||||||||||
Class A Voting |
Class B Voting |
Additional |
Other |
Accumulated |
Total |
||||||||||||||||||||||
Common Stock |
Common Stock |
Paid-in |
Treasury Stock |
Comprehensive |
Earnings |
Stockholders’ |
|||||||||||||||||||||
(In millions, except share and per share data) |
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Capital |
Shares |
|
Amount |
|
Income (Loss) |
|
(Deficit) |
|
Equity (Deficit) |
||||||||
Balances December 31, 2019 |
|
$ |
|
|
$ |
|
$ |
|
|
$ |
( |
$ |
( |
$ |
( |
$ |
|
||||||||||
Cumulative effect adjustment for the adoption of new accounting principle (ASU 2016-13) |
— |
— |
— |
— |
— |
— |
— |
— |
( |
( |
|||||||||||||||||
Net loss |
— |
— |
— |
— |
— |
— |
— |
— |
( |
( |
|||||||||||||||||
Other comprehensive loss |
— |
— |
— |
— |
— |
— |
— |
( |
— |
( |
|||||||||||||||||
Dividends declared: |
|||||||||||||||||||||||||||
Class A common stock, $ |
— |
— |
— |
— |
— |
— |
— |
— |
( |
( |
|||||||||||||||||
Class B common stock, $ |
— |
— |
— |
— |
— |
— |
— |
— |
( |
( |
|||||||||||||||||
Taxes paid for restricted unit withholdings |
— |
— |
— |
— |
( |
— |
— |
— |
— |
( |
|||||||||||||||||
Stock-based compensation |
|
— |
— |
— |
|
— |
— |
— |
— |
|
|||||||||||||||||
Balances March 31, 2020 |
|
$ |
|
|
$ |
|
$ |
|
|
$ |
( |
$ |
( |
$ |
( |
$ |
( |
||||||||||
Net loss |
— |
— |
— |
— |
— |
— |
— |
— |
( |
( |
|||||||||||||||||
Other comprehensive income |
— |
— |
— |
— |
— |
— |
— |
|
— |
|
|||||||||||||||||
Dividends declared: |
|||||||||||||||||||||||||||
Class A common stock, $ |
— |
— |
— |
— |
— |
— |
— |
— |
|
|
|||||||||||||||||
Stock-based compensation |
— |
— |
— |
— |
|
— |
— |
— |
— |
|
|||||||||||||||||
Balances June 30, 2020 |
|
$ |
|
|
$ |
|
$ |
|
|
$ |
( |
$ |
( |
$ |
( |
$ |
( |
||||||||||
23
Condensed Consolidated Statements of Stockholders’ Equity
For the Six Months Ended June 30, 2019
Accumulated |
|||||||||||||||||||||||||||
Class A Voting |
Class B Voting |
Additional |
Other |
Accumulated |
Total |
||||||||||||||||||||||
Common Stock |
Common Stock |
Paid-in |
Treasury Stock |
Comprehensive |
Earnings |
Stockholders’ |
|||||||||||||||||||||
(In millions, except share and per share data) |
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Capital |
Shares |
|
Amount |
|
Income (Loss) |
|
(Deficit) |
|
Equity |
||||||||
Balances December 31, 2018 |
|
$ |
|
|
$ |
|
$ |
|
|
$ |
( |
$ |
|
$ |
( |
$ |
|
||||||||||
Cumulative effect adjustments for the adoption of new accounting principle (ASU 842) |
— |
— |
— |
— |
— |
— |
— |
— |
|
|
|||||||||||||||||
Net loss |
— |
— |
— |
— |
— |
— |
— |
— |
( |
( |
|||||||||||||||||
Other comprehensive loss |
— |
— |
— |
— |
— |
— |
— |
( |
— |
( |
|||||||||||||||||
Dividends declared: |
|||||||||||||||||||||||||||
Class A common stock, $ |
— |
— |
— |
— |
— |
— |
— |
— |
( |
( |
|||||||||||||||||
Class B common stock, $ |
— |
— |
— |
— |
— |
— |
— |
— |
( |
( |
|||||||||||||||||
Taxes paid for restricted unit withholdings |
— |
— |
— |
— |
( |
— |
— |
— |
— |
( |
|||||||||||||||||
Reclassification from temporary equity |
|
— |
— |
— |
|
— |
— |
— |
— |
|
|||||||||||||||||
Stock-based compensation |
|
— |
— |
— |
|
— |
— |
— |
— |
|
|||||||||||||||||
Balances March 31, 2019 |
|
$ |
|
|
$ |
|
$ |
|
|
$ |
( |
$ |
( |
$ |
( |
$ |
|
||||||||||
Cumulative effect adjustments for the adoption of new accounting principle (ASU 842) |
— |
— |
— |
— |
— |
— |
— |
— |
( |
( |
|||||||||||||||||
Net earnings |
— |
— |
— |
— |
— |
— |
— |
— |
|
|
|||||||||||||||||
Other comprehensive loss |
— |
— |
— |
— |
— |
— |
— |
( |
— |
( |
|||||||||||||||||
Dividends declared: |
|||||||||||||||||||||||||||
Class A common stock, $ |
— |
— |
— |
— |
— |
— |
— |
— |
( |
( |
|||||||||||||||||
Class B common stock, $ |
— |
— |
— |
— |
— |
— |
— |
— |
( |
( |
|||||||||||||||||
Taxes paid for restricted unit withholdings |
— |
— |
— |
— |
( |
— |
— |
— |
— |
( |
|||||||||||||||||
Stock-based compensation |
|
— |
— |
— |
|
— |
— |
— |
— |
|
|||||||||||||||||
Balances June 30, 2019 |
|
$ |
|
|
$ |
|
$ |
|
|
$ |
( |
$ |
( |
$ |
( |
$ |
|
||||||||||
24
NOTE 8—INCOME TAXES
The Company’s worldwide effective income tax rate is based on actual income (loss), statutory rates, valuation allowances against deferred tax assets and tax planning opportunities available in the various jurisdictions in which it operates. The Company is using a discrete income tax calculation for the three and six months ended June 30, 2020 due to the inability to determine reliable annual estimates of taxable income (loss) due to COVID-19. Historically, for interim financial reporting, the Company estimates the worldwide annual income tax rate based on projected taxable income (loss) for the full year and records a quarterly income tax provision or benefit in accordance with the anticipated annual rate, adjusted for discrete items, if any. The Company will return to the historic approach of computing quarterly tax expense based on an annual effective rate in the future interim period when more reliable estimates of annual income become available. The Company recognizes income tax-related interest expense and penalties as income tax expense and general and administrative expense, respectively.
The Company evaluates its deferred tax assets each period to determine if a valuation allowance is required based on whether it is “more likely than not” that some portion of the deferred tax assets would not be realized. The ultimate realization of these deferred tax assets is dependent upon the generation of sufficient taxable income during future periods on a federal, state and foreign jurisdiction basis. The Company conducts its evaluation by considering all available positive and negative evidence, including historical operating results, forecasts of future profitability, the duration of statutory carryforward periods, and the outlooks for the U.S. motion picture and broader economy, among others.
During the first quarter of 2020, the severe impact of COVID-19 on operations in Germany and Spain caused the Company to conclude the realizability of deferred tax assets held in those jurisdictions does not meet the more likely than not standard. As such, a charge of $
As a result, the effective tax rate for the six months ended June 30, 2020 reflects the impact of these valuation allowances against U.S. and international deferred tax assets generated during the six month period. The actual effective rate for the six months ended June 30, 2020 was (
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property, as well as loans to certain qualifying businesses. The Company continues to examine the impacts that the CARES Act may have on its business. While the Company may take advantage of certain CARES Act’s cash deferral provisions, many of the provisions are not applicable to the Company. Additionally, as of the date of this filing, the Company has not participated in CARES Act loans.
NOTE 9—FAIR VALUE MEASUREMENTS
Fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the entity transacts business. The inputs used to develop these fair value measurements are established in a hierarchy, which ranks the quality and reliability of the information used to determine the fair values. The fair value classification is based on levels of inputs. Assets and liabilities that are carried at fair value are classified and disclosed in one of the following categories:
Level 1: |
Quoted market prices in active markets for identical assets or liabilities. |
25
Level 2: |
Observable market based inputs or unobservable inputs that are corroborated by market data. |
Level 3: |
Unobservable inputs that are not corroborated by market data. |
Recurring Fair Value Measurements. The following table summarizes the fair value hierarchy of the Company’s financial assets and liabilities carried at fair value on a recurring basis as of June 30, 2020:
Fair Value Measurements at June 30, 2020 Using |
||||||||||||
Significant |
||||||||||||
|
Total Carrying |
|
Quoted prices in |
|
Significant other |
|
unobservable |
|||||
Value at |
active market |
observable inputs |
inputs |
|||||||||
(In millions) |
June 30, 2020 |
(Level 1) |
(Level 2) |
(Level 3) |
||||||||
Other long-term assets: |
||||||||||||
Money market mutual funds |
$ |
|
$ |
|
$ |
— |
$ |
— |
||||
Derivative asset |
|
— |
— |
|
||||||||
Investments measured at net asset value (1) |
|
|
— |
|
— |
|
— |
|||||
Marketable equity securities: |
||||||||||||
Investment in NCM |
|
|
— |
— |
||||||||
Total assets at fair value |
$ |
|
$ |
|
$ |
— |
$ |
|
||||
| (1) | The investments relate to non-qualified deferred compensation arrangements on behalf of certain members of management. The Company has an equivalent liability for this related-party transaction recorded in other long-term liabilities for the deferred compensation obligation. |
Valuation Techniques. The Company’s money market mutual funds are invested in funds that seek to preserve principal, are highly liquid, and therefore are recorded on the balance sheet at the principal amounts deposited, which equals fair value.
On September 14, 2018, the Company issued Convertible Notes due 2024 with a conversion feature that gave rise to an embedded derivative instrument and a stock purchase and cancellation agreement that gave rise to a derivative asset, see Note 6—Corporate Borrowings for further information. The derivative features have been valued using a Monte Carlo simulation approach. The Monte Carlo simulation approach consists of simulated common stock prices from the valuation date to the maturity of the Convertible Notes and to September 14, 2020 for the contingent call option for forfeiture shares. At June 30, 2020, the Company used a share price of $
Nonrecurring Fair Value Measurements. The following table summarizes the fair value hierarchy of the Company’s assets that were measured at fair value on a nonrecurring basis:
Fair Value Measurements at March 31, 2020 |
|||||||||||||||
|
|
|
Significant other |
|
Significant |
|
|||||||||
Total Carrying |
Quoted prices in |
observable |
unobservable |
||||||||||||
Value at |
active market |
inputs |
inputs |
Total |
|||||||||||
(In millions) |
|
March 31, 2020 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
Losses |
|||||
Property, net: |
|||||||||||||||
Property net |
$ |
|
$ |
— |
$ |
— |
$ |
|
$ |
|
|||||
Operating lease right-of-use assets |
|||||||||||||||
Operating lease right-of-use assets |
|
— |
— |
|
|
||||||||||
Intangible assets, net |
|||||||||||||||
Definite-lived intangible assets |
|
— |
— |
|
|
||||||||||
Indefinite-lived intangible assets |
|
— |
— |
|
|
||||||||||
Goodwill |
|||||||||||||||
Goodwill |
|
— |
— |
|
|
||||||||||
Other long-term assets |
|||||||||||||||
Cost method investments |
— |
— |
— |
— |
|
||||||||||
Total |
$ |
|
$ |
— |
$ |
— |
$ |
|
|
||||||
Long-lived assets held and used, operating lease right-of-use assets, intangible assets, and cost method investments were considered impaired and were written down to their fair value at March 31, 2020 of $
26
There is considerable management judgment with respect to cash flow estimates and discount rates used in determining fair value, and therefore are classified as Level 3 measurements within the fair value measurement hierarchy.
Valuation Techniques. There are a number of estimates and significant judgments that were made by management in performing these impairment evaluations. Such judgments and estimates include estimates of future attendance, revenues, cash flows, rent relief, cost savings, capital expenditures, and the cost of capital, among others. Attendance is expected to be significantly below historical levels for the first several months following reopening but is expected to increase as customers become more comfortable with the experience. The Company believes it used reasonable and appropriate business judgments. The Company used weighted average cost of capital (discount rate) input for the Domestic Theatres and International Theatres reporting units of
Other Fair Value Measurement Disclosures. The Company is required to disclose the fair value of financial instruments that are not recognized at fair value in the statement of financial position for which it is practicable to estimate that value:
|
Fair Value Measurements at June 30, 2020 |
|||||||||||
|
|
Significant other |
|
Significant |
||||||||
Total Carrying |
Quoted prices in |
observable |
unobservable |
|||||||||
Value at |
active market |
inputs |
inputs |
|||||||||
(In millions) |
June 30, 2020 |
(Level 1) |
(Level 2) |
(Level 3) |
||||||||
Current maturities of corporate borrowings |
$ |
|
$ |
— |
$ |
|
$ |
— |
||||
Corporate borrowings |
|
|
|
— |
|
|
|
|||||
Valuation Technique. Quoted market prices and observable market based inputs were used to estimate fair value for Level 2 inputs. The Level 3 fair value measurement represents the transaction price of the corporate borrowings under market conditions. On September 14, 2018, the Company issued $
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate fair value because of the short maturity of these instruments.
NOTE 10—OPERATING SEGMENTS
The Company reports information about operating segments in accordance with ASC 280-10, Segment Reporting, which requires financial information to be reported based on the way management organizes segments within a company for making operating decisions and evaluating performance. The Company has identified
27
Below is a breakdown of select financial information by reportable operating segment:
Three Months Ended |
Six Months Ended |
|||||||||||
Revenues (In millions) |
|
June 30, 2020 |
June 30, 2019 |
June 30, 2020 |
|
June 30, 2019 |
||||||
U.S. markets |
$ |
|
$ |
|
$ |
|
|
$ |
|
|||
International markets |
|
|
|
|
|
|||||||
Total revenues |
$ |
|
$ |
|
$ |
|
|
$ |
|
|||
Three Months Ended |
Six Months Ended |
|||||||||||
Adjusted EBITDA (1) (In millions) |
|
June 30, 2020 |
|
June 30, 2019 |
June 30, 2020 |
|
June 30, 2019 |
|||||
U.S. markets |
$ |
( |
$ |
|
$ |
( |
$ |
|
||||
International markets |
( |
|
( |
|
||||||||
Total Adjusted EBITDA |
$ |
( |
$ |
|
$ |
( |
$ |
|
||||
| (1) | The Company presents Adjusted EBITDA as a supplemental measure of its performance. The Company defines Adjusted EBITDA as net earnings (loss) plus (i) income tax provision (benefit), (ii) interest expense and (iii) depreciation and amortization, as further adjusted to eliminate the impact of certain items that the Company does not consider indicative of the Company’s ongoing operating performance and to include attributable EBITDA from equity investments in theatre operations in International markets and any cash distributions of earnings from its other equity method investees. The measure of segment profit and loss the Company uses to evaluate performance and allocate its resources is Adjusted EBITDA, which is consistent with how Adjusted EBITDA is defined in the Company’s debt indentures. |
Three Months Ended |
Six Months Ended |
|||||||||||
Capital Expenditures (In millions) |
|
June 30, 2020 |
|
June 30, 2019 |
June 30, 2020 |
|
June 30, 2019 |
|||||
U.S. markets |
$ |
|
$ |
|
$ |
|
$ |
|
||||
International markets |
|
|
|
|
||||||||
Total capital expenditures |
$ |
|
$ |
|
$ |
|
$ |
|
||||
As of |
As of |
|||||
Long-term assets, net (In millions) |
June 30, 2020 |
December 31, 2019 |
||||
U.S. markets |
$ |
|
$ |
|
||
International markets |
|
|
||||
Total long-term assets (1) |
$ |
|
$ |
|
||
| (1) | Long-term assets are comprised of property, operating lease right-of-use assets, intangible assets, goodwill, deferred tax assets, and other long-term assets. |
28
The following table sets forth a reconciliation of net earnings (loss) to Adjusted EBITDA:
Three Months Ended |
Six Months Ended |
|||||||||||
(In millions) |
June 30, 2020 |
June 30, 2019 |
|
June 30, 2020 |
June 30, 2019 |
|||||||
Net earnings (loss) |
$ |
( |
$ |
|
$ |
( |
$ |
( |
||||
Plus: |
||||||||||||
Income tax provision (benefit) (1) |
|
( |
|
|
|
|
|
|
||||
Interest expense |
|
|
|
|
|
|
|
|
||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
||||
Impairment of long-lived assets, indefinite-lived intangible assets and goodwill (2) |
|
— |
|
— |
|
|
|
— |
||||
Certain operating expenses (3) |
|
( |
|
|
|
|
|
|
||||
Equity in (earnings) loss of non-consolidated entities (4) |
|
|
|
( |
|
|
|
( |
||||
Cash distributions from non-consolidated entities (5) |
|
|
|
|
|
|
|
|
||||
Attributable EBITDA (6) |
|
|
|
|
||||||||
Investment expense (income) |
|
( |
|
( |
|
|
|
( |
||||
Other expense (income) (7) |
|
( |
|
( |
|
|
|
|
||||
Other non-cash rent (8) |
( |
|
( |
|
||||||||
General and administrative — unallocated: |
||||||||||||
Merger, acquisition and other costs (9) |
|
|
|
|
|
|
|
|
||||
Stock-based compensation expense (10) |
|
|
|
|
|
|
|
|
||||
Adjusted EBITDA |
$ |
( |
$ |
|
$ |
( |
$ |
|
||||
| (1) | For information regarding the income tax provision, see Note 8—Income Taxes. |
| (2) |
During the six months ended June 30, 2020, the Company recorded non-cash impairment charges of $ |
| (3) | Amounts represent preopening expense related to temporarily closed screens under renovation, theatre and other closure expense for the permanent closure of screens including the related accretion of interest, non-cash deferred digital equipment rent expense, and disposition of assets and other non-operating gains or losses included in operating expenses. The Company has excluded these items as they are non-cash in nature or are non-operating in nature. |
| (4) |
Equity in (earnings) loss of non-consolidated entities was primarily due to equity in loss from DCIP of $ |
| (5) | Includes U.S. non-theatre distributions from equity method investments and International non-theatre distributions from equity method investments to the extent received. The Company believes including cash distributions is an appropriate reflection of the contribution of these investments to the Company’s operations. |
| (6) | Attributable EBITDA includes the EBITDA from equity investments in theatre operators in certain International markets. See below for a reconciliation of the Company’s equity in (earnings) loss of non-consolidated entities to attributable EBITDA. Because these equity investments are in theatre operators in regions where the Company holds a significant market share, the Company believes attributable EBITDA is more indicative of the performance of these equity investments and management uses this measure to monitor and evaluate these equity investments. The Company also provides services to these theatre operators including information technology systems, certain on-screen advertising services and the Company’s gift card |
29
| and package ticket program. |
Three Months Ended |
Six Months Ended |
||||||||||||
(In millions) |
June 30, 2020 |
|
June 30, 2019 |
|
June 30, 2020 |
|
June 30, 2019 |
||||||
Equity in (earnings) loss of non-consolidated entities |
$ |
|
$ |
( |
$ |
|
$ |
( |
|||||
Less: |
|||||||||||||
Equity in (earnings) loss of non-consolidated entities excluding International theatre joint ventures |
|
( |
|
( |
|||||||||
Equity in earnings (loss) of International theatre joint ventures |
( |
|
( |
|
|||||||||
Income tax provision (benefit) |
— |
|
( |
|
|||||||||
Investment income |
— |
( |
( |
( |
|||||||||
Interest expense |
— |
|
— |
|
|||||||||
Depreciation and amortization |
|
|
|
|
|||||||||
Other expense |
|
— |
|
— |
|||||||||
Attributable EBITDA |
$ |
|
$ |
|
$ |
|
$ |
|
|||||
| (7) |
Other income for the three months ended June 30, 2020 compared to three months ended June 30, 2019 decreased $ |
| (8) | Reflects amortization expense for certain intangible assets reclassified from depreciation and amortization to rent expense due to the adoption of ASC 842 and deferred rent benefit related to the impairment of right-of-use operating lease assets. |
| (9) | Merger, acquisition and other costs are excluded as they are non-operating in nature. |
| (10) | Non-cash expense included in general and administrative: other |
NOTE 11—COMMITMENTS AND CONTINGENCIES
The Company, in the normal course of business, is a party to various ordinary course claims from vendors (including food and beverage suppliers and film distributors), landlords, competitors, and other legal proceedings. If management believes that a loss arising from these actions is probable and can reasonably be estimated, the Company records the amount of the loss, or the minimum estimated liability when the loss is estimated using a range and no point is more probable than another. As additional information becomes available, any potential liability related to these actions is assessed and the estimates are revised, if necessary. Management believes that the ultimate outcome of such matters discussed below, individually and in the aggregate, will not have a material adverse effect on the Company’s financial position or overall trends in results of operations. However, litigation and claims are subject to inherent uncertainties and unfavorable outcomes can occur. An unfavorable outcome might include monetary damages. If an unfavorable outcome were to occur, there exists the possibility of a material adverse impact on the results of operations in the period in which the outcome occurs or in future periods.
On January 12, 2018 and January 19, 2018,
30
(the “Hawaii Action”), and Nichols v. AMC Entertainment Holdings, Inc., et al., Case No. 1:18-cv-00510-AJN (the “Nichols Action,” and together with the Hawaii Action, the “Actions”), respectively, were filed against the Company in the U.S. District Court for the Southern District of New York. The Actions, which name certain of the Company’s officers and directors and, in the case of the Hawaii Action, the underwriters of the Company’s February 8, 2017 secondary public offering, as defendants, assert claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) with respect to alleged material misstatements and omissions in the registration statement for the secondary public offering and in certain other public disclosures. On May 30, 2018, the court consolidated the Actions. On January 22, 2019, defendants moved to dismiss the Second Amended Class Action Complaint. On September 23, 2019, the court granted the motion to dismiss in part and denied it in part. On March 2, 2020, plaintiffs moved to certify the purported class and on July 22, 2020, defendants filed a brief opposing plaintiffs’ motion for class certification.
On May 21, 2018, a stockholder derivative complaint, captioned Gantulga v. Aron, et al., Case No. 2:18-cv-02262-JAR-TJJ (the “Gantulga Action”), was filed against certain of the Company’s officers and directors in the U.S. District Court for the District of Kansas. The Gantulga Action, which was filed on behalf of the Company, asserts claims under Section 14(a) of the Exchange Act and for breaches of fiduciary duty and unjust enrichment based on allegations substantially similar to the Actions. On October 12, 2018, the parties filed a joint motion to transfer the action to the U.S. District Court for the Southern District of New York, which the court granted on October 15, 2018. When the action was transferred to the Southern District of New York, it was re-captioned Gantulga v. Aron, et al., Case No. 1:18-cv-10007-AJN. The parties filed a joint stipulation to stay the action, which the court granted on December 17, 2018.
On October 2, 2019, a stockholder derivative complaint, captioned Kenna v. Aron, et al., Case No. 1:19-cv-09148-AJN (the “Kenna Action”), was filed in the U.S. District Court for the Southern District of New York. The parties filed a joint stipulation to stay the action, which the court granted on October 17, 2019. On April 20, 2020, the plaintiff filed an amended complaint. The Kenna Action asserts claims under Sections 10(b), 14(a), and 21D of the Exchange Act and for breaches of fiduciary duty and unjust enrichment based on allegations substantially similar to the Actions and the Gantulga Action. The action remains stayed.
On March 20, 2020, a stockholder derivative complaint, captioned Manuel v. Aron, et al., Case No. 1:20-cv-02456-AJN (the “Manuel Action”), was filed in the U.S. District Court for the Southern District of New York. The Manuel Action asserts claims under Sections 10(b), 21D, and 29(b) of the Exchange Act and for breaches of fiduciary duty based on allegations substantially similar to the Actions, the Gantulga Action, and the Kenna Action. The parties filed a joint stipulation to stay the action, which the court granted on May 18, 2020.
On April 7, 2020, a stockholder derivative complaint, captioned Dinkevich v. Aron, et al., Case No. 1:20-cv-02870-AJN (the “Dinkevich Action”), was filed in the U.S. District Court for the Southern District of New York. The Dinkevich Action asserts the same claims as the Manuel Action based on allegations substantially similar to the Actions, the Gantulga Action, the Kenna Action, and the Manuel Action. The parties filed a joint stipulation to stay the action, which was granted on June 25, 2020.
On February 3, 2020, the Company received a books and records demand pursuant to 8 Del. C. § 220, seeking to investigate the conduct challenged in the Actions. AMC rejected the demand on February 10, 2020.
On December 31, 2019, the Company received a stockholder litigation demand, requesting that the Board investigate the allegations in the Actions and pursue claims on the Company’s behalf based on those allegations. On May 5, 2020, the Board determined not to pursue the claims sought in the demand at this time.
On July 15, 2020, the Company received a second stockholder litigation demand requesting substantially the same action as the stockholder demand it received on December 31, 2019.
On April 22, 2019, a putative stockholder class and derivative complaint, captioned Lao v. Dalian Wanda Group Co., Ltd., et al., C.A. No. 2019-0303-JRS (the “Lao Action”), was filed against certain of the Company’s directors, Wanda, two of Wanda’s affiliates, Silver Lake, and one of Silver Lake’s affiliates in the Delaware Court of Chancery. The Lao Action asserts claims directly, on behalf of a putative class of Company stockholders, and derivatively, on behalf of the Company, for breaches of fiduciary duty and aiding and abetting breaches of fiduciary duty with respect to transactions that the Company entered into with affiliates of Wanda and Silver Lake on September 14, 2018, and the special cash dividend of $
31
Company’s Board of Directors formed a Special Litigation Committee to investigate and evaluate the claims and allegations asserted in the Lao Action and make a determination as to how the Company should proceed with respect to the Lao Action. On October 25, 2019, the court granted a motion to stay the action for six months to allow the Special Litigation Committee to complete its investigation. On March 17, 2020, the court extended the stay until December 11, 2020.
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. During the three and six months ended June 30, 2020, the Company recorded $
NOTE 12—EARNINGS (LOSS) PER SHARE
Basic net earnings (loss) per share is computed by dividing net earnings (loss) by the weighted-average number of common shares outstanding. Diluted earnings (loss) per share includes the effects of unvested restricted stock units (“RSUs”) with a service condition only, unvested contingently issuable RSUs that have service and performance conditions (“PSUs”), and unvested contingently issuable special performance stock units that have service and market conditions (“SPSUs”), if dilutive, as well as potential dilutive shares from the conversion feature of the Convertible Notes due 2024, if dilutive.
The following table sets forth the computation of basic and diluted earnings (loss) per common share:
Three Months Ended |
Six Months Ended |
|||||||||||
(In millions) |
|
June 30, 2020 |
|
June 30, 2019 |
|
June 30, 2020 |
|
June 30, 2019 |
||||
Numerator: |
||||||||||||
Net earnings (loss) for basic earnings (loss) per share |
$ |
( |
$ |
|
$ |
( |
$ |
( |
||||
Calculation of net earnings (loss) for diluted earnings (loss) per share: |
||||||||||||
Marked-to-market gain on derivative liability |
— |
( |
— |
— |
||||||||
Interest expense for Convertible Notes due 2024 |
— |
|
— |
— |
||||||||
Net earnings (loss) for diluted earnings (loss) per share |
$ |
( |
$ |
|
$ |
( |
$ |
( |
||||
Denominator (shares in thousands): |
||||||||||||
Weighted average shares for basic loss per common share |
|
|
|
|
|
|
|
|
||||
Common equivalent shares for RSUs and PSUs |
|
— |
|
|
|
— |
|
— |
||||
Common equivalent shares if converted: convertible notes 2024 |
— |
|
— |
— |
||||||||
Weighted average shares for diluted earnings (loss) per common share |
|
|
|
|
|
|
|
|
||||
Basic earnings (loss) per common share |
$ |
( |
$ |
|
$ |
( |
$ |
( |
||||
Diluted earnings (loss) per common share |
$ |
( |
$ |
|
$ |
( |
$ |
( |
||||
Vested RSUs and PSU’s have dividend rights identical to the Company’s Class A and Class B common stock and are treated as outstanding shares for purposes of computing basic and diluted earnings per share. For the three and six months ended June 30, 2020, unvested RSUs of
Unvested PSUs and SPSUs are subject to performance and market conditions, respectively, and are included in diluted earnings per share, if dilutive, based on the number of shares, if any, that would be issuable under the terms of the Company’s 2013 Equity Incentive Plan if the end of the reporting period were the end of the contingency period. Unvested PSUs of
32
30, 2019, respectively, unvested PSUs of
The Company uses the if-converted method for calculating any potential dilutive effect of the Convertible Notes due 2024 that were issued on September 14, 2018. For the three months ended June 30, 2020, the Company has not adjusted net loss to eliminate the interest expense of $
33
NOTE 13—CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X Rule 3-10, Financial statements of guarantors and issuers of guaranteed securities registered or being registered. Each of the subsidiary guarantors are
Condensed Consolidating Statement of Operations
Three Months Ended June 30, 2020:
Subsidiary |
Subsidiary |
Consolidating |
Consolidated |
||||||||||||
(In millions) |
Holdings |
Guarantors |
Non-Guarantors |
Adjustments |
Holdings |
||||||||||
Revenues |
|
|
|
|
|
||||||||||
Admissions |
$ |
— |
$ |
— |
$ |
|
$ |
— |
$ |
|
|||||
Food and beverage |
|
— |
|
— |
|
|
|
— |
|
|
|||||
Other theatre |
|
— |
|
|
|
|
|
— |
|
|
|||||
Total revenues |
|
— |
|
|
|
|
|
— |
|
|
|||||
Operating costs and expenses |
|||||||||||||||
Film exhibition costs |
|
— |
|
( |
|
|
|
— |
|
|
|||||
Food and beverage costs |
|
— |
|
|
|
|
|
— |
|
|
|||||
Operating expense, excluding depreciation and amortization |
|
— |
|
|
|
|
|
— |
|
|
|||||
Rent |
|
— |
|
|
|
|
|
— |
|
|
|||||
General and administrative: |
|||||||||||||||
Merger, acquisition and other costs |
|
— |
|
|
|
|
|
— |
|
|
|||||
Other, excluding depreciation and amortization |
|
— |
|
|
|
|
|
— |
|
|
|||||
Depreciation and amortization |
— |
|
|
|
|
|
— |
|
|
||||||
Operating costs and expenses |
|
— |
|
|
|
|
|
— |
|
|
|||||
Operating loss |
|
— |
|
( |
|
( |
|
— |
|
( |
|||||
Other expense (income): |
|||||||||||||||
Equity in net loss of subsidiaries |
|
|
|
|
|
— |
|
( |
|
— |
|||||
Other expense (income): |
( |
|
( |
— |
( |
||||||||||
Interest expense: |
|||||||||||||||
Corporate borrowings |
|
|
|
|
|
|
|
( |
|
|
|||||
Finance lease obligations |
|
— |
|
|
|
|
|
— |
|
|
|||||
Non-cash NCM exhibitor service agreement |
— |
|
— |
— |
|
||||||||||
Intercompany interest expense |
— |
— |
|
( |
— |
||||||||||
Equity in loss of non-consolidated entities |
|
— |
|
|
|
|
|
— |
|
|
|||||
Investment income |
|
( |
|
( |
|
( |
|
|
|
( |
|||||
Total other expense, net |
|
|
|
|
|
|
|
( |
|
|
|||||
Loss before income taxes |
|
( |
|
( |
|
( |
|
|
|
( |
|||||
Income tax provision (benefit) |
|
— |
|
|
|
( |
|
— |
|
( |
|||||
Net loss |
$ |
( |
$ |
( |
$ |
( |
$ |
|
$ |
( |
|||||
34
Condensed Consolidating Statement of Operations
Three Months Ended June 30, 2019:
Subsidiary |
Subsidiary |
Consolidating |
Consolidated |
||||||||||||
(In millions) |
Holdings |
Guarantors |
Non-Guarantors |
Adjustments |
Holdings |
||||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|||||
Admissions |
$ |
— |
$ |
|
$ |
|
$ |
— |
$ |
|
|||||
Food and beverage |
|
— |
|
|
|
|
|
— |
|
|
|||||
Other theatre |
|
— |
|
|
|
|
|
— |
|
|
|||||
Total revenues |
|
— |
|
|
|
|
|
— |
|
|
|||||
Operating costs and expenses |
|||||||||||||||
Film exhibition costs |
|
— |
|
|
|
|
|
— |
|
|
|||||
Food and beverage costs |
|
— |
|
|
|
|
|
— |
|
|
|||||
Operating expense, excluding depreciation and amortization |
|
— |
|
|
|
|
|
— |
|
|
|||||
Rent |
|
— |
|
|
|
|
|
— |
|
|
|||||
General and administrative: |
|||||||||||||||
Merger, acquisition and other costs |
|
— |
|
|
|
|
|
— |
|
|
|||||
Other, excluding depreciation and amortization |
|
— |
|
|
|
|
|
— |
|
|
|||||
Depreciation and amortization |
|
— |
|
|
|
|
|
— |
|
|
|||||
Operating costs and expenses |
|
— |
|
|
|
|
|
— |
|
|
|||||
Operating income |
|
— |
|
|
|
|
|
— |
|
|
|||||
Other expense (income): |
|||||||||||||||
Equity in net loss of subsidiaries |
|
|
|
|
|
— |
|
( |
|
— |
|||||
Other expense (income) |
( |
|
( |
— |
( |
||||||||||
Interest expense: |
|||||||||||||||
Corporate borrowings |
|
|
|
|
|
|
|
( |
|
|
|||||
Finance lease obligations |
|
— |
|
|
|
|
|
— |
|
|
|||||
Non-cash NCM exhibitor service agreement |
— |
|
— |
— |
|
||||||||||
Intercompany interest expense |
— |
— |
|
( |
— |
||||||||||
Equity in earnings of non-consolidated entities |
|
— |
|
( |
|
( |
|
— |
|
( |
|||||
Investment income |
|
( |
|
( |
|
( |
|
|
|
( |
|||||
Total other expense (income), net |
|
( |
|
|
|
|
|
( |
|
|
|||||
Earnings (loss) before income taxes |
|
|
|
( |
|
( |
|
|
|
|
|||||
Income tax provision (benefit) |
|
— |
|
|
|
( |
|
— |
|
|
|||||
Net earnings (loss) |
$ |
|
$ |
( |
$ |
( |
$ |
|
$ |
|
|||||
35
Condensed Consolidating Statement of Operations
Six Months Ended June 30, 2020:
Subsidiary |
Subsidiary |
Consolidating |
Consolidated |
||||||||||||
(In millions) |
Holdings |
Guarantors |
Non-Guarantors |
Adjustments |
Holdings |
||||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|||||
Admissions |
$ |
— |
$ |
|
$ |
|
$ |
— |
$ |
|
|||||
Food and beverage |
|
— |
|
|
|
|
|
— |
|
|
|||||
Other theatre |
|
— |
|
|
|
|
|
— |
|
|
|||||
Total revenues |
|
— |
|
|
|
|
|
— |
|
|
|||||
Operating costs and expenses |
|||||||||||||||
Film exhibition costs |
|
— |
|
|
|
|
|
— |
|
|
|||||
Food and beverage costs |
|
— |
|
|
|
|
|
— |
|
|
|||||
Operating expense, excluding depreciation and amortization |
|
— |
|
|
|
|
|
— |
|
|
|||||
Rent |
|
— |
|
|
|
|
|
— |
|
|
|||||
General and administrative: |
|||||||||||||||
Merger, acquisition and other costs |
|
— |
|
|
|
— |
|
— |
|
|
|||||
Other, excluding depreciation and amortization |
|
— |
|
|
|
|
|
— |
|
|
|||||
Depreciation and amortization |
|
— |
|
|
|
|
|
— |
|
|
|||||
Impairment of long-lived assets, indefinite-lived intangible assets and goodwill |
— |
|
|
— |
|
||||||||||
Operating costs and expenses |
|
— |
|
|
|
|
|
— |
|
|
|||||
Operating loss |
|
— |
|
( |
|
( |
|
— |
|
( |
|||||
Other expense (income): |
|||||||||||||||
Equity in net loss of subsidiaries |
|
|
|
|
|
— |
|
( |
|
— |
|||||
Other expense (income) |
|
|
( |
— |
|
||||||||||
Interest expense: |
|||||||||||||||
Corporate borrowings |
|
|
|
|
|
|
|
( |
|
|
|||||
Finance lease obligations |
|
— |
|
|
|
|
|
— |
|
|
|||||
Non-cash NCM exhibitor service agreement |
— |
|
— |
— |
|
||||||||||
Intercompany interest expense |
— |
— |
|
( |
— |
||||||||||
Equity in loss of non-consolidated entities |
|
— |
|
|
|
|
|
— |
|
|
|||||
Investment income |
|
( |
|
— |
|
( |
|
|
|
|
|||||
Total other expense, net |
|
|
|
|
|
|
|
( |
|
|
|||||
Loss before income taxes |
|
( |
|
( |
|
( |
|
|
|
( |
|||||
Income tax provision |
|
— |
|
|
|
|
|
— |
|
|
|||||
Net loss |
$ |
( |
$ |
( |
$ |
( |
$ |
|
$ |
( |
|||||
36
Condensed Consolidating Statement of Operations
Six Months Ended June 30, 2019:
Subsidiary |
Subsidiary |
Consolidating |
Consolidated |
||||||||||||
(In millions) |
Holdings |
Guarantors |
Non-Guarantors |
Adjustments |
Holdings |
||||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|||||
Admissions |
$ |
— |
$ |
|
$ |
|
$ |
— |
$ |
|
|||||
Food and beverage |
|
— |
|
|
|
|
|
— |
|
|
|||||
Other theatre |
|
— |
|
|
|
|
|
— |
|
|
|||||
Total revenues |
|
— |
|
|
|
|
|
— |
|
|
|||||
Operating costs and expenses |
|||||||||||||||
Film exhibition costs |
|
— |
|
|
|
|
|
— |
|
|
|||||
Food and beverage costs |
|
— |
|
|
|
|
|
— |
|
|
|||||
Operating expense, excluding depreciation and amortization |
|
— |
|
|
|
|
|
— |
|
|
|||||
Rent |
|
— |
|
|
|
|
|
— |
|
|
|||||
General and administrative: |
|||||||||||||||
Merger, acquisition and other costs |
|
— |
|
|
|
|
|
— |
|
|
|||||
Other, excluding depreciation and amortization |
|
— |
|
|
|
|
|
— |
|
|
|||||
Depreciation and amortization |
|
— |
|
|
|
|
|
— |
|
|
|||||
Operating costs and expenses |
|
— |
|
|
|
|
|
— |
|
|
|||||
Operating income (loss) |
|
— |
|
|
|
( |
|
— |
|
|
|||||
Other expense (income): |
|||||||||||||||
Equity in net loss of subsidiaries |
|
|
|
|
|
— |
|
( |
|
— |
|||||
Other expense (income) |
( |
|
|
— |
|
||||||||||
Interest expense: |
|||||||||||||||
Corporate borrowings |
|
|
|
|
|
|
|
( |
|
|
|||||
Finance lease obligations |
|
— |
|
|
|
|
|
— |
|
|
|||||
Non-cash NCM exhibitor service agreement |
— |
|
— |
— |
|
||||||||||
Intercompany interest expense |
— |
— |
|
( |
— |
||||||||||
Equity in earnings of non-consolidated entities |
|
— |
|
( |
|
( |
|
— |
|
( |
|||||
Investment income |
|
( |
|
( |
|
( |
|
|
|
( |
|||||
Total other expense (income), net |
|
|
|
|
|
|
|
( |
|
|
|||||
Loss before income taxes |
|
( |
|
( |
|
( |
|
|
|
( |
|||||
Income tax provision |
|
— |
|
|
|
|
|
— |
|
|
|||||
Net loss |
$ |
( |
$ |
( |
$ |
( |
$ |
|
$ |
( |
|||||
37
Condensed Consolidating Statement of Comprehensive Loss
Three Months Ended June 30, 2020:
Subsidiary |
Subsidiary |
Consolidating |
Consolidated |
|
||||||||||||
(In millions) |
|
Holdings |
|
Guarantors |
|
Non-Guarantors |
|
Adjustments |
|
Holdings |
|
|||||
Net loss |
|
$ |
( |
|
$ |
( |
|
$ |
( |
|
$ |
|
|
$ |
( |
|
Other comprehensive income (loss): |
||||||||||||||||
Equity in other comprehensive loss of subsidiaries |
|
|
|
|
|
— |
|
( |
|
— |
||||||
Unrealized foreign currency translation adjustments |
|
— |
|
|
|
|
|
— |
|
|
||||||
Pension adjustments: |
||||||||||||||||
Realized net loss reclassified into other expense, net of tax |
— |
|
|
— |
|
|||||||||||
Other comprehensive income (loss) |
|
|
|
|
|
|
|
( |
|
|
||||||
Total comprehensive loss |
$ |
( |
$ |
( |
$ |
( |
$ |
|
$ |
( |
||||||
Condensed Consolidating Statement of Comprehensive Income (Loss)
Three Months Ended June 30, 2019:
Subsidiary |
Subsidiary |
Consolidating |
Consolidated |
|
||||||||||||
(In millions) |
|
Holdings |
|
Guarantors |
|
Non-Guarantors |
|
Adjustments |
|
Holdings |
|
|||||
Net earnings (loss) |
|
$ |
|
|
$ |
( |
|
$ |
( |
|
$ |
|
|
$ |
|
|
Other comprehensive income (loss): |
||||||||||||||||
Equity in other comprehensive loss of subsidiaries |
|
( |
|
( |
|
— |
|
|
|
— |
||||||
Unrealized foreign currency translation adjustments |
|
— |
|
( |
|
( |
|
— |
|
( |
||||||
Realized loss on foreign currency transactions reclassified into other expense, net of tax |
— |
|
— |
— |
|
|||||||||||
Pension adjustments: |
||||||||||||||||
Net gain arising during the period, net of tax |
— |
— |
|
— |
|
|||||||||||
Equity method investee's cash flow hedge: |
|
|||||||||||||||
Unrealized net holding loss arising during the period, net of tax |
|
— |
|
( |
|
— |
|
— |
|
( |
||||||
Other comprehensive loss |
|
( |
|
( |
|
( |
|
|
|
( |
||||||
Total comprehensive income (loss) |
$ |
|
$ |
( |
$ |
( |
$ |
|
$ |
|
||||||
38
Condensed Consolidating Statement of Comprehensive Loss
Six Months Ended June 30, 2020:
Subsidiary |
Subsidiary |
Consolidating |
Consolidated |
|
||||||||||||
(In millions) |
|
Holdings |
|
Guarantors |
|
Non-Guarantors |
|
Adjustments |
|
Holdings |
|
|||||
Net loss |
|
$ |
( |
|
$ |
( |
|
$ |
( |
|
$ |
|
|
$ |
( |
|
Other comprehensive loss: |
||||||||||||||||
Equity in other comprehensive loss of subsidiaries |
|
( |
|
( |
|
— |
|
|
|
— |
||||||
Unrealized foreign currency translation adjustment, net of tax |
— |
|
|
|
( |
|
— |
|
( |
|||||||
Pension adjustments: |
||||||||||||||||
Realized net loss reclassified into other expense, net of tax |
— |
|
|
— |
|
|||||||||||
Other comprehensive loss |
|
( |
|
( |
|
( |
|
|
|
( |
||||||
Total comprehensive loss |
$ |
( |
$ |
( |
$ |
( |
$ |
|
$ |
( |
||||||
Condensed Consolidating Statement of Comprehensive Loss
Six Months Ended June 30, 2019:
Subsidiary |
Subsidiary |
Consolidating |
Consolidated |
|
||||||||||||
(In millions) |
|
Holdings |
|
Guarantors |
|
Non-Guarantors |
|
Adjustments |
|
Holdings |
|
|||||
Net loss |
|
$ |
( |
|
$ |
( |
|
$ |
( |
|
$ |
|
|
$ |
( |
|
Other comprehensive income (loss): |
||||||||||||||||
Equity in other comprehensive loss of subsidiaries |
|
( |
|
( |
|
— |
|
|
|
— |
||||||
Unrealized foreign currency translation adjustment, net of tax |
|
— |
|
( |
|
( |
|
— |
|
( |
||||||
Realized loss on foreign currency transactions reclassified into other expense, net of tax |
— |
|
— |
— |
|
|||||||||||
Pension and other benefit adjustments: |
||||||||||||||||
Net gain arising during the period, net of tax |
|
— |
|
|
|
— |
|
— |
|
|
||||||
Equity method investee's cash flow hedge: |
|
|||||||||||||||
Unrealized net holding loss arising during the period, net of tax |
|
— |
|
( |
|
— |
|
— |
|
( |
||||||
Other comprehensive loss |
|
( |
|
( |
|
( |
|
|
|
( |
||||||
Total comprehensive loss |
$ |
( |
$ |
( |
$ |
( |
$ |
|
$ |
( |
||||||
39
Condensed Consolidating Balance Sheet
As of June 30, 2020:
Subsidiary |
Subsidiary |
Consolidating |
Consolidated |
||||||||||||
(In millions) |
Holdings |
Guarantors |
Non-Guarantors |
Adjustments |
Holdings |
||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|||||
Current assets: |
|||||||||||||||
Cash and cash equivalents |
$ |
— |
$ |
|
$ |
|
$ |
— |
$ |
|
|||||
Restricted cash |
— |
— |
|
— |
|
||||||||||
Receivables, net |
|
— |
|
|
|
|
|
( |
|
|
|||||
Other current assets |
|
— |
|
|
|
|
|
— |
|
|
|||||
Total current assets |
|
— |
|
|
|
|
|
( |
|
|
|||||
Investment in equity of subsidiaries |
|
|
|
|
|
— |
|
( |
|
— |
|||||
Property, net |
|
— |
|
|
|
|
|
— |
|
|
|||||
Operating lease right-of-use assets, net |
— |
|
|
— |
|
||||||||||
Intangible assets, net |
|
— |
|
|
|
|
|
— |
|
|
|||||
Intercompany advances |
|
|
|
( |
|
( |
|
— |
|
— |
|||||
Goodwill |
|
( |
|
|
|
|
|
— |
|
|
|||||
Deferred tax asset, net |
|
— |
|
— |
|
|
|
— |
|
|
|||||
Other long-term assets |
|
|
|
|
|
|
|
— |
|
|
|||||
Total assets |
$ |
|
$ |
|
$ |
|
$ |
( |
$ |
|
|||||
Liabilities and Stockholders’ Equity |
|||||||||||||||
Current liabilities: |
|||||||||||||||
Accounts payable |
$ |
— |
$ |
|
$ |
|
$ |
( |
$ |
|
|||||
Accrued expenses and other liabilities |
|
|
|
|
|
|
|
|
|
|
|||||
Deferred revenues and income |
|
— |
|
|
|
|
|
— |
|
|
|||||
Current maturities of corporate borrowings |
|
|
|
— |
|
— |
|
— |
|
|
|||||
Current maturities of finance lease liabilities |
— |
|
|
— |
|
||||||||||
Current maturities of operating lease liabilities |
— |
|
|
— |
|
||||||||||
Total current liabilities |
|
|
|
|
|
|
|
( |
|
|
|||||
Corporate borrowings |
|
|
|
— |
|
|
|
— |
|
|
|||||
Finance lease liabilities |
|
— |
|
|
|
|
|
— |
|
|
|||||
Operating lease liabilities |
— |
|
|
— |
|
||||||||||
Exhibitor services agreement |
|
— |
|
|
|
— |
|
— |
|
|
|||||
Deferred tax liability, net |
— |
|
|
— |
|
||||||||||
Other long-term liabilities |
|
— |
|
|
|
|
|
— |
|
|
|||||
Total liabilities |
|
|
|
|
|
|
|
( |
|
|
|||||
Stockholders’ equity (deficit) |
|
( |
|
|
|
|
|
( |
|
( |
|||||
Total liabilities and stockholders’ equity |
$ |
|
$ |
|
$ |
|
$ |
( |
$ |
|
|||||
40
Condensed Consolidating Balance Sheet
As of December 31, 2019:
Subsidiary |
Subsidiary |
Consolidating |
Consolidated |
||||||||||||
(In millions) |
Holdings |
Guarantors |
Non-Guarantors |
Adjustments |
Holdings |
||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|||||
Current assets: |
|||||||||||||||
Cash and cash equivalents |
$ |
|
$ |
|
$ |
|
$ |
— |
$ |
|
|||||
Restricted cash |
— |
— |
|
— |
|
||||||||||
Receivables, net |
|
— |
|
|
|
|
|
( |
|
|
|||||
Other current assets |
|
— |
|
|
|
|
|
— |
|
|
|||||
Total current assets |
|
|
|
|
|
|
|
( |
|
|
|||||
Investment in equity of subsidiaries |
|
|
|
|
|
— |
|
( |
|
— |
|||||
Property, net |
|
— |
|
|
|
|
|
— |
|
|
|||||
Operating lease right-of-use assets, net |
— |
|
|
— |
|
||||||||||
Intangible assets, net |
|
— |
|
|
|
|
|
— |
|
|
|||||
Intercompany advances |
|
|
|
( |
|
( |
|
— |
|
— |
|||||
Goodwill |
|
( |
|
|
|
|
|
— |
|
|
|||||
Deferred tax asset, net |
|
— |
|
— |
|
|
|
— |
|
|
|||||
Other long-term assets |
|
|
|
|
|
|
|
— |
|
|
|||||
Total assets |
$ |
|
$ |
|
$ |
|
$ |
( |
$ |
|
|||||
Liabilities and Stockholders’ Equity |
|||||||||||||||
Current liabilities: |
|||||||||||||||
Accounts payable |
$ |
— |
$ |
|
$ |
|
$ |
( |
$ |
|
|||||
Accrued expenses and other liabilities |
|
|
|
|
|
|
|
|
|
|
|||||
Deferred revenues and income |
|
— |
|
|
|
|
|
— |
|
|
|||||
Current maturities of corporate borrowings |
|
— |
— |
— |
|
||||||||||
Current maturities of finance lease liabilities |
— |
|
|
— |
|
||||||||||
Current maturities of operating lease liabilities |
|
— |
|
|
|
|
|
— |
|
|
|||||
Total current liabilities |
|
|
|
|
|
|
|
( |
|
|
|||||
Corporate borrowings |
|
|
|
— |
|
— |
|
— |
|
|
|||||
Finance lease obligations |
|
— |
|
|
|
|
|
— |
|
|
|||||
Operating lease liabilities |
— |
|
|
— |
|
||||||||||
Exhibitor services agreement |
|
— |
|
|
|
— |
|
— |
|
|
|||||
Deferred tax liability, net |
— |
|
|
— |
|
||||||||||
Other long-term liabilities |
|
— |
|
|
|
|
|
— |
|
|
|||||
Total liabilities |
|
|
|
|
|
|
|
( |
|
|
|||||
Stockholders’ equity |
|
|
|
|
|
|
|
( |
|
|
|||||
Total liabilities and stockholders’ equity |
$ |
|
$ |
|
$ |
|
$ |
( |
$ |
|
|||||
41
Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 2020:
Subsidiary |
Subsidiary |
Consolidating |
Consolidated |
||||||||||||
(In millions) |
Holdings |
Guarantors |
Non-Guarantors |
Adjustments |
Holdings |
||||||||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|||||
Net cash provided by (used in) operating activities |
$ |
|
$ |
( |
$ |
( |
$ |
— |
$ |
( |
|||||
Cash flows from investing activities: |
|||||||||||||||
Capital expenditures |
|
— |
|
( |
|
( |
|
— |
|
( |
|||||
Proceeds from disposition of long-term assets |
|
— |
|
|
|
|
|
— |
|
|
|||||
Investments in non-consolidated entities, net |
|
— |
|
— |
|
( |
|
— |
|
( |
|||||
Other, net |
|
— |
|
|
|
— |
|
— |
|
|
|||||
Net cash used in investing activities |
|
— |
|
( |
|
( |
|
— |
|
( |
|||||
Cash flows from financing activities: |
|||||||||||||||
Proceeds from issuance of First Lien Notes due 2025 |
|
|
|
— |
|
— |
|
— |
|
|
|||||
Borrowings under revolving credit facilities |
|
— |
|
— |
|
||||||||||
Scheduled principal payments under Term Loans |
( |
— |
— |
— |
( |
||||||||||
Principal payments under finance lease obligations |
— |
( |
( |
— |
( |
||||||||||
Cash used to pay deferred financing costs |
|
( |
|
— |
|
— |
|
— |
|
( |
|||||
Cash used to pay dividends |
|
( |
|
— |
|
— |
|
— |
|
( |
|||||
Taxes paid for restricted unit withholdings |
( |
— |
— |
— |
( |
||||||||||
Change in intercompany advances |
( |
|
( |
— |
— |
||||||||||
Net cash provided by financing activities |
|
( |
|
|
|
( |
|
— |
|
|
|||||
Effect of exchange rate changes on cash and cash equivalents and restricted cash |
|
( |
|
|
|
( |
|
— |
|
( |
|||||
Net increase (decrease) in cash and cash equivalents and restricted cash |
( |
|
|
|
( |
|
— |
|
|
||||||
Cash and cash equivalents and restricted cash at beginning of period |
|
|
|
|
|
|
|
— |
|
|
|||||
Cash and cash equivalents and restricted cash at end of period |
$ |
— |
$ |
|
$ |
|
$ |
— |
$ |
|
|||||
42
Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 2019:
Subsidiary |
Subsidiary |
Consolidating |
Consolidated |
||||||||||||
(In millions) |
Holdings |
Guarantors |
Non-Guarantors |
Adjustments |
Holdings |
||||||||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|||||
Net cash provided by (used in) operating activities |
$ |
|
$ |
( |
$ |
|
$ |
— |
$ |
|
|||||
Cash flows from investing activities: |
|||||||||||||||
Capital expenditures |
|
— |
|
( |
|
( |
|
— |
|
( |
|||||
Acquisition of theatre assets |
— |
( |
— |
— |
( |
||||||||||
Proceeds from disposition of long-term assets |
— |
|
|
— |
|
||||||||||
Investments in non-consolidated entities, net |
|
— |
|
( |
|
— |
|
— |
|
( |
|||||
Other, net |
|
— |
|
( |
|
— |
|
— |
|
( |
|||||
Net cash used in investing activities |
|
— |
|
( |
|
( |
|
— |
|
( |
|||||
Cash flows from financing activities: |
|||||||||||||||
Proceeds from issuance of Term Loan due 2026 |
|
— |
— |
— |
|
||||||||||
Payment of principal Senior Secured Notes due 2023 |
( |
— |
— |
— |
( |
||||||||||
Payment of principal Senior Subordinated Notes due 2022 |
( |
— |
— |
— |
( |
||||||||||
Call premiums paid for Senior Secured Notes due 2023 and Senior Subordinated Notes due 2022 |
( |
— |
— |
— |
( |
||||||||||
Principal payments under Term Loans due 2022 and 2023 |
( |
— |
— |
— |
( |
||||||||||
Repayments under revolving credit facilities |
— |
— |
( |
— |
( |
||||||||||
Scheduled principal payments under Term Loans |
|
( |
|
— |
|
— |
|
— |
|
( |
|||||
Principal payments under finance lease obligations |
— |
( |
( |
— |
( |
||||||||||
Cash used to pay debt financing fees |
|
( |
|
— |
|
— |
|
— |
|
( |
|||||
Cash used to pay dividends |
|
( |
|
— |
|
— |
|
— |
|
( |
|||||
Taxes paid for restricted unit withholdings |
( |
— |
— |
— |
( |
||||||||||
Change in intercompany advances |
( |
|
( |
— |
— |
||||||||||
Net cash provided by (used in) financing activities |
|
( |
|
|
|
( |
|
— |
|
( |
|||||
Effect of exchange rate changes on cash and cash equivalents and restricted cash |
|
|
|
( |
|
( |
|
— |
|
( |
|||||
Net increase (decrease) in cash and cash equivalents and restricted cash |
( |
|
( |
|
( |
|
— |
|
( |
||||||
Cash and cash equivalents and restricted cash at beginning of period |
|
|
|
|
|
|
|
— |
|
|
|||||
Cash and cash equivalents and restricted cash at end of period |
$ |
|
$ |
|
$ |
|
$ |
— |
$ |
|
|||||
43
NOTE 14—SUBSEQUENT EVENTS
Senior Subordinated Debt Exchange Offer
On July 31, 2020, the Company closed its previously announced private offers to exchange (the “Exchange Offers”) any and all of its outstanding
The Exchange Offers reduced the principal amounts of the Company’s debt by approximately $
In connection with the Exchange Offers, the Company also received consents (the “Consent Solicitations”) from eligible holders of the Existing Subordinated Notes to amend the indentures governing the Existing Subordinated Notes to among other things, (i) release the existing subsidiary guarantees of the Existing Subordinated Notes, (ii) eliminate substantially all of the restrictive covenants, certain affirmative covenants and certain events of default contained in the indentures governing the Existing Subordinated Notes, and (iii) makes other conforming changes to internally conform to certain proposed amendments.
Under ASC 840-470-60, Troubled Debt Restructurings by Debtors, the Company believes the exchange of approximately $
Second Lien Notes due 2026
In connection with the Exchange Offers, the Company issued the new Second Lien Notes due 2026 in exchange for the Existing Subordinated Notes. Interest due for the coming to
The Second Lien Notes due 2026 are fully and unconditionally guaranteed on a joint and several basis by each of the Company’s subsidiaries that currently guarantee its obligations under the Company’s Senior Secured Credit Facilities. The Second Lien Notes due 2026 are secured by a second-priority lien on substantially all of the tangible and intangible assets owned by the Company and the guarantor subsidiaries that secure obligations under the Senior Secured Credit Facilities (“Collateral”). The Second Lien Notes due 2026 are subordinated in right of payment to all indebtedness of the Company that is secured by a first-priority lien on the Collateral.
Incremental First Lien Notes due 2026
In connection with the Exchange Offers, holders of the Existing Subordinated Notes purchased new and incremental
Separately, upon the closing of its private debt exchange, Silver Lake purchased from the Company $
44
The Incremental First Lien Notes due 2026 are fully and unconditionally guaranteed on a joint and several basis by each of the Company’s subsidiaries that currently guarantee its obligations under the Company’s Senior Secured Credit Facilities. The Incremental First Lien Notes are secured by a first-priority lien on the Collateral.
Concurrently with the Exchange Offers, to obtain the consent of the holders of the Convertible Notes due 2024, the Company restructured $
Senior Secured Credit Facility
On July 31, 2020, the Company entered into an amendment with the administrative agent to the Senior Secured Credit Facility to add restrictive provisions arising under the terms of the Incremental First Lien Notes due 2026.
45
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
In addition to historical information, this Quarterly Report on Form 10–Q contains “forward-looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as “may,” “will,” “forecast,” “estimate,” “project,” “intend,” “plan,” “expect,” “should,” “believe” and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. Examples of forward-looking statements include statements we make regarding the impact of COVID-19 and our liquidity. These forward-looking statements are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions and speak only as of the date on which it is made. These forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors, including those discussed in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the following:
| ● | the impact of the COVID-19 virus on us, the motion picture exhibition industry, and the economy in general, including our response to the COVID-19 virus related to suspension of operations at our theatres, personnel reductions and other cost-cutting measures and measures to maintain necessary liquidity and increases in expenses relating to precautionary measures at our facilities to protect the health and well-being of our customers and employees; |
| ● | the manner, timing and amount of benefit we receive under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) or other applicable governmental benefits and support for which we are eligible domestically and internationally; |
| ● | risks relating to impairment losses, including with respect to goodwill and other intangibles, and theatre and other closure charges; |
| ● | risks relating to motion picture production and performance; |
| ● | our lack of control over distributors of films; |
| ● | intense competition in the geographic areas in which we operate; |
| ● | increased use of alternative film delivery methods including premium video on demand or other forms of entertainment; |
| ● | shrinking exclusive theatrical release windows; |
| ● | AMC Stubs® A-List may not meet anticipated revenue projections which could result in a negative impact upon operating results; |
| ● | general and international economic, political, regulatory, social and financial market conditions and other risks including the effects of the exit of the United Kingdom from the European Union; |
| ● | risks and uncertainties relating to our significant indebtedness, including our borrowing capacity under our revolving credit agreements; |
| ● | our ability to execute cost cutting and revenue enhancement initiatives as previously disclosed and in connection with response to COVID-19; |
| ● | limitations on the availability of capital may prevent us from deploying strategic initiatives; |
46
| ● | certain covenants in the agreements that govern our indebtedness may limit our ability to take advantage of certain business opportunities; |
| ● | our ability to achieve expected synergies, benefits and performance from our strategic theatre acquisitions and strategic initiatives; |
| ● | our ability to refinance our indebtedness on terms favorable to us or at all; |
| ● | optimizing our theatre circuit through new construction and the transformation of our existing theatres may be subject to delay and unanticipated costs; |
| ● | failures, unavailability or security breaches of our information systems; |
| ● | our ability to utilize interest expense deductions may be limited annually due to Section 163(j) of the Tax Cuts and Jobs Act of 2017; |
| ● | our ability to recognize interest deduction carryforwards and net operating loss carryforwards to reduce our future tax liability; |
| ● | our ability to recognize certain international deferred tax assets which currently do not have a valuation allowance recorded; |
| ● | impact of the elimination of the calculation of USD LIBOR rates on our contracts indexed to USD LIBOR: |
| ● | review by antitrust authorities in connection with acquisition opportunities; |
| ● | risks relating to the incurrence of legal liability, including costs associated with recently filed securities class action lawsuits; |
| ● | dependence on key personnel for current and future performance and our ability to attract and retain senior executives and other key personnel, including in connection with any future acquisitions; |
| ● | risks of poor financial results may prevent us from deploying strategic initiatives; |
| ● | operating a business in international markets AMC is unfamiliar with, including acceptance by movie-goers of AMC initiatives that are new to those markets; |
| ● | increased costs in order to comply or resulting from failure to comply with governmental regulation, including the General Data Protection Regulation (“GDPR”), the California Consumer Privacy Act and pending future domestic privacy laws and regulations; |
| ● | geopolitical events, including the threat of terrorism or cyber-attacks, or widespread health emergencies, such as the novel coronavirus or other pandemics or epidemics, causing people to avoid our theatres or other public places where large crowds are in attendance; |
| ● | the ability to obtain suitable equity and/or debt financing and the continued availability of financing, in the amounts and on the terms necessary to support our future refinancing requirements and business; and |
| ● | other risks referenced from time to time in filings with the SEC. |
This list of factors that may affect future performance and the accuracy of forward-looking statements is illustrative but not exhaustive. In addition, new risks and uncertainties may arise from time to time. Accordingly, all forward-looking statements should be evaluated with an understanding of their inherent uncertainty and we caution accordingly against relying on forward-looking statements.
47
Readers are urged to consider these factors carefully in evaluating the forward-looking statements. For further information about these and other risks and uncertainties as well as strategic initiatives, see Item 1A. “Risk Factors” of Part II of this Form 10-Q and Item 1A. “Risk Factors,” and Item 1. “Business” in our Annual Report on Form 10–K for the year ended December 31, 2019, and our other public filings.
All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements included herein are made only as of the date of this Quarterly Report on Form 10–Q, and we do not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Temporarily Suspended Operations
As of or before March 17, 2020, we temporarily suspended all theatre operations in our 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 our guests and theatre staff. As a result of these temporarily suspended operations, our revenues and expenses for the three and six months ended June 30, 2020 are significantly lower than our revenues and expenses for the three and six months ended June 30, 2019. The theatre operations in the U.S. markets remained suspended for the entire second quarter of 2020. We resumed limited operations in the International markets in early June. As of June 30, 2020, we had resumed operations at 37 theatres in nine countries in our International markets and recorded attendance of 100,000 guests during the three months ended June 30, 2020. On July 23, 2020, we announced we are currently planning to reopen our U.S. movie theatres in mid to late August 2020. In International markets, as of the end of July 2020, we already have resumed operations in more than 130 theatres in all of the countries we serve in Europe and the Middle East.
Overview
AMC is the world’s largest theatrical exhibition company and an industry leader in innovation and operational excellence. We operate theatres in 15 countries and are the market leader in nine of those.
Our theatrical exhibition revenues are generated primarily from box office admissions and theatre food and beverage sales. The balance of our revenues are generated from ancillary sources, including on-screen advertising, fees earned from our AMC Stubs® customer frequency membership program, rental of theatre auditoriums, income from gift card and exchange ticket sales, online ticketing fees and arcade games located in theatre lobbies. As of June 30, 2020, we owned, operated or had interests in 978 theatres and 10,833 screens.
Film Content
Box office admissions are our largest source of revenue. We predominantly license “first-run” films from distributors owned by major film production companies and from independent distributors on a film-by-film and theatre-by-theatre basis. Film exhibition costs are accrued based on the applicable admissions revenues and estimates of the final settlement pursuant to our film licenses. Licenses that we enter into typically state that rental fees are based on aggregate terms established prior to the opening of the picture. In certain circumstances and less frequently, our rental fees are based on a mutually agreed settlement upon the conclusion of the picture. In certain circumstances and less frequently, our rental fees are established on a weekly basis for the coming week’s percentage forecast. Some European licenses use a per capita agreement instead, paying a flat amount per ticket, where the sum is agreed in advance of the film showing. Under an aggregate terms formula, we pay the distributor a specified percentage of box office gross or pay based on a scale of percentages tied to different amounts of box office gross, or in Europe, we pay based on the number of weeks since release. The settlement process allows for negotiation based upon how a film actually performs.
Our revenues attributable to individual distributors may vary significantly from year to year depending upon the commercial success of each distributor’s films in any given year. Our results of operations may vary significantly from quarter to quarter and from year to year based on the timing and popularity of film releases.
48
Movie Screens
During the six months ended June 30, 2020, we opened one new theatre with eight screens, added five additional screens to existing theatres, permanently closed 214 screens, temporarily closed 18 screens to install consumer experience upgrades and reopened 11 screens to install consumer experience upgrades.
The following table provides details of our theatre circuit by segment for the periods indicated:
U.S. Markets |
International Markets |
|||||||
|
Number of |
|
Number of |
Number of |
|
Number of |
||
Screens As of |
Screens As of |
Screens As of |
Screens As of |
|||||
Format |
June 30, 2020 |
June 30, 2019 |
June 30, 2020 |
June 30, 2019 |
||||
IMAX® |
|
188 |
|
188 |
35 |
|
30 |
|
Dolby CinemaTM |
|
150 |
|
138 |
5 |
|
3 |
|
Other Premium Large Format ("PLF") |
|
55 |
|
51 |
71 |
|
66 |
|
Dine-in theatres |
|
725 |
|
668 |
8 |
|
2 |
|
Premium seating |
|
3,282 |
|
3,029 |
470 |
|
447 |
|
Guest Amenities
We seek to upgrade the quality of our theatre circuit through substantial renovations featuring our seating concepts, acquisitions, new builds (including expansions), expansion of food and beverage offerings (including dine-in theatres), and by disposing of older screens through closures and sales.
Recliner seating is the key feature of theatre renovations, which drive a 34% increase in attendance, on average, at these locations in their first year post renovation. These renovations, in conjunction with capital contributions from our landlords, involve stripping theatres to their basic structure in order to replace finishes throughout, upgrade the sight and sound experience, install modernized points of sale and, most importantly, replace traditional theatre seats with plush, electric recliners that allow customers to deploy a leg rest and fully recline at the push of a button.
As of June 30, 2020, in our U.S. markets we now feature recliner seating in approximately 343 U.S. theatres, including Dine-in-Theatres, totaling approximately 3,282 screens and representing 41.2% of total U.S. screens. In our International markets, we have recliner seating in approximately 74 International theatres, totaling approximately 470 screens and representing 16.4% of total International screens.
Open-source internet ticketing makes our AMC seats (over 1.1 million) in all our U.S. theatres and auditoriums, for all our showtimes as available as possible, on as many websites as possible. Our tickets are sold over the internet, directly or through mobile apps, at our own website and app, and other third-party ticketing vendors.
Food and beverage sales are our second largest source of revenue after box office admissions. Food and beverage items traditionally include popcorn, soft drinks, candy and hot dogs. Different varieties of food and beverage items are offered at our theatres based on preferences in the particular geographic region. Our traditional food and beverage strategy emphasizes prominent and appealing food and beverage offerings designed for rapid service and efficiency, including a customer friendly self-serve experience.
To address recent consumer trends, we have expanded our menu of enhanced food and beverage products to include made-to-order drinks and meals, customized coffee, healthy snacks, premium beers, wine and mixed drinks, flatbread pizzas, more varieties of hot dogs, four flavors of popcorn and other menu items. We operate 51 Dine-In Theatres in the U.S. and two Dine-In Theatres in Europe that deliver chef-inspired menus with seat-side or delivery service to luxury recliners with tables.
Loyalty Programs and Other Marketing
In our U.S. markets, we begin the process of engagement with AMC Stubs® our customer loyalty program which allows members to earn rewards, receive discounts and participate in exclusive members-only offerings and services. It features a traditional paid tier called AMC Stubs Premiere™ for a $15 annual membership fee and a non-
49
paid tier called AMC Stubs Insider™. Both programs reward loyal guests for their patronage of AMC theatres. Rewards earned are redeemable on future purchases at AMC locations.
The portion of the admissions and food and beverage revenues attributed to the rewards is deferred as a reduction of admissions and food and beverage revenues and is allocated between admissions and food and beverage revenues based on expected member redemptions. Upon redemption, deferred rewards are recognized as revenues along with associated cost of goods. We estimate point breakage in assigning value to the points at the time of sale based on historical trends. The program’s annual membership fee is allocated to the material rights for discounted or free products and services and is initially deferred, net of estimated refunds, and recognized as the rights are redeemed based on estimated utilization, over the one-year membership period in admissions, food and beverage, and other revenues. A portion of the revenues related to a material right are deferred as a virtual rewards performance obligation using the relative standalone selling price method and are recognized as the rights are redeemed or expire.
AMC Stubs® A-List is our monthly subscription-based tier of the AMC Stubs® loyalty program. This program offers guests admission to movies at AMC up to three times per week including multiple movies per day and repeat visits to already seen movies for $19.95 to $23.95 per month depending upon geographic market. AMC Stubs® A-List also includes premium offerings including IMAX®, Dolby Cinema™ at AMC, RealD, Prime and BigD. AMC Stubs® A-List members can book tickets on-line in advance and select specific seats at AMC Theatres with reserved seating.
As of June 30, 2020, we had more than 23,100,000 member households enrolled in AMC Stubs® A-List, AMC Stubs Premiere™ and AMC Stubs Insider™ programs, combined.
In our International markets, we currently have loyalty programs in the major territories in which we operate. The movie-goers can earn points for spending money at the theatre, and those points can be redeemed for tickets and concession items at a later date. Odeon currently has more than 8,700,000 members in these various loyalty programs. We are currently evaluating the Odeon loyalty programs to determine how best to reward our European movie-goers and heighten guest loyalty to drive additional attendance to Odeon theatres. The programs have been paused during the suspension of operations at all of our theatres.
Our marketing efforts are not limited to our loyalty programs as we continue to improve our customer connections through our website and mobile apps and expand our online and movie offerings. In select markets during 2019, we upgraded our mobile applications with the ability to order food and beverage offerings via our mobile applications while ordering tickets ahead of scheduled showtimes. Also, in 2019, we launched AMC Theatres On Demand, a new service where members of the AMC Stubs® loyalty program can rent or buy movies. We believe our competitive advantage of a robust and easy-to-use online and mobile presence combined with an effective loyalty program that provides better market intelligence to anticipate customers’ future behavior should allow us to capture incremental share of both entertainment dollars and time.
Critical Accounting Policies and Estimates
Long-lived Assets Impairments. We evaluate indefinite-lived intangible assets for impairment annually or more frequently as specific events or circumstances dictate. We operate in a very competitive business environment and our revenues are highly dependent on movie content supplied by film producers. In addition, it is common for us to closely monitor certain locations where operating performance may not meet our expectations.
We review long-lived assets, including definite-lived intangible assets and theatre assets (including operating lease right-of-use assets) whenever events or changes in circumstances indicate that the carrying amount of the asset group may not be fully recoverable. We identify impairments related to internal use software when management determines that the remaining carrying value of the software will not be realized through future use. We evaluate events or circumstances, including competition in the markets where we operate that would indicate the carrying value of theatre assets may not be fully recoverable. We evaluate theatres using historical and projected data of theatre level cash flow as our primary indicator of potential impairment and consider the seasonality of our business when making these evaluations. If an event or circumstance is identified indicating carrying value may not be recoverable, the sum of future undiscounted cash flows is compared to the carrying value. If carrying value exceeds the future undiscounted cash flows, the carrying value of the asset is reduced to fair value. Assets are evaluated for impairment on an individual theatre basis, which management believes is the lowest level for which there are identifiable cash flows. The fair value of assets is determined as either the expected selling price less selling costs (where appropriate) or the present value of the estimated future cash flows, adjusted as necessary for market participant factors.
50
We recorded impairment charges primarily related to long-lived assets and definite lived intangible assets of $0 and $106.5 million during the six months ended June 30, 2020, respectively. There are a number of estimates and significant judgments that are made by management in performing these impairment evaluations. Such judgments and estimates include estimates of future attendance, revenues, rent relief, cost savings, cash flows, capital expenditures, and the cost of capital, among others. Attendance is expected to be significantly below historical levels for the first several months following reopening but is expected to increase as customers become more comfortable with the experience. We believe we have used reasonable and appropriate business judgments. There is considerable management judgment with respect to cash flow estimates and appropriate discount rates to be used in determining fair value, and, accordingly, actual results could vary significantly from such estimates, which fall under Level 3 within the fair value measurement hierarchy. These estimates determine whether impairments have been incurred, and quantify the amount of any related impairment charge. Given the nature of our business and our recent history, future impairments are possible and they may be material, based upon business conditions that are constantly changing and the competitive business environment in which we operate.
During the three and six months ended June 30, 2020, we recorded non-cash impairment of long-lived assets of $0 and $81.4 million on 57 theatres in the U.S. markets with 658 screens (in Alabama, Arkansas, California, District of Columbia, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Missouri, Montana, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Pennsylvania, South Dakota, Tennessee, Texas, Washington, Wisconsin and Wyoming), respectively, and $0 and $9.9 million on 23 theatres in the International markets with 213 screens (in Germany, Italy, Spain, UK and Sweden), respectively. During the three and six months ended June 30, 2020, we recorded impairment losses related to definite-lived intangible assets of $0 and $8.0 million, respectively. In addition, we recorded an impairment loss of $0 and $7.2 million within investment expense (income), related to equity interest investments without a readily determinable fair value accounted for under the cost method during the three and six months ended June 30, 2020, respectively.
At March 31, 2020, we performed a quantitative impairment evaluation of our indefinite-lived intangible assets related to the AMC, Odeon and Nordic tradenames and recorded impairment charges of $0 and $5.9 million related to Odeon tradenames and $0 and $2.4 million related to Nordic for the three and six months ended June 30, 2020, respectively. To estimate fair value of our indefinite-lived trade names, we employed a derivation of the Income Approach known as the Royalty Savings Method. The Royalty Savings Method values an intangible asset by estimating the royalties saved through ownership of the asset. We applied royalty rates of 0.5% for AMC and Odeon tradenames and 1.0% for Nordic to the related theatre revenues on an after-tax basis using effective tax rates. Related cash flows were discounted at 12.5% for AMC and 14.0% for Odeon and Nordic.
Goodwill. We evaluate the goodwill recorded at our two reporting units (Domestic Theatres and International Theatres) for impairment annually as of the beginning of the fourth fiscal quarter or more frequently as specific events or circumstances dictate. Our market capitalization has been below carrying value since May 24, 2019.
In performing the Step 1 quantitative goodwill impairment test as of March 31, 2020, we used an enterprise value approach to measure fair value of the reporting units. The enterprise fair values of the Domestic Theatres and International Theatres reporting units were less than their carrying values and a goodwill impairment charge of $1,124.9 million and $619.4 million was recorded as of March 31, 2020 for our Domestic Theatres and International Theatres reporting units, respectively.
In accordance with ASC 350-20-35-30, we performed an assessment to determine whether there were any events or changes in circumstances that would warrant an interim ASC 350 impairment analysis as of June 30, 2020. Given the temporary suspension of operations during the second quarter of 2020, we performed a qualitative impairment test to evaluate whether it is more likely than not that the fair value of our two reporting units is less than their respective carrying amounts as of June 30, 2020. We compared key assumptions utilized in our quantitative analysis as of March 31, 2020 to those that existed as of the second quarter. Our considerations included changes during the quarter due to macroeconomic, industry, and entity specific factors. We also observed the increase in the Company’s common stock price and the fair value of corporate borrowings as of June 30, 2020 in comparison to March 31, 2020 noting that our estimated fair value of our corporate borrowings and finance lease obligations represents approximately 74% of our market enterprise value. In considering the totality of the aforementioned factors, we have concluded that it is not more likely than not that the fair value of our two reporting units has been reduced below their respective carrying amounts. As a result, we concluded that an interim quantitative impairment test as of June 30, 2020 was not required.
The quantitative goodwill impairment test performed as of March 31, 2020 indicated our estimated enterprise
51
fair value to our market enterprise value implied a premium of 22.7%.
We believe a significant reason for the difference in our market enterprise value as compared to our estimated enterprise fair value is due to a market participant acquisition premium. We believe a market participant acquisition premium is applicable and has been historically realized in our industry. In the event of an acquisition of control of our enterprise by another market participant, this premium for control would likely be realized in the form of increased revenue opportunities, lower costs, better working capital terms and lower cost of capital. We believe the uncertainty around the temporary suspension of our theatre operations during the COVID-19 pandemic and the behavior of the movie-going public after we resume operations is a significant reason for the difference in our market enterprise value as compared to our estimated enterprise fair value.
Key assumptions used in the quantitative impairment test performed at March 31, 2020 were as follows:
March 31, 2020 |
|||||
Domestic |
International |
||||
Description |
Theatres |
Theatres |
|||
Income approach: |
|||||
Weighted average cost of capital/discount rate |
11.5% |
13.0% |
|||
Long-term growth rate |
2.0% |
2.0% |
|||
While the fair values of our reporting units approximate their respective carrying values at the present time, the performance of the reporting units may require improvement in future periods to maintain this level. Declines in the operating performance of our Domestic and International Theatres, further declines in the fair value of our debt, further declines in the trading price of our Class A common stock, small changes in certain key input assumptions, and/or other events or circumstances could occur and could have a significant impact on the estimated fair values. Examples of adverse events or circumstances that could change include (i) the ultimate duration of the COVID-19 pandemic and the prolonged temporary suspension of our theatre operations as well as the behavior of the movie-going public after we resume operations; (ii) an adverse change in macroeconomic conditions; (iii) increased cost factors that have a negative effect on our earnings and cash flows; (iv) negative or overall declining financial performance compared with our actual and projected results of relevant prior periods; (v) further declines in the fair value of our debt, and (vi) a further sustained decrease in our share price. A future impairment could result for a portion of the goodwill, long-lived assets or intangible assets. Any impairment charges that we may take in the future could be material to our results of operations and financial condition.
Significant Event
Stock Buyback Program. On February 27, 2020, we announced that our Board of Directors had authorized a $200.0 million Company share buyback program to repurchase up to $200.0 million of our Class A common stock over a three-year period.
Repurchases may be made at management's discretion from time to time through open-market transactions including block purchases, through privately negotiated transactions, or otherwise over the next three years in accordance with all applicable securities laws and regulations. The extent to which AMC repurchases its shares, and the timing of such repurchases, will depend upon a variety of factors, including liquidity, capital needs of the business, market conditions, regulatory requirements, and other corporate considerations, as determined by AMC’s management team. Repurchases may or may not be made under a Rule 10b5-1 plan, which would permit common stock to be repurchased when our management might otherwise be precluded from doing so under insider trading laws. The repurchase program does not obligate us to repurchase any minimum dollar amount or number of shares and may be suspended for periods or discontinued at any time. Since April 24, 2020, we are prohibited from making purchases under our recently authorized stock repurchase program in accordance with the covenant suspension conditions in our Senior Secured Credit Agreement.
Exchange Offers. On July 31, 2020, we closed our previously announced exchange offer and reduced the principal amount of our senior subordinated notes by approximately $555 million. We raised $300 million in additional cash from incremental first lien financing, prior to deducting discounts and cash premiums based on contract assumptions and estimates of $36 million. Additionally, certain backstop purchasers in the first lien notes offering that participated in the exchange offer received 5 million Class A common shares. The closing of the exchange offer also
52
allowed us to change maturities on approximately $1.7 billion of debt to 2026, most of which was maturing in 2024 and 2025 previously. Interest due for the coming 12 to 18 months on the Second Lien Notes due 2026 is expected to be paid all or in part on an in-kind basis, thereby generating a further near-term cash savings for us of between approximately $120 million and $180 million. See Note 14—Subsequent Events in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for further information.
Under ASC 840-470-60, Troubled Debt Restructurings by Debtors, we believe the exchange of approximately $2,017.5 million principal amount of our senior subordinated notes for approximately $1,462.3 million principal amount of second lien secured debt will represent a troubled debt restructuring (“TDR”) as we were experiencing financial difficulties and the lenders granted a concession. We do not expect the TDR will result in a gain recognition, a new effective interest rate will be established based on the carrying value of the senior subordinated notes and we expect new fees paid to third parties of approximately $29.7 million will be expensed. We are currently evaluating the impact on our consolidated financial statements.
53
Operating Results
The following table sets forth our consolidated revenues, operating costs and expenses.
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|||||||||||
(In millions) |
June 30, 2020 |
|
June 30, 2019 |
|
% Change |
June 30, 2020 |
|
June 30, 2019 |
% Change |
||||||||
Revenues |
|||||||||||||||||
Admissions |
$ |
0.9 |
$ |
895.5 |
(99.9) |
% |
$ |
568.9 |
$ |
1,627.0 |
(65.0) |
% |
|||||
Food and beverage |
|
0.4 |
|
492.5 |
(99.9) |
% |
|
288.5 |
|
861.3 |
(66.5) |
% |
|||||
Other theatre |
|
17.6 |
|
118.1 |
(85.1) |
% |
|
103.0 |
|
218.2 |
(52.8) |
% |
|||||
Total revenues |
$ |
18.9 |
$ |
1,506.1 |
(98.7) |
% |
$ |
960.4 |
$ |
2,706.5 |
(64.5) |
% |
|||||
Operating Costs and Expenses |
|||||||||||||||||
Film exhibition costs |
$ |
0.2 |
$ |
482.5 |
(100.0) |
% |
$ |
271.9 |
$ |
847.8 |
(67.9) |
% |
|||||
Food and beverage costs |
|
4.5 |
|
76.4 |
(94.1) |
% |
|
57.9 |
|
137.9 |
(58.0) |
% |
|||||
Operating expense, excluding depreciation and amortization below |
|
114.8 |
|
437.4 |
(73.8) |
% |
|
471.7 |
|
840.2 |
(43.9) |
% |
|||||
Rent |
|
224.1 |
|
245.9 |
(8.9) |
% |
|
461.9 |
|
487.9 |
(5.3) |
% |
|||||
General and administrative: |
|||||||||||||||||
Merger, acquisition and other costs |
|
1.8 |
|
3.2 |
(43.8) |
% |
|
2.0 |
|
6.5 |
(69.2) |
% |
|||||
Other, excluding depreciation and amortization below |
|
25.4 |
|
43.2 |
(41.2) |
% |
|
58.6 |
|
89.4 |
(34.5) |
% |
|||||
Depreciation and amortization |
|
119.7 |
|
112.0 |
6.9 |
% |
|
242.2 |
|
225.0 |
7.6 |
% |
|||||
Impairment of long-lived assets, indefinite-lived intangible assets and goodwill |
|
— |
|
— |
* |
% |
|
1,851.9 |
|
— |
* |
% |
|||||
Operating costs and expenses |
|
490.5 |
|
1,400.6 |
(65.0) |
% |
|
3,418.1 |
|
2,634.7 |
29.7 |
% |
|||||
Operating income (loss) |
|
(471.6) |
|
105.5 |
* |
% |
|
(2,457.7) |
|
71.8 |
* |
% |
|||||
Other expense (income): |
|||||||||||||||||
Other expense (income): |
|
(6.6) |
|
(23.4) |
(71.8) |
% |
|
20.3 |
|
6.4 |
* |
% |
|||||
Interest expense: |
|||||||||||||||||
Corporate borrowings |
|
79.6 |
|
74.2 |
7.3 |
% |
|
150.9 |
|
145.5 |
3.7 |
% |
|||||
Finance lease obligations |
|
1.5 |
|
2.1 |
(28.6) |
% |
|
3.1 |
|
4.2 |
(26.2) |
% |
|||||
Non-cash NCM exhibitor service agreement |
10.1 |
10.1 |
— |
% |
20.0 |
20.3 |
(1.5) |
% |
|||||||||
Equity in (earnings) loss of non-consolidated entities |
|
12.4 |
|
(10.2) |
* |
% |
|
15.3 |
|
(16.7) |
* |
% |
|||||
Investment expense (income) |
|
(1.3) |
|
(2.1) |
(38.1) |
% |
|
8.1 |
|
(18.2) |
* |
% |
|||||
Total other expense, net |
|
95.7 |
|
50.7 |
88.8 |
% |
|
217.7 |
|
141.5 |
53.9 |
% |
|||||
Earnings (loss) before income taxes |
|
(567.3) |
|
54.8 |
* |
% |
|
(2,675.4) |
|
(69.7) |
* |
% |
|||||
Income tax provision (benefit) |
|
(6.1) |
|
5.4 |
* |
% |
|
62.1 |
|
11.1 |
* |
% |
|||||
Net earnings (loss) |
$ |
(561.2) |
$ |
49.4 |
* |
% |
$ |
(2,737.5) |
$ |
(80.8) |
* |
% |
|||||
* Percentage change in excess of 100%
|
Three Months Ended |
|
Six Months Ended |
|||||
June 30, 2020 |
June 30, 2019 |
June 30, 2020 |
June 30, 2019 |
|||||
Operating Data: |
||||||||
Screen additions |
|
— |
|
16 |
|
13 |
|
37 |
Screen acquisitions |
|
— |
|
64 |
|
— |
|
64 |
Screen dispositions |
|
140 |
|
36 |
|
214 |
|
104 |
Construction openings (closures), net |
|
— |
|
(3) |
|
(7) |
|
(52) |
Average screens (1) |
|
60 |
|
10,675 |
|
4,467 |
|
10,679 |
Number of circuit screens |
|
10,833 |
|
11,036 |
|
10,833 |
|
11,036 |
Number of circuit theatres |
|
978 |
|
1,004 |
|
978 |
|
1,004 |
Screens per theatre |
|
11.1 |
|
11.0 |
|
11.1 |
|
11.0 |
Attendance (in thousands) (1) |
|
100 |
|
96,955 |
|
60,595 |
|
176,780 |
54
| (1) | Includes consolidated theatres only and excludes screens offline due to construction and temporary suspension of operations as consequence of the COVID-19 pandemic. |
55
Segment Operating Results
The following table sets forth our revenues, operating costs and expenses by reportable segment.
U.S. Markets |
International Markets |
Consolidated |
||||||||||||||||
Three Months Ended |
Three Months Ended |
Three Months Ended |
||||||||||||||||
June 30, |
June 30, |
June 30, |
||||||||||||||||
(In millions) |
2020 |
2019 |
2020 |
2019 |
2020 |
2019 |
||||||||||||
Revenues |
||||||||||||||||||
Admissions |
$ |
— |
$ |
680.7 |
$ |
0.9 |
$ |
214.8 |
$ |
0.9 |
$ |
895.5 |
||||||
Food and beverage |
|
— |
|
401.1 |
|
0.4 |
|
91.4 |
|
0.4 |
|
492.5 |
||||||
Other theatre |
|
15.7 |
|
79.4 |
|
1.9 |
|
38.7 |
|
17.6 |
|
118.1 |
||||||
Total revenues |
15.7 |
1,161.2 |
3.2 |
344.9 |
18.9 |
1,506.1 |
||||||||||||
Operating Costs and Expenses |
||||||||||||||||||
Film exhibition costs |
(0.2) |
390.2 |
0.4 |
92.3 |
0.2 |
482.5 |
||||||||||||
Food and beverage costs |
|
3.3 |
|
56.1 |
|
1.2 |
|
20.3 |
|
4.5 |
|
76.4 |
||||||
Operating expense |
|
79.4 |
|
320.9 |
|
35.4 |
|
116.5 |
|
114.8 |
|
437.4 |
||||||
Rent |
|
164.8 |
|
179.6 |
|
59.3 |
|
66.3 |
|
224.1 |
|
245.9 |
||||||
General and administrative expense: |
||||||||||||||||||
Merger, acquisition and other costs |
|
1.7 |
|
2.4 |
|
0.1 |
|
0.8 |
|
1.8 |
|
3.2 |
||||||
Other, excluding depreciation and amortization below |
|
13.8 |
|
24.9 |
|
11.6 |
|
18.3 |
|
25.4 |
|
43.2 |
||||||
Depreciation and amortization |
|
91.0 |
|
84.2 |
|
28.7 |
|
27.8 |
|
119.7 |
|
112.0 |
||||||
Operating costs and expenses |
|
353.8 |
|
1,058.3 |
|
136.7 |
|
342.3 |
|
490.5 |
|
1,400.6 |
||||||
Operating income (loss) |
|
(338.1) |
|
102.9 |
|
(133.5) |
|
2.6 |
|
(471.6) |
|
105.5 |
||||||
Other expense (income): |
||||||||||||||||||
Other expense (income) |
|
0.1 |
|
(23.2) |
|
(6.7) |
|
(0.2) |
|
(6.6) |
|
(23.4) |
||||||
Interest expense: |
||||||||||||||||||
Corporate borrowings |
|
78.2 |
|
73.5 |
|
1.4 |
|
0.7 |
|
79.6 |
|
74.2 |
||||||
Finance lease obligations |
|
0.3 |
|
0.6 |
|
1.2 |
|
1.5 |
|
1.5 |
|
2.1 |
||||||
Non-cash NCM exhibitor service agreement |
10.1 |
10.1 |
— |
— |
10.1 |
10.1 |
||||||||||||
Equity in (earnings) loss of non-consolidated entities |
|
11.4 |
|
(9.9) |
|
1.0 |
|
(0.3) |
|
12.4 |
|
(10.2) |
||||||
Investment expense (income) |
|
(1.2) |
|
(0.2) |
|
(0.1) |
|
(1.9) |
|
(1.3) |
|
(2.1) |
||||||
Total other expense (income), net |
|
98.9 |
|
50.9 |
|
(3.2) |
|
(0.2) |
|
95.7 |
|
50.7 |
||||||
Earnings (loss) before income taxes |
|
(437.0) |
|
52.0 |
|
(130.3) |
|
2.8 |
|
(567.3) |
|
54.8 |
||||||
Income tax provision (benefit) |
|
4.4 |
|
5.8 |
|
(10.5) |
|
(0.4) |
|
(6.1) |
|
5.4 |
||||||
Net earnings (loss) |
$ |
(441.4) |
$ |
46.2 |
$ |
(119.8) |
$ |
3.2 |
$ |
(561.2) |
$ |
49.4 |
||||||
U.S. Markets |
International Markets |
Consolidated |
||||||||||
Three Months Ended |
Three Months Ended |
Three Months Ended |
||||||||||
June 30, |
June 30, |
June 30, |
||||||||||
2020 |
2019 |
2020 |
2019 |
2020 |
2019 |
|||||||
Segment Operating Data: |
||||||||||||
Screen additions |
|
— |
|
— |
— |
16 |
— |
16 |
||||
Screen acquisitions |
|
— |
|
64 |
— |
— |
— |
64 |
||||
Screen dispositions |
|
81 |
|
28 |
59 |
8 |
140 |
36 |
||||
Construction openings (closures), net |
|
— |
|
(6) |
— |
3 |
— |
(3) |
||||
Average screens (1) |
|
— |
|
8,006 |
60 |
2,669 |
60 |
10,675 |
||||
Number of circuit screens |
|
7,967 |
|
8,107 |
2,866 |
2,929 |
10,833 |
11,036 |
||||
Number of circuit theatres |
|
620 |
|
639 |
358 |
365 |
978 |
1,004 |
||||
Screens per theatre |
|
12.9 |
|
12.7 |
8.0 |
8.0 |
11.1 |
11.0 |
||||
Attendance (in thousands) (1) |
|
— |
|
71,900 |
100 |
25,055 |
100 |
96,955 |
||||
| (1) | Includes consolidated theatres only and excludes screens offline due to construction and temporary suspension of operations as consequence of the COVID-19 pandemic. |
56
U.S. Markets |
International Markets |
Consolidated |
||||||||||||||||
Six Months Ended |
Six Months Ended |
Six Months Ended |
||||||||||||||||
June 30, |
June 30, |
June 30, |
||||||||||||||||
(In millions) |
2020 |
2019 |
2020 |
2019 |
2020 |
2019 |
||||||||||||
Revenues |
||||||||||||||||||
Admissions |
$ |
389.1 |
$ |
1,196.1 |
$ |
179.8 |
$ |
430.9 |
$ |
568.9 |
$ |
1,627.0 |
||||||
Food and beverage |
|
216.6 |
|
688.7 |
|
71.9 |
|
172.6 |
|
288.5 |
|
861.3 |
||||||
Other theatre |
|
71.3 |
|
143.6 |
|
31.7 |
|
74.6 |
|
103.0 |
|
218.2 |
||||||
Total revenues |
677.0 |
2,028.4 |
283.4 |
678.1 |
960.4 |
2,706.5 |
||||||||||||
Operating Costs and Expenses |
||||||||||||||||||
Film exhibition costs |
198.7 |
667.5 |
73.2 |
180.3 |
271.9 |
847.8 |
||||||||||||
Food and beverage costs |
|
38.2 |
|
99.0 |
|
19.7 |
|
38.9 |
|
57.9 |
|
137.9 |
||||||
Operating expense |
|
331.3 |
|
606.5 |
|
140.4 |
|
233.7 |
|
471.7 |
|
840.2 |
||||||
Rent |
|
339.2 |
|
356.2 |
|
122.7 |
|
131.7 |
|
461.9 |
|
487.9 |
||||||
General and administrative expense: |
||||||||||||||||||
Merger, acquisition and other costs |
|
2.0 |
|
3.5 |
|
— |
|
3.0 |
|
2.0 |
|
6.5 |
||||||
Other |
|
31.1 |
|
52.5 |
|
27.5 |
|
36.9 |
|
58.6 |
|
89.4 |
||||||
Depreciation and amortization |
|
183.4 |
|
167.9 |
|
58.8 |
|
57.1 |
|
242.2 |
|
225.0 |
||||||
Impairment of long-lived assets, indefinite-lived intangible assets and goodwill |
|
1,214.3 |
|
— |
|
637.6 |
|
— |
|
1,851.9 |
|
— |
||||||
Operating costs and expenses |
|
2,338.2 |
|
1,953.1 |
|
1,079.9 |
|
681.6 |
|
3,418.1 |
|
2,634.7 |
||||||
Operating income (loss) |
|
(1,661.2) |
|
75.3 |
|
(796.5) |
|
(3.5) |
|
(2,457.7) |
|
71.8 |
||||||
Other expense (income): |
||||||||||||||||||
Other expense (income) |
|
25.6 |
|
6.1 |
|
(5.3) |
|
0.3 |
|
20.3 |
|
6.4 |
||||||
Interest expense: |
||||||||||||||||||
Corporate borrowings |
|
148.7 |
|
144.1 |
|
2.2 |
|
1.4 |
|
150.9 |
|
145.5 |
||||||
Finance lease obligations |
|
0.7 |
|
1.4 |
|
2.4 |
|
2.8 |
|
3.1 |
|
4.2 |
||||||
Non-cash NCM exhibitor service agreement |
20.0 |
20.3 |
— |
— |
20.0 |
20.3 |
||||||||||||
Equity in (earnings) loss of non-consolidated entities (1) |
|
13.3 |
|
(16.0) |
|
2.0 |
|
(0.7) |
|
15.3 |
|
(16.7) |
||||||
Investment expense (income) |
|
8.2 |
|
(5.3) |
|
(0.1) |
|
(12.9) |
|
8.1 |
|
(18.2) |
||||||
Total other expense (income), net |
|
216.5 |
|
150.6 |
|
1.2 |
|
(9.1) |
|
217.7 |
|
141.5 |
||||||
Earnings (loss) before income taxes |
|
(1,877.7) |
|
(75.3) |
|
(797.7) |
|
5.6 |
|
(2,675.4) |
|
(69.7) |
||||||
Income tax provision |
|
1.5 |
|
9.3 |
|
60.6 |
|
1.8 |
|
62.1 |
|
11.1 |
||||||
Net earnings (loss) |
$ |
(1,879.2) |
$ |
(84.6) |
$ |
(858.3) |
$ |
3.8 |
$ |
(2,737.5) |
$ |
(80.8) |
||||||
U.S. Markets |
International Markets |
Consolidated |
||||||||||
Six Months Ended |
Six Months Ended |
Six Months Ended |
||||||||||
June 30, |
June 30, |
June 30, |
||||||||||
2020 |
2019 |
2020 |
2019 |
2020 |
2019 |
|||||||
Segment Operating Data: |
||||||||||||
Screen additions |
|
11 |
|
21 |
2 |
16 |
13 |
37 |
||||
Screen acquisitions |
|
— |
|
64 |
— |
— |
— |
64 |
||||
Screen dispositions |
|
138 |
|
51 |
76 |
53 |
214 |
104 |
||||
Construction openings (closures), net |
|
— |
|
(41) |
(7) |
(11) |
(7) |
(52) |
||||
Average screens (1) |
|
3,333 |
|
8,003 |
1,134 |
2,676 |
4,467 |
10,679 |
||||
Number of screens operated |
|
7,967 |
|
8,107 |
2,866 |
2,929 |
10,833 |
11,036 |
||||
Number of theatres operated |
|
620 |
|
639 |
358 |
365 |
978 |
1,004 |
||||
Screens per theatre |
|
12.9 |
|
12.7 |
8.0 |
8.0 |
11.1 |
11.0 |
||||
Attendance (in thousands) (1) |
|
39,669 |
|
126,879 |
20,926 |
49,901 |
60,595 |
176,780 |
||||
| (1) | Includes consolidated theatres only and excludes screens offline due to construction and temporary suspension of operations as consequence of the COVID-19 pandemic. |
57
Adjusted EBITDA
We present Adjusted EBITDA as a supplemental measure of our performance. We define Adjusted EBITDA as net earnings (loss) plus (i) income tax provision (benefit), (ii) interest expense and (iii) depreciation and amortization, as further adjusted to eliminate the impact of certain items that we do not consider indicative of our ongoing operating performance and to include attributable EBITDA from equity investments in theatre operations in International markets and any cash distributions of earnings from other equity method investees. These further adjustments are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.
Adjusted EBITDA decreased $577.9 million during the three months ended June 30, 2020 compared to the three months ended June 30, 2019. Adjusted EBITDA in U.S. markets decreased $443.7 million, primarily due to the decrease in attendance largely attributable to the temporary suspension of operations as consequence of the COVID-19 pandemic, partially offset by a decrease in general and administrative expenses, decrease in operating expenses due to the decrease in attendance and an increase in cash distributions from equity method investees. Adjusted EBITDA in International markets decreased $134.2 million primarily due to the decreases in attendance, partially offset by decreases in operating expenses due to the decrease in attendance and increases in governmental assistance for COVID-19.
Adjusted EBITDA decreased $683.0 million during the six months ended June 30, 2020 compared to the six months ended June 30, 2019. Adjusted EBITDA in U.S. markets decreased $524.9 million, primarily due to the decrease in attendance largely attributable to the temporary suspension of operations as a consequence of the COVID-19 pandemic, partially offset by a decrease in general and administrative expenses and a decrease in operating expenses due to the decrease in attendance. Adjusted EBITDA in International markets decreased $158.1 million primarily due to the decreases in attendance, partially offset by a decrease in operating expenses due to the decrease in attendance and increases in governmental assistance for COVID-19.
The following tables set forth our Adjusted EBITDA by reportable operating segment and our reconciliation of Adjusted EBITDA:
Three Months Ended |
Six Months Ended |
|||||||||||
Adjusted EBITDA (In millions) |
June 30, 2020 |
|
June 30, 2019 |
June 30, 2020 |
|
June 30, 2019 |
||||||
U.S. markets |
$ |
(241.6) |
$ |
202.1 |
$ |
(245.4) |
$ |
279.5 |
||||
International markets |
(98.7) |
35.5 |
(91.8) |
66.3 |
||||||||
Total Adjusted EBITDA |
$ |
(340.3) |
$ |
237.6 |
$ |
(337.2) |
$ |
345.8 |
||||
58
Three Months Ended |
Six Months Ended |
|||||||||||
(In millions) |
June 30, 2020 |
June 30, 2019 |
|
June 30, 2020 |
June 30, 2019 |
|||||||
Net earnings (loss) |
$ |
(561.2) |
$ |
49.4 |
$ |
(2,737.5) |
$ |
(80.8) |
||||
Plus: |
||||||||||||
Income tax provision (benefit) (1) |
|
(6.1) |
|
5.4 |
|
62.1 |
|
11.1 |
||||
Interest expense |
|
91.2 |
|
86.4 |
|
174.0 |
|
170.0 |
||||
Depreciation and amortization |
|
119.7 |
|
112.0 |
|
242.2 |
|
225.0 |
||||
Impairment of long-lived assets, indefinite-lived intangible assets and goodwill (2) |
|
— |
|
— |
|
1,851.9 |
|
— |
||||
Certain operating expenses (3) |
|
(1.5) |
|
2.3 |
|
0.6 |
|
4.8 |
||||
Equity in (earnings) loss of non-consolidated entities (4) |
|
12.4 |
|
(10.2) |
|
15.3 |
|
(16.7) |
||||
Cash distributions from non-consolidated entities (5) |
|
6.1 |
|
1.8 |
|
13.7 |
|
12.3 |
||||
Attributable EBITDA (6) |
0.6 |
2.0 |
0.5 |
2.9 |
||||||||
Investment expense (income) |
|
(1.3) |
|
(2.1) |
|
8.1 |
|
(18.2) |
||||
Other expense (income) (7) |
|
(1.9) |
|
(23.8) |
|
25.0 |
|
6.1 |
||||
Other non-cash rent (8) |
(3.8) |
5.8 |
(1.5) |
13.4 |
||||||||
General and administrative — unallocated: |
||||||||||||
Merger, acquisition and other costs (9) |
|
1.8 |
|
3.2 |
|
2.0 |
|
6.5 |
||||
Stock-based compensation expense (10) |
|
3.7 |
|
5.4 |
|
6.4 |
|
9.4 |
||||
Adjusted EBITDA |
$ |
(340.3) |
$ |
237.6 |
$ |
(337.2) |
$ |
345.8 |
||||
| (1) | For information on income tax provision, see Note 8—Income Taxes in the Notes to the Condensed Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q. |
| (2) | During the six months ended June 30, 2020, we recorded non-cash impairment charges of $1,124.9 million and $619.4 million related to the enterprise fair values of our Domestic Theatres and International Theatres reporting units, respectively. We recorded non-cash impairment charges related to our long-lived assets of $81.4 million on 57 theatres in the U.S. markets with 658 screens which were related to property, net, operating lease right-of-use assets, net and other long-term assets and $9.9 million on 23 theatres in the International markets with 213 screens which were related to property, net and operating lease right-of-use assets, net, during the six months ended June 30, 2020. We recorded non-cash impairment charges related to our indefinite-lived intangible assets of $5.9 million and $2.4 million related to the Odeon and Nordic tradenames, respectively, during the six months ended June 30, 2020. We also recorded non-cash impairment charges of $8.0 million related to our definite-lived intangible assets. |
| (3) | Amounts represent preopening expense related to temporarily closed screens under renovation, theatre and other closure expense for the permanent closure of screens including the related accretion of interest, non-cash deferred digital equipment rent expense, and disposition of assets and other non-operating gains or losses included in operating expenses. We have excluded these items as they are non-cash in nature or are non-operating in nature. |
| (4) | Equity in (earnings) loss of non-consolidated entities was primarily due to equity in loss from DCIP of $9.7 million for the three months ended June 30, 2020, compared to equity in earnings from DCIP of $9.0 million for the three months ended June 30, 2019. Equity in (earnings) loss of non-consolidated entities was primarily due to equity in loss from DCIP of $11.6 million for the six months ended June 30, 2020, compared to equity in earnings from DCIP of $14.6 million for the six months ended June 30, 2019. |
| (5) | Includes U.S. non-theatre distributions from equity method investments and International non-theatre distributions from equity method investments to the extent received. We believe including cash distributions is an appropriate reflection of the contribution of these investments to our operations. |
| (6) | Attributable EBITDA includes the EBITDA from equity investments in theatre operators in certain International markets. See below for a reconciliation of our equity (earnings) loss of non-consolidated entities to attributable EBITDA. Because these equity investments are in theatre operators in regions where we hold a significant market share, we believe attributable EBITDA is more indicative of the performance of these equity investments and management uses this measure to monitor and evaluate these equity investments. We also provide services to these theatre operators including information technology systems, certain on-screen advertising services and our gift card and package ticket program. |
59
Three Months Ended |
Six Months Ended |
||||||||||||
(In millions) |
June 30, 2020 |
|
June 30, 2019 |
|
June 30, 2020 |
|
June 30, 2019 |
||||||
Equity in (earnings) loss of non-consolidated entities |
$ |
12.4 |
$ |
(10.2) |
$ |
15.3 |
$ |
(16.7) |
|||||
Less: |
|||||||||||||
Equity in (earnings) loss of non-consolidated entities excluding International theatre joint ventures |
12.2 |
(9.8) |
14.3 |
(15.8) |
|||||||||
Equity in earnings (loss) of International theatre joint ventures |
(0.2) |
0.4 |
(1.0) |
0.9 |
|||||||||
Income tax provision (benefit) |
— |
0.1 |
(0.1) |
0.1 |
|||||||||
Investment income |
— |
(0.3) |
(0.2) |
(0.5) |
|||||||||
Interest expense |
— |
0.1 |
— |
0.1 |
|||||||||
Depreciation and amortization |
0.7 |
1.7 |
1.5 |
2.3 |
|||||||||
Other expense |
0.1 |
— |
0.3 |
— |
|||||||||
Attributable EBITDA |
$ |
0.6 |
$ |
2.0 |
$ |
0.5 |
$ |
2.9 |
|||||
| (7) | Other income for the three months ended June 30, 2020 compared to three months ended June 30, 2019 decreased $21.9 million. For the three months ended June 30, 2019, we recorded a gain of $33.9 million related to the change in fair value of our derivative liability for the embedded conversion feature in the our Convertible Notes due 2024, partially offset by the loss on repayment of indebtedness of $16.6 million. Other expense for the six months ended June 30, 2020 compared to six months ended June 30, 2019 increased $18.9 million, primarily due to the decrease in the gain recorded for the change in fair value of our derivative liability for the embedded conversion feature in our Convertible Notes due 2024 of $20.1 million, credit losses related to contingent lease guarantees of $9.2 million, and loss due to the change in the fair value of our derivative asset for the contingent call option related to the Class B common stock purchase and cancellation agreement of $5.7 million. For the six months ended June 30, 2019, we recorded a loss on repayment of indebtedness of $16.6 million. See Note 1—Basis of Presentation in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for further information about other expense (income). |
| (8) | Reflects amortization expense for certain intangible assets reclassified from depreciation and amortization to rent expense due to the adoption of ASC 842 and deferred rent benefit related to the impairment of right-of-use operating lease assets. |
| (9) | Merger, acquisition and other costs are excluded as they are non-operating in nature. |
| (10) | Non-cash expense included in general and administrative: other. |
Adjusted EBITDA is a non-GAAP financial measure commonly used in our industry and should not be construed as an alternative to net earnings (loss) as an indicator of operating performance (as determined in accordance with U.S. GAAP). Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies. We have included Adjusted EBITDA because we believe it provides management and investors with additional information to measure our performance and estimate our value.
Adjusted EBITDA has important limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. For example, Adjusted EBITDA:
| ● | does not reflect our capital expenditures, future requirements for capital expenditures or contractual commitments; |
| ● | does not reflect changes in, or cash requirements for, our working capital needs; |
| ● | does not reflect the significant interest expenses, or the cash requirements necessary to service interest or principal payments, on our debt; |
| ● | excludes income tax payments that represent a reduction in cash available to us; and |
| ● | does not reflect any cash requirements for the assets being depreciated and amortized that may have to be replaced in the future. |
60
Segment Information
Our historical results of operations for the three and six months ended June 30, 2020 and June 30, 2019, respectively, reflect the results of operations for our two Theatrical Exhibition reportable segments, U.S. markets and International markets.
Results of Operations— For the Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019
Condensed Consolidated Results of Operations
Revenues. Total revenues decreased 98.7%, or $1,487.2 million, during the three months ended June 30, 2020 compared to the three months ended June 30, 2019. Admissions revenues decreased 99.9%, or $894.6 million, during the three months ended June 30, 2020 compared to the three months ended June 30, 2019, primarily due a 99.9% decrease in attendance. The decrease in attendance was primarily due to the temporary suspension of operations at all our theatres in U.S. markets and International markets on or before March 17, 2020. During the latter part of the current quarter, we reopened and operated 37 theatres with 359 screens in 9 different countries in our International markets.
Food and beverage revenues decreased 99.9%, or $492.1 million, during the three months ended June 30, 2020 compared to the three months ended June 30, 2019, primarily due to the decrease in attendance.
Total other theatre revenues decreased 85.1%, or $100.5 million, during the three months ended June 30, 2020 compared to the three months ended June 30, 2019, primarily due to decreases in ticket fees, income from gift cards and package tickets and screen advertising due to the decrease in attendance.
Operating costs and expenses. Operating costs and expenses decreased $910.1 million, during the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to the decrease in attendance and a decrease in average screens operated. Film exhibition costs decreased 100.0%, or $482.3 million, during the three months ended June 30, 2020 compared to the three months ended June 30, 2019, primarily due to the decrease in admissions revenues. As a percentage of admissions revenues, film exhibition costs were not meaningful due to the low level of admissions revenues for the three months ended June 30, 2020 and were 53.9% for the three months ended June 30, 2019.
Food and beverage costs decreased 94.1%, or $71.9 million, during the three months ended June 30, 2020 compared to the three months ended June 30, 2019. The decrease in food and beverage costs was primarily due to the decrease in food and beverage revenues. As a percentage of food and beverage revenues, food and beverage costs were not meaningful for the three months ended June 30, 2020 due to the low level of food and beverage revenues and were 15.5% for the three months ended June 30, 2019. Food and beverage costs included $4.5 million of charges for obsolete inventory during the three months ended June 30, 2020 due to the suspension of theatre operations.
As a percentage of revenues, operating expense was not meaningful for the three months ended June 30, 2020 due to the low level of revenues and the fixed nature of certain operating expenses and was 29.0% for the three months ended June 30, 2019. Rent expense decreased 8.9%, or $21.8 million, during the three months ended June 30, 2020 compared to the three months ended June 30, 2019 due primarily to declines in deferred rent expense due to the impairment of right of use assets in calendar 2019 and 2020, cash rent abatements from landlords, declines in percentage rentals due to the decline in revenues and declines in common area maintenance charges. See Note 2—Leases in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for further information on the impact of Covid-19 on leases.
Merger, acquisition and other costs. Merger, acquisition and other costs were $1.8 million during the three months ended June 30, 2020 compared to $3.2 million during the three months ended June 30, 2019, primarily due to a decline in merger related activities.
Other. Other general and administrative expense decreased 41.2% or $17.8 million during the three months ended June 30, 2020 compared to the three months ended June 30, 2019, primarily due to decreases in bonus expense and decreases in salaries as a result of our furlough program that began in March of 2020 and continued throughout the three months ended June 30, 2020.
61
Depreciation and amortization. Depreciation and amortization increased 6.9% or $7.7 million during the three months ended June 30, 2020 compared to the three months ended June 30, 2019, primarily due to recent capital expenditures, partially offset by lower depreciation expense on theatres impaired in calendar 2019 and 2020.
Other expense (income). Other income of $6.6 million during the three months ended June 30, 2020 was primarily due to the increase in fair value of our derivative asset for the contingent call option related to the Class B common stock purchase and cancellation agreement of $6.4 million, international government assistance related to COVID-19 of $4.4 million and $2.0 million of international foreign currency transaction gains, offset by estimated credit losses related to contingent lease guarantees of $3.9 million and $2.8 million of third party financing costs related to an ongoing debt restructuring. During the three months ended June 30, 2019, other income of $23.4 million was primarily due to $33.9 million of income related to the decrease in the fair value of our derivative liability for the embedded conversion feature in our Convertible Notes due 2024 and $7.1 million of income related to the increase in the fair value our derivative asset for the contingent call option related to the Class B common stock purchase and cancellation agreement, offset by $16.6 million of expense related to the repayment of indebtedness. See Note 1—The Company and Significant Accounting Policies in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for additional information about the components of other expense.
Interest expense. Interest expense increased $4.8 million to $91.2 million for the three months ended June 30, 2020 compared to $86.4 million during the three months ended June 30, 2019 primarily due to the issuance of $500 million of 10.5% First Lien Notes due 2025 on April 24, 2020 and borrowings under revolving credit facilities of approximately $325.0 million during the three months ended March 31, 2020 that remained outstanding as of June 30, 2020.
Equity in (earnings) loss of non-consolidated entities. Equity in loss of non-consolidated entities were $12.4 million for the three months ended June 30, 2020 compared to $(10.2) million for the three months ended June 30, 2019. The decrease in equity in earnings of $22.6 million was primarily due to decreases in equity in earnings from DCIP of $18.2 million as a result of accelerated depreciation charges for digital projectors during the three months ended June 30, 2020 and lower revenues due to the closure of theatres.
Investment income. Investment income was $1.3 million for the three months ended June 30, 2020 compared to investment income of $2.1 million for the three months ended June 30, 2019. Investment income includes a gain on the sale of our Austria theatres of $1.8 million for the three months ended June 30, 2019.
Income tax provision (benefit). The income tax provision (benefit) was $(6.1) million and $5.4 million for the three months ended June 30, 2020 and June 30, 2019, respectively. The increase in income tax benefit is primarily due to net losses incurred in International markets during the three months ended June 30, 2020 that are projected to offset previously unabsorbed deferred tax liabilities in International markets. See Note 8—Income Taxes in the Notes to the Condensed Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q for further information.
Net earnings (loss). Net earnings (loss) was $(561.2) million and $49.4 million during the three months ended June 30, 2020 and June 30, 2019, respectively. Net loss during the three months ended June 30, 2020 compared to net earnings for the three months ended June 30, 2019 was negatively impacted by the decrease in attendance as a result of the temporary suspension of operations at all our theatres on or before March 17, 2020, increased depreciation expense, declines in investment income, declines in equity in earnings of non-consolidated entities and declines in other income, partially offset by reduced operating expenses, lower amounts of rent expense, declines in general and administrative expenses and increases in income tax benefits.
Theatrical Exhibition–U.S. Markets
Revenues. Total revenues decreased 98.6%, or $1,145.5 million, during the three months ended June 30, 2020 compared to the three months ended June 30, 2019. Admissions revenues decreased 100%, or $680.7 million, during the three months ended June 30, 2020 compared to the three months ended June 30, 2019, primarily due to a 100% decrease in attendance. The decrease in attendance was due to the temporary suspension of operations at all our theatres in U.S. markets on or before March 17, 2020.
Food and beverage revenues decreased 100%, or $401.1 million, during the three months ended June 30, 2020 compared to the three months ended June 30, 2019, due to the decrease in attendance.
Total other theatre revenues decreased 80.2%, or $63.7 million, during the three months ended June 30, 2020
62
compared to the three months ended June 30, 2019, primarily due to decreases in ticket fees, income from gift cards and package tickets and screen advertising due to the decrease in attendance.
Operating costs and expenses. Operating costs and expenses decreased $704.5 million, during the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to the decrease in attendance and a decrease in average screens operated. Film exhibition costs decreased $390.4 million, during the three months ended June 30, 2020 compared to the three months ended June 30, 2019, primarily due to the decrease in admissions revenues. As a percentage of admissions revenues, film exhibition costs were not meaningful for the three months ended June 30, 2020 due to the low level of admissions revenues and were 57.3% for the three months ended June 30, 2019.
Food and beverage costs decreased 94.1%, or $52.8 million, during the three months ended June 30, 2020 compared to the three months ended June 30, 2019. The decrease in food and beverage costs was primarily due to the decrease in food and beverage revenues. As a percentage of food and beverage revenues, food and beverage costs were not meaningful for the three months ended June 30, 2020 due to the low level of food and beverage revenues and 14.0% for the three months ended June 30, 2019. Food and beverage costs included $3.3 million of charges for obsolete inventory during the three months ended June 30, 2020 due to the suspension of theatre operations.
As a percentage of revenues, operating expense was not meaningful for the three months ended June 30, 2020 due to the low level of revenues and the fixed nature of certain operating expenses and was 27.6% for the three months ended June 30, 2019. Rent expense decreased 8.2%, or $14.8 million, during the three months ended June 30, 2020 compared to the three months ended June 30, 2019 due primarily to declines in deferred rent expense due to the impairment of right of use assets in calendar 2019 and 2020, cash rent abatements from landlords, declines in percentage rentals due to the decline in revenues and declines in common area maintenance charges. See Note 2—Leases in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for further information on the impact of COVID-19 on leases.
Merger, acquisition and other costs. Merger, acquisition and other costs were $1.7 million during the three months ended June 30, 2020 compared to $2.4 million during the three months ended June 30, 2019, primarily due to a decline in merger related activities.
Other. Other general and administrative expense decreased 44.6% or $11.1 million during the three months ended June 30, 2020 compared to the three months ended June 30, 2019, primarily due to decreases in bonus expense and decreases in salaries as a result of our furlough program that began in March of 2020 and continued throughout the three months ended June 30, 2020.
Depreciation and amortization. Depreciation and amortization increased 8.1% or $6.8 million during the three months ended June 30, 2020 compared to the three months ended June 30, 2019, primarily due to recent capital expenditures, partially offset by lower depreciation expense on theatres impaired in calendar 2019 and 2020.
Other expense (income). Other expense of $0.1 million during the three months ended June 30, 2020 was primarily due to estimated credit losses related to contingent lease guarantees of $3.9 million and $2.8 million of third party financing costs related to an ongoing debt restructuring, partially offset by the increase in fair value of our derivative asset for the contingent call option related to the Class B common stock purchase and cancellation agreement of $6.4 million. During the three months ended June 30, 2019, other income of $23.2 million was primarily due to $33.9 million of income related to the decrease in the fair value of our derivative liability for the embedded conversion feature in our Convertible Notes due 2024 and $7.1 million of income related to the increase in the fair value our derivative asset for the contingent call option related to the Class B common stock purchase and cancellation agreement, partially offset by $16.6 million of expense related to the repayment of indebtedness. See Note 1—The Company and Significant Accounting Policies in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for additional information about the components of other expense.
Interest expense. Interest expense increased $4.4 million to $88.6 million for the three months ended June 30, 2020 compared to $84.2 million during the three months ended June 30, 2019 primarily due to the issuance of $500 million of 10.5% First Lien Notes due 2025 on April 24, 2020 and borrowings under revolving credit facilities of approximately $215.0 million during the three months ended March 31, 2020 that remained outstanding as of June 30, 2020.
Equity in (earnings) loss of non-consolidated entities. Equity in loss of non-consolidated entities were
63
$11.4 million for the three months ended June 30, 2020 compared to $(9.9) million for the three months ended June 30, 2019. The decrease in equity in earnings of $21.3 million was primarily due to decreases in equity in earnings from DCIP of $18.2 million as a result of accelerated depreciation charges for digital projectors during the three months ended June 30, 2020 and lower revenues due to the closure of theatres.
Investment income. Investment income was $1.2 million for the three months ended June 30, 2020 compared to investment income of $0.2 million for the three months ended June 30, 2019.
Income tax provision. The income tax provision was $4.4 million and $5.8 million for the three months ended June 30, 2020 and June 30, 2019, respectively. See Note 8—Income Taxes in the Notes to the Condensed Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q for further information.
Net earnings (loss). Net earnings (loss) was $(441.4) million and $46.2 million during the three months ended June 30, 2020 and June 30, 2019, respectively. Net loss during the three months ended June 30, 2020 compared to net earnings for the three months ended June 30, 2019 was negatively impacted by the decrease in attendance as a result of the temporary suspension of operations at all our theatres on or before March 17, 2020, increased depreciation expense, declines in equity in earnings of non-consolidated entities and declines in other income, partially offset by reduced operating expenses, lower amounts of rent expense, declines in general and administrative expenses, increases in investment income and decreases in income tax provision.
Theatrical Exhibition - International Markets
Revenues. Total revenues decreased 99.1%, or $341.7 million, during the three months ended June 30, 2020 compared to the three months ended June 30, 2019. Admissions revenues decreased 99.6%, or $213.9 million, during the three months ended June 30, 2020 compared to the three months ended June 30, 2019, primarily due a 99.6% decrease in attendance. The decrease in attendance was primarily due to the temporary suspension of operations at all our theatres in International markets on or before March 17, 2020. During the latter part of the current quarter, we reopened and operated 37 theatres with 359 screens in 9 different countries in our International markets.
Food and beverage revenues decreased 99.6%, or $91.0 million, during the three months ended June 30, 2020 compared to the three months ended June 30, 2019, primarily due to the decrease in attendance.
Total other theatre revenues decreased 95.1%, or $36.8 million, during the three months ended June 30, 2020 compared to the three months ended June 30, 2019, primarily due to decreases in ticket fees, income from gift cards and package tickets and screen advertising due to the decrease in attendance.
Operating costs and expenses. Operating costs and expenses decreased $205.6 million, during the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to the decrease in attendance and a decrease in average screens operated. Film exhibition costs decreased 99.6%, or $91.9 million, during the three months ended June 30, 2020 compared to the three months ended June 30, 2019, primarily due to the decrease in admissions revenues. As a percentage of admissions revenues, film exhibition costs were not meaningful due to the low level of admissions revenues for the three months ended June 30, 2020 and were 43.0% for the three months ended June 30, 2019.
Food and beverage costs decreased 94.1%, or $19.1 million, during the three months ended June 30, 2020 compared to the three months ended June 30, 2019. The decrease in food and beverage costs was primarily due to the decrease in food and beverage revenues. As a percentage of food and beverage revenues, food and beverage costs were not meaningful for the three months ended June 30, 2020 due to the low level of food and beverage revenues and were 22.2% for the three months ended June 30, 2019. Food and beverage costs included $1.2 million of charges for obsolete inventory during the three months ended June 30, 2020 due to the suspension of theatre operations.
As a percentage of revenues, operating expense was not meaningful for the three months ended June 30, 2020 due to the low level of revenues and the fixed nature of certain operating expenses and was 33.8% for the three months ended June 30, 2019. Rent expense decreased 10.6%, or $7.0 million, during the three months ended June 30, 2020 compared to the three months ended June 30, 2019 due primarily to declines in deferred rent expense due to the impairment of right of use assets in calendar 2019 and 2020, cash rent abatements from landlords, declines in percentage rentals due to the decline in revenues, declines in common area maintenance charges and declines in foreign currency exchange rates. See Note 2—Leases in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for further information on the impact of COVID-19 on leases.
64
Merger, acquisition and other costs. Merger, acquisition and other costs were $0.1 million during the three months ended June 30, 2020 compared to $0.8 million during the three months ended June 30, 2019, primarily due to a decline in merger related activities.
Other. Other general and administrative expense decreased 36.6% or $6.7 million during the three months ended June 30, 2020 compared to the three months ended June 30, 2019, primarily due to decreases in bonus expense and decreases in salaries as a result of our furlough program that began in March of 2020 and continued throughout the three months ended June 30, 2020 and declines in foreign currency exchange rates.
Depreciation and amortization. Depreciation and amortization increased 3.2% or $0.9 million during the three months ended June 30, 2020 compared to the three months ended June 30, 2019, primarily due to recent capital expenditures, partially offset by lower depreciation expense on theatres impaired in calendar 2019 and 2020.
Other income. Other income of $6.7 million during the three months ended June 30, 2020 was primarily due to the international government assistance related to COVID-19 of $4.4 million and $2.0 million of international foreign currency transaction gains. See Note 1—The Company and Significant Accounting Policies in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for additional information about the components of other expense.
Interest expense. Interest expense increased $0.4 million to $2.6 million for the three months ended June 30, 2020 compared to $2.2 million during the three months ended June 30, 2019 primarily due to borrowings under revolving credit facilities of approximately $110 million during the three months ended March 31, 2020 that remained outstanding as of June 30, 2020.
Equity in (earnings) loss of non-consolidated entities. Equity in loss of non-consolidated entities were $1.0 million for the three months ended June 30, 2020 compared to $(0.3) million for the three months ended June 30, 2019.
Investment income. Investment income was $0.1 million for the three months ended June 30, 2020 compared to investment income of $1.9 million for the three months ended June 30, 2019. Investment income includes a gain on the sale of our Austria theatres of $1.8 million for the three months ended June 30, 2019.
Income tax benefit. The income tax benefit was $10.5 million and $0.4 million for the three months ended June 30, 2020 and June 30, 2019, respectively. The increase in income tax benefit is primarily due to net losses incurred during the three months ended June 30, 2020 that are projected to offset previously unabsorbed deferred tax liabilities. See Note 8—Income Taxes in the Notes to the Condensed Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q for further information.
Net earnings (loss). Net earnings (loss) was $(119.8) million and $3.2 million during the three months ended June 30, 2020 and June 30, 2019, respectively. Net loss during the three months ended June 30, 2020 compared to net earnings for the three months ended June 30, 2019 was negatively impacted by the decrease in attendance as a result of the temporary suspension of operations at all our theatres on or before March 17, 2020, increased depreciation expense, declines in investment income and declines in equity in earnings of non-consolidated entities, partially offset by reduced operating expenses, lower amounts of rent expense, declines in general and administrative expenses, increases in other income and increases in income tax benefits.
Results of Operations— For the Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019
Condensed Consolidated Results of Operations
Revenues. Total revenues decreased 64.5%, or $1,746.1 million, during the six months ended June 30, 2020 compared to the six months ended June 30, 2019. Admissions revenues decreased 65.0%, or $1,058.1 million, during the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due a 65.7% decrease in attendance offset by a 2.0% increase in average ticket price. The decrease in attendance was primarily due to the temporary suspension of operations at all our theatres in U.S. markets and International markets on or before March 17, 2020. As some theatres across Europe began closing in late February 2020 and social distancing practices were initiated in the U.S. in response to the ensuing COVID-19 global pandemic, attendance and revenues began to deteriorate in early March. During the latter part of the current quarter, we reopened and operated 37 theatres with 359 screens in 9
65
different countries in our International markets. The increase in average ticket price was primarily due to strategic pricing initiatives put in place over the prior year and lower frequency on our A-List subscription program, partially offset by decreases in attendance for 3D, IMAX and Alternative premium content and declines in foreign currency exchange rates.
Food and beverage revenues decreased 66.5%, or $572.8 million, during the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to the decrease in attendance.
Total other theatre revenues decreased 52.8%, or $115.2 million, during the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to decreases in ticket fees, income from gift cards and package tickets and screen advertising due to the decrease in attendance.
Operating costs and expenses. Operating costs and expenses increased $783.4 million, during the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to the impairment of long-lived assets, partially offset by a decrease in operating costs and expenses due to the decrease in attendance and a decrease in average screens operated. Film exhibition costs decreased 67.9%, or $575.9 million, during the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to the decrease in admissions revenues. As a percentage of admissions revenues, film exhibition costs were 47.8% for the six months ended June 30, 2020 and 52.1% for the six months ended June 30, 2019. The decrease in film exhibition cost percentage is primarily due to the concentration of box office revenues in lower grossing films in the current year which typically results in lower film exhibition costs.
Food and beverage costs decreased 58.0%, or $80.0 million, during the six months ended June 30, 2020 compared to the six months ended June 30, 2019. The decrease in food and beverage costs was primarily due to the decrease in food and beverage revenues. As a percentage of food and beverage revenues, food and beverage costs were 20.1% for the six months ended June 30, 2020 and 16.0% for the six months ended June 30, 2019. Food and beverage costs included $7.2 million of charges for obsolete inventory during the six months ended June 30, 2020 due to the suspension of theatre operations.
As a percentage of revenues, operating expense was 49.1% for the six months ended June 30, 2020 and 31.0% for the six months ended June 30, 2019. Rent expense decreased 5.3%, or $26.0 million, during the six months ended June 30, 2020 compared to the six months ended June 30, 2019 due primarily to declines in deferred rent expense due to the impairment of right of use assets in calendar 2019 and 2020, cash rent abatements from landlords, declines in percentage rentals due to the decline in revenues and declines in common area maintenance charges. See Note 2—Leases in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for further information on the impact of Covid-19 on leases.
Merger, acquisition and other costs. Merger, acquisition and other costs were $2.0 million during the six months ended June 30, 2020 compared to $6.5 million during the six months ended June 30, 2019, primarily due to a decline in merger related activities.
Other. Other general and administrative expense decreased 34.5% or $30.8 million during the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to decreases in bonus expense and decreases in salaries as a result of our furlough program that began in March of 2020 and continued throughout the six months ended June 30, 2020.
Depreciation and amortization. Depreciation and amortization increased 7.6% or $17.2 million during the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to recent capital expenditures, partially offset by lower depreciation expense on theatres impaired in calendar 2019 and 2020.
Impairment of long-lived assets. During the three months ended March 31, 2020, we recognized non-cash impairment losses of $81.4 million on 57 theatres in the U.S. markets with 658 screens (in Alabama, Arkansas, California, District of Columbia, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Missouri, Montana, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Pennsylvania, South Dakota, Tennessee, Texas, Washington, Wisconsin and Wyoming) which were related to property, net, operating lease right-of-use assets, net and other long-term assets and $9.9 million on 23 theatres in the International markets with 213 screens (in Germany, Italy, Spain, UK and Sweden) which were related to property, net and operating lease right-of-use assets, net.
During the three months ended March 31, 2020, we performed a quantitative impairment evaluation of our
66
indefinite-lived intangible assets related to the AMC, Odeon and Nordic tradenames and recorded impairment charges of $8.3 million related to these assets during the three months ended March 31, 2020. In addition, we performed a quantitative impairment evaluation of our definite-lived intangible assets and recorded impairment charges of $8.0 million.
During the three months ended March 31, 2020, we performed a quantitative impairment evaluation of our goodwill and recorded impairment charges of $1,124.9 million and $619.4 million for our Domestic Theatres and International Theatres reporting units, respectively.
Other expense. Other expense of $20.3 million during the six months ended June 30, 2020 was primarily due to the decrease in fair value of our derivative asset for the contingent call option related to the Class B common stock purchase and cancellation agreement of $13.7 million, estimated credit losses related to contingent lease guarantees of $9.2 million and $2.8 million of third party financing costs related to an ongoing debt restructuring, partially offset by international government assistance related to COVID-19 of $4.4 million. Other expense of $6.4 million during the six months ended June 30, 2019 is primarily due to a $16.6 million expense related to the repayment of indebtedness, the decrease in fair value of our derivative asset for the contingent call option related to the Class B common stock purchase and cancellation agreement of $8.0 million, $1.0 million loss on forward currency contracts, partially offset by a decrease in fair value of our derivative liability for the embedded conversion feature in our Convertible Notes due 2024 of $20.6 million. See Note 1—The Company and Significant Accounting Policies in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for additional information about the components of other expense.
Interest expense. Interest expense increased $4.0 million to $174.0 million for the six months ended June 30, 2020 compared to $170.0 million during the six months ended June 30, 2019 primarily due to the issuance of $500 million of 10.5% First Lien Notes due 2025 on April 24, 2020 and borrowings under revolving credit facilities of approximately $325.0 million during the six months ended June 30, 2020 that remained outstanding as of June 30, 2020.
Equity in (earnings) loss of non-consolidated entities. Equity in loss of non-consolidated entities were $15.3 million for the six months ended June 30, 2020 compared to $(16.7) million for the six months ended June 30, 2019. The decrease in equity in earnings of $32.0 million was primarily due to decreases in equity in earnings from DCIP of $26.2 million as a result of accelerated depreciation charges for digital projectors during the six months ended June 30, 2020 and lower revenues due to the closure of theatres.
Investment (income) expense. Investment expense was $8.1 million for the six months ended June 30, 2020 compared to investment income of $(18.2) million for the six months ended June 30, 2019. Investment expense includes an impairment charge of $7.2 million related to an investment and declines in fair value of our non-qualified deferred compensation plan investments during the six months ended June 30, 2020. Investment income includes a gain on the sale of our Austria theatres of $12.9 million for the six months ended June 30, 2019 and a payment of $4.0 million under the NCM tax receivable agreement for the six months ended June 30, 2019.
Income tax provision. The income tax provision was $62.1 million and $11.1 million for the six months ended June 30, 2020 and June 30, 2019, respectively. The increase in income tax expense is primarily due to the recording of international valuation allowances against deferred tax assets held in Spain of $40.1 million and Germany of $33.1 million, partially offset by income tax benefit from net losses incurred in International markets during the six months ended June 30, 2020 that are projected to offset previously unabsorbed deferred tax liabilities in International markets. See Note 8—Income Taxes in the Notes to the Condensed Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q for further information.
Net loss. Net loss was $2,737.5 million and $80.8 million during the six months ended June 30, 2020 and June 30, 2019, respectively. Net loss during the six months ended June 30, 2020 compared to net loss for the six months ended June 30, 2019 was negatively impacted by the decrease in attendance as a result of the temporary suspension of operations at all our theatres on or before March 17, 2020, impairment charges related to long-lived assets, definite and indefinite-lived intangible assets and goodwill, increased depreciation expense, declines in investment income, declines in equity in earnings of non-consolidated entities, increases in income tax provision and increases in other expense, partially offset by reduced operating expenses, lower amounts of rent expense and declines in general and administrative expenses.
67
Theatrical Exhibition–U.S. Markets
Revenues. Total revenues decreased 66.6%, or $1,351.4 million, during the six months ended June 30, 2020 compared to the six months ended June 30, 2019. Admissions revenues decreased 67.5%, or $807.0 million, during the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to a 68.7% decrease in attendance offset by a 4.0% increase in average ticket price. The decrease in attendance was primarily due to the temporary suspension of operations at all our theatres in U.S. markets on or before March 17, 2020. As social distancing practices were initiated in the U.S. in response to the ensuing COVID-19 global pandemic, attendance and revenues began to deteriorate in early March. The increase in average ticket price was primarily due to strategic pricing initiatives put in place over the prior year and lower frequency on our A-List subscription program, partially offset by decreases in attendance for 3D, IMAX and Alternative premium content.
Food and beverage revenues decreased 68.5%, or $472.1 million, during the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to the decrease in attendance.
Total other theatre revenues decreased 50.3%, or $72.3 million, during the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to decreases in ticket fees, income from gift cards and package tickets and screen advertising due to the decrease in attendance.
Operating costs and expenses. Operating costs and expenses increased $385.1 million, during the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to the impairment of long-lived assets, partially offset by a decrease in operating costs and expenses due to the decrease in attendance and a decrease in average screens operated. Film exhibition costs decreased 70.2%, or $468.8 million, during the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to the decrease in admissions revenues. As a percentage of admissions revenues, film exhibition costs were 51.1% for the six months ended June 30, 2020 and 55.8% for the six months ended June 30, 2019. The decrease in film exhibition cost percentage is primarily due to the concentration of box office revenues in lower grossing films in the current year which typically results in lower film exhibition costs.
Food and beverage costs decreased 61.4%, or $60.8 million, during the six months ended June 30, 2020 compared to the six months ended June 30, 2019. The decrease in food and beverage costs was primarily due to the decrease in food and beverage revenues. As a percentage of food and beverage revenues, food and beverage costs were 17.6% for the six months ended June 30, 2020 and 14.4% for the six months ended June 30, 2019. Food and beverage costs included $4.0 million of charges for obsolete inventory during the six months ended June 30, 2020 due to the suspension of theatre operations.
As a percentage of revenues, operating expense was 48.9% for the six months ended June 30, 2020 and 29.9% for the six months ended June 30, 2019. Rent expense decreased 4.8%, or $17.0 million, during the six months ended June 30, 2020 compared to the six months ended June 30, 2019 due primarily to declines in deferred rent expense due to the impairment of right of use assets in calendar 2019 and 2020, cash rent abatements from landlords, declines in percentage rentals due to the decline in revenues and declines in common area maintenance charges. See Note 2—Leases in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for further information on the impact of Covid-19 on leases.
Merger, acquisition and other costs. Merger, acquisition and other costs were $2.0 million during the six months ended June 30, 2020 compared to $3.5 million during the six months ended June 30, 2019, primarily due to a decline in merger related activities.
Other. Other general and administrative expense decreased 40.8% or $21.4 million during the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to decreases in bonus expense and decreases in salaries as a result of our furlough program that began in March of 2020 and continued throughout the six months ended June 30, 2020.
Depreciation and amortization. Depreciation and amortization increased 9.2% or $15.5 million during the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to recent capital expenditures, partially offset by lower depreciation expense on theatres impaired in calendar 2019 and 2020.
Impairment of long-lived assets. During the three months ended March 31, 2020, we recognized non-cash impairment losses of $81.4 million on 57 theatres in the U.S. markets with 658 screens (in Alabama, Arkansas, California, District of Columbia, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Missouri,
68
Montana, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Pennsylvania, South Dakota, Tennessee, Texas, Washington, Wisconsin and Wyoming) which were related to property, net, operating lease right-of-use assets, net and other long-term assets.
During the three months ended March 31, 2020, we performed a quantitative impairment evaluation of our definite-lived intangible assets and recorded impairment charges of $8.0 million.
During the three months ended March 31, 2020, we performed a quantitative impairment evaluation of our goodwill and recorded an impairment charge of $1,124.9 million for our Domestic Theatres reporting unit.
Other expense. Other expense of $25.6 million during the six months ended June 30, 2020 was primarily due to the decrease in fair value of our derivative asset for the contingent call option related to the Class B common stock purchase and cancellation agreement of $13.7 million, estimated credit losses related to contingent lease guarantees of $9.2 million and $2.8 million of third party financing costs related to an ongoing debt restructuring. Other expense of $6.1 million during the six months ended June 30, 2019 is primarily due to a $16.6 million expense related to the repayment of indebtedness, the decrease in fair value of our derivative asset for the contingent call option related to the Class B common stock purchase and cancellation agreement of $8.0 million, $1.0 million loss on forward currency contracts, partially offset by a decrease in fair value of our derivative liability for the embedded conversion feature in our Convertible Notes due 2024 of $20.6 million. See Note 1—The Company and Significant Accounting Policies in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for additional information about the components of other expense.
Interest expense. Interest expense increased $3.6 million to $169.4 million for the six months ended June 30, 2020 compared to $165.8 million during the six months ended June 30, 2019 primarily due to the issuance of $500 million of 10.5% First Lien Notes due 2025 on April 24, 2020 and borrowings under revolving credit facilities of approximately $215.0 million during the six months ended March 31, 2020 that remained outstanding as of June 30, 2020.
Equity in (earnings) loss of non-consolidated entities. Equity in loss of non-consolidated entities were $13.3 million for the six months ended June 30, 2020 compared to $(16.0) million for the six months ended June 30, 2019. The decrease in equity in earnings of $29.3 million was primarily due to decreases in equity in earnings from DCIP of $26.2 million as a result of accelerated depreciation charges for digital projectors during the six months ended June 30, 2020 and lower revenues due to the closure of theatres.
Investment expense (income). Investment expense was $8.2 million for the six months ended June 30, 2020 compared to investment income of $(5.3) million for the six months ended June 30, 2019. Investment expense includes an impairment charge of $7.2 million related to an investment and declines in fair value of our non-qualified deferred compensation plan investments during the six months ended June 30, 2020. Investment income includes a payment of $4.0 million under the NCM tax receivable agreement for the six months ended June 30, 2019.
Income tax provision. The income tax provision was $1.5 million and $9.3 million for the six months ended June 30, 2020 and June 30, 2019, respectively. See Note 8—Income Taxes in the Notes to the Condensed Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q for further information.
Net loss. Net loss was $1,879.2 million and $84.6 million during the six months ended June 30, 2020 and June 30, 2019, respectively. Net loss during the six months ended June 30, 2020 compared to net loss for the six months ended June 30, 2019 was negatively impacted by the decrease in attendance as a result of the temporary suspension of operations at all our theatres on or before March 17, 2020, impairment charges related to long-lived assets, definite and indefinite-lived intangible assets and goodwill, increased depreciation expense, declines in investment income, declines in equity in earnings of non-consolidated entities and increases in other expense, partially offset by reduced operating expenses, lower amounts of rent expense, a decrease in income tax provision and declines in general and administrative expenses.
Theatrical Exhibition - International Markets
Revenues. Total revenues decreased 58.2%, or $394.7 million, during the six months ended June 30, 2020 compared to the six months ended June 30, 2019. Admissions revenues decreased 58.3%, or $251.1 million, during the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due a 58.1% decrease in attendance and a 0.6% decrease in average ticket price. The decrease in attendance was primarily due to the temporary
69
suspension of operations at all our theatres in International markets on or before March 17, 2020. As some theatres across Europe began closing in late February 2020, attendance and revenues began to deteriorate in early March. During the latter part of the current quarter we reopened and operated 37 theatres with 359 screens in 9 different countries in our International markets. The decrease in average ticket price was primarily due to declines in foreign currency exchange rates.
Food and beverage revenues decreased 58.3%, or $100.7 million, during the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to the decrease in attendance.
Total other theatre revenues decreased 57.5%, or $42.9 million, during the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to decreases in ticket fees, income from gift cards and package tickets and screen advertising due to the decrease in attendance.
Operating costs and expenses. Operating costs and expenses increased $398.3 million, during the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to the impairment of long-lived assets, partially offset by a decrease in operating costs and expenses due to the decrease in attendance and a decrease in average screens operated. Film exhibition costs decreased 59.4%, or $107.1 million, during the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to the decrease in admissions revenues. As a percentage of admissions revenues, film exhibition costs were 40.7% for the six months ended June 30, 2020 and 41.8% for the six months ended June 30, 2019. The decrease in film exhibition cost percentage is primarily due to the concentration of box office revenues in lower grossing films in the current year which typically results in lower film exhibition costs.
Food and beverage costs decreased 49.4%, or $19.2 million, during the six months ended June 30, 2020 compared to the six months ended June 30, 2019. The decrease in food and beverage costs was primarily due to the decrease in food and beverage revenues. As a percentage of food and beverage revenues, food and beverage costs were 27.4% for the six months ended June 30, 2020 and 22.5% for the six months ended June 30, 2019. Food and beverage costs included $3.2 million of charges for obsolete inventory during the six months ended June 30, 2020 due to the suspension of theatre operations.
As a percentage of revenues, operating expense was 49.5% for the six months ended June 30, 2020 and 34.5% for the six months ended June 30, 2019. Rent expense decreased 6.8%, or $9.0 million, during the six months ended June 30, 2020 compared to the six months ended June 30, 2019 due primarily to declines in deferred rent expense due to the impairment of right of use assets in calendar 2019 and 2020, cash rent abatements from landlords, declines in percentage rentals due to the decline in revenues, declines in common area maintenance charges and declines in foreign currency translation rates. See Note 2—Leases in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for further information on the impact of Covid-19 on leases.
Merger, acquisition and other costs. Merger, acquisition and other costs were $0.0 million during the six months ended June 30, 2020 compared to $3.0 million during the six months ended June 30, 2019, primarily due to a decline in merger related activities.
Other. Other general and administrative expense decreased 25.5% or $9.4 million during the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to decreases in bonus expense and decreases in salaries as a result of our furlough program that began in March of 2020 and continued throughout the six months ended June 30, 2020 and declines in foreign currency translation rates.
Depreciation and amortization. Depreciation and amortization increased 3.0% or $1.7 million during the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to recent capital expenditures, partially offset by lower depreciation expense on theatres impaired in calendar 2019 and 2020.
Impairment of long-lived assets. During the three months ended March 31, 2020, we recognized non-cash impairment losses of $9.9 million on 23 theatres in the International markets with 213 screens (in Germany, Italy, Spain, UK and Sweden) which were related to property, net, and operating lease right-of-use assets, net.
During the three months ended March 31, 2020, we performed a quantitative impairment evaluation of our indefinite-lived intangible assets related to the Odeon and Nordic tradenames and recorded impairment charges of $8.3 million related to these assets during the three months ended March 31, 2020.
During the three months ended March 31, 2020, we performed a quantitative impairment evaluation of our
70
goodwill and recorded impairment charges of $619.4 million for our International Theatres reporting unit.
Other expense (income). Other income of $(5.3) million during the six months ended June 30, 2020 was primarily due to the international government assistance related to COVID-19 of $4.4 million. See Note 1—The Company and Significant Accounting Policies in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for additional information about the components of other expense.
Interest expense. Interest expense increased $0.4 million to $4.6 million for the six months ended June 30, 2020 compared to $4.2 million during the six months ended June 30, 2019 primarily due to borrowings under revolving credit facilities of approximately $110 million during the six months ended June 30, 2020 that remained outstanding as of June 30, 2020.
Equity in (earnings) loss of non-consolidated entities. Equity in loss of non-consolidated entities were $2.0 million for the six months ended June 30, 2020 compared to $(0.7) million for the six months ended June 30, 2019.
Investment income. Investment income was $0.1 million for the six months ended June 30, 2020 compared to investment income of $12.9 million for the six months ended June 30, 2019. Investment income includes a gain on the sale of our Austria theatres of $12.9 million for the six months ended June 30, 2019.
Income tax provision. The income tax provision was $60.6 million and $1.8 million for the six months ended June 30, 2020 and June 30, 2019, respectively. The increase in income tax provision is primarily due to the recording of international valuation allowances against deferred tax assets held in Spain of $40.1 million and Germany of $33.1 million, partially offset by income tax benefit from net losses incurred in International markets during the six months ended June 30, 2020 that are projected to offset previously unabsorbed deferred tax liabilities in International markets. See Note 8—Income Taxes in the Notes to the Condensed Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q for further information.
Net earnings (loss). Net earnings (loss) was $(858.3) million and $3.8 million during the six months ended June 30, 2020 and June 30, 2019, respectively. Net loss during the six months ended June 30, 2020 compared to net earnings for the six months ended June 30, 2019 was negatively impacted by the decrease in attendance as a result of the temporary suspension of operations at all our theatres on or before March 17, 2020,impairment charges related to long-lived assets, definite and indefinite-lived intangible assets and goodwill increased depreciation expense, increased income tax provision, declines in investment income and declines in equity in earnings of non-consolidated entities, partially offset by reduced operating expenses, lower amounts of rent expense, declines in general and administrative expenses and increases in other income.
LIQUIDITY AND CAPITAL RESOURCES
Our consolidated revenues are primarily collected in cash, principally through box office admissions and food and beverage sales. We have an operating “float” which partially finances our operations, and which generally permits us to maintain a smaller amount of working capital capacity. This float exists because admissions revenues are received in cash, while exhibition costs (primarily film rentals) are ordinarily paid to distributors from 20 to 45 days following receipt of box office admissions revenues. Film distributors generally release the films which they anticipate will be the most successful during the summer and year-end holiday seasons. Consequently, we typically generate higher revenues during such periods.
We had working capital deficits (excluding restricted cash) as of June 30, 2020 and December 31, 2019 of $1,041.9 million and $1,270.6 million, respectively. As of June 30, 2020 and December 31, 2019, working capital included operating lease liabilities of $581.5 million and $585.8 million, respectively, and deferred revenues of $406.1 million and $449.2 million, respectively. We have borrowed all available amounts under our Revolving Credit Facility to meet obligations as they come due. As of June 30, 2020, we had borrowed $213.2 million (the full availability net of letters of credit) under our $225.0 million Senior Secured Revolving Credit Facility. We also maintain a revolving credit facility due February 14, 2022 at our Odeon subsidiary (the “Odeon Revolver”). As of June 30, 2020, we had borrowed $108.8 million (the full availability net of letters of credit) under our £100.0 million Odeon Revolver ($122.9 million based on the foreign currency translation rate of 1.2287 on June 30, 2020).
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 our
71
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 20% to 100%; cancellation of pending annual merit pay increases; and elimination or reduction of non-healthcare benefits. |
| ● | 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 our 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 and beyond. |
| ● | Introduced an active cash management process, which, among other things, requires senior management approval of all outgoing payments. |
| ● | Since April 24, 2020, we have been prohibited from making dividend payments in accordance with the covenant suspension conditions in our Senior Secured Credit Agreement. We have also previously elected to decrease the dividends paid in the first quarter of 2020 by $0.17 per share when compared to the first quarter of 2019. The cash savings as a result of the prior decrease and current prohibition on making dividend payments was $38.3 million during the six months ended June 30, 2020 in comparison to the six months ended June 30, 2019. |
| ● | We are prohibited from making purchases under our recently authorized stock repurchase program in accordance with the covenant suspension conditions in our Senior Secured Credit Agreement. |
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed 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 our preliminary analysis of the CARES Act, we expect to recognize the following benefits:
| ● | Approximately $17.4 million of cash tax refunds from overpayments and refundable alternative minimum tax credits with the filing of our 2019 federal tax return, amending 2018 state tax returns and filing 2019 state tax returns in which the Company expects a refund. |
| ● | 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. |
We intend 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 we qualify domestically and internationally, including those described above. We cannot predict the manner in which such benefits will be allocated or administered, and we cannot assure you that we will be able to access such benefits in a timely manner or at all.
We believe our cash balance as of June 30, 2020, cash generated from operating activities, the proceeds from the issuance on July 31, 2020 of $300.0 million, prior to deducting discounts and cash premiums based on contract assumptions and estimates of $36 million, of new 10.5% Senior Secured Notes due 2026 (the “First Lien Notes due 2026) and the closing of the exchange offer on July 31, 2020 (the “Exchange Offers”) (which allowed us to extend maturities on approximately $1.7 billion of debt to 2026, most of which was maturing in 2024 and 2025 previously, with interest due for the coming 12 to 18 months on the exchanged senior subordinated notes expected to be paid all or in part on an in-kind basis pursuant to the terms of the 10%/12% Cash/PIK Toggle Second Lien Subordinated Secured Notes due 2026 (the “Second Lien Notes due 2026”), thereby generating a further near-term cash savings for us of between approximately $120 million to $180 million) may provide sufficient liquidity to fund operations and essential capital expenditures for the next 12 months. Further, as discussed in Note 6—Corporate Borrowings, our lenders have granted relief from the maintenance covenants in the revolving credit agreements and we believe we will maintain compliance with all financial debt covenants for the next 12 months. See Note 14—Subsequent Events in the Notes to the Condensed Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q for information regarding the
72
exchange offer and the incremental 10.5% First Lien Notes due 2026 in new funding.
Therefore, we believe we have the cash resources to reopen our theatres and resume operations this summer or later. Our liquidity needs thereafter will depend, among other things, on the timing of a full resumption of operations, the timing of movie releases and our ability to generate revenues.
While we have used our best estimates based on currently available information, we cannot assure the reader that our assumptions used to estimate our liquidity requirements will be correct—including but not limited to attendance, food and beverage revenues, rent relief, cost savings, and capital expenditures—because we have never previously experienced a complete cessation of our operations, and as a consequence, our ability to be predictive is uncertain. If we do not recommence operations within our estimated timeline, we will require additional capital and may also require additional financing if, for example, our 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 our ability to continue as a going concern for a reasonable period of time.
As of June 30, 2020, we were in compliance with all financial debt covenants.
Cash Flows from Operating Activities
Cash flows provided by (used in) operating activities, as reflected in the condensed consolidated statements of cash flows, were $(415.9) million and $153.6 million during the six months ended June 30, 2020 and June 30, 2019, respectively. The decrease in cash flows provided by operating activities was primarily due to decreased attendance levels and temporary suspension of operations at all of our theatres on or before March 17, 2020, which resulted in lower operating results during the six months ended June 30, 2020 and higher payments for accounts payable primarily due to timing.
Cash Flows from Investing Activities
Cash flows used in investing activities, as reflected in the condensed consolidated statements of cash flows, were $131.5 million and $221.3 million during the six months ended June 30, 2020 and June 30, 2019, respectively. Cash outflows from investing activities include capital expenditures of $126.7 million and $229.9 million during the six months ended June 30, 2020 and June 30, 2019, respectively. Our capital expenditures primarily consisted of strategic growth initiatives and remodels, capital improvements to existing locations in our theatre circuit, and technology upgrades. During the six months ended June 30, 2020, cash flows used in investing activities included an additional investment in SCC, a non-consolidated entity of $9.3 million and proceeds from the disposition of assets of $3.7 million primarily related to three properties. During the six months ended June 30, 2019, cash inflows from investing activities included the proceeds from the disposition of long-term assets of $21.3 million primarily from the sale of theatres located in Austria of $15.3 million and disposition of assets of $6.0 million, partially offset by cash outflows of $11.8 million for the acquisition of assets related to four theatres in the U.S. markets.
We fund the costs of constructing, maintaining and remodeling our theatres through existing cash balances, cash generated from operations, landlord contributions, or borrowed funds, as necessary. We generally lease our theatres pursuant to long-term non-cancelable operating leases which may require the developer, who owns the property, to reimburse us for the construction costs. We terminated or deferred all non-essential capital expenditures to minimum levels necessary while theatres are closed. We expect capital expenditures (net of landlord contributions) to be between $130 million and $160 million for calendar year 2020, which includes $101.8 million net spend during the six months ended June 30, 2020.
Cash Flows from Financing Activities
Cash flows provided by (used in) financing activities, as reflected in the condensed consolidated statements of cash flows, were $785.9 million and $(54.5) million during the six months ended June 30, 2020 and June 30, 2019, respectively. The increase in cash flows from financing activities during the six months ended June 30, 2020 compared to June 30, 2019 was primarily due to the borrowings under our First Lien Notes due 2025, revolving credit facilities and the reduction in cash dividends paid.
Borrowings under our First Lien Notes due 2025 and revolving credit facilities were $490.0 million and $322.8 million, respectively, during the six months ended June 30, 2020.
73
During the six months ended June 30, 2019, cash inflows from financing activities included the proceeds from the issuance of $1,990.0 million of Term Loan due 2026, offset by cash outflows for the repayment of the Term Loan due 2022 of $849.8 million, repayment of the Term Loan due 2023 of $488.7 million, repayments of the 6.0% Senior Secured Notes due 2023 of $230.0 million, and payment of the 5.875% Senior Subordinated Notes due 2023 of $375.0 million. Call premiums paid related to the repayment of the 6.0% Senior Secured Notes due 2023 and the 5.875% Senior Subordinated Notes due 2022 were $15.9 million and debt financing costs paid were $11.2 million.
The following is a summary of dividends and dividend equivalents declared to stockholders:
|
|
|
Amount per |
|
Total Amount |
|||||
Share of |
Declared |
|||||||||
Declaration Date |
|
Record Date |
|
Date Paid |
|
Common Stock |
|
(In millions) |
||
February 26, 2020 |
March 9, 2020 |
March 23, 2020 |
$ |
0.03 |
$ |
3.2 |
||||
October 24, 2019 |
December 2, 2019 |
December 16, 2019 |
0.20 |
21.0 |
||||||
August 2, 2019 |
September 9, 2019 |
September 23, 2019 |
0.20 |
21.3 |
||||||
May 3, 2019 |
June 10, 2019 |
June 24, 2019 |
0.20 |
21.3 |
||||||
February 15, 2019 |
March 11, 2019 |
March 25, 2019 |
0.20 |
21.3 |
||||||
During the six months ended June 30, 2020 and June 30, 2019, we paid dividends and dividend equivalents of $4.3 million and $42.6 million, respectively. As of June 30, 2020, we accrued $1.1 million for the remaining unpaid dividend equivalents. As of April 24, 2020, we are prohibited from making dividend payments in accordance with the covenant suspension conditions in our Senior Secured Credit Agreement.
Senior Secured Credit Facility Term Loan due 2026. On April 23, 2020, we entered into an amendment to the Senior Secured Credit Facility pursuant to which the requisite lenders thereunder granted a waiver of the maintenance covenant thereunder for the period from the and after the effective date of the Senior secured Credit Agreement Amendment to and including the earlier of (a) March 31, 2021 and (b) the day immediately preceding the last day of the Test Period (as defined in the Senior Secured Credit Facility).
Odeon Revolving Credit Facility. On April 24, 2020, we entered into an amendment to the Odeon Revolving Credit Facility, pursuant to which the requisite lenders thereunder granted a waiver of the maintenance covenant thereunder for the period from and after the effective date of the Odeon Amendment to and including the earlier of (a) March 31, 2021 and (b) the day immediately preceding the last day of the Relevant Period (as defined in the Odeon Amendment).
Convertible Notes due 2024. On April 24, 2020, we entered into a supplemental indenture (the “Supplemental Indenture”) to the Convertible Notes due 2024 indenture, dated as of September 14, 2018. The Supplemental Indenture amended the debt covenant under the Convertible Notes Indenture to permit us to issue the First Lien Notes due 2025, among other changes.
First Lien Notes due 2025. On April 24, 2020, we issued $500.0 million aggregate principal amount of our 10.5% first lien notes due 2025, with an original issue discount of $10.0 million. The First Lien Notes due 2025 bear interest at a rate of 10.5% per annum, payable semi-annually on April 15 and October 15 each year, commencing October 15, 2020 and are secured, on a pari passu basis with the Senior Secured Credit Facility. The First Lien Notes due 2025 will mature on April 15, 2025.
Senior Subordinated Debt Exchange Offers. On July 31, 2020, we closed our previously announced Exchange offers for any and all of our outstanding Existing Subordinated Notes in exchange for newly issued Second Lien Notes due 2026 and reduced the principal amounts of our debt by approximately $555 million, which represented approximately 24.1% of the principal amount of the Existing Subordinated Notes. We raised $300 million in additional cash from the issuance of First Lien Notes due 2026 prior to deducting discounts and cash premiums based on contract assumptions and estimates of $36 million. Additionally, certain backstop purchasers in the Offering of the First Lien Notes due 2026 that participated in the Exchange Offer received 5 million Class A common shares. The closing of the Exchange Offers also allowed us to extend maturities on approximately $1.7 billion of debt to 2026, most of which was maturing in 2024 and 2025 previously. Interest due for the coming 12 to 18 months on the Second Lien Notes due 2026 is expected to be paid all or in part on an in-kind basis, thereby generating a further near-term cash savings for us of between approximately $120 million and $180 million.
In connection with the Exchange Offers, we also received consents (the ”Consent Solicitations”) from eligible holders of the Existing Subordinated Notes to amend the indentures governing the Existing Subordinated Notes among
74
other things, (i) release the existing subsidiary guarantees of the Existing Subordinated Notes, (ii) eliminate substantially all of the restrictive covenants, certain affirmative covenants and certain events of default contained in the indentures governing the Existing Subordinated Notes, and (iii) makes other conforming changes to internally conform to certain proposed amendments.
Under ASC 840-470-60, Troubled Debt Restructurings by Debtors, we believe the exchange of approximately $2,017.5 million principal amount of our senior subordinated notes for approximately $1,462.3 million principal amount of second lien secured debt will represent a troubled debt restructuring (“TDR”) as we were experiencing financial difficulties and the lenders granted a concession. We do not expect the TDR will result in a gain recognition, a new effective interest rate will be established based on the carrying value of the senior subordinated notes and we expect new fees paid to third parties of approximately $29.7 million will be expensed. We are currently evaluating the impact on our consolidated financial statements.
See Note 6—Corporate Borrowings and Note 14—Subsequent Events in the Notes to the Condensed Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q for further information regarding the above.
Contractual Obligations, Commitments and Contingencies
We have commitments and contingencies for financing leases, corporate borrowings, operating leases, capital related betterments and pension funding that were summarized in a table in our Annual Report on Form 10–K for the year ended December 31, 2019. Except as set forth above with respect to borrowings under our revolving lines of credit and the issuance of the First Lien Notes due 2025, since December 31, 2019, there have been no material changes to the commitments and contingencies outside of the ordinary course of business. See Note 6—Corporate Borrowings in the Notes to the Condensed Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q for further information, including a table that provides the principal payments required and maturities of corporate borrowings as of June 30, 2020.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
In the ordinary course of business, our financial results are exposed to fluctuations in interest rates and foreign currency exchange rates. In accordance with applicable guidance, we presented a sensitivity analysis showing the potential impact to net income of changes in interest rates and foreign currency exchange rates. For the six months ended June 30, 2020 and June 30, 2019, our analysis utilized a hypothetical 100 basis-point increase or decrease to the average interest rate on our variable rate debt instruments to illustrate the potential impact to interest expense of changes in interest rates. For the six months ended June 30, 2020 and June 30, 2019, our analysis utilized a hypothetical 100 basis-point increase or decrease to market interest rates on our fixed rate debt instruments to illustrate the potential impact to fair value of changes in interest rates.
Similarly, for the same period, our analysis used a uniform and hypothetical 10% strengthening of the U.S. dollar versus the average exchange rates of applicable currencies to depict the potential impact to net income of changes in foreign exchange rates. These market risk instruments and the potential impacts to the condensed consolidated statements of operations are presented below.
Market risk on variable-rate financial instruments. At June 30, 2020 and June 30, 2019, we maintained a Senior Secured Credit Facility comprised of a $225.0 million revolving credit facility and $2,000.0 million of Term Loan due 2026. The Senior Secured Credit Facility provides for borrowings at a rate per annum equal to, at our option, either (i) an applicable margin plus a base rate determined by reference to the highest of (a) 0.50% per annum plus the Federal Funds Effective Rate, or (b) the prime rate of Citi or (ii) the LIBOR + 3.0%. The rate in effect for the outstanding Term Loan due 2026 was 4.08% per annum at June 30, 2020 and 5.23% per annum at June 30, 2019. Increases in market interest rates would cause interest expense to increase and earnings before income taxes to decrease. The change in interest expense and earnings before income taxes would be dependent upon the weighted average outstanding borrowings during the reporting period following an increase in market interest rates. At June 30, 2020, we had an aggregate principal balance of $213.2 million under our revolving credit facility, $108.8 million under the Odeon Revolver Credit Facility, and had an aggregate principal balance of $1,975.0 million outstanding under the Term Loan due 2026. A 100-basis point change in market interest rates would have increased or decreased interest expense on the Senior Secured Credit Facility and the Odeon Revolver Credit Facility by $11.5 million during the six months ended June 30, 2020. At June 30, 2019, we had no variable-rate borrowings outstanding under our revolving credit
75
facility and had an aggregate principal balance of $1,995.0 million outstanding under the Term Loan due 2026. A 100-basis point change in market interest rates would have increased or decreased interest expense on the Senior Secured Credit Facility by $9.8 million during the six months ended June 30, 2019.
Market risk on fixed-rate financial instruments. Included in long-term corporate borrowings at June 30 2020 were principal amounts of $500.0 million of our First Lien Notes due 2025, $600.0 million of our Convertible Notes due 2024, $600.0 million of our Notes due 2025, $595.0 million of our Notes due 2026, $475.0 million of our Notes due 2027, and £500.0 million ($614.4 million) of our Sterling Notes due 2024. A 100-basis point change in market interest rates would have caused an increase or (decrease) in the fair value of our fixed rate financial instruments of approximately $45.5 million and $(43.5) million, respectively, during the six months ended June 30, 2020.
Included in long-term corporate borrowings at June 30 2019 were principal amounts of $600.0 million of our Convertible Notes due 2024, $600.0 million of our Notes due 2025, $595.0 million of our Notes due 2026, $475.0 million of our Notes due 2027, and £500.0 million ($635.0 million) of our Sterling Notes due 2024. A 100-basis point change in market interest rates would have caused an increase or (decrease) in the fair value of our fixed rate financial instruments of approximately $138.6 million and $(130.2) million, respectively, during the six months ended June 30, 2019.
Foreign currency exchange rate risk. We are also exposed to market risk arising from changes in foreign currency exchange rates as a result of our ownership of Odeon and Nordic. Odeon’s revenues and operating expenses are transacted in British Pounds and Euros, and Nordic’s revenues and operating expenses are transacted primarily in Swedish Krona and Euros. U.S. GAAP requires that our subsidiaries use the currency of the primary economic environment in which they operate as their functional currency. If Odeon and Nordic operate in a highly inflationary economy, U.S. GAAP requires that the U.S. dollar be used as the functional currency for Odeon and Nordic. Currency fluctuations in the countries in which we operate result in us reporting exchange gains (losses) or foreign currency translation adjustments. Based upon our ownership in Odeon and Nordic as of June 30, 2020, holding everything else constant, a hypothetical 10% strengthening of the U.S. dollar versus the average exchange rates of applicable currencies to depict the potential impact to net income (loss) of changes in foreign exchange rates would decrease the aggregate net loss of our International theatres for the six months ended June 30, 2020 by approximately $85.8 million. Based upon our ownership in Odeon and Nordic as of June 30, 2019, holding everything else constant, a hypothetical 10% strengthening of the U.S. dollar versus the average exchange rates of applicable currencies to depict the potential impact to net income (loss) of changes in foreign exchange rates would decrease the aggregate net earnings of our International theatres for the six months ended June 30, 2019 by approximately $0.4 million.
Our foreign currency translation rates decreased by approximately 2.9% for the six months ended June 30, 2020 compared to the six months ended June 30, 2019, which did not significantly impact our consolidated net loss for the six months ended June 30, 2020.
Item 4. Controls and Procedures.
(a) |
Evaluation of disclosure controls and procedures. |
The Company maintains a set of disclosure controls and procedures designed to ensure that material information required to be disclosed in its filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that material information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s Chief Executive Officer and Chief Financial Officer have evaluated these disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10–Q and have determined that such disclosure controls and procedures were effective.
(b) |
Changes in internal control. |
The Company has not experienced any material impact to its internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) during the COVID-19 pandemic. Most of the Company’s employees worked remotely during the period in which we prepared these financial statements due to the impact of COVID-19. The Company enhanced its oversight and monitoring during the close and reporting process and assessed frequency of
76
controls to align with decreased or no volume of transactions occurring during the suspension of theatre operations. Other than enhancing Company’s oversight and monitoring processes, the Company did not alter or compromise its disclosure controls and procedures. The Company is continually monitoring and assessing the need to modify or enhance its disclosure controls to ensure disclosure controls and procedures continue to be effective.
77
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Note 11—Commitments and Contingencies of the Notes to the Company’s Condensed Consolidated Financial Statements contained in Part I of this quarterly report on Form 10–Q for information on certain litigation to which we are a party.
Item 1A. Risk Factors
Reference is made to Part I Item 1A. Risk Factors in our Annual Report on Form 10–K for the year ended December 31, 2019 and Part II Item 1A. Risk Factors in our Quarterly Report on Form 10-Q for the three months ended March 31, 2020, which sets forth information relating to important risks and uncertainties that could materially adversely affect our business, financial condition or operating results. There have been no material changes to the risk factors contained in our Quarterly Report on Form 10-Q for the three months ended June 30, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
| (a) | None. |
| (b) | None. |
| (c) | Issuer Purchases of Equity Securities |
Purchases of Equity Securities |
||||||||||
Approximate Dollar |
||||||||||
Total Number of |
Value of Shares that |
|||||||||
Shares Purchased as |
May Yet Be |
|||||||||
Part of Publicly |
Purchased Under the |
|||||||||
Total Number of |
Average Price Paid |
Announced Plans or |
Plans or Program (a) |
|||||||
Period |
|
Shares Purchased |
|
Per Share |
|
Programs (a) |
|
(in millions) |
||
February 27, 2020 through June 30, 2020 (1) |
— |
$ |
— |
— |
$ |
200.0 |
||||
Total |
— |
— |
||||||||
| (1) | As announced on February 27, 2020, our Board of Directors authorized a share repurchase program for an aggregate purchase of up to $200.0 million of our common stock. As of June 30, 2020, $200.0 million remained available for repurchase under this plan. Also, as of April 24, 2020, the Company is prohibited from making purchases under its recently authorized stock repurchase program in accordance with the covenant suspension conditions in its Senior Secured Credit Agreement. A three-year time limit had been set for the completion of this program, expiring February 26, 2023. |
Item 3. Defaults Upon Senior Securities
None.
Item 5. Other Information
None.
78
*10.8 |
||
*31.1 |
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Acts of 2002. |
|
*31.2 |
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Acts of 2002. |
|
*32.1 |
||
**101.INS |
Inline XBRL Instance Document |
|
**101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
|
**101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
**101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
**101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
**101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
**104 |
Cover Page Interactive Data File (formatted as inline XBRL and contained as Exhibit 101) |
* Filed herewith
** Submitted electronically with this Report.
81
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
AMC ENTERTAINMENT HOLDINGS, INC. |
|
Date: August 6, 2020 |
/s/ Adam M. Aron |
Adam M. Aron |
|
Chief Executive Officer, Director and President |
|
Date: August 6, 2020 |
/s/ Sean D. Goodman |
Sean D. Goodman |
|
Executive Vice President and Chief Financial Officer |
82