10-K: Annual report pursuant to Section 13 and 15(d)
Published on March 1, 2022
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One) |
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and emerging growth company in Rule 12b-2 of the Exchange Act.
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on June 30, 2021, computed by reference to the price at which the registrant’s Class A common stock was last sold on the New York Stock Exchange on such date was $
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DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant’s definitive proxy statement, in connection with its 2022 annual meeting of stockholders, to be filed within 120 days of December 31, 2021, are incorporated by reference into Part III of this Annual Report on Form 10-K.
AMC ENTERTAINMENT HOLDINGS, INC.
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2021
INDEX
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Forward-Looking Statements
In addition to historical information, this Annual Report on Form 10-K 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. 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. Examples of forward-looking statements include statements we make regarding the impact of COVID-19, future attendance levels and our liquidity. 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 risks and uncertainties relating to the sufficiency of our existing cash and cash equivalents and available borrowing capacity to comply with minimum liquidity and financial requirements under our debt covenants related to borrowings pursuant to the Senior Secured Revolving Credit Facility and Odeon Term Loan Facility, fund operations, and satisfy obligations including cash outflows for deferred rent and planned capital expenditures currently and through the next twelve months. In order to achieve net positive operating cash flows and long-term profitability, the Company will need to continue to increase attendance levels significantly compared to 2021. Domestic industry box office grosses increased significantly to approximately $2.1 billion during the fourth quarter of calendar 2021 and were over 72% of domestic box office grosses of $2.9 billion during the fourth quarter of calendar 2019. We believe that the sequential increases in attendance experienced each quarter as 2021 progressed are positive signs of continued demand for the movie going experience. The Company believes the anticipated volume of titles available for theatrical release and the anticipated broad appeal of many of those titles will support increased attendance levels. However, there remain significant risks that may negatively impact attendance levels, including a resurgence of COVID-19 related restrictions, potential movie-goer reluctance to attend theatres due to concerns about the COVID-19 variant strains, movie studios release schedules and direct to streaming or other changing movie studio practices. If we are unable to achieve significantly increased levels of attendance and operating revenues, we may be required to obtain additional liquidity. If such additional liquidity were not realized or insufficient, we likely would seek an in-court or out-of-court restructuring of our liabilities, and in the event of such future liquidation or bankruptcy proceeding, holders of our Class A common stock (“Common Stock” or “Common Shares”) and other securities would likely suffer a total loss of their investment; |
| ● | the impact of the COVID-19 variant strains on us, the motion picture exhibition industry, and the economy in general, including our response to the COVID-19 variant strains 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; |
| ● | risks and uncertainties relating to our significant indebtedness, including our borrowings and our ability to meet our financial maintenance and other covenants; |
| ● | shrinking exclusive theatrical release windows or release of movies to theatrical exhibition and streaming platforms on the same date; |
| ● | increased use of alternative film delivery methods including premium video on demand or other forms of entertainment; |
| ● | intense competition in the geographic areas in which we operate among exhibitors or from other forms of entertainment; |
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| ● | certain covenants in the agreements that govern our indebtedness may limit our ability to take advantage of certain business opportunities and limit or restrict our ability to pay dividends, pre-pay debt, and also to refinance debt and to do so at favorable terms; |
| ● | 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; |
| ● | general and international economic, political, regulatory, social and financial market conditions, inflation, and other risks; |
| ● | limitations on the availability of capital or poor financial results may prevent us from deploying strategic initiatives; |
| ● | an issuance of preferred stock could dilute the voting power of the common stockholders and adversely affect the market value of our Common Stock; |
| ● | limitations on the authorized number of common stock shares prevents us from raising additional capital through common stock issuances; |
| ● | our ability to achieve expected synergies, benefits and performance from our strategic initiatives; |
| ● | our ability to refinance our indebtedness on terms favorable to us or at all; |
| ● | our ability to optimize our theatre circuit through new construction, the transformation of our existing theatres, and strategically closing underperforming theatres may be subject to delay and unanticipated costs; |
| ● | AMC Stubs® A-List may not meet anticipated revenue projections, which could result in a negative impact upon operating results; |
| ● | 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, net operating loss carryforwards, and other tax attributes 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 the ongoing 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; |
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| ● | increased costs in order to comply or resulting from a failure to comply with governmental regulation, including the General Data Protection Regulation (“GDPR”), the California Consumer Privacy Act (“CCPA”) and pending future domestic privacy laws and regulations; |
| ● | supply chain disruptions may negatively impact our operating results; |
| ● | the dilution caused by recent and potential future sales of our Common Stock could adversely affect the market price of the Common Stock; |
| ● | the market price and trading volume of our shares of Common Stock has been and may continue to be volatile, and purchasers of our securities could incur substantial losses; |
| ● | future offerings of debt, which would be senior to our Common Stock for purposes of distributions or upon liquidation, could adversely affect the market price of our Common Stock; |
| ● | 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; |
| ● | anti-takeover protections in our amended and restated certificate of incorporation and our amended and restated bylaws may discourage or prevent a takeover of our Company, even if an acquisition would be beneficial to our stockholders; 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.
Except as required by law, we assume no obligation to publicly update or revise these forward-looking statements for any reason. Actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
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” and Item 1. “Business” in this Annual Report on Form 10-K.
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PART I
Item 1. Business.
General Development of Business
AMC Entertainment Holdings, Inc. (“Holdings”), through its direct and indirect subsidiaries, including American Multi-Cinema, Inc. and its subsidiaries, (collectively with Holdings, unless the context otherwise requires, the “Company” or “AMC”), is principally involved in the theatrical exhibition business and owns, operates or has interests in theatres primarily located in the United States and Europe.
Our business was founded in Kansas City, Missouri in 1920. Holdings was incorporated under the laws of the state of Delaware on June 6, 2007. We maintain our principal executive offices at One AMC Way, 11500 Ash Street, Leawood, Kansas 66211.
COVID-19 Impact, Company Response and Change in Business Strategy
In March 2020, the World Health Organization declared the novel coronavirus (“COVID-19”) to be a pandemic. The COVID-19 pandemic has disrupted and could continue to materially affect our operating results, cash flows and/or financial condition for an extended period of time.
On 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. We resumed limited operations in the International markets in early June 2020 and limited operations in the U.S. markets in late August 2020. A COVID-19 resurgence during the fourth quarter of 2020 resulted in additional local, state, and federal governmental restrictions and many previously reopened theatres in International markets temporarily suspended operations again. The U.S. local, state, and federal governmental restrictions and temporary International market operation suspensions remained in place for much of the first quarter of 2021, but the limited seat restrictions were substantially removed and the International market operations restored by the end of the second quarter of 2021.
The North American and International industry box offices have also been significantly impacted by the COVID-19 pandemic, and in response to the suspension of theatre operations by AMC and other theatre exhibitors and the COVID-19 related suspension of new movie production, studios have postponed new film releases beyond 2021 or moved them to the home video market, streaming, or premium video on demand (“PVOD”) platforms.
As a result of the suspended operations and limited new film content in 2020, our revenues and expenses for the year ended December 31, 2021 were higher than the revenues and expenses for the year ended December 31, 2020, but continued U.S. governmental restrictions, International market operation suspensions and limited new film content in 2021 resulted in significantly lower revenues and expenses for the year ended December 31, 2021 compared to the year ended December 31, 2019, prior to the COVID-19 pandemic.
The COVID-19 vaccines became widely available during 2021 and the number of previously delayed major movie title releases increased significantly in the second half of 2021, which had a material positive impact on our industry. However, the COVID-19 Delta variant generated a new surge in cases in the third quarter of 2021 and the COVID-19 Omicron variant has been generating infections since late November 2021. Overall for 2021, the industry box office remained considerably lower than the 2019 pre COVID-19 levels. A more robust slate of major movie releases is expected during 2022, which has generated optimism that movie theatre attendance levels will continue to improve gradually as we experienced in 2021. However, box office performance in 2022 could be impacted by the ongoing impact of COVID-19 which could lead to a return to social distancing restrictions or theatre operation suspensions, which together with direct or simultaneous release of movie titles to the home video or streaming markets in lieu of theatre exhibition, could have a material adverse impact on theatre attendance levels and our business.
| ● | As of February 24, 2022, we were operating all of our 587 U.S. theatres. Some of our major markets in the U.S., such as Chicago, New York City, Los Angeles, San Francisco, and Seattle require proof of vaccination for guests to be able to attend. At the beginning of March 2022, we expect the proof of vaccination requirement will expire in Chicago and Seattle. During the fourth quarter of 2021, we experienced an overall attendance increase in the U.S. of approximately 35,544,000, or 737.4%, compared |
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| to the same period a year ago, and a decline of approximately 21,955,000, or 35.2%, compared to the fourth quarter of 2019. |
| ● | As of February 24, 2022, we were operating all of our 351 International theatres, with certain countries having limited seating capacities during limited opening hours. Spain, Italy, and Germany require proof of vaccination, or in certain locations a negative test is required, for guests to be able to attend. During the fourth quarter of 2021, we experienced an overall attendance increase in our International theatres of approximately 16,046,000, or 490.4%, compared to the same period a year ago, and a decline of approximately 10,926,000, or 36.1%, compared to the fourth quarter of 2019. |
As of December 31, 2021, we had cash and cash equivalents of approximately $1.6 billion. In response to the COVID-19 pandemic, we adjusted certain elements of our business strategy and took significant steps to preserve cash. We are continuing to take significant measures to further strengthen our financial position and enhance our operations, by eliminating non-essential costs, including reductions to our variable costs and elements of our fixed cost structure, introducing new initiatives, and optimizing our theatrical footprint.
Additionally, we enhanced liquidity through debt issuances, debt exchanges and equity sales. See Note 8—Corporate Borrowings and Finance Lease Obligations, Note 9—Stockholders’ Equity, and Note 16—Subsequent Events in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof, for further information.
We believe our existing cash and cash equivalents, together with cash generated from operations, will be sufficient to fund our operations, satisfy our obligations, including cash outflows for increased rent and planned capital expenditures, and comply with minimum liquidity and financial covenant requirements under our debt covenants related to borrowings pursuant to the Senior Secured Revolving Credit Facility and Odeon Term Loan Facility for at least the next twelve months. In order to achieve net positive operating cash flows and long-term profitability, we believe we will need to continue to increase attendance levels significantly compared to 2021 and achieve levels in line with pre COVID-19 attendance. We believe the global re-opening of our theatres, the anticipated volume of titles available for theatrical release, and the anticipated broad appeal of many of those titles will result in increased attendance levels. We believe that the sequential increases in attendance experienced each quarter as 2021 progressed are positive signs of continued demand for the movie going experience. However, there remain significant risks that may negatively impact attendance, including a resurgence of COVID-19 related restrictions, potential movie-goer reluctance to attend theatres due to concerns about COVID-19 variant strains, movie studios release schedules and direct to streaming or other changing movie studio practices.
We entered the Ninth Amendment (as defined in Note 8—Corporate Borrowings and Finance Lease Obligations in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof) pursuant to which the requisite revolving lenders party thereto agreed to extend the fixed date for the termination of the suspension period for the financial covenant (the secured leverage ratio) applicable to the Senior Secured Revolving Credit Facility (as defined in Note 8—Corporate Borrowings and Finance Lease Obligations in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof) from March 31, 2021 to March 31, 2022, which was further extended by the Eleventh Amendment (as defined in Note 8—Corporate Borrowings and Finance Lease Obligations in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof) from March 31, 2022 to March 31, 2023, as described, and on the terms and conditions specified, therein. We are currently subject to minimum liquidity requirements of approximately $144 million, of which $100 million is required under the conditions for the Extended Covenant Suspension Period ending March 31, 2023, as amended, under the Senior Secured Revolving Credit Facility, and £32.5 million (approximately $44 million) of which is required under the Odeon Term Loan Facility. Following the expiration of the Extended Covenant Suspension Period ending March 31, 2023, the Company will be subject to the financial covenant under the Senior Secured Revolving Credit Facility as of the last day of each quarter on which the aggregate principal amount of revolving loans, and letters of credit (excluding letters of credit that are cash collateralized) in excess of $25 million, outstanding under the Senior Secured Revolving Credit Facility exceeds 35% of the principal amount of commitments under the Senior Secured Revolving Credit Facility then in effect, beginning with the quarter ending June 30, 2023. We currently expect we will be able to comply with this financial covenant, however, we do not anticipate the need to borrow under the Senior Secured Revolving Credit Facility during the next twelve months. See Note 8—Corporate Borrowings and Finance Lease Obligations in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof, for further information. Our liquidity needs thereafter will depend, among other things, on the timing of movie releases and our ability to generate cash from operations.
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Our cash expenditures for rent increased significantly in the second, third, and fourth quarters of 2021 as previously deferred rent payments and landlord concessions started to become current obligations. We received rent concessions provided by the lessors that aided in mitigating the economic effects of COVID-19 during the pandemic. These concessions primarily consisted of rent abatements and the deferral of rent payments. As a result, deferred lease amounts were approximately $315.1 million as of December 31, 2021. See Note 3—Leases in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof, for a summary of the estimated future repayment terms for the deferred lease amounts due to COVID-19.
It is very difficult to estimate our liquidity requirements, future cash burn rates and future attendance levels. Depending on our assumptions regarding the timing and ability to achieve significantly increased levels of operating revenue, the estimates of amounts of required liquidity vary significantly. Similarly, it is very difficult to predict when theatre attendance levels will return to pre COVID-19 levels, which we expect will depend on the continued widespread availability and use of effective vaccines for the coronavirus, and eventual abatement of more virulent strains of the virus, related government mandates on social distancing and mask use, and the supply of movie titles for theatrical exhibition. While our current cash burn rates have improved, these levels are not sustainable. Further, we cannot accurately predict what future changes may occur to the supply or release date of movie titles available for theatrical exhibition once moviegoers are prepared to return in large numbers. Nor can we know with certainty the impact on consumer movie-going behavior of studios who release movies to theatrical exhibition and their streaming platforms on the same date (“day and date”), or the potential attendance impact of other studio decisions to accelerate in-home availability of their theatrical movies. Studio negotiations regarding evolving theatrical release models and film licensing terms are ongoing. There can be no assurance that the attendance levels and other assumptions used to estimate our liquidity requirements and future cash burn rates will be correct, and our ability to be predictive is uncertain due to the unknown magnitude and duration of the COVID-19 pandemic. Further, there can be no assurances that we will be successful in generating the additional liquidity necessary to meet our obligations beyond twelve months from the issuance of these financial statements on terms acceptable to us or at all. If we are unable to maintain or renegotiate our minimum liquidity covenant requirements, it could have a significant adverse effect on our business, financial condition and operating results.
Please see “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations of Part II thereof for additional information.
We realized $1.2 billion of cancellation of debt income (“CODI”) in connection with our 2020 debt restructuring. As a result, $1.2 billion of our federal net operating losses were eliminated due to tax attribute reduction to offset the CODI. The loss of these attributes may adversely affect our cash flows and therefore our ability to service our indebtedness.
Narrative Description of Business
We are the world’s largest theatrical exhibition company and an industry leader in innovation and operational excellence. Over the course of our 100+ year history, we have pioneered many of the theatrical exhibition industry’s most important innovations. We introduced Multiplex theatres in the 1960s and the North American stadium-seated Megaplex theatre format in the 1990s. Most recently, we continued to innovate and evolve the movie-going experience with the deployment of our theatre renovations featuring plush, powered recliner seating and the launch of our U.S. subscription loyalty tier, AMC Stubs® A-List. Our growth has been driven by a combination of organic growth through reinvestment in our existing assets and through the acquisition of some of the most significant companies in the theatrical exhibition industry.
Our business is operated in two Theatrical Exhibition reportable segments, U.S. markets and International markets. Prior to 2016, we primarily operated in the United States. Our international operations are largely a result of our acquisition of Odeon and UCI Cinemas Holdings Limited (“Odeon”) in November of 2016 and Nordic Cinema Group Holding AB (“Nordic”) in March of 2017.
Today, AMC is the largest theatre operator in the world. As of December 31, 2021, we owned, leased or operated 946 theatres and 10,562 screens in 12 countries, including 593 theatres with a total of 7,755 screens in the United States and 353 theatres and 2,807 screens in European markets and Saudi Arabia. During the year ended December 31, 2020, we sold 100% of our theatre operations in Latvia and divested of 49% of our interest in Lithuania and Estonia operations. During the year ended December 31, 2021, we sold the remaining 51% equity interest in Estonia and Lithuania. As of December 31, 2021, we were the market leader in the United States and Europe including in Italy,
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Spain, Sweden, Norway, and Finland; and a leading theatre operator in the United Kingdom, Ireland, Portugal and Germany. We have operations in four of the world’s 10 largest economies, including four of the six largest European economies (the United Kingdom, Spain, Italy and Germany) as of December 31, 2021.
As of December 31, 2021, in the U.S. markets, we owned, leased or operated theatres in 43 states and the District of Columbia, with approximately 49% of the U.S. population living within 10 miles of one of our theatres. We have a diversified footprint with complementary global geographic and guest demographic profiles, which we believe gives our circuit a unique profile and offers us strategic and operational advantages while providing our studio partners with a large and diverse distribution channel. As of December 31, 2021, we operated some of the most productive theatres in the top markets in the United States and were the market leader in the top two markets: New York and Los Angeles. As of December 31, 2021, our top five markets, in each of which we held the #1 share position, are Los Angeles, New York, Chicago, Atlanta and Philadelphia, according to data provided by Comscore.
As of December 31, 2021, in the International markets, we owned, leased or operated theatres in 10 European countries and in Saudi Arabia through Saudi Cinema Company, LLC, our joint venture with Saudi Entertainment Ventures. In all of these 11 countries, we operate productive assets in each of the country’s capitals. As of December 31, 2021, about a third of our international recliner renovations occurred in London, Berlin and Madrid; three of the largest Western European Capitals. Due to the population density in Europe as of December 31, 2019, prior to the effects of COVID-19 pandemic, each screen served on average twice the population of a U.S. screen in a less populated market.
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The following table provides detail with respect to the geographic location of our theatrical exhibition circuit as of December 31, 2021:
U.S. Markets |
|
Theatres(1) |
|
Screens(1) |
|
Alabama |
|
18 |
|
237 |
|
Arizona |
|
12 |
|
197 |
|
Arkansas |
|
4 |
|
45 |
|
California |
|
58 |
|
780 |
|
Colorado |
|
14 |
|
193 |
|
Connecticut |
|
5 |
|
68 |
|
Delaware |
|
1 |
14 |
||
Florida |
|
40 |
|
622 |
|
Georgia |
|
31 |
|
394 |
|
Idaho |
1 |
11 |
|||
Illinois |
|
47 |
|
564 |
|
Indiana |
|
24 |
|
321 |
|
Iowa |
|
6 |
|
80 |
|
Kansas |
|
9 |
|
132 |
|
Kentucky |
|
3 |
|
48 |
|
Louisiana |
|
6 |
|
89 |
|
Maryland |
|
13 |
|
144 |
|
Massachusetts |
|
10 |
|
142 |
|
Michigan |
|
12 |
|
193 |
|
Minnesota |
|
9 |
|
132 |
|
Missouri |
|
11 |
|
132 |
|
Montana |
5 |
55 |
|||
Nebraska |
|
2 |
|
21 |
|
Nevada |
|
2 |
|
28 |
|
New Hampshire |
1 |
10 |
|||
New Jersey |
|
26 |
|
332 |
|
New Mexico |
1 |
12 |
|||
New York |
|
29 |
|
311 |
|
North Carolina |
|
23 |
|
301 |
|
North Dakota |
2 |
19 |
|||
Ohio |
|
14 |
|
176 |
|
Oklahoma |
|
13 |
153 |
||
Oregon |
2 |
25 |
|||
Pennsylvania |
|
27 |
|
308 |
|
South Carolina |
|
5 |
|
52 |
|
South Dakota |
1 |
10 |
|||
Tennessee |
21 |
253 |
|||
Texas |
|
44 |
|
643 |
|
Utah |
|
3 |
|
29 |
|
Virginia |
|
13 |
|
173 |
|
Washington |
|
15 |
|
181 |
|
West Virginia |
2 |
20 |
|||
Wisconsin |
|
7 |
|
91 |
|
District of Columbia |
1 |
|
14 |
||
Total U.S. Markets |
593 |
7,755 |
|||
International Markets |
|||||
Denmark |
2 |
10 |
|||
Finland |
27 |
159 |
|||
Germany |
22 |
197 |
|||
Ireland |
11 |
77 |
|||
Italy |
41 |
412 |
|||
Norway |
13 |
94 |
|||
Portugal |
3 |
45 |
|||
Saudi Arabia |
10 |
66 |
|||
Spain |
40 |
463 |
|||
Sweden |
72 |
390 |
|||
United Kingdom |
112 |
894 |
|||
Total International Markets |
353 |
2,807 |
|||
Total |
|
946 |
|
10,562 |
| (1) | Included in the above table are 74 theatres and 392 screens that we manage or in which we have a partial ownership interest. In the U.S. markets segment, we manage or have a partial interest in seven theatres and 85 screens. In the International markets segment, we manage or have a partial interest in 67 theatres and 307 screens. |
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Our theatrical exhibition revenues are generated primarily from box office admissions and theatre food and beverage sales. We offer consumers a broad range of entertainment alternatives including traditional film programming, private theatre rentals, independent and foreign films, performing arts, music and sports. We also offer food and beverage alternatives beyond traditional concession items, including made-to-order meals, customized coffee, healthy snacks, beer, wine, premium cocktails, and dine-in theatre options. The balance of our revenues are generated from ancillary sources, including on-screen advertising, fees earned from our customer loyalty program, rental of theatre auditoriums, income from gift card and exchange ticket sales, and online ticketing fees.
Our Strategy
We are committed to maintaining a leadership position in the exhibition industry by focusing on forward-thinking initiatives for the benefit of our guests. We do this through a combination of unique marketing outreach, seamless digital technology and innovative theatre amenities designed to 1) transform AMC into a world-class leader in customer engagement, 2) deliver the best in-person experience while at AMC theatres, 3) selectively adjust our footprint through expansion in certain markets and strategic closure of underperforming theatres, 4) pursue adjacent opportunities that extend the AMC brand, and 5) explore attractive acquisitions leveraging our existing capabilities and core competencies. Consistent with our history and culture of innovation, we believe our vision and relentless focus on these key elements, which apply strategic and marketing components to traditional theatrical exhibition, will drive our future success.
As discussed above, the COVID-19 pandemic has had a significant impact on our business. We have taken and continue to take steps to adapt our business strategy in the short-term in response to the COVID-19 pandemic, including adjusting our theatre operating hours in those markets where we are open to align screen availability and associated theatre operating costs with attendance levels for each theatre and implementing a comprehensive set of cleaning and operational protocols across our theatres, which are further discussed below. We have also taken and continue to take significant steps to preserve cash by eliminating non-essential costs. Our capital allocation strategy will be driven by the cash generation of our business and will be contingent on maintaining adequate liquidity as well as a required return threshold.
In the U.S. markets, in response to the COVID-19 pandemic and under advisement of current & former faculty of Harvard University’s School of Public Health as well as the Clorox Company, we developed a comprehensive set of cleaning and operational protocols branded “AMC Safe and Clean” which have been implemented at every one of our U.S. theatres. AMC Safe & Clean protocols include enhanced cleaning procedures that include extra time between showtimes to allow for a full, thorough cleaning and nightly disinfecting, use of high-tech high-efficiency particulate air vacuums, upgraded air filtration efforts including the use of minimum efficiency reporting value-13 filters wherever possible, hand sanitizing stations throughout the theatre and the availability to guests of disinfectant wipes. In the International markets, in response to the COVID-19 pandemic, we developed a comprehensive set of cleaning and operational protocols branded “We Are Safer Cinema” which have been implemented across our European theatres. Protocols include enhanced cleaning procedures and hand sanitizing stations throughout the theatre. We strictly follow local guidelines in regard to guest and staff masking and vaccination policies.
| 1) | Transform AMC into a World-Class Leader in Customer Engagement |
AMC engages movie-goers through advances in technology and marketing activities to strengthen the bonds with our current guests and create new connections with potential customers that drive both growth and loyalty. AMC serves our guests, end-to-end, from before they enter our theatres, through their enjoyment of a comprehensive spectrum of film content while at our theatres and then again after the movie when they’ve left the theatre and are deciding what film to see the next time they visit.
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 paid tier called AMC Stubs Premiere™ for a flat annual membership fee and a non-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.
AMC Stubs® A-List is our monthly subscription-based tier of our 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 from $19.95 and $23.95 per month depending upon the geographic market. AMC Stubs®
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A-List also includes premium offerings including IMAX®, Dolby Cinema™ at AMC, RealD, Prime and other proprietary PLF brands. AMC Stubs® A-List members can book tickets online in advance and select specific seats at AMC Theatres with reserved seating. Upon the temporary suspension of theatre operations due to the COVID-19 pandemic, all monthly A-List subscription charges were put on hold. As we reopened theatres, A-List members had the option to reactivate their subscription, which restarted the monthly charge for the program.
As of December 31, 2021, we had more than 25,300,000 member households enrolled in AMC Stubs® A-List, AMC Stubs Premiere™ and AMC Stubs Insider™ programs on a combined basis. Our AMC Stubs® members represented approximately 40% of AMC’s U.S. market attendance during the year ended December 31, 2021. Our large database of identified movie-goers also provides us with additional insight into our customers’ movie preferences. This enables us to have a larger, more personalized and targeted marketing effort.
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. We currently have more than 12,800,000 members in our various International loyalty programs. We continue to evaluate 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.
Our marketing efforts are not limited to our loyalty program. We continue to improve our customer connections through our website and mobile apps and expand our online and movie offerings. We upgraded our mobile applications across the U.S. circuit with the ability to order food and beverage offerings via our mobile applications while ordering tickets ahead of scheduled showtimes. Our mobile applications also include AMC Theatres On Demand, a service for members of the AMC Stubs® loyalty program that allows them to rent or buy movies.
In response to the COVID-19 pandemic, AMC’s robust online and mobile platforms in our U.S. markets offer customers the safety and convenience of enhanced social distancing by allowing them to purchase tickets and concession items online, avoid the ticket line, and limit other high-touch interactions with AMC employees and other guests. Online and mobile platforms are also available in our International markets.
In June 2021, the Company launched AMC Investor Connect (“AIC”), an innovative new communication initiative to engage directly with its sizable retail shareholder base and convert shareholders into AMC consumers. AIC allows AMC shareholders to self-identify through the AMC website and receive AMC special offers and important Company updates. As part of AIC, members must sign up for an AMC Stubs account and provide additional personalized data that allows AMC to more precisely engage with our investor consumers. As of February 24, 2022, there were 613,807 global self-identified AMC shareholder members of AIC, which is comprised of both registered and beneficial shareholders.
During September 2021, we launched a multi-media global advertising campaign to engage customers and raise awareness about movie theatres’ unique experiences and how important theatrical exhibition is to the cultural fabric of society the world over. The multi-media campaign is anchored by a television commercial starring Oscar Winner Nicole Kidman, was directed by two-time Academy Award nominee Jeff Cronenweth and Tim Cronenweth, and was written by Academy Award screenwriter nominee Billy Ray. The campaign reinforces the communal and multi-sensory experience that can only be found in a movie theatre and introduces our new axiom: “AMC Theatres. We Make Movies Better.” This messaging will also be used in nine European countries by Odeon Cinema Group.
During the fourth quarter of 2021, we partnered with Sony Pictures to become the first theatrical exhibition company to offer AMC Stubs members a limited number of exclusive Spider-Man: No Way Home non-fungible tokens (“NFTs”) based on a ticket purchase and redemption of a Spider-Man ticket on the opening night of the film. Some 86,000 exclusive and limited edition NFTs offer guests a tradeable collectible commemorating the most successful film of 2021. This NFT is tradeable and in the future will offer discounts or other benefits to the then-current holders to generate future attendance. We will continue to implement innovative NFT offers to further engage and build loyalty with our guests.
11
| 2) | Deliver the best in-person experience while at AMC theatres |
In conjunction with our advances in technology and marketing initiatives, and consistent with our long-term growth strategy, we plan to continue investing in our theatres and enhancing the consumer experience to deliver the best in-person experience and take greater advantage of incremental revenue-generating opportunities, primarily through comfort and convenience innovations, imaginative food and beverage initiatives, and exciting premium large format (“PLF”) offerings. Our ability to implement our growth strategy, however, remains highly uncertain, as the full impact and duration of the COVID-19 pandemic continues to evolve as of the date of this Annual Report on Form 10-K.
Comfort and Convenience Innovations. Recliner seating is the key feature of our theatre renovations. We believe that maximizing comfort and convenience for our customers will be increasingly necessary to maintain and improve our relevance. These renovations, in conjunction with capital contributions from our landlords, involve stripping theatres to their basic structure in order to replace finishes throughout, upgrading the sight and sound experience, installing modernized points of sale and, most importantly, replacing 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 December 31, 2019, prior to the COVID-19 pandemic, the quality improvement in the customer experience could drive a 33% increase in attendance, on average, at these locations in their first-year post renovation. These increases will only continue post-COVID-19 pandemic if attendance returns to normalized pre COVID-19 levels. Upon reopening a remodeled theatre, we typically increase the ticket price to reflect the enhanced consumer experience.
As of December 31, 2021, in our U.S. markets, we featured recliner seating in approximately 351 U.S. theatres, including Dine-in-Theatres, totaling approximately 3,395 screens and representing 43.8% of total U.S. screens. In our International markets, as of December 31, 2021, we had recliner seating in approximately 89 International theatres, totaling approximately 572 screens and representing 20.4% of total International screens.
Open-source internet ticketing makes AMC’s entire universe of seats in the U.S. (approximately 1.1 million as of December 31, 2021), for all our show times, as available as possible, on as many websites and mobile applications as possible. Our tickets are currently on sale either directly or through mobile apps, at our own website and our mobile apps and other third-party ticketing vendors. For the year ended December 31, 2021, approximately 67% of our tickets were purchased online in the U.S., with approximately 80% of total online tickets being purchased through AMC.
Traditional payment sources are evolving rapidly around the globe as the use of cryptocurrencies become more popular and convenient. In response, during the fourth quarter of 2021, we introduced the ability for consumers to pay for tickets, food and beverage items and associated gifts cards with cryptocurrencies in the U.S. markets, including Bitcoin, Ethereum, Litecoin and Bitcoin Cash. The acceptance of cryptocurrency is designed to offer guests greater flexibility and convenience, which we believe will increase attendance.
Imaginative Food and Beverage Initiatives. Our deployment initiatives also apply to food and beverage enhancements. We have expanded our menu of enhanced food and beverage products to include meals, healthy snacks, premium beers, wine and mixed drinks, and other gourmet products. Our long-term growth strategy calls for investment across a spectrum of enhanced food and beverage formats, ranging from simple, less capital-intensive food and beverage design improvements to the development of new dine-in theatre options. As a result of the COVID-19 pandemic, we have temporarily modified our food and beverage operations to include more simplified concession menus, cashless transactions technology, hand sanitizer and disinfecting wipes, and condiment and drink refills available by request, all in an effort to reduce the number of touchpoints between guests and employees. We have also upgraded our Coca-Cola Freestyle beverage machines to include a mobile app allowing guests to dispense drinks without the need to utilize the machine’s touch screen and we have expanded the capabilities of our online and mobile apps to include the ability to pre-order food and beverages when advanced tickets are purchased. Guests are able to order food and beverage items when buying tickets in advance and have the items ready upon arrival and available at dedicated pick-up areas or delivered to seat at select theatres.
Our MacGuffins Bar and Lounges (“MacGuffins”) give us an opportunity to engage our legal age customers. As of December 31, 2021, we offer alcohol in approximately 349 AMC theatres in the U.S. markets and 243 theatres in our International markets and continue to explore expansion globally.
Exciting Premium Large Format Offerings. PLF auditoriums generate our highest customer satisfaction scores, and we believe the investment in premium formats increases the value of the movie-going experience for our guests, ultimately leading to additional ticket revenue. To that end, we are committed to investing in and expanding our
12
offerings of the best sight and sound experiences through a combination of our partnerships with IMAX® and Dolby Cinema™ and the further development of our own proprietary PLF offering, AMC Prime.
| ● | IMAX®. IMAX® is one of the world’s leading entertainment technology companies, specializing in motion picture technologies and presentations. |
As of December 31, 2021, AMC was the largest IMAX® exhibitor in the U.S., with 186 (3D enabled) IMAX® screens and a 57% market share. Each one of our IMAX® local installations is protected by geographic exclusivity, and as of December 31, 2021, our IMAX® screen count was 96% greater than our closest competitor. We also operate 35 IMAX® screens in Europe. As part of our long-term growth strategy, we expect to continue to expand our IMAX® relationship across the U.S. and Europe, further strengthening our position as the largest IMAX® exhibitor in the U.S. and a leading IMAX® exhibitor in the United Kingdom and Europe.
| ● | Dolby Cinema™. Dolby Cinema™ offers a premium cinema offering for movie-goers that combines state-of-the-art image and sound technologies with inspired theatre design and comfort. Dolby Cinema™ at AMC includes Dolby Vision™ laser projection and object-oriented Dolby Atmos® audio technology, as well as AMC’s plush power reclining seats with seat transducers that vibrate with the action on screen. |
As of December 31, 2021, we operated 154 Dolby Cinema™ at AMC auditoriums in the U.S. In December 2018, we introduced the first United Kingdom Dolby Cinema Auditorium in our iconic Leicester Square theatre in the heart of London, ending 2021 with eight Dolby Cinema™ Auditoriums in the International markets. We expect to expand the deployment of our innovative Dolby Cinema™ auditoriums in both our U.S. and International markets as part of our long-term growth strategy.
| ● | In-house PLF Brands. We also offer our private label PLF experience at many of our locations, with superior sight and sound technology and enhanced seating as contrasted with our traditional auditoriums. These proprietary PLF auditoriums offer an enhanced theatrical experience for movie-goers beyond our current core theatres, at a lower price premium than IMAX® or Dolby Cinema™. Therefore, it may be especially relevant in smaller or more price-sensitive markets. As of December 31, 2021, we operated 56 screens under proprietary PLF brand names in the U.S. markets and 77 screens in the International markets. |
The following table provides detail with respect to digital delivery, 3D enabled projection, large screen formats, such as IMAX® and our proprietary Dolby Cinema™, other PLF screens, enhanced food and beverage offerings and our premium seating as deployed throughout our circuit on December 31, 2021:
U.S. Markets |
International Markets |
|||||||
Format |
|
Theatres |
|
Screens |
|
Theatres |
|
Screens |
IMAX® |
|
185 |
|
186 |
38 |
|
38 |
|
Dolby Cinema™ |
|
154 |
|
154 |
8 |
|
8 |
|
Other PLF |
|
56 |
|
56 |
76 |
|
77 |
|
Dine-in theatres |
|
51 |
|
729 |
3 |
|
13 |
|
Premium seating |
|
351 |
|
3,395 |
89 |
|
572 |
|
| 3) | Expand and Strategically Close Underperforming Theatres |
Our long-term growth strategy includes the deployment of our strategic growth initiatives, opening new-build theatres and continued exploration of small acquisitions. By expanding our platform through disciplined new-build theatres and acquisitions, we are able to further deploy our proven strategic initiatives while further diversifying our consumer base, leading to greater appeal for more films. The additional scale achieved through new-build theatres and acquisitions also serves to benefit AMC through global procurement savings and increased overhead efficiencies. We believe that expansion offers us additional opportunities to introduce our proven guest-focused strategies to movie-goers and will generate meaningful benefits to guests, employees, studio partners and our shareholders. During the year ended December 31, 2021, we acquired 11 theatres with 140 screens, reopened one theatre with eight screens and built and opened 10 new theatres with 82 screens to implement our strategy to install consumer experience upgrades.
Our long-term strategy also includes strategically closing underperforming theatres. During the year ended December 31, 2021, we permanently closed 20 theatres with 166 screens for leased locations where we could not renegotiate an acceptable future rent term and also owned properties, where we are seeking to sell the real estate to monetize its value.
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The following table sets forth our historical information concerning new builds (including expansions), acquisitions and dispositions (including net construction closures) and end-of-period operated theatres and screens through December 31, 2021:
Permanent/Temporary |
|
||||||||||||||||
Closures/(Openings), |
|
||||||||||||||||
New Builds |
Acquisitions |
net |
Total Theatres |
|
|||||||||||||
|
Number of |
|
Number of |
|
Number of |
|
Number of |
|
Number of |
|
Number of |
|
Number of |
|
Number of |
|
|
Fiscal Year |
Theatres |
Screens |
Theatres |
Screens |
Theatres |
Screens |
Theatres |
Screens |
|
||||||||
Beginning balance |
|
|
906 |
|
10,558 |
||||||||||||
Calendar 2017 |
|
12 |
96 |
128 |
736 |
32 |
221 |
|
1,014 |
|
11,169 |
||||||
Calendar 2018 |
|
11 |
89 |
4 |
39 |
23 |
206 |
|
1,006 |
|
11,091 |
||||||
Calendar 2019 |
|
10 |
85 |
7 |
70 |
19 |
205 |
1,004 |
11,041 |
||||||||
Calendar 2020 |
8 |
63 |
1 |
14 |
63 |
575 |
950 |
10,543 |
|||||||||
Calendar 2021 |
10 |
82 |
11 |
140 |
25 |
203 |
946 |
10,562 |
|||||||||
|
51 |
|
415 |
151 |
|
999 |
|
162 |
|
1,410 |
|||||||
| 4) | Pursue Adjacent Opportunities that Extend the AMC Brand |
We believe there is considerable opportunity to extend and monetize the AMC brand outside of our movie theatre auditoriums. We plan to pursue opportunities that capitalize on our attractive customer base, our leading brand, our 100+ years of food and beverage expertise, and technology capabilities.
As part of that strategy, in the fourth quarter of 2021, we announced we would be expanding our food and beverage business beyond theatrical exhibition and enter the multi-billion dollar popcorn industry with the launch of AMC Theatres Perfectly Popcorn in the U.S. markets.
| ● | Beginning in 2022, we will sell freshly made AMC Theatres Perfectly Popcorn at select mall retail locations around the country. Kiosks, counters, and stores will feature real AMC movie theatre popcorn and other AMC movie theatre treats. |
| ● | Additionally, we also plan to make our AMC Theatres Perfectly Popcorn, freshly popped in nearby theatres, available through food delivery-to-home services. In this way, consumers will be able to enjoy a slice of the AMC experience when being entertained at home. |
| ● | We will sell “To Go” packages at our theatres of freshly popped popcorn for takeout and/or pickup. |
| ● | Also coming later in 2022, we plan to offer prepackaged and ready-to-pop microwaveable AMC Theatres Perfectly Popcorn, which will become available for purchase in supermarkets and convenience stores around the country. |
AMC Theatres Perfectly Popcorn is an opportunity to diversify our business and to create a new food and beverage revenue stream for the Company.
| 5) | Explore Attractive Acquisitions Leveraging Our Existing Capabilities and Core Competencies |
As part of our plans to pursue value-enhancing initiatives that lead to diversification of our business, we will consider attractive and opportunistic acquisitions inside and outside the Exhibition industry that leverage AMC’s footprint and capabilities as well as the core competencies and experiences of AMC’s management team.
Our Competitive Strengths
We believe we have the following competitive strengths:
Leading guest engagement through digital marketing and technology platforms. Through our AMC Stubs® loyalty program, we have developed a consumer database of some 25.3 million households, representing approximately 52 million individuals. Our digital marketing and technology platforms allow us to engage with these customers frequently, efficiently and on a very personalized level. We believe personalized data drives increased engagement, resulting in higher attendance.
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Leading Market Share in Important, Affluent and Diverse Markets. As of December 31, 2021, across our three biggest metropolitan markets in the United States—New York, Los Angeles and Chicago, representing 19% of the country’s total box office—we held a 44% combined market share. We had theatres located in the top 25 U.S. markets, holding the #1 or #2 position in 19 of those 25 markets based on box office revenue. We are also the #1 theatre operator in Italy, Sweden, Norway, Finland, and Spain; the #2 operator in the United Kingdom and Ireland; the #3 operator in Portugal; and the #4 operator in Germany as of December 31, 2021. We believe our strong presence in these top markets makes our theatres highly visible and therefore strategically more important to content providers, who rely on the large audiences and marketing momentum provided by major markets to drive opinion-making and deliver a movie’s overall box office results.
We also have a diversified footprint with complementary global geographic and guest demographic profiles. We have theatres in more densely populated major metropolitan markets, where there is also a scarcity of attractive retail real estate opportunities, as well as complementary suburban and rural markets. Guests from different demographic and geographic profiles have different tastes in movies, and we believe by broadening our geographic base, we can help mitigate the impact of film genre volatility on our box office revenues.
Well Located, Highly Productive Theatres. Our theatres are generally located in the top retail centers across the United States. We believe this provides for long-term visibility and higher productivity and is a key element in the success of our enhanced food and beverage and more comfort and convenience initiatives. Our location strategy, combined with our strong major market presence, enable us to deliver industry-leading theatre-level productivity. During the year ended December 31, 2021, eight of the 10 highest grossing theatres in the U.S. were AMC theatres, according to data provided by Comscore. During the same period, AMC’s U.S. markets average total revenues per theatre was approximately $3.2 million. This per unit productivity is important not only to content providers, but also to developers and landlords, for whom per location and per square foot sales numbers are critical measures.
AMC Classic theatres are located primarily in smaller, suburban and rural markets, which affects total revenues per theatre. However, in general, theatres located in smaller suburban and rural markets tend to have less competition and a lower cost structure.
In our International markets, many theatres are located in top retail centers in major metropolitan markets with high visibility. We believe that deploying our proven strategic initiatives in these markets will help drive attendance and greatly improve productivity. Other theatres are in larger and mid-sized cities and towns in affluent regions.
Deployment of unique pricing structures to enhance revenue. AMC has developed a dedicated pricing department and, as a result, we have deployed several different strategic pricing structures that have increased revenue and profitability.
In June 2018, we launched AMC Stubs® A-List, a subscription pricing structure that offers members three movies a week, including premium formats, for a monthly fee ranging from $19.95 to $23.95 depending on geographical location. Around the same time, we launched “Discount Tuesday” which offers AMC Stubs® members a reduced price for movie attendance on Tuesdays. Prior to the COVID-19 pandemic, the results showed an incremental increase in attendance and corresponding increase in admissions and food and beverage revenue.
Sources of Revenue
Box Office Admissions and Film Content. Box office admissions are our largest source of revenue. We predominantly license theatrical 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 based on a share of admissions revenues and are accrued based on estimates of the final settlement pursuant to our film licenses. These licenses typically state that rental fees are based on the box office performance of each film, though in certain circumstances and less frequently, our rental fees are based on a mutually agreed settlement rate that is fixed. In some European territories, film rental fees are established on a weekly basis and some licenses use a per capita agreement instead of a revenue share, paying a flat amount per ticket.
The North American and International industry box office have been significantly impacted by the COVID-19 pandemic. As a result, film distributors have postponed new film theatrical releases and/or shortened or disregarded the period of theatrical exclusivity (the “window”). Theatrical releases may continue to be postponed and windows shortened or disregarded while the box office suffers from COVID-19 impacts. As a result of the reduction in theatrical film releases, we have licensed and exhibited a larger number of previously released films that have lower film rental
15
terms. We have made adjustments to theatre operating hours to align screen availability and associated theatre operating costs with attendance levels for each theatre.
As we continue our recovery from the impacts of the COVID-19 pandemic on our business, our aggregate attendance levels remain significantly behind pre-pandemic levels. However, for the first time since 2019, substantially all of our worldwide theatres were open for the entirety of the third and fourth quarters of 2021.
During the year ended December 31, 2021, films licensed from our six largest movie studio distributors based on revenues accounted for approximately 87% of our U.S. admissions revenues, which consisted of Sony, Disney, Universal, Warner Bros., Paramount, and Lionsgate. In Europe, approximately 77% of our box office revenue came from films attributed to our four largest movie distributor groups; which consisted of Universal, Disney, Sony, and Warner Bros. 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.
Food and Beverage. Food and beverage sales are our second largest source of revenue after box office admissions. We offer enhanced food and beverage products that include meals, healthy snacks, premium liquor, beer and wine options, and other gourmet products. Our long-term growth strategy calls for investment across a spectrum of enhanced food and beverage formats, ranging from simple, less capital-intensive food and beverage menu improvements to the expansion of our dine-in theatre brand. As a result of the COVID-19 pandemic, we have streamlined our concession menus to focus on our best-selling products and expanded cashless transactions technology through the deployment of mobile ordering across all brands, all in an effort to reduce the number of touchpoints between guests and employees. We have also upgraded our Coca-Cola Freestyle beverage software to allow guests to dispense drinks without the need to utilize the machine’s touch screen using the Coca-Cola Freestyle app.
We currently operate 51 Dine-In Theatres in the U.S. and three Dine-In Theatres in Europe that deliver chef-inspired menus with seat-side or delivery service to luxury recliners with tables. Our recent Dine-In Theatre concepts are designed to capitalize on the latest food service trend, the fast and casual eating experience.
Our MacGuffins Bar and Lounges (“MacGuffins”) give us an opportunity to engage our legal age customers. As of December 31, 2021, we offer alcohol in approximately 349 AMC theatres in the U.S. markets and 243 theatres in our International markets and continue to explore expansion globally.
Theatrical Exhibition Industry and Competition
U.S. markets. In the U.S., the movie exhibition business is large, stable, and mature. While in any given calendar quarter the quantity and quality of movies can drive volatile results, box office revenues have generally advanced from 2011 to 2019. The industry’s best year ever, in terms of revenues, was 2018, with box office revenues of approximately $11.9 billion, an increase of approximately 7.1% from 2017, with 1.3 billion admissions in the U.S. and Canada. Due to the COVID-19 pandemic, local, state and federal governments issued stay-at-home orders and closure notices for certain businesses, including all theatres and studio production, for an extended portion of 2020. As a result, new film content production remained nearly non-existent, and a large portion of 2020 scheduled movies were released in the home on streaming platforms or moved into 2021.
We believe it is the quality of the movie-going experience that will define future success. Whether through enhanced food and beverage options (Food and Beverage Kiosks, Marketplaces, Coca-Cola Freestyle, MacGuffins or Dine-in Theatres), more comfort and convenience (recliner seating, open-source internet ticketing, reserved seating), engagement and loyalty (AMC Stubs®, mobile apps, social media) or sight and sound (digital projectors, 3D, Dolby Cinema™ at AMC, other PLF screens or IMAX®), it is the ease of use and the amenities that these innovations bring to customers that we believe will drive sustained profitability in the years ahead.
The following table represents information about the U.S./Canada exhibition industry obtained from the National Association of Theatre Owners, with the exception of box office revenues for calendar years 2021 and 2020
16
obtained from Comscore. See Management’s Discussion and Analysis of Financial Condition and Results of Operations under Part II, Item 7 thereof for information regarding our operating data:
|
Box Office |
|
|
Average |
|
|
|
||||||
Revenues |
Attendance |
Ticket |
Number of |
Indoor |
|
||||||||
Calendar Year |
(in millions) |
(in millions) |
Price |
Theatres |
Screens |
|
|||||||
2021 |
$ |
4,544 |
447 |
$ |
10.17 |
* |
* |
||||||
2020 |
2,205 |
240 |
9.18 |
5,477 |
40,200 |
||||||||
2019 |
11,400 |
1,244 |
9.16 |
5,548 |
40,613 |
||||||||
2018 |
11,880 |
1,304 |
9.11 |
5,482 |
40,313 |
||||||||
2017 |
11,091 |
1,236 |
8.97 |
5,398 |
39,651 |
||||||||
2016 |
11,372 |
1,314 |
8.65 |
5,472 |
40,009 |
||||||||
2015 |
11,120 |
|
1,320 |
8.42 |
|
5,484 |
|
39,411 |
|||||
2014 |
|
10,400 |
|
1,270 |
|
8.19 |
|
5,463 |
|
39,356 |
|||
2013 |
|
10,920 |
|
1,340 |
|
8.15 |
|
5,326 |
|
39,368 |
|||
2012 |
|
10,790 |
|
1,360 |
|
7.93 |
|
5,317 |
|
39,056 |
|||
* Number of theatres and indoor screens information was not available for calendar year 2021 as of the date of this filing.
Based on information obtained from Comscore, we believe that the three largest exhibitors, in terms of U.S./Canada box office revenue (AMC, Regal Entertainment Group, and Cinemark Holdings, Inc.) generated approximately 54% of the box office revenues in 2021.
International markets. Movie-going is a popular leisure activity with high penetration across key geographies in our International markets. Theatre appeal has proven resilient to competition for consumers’ leisure spending and to recessionary periods and we believe we will continue to benefit from increased spending across International markets. The European market lags the U.S. market across a number of factors, including annual spend per customer, number of IMAX® screens and screens per capita that cause us to believe that the deployment of our customer initiatives will be successful in these markets. On the other hand, our European markets are more densely populated and operate with fewer screens per one million of population, making the screens we acquired more valuable.
Additionally, U.S. films generate the majority of the box office in Europe, but movie-goers in specific geographies welcome locally produced films with local actors and familiar story lines which can mitigate film genre attendance fluctuations. Going forward, we believe we will see positive growth in theatre attendance as we continue to deploy our proven guest-centered innovations like recliner seating, enhanced food and beverage offerings, and premium large format experiences. Like the U.S., the international industry box office suffered from months of theatre closures, significantly fewer new films and reopening restrictions and generated far fewer sales than 2019.
The following table provides information about the exhibition industry attendance for the International markets where we operate obtained from territory industry trade sources, see Management’s Discussion and Analysis of Financial Condition and Results of Operations under Part II, Item 7 thereof for information regarding our operating data:
Calendar Year |
||||||||||
(In millions) |
2021 |
2020 |
2019 |
2018 |
2017 |
|||||
United Kingdom |
74.6 |
44.0 |
176.0 |
177.3 |
170.6 |
|||||
Germany |
42.5 |
37.3 |
119.9 |
104.2 |
122.3 |
|||||
Spain |
41.5 |
28.7 |
105.8 |
97.8 |
99.8 |
|||||
Italy |
26.6 |
30.2 |
104.7 |
91.8 |
99.0 |
|||||
Sweden |
6.1 |
5.4 |
15.8 |
16.3 |
16.9 |
|||||
Ireland |
6.1 |
3.9 |
15.1 |
15.8 |
16.1 |
|||||
Portugal |
5.3 |
3.6 |
15.2 |
14.6 |
15.6 |
|||||
Norway |
5.6 |
4.8 |
11.3 |
12.1 |
11.8 |
|||||
Finland |
3.4 |
3.9 |
8.4 |
8.1 |
8.5 |
|||||
Total |
211.7 |
161.8 |
572.2 |
538.0 |
560.6 |
|||||
Competition. Our theatres are subject to varying degrees of competition in the geographic areas in which they operate. Competition is often intense with respect to attracting patrons, licensing motion pictures and finding new theatre sites. Where real estate is readily available, it is easier to open a theatre near one of our theatres, which may adversely
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affect operations at our theatre. However, in certain of our densely populated major metropolitan markets, we believe a scarcity of attractive retail real estate opportunities enhances the strategic value of our existing theatres. We also believe the complexity inherent in operating in these major metropolitan markets is a deterrent to other less sophisticated competitors, protecting our market share position.
The theatrical exhibition industry faces competition from other forms of out-of-home entertainment, such as concerts, amusement parks and sporting events, and from other distribution channels for filmed entertainment, such as cable television, pay-per-view, video streaming services, PVOD, and home video systems, as well as from all other forms of entertainment.
We believe movie-going is a compelling consumer out-of-home entertainment experience. Movie theatres currently garner a relatively small share of overall consumer entertainment time and spend, and our industry benefits from available capacity to satisfy additional consumer demand without capital investment.
Seasonality
Our revenues are dependent upon the timing of motion picture releases by distributors. The most marketable motion pictures are usually released during the summer and the year-end holiday seasons. Therefore, our business is seasonal, with higher attendance and revenues generally occurring during the summer months and holiday seasons. During the COVID-19 pandemic, and in following periods, our business and results of operations have not and may continue to not experience our historically typical patterns of seasonality.
Regulatory Environment
The distribution of motion pictures is subject to regulation under federal and state antitrust laws and has been the subject of numerous antitrust cases. Consent decrees, resulting from one of those cases to which we were not a party, have had a material impact on the industry and us. Those consent decrees bound certain major motion picture distributors and limited how motion pictures could be distributed. The U.S. Department of Justice recently terminated the consent decrees, subject to a two-year sunset period for certain prohibitions, including block booking and circuit dealing. At this time, we cannot project what impact, if any, termination of the consent decrees may have on industry licensing practices.
Our theatres in the United States must comply with Title III of the Americans with Disabilities Act, or ADA. Compliance with the ADA requires that public accommodations, including websites and mobile apps for such accommodations, be accessible to individuals with disabilities and that new construction or alterations are made to conform to accessibility guidelines. Non-compliance with the ADA could result in the imposition of injunctive relief, fines, and awards of damages to private litigants and additional capital expenditures to remedy such noncompliance. As an employer covered by the ADA, we must make reasonable accommodations to the limitations of employees and qualified applicants with disabilities, provided that such reasonable accommodations do not pose an undue hardship on the operation of our business. In addition, many of our employees are covered by various government employment regulations, including minimum wage, overtime and working conditions regulations. In Europe, all territories have similar national regulations relating to disabilities.
Our operations also are subject to federal, state and local laws regulating such matters as construction, renovation and operation of theatres as well as wages and working conditions, citizenship, health and sanitation requirements, consumer and employee privacy rights, and licensing, including alcoholic beverage sales. We believe our theatres are in material compliance with such requirements.
We own and operate theatres and other properties in the United States, United Kingdom, Spain, Italy, Germany, Portugal, Ireland, Sweden, Finland, Norway, Denmark, and Saudi Arabia, which are subject to various federal, state and local laws and regulations. Certain of these laws and regulations, including those relating to environmental protection, may impose joint and several liability on certain statutory classes of persons for the costs of investigation or remediation of contamination, regardless of fault or the legality of original disposal. We believe our theatres are in material compliance with such requirements.
During the COVID-19 pandemic, our theatres have been subject to various governmental orders requiring us to take or refrain from certain activities including, but not limited to, suspending operations, reduction in seating capacities, enforcement of social distancing, establishment of enhanced cleaning protocols, restrictions on food and beverage sales, tracking the identity of guests, employee protection protocols, and limitation on operating hours. Although the orders
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have been modified frequently, we believe our theatres have maintained material compliance with such orders. We currently cannot predict when or if COVID-19 related governmental orders will be fully terminated and whether similar orders will be utilized more frequently during future public health outbreaks.
AMC Human Capital Resources
Our People. AMC associates are core to our commitment to delivering the best theatrical experience in the world. They uphold AMC’s mission of focusing on the guest experience in our theatres, an experience in which excellent customer service is complemented with amazing food and beverage, comfort and premium sight and sound.
COVID-19 Pandemic Impacts. The pandemic has had enormous impacts on our industry, guests and associates and has resulted in material variances in our associate metrics in calendar 2021 compared to the 2019 pre COVID-19 years. As of December 31, 2021, we employed a total of approximately 31,198 employees, including part-time employees, consisting of approximately 3,046 full-time and approximately 28,152 part-time employees, up from an aggregate of approximately 25,019 employees, including part-time and furloughed employees, consisting of approximately 3,449 full-time and approximately 21,570 part-time employees as of December 31, 2020, and down from an aggregate of approximately 38,872 employees consisting of approximately 3,952 full-time and approximately 34,920 part-time employees as of December 31, 2019.
Despite the challenges presented by the pandemic, our associates have been instrumental in delivering AMC’s Safe & Clean program, which launched upon the reopening of our theatres in the fall of 2020. Safe & Clean is a set of cleaning protocols and measures that we have implemented to protect the health and safety of our guests and associates. Our new policies and procedures are advised by faculty members at Harvard School of Public Health and have been developed with the Clorox Company.
Talent Acquisition, Development and Retention. Critical to our operations is the hiring, developing and retaining of employees who support our guest-focused mission in our theatres. Acquiring the right talent at speed and scale is a core capability that we regularly monitor and manage, given the need to rapidly staff our frontline operations. Once hired, we focus on the development of our associates, creating experiences and programs that promote performance, growth and career opportunities for those who are life-long passionate about our business. We sponsor numerous training, education and leadership development programs for associates at all levels, from hourly associates to executive officers. These programs are designed to enhance leadership and managerial capability, ensure quality execution of our programs, drive client satisfaction and increase return on investment.
Diversity, Equity and Inclusion. Our goal is to create a workforce as diverse as the guests we serve and the movies we show on our screens. As such, Diversity, Equity and Inclusion (“DEI”) are fundamental to our culture and critical to our success. In support of this goal, AMC established four councils in support of Women, Latinx, African American and LGBTQ+ associates. The purpose of these councils is to strengthen AMC’s culture by defining opportunities to embrace our diversity, lead with fairness and impartiality and create a more inclusive work environment by leveraging associate experiences. These councils are supported by the DEI function under the guidance of the Chief Human Resources Officer. This DEI focus ensures that all communities are represented in our long-term systemic approach. Our work has been recognized externally: AMC has received a perfect score for 14 consecutive years on the Human Rights Campaign Foundation’s Corporate Equality Index as one of the “Best Places to Work for LGBTQ Equality”; and for seven years running has been named one of the “Best Places to Work” for people with disabilities on the Disability Equality Index.
Compensation, Benefits, Safety and Wellness. In addition to offering market competitive salaries and wages, we offer comprehensive health and retirement benefits to eligible employees. Our health and welfare benefits are supplemented with specific programs to manage or improve common health conditions, a variety of voluntary benefits and paid time away from work programs. We also provide a number of innovative programs designed to promote physical, emotional and financial well-being. Our commitment to the safety and health of our associates continues to be a top priority.
Available Information
We make available free of charge on our website (www.amctheatres.com) under “Investor Relations” / Financial Performance”/ “SEC Filings,” annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy materials on Schedule 14A and amendments to those reports as soon as reasonably practicable after
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we electronically file or furnish such materials with the Securities and Exchange Commission. The contents of our Internet website are not incorporated into this report. The Securities and Exchange Commission maintains a website (www.sec.gov) that contains reports, proxy and information statements and other information about the Company.
Information about our Executive Officers
The following table sets forth certain information regarding our executive officers and key employees as of February 24, 2022:
Name |
|
Age |
|
Position(s) Held |
Adam M. Aron |
67 |
Chairman of the Board, Chief Executive Officer and President |
||
Sean D. Goodman |
56 |
Executive Vice President, Chief Financial Officer and Treasurer |
||
John D. McDonald |
64 |
Executive Vice President, U.S. Operations |
||
Elizabeth Frank |
52 |
Executive Vice President, Worldwide Programming and Chief Content Officer |
||
Stephen A. Colanero |
55 |
Executive Vice President and Chief Marketing Officer |
||
Kevin M. Connor |
59 |
Senior Vice President, General Counsel and Secretary |
||
Chris A. Cox |
56 |
Senior Vice President and Chief Accounting Officer |
||
Carla C. Chavarria |
56 |
Senior Vice President, and Chief Human Resources Officer |
||
Daniel Ellis |
53 |
Senior Vice President, Domestic Development |
All our current executive officers hold their offices at the pleasure of our board of directors, subject to rights under their respective employment agreements in some cases. There are no family relationships between or among any executive officers.
Mr. Adam Aron has served as Chief Executive Officer, President and Director of the Company since January 2016, and as Chairman of the Board of Directors since July 2021. From February 2015 to December 2015, Mr. Aron was Chief Executive Officer of Starwood Hotels and Resorts Worldwide, Inc. and served on the board from 2006 to 2015. Since 2006, Mr. Aron has served as Chairman and Chief Executive Officer of World Leisure Partners, Inc., a personal consultancy for matters related to travel and tourism, high-end real estate development, and professional sports, that he founded. Mr. Aron served as Chief Executive Officer and Co-Owner of the Philadelphia 76ers from 2011 to 2013, and remains an investor. From 2006 to 2015, Mr. Aron served as Senior Operating Partner of Apollo Management L.P. Mr. Aron currently serves on the board of directors of Norwegian Cruise Line Holdings, Ltd. and HBSE, which owns the NHL’s New Jersey Devils and the NBA’s Philadelphia 76ers. Mr. Aron briefly served on the board of directors of Centricus Acquisitions Corp. in 2021. He also served on the board of directors of Prestige Cruise Holdings Inc. from 2007 to 2014. Mr. Aron received a Master’s of Business Administration degree with distinction from the Harvard Business School and a Bachelor of Arts degree cum laude from Harvard College.
Mr. Sean D. Goodman has served as AMC’s Executive Vice President, Chief Financial Officer and Treasurer since January 2022, Executive Vice President and Chief Financial Officer from February 2020 to January 2022, and Executive Vice President Finance from December 2019 to February 2020. Prior to joining AMC, Mr. Goodman was the Chief Financial Officer of Asbury Automotive Group, Inc. (“ABG”) from July 2017 to November 2019. Before to joining ABG, Mr. Goodman served as the Chief Financial Officer of Unifi, Inc. between January 2016 to June 2017. Mr. Goodman also served as the Chief Financial Officer Americas for Landis+Gyr, AG., from April 2011 to January 2016. Earlier in his career, Mr. Goodman served in various roles with increasing responsibility at The Home Depot, Inc., from February 2006 to April 2011. Mr. Goodman began his career as an investment banker with Morgan Stanley, Inc. and in various consulting and accounting positions with Deloitte LLP. Mr. Goodman is a certified public accountant and has a Masters Degree in Business Administration from The Harvard Business School and a Bachelor of Business Science Degree (with honors) from the University of Cape Town in South Africa.
Mr. John D. McDonald has served as Executive Vice President, U.S. Operations of AMC since July 2009. Prior to July 2009, Mr. McDonald served as Executive Vice President, U.S. and Canada Operations effective October 1998. Mr. McDonald served as Senior Vice President, Corporate Operations from November 1995 to October 1998. Mr. McDonald is a member of the National Association of Theatre Owners Advisory board of directors, Chairman of the Technology Committee for the National Association of Theatre Owners, and member of the board of directors for Digital Cinema Distribution Coalition, LLC. Mr. McDonald has successfully managed the integration for the Gulf States, General Cinema, Loews, Kerasotes, and Carmike mergers and acquisitions. Mr. McDonald attended California State Polytechnic University where he studied economics and history.
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Ms. Elizabeth Frank has served as Executive Vice President, Worldwide Programming and Chief Content Officer for AMC since July 2012. Between August 2010 and July 2012, Ms. Frank served as Senior Vice President, Strategy and Strategic Partnerships. From 2006 to 2010, Ms. Frank served as Senior Vice President of Global Programs for AmeriCares. From 2003 to 2006, Ms. Frank served as Vice President of Corporate Strategic Planning for Time Warner Inc. Prior to Time Warner Inc., Ms. Frank was a partner at McKinsey & Company for nine years. Ms. Frank holds a Bachelor of Business Administration degree from Lehigh University and a Masters of Business Administration from Harvard University.
Mr. Stephen A. Colanero has served as Executive Vice President and Chief Marketing Officer of AMC since December 2009. Prior to joining AMC, Mr. Colanero served as Vice President of Marketing for RadioShack Corporation from April 2008 to December 2009. Mr. Colanero also served as Senior Vice President of Retail Marketing for Washington Mutual Inc. from February 2006 to August 2007 and as Senior Vice President, Strategic Marketing for Blockbuster Inc. from November 1994 to January 2006. Mr. Colanero holds a B.S. degree in Accounting from Villanova University and a M.B.A. in Marketing and Strategic Management from The Wharton School at the University of Pennsylvania.
Mr. Kevin M. Connor has served as Senior Vice President, General Counsel and Secretary of AMC since April 2003. Prior to April 2003, Mr. Connor served as Senior Vice President, Legal beginning November 2002. Prior thereto, Mr. Connor was in private practice in Kansas City, Missouri as a partner with the firm Seigfreid Bingham, P.C. from October 1995. Mr. Connor holds a Bachelor of Arts degree in English and History from Vanderbilt University, a Juris Doctorate degree from the University of Kansas School of Law and LLM in Taxation from the University of Missouri-Kansas City.
Mr. Chris A. Cox has served as Senior Vice President and Chief Accounting Officer of AMC since June 2010. Prior thereto Mr. Cox served as Vice President and Chief Accounting Officer since May 2002. Prior to May 2002, Mr. Cox had served as Vice President and Controller since November 2000. Previously, Mr. Cox had served as Director of Corporate Accounting for the Dial Corporation from December 1999 until November 2000. Prior to Dial Corporation, Mr. Cox held various positions at PwC LLP. Mr. Cox holds a Bachelor of Business Administration in Accounting and Finance degree from the University of Iowa.
Ms. Carla C. Chavarria has served as Senior Vice President, Chief Human Resources Officer of AMC since January 2019 and Senior Vice President, Human Resources of AMC since January 2014. Ms. Chavarria served as Vice President, Human Resources Services from September 2006 to January 2014. Prior thereto, Ms. Chavarria served as Vice President, Recruitment and Development from April 2005 to September 2006. Ms. Chavarria’s prior experience includes human resources manager and director of employment practices. Ms. Chavarria holds a B.S. from The Pennsylvania State University.
Mr. Daniel Ellis has served as the Senior Vice President Development & International since March 2020. From December 21, 2016 to March 2020, he served as Senior Vice President, Domestic Development. From August 2011 until December 2016, Mr. Ellis was Senior Vice President, General Counsel and Secretary of Carmike Cinemas, Inc. From 1999 until 2011, Mr. Ellis served in several roles with Lodgian, Inc., including as President, Chief Executive Officer, and a member of the Board of Directors from 2009 through 2010 and Senior Vice-President, General Counsel and Secretary from 2002 through 2009. Prior to joining Lodgian, Mr. Ellis was engaged in private law practice and also served as an Assistant District Attorney for the State of Georgia.
Item 1A. Risk Factors.
The following is a summary list of risk factors:
Risks Related to the COVID-19 Pandemic
| ● | 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 interruptions of operations at our theatres, personnel reductions and other cost-cutting measures and actions 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. |
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Financial Risks
| ● | our ability to obtain additional liquidity, which if not realized or insufficient, likely would result with us seeking an in-court or out-of-court restructuring of our liabilities absent more normalized levels of attendance and operating revenues, and in the event of such future liquidation or bankruptcy proceeding, holders of our Common Stock and other securities would likely suffer a total loss of their investment; |
| ● | our substantial level of indebtedness and our current liquidity constraints could adversely affect our financial condition and our ability to service our indebtedness, to pre-pay debt, and to refinance debt and to do so on favorable terms, and our ability to take advantage of certain business opportunities, which could negatively impact the ability of investors to recover their investment in the Common Stock; |
| ● | risks relating to impairment losses, including with respect to goodwill and other intangibles, and theatre and other closure charges; |
| ● | limitations on the availability of capital or poor financial results may prevent us from deploying strategic initiatives; |
| ● | we are currently not paying dividends and in the future may not generate sufficient cash flows or have sufficient restricted payment capacity under our Senior Secured Credit Facilities or the indentures governing our debt securities to pay dividends on our Common Stock; |
| ● | 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; and |
| ● | impact of the elimination of the calculation of USD LIBOR rates on our contracts indexed to USD LIBOR. |
Operational Risks
| ● | risks relating to motion picture production and theatrical performance; |
| ● | our lack of control over distributors of films; |
| ● | intense competition in the geographic areas in which we operate among exhibitors or from other forms of entertainment; |
| ● | increased use of alternative film delivery methods including premium video on demand or other forms of entertainment; |
| ● | shrinking exclusive theatrical release windows or release of movies to theatrical exhibition and streaming platforms on the same date; |
| ● | AMC Stubs® A-List may not meet anticipated revenue projections, which could result in a negative impact upon operating results; |
| ● | failures, unavailability or security breaches of our information systems; |
| ● | 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; |
| ● | our ability to achieve expected synergies, benefits and performance from our strategic theatre acquisitions and strategic initiatives; |
| ● | the risk of severe weather events or other events caused by climate change disrupting or limiting operations; |
| ● | supply chain disruptions and labor shortages may negatively impact our operating results; and |
| ● | optimizing our theatre circuit through new construction and the transformation of our existing theatres may be subject to delay and unanticipated costs. |
Regulatory Risks
| ● | general and international economic, political, regulatory, social and financial market conditions, economic unrest, terrorism, hostilities, cyber-attacks, war, widespread health emergencies, such as COVID-19 or other pandemics, and other geopolitical risks; |
| ● | review by antitrust authorities in connection with acquisition opportunities; |
22
| ● | risks relating to the incurrence of legal liability, including costs associated with ongoing securities class action lawsuits; |
| ● | increased costs in order to comply or resulting from a failure to comply with governmental regulation, including the General Data Protection Regulation (“GDPR”), the California Consumer Privacy Act (“CCPA”) 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; and |
| ● | other risks referenced from time to time in filings with the SEC. |
Risks Related to our Common Stock
| ● | there has been significant recent dilution and potential future dilution of our Common Stock, which could adversely affect the market price of shares of our Common Stock; |
| ● | the market price and trading volume of our shares of Common Stock has been and may continue to be volatile, and purchasers of our securities could incur substantial losses; |
| ● | future offerings of debt, which would be senior to our Common Stock for purposes of distributions or upon liquidation, could adversely affect the market price of our Common Stock; |
| ● | anti-takeover protections in our amended and restated certificate of incorporation and our amended and restated bylaws may discourage or prevent a takeover of our Company, even if an acquisition would be beneficial to our stockholders; and |
| ● | an issuance of preferred stock could dilute the voting power of the Common Stockholders and adversely affect the market value of our Common Stock. |
Risk Related to the COVID-19 Pandemic
The COVID-19 pandemic has disrupted our business and will continue to adversely affect our business, theatres, results of operations and liquidity.
The COVID-19 pandemic has had and will continue to have a significant and adverse impact on our business.
Over the course of 2021, we reopened and were operating in nearly all of our domestic and international theatres, with seating capacity restrictions winding down or eliminated in most jurisdictions. Our reopened theatres are not generating the attendance and revenue from admissions and food and beverage sales compared to historical levels and our cash burn is higher than when theatres were closed. The extent of our cash burn in the future will primarily be dependent on attendance, which drives admission, food and beverage, and other revenue. The ultimate duration of the pandemic is uncertain, and there remain significant risks that may negatively impact attendance, including a resurgence of COVID-19, consequential related restrictions, potential movie-goer reluctance to attend theatres due to COVID-19 outbreaks or the emergence of variant strains, movie studio release schedules and direct-to-streaming or other changing movie-studio practices as a result of the pandemic. We cannot predict with certainty when or if our business will return to closer to normal levels. In addition, governmental officials may impose further restrictions on travel or introduce additional social distancing measures such as further limiting the number of people allowed in a theatre at any given time.
The resumption of operations has resulted in a ramp-up in costs to operate our business. While we plan to closely monitor our costs to the extent possible, we continue to incur significant cash outflows, including interest payments, taxes, critical maintenance capital expenditures, expenses associated with the resumption of operations, and certain compensation and benefits payments.
We may face difficulty in maintaining relationships with our landlords, vendors, motion picture distributors, customers, and employees during suspension and recovery periods. Since the outbreak of the COVID-19 virus, movie studios have, at various times, suspended production of movies and delayed the release date of movies. Some movie studios have also reduced or eliminated the theatrical exclusive release window or have skipped a theatrical release and released their movies through streaming or other channels, or have announced that future theatrical releases will be released concurrently through streaming channels, and studios may continue to do
23
so with additional releases for the duration of the pandemic and after the pandemic has subsided. The longer and more severe the pandemic, including repeat or cyclical outbreaks beyond the spread of the Omicron variant, the more severe the adverse effects will be on our business, results of operations, liquidity, cash flows, financial condition, access to credit markets and ability to service our existing and future indebtedness.
Even when the COVID-19 pandemic subsides, we cannot guarantee that we will recover as rapidly as other industries, or that we will recover as rapidly as others within the industry due to our strong footprint in densely populated areas. For example, even where applicable government restrictions are lifted or reduced, it is unclear how quickly patrons will return to our theatres, which may be a function of continued concerns over safety and social distancing and/or depressed consumer sentiment due to adverse economic conditions, including job losses, among other things. The continued high level of COVID-19 cases may continue to significantly depress attendance levels. If we do not respond appropriately to the pandemic, or if customers do not perceive our response to be adequate, we could suffer damage to our reputation, which could significantly adversely affect our business. Furthermore, the effects of the pandemic on our business could be long-lasting and could continue to have adverse effects on our business, results of operations, liquidity, cash flows and financial condition, some of which may be significant, and may adversely impact our ability to operate our business on the same terms as we conducted business prior to the pandemic. Significant impacts on our business caused by the COVID-19 pandemic include and are likely to continue to include, among others:
| ● | lack of availability of films in the short or long term, including as a result of (i) continued delay in film releases; (ii) release of scheduled films on alternative channels or (iii) disruptions of film production; |
| ● | decreased attendance at our theatres, including due to (i) continued safety and health concerns, (ii) additional regulatory requirements limiting our seating capacity, (iii) a change in consumer behavior in favor of alternative forms of entertainment, or (iv) resistance to locally imposed vaccination requirements in certain markets; |
| ● | increased operating costs resulting from additional regulatory requirements enacted in response to the COVID-19 pandemic and from precautionary measures we voluntarily take at our facilities to protect the health and well-being of our customers and employees; |
| ● | our ability to negotiate favorable rent payment terms with our landlords; |
| ● | unavailability of employees and/or their inability or unwillingness to conduct work under any revised work environment protocols, including vaccination mandates, or due to general shortages in the labor market; |
| ● | supply chain disruptions that may affect the availability and costs of food, beverage, and other items that we sell in our theatres; |
| ● | increased risks related to employee matters, including increased employment litigation and claims relating to terminations or furloughs caused by the suspension of theatre operations and vaccination or testing requirements; |
| ● | reductions and delays associated with planned operating and capital expenditures; |
| ● | further impairment charges upon a portion of our goodwill, long-lived assets or intangible assets as consequence of failure to meet operating projections and other adverse events or circumstances, as a result of the impact on our prior impairment analysis due to delays in theatre reopenings or future interruptions in operations, which could be material to our results of operations and financial condition; |
| ● | our inability to generate significant cash flow from operations if our theatres continue to operate at significantly lower than historical levels, which could lead to a substantial increase in indebtedness and negatively impact our ability to comply with the financial covenants, as applicable, in our debt agreements; |
| ● | our inability to access lending, capital markets and other sources of liquidity, if needed, on reasonable terms, or at all, or obtain amendments, extensions and waivers of financial maintenance covenants, among other material terms; |
| ● | our inability to effectively meet our short- and long-term obligations; and |
24
| ● | our inability to service our existing and future indebtedness or other liabilities, the failure of which could result in insolvency proceedings and result in a total loss of your equity investment. |
The outbreak of COVID-19 has also significantly increased economic uncertainty and disrupted supply chains. It is possible that the current outbreak or continued spread of COVID-19 will cause a global recession, which could further adversely affect our business, and such adverse effects may be material. We have never previously experienced a complete cessation of our operations, and as a consequence, our ability to predict the impact of such a cessation on our operations and future prospects is uncertain. In addition, the magnitude, duration and speed of the global pandemic is uncertain. As a consequence, we cannot estimate the impact on our business, financial condition or near or longer-term financial or operational results with certainty.
The COVID-19 pandemic (including governmental responses, broad economic impacts and market disruptions) has heightened the risks related to the other risk factors described herein.
Financial Risks
In the absence of significant increases in attendance from current levels, or obtaining significant additional sources of liquidity, an investment in our Common Stock is highly speculative; holders of our Common Stock could suffer a total loss of their investment.
To remain viable beyond the next twelve months, the Company will require additional sources of liquidity, reductions or abatements of its rent obligations and/or significant increases in attendance levels, see Liquidity and Capital Resources—For the Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020 included in Part II, Item 7 thereof for further information regarding attendance assumptions. The required amounts of additional liquidity may be material. Although the Company believes that cash flow from operations and the liquidity under its borrowing facilities will be sufficient to meet its material cash requirements over the next twelve months, it is actively continuing to explore additional sources of liquidity. The Company is unable to determine at this time whether any additional sources of liquidity will be available to it or if available, individually or taken together, will be sufficient to address its potential liquidity needs. There is significant uncertainty as to whether these potential sources of liquidity will be realized or that they will be sufficient to generate the material amounts of additional liquidity that may be required until the Company is able to achieve more normalized levels of attendance and operating revenues. Any individual source of liquidity that the Company is pursuing may not be sufficient to address all the Company’s future liquidity requirements, and even if all of the potential sources of liquidity that the Company is pursuing are available, they may not be sufficient to address the Company’s liquidity requirements. Further, any relief provided by lenders, governmental agencies, and business partners may not be adequate and may include onerous terms, particularly if we face additional rounds of suspension of operations at our theatres, scheduled movies releases fail to drive increased attendance, scheduled releases continue to be postponed or moved to the home video market, or if the attendance levels of, and revenues generated by, our reopened theatres normalize at a level that will not support our substantial amount of indebtedness, rent liabilities or other obligations. Due to these factors, if attendance levels do not increase significantly compared to 2021 and if the Company is unable to obtain the necessary additional sources of liquidity, an investment in our Common Stock is highly speculative.
In the event the Company’s attendance levels do not continue to increase significantly compared to 2021 and achieve levels in line with pre COVID-19 attendance, we would seek to negotiate with creditors changes to our balance sheet liabilities and continue to take steps to reach agreements with our landlords to reduce or abate its rent obligations. Ultimately, if attendance levels do not normalize and we are unsuccessful in restructuring our liabilities, we would face the risk of a future liquidation or bankruptcy proceeding, in which case holders of the Company’s Common Stock would likely suffer a total loss of their investment.
Our substantial level of indebtedness and our current liquidity constraints could adversely affect our financial condition and our ability to service our indebtedness, which could negatively impact your ability to recover your investment in the Common Stock.
We have a substantial amount of indebtedness, which requires significant interest payments. As of December 31, 2021, we had outstanding approximately $5,428.0 million of indebtedness ($5,169.1 million aggregate principal amount) and $72.7 million of existing finance lease obligations. As of December 31, 2021, we also had approximately $5.3 billion of discounted rental payments under operating leases (with a weighted average remaining lease term of 10.0 years). Subsequent to December 31, 2021, our indebtedness has increased due to the $950 million
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aggregate principal amount of 7.5% First Lien Senior Secured Notes due 2029 that were issued on February 14, 2022, partially offset by the full redemption of the $500 million aggregate principal amount of the First Lien Notes due 2025, the $300 million aggregate principal amount of our 10.5% First Lien Senior Secured Notes due 2026, and $73.5 million aggregate principal amount of our 15%/17% Cash/PIK Toggle First Lien Secured Notes due 2026.
The Company’s cash expenditures for rent increased significantly in the second, third, and fourth quarters of 2021 as previously deferred rent payments and landlord concessions started to become current obligations. The Company received rent concessions provided by the lessors that aided in mitigating the economic effects of COVID-19 during the pandemic. These concessions primarily consisted of rent abatements and the deferral of rent payments. As a result, deferred lease amounts were approximately $315.1 million as of December 31, 2021. See Note 3—Leases in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof, for a summary of the estimated future repayment terms for the deferred lease amounts due to COVID-19.
Our substantial level of indebtedness and the current constraints on our liquidity could have important consequences, including the following:
| ● | we entered into the Ninth Amendment (as defined in Note 8—Corporate Borrowings and Finance Lease Obligations in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof), pursuant to which the requisite revolving lenders party thereto agreed to extend the suspension period for the financial covenant applicable to the Senior Secured Revolving Credit Facility from March 31, 2021 to March 31, 2022, which was further extended by the Eleventh Amendment (as defined in Note 8—Corporate Borrowings and Finance Lease Obligations in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof) from March 31, 2022 to March 31, 2023, as described, and on the terms and conditions specified, therein, including a minimum liquidity requirement of $100 million during the covenant suspension period in addition to the £32.5 million minimum liquidity required (approximately $44 million) required under the Odeon Term Loan Facility. A breach of any condition to the financial covenant suspension set forth in the Credit Agreement may result in an event of default under the Credit Agreement or resume testing of the financial covenant; |
| ● | we must use a substantial portion of our cash flow from operations to pay interest and principal on our indebtedness, which reduces or will reduce funds available to us for other purposes such as working capital, capital expenditures, other general corporate purposes and potential acquisitions; |
| ● | our ability to refinance such indebtedness or to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate purposes may be impaired; |
| ● | we are exposed to fluctuations in interest rates because our senior credit facilities have variable rates of interest; |
| ● | our leverage may be greater than that of some of our competitors, which may put us at a competitive disadvantage and reduce our flexibility in responding to current and changing industry and financial market conditions; |
| ● | the loss of tax attributes resulting from the cancellation of indebtedness that occurred in connection with the exchange offers that closed on July 31, 2020, coupled with the inability to deduct all or significant portions of our interest expense for tax purposes, will ultimately increase the need to generate revenues to support our capital structure; |
| ● | there are significant constraints on our ability to generate liquidity through incurring additional debt; and |
| ● | we may be more vulnerable to economic downturn and adverse developments in our business. |
We and our subsidiaries may be able to incur additional indebtedness in the future, subject to the restrictions contained in the agreements governing our indebtedness. To the extent new indebtedness is added to our debt levels, including as a result of satisfying interest payment obligations on certain of our indebtedness with payments-in-kind, the related risks that we now face could intensify. Our ability to access funding under our revolving credit facilities will depend upon, among other things, the absence of an event of default under such indebtedness, including any event of default arising from a failure to comply with the related covenants. If we are unable to comply with our covenants under our indebtedness, our liquidity may be further adversely affected.
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Our ability to meet our expenses, to remain in compliance with our covenants under our debt instruments and to make future principal and interest payments in respect of our debt depends on, among other factors, our operating performance, competitive developments and financial market conditions, all of which are significantly affected by financial, business, economic and other factors. We are not able to control many of these factors. Given current industry and economic conditions, our cash flow may not be sufficient to allow us to pay principal and interest on our debt and meet our other obligations.
To the extent our relationship with lenders is negatively affected by disputes that may arise from time to time, it may be more difficult to seek covenant relief, if needed, or to raise additional funds in the future.
We may incur future impairment charges to goodwill or long-lived assets and future theatre and other closure charges.
We have a significant amount of goodwill on our balance sheet as a result of acquisitions. As of December 31, 2021, goodwill recorded on our consolidated balance sheet totaled $2,429.8 million. If the market price of our Common Stock declines, if the fair value of our debt declines, or if other events or circumstances change that would more likely than not reduce the fair value of our reporting units below their respective carrying value, all or a portion of our goodwill may be impaired in future periods.
We review long-lived assets, including goodwill, indefinite-lived intangible assets and other intangible assets and theatre assets (including operating lease right-of-use lease assets) whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. The review for goodwill compares the fair value for each of our reporting units to their associated carrying value. Factors that could lead to impairment of goodwill and intangible assets include adverse industry or economic trends, reduced estimates of future cash flows, and declines in the market price of our Common Stock or declines in the fair value of our debt. Our valuation methodology for assessing impairment requires management to make judgments and assumptions based on historical experience and projections of future operating performance, including estimating the fair value of our corporate borrowings and finance lease obligations. We may be required to record future charges to earnings during the period in which an impairment of goodwill or intangible assets is determined to exist. During the years ended December 31, 2021, December 31, 2020, and December 31, 2019, we recorded impairment of long-lived asset charges of $77.2 million, $177.9 million, $84.3 million (including $60.0 million related to the write-down of operating lease right-of-use assets, which were recorded in connection with the adoption of ASC 842, Leases), respectively. The assets impaired during year 2021 included 77 theatres in the U.S. markets with 805 screens (in Alabama, Arkansas, California, Colorado, Connecticut, District of Columbia, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Minnesota, Mississippi, Missouri, Montana, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, West Virginia, and Wisconsin) and 14 theatres in the International markets with 18 screens (in Italy, Norway, Spain, and the UK). During the year ended December 31, 2020, we recorded goodwill non-cash impairment charges of $1,276.1 million and $1,030.3 million related to the enterprise fair values of the Domestic Theatres and International Theatres reporting units, respectively. We recorded non-cash impairment charges related to indefinite-lived intangible assets of $12.5 million and $2.7 million related to the Odeon and Nordic trade names, respectively, in the International Theatres reporting unit during the year ended December 31, 2020. We recorded non-cash impairment charges of $14.4 million related to our definite-lived intangible assets in the Domestic Theatres reporting unit during the year ended December 31, 2020. We also recorded impairment of other assets recorded in investment expense (income) of $15.9 million and $3.6 million, during the years ended December 31, 2020 and December 31, 2019, respectively, and impairment of equity method investments recorded in equity in (earnings) loss of non-consolidated entities of $8.6 million during the year ended December 31, 2020.
Limitations on the availability of capital and reductions to capital expenditures may delay or prevent deployment of strategic initiatives.
Implementation of our key strategic initiatives, including recliner seating, enhanced food and beverage and premium sight and sound, require significant capital expenditures. Our gross capital expenditures were approximately $92.4 million, $173.8 million, and $518.1 million for the years ended December 31, 2021, December 31, 2020 and, December 31, 2019, respectively. We estimate that our cash outflows for capital expenditures, net of landlord contributions, will be approximately $150 million to $200 million for the year ending December 31, 2022 to maintain and enhance operations. A lack of available capital resources due to business performance or other financial commitments could prevent or delay the deployment of innovations in our theatres. We may reduce capital expenditures significantly or seek additional financing or issue additional securities, which may affect the timing and scope of growth
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strategy. We cannot be certain that we will be able to obtain new financing on favorable terms, or at all. In addition, covenants under our existing indebtedness limit our ability to incur additional indebtedness, and the performance of any additional or improved theatres may not be sufficient to service the related indebtedness that we are permitted to incur.
We are currently not paying dividends and in the future may not generate sufficient cash flows or have sufficient restricted payment capacity under our Senior Secured Credit Facilities or the indentures governing our debt securities to pay dividends on our Common Stock.
We currently are not paying a cash dividend. We are only able to pay dividends from our available cash on hand and funds received from our subsidiaries. Our subsidiaries' ability to make distributions to us will depend on their ability to generate substantial operating cash flow. Our ability to pay dividends to our stockholders in the future is subject to the terms of our Senior Secured Credit Facilities and the indentures governing our outstanding notes. Our operating cash flow and ability to comply with restricted payment covenants in our debt instruments will depend on our future performance, which will be subject to prevailing economic conditions and to financial, business and other factors beyond our control. In addition, dividend payments are not mandatory or guaranteed, and our board of directors may determine not to resume the payment of dividends. We may not pay dividends as a result of the following additional factors, among others:
| ● | we are not legally or contractually required to pay dividends; |
| ● | even if we determine to resume paying cash dividends, the actual amount of dividends distributed and the decision to make any distribution is entirely at the discretion of our board of directors and future dividends, if any, will depend on, among other things, our results of operations, cash requirements, financial condition, business opportunities, provisions of applicable law and other factors that our board of directors may deem relevant; |
| ● | the amount of dividends distributed is and will be subject to contractual restrictions under the restrictive payment covenants contained in the indentures governing our debt securities, the terms of our Senior Secured Credit Facilities, and the terms of any other outstanding or future indebtedness incurred by us or any of our subsidiaries; and |
| ● | the amount of dividends distributed is subject to state law restrictions. |
A significant portion of our net operating loss carryforwards have been reduced, which limits our ability to reduce our future tax liability, which may adversely affect our cash flows and therefore our ability to service our indebtedness.
In connection with the exchange offers and related financing transactions that closed on July 31, 2020, we realized approximately $1.2 billion of CODI. As a result of such CODI, we eliminated $1.2 billion of our net operating loss carryforwards through tax attribute reduction. The Tax Cuts and Jobs Act legislation (the “2017 Tax Act”) together with the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) included a number of significant tax provisions including (1) limiting business interest deductions to 30%, 50%, 50% and 30% of taxable EBITDA for years 2018, 2019, 2020 and 2021, respectively, (2) limiting interest deductions for 2022 and thereafter to 30% of taxable EBIT, (3) limiting the utilization of net operating losses generated in calendar year 2018 and thereafter to 80% of taxable income for years after 2020, (4) providing an indefinite carryover period for interest expense carryforwards and net operating losses generated in calendar year 2018 and thereafter, and (5) adding disallowed business interest carryforwards to the list of items subject to the annual limitation rules for corporations that undergo an “ownership change” within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”).
Utilization of our net operating loss carryforwards, disallowed business interest carryforward and other tax attributes became subject to the Section 382 ownership change limitation due to changes in our stock ownership on January 29, 2021. We do not believe, however, that our remaining tax attributes generated prior to this event are significantly limited by Section 382.
The loss of tax attributes as a result of CODI and related attribute reduction may adversely affect our cash flows and therefore our ability to service our indebtedness. For information regarding the remaining significant amount of net operating loss carryforwards, see Note 10—Income Taxes in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof.
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The value of our deferred tax assets may not be realizable to the extent our future profits are less than we have projected and we may be required to record valuation allowances against previously-recorded deferred tax assets, which may have a material adverse effect on our results of operations and our financial condition.
Our income tax expense includes deferred income taxes arising from changes in temporary differences between the financial reporting and the tax bases of assets and liabilities, credit carryforwards, interest expense carryforwards and net operating losses. We evaluate the realizability of our deferred income tax assets and assess the need for a valuation allowance jurisdiction by jurisdiction on an ongoing basis. In evaluating our deferred income tax assets, we consider whether it is more likely than not that the deferred income tax asset will be realized. The ultimate realization of our deferred income tax assets depends upon generating sufficient future taxable income during the periods in which our temporary differences become deductible and before our tax credit and net operating loss carryforwards expire. Our assessment of the realizability of our deferred income tax assets requires significant judgement. If we fail to achieve our projections or if we need to lower our projections, we may not have sufficient evidence of our ability to realize our deferred tax assets and we may need to increase our valuation allowance.
Our U.S. cumulative pretax losses have raised uncertainty about the likelihood of realizing our deferred tax assets, and as a result, we maintain a valuation allowance against all of the U.S. deferred tax assets and liabilities, except those deemed indefinite-lived. For the year ended December 31, 2021, our domestic cumulative pre-tax losses continue to raise uncertainty about the likelihood of realizing our deferred tax assets. For our U.S. jurisdiction, we recorded a net increase in valuation allowance of $279.0 million and total tax benefit of $9.4 million for 2021. During the first quarter of 2020, the severe impact of the COVID-19 pandemic on operations in Germany and Spain caused us 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 $33.1 million and $40.1 million was recorded for Germany and Spain, respectively. At December 31, 2020 year-end, we determined that it was appropriate to record a valuation allowance on the disallowed interest carryforward in Sweden as the realizability of this deferred tax asset in this jurisdiction does not meet the more likely than not standard. As such, the overall net tax benefit recorded on Sweden was reduced by a charge of $3.7 million. During 2021, we recorded a valuation allowance on all other deferred tax assets in Sweden, resulting in a charge of less than $1 million. With the exception of Finland and Norway, all other international jurisdictions carried valuation allowances against their deferred tax assets at the end of 2021.
There are no assurances that we will not increase the valuation allowances in future periods against deferred tax expense; likewise, any decrease would result in additional deferred tax benefit.
The elimination of the calculation of USD LIBOR rates may impact our contracts that are indexed to USD LIBOR.
In July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021 and the transition period has been subsequently extended through June 2023. The Alternative Reference Rates Committee ("ARRC") has proposed that the Secured Overnight Financing Rate ("SOFR") is the rate that represents best practice as the alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. ARRC has proposed a paced market transition plan to SOFR from USD-LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to USD-LIBOR. We have material contracts that are indexed to USD-LIBOR and we are monitoring this activity and evaluating the related risks.
Operational Risks
Our business depends on motion picture production and performance and is subject to intense competition, including increases in alternative film delivery methods or other forms of entertainment.
Our ability to operate successfully depends upon the availability, diversity and appeal of motion pictures, our ability to license motion pictures and the performance of such motion pictures in our markets. The most attended films are usually released during the summer and the calendar year-end holidays, making our business seasonal. We license first-run motion pictures, the success of which has increasingly depended on the marketing efforts of the major motion picture studios and the duration of the exclusive theatrical release windows. Poor performance of, or any disruption in the production of these motion pictures (including by reason of a strike or lack of adequate financing), a reduction in the marketing efforts of the major motion picture studios, the choice by distributors to release fewer feature-length movies theatrically, or the choice to release feature-length movies directly to video streaming or PVOD platforms could hurt our business and results of operations. Conversely, the successful performance of these motion pictures, particularly the
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sustained success of any one motion picture, or an increase in effective marketing efforts of the major motion picture studios and extension of the exclusive theatrical release windows, may generate positive results for our business and operations in a specific fiscal quarter or year that may not necessarily be indicative of, or comparable to, future results of operations. As movie studios rely on a smaller number of higher grossing “tent pole” films there may be increased pressure for higher film licensing fees. Our loyalty program and certain promotional pricing also may affect performance and increase the cost to license motion pictures relative to revenue for admission. In addition, a change in the type and breadth of movies offered by motion picture studios and the theatrical exclusive release window may adversely affect the demographic base of movie-goers.
Our theatres are subject to varying degrees of competition in the geographic areas in which we operate. Competitors may be multi-national circuits, national circuits, regional circuits or smaller independent exhibitors. Competition among theatre exhibition companies is often intense with respect to attracting patrons, terms for licensing of motion pictures and availability and securing and maintaining desirable locations.
We also compete with other film delivery methods, including video streaming, network, syndicated cable and satellite television, as well as video-on-demand, pay-per-view services, and subscription streaming services. We also compete for the public’s leisure time and disposable income with other forms of entertainment, including sporting events, amusement parks, live music concerts, live theatre, and restaurants. An increase in the popularity of these alternative film delivery methods and other forms of entertainment could reduce attendance at our theatres, limit the prices we can charge for admission and materially adversely affect our business and results of operations.
We rely on distributors of motion pictures, over whom we have no control, for the films that we exhibit, and our business may be adversely affected if our access to motion pictures is limited or delayed.
Historically, major motion picture distributors have been required by law pursuant to certain long-standing consent decrees to offer and license film to exhibitors, including us, on a film-by-film and theatre-by-theatre basis. Consequently, we cannot assure ourselves of a supply of motion pictures by entering into long-term arrangements with major distributors but must compete for our licenses on a film-by-film and theatre-by-theatre basis. However, given the termination of the consent decrees in 2020, which will become fully effective in 2022 (see the Regulatory Environment section in Part I, Item 1 “Business” of this Annual Report on Form 10-K), these practices may change in ways that cannot be predicted. Our business depends on maintaining good relations with these distributors, as this affects our ability to negotiate commercially favorable licensing terms for first-run films or to obtain licenses at all. With only 6 movie studio distributors representing approximately 87% of our U.S. markets’ box office revenues in 2021 and 4 movie studio distributors representing approximately 77% of our International markets’ box office revenues in 2021, there is a high level of concentration and continued consolidation in the industry. Our business may be adversely affected if our access to motion pictures is limited or delayed because of deterioration in our relationships with one or more distributors or for some other reason. To the extent that we are unable to license a popular film for exhibition in our theatres, our operating results may be adversely affected.
Our results of operations will be impacted by shrinking theatrical exclusive release windows and other practices adopted by movie studies.
Over the last decade, the average theatrical exclusive release window, which represents the time that elapses from the date of a film’s theatrical release to the date a film is available to consumers in-home, has decreased from approximately four months to approximately one and a half months. Additionally, during the COVID-19 pandemic, certain movie studios have adopted strategies that have eliminated the theatrical exclusive release window. Notably, Warner Bros. released its entire slate of films for 2021 simultaneously in theatres and on its home streaming service. Other studios such as Disney have released (and have indicated an intention in certain cases to continue to release) movie titles directly to the in-home and streaming channels, avoiding a theatrical release. Other studios may adopt similar strategies, and these adjustments due to the COVID-19 pandemic may lead to permanent changes that shorten or eliminate the theatrical exclusive release window. These practices have significantly impacted our revenues and are expected to continue to have an adverse impact on our business and results of operations going forward.
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We rely on our information systems to conduct our business, and any failure to protect these systems against security breaches or failure of these systems themselves could adversely affect our business, results of operations and liquidity and could result in litigation and penalties. Additionally, if these systems fail or become unavailable for any significant period of time, our business could be harmed.
Potential cyber security incidents could interfere with our business and operations. Computer hacking, installation of malware, installation of ransomware, phishing, and spamming attacks against online networking platforms have become more prevalent and more sophisticated. Though it is difficult to determine what, if any, harm may directly result from any specific attack or interruption, such events could also be expensive to remedy, harm our reputation or brands, lead users to lose trust and confidence in our business, and/or result in costly fines, penalties, and costly remediation requirements. We, and others on our behalf, also store “personally identifiable information” (“PII”) with respect to employees, vendors, customers, and others. While we have implemented safeguards to protect the privacy of this information, there is still a risk that hackers or others might obtain this information, which would result in potentially costly remedial action, as well as potential fines, penalties, lawsuits, and reputational damage.
Furthermore, we rely on our information systems and those of third parties for storing proprietary company information about our products and intellectual property, as well as for processing patron purchases, loyalty program activity, supporting accounting functions and financial statement preparation, paying our employees, and otherwise running our business. In addition, we may need to enhance our information systems to provide additional capabilities and functionality. The implementation of new information systems and enhancements is frequently disruptive to the underlying business of an enterprise. Any disruptions affecting our ability to accurately report our financial performance on a timely basis could adversely affect our business in a number of respects. If we are unable to successfully implement potential future system enhancements, our financial position, results of operations, and cash flows could be negatively impacted.
We depend on key personnel for our current and future performance.
Our current and future performance depends to a significant degree upon the retention of our senior management team and other key personnel. The loss or unavailability of any member of our senior management team or a key employee could have a material adverse effect on our business, financial condition, and results of operations. We cannot give assurance that we would be able to locate or employ qualified replacements for senior management or key employees on acceptable terms.
Supply chain disruptions and labor shortages may negatively impact our operations and operating results.
We rely on a limited number of suppliers for certain products, supplies and services, including a single vendor for the warehousing and distribution of most of the products and supplies for our food and beverage operations. Shortages, delays, or interruptions in the availability of food and beverage items and other supplies to our theatres may be caused by adverse weather conditions; natural disasters; governmental regulation; recalls; commodity availability; seasonality; public health crises or pandemics; labor issues or other operational disruptions; the inability of our suppliers to manage adverse business conditions, obtain credit or remain solvent; or other conditions beyond our control. Such shortages, delays or interruptions could adversely affect the availability, quality, and cost of the items we buy and the operations of our business. Supply chain risk could increase our costs and limit the availability of products that are critical to our operations. If we raise prices in response to increased costs or shortages, it may negatively impact our sales. If we temporarily remove popular food and beverage options without comparable alternatives, we may experience a reduction in sales during the time affected by the shortage or thereafter if our guests change their purchasing habits.
During the recovery from the impacts of the COVID-19 pandemic, we have, with regard to certain items, experienced difficulties in maintaining a consistent supply, seen delays in production and deliveries, been required to identify alternative suppliers, and suspended sales regionally or entirely. We expect these issues to continue for the foreseeable future and plan to minimize the impact by focusing on the supply of those items with the greatest impact on our sales and operations.
One of the impacts of COVID-19 has been extended labor shortages, resulting in our demand for staff outweighing the available supply. The success of our business depends on our ability to recruit and retain staff members for our theatres. Without proper staffing, wait times to buy tickets and concessions are extended, operating hours may be reduced, and, even in some cases, theatres cannot open at all. As patrons begin to return to our theatres in greater numbers, these conditions may result in a poor guest experience, perhaps causing them to not return in the future. These
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labor shortages have also resulted in wages rising to be competitive in the small available workforce. Increased labor costs cut into profits already extremely affected by COVID-19.
Optimizing our theatre circuit through new construction and the transformation of our existing theatres may be subject to delay and unanticipated costs.
The availability of attractive site locations for new construction is subject to various factors that are beyond our control. These factors include:
| ● | local conditions, such as scarcity of space or increase in demand for real estate, demographic changes and changes in zoning and tax laws; and |
| ● | competition for site locations from both theatre companies and other businesses. |
We typically require 18 to 24 months in the United States from the time we reach an agreement with a landlord to when a theatre opens. This timeframe may vary as we introduce this concept in international markets.
In addition, the improvement of our existing theatres through our enhanced food and beverage and recliner seating and premium sight and sound initiatives is subject to substantial risks, such as difficulty in obtaining permits, landlord approvals and operating licenses (e.g. liquor licenses). We may also experience cost overruns from delays or other unanticipated costs in both new construction and facility improvements. Furthermore, our new sites and transformed locations may not perform to our expectations.
Climate change, adverse weather conditions and natural disasters could adversely affect our theatre operations, sales or financial results.
Climate change and natural disasters may adversely affect our ability to keep movie theatres open and operational in affected regions and consumer ability to travel to our theatres if they are open. Relative to normal weather conditions, extended severe weather as a result of climate change can close theatres for days due to pervasive power outages, flooding, or wildfires. These severe weather events can also result in delays in the construction of new theatres, interruptions to the availability or increases in the cost of utilities, and shortages in the supply, or increases in the costs of concessions and other supplies required for operations. Additionally, the seasonal timing of severe weather patterns tends to mimic the fluctuation of our sales. With our busy season being around the winter holidays and in the summer, the risk is even greater for extended severe winter storms and increased hurricanes and tornadoes in the summer months.
Regulatory Risks
General political, social and economic conditions can reduce our attendance.
Our success depends on general political, social, and economic conditions and the willingness of consumers to spend money at movie theatres. If going to motion pictures becomes less popular or consumers spend less on food and beverage, our operations could be adversely affected. In addition, our operations could be adversely affected if consumers’ discretionary income falls as a result of an economic downturn. Geopolitical events, including the threat of terrorism or cyber-attacks, or widespread health emergencies, such as COVID-19 or other pandemics or epidemics, could cause people to avoid our theatres or other public places where large crowds are in attendance. In addition, due to our concentration in certain markets, natural disasters such as hurricanes or earthquakes in those markets could adversely affect our overall results of operations.
We are subject to substantial government regulation, which could entail significant cost.
We are subject to various federal, state and local laws, regulations and administrative practices both domestically and internationally affecting our business, and we must comply with provisions regulating antitrust, customary health and sanitation standards and those imposed as a result of the COVID-19 pandemic, equal employment, environmental, licensing for the sale of food and, in some theatres, alcoholic beverages, and data protection and privacy laws, including GDPR, CCPA, and other pending future domestic privacy laws and regulations. Our new theatre openings could be delayed or prevented or our existing theatres could be impacted by difficulties or failures in our ability to obtain or maintain required approvals or licenses. Changes in existing laws or implementation of new laws, regulations and practices could have a significant impact on our business. A significant portion of our theatre level employees are part-time workers who are paid at or near the applicable minimum wage in the theatre’s jurisdiction.
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Increases in the minimum wage and implementation of reforms requiring the provision of additional benefits will increase our labor costs.
We own and operate facilities throughout the United States and various international markets throughout Europe and are subject to the environmental laws and regulations of those jurisdictions, particularly laws governing the cleanup of hazardous materials and the management of properties. We might in the future be required to participate in the cleanup of a property that we own or lease, or at which we have been alleged to have disposed of hazardous materials from one of our facilities. In certain circumstances, we might be solely responsible for any such liability under environmental laws, and such claims could be material.
In the U.S., our theatres must comply with Title III of the Americans with Disabilities Act of 1990 (“ADA”). Compliance with the ADA requires that public accommodations, including websites and mobile apps for such public accommodations, “reasonably accommodate” individuals with disabilities and that new construction or alterations made to “commercial facilities” conform to accessibility guidelines unless “structurally impracticable” for new construction or technically infeasible for alterations. Non-compliance with the ADA could result in the imposition of injunctive relief, fines, and an award of damages to private litigants or additional capital expenditures to remedy such non-compliance, any of which could have a material adverse effect on our operations and financial condition. In Europe, all territories have similar national regulations relating to disabilities that our theatres operate in accordance with. Noncompliance with these regulations could carry financial, operational and reputation risks.
We are subject to complex taxation, changes in tax rates, adoption of new United States, European Union or international tax legislation and disagreements with tax authorities that could adversely affect our business, financial condition or results of operations.
We are subject to many different forms of taxation in both the U.S. and in foreign jurisdictions where we operate. Current economic and political conditions, including Brexit and Organization for Economic Co-operation and Development’s (“OECD”), proposed recommendations around taxation in the Digital Economy, make tax rates, transfer pricing compliance and tax regulations, including in the U.S., U.K, and European Union subject to significant change. Recent examples include the Court of Justice of the European Union narrowing the EU Interest & Royalty withholding directive, OECD recommendations on Base Erosion and Profit Shifting (“BEPS”) including new rules for the allocation of multinational organization profits between countries and a global minimum tax rate, the European Commission’s Anti-Tax Avoidance Package, the U.S. Tax Cuts and Jobs Act signed into law in December 2017, and the CARES Act.
The cost of compliance with these laws and regulations is high and is likely to increase in the future. Any failure on our part to comply with these laws and regulations can result in negative publicity and diversion of management time and effort and may subject us to significant liabilities and other penalties.
The legal regimes governing our international business operations could require our international subsidiaries or their directors to pursue insolvency proceedings.
The legal regimes governing certain of our international subsidiaries (including Germany, Spain, Portugal, Norway and Sweden) impose on directors an obligation to pursue insolvency proceedings in certain circumstances. There are various potential triggers including illiquidity, over-indebtedness and inadequate capitalization. If our international subsidiaries were required to (and did) pursue insolvency proceedings, that could in turn trigger events of default under our international credit facility and/or have other material adverse effects on our business and financial position, including additional insolvency proceedings.
We may be reviewed by antitrust authorities.
Given our size and market share, pursuit of acquisition opportunities that would increase the number of our theatres in markets where we have a leading market share would likely result in significant review by antitrust regulators in the applicable jurisdictions, and we may be required to dispose of theatres in order to complete such acquisition opportunities. As a result, we may not be able to succeed in acquiring other exhibition companies or we may have to dispose of a significant number of theatres in key markets in order to complete such acquisitions.
We operate in a consolidating industry that is scrutinized from time to time for compliance with antitrust and competition laws, including currently dormant investigations into film clearances and joint ventures among competing exhibitors. If we were found to have violated antitrust laws, it could have a material adverse effect on our operations and financial condition.
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Our business is subject to international economic, political and other risks that could negatively affect our business, results of operations and financial condition.
As a result of our international operations, 25.8% of our revenues were derived from countries outside the United States for the year ended December 31, 2021. The success of our international operations is subject to risks that are beyond our control. Accordingly, our business is subject to risks associated with doing business internationally, including:
| ● | difficulties and costs of staffing and managing international operations among diverse geographies, languages and cultures; |
| ● | the impact of regional or country-specific business cycles and economic instability; |
| ● | the potential for political, social, or economic unrest, terrorism, hostilities, cyber-attacks or war, including the conflict between Russia and Ukraine and the potential impact of financial and economic sanctions on the regional and global economy; |
| ● | fluctuations in foreign currency exchange rates which could lead to fluctuations in our reported results of operations or result in significant decreases in the value of our international investments as denominated in U.S. Dollars; |
| ● | increased foreign interest rates, foreign exchange fees and other bank charges as a result of financing our foreign operations; |
| ● | exposure to anti-corruption laws, including the Foreign Corrupt Practices Act (“FCPA”) and the U.K. Bribery Act (the “Bribery Act”), and export-control regulations and economic sanctions regulations, including those promulgated by the Office of Foreign Assets Control, United States Department of Treasury (“OFAC”); |
| ● | exposure to local economic conditions and local laws and regulations; |
| ● | exposure to local labor and employment laws; |
| ● | relationships with local labor unions and works councils; |
| ● | limited borrowing capabilities relating to activities in non-U.S. countries; |
| ● | economic and/or credit conditions abroad; |
| ● | potential adverse changes in the political and/or economic stability of foreign countries or in their diplomatic relations with the United States; |
| ● | restrictions on the withdrawal of foreign investment and earnings; |
| ● | government policies against businesses owned by foreigners; |
| ● | investment restrictions or requirements; |
| ● | diminished ability to legally enforce our contractual rights in foreign countries; |
| ● | difficulty in protecting our brand, reputation and intellectual property; |
| ● | restrictions on the ability to obtain or retain licenses required for operation; |
| ● | foreign exchange restrictions; |
| ● | adverse changes in regulatory or tax requirements; |
| ● | restrictions on foreign ownership of subsidiaries; |
| ● | data protection and privacy laws, including GDPR, and similar domestic laws such as the California Privacy Act, and other restrictions on transferring personally identifiable information outside of a jurisdiction; and |
| ● | tariffs and other trade barriers. |
34
If we are unable to manage the complexity of our global operations successfully, it could have a material adverse effect on our business, financial condition and results of operations.
Risk Related to our Common Stock
There has been significant recent dilution and there may continue to be additional future dilution of our Common Stock, which could adversely affect the market price of shares of our Common Stock. The risks of future dilution must also be weighed against the risks of failing to increase our authorized shares, each of which could adversely affect the market price of shares of our Common Stock.
From January 1, 2020 through February 24, 2022, we have issued 464,698,868 shares of our Common Stock in a combination of at-the-market sales, conversion of Class B common stock, conversion of notes, exchanges of notes, transaction fee payments, and equity grant vesting. As of February 24, 2022, there were 516,778,945 shares of Common Stock issued and outstanding. The dilutive effect of these issuances was partially offset by the cancellation of 51,769,784 shares of our Class B common stock. If, in the future, we obtain shareholder approval to increase our authorized shares, we may issue additional shares of Common Stock to raise cash to bolster our liquidity, to refinance indebtedness, for working capital, to finance strategic initiatives and future acquisitions or for other purposes. We may also issue preferred equity securities or securities convertible into, or exchangeable for, or that represent the right to receive, shares of Common Stock. We may also acquire interests in other companies, or other assets by using a combination of cash and shares of Common Stock or just shares of Common Stock. Additionally, vesting under our equity compensation programs results in the issuance of new shares and shares withheld to cover tax withholding obligations upon vesting remain available for future grants. Any of these events may dilute the ownership interests of current stockholders, reduce our earnings per share or have an adverse effect on the price of our shares of Common Stock.
If we are unable to obtain shareholder approval to increase our authorized shares, this will create substantial risks, which could have an adverse effect on the price of our shares of Common Stock, including:
| ● | we will be unable to issue equity to bolster our liquidity and respond to future challenges, including if attendance levels do not return to the levels assumed; |
| ● | for future financing, we may be required to issue additional debt, which may be unavailable on favorable terms or at all, which would exacerbate the challenges created by our high leverage; |
| ● | we will be unable to issue equity in deleveraging transactions, including exchanges, redemptions or buy-backs of debt, which will limit our flexibility to deliver; and |
| ● | we will be unable to issue equity as currency in strategic transactions, including acquisitions, joint ventures or in connection with landlord negotiations, which may prevent us from entering into transactions that could increase shareholder value. |
The market prices and trading volume that our shares of Common Stock have recently experienced, and may continue to experience, extreme volatility, which could cause purchasers of our Common Stock could incur substantial losses.
The market prices and trading volume that our shares of Common Stock have recently experienced, and may continue to experience, extreme volatility, which could cause purchasers of our Common Stock to incur substantial losses. For example, during 2021, the market price of our Common Stock has fluctuated from an intra-day low of $1.91 per share on January 5, 2021 to an intra-day high on the NYSE of $72.62 on June 2, 2021. Since June 2, 2021, the trading price of our Common Stock has reached an intra-day low on the NYSE of $13.40 per share on January 28, 2022, and the reported sale price of our Common Stock on the NYSE on February 24, 2022, was $17.68 per share. During 2021, daily trading volume ranged from approximately 18,270,800 to 1,222,342,500 shares.
We believe that the recent volatility and our current market prices reflect market and trading dynamics unrelated to our underlying business, or macro or industry fundamentals, and we do not know how long these dynamics will last. Under the circumstances, we caution you against investing in our Common Stock, unless you are prepared to incur the risk of losing all or a substantial portion of your investment.
Extreme fluctuations in the market price of our Common Stock have been accompanied by reports of strong and atypical retail investor interest, including on social media and online forums. The market volatility and trading patterns we have experienced create several risks for investors, including the following:
35
| ● | the market price of our Common Stock has experienced and may continue to experience rapid and substantial increases or decreases unrelated to our operating performance or prospects, or macro or industry fundamentals, and substantial increases may be significantly inconsistent with the risks and uncertainties that we continue to face; |
| ● | factors in the public trading market for our Common Stock may include the sentiment of retail investors (including as may be expressed on financial trading and other social media sites and online forums), the direct access by retail investors to broadly available trading platforms, the amount and status of short interest in our securities, access to margin debt, trading in options and other derivatives on our Common Stock and any related hedging and other trading factors; |
| ● | our market capitalization, as implied by various trading prices, currently reflects valuations that diverge significantly from those seen prior to recent volatility and that are significantly higher than our market capitalization immediately prior to the COVID-19 pandemic, and to the extent, these valuations reflect trading dynamics unrelated to our financial performance or prospects, purchasers of our Common Stock could incur substantial losses if there are declines in market prices driven by a return to earlier valuations; |
| ● | to the extent volatility in our Common Stock is caused, as has widely been reported, by a “short squeeze” in which coordinated trading activity causes a spike in the market price of our Common Stock as traders with a short position make market purchases to avoid or to mitigate potential losses, investors purchase at inflated prices unrelated to our financial performance or prospects, and may thereafter suffer substantial losses as prices decline once the level of short-covering purchases has abated; |
| ● | if the market price of our Common Stock declines, you may be unable to resell your shares at or above the price at which you acquired them. We cannot assure you that the equity issuance of our Common Stock will not fluctuate or decline significantly in the future, in which case you could incur substantial losses; and |
| ● | the Company will pay cash tax liabilities of $52.2 million to cover withholding obligations upon vesting of awards under our Equity Incentive Plan in January and February of 2022. The Company will withhold shares based on historical elections by participants under the terms of the plan, equivalent to the cash tax requirements for federal, state and local withholdings, pay the required tax obligation and return the withheld shares to the Equity Incentive Plan. |
We may continue to incur rapid and substantial increases or decreases in our stock price in the foreseeable future that may not coincide in timing with the disclosure of news or developments by or affecting us. Accordingly, the market price of our shares of Common Stock may fluctuate dramatically and may decline rapidly, regardless of any developments in our business. Overall, there are various factors, many of which are beyond our control, that could negatively affect the market price of our Common Stock or result in fluctuations in the price or trading volume of our Common Stock, including:
| ● | the ongoing impacts and developments relating to the COVID-19 pandemic; |
| ● | actual or anticipated variations in our annual or quarterly results of operations, including our earnings estimates and whether we meet market expectations with regard to our earnings; |
| ● | our current inability to pay dividends or other distributions; |
| ● | publication of research reports by analysts or others about us or the motion picture exhibition industry, which may be unfavorable, inaccurate, inconsistent or not disseminated on a regular basis; |
| ● | changes in market interest rates that may cause purchasers of our shares to demand a different yield; |
| ● | changes in market valuations of similar companies; |
| ● | market reaction to any additional equity, debt or other securities that we may issue in the future, and which may or may not dilute the holdings of our existing stockholders; |
| ● | additions or departures of key personnel; |
| ● | actions by institutional or significant stockholders; |
| ● | short interest in our stock and the market response to such short interest; |
36
| ● | the dramatic increase in the number of individual holders of our stock and their participation in social media platforms targeted at speculative investing; |
| ● | speculation in the press or investment community about our company or industry; |
| ● | strategic actions by us or our competitors, such as acquisitions or other investments; |
| ● | legislative, administrative, regulatory or other actions affecting our business, our industry, including positions taken by the Internal Revenue Service (“IRS”); |
| ● | investigations, proceedings, or litigation that involve or affect us; |
| ● | the occurrence of any of the other risk factors included or incorporated by reference in this Annual Report on Form 10-K; and |
| ● | general market and economic conditions. |
Future offerings of debt, which would be senior to our Common Stock upon liquidation, and/or preferred equity securities, which may be senior to our Common Stock for purposes of distributions or upon liquidation, could adversely affect the market price of our Common Stock.
In the future, we may attempt to increase our capital resources by making additional offerings of debt or preferred equity securities, including convertible or non-convertible senior or subordinated notes, convertible or non-convertible preferred stock, medium-term notes and trust preferred securities, to raise cash or bolster our liquidity, to refinance indebtedness, for working capital, to finance strategic initiatives and future acquisitions or for other purposes. Upon liquidation, holders of our debt securities and shares of preferred stock and lenders with respect to other borrowings will receive distributions of our available assets prior to the holders of our Common Stock. In addition, any preferred stock we may issue could have a preference on liquidating distributions or a preference on distribution payments that could limit our ability to make a distribution to the holders of our Common Stock. Since our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future offerings reducing the market price of our Common Stock.
Anti-takeover protections in our amended and restated certificate of incorporation and our amended and restated bylaws may discourage or prevent a takeover of our Company, even if an acquisition would be beneficial to our stockholders.
Provisions contained in our amended and restated certificate of incorporation and amended and restated bylaws, as amended, as well as provisions of the Delaware General Corporation Law delay or make it more difficult to remove incumbent directors or for a third-party to acquire us, even if a takeover would benefit our stockholders. These provisions include:
| ● | a classified board of directors; |
| ● | the sole power of a majority of the board of directors to fix the number of directors; |
| ● | limitations on the removal of directors; |
| ● | the sole power of the board of directors to fill any vacancy on the board of directors, whether such vacancy occurs as a result of an increase in the number of directors or otherwise; |
| ● | the ability of our board of directors to designate one or more series of preferred stock and issue shares of preferred stock without stockholder approval; and |
| ● | the inability of stockholders to call special meetings. |
Our issuance of shares of preferred stock could delay or prevent a change of control of our company. Our board of directors has the authority to cause us to issue, without any further vote or action by the stockholders, up to 50,000,000 shares of preferred stock, par value $0.01 per share, in one or more series, to designate the number of shares constituting any series, and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, voting rights, rights and terms of redemption, redemption price or prices and liquidation preferences of such series. The
37
issuance of shares of preferred stock may have the effect of delaying, deferring or preventing a change in control of our company without further action by the stockholders, even where stockholders are offered a premium for their shares.
Our incorporation under Delaware law, the ability of our board of directors to create and issue a new series of preferred stock or a stockholder rights plan and certain other provisions of our amended and restated certificate of incorporation and amended and restated bylaws, as amended, could impede a merger, takeover or other business combination involving our company or the replacement of our management or discourage a potential investor from making a tender offer for our Common Stock, which, under certain circumstances, could reduce the market value of our Common Stock.
An issuance of preferred stock could dilute the voting power of the Common Stockholders and adversely affect the market value of our Common Stock.
The issuance of shares of preferred stock with voting rights may adversely affect the voting power of the holders of our other classes of voting stock either by diluting the voting power of our other classes of voting stock if they vote together as a single class, or by giving the holders of any such preferred stock the right to block an action on which they have a separate class vote even if the action were approved by the holders of our other classes of voting stock.
In addition, the issuance of shares of preferred stock with dividend or conversion rights, liquidation preferences or other economic terms favorable to the holders of preferred stock could adversely affect the market price for our Common Stock by making an investment in the Common Stock less attractive. For example, investors may not wish to purchase Common Stock at a price above the conversion price of a series of convertible preferred stock because the holders of the preferred stock would effectively be entitled to purchase Common Stock at the lower conversion price causing economic dilution to the holders of Common Stock.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
The following table sets forth the general character and ownership classification of our theatre circuit, excluding non-consolidated joint ventures and managed theatres, as of December 31, 2021:
Property Holding Classification |
|
Theatres |
|
Screens |
|
Owned |
|
43 |
|
414 |
|
Leased |
|
829 |
|
9,756 |
|
Total |
|
872 |
|
10,170 |
We lease our corporate headquarters in Leawood, Kansas. We believe our facilities are currently adequate for our operations.
Please refer to Narrative Description of Business under Part I, Item 1 of this Annual Report on Form 10-K for the geographic locations of our Theatrical Exhibition circuit as of December 31, 2021. See Note 3—Leases in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof.
Item 3. Legal Proceedings.
The information required to be furnished by us under this Part I, Item 3 (Legal Proceedings) is incorporated by reference to the information contained in Note 11—Commitments and Contingencies to the Consolidated Financial Statements included in Part II, Item 8 on this Annual Report on Form 10-K.
Item 4. Mine Safety Disclosures.
Not applicable
38
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common equity consists of Class A common stock. Our Class A common stock has traded on the New York Stock Exchange since December 18, 2013 under the symbol “AMC.” There was no established public trading market for our Class B common stock and on February 1, 2021, all outstanding Class B common stock was converted to Class A common stock, which resulted in the retirement of Class B common stock.
Holders of Common Stock
On February 24, 2022, there were 8,963 stockholders of record of our Class A common stock, who hold their shares directly with our transfer agent.
Dividend Policy
In the first quarter of 2020, we elected to decrease the dividend paid in the first quarter of 2020 by $0.17 per share (or a quarterly rate equal to approximately $0.03 per share) when compared to quarterly cash dividends paid of $0.20 per share for each quarter in 2019 on Holdings’ Class A and Class B common stock. Since April 24, 2020, we have been prohibited from making dividend payments in accordance with the covenant suspension conditions in our Credit Agreement (as defined in Note 8—Corporate Borrowings and Finance Lease Obligations to the Consolidated Financial Statements included in Part II, Item 8 thereof). The payment of future dividends after expiration of our covenant suspension conditions (for further information see Notes 8—Corporate Borrowings and Finance Lease Obligations to the Consolidated Financial Statements included in Part II, Item 8 on this Annual Report on Form 10-K) is subject to our Board of Directors’ discretion and dependent on many considerations, including limitations imposed by covenants in the agreements governing our indebtedness, operating results, capital requirements, strategic considerations and other factors.
We will only be able to pay dividends from our available cash on hand and funds received from our subsidiaries. Their ability to make any payments to us will depend upon many factors, including our operating results, cash flows and the terms of the Senior Secured Credit Facilities and the indentures governing our debt securities. The declaration and payment of any future dividends will be at the sole discretion of our Board of Directors after taking into account various factors, including legal requirements, our subsidiaries’ ability to make payments to us, our financial condition, operating results, cash flow from operating activities, available cash and current and anticipated cash needs. See the Liquidity and Capital Resources section of Item 7 of Part II thereof for further information regarding the dividend restrictions.
Securities Authorized for Issuance Under Equity Compensation Plans
See Item 12. of Part III of this Annual Report on Form 10-K.
Unregistered Sales of Equity Securities and Use of Proceeds
Sale of Unregistered Securities
On June 1, 2021, we issued 8,500,000 shares of Common Stock to Mudrick Capital Management, LP, for $230.5 million in a private placement pursuant to an exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933. The Company intends to use the proceeds from the share sale primarily for the pursuit of value creating acquisitions of theatre assets and leases, as well as investments to enhance the consumer appeal of its theatres. In addition, with these funds, the Company intends to continue exploring deleveraging opportunities.
Issuer Purchase of Equity Securities
None.
39
Performance Graph
The following stock price performance graph should not be deemed incorporated by reference by any general statement incorporating by reference this Annual Report on Form 10-K into any filing under the Exchange Act or the Securities Act of 1933, as amended, except to the extent that we specifically incorporate this information by reference and shall not otherwise be deemed filed under such acts.
The following stock performance graph compares, for the period December 31, 2016 through December 31, 2021, the cumulative total stockholder returns for AMC’s Common Stock, the Standard & Poor’s Corporation Composite 500 Index and a self-determined peer group consisting of Cinemark Holdings, Inc. (CNK) and IMAX Corporation (IMAX). Measurement points are the last trading day for each month ended December 31, 2016 through December 31, 2021. The graph assumes that $100.00 was invested on December 31, 2016 in our Common Stock and in our peer group and in the Standard & Poor’s Corporation Composite 500 Index and assumes reinvestment of any dividends.
40
The stock price performance below is not necessarily indicative of future stock price performance.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among AMC Entertainment Holdings, Inc., the S&P 500 Index, and a Peer Group
*$100 invested on December 31, 2016 in stock or in index, including reinvestment of dividends.
Fiscal year ended December 31.
Copyright© 2022 Standard & Poor's, a division of S&P Global. All rights reserved.
|
12/16 |
|
3/17 |
|
6/17 |
|
9/17 |
12/17 |
||
AMC Entertainment Holdings, Inc. |
|
100.00 |
|
94.09 |
|
68.65 |
|
45.02 |
46.91 |
|
S&P 500 |
|
100.00 |
|
106.07 |
|
109.34 |
|
114.24 |
121.83 |
|
Peer Group |
100.00 |
113.79 |
92.26 |
88.73 |
87.22 |
|||||
3/18 |
|
6/18 |
|
9/18 |
|
12/18 |
||||
AMC Entertainment Holdings, Inc. |
44.20 |
50.71 |
71.06 |
43.16 |
||||||
S&P 500 |
120.91 |
125.06 |
134.70 |
116.49 |
||||||
Peer Group |
88.94 |
87.80 |
101.68 |
86.92 |
||||||
|
3/19 |
|
6/19 |
|
9/19 |
|
12/19 |
|||
AMC Entertainment Holdings, Inc. |
|
52.91 |
|
33.86 |
|
39.50 |
|
27.38 |
||
S&P 500 |
|
132.39 |
|
138.09 |
|
140.43 |
|
153.17 |
||
Peer Group |
99.46 |
90.14 |
97.48 |
87.28 |
||||||
3/20 |
|
6/20 |
|
9/20 |
|
12/20 |
||||
AMC Entertainment Holdings, Inc. |
12.03 |
|
16.33 |
|
17.93 |
|
8.07 |
|||
S&P 500 |
123.15 |
|
148.45 |
|
161.71 |
|
181.35 |
|||
Peer Group |
29.55 |
34.48 |
32.12 |
53.11 |
||||||
3/21 |
|
6/21 |
|
9/21 |
|
12/21 |
||||
AMC Entertainment Holdings, Inc. |
38.87 |
215.79 |
144.90 |
103.56 |
||||||
S&P 500 |
192.55 |
209.01 |
210.23 |
233.41 |
||||||
Peer Group |
61.23 |
65.73 |
57.69 |
50.32 |
41
Item 6. [Reserved].
Not applicable
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion relates to the consolidated audited financial statements of AMC Entertainment Holdings, Inc. (“AMC”) included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements. Please see “Forward-Looking Statements” and “Risk Factors” for a discussion of the risks, uncertainties and assumptions relating to these statements.
Overview
AMC is the world’s largest theatrical exhibition company and an industry leader in innovation and operational excellence. We operate theatres in 12 countries, including the U.S., Europe and Saudi Arabia.
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 loyalty program, rental of theatre auditoriums, income from gift card and exchange ticket sales, and online ticketing fees. As of December 31, 2021, we owned, operated or had interests in 946 theatres and 10,562 screens.
Temporarily Suspended or Limited Operations
Throughout the first quarter of 2020, we temporarily suspended 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 of March 17, 2020, all of our U.S. and International theatre operations were temporarily suspended. We resumed limited operations in the International markets in early June 2020 and limited operations in the U.S. markets in late August 2020. A COVID-19 resurgence during the fourth quarter of 2020 resulted in additional local, state, and federal governmental restrictions and many previously reopened theatres in International markets temporarily suspended operations again.
As of March 31, 2021, we operated at 585 domestic theatres with limited seating capacities, representing approximately 99% of our domestic theatres. As of June 30, 2021, the Company operated 593 domestic theatres, representing approximately 100% of our domestic theatres with remaining seating capacity restrictions winding down throughout the quarter. As of September 30, 2021 and December 31, 2021, the Company operated 596 and 593 domestic theatres, respectively, representing essentially 100% of its domestic theatres. Total revenues for the U.S. markets increased $1,049.1 million for the year ended December 31, 2021, compared to the year ended December 31, 2020.
As of March 31, 2021, we operated at 97 international theatres, with limited seating capacities, representing approximately 27% of its international theatres. As of June 30, 2021, we operated 335 international theatres with limited seating capacities, representing approximately 95% of our international theatres. The majority of international theatre operations were suspended for the first two months of the second quarter of 2021 due to a COVID-19 resurgence and did not reopen until early June 2021. At September 30, 2021 and December 31, 2021, the Company operated 351 and 337 international theatres, respectively, representing approximately 99% and 95%, respectively, of its international theatres. Total revenues for the International markets increased $236.4 million for the year ended December 31. 2021, compared to the year ended December 31, 2020.
Box Office Admissions and Film Content
Box office admissions are our largest source of revenue. We predominantly license theatrical 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 based on a share of admissions revenues and are accrued based on estimates of the final settlement pursuant to our film licenses. These licenses typically state that rental fees are based on the box office performance of each film, though in certain circumstances and less frequently, our rental fees are based on a
42
mutually agreed settlement rate that is fixed. In some European territories, film rental fees are established on a weekly basis and some licenses use a per capita agreement instead of a revenue share, paying a flat amount per ticket.
The North American and International industry box office have been significantly impacted by the COVID-19 pandemic. As a result, film distributors have postponed new film theatrical releases and/or shortened the period of theatrical exclusivity (the “window”). Theatrical releases may continue to be postponed and windows shortened while the box office suffers from COVID-19 impacts. As a result of the reduction in theatrical film releases, we have licensed and exhibited a larger number of previously released films that have lower film rental terms. We have made adjustments to theatre operating hours to align screen availability and associated theatre operating costs with attendance levels for each theatre.
As we continue our recovery from the impacts of the COVID-19 pandemic on our business, our aggregate attendance levels remain significantly behind pre-pandemic levels. However, for the first time since 2019, substantially all of our worldwide theatres were open for the entirety of the third and fourth quarters of 2021.
During the year ended December 31, 2021, films licensed from our six largest movie studio distributors based on revenues accounted for approximately 87% of our U.S. admissions revenues, which consisted of Sony, Disney, Universal, Warner Bros., Paramount, and Lionsgate. In Europe, approximately 77% of our box office revenue came from films attributed to our four largest distributor groups; which consisted of Universal, Disney, Sony, and Warner Bros. 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.
Movie Screens
The following table provides detail with respect to digital delivery, 3D enabled projection, large screen formats, such as IMAX® and our proprietary Dolby Cinema™, other Premium Large Format (“PLF”) screens, enhanced food and beverage offerings and our premium seating as deployed throughout our circuit:
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 |
December 31, 2021 |
December 31, 2020 |
December 31, 2021 |
December 31, 2020 |
||||
IMAX® |
|
186 |
|
185 |
38 |
|
36 |
|
Dolby CinemaTM |
|
154 |
|
149 |
8 |
|
6 |
|
Other Premium Large Format ("PLF") |
|
56 |
|
54 |
77 |
|
75 |
|
Dine-in theatres |
|
729 |
|
723 |
13 |
|
8 |
|
Premium seating |
|
3,395 |
|
3,342 |
572 |
|
533 |
|
As of December 31, 2021, AMC was the largest IMAX® exhibitor in the U.S. with a 57% market share. Each one of our IMAX® local installations is protected by geographic exclusivity, and as of December 31, 2021, our IMAX® screen count was 96% greater than our closest competitor. We also operate 35 IMAX® screens in Europe. As part of our long-term growth strategy, we expect to continue to expand our IMAX® relationship across the U.S. and Europe, further strengthening our position as the largest IMAX® exhibitor in the U.S. and a leading IMAX® exhibitor in the United Kingdom and Europe. During the year ended December 31, 2021, we opened two new IMAX screens in the U.S. theatres, closed one IMAX screen related to U.S. theatres that was permanently closed and opened two new IMAX screens related to theatres in Saudi Arabia.
As of December 31, 2021, we operated 154 Dolby Cinema™ at AMC auditoriums in the U.S. In December 2018, we introduced the first United Kingdom Dolby Cinema Auditorium in our iconic Leicester Square theatre in the heart of London, ending 2021 with eight Dolby Cinema™ Auditoriums in the International markets. We expect to expand the deployment of our innovative Dolby Cinema™ auditoriums in both our U.S. and International markets as part of our long-term growth strategy.
We also offer our private label PLF experience at many of our locations, with superior sight and sound technology and enhanced seating as contrasted with our traditional auditoriums. These proprietary PLF auditoriums offer an enhanced theatrical experience for movie-goers beyond our current core theatres, at a lower price premium than IMAX® and/or Dolby Cinema™. Therefore, it may be especially relevant in smaller or more price-sensitive markets. As
43
of December 31, 2021, we operated 56 screens under proprietary PLF brand names in the U.S. markets and 77 in the International markets.
Guest Amenities
As part of our long-term strategy, we seek to continually 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. Our capital allocation strategy will be driven by the cash generation of our business and will be contingent on a required return threshold. We believe we are an industry leader in the development and operation of theatres. Typically, our theatres have 12 or more screens and offer amenities to enhance the movie-going experience, such as stadium seating providing unobstructed viewing, digital sound and premium seat design.
Recliner seating is the key feature of theatre renovations. We believe that maximizing comfort and convenience for our customers will be increasingly necessary to maintain and improve our relevance. These renovations, in conjunction with capital contributions from our landlords, involve stripping theatres to their basic structure in order to replace finishes throughout, upgrading the sight and sound experience, installing modernized points of sale and, most importantly, replacing 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 December 31, 2019, prior to the COVID-19 pandemic, the quality improvement in the customer experience could drive a 33% increase in attendance, on average, at these locations in their first year post renovation. These increases will only continue post-COVID-19 pandemic if attendance returns to normalized pre COVID-19 levels. Upon reopening a remodeled theatre, we typically increase the ticket price to reflect the enhanced consumer experience.
As of December 31, 2021, in our U.S. markets we featured recliner seating in approximately 351 U.S. theatres, including Dine-in-Theatres, totaling approximately 3,395 screens and representing 43.8% of total U.S. screens. In our International markets, as of December 31, 2021, we had recliner seating in approximately 89 International theatres, totaling approximately 572 screens and representing 20.4% of total International screens.
Open-source internet ticketing makes our AMC seats (approximately 1.1 million as of December 31, 2021) 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 currently on sale either directly or through mobile apps, at our own website and our mobile apps and other third-party ticketing vendors. For the year ended December 31, 2021, approximately 67% of our tickets were purchased online in the U.S., with approximately 80% of total online tickets being purchased through AMC’s website or mobile app.
Food and beverage sales are our second largest source of revenue after box office admissions. We offer enhanced food and beverage products that include meals, healthy snacks, premium liquor, beer and wine options, and other gourmet products. Our long-term growth strategy calls for investment across a spectrum of enhanced food and beverage formats, ranging from simple, less capital-intensive food and beverage menu improvements to the expansion of our dine-in theatre brand. As a result of the COVID-19 pandemic, we have streamlined our concession menus to focus on our best-selling products and expanded cashless transactions technology through the deployment of mobile ordering across all brands, all in an effort to reduce the number of touchpoints between guests and employees. We have also upgraded our Coca-Cola Freestyle beverage software to allow guests to dispense drinks without the need to utilize the machine’s touch screen using the Coca-Cola Freestyle app.
We currently operate 51 Dine-In Theatres in the U.S. and three Dine-In Theatres in Europe that deliver chef-inspired menus with seat-side or delivery service to luxury recliners with tables. Our recent Dine-In Theatre concepts are designed to capitalize on the latest food service trend, the fast and casual eating experience.
Our MacGuffins Bar and Lounges (“MacGuffins”) give us an opportunity to engage our legal age customers. As of December 31, 2021, we offer alcohol in approximately 349 AMC theatres in the U.S. markets and 243 theatres in our International markets and continue to explore expansion globally.
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
44
services. It features a paid tier called AMC Stubs Premiere™ for a flat annual membership fee and a non-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 recorded 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 recorded 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 recorded as the rights are redeemed or expire.
AMC Stubs® A-List is our monthly subscription-based tier of our 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 from $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 other proprietary PLF brands. AMC Stubs® A-List members can book tickets online in advance and select specific seats at AMC Theatres with reserved seating. Upon the temporary suspension of theatre operations due to the COVID-19 pandemic, all monthly A-List subscription charges were put on hold. As we reopened theatres, A-List members had the option to reactivate their subscription, which restarted the monthly charge for the program.
As of December 31, 2021, we had more than 25,300,000 member households enrolled in AMC Stubs® A-List, AMC Stubs Premiere™ and AMC Stubs Insider™ programs, combined. Our AMC Stubs® members represented approximately 40% of AMC U.S. markets attendance during the year ended December 31, 2021. Our large database of identified movie-goers also provides us with additional insight into our customers’ movie preferences. This enables us to have a larger, more personalized and targeted marketing effort.
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. We currently have more than 12,800,000 members in our various International 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.
Our marketing efforts are not limited to our loyalty program as we continue to improve our customer connections through our website and mobile apps and expand our online and movie offerings. We upgraded our mobile applications across the U.S. circuit with the ability to order food and beverage offerings via our mobile applications while ordering tickets ahead of scheduled showtimes. Our mobile applications also include AMC Theatres On Demand, a service for members of the AMC Stubs® loyalty program that allows them to rent or buy movies.
In response to the COVID-19 pandemic, AMC’s robust online and mobile platforms in our U.S. markets offer customers the safety and convenience of enhanced social distancing by allowing them to purchase tickets and concession items online, avoid the ticket line, and limit other high-touch interactions with AMC employees and other guests. Online and mobile platforms are also available in our International markets.
Significant Transactions
First Lien Senior Secured Notes due 2029. On February 14, 2022, we issued $950.0 million aggregate principal amount of our 7.5% First Lien Senior Secured Notes due 2029 (“First Lien Notes due 2029”). We used the net proceeds from the sale of the notes, and cash on hand, to fund the full redemption of the $500 million aggregate principal amount of the First Lien Notes due 2025, the $300 million aggregate principal amount of the First Lien Notes due 2026, and $73.5 million aggregate principal amount of the First Lien Toggle notes due 2026 and to pay related accrued interest, fees, costs, premiums and expenses. We estimate we will record a loss on debt extinguishment related to this transaction of approximately $135 million in other expense in 2022. See Note 16—Subsequent Events in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof for further information.
Common Stock issuance. We entered into equity distribution agreements with sales agents to sell approximately 241.6 million and 90.9 million shares of our Class A common stock (“Common Stock”), par value $0.01
45
per share, through “at-the-market” offering programs during the years ended December 31, 2021 and December 31, 2020, respectively. During the year ended December 31, 2021, the Company raised gross proceeds of approximately $1,611.8 million related to the “at-the-market” offering programs and paid fees to the sales agents of approximately $40.3 million and other fees of $0.8 million. During the year ended December 31, 2020, the Company raised gross proceeds of approximately $272.8 million related to the “at-the-market” offering programs and paid fees to the sales agents of approximately $8.1 million. The Company intends to use the net proceeds from the sale of the Common Stock pursuant to the equity distribution agreement for general corporate purposes, which may include the repayment, refinancing, redemption or repurchase of existing indebtedness or working capital, capital expenditures and other investments.
The gross proceeds raised from the “at-the-market” sale of Common Stock during the years ended December 31, 2021 and December 31, 2020, are summarized in the table below:
"At-the-market" Equity Distribution Agreement Dates |
Sales Agents |
Number of Class A common stock shares sold (in millions) |
Gross Proceeds (in millions) |
||||
September 24, 2020 |
Citigroup Global Markets Inc. and Goldman Sachs & Co. LLC |
15.0 |
$ |
56.1 |
|||
October 20, 2020 |
Citigroup Global Markets Inc. and Goldman Sachs & Co. LLC |
15.0 |
41.6 |
||||
November 10, 2020 |
Goldman Sachs & Co. LLC and B. Riley Securities, Inc. |
20.0 |
61.4 |
||||
December 11, 2020 |
Goldman Sachs & Co. LLC and B. Riley Securities, Inc. (1) |
40.93 |
113.7 |
||||
Total year ended December 31, 2020 |
90.93 |
$ |
272.8 |
||||
December 11, 2020 |
Goldman Sachs & Co. LLC and B. Riley Securities, Inc. (1) |
137.07 |
352.6 |
||||
January 25, 2021 |
Goldman Sachs & Co. LLC and B. Riley Securities, Inc. |
50.0 |
244.3 |
||||
April 27, 2021 |
Goldman Sachs & Co. LLC, B. Riley Securities, Inc. and Citigroup Global Markets Inc. (2) |
43.0 |
427.5 |
||||
June 3, 2021 |
B. Riley Securities, Inc. and Citigroup Global Markets Inc. |
11.55 |
587.4 |
||||
Total year ended December 31, 2021 |
241.62 |
$ |
1,611.8 |
||||
| (1) | On December 11, 2020, the Company entered into an equity distribution agreement with Goldman Sachs & Co. LLC and B. Riley Securities, Inc., as sales agents to sell up to 178.0 million shares of the Company’s Common Stock, of which approximately 40.93 million shares of Common Stock were sold and settled during December 2020 and approximately 137.07 million shares of Common Stock were sold and settled during the year ended December 31, 2021. |
| (2) | Included in the Common Stock shares sold of 43.0 million was the reissuance of treasury stock shares of approximately 3.7 million shares. Upon the sales of treasury stock, the Company reclassified amounts recorded in treasury stock to additional paid-in capital of $37.1 million and loss of $19.3 million to retained earnings during the year ended December 31, 2021. |
Common Stock issuance to Mudrick. On June 1, 2021, we issued to Mudrick 8.5 million shares of our Common Stock and raised gross proceeds of $230.5 million and paid fees of approximately $0.1 million related to this transaction. We issued the shares in reliance on an exemption from registration provided by section 4(a)(2) of the Securities Act of 1933. We intend to use the proceeds from the share sale primarily for the pursuit of value creating acquisitions of theatre assets and leases, as well as investments to enhance the consumer appeal of our theatres. In addition, with these funds, we intend to continue exploring deleveraging opportunities.
Baltics theatre sale agreement. On August 28, 2020, we entered into an agreement to sell our equity interest in Forum Cinemas OU, which consists of nine theatres located in the Baltics region (Latvia, Lithuania and Estonia) and is included in our International markets reportable segment, for total consideration of approximately €77.25 million, including cash of approximately €64.35 million or $76.6 million prior to any transaction costs. This transaction was undertaken by us to further increase our liquidity and strengthen our balance sheet at a transaction multiple that demonstrates that market participants ascribe positive value to the business. The completion of the sale took place in several steps, as noted below, and was contingent upon clearance from each regulatory competition council in each country.
We received $37.5 million (€31.53 million) cash consideration upon entering into the sale agreement on August 28, 2020 and paid $0.5 million in transaction costs during the year ended December 31, 2020. We transferred an equity interest of 49% in Forum Cinemas OU to the purchaser and recorded an initial noncontrolling interest of $34.9 million in total equity (deficit). Transaction costs of $1.4 million and net gain of $1.2 million related to the sale of 49% equity
46
interest of Lithuania and Estonia and the 100% disposal of Latvia were recorded in additional paid-in capital during the year ended December 31, 2020 and were recorded in earnings during the year ended December 31, 2021 when the remaining 51% interests in Lithuania and Estonia were disposed. Also, during the year ended December 31, 2020, we received cash consideration of $6.2 million (€5.3 million), net of cash of $0.2 million for the remaining 51% equity interest in Latvia. At December 31, 2020, our noncontrolling interest of 49% in Lithuania and Estonia was $26.9 million.
During the year ended December 31, 2021, we received cash consideration of $34.2 million (€29.4 million), net of cash disposed of $0.4 million and transaction costs of $1.3 million, for the remaining 51% equity interest in Estonia, 51% equity interest in Lithuania and eliminated our noncontrolling interest in Forum Cinemas OU. We recorded the net gain from the sale of our equity interest in Forum Cinemas OU of $5.5 million (net of transaction costs of $2.6 million) in investment expense (income), during the year ended December 31, 2021.
Exchange Offers. On July 31, 2020, we closed our previously announced Exchange Offer for our Existing Senior Subordinated Notes for new Second Lien Notes due 2026 and reduced the principal amount of the Company’s total debt by approximately $555 million, which represented approximately 23.9% of the previously outstanding amount of the Company’s subordinated notes. We raised $300 million in additional cash from the issuance of First Lien Notes due 2026, prior to deducting discounts of $30.0 million and deferred financing costs paid to lenders of $6.0 million. Additionally, certain holders of the Company’s Existing Senior Subordinated Notes that agreed to backstop the offering of $200 million of the Company’s First Lien Notes due 2026 received five million common shares, or 4.6% of AMC’s outstanding shares on July 31, 2020, worth $20.2 million at the market closing price on July 31, 2020. The closing of the Exchange Offer 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. See Note 8—Corporate Borrowings and Finance Lease Obligations in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof for further information.
We performed an assessment on a lender by lender basis to identify certain lenders that met the criteria for troubled debt restructuring (“TDR”) under ASC 470-60, Troubled Debt Restructurings by Debtors (“ASC 470-60”) as we were experiencing financial difficulties and the lenders granted us a concession. The portion of the loans that did not meet the assessment of TDR under ASC 470-60 were treated as modifications. We accounted for the exchange of approximately $1,782.5 million principal amount of our Existing Senior Subordinated Notes for approximately $1,289.1 million principal amount of the Second Lien Notes due 2026 as TDR. We accounted for the exchange of the remaining approximately $235.0 million principal amount of our Existing Senior Subordinated Notes for approximately $173.2 million principal amount of the Second Lien Notes due 2026 as a modification of debt as the lenders did not grant a concession and the difference between the present value of the old and new cash flows was less than 10%. The TDR and modification did not result in a gain recognition and we established new effective interest rates based on the carrying value of the Existing Subordinated Notes and recorded the new fees paid to third parties of approximately $39.3 million in other expense, during the year ended December 31, 2020.
We realized $1.2 billion of cancellation of debt income (“CODI”) in connection with our 2020 debt restructuring. As a result, $1.2 billion of our federal net operating losses were eliminated due to tax attribute reduction to offset the CODI. The loss of these attributes may adversely affect our cash flows and therefore our ability to service our indebtedness.
47
Selected Financial Data
Year Ended |
|||||||||||||||
December 31, |
|||||||||||||||
(In millions, except operating data) |
2021 |
2020 |
2019 |
2018 |
2017 |
||||||||||
Statement of Operations Data: |
|||||||||||||||
Revenues: |
|||||||||||||||
Admissions |
$ |
1,394.2 |
$ |
712.1 |
$ |
3,301.3 |
$ |
3,385.0 |
$ |
3,229.5 |
|||||
Food and beverage |
|
857.3 |
362.4 |
1,719.6 |
1,671.5 |
1,548.4 |
|||||||||
Other revenue |
|
276.4 |
167.9 |
450.1 |
404.3 |
301.3 |
|||||||||
Total revenues |
|
2,527.9 |
1,242.4 |
5,471.0 |
5,460.8 |
5,079.2 |
|||||||||
Operating Costs and Expenses: |
|||||||||||||||
Film exhibition costs |
|
607.7 |
322.7 |
1,699.1 |
1,710.2 |
1,604.3 |
|||||||||
Food and beverage costs |
|
137.9 |
88.8 |
278.7 |
270.9 |
252.1 |
|||||||||
Operating expense, excluding depreciation and amortization below |
|
1,141.8 |
856.0 |
1,686.6 |
1,654.7 |
1,548.0 |
|||||||||
Rent |
|
828.0 |
884.1 |
967.8 |
797.8 |
794.4 |
|||||||||
General and administrative: |
|||||||||||||||
Merger, acquisition and other costs(1) |
|
13.7 |
24.6 |
15.5 |
31.3 |
63.0 |
|||||||||
Other, excluding depreciation and amortization below |
|
226.6 |
156.7 |
153.0 |
179.3 |
133.2 |
|||||||||
Depreciation and amortization |
|
425.0 |
498.3 |
450.0 |
537.8 |
538.6 |
|||||||||
Impairment of long-lived assets, definite and indefinite-lived intangible assets and goodwill(2) |
|
77.2 |
2,513.9 |
84.3 |
13.8 |
43.6 |
|||||||||
Operating costs and expenses |
|
3,457.9 |
5,345.1 |
5,335.0 |
5,195.8 |
4,977.2 |
|||||||||
Operating income (loss) |
|
(930.0) |
(4,102.7) |
136.0 |
265.0 |
102.0 |
|||||||||
Other expense (income)(3) |
|
(87.9) |
28.9 |
13.4 |
(108.1) |
(1.5) |
|||||||||
Interest expense: |
|||||||||||||||
Corporate borrowings |
|
414.9 |
311.0 |
292.8 |
262.3 |
231.6 |
|||||||||
Capital and financing lease obligations |
|
5.2 |
5.9 |
7.6 |
38.5 |
42.4 |
|||||||||
Non-cash NCM exhibitor services agreement(4) |
38.0 |
40.0 |
40.4 |
41.5 |
— |
||||||||||
Equity in (earnings) losses of non-consolidated entities(5) |
|
(11.0) |
30.9 |
(30.6) |
(86.7) |
185.2 |
|||||||||
Investment expense (income)(6) |
|
(9.2) |
10.1 |
(16.0) |
(6.2) |
(22.6) |
|||||||||
Earnings (loss) before income taxes |
|
(1,280.0) |
(4,529.5) |
(171.6) |
123.7 |
(333.1) |
|||||||||
Income tax provision (benefit)(7) |
|
(10.2) |
59.9 |
(22.5) |
13.6 |
154.1 |
|||||||||
Net earnings (loss) |
|
(1,269.8) |
(4,589.4) |
(149.1) |
110.1 |
(487.2) |
|||||||||
Less: Net loss attributable to noncontrolling interests |
|
(0.7) |
(0.3) |
— |
— |
— |
|||||||||
Net earnings (loss) attributable to AMC Entertainment Holdings, Inc. |
$ |
(1,269.1) |
$ |
(4,589.1) |
$ |
(149.1) |
$ |
110.1 |
$ |
(487.2) |
|||||
Earnings (loss) per share attributable to AMC Entertainment Holdings, Inc.'s common stockholders: |
|||||||||||||||
Basic |
$ |
(2.66) |
$ |
(39.15) |
$ |
(1.44) |
$ |
0.91 |
$ |
(3.80) |
|||||
Diluted |
$ |
(2.66) |
$ |
(39.15) |
$ |
(1.44) |
$ |
0.41 |
$ |
(3.80) |
|||||
Average shares outstanding |
|||||||||||||||
Basic (in thousands) |
|
477,410 |
|
117,212 |
|
103,832 |
|
120,621 |
|
128,246 |
|||||
Diluted (in thousands) |
477,410 |
117,212 |
103,832 |
130,105 |
128,246 |
||||||||||
Dividends declared per basic and diluted common share |
$ |
0.00 |
$ |
0.03 |
$ |
0.80 |
$ |
2.35 |
$ |
0.80 |
|||||
48
Year Ended |
|||||||||||||||
December 31, |
|||||||||||||||
(In millions, except operating data) |
2021 |
2020 |
2019 |
2018 |
2017 |
||||||||||
Balance Sheet Data (at period end): |
|||||||||||||||
Cash and cash equivalents |
$ |
1,592.5 |
$ |
308.3 |
$ |
265.0 |
$ |
313.3 |
$ |
310.0 |
|||||
Corporate borrowings |
|
5,428.0 |
|
5,715.8 |
|
4,753.4 |
|
4,723.0 |
|
4,235.3 |
|||||
Other long-term liabilities(8) |
|
165.0 |
|
241.3 |
|
195.9 |
|
963.1 |
|
903.8 |
|||||
Capital and financing lease obligations |
|
72.7 |
|
96.0 |
|
99.9 |
|
560.2 |
|
651.4 |
|||||
AMC Entertainment Holdings, Inc.'s stockholder’s equity (deficit) |
|
(1,789.5) |
|
(2,885.1) |
|
1,214.2 |
|
1,397.6 |
|
2,112.4 |
|||||
Total assets |
|
10,821.5 |
|
10,276.4 |
|
13,675.8 |
|
9,495.8 |
|
9,805.9 |
|||||
Other Data: |
|||||||||||||||
Net cash provided by (used in) operating activities |
$ |
(614.1) |
$ |
(1,129.5) |
$ |
579.0 |
$ |
523.2 |
$ |
537.4 |
|||||
Capital expenditures |
|
(92.4) |
|
(173.8) |
|
(518.1) |
|
(576.3) |
|
(626.8) |
|||||
Screen additions |
|
82 |
|
63 |
|
85 |
|
89 |
|
96 |
|||||
Screen acquisitions |
|
140 |
|
14 |
|
70 |
|
39 |
|
736 |
|||||
Screen dispositions |
|
166 |
|
593 |
|
210 |
|
211 |
|
258 |
|||||
Construction openings (closures), net |
|
(37) |
|
18 |
|
5 |
|
5 |
|
37 |
|||||
Average screens—continuing operations(9) |
|
8,998 |
|
5,049 |
|
10,669 |
|
10,696 |
|
10,675 |
|||||
Number of screens operated |
10,448 |
6,048 |
11,041 |
11,091 |
11,169 |
||||||||||
Number of theatres operated |
930 |
503 |
1,004 |
1,006 |
1,014 |
||||||||||
Total number of circuit screens |
|
10,562 |
|
10,543 |
|
11,041 |
|
11,091 |
|
11,169 |
|||||
Total number of circuit theatres |
|
946 |
|
950 |
|
1,004 |
|
1,006 |
|
1,014 |
|||||
Screens per theatre |
|
11.2 |
|
11.1 |
|
11.0 |
|
11.0 |
|
11.0 |
|||||
Attendance (in thousands)—continuing operations(9) |
|
128,547 |
|
75,190 |
|
356,443 |
|
358,901 |
|
346,763 |
|||||
| (1) | During the year ended December 31, 2021, expenses were primarily related to bonus expense and stock-based compensation expense. During the year ended December 31, 2020, expenses were primarily due to legal and professional costs related to strategic contingent planning. During the year ended December 31, 2019, expenses were primarily due to organizational design including one-time severance and outplacement costs of $9.8 million and acquisitions and divestitures including entity simplification costs of $4.0 million. The year ended December 31, 2018 includes the write-off of $8.0 million of deferred costs related to an Odeon proposed public offering and $6.3 million of expense related to an arbitration ruling on a pre-acquisition date rent dispute for Odeon. During the year ended December 31, 2017, merger, acquisition and other costs includes $22.6 million of expense for NCM common units surrendered as a part of the exclusivity waiver with NCM in connection with the Department of Justice (“DOJ”) Final Judgment (“Final Judgment”) and merger, acquisition and other costs related to expenses incurred in connection with the Carmike (acquired December 2016), Odeon (acquired November 2016) and Nordic (acquired March 2017) acquisitions. |
| (2) | During the year ended December 31, 2021, we recorded non-cash impairment charges related to our long-lived assets of $61.3 million on 77 theatres in the U.S. markets with 805 screens which were related to property, net, operating lease right-of-use assets, net and other long-term assets and $15.9 million on 14 theatres in the International markets with 118 screens which were related to property, net and operating lease right-of-use assets, net. During the year ended December 31, 2020, we recorded goodwill non-cash impairment of $1,276.1 million and $1,030.3 million related to the enterprise fair values of the Domestic Theatres and International Theatres reporting units, respectively. During the year ended December 31, 2020, we recorded non-cash impairment charges related to our long-lived assets of $152.5 million on 101 theatres in the U.S. markets with 1,139 screens and $25.4 million on 37 theatres in the International markets with 340 screens and recorded impairment charges related to indefinite-lived intangible assets of $12.5 million and $2.7 million related to the Odeon and Nordic trade names, respectively, in the International markets. We also recorded non-cash impairment charges of $14.4 million for our definite-lived intangible assets in the Domestic Theatres reporting unit during the year ended December 31, 2020. During the year ended December 31, 2019, we recorded non-cash impairment of long-lived assets of $84.3 million on 40 theatres in the U.S. markets with 512 screens, 14 theatres in the International markets with 148 screens, and a U.S. property held and not used. During the fourth quarter of 2018, we recorded non-cash impairment losses of $13.8 million on 13 theatres in the U.S. markets with 150 screens and on 15 theatres in the International markets with 118 screens. During calendar 2017, we recorded an impairment of long-lived assets loss of $43.6 million on 12 theatres in the U.S. markets with 179 screens which was related to property held and used. |
49
| (3) | Other income for the year ended December 31, 2021 was primarily due to $87.1 million in government assistance related to COVID-19. Other expense (income) for the year ended December 31, 2020 included a loss of $109.0 million related to the fair value adjustments of the derivative liability and derivative asset for our Convertible Notes, financing fees related to the Exchange Offer of $39.3 million, and credit losses related to contingent lease guarantees of $15.0 million, partially offset by a gain on extinguishment of the Second Lien Notes due 2026 of $93.6 million and financing related foreign currency transaction losses. Other expense of $13.4 million during the year ended December 31, 2019 was primarily due to $16.6 million of expense related to the repayment of indebtedness, foreign currency transaction losses of $1.5 million, non-operating net periodic benefit cost of $1.2 million, and 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 $17.7 million, partially offset by decrease in fair value of our derivative liability for the embedded conversion feature in our Convertible Notes of $23.5 million. During the year ended December 31, 2018, other income of $108.1 million is primarily due to $66.4 million of income for the decrease in the fair value of the derivative liability related to the embedded conversion feature for the Convertible Notes and $45.0 million of income for the increase in fair value of the derivative asset related to the contingent call option for the cancellation of additional shares of Class B common stock in the Stock Purchase and Cancellation Agreement with Wanda. See Note 8—Corporate Borrowings and Finance Lease Obligations in the Notes to Consolidated Financial Statements under Part II, Item 8 thereof, for further information regarding the derivative liability related to the embedded conversion feature, the call option for the cancellation of additional shares of Class B common stock. |
| (4) | Non-cash NCM exhibitor services agreement includes a significant financing component due to the significant length of time between receiving the non-cash consideration and fulfilling the performance obligation. We received the non-cash consideration in the form of common membership units from NCM, in exchange for rights to exclusive access to our theatre screens and attendees through February 2037. Upon adoption of ASC 606 in year 2018, our advertising revenues have significantly increased with a similar offsetting increase in non-cash interest expense. |
| (5) | Equity in (earnings) loss of non-consolidated entities was primarily due to equity in earnings from DCIP for the year ended December 31, 2021. Equity in (earnings) loss of non-consolidated entities includes impairment losses in the International markets related to equity method investments of $8.6 million during the year ended December 31, 2020. Equity in earnings for the year ended December 31, 2018 includes a $28.9 million gain on the sale of all of our remaining interest in NCM and a $30.1 million gain related to the Screenvision merger. During the year ended December 31, 2017, we recorded non-consolidated entity impairment losses and losses on dispositions of our NCM ownership interests of approximately $230.7 million. |
| (6) | Investment income during the year ended December 31, 2021 includes a gain on sale of the Baltics theatres of $5.5 million. Investment expense (income) during the year ended December 31, 2020 includes impairment losses of $15.9 million related to equity interest investments without a readily determinable fair value accounted for under the cost method in the U.S. markets. Investment expense (income) during the year ended December 31, 2019 includes a gain on the sale of our Austria theatres of $12.9 million and a loss on impairment of an investment of $3.6 million. During the year ended December 31, 2017, investment expense (income) includes a gain on sale of Open Road of $17.2 million. |
| (7) | During the year ended December 31, 2020, income tax expense was 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 year ended December 31, 2019, an international valuation allowance previously established against deferred tax assets held in Spain was released in the fourth quarter of 2019 resulted in a $41.5 million benefit to income tax expense. During the year ended December 31, 2017, we recorded the impact of the change in enacted Federal tax rates in our U.S. jurisdictions of $88.6 million and the impact of a full valuation allowance on our deferred income taxes in U.S. jurisdictions of $221.6 million, for an aggregate charge of approximately $310.0 million in the fourth quarter of 2017. We estimate that we will have no liability for deemed repatriation of foreign earnings. |
| (8) | Other long-term liabilities exclude operating lease liabilities, which were recorded to operating lease liabilities in the consolidated balance sheets effective in year 2019 upon adoption of ASC 842, Leases. |
50
| (9) | Includes consolidated theatres only. |
Critical Accounting Estimates
Our Consolidated Financial Statements are prepared in accordance with U.S. GAAP. In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates, and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates, and judgments to ensure that our financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. We have identified several policies as being critical because they require management to make particularly difficult, subjective and complex judgments about matters that are inherently uncertain, and there is a likelihood that materially different amounts would be reported under different conditions or using different assumptions.
All of our significant accounting policies are discussed in Note 1—The Company and Significant Accounting Policies in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof.
Long-lived Assets Impairments. We review long-lived assets, indefinite-lived intangible assets and other intangible assets and theatre assets (including operating lease right-of-use lease assets) whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable.
Critical estimates. There are a number of estimates and significant judgments that are made by management in performing impairment evaluations of long-lived assets. 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. These estimates determine whether impairments have been incurred and quantify the amount of any related impairment charge.
Assumptions and judgment. Our valuation methodology for assessing impairment requires management to make judgments and assumptions based on historical experience and projections of future operating performance. Our projections assume that attendance will continue to gradually improve from 2021 levels to the point of approaching historical levels. Our projections have considered the risks of a shortened theatrical window and direct to consumer releases although on a more limited basis. These assumptions, among others, inform the considerable amount of management judgment with respect to cash flow estimates and appropriate discount rates to be used in determining the fair value of long-lived assets.
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.
Impact if actual results differ from assumptions. Although we believe that our estimates and judgments are reasonable, actual results may differ from these estimates, many of which fall under Level 3 within the fair value measurement hierarchy. Factors that could lead to impairment of long-lived assets include adverse industry or economic trends that would result in declines in the operating performance of our Domestic and International Theatres. 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 certain of our theatre operations as well as the behavior of the movie-going public as 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 and higher interest rates; and (iv) negative or overall declining financial performance compared with our actual and projected results of relevant prior periods.
If we are required to record an impairment charge it may substantially reduce the carrying value of our assets and reduce our income in the year in which it is recorded. 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.
Our Current Long-lived Asset Impairment related Estimates and Changes in those Estimates. During the year ended December 31, 2021, we recorded non-cash impairment charges related to our long-lived assets of $61.3 million on 77 theatres in the U.S. markets with 805 screens which were related to property, net, operating lease right-of-use assets,
51
net and other long-term assets and $15.9 million on 14 theatres in the International markets with 118 screens which were related to property, net and operating lease right-of-use assets, net. During the year ended December 31, 2020, we recorded non-cash impairment charges related to our long-lived assets of $152.5 million on 101 theatres in the U.S. markets with 1,139 screens which were related to property, net, operating lease right-of-use assets, net and other long-term assets and $25.4 million on 37 theatres in the International markets with 340 screens which were related to property, net and operating lease right-of-use assets, net. At December 31, 2021, related cash flows were discounted at 10.0% for the Domestic Theatres and 11.5% for the International Theatres, at December 31, 2020, related cash flows were discounted at 11.0% for Domestic Theatres and 12.5% for International Theatres, at September 30, 2020, related cash flows were discounted at 12.0% for Domestic Theatres and 13.0% for International Theatres, and at March 31, 2020, related cash flows were discounted at 11.5% for Domestic Theatres and 13.0% for International Theatres.
There were no intangible asset impairment charges incurred during the year ended December 31, 2021. During the year ended December 31, 2020, we recorded impairment charges related to definite-lived intangible assets of $14.4 million in U.S. markets and indefinite-lived intangible assets of $15.2 million in International markets.
At December 31, 2020, September 30, 2020 and March 31, 2020, we performed quantitative impairment evaluations of our indefinite-lived intangible assets related to the AMC, Odeon and Nordic trade names and recorded impairment charges of $12.5 million related to Odeon trade name and $2.7 million related to Nordic for the year ended December 31, 2020. No impairment charges were recorded related to the AMC trade name for the year ended December 31, 2020. At December 31, 2020, September 30, 2020 and March 31, 2020, we applied royalty rates of 0.5% for AMC and Odeon trade names and 1.0% for Nordic trade names to the related theatre revenues on an after-tax basis using effective tax rates. At December 31, 2020, related cash flows were discounted at 12.0% for AMC and 13.5% for Odeon and Nordic, at September 30, 2020, related cash flows were discounted at 13.0% for AMC and 14.0% for Odeon and Nordic, and at March 31, 2020, 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. The impairment test for goodwill involves estimating the fair value of the reporting unit and comparing that value to our carrying value. If the estimated fair value of the reporting unit is less than its carrying value, the difference is recorded as a goodwill impairment charge, not to exceed the total amount of goodwill allocated to that reporting unit.
Critical estimates. Calculating the fair value of our Domestic Theatres and International Theatres reporting units by use of the income approach for enterprise valuation methodology which utilizes estimated future discounted cash flows. The income approach provides an estimate of fair value by measuring estimated annual cash flows over a discrete projection period and applying a present value discount rate to the cash flows. The present value of the cash flows is then added to the present value equivalent of the residual value of the business to arrive at an estimated fair value of the reporting unit. The residual value represents the present value of the projected cash flows beyond the discrete projection period. The discount rates are determined using weighted average cost of capital for the risk of achieving the projected cash flows.
We did not weigh any of the enterprise valuation methodology on the market approach in 2020. We believe that using 100% income approach provided a more reasonable measurement of the enterprise value basis at December 31, 2020. Due to the volatility and unreliability in the market multiples, the lack of standalone Domestic and International public theatre companies, and the temporary suspension of operations due to the COVID-19 pandemic and the current impact on Adjusted EBITDA, we did not believe that placing any weight on the market approach was appropriate for this valuation.
Assumptions and judgment. Our projections assume that attendance will continue to gradually improve from 2021 levels to the point of approaching historical levels. Our projections have considered the risks of a shortened theatrical window and direct to consumer releases, although on a more limited basis. These assumptions, among others, inform the considerable amount of management judgment with respect to cash flow estimates and appropriate discount rates to be used in determining the fair value of our reporting units. Other factors that could lead to impairment of our goodwill include adverse industry or economic trends, declines in the market price of our Common Stock and our debt instruments, all of which we utilize in establishing the estimates underlying these values. There is considerable management judgment with respect to cash flow estimates and discount rates to be used in estimating fair value, many of which are classified as Level 3 in fair value hierarchy.
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Declines in the operating performance of our Domestic and International Theatres, the fair value of our debt, and the trading price of our Common Stock, together with small changes in other key input assumptions, and/or other events or circumstances could occur and could have a significant impact on the estimated fair values of our reporting units. 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 certain of our theatre operations as well as the behavior of the movie-going public as 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 and higher interest rates; (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.
Impact if actual results differ from assumptions. Although we believe that our estimates and judgments are reasonable, actual results may differ from these estimates many of which fall under Level 3 within the fair value measurement hierarchy. If we are required to record an impairment charge to our goodwill it may substantially reduce the carrying value of goodwill on our balance sheet and reduce our income in the year in which it is recorded. 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.
Our Current Goodwill Estimates and Changes in those Estimates. As further described below, we recorded impairment charges as of March 31, 2020, September 30, 2020, and December 31, 2020 due to significant decreases in our market enterprise value. Our enterprise market capitalization increased and there were no other triggering events during 2021. At our goodwill impairment annual assessment date, October 1, 2021, we performed a qualitative impairment test to evaluate whether it is more likely than not that the fair value of its two reporting units was less than their respective carrying amounts as of its annual assessment date. We concluded that it was not more likely than not that the fair value of either of our two reporting units had been reduced below their respective carrying amounts.
For calendar year 2020, we performed an assessment in accordance with ASC 350-20-35-30 to determine whether there were any events or changes in circumstances that would warrant an interim ASC 350 impairment analysis as of December 31, 2020, September 30, 2020, June 30, 2020, and March 31, 2020.
Based on the suspension of operations at all of our theatres on or before March 17, 2020 due to the COVID-19 pandemic during the first quarter of 2020, the suspension of operations during the second and third quarters of 2020, the temporary suspension of operations of certain of our International Theatres during the fourth quarter of 2020 again after operations had previously been resumed, and the further delay or cancellation of film releases than originally estimated, we performed the Step 1 quantitative goodwill impairment test as of March 31, 2020, September 30, 2020, and December 31, 2020. In performing those Step 1 quantitative goodwill impairment tests, we used an enterprise value approach to measure fair value of the reporting units. The enterprise fair value of the Domestic Theatres and International Theatres reporting units was less than their carrying values as of March 31, 2020 and September 30, 2020, and the fair value of the International Theatres reporting unit was less than its fair value as of December 31, 2020 and goodwill impairment charges of $1,276.1 million and $1,030.3 million, were recorded during the year ended December 31, 2020 for our Domestic Theatres and International Theatres reporting units, respectively.
Key rates used in the income approach were as follows:
Measurement |
Domestic |
International |
||||
Description |
Date |
Theatres |
Theatres |
|||
Income approach: |
||||||
Weighted average cost of capital/discount rate |
December 31, 2020 |
11.0% |
12.5% |
|||
Long-term growth rate |
December 31, 2020 |
1.0% |
1.0% |
|||
Weighted average cost of capital/discount rate |
September 30, 2020 |
12.0% |
13.0% |
|||
Long-term growth rate |
September 30, 2020 |
1.0% |
1.0% |
|||
Weighted average cost of capital/discount rate |
March 31, 2020 |
11.5% |
13.0% |
|||
Long-term growth rate |
March 31, 2020 |
2.0% |
2.0% |
Income and operating taxes. Income and operating taxes are inherently difficult to estimate and record. This is due to the complex nature of the U.S. and International tax codes and also because our returns are routinely subject to examination by government tax authorities, including federal, state and local officials. Most of these examinations take place a few years after we have filed our tax returns. Our tax audits in many instances raise questions regarding our tax
53
filing positions, the timing and amount of deductions claimed and the allocation of income among various tax jurisdictions.
Critical estimates. In calculating our effective income tax rate and other taxes applicable to our operations, we make judgments regarding certain tax positions, including the timing and amount of deductions and allocations of income among various tax jurisdictions with disparate tax laws.
Assumptions and judgment. We have various tax filing positions with regard to the timing and amount of deductions and credits and the allocation of income among various tax jurisdictions, based on our interpretation of local tax laws. We also inventory, evaluate and measure all uncertain tax positions taken or expected to be taken on tax returns and to record liabilities for the amount of such positions that may not be sustained, or may only be partially sustained, upon examination by the relevant taxing authorities.
Impact if actual results differ from assumptions. Although we believe that our estimates and judgments are reasonable, actual results may differ from these estimates. Some or all of these judgments are subject to review by the taxing authorities. If one or more of the taxing authorities were to successfully challenge our right to realize some or all of the tax benefit we have recorded, and we were unable to realize this benefit, it could have a material adverse effect on our financial results and cash flows.
Our Current Tax Estimates and Changes in those Estimates. At December 31, 2021, our federal income tax loss carryforwards were approximately $1,185.5 million, our state income tax loss carryforwards were approximately $1,678.6 million, and our foreign income tax loss carryforwards were approximately $898.4 million. Since these losses have varying degrees of carryforward periods, it requires us to estimate the amount of carryforward losses that we can reasonably be expected to realize. Future changes in conditions and in the tax code may change these strategies and thus change the amount of carry forward losses that we expect to realize and the amount of valuation allowances we have recorded. As of December 31, 2021, we had a total valuation allowance of $1,114.1 million related to the above loss carryforward and other future tax benefits for which realization is not likely to occur. Accordingly, future reported results could be materially impacted by changes in tax matters, positions, rules and estimates and these changes could be material. See Note 10—Income Taxes in the Notes to Consolidated Financial Statements under Part II, Item 8 thereof, for further information.
During the first quarter of 2020, the severe impact of the COVID-19 pandemic on operations in Germany and Spain caused us 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 $33.1 million and $40.1 million was recorded for Germany and Spain, respectively. At December 31, 2020, we determined that it was appropriate to record a valuation allowance on the disallowed interest carryforward in Sweden as the realizability of this deferred tax asset in this jurisdiction does not meet the more likely than not standard. As such, the overall net tax benefit recorded on Sweden was reduced by a charge of $3.7 million. During 2021, we recorded a valuation allowance on all other deferred tax assets in Sweden, resulting in a charge of less than $1 million. With the exception of Finland and Norway, all other international jurisdictions carried valuation allowances against their deferred tax assets at the end of 2021.
On July 31, 2020, we completed our private offers to exchange our Existing Subordinated Notes for newly issued Second Lien Notes due 2026. Due to the terms of that exchange, we were required to recognize CODI for US tax purposes on the difference between the face value of debt exchanged and the fair market value of the new debt issued. We determined that we should recognize $1.2 billion of CODI for tax purposes. Further, we concluded that the level of our insolvency at July 31, 2020 exceeded the indicated amount of CODI resulting from the debt exchange, which allowed us to reduce our tax attributes rather than recognize current taxable income. As a result, $1.2 billion of our net operating losses have been eliminated due to tax attribute reduction. See Note 8—Corporate Borrowings and Finance Lease Obligations and Note 10—Income Taxes in the Notes to Consolidated Financial Statements under Part II, Item 8 thereof, for further information.
Leases. We adopted ASC Topic 842 effective January 1, 2019. Under ASC Topic 842, lessees are required to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). The liability is equal to the present value of lease payments. The asset is based on the liability, subject to certain adjustments, such as for lease incentives. For financial presentation purposes, a dual model was retained, requiring leases to be classified as either operating or finance leases. Operating leases result in straight-line expense (similar to operating leases under the prior accounting standard) while finance leases result in a front-loaded expense pattern (similar to capital leases under the prior accounting standard).
54
Critical estimates. We used our incremental borrowing rate to calculate the present value of our future operating lease payments, which was determined using a portfolio approach based on the rate of interest that we would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term since the leases do not provide a determinable implicit rate.
Assumptions and judgment. Estimating the incremental borrowing rate for operating leases is subjective when reviewing the reasonableness of the inputs and rates applied to each lease.
Impact if actual results differ from assumptions. A 100-basis point increase in the incremental borrowing rate would have decreased total operating lease liabilities by approximately $208.7 million and a 100-basis point decrease in weighted average discount rate would have increased total operating lease liabilities by approximately $223.2 million.
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Operating Results
The following table sets forth our consolidated revenues, operating costs and expenses attributable to our theatrical exhibition operations and segment operating results. Reference is made to Note 13—Operating Segments in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof, for additional information therein:
U.S. Markets |
International Markets |
Consolidated |
|||||||||||||||||||||||||
Year Ended |
Year Ended |
Year Ended |
|||||||||||||||||||||||||
December 31, |
December 31, |
December 31, |
|||||||||||||||||||||||||
(In millions) |
|
2021 |
|
2020 |
|
% Change |
|
2021 |
|
2020 |
|
% Change |
|
2021 |
|
2020 |
|
% Change |
|||||||||
Revenues |
|||||||||||||||||||||||||||
Admissions |
$ |
1,016.5 |
$ |
455.5 |
* |
% |
$ |
377.7 |
$ |
256.6 |
47.2 |
% |
$ |
1,394.2 |
$ |
712.1 |
95.8 |
% |
|||||||||
Food and beverage |
|
677.1 |
|
258.5 |
* |
% |
|
180.2 |
|
103.9 |
73.4 |
% |
|
857.3 |
|
362.4 |
* |
% |
|||||||||
Other theatre |
|
182.2 |
|
112.7 |
61.7 |
% |
|
94.2 |
|
55.2 |
70.7 |
% |
|
276.4 |
|
167.9 |
64.6 |
% |
|||||||||
Total revenues |
1,875.8 |
826.7 |
* |
% |
652.1 |
415.7 |
56.9 |
% |
2,527.9 |
1,242.4 |
* |
% |
|||||||||||||||
Operating Costs and Expenses |
|||||||||||||||||||||||||||
Film exhibition costs |
460.6 |
223.0 |
* |
% |
147.1 |
99.7 |
47.5 |
% |
607.7 |
322.7 |
88.3 |
% |
|||||||||||||||
Food and beverage costs |
|
95.9 |
|
59.1 |
62.3 |
% |
|
42.0 |
|
29.7 |
41.4 |
% |
|
137.9 |
|
88.8 |
55.3 |
% |
|||||||||
Operating expense, excluding depreciation and amortization below |
|
833.9 |
|
588.9 |
41.6 |
% |
|
307.9 |
|
267.1 |
15.3 |
% |
|
1,141.8 |
|
856.0 |
33.4 |
% |
|||||||||
Rent |
|
614.2 |
|
650.7 |
(5.6) |
% |
|
213.8 |
|
233.4 |
(8.4) |
% |
|
828.0 |
|
884.1 |
(6.3) |
% |
|||||||||
General and administrative expense: |
|||||||||||||||||||||||||||
Merger, acquisition and other costs |
|
9.0 |
|
10.2 |
(11.8) |
% |
|
4.7 |
|
14.4 |
(67.4) |
% |
|
13.7 |
|
24.6 |
(44.3) |
% |
|||||||||
Other, excluding depreciation and amortization below |
|
158.4 |
|
97.8 |
62.0 |
% |
|
68.2 |
|
58.9 |
15.8 |
% |
|
226.6 |
|
156.7 |
44.6 |
% |
|||||||||
Depreciation and amortization |
|
321.2 |
|
374.5 |
(14.2) |
% |
|
103.8 |
|
123.8 |
(16.2) |
% |
|
425.0 |
|
498.3 |
(14.7) |
% |
|||||||||
Impairment of long-lived assets |
|
61.3 |
|
1,443.0 |
(95.8) |
% |
|
15.9 |
|
1,070.9 |
(98.5) |
% |
|
77.2 |
|
2,513.9 |
(96.9) |
% |
|||||||||
Operating costs and expenses |
|
2,554.5 |
|
3,447.2 |
(25.9) |
% |
|
903.4 |
|
1,897.9 |
(52.4) |
% |
|
3,457.9 |
|
5,345.1 |
(35.3) |
% |
|||||||||
Operating loss |
|
(678.7) |
|
(2,620.5) |
(74.1) |
% |
|
(251.3) |
|
(1,482.2) |
(83.0) |
% |
|
(930.0) |
|
(4,102.7) |
(77.3) |
% |
|||||||||
Other expense (income): |
|||||||||||||||||||||||||||
Other expense (income) |
|
9.2 |
|
61.3 |
(85.0) |
% |
|
(97.1) |
|
(32.4) |
* |
% |
|
(87.9) |
|
28.9 |
* |
% |
|||||||||
Interest expense: |
|||||||||||||||||||||||||||
Corporate borrowings |
|
349.2 |
|
306.0 |
14.1 |
% |
|
65.7 |
|
5.0 |
* |
% |
|
414.9 |
|
311.0 |
33.4 |
% |
|||||||||
Finance lease obligations |
|
0.7 |
|
1.2 |
(41.7) |
% |
|
4.5 |
|
4.7 |
(4.3) |
% |
|
5.2 |
|
5.9 |
(11.9) |
% |
|||||||||
Non-cash NCM exhibitor service agreement |
38.0 |
40.0 |
(5.0) |
% |
— |
— |
— |
% |
38.0 |
40.0 |
(5.0) |
% |
|||||||||||||||
Equity in (earnings) loss of non-consolidated entities |
|
(13.7) |
|
17.6 |
* |
% |
|
2.7 |
|
13.3 |
(79.7) |
% |
|
(11.0) |
|
30.9 |
* |
% |
|||||||||
Investment expense (income) |
|
(3.7) |
|
10.2 |
* |
% |
|
(5.5) |
|
(0.1) |
* |
% |
|
(9.2) |
|
10.1 |
* |
% |
|||||||||
Total other expense (income), net |
|
379.7 |
|
436.3 |
(13.0) |
% |
|
(29.7) |
|
(9.5) |
* |
% |
|
350.0 |
|
426.8 |
(18.0) |
% |
|||||||||
Net loss before income taxes |
|
(1,058.4) |
|
(3,056.8) |
(65.4) |
% |
|
(221.6) |
|
(1,472.7) |
(85.0) |
% |
|
(1,280.0) |
|
(4,529.5) |
(71.7) |
% |
|||||||||
Income tax provision (benefit) |
|
(9.4) |
|
2.4 |
* |
% |
|
(0.8) |
|
57.5 |
* |
% |
|
(10.2) |
|
59.9 |
* |
% |
|||||||||
Net loss |
(1,049.0) |
(3,059.2) |
(65.7) |
% |
(220.8) |
(1,530.2) |
(85.6) |
% |
(1,269.8) |
(4,589.4) |
(72.3) |
% |
|||||||||||||||
Less: Net loss attributable to noncontrolling interests |
— |
— |
— |
% |
(0.7) |
(0.3) |
* |
% |
(0.7) |
(0.3) |
* |
% |
|||||||||||||||
Net loss attributable to AMC Entertainment Holdings, Inc. |
$ |
(1,049.0) |
$ |
(3,059.2) |
(65.7) |
% |
$ |
(220.1) |
$ |
(1,529.9) |
(85.6) |
% |
$ |
(1,269.1) |
$ |
(4,589.1) |
(72.3) |
% |
|||||||||
*Percentage change in excess of 100%.
56
U.S. Markets |
International Markets |
Consolidated |
||||||||||||||||
Year Ended |
Year Ended |
Year Ended |
||||||||||||||||
December 31, |
December 31, |
December 31, |
||||||||||||||||
|
2021 |
|
2020 |
|
|
2021 |
|
2020 |
|
|
2021 |
|
2020 |
|
||||
Operating Data: |
||||||||||||||||||
Screen additions |
34 |
23 |
48 |
40 |
82 |
63 |
||||||||||||
Screen acquisitions |
134 |
14 |
6 |
— |
140 |
14 |
||||||||||||
Screen dispositions |
66 |
478 |
100 |
115 |
166 |
593 |
||||||||||||
Construction openings (closures), net |
(15) |
15 |
(22) |
3 |
(37) |
18 |
||||||||||||
Average screens(1) |
7,341 |
3,715 |
1,657 |
1,334 |
8,998 |
5,049 |
||||||||||||
Number of screens operated |
7,755 |
5,228 |
2,693 |
820 |
10,448 |
6,048 |
||||||||||||
Number of theatres operated |
593 |
394 |
337 |
109 |
930 |
503 |
||||||||||||
Total number of circuit screens |
7,755 |
7,668 |
2,807 |
2,875 |
10,562 |
10,543 |
||||||||||||
Total number of circuit theatres |
593 |
590 |
353 |
360 |
946 |
950 |
||||||||||||
Screens per theatre |
13.1 |
13.0 |
8.0 |
8.0 |
11.2 |
11.1 |
||||||||||||
Attendance (in thousands)(1) |
91,102 |
46,453 |
37,445 |
28,737 |
128,547 |
75,190 |
||||||||||||
(1) |
Includes consolidated theatres only and excludes screens offline due to construction and temporary suspension of operations as consequence of the COVID-19 pandemic. |
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 our 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.
During the year ended December 31, 2021, Adjusted EBITDA in the U.S. markets was $(250.6) million compared to $(768.2) million during the year ended December 31, 2020. The year-over-year improvement was primarily due to the decreased net loss driven by an increase in attendance as a result of the reopening of theatres that had been temporarily closed due to the COVID-19 pandemic, lifting of seating restrictions, increases in governmental assistance for COVID-19, and decreases in rent expense, partially offset by increases in operating expenses due to the increase in attendance, increases in general and administrative expense, and decreases in cash distributions from equity method investees. During the year ended December 31, 2021, Adjusted EBITDA in the International markets was $(41.1) million compared to $(231.0) million during the year ended December 31, 2020. The year-over-year improvement was primarily due to decreases in net losses due to the increase in attendance, increases in governmental assistance for COVID-19, and decreases in rent expense and increases in attributable EBITDA from equity method investees, partially offset by the increases in operating expenses due to the increase in attendance, increases in general and administrative expense and an increase in foreign currency translation rates. During the year ended December 31, 2021, Adjusted EBITDA in the U.S. markets and International markets was $(291.7) million compared to $(999.2) million during the year ended December 31, 2020, driven by the aforementioned factors impacting Adjusted EBITDA.
The following tables set forth our Adjusted EBITDA by reportable operating segment and our reconciliation of Adjusted EBITDA:
Year Ended |
||||||
Adjusted EBITDA (In millions) |
|
December 31, 2021 |
|
December 31, 2020 |
||
U.S. markets |
$ |
(250.6) |
$ |
(768.2) |
||
International markets |
(41.1) |
(231.0) |
||||
Total Adjusted EBITDA (1) |
$ |
(291.7) |
$ |
(999.2) |
||
57
Year Ended |
||||||
(In millions) |
December 31, 2021 |
|
December 31, 2020 |
|||
Net loss |
$ |
(1,269.8) |
$ |
(4,589.4) |
||
Plus: |
||||||
Income tax provision (benefit) (1) |
|
(10.2) |
|
59.9 |
||
Interest expense |
|
458.1 |
|
356.9 |
||
Depreciation and amortization |
|
425.0 |
|
498.3 |
||
Impairment of long-lived assets, definite and indefinite-lived intangible assets and goodwill (2) |
|
77.2 |
|
2,513.9 |
||
Certain operating expense (income) (3) |
|
0.2 |
|
(9.4) |
||
Equity in (earnings) loss of non-consolidated entities (4) |
|
(11.0) |
|
30.9 |
||
Cash distributions from non-consolidated entities (5) |
|
12.5 |
|
17.4 |
||
Attributable EBITDA (6) |
3.7 |
0.2 |
||||
Investment expense (income) |
|
(9.2) |
|
10.1 |
||
Other expense (income) (7) |
|
(0.1) |
|
66.9 |
||
Other non-cash rent benefit (8) |
(24.9) |
(4.9) |
||||
General and administrative — unallocated: |
||||||
Merger, acquisition and other costs (9) |
|
13.7 |
|
24.6 |
||
Stock-based compensation expense (10) |
|
43.1 |
|
25.4 |
||
Adjusted EBITDA |
$ |
(291.7) |
$ |
(999.2) |
||
| (1) | For information regarding the income tax provision (benefit), see Note 10—Income Taxes to the Consolidated Financial Statements under Part II, Item 8 thereof. |
| (2) | During the year ended December 31, 2021, we recorded non-cash impairment charges related to our long-lived assets of $61.3 million on 77 theatres in the U.S. markets with 805 screens which were related to property, net, operating lease right-of-use assets, net and other long-term assets and $15.9 million on 14 theatres in the International markets with 118 screens which were related to property, net and operating lease right-of-use assets, net. |
During the year ended December 31, 2020, we recorded goodwill non-cash impairment charges of $1,276.1 million and $1,030.3 million related to the enterprise fair values of the Domestic Theatres and International Theatres reporting units, respectively. During the year ended December 31, 2020, we recorded non-cash impairment charges related to our long-lived assets of $152.5 million on 101 theatres in the U.S. markets with 1,139 screens which were related to property, net, operating lease right-of-use assets, net and other long-term assets and $25.4 million on 37 theatres in the International markets with 340 screens which were related to property, net and operating lease right-of-use assets, net. We recorded non-cash impairment charges related to indefinite-lived intangible assets of $12.5 million and $2.7 million related to the Odeon and Nordic trade names, respectively, in the International Theatres reporting unit during the year ended December 31, 2020. We also recorded non-cash impairment charges of $14.4 million related to our definite-lived intangible assets in the Domestic Theatres reporting unit during the year ended December 31, 2020.
| (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 primarily consisted of equity in earnings (loss) from DCIP of $12.2 million and $(14.5) million, during the year ended December 31, 2021 and December 31, 2020 respectively. In addition, we recorded impairment losses in the International markets during the year ended December 31, 2020 related to equity method investments of $8.6 million in equity in (earnings) loss of non-consolidated entities. |
| (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. |
58
| (6) | Attributable EBITDA includes the EBITDA from equity investments in theatre operators in certain International markets. See below for a reconciliation of our equity in (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. |
Year Ended |
||||||
(In millions) |
December 31, 2021 |
|
December 31, 2020 |
|||
Equity in (earnings) loss of non-consolidated entities |
$ |
(11.0) |
$ |
30.9 |
||
Less: |
||||||
Equity in (earnings) loss of non-consolidated entities excluding International theatre joint ventures |
(13.5) |
27.4 |
||||
Equity in earnings (loss) of International theatre joint ventures |
(2.5) |
(3.5) |
||||
Income tax expense |
0.3 |
0.1 |
||||
Investment income |
(0.1) |
(0.4) |
||||
Interest expense |
0.2 |
0.1 |
||||
Depreciation and amortization |
5.6 |
3.2 |
||||
Other expense |
0.2 |
0.7 |
||||
Attributable EBITDA |
$ |
3.7 |
$ |
0.2 |
||
| (7) | Other expense (income) during the year ended December 31, 2021, primarily consisted of a loss on debt extinguishment of $14.4 million and financing fees of $1.0 million, partially offset by income related to the foreign currency transaction gains of $(9.8) million and contingent lease guarantees of $(5.7) million. |
Other expense (income) for the year ended December 31, 2020 included a loss of $109.0 million related to the fair value adjustments of the derivative liability and derivative asset for our Convertible Notes, financing fees related to the Exchange Offer of $39.3 million, and credit losses related to contingent lease guarantees of $15.0 million, partially offset due to a gain on extinguishment of the Second Lien Notes due 2026 of $(93.6) million.
| (8) | Reflects amortization of certain intangible assets reclassified from depreciation and amortization to rent expense, due to the adoption of ASC 842, Leases 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. |
59
Segment Information
Our historical results of operations for the years ended December 31, 2021 and December 31, 2020 reflect the results of operations for our two Theatrical Exhibition reportable segments, U.S. markets and International markets.
Results of Operations—For the Year Ended December 31, 2021, Compared to the Year Ended December 31, 2020
Consolidated Results of Operations
Revenues. Total revenues increased 103.5%, or $1,285.5 million, during the year ended December 31, 2021, compared to the year ended December 31, 2020. Admissions revenues increased 95.8%, or $682.1 million, during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to a 71.0% increase in attendance and a 14.5% increase in average ticket price. The increase in attendance was primarily due to the COVID-19 pandemic impact on the prior year which resulted in the temporary suspension of operations at our theatres in U.S. markets and International markets, deterred customers from attending our theatres when we resumed operations, and prompted film distributors to delay or alternatively distribute films. The increase in average ticket price was primarily due to strategic pricing initiatives put in place over the prior year, increases in IMAX and Premium content and lower frequency on our A-List subscription program and an increase in foreign currency translation rates, partially offset by loyalty program discounts.
Food and beverage revenues increased 136.6%, or $494.9 million, during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due the increase in attendance and the increase in food and beverage per patron. Food and beverage per patron increased 38.4% from $4.82 to $6.67 due to several contributing factors including increases in units sold per transaction and increases in the percentage of patrons making purchases due to higher child percentages, private theatre rentals, an increase in dine-in percentages, mobile orders along with price increases and reduced loyalty program penetration, partially offset by an increase in foreign currency translation rates.
Total other theatre revenues increased 64.6%, or $108.5 million, during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to increases in ticket fees, income from gift cards and package tickets and screen advertising due to the increase in attendance and the increase in foreign currency translation rates.
Operating costs and expenses. Operating costs and expenses decreased $1,887.2 million, during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to the $2,513.9 million impairment of long-lived assets charge recorded during the year ended December 31, 2020, and the increase in foreign currency translation rates. Film exhibition costs increased 88.3%, or $285.0 million, during the year ended December 31, 2021, compared to the year ended December 31, 2020, due to the increase in attendance. As a percentage of admissions revenues, film exhibition costs were 43.6% for the year ended December 31, 2021, and 45.3% for the year ended December 31, 2020. The decrease in film exhibition cost percentage is primarily due to the concentration of box office revenues in lower grossing films and library content in the current year, which typically results in lower film exhibition costs. Additionally, lower film exhibition costs were paid on films with shorter exclusive theatrical windows.
Food and beverage costs increased 55.3%, or $49.1 million, during the year ended December 31, 2021, compared to the year ended December 31, 2020. The increase in food and beverage costs was primarily due to the increase in food and beverage revenues. As a percentage of food and beverage revenues, food and beverage costs were 16.1% for the year ended December 31, 2021, and 24.5% for the year ended December 31, 2020. Food and beverage costs included $22.6 million of charges for obsolete inventory during the year ended December 31, 2020, due to the suspension of theatre operations.
As a percentage of revenues, operating expense was 45.2% for the year ended December 31, 2021, and 68.9% for the year ended December 31, 2020. Rent expense decreased 6.3%, or $56.1 million, during the year ended December 31, 2021, compared to the year ended December 31, 2020, due primarily to cash rent abatements from landlords, declines in rent expense due to the impairment of right-of-use assets during the years ended December 31, 2019 and December 31, 2020 that reduce the amounts of right-of-use assets that are amortized to rent expense, and theatre closures, partially offset by the increase in foreign currency translation rates. See Note 3—Leases in the Notes to the Consolidated Financial Statements under Part II Item 8 thereof for further information on the impact of COVID-19 on
60
leases and rent obligations of approximately $315.1 million that have been deferred to future years as of December 31, 2021.
Merger, acquisition, and other costs. Merger, acquisition, and other costs were $13.7 million during the year ended December 31, 2021, compared to $24.6 million during the year ended December 31, 2020, primarily due to higher legal and professional costs related to strategic contingent planning in the prior year.
Other. Other general and administrative expense increased 44.6% or $69.9 million during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to increases in bonus expense and stock-based compensation expense as a result of improvements in expected annual performance compared to annual targets and the modification and acceleration of vesting of awards during the current and prior year and increases in insurance costs and professional expenses. See Note 9—Stockholders’ Equity in the Notes to the Consolidated Financial Statements under Part II Item 8 thereof for additional information about stock-based compensation expense.
Depreciation and amortization. Depreciation and amortization decreased 14.7% or $73.3 million during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to lower depreciation expense on theatres impaired during years ended December 31, 2019 and December 31, 2020, partially offset by the increase in foreign currency translation rates.
Impairment of long-lived assets, definite and indefinite-lived intangible assets, and goodwill. During the year ended December 31, 2021, we recognized non-cash impairment losses of $61.3 million on 77 theatres in the U.S. markets with 805 screens (in Alabama, Arkansas, California, Colorado, Connecticut, District of Columbia, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Minnesota, Mississippi, Missouri, Montana, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, West Virginia, and Wisconsin) which were related to property, net, operating lease right-of-use assets, net and other long-term assets and $15.9 million on 14 theatres in the International markets with 118 screens (in Italy, Norway, Spain, and the UK), which were related to property, net and operating lease right-of-use assets, net.
During the year ended December 31, 2020, we recognized non-cash impairment losses of $152.5 million on 101 theatres in the U.S. markets with 1,139 screens (in Alabama, Arizona, Arkansas, California, Colorado, District of Columbia, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, 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 $25.4 million on 37 theatres in the International markets with 340 screens (in Finland, Germany, Ireland, Italy, Norway, Portugal, Spain, Sweden, and UK), which were related to property, net and operating lease right-of-use assets, net.
We performed quantitative impairment evaluations of our indefinite-lived intangible assets as of March 31, 2020, September 30, 2020 and December 31, 2020 related to the AMC, Odeon and Nordic trade names and recorded impairment charges of $15.2 million related to the Odeon and Nordic trade names during the year ended December 31, 2020. In addition, we performed quantitative impairment evaluations of our definite-lived intangible assets as of March 31, 2020, September 30, 2020 and December 31, 2020 and recorded impairment charges of $14.4 million in U.S. markets.
We performed quantitative impairment evaluations of our goodwill as of March 31, 2020, September 20, 2020 and December 31, 2020 and recorded impairment charges of $1,276.1 million and $1,030.3 million during the year ended December 31, 2020 for our Domestic Theatres and International Theatres reporting units, respectively.
Other expense (income). Other income of $87.9 million during the year ended December 31, 2021 was primarily due to $87.1 million in government assistance related to COVID-19, foreign currency transaction gains of $9.8 million and estimated credit income of $5.7 million related to contingent lease guarantees, partially offset by a loss on extinguishment of $14.4 million related to the redemption of $35.0 million principal amount of 15%/17% Cash/PIK Toggle First Lien Secured Notes due 2026 and $1.0 million of financing fees related to the write-off of unamortized deferred charges on the Odeon Revolving Credit Facility. Other expense of $28.9 million during the year ended December 31, 2020 was primarily due to third party expenses of $39.3 million related to the restructuring of our debt, the increase in fair value of our derivative liability for the embedded conversion feature in our Convertible Notes due 2026 of $89.4 million, 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 $19.6 million, estimated credit losses related to contingent
61
lease guarantees of $15.0 million, partially offset by government assistance related to COVID-19 of $38.6 million and a gain on the extinguishment of our second lien secured debt of $93.6 million. See Note 1—The Company and Significant Accounting Policies in the Notes to the Consolidated Financial Statements under Part II Item 8 thereof for additional information about the components of other expense (income).
Interest expense. Interest expense increased $101.2 million to $458.1 million for the year ended December 31, 2021 compared to $356.9 million during the year ended December 31, 2020 primarily due to:
| ● | the issuance of $500 million of 10.5% First Lien Notes due 2025 on April 24, 2020; |
| ● | the issuance of $300 million of 10.5% First Lien Notes due 2026 on July 31, 2020; |
| ● | the issuance of $100 million of 15%/17% Cash/PIK Toggle First Lien Notes due 2026 on January 15, 2021; |
| ● | unamortized discount and deferred charges at the date of conversion of $600 million 2.95% Convertible Notes due 2026 to 44,422,860 common shares on January 27, 2021 following the guidance in ASC 815-15-40-1; and |
| ● | the issuance of £140.0 million and €296.0 million 10.75%/11.25% Cash/PIK Term Loans due 2023 on February 19, 2021, |
partially offset by:
| ● | a reduction in the effective interest rate from 6.37% to 4.46% on $2,017.5 million aggregate principal amount of our senior subordinated notes exchanged for $1,462.3 million aggregate principal amount of second lien notes on July 31, 2020; |
| ● | the extinguishment of $104.5 million of Second Lien Notes due 2026 on December 14, 2020 in exchange for common shares; |
| ● | borrowings under revolving credit facilities of approximately $325.1 million during the year ended December 31, 2020; |
| ● | the repayment of £89.7 million and €12.8 million outstanding amounts under the Odeon Revolving Credit Facility on February 19, 2021; |
| ● | the conversion of $600 million 2.95% Convertible Notes due 2026 to 44,422,860 common shares on January 27, 2021; |
| ● | a decline in interest rates related to borrowings under the Senior Secured Term Loan due 2026; and |
| ● | the repayment in March 2021 of $212.2 million under the Senior Secured Revolving Credit Facility. |
See Note 8—Corporate Borrowings and Finance Lease Obligations in the Notes to the Consolidated Financial Statements under Part II Item 8 thereof for additional information about our indebtedness.
Equity in (earnings) loss of non-consolidated entities. Equity in (earnings) loss of non-consolidated entities was $(11.0) million for the year ended December 31, 2021, compared to $30.9 million for the year ended December 31, 2020. The decrease in equity in loss of $41.9 million was primarily due to decreases in equity in losses from DCIP of $26.8 million, decreases in impairment charges for equity method investments of $8.6 million and decreases in equity losses on other investments of $6.5 million.
Investment (income) expense. Investment income was $(9.2) million for the year ended December 31, 2021, compared to investment expense of $10.1 million for the year ended December 31, 2020. Investment income includes a gain on sale of the Baltics of $5.5 million during the year ended December 31, 2021. Investment expense includes an impairment charge of $15.9 million related to investments, partially offset by a payment of $3.7 million under the NCM tax receivable agreement during the year ended December 31, 2020.
Income tax provision (benefit). The income tax provision (benefit) was $(10.2) million and $59.9 million for the year ended December 31, 2021, and December 31, 2020, respectively. The decrease 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 during the year ended December 31, 2020. See Note 10—Income Taxes in the Notes to the Consolidated Financial Statements under Part II Item 8 thereof for further information.
Net loss. Net loss was $1,269.8 million and $4,589.4 million during the year ended December 31, 2021, and December 31, 2020, respectively. Net loss during the year ended December 31, 2021 compared to net loss for the year
62
ended December 31, 2020 was positively impacted by the increase in attendance as a result of an increase in new film releases in connection with the reopening of theatres in the current year that had been temporarily closed due to the COVID-19 pandemic and lifting of seating restrictions, decreases in impairment of long-lived assets, decreases in depreciation and amortization expense, decreases in rent expense, increases in other income, decreases in equity losses in non-consolidated entities, increases in investment income and decreases in income tax provision, partially offset by higher interest expense, higher general and administrative costs and an increase in foreign currency translation rates.
Theatrical Exhibition–U.S. Markets
Revenues. Total revenues increased 126.9%, or $1,049.1 million, during the year ended December 31, 2021, compared to the year ended December 31, 2020. Admissions revenues increased 123.2%, or $561.0 million, during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to a 96.1% increase in attendance and a 13.8% increase in average ticket price. The increase in attendance was primarily due to the COVID-19 pandemic impact on the prior year, which resulted in the temporary suspension of operations at our theatres in U.S. markets, deterred customers from attending our theatres when we resumed operations, and prompted film distributors to delay or alternatively distribute films. The increase in average ticket price was primarily due to strategic pricing initiatives put in place over the prior year and increases in IMAX and Premium content and lower frequency on our A-List subscription program.
Food and beverage revenues increased 161.9%, or $418.6 million, during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to the increase in attendance and food and beverage per patron. Food and beverage per patron increased 33.6% from $5.56 to $7.43 due to several contributing factors including increases in units sold per transaction and increases in the percentage of patrons making purchases due to higher child percentages, private theatre rentals, an increase in dine-in percentages, mobile orders along with price increases and reduced loyalty program penetration.
Total other theatre revenues increased 61.7%, or $69.5 million, during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to increases in ticket fees, income from gift cards and package tickets and screen advertising due to the increase in attendance.
Operating costs and expenses. Operating costs and expenses decreased $892.7 million, during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to the $1,443.0 million impairment of long-lived assets, definite-lived intangible assets and goodwill charge recorded during the year ended December 31, 2020. Film exhibition costs increased 106.5%, or $237.6 million, during the year ended December 31, 2021, compared to the year ended December 31, 2020, due to the increase in admissions revenues, partially offset by a decrease in film exhibition costs as a percentage of admissions revenues. As a percentage of admissions revenues, film exhibition costs were 45.3% for the year ended December 31, 2021, and 49.0% for the year ended December 31, 2020. The decrease in film exhibition cost percentage is primarily due to the concentration of box office revenues in lower grossing films and library content in the current year, which typically results in lower film exhibition costs. Additionally, lower film exhibition costs were paid on films with shorter exclusive theatrical windows.
Food and beverage costs increased 62.3%, or $36.8 million, during the year ended December 31, 2021, compared to the year ended December 31, 2020. The increase in food and beverage costs was primarily due to the increase in food and beverage revenues. As a percentage of food and beverage revenues, food and beverage costs were 14.2% for the year ended December 31, 2021, and 22.9% for the year ended December 31, 2020. Food and beverage costs included $17.5 million of charges for obsolete inventory during the year ended December 31, 2020, due to the suspension of theatre operations.
As a percentage of revenues, operating expense was 44.5% for the year ended December 31, 2021, and 71.2% for the year ended December 31, 2020. Rent expense decreased 5.6%, or $36.5 million, during the year ended December 31, 2021, compared to the year ended December 31, 2020, due primarily to theatre closures, declines in rent expense due to the impairment of right-of-use assets during years ended December 31, 2019 and December 31, 2020 that reduce the amounts of right-of-use assets that are amortized to rent expense, and cash rent abatements from landlords. See Note 3—Leases in the Notes to the Consolidated Financial Statements under Part II Item 8 thereof for further information on the impact of COVID-19 on leases and rent obligations of approximately $252.4 million that have been deferred to future years as of December 31, 2021.
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Merger, acquisition, and other costs. Merger, acquisition, and other costs were $9.0 million during the year ended December 31, 2021, compared to $10.2 million during the year ended December 31, 2020.
Other. Other general and administrative expense increased 62.0% or $60.6 million during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to increases in bonus expense and stock-based compensation expense as a result of improvements in expected annual performance compared to annual targets and the modification and acceleration of vesting of awards during the current and prior year and increases in insurance costs and professional expenses. See Note 9—Stockholders’ Equity in the Notes to the Consolidated Financial Statements under Part II Item 8 thereof for additional information about stock-based compensation expense.
Depreciation and amortization. Depreciation and amortization decreased 14.2% or $53.3 million during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to lower depreciation expense on theatres impaired during years ended December 31, 2019 and December 31, 2020.
Impairment of long-lived assets, definite and indefinite-lived intangible assets, and goodwill. During the year ended December 31, 2021, we recognized non-cash impairment losses of $61.3 million on 77 theatres in the U.S. markets with 805 screens (in Alabama, Arkansas, California, Colorado, Connecticut, District of Columbia, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Minnesota, Mississippi, Missouri, Montana, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, West Virginia, and Wisconsin) which were related to property, net, operating lease right-of-use assets, net and other long-term assets.
During the year ended December 31, 2020, we recognized non-cash impairment losses of $152.5 million on 101 theatres in the U.S. markets with 1,139 screens (in Alabama, Arizona, Arkansas, California, Colorado, District of Columbia, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, 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.
We performed quantitative impairment evaluations of our definite-lived intangible assets as of March 31, 2020, September 30, 2020 and December 31, 2020 and recorded impairment charges of $14.4 million during the year ended December 31, 2020.
We performed quantitative impairment evaluations of our goodwill as of March 31, 2020, September 30, 2020 and December 31, 2020 and recorded impairment charges of $1,276.1 million for our Domestic Theatres reporting unit.
Other expense. Other expense of $9.2 million during the year ended December 31, 2021, was primarily due to a loss on extinguishment of $14.4 million related to the redemption of $35.0 million principal amount of 15%/17% Cash/PIK Toggle First Lien Secured Notes due 2026, partially offset by $5.6 million in government assistance related to COVID-19. Other expense of $61.3 million during the year ended December 31, 2020 was primarily due to third party expenses of $39.3 million related to the restructuring of our debt, the increase in fair value of our derivative liability for the embedded conversion feature in our Convertible Notes due 2026 of $89.4 million, 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 $19.6 million, and estimated credit losses related to contingent lease guarantees of $9.2 million, partially offset by government assistance related to COVID-19 of $1.8 million and a gain on the extinguishment of our second lien secured debt of $93.6 million. See Note 1—The Company and Significant Accounting Policies in the Notes to the Consolidated Financial Statements under Part II Item 8 thereof for additional information about the components of other expense.
Interest expense. Interest expense increased $40.7 million to $387.9 million for the year ended December 31, 2021, compared to $347.2 million during the year ended December 31, 2020, primarily due to:
| ● | the issuance of $500 million of 10.5% First Lien Notes due 2025 on April 24, 2020; |
| ● | the issuance of $300 million of 10.5% First Lien Notes due 2026 on July 31, 2020; |
| ● | the issuance of $100 million of 15%/17% Cash/PIK Toggle First Lien Notes due 2026 on January 15, 2021; and |
| ● | the conversion of $600 million 2.95% Convertible Notes due 2026 to 44,422,860 common shares on January 27, 2021, that resulted in the write-off to interest expense of $70.0 million of unamortized discount and deferred charges at the date of conversion following the guidance in ASC 815-15-40-1, |
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partially offset by:
| ● | a reduction in the effective interest rate from 6.37% to 4.46% on $2,017.5 million aggregate principal amount of our senior subordinated notes exchanged for $1,462.3 million aggregate principal amount of second lien notes on July 31, 2020; |
| ● | the extinguishment of $104.5 million of Second Lien Notes due 2026 on December 14, 2020, in exchange for common shares; |
| ● | borrowings under revolving credit facilities of approximately $212.2 million during the year ended March 31, 2020; |
| ● | a decline in interest rates related to borrowings under the Senior Secured Term Loan due 2026; and |
| ● | the repayment in March 2021 of $212.2 million under the Senior Secured Revolving Credit Facility. |
See Note 8—Corporate Borrowings and Finance Lease Obligations in the Notes to the Consolidated Financial Statements under Part II Item 8 thereof for additional information about our indebtedness.
Equity in (earnings) loss of non-consolidated entities. Equity in (earnings) loss of non-consolidated entities was $(13.7) million for the year ended December 31, 2021, compared to $17.6 million for the year ended December 31, 2020. The decrease in equity in loss of $31.3 million was primarily due to decreases in equity in losses from DCIP of $26.8 million and decreases in equity losses on other investments of $4.5 million.
Investment (income) expense. Investment income was $(3.7) million for the year ended December 31, 2021, compared to investment expense of $10.2 million for the year ended December 31, 2020. Investment expense includes impairment charges of $15.9 million related to investments, partially offset by a payment of $3.7 million under the NCM tax receivable agreement during the year ended December 31, 2020.
Income tax provision (benefit). The income tax provision (benefit) was $(9.4) million and $2.4 million for the year ended December 31, 2021, and December 31, 2020, respectively. See Note 10—Income Taxes in the Notes to the Consolidated Financial Statements under Part II Item 8 thereof for further information.
Net loss. Net loss was $1,049.0 million and $3,059.2 million during the year ended December 31, 2021, and December 31, 2020, respectively. Net loss during the year ended December 31, 2021 compared to net loss for the year ended December 31, 2020 was positively impacted by the increase in attendance as a result of an increase in new film releases in connection with the reopening of theatres in the current year that had been temporarily closed due to the COVID-19 pandemic and lifting of seating restrictions, decreases in impairment of long-lived assets, decreases in depreciation and amortization expense, decreases in rent expense decreases in other expense, decreases in equity losses in non-consolidated entities, increases in investment income, decreases in income tax provision, partially offset by higher interest expense and higher general and administrative costs.
Theatrical Exhibition - International Markets
Revenues. Total revenues increased 56.9%, or $236.4 million, during the year ended December 31, 2021, compared to the year ended December 31, 2020. Admissions revenues increased 47.2%, or $121.1 million, during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to a 30.3% increase in attendance and a 13.0% increase in average ticket price. The increase in attendance was primarily the result of an increase in new film releases in connection with the reopening of theatres in the current year that had been temporarily closed due to the COVID-19 pandemic and lifting of seating restrictions. The increase in average ticket price includes the impact of the increase in foreign currency translation rates and reflects minimal volumes of attendance in the prior year.
Food and beverage revenues increased 73.4% or $76.3 million, during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to the increase in attendance and food and beverage per patron. Food and beverage per patron increased 32.9% from $3.62 to $4.81 and includes the impact of the increase in foreign currency translation rates.
Total other theatre revenues increased 70.7%, or $39.0 million, during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to increases in ticket fees, income from gift cards and package tickets, screen advertising and theatre rentals due to the increase in attendance and the increase in foreign currency translation rates.
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Operating costs and expenses. Operating costs and expenses decreased $994.5 million, during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to a $1,070.9 million impairment of long-lived assets, indefinite-lived intangible assets and goodwill charge, recorded during the year ended December 31, 2020, and an increase in foreign currency translation rates. Film exhibition costs increased 47.5%, or $47.4 million, during the year ended December 31, 2021, compared to the year ended December 31, 2020, due to the increase in admissions revenues. As a percentage of admissions revenues, film exhibition costs were 38.9% for the years ended December 31, 2021 and 2020.
Food and beverage costs increased 41.4%, or $12.3 million, during the year ended December 31, 2021, compared to the year ended December 31, 2020. The increase in food and beverage costs was primarily due to the increase in food and beverage revenues. As a percentage of food and beverage revenues, food and beverage costs were 23.3% for the year ended December 31, 2021, and 28.6% for the year ended December 31, 2020. Food and beverage costs included $5.1 million of charges for obsolete inventory during the year ended December 31, 2020, due to the suspension of theatre operations.
As a percentage of revenues, operating expense was 47.2% for the year ended December 31, 2021, and 64.3% for the year ended December 31, 2020. Rent expense decreased 8.4%, or $19.6 million, during the year ended December 31, 2021, compared to the year ended December 31, 2020, due primarily to cash rent abatements from landlords, declines in rent expense due to the impairment of right-of-use assets during the years ended December 31, 2019 and December 31, 2020 that reduce the amounts of right-of-use assets that are amortized to rent expense, and theatre closures, partially offset by the increase in foreign currency translation rates. See Note 3—Leases in the Notes to the Consolidated Financial Statements under Part II Item 8 thereof for further information on the impact of COVID-19 on leases and rent obligations of approximately $62.7 million that have been deferred to future years as of December 31, 2021.
Merger, acquisition, and other costs. Merger, acquisition, and other costs were $4.7 million during the year ended December 31, 2021, compared to $14.4 million during the year ended December 31, 2020, primarily due to legal and professional costs related to strategic planning in the prior year.
Other. Other general and administrative expense increased 15.8% or $9.3 million during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to increases in bonus expense and stock-based compensation expense as a result of improvements in expected annual performance compared to annual targets and the modification and acceleration of vesting of awards during the current and prior year and increases in foreign currency translation rates. See Note 9—Stockholders’ Equity in the Notes to the Consolidated Financial Statements under Part II Item 8 thereof for additional information about stock-based compensation expense.
Depreciation and amortization. Depreciation and amortization decreased 16.2% or $20.0 million during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to lower depreciation expense on theatres impaired in years ended December 31, 2019 and December 31, 2020, partially offset by the increase in foreign currency translation rates.
Impairment of long-lived assets, definite and indefinite-lived intangible assets, and goodwill. During the year ended December 31, 2021, we recognized non-cash impairment losses of $15.9 million on 14 theatres in the International markets with 118 screens (in Italy, Norway, Spain, and UK), which were related to property, net, and operating lease right-of-use assets, net.
During the year ended December 31, 2020, we recognized non-cash impairment losses of $25.4 million on 37 theatres in the International markets with 340 screens (in Finland, Germany, Ireland, Italy, Norway, Portugal, Spain, Sweden, and UK), which were related to property, net, and operating lease right-of-use assets, net.
We performed quantitative impairment evaluations of our indefinite-lived intangible assets related to the Odeon and Nordic trade names as of March 31, 2020, September 30, 2020 and December 31, 2020 and recorded impairment charges of $15.2 million related to these assets during the year ended December 31, 2020.
We performed a quantitative impairment evaluation of our goodwill as of March 31, 2020, September 30, 2020 and December 31, 2020 and recorded impairment charges of $1,030.3 million for our International Theatres reporting unit during the year ended December 31, 2020.
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Other income. Other income of $97.1 million during the year ended December 31, 2021, was primarily due to $81.5 million in government assistance related to COVID-19, $9.8 million of foreign currency transaction gains and estimated credit income of $6.0 million related to contingent lease guarantees. Other income of $32.4 million during the year ended December 31, 2020, was primarily due to the international government assistance related to COVID-19 of $36.8 million, partially offset by estimated credit losses related to contingent lease guarantees of $5.8 million. See Note 1—The Company and Significant Accounting Policies in the Notes to the Consolidated Financial Statements under Part II Item 8 thereof for additional information about the components of other expense (income).
Interest expense. Interest expense increased $60.5 million to $70.2 million for the year ended December 31, 2021 compared to $9.7 million during the year ended December 31, 2020, primarily due to:
| ● | the issuance of £140.0 million and €296.0 million 10.75%/11.25% Cash/PIK Term Loans due 2023 on February 19, 2021, |
partially offset by:
| ● | the repayment of £89.7 million and €12.8 million outstanding amounts under the Odeon Revolving Credit Facility on February 19, 2021. |
See Note 8—Corporate Borrowings and Finance Lease Obligations in the Notes to the Consolidated Financial Statements under Part II Item 8 thereof for additional information about our indebtedness.
Equity in loss of non-consolidated entities. Equity in loss of non-consolidated entities was $2.7 million for the year ended December 31, 2021, compared to $13.3 million for the year ended December 31, 2020.
Investment (income) expense. Investment income was $(5.5) million for the year ended December 31, 2021, compared to investment income of $(0.1) million for the year ended December 31, 2020. Investment income includes a gain on sale of the Baltics of $5.5 million during the year ended December 31, 2021.
Income tax provision (benefit). The income tax provision (benefit) was $(0.8) million and $57.5 million for the year ended December 31, 2021, and December 31, 2020, respectively. The decrease 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 during the year ended December 31, 2020. See Note 10—Income Taxes in the Notes to the Consolidated Financial Statements under Part II Item 8 thereof for further information.
Net loss. Net loss was $220.8 million and $1,530.2 million during the year ended December 31, 2021, and December 31, 2020, respectively. Net loss during the year ended December 31, 2021 declined compared to net loss for the year ended December 31, 2020 due to increases in attendance as a result of an increase in new film releases in connection with the reopening of theatres in the current year that had been temporarily closed due to the COVID-19 pandemic and lifting of seating restrictions, decreases in impairment of long-lived assets, decreases in depreciation and amortization expense, increases in other income, increases in investment income, decreases in equity losses in non-consolidated entities, decreases in income tax provision, decreases in rent expense, partially offset by higher interest expense, higher general and administrative costs and an increase in foreign currency translation rates.
Results of Operations—For the Year Ended December 31, 2020, Compared to the Year Ended December 31, 2019
For a comparison of our results of operations for the year ended December 31, 2020, compared to the year ended December 31, 2019, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission on March 12, 2021, which is incorporated herein by reference.
Liquidity and Capital Resources—For the Year Ended December 31, 2021, Compared to the Year Ended December 31, 2020
Our consolidated revenues are primarily collected in cash, principally through box office admissions and food and beverage sales. Prior to the impact of COVID-19 on our business, we had an operating “float” which partially financed our operations and which generally permitted us to maintain a smaller amount of working capital capacity. This float existed 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. As operations are beginning to resume, we are starting to see this float resume. Film distributors generally release the films which they
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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 surplus (deficits) (excluding restricted cash) as of December 31, 2021 and December 31, 2020 of $54.6 million and $(1,104.6) million, respectively. As of December 31, 2021 and December 31, 2020, working capital included $605.2 million and $583.6 million, respectively, of operating lease liabilities and $408.6 million and $405.4 million, respectively, of deferred revenues. At December 31, 2021, we had $209.1 million unused borrowing capacity, net of letters of credit, under our $225.0 million Senior Secured Revolving Credit Facility. As of December 31, 2020, we had borrowed $212.2 million (the full availability net of standby letters of credit) under our $225.0 million Senior Secured Revolving Credit Facility. We also maintained a revolving credit facility due February 14, 2022 at our Odeon subsidiary (the “Odeon Revolving Credit Facility”). This facility was replaced on February 15, 2021 by the Odeon Term Loan Facility. Reference is made to Note 8—Corporate Borrowings and Finance Lease Obligations in the Notes to the Consolidated Statements under Part II, Item 8 thereof, for further information about the Odeon Term Loan Facility. As of December 31, 2020, we had borrowed $120.8 million (the full availability net of standby letters of credit) under our £100.0 million Odeon Revolving Credit Facility ($136.3 million based on the foreign currency translation rate of 1.3628 on December 31, 2020). Reference is made to Note 8—Corporate Borrowings and Finance Lease Obligations in the Notes to Consolidated Financial Statements under Part II, Item 8 thereof, for further information about our outstanding indebtedness.
As of December 31, 2021, we had cash and cash equivalents of approximately $1.6 billion. In response to the COVID-19 pandemic, we adjusted certain elements of our business strategy and took significant steps to preserve cash. We are continuing to take significant measures to further strengthen our financial position and enhance our operations, by eliminating non-essential costs, including reductions to our variable costs and elements of our fixed cost structure, introducing new initiatives, and optimizing our theatrical footprint.
Additionally, we enhanced liquidity through debt issuances, debt exchanges and equity sales. See Note 8—Corporate Borrowings and Finance Lease Obligations, Note 9—Stockholders’ Equity, and Note 16—Subsequent Events in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof, for further information.
The table below summarizes net increase (decrease) in cash equivalents and restricted cash by quarter for the year ended December 31, 2021:
Three Months Ended |
Year Ended |
||||||||||||||
March 31, |
June 30, |
September 30, |
December 31, |
December 31, |
|||||||||||
(In millions) |
2021 |
2021 |
2021 |
2021 |
2021 |
||||||||||
Cash flows from operating activities: |
|||||||||||||||
Net cash provided by (used in) operating activities |
$ |
(312.9) |
$ |
(233.8) |
$ |
(113.9) |
$ |
46.5 |
$ |
(614.1) |
|||||
Cash flows from investing activities: |
|||||||||||||||
Net cash provided by (used in) investing activities |
(16.0) |
13.5 |
(28.8) |
(36.9) |
(68.2) |
||||||||||
Cash flows from financing activities: |
|||||||||||||||
Net cash provided by (used in) financing activities |
854.7 |
1,212.2 |
(48.3) |
(27.9) |
1,990.7 |
||||||||||
Effect of exchange rate changes on cash and cash equivalents and restricted cash |
(5.1) |
5.6 |
(8.4) |
(1.6) |
(9.5) |
||||||||||
Net increase (decrease) in cash and cash equivalents and restricted cash |
520.7 |
997.5 |
(199.4) |
(19.9) |
1,298.9 |
||||||||||
Cash and cash equivalents and restricted cash at beginning of period |
321.4 |
842.1 |
1,839.6 |
1,640.2 |
321.4 |
||||||||||
Cash and cash equivalents and restricted cash at end of period |
$ |
842.1 |
$ |
1,839.6 |
$ |
1,640.2 |
$ |
1,620.3 |
$ |
1,620.3 |
|||||
Our net cash used in operating activities improved by $79.1 million during the three months ended June 30, 2021 compared to the three months ended March 31, 2021, $119.9 million during the three months ended September 30, 2021 compared to the three months ended June 30, 2021, and $160.4 million during the three months ended December 31, 2021 compared to the three months ended September 30, 2021. This is primarily attributable to continued increases in attendance and industry box office revenues during the year ended December 31, 2021. We will continue to repay rent amounts that were deferred during the pandemic, which will increase our cash outflows from operating activities. See
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Note 3—Leases in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof, for a summary of the estimated future repayment terms for the remaining $315.1 million of rentals that were deferred during the COVID-19 pandemic.
Our net cash provided by (used in) investing activities included:
| ● | $(11.9) million of capital expenditures and $(9.3) million of investments in non-consolidated entities, partially offset by proceeds from the disposition of the Baltic theatres of $3.8 million and proceeds from the disposition of long-term assets of $1.4 million during the three months ended March 31, 2021; |
| ● | $31.4 million of proceeds from the disposition of the Baltic theatres, partially offset by $(17.9) million of capital expenditures during the three months ended June 30, 2021; |
| ● | $(24.1) million of capital expenditures, $(5.8) million related to the acquisition of assets at two theatres and $(1.0) million of transaction costs related to the Baltic theatres sale, partially offset by $2.0 million of proceeds from disposition of long-term assets during the three months ended September 30, 2021; and |
| ● | $(38.5) million of capital expenditures and $(2.4) million related to the acquisition of assets at two theatres, partially offset by $4.5 million of proceeds from disposition of long-term assets during the three months ended December 31, 2021. |
Our net cash provided by (used in) financing activities included:
| ● | Net proceeds from our debt and equity issuances of $861.9 million during the three months ended March 31, 2021; |
| ● | Net proceeds from our equity issuances of $1,219.6 million during the three months ended June 30, 2021; |
| ● | Principal and premium payments of $(40.3) million related to an optional redemption of our First Lien Toggle Notes due 2026 during the three months ended September 30, 2021; and |
| ● | Taxes paid for restricted stock withholdings of $(19.1) million during the three months ended December 31, 2021. |
We believe our existing cash and cash equivalents, together with cash generated from operations, will be sufficient to fund our operations, satisfy our obligations, including cash outflows for increased rent and planned capital expenditures, and comply with minimum liquidity and financial covenant requirements under our debt covenants related to borrowings pursuant to the Senior Secured Revolving Credit Facility and Odeon Term Loan Facility for at least the next twelve months. In order to achieve net positive operating cash flows and long-term profitability, we believe we will need to continue to increase attendance levels significantly compared to 2021 and achieve levels in line with pre COVID-19 attendance. We believe the global re-opening of our theatres, the anticipated volume of titles available for theatrical release, and the anticipated broad appeal of many of those titles will support increased attendance levels. We believe that the sequential increases in attendance experienced each quarter as 2021 progressed are positive signs of continued demand for the moviegoing experience. However, there remain significant risks that may negatively impact attendance, including a resurgence of COVID-19 related restrictions, potential movie-goer reluctance to attend theatres due to concerns about COVID-19 variant strains, movie studios release schedules and direct to streaming or other changing movie studio practices.
We entered the Ninth Amendment (as defined in Note 8—Corporate Borrowings and Finance Lease Obligations in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof) pursuant to which the requisite revolving lenders party thereto agreed to extend the fixed date for the termination of the suspension period for the financial covenant (the secured leverage ratio) applicable to the Senior Secured Revolving Credit Facility (as defined in Note 8—Corporate Borrowings and Finance Lease Obligations in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof) from March 31, 2021 to March 31, 2022, which was further extended by the Eleventh Amendment (as defined in Note 8—Corporate Borrowings and Finance Lease Obligations in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof) from March 31, 2022 to March 31, 2023, as described, and on the terms and conditions specified, therein. We are currently subject to minimum liquidity requirements of approximately $144 million, of which $100 million is required under the conditions for the Extended Covenant
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Suspension Period ending March 31, 2023, as amended, under the Senior Secured Revolving Credit Facility, and £32.5 million (approximately $44 million) of which is required under the Odeon Term Loan Facility. Following the expiration of the Extended Covenant Suspension Period ending March 31, 2023, we will be subject to the financial covenant under the Senior Secured Revolving Credit Facility as of the last day of each quarter on which the aggregate principal amount of revolving loans, and letters of credit (excluding letters of credit that are cash collateralized) in excess of $25 million, outstanding under the Senior Secured Revolving Credit Facility exceeds 35% of the principal amount of commitments under the Senior Secured Revolving Credit Facility then in effect, beginning with the quarter ending June 30, 2023. We currently expect we will be able to comply with this financial covenant, however, we do not anticipate the need to borrow under the Senior Secured Revolving Credit Facility during the next twelve months. See Note 8—Corporate Borrowings and Finance Lease Obligations for further information. Our liquidity needs thereafter will depend, among other things, on the timing of movie releases and our ability to generate cash from operations.
It is very difficult to estimate our liquidity requirements, future cash burn rates and future attendance levels. Depending on our assumptions regarding the timing and ability to achieve significantly increased levels of operating revenue, the estimates of amounts of required liquidity vary significantly. Similarly, it is very difficult to predict when theatre attendance levels will return to pre COVID-19 levels, which we expect will depend on the continued widespread availability and use of effective vaccines for the coronavirus, and eventual abatement of more virulent strains of the virus, related government mandates on social distancing and mask use, and the supply of movie titles for theatrical exhibition. While our current cash burn rates have improved, these levels are not sustainable. Further, we cannot accurately predict what future changes may occur to the supply or release date of movie titles available for theatrical exhibition once moviegoers are prepared to return in large numbers. Nor can we know with certainty the impact on consumer movie-going behavior of studios who release movies to theatrical exhibition and their streaming platforms on the same date (“day and date”), or the potential attendance impact of other studio decisions to accelerate in-home availability of their theatrical movies. Studio negotiations regarding evolving theatrical release models and film licensing terms are ongoing. There can be no assurance that the attendance levels and other assumptions used to estimate our liquidity requirements and future cash burn rates will be correct, and our ability to be predictive is uncertain due to the unknown magnitude and duration of the COVID-19 pandemic. Further, there can be no assurances that we will be successful in generating the additional liquidity necessary to meet our obligations beyond twelve months from the issuance of these financial statements on terms acceptable to us or at all. If we are unable to maintain or renegotiate our minimum liquidity covenant requirements, it could have a significant adverse effect on our business, financial condition and operating results.
We realized $1.2 billion of CODI in connection with our 2020 debt restructuring. As a result, $1.2 billion of our federal net operating losses were eliminated due to tax attribute reduction to offset the CODI. The loss of these attributes may adversely affect our cash flows and therefore our ability to service our indebtedness.
Cash Flows from Operating Activities
Net cash used in operating activities, as reflected in the consolidated statements of cash flows, were $614.1 million and $1,129.5 million during the years ended December 31, 2021 and December 31, 2020, respectively. The decrease in cash flows used in operating activities was primarily due to increased attendance levels, which resulted in improved operating results during the year ended December 31, 2021.
Cash Flows from Investing Activities
Net cash used in investing activities, as reflected in the consolidated statements of cash flows, were $68.2 million and $154.6 million during the years ended December 31, 2021 and December 31, 2020, respectively. Cash outflows from investing activities for capital expenditures during the years ended December 31, 2021 and December 31, 2020 were $92.4 million and $173.8 million, respectively.
During the year ended December 31, 2021, cash flows used in investing activities included proceeds from the disposition of Baltics of $34.2 million, primarily from the sale of our remaining equity interest in Estonia of $3.7 million and Lithuania of $30.5 million and proceeds received from the disposition of long-term assets of $7.9 million primarily related to four properties. During the year ended December 31, 2021, we made an additional investment of $9.3 million in Saudi Cinema Company LLC and acquired theatre assets of $8.2 million related to two theatres.
During the year ended December 31, 2020, cash flows used in investing activities included proceeds from the disposition of assets of $28.5 million, primarily related to 10 properties and other asset sales of $19.8 million and the
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sale of our remaining interest in one of the Baltic theatres located in Latvia of $6.2 million, and the cash outflow for an additional investment in Saudi Cinema Company LLC (“SCC”) of $9.3 million.
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 may decide to own the real estate assets of new theatres and following construction, sell and leaseback the real estate assets pursuant to long-term non-cancelable operating leases. In addition, we estimate that our cash outflows for capital expenditures, net of landlord contributions, will be approximately $150 million to $200 million for the year ending December 31, 2022 to maintain and enhance operations.
Cash Flows from Financing Activities
Net cash provided by financing activities, as reflected in the consolidated statements of cash flows, were $1,990.7 million and $1,330.3 million, during the years ended December 31, 2021 and December 31, 2020, respectively. The increase in cash flows from financing activities during the year ended December 31, 2021 compared to December 31, 2020 was primarily due to borrowings under the Odeon Term Loan Facility of $534.3 million, borrowings under the issuance of First Lien Toggle Notes due 2026 of $100.0 million, net proceeds from the sale of Common Stock of $1,570.7 million, and net proceeds from Common Stock issuance to Mudrick of $230.4 million, partially offset by the repayments under the revolving credit facilities of $335.0 million, principal and redemption premium under the First Lien Toggle Notes due 2026 of $40.3 million, payment for deferred financing costs of $19.9 million, payment of $19.1 million of taxes for restricted unit withholdings, and principal payments under the Term Loan due 2026 of $20.0 million.
During the year ended December 31, 2020, borrowings, net of discounts, under our First Lien Notes due 2025, First Lien Notes due 2026, and revolving credit facilities were $490.0 million, $270.0 million, and $321.8 million, respectively. Proceeds from the sale of Common Stock were $264.7 million during the year ended December 31, 2020.
On August 28, 2020, we entered into an agreement to sell our equity interest in Forum Cinemas OU, which consists of nine theatres located in the Baltic region (Latvia, Lithuania and Estonia) in several steps. For further information, see Note 1—The Company and Significant Accounting Policies in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof. We received $37.0 million cash consideration, net of transaction costs, and transferred an equity interest of 49% in Forum Cinemas OU to the purchaser during the year ended December 31, 2020.
We and our subsidiaries may from time to time seek to retire or repurchase our outstanding debt through cash purchases, in open market purchases, privately negotiated transactions, by tender offer or otherwise. Such repurchases, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Dividends. 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 |
||||
During the year ended December 31, 2020, we paid dividends and dividend equivalents of $6.5 million. As of December 31, 2021 and December 31, 2020, we accrued $0.7 million and $0.4 million, respectively, for the remaining unpaid dividends.
Future Contractual Obligations
Our estimated future obligations as of December 31, 2021 include both current and long term obligations. Our expected material contractual cash requirements over the next twelve months, primarily consist of capital related betterments of $16.3 million, obligation for unrecognized tax benefits of $0.2 million, minimum operating lease obligations of $1,039.5 million, finance lease obligations of $13.9 million, contractual cash rent amounts that were due and not paid of $41.8 million recorded in accounts payable, and corporate borrowings principal and interest payments of $20.0 million and $385.0 million, respectively.
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Capital related betterments. At December 31, 2021, we have short-term committed capital expenditures, investments, and betterments to our circuit, which do not include planned, but non-committed capital expenditures of $16.3 million.
Pension funding. Our U.S., U.K., and Sweden defined benefit plans are frozen. We fund our U.S. pension plans such that the plans are in compliance with Employee retirement Income security Act (“ERISA”) and the plans are not considered “at risk” as defined by ERISA guidelines. We do not expect to make a material contribution to the defined pension plans during the year ended December 31, 2022.
Obligation for unrecognized tax benefits. As of December 31, 2021, our recorded obligation for unrecognized tax benefits is $8.3 million. There are currently unrecognized tax benefits of $0.2 million, which we anticipate will be resolved in the next twelve months. See Note 10—Income Taxes in the Notes to Consolidated Financial Statements under Part II, Item 8 thereof for further information.
Minimum operating lease and finance lease payments. We have current and long-term minimum cash requirements for operating lease payments of $1,039.5 million and $7,139.9 million, respectively. We have current and long-term minimum cash requirements for finance lease payments of $13.9 million and $97.9 million, respectively. The total amounts do not equal the carrying amount due to imputed interest. We received rent concessions provided by the lessors that aided in mitigating the economic effects of COVID-19 during the pandemic. These concessions primarily consisted of rent abatements and the deferral of rent payments and were included in the amounts above, except for contractual cash rent amounts recorded in accounts payable that were due and not paid of $41.8 million. Our cash expenditures for rent increased significantly in the second, third, and fourth quarters of 2021 as previously deferred rent payments and landlord concessions started to become current obligations. See Note 3—Leases in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof, for a summary of the estimated future repayment terms for the minimum operating lease and finance lease amounts, including the deferred lease amounts due to COVID-19.
Corporate borrowings principal and interest payments. We have current and long-term cash requirements for the payment of principal related to corporate borrowings of $20.0 million and $5,149.1 million, respectively. The total amount does not equal the carrying amount due to unamortized discounts, premiums and deferred charges. See Note 16—Subsequent Events in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof, for information regarding the new 7.5% First Lien Senior Secured Notes due 2029 and redemptions of First Lien Toggle Notes due 2026, First Lien Notes due 2025 and First Lien Notes due 2026. We have current and long-term cash interest payment requirements related to our corporate borrowings of $385.0 million and $1,078.3 million, respectively. The cash interest payment requirements for our Senior Secured Term Loans due 2026 was estimated at 3.1% based on the interest rate in effect as of December 31, 2021. See Note 8—Corporate Borrowings and Finance Lease Obligations in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof, for further information, including a summary of principal payments required and maturities of corporate borrowings as of December 31, 2021.
Senior Secured Credit Facilities (Senior Secured Revolving Credit Facility and Senior Secured Term Loan due 2026). On March 8, 2021, we entered the Ninth Amendment (as defined in Note 8—Corporate Borrowings and Finance Lease Obligations in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof), pursuant to which the requisite revolving lenders party thereto agreed to extend the suspension period for the financial covenant under our Credit Agreement (as defined in Note 8—Corporate Borrowings and Finance Lease Obligations in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof) from a period ending on March 31, 2021 to a period ending on March 31, 2022, which was further extended by the Eleventh Amendment (as defined in Note 8—Corporate Borrowings and Finance Lease Obligations in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof) from March 31, 2022 to March 31, 2023, as described, and on the terms and conditions specified, therein. As an ongoing condition to the suspension of the financial covenant, we also agreed to (i) a minimum liquidity test of $100 million, (ii) an anti-cash hoarding test at any time Revolving Loans are outstanding and (iii) additional reporting obligations. On March 8, 2021, we entered into the Tenth Amendment (as defined in Note 8—Corporate Borrowings and Finance Lease Obligations in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof), pursuant to which we agreed that certain modifications to the Credit Agreement described in the Tenth Amendment require the consent of the majority of the revolving lenders party to the Tenth Amendment.
Senior Secured Term Loans bear interest at a rate per annum equal to, at our option, either (1) 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, (b) the prime rate announced by the Administrative Agent and (c) LIBOR determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00% or (2) an
72
applicable margin plus LIBOR determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs. As of December 31, 2021, we had $209.1 million unused borrowing capacity, net of letters of credit, under our $225.0 million Senior Secured Revolving Credit Facility.
Odeon Term Loan Facility. On February 15, 2021, Odeon Cinemas Group Limited (“Odeon”), a wholly-owned subsidiary of the Company entered into a new £140.0 million and €296.0 million term loan facility agreement (the “Odeon Term Loan Facility”), by and among Odeon, the subsidiaries of Odeon party thereto, the lenders and other loan parties thereto and Lucid Agency Services Limited as agent and Lucid Trustee Services Limited as security agent. Approximately £89.7 million and €12.8 million of the net proceeds from the Odeon Term Loan Facility were used to repay in full Odeon’s obligations (including principal, interest, fees and cash collateralized letters of credit) under its existing revolving credit facility and the remaining net proceeds will be used for general corporate purposes. The Odeon Term Loan Facility has a maturity of August 19, 2023 (2.5 years from the date on which it is first drawn). Borrowings under the Odeon Term Loan Facility bear interest at a rate equal to 10.75% per annum during the first year and 11.25% thereafter and each interest period is 3 months, or such other period agreed between us and the Agent. The interest is capitalized on the last day of each interest period and added to the outstanding principal amount, however, Odeon has the option to elect to pay interest in cash. All obligations under the Odeon Term Loan Facility are guaranteed by certain subsidiaries of Odeon. We are subject to minimum liquidity requirements of £32.5 million (approximately $44 million) required under the Odeon Term Loan Facility, measured at each quarter end date.
First Lien Toggle Notes due 2026. On January 15, 2021, we issued $100.0 million aggregate principal amount of our First Lien Toggle Notes due 2026 as contemplated by the previously disclosed commitment letter with Mudrick Capital Management, LP (“Mudrick”), dated as of December 10, 2020. The First Lien Toggle Notes due 2026 were issued pursuant to an indenture dated as of January 15, 2021 among us, the guarantors named therein and the U.S. Bank National Association, as trustee and collateral agent. On September 30, 2021, we exercised an option to repurchase $35.0 million of our First Lien Toggle Notes due 2026. The total cost to exercise this repurchase option was $40.3 million, including principal, redemption premium and accrued and unpaid interest. During the year ended December 31, 2021, we recorded loss on debt extinguishment of $14.4 million in other expense. As a result of this debt reduction, our annual interest cost has been reduced by $5.25 million. The First Lien Toggle Notes due 2026 bear cash interest at a rate of 15% per annum payable semi-annually in arrears on January 15 and July 15, beginning on July 15, 2021. Interest for the first three interest periods after the issue date may, at our option, be paid in PIK interest at a rate of 17% per annum, and thereafter interest shall be payable solely in cash. The First Lien Toggle Notes due 2026 will mature on April 24, 2026. The indenture provides that the First Lien Toggle Notes due 2026 are general senior secured obligations of the Company and are secured on a pari passu basis with the Senior Credit Facilities, the First Lien Notes due 2026, the First Lien Notes due 2025, and the Convertible Notes due 2026.
On December 14, 2020, Mudrick received a total of 21,978,022 shares of our Common Stock; of which 8,241,758 shares (“Commitment Shares”) relates to consideration received for a commitment fee and 13,736,264 shares (“Exchange shares”) as consideration received for the second lien exchange. Mudrick exchange $100 million aggregate principal amount of the Second Lien Notes due 2026 that were held by Mudrick for the Exchange Shares (the “Second Lien Exchange”) and waived its claim to PIK interest of $4.5 million principal amount. During the year ended December 31, 2021, we reclassified the prepaid commitment fee and deferred charges of $28.6 million to corporate borrowings from other long-term assets for the Commitment Shares and deferred charges. The prepaid commitment fee was recorded as a discount and, together with deferred charges, will be amortized to interest expense over the term of the First Lien Toggle Notes due 2026 using the effective interest method. During the year ended December 31, 2020, we recorded a gain on extinguishment of the Second Lien Notes due 2026 of $93.6 million based on the fair value of the Exchange Shares of $43.8 million and the carrying value of the $104.5 million principal amount of the Second Lien Notes exchanged of $137.4 million. See Note 16—Subsequent Events in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof, for further information.
Convertible Notes. On January 27, 2021, affiliates of Silver Lake and certain co-investors (collectively, the “Noteholders”) elected to convert (the “Conversion”) all $600.0 million principal amount of our Convertible Notes due 2026 into shares of our Common Stock at a conversion price of $13.51 per share. The Conversion settled on January 29, 2021 and resulted in the issuance of 44,422,860 shares of our Common Stock to the Noteholders. The Conversion reduced our first-lien indebtedness by $600.0 million. Pursuant to the Stock Repurchase and cancellation agreement with Dalian Wanda Group Co., Ltd. (“Wanda”) dated as of September 14, 2018, 5,666,000 shares of our Class B common stock held by Wanda were forfeited and cancelled in connection with the Conversion.
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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 Facilities. The First Lien Notes due 2025 will mature on April 15, 2025. See Note 16—Subsequent Events in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof, for further information.
Senior Subordinated Debt Exchange Offers. On July 31, 2020, we closed our previously announced private offers to exchange (the “Exchange Offers”) any and all of our outstanding 6.375% Senior Subordinated Notes due 2024, 5.75% Senior Subordinated Notes due 2025, 5.875% Senior Subordinated Notes due 2026 and 6.125% Senior Subordinated Notes due 2027 (together the “Existing Subordinated Notes”) for approximately $1.46 billion in aggregate principal amount of newly issued 10%/12% Cash/PIK Toggle Second Lien Subordinated Secured Notes due 2026.
The aggregate principal amounts of the Existing Subordinated Notes set forth in the table below were validly tendered and subsequently accepted. Such accepted Existing Subordinated Notes were retired and cancelled.
(In thousands) |
Total Aggregate Principal Amount Validly Tendered |
Percentage of Outstanding Existing Subordinated Notes Validly Tendered |
||||
6.375% Senior Subordinated Notes due 2024 (£496,014 par value) |
$ |
632,145 |
99.20 |
% |
||
5.75% Senior Subordinated Notes due 2025 |
$ |
501,679 |
83.61 |
% |
||
5.875% Senior Subordinated Notes due 2026 |
$ |
539,393 |
90.65 |
% |
||
6.125% Senior Subordinated Notes due 2027 |
$ |
344,279 |
72.48 |
% |
||
The Exchange Offers reduced the principal amounts of our debt by approximately $555 million, which represented approximately 23.9% of the principal amount of the Existing Subordinated Notes. We raised $300 million in additional cash from the issuance of the incremental First Lien Notes due 2026, prior to deducting $36 million related to discounts and deferred financing costs paid to the lenders. Additionally, certain holders of the Existing Subordinated Notes that agreed to backstop the rights offering for $200 million of the First Lien Notes due 2026 received five million 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 12 to 18 months after issuance 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 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) make other conforming changes to internally conform to certain proposed amendments.
We performed an assessment on a lender by lender basis to identify certain lenders that met the criteria for a troubled debt restructuring (“TDR”) under ASC 470-60, Troubled Debt Restructurings by Debtors (“ASC 470-60”) as we were experiencing financial difficulties and the lenders granted us a concession. The portion of the loans that did not meet the assessment of TDR under ASC 470-60 were treated as modifications. We accounted for the exchange of approximately $1,782.5 million principal amount of our Existing Senior Subordinated Notes for approximately $1,289.1 million principal amount of the Second Lien Notes due 2026 as TDR. We accounted for the exchange of the remaining approximately $235.0 million principal amount of our Existing Senior Subordinated Notes for approximately $173.2 million principal amount of the Second Lien Notes due 2026 as a modification of debt as the lenders did not grant a concession and the difference between the present value of the old and new cash flows was less than 10%. The TDR and modification did not result in a gain recognition and we established new effective interest rates based on the carrying value of the Existing Subordinated Notes and recorded the new fees paid to third parties of approximately $39.3 million in other expense, during both the year ended December 31, 2020.
Convertible Notes. 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
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amended the debt covenant under the Convertible Notes due 2024 Indenture to permit us to issue the First Lien Notes due 2025, among other changes.
Concurrently with the Exchange Offers, to obtain the consent of the holders of the Convertible Notes due 2024, we restructured $600 million of Convertible Notes due 2024 issued in 2018 to Silver Lake and others pursuant to which the maturity of the Convertible Notes due 2024 were extended to May 1, 2026 (the “Convertible Notes due 2026”) and a first-priority lien on the collateral securing our Credit Facilities was granted to secure indebtedness thereunder. We accounted for this transaction as a modification of debt as the lenders did not grant a concession and the difference between the present value of the old and new cash flows was less than 10%. The modification did not result in the recognition of any gain or loss and we established new effective interest rates based on the carrying value of the Convertible Notes due 2024. Third party costs related to the transaction were expensed as incurred and amounts paid to lenders were capitalized and amortized through maturity of the debt.
As noted above, on January 27, 2021, affiliates of Silver Lake and certain co-investors elected to convert all $600.0 million principal amount of our Convertible Notes due 2026 into shares of our Common Stock at a conversion price of $13.51 per share.
Second Lien Notes due 2026. In connection with the Exchange Offers on July 31, 2020, we issued $1,462.3 million aggregate principal amount of the new Second Lien Notes due 2026 in exchange for the Existing Subordinated Notes. We have reflected a premium of $535.1 million on the Second Lien Notes due 2026 as the difference between the principal balance of the Second Lien Notes due 2026 and the $1,997.4 million carrying value of the Existing Subordinated Notes exchanged. The premium will be amortized to interest expense over the term of the Second Lien Notes due 2026 using the effective interest method.
In connection with the Exchange Offers and the First Lien Notes due 2026, we issued five million shares of Common Stock to certain holders of subordinated notes as consideration for their commitment to backstop the issuance of $200 million of the First Lien Notes due 2026. Pursuant to the Backstop Commitment Agreement dated July 10, 2020, certain of the actual or beneficial holders of Existing Subordinated Notes agreed to purchase 100% of the First Lien Notes due 2026 that were not subscribed for in connection with the $200 million rights offering to holders of the existing Subordinated Notes participating in the Exchange Offers. Those providing a backstop commitment pursuant to the Backstop Commitment Agreement received their pro-rata share of five million shares of the Common Stock, or 4.6% of AMC’s outstanding shares as of July 31, 2020, worth $20.2 million at the market closing price on July 31, 2020. The equity issuance was recorded by us in stockholders’ deficit with an offset in corporate borrowings as a discount. The discount will be amortized to interest expense over the term of the Second Lien Notes due 2026 using the effective interest method. As part of the registration rights agreement related to the issuance of the Common Stock, we filed a shelf registration statement in August 2020 providing for the resale of the shares of Common Stock issued as consideration for the backstop commitment described above.
First Lien Notes due 2026. In connection with the Exchange Offers, certain holders of the Existing Subordinated Notes purchased 10.5% First Lien Notes due 2026 in an aggregate principal amount of $200 million. The 10.5% First Lien Notes due 2026 issued to certain holders of the Existing Subordinated Notes were issued pursuant to an indenture, dated as of July 31, 2020, among the Company, the guarantors named therein and GLAS Trust Company LLC, as trustee and collateral agent.
Separately, upon the closing of its private debt exchange, Silver Lake Alpine, L.P. and Silver Lake Alpine (Offshore Master), L.P., each affiliates of Silver Lake Group, L.L.C. (“Silver Lake”), purchased from us $100 million principal amount of First Lien Notes due 2026. The 10.5% First Lien Notes due 2026 issued to affiliates of Silver Lake were issued pursuant to an indenture, dated as of July 31, 2020, among the Company, the guarantors named therein and U.S. Bank National Association, as trustee and collateral agent. The terms of the 10.5% First Lien Notes due 2026 issued to the holders of the Existing Subordinated Notes and the 10.5% First Lien Notes due 2026 issued to Silver Lake are substantially identical. The $300 million principal amount of new funding is prior to deducting discounts of $30.0 million and deferred financing costs paid to lenders of $6.0 million related to the First Lien Notes due 2026. The discount and deferred financing costs will be amortized to interest expense over the term using the effective interest method. See Note 16—Subsequent Events in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof, for further information.
See Note 8—Corporate Borrowings and Finance Lease Obligations and Note 16—Subsequent Events in the Notes to the Consolidated Financial Statements under Part II, Item 8 thereof, for further information regarding the above.
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New Accounting Pronouncements
See Note 1—The Company and Significant Accounting Policies in Notes to the Consolidated Financial Statements under Part II, Item 8 thereof for information regarding recently issued accounting standards.
Liquidity and Capital Resources—For the Year Ended December 31, 2020, Compared to the Year Ended December 31, 2019
For a comparison of our liquidity and capital resources for the year ended December 31, 2020, compared to the year ended December 31, 2019, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission on March 12, 2021, which is incorporated herein by reference.
Item 7A. 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 years ended December 31, 2021 and December 31, 2020, 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 years ended December 31, 2021 and December 31, 2020, 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 consolidated statements of operations as presented below.
Market risk on variable-rate financial instruments. At December 31, 2021 and December 31, 2020, we maintained Senior Secured Credit Facilities comprised of a $225.0 million revolving credit facility and $2,000.0 million of Term Loans due 2026. The Credit Agreement (which governs the Senior Secured Credit Facilities) provides for borrowings at a rate per annum equal to, at our option, either (1) a base rate determined by reference to the highest of (a) 0.50% per annum plus the Federal Funds Effective Rate, and (b) the prime rate announced by the Administrative Agent or (2) LIBOR plus (x) in the case of the Senior Secured Term Loans, 2.0% for base rate loans or 3.0% for LIBOR loans or (y) in the case of the Senior Secured Revolving Credit Facility, an applicable margin based on the Secured Leverage Ratio (defined in the Credit Agreement). The rate in effect for the outstanding Senior Secured Term Loan due 2026 was 3.103% per annum at December 31, 2021 and 3.23% per annum at December 31, 2020. At December 31, 2020, we also maintained a revolving credit facility at our Odeon subsidiary.
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 December 31, 2021, we had no variable-rate borrowings outstanding under our Senior Secured Revolving Credit Facilities and had an aggregate principal balance of $1,945.0 million outstanding under the Term Loans due 2026. A 100-basis point change in market interest rates would have increased or decreased interest expense on the Senior Secured Credit Facilities by $19.5 million during the year ended December 31, 2021. At December 31, 2020, we had aggregate principal balance of $212.2 million under our revolving credit facility, $120.8 million under the Odeon Revolving Credit Facility, and had an aggregate principal balance of $1,965.0 million outstanding under the Term Loans due 2026. A 100-basis point change in market interest rates would have increased or decreased interest expense on the Senior Secured Credit Facilities and the Odeon Revolving Credit Facility by $23.0 million during the year ended December 31, 2020.
Market risk on fixed-rate financial instruments. Included in long-term corporate borrowings at December 31, 2021 were principal amounts of $500.0 million of our First Lien Notes due 2025, $1,508.0 million of our Second Lien Notes due 2026, $300.0 million of our First Lien Notes due 2026, $73.5 million of our First Lien Toggle Notes due 2026, $552.6 million of our Odeon Term Loan Facility due 2023, $98.3 million of our Notes due 2025, $55.6 million of our Notes due 2026, $130.7 million of our Notes due 2027, and £4.0 million ($5.4 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
76
value of our fixed rate financial instruments of approximately $99.1 million and $(95.2) million, respectively, during the year ended December 31, 2021.
Included in long-term corporate borrowings at December 31, 2020 were principal amounts of $500.0 million of our First Lien Notes due 2025, $1,423.6 million of our Second Lien Notes due 2026, $600.0 million of our Convertible Notes due 2026, $300.0 million of our First Lien Notes due 2026, $98.3 million of our Notes due 2025, $55.6 million of our Notes due 2026, $130.7 million of our Notes due 2027, and £4.0 million ($5.4 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 $39.7 million and $(37.9) million, respectively, during the year ended December 31, 2020.
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 December 31, 2021, 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 increase the aggregate net loss of our International theatres for the year ended December 31, 2021 by approximately $22.0 million. Based upon our ownership in Odeon and Nordic as of December 31, 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 year ended December 31, 2020 by approximately $153.0 million.
Our foreign currency translation rates increased by approximately 1.9% for the year ended December 31, 2021 compared to the year ended December 31, 2020.
77
Item 8. Financial Statements and Supplementary Data.
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
AMC Entertainment Holdings, Inc.
TO THE STOCKHOLDERS OF AMC ENTERTAINMENT HOLDINGS, INC.
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company as defined in Rule 13a-15(f) of the Exchange Act. With management’s participation, an evaluation of the effectiveness of internal control over financial reporting was conducted as of December 31, 2021, based on the framework and criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2021. The effectiveness of our internal control over financial reporting has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their attestation report that follows this report.
/s/ Adam M. Aron |
|
Chairman of the Board, Chief Executive Officer and President |
|
/s/ SEAN D. GOODMAN |
|
Executive Vice President, Chief Financial Officer and Treasurer |
78
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of AMC Entertainment Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of AMC Entertainment Holdings, Inc. and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, shareholders’ equity (deficit), and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 1, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of operating leases |
||
Description of the Matter |
At December 31, 2021, the Company’s operating lease right of use assets and operating lease liabilities were $4.2 billion and $5.3 billion, respectively. As discussed in Note 3 of the consolidated financial statements, the present value of the lease payments is calculated using the incremental borrowing rate (IBR) for operating leases. Since most of the leases do not provide a determinable implicit rate, the Company estimated its IBR used to calculate its right of use assets and lease liabilities. Auditing the Company’s estimate of the IBR was especially challenging as it involved a high degree of subjective judgment when testing the reasonableness of the inputs and appropriateness |
79
of the rates applied to each lease. In particular, the estimate of the IBR is sensitive to significant assumptions such as the determination of the current credit rating and selection of the associated yield curve. |
||
How We Addressed the Matter in Our Audit |
We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s determination of the IBR. For example, we tested management’s review controls over this process. To test the Company’s determination of the IBR, our audit procedures included, among others, an evaluation of management’s methodology for developing the IBR and a comparison of certain assumptions used by management to our independent estimates which were developed with the assistance of our specialists. |
|
/s/
We have served as the Company’s auditor since 2020
March 1, 2022
80
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of AMC Entertainment Holdings, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited AMC Entertainment Holdings, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, AMC Entertainment Holdings, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, shareholders’ equity (deficit), and cash flows for each of the two years in the period ended December 31, 2021 and our report dated March 1, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Kansas City, Missouri
March 1, 2022
81
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors AMC Entertainment Holdings, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of operations, comprehensive loss, cash flows, and stockholders’ equity (deficit) of AMC Entertainment Holdings, Inc. and subsidiaries (the Company) for the year ended December 31, 2019, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of the Company’s operations and its cash flows for the year ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/
We served as the Company’s auditor from 2009 to 2020.
February 27, 2020
82
AMC ENTERTAINMENT HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended |
|||||||||
(In millions, except share and per share amounts) |
|
December 31, 2021 |
|
December 31, 2020 |
|
December 31, 2019 |
|||
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, definite and 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 |
|
|
|
||||||
Net loss before income taxes |
( |
( |
( |
||||||
Income tax provision (benefit) |
( |
|
( |
||||||
Net loss |
( |
( |
( |
||||||
Less: Net loss attributable to noncontrolling interests |
( |
( |
— |
||||||
Net loss attributable to AMC Entertainment Holdings, Inc. |
$ |
( |
$ |
( |
$ |
( |
|||
Net loss per share attributable to AMC Entertainment Holdings, Inc.'s common stockholders: |
|||||||||
Basic |
$ |
( |
$ |
( |
$ |
( |
|||
Diluted |
$ |
( |
$ |
( |
$ |
( |
|||
Average shares outstanding: |
|||||||||
Basic (in thousands) |
|
|
|
||||||
Diluted (in thousands) |
|
|
|
||||||
See Notes to Consolidated Financial Statements.
83
AMC ENTERTAINMENT HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Year Ended |
|||||||||
(In millions) |
|
December 31, 2021 |
|
December 31, 2020 |
|
December 31, 2019 |
|||
Net loss |
$ |
( |
$ |
( |
$ |
( |
|||
Other comprehensive income (loss): |
|||||||||
Unrealized foreign currency translation adjustments |
|
( |
|
|
|
( |
|||
Realized gain (loss) on foreign currency transactions reclassified into investment expense (income), net of tax |
( |
|
|
||||||
Pension adjustments: |
|||||||||
Net gain (loss) arising during the period, net of tax |
|
|
|
( |
|
( |
|||
Equity method investee's cash flow hedge: |
|||||||||
Unrealized net holding loss arising during the period |
— |
— |
( |
||||||
Other comprehensive income (loss) |
|
( |
|
|
|
( |
|||
Total comprehensive loss |
( |
( |
( |
||||||
Comprehensive loss attributable to noncontrolling interests |
( |
( |
— |
||||||
Comprehensive loss attributable to AMC Entertainment Holdings, Inc. |
$ |
( |
$ |
( |
$ |
( |
|||
See Notes to Consolidated Financial Statements.
84
AMC ENTERTAINMENT HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except share data) |
|
December 31, 2021 |
|
December 31, 2020 |
|
||
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’ deficit: |
|||||||
AMC Entertainment Holdings, Inc.'s stockholders' deficit: |
|||||||
Class A common stock ($ |
|
|
|
|
|||
Class B common stock ($ |
|
— |
|
|
|||
Additional paid-in capital |
|
|
|
|
|||
Treasury stock ( |
|
— |
|
( |
|||
Accumulated other comprehensive income (loss) |
|
( |
|
|
|||
Accumulated deficit |
|
( |
|
( |
|||
Total AMC Entertainment Holdings, Inc.'s stockholders’ deficit |
|
( |
|
( |
|||
Noncontrolling interests |
— |
|
|||||
Total deficit |
( |
( |
|||||
Total liabilities and stockholders’ deficit |
$ |
|
$ |
|
|||
See Notes to Consolidated Financial Statements.
85
AMC ENTERTAINMENT HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended |
|||||||||
December 31, |
December 31, |
December 31, |
|||||||
(In millions) |
2021 |
2020 |
2019 |
||||||
Cash flows from operating activities: |
|||||||||
Net loss |
$ |
( |
$ |
( |
$ |
( |
|||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|||||||||
Depreciation and amortization |
|
|
|
|
|
||||
(Gain) loss on extinguishment of debt |
|
|
|
( |
|
||||
Deferred income taxes |
|
( |
|
|
( |
||||
Impairment of long-lived assets, definite and indefinite-lived intangible assets and goodwill |
|
|
|
|
|
||||
Gain on dispositions of Baltics |
( |
— |
— |
||||||
Amortization of net discount (premium) on corporate borrowings to interest expense |
|
( |
|
( |
|
||||
Amortization of deferred financing costs to interest expense |
|
|
|
||||||
PIK interest expense |
|
|
— |
||||||
Non-cash portion of stock-based compensation |
|
|
|
|
|
||||
Loss (gain) on disposition of assets |
|
( |
( |
||||||
Loss (gain) on derivative asset and derivative liability |
— |
|
( |
||||||
Equity in loss from non-consolidated entities, net of distributions |
|
|
|
|
|
||||
Landlord contributions |
|
|
|
||||||
Other non-cash rent expense (benefit) |
( |
( |
|
||||||
Deferred rent |
( |
|
( |
||||||
Net periodic benefit cost (income) |
( |
|
|
||||||
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 |
|
( |
|
( |
( |
||||
Proceeds from disposition of Baltics, net of cash and transaction costs |
|
|
— |
||||||
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 Odeon Term Loan due 2023 |
|
— |
— |
||||||
Proceeds from First Lien Toggle Notes due 2026 |
|
— |
— |
||||||
Principal payments under First Lien Toggle Notes due 2026 |
( |
— |
— |
||||||
Premium paid to extinguish First Lien Toggle Notes due 2026 |
( |
— |
— |
||||||
Principal payments under Second Lien Notes due 2026 |
( |
— |
— |
||||||
Proceeds from issuance of First Lien Notes due 2025 |
— |
|
— |
||||||
Proceeds from issuance of First Lien Notes due 2026 |
— |
|
— |
||||||
86
Borrowings (repayments) under revolving credit facilities |
( |
|
( |
||||||
Scheduled principal payments under Term Loan due 2026 |
|
( |
|
( |
( |
||||
Net proceeds from Class A common stock issuance |
|
|
— |
||||||
Net proceeds from Class A common stock issuance to Mudrick |
|
— |
— |
||||||
(Payments) proceeds related to sale of noncontrolling interest |
( |
|
— |
||||||
Principal payments under finance lease obligations |
|
( |
|
( |
( |
||||
Principal payments under promissory note |
— |
— |
( |
||||||
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 |
|
|
|
|
( |
||||
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 |
$ |
|
$ |
|
$ |
|
|||
Convertible Notes due 2026 conversion, see Note 8-Corporate Borrowings and Finance Lease Obligations |
$ |
|
$ |
— |
$ |
— |
|||
Mudrick transaction, see Note 8-Corporate Borrowings and Finance Lease Obligations |
$ |
— |
$ |
|
$ |
— |
|||
DCIP digital projectors transaction, see Note 6-Investments |
$ |
— |
$ |
|
$ |
— |
See Notes to Consolidated Financial Statements.
87
AMC ENTERTAINMENT HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
Accumulated |
|||||||||||||||||||||||||||||||||
Class A Voting |
Class B Voting |
Additional |
Other |
Accumulated |
Total AMC |
Total |
|||||||||||||||||||||||||||
Common Stock |
Common Stock |
Paid-in |
Treasury Stock |
Comprehensive |
Earnings |
Stockholders’ |
Noncontrolling |
Equity |
|||||||||||||||||||||||||
(In millions, except share and per share data) |
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Capital |
Shares |
|
Amount |
|
Income (Loss) |
|
(Deficit) |
|
Equity (Deficit) |
Interests |
(Deficit) |
||||||||||||
Balance December 31, 2018 |
|
$ |
|
|
$ |
|
$ |
|
|
$ |
( |
$ |
|
$ |
( |
$ |
|
$ |
— |
$ |
|
||||||||||||
Cumulative effect adjustments for the adoption of new accounting principle (ASC 842) |
— |
— |
— |
— |
— |
— |
— |
— |
|
|
— |
|
|||||||||||||||||||||
Net loss |
— |
— |
— |
— |
— |
— |
— |
— |
( |
( |
— |
( |
|||||||||||||||||||||
Other comprehensive loss |
— |
— |
— |
— |
— |
— |
— |
( |
— |
( |
— |
( |
|||||||||||||||||||||
Dividends declared: |
|||||||||||||||||||||||||||||||||
Class A common stock, $ |
— |
— |
— |
— |
— |
— |
— |
— |
( |
( |
— |
( |
|||||||||||||||||||||
Class B common stock, $ |
— |
— |
— |
— |
— |
— |
— |
— |
( |
( |
— |
( |
|||||||||||||||||||||
RSUs surrendered to pay for payroll taxes |
— |
— |
— |
— |
( |
— |
— |
— |
— |
( |
— |
( |
|||||||||||||||||||||
Reclassification from temporary equity |
|
— |
— |
— |
|
— |
— |
— |
— |
|
— |
|
|||||||||||||||||||||
Stock-based compensation |
|
— |
— |
— |
|
— |
— |
— |
— |
|
— |
|
|||||||||||||||||||||
Balance December 31, 2019 |
|
$ |
|
|
$ |
|
$ |
|
|
$ |
( |
$ |
( |
$ |
( |
$ |
|
$ |
— |
$ |
|
||||||||||||
Cumulative effect adjustment for the adoption of new accounting principle (ASU 2016-13) |
— |
— |
— |
— |
— |
— |
— |
— |
( |
( |
— |
( |
|||||||||||||||||||||
Net loss |
— |
— |
— |
— |
— |
— |
— |
— |
( |
( |
( |
( |
|||||||||||||||||||||
Other comprehensive income |
— |
— |
— |
— |
— |
— |
— |
|
— |
|
|
|
|||||||||||||||||||||
Baltics noncontrolling capital contribution |
— |
— |
— |
— |
( |
— |
— |
|
— |
— |
|
|
|||||||||||||||||||||
Dividends declared: |
|||||||||||||||||||||||||||||||||
Class A common stock, $ |
— |
— |
— |
— |
— |
— |
— |
— |
( |
( |
— |
( |
|||||||||||||||||||||
Class B common stock, $ |
— |
— |
— |
— |
— |
— |
— |
— |
( |
( |
— |
( |
|||||||||||||||||||||
Class A common stock issuance |
|
|
— |
— |
|
— |
— |
— |
— |
|
— |
|
|||||||||||||||||||||
Exchange Offer Class A common stock issuance |
|
|
— |
— |
|
— |
— |
— |
— |
|
— |
|
|||||||||||||||||||||
Class A common stock issuance commitment and exchange shares |
|
|
— |
— |
|
— |
— |
— |
— |
|
— |
|
|||||||||||||||||||||
Derivative asset valuation allowance adjustment |
— |
— |
— |
— |
— |
— |
— |
— |
( |
( |
— |
( |
|||||||||||||||||||||
88
Click here to enter text.
Reclassification of derivative liability and derivative asset for Conversion Price Reset of Convertible Notes due 2026 |
— |
— |
— |
— |
|
— |
— |
— |
( |
|
— |
|
|||||||||||||||||||||
Taxes paid for restricted unit withholdings |
— |
— |
— |
— |
( |
— |
— |
— |
— |
( |
— |
( |
|||||||||||||||||||||
Stock-based compensation |
|
— |
— |
— |
|
— |
— |
— |
— |
|
— |
|
|||||||||||||||||||||
Balance December 31, 2020 |
|
$ |
|
|
$ |
|
$ |
|
|
$ |
( |
$ |
|
$ |
( |
$ |
( |
$ |
|
$ |
( |
||||||||||||
Net loss |
— |
— |
— |
— |
— |
— |
— |
— |
( |
( |
( |
( |
|||||||||||||||||||||
Other comprehensive loss |
— |
— |
— |
— |
— |
— |
— |
( |
— |
( |
( |
( |
|||||||||||||||||||||
Baltics noncontrolling capital contribution |
— |
— |
— |
— |
|
— |
— |
— |
— |
|
( |
( |
|||||||||||||||||||||
100% liquidation of Baltics |
— |
— |
— |
— |
— |
— |
— |
( |
— |
( |
( |
( |
|||||||||||||||||||||
Class A common stock, accrued dividend equivalent adjustment |
— |
— |
— |
— |
— |
— |
— |
— |
( |
( |
— |
( |
|||||||||||||||||||||
Class A common stock issuance |
|
|
— |
— |
|
( |
|
— |
( |
|
— |
|
|||||||||||||||||||||
Class A common stock issuance to Mudrick |
|
|
— |
— |
|
— |
— |
— |
— |
|
— |
|
|||||||||||||||||||||
Wanda conversion of Class B shares to Class A shares |
|
|
( |
( |
— |
— |
— |
— |
— |
— |
— |
— |
|||||||||||||||||||||
Convertible Notes due 2026 stock conversion |
|
|
— |
— |
|
— |
— |
— |
— |
|
— |
|
|||||||||||||||||||||
Wanda forfeit and cancellation of Class B shares |
— |
— |
( |
— |
— |
— |
— |
— |
— |
— |
— |
— |
|||||||||||||||||||||
Taxes paid for restricted unit withholdings |
— |
— |
— |
— |
( |
— |
— |
— |
— |
( |
— |
( |
|||||||||||||||||||||
Stock-based compensation |
|
— |
— |
— |
|
— |
— |
— |
— |
|
— |
|
|||||||||||||||||||||
Balance December 31, 2021 |
|
$ |
|
— |
$ |
— |
$ |
|
— |
$ |
— |
$ |
( |
$ |
( |
$ |
( |
$ |
— |
$ |
( |
See Notes to Consolidated Financial Statements
89
AMC ENTERTAINMENT HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021, 2020, 2019
NOTE 1—THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
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.
Temporarily Suspended or Limited Operations. Throughout the first quarter of 2020, the Company temporarily suspended 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 of March 17, 2020, all of the Company’s U.S. and International theatre operations were temporarily suspended. The Company resumed limited operations in the International markets in early June 2020 and limited operations in the U.S. markets in late August 2020. A COVID-19 resurgence during the fourth quarter of 2020 resulted in additional local, state, and federal governmental restrictions and many previously reopened theatres in International markets temporarily suspended operations again.
As of March 31, 2021, the Company operated at
As of March 31, 2021, the Company operated at
Liquidity. As of December 31, 2021, the Company has cash and cash equivalents of approximately $
Additionally, the Company enhanced liquidity through debt issuances, debt exchanges and equity sales. See Note 8—Corporate Borrowings and Finance Lease Obligations, Note 9—Stockholders’ Equity, and Note 16—Subsequent Events for further information.
90
The table below summarizes net increase (decrease) in cash equivalents and restricted cash by quarter for the year ended December 31, 2021:
Three Months Ended |
Year Ended |
||||||||||||||
March 31, |
June 30, |
September 30, |
December 31, |
December 31, |
|||||||||||
(In millions) |
2021 |
2021 |
2021 |
2021 |
2021 |
||||||||||
Cash flows from operating activities: |
|||||||||||||||
Net cash provided by (used in) operating activities |
$ |
( |
$ |
( |
$ |
( |
$ |
|
$ |
( |
|||||
Cash flows from investing activities: |
|||||||||||||||
Net cash provided by (used in) investing activities |
( |
|
( |
( |
( |
||||||||||
Cash flows from financing activities: |
|||||||||||||||
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 |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||
The Company’s net cash used in operating activities improved by $
The Company’s net cash provided by (used in) investing activities included:
| ● |
$( |
| ● |
$ |
| ● |
$( |
| ● |
$( |
The Company’s net cash provided by (used in) financing activities included:
| ● |
Net proceeds from the Company’s debt and equity issuances of $ |
| ● |
Net proceeds from the Company’s equity issuances of $ |
91
| ● |
Principal and premium payments of $( |
| ● |
Taxes paid for restricted stock withholdings of $( |
The Company believes its existing cash and cash equivalents, together with cash generated from operations, will be sufficient to fund its operations, satisfy its obligations, including cash outflows for increased rent and planned capital expenditures, and comply with minimum liquidity and financial covenant requirements under its debt covenants related to borrowings pursuant to the Senior Secured Revolving Credit Facility and Odeon Term Loan Facility for at least the next twelve months. In order to achieve net positive operating cash flows and long-term profitability, the Company believes it will need to continue to increase attendance levels significantly compared to 2021 and achieve levels in line with pre COVID-19 attendance. The Company believes the global re-opening of its theatres, the anticipated volume of titles available for theatrical release, and the anticipated broad appeal of many of those titles will support increased attendance levels. The Company believes that the sequential increases in attendance experienced each quarter as 2021 progressed are positive signs of continued demand for the moviegoing experience. However, there remain significant risks that may negatively impact attendance, including a resurgence of COVID-19 related restrictions, potential movie-goer reluctance to attend theatres due to concerns about COVID-19 variant strains, movie studios release schedules and direct to streaming or other changing movie studio practices.
The Company entered the Ninth Amendment (as defined in Note 8—Corporate Borrowings and Finance Lease Obligations) pursuant to which the requisite revolving lenders party thereto agreed to extend the fixed date for the termination of the suspension period for the financial covenant (the secured leverage ratio) applicable to the Senior Secured Revolving Credit Facility (as defined in Note 8—Corporate Borrowings and Finance Lease Obligations) from March 31, 2021 to March 31, 2022, which was further extended by the Eleventh Amendment (as defined in Note 8—Corporate Borrowings and Finance Lease Obligations) from March 31, 2022 to March 31, 2023, as described, and on the terms and conditions specified, therein. The Company is currently subject to minimum liquidity requirements of approximately $
The Company’s cash expenditures for rent increased significantly in the second, third, and fourth quarters of 2021 as previously deferred rent payments and landlord concessions started to become current obligations. The Company received rent concessions provided by the lessors that aided in mitigating the economic effects of COVID-19 during the pandemic. These concessions primarily consisted of rent abatements and the deferral of rent payments. As a result, deferred lease amounts were approximately $
Use of Estimates. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Principles of Consolidation. The consolidated financial statements include the accounts of Holdings and all subsidiaries, as discussed above. All significant intercompany balances and transactions have been eliminated in consolidation. Majority-owned subsidiaries that the Company has control of are consolidated in the Company’s consolidated subsidiaries; consequently, a portion of its stockholders’ equity, net earnings (loss) and total comprehensive
92
income (loss) for the periods presented are attributable to noncontrolling interests. The Company manages its business under
Noncontrolling Interests and Baltic Theatre Sale. Majority-owned subsidiaries that the Company has control of are consolidated in the Company’s consolidated financial statements; consequently, a portion of its stockholders’ equity, net earnings (loss) and total comprehensive income (loss) for the periods presented are attributable to noncontrolling interests. On August 28, 2020, the Company entered into an agreement to sell its equity interest in Forum Cinemas OU, which consists of
The Company received $
During the year ended December 31, 2021, the Company received cash consideration of $
Revenues. The Company recognizes revenue, net of sales tax, when it satisfies a performance obligation by transferring control over a product or service to a customer. Admissions and food and beverage revenues are recorded at a point in time when a film is exhibited to a customer and when a customer takes possession of food and beverage offerings. The Company defers
The Company recognizes income from non-redeemed or partially redeemed gift cards in proportion to the pattern of rights exercised by the customer (“proportional method”) where it applies an estimated non-redemption rate for its gift card sales channels, which range from
The Company recognizes ticket fee revenues based on a gross transaction price. The Company is a principal (as opposed to agent) in the arrangement with third-party internet ticketing companies in regard to the sale of online tickets because the Company controls the online tickets before they are transferred to the customer. The online ticket fee revenues and the third-party commission or service fees are recorded in the line items other theatre revenues and operating expense, respectively, in the consolidated statements of operations.
93
The Company recognizes government grants once the grant requirements have been met. Grants relating to specific costs are treated as a reduction of that cost in the consolidated statements of operations. General grants are recorded within other expense (income). Grants related to the construction of fixed assets are treated as reductions to the associated fixed asset cost. Certain grants contain stipulations around the use of funds which could trigger claw backs if the stipulations are violated.
Film Exhibition Costs. Film exhibition costs are accrued based on the applicable box office receipts and estimates of the final settlement to the film licensors. Film exhibition costs include certain advertising costs. As of December 31, 2021 and December 31, 2020, the Company recorded film payables of $
Food and Beverage Costs. The Company records rebate payments from vendors as a reduction of food and beverage costs when earned.
Exhibitor Services Agreement. The Company recognizes advertising revenues, which are included in other theatre revenues in the consolidated statements of operations, when it satisfies a performance obligation by transferring a promised good or service to the customers. The advertising contracts with customers generally consist of a series of distinct periods of service, satisfied over time, to provide rights to advertising services. The Company’s Exhibitor Services Agreement (“ESA”) with National CineMedia, LLC (“NCM”) includes a significant financing component due to the significant length of time between receiving the non-cash consideration and fulfilling the performance obligation. The Company receives the non-cash consideration in the form of common membership units from NCM, in exchange for rights to exclusive access to the Company’s theatre screens and attendees through February 2037. Upon recognition, the Company records an increase to advertising revenues with a similar offsetting increase in non-cash interest expense, which is recorded to non-cash NCM exhibitor service agreement in the consolidated statements of operations. Pursuant to the calculation requirements for the time value of money, the amortization method reflects the front-end loading of the significant financing component where more interest expense is recognized earlier during the term of the agreement than the back-end recognition of the deferred revenue amortization where more revenue is recognized later in the term of the agreement. See Note 6—Investments for further information regarding the common unit adjustment (“CUA”) and the fair value measurement of the non-cash consideration. The interest expense was calculated using discount rates that ranged from
Customer Engagement Programs. AMC Stubs® is a customer loyalty program in the U.S. markets which allows members to earn rewards, receive discounts and participate in exclusive members-only offerings and services. It features both a paid tier called AMC Stubs PremiereTM for a flat annual membership fee and a non-paid tier called AMC Stubs® InsiderTM. 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. The Company estimates 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 the Company’s 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 from $
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 were temporarily suspended. As the Company re-opened theatres, A-List members had the option to reactivate their subscription, which restarted the monthly charge for the program. Starting in July of 2021, all A-List monthly subscriptions were automatically reactivated and the Company has
94
resumed a more normal recognition pattern for deferred revenues related to certain loyalty programs, gift cards and exchange tickets.
Advertising Costs. The Company expenses advertising costs as incurred and does not have any direct-response advertising recorded as assets. Advertising costs were $
Cash and Equivalents. All highly liquid debt instruments and investments purchased with an original maturity of three months or less are classified as cash equivalents. At December 31, 2021, cash and cash equivalents for the U.S. markets and International markets were $
Restricted Cash. Restricted cash is cash held in the Company's bank accounts in International markets as a guarantee for certain landlords.
Derivative Asset and Liability. Prior to September 14, 2020, the Company remeasured the derivative asset related to its contingent call option to acquire shares of its Class B common stock at no additional cost and the derivative liability related to the conversion feature in its Convertible Notes due 2026 at fair value each reporting period until the conversion price reset on September 14, 2020, with changes in fair value recorded in the consolidated statements of operations in other expense (income). The Company obtained independent third-party valuation studies to assist in determining fair value. The Company’s valuation studies used a Monte Carlo simulation approach and were based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value measurement hierarchy. The Company’s Common Stock price at the end of each reporting period as well as the remaining amount of time until expiration for the contingent call option and conversion feature were key inputs for the estimation of fair value that were expected to change each reporting period. The Company recorded other expense (income) related to derivative asset fair value adjustments of $
Intangible Assets. Intangible assets were recorded at fair value for intangible assets resulting from the acquisition of Holdings by Wanda on August 30, 2012 and other theatre acquisitions. Intangible assets are comprised of amounts assigned to management contracts, which are being amortized on a straight-line basis over the estimated remaining useful lives of the assets, and trademark and trade names. The Company evaluates definite-lived intangible assets whenever events or changes in circumstances indicate that the carrying amount of the asset group may not be fully recoverable. Trademark and trade names are considered either definite or indefinite-lived intangible assets. Indefinite-lived intangible assets are not amortized but rather evaluated for impairment annually or more frequently as specific events or circumstances dictate.
The Company first assesses the qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not the fair value of an indefinite-lived intangible asset is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative impairment test. During the year ended December 31, 2020, the Company recorded impairment losses related to definite-lived intangible assets of $
Investments. The Company accounts for its investments in non-consolidated entities using either the cost or equity methods of accounting as appropriate, and has recorded the investments within other long-term assets in its consolidated balance sheets. Equity earnings and losses are recorded when the Company’s ownership interest provides the Company with significant influence. The Company follows the guidance in ASC 323-30-35-3, investment in a limited liability company, which prescribes the use of the equity method for investments where the Company has significant influence. The Company classifies gains and losses on sales of investments or impairments accounted for using the cost method in investment expense (income). Gains and losses on cash sales are recorded using the weighted average cost of all interests in the investments. Gains and losses related to non-cash negative common unit adjustments are recorded using the weighted average cost of those units in NCM. See Note 6—Investments for further discussion of
95
the Company’s investments in NCM. As of December 31, 2021, the Company holds equity method investments comprised of a
Goodwill. The Company’s recorded goodwill was $
In accordance with ASC 350-20-35-30, goodwill of a reporting unit shall be tested for impairment between annual tests by assessing the qualitative factors to determine if an event occurs or changes in circumstances that would warrant an interim ASC 350 impairment analysis. If an impairment analysis is needed, the Company performs a quantitative impairment test for goodwill, which involves estimating the fair value of the reporting unit and comparing that value to its carrying value. If the estimated fair value of the reporting unit is less than its carrying value, the difference is recorded as goodwill impairment charge, not to exceed the total amount of goodwill allocated to that reporting unit.
Qualitative impairment tests performed during 2021. The Company performed a qualitative impairment test to evaluate whether it is more likely than not that the fair value of its two reporting units was less than their respective carrying amounts as of its annual assessment date. The Company concluded that it was not more likely than not that the fair value of either of the Company’s two reporting units had been reduced below their respective carrying amounts. As a result, the Company concluded that there were no triggering events as of the annual assessment date, December 31, 2021.
Step 1 quantitative goodwill impairment tests performed during 2020. 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. 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. In performing the Step 1 quantitative goodwill impairment test, the Company used an enterprise value approach to measure fair value of the reporting units.
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. The enterprise fair values of the Domestic Theatres and International Theatres reporting units were less than their carrying values and goodwill impairment charges of $
Due to the suspension of operations during the second and third quarters of 2020 and the further delay or cancellation of film releases, the Company performed a Step 1 quantitative impairment test of the Domestic and International reporting units as of September 30, 2020. See Note 12—Fair Value Measurements for a discussion of the valuation methodology. The enterprise fair value of the Domestic Theatres and International Theatres reporting units was less than their carrying values and goodwill impairment charges of $
96
Due to the further delay or cancellation of film releases and the further suspension of operations in the International markets, the Company performed a Step 1 quantitative impairment test of the Domestic and International reporting units as of December 31, 2020. See Note 12—Fair Value Measurements for a discussion of the valuation methodology. The enterprise fair value of the Domestic Theatres reporting unit was greater than its carrying value and the enterprise fair value of the International Theatre reporting unit was less than its carrying value. As a result, goodwill impairment charge of $
Other Long-term Assets. Other long-term assets are comprised principally of investments in partnerships and joint ventures and capitalized computer software, which is amortized over the estimated useful life of the software. See Note 7—Supplemental Balance Sheet Information.
Accounts Payable. Under the Company’s cash management system, checks issued but not presented to banks frequently result in book overdraft balances for accounting purposes and are classified within accounts payable in the balance sheet. The change in book overdrafts are reported as a component of operating cash flows for accounts payable as they do not represent bank overdrafts. The amount of these checks included in accounts payable as of December 31, 2021 and December 31, 2020 was $
Leases. The Company adopted ASC 842 on January 1, 2019 using the modified retrospective transition method. Upon transition to the new standard, the Company elected the package of practical expedients, which permitted the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs.
The Company leases theatres and equipment under operating and finance leases. The majority of the Company’s operations are conducted in premises occupied under lease agreements with initial base terms ranging generally from
Operating lease right-of-use assets and lease liabilities were recorded at commencement date based on the present value of minimum lease payments over the remaining lease term. The minimum lease payments include base rent and other fixed payments, including fixed maintenance costs. The Company’s leases have remaining lease terms of approximately
The Company elected the practical expedient to not separate lease and non-lease components and also elected the short-term practical expedient for all leases that qualify. As a result, the Company will not recognize right-of-use assets or liabilities for short-term leases that qualify for the short-term practical expedient, but instead will recognize the lease payments as lease cost on a straight-line basis over the lease term. The Company’s lease agreements do not contain residual value guarantees. Short-term leases and sublease arrangements are immaterial. Equipment leases primarily consist of food and beverage and digital equipment.
Impairment of Long-lived Assets. The Company reviews long-lived assets, including definite-lived intangibles 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. The Company identifies impairments related to internal use software when management determines that the remaining carrying value of the software will not be realized through future use. The Company evaluates events or circumstances, including competition in the markets
97
where it operates, that would indicate the carrying value of theatre assets may not be fully recoverable. 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 the carrying value exceeds the future undiscounted cash flows, the carrying value of the asset is reduced to fair value, with the difference recorded as an impairment charge. 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 Company evaluates theatres using historical and projected data of theatre level cash flow as its primary indicator of potential impairment and considers the seasonality of its business when making these evaluations. 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.
There is considerable management judgment necessary to determine the estimated future cash flows and fair values of the Company’s theatres and other long-lived assets, and, accordingly, actual results could vary significantly from such estimates, which fall under Level 3 within the fair value measurement hierarchy, see Note 12—Fair Value Measurements.
The following table summarizes the Company’s assets that were impaired:
Year Ended |
|||||||||
December 31, |
December 31, |
December 31, |
|||||||
(In millions) |
|
2021 |
|
2020 |
2019 |
||||
Impairment of long-lived assets |
$ |
|
$ |
|
$ |
|
|||
Impairment of definite-lived intangible assets |
— |
|
— |
||||||
Impairment of indefinite-lived intangible assets |
— |
|
— |
||||||
Impairment of goodwill (1) |
— |
|
— |
||||||
Impairment of long-lived assets, definite and indefinite-lived intangible assets and goodwill |
|
|
|
||||||
Impairment of equity method investments recorded in equity in (earnings) loss of non-consolidated entities |
— |
|
— |
||||||
Impairment of other assets recorded in investment expense (income) |
— |
|
|
||||||
Total impairment loss |
$ |
|
$ |
|
$ |
|
|||
| (1) | See Note 5—Goodwill and Intangible Assets for information regarding goodwill impairment. |
During the year ended December 31, 2021, the Company recorded non-cash impairment of long-lived assets of $
During the year ended December 31, 2020, the Company recorded non-cash impairment of long-lived assets of $
98
During the year ended December 31, 2019, the Company recorded an impairment of long-lived assets loss of $
Foreign Currency Translation. Operations outside the United States are generally measured using the local currency as the functional currency. Assets and liabilities are translated at the rates of exchange at the balance sheet date. Income and expense items are translated at average rates of exchange. The resultant translation adjustments are included in foreign currency translation adjustment, a separate component of accumulated other comprehensive income (loss). Gains and losses from foreign currency transactions are included in net earnings (loss), except those intercompany transactions of a long-term investment nature, and also the Company’s £
Employee Benefit Plans. The Company sponsors frozen non-contributory qualified and non-qualified defined benefit pension plans in the U.S. and frozen defined benefit pension plans in the U.K. and Sweden. The Company also sponsors a postretirement deferred compensation plan, which was terminated on May 3, 2021 and will be liquidated in 2022, and also a defined contribution plan.
The following table sets forth the plans’ benefit obligations and plan assets and the accrued liability for benefit costs included in the consolidated balance sheets:
U.S. Pension Benefits |
International Pension Benefits |
|||||||||||
Year Ended |
Year Ended |
|||||||||||
(In millions) |
|
December 31, 2021 |
|
December 31, 2020 |
|
December 31, 2021 |
|
December 31, 2020 |
||||
Aggregated projected benefit obligation at end of period (1) |
$ |
( |
$ |
( |
$ |
( |
$ |
( |
||||
Aggregated fair value of plan assets at end of period |
|
|
|
|
|
|
|
|
||||
Net (liability) asset for benefit cost - funded status |
$ |
( |
$ |
( |
$ |
|
$ |
( |
||||
| (1) |
At December 31, 2021 and December 31, 2020, U.S. aggregated accumulated benefit obligations were $ |
The Company does not expect to make a material contribution to the U.S. pension plans during the year ended December 31, 2022. The Company intends to make future cash contributions to the plans in an amount necessary to meet minimum funding requirements according to applicable benefit plan regulations.
The weighted-average assumptions used to determine benefit obligations are as follows:
U.S. Pension Benefits |
International Pension Benefits |
|||||||
December 31, 2021 |
December 31, 2020 |
December 31, 2021 |
December 31, 2020 |
|||||
Discount rate |
|
|||||||
Rate of compensation increase |
|
N/A |
N/A |
|||||
99
The weighted-average assumptions used to determine net periodic benefit cost are as follows:
U.S. Pension Benefits |
International Pension Benefits |
|||||||||||
Year Ended |
Year Ended |
|||||||||||
December 31, |
December 31, |
December 31, |
December 31, |
December 31, |
December 31, |
|||||||
|
2021 |
|
2020 |
|
2019 |
|
2021 |
|
2020 |
|
2019 |
|
Discount rate |
|
|||||||||||
Weighted average expected long-term return on plan assets |
|
|||||||||||
Rate of compensation increase |
|
N/A |
N/A |
N/A |
||||||||
The offset to the pension liability is recorded in equity as a component of accumulated other comprehensive (income) loss. For further information, see Note 14—Accumulated Other Comprehensive Income (Loss) for pension amounts and activity recorded in accumulated other comprehensive income.
For the years ended December 31, 2021, December 31, 2020, and December 31, 2019, net periodic benefit costs (credits) were $(
The following table provides the benefits expected to be paid in each of the next five years, and in the aggregate for the five years thereafter:
(In millions) |
U.S. Pension Benefits |
International Pension Benefits |
||||
2022 |
$ |
|
$ |
|
||
2023 |
|
|
|
|||
2024 |
|
|
|
|||
2025 |
|
|
|
|||
2026 |
|
|
|
|||
Years 2027 - 2031 |
|
|
|
|||
The Company’s investment objectives for its U.S. defined benefit pension plan investments are: (1) to preserve the value of its principal; (2) to maximize a real long-term return with respect to the plan assets consistent with minimizing risk; (3) to achieve and maintain adequate asset coverage for accrued benefits under the plan; and (4) to maintain sufficient liquidity for payment of the plan obligations and expenses. The Company uses a diversified allocation of equity, debt, commodity and real estate exposures that are customized to the plan’s cash flow benefit needs. A weighted average targeted allocation percentage is assigned to each asset class as follows: equity securities of
Investments in the pension plan assets are measured at fair value on a recurring basis. As of December 31, 2021, for the U.S. investment portfolio,
Under the defined contribution plan, the Company sponsors a voluntary 401(k) savings plan covering certain U.S. employees age
100
Income and Operating Taxes. The Company accounts for income taxes in accordance with ASC 740-10. Under ASC 740-10, deferred income tax effects of transactions reported in different periods for financial reporting and income tax return purposes are recorded by the asset and liability method. This method gives consideration to the future tax consequences of deferred income or expense items and recognizes changes in income tax laws in the period of enactment.
Holdings and its domestic subsidiaries file a consolidated U.S. federal income tax return and combined income tax returns in certain state jurisdictions. Foreign subsidiaries file income tax returns in foreign jurisdictions. Income taxes are determined based on separate Company computations of income or loss. Tax sharing arrangements are in place and utilized when tax benefits from affiliates in the consolidated group are used to offset what would otherwise be taxable income generated by Holdings or another affiliate.
Casualty Insurance. The Company is self-insured for general liability up to $
Other Expense (Income): The following table sets forth the components of other expense (income):
Year Ended |
|||||||||
December 31, |
December 31, |
December 31, |
|||||||
(In millions) |
|
2021 |
|
2020 |
|
2019 |
|||
Derivative liability fair value adjustment for embedded conversion feature in the Convertible Notes |
$ |
— |
$ |
|
$ |
( |
|||
Derivative asset fair value adjustment for contingent call option related to the Class B common stock purchase and cancellation agreement |
— |
|
|
||||||
Credit losses (income) related to contingent lease guarantees |
( |
|
— |
||||||
Governmental assistance due to COVID-19 - International markets |
( |
( |
— |
||||||
Governmental assistance due to COVID-19 - U.S. markets |
( |
— |
— |
||||||
Foreign currency transaction (gains) losses |
( |
( |
|
||||||
Non-operating components of net periodic benefit cost (income) |
( |
|
|
||||||
Loss on debt extinguishment |
|
— |
|
||||||
Gain on extinguishment Second Lien Notes due 2026 |
— |
( |
— |
||||||
Financing fees related to modification of debt |
|
|
— |
||||||
Loss on Pound sterling forward contract |
— |
— |
|
||||||
Business interruption insurance recoveries |
— |
( |
( |
||||||
Other |
|
— |
|
— |
|
||||
Other expense (income) |
$ |
( |
$ |
|
$ |
|
|||
Accounting Pronouncements Recently Adopted
Income Taxes. In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 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 was effective for the Company in the first quarter of 2021. The adoption of ASU 2019-12 did not have a material impact on the Company’s consolidated financial statements.
101
Accounting Pronouncements Issued Not Yet Adopted
Government Assistance. In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832) Disclosures by Business Entities about Government Assistance (“ASU 2021-10”). The amendments in ASU 2021-10 require annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy, including (1) information about the nature of the transactions and the related accounting policy used to account for the transactions, (2) the line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item, and (3) significant terms and conditions of the transactions, including commitments and contingencies. The annual government assistance disclosure requirements are effective for the Company during the year ended December 31, 2022.
NOTE 2—REVENUE RECOGNITION
Disaggregation of Revenue. Revenue is disaggregated in the following tables by major revenue types and by timing of revenue recognition:
Year Ended |
|||||||||
(In millions) |
December 31, 2021 |
December 31, 2020 |
December 31, 2019 |
||||||
Major revenue types |
|||||||||
Admissions |
$ |
|
$ |
|
$ |
|
|||
Food and beverage |
|
|
|
||||||
Other theatre: |
|||||||||
Advertising |
|
|
|
||||||
Other theatre |
|
|
|
||||||
Other theatre |
|
|
|
||||||
Total revenues |
$ |
|
$ |
|
$ |
|
|||
Year Ended |
|||||||||
(In millions) |
December 31, 2021 |
December 31, 2020 |
December 31, 2019 |
||||||
Timing of revenue recognition |
|||||||||
Products and services transferred at a point in time |
$ |
|
$ |
|
$ |
|
|||
Products and services transferred over time(1) |
|
|
|
||||||
Total revenues |
$ |
|
$ |
|
$ |
|
|||
| (1) | Amounts primarily include subscription and advertising revenues. |
The following tables provide the balances of receivables and deferred revenue income:
(In millions) |
December 31, 2021 |
December 31, 2020 |
||||
Current assets |
||||||
Receivables related to contracts with customers |
$ |
|
$ |
|
||
Miscellaneous receivables |
|
|
||||
Receivables, net |
$ |
|
$ |
|
||
(In millions) |
December 31, 2021 |
December 31, 2020 |
||||
Current liabilities |
||||||
Deferred revenue related to contracts with customers |
$ |
|
$ |
|
||
Miscellaneous deferred income |
|
|
||||
Deferred revenue and income |
$ |
|
$ |
|
||
102
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 revenues (2) |
|
||
Other theatre revenues (2) |
— |
||
Reclassification to revenue as the result of performance obligations satisfied: |
|||
Admission revenues (3) |
( |
||
Food and beverage revenues (3) |
( |
||
Other theatre revenues (4) |
( |
||
Foreign currency translation adjustment |
|
||
Balance December 31, 2020 |
$ |
|
|
Cash received in advance (1) |
|
||
Customer loyalty rewards accumulated, net of expirations: |
|||
Admission revenues (2) |
|
||
Food and beverage revenues (2) |
|
||
Other theatre revenues (2) |
( |
||
Reclassification to revenue as the result of performance obligations satisfied: |
|||
Admission revenues (3) |
( |
||
Food and beverage revenues (3) |
( |
||
Other theatre revenues (4) |
( |
||
Foreign currency translation adjustment |
( |
||
Balance December 31, 2021 |
$ |
|
|
| (1) | Includes movie tickets, food and beverage, gift cards, exchange tickets, and AMC Stubs® loyalty membership fees. |
| (2) | Amount of rewards accumulated, net of expirations, that are attributed to AMC Stubs® and other loyalty programs. |
| (3) | Amount of rewards redeemed that are attributed to gift cards, exchange tickets, movie tickets, AMC Stubs® loyalty programs and other loyalty programs. |
| (4) | Amounts relate to income from non-redeemed or partially redeemed gift cards, non-redeemed exchange tickets, AMC Stubs® loyalty membership fees and other loyalty programs. |
The significant changes to contract liabilities included in the ESA in the consolidated balance sheets, are as follows:
Exhibitor Services |
|||
(In millions) |
Agreement (1) |
||
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 December 31, 2020 |
$ |
|
|
Negative Common Unit Adjustment–reduction of common units |
( |
||
Reclassification of portion of the beginning balance to other theatre revenue, as the result of performance obligations satisfied |
( |
||
Balance December 31, 2021 |
$ |
|
|
| (1) | Represents the carrying amount of the NCM common units that were previously received under the annual Common Unit Adjustment. The deferred revenues are being amortized to other theatre revenues over the |
103
|
remainder of the |
Transaction Price Allocated to the Remaining Performance Obligations. The following table includes the amount of NCM ESA, included in exhibitor services agreement in the Company’s consolidated balance sheets, that is expected to be recognized as revenues in the future related to performance obligations that are unsatisfied as of December 31, 2021:
(In millions) |
Exhibitor Services Agreement |
||
Year ended 2022 |
$ |
|
|
Year ended 2023 |
|
||
Year ended 2024 |
|
||
Year ended 2025 |
|
||
Year ended 2026 |
|
||
Years ended 2027 through February 2037 |
|
||
Total |
$ |
|
|
Gift Cards and Exchange Tickets. The total amount of non-redeemed gift cards and exchange tickets included in deferred revenues and income as of December 31, 2021 was $
Loyalty Programs. As of December 31, 2021, the amount of deferred revenues 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.
104
NOTE 3—LEASES
The Company received rent concessions provided by the lessors that aided in mitigating the economic effects of COVID-19 during the pandemic. These concessions primarily consisted 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. The deferred payment amounts included in current maturities of operating lease liabilities and long-term operating lease liabilities are reflected in the consolidated statements of cash flows as part of the change in accrued expenses and other liabilities. Those leases that did not meet the criteria for treatment under the FASB relief were evaluated as lease modifications. The deferred payment amounts included in accounts payable for contractual rent amounts due and not paid are reflected in accounts payable on the consolidated balance sheets and in the consolidated statements of cash flows as part of the change in accounts payable. In addition, the Company included deferred lease payments in operating lease right-of-use assets as a result of lease remeasurements.
A summary of deferred payment amounts related to rent obligations for which payments were deferred to 2022 and future years are provided below:
As of |
As of |
||||||||
December 31, |
Decrease |
December 31, |
|||||||
(In millions) |
2020 |
in deferred amounts |
2021 |
||||||
Fixed operating lease deferred amounts (1) (2) |
$ |
$ |
( |
$ |
|
||||
Finance lease deferred amounts |
|
( |
|
||||||
Variable lease deferred amounts (2) |
|
( |
|
||||||
Total deferred lease amounts |
$ |
|
$ |
( |
$ |
|
|||
| (1) |
During the year ended December 31, 2021, the decrease in fixed operating lease deferred amounts includes $ |
| (2) | During the year ended December 31, 2021, decreases in variable lease deferred amounts were primarily due to resolution of contingencies, therefore, variable amounts became fixed and were reclassified to fixed operating lease deferred amounts. |
105
The following table reflects the lease costs for the years indicated below:
Year Ended |
|||||||||||
December 31, |
December 31, |
December 31, |
|||||||||
(In millions) |
Consolidated Statements of Operations |
2021 |
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 |
$ |
|
$ |
|
$ |
|
|||||
The following table represents the weighted-average remaining lease term and discount rate as of December 31, 2021:
As of December 31, 2021 |
||||||
Weighted Average |
Weighted Average |
|||||
Remaining |
Discount |
|||||
Lease Term and Discount Rate |
Lease Term (years) |
Rate |
||||
Operating leases |
||||||
Finance leases |
||||||
Cash flow and supplemental information is presented below:
Year Ended |
|||||||||
December 31, |
December 31, |
December 31, |
|||||||
(In millions) |
2021 |
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. |
106
Minimum annual payments required under existing operating and finance leases and the net present value thereof as of December 31, 2021 are as follows:
Operating Lease |
Financing Lease |
|||||
(In millions) |
Payments (2) |
Payments (2) |
||||
2022 (1) |
$ |
|
$ |
|
||
2023 |
|
|
||||
2024 |
|
|
||||
2025 |
|
|
||||
2026 |
|
|
||||
Thereafter |
|
|
||||
Total lease payments |
|
|
||||
Less imputed interest |
( |
( |
||||
Total operating and finance lease liabilities, respectively |
$ |
|
$ |
|
||
| (1) | The minimum annual payments table above does not include contractual cash rent amounts that were due and not paid, which are recorded in accounts payable as shown below, including estimated repayment dates: |
Accounts Payable |
|||
(In millions) |
Lease Payments |
||
Three months ended March 31, 2022 |
$ |
|
|
Three months ended June 30, 2022 |
|
||
Three months ended September 30, 2022 |
|
||
Three months ended December 31, 2022 |
|
||
Total deferred lease amounts recorded in AP |
$ |
|
|
| (2) | The minimum annual payments table above includes deferred undiscounted cash rent amounts that were due and not paid related to operating and finance leases, as shown below: |
Operating Lease |
Financing Lease |
|||||
(In millions) |
Payments |
Payments |
||||
Three months ended March 31, 2022 |
$ |
|
$ |
|
||
Three months ended June 30, 2022 |
|
|
||||
Three months ended September 30, 2022 |
|
|
||||
Three months ended December 31, 2022 |
|
|
||||
2023 |
|
|
||||
2024 |
|
— |
||||
2025 |
|
— |
||||
2026 |
|
— |
||||
Thereafter |
|
— |
||||
Total deferred lease amounts |
$ |
|
$ |
|
||
As of December 31, 2021, the Company had signed additional operating lease agreements for
107
NOTE 4—PROPERTY
A summary of property is as follows:
(In millions) |
|
December 31, 2021 |
|
December 31, 2020 |
|
||
Property owned: |
|||||||
Land |
$ |
|
$ |
|
|||
Buildings and improvements |
|
|
|
|
|||
Leasehold improvements |
|
|
|
|
|||
Furniture, fixtures and equipment |
|
|
|
|
|||
|
|
|
|
||||
Less: accumulated depreciation |
|
|
|
|
|||
|
|
||||||
Property leased under finance leases: |
|||||||
Building and improvements |
|
|
|||||
Less: accumulated depreciation and amortization |
|
|
|||||
|
|
||||||
$ |
|
$ |
|
||||
Property is recorded at cost or fair value, in the case of property resulting from acquisitions. The Company uses the straight-line method in computing depreciation and amortization for financial reporting purposes. The estimated useful lives for leasehold improvements and buildings subject to a ground lease reflect the shorter of the expected useful lives of the assets or the base terms of the corresponding lease agreements plus renewal options expected to be exercised for these leases for assets placed in service subsequent to the lease inception. The estimated useful lives are as follows:
Buildings and improvements |
|
|
|
Leasehold improvements |
|||
Furniture, fixtures and equipment |
Expenditures for additions (including interest during construction) and betterments are capitalized, and expenditures for maintenance and repairs are charged to expense as incurred. The cost of assets retired or otherwise disposed of and the related accumulated depreciation and amortization are eliminated from the accounts in the year of disposal. Gains or losses resulting from property disposals are included in operating expense in the accompanying consolidated statements of operations.
Depreciation expense was $
NOTE 5—GOODWILL AND INTANGIBLE ASSETS
The following table summarizes the changes in goodwill by reporting unit:
(In millions) |
U.S. |
International |
Total |
||||||
Balance December 31, 2019 |
$ |
|
$ |
|
$ |
|
|||
Impairment adjustment March 31, 2020 |
( |
( |
( |
||||||
Impairment adjustment September 30, 2020 |
( |
( |
( |
||||||
Impairment adjustment December 31, 2020 |
— |
( |
( |
||||||
Baltics disposition-Latvia (1) |
— |
( |
( |
||||||
Currency translation adjustment |
— |
|
|
||||||
Balance December 31, 2020 |
|
|
|
||||||
Currency translation adjustment |
— |
( |
( |
||||||
Baltics disposition-Estonia (1) |
— |
( |
( |
||||||
Baltics disposition-Lithuania (1) |
— |
( |
( |
||||||
Balance December 31, 2021 |
$ |
|
$ |
|
$ |
|
|||
108
| (1) | See Note 1—The Company and Significant Accounting Policies for further information regarding the Baltic theatre sale. |
Detail of other intangible assets is presented below:
December 31, 2021 |
December 31, 2020 |
|
|||||||||||||
|
|
Gross |
|
|
Gross |
|
|
||||||||
Remaining |
Carrying |
Accumulated |
Carrying |
Accumulated |
|
||||||||||
(In millions) |
Useful Life |
Amount |
Amortization |
Amount |
Amortization |
|
|||||||||
Amortizable Intangible Assets: |
|||||||||||||||
Management contracts and franchise rights |
|
$ |
|
$ |
( |
$ |
|
$ |
( |
||||||
Starplex trade name |
|
( |
|
( |
|||||||||||
Carmike trade name |
|
( |
|
( |
|||||||||||
Total, amortizable |
$ |
|
$ |
( |
$ |
|
$ |
( |
|||||||
Non-amortizing Intangible Assets: |
|||||||||||||||
AMC trademark |
$ |
|
$ |
|
|||||||||||
Odeon trade names |
|
|
|||||||||||||
Nordic trade names |
|
|
|||||||||||||
Total, unamortizable |
$ |
|
$ |
|
|||||||||||
See the impairment table in Note 1—The Company and Significant Accounting Policies for information regarding indefinite and definite-lived intangible assets impairment amounts.
Amortization expense associated with the intangible assets noted above is as follows:
Year Ended |
||||||||||
(In millions) |
|
December 31, 2021 |
|
December 31, 2020 |
|
December 31, 2019 |
||||
Recorded amortization |
$ |
|
$ |
|
$ |
|
||||
Estimated annual amortization for the next five calendar years for intangible assets is projected below:
(In millions) |
|
2022 |
2023 |
|
2024 |
|
2025 |
|
2026 |
||||||
Projected annual amortization |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||
NOTE 6—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
NCM Transactions
Pursuant to the Company’s Common Unit Adjustment Agreement, from time to time common units of NCM held by the Founding Members will be adjusted up or down through a formula (“Common Unit Adjustment” or “CUA”), primarily based on increases or decreases in the number of theatre screens operated and theatre attendance generated by each Founding Member. The CUA is computed annually, except that an earlier CUA will occur for a Founding Member if its acquisition or disposition of theatres, in a single transaction or cumulatively since the most recent CUA, will cause a change of
109
In March 2019, the NCM CUA resulted in a positive adjustment of
DCIP Transactions
During the year ended December 31, 2021, the Company received cash distribution of $
AC JV Transactions
On December 26, 2013, the Company amended and restated its existing ESA with NCM in connection with the spin-off by NCM of its Fathom Events business to AC JV, a newly-formed company owned
SV Holdco (“Screenvision”)
The Company acquired its investment in SV Holdco on December 21, 2016, in connection with the acquisition of Carmike. SV Holdco is a holding company that owns and operates the Screenvision advertising business through a subsidiary entity. SV Holdco has elected to be taxed as a partnership for U.S. federal income tax purposes.
Summary Financial Information
Investments in non-consolidated affiliates accounted for under the equity method as of December 31, 2021, include interests in SV Holdco, DCM, DCIP, AC JV, DCDC, SCC,
110
Condensed financial information of the Company’s non-consolidated equity method investments is shown below with amounts presented under U.S. GAAP:
(In millions) |
|
December 31, 2021 |
December 31, 2020 |
|||
Current assets |
$ |
|
$ |
|
||
Noncurrent assets |
|
|
|
|||
Total assets |
|
|
|
|||
Current liabilities |
|
|
|
|||
Noncurrent liabilities |
|
|
|
|||
Total liabilities |
|
|
|
|||
Stockholders’ equity |
|
|
|
|||
Liabilities and stockholders’ equity |
|
|
|
|||
The Company’s recorded investment |
|
|
||||
Condensed financial information of the Company’s non-consolidated equity method investments is shown below and amounts are presented under U.S. GAAP for the periods of ownership by the Company:
Year Ended |
|||||||||
December 31, |
December 31, |
December 31, |
|||||||
(In millions) |
|
2021 |
|
2020 |
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:
Year Ended |
|||||||||
(In millions) |
|
December 31, 2021 |
|
December 31, 2020 |
December 31, 2019 |
||||
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) |
December 31, 2021 |
|
December 31, 2020 |
|||
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 |
— |
( |
||||
111
Year Ended |
|||||||||||
(In millions) |
Consolidated Statements of Operations |
December 31, 2021 |
December 31, 2020 |
December 31, 2019 |
|||||||
DCM screen advertising revenues |
Other revenues |
$ |
|
$ |
|
$ |
|
||||
DCIP equipment rental expense |
Operating expense |
|
|
|
|||||||
Gross exhibition cost on AC JV Fathom Events programming |
Film exhibition costs |
|
|
|
|||||||
Screenvision screen advertising revenues |
Other revenues |
|
|
|
|||||||
NOTE 7—SUPPLEMENTAL BALANCE SHEET INFORMATION
Other assets and liabilities consist of the following:
(In millions) |
|
December 31, 2021 |
|
December 31, 2020 |
|
||
Other current assets: |
|||||||
Income taxes receivable |
$ |
|
$ |
|
|||
Prepaids |
|
|
|
|
|||
Merchandise inventory |
|
|
|
|
|||
Other |
|
|
|
|
|||
$ |
|
$ |
|
||||
Other long-term assets: |
|||||||
Investments in real estate |
$ |
|
$ |
|
|||
Deferred financing costs revolving credit facility |
|
|
|
|
|||
Investments in equity method investees |
|
|
|
|
|||
Computer software |
|
|
|
|
|||
Investment in common stock |
|
|
|
|
|||
Pension asset |
|
|
|||||
Prepaid commitment fee and deferred charges (1) |
— |
|
|||||
Other |
|
|
|
|
|||
$ |
|
$ |
|
||||
Accrued expenses and other liabilities: |
|||||||
Taxes other than income |
$ |
|
$ |
|
|||
Interest |
|
|
|
|
|||
Payroll and vacation |
|
|
|
|
|||
Current portion of casualty claims and premiums |
|
|
|
|
|||
Accrued bonus |
|
|
|
|
|||
Accrued licensing and variable rent |
|
|
|
|
|||
Current portion of pension |
|
|
|
|
|||
Group insurance reserve |
|
|
|||||
Accrued tax payable |
|
|
|||||
Other |
|
|
|
|
|||
$ |
|
$ |
|
||||
Other long-term liabilities: |
|||||||
Pension |
$ |
|
$ |
|
|||
Casualty claims and premiums |
|
|
|
|
|||
Contingent lease liabilities |
|
|
|||||
Other |
|
|
|
|
|||
$ |
|
$ |
|
||||
| (1) |
During the year ended December 31, 2021, the Company reclassified the prepaid commitment fee and deferred charges of $ |
112
NOTE 8—CORPORATE BORROWINGS AND FINANCE LEASE OBLIGATIONS
A summary of the carrying value of corporate borrowings and finance lease obligations is as follows:
(In millions) |
|
December 31, 2021 |
|
December 31, 2020 |
||
First Lien Secured Debt: |
||||||
Senior Secured Credit Facility-Term Loan due 2026 ( |
$ |
|
$ |
|
||
Senior Secured Credit Facility-Revolving Credit Facility due 2024 |
— |
|
||||
|
— |
|||||
Odeon Revolving Credit Facility due 2022 |
— |
|
||||
|
|
|||||
— |
|
|||||
|
|
|||||
|
— |
|||||
Second Lien Secured Debt: |
||||||
|
|
|||||
Subordinated Debt: |
||||||
|
|
|||||
|
|
|||||
|
|
|||||
|
|
|||||
$ |
|
$ |
|
|||
Finance lease obligations |
|
|
|
|
||
Paid-in-kind interest |
— |
|
||||
Deferred financing costs |
( |
( |
||||
Net premium (1) |
|
|
||||
$ |
|
$ |
|
|||
Less: |
||||||
Current maturities corporate borrowings |
( |
|
( |
|||
Current maturities finance lease obligations |
( |
( |
||||
$ |
|
$ |
|
|||
| (1) | The following table provides the net premium (discount) amounts of corporate borrowings: |
December 31, |
December 31, |
|||||
(In millions) |
2021 |
2020 |
||||
$ |
|
$ |
|
|||
— |
( |
|||||
( |
— |
|||||
|
( |
|
( |
|||
|
( |
|
( |
|||
Senior Secured Credit Facility-Term Loan due 2026 |
( |
( |
||||
( |
— |
|||||
|
|
|
— |
|||
$ |
|
$ |
|
|||
113
The following table provides the principal payments required and maturities of corporate borrowings as of December 31, 2021:
Principal |
|||
Amount of |
|||
Corporate |
|||
(In millions) |
|
Borrowings |
|
2022 |
$ |
|
|
2023 |
|
|
|
2024 |
|
|
|
2025 |
|
|
|
2026 |
|
|
|
Thereafter |
|
|
|
Total |
$ |
|
|
Odeon Secured Debt
Odeon Term Loan Facility. On February 15, 2021, Odeon Cinemas Group Limited (“Odeon”), a wholly-owned subsidiary of the Company, entered into a new £
Odeon Revolving Credit Facility. On December 7, 2017, the Company entered into a Revolving Credit Facility Agreement (“Odeon Revolving Credit Facility”) with Citigroup Global Markets Limited, Lloyds Bank PLC, Barclays Bank PLC and Bank of America Merrill Lynch International Limited as arrangers. The lenders made available a multicurrency revolving credit facility in an aggregate amount of £
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.
114
On February 15, 2021, Odeon used the net proceeds from the Odeon Term Loan Facility to repay in full its then-existing Odeon Revolving Credit Facility.
First Lien Toggle Notes Due 2026
On January 15, 2021, the Company issued $
The First Lien Toggle Notes due 2026 bear cash interest at a rate of
On December 14, 2020, Mudrick received a total of
Senior Subordinated Debt Exchange Offers
On July 31, 2020, the Company consummated its previously announced private offers to exchange (the “Exchange Offers”) any and all of its outstanding
115
The aggregate principal amounts of the Existing Subordinated Notes set forth in the table below were validly tendered and subsequently accepted. Such accepted Existing Subordinated Notes were retired and cancelled.
(In thousands) |
Total Aggregate Principal Amount Validly Tendered |
Percentage of Outstanding Existing Subordinated Notes Validly Tendered |
||||
$ |
|
% |
||||
$ |
|
% |
||||
$ |
|
% |
||||
$ |
|
% |
||||
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 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) make other conforming changes to internally conform to certain proposed amendments.
The Company performed an assessment on a lender-by-lender basis to identify certain lenders that met the criteria for a troubled debt restructuring (“TDR”) under ASC 470-60, Troubled Debt Restructurings by Debtors (“ASC 470-60”) as the Company was experiencing financial difficulties and the lenders granted a concession. The portion of the loans that did not meet the assessment of TDR under ASC 470-60 were treated as modifications. The Company accounted for the exchange of approximately $
Second Lien Notes due 2026. In connection with the Second Lien Exchange on December 14, 2020, Mudrick exchanged $
In connection with the Exchange Offers on July 31, 2020, the Company issued $
116
Second Lien Notes due 2026 and the $
In connection with the Exchange Offers and the First Lien Notes due 2026, the Company issued
The Second Lien Notes due 2026 bear cash interest at a rate of
The Second Lien Notes due 2026 are redeemable at the Company’s option prior to June 15, 2023, at a redemption price equal 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 on a second-priority basis by 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.
The indenture governing the Second Lien Notes due 2026 contains covenants that restrict the ability of the Company to: incur additional debt or issue certain preferred shares; pay dividends on or make other distributions in respect of its capital stock or make other restricted payments; make certain investments; or transfer certain assets; create liens on certain assets to secure debt; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; enter into certain transactions with its affiliates; and allow to exist certain restrictions on the ability of its subsidiaries to pay dividends or make other payments to the Company. The Second Lien Notes due 2026 Indenture also contains certain affirmative covenants and events of default.
First Lien Notes due 2026. In connection with the Exchange Offers, certain holders of the Existing Subordinated Notes purchased
117
indenture, dated as of July 31, 2020, among the Company, the guarantors named therein and GLAS Trust Company LLC, as trustee and collateral agent. See Note 16—Subsequent Events for additional information.
Separately, upon the closing of its private debt exchange, Silver Lake Alpine, L.P. and Silver Lake Alpine (Offshore Master), L.P., each affiliates of Silver Lake Group, L.L.C. (“Silver Lake”), purchased from the Company $
The First Lien Notes due 2026 bear interest at a rate of
The 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 First Lien Notes due 2026 are secured by a first-priority lien on the Collateral.
The indentures governing the First Lien Notes due 2026 contain covenants that restrict the ability of the Company to: incur additional debt or issue certain preferred shares; pay dividends on or make other distributions in respect of its capital stock or make other restricted payments; make certain investments; or transfer certain assets; create liens on certain assets to secure debt; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; enter into certain transactions with its affiliates; and allow to exist certain restrictions on the ability of its subsidiaries to pay dividends or make other payments to the Company. The indentures governing the First Lien Notes due 2026 also contain certain affirmative covenants and events of default.
Senior Secured Credit Facilities. The Company is party to that certain Credit Agreement, dated as of April 30, 2013 (as amended by that certain First Amendment to Credit Agreement, dated as of December 11, 2015, that certain Second Amendment to Credit Agreement, dated as of November 8, 2016, that certain Third Amendment to Credit Agreement, dated as of May 9, 2017, that certain Fourth Amendment to Credit Agreement, dated as of June 13, 2017, that certain Fifth Amendment to Credit Agreement, dated as of August 14, 2018, that certain Sixth Amendment to Credit Agreement, dated as of April 22, 2019, that certain Seventh Amendment to Credit Agreement, dated as of April 23, 2020, that certain Eighth Amendment to Credit Agreement, dated as of July 31, 2020, that certain Ninth Amendment to Credit Agreement, dated as of March 8, 2021, that certain Tenth Amendment to Credit Agreement, also dated as of March 8, 2021, and that certain Eleventh Amendment to Credit Agreement, dated as of December 20, 2021, (the “Eleventh Amendment”), the “Credit Agreement”) with the issuing banks and lenders from time to time party thereto and Wilmington Savings Fund Society, FSB, as administrative agent (as successor to Citicorp North America, Inc., the “Administrative Agent”), pursuant to which the lenders have agreed to provide the Senior Secured Term Loan (as
118
defined below) and the Senior Secured Revolving Credit Facility (as defined below). The Senior Secured Credit Facilities (as defined below) are provided by a syndicate of banks and other financial institutions.
On March 8, 2021, the Company entered into the Ninth Amendment to Credit Agreement (the “Ninth Amendment”), with the requisite revolving lenders party thereto and the Administrative Agent, pursuant to which the requisite revolving lenders party thereto agreed to extend the suspension period for the financial covenant under its Credit Agreement from a period ending March 31, 2021, to a period ending on March 31, 2022 (the “Extended Covenant Suspension Period ending March 31, 2022”), which was further extended by the Eleventh Amendment from a period ending March 31, 2021, to a period ending on March 31, 2023 (the “Extended Covenant Suspension Period ending March 31, 2023”). During the Extended Covenant Suspension Period ending March 31, 2022 and the Extended Covenant Suspension Period ending March 31, 2023, the Company will not, and will not permit any of its restricted subsidiaries to, (i) make certain restricted payments, (ii) subject to certain exceptions, incur any indebtedness for borrowed money that is pari passu or senior in right of payment or security with the Revolving Loans (as defined in the Credit Agreement) or (iii) make any investment in or otherwise dispose of any assets to any subsidiary of the Company that is not a Loan Party (as defined in the Credit Agreement) to facilitate a new financing incurred by a subsidiary of the Company. In addition, as an ongoing condition to the suspension of the financial covenant, the Company also agreed to (i) a minimum liquidity test of $
On July 31, 2020, the Company entered into the Eighth Amendment to Credit Agreement (the “Eighth Amendment”) with Citicorp North America, Inc., as the administrative agent, pursuant to which certain restrictive provisions, including modifications to the covenants limiting indebtedness, liens, investments, asset sales and restricted payments, were added to the Credit Agreement to ensure that the terms and conditions of the First Lien Notes due 2026, the Convertible Notes due 2026 and the Second Lien Notes due 2026 (subject to certain exceptions) are not materially more favorable (when taken as a whole) to the noteholders than the terms and conditions of the Credit Agreement (when taken as a whole) are to the lenders thereunder. The Company accounted for this transaction as a modification of debt.
On April 23, 2020, the Company entered into the Seventh Amendment to Credit Agreement (the “Seventh Amendment”) with the requisite revolving lenders party thereto and Citicorp North America, Inc., as administrative agent, pursuant to which the requisite revolving lenders party thereto agreed to suspend the financial covenant applicable to the Senior Secured Revolving Credit Facility for the period from and after the effective date of the Seventh 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 Credit Agreement) during which the Company has delivered a Financial Covenant Election (as defined in the Credit Agreement) to the Administrative Agent (such period, the “Initial Covenant Suspension Period”). During the Initial Covenant Suspension Period, the Company will not, and will not permit any of its restricted subsidiaries to, make certain restricted payments, and such conditions were further amended by the Ninth Amendment. As an ongoing condition to the suspension of the financial covenant, the Company agreed to a minimum Liquidity (as defined in the Seventh Amendment) test, which was amended by the Ninth Amendment. In addition, the Seventh Amendment provides for certain changes to the covenants limiting indebtedness, liens and restricted payments that are intended to match corresponding restrictions under the
On April 22, 2019, the Company entered into the Sixth Amendment to Credit Agreement (the “Sixth Amendment”) with each lender party thereto and Citicorp North America, Inc., as administrative agent. Pursuant to the Sixth Amendment, the lenders agreed to provide senior secured financing of $
119
for letters of credit and for swingline borrowings on same-day notice) maturing April 22, 2024 (the “Senior Secured Revolving Credit Facility” and, together with the Senior Secured Term Loans, the “Senior Secured Credit Facilities”). The proceeds of the Senior Secured Term Loans were used to repay all of the Company’s existing term loans in an aggregate principal amount of approximately $
All obligations under the Credit Agreement are guaranteed by, subject to certain exceptions, each of the Company’s current and future wholly-owned material U.S. restricted subsidiaries. All obligations under the Credit Agreement, and the guarantees of those obligations, are secured by substantially all of the assets of the Company and each guarantor, subject to customary exceptions, including:
| ● |
a pledge of |
| ● | a security interest in substantially all other tangible and intangible assets of the Company and each guarantor, subject to certain exceptions. |
The Credit Agreement will require the Company to prepay outstanding term loans, subject to certain exceptions, with:
| ● |
|
| ● |
|
| ● |
|
The foregoing mandatory prepayments will be used to reduce the installments of principal payments on the Senior Secured Term Loans. The Company may voluntarily repay outstanding loans under the Senior Secured Credit Facilities at any time without premium or penalty, except for customary “breakage” costs with respect to LIBOR loans under the Senior Secured Credit Facilities.
The Senior Secured Term Loans bear interest at a rate per annum equal to, at the Company’s option, either (1) an applicable margin plus a base rate determined by reference to the highest of (a)
The Credit Agreement contains other customary terms, including (1) representations, warranties and affirmative covenants, (2) negative covenants, including limitations on indebtedness, liens, mergers and acquisitions, asset sales, investments, distributions, prepayments of subordinated debt and transactions with affiliates, in each case subject to baskets, thresholds and other exceptions, and (3) customary events of default.
120
The availability of certain baskets and the ability to enter into certain transactions will also be subject to compliance with certain financial ratios. In addition, the Senior Secured Revolving Credit Facility includes a financial covenant that requires, in certain circumstances, compliance with a certain secured leverage ratio. As of December 31, 2021, the Company was in a covenant suspension period under the Senior Secured Revolving Credit Facility as described above.
Convertible Notes due 2026. Concurrently with the Exchange Offers, to obtain the consent of the holders of the
On January 27, 2021, affiliates of Silver Lake and certain co-investors (collectively, the “Noteholders”) elected to convert (the “Conversion”) all $
The carrying value of the Convertible Notes is as follows:
Carrying Value |
Reclassification |
Carrying Value |
Conversion |
Carrying Value |
||||||||||||||
as of |
Increase |
to Additional |
as of |
on |
as of |
|||||||||||||
(In millions) |
December 31, 2019 |
to Expense |
Paid-in Capital |
December 31, 2020 |
January 29, 2021 |
January 29, 2021 |
||||||||||||
Principal balance |
$ |
$ |
— |
$ |
— |
$ |
|
$ |
( |
$ |
— |
|||||||
Discount |
( |
|
— |
( |
|
— |
||||||||||||
Deferred financing costs |
( |
|
— |
( |
|
— |
||||||||||||
Derivative liability |
|
|
( |
— |
— |
— |
||||||||||||
Carrying value |
$ |
|
$ |
|
$ |
( |
$ |
|
$ |
( |
$ |
— |
||||||
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 due 2024 Indenture to permit the Company to issue the First Lien Notes due 2025, among other changes.
On September 14, 2018, the Company issued $
On September 14, 2018, 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 was not clearly and closely related
121
to the debt instrument and the reset of the conversion price caused the conversion feature to not be considered indexed to the Company’s equity, (2) the conversion feature standing alone met the definition of a derivative, and (3) the Convertible Notes due 2024 were not remeasured at fair value each reporting period with changes in fair value recorded in the consolidated statements of operations. The initial derivative liability of $
The derivative liability was remeasured at fair value each reporting period, a Level 3 fair value estimate, until the conversion price reset on September 14, 2020, with changes in fair value recorded in the consolidated statements of operations as other expense or income. On September 14, 2020, the conversion price reset from $
Pursuant to the Stock Repurchase and Cancellation Agreement between the Company and Wanda, the conversion feature of the Convertible Notes due 2024 would result in
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 Facilities. The First Lien Notes due 2025 are secured, on a pari passu basis with the Senior Secured Credit Facilities, on a first-
122
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 Facilities 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
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.
Sterling Notes Due 2024
On November 8, 2016, the Company issued £
On March 17, 2017, the Company issued £
On March 17, 2017, in connection with the issuance of the additional Sterling Notes due 2024, the Company entered into a registration rights agreement. Subject to the terms of the registration rights agreement, the Company is
123
required to (1) file one or more registration statements with the SEC not later than
On July 31, 2020, as part of the Exchange Offers, the Company reduced the aggregate principal amounts of Sterling Notes due 2024 by approximately $
Notes Due 2025
On June 5, 2015, the Company issued $
On June 5, 2015, in connection with the issuance of the Notes due 2025, the Company entered into a registration rights agreement. Subject to the terms of the registration rights agreement, the Company filed a registration statement on June 19, 2015 pursuant to the Securities Act of 1933, as amended, relating to an offer to exchange the original Notes due 2025 for exchange Notes due 2025 registered pursuant to an effective registration statement; the registration statement was declared effective on June 29, 2015, and the Company commenced the exchange offer. The exchange notes have terms substantially identical to the original notes except that the exchange notes do not contain terms with respect to transfer restrictions and registration rights and additional interest payable for the failure to consummate the exchange offer within
On July 31, 2020, as part of the Exchange Offers, the Company reduced the aggregate principal amounts of Notes due 2025 by approximately $
Notes Due 2026
On November 8, 2016, the Company issued $
On November 8, 2016, in connection with the issuance of the Notes due 2026, the Company entered into a registration rights agreement. Subject to the terms of the registration rights agreement, the Company is required to (1) file a registration statement with the SEC not later than
124
related to the registration rights agreement with the Securities and Exchange Commission on April 19, 2017, and it was declared effective June 7, 2017. All of the original notes were exchanged as of July 12, 2017.
On July 31, 2020, as part of the Exchange Offers, the Company reduced the aggregate principal amounts of Notes due 2026 by approximately $
Notes Due 2027
On March 17, 2017, the Company issued $
On March 17, 2017, in connection with the issuance of the Notes due 2027, the Company entered into a registration rights agreement. Subject to the terms of the registration rights agreement, the Company is required to (1) file one or more registration statements with the SEC not later than
On July 31, 2020, as part of the Exchange Offers, the Company reduced the aggregate principal amounts of Notes due 2027 by approximately $
Financial Covenants
The Company currently estimates that its existing cash and cash equivalents will be sufficient to comply with minimum liquidity and financial covenant requirements under its debt covenants related to borrowings pursuant to the Senior Secured Revolving Credit Facility and Odeon Term Loan Facility, currently and through the next twelve months. The Company entered the Ninth Amendment pursuant to which the requisite revolving lenders party thereto agreed to extend the suspension period for the financial covenant (the secured leverage ratio) applicable to the Senior Secured Revolving Credit Facility from March 31, 2021 to March 31, 2022, which was further extended by the Eleventh Amendment from March 31, 2022 to March 31, 2023, as described, and on the terms and conditions specified, therein. The Company is currently subject to minimum liquidity requirements of approximately $
125
As of December 31, 2021, the Company was in a covenant suspension period under the Senior Secured Revolving Credit Facility and the Odeon Revolving Credit Facility as described above.
NOTE 9—STOCKHOLDERS’ EQUITY
Common Stock Rights and Privileges
Holders of Holdings’ Common Stock are entitled to
Common Stock Issuances
The Company entered into equity distribution agreements with sales agents to sell approximately
The gross proceeds raised from the “at-the-market” sale of Common Stock during the years ended December 31, 2021 and December 31, 2020, are summarized in the table below:
"At-the-market" Equity Distribution Agreement Dates |
Sales Agents |
Number of Class A common stock shares sold (in millions) |
Gross Proceeds (in millions) |
||||
September 24, 2020 |
Citigroup Global Markets Inc. and Goldman Sachs & Co. LLC |
|
$ |
|
|||
October 20, 2020 |
Citigroup Global Markets Inc. and Goldman Sachs & Co. LLC |
|
|
||||
November 10, 2020 |
Goldman Sachs & Co. LLC and B. Riley Securities, Inc. |
|
|
||||
December 11, 2020 |
Goldman Sachs & Co. LLC and B. Riley Securities, Inc. (1) |
|
|
||||
Total year ended December 31, 2020 |
|
$ |
|
||||
December 11, 2020 |
Goldman Sachs & Co. LLC and B. Riley Securities, Inc. (1) |
|
|
||||
January 25, 2021 |
Goldman Sachs & Co. LLC and B. Riley Securities, Inc. |
|
|
||||
April 27, 2021 |
Goldman Sachs & Co. LLC, B. Riley Securities, Inc. and Citigroup Global Markets Inc. (2) |
|
|
||||
June 3, 2021 |
B. Riley Securities, Inc. and Citigroup Global Markets Inc. |
|
|
||||
Total year ended December 31, 2021 |
$ |
|
|||||
| (1) |
On December 11, 2020, the Company entered into an equity distribution agreement with Goldman Sachs & Co. LLC and B. Riley Securities, Inc., as sales agents to sell up to |
| (2) |
Included in the Common Stock shares sold of |
Common Stock Transaction Related to Exchange Offers
Certain backstop purchasers of the First Lien Notes due 2026 that participated in the Exchange Offer received
126
Common Stock Transactions with Mudrick
On June 1, 2021, the Company issued to Mudrick
On December 14, 2020, Mudrick received a total of
Class B Common Stock
On January 27, 2021, pursuant to the Stock Repurchase and Cancellation Agreement with Wanda dated as of September 14, 2018, and in connection with the Conversion of the Convertible Notes due 2026 into shares of the Company’s Common Stock by Silver Lake and certain co-investors,
On February 1, 2021, Wanda exercised their right to convert all outstanding Class B common stock of
Dividends
Since April 24, 2020, the Company has been prohibited from making dividend payments in accordance with the covenant suspension conditions in its Credit Agreement (as defined in Note 8—Corporate Borrowings and Finance Lease Obligations). The following is a summary of dividends and dividend equivalents declared to stockholders during the year ended December 31, 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 |
$ |
|
$ |
|
||||
During the year ended December 31, 2020, the Company paid dividends and dividend equivalents of $
The following is a summary of dividends and dividend equivalents declared to stockholders during the year ended December 31, 2019:
Amount per |
Total Amount |
|||||||||
|
|
|
Share of |
|
Declared |
|||||
Declaration Date |
Record Date |
Date Paid |
Common Stock |
(In millions) |
||||||
February 15, 2019 |
March 11, 2019 |
March 25, 2019 |
$ |
|
$ |
|
||||
May 3, 2019 |
June 10, 2019 |
June 24, 2019 |
|
|
||||||
August 2, 2019 |
September 9, 2019 |
September 23, 2019 |
|
|
||||||
October 24, 2019 |
December 2, 2019 |
December 16, 2019 |
|
|
||||||
During the year ended December 31, 2019, the Company paid dividends and dividend equivalents of $
127
Related Party Transactions
As of December 31, 2021 and December 31, 2020, the Company recorded a receivable due from Wanda of $
On September 14, 2018, the Company entered into the Investment Agreement with Silver Lake, relating to the issuance to Silver Lake (or its designated affiliates) of $
Treasury Stock
On February 27, 2020, the Company announced that its Board of Directors authorized a share repurchase program for an aggregate purchase of up to $
Stock-Based Compensation
2013 Equity Incentive Plan
The 2013 Equity Incentive Plan provides for grants of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock awards, restricted stock units (“RSUs”), performance stock units (“PSUs), stock awards, and cash performance awards. The maximum number of shares of Holdings’ Common Stock available for delivery pursuant to awards granted under the second amendment to the 2013 Equity Incentive Plan is
The following table presents the stock-based compensation expense recorded within general and administrative: other:
Year Ended |
|||||||||
December 31, |
December 31, |
December 31, |
|||||||
(In millions) |
2021 |
2020 |
2019 |
||||||
Board of director stock award expense |
$ |
|
$ |
|
$ |
|
|||
Restricted stock unit expense |
|
|
|
||||||
Performance stock unit expense |
|
|
( |
||||||
Special performance stock unit expense |
|
|
— |
||||||
Total stock-based compensation expense |
$ |
|
$ |
|
$ |
|
|||
As of December 31, 2021, the estimated remaining unrecognized compensation cost related to stock-based compensation arrangements was approximately $
Awards Granted in 2021, 2020, and 2019 and Other Activity
AMC’s Board of Directors approved awards of stock, RSUs, and PSUs to certain of the Company’s employees and directors under the 2013 Equity Incentive Plan. During years 2021, 2020, and 2019, the grant date fair value of these awards was based on the closing price of AMC’s stock on the date of grant, which ranged from $
128
one share of Common Stock underlying the unit began to accrue with respect to the unit on the date of grant. Such accrued dividend equivalents are paid to the holder upon vesting of the units. Each unit represents the right to receive one share of Common Stock at a future date.
The award agreements generally had the following features:
| ● |
Board of Director Stock Award Agreement: The Company granted fully vested shares of Common Stock to its independent members of AMC’s Board of Directors during the years ended December 31, 2021, Decembers 31, 2020, and December 31, 2019 of |
| ● |
Restricted Stock Unit Award Agreement: The Company granted RSU awards of |
| ● |
Restricted Stock Unit Award Executive Agreement: During the year ended December 31, 2019, the Company granted RSU awards of |
| ● |
Restricted Stock Unit Named Executive Officer Award Agreement: During the year ended December 31, 2017, RSU awards of |
| ● |
Performance Stock Unit Award Agreement: 2021 PSU Awards. On February 23, 2021, total PSUs of |
The Compensation Committee establishes the annual performance targets at the beginning of each year. Therefore, the grant date (and fair value measurement date) for each Tranche Year is the date at the beginning of each year when a mutual understanding of the key terms and conditions are reached per ASC 718, Compensation - Stock Compensation. The 2021 PSU award grant date fair value on February 23, 2021 for the 2021 Tranche Year award of
November 3, 2021 modification. On November 3, 2021, based upon the recommendation of the Compensation Committee, the Board of Directors of the Company approved a modification to the PSUs for the awards granted in 2021 and 2020. The service condition modification included separating the vesting period subject to the participant’s continued employment through the end of the
2020 PSU Awards: During the year ended December 31, 2020, PSU awards of
129
free cash flow target conditions and service conditions, covering a performance period beginning January 1, 2020 and ending on December 31, 2022, prior to the service condition and performance condition modifications on November 3, 2021 and October 30, 2020, respectively.
2019 PSU Awards: During the year ended December 31, 2019, PSU awards of
2018 PSU Awards: During the year ended December 31, 2018, PSU awards of
October 30, 2020 modification. On October 30, 2020, based upon the recommendation of the Compensation Committee, the Board of Directors of the Company approved a modification to the PSUs for the awards granted in 2018, 2019, and 2020. The modification included separating the
2017 PSU Awards: During the year ended December 31, 2017, PSU awards were granted to certain members of management and executive officers with
| ● |
Special Performance Stock Unit Executive Award Agreement: During the year ended December 31, 2019, a PSU market condition award of |
On February 26, 2020 and March 5, 2020, special performance stock unit awards (“SPSUs”), totaling
Tranche |
Target Stock Price |
SPSUs Vesting |
||
1 |
$ |
|||
2 |
$ |
|||
3 |
$ |
|||
4 |
$ |
|||
5 |
$ |
|||
6 |
$ |
130
The Company used the Monte Carlo simulation model to estimate the fair value of the SPSUs. This model utilizes multiple input variables to estimate the probability that the market conditions will be achieved. The Company used the following assumptions in determining the fair value of the SPSUs:
Assumptions |
||
Expected stock price volatility |
||
Expected dividend yield |
||
Risk-free interest rate |
||
Grant-date stock price |
$ |
The expected stock price volatility was based on the historical volatility of the Company’s stock for a period equivalent to the derived service period. The expected dividend yield is based on annual expected dividend payments. The risk-free interest rate was based on the treasury yield rates as of the date of grant for a period equivalent to the performance measurement period. The fair value of each SPSU is amortized over the requisite or derived service period, which is up to
On October 30, 2020, based upon the recommendation of the Compensation Committee, the Board of Directors of the Company approved a modification to the SPSUs for the awards. Each SPSU award agreement was amended as follows:
| ● | The stock price thresholds (ranging from $ |
| ● | Participants shall be prohibited from selling the shares of Common Stock issued upon the foregoing vesting until October 30, 2021; |
| ● | The stock price threshold for tranche 5 of the SPSUs was changed to $ |
| ● | The service requirement for tranches 5 and 6 was shortened to end on October 30, 2021. |
As a result of the SPSU modification of market conditions, the incremental fair value amount assigned to the grant date fair value was approximately $
131
The following table represents the nonvested RSU and PSU activity for the years ended December 31, 2021, December 31, 2020 and December 31, 2019:
|
|
Weighted |
|||
Average |
|||||
Shares of RSU |
Grant Date |
||||
PSU and SPSU |
Fair Value |
||||
Beginning balance at January 1, 2019 |
|
$ |
|
||
Granted |
|
|
|||
Vested |
( |
|
|||
Forfeited |
( |
|
|||
Cancelled (1) |
( |
|
|||
Beginning balance at January 1, 2020 |
|
$ |
|
||
Granted |
|
|
|||
Vested |
( |
|
|||
Forfeited |
( |
|
|||
Cancelled (1) |
( |
|
|||
Beginning balance at January 1, 2021 (2) |
|
$ |
|
||
Granted |
|
|
|||
Vested |
( |
|
|||
Forfeited |
( |
|
|||
Cancelled (1) |
( |
|
|||
Nonvested at December 31, 2021 (3) |
|
$ |
|
||
Tranche Years 2022 and 2023 awarded under the 2021 PSU award with grant date fair values to be determined in years 2022 and 2023, respectively |
|
||||
Total Nonvested at December 31, 2021 |
|
||||
| (1) | Represents vested RSUs, PSUs, and SPSUs surrendered in lieu of taxes and cancelled awards returned to the 2013 Equity Incentive Plan. |
| (2) | Includes awards modified during 2020 where grant date fair value was not determined until 2021. |
| (3) |
During January and February of 2022, participants vested in RSUs and PSUs, net of units surrendered in lieu of taxes, of |
NOTE 10—INCOME TAXES
Current income tax expense represents the amounts expected to be reported on the Company’s income tax returns, and deferred tax expense or benefit represents the change in net deferred tax assets and liabilities. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse. Valuation allowances are recorded as appropriate to reduce deferred tax assets to the amount considered likely to be realized.
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. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2021 for each taxing jurisdiction. Such objective evidence limits the ability to consider other subjective evidence, such as the Company’s projections of future taxable income. For the year ended December 31, 2021, the Company remained in a cumulative loss over the past three-year period for the U.S. and international jurisdictions, with the exception of Norway and Finland.
132
The Company maintains a valuation allowance against U.S. deferred tax assets as well as international jurisdictions in which it operates, with the exception of Finland and Norway. 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 $
Cancellation of Debt Income. On July 31, 2020, the Company consummated previously announced private offers to exchange its Existing Subordinated Notes for newly issued Second Lien Notes due 2026. See Note 8—Corporate Borrowings and Finance Lease Obligations for further information. For US tax purposes the Company was required to recognize CODI on the difference between the face value of debt exchanged and the fair market value of the new debt issued. The Company recognized $
IRS §108 provides relief from recognizing CODI as current taxable income to the extent that the tax paying legal entity is insolvent as defined by the US Tax Code. The Company determined that the level of its insolvency at July 31, 2020 exceeded the indicated amount of CODI resulting from the debt exchange. To the extent that an entity is insolvent, rather than recognize current taxable income, the entity may reduce its tax attributes including net operating losses, capital losses, tax credits, depreciable assets, investment in subsidiaries and other investments in the amount of the excluded CODI. The Company determined that $
The actual effective rate for the year ended December 31, 2021 was
Cares Act. 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. As of the date of this filing, the Company has not participated in CARES Act loans.
The income tax provision (benefit) reflected in the consolidated statements of operations consists of the following components:
Year Ended |
||||||||||
(In millions) |
|
December 31, 2021 |
|
December 31, 2020 |
|
December 31, 2019 |
|
|||
Current: |
||||||||||
Federal |
$ |
— |
$ |
|
$ |
( |
||||
Foreign |
|
|
|
( |
|
|
||||
State |
|
( |
|
( |
|
|
||||
Total current |
|
( |
|
( |
|
|
||||
Deferred: |
||||||||||
Federal |
|
( |
|
|
|
( |
||||
Foreign |
|
( |
|
|
|
( |
||||
State |
|
( |
|
|
|
|
||||
Total deferred |
|
( |
|
|
|
( |
||||
Total provision (benefit) |
$ |
( |
$ |
|
$ |
( |
||||
133
Pre-tax losses consisted of the following:
Year Ended |
||||||||||
(In millions) |
|
December 31, 2021 |
|
December 31, 2020 |
|
December 31, 2019 |
|
|||
Domestic |
$ |
( |
$ |
( |
$ |
( |
||||
Foreign |
|
( |
|
( |
|
( |
||||
Total |
$ |
( |
$ |
( |
$ |
( |
||||
The difference between the effective tax rate on net loss from continuing operations before income taxes and the U.S. federal income tax statutory rate is as follows:
Year Ended |
||||||||||
(In millions) |
|
December 31, 2021 |
|
December 31, 2020 |
|
December 31, 2019 |
|
|||
Income tax expense (benefit) at the federal statutory rate |
$ |
( |
$ |
( |
$ |
( |
||||
Effect of: |
||||||||||
State income taxes |
|
( |
|
( |
|
( |
||||
Increase in reserve for uncertain tax positions |
|
( |
|
( |
|
|
||||
Federal and state credits |
|
( |
|
( |
|
( |
||||
Permanent items - goodwill impairment |
— |
|
— |
|||||||
Permanent items - other |
( |
|
( |
|||||||
Foreign rate differential |
|
|
|
|||||||
Other |
|
( |
|
|
|
( |
||||
Impact of UK tax rate change |
( |
— |
— |
|||||||
Valuation allowance |
|
|
|
|
|
|
||||
Income tax expense (benefit) |
$ |
( |
$ |
|
$ |
( |
||||
Effective income tax rate |
|
|
% |
|
( |
% |
|
|
% |
|
The significant components of deferred income tax assets and liabilities as of December 31, 2021 and December 31, 2020 are as follows:
December 31, 2021 |
December 31, 2020 |
|
|||||||||||
Deferred Income Tax |
Deferred Income Tax |
|
|||||||||||
(In millions) |
|
Assets |
|
Liabilities |
|
Assets |
|
Liabilities |
|
||||
Tangible assets |
|
$ |
— |
|
$ |
( |
|
$ |
— |
|
$ |
( |
|
Right-of-use assets |
— |
( |
— |
( |
|||||||||
Accrued liabilities |
|
|
|
— |
|
|
|
— |
|||||
Intangible assets |
|
— |
|
( |
|
— |
|
( |
|||||
Receivables |
|
|
|
— |
|
|
|
— |
|||||
Investments |
|
|
|
— |
|
|
|
— |
|||||
Capital loss carryforwards |
|
|
|
— |
|
|
|
— |
|||||
Pension and deferred compensation |
|
|
|
— |
|
|
|
— |
|||||
Corporate borrowings |
|
|
|
— |
|
|
|
— |
|||||
Disallowed interest |
|
— |
|
— |
|||||||||
Deferred revenue |
|
|
|
— |
|
|
|
— |
|||||
Lease liabilities |
|
|
|
— |
|
|
|
— |
|||||
Finance lease obligations |
|
|
|
— |
|
|
|
— |
|||||
Other credit carryovers |
|
|
|
— |
|
|
|
— |
|||||
Other comprehensive income |
|
— |
|
— |
|
— |
|
( |
|||||
Net operating loss carryforwards |
|
|
|
— |
|
|
|
— |
|||||
Total |
$ |
|
$ |
( |
$ |
|
$ |
( |
|||||
Less: Valuation allowance |
|
( |
|
— |
|
( |
|
— |
|||||
Net deferred income taxes |
$ |
|
$ |
( |
$ |
|
$ |
( |
|||||
134
A rollforward of the Company’s valuation allowance for deferred tax assets is as follows:
Additions |
Charged |
|||||||||
Balance at |
Charged |
(Credited) |
||||||||
Beginning of |
to |
to Other |
Balance at |
|||||||
(In millions) |
|
Period |
|
Expenses(1) |
|
Accounts(2) |
|
End of Period |
||
Calendar Year 2021 |
||||||||||
Valuation allowance-deferred income tax assets |
$ |
|
|
— |
$ |
|
||||
Calendar Year 2020 |
||||||||||
Valuation allowance-deferred income tax assets |
$ |
|
|
( |
$ |
|
||||
Calendar Year 2019 |
||||||||||
Valuation allowance-deferred income tax assets |
$ |
|
|
( |
$ |
|
||||
| (1) | The 2021 valuation allowance primarily relates to the Company’s increase in the current year’s federal, state and international net operating losses, for which no benefit has been recognized. |
| (2) | Primarily relates to amounts resulting from the Company’s changes in deferred tax assets and associated valuation allowance that are not related to income statement activity as well as amounts charged to other comprehensive income. In 2019, this includes $( |
The Company has federal income tax net operating loss carryforwards of $
A reconciliation of the change in the amount of unrecognized tax benefits was as follows:
Year Ended |
|||||||||
(In millions) |
|
December 31, 2021 |
|
December 31, 2020 |
|
December 31, 2019 |
|||
Balance at beginning of period |
$ |
|
$ |
|
$ |
|
|||
Gross increases—current period tax positions |
|
— |
|
|
|
|
|||
Gross decreases—prior period tax positions |
( |
( |
( |
||||||
Gross decreases—settlements with authorities |
( |
— |
— |
||||||
Gross decreases—expiration of statute of limitations |
( |
( |
— |
||||||
Balance at end of period |
$ |
|
$ |
|
$ |
|
|||
The Company recognizes income tax-related interest expense and penalties as income tax expense and general and administrative expense, respectively.
The Company analyzed and reviewed state uncertain tax positions to determine the necessity of accruing interest and penalties. For the year ended December 31, 2021, the Company recognized $
The total amount of net unrecognized tax benefits at December 31, 2021 and December 31, 2020 that would impact the effective tax rate, if recognized, would be $
The Company, or
135
carryforwards for tax years ended December 31, 2002 through December 31, 2021, in the U.S. and various state jurisdictions which have carryforwards of varying lengths of time. These NOLs are subject to adjustment based on the statute of limitations applicable to the return in which they are utilized, not the year in which they are generated. Various state, local and foreign income tax returns are also under examination by taxing authorities. The Company does not believe that the outcome of any examination will have a material impact on its consolidated financial statements.
Utilization of the Company’s net operating loss carryforwards, disallowed business interest carryforward and other tax attributes became subject to the Section 382 ownership change limitation due to changes in our stock ownership on January 29, 2021. Management believes the Company’s ability to utilize these tax attributes has not been significantly limited by this event.
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,
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.
136
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 stay was lifted as of February 9, 2022.
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 January 11, 2022, the court lifted the stay.
On September 23, 2021, a stockholder derivative complaint, captioned Lyon v. Aron, et al., Case No. 1:21-cv-07940-AJN (the “Lyon Action”), was filed in the U.S. District Court for the Southern District of New York against certain of the Company’s current and former officers and directors. The Lyon Action asserts claims for contribution and indemnification under the Exchange Act and for breaches of fiduciary duty, waste of corporate assets, and unjust enrichment/constructive trust based on allegations substantially similar to the Actions, the Gantulga Action, the Kenna Action, the Manuel Action, and the Dinkevich Action. On January 14, 2022, defendants moved to dismiss the complaint.
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 September 23, 2020, the Board determined not to pursue the claims sought in the demand at this time.
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 $
NOTE 12—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
137
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. |
Level 2: |
Observable inputs that are corroborated by market data. |
Level 3: |
Unobservable inputs that are not corroborated by market data. |
Recurring Fair Value Measurements. The following tables summarize the fair value hierarchy of the Company’s financial assets carried at fair value on a recurring basis:
Fair Value Measurements at December 31, 2021 Using |
||||||||||||
Significant |
||||||||||||
|
Total Carrying |
|
Quoted prices in |
|
Significant other |
|
unobservable |
|||||
Value at |
active market |
observable inputs |
inputs |
|||||||||
(In millions) |
December 31, 2021 |
(Level 1) |
(Level 2) |
(Level 3) |
||||||||
Other long-term assets: |
||||||||||||
Money market mutual funds |
$ |
|
$ |
|
$ |
— |
$ |
— |
||||
Investments measured at net asset value(1) |
|
|
— |
|
— |
|
— |
|||||
Total assets at fair value |
$ |
|
$ |
|
$ |
— |
$ |
— |
||||
Fair Value Measurements at December 31, 2020 Using |
||||||||||||
Significant |
||||||||||||
|
Total Carrying |
|
Quoted prices in |
|
Significant other |
|
unobservable |
|||||
Value at |
active market |
observable inputs |
inputs |
|||||||||
(In millions) |
December 31, 2020 |
(Level 1) |
(Level 2) |
(Level 3) |
||||||||
Other long-term assets: |
||||||||||||
Money market mutual funds |
$ |
|
$ |
|
$ |
— |
$ |
— |
||||
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. The plan was terminated on May 3, 2021 and will be liquidated in 2022. |
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.
Nonrecurring Fair Value Measurements. The following fair value hierarchy tables summarize the Company’s assets that were written down to their fair value on a nonrecurring basis:
Fair Value Measurements at December 31, 2021 Using |
|||||||||||||||
|
|
Significant other |
|
Significant |
|
||||||||||
|
Total Carrying |
Quoted prices in |
observable |
unobservable |
|||||||||||
Value at |
active market |
inputs |
inputs |
Total |
|||||||||||
(In millions) |
|
December 31, 2021 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
Losses |
|||||
Property, net: |
|||||||||||||||
Property net |
$ |
|
$ |
— |
$ |
— |
$ |
|
$ |
|
|||||
Operating lease right-of-use assets, net |
|||||||||||||||
Operating lease right-of-use assets, et |
|
— |
— |
|
|
||||||||||
Other long-term assets |
|||||||||||||||
Property owned, net |
|
— |
— |
|
|
||||||||||
Total |
$ |
|
$ |
— |
$ |
— |
$ |
|
$ |
|
|||||
138
Fair Value Measurements Using |
|||||||||||||||||
|
|
Significant other |
|
Significant |
|
||||||||||||
|
Total Carrying |
Quoted prices in |
observable |
unobservable |
|||||||||||||
Value at |
active market |
inputs |
inputs |
Total |
|||||||||||||
(In millions) |
|
Measurement Date |
Measurement Date |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
Losses |
||||||
Property, net: |
|||||||||||||||||
Property net |
March 31, 2020 |
$ |
|
$ |
— |
$ |
— |
$ |
|
$ |
|
||||||
Property net |
September 30, 2020 |
|
— |
— |
|
|
|||||||||||
Property net |
December 31, 2020 |
|
— |
— |
|
|
|||||||||||
Operating lease right-of-use assets |
|||||||||||||||||
Operating lease right-of-use assets |
March 31, 2020 |
|
— |
— |
|
|
|||||||||||
Operating lease right-of-use assets |
September 30, 2020 |
|
— |
— |
|
|
|||||||||||
Operating lease right-of-use assets |
December 31, 2020 |
|
— |
— |
|
|
|||||||||||
Intangible assets, net |
|||||||||||||||||
Definite-lived intangible assets |
March 31, 2020 |
|
— |
— |
|
|
|||||||||||
Indefinite-lived intangible assets |
March 31, 2020 |
|
— |
— |
|
|
|||||||||||
Definite-lived intangible assets |
September 30, 2020 |
— |
— |
— |
— |
|
|||||||||||
Indefinite-lived intangible assets |
September 30, 2020 |
|
— |
— |
|
|
|||||||||||
Indefinite-lived intangible assets |
December 31, 2020 |
|
— |
— |
|
|
|||||||||||
Goodwill |
|||||||||||||||||
Goodwill |
March 31, 2020 |
|
— |
— |
|
|
|||||||||||
Goodwill |
September 30, 2020 |
|
— |
— |
|
|
|||||||||||
Goodwill |
December 31, 2020 |
|
— |
— |
|
|
|||||||||||
Other long-term assets |
|||||||||||||||||
Cost method investments |
March 31, 2020 |
— |
— |
— |
— |
|
|||||||||||
Cost method investments |
December 31, 2020 |
|
— |
— |
|
|
|||||||||||
Equity method investments |
December 31, 2020 |
|
— |
— |
|
|
|||||||||||
Total |
$ |
|
$ |
— |
$ |
— |
$ |
|
$ |
|
|||||||
Valuation Techniques. 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. 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. At December 31, 2021, related cash flows were discounted at
To estimate fair value of the Company’s indefinite-lived trade names, the Company 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. The Company applied royalty rates of
139
Nordic, at September 30, 2020, related cash flows were discounted at
The Company performed the Step 1 quantitative goodwill impairment test as of March 31, 2020, September 30, 2020, and December 31, 2020. In performing the Step 1 quantitative goodwill impairment test, the Company used an enterprise value approach to measure fair value of the reporting units. In calculating the fair value of our Domestic Theatres and International Theatres reporting units by use the income approach for enterprise valuation methodology, which utilizes discounted cash flows. The income approach provides an estimate of fair value by measuring estimated annual cash flows over a discrete projection period and applying a present value discount rate to the cash flows. The present value of the cash flows is then added to the present value equivalent of the residual value of the business to arrive at an estimated fair value of the reporting unit. At December 31, 2020, related cash flows were discounted at
Other Fair Value Measurement Disclosures. The following tables summarize 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 December 31, 2021 Using |
|||||||||||
|
|
Significant other |
|
Significant |
||||||||
Total Carrying |
Quoted prices in |
observable |
unobservable |
|||||||||
Value at |
active market |
inputs |
inputs |
|||||||||
(In millions) |
December 31, 2021 |
(Level 1) |
(Level 2) |
(Level 3) |
||||||||
Current maturities of corporate borrowings |
$ |
|
$ |
— |
$ |
|
$ |
— |
||||
Corporate borrowings |
|
|
|
— |
|
|
|
|||||
|
Fair Value Measurements at December 31, 2020 Using |
|||||||||||
|
|
Significant other |
|
Significant |
||||||||
Total Carrying |
Quoted prices in |
observable |
unobservable |
|||||||||
Value at |
active market |
inputs |
inputs |
|||||||||
(In millions) |
December 31, 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 estimated market conditions. The Company valued these notes at principal value less an estimated discount reflecting a market yield to maturity. See Note 8—Corporate Borrowings and Finance Lease Obligations for further information.
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 13—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
140
revenues, primarily screen advertising, AMC Stubs® membership fees and other loyalty programs, ticket sales, gift card income and exchange ticket income. The measure of segment profit and loss the Company uses to evaluate performance and allocate its resources is Adjusted EBITDA, as defined in the reconciliation table below. The Company does not report asset information by segment because that information is not used to evaluate the performance of or allocate resources between segments.
Below is a breakdown of select financial information by reportable operating segment:
Year Ended |
|||||||||
Revenues (In millions) |
|
December 31, 2021 |
|
December 31, 2020 |
|
December 31, 2019 |
|||
U.S. markets |
$ |
|
$ |
|
$ |
|
|||
International markets |
|
|
|
||||||
Total revenues |
$ |
|
$ |
|
$ |
|
|||
Year Ended |
|||||||||
Adjusted EBITDA (In millions) |
|
December 31, 2021 |
|
December 31, 2020 |
December 31, 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. |
Year Ended |
|||||||||
Capital Expenditures (In millions) |
|
December 31, 2021 |
|
December 31, 2020 |
|
December 31, 2019 |
|||
U.S. markets |
$ |
|
$ |
|
$ |
|
|||
International markets |
|
|
|
||||||
Total capital expenditures |
$ |
|
$ |
|
$ |
|
|||
Financial information about geographic area is as follows:
Year Ended |
|||||||||
Revenues (In millions) |
December 31, 2021 |
December 31, 2020 |
December 31, 2019 |
||||||
United States |
$ |
|
$ |
|
$ |
|
|||
United Kingdom |
|
|
|
||||||
Spain |
|
|
|
||||||
Sweden |
|
|
|
||||||
Italy |
|
|
|
||||||
Germany |
|
|
|
||||||
Finland |
|
|
|
||||||
Ireland |
|
|
|
||||||
Other foreign countries |
|
|
|
||||||
Total |
$ |
|
$ |
|
$ |
|
|||
141
As of |
As of |
|||||
Long-term assets, net (In millions) |
December 31, 2021 |
December 31, 2020 |
||||
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 asset, net and other long-term assets. |
The following table sets forth a reconciliation of net loss to Adjusted EBITDA:
Year Ended |
|||||||||
(In millions) |
December 31, 2021 |
|
December 31, 2020 |
December 31, 2019 |
|||||
Net loss |
$ |
( |
$ |
( |
$ |
( |
|||
Plus: |
|||||||||
Income tax provision (benefit) (1) |
|
( |
|
|
( |
||||
Interest expense |
|
|
|
|
|
||||
Depreciation and amortization |
|
|
|
|
|
||||
Impairment of long-lived assets, definite and indefinite-lived intangible assets and goodwill (2) |
|
|
|
|
|
||||
Certain operating expense (income) (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 expense (benefit) (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 (benefit), see Note 10—Income Taxes. |
| (2) |
During the year ended December 31, 2021, the Company recorded non-cash impairment charges related to its long-lived assets of $ |
During the year ended December 31, 2020, the Company recorded goodwill non-cash impairment charges of $
142
During the year ended December 31, 2019, the Company recorded non-cash impairment of long-lived assets 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 primarily consisted of equity in earnings (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 and package ticket program. |
Year Ended |
|||||||||
(In millions) |
December 31, 2021 |
|
December 31, 2020 |
December 31, 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 expense |
|
|
|
||||||
Investment income |
( |
( |
( |
||||||
Interest expense |
|
|
— |
||||||
Depreciation and amortization |
|
|
|
||||||
Other expense |
|
|
|
||||||
Attributable EBITDA |
$ |
|
$ |
|
$ |
|
|||
| (7) |
Other expense (income) during the year ended December 31, 2021, primarily consisted of a loss on debt extinguishment of $ |
Other expense (income) for the year ended December 31, 2020 included a loss of $
143
lease guarantees of $
During the year ended December 31, 2019, the Company recorded a loss on repayment of indebtedness of $
| (8) | Reflects amortization of certain intangible assets reclassified from depreciation and amortization to rent expense due to the adoption of ASC 842, Leases 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 or non-recurring expense included in general and administrative: other. |
NOTE 14—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table presents the change in accumulated other comprehensive income (loss) by component:
Foreign |
|||||||||
(In millions) |
|
Currency |
|
Pension Benefits |
|
Total |
|||
Balance December 31, 2019 |
$ |
( |
$ |
( |
$ |
( |
|||
Other comprehensive income (loss) before reclassifications |
|
( |
|
||||||
Amounts reclassified from accumulated other comprehensive loss |
|
— |
|
||||||
Balance December 31, 2020 |
$ |
|
$ |
( |
$ |
|
|||
Other comprehensive income (loss) |
( |
|
( |
||||||
Realized loss on foreign currency transactions reclassified into investment expense (income) |
( |
— |
( |
||||||
Balance December 31, 2021 |
$ |
( |
$ |
( |
$ |
( |
|||
The tax effects allocated to each component of other comprehensive income (loss) is as follows:
Year Ended |
|||||||||||||||||||||||||||
December 31, 2021 |
December 31, 2020 |
December 31, 2019 |
|||||||||||||||||||||||||
|
|
Tax |
|
|
|
Tax |
|
|
|
Tax |
|
||||||||||||||||
Pre-Tax |
(Expense) |
Net-of-Tax |
Pre-Tax |
(Expense) |
Net-of-Tax |
Pre-Tax |
(Expense) |
Net-of-Tax |
|||||||||||||||||||
(In millions) |
Amount |
Benefit |
Amount |
Amount |
Benefit |
Amount |
Amount |
Benefit |
Amount |
||||||||||||||||||
Unrealized foreign currency translation adjustment |
$ |
( |
$ |
— |
$ |
( |
$ |
|
$ |
|
$ |
|
$ |
( |
$ |
|
$ |
( |
|||||||||
Realized gain (loss) on foreign currency transactions, net of tax |
( |
|
( |
|
— |
|
|
— |
|
||||||||||||||||||
Pension and other benefit adjustments: |
|||||||||||||||||||||||||||
Net gain (loss) arising during the period, net of tax |
|
( |
|
( |
— |
( |
( |
|
( |
||||||||||||||||||
Equity method investee's cash flow hedge: |
|||||||||||||||||||||||||||
Unrealized net holding loss arising during the period |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
( |
|
— |
|
( |
|||||||||
Other comprehensive income (loss) |
$ |
( |
$ |
( |
$ |
( |
$ |
|
$ |
|
$ |
|
$ |
( |
$ |
|
$ |
( |
|||||||||
144
NOTE 15—LOSS PER SHARE
Basic loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding. Diluted loss per share includes the effects of unvested RSUs with a service condition only and unvested contingently issuable RSUs and PSUs that have service and performance conditions, if dilutive. Diluted loss per share for the years ended December 31, 2020 and December 31, 2019 also includes potential dilutive shares from the conversion feature of the Convertible Notes due 2026, if dilutive.
The following table sets forth the computation of basic and diluted loss per common share:
Year Ended |
Year Ended |
Year Ended |
|||||||
(In millions) |
|
December 31, 2021 |
|
December 31, 2020 |
|
December 31, 2019 |
|||
Numerator: |
|||||||||
Net loss for basic loss per share attributable to AMC Entertainment Holdings, Inc. |
$ |
( |
$ |
( |
$ |
( |
|||
Net loss for diluted loss per share attributable to AMC Entertainment Holdings, Inc. |
$ |
( |
$ |
( |
$ |
( |
|||
Denominator (shares in thousands): |
|||||||||
Weighted average shares for basic loss per common share |
|
|
|
|
|
|
|||
Weighted average shares for diluted loss per common share |
|
|
|
|
|
|
|||
Basic loss per common share: |
$ |
( |
$ |
( |
$ |
( |
|||
Diluted loss per common share: |
$ |
( |
$ |
( |
$ |
( |
|||
Vested RSUs, PSUs, and SPSUs have dividend rights identical to the Company’s Common Stock and are treated as outstanding shares for purposes of computing basic and diluted earnings per share. For the year ended December 31, 2021, December 31, 2020, and December 31, 2019, 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
On January 29, 2021, the $
NOTE 16—SUBSEQUENT EVENTS
First Lien Senior Secured Notes due 2029. On February 14, 2022, the Company issued $
145
Facilities and existing secured notes. The Company used the net proceeds from the sale of the notes, and cash on hand, to fund the full redemption of the $
146
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
Not applicable
Item 9A. 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 Annual Report on Form 10-K and have determined that such disclosure controls and procedures were effective.
| (b) | Management’s annual report on internal control over financial reporting. |
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company as defined in Rule 13a-15(f) of the Exchange Act. With management’s participation, an evaluation of the effectiveness of internal control over financial reporting was conducted as of December 31, 2021, based on the framework and criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2021. The effectiveness of our internal control over financial reporting has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their attestation report in Item 8 of Part II of this Annual Report on Form 10-K.
| (c) | Changes in internal control over financial reporting. |
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 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. There were no changes in its internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) during the quarter ended December 31, 2021, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information.
None
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable
147
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
For information with respect to the executive officers of the Company, see “Information about our Executive Officers” included as a separate item at the end of Part I, Item 1 of this Report.
All other information called for by this item is hereby incorporated herein by reference to the relevant information under the headings “Proposal 2 - Election of Directors”, “Delinquent Section 16(A) Reports”, and “Corporate Governance” in our definitive proxy statement on Schedule 14A in connection with our 2022 Annual Meeting of Stockholders, to be filed within 120 days after December 31, 2021 (the “Proxy Statement”).
Item 11. Executive Compensation.
The information called for by this item is set forth under the headings “Executive Compensation”, “Compensation Committee Report on Executive Compensation”, “Compensation Committee Interlocks and Insider Participation”, “Compensation Policies and Practices as They Relate to Risk Management”, “Director Compensation” and “Compensation Discussion and Analysis” in the Company’s 2022 Proxy Statement to be filed with the SEC within 120 days after December 31, 2021 and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information called for by this item is set forth under the headings “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” and “Equity Compensation Plan Information” in the Company’s 2022 Proxy Statement to be filed with the SEC within 120 days after December 31, 2021 and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information called for by this item is set forth under the headings “Certain Relationships and Related Transactions” and “Director Independence” in the Company’s 2022 Proxy Statement to be filed with the SEC within 120 days after December 31, 2021 and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
The information called for by this item is set forth under the headings “Principal Accountant Fees and Services” and “Audit Committee Pre-Approval Policy” in the Company’s 2022 Proxy Statement to be filed with the SEC within 120 days after December 31, 2021 and is incorporated herein by reference.
148
Part IV
Item 15. Exhibits, Financial Statement Schedules.
(a)(1)The following financial statements are included in Part II, Item 8.
|
Page |
|
Reports of Independent Registered Public Accounting Firm (PCAOB ID |
79 |
|
83 |
||
84 |
||
Consolidated Balance Sheets—December 31, 2021 and December 31, 2020 |
85 |
|
86 |
||
88 |
||
90 |
(a)(2) |
Financial Statement Schedules—All schedules have been omitted because the necessary information is included in the Notes to the Consolidated Financial Statements. |
| (b) | Exhibits |
The Company has attached or incorporated by reference herein certain exhibits as specified below.
149
Exhibit |
|
Description |
|---|---|---|
150
Exhibit |
|
Description |
|---|---|---|
151
Exhibit |
|
Description |
|---|---|---|
152
Exhibit |
|
Description |
|---|---|---|
153
Exhibit |
|
Description |
|---|---|---|
154
Exhibit |
|
Description |
|---|---|---|
155
Exhibit |
|
Description |
|---|---|---|
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. |
||
Consent of KPMG LLP, Independent Registered Public Accounting Firm. |
||
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Acts of 2002. |
||
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Acts of 2002. |
||
**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 in Exhibit 101). |
* Filed herewith.
** Submitted electronically with this Report.
156
157
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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. |
||
By: |
/s/ Chris A. Cox |
|
Chris A. Cox |
||
Senior Vice President and Chief Accounting Officer |
||
Date: March 1, 2022 |
||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ ADAM M. ARON |
Chairman of the Board, Chief Executive Officer and President |
|
Adam M. Aron |
(principal executive officer) |
|
March 1, 2022 |
||
/s/ ANTHONY J. SAICH |
||
Anthony J. Saich |
Director |
|
March 1, 2022 |
||
/s/ LEE E. WITTLINGER |
||
Lee E. Wittlinger |
Director |
|
March 1, 2022 |
||
/s/ KATHLEEN M. PAWLUS |
||
Kathleen M. Pawlus |
Director |
|
March 1, 2022 |
||
/s/ HOWARD KOCH, JR. |
||
Howard Koch, Jr. |
Director |
|
March 1, 2022 |
||
/s/ PHILIP LADER |
||
Philip Lader |
Director |
|
March 1, 2022 |
||
/s/ ADAM J. SUSSMAN |
||
Adam J. Sussman |
Director |
|
March 1, 2022 |
||
/s/ GARY F. LOCKE |
||
Gary F. Locke |
Director |
|
March 1, 2022 |
||
/s/ SEAN D. GOODMAN |
Executive Vice President, Chief Financial |
|
Sean D. Goodman |
Officer and Treasurer (principal financial officer) |
|
March 1, 2022 |
||
/s/ CHRIS A. COX |
Senior Vice President and Chief Accounting |
|
Chris A. Cox |
Officer (principal accounting officer) |
|
March 1, 2022 |
158