Toggle SGML Header (+)


Section 1: 10-Q (10-Q)

amch_Current folio_10Q

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q

 

 

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2016

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to            

 

Commission file number 001‑33892

 


 

AMC ENTERTAINMENT HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware
(State or other jurisdiction of
incorporation or organization)

26‑0303916
(I.R.S. Employer
Identification No.)

One AMC Way
11500 Ash Street, Leawood, KS
(Address of principal executive offices)

   
66211
(Zip Code)

 

 

Registrant’s telephone number, including area code: (913) 213‑2000

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b‑2 of the Exchange Act.

 

 

 

 

 

Large accelerated filer ☐

Accelerated filer ☒ 

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

Smaller reporting company ☐

 

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

 

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

 

 

 

Title of each class of common stock

   

Number of shares
outstanding as of October 24, 2016

  Class A common stock
Class B common stock

 

21,613,532
75,826,927

 

 

 

 

 


 

Table of Contents

AMC ENTERTAINMENT HOLDINGS, INC.

 

INDEX

 

 

 

Page
Number

 

PART I—FINANCIAL INFORMATION

 

Item 1. 

Financial Statements (Unaudited)

3

 

Consolidated Statements of Operations

3

 

Consolidated Statements of Comprehensive Income

4

 

Consolidated Balance Sheets

5

 

Consolidated Statements of Cash Flows

6

 

Notes to Consolidated Financial Statements

7

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

36

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

55

Item 4. 

Controls and Procedures

55

 

PART II—OTHER INFORMATION

 

Item 1. 

Legal Proceedings

57

Item 1A. 

Risk Factors

57

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

58

Item 3. 

Defaults Upon Senior Securities

58

Item 4. 

Mine Safety Disclosures

58

Item 5. 

Other Information

58

Item 6. 

Exhibits

59

 

Signatures

61

 

 

 

2


 

Table of Contents

PART I—FINANCIAL INFORMATION

 

Item 1.  Financial Statements. (Unaudited)

 

AMC ENTERTAINMENT HOLDINGS, INC.

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

    

September 30, 2016

    

September 30, 2015

    

September 30, 2016

    

September 30, 2015

 

 

 

(unaudited)

 

(unaudited)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Admissions

 

$

496,729

 

$

441,262

 

$

1,460,537

 

$

1,393,338

 

Food and beverage

 

 

248,889

 

 

216,764

 

 

736,587

 

 

667,804

 

Other theatre

 

 

34,153

 

 

30,814

 

 

112,626

 

 

101,901

 

Total revenues

 

 

779,771

 

 

688,840

 

 

2,309,750

 

 

2,163,043

 

Operating costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Film exhibition costs

 

 

259,069

 

 

233,390

 

 

784,363

 

 

751,894

 

Food and beverage costs

 

 

33,949

 

 

31,080

 

 

102,014

 

 

95,395

 

Operating expense

 

 

211,554

 

 

195,505

 

 

613,893

 

 

588,177

 

Rent

 

 

121,904

 

 

115,861

 

 

369,307

 

 

348,804

 

General and administrative:

 

 

 

 

 

 

 

 

 

 

 

 

 

Merger, acquisition and transaction costs

 

 

4,961

 

 

751

 

 

15,113

 

 

2,590

 

Other

 

 

19,785

 

 

18,706

 

 

58,935

 

 

41,384

 

Depreciation and amortization

 

 

63,025

 

 

58,008

 

 

185,746

 

 

173,034

 

Operating costs and expenses

 

 

714,247

 

 

653,301

 

 

2,129,371

 

 

2,001,278

 

Operating income

 

 

65,524

 

 

35,539

 

 

180,379

 

 

161,765

 

Other expense (income):

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expense (income)

 

 

79

 

 

 —

 

 

(5)

 

 

9,273

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate borrowings

 

 

24,679

 

 

22,682

 

 

74,434

 

 

73,478

 

Capital and financing lease obligations

 

 

2,099

 

 

2,286

 

 

6,441

 

 

6,990

 

Equity in earnings of non-consolidated entities

 

 

(12,030)

 

 

(10,850)

 

 

(28,143)

 

 

(21,536)

 

Investment expense (income)

 

 

176

 

 

163

 

 

(9,602)

 

 

(5,039)

 

Total other expense

 

 

15,003

 

 

14,281

 

 

43,125

 

 

63,166

 

Earnings before income taxes

 

 

50,521

 

 

21,258

 

 

137,254

 

 

98,599

 

Income tax provision

 

 

20,085

 

 

9,080

 

 

54,560

 

 

36,360

 

Net earnings

 

$

30,436

 

$

12,178

 

$

82,694

 

$

62,239

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.31

 

$

0.12

 

$

0.84

 

$

0.64

 

Diluted

 

$

0.31

 

$

0.12

 

$

0.84

 

$

0.63

 

Average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

98,194

 

 

97,978

 

 

98,196

 

 

97,959

 

Diluted

 

 

98,284

 

 

98,073

 

 

98,211

 

 

98,024

 

Dividends declared per basic and diluted common share

 

$

0.20

 

$

0.20

 

$

0.60

 

$

0.60

 

 

See Notes to Consolidated Financial Statements.

3


 

Table of Contents

AMC ENTERTAINMENT HOLDINGS, INC.

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

    

September 30, 2016

    

September 30, 2015

    

September 30, 2016

    

September 30, 2015

 

 

 

(unaudited)

 

(Unaudited)

 

Net earnings

 

$

30,436

 

$

12,178

 

$

82,694

 

$

62,239

 

Unrealized foreign currency translation adjustment, net of tax

 

 

160

 

 

700

 

 

766

 

 

981

 

Pension and other benefit adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss arising during the period, net of tax

 

 

 —

 

 

 —

 

 

 —

 

 

(45)

 

Prior service credit arising during the period, net of tax

 

 

 —

 

 

 —

 

 

 —

 

 

746

 

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

 

 

5

 

 

7

 

 

13

 

 

(1,686)

 

Amortization of prior service credit reclassified into general and administrative: other, net of tax

 

 

 —

 

 

 —

 

 

 —

 

 

(1,762)

 

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

 

 

 —

 

 

 —

 

 

 —

 

 

(7,239)

 

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

 

 

 —

 

 

 —

 

 

 —

 

 

(175)

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized net holding gain (loss) arising during the period, net of tax

 

 

144

 

 

(2,311)

 

 

557

 

 

(1,868)

 

Realized net (gain) loss reclassified into investment income, net of tax

 

 

(1)

 

 

(5)

 

 

(1,783)

 

 

(154)

 

Equity method investees' cash flow hedge:

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

80

 

 

(465)

 

 

(562)

 

 

(847)

 

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

 

 

86

 

 

112

 

 

275

 

 

351

 

Other comprehensive income (loss)

 

 

474

 

 

(1,962)

 

 

(734)

 

 

(11,698)

 

Total comprehensive income

 

$

30,910

 

$

10,216

 

$

81,960

 

$

50,541

 

 

 

See Notes to Consolidated Financial Statements.

4


 

Table of Contents

AMC ENTERTAINMENT HOLDINGS, INC.

 

CONSOLIDATED BALANCE SHEETS

 

(in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

    

September 30, 2016

    

December 31, 2015

 

 

 

(unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and equivalents

 

$

46,312

 

$

211,250

 

Receivables, net

 

 

57,741

 

 

105,509

 

Other current assets

 

 

91,574

 

 

97,608

 

Total current assets

 

 

195,627

 

 

414,367

 

Property, net

 

 

1,537,951

 

 

1,401,928

 

Intangible assets, net

 

 

231,179

 

 

237,376

 

Goodwill

 

 

2,410,713

 

 

2,406,691

 

Deferred tax asset

 

 

75,557

 

 

126,198

 

Other long-term assets

 

 

518,229

 

 

501,757

 

Total assets

 

$

4,969,256

 

$

5,088,317

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

261,447

 

$

313,025

 

Accrued expenses and other liabilities

 

 

151,573

 

 

158,664

 

Deferred revenues and income

 

 

162,737

 

 

221,679

 

Current maturities of corporate borrowings and capital and financing lease obligations

 

 

19,400

 

 

18,786

 

Total current liabilities

 

 

595,157

 

 

712,154

 

Corporate borrowings

 

 

1,843,339

 

 

1,902,598

 

Capital and financing lease obligations

 

 

86,289

 

 

93,273

 

Exhibitor services agreement

 

 

363,833

 

 

377,599

 

Other long-term liabilities

 

 

513,857

 

 

462,626

 

Total liabilities

 

 

3,402,475

 

 

3,548,250

 

Commitments and contingencies

 

 

 

 

 

 

 

Class A common stock (temporary equity) ($.01 par value, 140,014 shares issued and 103,245 shares outstanding as of September 30, 2016; 167,211 shares issued and 130,442 shares outstanding as of December 31, 2015)

 

 

1,080

 

 

1,364

 

Stockholders’ equity:

 

 

 

 

 

 

 

Class A common stock ($.01 par value, 524,173,073 shares authorized; 21,510,287 shares issued and outstanding as of September 30, 2016;  21,445,090 shares issued and outstanding as of December 31, 2015)

 

 

215

 

 

214

 

Class B common stock ($.01 par value, 75,826,927 shares authorized; 75,826,927 shares issued and outstanding as of September 30, 2016 and December 31, 2015)

 

 

758

 

 

758

 

Additional paid-in capital

 

 

1,187,244

 

 

1,182,923

 

Treasury stock (36,769 shares as of September 30, 2016 and December 31, 2015, at cost)

 

 

(680)

 

 

(680)

 

Accumulated other comprehensive income

 

 

2,070

 

 

2,804

 

Accumulated earnings

 

 

376,094

 

 

352,684

 

Total stockholders’ equity

 

 

1,565,701

 

 

1,538,703

 

Total liabilities and stockholders’ equity

 

$

4,969,256

 

$

5,088,317

 

 

See Notes to Consolidated Financial Statements.

5


 

Table of Contents

AMC ENTERTAINMENT HOLDINGS, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

    

September 30, 2016

    

September 30, 2015

 

 

 

(unaudited)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net earnings

 

$

82,694

 

$

62,239

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

185,746

 

 

173,034

 

Amortization of net premium on corporate borrowings

 

 

174

 

 

674

 

Deferred income taxes

 

 

45,636

 

 

17,671

 

Theatre and other closure expense

 

 

3,576

 

 

3,911

 

Loss (gain) on dispositions

 

 

(2,658)

 

 

281

 

Stock-based compensation

 

 

4,509

 

 

9,377

 

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

 

 

(13,689)

 

 

(2,561)

 

Landlord contributions

 

 

77,348

 

 

43,224

 

Deferred rent

 

 

(23,452)

 

 

(18,272)

 

Net periodic benefit credit

 

 

597

 

 

(18,089)

 

Change in assets and liabilities, excluding acquisitions:

 

 

 

 

 

 

 

Receivables

 

 

51,723

 

 

52,532

 

Other assets

 

 

303

 

 

205

 

Accounts payable

 

 

(116,950)

 

 

(69,844)

 

Accrued expenses and other liabilities

 

 

(87,227)

 

 

(42,277)

 

Other, net

 

 

3,004

 

 

(2,880)

 

Net cash provided by operating activities

 

 

211,334

 

 

209,225

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Capital expenditures

 

 

(256,599)

 

 

(215,574)

 

Acquisition of Starplex Cinemas, net of cash acquired

 

 

681

 

 

 

Investments in non-consolidated entities, net

 

 

(10,480)

 

 

(958)

 

Proceeds from disposition of long-term assets

 

 

19,365

 

 

604

 

Other, net

 

 

(1,252)

 

 

(1,158)

 

Net cash used in investing activities

 

 

(248,285)

 

 

(217,086)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from issuance of Senior Subordinated Notes due 2025

 

 

 —

 

 

600,000

 

Payments under revolver credit facility, net of borrowings

 

 

(55,000)

 

 

 —

 

Repurchase of Senior Subordinated Notes due 2020

 

 

 —

 

 

(626,114)

 

Cash used to pay dividends

 

 

(59,081)

 

 

(59,012)

 

Deferred financing costs

 

 

(821)

 

 

(11,978)

 

Principal payments under capital and financing lease obligations

 

 

(6,370)

 

 

(5,811)

 

Principal payments under Term Loan

 

 

(6,605)

 

 

(5,813)

 

Principal amount of coupon payment under Senior Subordinated Notes due 2020

 

 

 —

 

 

(3,357)

 

Net cash used in financing activities

 

 

(127,877)

 

 

(112,085)

 

Effect of exchange rate changes on cash and equivalents

 

 

(110)

 

 

(321)

 

Net decrease in cash and equivalents

 

 

(164,938)

 

 

(120,267)

 

Cash and equivalents at beginning of period

 

 

211,250

 

 

218,206

 

Cash and equivalents at end of period

 

$

46,312

 

$

97,939

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

Interest (net of amounts capitalized of $142 and $122)

 

$

67,873

 

$

76,301

 

Income taxes paid (refunded), net

 

 

4,592

 

 

(1,028)

 

Schedule of non-cash operating and investing activities:

 

 

 

 

 

 

 

Investment in NCM (See Note 3-Investments)

 

$

 —

 

$

6,812

 

 

See Notes to Consolidated Financial Statements.

6


 

Table of Contents

AMC ENTERTAINMENT HOLDINGS, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

September 30, 2016

 

(Unaudited)

 

NOTE 1—BASIS OF PRESENTATION

 

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

 

On March 31, 2016, AMC Entertainment Inc. (“AMCE”) merged with and into Holdings, its direct parent company. In connection with the merger, Holdings assumed all of the obligations of AMCE pursuant to the indentures to the 5.875% Senior Subordinated Notes due 2022 (“Notes due 2022”), the 5.75% Senior Subordinated Notes due 2025 (“Notes due 2025”) and the Credit Agreement, dated as of April 30, 2013 (as subsequently amended).

 

As of September 30, 2016, Wanda owned approximately 77.82% of Holdings’ outstanding common stock and 91.32% of the combined voting power of Holdings’ outstanding common stock and has the power to control Holdings’ affairs and policies, including with respect to the election of directors (and, through the election of directors, the appointment of management), entering into mergers, sales of substantially all of the Company’s assets and other extraordinary transactions.

 

Use of Estimates:  The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are used for, but not limited to: (1) Impairments, (2) Film exhibition costs, (3) Income and operating taxes, (4) Theatre and other closure expense, and (5) Gift card and exchange ticket income. Actual results could differ from those estimates.

 

Principles of Consolidation:  The accompanying unaudited consolidated financial statements include the accounts of Holdings and all subsidiaries, as discussed above, and should be read in conjunction with the Company’s Annual Report on Form 10-K for the twelve months ended December 31, 2015. The accompanying consolidated balance sheet as of December 31, 2015, which was derived from audited financial statements, and the unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by the accounting principles generally accepted in the United States of America for complete consolidated financial statements. In the opinion of management, these interim financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the Company’s financial position and results of operations. All significant intercompany balances and transactions have been eliminated in consolidation. There are no noncontrolling (minority) interests in the Company’s consolidated subsidiaries; consequently, all of its stockholders’ equity, net earnings and total comprehensive income for the periods presented are attributable to controlling interests. Due to the seasonal nature of the Company’s business, results for the nine months ended September 30, 2016 are not necessarily indicative of the results to be expected for the twelve months ending December 31, 2016. The Company manages its business under one reportable segment called Theatrical Exhibition.

 

7


 

Table of Contents

Other Expense (income):  The following table sets forth the components of other expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

(In thousands)

 

September 30, 2016

 

September 30, 2015

 

September 30, 2016

 

September 30, 2015

Loss on redemption of 9.75% Senior Subordinated Notes due 2020

 

$

 —

 

$

 —

 

$

 —

 

$

9,273

Other

 

 

79

 

 

 —

 

 

(5)

 

 

 —

Other expense (income)

 

$

79

 

$

 —

 

$

(5)

 

$

9,273

 

Changes in Accounting Principles:  The Company adopted the provisions of Accounting Standards Update (“ASU”) No. 2015-03 and 2015-15, Interest-Imputation of Interest (Subtopic 835-30) as of the beginning of 2016 on a retrospective basis. As a result of the adoption of ASU No. 2015-03 and ASU No. 2015-15, the Company reclassified $21,768,000 of debt issuance costs for its term loan and senior subordinated notes from other long-term assets to corporate borrowings in the Consolidated Balance Sheet as of December 31, 2015. The Company continues to defer and present its debt issuance costs related to its line-of-credit arrangement as an asset regardless of whether there are any outstanding borrowings on the line-of-credit arrangement as provided in ASU No. 2015-15.

 

During the nine months ended September 30, 2016, the Company early adopted the provisions of ASU No. 2016-09, Compensation – Stock Compensation Improvements to Employee Share-Based Payment Accounting as of the beginning of 2016. The effect of adopting ASU 2016-09 is reflected in Stockholders’ Equity in the Consolidated Balance Sheets on a modified retrospective basis through a cumulative-effect adjustment. This guidance simplifies several aspects of the accounting for share-based payment awards to employees including accounting for income taxes, forfeitures, statutory tax withholding requirements and classification in the statement of cash flows. As permitted under ASU 2016-09, the Company has elected to account for forfeitures in compensation cost when they occur. A summary of the changes made to the Consolidated Balance Sheets at December 31, 2015, is included in the following table:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

As Filed

   

Updated

Additional paid-in capital

 

$  

1,183,218

   

$  

1,182,923

Accumulated earnings

 

 

352,389

   

 

352,684

 

 

 

 

NOTE 2—ACQUISITION

In December 2015, the Company completed the acquisition of SMH Theatres, Inc. (“Starplex Cinemas”) for cash. The purchase price for Starplex Cinemas was $172,172,000, net of cash acquired, and was subject to working capital and other purchase price adjustments as described in the stock purchase agreement. Starplex Cinemas operated 33 theatres with 346 screens in small and mid‑size markets in 12 states, which further complements the Company’s large market portfolio. The Company expects to realize synergies and cost savings related to this acquisition as a result of purchasing and procurement economies of scale and general and administrative expense savings, particularly with respect to the consolidation of corporate related functions and elimination of redundancies.

The acquisition is being treated as a purchase in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations, which requires allocation of the purchase price to the estimated fair values of assets and liabilities acquired in the transaction. The allocation of purchase price is based on management’s judgment after evaluating several factors, including bid prices from potential buyers and a preliminary valuation assessment. The allocation of purchase price is preliminary and subject to changes as an appraisal of both tangible and intangible assets and liabilities is finalized, working capital and other purchase price adjustments are completed and additional information regarding the tax bases of assets and liabilities becomes available. The following is a summary of a preliminary allocation of the purchase price:

8


 

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

    

December 31, 2015

 

Changes

 

September 30, 2016

 

Cash

 

$

2,119

 

$

400

 

$

2,519

 

Receivables

 

 

2,001

 

 

(140)

 

 

1,861

 

Other current assets

 

 

4,806

 

 

(178)

 

 

4,628

 

Property (1)

 

 

50,810

 

 

1,329

 

 

52,139

 

Intangible assets (2)

 

 

21,080

 

 

400

 

 

21,480

 

Goodwill (3)

 

 

116,891

 

 

4,022

 

 

120,913

 

Other long-term assets

 

 

290

 

 

 —

 

 

290

 

Accounts payable

 

 

(4,211)

 

 

 —

 

 

(4,211)

 

Accrued expenses and other liabilities

 

 

(4,689)

 

 

(466)

 

 

(5,155)

 

Deferred revenues and income

 

 

(2,295)

 

 

(172)

 

 

(2,467)

 

Deferred tax liability

 

 

(10,610)

 

 

(5,476)

 

 

(16,086)

 

Other long-term liabilities (4)

 

 

(1,220)

 

 

 —

 

 

(1,220)

 

Total estimated purchase price

 

$

174,972

 

$

(281)

 

$

174,691

 


(1)

Amounts recorded for property include land, buildings, leasehold improvements, furniture, fixtures and equipment.

 

(2)

Amounts recorded for intangible assets includes favorable leases, a non‑compete agreement and trade name.

 

(3)

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

 

(4)

Amounts recorded for other long‑term liabilities consist of an unfavorable lease.

 

The fair value measurement of tangible and intangible assets and liabilities were based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value measurement hierarchy. Level 3 fair market values were determined using a variety of information, including estimated future cash flows, appraisals, and market comparables.

 

In connection with the acquisition of Starplex Cinemas, the Company classified two Starplex Cinemas theatres with 22 screens as held for sale as of December 31, 2015, that were divested in January 2016 as required by the Antitrust Division of the United States Department of Justice. Assets held for sale of approximately $5,390,000 were classified as other current assets in the Company’s Consolidated Balance Sheets at December 31, 2015.

 

Activity of goodwill is presented below:

 

 

 

 

 

 

(In thousands)

    

Total

 

Balance as of December 31, 2015

 

$

2,406,691

 

Adjustments to acquisition of Starplex Cinemas (see table above)

 

 

4,022

 

Balance as of September 30, 2016

 

$

2,410,713

 

 

 

NOTE 3—INVESTMENTS

 

Investments in non-consolidated affiliates and certain other investments accounted for under the equity method generally include all entities in which the Company or its subsidiaries have significant influence, but not more than 50% voting control, and are recorded in the Consolidated Balance Sheets in other long-term assets. Investments in non-consolidated affiliates as of September 30, 2016, include a 17.40% interest in National CineMedia, LLC (“NCM” or “NCM LLC”), a 29% interest in Digital Cinema Implementation Partners, LLC (“DCIP”), a 15.45% interest in Digital Cinema Distribution Coalition, LLC (“DCDC”), a 50% interest in Open Road Releasing, LLC, operator of Open Road Films, LLC (“Open Road Films”), a 32% interest in AC JV, LLC (“AC JV”), owner of Fathom Events, and a 50% interest in two U.S. motion picture theatres and one IMAX screen. Indebtedness held by equity method investees is non-recourse to the Company.

 

RealD Inc. Common Stock.  The Company sold all of its 1,222,780 shares in RealD Inc. during the nine months ended September 30, 2016 and recognized a gain on sale of $3,008,000.  

 

9


 

Table of Contents

Equity in Earnings (Losses) of Non‑Consolidated Entities

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

(In thousands)

    

September 30, 2016

    

September 30, 2015

    

September 30, 2016

    

September 30, 2015

 

Revenues

 

$

161,774

 

$

154,838

 

$

438,775

 

$

433,831

 

Operating costs and expenses

 

 

110,924

 

 

99,850

 

 

321,447

 

 

341,178

 

Net earnings

 

$

50,850

 

$

54,988

 

$

117,328

 

$

92,653

 

 

The components of the Company’s recorded equity in earnings (losses) of non-consolidated entities are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

(In thousands)

    

September 30, 2016

    

September 30, 2015

    

September 30, 2016

    

September 30, 2015

 

National CineMedia, LLC

 

$

3,350

 

$

4,431

 

$

6,202

 

$

3,360

 

Digital Cinema Implementation Partners, LLC

 

 

7,944

 

 

6,253

 

 

20,566

 

 

16,844

 

Open Road Releasing, LLC

 

 

 —

 

 

 —

 

 

 —

 

 

(430)

 

AC JV, LLC

 

 

107

 

 

(243)

 

 

186

 

 

983

 

Other

 

 

629

 

 

409

 

 

1,189

 

 

779

 

The Company’s recorded equity in earnings

 

$

12,030

 

$

10,850

 

$

28,143

 

$

21,536

 

 

 

NCM Transactions.  As of September 30, 2016, the Company owns 23,862,988 common membership units, or a 17.40% interest, in NCM and 200,000 common shares of NCM, Inc. The estimated fair market value of the common units in NCM and the common stock investment in NCM, Inc. was approximately $354,207,000, based on the publically quoted price per share of NCM, Inc. on September 30, 2016 of $14.72 per share.

 

The Company recorded the following transactions with NCM:

 

 

 

 

 

 

 

 

 

 

 

As of

 

As of

 

(In thousands)

    

September 30, 2016

    

December 31, 2015

 

Due from NCM for on-screen advertising revenue

 

$

1,585

 

$

2,406

 

Due to NCM for Exhibitor Services Agreement

 

 

763

 

 

1,226

 

Promissory note payable to NCM

 

 

5,555

 

 

5,555

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

(In thousands)

   

September 30, 2016

   

September 30, 2015

   

September 30, 2016

   

September 30, 2015

 

Other theatre revenues:

 

 

 

 

 

 

 

 

 

 

 

Net NCM screen advertising revenues

 

$

10,441

 

$

8,756

 

$

31,123

 

$

26,727

 

Operating expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

NCM beverage advertising expense

 

 

1,532

 

 

1,321

 

 

4,516

 

 

6,836

 

 

 

10


 

Table of Contents

The Company recorded the following changes in the carrying amount of its investment in NCM and equity in losses of NCM during the nine months ended September 30, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

    

Accumulated

    

 

    

 

    

 

 

 

 

 

 

 

 

Exhibitor

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

Investment

 

Services

 

Comprehensive

 

Cash

 

Equity in

 

Advertising

 

(In thousands)

 

in NCM(1)

 

Agreement(2)

 

(Income)

 

Received

 

Earnings

 

(Revenue)

 

Ending balance at December 31, 2015

 

$

327,471

 

$

(377,599)

 

$

(4,014)

 

 

 

 

 

 

 

 

 

 

Receipt of excess cash distributions 

 

 

(13,703)

 

 

 —

 

 

 —

 

$

13,703

 

$

 —

 

$

 —

 

Reclassify book value of NCM, Inc. shares

 

 

408

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Amortization of deferred revenue

 

 

 —

 

 

13,766

 

 

 —

 

 

 —

 

 

 —

 

 

(13,766)

 

Equity in earnings and loss from amortization of basis difference (3)(4)

 

 

6,202

 

 

 —

 

 

 —

 

 

 —

 

 

(6,202)

 

 

 —

 

For the period ended or balance as of September 30, 2016

 

$

320,378

 

$

(363,833)

 

$

(4,014)

 

$

13,703

 

$

(6,202)

 

$

(13,766)

 

 


(1)

The following table represents AMC’s investment in common membership units including units received under the Common Unit Adjustment Agreement dated as of February 13, 2007:

 

 

 

 

 

 

 

 

    

Common

 

 

 

Membership Units

 

 

    

Tranche 1

    

Tranche 2 (a)

 

Beginning balance at December 31, 2012

 

17,323,782

 

 —

 

Additional units received in June 30, 2013

 

 —

 

1,728,988

 

Additional units received in June 30, 2014

 

 —

 

141,731

 

Additional units received in June 30, 2015

 

 —

 

469,163

 

Additional units received in December 31, 2015

 

 —

 

4,399,324

 

Units exchanged for NCM, Inc. shares in December 2015

 

 —

 

(200,000)

 

Ending balance at September 30, 2016

 

17,323,782

 

6,539,206

 


(a)

The additional units received in June 2013, June 2014, June 2015 and December 2015 were measured at fair value (Level 1) using NCM, Inc.’s stock price of $15.22,  $15.08,  $14.52 and $15.75, respectively.

 

(2)

Represents the unamortized portion of the Exhibitor Services Agreement (“ESA”) with NCM. Such amounts are being amortized to other theatre revenues over the remainder of the 30 year term of the ESA ending in 2036, using a units‑of‑revenue method, as described in ASC 470‑10‑35 (formerly EITF 88‑18, Sales of Future Revenues).

 

(3)

Represents percentage ownership of NCM’s earnings on both Tranche 1 and Tranche 2 Investments.

 

(4)

Certain differences between the Company’s carrying value and the Company’s share of NCM’s membership equity have been identified and are amortized to equity in earnings over the respective lives of the assets and liabilities.

 

During the nine months ended September 30, 2016 and September 30, 2015, the Company received payments of $7,218,000 and $5,352,000, respectively, related to the NCM tax receivable agreement. The receipts are recorded in investment income, net of related amortization for the NCM tax receivable agreement intangible asset.

 

DCIP Transactions.  The Company pays equipment rent monthly and records the equipment rental expense on a straight‑line basis over 12 years.

 

The Company recorded the following transactions with DCIP:

 

 

 

 

 

 

 

 

 

 

 

As of

    

As of

 

(In thousands)

    

September 30, 2016

    

December 31, 2015

 

 

 

 

 

 

 

Due from DCIP for equipment and warranty purchases

 

$

1,943

 

$

1,460

 

Deferred rent liability for digital projectors

 

 

8,495

 

 

8,725

 

 

 

11


 

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

(In thousands)

   

September 30, 2016

   

September 30, 2015

   

September 30, 2016

   

September 30, 2015

Operating expense:

 

 

 

 

 

 

 

 

 

 

Digital equipment rental expense

 

$

1,375

 

$

1,350

 

$

3,839

 

$

4,026

 

 

Open Road Films Transactions.  During the three and nine months ended September 30, 2016 and September 30, 2015, the Company continued to suspend equity method accounting for its investment in Open Road Films as the investment in Open Road Films had reached the Company’s remaining capital commitment. On April 1, 2016, the Company funded $3,000,000 of the capital commitment, on June 1, 2016, funded $1,750,000 of the capital commitment, on June 22, 2016, funded $1,750,000 of the capital commitment and on July 1, 2016, funded the remaining $3,500,000 of the capital commitment. The Company’s share of cumulative losses from Open Road Films in excess of the Company’s capital commitment was $34,122,000 as of September 30, 2016 and $14,422,000 as of December 31, 2015.

 

The Company recorded the following transactions with Open Road Films:

 

 

 

 

 

 

 

 

 

 

 

As of

 

As of

 

(In thousands)

    

September 30, 2016

    

December 31, 2015

 

Due from Open Road Films

 

$

4,394

 

$

2,472

 

Film rent payable to Open Road Films

 

 

1,313

 

 

1,061

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

(In thousands)

  

September 30, 2016

  

September 30, 2015

  

September 30, 2016

  

September 30, 2015

 

Film exhibition costs:

 

 

 

 

 

 

 

 

 

 

Gross film exhibition cost on Open Road Films

 

$

1,400

 

$

660

 

$

7,100

 

$

4,100

 

 

AC JV Transactions.    The Company recorded the following transactions with AC JV:

 

 

 

 

 

 

 

 

 

 

 

As of

    

As of

 

(In thousands)

    

September 30, 2016

    

December 31, 2015

 

Due from AC JV

 

$

42

 

$

109