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Section 1: 10-Q (10-Q)

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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, 2018

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No ☐

 

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

 

 

 

 

 

Large accelerated filer ☒

Accelerated filer ☐ 

Non‑accelerated filer ☐

Smaller reporting company ☐

 

Emerging growth company ☐

 

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standard provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  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 31, 2018

  Class A common stock
Class B common stock

 

51,744,412

51,769,784

 

 

 


 

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  Loss

4

 

Consolidated Balance Sheets

5

 

Consolidated Statements of Cash Flows

6

 

Notes to Consolidated Financial Statements

8

Item 2. 

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

54

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

83

Item 4. 

Controls and Procedures

84

 

PART II—OTHER INFORMATION

 

Item 1. 

Legal Proceedings

85

Item 1A. 

Risk Factors

85

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

86

Item 3. 

Defaults Upon Senior Securities

86

Item 4. 

Mine Safety Disclosures

86

Item 5. 

Other Information

86

Item 6. 

Exhibits

87

 

Signatures

88

 

 

 

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Table of Contents

PART I—FINANCIAL INFORMATION

 

Item 1.  Financial Statements. (Unaudited)

 

AMC ENTERTAINMENT HOLDINGS, INC.

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

(in millions, except share and per share amounts)

    

September 30, 2018

    

September 30, 2017

    

September 30, 2018

    

September 30, 2017

 

 

(unaudited)

 

(unaudited)

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Admissions

 

$

751.4

 

$

753.5

 

$

2,522.7

 

$

2,332.4

Food and beverage

 

 

384.8

 

 

361.4

 

 

1,236.4

 

 

1,133.1

Other theatre

 

 

85.2

 

 

63.8

 

 

288.4

 

 

196.9

Total revenues

 

 

1,221.4

 

 

1,178.7

 

 

4,047.5

 

 

3,662.4

Operating costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

Film exhibition costs

 

 

378.8

 

 

364.8

 

 

1,276.7

 

 

1,164.2

Food and beverage costs

 

 

63.6

 

 

60.7

 

 

202.0

 

 

182.6

Operating expense, excluding depreciation and amortization below

 

 

400.5

 

 

383.2

 

 

1,236.9

 

 

1,128.8

Rent

 

 

203.7

 

 

200.7

 

 

593.1

 

 

590.9

General and administrative:

 

 

 

 

 

 

 

 

 

 

 

 

Merger, acquisition and transaction costs

 

 

18.1

 

 

5.6

 

 

27.1

 

 

57.2

Other, excluding depreciation and amortization below

 

 

48.4

 

 

32.6

 

 

135.6

 

 

113.0

Depreciation and amortization

 

 

130.2

 

 

135.2

 

 

398.4

 

 

393.9

Operating costs and expenses

 

 

1,243.3

 

 

1,182.8

 

 

3,869.8

 

 

3,630.6

Operating income (loss)

 

 

(21.9)

 

 

(4.1)

 

 

177.7

 

 

31.8

Other expense (income):

 

 

 

 

 

 

 

 

 

 

 

 

Other expense (income)

 

 

54.1

 

 

(0.4)

 

 

57.5

 

 

(1.9)

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Corporate borrowings

 

 

64.3

 

 

60.8

 

 

188.2

 

 

171.7

Capital and financing lease obligations

 

 

9.4

 

 

10.6

 

 

29.5

 

 

31.7

Non-cash NCM exhibitor services agreement

 

 

10.3

 

 

 —

 

 

31.2

 

 

 —

Equity in (earnings) loss of non-consolidated entities

 

 

(70.0)

 

 

1.8

 

 

(74.0)

 

 

199.1

Investment income

 

 

(0.7)

 

 

(16.6)

 

 

(7.4)

 

 

(21.6)

Total other expense

 

 

67.4

 

 

56.2

 

 

225.0

 

 

379.0

Loss before income taxes

 

 

(89.3)

 

 

(60.3)

 

 

(47.3)

 

 

(347.2)

Income tax provision (benefit)

 

 

11.1

 

 

(17.6)

 

 

13.2

 

 

(136.4)

Net loss

 

$

(100.4)

 

$

(42.7)

 

$

(60.5)

 

$

(210.8)

Loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.82)

 

$

(0.33)

 

$

(0.48)

 

$

(1.65)

Diluted

 

$

(0.82)

 

$

(0.33)

 

$

(0.48)

 

$

(1.65)

Average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic (in thousands)

 

 

123,126

 

 

131,077

 

 

126,386

 

 

127,902

Diluted (in thousands)

 

 

123,126

 

 

131,077

 

 

126,386

 

 

127,902

 

See Notes to Consolidated Financial Statements.

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AMC ENTERTAINMENT HOLDINGS, INC.

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

(in millions)

    

September 30, 2018

    

September 30, 2017

    

September 30, 2018

    

September 30, 2017

Net earnings (loss)

 

$

(100.4)

 

$

(42.7)

 

$

(60.5)

 

$

(210.8)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized foreign currency translation adjustment, net of tax

 

 

(5.7)

 

 

34.4

 

 

(101.6)

 

 

109.3

Realized loss on foreign currency transactions, net of tax

 

 

 —

 

 

 —

 

 

1.0

 

 

 —

Pension and other benefit adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

0.1

 

 

 —

 

 

(1.3)

 

 

 —

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

 

 

 —

 

 

 —

 

 

 —

 

 

(0.5)

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 —

 

 

0.2

 

 

 —

 

 

0.5

Realized net gain reclassified into investment income, net of tax

 

 

 —

 

 

 —

 

 

 —

 

 

(0.1)

Equity method investees' cash flow hedge:

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 —

 

 

0.1

 

 

0.2

 

 

 —

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

 

 

(1.9)

 

 

(1.0)

 

 

(2.2)

 

 

(0.9)

Other comprehensive income (loss)

 

 

(7.5)

 

 

33.7

 

 

(103.9)

 

 

108.3

Total comprehensive loss

 

$

(107.9)

 

$

(9.0)

 

$

(164.4)

 

$

(102.5)

 

 

See Notes to Consolidated Financial Statements.

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AMC ENTERTAINMENT HOLDINGS, INC.

 

CONSOLIDATED BALANCE SHEETS

 

(Unaudited)

 

 

 

 

 

 

 

 

 

(In millions, except share data)

    

September 30, 2018

    

December 31, 2017

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

333.3

 

$

310.0

 

Restricted cash

 

 

11.0

 

 

8.3

 

Receivables, net

 

 

155.2

 

 

271.5

 

Assets held for sale

 

 

 —

 

 

80.0

 

Other current assets

 

 

187.0

 

 

202.6

 

Total current assets

 

 

686.5

 

 

872.4

 

Property, net

 

 

3,028.6

 

 

3,116.5

 

Intangible assets, net

 

 

359.3

 

 

380.5

 

Goodwill

 

 

4,820.8

 

 

4,931.7

 

Deferred tax asset, net

 

 

29.5

 

 

28.9

 

Other long-term assets

 

 

438.3

 

 

475.9

 

Total assets

 

$

9,363.0

 

$

9,805.9

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

395.1

 

$

569.6

 

Accrued expenses and other liabilities

 

 

387.1

 

 

351.1

 

Deferred revenues and income

 

 

293.2

 

 

401.0

 

Current maturities of corporate borrowings and capital and financing lease obligations

 

 

83.0

 

 

87.7

 

Total current liabilities

 

 

1,158.4

 

 

1,409.4

 

Corporate borrowings

 

 

4,840.3

 

 

4,220.1

 

Capital and financing lease obligations

 

 

516.7

 

 

578.9

 

Exhibitor services agreement

 

 

567.7

 

 

530.9

 

Deferred tax liability, net

 

 

44.3

 

 

49.6

 

Other long-term liabilities

 

 

980.7

 

 

903.8

 

Total liabilities

 

 

8,108.1

 

 

7,692.7

 

Commitments and contingencies

 

 

 

 

 

 

 

Class A common stock (temporary equity) ($.01 par value, 75,712 shares issued; 38,943 shares outstanding as of September 30, 2018 and 112,817 shares issued; 76,048 shares outstanding as of December 31, 2017)

 

 

0.4

 

 

0.8

 

Stockholders’ equity:

 

 

 

 

 

 

 

Class A common stock ($.01 par value, 524,173,073 shares authorized; 55,401,325 shares issued and 51,705,469 outstanding as of September 30, 2018; 55,010,160 shares issued and 51,814,304 outstanding as of December 31, 2017)

 

 

0.5

 

 

0.5

 

Class B common stock ($.01 par value, 75,826,927 shares authorized; 51,769,784 shares issued and outstanding as of September 30, 2018 and 75,826,927 shares authorized; 75,826,927 shares issued and outstanding as of December 31, 2017)

 

 

0.5

 

 

0.8

 

Additional paid-in capital

 

 

1,994.5

 

 

2,241.6

 

Treasury stock (3,732,625 shares as of September 30, 2018 and 3,232,625 shares as of December 31, 2017, at cost)

 

 

(56.4)

 

 

(48.2)

 

Accumulated other comprehensive income

 

 

26.0

 

 

125.6

 

Accumulated deficit

 

 

(710.6)

 

 

(207.9)

 

Total stockholders’ equity

 

 

1,254.5

 

 

2,112.4

 

Total liabilities and stockholders’ equity

 

$

9,363.0

 

$

9,805.9

 

 

See Notes to Consolidated Financial Statements.

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Table of Contents

AMC ENTERTAINMENT HOLDINGS, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(in millions)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30, 2018

 

September 30, 2017

Cash flows from operating activities:

 

(Unaudited)

Net loss

 

$

(60.5)

 

$

(210.8)

Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

398.4

 

 

393.9

Loss on NCM charged to merger, acquisition and transaction costs

 

 

 —

 

 

22.6

Loss on extinguishment of debt

 

 

 —

 

 

0.5

Deferred income taxes

 

 

(3.5)

 

 

(137.9)

Amortization of net premium on corporate borrowings

 

 

(2.1)

 

 

(1.9)

Amortization of deferred charges to interest expense

 

 

11.5

 

 

9.2

Theatre and other closure expense

 

 

3.1

 

 

1.1

Non-cash portion of stock-based compensation

 

 

10.9

 

 

3.9

Gain on dispositions

 

 

(2.9)

 

 

(4.5)

(Gain) loss on disposition of NCM

 

 

(30.0)

 

 

22.2

Gain on sale of Open Road

 

 

 —

 

 

(17.2)

Loss on derivative liability

 

 

54.1

 

 

 —

Repayment of Nordic interest rate swaps

 

 

 —

 

 

(2.7)

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

 

 

(32.4)

 

 

(0.1)

NCM held-for-sale impairment loss

 

 

16.0

 

 

204.5

Landlord contributions

 

 

100.1

 

 

76.4

Deferred rent

 

 

(81.3)

 

 

(35.2)

Net periodic benefit cost

 

 

0.5

 

 

0.6

Change in assets and liabilities, excluding acquisitions:

 

 

 

 

 

 

Receivables

 

 

117.1

 

 

104.5

Other assets

 

 

8.9

 

 

(3.1)

Accounts payable

 

 

(191.0)

 

 

(116.3)

Accrued expenses and other liabilities

 

 

(13.5)

 

 

(71.9)

Other, net

 

 

(4.6)

 

 

(8.2)

Net cash provided by operating activities

 

 

298.8

 

 

229.6

Cash flows from investing activities:

 

 

 

 

 

 

Capital expenditures

 

 

(374.9)

 

 

(467.7)

Acquisition of Nordic Cinemas Group, net of cash and restricted cash acquired

 

 

 —

 

 

(577.6)

Acquisition of Carmike Cinemas, Inc., net of cash and restricted cash acquired

 

 

 —

 

 

0.1

Proceeds from sale leaseback transactions

 

 

50.1

 

 

128.4

Proceeds from disposition of NCM

 

 

162.5

 

 

89.4

Proceeds from Screenvision merger

 

 

45.8

 

 

 —

Proceeds from disposition of Open Road

 

 

 —

 

 

9.2

Proceeds from disposition of long-term assets

 

 

13.9

 

 

22.5

Investments in non-consolidated entities, net

 

 

(11.0)

 

 

(10.0)

Other, net

 

 

(0.7)

 

 

(3.6)

Net cash used in investing activities

 

 

(114.3)

 

 

(809.3)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from issuance of Senior Unsecured Convertible Notes due 2024

 

 

600.0

 

 

 —

Proceeds from issuance of Senior Subordinated Sterling Notes due 2024

 

 

 —

 

 

327.8

Proceeds from issuance of Senior Subordinated Notes due 2027

 

 

 —

 

 

475.0

Payment of Nordic SEK Term Loan

 

 

 —

 

 

(144.4)

Payment of Nordic EUR Term Loan

 

 

 —

 

 

(169.5)

Net proceeds from equity offering

 

 

 —

 

 

616.8

Borrowings (repayments) under revolving credit facilities

 

 

6.6

 

 

60.0

Principal payment of Bridge Loan due 2017

 

 

 —

 

 

(350.0)

Principal payments under Term Loan

 

 

(10.3)

 

 

(9.1)

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Principal payments under capital and financing lease obligations

 

 

(53.5)

 

 

(54.1)

Cash used to pay for deferred financing costs

 

 

(14.3)

 

 

(29.8)

Cash used to pay dividends

 

 

(237.4)

 

 

(78.7)

Taxes paid for restricted unit withholdings

 

 

(1.7)

 

 

(6.5)

Retirement of Class B common stock

 

 

(422.9)

 

 

 —

Purchase of treasury stock

 

 

(21.8)

 

 

(16.5)

Net cash provided by (used in) financing activities

 

 

(155.3)

 

 

621.0

Effect of exchange rate changes on cash and cash equivalents and restricted cash

 

 

(3.2)

 

 

19.9

Net increase (decrease) in cash and cash equivalents and restricted cash

 

 

26.0

 

 

61.2

Cash and cash equivalents and restricted cash at beginning of period

 

 

318.3

 

 

230.2

Cash and cash equivalents and restricted cash at end of period

 

$

344.3

 

$

291.4

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Interest (including amounts capitalized of $0.4 million and $0.2 million)

 

$

175.1

 

$

161.5

Income taxes paid, net

 

$

9.9

 

$

9.6

Schedule of non-cash activities:

 

 

 

 

 

 

Investment in NCM (See Note 5-Investments)

 

$

(6.3)

 

$

235.2

Construction payables at period end

 

$

102.3

 

$

106.7

 

See Notes to Consolidated Financial Statements.

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AMC ENTERTAINMENT HOLDINGS, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

September 30, 2018

 

(Unaudited)

 

NOTE 1—BASIS OF PRESENTATION

 

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

 

As of September 30, 2018, Wanda owned approximately 50.01% of Holdings’ outstanding common stock and 75.01% 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 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. Significant estimates and assumptions are used for, but not limited to: (1) Impairments, (2) Income and operating taxes, (3) Fair value of acquired assets and liabilities, and (4) 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 year ended December 31, 2017. The accompanying consolidated balance sheet as of December 31, 2017, 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, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2018. The Company manages its business under two reportable segments for its theatrical exhibition operations, U.S. markets and International markets.

 

Accumulated depreciation and amortization:  Accumulated depreciation was $1,587.4 million and $1,266.9 million at September 30, 2018 and December 31, 2017, respectively, related to property. Accumulated amortization of intangible assets was $68.5 million and $55.5 million at September 30, 2018 and December 31, 2017, respectively.

 

Leases:  During the nine months ended September 30, 2018, the Company modified the terms of an existing operating lease to reduce the lease term. The Company received a $35.0 million incentive from the landlord to enter into the new lease agreement. The Company has recorded amortization of the lease incentive as a reduction to rent expense on a straight-line basis over the remaining lease term which reduced rent expense by $35.0 million during the nine 

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months ended September 30, 2018.

 

Sale and Leaseback Transaction: On June 18, 2018, the Company completed the sale and leaseback of the real estate assets associated with one theatre for proceeds, net of closing costs of $50.1 million. The gain on the sale of approximately $27.3 million has been deferred and will be amortized over the remaining lease term.

 

Presentation:  Certain reclassifications have been made to the prior period financial statements to conform to the current year presentation.

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

(In thousands)

 

September 30, 2018

 

September 30, 2017

 

September 30, 2018

 

September 30, 2017

Derivative liability fair value adjustment for embedded conversion feature in the Convertible Notes due 2024

 

$

54.1

 

$

 —

 

$

54.1

 

$

 —

Loss on GBP forward contract

 

 

 —

 

 

 —

 

 

0.4

 

 

 —

Foreign currency transactions (gains) losses

 

 

 —

 

 

(0.4)

 

 

1.1

 

 

(3.2)

Non-operating components of net periodic benefit cost

 

 

 —

 

 

0.2

 

 

0.1

 

 

0.4

Loss on extinguishment of Bridge Loan

 

 

 —

 

 

 —

 

 

 —

 

 

0.4

Fees related to modification of term loans

 

 

0.4

 

 

 —

 

 

0.4

 

 

1.0

Other

 

 

(0.4)

 

 

(0.2)

 

 

1.4

 

 

(0.5)

Other expense (income)

 

$

54.1

 

$

(0.4)

 

$

57.5

 

$

(1.9)

 

Accounting Pronouncements Recently Adopted    

 

Revenue from Contracts with Customers. The Company adopted the guidance of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, (“ASC 606”) as of January 1, 2018 using the modified retrospective method. ASC 606 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of accumulated deficit. ASC 606 was applied only to contracts that were not completed at January 1, 2018. The comparative information in the prior year has not been adjusted and continues to be reported under ASC 605, Revenue Recognition, which was the accounting standard in effect for those periods. See Note 2—Revenue for the required disclosures of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers per the guidance in ASC 606.

 

Reclassification of Certain Tax Effects. In February 2018, the FASB issued ASU No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”), which allows a reclassification from accumulated other comprehensive income to accumulated deficit for stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act signed into law in December 2017. ASU 2018-02 is effective for the Company on January 1, 2019 and early adoption of the amendments is permitted, including adoption in any interim period. The Company early adopted ASU 2018-02, effective January 1, 2018, and recorded a reclassification related to the stranded tax effects that increased accumulated other comprehensive income and increased accumulated deficit by $5.0 million in the consolidated balance sheets as of January 1, 2018. See Note 8—Income Taxes for further information.

Modification Accounting for Stock-Based Compensation. In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”), which amends the scope of modification accounting for share-based payment arrangements and provides guidance on the types of changes to the terms or conditions of the share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. The amendments in ASU 2017-09 should be applied prospectively to an award modified on or after the adoption date. The Company adopted ASU 2017-09 on January 1, 2018 and will apply the guidance in ASU 2017-09 to any future changes to the terms or conditions of stock-based payment awards should they

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occur. The Company’s adoption of ASU 2017-09 did not have an impact on its consolidated financial statements.

Improving Presentation of Net Benefit Costs. In March 2017, the FASB issued ASU No. 2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”). The guidance requires the service cost component of defined benefit pension plans and other post-retirement benefit plans to be reported in the same line item as other compensation costs arising from the services rendered by the pertinent employees while the other components of net benefit cost are required to be presented in the income statement separately from the service cost component and reported outside a subtotal of operating income. The amendments in this guidance should be applied retrospectively for the presentation of the service cost component and the other components of net benefit cost in the consolidated statements of operations. The Company adopted ASU 2017-07 effective January 1, 2018 and recorded a prior period adjustment for the three and nine months ended September 30, 2017 in the consolidated statements of operations to decrease general and administrative other by $0.3 million and $0.6 million, respectively, related to the other components of net benefit cost, with a corresponding increase to other expense (income) of $0.3 million and decrease to other income of $0.6 million, respectively. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

Restricted Cash in Statement of Cash Flows. In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (A Consensus of the FASB Emerging Issues Task Force) (“ASU 2016-18”). ASU 2016-18 requires that restricted cash be included with cash and cash equivalents when reconciling the beginning and end-of-period total amounts shown on the statement of cash flows. This guidance must be applied retrospectively to all periods presented. The Company adopted ASU 2016-18 effective January 1, 2018 and the prior period has been adjusted to conform to the current period presentation. This guidance also requires a new disclosure to reconcile the cash balances within the consolidated statement of cash flows to the consolidated balance sheets. The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the amounts shown in the consolidated statements of cash flows:

 

 

 

 

 

 

 

 

(In millions)

 

September 30, 2018

 

December 31, 2017

Cash and cash equivalents

 

$

333.3

 

$

310.0

Restricted cash

 

 

11.0

 

 

8.3

Total cash and cash equivalents and restricted cash shown in the consolidated statements of cash flows

 

$

344.3

 

$

318.3

 

Classification of certain cash receipts and cash payments. In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). The amendments in this update provide guidance on eight specific cash flow classification issues. The update provides specific guidance on each of the eight issues, thereby reducing the diversity in practice in how certain transactions are classified in the statement of cash flows. The Company adopted ASU 2016-15 on January 1, 2018 and made an election to continue using the “nature of the distribution approach” to classify distributions received from equity method investments. The adoption of this guidance did not have an impact on the Company’s consolidated statements of cash flows.

 

Classification and measurement of financial instruments. In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments –  Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 amends various aspects of the recognition, measurement, presentation, and disclosure of financial instruments. The amendments require that equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) are to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The Company adopted ASU 2016-01 on January 1, 2018 and recorded a decrease to accumulated other comprehensive income of $0.6 million, net of tax, related to the unrealized gains on available-for-sale securities that are equity instruments with a corresponding decrease to accumulated deficit in the consolidated balance sheets as of the beginning of the year. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

 

Stockholders’ equity disclosure.  On August 17, 2018, the Securities and Exchange Commission adopted

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amendments to certain disclosure requirements in Securities Act Release No. 33-10532, Disclosure Update and Simplification. Disclosures are required to be provided for the current and comparative quarter and year-to-date interim periods. The amendments are effective for all filings made on or after November 5, 2018. The Company adopted this disclosure requirement during the third quarter of 2018. See Note 7 - Stockholders’ Equity for the consolidated statements of stockholders’ equity disclosure.

 

Accounting Pronouncements Issued Not Yet Adopted 

 

Leases.  In February 2016, the FASB issued ASU No. 2016-02, Leases, (“ASC 842”) which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The new standard is effective for the Company on January 1, 2019, with early adoption permitted. The Company plans to adopt the guidance on January 1, 2019, using a modified retrospective transition approach with the cumulative effect recognized at the date of initial application, whereby comparative prior period financial information and disclosures will not be adjusted to reflect the new standard. In January 2018, the FASB issued ASU No. 2018-01, Leases, which permits an entity to elect an optional transition practical expedient to not evaluate under ASU 842 land easements that exist or expired before the entity’s adoption of ASC 842 and that were not previously accounted for as leases.

 

The Company expects that this standard will have a material effect on its consolidated financial statements. While the Company is continuing to assess the effect of adoption, the Company currently believes the most significant changes relate to (1) the recognition of new ROU assets and lease liabilities on its balance sheet for theatres currently subject to operating leases; (2) the derecognition of existing assets and liabilities for certain sale-leaseback transactions (those arising from build-to-suit lease arrangements for which construction is complete and the Company is leasing the constructed asset) that currently do not qualify for sale accounting and the recognition of new ROU assets and operating lease liabilities on its balance sheet; and (3) providing new disclosures about the Company’s leasing activities. On January 1, 2019, the Company expects to recognize additional operating liabilities ranging from an estimated $5 billion to $7 billion, with corresponding ROU assets of the same amount based on the present value of the remaining minimum rental payments for the Company’s existing operating leases. The Company has not finalized the effects of these expected changes from the new standard and expects that this estimated range of impact will narrow as the Company continues its assessment of the adoption of ASC 842. The Company does not expect a significant change in its leasing activity between now and adoption.

 

Financial Instruments.  In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which provides new guidance regarding the measurement and recognition of credit impairment for certain financial assets. Such guidance will impact how the Company determines its allowance for estimated uncollectible receivables and evaluates its available-for-sale investments for impairment. ASU 2016-13 is effective for the Company in the first quarter of 2020, with early adoption permitted in the first quarter of 2019. The Company is currently evaluating the effect that ASU 2016-13 will have on its consolidated financial statements and related disclosures.

 

Fair Value Measurement. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework–Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which eliminates, adds, and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for the Company in the first quarter of 2020. Early adoption is permitted. The Company is currently evaluating the effect that ASU 2018-13 will have on its fair value measurement disclosures.

 

Cloud Computing Arrangement. In August 2018, the FASB issued ASU 2018-15, Intangibles–Goodwill and Other–Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU 2018-15 requires a customer in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation, setup, and other upfront costs to capitalize as assets or expense as incurred. ASU 2018-15 is effective for the Company in the first quarter of 2020. Early adoption is permitted. Entities

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have the option to apply the guidance prospectively to all implementation costs incurred after the date of adoption or retrospectively in accordance with ASC 250-10-45. The Company is currently evaluating the effect that ASU 2018-15 will have on its consolidated financial statements.

 

 

 

 

NOTE 2—REVENUE RECOGNITION

 

The Company adopted ASC 606 on January 1, 2018 using the modified retrospective method; and therefore, the comparative information has not been adjusted for the three and nine months ended September 30, 2017.

 

The cumulative effect of the changes made to the consolidated balance sheet at January 1, 2018 for the adoption of ASC 606, are included in the following table:

 

 

 

 

 

 

 

 

 

 

 

(In millions)

 

Balance at
December 31, 2017 Without Adoption of ASC 606

 

Adjustments Due to ASC 606

 

Balance at
January 1, 2018

Assets:

 

 

 

 

 

 

 

 

 

Other long-term assets

 

$

475.9

 

$

11.1

 

$

487.0

Current liabilities:

 

 

 

 

 

 

 

 

 

Deferred revenues and income

 

 

401.0

 

 

(10.0)

 

 

391.0

Long-term liabilities:

 

 

 

 

 

 

 

 

 

Exhibitor services agreement

 

 

530.9

 

 

52.9

 

 

583.8

Stockholders' equity:

 

 

 

 

 

 

 

 

 

Accumulated deficit

 

 

(207.9)

 

 

(31.8)

 

 

(239.7)

 

The disclosure of the impact of the adoption of ASC 606 on the Company’s consolidated statement of operations is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2018

(In millions)

 

Without Adoption of ASC 606

 

Adjustments

 

As Reported

Revenues:

 

 

 

 

 

 

 

 

 

Admissions

 

$

751.7

 

$

(0.3)

 

$

751.4

Food and beverage

 

 

384.9

 

 

(0.1)

 

 

384.8

Other theatre

 

 

73.9

 

 

11.3

 

 

85.2

Total revenues

 

 

1,210.5

 

 

10.9

 

 

1,221.4

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

Operating expense, excluding depreciation and amortization

 

 

395.2

 

 

5.3

 

 

400.5

Non-cash interest expense related to NCM exhibitor service agreement

 

 

 —

 

 

10.3

 

 

10.3

Net loss

 

 

(95.7)

 

 

(4.7)

 

 

(100.4)

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Nine Months Ended September 30, 2018

(In millions)

 

Without Adoption of ASC 606

 

Adjustments

 

As Reported

Revenues:

 

 

 

 

 

 

 

 

 

Admissions

 

$

2,523.7

 

$

(1.0)

 

$

2,522.7

Food and beverage

 

 

1,236.7

 

 

(0.3)

 

 

1,236.4

Other theatre

 

 

252.3

 

 

36.1

 

 

288.4

Total revenues

 

 

4,012.7

 

 

34.8

 

 

4,047.5

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

Operating expense, excluding depreciation and amortization

 

 

1,216.4

 

 

20.5

 

 

1,236.9

Non-cash interest expense related to NCM exhibitor service agreement

 

 

 —

 

 

31.2

 

 

31.2

Net loss

 

 

(43.6)

 

 

(16.9)

 

 

(60.5)

 

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 recognized 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 100% of the revenue associated with the sales of gift cards and exchange tickets until such time as the items are redeemed or estimated income from non-redemption is recorded.

 

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 12% to 18% of the current month sales, and the Company recognizes in other theatre revenues the total amount of expected income for non-redemption for that current month’s sales as income over the next 24 months in proportion to the pattern of actual redemptions. The Company has determined its non-redeemed rates and redemption patterns using data accumulated over ten years. Prior to January 1, 2018, income for non-redeemed exchange tickets were recognized 18 months after purchase when the redemption of these items was determined to be remote. At January 1, 2018, the Company changed its method for recognizing income from non-redeemed exchange tickets to the proportional method, where it applies a non-redemption rate of 10% to the current month sales, and the Company recognizes the total amount of income for that current month’s sales as income over the next 24 months in proportion to the pattern of actual redemptions. Management believes the 24-month estimate is supported by its continued development of redemption history and that it is reflective of management’s current best estimate. The adoption of the proportional method of recognizing income from non-redeemed exchange tickets did not have a material impact on the Company’s consolidated financial statements.

 

Prior to January 1, 2018, the Company recorded online ticket fee revenues net of third-party commission or service fees. In accordance with ASC 606 guidance, the Company believes that it 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 it is transferred to the customer. Upon adoption of ASC 606 on January 1, 2018, the Company recognizes ticket fee revenues based on a gross transaction price. 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. These changes did not have any impact on net income or cash flows from operations.

 

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 ESA with NCM includes a significant financing component due to the significant length of time between receiving the noncash 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 adoption of ASC 606, the Company’s advertising revenues have significantly increased 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. Upon adoption of ASC 606 and 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 

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the back-end recognition of the deferred revenue amortization where more revenue is recognized later in the term of the agreement. See Note 5—Investments for further information regarding the common unit adjustment and the fair value measurement of the noncash consideration. The interest expense was calculated using discount rates that ranged from 6.5% to 8.5%, which are the rates at which the Company believes it could borrow in separate financing transactions. The Company recognized a cumulative effect transition adjustment of initially applying ASC 606 by increasing accumulated deficit on January 1, 2018 by approximately $52.9 million, including income tax effect of $0, as a result of this change. These changes did not have any impact on the Company’s cash flows from operations.

 

Customer Frequency Program: AMC Stubs® is a customer loyalty program which allows members to earn rewards, receive discounts and participate in exclusive members-only offerings and services. In July 2016, the Company completed a national relaunch of its AMC Stubs® loyalty program featuring both a traditional paid tier called AMC Stubs PremiereTM and a new non-paid tier called AMC Stubs InsiderTM. Both programs reward loyal guests for their patronage of AMC Theatres. The AMC Stubs InsiderTM tier rewards guests for simply coming to the movies, and benefits include free refills on certain food items, discount ticket offers, a birthday gift and 20 reward points earned for every dollar spent. For a $15.00 annual membership fee, AMC Stubs PremiereTM members enjoy express service with specially marked shorter lines at the box office and concession stand, free size upgrades on certain food and beverage items, discount ticket offers, a birthday gift, discounted online ticketing fees and 100 reward points for every dollar spent. Some of the rewards earned are redeemable on future purchases at AMC locations. Once an AMC Stubs PremiereTM or AMC Stubs InsiderTM member accumulates 5,000 points they will earn a $5.00 virtual reward.

 

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. Converted rewards not redeemed within nine months are forfeited and recognized as admissions or food and beverage revenues. Prior to January 1, 2018, rewards for expired memberships were forfeited based upon specified periods of inactivity of the membership and recognized as admissions or food and beverage revenues. As of January 1, 2018, the Company changed its method for recognizing forfeited rewards from the remote method to the proportional method, where 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.

 

Disaggregation of RevenueRevenue is disaggregated in the following tables by major revenue types and by timing of revenue recognition:

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

(In millions)

 

September 30, 2018

 

September 30, 2018

Major revenue types

 

 

 

 

Admissions

 

$

751.4

 

$

2,522.7

Food and beverage

 

 

384.8

 

 

1,236.4

Other theatre:

 

 

 

 

 

 

Advertising

 

 

31.2

 

 

102.5

Other theatre

 

 

54.0

 

 

185.9

Other theatre

 

 

85.2

 

 

288.4

        Total revenues

 

$

1,221.4

 

$

4,047.5

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

(In millions)

 

September 30, 2018

 

September 30, 2018

Timing of revenue recognition

 

 

 

 

Products and services transferred at a point in time

 

$

1,162.4

 

$

3,891.8

Products and services transferred over time (1)

 

 

59.0

 

 

155.7

        Total revenues

 

$

1,221.4

 

$

4,047.5


(1)

Amounts primarily include advertising revenues.

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The following tables provide the balances of receivables and deferred revenue income: 

 

 

 

 

 

 

 

 

(In millions)

 

September 30, 2018

 

December 31, 2017

Current assets:

 

 

 

 

 

 

Receivables related to contracts with customers

 

$

74.3

 

$

204.3

Miscellaneous receivables

 

 

80.9

 

 

67.2

        Receivables, net

 

$

155.2

 

$

271.5

 

 

 

 

 

 

 

 

(In millions)

 

September 30, 2018

 

December 31, 2017

Current liabilities:

 

 

 

 

 

 

Deferred revenue related to contracts with customers

 

$

288.6

 

$

376.1

Miscellaneous deferred income

 

 

4.6

 

 

24.9

        Deferred revenue and income

 

$

293.2

 

$

401.0

 

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 as of December 31, 2017

 

$

376.1

Cumulative effect of initially applying ASC 606

 

 

(10.0)

Cash received in advance (1)

 

 

285.6

Customer loyalty rewards accumulated, net of expirations:

 

 

 

Admission revenues (2)

 

 

21.8

Food and beverage (2)

 

 

39.1

Other theatre (2)

 

 

3.9

Reclassification to revenue as the result of performance obligations satisfied:

 

 

 

Admission revenues (3)

 

 

(304.0)

Food and beverage (3)

 

 

(61.5)

Other theatre (4)

 

 

(61.6)

Business combination - Nordic purchase price allocation (5)

 

 

(2.3)

Foreign currency translation adjustment

 

 

1.5

Balance as of September 30, 2018

 

$

288.6


(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.  

(5)

See Note 3 – Acquisitions for further information.

 

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The significant changes to contract liabilities included in the exhibitor services agreement, classified as long-term liabilities in the consolidated balance sheets, are as follows:

 

 

 

 

 

 

 

Exhibitor Services

(In millions)

 

Agreement

Balance as of December 31, 2017

 

$

530.9

Cumulative effect of initially applying ASC 606

 

 

52.9

Common Unit Adjustment – surrender of common units (1)

 

 

(5.2)

Reclassification of the beginning balance to other theatre revenue, as the result of performance obligations satisfied

 

 

(10.9)

Balance as of September 30, 2018

$

567.7


(1)

Represents the fair value amount of the NCM common units that were surrendered due to the annual Common Unit Adjustment. Such amount will reduce the deferred revenues that are being amortized to other theatre revenues over the remainder of the 30-year term of the ESA ending in February 2037. See Note 5—Investments for further information.

 

Transaction Price Allocated to the Remaining Performance Obligations:  The following table includes the amount of NCM ESA, included in deferred revenues and income 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 September 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In millions)

 

Three Months Ended December 31, 2018

 

Year Ended
2019

 

Year Ended
2020

 

Year Ended
2021

 

Year Ended
2022

 

Years Ended
2023
through
February 2037

Exhibitor services agreement

 

$     

3.7

 

$

15.7

 

$

16.8

 

$

18.1

 

$

19.4

 

$

494.0

 

The total amount of non-redeemed gifts cards and exchange tickets included in deferred revenues and income as of September 30, 2018 was $220.8 million. This will be recognized as revenues as the gift cards and exchange tickets are redeemed or as the non-redeemed gift card and exchange ticket revenues are recognized in proportion to the pattern of actual redemptions, which is estimated to occur over the next 24 months.

 

As of September 30, 2018, the amount of deferred revenue allocated to the AMC Stubs® loyalty programs included in deferred revenues and income was $45.6 million. The earned points will be recognized as revenue as the points are redeemed, which is estimated to occur over the next 24 months. The annual membership fee is recognized ratably over the one-year membership period.

 

The Company applies the practical expedient in ASC 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less.

 

 

NOTE 3—ACQUISITIONS

 

Nordic Cinema Group Holding AB

 

On March 28, 2017, the Company completed the acquisition of Nordic Cinema Group Holding AB (“Nordic”) for cash. The purchase price for Nordic was approximately SEK 5,756 million ($654.9 million), which includes payment of interest on the equity value and repayment of shareholder loans. As a result of the acquisition, the Company assumed the indebtedness of Nordic of approximately SEK 1,269 million ($144.4 million) and indebtedness of approximately €156 million ($169.5 million) as of March 28, 2017, which was refinanced subsequent to the acquisition. The Company also assumed approximately SEK 13.5 million ($1.6 million) and approximately €1.0 million ($1.1 million) of interest rate swaps related to the indebtedness which were repaid following the acquisition. All amounts have been converted into US Dollar amounts assuming an SEK/USD exchange rate of 0.11378 and an EUR/USD exchange rate of 1.0865, which were the exchange rates on March 27, 2017.

 

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Table of Contents

The acquisition is being treated as a purchase in accordance with Accounting Standards Codification Topic 805, Business Combinations (“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 a valuation assessment. The Company finalized the appraisals for both tangible and intangible assets and liabilities during the three months ended March 31, 2018. The following is a summary of the final allocation of the purchase price:

 

 

 

 

 

 

 

 

 

 

 

(In millions)

    

March 28, 2017

    

Changes

    

March 31, 2018

Cash

 

$

70.5

 

$

0.9

 

$

71.4

Restricted cash

 

 

 —

 

 

5.9

 

 

5.9

Receivables

 

 

25.0

 

 

(11.6)

 

 

13.4

Other current assets

 

 

14.0

 

 

9.6

 

 

23.6

Property (1)

 

 

89.8

 

 

43.4

 

 

133.2

Intangible assets (1) (2)

 

 

 —

 

 

22.1

 

 

22.1

Goodwill (3)

 

 

872.1

 

 

(79.2)

 

 

792.9

Deferred tax asset

 

 

5.5

 

 

(4.6)

 

 

0.9

Other long-term assets (6)

 

 

41.0

 

 

34.2

 

 

75.2

Accounts payable

 

 

(30.3)

 

 

0.1

 

 

(30.2)

Accrued expenses and other liabilities

 

 

(26.5)

 

 

(9.6)

 

 

(36.1)

Deferred revenues and income

 

 

(43.5)

 

 

2.3

 

 

(41.2)

Term Loan Facility (SEK)

 

 

(144.4)

 

 

 —

 

 

(144.4)

Term Loan Facility (EUR)

 

 

(169.5)

 

 

 —

 

 

(169.5)

Capital lease and financing lease obligations (1)(4)

 

 

(29.2)

 

 

19.2

 

 

(10.0)

Deferred tax liability

 

 

(5.2)

 

 

(13.5)

 

 

(18.7)

Other long-term liabilities (5)