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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 June 30, 2019

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: (913213-2000

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.

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Class A common stock

AMC

New York Stock Exchange

Title of each class of common stock

   

Number of shares
outstanding as of August 2, 2019

Class A common stock
Class B common stock

52,080,077

51,769,784

Table of Contents

AMC ENTERTAINMENT HOLDINGS, INC.

INDEX

Page
Number

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

3

Condensed Consolidated Statements of Operations

3

Condensed Consolidated Statements of Comprehensive Income (Loss)

4

Condensed Consolidated Balance Sheets

5

Condensed Consolidated Statements of Cash Flows

6

Notes to Condensed Consolidated Financial Statements

8

Item 2.

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

48

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

71

Item 4.

Controls and Procedures

72

PART II—OTHER INFORMATION

Item 1.

Legal Proceedings

73

Item 1A.

Risk Factors

73

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

73

Item 3.

Defaults Upon Senior Securities

73

Item 5.

Other Information

73

Item 6.

Exhibits

74

Signatures

75

2

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements. (Unaudited)

AMC ENTERTAINMENT HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

Six Months Ended

(in millions, except share and per share amounts)

    

June 30, 2019

    

June 30, 2018

    

June 30, 2019

    

June 30, 2018

(unaudited)

(unaudited)

Revenues

Admissions

$

895.5

$

896.3

$

1,627.0

$

1,771.3

Food and beverage

 

492.5

 

445.8

 

861.3

 

851.6

Other theatre

 

118.1

 

100.4

 

218.2

 

203.2

Total revenues

1,506.1

1,442.5

2,706.5

2,826.1

Operating costs and expenses

Film exhibition costs

482.5

471.4

 

847.8

 

897.9

Food and beverage costs

 

76.4

 

72.2

 

137.9

 

138.4

Operating expense, excluding depreciation and amortization below

 

437.4

 

424.5

 

840.2

 

836.4

Rent

 

245.9

 

199.7

 

487.9

 

389.4

General and administrative:

Merger, acquisition and transaction costs

 

3.2

 

4.3

 

6.5

 

9.0

Other, excluding depreciation and amortization below

 

43.2

 

43.0

 

89.4

 

87.2

Depreciation and amortization

112.0

137.7

225.0

268.2

Operating costs and expenses

 

1,400.6

1,352.8

 

2,634.7

2,626.5

Operating income

105.5

89.7

71.8

199.6

Other expense (income):

Other expense (income)

 

(23.4)

 

2.2

 

6.4

 

3.4

Interest expense:

Corporate borrowings

 

74.2

 

62.2

 

145.5

 

123.9

Capital and financing lease obligations

 

2.1

 

9.8

 

4.2

 

20.1

Non-cash NCM exhibitor services agreement

10.1

10.4

20.3

20.9

Equity in earnings of non-consolidated entities

 

(10.2)

 

(13.0)

 

(16.7)

 

(4.0)

Investment income

 

(2.1)

 

(1.5)

 

(18.2)

 

(6.7)

Total other expense

 

50.7

70.1

 

141.5

157.6

Earnings (loss) before income taxes

 

54.8

19.6

 

(69.7)

42.0

Income tax provision (benefit)

 

5.4

 

(2.6)

 

11.1

2.1

Net earnings (loss)

$

49.4

$

22.2

$

(80.8)

$

39.9

Earnings (loss) per share:

Basic

$

0.48

$

0.17

$

(0.78)

$

0.31

Diluted

$

0.17

$

0.17

$

(0.78)

$

0.31

Average shares outstanding:

Basic (in thousands)

103,845

128,039

103,814

128,042

Diluted (in thousands)

135,528

128,105

103,814

128,042

See Notes to Condensed Consolidated Financial Statements.

3

Table of Contents

AMC ENTERTAINMENT HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended

Six Months Ended

(in millions)

    

June 30, 2019

    

June 30, 2018

    

June 30, 2019

    

June 30, 2018

Net earnings (loss)

$

49.4

$

22.2

$

(80.8)

$

39.9

Other comprehensive income (loss)

Unrealized foreign currency translation adjustment

 

(9.3)

 

(107.6)

 

(34.7)

 

(95.9)

Realized loss on foreign currency transactions reclassified into other expense, net of tax

0.1

1.0

0.6

1.0

Pension and other benefit adjustments:

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

 

0.1

 

(0.4)

 

0.1

 

(1.5)

Equity method investees' cash flow hedge:

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

 

(0.1)

 

 

(0.1)

 

0.2

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

(0.2)

(0.3)

Other comprehensive loss

 

(9.2)

 

(107.2)

 

(34.1)

 

(96.5)

Total comprehensive income (loss)

$

40.2

$

(85.0)

$

(114.9)

$

(56.6)

See Notes to Condensed Consolidated Financial Statements.

4

Table of Contents

AMC ENTERTAINMENT HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In millions, except share data)

    

June 30, 2019

    

December 31, 2018

 

ASSETS

Current assets:

Cash and cash equivalents

$

190.5

$

313.3

Restricted cash

10.7

10.7

Receivables, net

 

228.5

 

259.5

Other current assets

 

160.3

 

197.8

Total current assets

 

590.0

 

781.3

Property, net

 

2,613.9

 

3,039.6

Operating right-of-use assets, net

4,798.9

Intangible assets, net

 

197.6

 

352.1

Goodwill

 

4,763.0

 

4,788.7

Deferred tax asset, net

 

31.1

 

28.6

Other long-term assets

 

520.4

 

505.5

Total assets

$

13,514.9

$

9,495.8

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

423.2

$

452.6

Accrued expenses and other liabilities

 

317.8

 

378.5

Deferred revenues and income

 

369.8

 

414.8

Current maturities of corporate borrowings

 

21.4

 

15.2

Current maturities of finance lease liabilities

10.9

Current maturities of operating lease liabilities

570.8

Current maturities of capital and financing lease obligations

67.0

Total current liabilities

 

1,713.9

 

1,328.1

Corporate borrowings

 

4,713.1

 

4,707.8

Finance lease liabilities

109.4

493.2

Operating lease liabilities

4,852.0

Exhibitor services agreement

 

557.7

 

564.0

Deferred tax liability, net

 

51.7

 

41.6

Other long-term liabilities

 

192.0

 

963.1

Total liabilities

 

12,189.8

 

8,097.8

Commitments and contingencies

Class A common stock (temporary equity) ($.01 par value, 0 shares issued; 0 shares outstanding as of June 30, 2019 and 75,712 shares issued; 38,943 shares outstanding as of December 31, 2018)

 

 

0.4

Stockholders’ equity:

Class A common stock ($.01 par value, 524,173,073 shares authorized; 55,809,037 shares issued and 52,076,412 outstanding as of June 30, 2019; 55,401,325 shares issued and 51,705,469 outstanding as of December 31, 2018)

 

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 June 30, 2019 and December 31, 2018)

 

0.5

 

0.5

Additional paid-in capital

 

2,006.8

 

1,998.4

Treasury stock (3,732,625 shares as of June 30, 2019 and December 31, 2018, at cost)

 

(56.4)

 

(56.4)

Accumulated other comprehensive income (loss)

 

(28.6)

 

5.5

Accumulated deficit

 

(597.7)

 

(550.9)

Total stockholders’ equity

 

1,325.1

 

1,397.6

Total liabilities and stockholders’ equity

$

13,514.9

$

9,495.8

See Notes to Condensed Consolidated Financial Statements.

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AMC ENTERTAINMENT HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

Six Months Ended

June 30, 2019

June 30, 2018

Cash flows from operating activities:

(Unaudited)

Net earnings (loss)

$

(80.8)

$

39.9

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

Depreciation and amortization

225.0

268.2

Deferred income taxes

8.9

(2.0)

Amortization of net discount (premium) on corporate borrowings

5.0

(1.7)

Amortization of deferred charges to interest expense

7.8

7.5

Non-cash portion of stock-based compensation

9.4

6.8

Gain on dispositions

(16.0)

(2.8)

Gain on disposition of NCM

(1.1)

Gain on derivative asset and derivative liability

(12.6)

Loss on repayment of indebtedness

16.6

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

(7.8)

5.4

NCM held-for-sale impairment loss

16.0

Landlord contributions

64.8

72.3

Non-cash rent - purchase accounting

13.4

Deferred rent

(29.4)

(64.7)

Net periodic benefit cost

0.6

0.1

Change in assets and liabilities, excluding acquisitions:

Receivables

32.0

82.3

Other assets

18.6

(6.7)

Accounts payable

(35.7)

(42.0)

Accrued expenses and other liabilities

(64.0)

(79.0)

Other, net

(2.2)

(1.4)

Net cash provided by operating activities

153.6

297.1

Cash flows from investing activities:

Capital expenditures

(229.9)

(241.1)

Proceeds from sale leaseback transactions

50.1

Proceeds from disposition of NCM

7.1

Acquisition of theatre assets

(11.8)

Proceeds from disposition of long-term assets

21.3

13.5

Investments in non-consolidated entities, net

(0.1)

(10.7)

Other, net

(0.8)

(0.4)

Net cash used in investing activities

(221.3)

(181.5)

Cash flows from financing activities:

Proceeds from issuance of Term Loan due 2026

1,990.0

Payment of principal Senior Secured Notes due 2023

(230.0)

Payment of principal Senior Subordinated Notes due 2022

(375.0)

Call premiums paid for Senior Secured Notes due 2023 and Senior Subordinated Notes due 2022

(15.9)

Principal payment of Term Loans due 2022 and 2023

(1,338.5)

Repayments under revolving credit facilities

(12.0)

Scheduled principal payments under Term Loans

(11.9)

(6.9)

Principal payments under capital and financing lease obligations

(6.1)

(35.9)

Cash used to pay for debt financing costs

(11.2)

(2.2)

Cash used to pay dividends

(42.6)

(51.4)

Taxes paid for restricted unit withholdings

(1.3)

(1.7)

Purchase of treasury stock

(19.8)

Net cash used in financing activities

(54.5)

(117.9)

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

(0.6)

11.4

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

(122.8)

9.1

Cash and cash equivalents and restricted cash at beginning of period

324.0

318.3

Cash and cash equivalents and restricted cash at end of period

$

201.2

$

327.4

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the period for:

Interest (including amounts capitalized of $0.4 million and $0.3 million)

$

146.2

$

138.3

Income taxes paid (received), net

$

(2.0)

$

8.4

Schedule of non-cash activities:

Investment in NCM (See Note 5—Investments)

$

1.3

$

(6.3)

Construction payables at period end

$

87.4

$

92.0

Accrued treasury stock payable at period end

$

$

1.9

See Notes to Condensed Consolidated Financial Statements.

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AMC ENTERTAINMENT HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(Unaudited)

NOTE 1—BASIS OF PRESENTATION

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

As of June 30, 2019, Wanda owned approximately 49.85% of Holdings’ outstanding common stock and 74.89% 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Principles of Consolidation: The accompanying unaudited condensed consolidated financial statements include the accounts of 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, 2018. The accompanying condensed consolidated balance sheet as of December 31, 2018, which was derived from audited financial statements, and the unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10–Q. Accordingly, they do not include all of the information and footnotes required by the accounting principles generally accepted in the United States of America for complete consolidated financial statements. In the opinion of management, these interim financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the Company’s financial position and results of operations. All significant intercompany balances and transactions have been eliminated in consolidation. There are no noncontrolling (minority) interests in the Company’s consolidated subsidiaries; consequently, all of its stockholders’ equity, net earnings (loss) and total comprehensive income (loss) for the periods presented are attributable to controlling interests. Due to the seasonal nature of the Company’s business, results for the six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019. 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 $1,626.9 million and $1,697.1 million at June 30, 2019 and December 31, 2018, respectively, related to property. Accumulated amortization of intangible assets was $20.3 million and $72.9 million at June 30, 2019 and December 31, 2018, respectively.

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

Three Months Ended

Six Months Ended

(In thousands)

June 30, 2019

June 30, 2018

June 30, 2019

June 30, 2018

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

$

(33.9)

$

$

(20.6)

$

Derivative asset fair value adjustment for contingent call option related to the Class B common stock purchase and cancellation agreement

(7.1)

8.0

Loss on Pound sterling forward contract

0.7

0.8

1.0

0.4

Foreign currency transactions losses

0.1

1.0

0.6

1.0

Non-operating components of net periodic benefit cost

0.4

0.1

0.5

0.1

Loss on repayment of indebtedness

16.6

16.6

Other

(0.2)

0.3

0.3

1.9

Total other expense (income)

$

(23.4)

$

2.2

$

6.4

$

3.4

Accounting Pronouncements Recently Adopted

Leases.The Company adopted the guidance of ASU No. 2016-02, Leases (“ASC 842”) as of January 1, 2019 using the modified retrospective transition approach with the cumulative effect recognized at the date of initial application. The comparative information in the prior year has not been adjusted and continues to be reported under ASC 840, Leases, which was the accounting standard in effect for that period. ASC 842 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 are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. See Note 2Leases for the required disclosures of the nature, amount, timing, and uncertainty of cash flows arising from leases.

Accounting Pronouncements Issued Not Yet Adopted

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. 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 have the option to apply the guidance prospectively to all implementation costs incurred after the date of adoption or

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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—LEASES

The Company adopted ASC 842 on January 1, 2019 using the modified retrospective transition method; and therefore, the comparative information has not been adjusted for the three months and six months ended June 30, 2018 or as of December 31, 2018. Upon transition to the new standard, the Company elected the package of practical expedients, which permitted the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs.

The Company leases theatres and equipment under operating and finance leases. The majority of the Company’s operations are conducted in premises occupied under lease agreements with initial base terms ranging generally from 12 to 15 years, with certain leases containing options to extend the leases for up to an additional 20 years. The Company typically does not believe that exercise of the renewal options is reasonably assured at the inception of the lease agreements and, therefore, considers the initial base term as the lease term. Lease terms vary but generally the leases provide for fixed and escalating rentals, contingent escalating rentals based on the Consumer Price Index and other indexes not to exceed certain specified amounts and variable rentals based on a percentage of revenues. The Company often receives contributions from landlords for renovations at existing locations. The Company records the amounts received from landlords as an adjustment to the right-of-use asset and amortizes the balance as a reduction to rent expense over the base term of the lease agreement.

Operating lease right-of-use assets and lease liabilities were recognized at commencement date based on the present value of minimum lease payments over the remaining lease term. The minimum lease payments include base rent and other fixed payments, including fixed maintenance costs. The Company’s leases have remaining lease terms of approximately 1 year to 25 years, which may include the option to extend the lease when it is reasonably certain the Company will exercise that option. The present value of the lease payments is calculated using the incremental borrowing rate for operating leases, which was determined using a portfolio approach based on the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. Operating lease expense is recognized on a straight-line basis over the lease term.

The Company elected the practical expedient to not separate lease and non-lease components and also elected the short-term practical expedient for all leases that qualify. As a result, the Company will not recognize right-of-use assets or liabilities for short-term leases that qualify for the short-term practical expedient, but instead will recognize the lease payments as lease cost on a straight-line basis over the lease term. The Company’s lease agreements do not contain residual value guarantees. Short-term leases and sublease arrangements are immaterial. Equipment leases primarily consist of digital projectors and food and beverage equipment.

As a result of adopting ASC 842, the Company’s condensed consolidated balance sheet includes additional operating ROU assets and total operating lease liabilities of $4,798.9 million and $5,422.8 million, respectively, at June 30, 2019. The difference between the ROU assets and total lease liabilities upon initial measurement at January 1, 2019, was primarily due to the reclassification of (i) deferred rent, landlord allowances, unfavorable lease balances, and theatre closure liabilities previously recorded in other long-term liabilities, (ii) current portions of theatre closure liabilities previously recorded in accrued expenses and other liabilities; (iii) favorable lease balances previously recorded in intangible assets; and, (iv) prepaid rents recorded in other current assets within the condensed consolidated balance sheets as an offset or addition to the opening ROU asset balances, as required by ASC 842.

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The following table provides the operating and finance ROU assets and lease liabilities:

(In millions)

Balance Sheet Classification

June 30, 2019

Assets

Operating lease right-of-use assets (1)

Operating lease right-of-use assets

$

4,798.9

Finance lease right-of-use assets (2)

Property, net

92.8

Total leased assets

$

4,891.7

Liabilities

Current

Operating lease liabilities (1)

Current maturities of operating lease liabilities

$

570.8

Finance lease liabilities (2)

Current maturities of finance lease liabilities

10.9

Noncurrent

Operating lease liabilities (1)

Operating lease liabilities

4,852.0

Finance lease liabilities (2)

Finance lease liabilities

109.4

Total lease liabilities

$

5,543.1

(1)Included in the operating right-of-use assets and operating lease liabilities are assets and liabilities for leases related to previous build-to-suit failed sale-leaseback transactions, that were derecognized and recorded as a cumulative effect adjustment to accumulated deficit upon adoption of ASC 842. These leases were classified and remeasured at January 1, 2019 as operating right-of-use assets and operating lease liabilities.

(2)Corresponding with the adoption of ASC 842, the Company renamed previously classified capital lease assets and capital lease obligations under ASC 840 as finance lease right-of-use assets and finance lease liabilities, respectively. The Company recognized the finance lease right-of-use assets and finance lease liabilities on January 1, 2019 at the carrying amount of the capital lease asset and capital lease obligation as of December 31, 2018.

The cumulative effect adjustment to accumulated deficit at January 1, 2019 is as follows:

Accumulated

(In millions)

Deficit

Balance as of December 31, 2018

$

(550.9)

Derecognition of existing assets for certain sale leaseback transactions previously recorded in property, net

(405.9)

Derecognition of existing liabilities for certain sale leaseback transactions previously recorded in current maturities of corporate borrowings and capital and financing lease obligations

427.5

Derecognition of deferred gains from the sale and leaseback transactions previously recorded in other long-term liabilities

102.4

Difference in fair value compared to the basis of the right-of-use assets for previously impaired asset groups

(49.0)

Deferred taxes

1.2

Cumulative effect adjustment to accumulated deficit

76.2

Balance as of January 1, 2019

$

(474.7)

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The following is the impact of the adoption of ASC 842 on the Company’s condensed consolidated statement of operations for the three months ended June 30, 2019:

Three Months Ended June 30, 2019

Without Adoption of

U.S. Markets

International Markets

(In millions)

ASC 842

Adjustments

Adjustments

As Reported

Operating costs and expenses

Rent (1)(2)(4)

$

215.5

$

17.4

$

13.0

$

245.9

Depreciation and amortization (2)(3)

136.0

(13.4)

(10.6)

112.0

Operating costs and expenses

1,394.2

4.0

2.4

1,400.6

Operating income

111.9

(4.0)

(2.4)

105.5

Other expense (income)

Interest expense:

Capital and financing lease obligations (1)

9.0

(3.3)

(3.6)

2.1

Net earnings

48.9

(0.7)

1.2

49.4

(1)Cash rent payments for build-to-suit failed sale leasebacks of $11.0 million and $9.9 million for U.S. markets and International markets, respectively, are accounted for as operating leases under ASC 842 that were previously accounted for as financing leases under ASC 840.

(2)Non-cash amortization expense for favorable lease terms of $4.6 million and $3.1 million, for U.S. markets and international markets, respectively, reclassified to rent expense and amortized over the shorter base lease term under ASC 842.

(3)Depreciation on build-to-suit failed sale leaseback buildings that are eliminated upon adoption of ASC 842.

(4)Amortization of deferred gains on sale leaseback transactions of $1.8 million for U.S. markets is eliminated upon adoption of ASC 842.

The following is the impact of the adoption of ASC 842 on the Company’s condensed consolidated statement of operations for the six months ended June 30, 2019:

Six Months Ended June 30, 2019

Without Adoption of

U.S. Markets

International Markets

(In millions)

ASC 842

Adjustments

Adjustments

As Reported

Operating costs and expenses

Rent (1)(2)(4)

$

427.1

$

34.8

$

26.0

$

487.9

Depreciation and amortization (2)(3)

273.0

(26.8)

(21.2)

225.0

Operating costs and expenses

2,621.9

8.0

4.8

2,634.7

Operating income

84.6

(8.0)

(4.8)

71.8

Other expense (income)

Interest expense:

Capital and financing lease obligations (1)

18.0

(6.6)

(7.2)

4.2

Net loss

(81.8)

(1.4)

2.4

(80.8)

(1)Cash rent payments for build-to-suit failed sale leasebacks of $22.0 million and $19.8 million for U.S. markets and International markets, respectively, are accounted for as operating leases under ASC 842 that were previously accounted for as financing leases under ASC 840.

(2)Non-cash amortization expense for favorable lease terms of $9.2 million and $6.2 million, for U.S. markets and international markets, respectively, reclassified to rent expense and amortized over the shorter base lease term under ASC 842.

(3)Depreciation on build-to-suit failed sale leaseback buildings that are eliminated upon adoption of ASC 842.

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(4)Amortization of deferred gains on sale leaseback transactions of $3.6 million for U.S. markets is eliminated upon adoption of ASC 842.

The following table reflects the lease costs for the three and six months ended June 30, 2019:

Condensed Consolidated

Three Months Ended

Six Months Ended

(In millions)

Statement of Operations

June 30, 2019

June 30, 2019

Operating lease cost

Theatre properties

Rent

$

220.7

$

439.6

Theatre properties

Operating expense

1.2

2.9

Equipment

Operating expense

3.5

7.0

Office and other

General and administrative: other

1.4

2.7

Finance lease cost

Amortization of finance lease assets

Depreciation and amortization

2.5

5.2

Interest on lease liabilities

Finance lease liabilities

2.1

4.2

Variable lease cost

Theatre properties

Rent

25.2

48.3

Equipment

Operating expense

19.1

29.8

Total lease cost

$

275.7