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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 March 31, 2020

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 June 2, 2020

Class A common stock
Class B common stock

52,549,593

51,769,784

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EXPLANATORY NOTE

AMC Entertainment Holdings, Inc., (the “Company”), is filing this Form 10-Q for the period ended March 31, 2020 after the May 11, 2020 deadline in reliance on the 45-day extension provided by the Securities and Exchange Commission’s Order Under Section 36 of the Securities Exchange Act of 1934, as amended (the “Exchange Act” Modifying Exemptions from the Reporting Delivery Requirements for Public Companies dated March 25, 2020 (Release No. 34-88465) (the “Order”) due to the circumstances related to the COVID-19 pandemic. COVID-19 has created substantial disruption in the Company’s operations including the suspension of all theatre operations worldwide resulting in the cessation of essentially all revenues. As a result, all corporate-level employees have been either fully or partially furloughed, significantly limiting the resources available to prepare the Form 10-Q. Furthermore, to the extent corporate-level employees continue to work, they are working from home which has decreased efficiency in fulfilling the tasks necessary to complete the Form 10-Q. Due to these operational challenges, the Company could not file this Form 10-Q within the time period specified under the Exchange Act. Pursuant to the requirements of the Order, the Company filed a Form 8-K with the SEC on April 29, 2020 indicating its intention to rely upon the Order with respect to the filing of this Form 10-Q which is being filed within the 45-day extension period provided by the Order.

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 Loss

4

Condensed Consolidated Balance Sheets

5

Condensed Consolidated Statements of Cash Flows

6

Notes to Condensed Consolidated Financial Statements

7

Item 2.

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

37

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

59

Item 4.

Controls and Procedures

60

PART II—OTHER INFORMATION

Item 1.

Legal Proceedings

61

Item 1A.

Risk Factors

61

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

62

Item 3.

Defaults Upon Senior Securities

63

Item 5.

Other Information

63

Item 6.

Exhibits

64

Signatures

65

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements. (Unaudited)

AMC ENTERTAINMENT HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

(In millions, except share and per share amounts)

    

March 31, 2020

    

March 31, 2019

(unaudited)

Revenues

Admissions

$

568.0

$

731.5

Food and beverage

 

288.1

 

368.8

Other theatre

 

85.4

 

100.1

Total revenues

941.5

1,200.4

Operating costs and expenses

Film exhibition costs

271.7

365.3

Food and beverage costs

 

53.4

 

61.5

Operating expense, excluding depreciation and amortization below

 

356.9

 

402.8

Rent

 

237.8

 

242.0

General and administrative:

Merger, acquisition and other costs

 

0.2

 

3.3

Other, excluding depreciation and amortization below

 

33.2

 

46.2

Depreciation and amortization

122.5

113.0

Impairment of long-lived assets, indefinite-lived intangible assets and goodwill

 

1,851.9

 

Operating costs and expenses

 

2,927.6

1,234.1

Operating loss

(1,986.1)

(33.7)

Other expense (income):

Other expense

 

26.9

 

29.8

Interest expense:

Corporate borrowings

 

71.3

 

71.3

Finance lease obligations

 

1.6

 

2.1

Non-cash NCM exhibitor services agreement

9.9

10.2

Equity in (earnings) loss of non-consolidated entities

 

2.9

 

(6.5)

Investment expense (income)

 

9.4

 

(16.1)

Total other expense, net

 

122.0

90.8

Loss before income taxes

 

(2,108.1)

(124.5)

Income tax provision

 

68.2

 

5.7

Net loss

$

(2,176.3)

$

(130.2)

Loss per share:

Basic

$

(20.88)

$

(1.25)

Diluted

$

(20.88)

$

(1.25)

Average shares outstanding:

Basic (in thousands)

104,245

103,783

Diluted (in thousands)

104,245

103,783

See Notes to Condensed Consolidated Financial Statements.

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AMC ENTERTAINMENT HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Three Months Ended

(In millions)

    

March 31, 2020

    

March 31, 2019

(unaudited)

Net loss

$

(2,176.3)

$

(130.2)

Other comprehensive loss:

Unrealized foreign currency translation adjustments

 

(93.6)

 

(25.4)

Realized loss on foreign currency transactions reclassified into other expense

0.5

Pension adjustments:

Realized net loss reclassified into other expense, net of tax

 

0.1

 

0.1

Equity method investee's cash flow hedge:

Unrealized net holding loss arising during the period

 

 

(0.1)

Other comprehensive loss

 

(93.5)

 

(24.9)

Total comprehensive loss

$

(2,269.8)

$

(155.1)

See Notes to Condensed Consolidated Financial Statements.

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AMC ENTERTAINMENT HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In millions, except share data)

    

March 31, 2020

    

December 31, 2019

 

ASSETS

Current assets:

Cash and cash equivalents

$

299.8

$

265.0

Restricted cash

10.0

10.5

Receivables, net

 

126.8

 

254.2

Other current assets

 

115.2

 

143.4

Total current assets

 

551.8

 

673.1

Property, net

 

2,520.4

 

2,649.2

Operating lease right-of-use assets, net

4,602.3

4,796.0

Intangible assets, net

 

175.1

 

195.3

Goodwill

 

2,938.0

 

4,789.1

Deferred tax asset, net

 

0.5

 

70.1

Other long-term assets

 

450.2

 

503.0

Total assets

$

11,238.3

$

13,675.8

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

337.1

$

543.3

Accrued expenses and other liabilities

 

263.0

 

324.6

Deferred revenues and income

 

400.3

 

449.2

Current maturities of corporate borrowings

 

20.0

 

20.0

Current maturities of finance lease liabilities

10.2

10.3

Current maturities of operating lease liabilities

581.5

585.8

Total current liabilities

 

1,612.1

 

1,933.2

Corporate borrowings

 

5,020.8

 

4,733.4

Finance lease liabilities

85.0

89.6

Operating lease liabilities

4,784.3

4,913.8

Exhibitor services agreement

 

550.4

 

549.7

Deferred tax liability, net

 

47.7

 

46.0

Other long-term liabilities

 

212.0

 

195.9

Total liabilities

 

12,312.3

 

12,461.6

Commitments and contingencies

Stockholders’ equity:

Class A common stock ($.01 par value, 524,173,073 shares authorized; 56,282,218 shares issued and 52,549,593 outstanding as of March 31, 2020; 55,812,702 shares issued and 52,080,077 outstanding as of December 31, 2019)

 

0.5

 

0.5

Class B common stock ($.01 par value, 51,769,784 shares authorized, issued and outstanding as of March 31, 2020 and December 31, 2019)

 

0.5

 

0.5

Additional paid-in capital

 

2,003.6

 

2,001.9

Treasury stock (3,732,625 shares as of March 31, 2020 and December 31, 2019, at cost)

 

(56.4)

 

(56.4)

Accumulated other comprehensive loss

 

(119.6)

 

(26.1)

Accumulated deficit

 

(2,902.6)

 

(706.2)

Total stockholders’ equity (deficit)

 

(1,074.0)

 

1,214.2

Total liabilities and stockholders’ equity

$

11,238.3

$

13,675.8

See Notes to Condensed Consolidated Financial Statements.

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AMC ENTERTAINMENT HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

(In millions)

March 31, 2020

March 31, 2019

Cash flows from operating activities:

(unaudited)

Net loss

$

(2,176.3)

$

(130.2)

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

Depreciation and amortization

122.5

113.0

Deferred income taxes

71.2

4.1

Impairment of long-lived assets, indefinite-lived intangible assets and goodwill

1,851.9

Amortization of net discount on corporate borrowings

3.1

2.2

Amortization of deferred charges to interest expense

4.1

4.4

Non-cash portion of stock-based compensation

2.7

4.0

Gain on dispositions

(1.0)

(12.9)

Loss on derivative asset and derivative liability

19.6

28.4

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

11.2

Landlord contributions

16.1

35.2

Other non-cash rent

2.3

7.6

Deferred rent

(18.3)

(18.1)

Net periodic benefit cost

0.3

0.1

Change in assets and liabilities:

Receivables

129.4

68.3

Other assets

29.2

14.5

Accounts payable

(169.8)

(76.7)

Accrued expenses and other liabilities

(105.7)

(48.0)

Other, net

23.5

5.5

Net cash provided by (used in) operating activities

(184.0)

1.4

Cash flows from investing activities:

Capital expenditures

(91.7)

(114.8)

Proceeds from disposition of long-term assets

3.4

17.3

Investments in non-consolidated entities, net

(0.1)

Other, net

0.9

(0.9)

Net cash used in investing activities

(87.4)

(98.5)

Cash flows from financing activities:

Borrowings (repayments) under revolving credit facilities

325.1

(3.8)

Scheduled principal payments under Term Loans

(5.0)

(3.4)

Principal payments under finance lease obligations

(2.3)

(3.8)

Cash used to pay for deferred financing costs

(0.1)

Cash used to pay dividends

(4.3)

(21.8)

Taxes paid for restricted unit withholdings

(1.0)

(1.1)

Net cash provided by (used in) financing activities

312.4

(33.9)

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

(6.7)

2.2

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

34.3

(128.8)

Cash and cash equivalents and restricted cash at beginning of period

275.5

324.0

Cash and cash equivalents and restricted cash at end of period

$

309.8

$

195.2

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the period for:

Interest (including amounts capitalized of $0.3 million for both periods)

$

34.6

$

38.1

Income taxes paid, net

$

1.7

$

2.5

Schedule of non-cash activities:

Investment in NCM

$

4.5

$

1.4

Construction payables at period end

$

58.4

$

83.8

See Notes to Condensed Consolidated Financial Statements.

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AMC ENTERTAINMENT HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited)

NOTE 1—BASIS OF PRESENTATION

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

As of March 31, 2020, Wanda owned approximately 49.63% of Holdings’ outstanding common stock and 74.72% 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 transactions.

Temporarily Suspended Operations. As of or before March 17, 2020, the Company temporarily suspended all theatre operations in its U.S. markets and International markets in compliance with local, state, and federal governmental restrictions and recommendations on social gatherings to prevent the spread of COVID-19 and as a precaution to help ensure the health and safety of the Company’s guests and theatre staff. As a result of these temporarily suspended operations, the Company’s revenues and expenses for the three months ended March 31, 2020 are significantly lower than the revenues and expenses for the three months ended March 31, 2019. The Company will continue to monitor this situation closely and remain flexible on reopening its theatres in accordance with the Centers for Disease Control and Prevention and governmental directives.

Liquidity. In response to the COVID-19 pandemic, the Company has taken and is continuing to take significant steps to preserve cash by eliminating non-essential costs, including reductions to executive compensation and elements of its fixed cost structure:

Suspended non-essential operating expenditures, including marketing & promotional and travel and entertainment expenses; and where possible, for example: utilities, reduced essential operating expenditures to minimum levels necessary while theatres are closed.
Terminated or deferred all non-essential capital expenditures to minimum levels necessary while theatres are closed.
Implemented measures to reduce corporate-level employment costs, including full or partial furloughs of all corporate-level Company employees, including senior executives, with individual work load and salary reductions ranging from 20% to 100%; cancellation of pending annual merit pay increases; and elimination or reduction of non-healthcare benefits.
All domestic theatre-level crew members have been fully furloughed and theatre-level management has been reduced to the minimum level necessary to begin resumption of operations when permitted. Similar efforts to reduce theatre-level and corporate employment costs are being undertaken internationally consistent with applicable laws across the jurisdictions in which the Company operates.
Working with the Company’s landlords, vendors, and other business partners to manage, defer, and/or abate the related rent expenses and operating expenses during the disruptions caused by the COVID-19 pandemic.
Introduced an active cash management process, which, among other things, requires senior management approval of all outgoing payments.
The Company does not expect to continue dividend payments which, when considered in tandem with the dividend decrease of $0.17 per share paid in the first quarter of 2020 when compared to the dividend payments made in the first quarter of 2019, results in aggregate quarterly cash savings of $17.5 million.
The Company does not expect to make purchases under its recently authorized stock repurchase program for the duration of 2020.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed

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into law. The CARES Act provides opportunities for additional liquidity, loan guarantees, and other government programs to support companies affected by the COVID-19 pandemic and their employees. Based on the Company’s preliminary analysis of the CARES Act, the Company expects to recognize the following benefits:

Approximately $18.5 million of cash tax refunds from overpayments and refundable alternative minimum tax credits with the filing of the Company’s 2019 federal tax return, amending 2018 state tax returns and filing 2019 state tax returns in which the Company expects a refund.
Deferral of social security payroll tax matches that would otherwise be required in 2020.
Receipt of a payroll tax credit in 2020 for expenses related to paying wages and health benefits to employees who are not working as a result of temporarily suspended operations and reduced receipts associated with COVID-19.

The Company intends to seek any available potential benefits under the CARES Act, including loans, investments or guarantees, and any other such current or future government programs for which the Company qualifies domestically and internationally, including those described above. The Company cannot predict the manner in which such benefits will be allocated or administered, and the Company cannot assure the reader that it will be able to access such benefits in a timely manner or at all.

The Company believes its cash balance as of March 31, 2020 was sufficient to withstand a global suspension of operations until a partial reopening in July 2020. After giving effect to the proceeds of $500.0 million received from the issuance of the 10.5% first lien notes due 2025 (the “First Lien Notes due 2025”) on April 24, 2020, existing cash and cash equivalents and cash generated from operations upon reopening, the Company may have sufficient liquidity to fund operations and essential capital expenditures for the next 12 months. Further, as discussed in Note 14—Subsequent Events, the Company’s lenders have granted relief from the maintenance covenants in the revolving credit agreements and the Company believes it will maintain compliance with all financial debt covenants for the next 12 months. Therefore, the Company believes it has the cash resources to reopen its theatres and resume operations this summer or later. The Company’s liquidity needs thereafter will depend, among other things, on the timing of a full resumption of operations, the timing of movie releases and its ability to generate revenues.

While the Company has used its best estimates based on currently available information, the Company cannot assure the reader that its assumptions used to estimate its liquidity requirements will be correctincluding but not limited to attendance, food and beverage revenues, rent relief, cost savings, and capital expendituresbecause the Company has never previously experienced a complete cessation of its operations, and as a consequence, its ability to be predictive is uncertain. If the Company does not recommence operations within its estimated timeline, the Company will require additional capital and may also require additional financing if, for example, its operations do not generate the expected revenues or a recurrence of COVID-19 were to cause another suspension of operations. Such additional financing may not be available on favorable terms or at all. Due to these factors, substantial doubt exists about the Company’s ability to continue as a going concern for a reasonable period of time.

Use of Estimates. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Principles of Consolidation. The accompanying unaudited condensed consolidated financial statements include the accounts of AMC, as discussed above, and should be read in conjunction with the Company’s Annual Report on Form 10–K for the year ended December 31, 2019. The accompanying condensed consolidated balance sheet as of December 31, 2019, which was derived from audited financial statements, and the unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10–Q. Accordingly, they do not include all of the information and footnotes required by the accounting principles generally accepted in the United States of America for complete consolidated financial statements. In the opinion of management, these interim financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the Company’s financial position and results of operations. All significant intercompany balances and transactions have been eliminated in consolidation. There are no noncontrolling 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 and the suspension of operations at all the Company’s theatres due to the COVID-19 pandemic, results for the three months

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ended March 31, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020. The Company manages its business under two reportable segments for its theatrical exhibition operations, U.S. markets and International markets.

Accumulated other comprehensive loss. The following table presents the change in accumulated other comprehensive loss by component:

Pension and

 

Foreign

Other

 

(In millions)

    

Currency

    

Benefits

    

Total

 

Balance December 31, 2019

$

(8.8)

$

(17.3)

$

(26.1)

Other comprehensive loss before reclassifications

 

(93.6)

 

 

(93.6)

Amounts reclassified from accumulated other comprehensive loss

 

 

0.1

 

0.1

Balance March 31, 2020

$

(102.4)

$

(17.2)

$

(119.6)

Accumulated depreciation and amortization. Accumulated depreciation was $1,937.4 million and $1,820.1 million at March 31, 2020 and December 31, 2019, respectively, related to property. Accumulated amortization of intangible assets was $23.7 million and $22.8 million at March 31, 2020 and December 31, 2019, respectively.

Other expense. The following table sets forth the components of other expense:

Three Months Ended

(In thousands)

March 31, 2020

March 31, 2019

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

$

(0.5)

$

13.3

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

20.1

15.1

Credit losses related to contingent lease guarantees

5.3

Loss on Pound sterling forward contract

0.3

Foreign currency transactions losses

2.0

0.5

Non-operating components of net periodic benefit cost

0.1

Fees related to modification of term loans

0.2

Other

0.3

Total other expense

$

26.9

$

29.8

Impairments. The following table summarizes the Company’s assets that were impaired:

Three Months Ended

March 31,

March 31,

(In millions)

    

2020

    

2019

Impairment of long-lived assets

$

91.3

$

Impairment of indefinite-lived intangible assets

8.3

Impairment of definite-lived intangible assets

8.0

Impairment of goodwill (1)

1,744.3

Investment expense

7.2

Total impairment loss

$

1,859.1

$

(1)See Note 4Goodwill for information regarding goodwill impairment.

The Company evaluates definite-lived and indefinite-lived intangible assets for impairment annually or more frequently as specific events or circumstances dictate or changes in circumstances indicate that the carrying amount of the asset group may not be fully recoverable.

During the three months ended March 31, 2020, the Company recorded non-cash impairment of long-lived assets of $81.4 million on 57 theatres in the U.S. markets with 658 screens (in Alabama, Arkansas, California, District of Columbia, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Missouri, Montana, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Pennsylvania, South Dakota, Tennessee, Texas, Washington, Wisconsin and Wyoming) and $9.9 million on 23 theatres in the International markets with 213 screens (in Germany, Italy, Spain, UK and Sweden). During the three months ended March 31, 2020, the Company

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recorded impairment losses related to definite-lived intangible assets of $8.0 million. In addition, the Company recorded an impairment loss of $7.2 million within investment expense (income), related to equity interest investments without a readily determinable fair value accounted for under the cost method.

During the three months ended March 31, 2020, the Company performed a quantitative impairment evaluation of its indefinite-lived intangible assets related to the AMC, Odeon and Nordic tradenames and recorded impairment charges of $5.9 million related to Odeon tradenames and $2.4 million related to Nordic tradenames during the three months ended March 31, 2020. To estimate fair value of the Company’s indefinite-lived trade names, the Company employed a derivation of the Income Approach known as the Royalty Savings.

Accounting Pronouncements Recently Adopted

Financial Instruments. In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which provides new guidance regarding the measurement and recognition of credit impairment for certain financial assets. Such guidance impacts how the Company determines its allowance for estimated uncollectible receivables and also contingent lease guarantees, where the Company remains contingently liable for lease payments under certain leases of theatres that it previously divested, in the event that such assignees are unable to fulfill their future lease payment obligations. ASU 2016-13 was effective for the Company in the first quarter of 2020. The Company recognized the cumulative effect upon adoption of the new standard related to credit losses for contingent lease guarantees of $16.9 million. See Note 11—Commitments and Contingencies for further information regarding contingent lease guarantees. The adoption impact on the Company’s allowance for estimated uncollectible receivables was immaterial as of January 1, 2020 and March 31, 2020. The cumulative effect of adoption was recorded to accumulated deficit under the modified retrospective adoption method.

Fair Value Measurement. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which eliminates, adds, and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. Entities are no longer required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but are required to disclose the range and weighted average used to develop significant observable inputs for Level 3 fair value measurements. The fair value measurement disclosure requirements of ASU 2018-13 was effective for the Company in the first quarter of 2020. See Note 9—Fair Value Measurements for the required disclosures for Level 3 fair value measurements.

Cloud Computing Arrangement. In August 2018, the FASB issued ASU 2018-15, Intangibles–Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU 2018-15 requires a customer in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation, setup, and other upfront costs to capitalize as assets or expense as incurred. ASU 2018-15 was effective for the Company in the first quarter of 2020. Entities have the option to apply the guidance prospectively to all implementation costs incurred after the date of adoption or retrospectively in accordance with ASC 250-10-45. The Company adopted ASU 2018-15 prospectively and the adoption of ASU 2018-15 did not have a material impact on the Company’s consolidated financial statements and related disclosures.

Accounting Pronouncements Issued Not Yet Adopted

Income Taxes. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to improve consistency and simplify several areas of existing guidance. ASU 2019-12 removes certain exceptions to the general principles related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also clarifies the accounting for transactions that result in a step-up in the tax basis for goodwill. ASU 2019-12 is effective for the Company in the first quarter of 2021. Early adoption is permitted. The Company is currently evaluating the effect that ASU 2019-12 will have on its consolidated financial statements.

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NOTE 2—LEASES

The Company leases theatres and equipment under operating and finance leases. The Company typically does not believe that exercise of the renewal options is reasonably 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. Equipment leases primarily consist of digital projectors and food and beverage equipment.

The following table reflects the lease costs for the three months ended March 31, 2020 and March 31, 2019:

Three Months Ended

(In millions)

Consolidated Statement of Operations

March 31, 2020

March 31, 2019

Operating lease cost

Theatre properties

Rent

$

216.9

$

218.9

Theatre properties

Operating expense

2.2

1.7

Equipment

Operating expense

3.9

3.5

Office and other

General and administrative: other

1.3

1.3

Finance lease cost

Amortization of finance lease assets

Depreciation and amortization

1.9

2.7

Interest expense on lease liabilities

Finance lease obligations

1.6

2.1

Variable lease cost

Theatre properties

Rent

20.9

23.0

Equipment

Operating expense

7.0

10.7

Total lease cost

$

255.7

$

263.9

Cash flow and supplemental information is presented below:

Three Months Ended

(In millions)

March 31, 2020

March 31, 2019

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows used in finance leases

$

(1.6)

$

(2.1)

Operating cash flows used in operating leases (1)

(240.3)

(236.0)

Financing cash flows used in finance leases

(2.3)

(3.8)

Landlord contributions:

Operating cashflows provided by operating leases

16.1

35.2

Supplemental disclosure of noncash leasing activities:

Right-of-use assets obtained in exchange for new operating lease liabilities (2)

69.7

21.0

(1)Reflects contractual amounts due to be paid in cash. For the three months ended March 31, 2020, the Company deferred cash payments of $17.5 million of these amounts, which are included in the condensed consolidated statements of cash flows as part of the change in accounts payable.
(2)Includes lease extensions and option exercises.

The following table represents the weighted-average remaining lease term and discount rate as of March 31, 2020:

As of March 31, 2020

Weighted Average

Weighted Average

Remaining

Discount

Lease Term and Discount Rate

Lease Term (years)

Rate

Operating leases

10.0

7.2%

Finance leases

12.7

6.5%

As of March 31, 2020, the Company had signed additional operating lease agreements for 9 theatres that have

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not yet commenced of approximately $194.9 million, which are expected to commence between 2020 and 2023, and carry lease terms of approximately 5 to 25 years. The timing of lease commencement is dependent on the landlord providing the Company with control and access to the related facility.

NOTE 3—REVENUE RECOGNITION

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

Three Months Ended

Three Months Ended

(In millions)

March 31, 2020

March 31, 2019

Major revenue types

Admissions

$

568.0

$

731.5

Food and beverage

288.1

368.8

Other theatre:

Advertising

29.7

34.5

Other theatre

55.7

65.6

Other theatre

85.4

100.1

Total revenues

$

941.5

$

1,200.4

Three Months Ended

(In millions)

March 31, 2020

March 31, 2019

Timing of revenue recognition

Products and services transferred at a point in time

$

851.8

$

1,110.0

Products and services transferred over time (1)

89.7

90.4

Total revenues

$

941.5

$

1,200.4

(1)Amounts primarily include subscription and advertising revenues.

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

(In millions)

March 31, 2020

December 31, 2019

Current assets:

Receivables related to contracts with customers

$

29.4

$

160.3

Miscellaneous receivables

97.4

93.9

Receivables, net

$

126.8

$

254.2

(In millions)

March 31, 2020

December 31, 2019

Current liabilities:

Deferred revenue related to contracts with customers

$

396.4

$

447.1

Miscellaneous deferred income

3.9

2.1

Deferred revenue and income

$

400.3

$

449.2

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The significant changes in contract liabilities with customers included in deferred revenues and income are as follows:

Deferred Revenues

Related to Contracts

(In millions)

with Customers

Balance December 31, 2019

$

447.1

Cash received in advance (1)

71.3

Customer loyalty rewards accumulated, net of expirations:

Admission revenues (2)

4.8

Food and beverage (2)

12.5

Other theatre (2)

(0.2)

Reclassification to revenue as the result of performance obligations satisfied:

Admission revenues (3)

(89.5)

Food and beverage (3)

(23.8)

Other theatre (4)

(21.2)

Foreign currency translation adjustment

(4.6)

Balance March 31, 2020

$

396.4

(1)Includes movie tickets, food and beverage, gift cards, exchange tickets, and AMC Stubs® loyalty membership fees.

(2)Amount of rewards accumulated, net of expirations, that are attributed to AMC Stubs® and other loyalty programs.

(3)Amount of rewards redeemed that are attributed to gift cards, exchange tickets, movie tickets, AMC Stubs® loyalty programs and other loyalty programs.

(4)Amounts relate to income from non-redeemed or partially redeemed gift cards, non-redeemed exchange tickets, AMC Stubs® loyalty membership fees and other loyalty programs.

The Company suspended the recognition of deferred revenues related to certain loyalty programs, gift cards, and exchange tickets during the period in which its operations are temporarily suspended.

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

Exhibitor Services

(In millions)

Agreement

Balance December 31, 2019

$

549.7

Common Unit Adjustment–additions of common units (1)

4.8

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

(4.1)

Balance March 31, 2020

$

550.4

(1)Represents the fair value amount of the National CineMedia, LLC (“NCM”) common units that were received under the annual Common Unit Adjustment (“CUA”). Such amount will increase the deferred revenues that are being amortized to other theatre revenues over the remainder of the 30-year term of the Exhibitor Service Agreement (“ESA”) ending in February 2037. See Note 5—Investments for further information.

Gift cards and exchange tickets. The total amount of non-redeemed gifts cards and exchange tickets included in deferred revenues and income as of March 31, 2020 was $311.9 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.

Loyalty programs. As of March 31, 2020, the amount of deferred revenue allocated to the loyalty programs included in deferred revenues and income was $69.4 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 AMC Stubs® 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

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remaining performance obligations that have original expected durations of one year or less.

NOTE 4—GOODWILL

The following table summarizes the changes in goodwill by reporting unit for the three months ended March 31, 2020:

(In millions)

    

Domestic Theatres

 

International Theatres

Total

Balance December 31, 2019

$

3,072.6

$

1,716.5

$

4,789.1

Impairment adjustment

(1,124.9)

(619.4)

(1,744.3)

Currency translation adjustment

(106.8)

(106.8)

Balance March 31, 2020

$

1,947.7

$

990.3

$

2,938.0

The Company evaluates goodwill recorded at the Company’s two reporting units (Domestic Theatres and International Theatres) for impairment annually as of the beginning of the fourth fiscal quarter and any time an event occurs or circumstances change that would more likely than not reduce the fair value for a reporting unit below its carrying amount. The impairment test for goodwill involves estimating the fair value of the reporting unit and comparing that value to its carrying value. If the estimated fair value of the reporting unit is less than its carrying value, the difference is recorded as goodwill impairment charge, not to exceed the total amount of goodwill allocated to that reporting unit.

A decline in the common stock price and prices of the Company’s corporate borrowings and the resulting impact on market capitalization are two of several factors considered when making this evaluation. Based on sustained declines during 2020 in the Company’s enterprise market capitalization and the temporary suspension of operations at all the Company’s theatres on or before March 17, 2020 due to the COVID-19 pandemic, the Company performed a Step 1 quantitative goodwill impairment test of the Domestic and International reporting units as of March 31, 2020.

In performing the Step 1 quantitative goodwill impairment test as of March 31, 2020, the Company used an enterprise value approach to measure fair value of the reporting units. See Note 9Fair Value Measurements for a discussion of the valuation methodology. The enterprise fair values of the Domestic Theatres and International Theatres reporting units were less than their carrying values and goodwill impairment charges of $1,124.9 million and $619.4 million was recorded as of March 31, 2020 for the Company’s Domestic Theatres and International Theatres reporting units, respectively.

NOTE 5—INVESTMENTS

Investments in non-consolidated affiliates and certain other investments accounted for under the equity method generally include all entities in which the Company or its subsidiaries have significant influence, but not more than 50% voting control, and are recorded in the condensed consolidated balance sheets in other long-term assets. Investments in non-consolidated affiliates as of March 31, 2020 include interests in Digital Cinema Implementation Partners, LLC (“DCIP”) of 29.0%, Digital Cinema Distribution Coalition, LLC (“DCDC”) of 14.6%, AC JV, LLC (“AC JV”) owner of Fathom Events, of 32.0%, SV Holdco LLC (“SV Holdco”), owner of Screenvision, 18.2%, Digital Cinema Media Ltd. (“DCM”) of 50.0%, and Saudi Cinema Company LLC (“SCC”) of 10.0%. The Company also has partnership interests in four U.S. motion picture theatres (“Theatre Partnerships”) and approximately 50.0% interest in 55 theatres in Europe. Indebtedness held by equity method investees is non-recourse to the Company.

Equity in Earnings of Non-Consolidated Entities

Aggregated condensed financial information of the Company’s significant non-consolidated equity method investment (DCIP) is shown below:

 

Three Months Ended

(In millions)

    

March 31, 2020

    

March 31, 2019

Revenues

 

$

26.1

 

$

37.7

Operating costs and expenses

37.2

19.2

Net earnings (loss)

 

$

(11.1)

 

$

18.5

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

Three Months Ended

(In millions)

    

March 31, 2020

    

March 31, 2019

DCIP

$

(1.9)

$

5.6

Other

 

(1.0)

 

0.9

The Company’s recorded equity in earnings (loss)

$

(2.9)

$

6.5

Related Party Transactions

The Company recorded the following related party transactions with equity method investees:

As of

    

As of

(In millions)

March 31, 2020

    

December 31, 2019

Due from DCM for on-screen advertising revenue

$

0.9

$

4.2

Loan receivable from DCM

0.6

0.7

Due from DCIP for warranty expenditures

3.5

Due to AC JV for Fathom Events programming

(1.0)

(0.8)

Due from Screenvision for on-screen advertising revenue

0.7

3.4

Due from Nordic JVs

2.3

2.5

Due to Nordic JVs for management services

(2.2)

(1.6)

Due from SCC related to the joint venture

9.3

8.3

Due to U.S. theatre partnerships

(0.8)

(1.0)

Three Months Ended

(In millions)

Condensed Consolidated Statement of Operations

March 31, 2020

   

March 31, 2019

DCM screen advertising revenues

Other revenues

$

3.6

$

3.9

DCIP equipment rental expense

Operating expense

1.3

1.1

Gross exhibition cost on AC JV Fathom Events programming

Film exhibition costs

 

2.4

7.3

Screenvision screen advertising revenues

Other revenues

2.1

3.5

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NOTE 6—CORPORATE BORROWINGS

A summary of the carrying value of corporate borrowings and capital and finance lease obligations is as follows:

(In millions)

    

March 31, 2020

    

December 31, 2019

Senior Secured Credit Facility-Term Loan due 2026 (4.61% as of March 31, 2020)

$

1,980.0

$

1,985.0

Revolving Credit Facility Due 2024 (4.75% as of March 31, 2020)

215.0

Odeon Revolving Credit Facility Due 2022 (3.17% as of March 31, 2020)

85.1

Odeon Revolving Credit Facility Due 2022 (2.6% as of March 31, 2020)

24.7

2.95% Senior Unsecured Convertible Notes due 2024

600.0

600.0

6.375% Senior Subordinated Notes due 2024 (£500 million par value)

617.3

655.8

5.75% Senior Subordinated Notes due 2025

600.0

600.0

5.875% Senior Subordinated Notes due 2026

595.0

595.0

6.125% Senior Subordinated Notes due 2027

475.0

475.0

$

5,192.1

$

4,910.8

Finance lease obligations

 

95.2

 

99.9

Debt issuance costs

(84.5)

(88.8)

Net discounts

(66.8)

(69.1)

Derivative liability

0.5

$

5,136.0

$

4,853.3

Less:

Current maturities corporate borrowings

(20.0)

 

(20.0)

Current maturities finance lease obligations

(10.2)

(10.3)

$

5,105.8

$

4,823.0

Senior Unsecured Convertible Notes due 2024

The table below sets forth the carrying value of the Senior Unsecured Convertible Notes due 2024:

Carrying Value

Increase

Carrying Value

as of

to Expense

as of

(In millions)

December 31, 2019

(Income)

March 31, 2020

Principal balance

$

600.0

$

$

600.0

Discount

(73.7)

3.4

(70.3)

Debt issuance costs

(11.2)

0.4

(10.8)

Derivative liability

0.5

(0.5)

Carrying value

$

515.6

$

3.3

$

518.9

On September 14, 2018, the Company issued $600.0 million aggregate principal amount of its 2.95% Senior Unsecured Convertible Notes due 2024 (the "Convertible Notes due 2024"). The Convertible Notes due 2024 mature on September 15, 2024, subject to earlier conversion by the holders thereof, repurchase by the Company at the option of the holders or redemption by the Company upon the occurrence of certain contingencies, as discussed below. Upon maturity, the $600.0 million principal amount of the Convertible Notes due 2024 will be payable in cash.

The Company bifurcated the conversion feature from the principal balance of the Convertible Notes due 2024 as a derivative liability because (1) a conversion feature is not clearly and closely related to the debt instrument and the reset of the conversion price discussed in the following paragraph causes the conversion feature to not be considered indexed to the Company’s equity, (2) the conversion feature standing alone meets the definition of a derivative, and (3) the Convertible Notes due 2024 are not remeasured at fair value each reporting period with changes in fair value recorded in the condensed consolidated statement of operations. The initial derivative liability of $90.4 million is offset by a discount to the principal balance and is amortized to interest expense resulting in an effective rate of 5.98% over the term of the Convertible Notes due 2024. The Company also recorded debt issuance costs of approximately $13.6 million related to the issuance of the Convertible Notes due 2024 and will amortize those costs to interest expense under the effective interest method over the term of the Convertible Notes due 2024. The Company recorded interest expense for the three months ended March 31, 2020 and March 31, 2019 of $8.3 million and $8.0 million, respectively.

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The derivative liability is remeasured at fair value each reporting period with changes in fair value recorded in the condensed consolidated statements of operations as other expense or income. See Note 9Fair Value Measurements for a discussion of the valuation methodology. For the three months ended March 31, 2020 and March 31, 2019, this resulted in other expense (income) of $(