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AMC AMC Entertainment

Filed: 8 Aug 19, 7:52am

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

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

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

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.

5

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)

6

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.

7

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.

8

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

9

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.

10

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.

12

(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

$

539.7

The following table represents the weighted-average remaining lease term and discount rate as of June 30, 2019:

As of June 30, 2019

Weighted Average

Weighted Average

Remaining

Discount

Lease Term and Discount Rate

Lease Term (years)

Rate

Operating leases

10.0

7.3%

Finance leases

13.1

6.4%

Cash flow and supplemental information is presented below:

Six Months Ended

(In millions)

June 30, 2019

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

Operating cash flows used in finance leases

$

(4.2)

Operating cash flows used in operating lease cost

(468.2)

Financing cash flows used in finance leases

(6.1)

Landlord contributions:

Operating cashflows provided by operating leases

64.8

Supplemental disclosure of noncash leasing activities:

Right-of-use assets obtained in exchange for new operating lease liabilities (1)

115.5

(1)Includes lease extensions and an option exercise.

13

Minimum annual payments required under existing operating and finance lease liabilities, (net present value thereof) as of June 30, 2019 are as follows:

Operating Lease

Financing Lease

(In millions)

Payments (1)(2)

Payments

Six months ended December 31, 2019

$

470.8

$

9.1

2020

922.8

18.3

2021

863.2

17.2

2022

803.5

16.8

2023

709.6

13.7

2024

633.8

12.5

Thereafter

3,321.2

92.1

Total lease payments

7,724.9

179.7

Less imputed interest

(2,302.1)

(59.4)

Total

$

5,422.8

$

120.3

(1)Included in this column upon adoption of ASC 842 are liabilities for leases that were previously classified as build-to-suit failed sale-leaseback transactions that were included in the capital and finance lease obligations columns in the prior year.

(2)Included in this column upon adoption of ASC 842 are fixed executory costs that were previously excluded as part of the minimum lease payments. Fixed executory costs, which primarily consist of common area maintenance, insurance and taxes that meet the classification of fixed payments are included as part of the minimum lease payments.

As of June 30, 2019, the Company had signed additional operating lease agreements for 19 theatres that have not yet commenced of approximately $417.0 million, which are expected to commence between 2019 and 2021, 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.

Minimum annual payments required under operating lease liabilities and capital and failed sale-leaseback, finance lease obligations, (net present value thereof) that have initial or remaining non-cancelable terms in excess of one year as of December 31, 2018 were as follows:

Capital and Finance Lease Obligations

Minimum Operating

Minimum Lease

(In millions)

Lease Payments

Payments

Less Interest

Principal

2019

$

810.2

$

100.7

$

33.7

$

67.0

2020

801.9

96.6

29.4

67.2

2021

748.9

87.8

25.2

62.6

2022

687.5

82.7

21.1

61.6

2023

597.1

70.4

17.3

53.1

Thereafter

3,367.6

331.5

82.7

248.8

Total minimum payments required

$

7,013.2

$

769.7

$

209.4

$

560.3

During the six months ended June 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 $10.8 million and $35.0 million during the three and six months ended June 30, 2018, respectively.

14

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)

June 30, 2019

June 30, 2018

Major revenue types

Admissions

$

895.5

$

896.3

Food and beverage

492.5

445.8

Other theatre:

Advertising

35.7

33.7

Other theatre

82.4

66.7

Other theatre

118.1

100.4

Total revenues

$

1,506.1

$

1,442.5

Three Months Ended

Three Months Ended

(In millions)

June 30, 2019

June 30, 2018

Timing of revenue recognition

Products and services transferred at a point in time

$

1,410.2

$

1,396.2

Products and services transferred over time (1)

95.9

46.3

Total revenues

$

1,506.1

$

1,442.5

(1)Amounts primarily include subscription and advertising revenues.

Six Months Ended

Six Months Ended

(In millions)

June 30, 2019

June 30, 2018

Major revenue types

Admissions

$

1,627.0

$

1,771.3

Food and beverage

861.3

851.6

Other theatre:

Advertising

70.2

71.3

Other theatre

148.0

131.9

Other theatre

218.2

203.2

Total revenues

$

2,706.5

$

2,826.1

Six Months Ended

Six Months Ended

(In millions)

June 30, 2019

June 30, 2018

Timing of revenue recognition

Products and services transferred at a point in time

$

2,520.2

$

2,729.4

Products and services transferred over time (1)

186.3

96.7

Total revenues

$

2,706.5

$

2,826.1

(1)Amounts primarily include subscription and advertising revenues.

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

(In millions)

June 30, 2019

December 31, 2018

Current assets:

Receivables related to contracts with customers

$

123.3

$

183.2

Miscellaneous receivables

105.2

76.3

Receivables, net

$

228.5

$

259.5

15

(In millions)

June 30, 2019

December 31, 2018

Current liabilities:

Deferred revenue related to contracts with customers

$

366.5

$

412.8

Miscellaneous deferred income

3.3

2.0

Deferred revenue and income

$

369.8

$

414.8

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, 2018

$

412.8

Cash received in advance (1)

202.0

Customer loyalty rewards accumulated, net of expirations:

Admission revenues (2)

16.8

Food and beverage (2)

36.2

Other theatre (2)

1.8

Reclassification to revenue as the result of performance obligations satisfied:

Admission revenues (3)

(204.0)

Food and beverage (3)

(49.4)

Other theatre (4)

(47.9)

Disposition of Austria theatres

(1.2)

Foreign currency translation adjustment

(0.6)

Balance as of June 30, 2019

$

366.5

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

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

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

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

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

Exhibitor Services

(In millions)

Agreement

Balance as of December 31, 2018

$

564.0

Common Unit Adjustment–additions of common units (1)

1.4

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

(7.7)

Balance as of June 30, 2019

$

557.7

(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.

16

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 condensed consolidated balance sheets, that is expected to be recognized as revenues in the future related to performance obligations that are unsatisfied as of June 30, 2019:

(In millions)

Exhibitor services agreement

Six Months Ended December 31, 2019

$

8.0

Year Ended 2020

16.9

Year Ended 2021

18.1

Year Ended 2022

19.5

Year Ended 2023

20.9

Year Ended 2024

22.5

Years Ended 2025 through February 2037

451.8

Total

$

557.7

The total amount of non-redeemed gifts cards and exchange tickets included in deferred revenues and income as of June 30, 2019 was $272.3 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 June 30, 2019, the amount of deferred revenue allocated to the AMC Stubs® loyalty programs included in deferred revenues and income was $58.8 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 4—GOODWILL

The following table summarizes the changes in goodwill by reportable segment for the six months ended June 30, 2019:

(In millions)

    

U.S. Markets

 

International Markets

Total

Balance as of December 31, 2018

$

3,072.6

$

1,716.1

$

4,788.7

Currency translation adjustment

(25.7)

(25.7)

Balance as of June 30, 2019

$

3,072.6

$

1,690.4

$

4,763.0

The Company evaluates goodwill 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. A decline in our common stock price and the resulting impact on market capitalization is one of several factors we consider when making this evaluation. The Company’s market capitalization has been below carrying value since May 24, 2019. The recent declines in the trading price of the Company’s Class A common stock were not considered to be sustained declines and therefore were not an event that would require the Company to evaluate goodwill for impairment as of June 30, 2019.

17

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 June 30, 2019 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, owner of Screenvision, 18.4%, and Digital Cinema Media Ltd. (“DCM”) of 50.0%. The Company also has partnership interests in four U.S. motion picture theatres (“Theatre Partnerships”) and approximately 50.0% interest in 58 theatres in Europe (“Nordic theatre JVs”) acquired in the Odeon and UCI Cinemas Holdings Limited (“Odeon”) and Nordic Cinema Group Holding AB (“Nordic”) acquisitions. Indebtedness held by equity method investees is non-recourse to the Company.

NCM Transaction. In March 2019, the NCM CUA resulted in a positive adjustment of 197,118 common units for the Company. The Company received the units and recorded the common units as an addition to deferred revenues for the ESA at fair value of $1.3 million, based upon a price per share of National CineMedia, Inc. (“NCM, Inc.”) of $7.24 on March 14, 2019. The Company does not have significant influence over this entity and the investment is recorded at fair value each period.

Equity in Earnings (Loss) 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

Six Months Ended

(In millions)

    

June 30, 2019

    

June 30, 2018

    

June 30, 2019

    

June 30, 2018

Revenues

 

$

48.0

 

$

42.5

 

$

85.7

 

$

83.6

Operating costs and expenses

19.5

20.3

38.7

39.9

Net earnings

 

$

28.5

 

$

22.2

 

$

47.0

 

$

43.7

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

Three Months Ended

Six Months Ended

(In millions)

    

June 30, 2019

    

June 30, 2018

    

June 30, 2019

    

June 30, 2018

NCM and NCM, Inc.

$

$

5.8

$

$

(11.6)

DCIP

 

9.0

 

6.8

 

14.6

 

13.5

Other

 

1.2

 

0.4

 

2.1

 

2.1

The Company’s recorded equity in earnings

$

10.2

$

13.0

$

16.7

$

4.0

Digital Cinema Media. The Company acquired its equity investment in DCM on November 30, 2016 in connection with the acquisition of Odeon. The Company receives advertising services from DCM for its Odeon theatres in International markets through a joint venture in which it has a 50.0% ownership interest.

The Company recorded the following related party transactions with DCM:

As of

    

As of

(In millions)

    

June 30, 2019

    

December 31, 2018

Due from DCM for on-screen advertising revenue

$

2.4

$

2.8

Loan receivable from DCM

0.7

0.6

Three Months Ended

    

Six Months Ended

(In millions)

    

June 30, 2019

    

June 30, 2018

    

June 30, 2019

    

June 30, 2018

DCM screen advertising revenues

$

5.3

$

4.6

$

9.2

$

9.2

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

18

The Company recorded the following related party transactions with DCIP:

As of

    

As of

(In millions)

    

June 30, 2019

    

December 31, 2018

 

Due from DCIP for warranty expenditures

$

3.5

$

3.4

Deferred rent liability for digital projectors

 

 

7.8

Three Months Ended

Six Months Ended

(In millions)

   

June 30, 2019

   

June 30, 2018

   

June 30, 2019

   

June 30, 2018

Digital equipment rental expense

$

0.8

$

1.5

$

1.9

$

3.0

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

As of

    

As of

(In millions)

June 30, 2019

December 31, 2018

 

Due to AC JV for Fathom Events programming

0.8

2.5

Three Months Ended

Six Months Ended

(In millions)

    

June 30, 2019

    

June 30, 2018

    

June 30, 2019

    

June 30, 2018

Film exhibition costs:

Gross exhibition cost on Fathom Events programming

$

2.8

$

2.3

$

10.1

$

5.0

Screenvision Transactions. The Company recorded the following related party transactions with Screenvision:

As of

    

As of

(In millions)

    

June 30, 2019

    

December 31, 2018

Due from Screenvision for on-screen advertising revenue

$

3.0

$

2.7

Three Months Ended

    

Six Months Ended

(In millions)

    

June 30, 2019

    

June 30, 2018

    

June 30, 2019

    

June 30, 2018

Screenvision screen advertising revenues

$

4.2

$

3.8

$

7.7

$

7.5

Nordic JVs. The Company recorded the following related party transactions with the Nordic theatre JVs :

As of

    

As of

(In millions)

    

June 30, 2019

    

December 31, 2018

Due from Nordic JVs

$

2.3

$

2.6

Due to Nordic JVs for management services

2.1

1.7

19

NOTE 6—CORPORATE BORROWINGS

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

(In millions)

    

June 30, 2019

    

December 31, 2018

Odeon Revolving Credit Facility Due 2022 (2.5% + Base Rate of 0.75% as of June 30, 2019)

$

$

11.9

Senior Secured Credit Facility-Term Loan due 2026 (5.23% as of June 30, 2019)

1,995.0

Senior Secured Credit Facility-Term Loan due 2022

854.2

Senior Secured Credit Facility-Term Loan due 2023

491.2

6.0% Senior Secured Notes due 2023

230.0

2.95% Senior Unsecured Convertible Notes due 2024

600.0

600.0

5.0% Promissory Note payable to NCM due 2019

 

1.3

 

1.3

5.875% Senior Subordinated Notes due 2022

 

 

375.0

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

635.0

634.1

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

Finance lease obligations

 

120.3

 

560.3

Debt issuance costs

(94.5)

(104.4)

Net discounts

(75.7)

(64.4)

Derivative liability

3.4

24.0

 

4,854.8

 

5,283.2

Less:

Current maturities corporate borrowings

(21.4)

 

(15.2)

Current maturities finance lease obligations

(10.9)

Current maturities capital and financing lease obligations

(67.0)

$

4,822.5

$

5,201.0

Senior Secured Credit Facility – Term Loan due 2026

On April 22, 2019, the Company entered into the Sixth Amendment to Credit Agreement (the “Sixth Amendment”) amending the Credit Agreement dated April 30, 2013, by and among the Company, each lender party thereto and Citicorp North America, Inc. (“Citi”), as administrative agent. After giving effect to the Sixth Amendment, the Credit Agreement provides for senior secured financing of $2,225.0 million in aggregate, consisting of (1) $2,000.0 million in aggregate principal amount of senior secured tranche B loans maturing April 22, 2026 (the “Term Loan Facility”)and (2) a $225.0 million senior secured revolving credit facility (which includes borrowing capacity available for letters of credit) maturing April 22, 2024 (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “Credit

Facilities”). The loans were used to repay all of the Company’s existing term loans in an aggregate principal amount of approximately $1,338.5 million and to fund the redemptions of the 5.875% Senior Subordinated Notes due 2022 and the 6.0% Senior Secured Notes due 2023. The Company recorded a loss of $16.6 million related to these transactions, comprised of $14.1 million of extinguishment losses and $2.5 million of third party costs related to the modification of the Term Loans under the Senior Secured Credit Facility.

All obligations under the Credit Agreement are guaranteed by, subject to certain exceptions, each of the Company’s current and future wholly-owned material domestic restricted subsidiaries. All obligations under the Credit Agreement, and the guarantees of those obligations, are secured by substantially all of the assets of the Company and each guarantor, subject to customary exceptions, including:

a pledge of 100% of the equity interests directly held by the Company and each guarantor in any wholly-owned material subsidiary of the Company or any guarantor (which pledge, in the case of any non-U.S. subsidiary of a U.S. subsidiary, will not include more than 65% of the voting stock of such non-U.S. subsidiary), subject to certain exceptions; and

20

a security interest in substantially all other tangible and intangible assets of the Company and each guarantor, subject to certain exceptions.

The Credit Facilities will require the Company to prepay outstanding term loans, subject to certain exceptions, with:

50% (which percentage will be reduced to 0% if the Company attains a certain secured net leverage ratio) of the Company’s annual excess cash flow;

100% of the net cash proceeds of certain non-ordinary course asset sales by the Company and its restricted subsidiaries (including casualty and condemnation events, subject to de minimis thresholds), and subject to the right to reinvest 100% of such proceeds, subject to certain qualifications; and

100% of the net proceeds of any issuance or incurrence of debt by the Company or any of its restricted subsidiaries, other than certain debt permitted under the Credit Agreement.

The foregoing mandatory prepayments will be used to reduce the installments of principal on the Term Loan Facility. The Company may voluntarily repay outstanding loans under the Credit Facilities at any time without premium or penalty, except (1) for customary “breakage” costs with respect to LIBOR loans under the Credit Facilities and (2) during the six months following the Amendment Closing Date, with respect to certain voluntary prepayments or refinancings of the Term Loan Facility that reduce the effective yield of the Term Loan Facility, which will be subject to a 1.00% prepayment premium.

Borrowings under the Term Loan Facility will bear interest at a rate per annum equal to, at the Company’s option, either (1) an applicable margin plus a base rate determined by reference to the highest of (a) 0.50% per annum plus the Federal Funds Effective Rate, (b) the prime rate of Citi and (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00% or (2) an applicable margin plus a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs. Borrowings under the Revolving Credit Facility will bear interest at a rate per annum equal to an applicable margin based upon a leverage-based pricing grid, plus, at the Company’s option, either (1) a base rate determined by reference to the highest of (a) 0.50% per annum plus the Federal Funds Effective Rate, (b) the prime rate of Citi and (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00% or (2) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs. As of the date hereof, the applicable margins for the LIBOR rate borrowings under the Term Loan Facility and the Revolving Credit Facility are 3.00% and 2.25%, respectively.

The Credit Agreement contains other customary terms, including (1) representations, warranties and affirmative covenants, (2) negative covenants, including limitations on indebtedness, liens, mergers and acquisitions, asset sales, investments, distributions, prepayments of subordinated debt and transactions with affiliates, in each case subject to baskets, thresholds and other exceptions, and (3) customary events of default.

The availability of certain baskets and the ability to enter into certain transactions will also be subject to compliance with certain financial ratios. In addition, the Revolving Credit Facility includes a maintenance covenant that requires, in certain circumstances, compliance with a certain secured leverage ratio.

Senior Unsecured Convertible Notes due 2024

Carrying value (in millions) as of June 30, 2019:

Carrying Value

Carrying Value

as of

Increase to

as of

December 31, 2018

Net Earnings (Loss)

June 30, 2019

Principal balance

$

600.0

$

$

600.0

Discount

(86.7)

6.3

(80.4)

Debt issuance costs

(13.0)

0.9

(12.1)

Derivative liability

24.0

(20.6)

3.4

Carrying Value

$

524.3

$

(13.4)

$

510.9

21

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 will pay interest in cash on the Convertible Notes due 2024 at 2.95% per annum, semi-annually in arrears on September 15th and March 15th, commencing on March 15, 2019. The Company used the net proceeds from the sale of the Convertible Notes due 2024 to repurchase and retire 24,057,143 shares of Class B common stock held by Wanda for $17.50 per share or approximately $421.0 million, associated legal fees of $2.6 million, and to pay a special dividend of $1.55 per share of Class A common stock and Class B common stock, or approximately $160.5 million on September 28, 2018 to shareholders of record on September 25, 2018.

The Company bifurcated the conversion feature from the principal balance of the Convertible Notes due 2024 as a derivative liability because (1) a conversion feature 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 and six months ended June 30, 2019 of $8.0 million and $16.0 million, respectively. The derivative liability is remeasured at fair value each reporting period with changes in fair value recorded in the condensed consolidated statement of operations as other expense or income. See Note 9Fair Value Measurements for a discussion of the valuation methodology. For the three and six months ended June 30, 2019, this resulted in a gain of $33.9 million and $20.6 million, respectively. The if-converted value of the Convertible Notes due 2024 is less than the principal balance by approximately $304.6 million as of June 30, 2019 based on the closing price per share of the Company’s common stock of $9.33 per share.

The Convertible Notes due 2024 are generally not convertible to equity in the first year after issuance. Upon conversion by a holder thereof, the Company shall deliver, at its election, either cash, shares of the Company’s Class A common stock or a combination of cash and shares of the Company’s Class A common stock at a conversion rate of 52.7704 per $1,000 principal amount of the Convertible Notes due 2024 (which represents an initial conversion price of $18.95), in each case subject to customary anti-dilution adjustments. As of June 30, 2019, the $600.0 million principal balance of the Convertible Notes due 2024 would be convertible into 31,662,269 shares of Class A common stock. In addition to typical anti-dilution adjustments, in the event that the then-applicable conversion price is greater than 120% of the average of the volume-weighted average price of the Company’s Class A common stock for the ten days prior to the second anniversary of issuance (the “Reset Conversion Price”), the conversion price for the Convertible Notes due 2024 is subject to a reset provision that would adjust the conversion price downward to such Reset Conversion Price. However, this conversion price reset provision is subject to a conversion price floor such that the shares of the Company’s Class A common stock issuable upon conversion would not exceed 30% of the Company’s then outstanding fully-diluted share capital after giving effect to the conversion. In addition, a trigger of the reset provision would result in up to 5,666,000 shares of the Company’s Class B common stock held by Wanda becoming subject to forfeiture and retirement by the Company at no additional cost pursuant to the stock repurchase agreement between the Company and Wanda discussed in Note 7Stockholders’ Equity. This cancellation agreement is a contingent call option for the forfeiture shares, which is a freestanding derivative measured at fair value on a recurring basis. The feature is contingent on the same reset of the conversion price which is part of the conversion feature. The initial derivative asset of $10.7 million is offset by a credit to stockholders’ equity related to the Class B common stock purchase and cancellation. The forfeiture shares feature is not clearly and closely related to the Convertible Notes due 2024 host and it is bifurcated and accounted for as a derivative asset measured at fair value through earnings each reporting period with changes in fair value recorded in the condensed consolidated statement of operations as other expense or income. See Note 9 – Fair Value Measurements for a discussion of the valuation methodology. For the three and six months ended June 30, 2019, this resulted in other income (expense) of $7.1 million and $(8.0) million, respectively. Additionally, the conversion rate will be adjusted if any cash dividend or distribution is made to all or substantially all holders of the Company’s common stock (other than the special dividend referenced above and a regular, quarterly cash dividend that does not exceed $0.20 per share until the second anniversary of issuance and $0.10 per share thereafter). Any Convertible Notes due 2024 that

22

are converted in connection with a Make-Whole Fundamental Change (as defined in the Indenture (the “Indenture”) governing the Convertible Notes due 2024) are, under certain circumstances, entitled to an increase in the conversion rate.

The Company has the option to redeem the Convertible Notes due 2024 for cash on or after the fifth anniversary of issuance at par if the price for the Company’s Class A common stock is equal to or greater than 150% of the then applicable conversion price for 20 or more trading days out of a consecutive 30 day trading period (including the final three trading days), at which time the holders have the option to convert. The Company also has the option to redeem the Convertible Notes due 2024, between the second and third anniversary of issuance, if the reset provision described above is triggered at a redemption price in cash that would result in the noteholders realizing a 15% IRR from the date of issuance regardless of when any particular noteholder acquired its Convertible Notes due 2024. The Company also bifurcated this redemption feature from the principal balance of the Convertible Notes due 2024 and considered it as a part of the overall fair value of the derivative liability. During the three and six months ended June  30, 2019, the Company recorded a gain to other expense for $33.9 million and $20.6 million, respectively, as a decrease in fair value of its derivative liability for the Convertible Notes due 2024.

With certain exceptions, upon a change of control of the Company or if the Company’s Class A common stock is not listed for trading on The New York Stock Exchange, The NASDAQ Global Select Market or The NASDAQ Global Market, the holders of the Convertible Notes due 2024 may require that the Company repurchase in cash all or part of the principal amount of the Convertible Notes due 2024 at a purchase price equal to the principal amount plus accrued and unpaid interest up to, but excluding, the date of repurchase. The Indenture includes restrictive covenants that, subject to specified exceptions and parameters, limit the ability of the Company to incur additional debt and limit the ability of the Company to incur liens with respect to the Company’s senior subordinated notes or any debt incurred to refinance the Company’s senior subordinated notes. The Indenture also includes customary events of default, which may result in the acceleration of the maturity of the Convertible Notes due 2024 under the Indenture.

The Convertible Notes due 2024 are general unsecured senior obligations of the Company and are fully and unconditionally guaranteed on a joint and several senior unsecured basis by all the Company’s existing and future domestic restricted subsidiaries that guarantee its other indebtedness.

On September 14, 2018, in connection with the issuance of the Convertible Notes due 2024, the Company entered into an investment agreement (the “Investment Agreement”) providing for, among other things, registration rights with respect to the Convertible Notes due 2024 and the shares of Class A common stock underlying the Convertible Notes due 2024. Subject to the terms of the Investment Agreement, the Company was required to file a registration statement with the SEC not later than three months from the issuance date of the Convertible Notes in order to provide for resales of the Convertible Notes due 2024 and the shares of Class A common stock underlying the Convertible Notes to be made on a delayed or continuous basis pursuant to Rule 415 under the Securities Act. The Company filed a registration statement with the SEC on December 14, 2018 to fulfill this requirement.

23

NOTE 7—STOCKHOLDERS’ EQUITY

Dividends

The following is a summary of dividends and dividend equivalents paid to stockholders during the three and six months ended June 30, 2019:

Amount per

Total Amount

    

    

    

Share of

    

Declared

Declaration Date

Record Date

Date Paid

Common Stock

(In millions)

February 15, 2019

March 11, 2019

March 25, 2019

$

0.20

$

21.3

May 3, 2019

June 10, 2019

June 24, 2019

0.20

21.3

On August 2, 2019, the Holdings’ Board of Directors declared a cash dividend in the amount of $0.20 per share on its Class A and Class B common stock, payable on September 23, 2019 to stockholders of record on September 9, 2019.

Related Party Transactions

As of June 30, 2019 and December 31, 2018, the Company recorded a receivable due from Wanda of $0.5 million and $0.9 million, respectively, for reimbursement of general administrative and other expense incurred on behalf of Wanda. During the three and six months ended June 30, 2019, the Company recorded $0.1 million and $0.2 million, respectively, of cost reductions for general and administrative services provided on behalf of Wanda. Wanda owns Legendary Entertainment, a motion picture production company. The Company will occasionally play Legendary’s films in its theatres as a result of transactions with independent film distributors.

On September 14, 2018, the Company entered into the Investment Agreement with Silver Lake Alpine, L.P., an affiliate of Silver Lake Group, L.L.C. (“Silver Lake”), relating to the issuance to Silver Lake (or its designated affiliates) of $600.0 million principal amount of the Convertible Notes due 2024. See Note 6Corporate Borrowings - Senior Unsecured Convertible Notes due 2024 for more information.

On September 14, 2018, the Company, Silver Lake and Wanda entered into a Right of First Refusal Agreement (the “ ROFR Agreement ”), which provides Silver Lake certain rights to purchase shares of the Company’s common stock that Wanda proposes to sell during a period of two years from the date of execution of the ROFR Agreement or, if earlier, until such time that Wanda and its affiliates cease to beneficially own at least 50.1% of the total voting power of the Company’s voting stock. The right of first refusal applies to both registered and unregistered transfers of shares. Under the ROFR Agreement, in the event that Wanda and its affiliates cease to beneficially own at least 50.1% of the total voting power of the Company’s voting stock, then the Company will have the same right of first refusal over sales of the Company’s common stock by Wanda as described above until the expiration of the two-year period beginning on the date of execution of the ROFR Agreement. In such event, the Company may exercise such right to purchase shares from Wanda from time to time pursuant to the ROFR Agreement in its sole discretion, subject to approval by the disinterested directors of the Board. If the Company determines to exercise its right to purchase shares from Wanda pursuant to the ROFR Agreement, it will have the obligation under the Investment Agreement to offer to sell to Silver Lake a like number of shares of the Company’s Class A Common Stock, at the same per share price at which it purchased the Wanda shares.

On September 14, 2018, the Company used the proceeds from the Convertible Notes due 2024, and pursuant to a stock repurchase agreement between the Company and Wanda, repurchased 24,057,143 shares of Class B common stock at a price of $17.50 per share or $421.0 million and associated legal fees of $2.6 million. As of June 30, 2019, Wanda owns 49.85% of AMC through its 51,769,784 shares of Class B common stock. With the three-to-one voting ratio between the Company’s Class B and Class A common stock, Wanda retains voting control of AMC with 74.89% of the voting power of the Company’s common stock. As discussed in Note 6Corporate Borrowings up to 5,666,000 shares of Class B common stock are subject to forfeiture for no consideration in connection with the reset provision contained in the Indenture.

Temporary Equity

24

Certain members of management had the right to require Holdings to repurchase the Class A common stock held by them under certain limited circumstances pursuant to the terms of a stockholders’ agreement. Beginning on January 1, 2016 (or upon the termination of a management stockholder’s employment by the Company without cause, by the management stockholder for good reason, or due to the management stockholder’s death or disability) management stockholders had the right, in limited circumstances, to require Holdings to purchase shares that were not fully and freely tradeable at a price equal to the price per share paid by such management stockholder with appropriate adjustments for any subsequent events such as dividends, splits, or combinations. The shares of Class A common stock, subject to the stockholder agreement, were classified as temporary equity, apart from permanent equity, as a result of the contingent redemption feature contained in the stockholder agreement. The Company determined the amount reflected in temporary equity for the Class A common stock-based on the price paid per share by the management stockholders and Wanda on August 30, 2012, the date Wanda acquired Holdings.

As of January 1, 2019, the temporary equity program expired and management employees who held 75,712 shares relinquished their put rights, therefore the related share amount of $0.4 million was reclassified to additional paid in capital, a component of stockholders’ equity.

Stock-Based Compensation

Holdings adopted a stock-based compensation plan in December of 2013.

During the three and six months ended June 30, 2019, the Company recognized stock-based compensation expense of $5.4 million and $9.4 million, respectively, within general and administrative: other. During the three and six months ended June 30, 2018, the Company recognized stock-based compensation expense of $4.0 million and $6.8 million, respectively, within general and administrative: other.

The components of the Company’s recorded and unrecognized stock-based compensation expense are as follows:

Additional

Amount Recognized

Amount Recognized

Amount

Expected to

Expected to

Expected to

Three Months Ended

Six Months Ended

Unrecognized

Recognize

Recognize

Recognize

Grant Tranche

June 30, 2019

June 30, 2019

June 30, 2019

2019

2020

2021

2019 Board of Directors

$

$

0.4

$

$

$

$

2019 RSU awards

1.1

1.5

9.6

2.2

3.7

3.7

2019 PSU awards

1.9

2.6

8.5

3.9

3.3

1.3

2018 RSU awards

0.8

1.7

4.9

1.6

3.3

2018 PSU awards

0.7

1.5

2.6

1.5

1.1

2017 RSU awards

0.5

1.0

0.9

0.9

2017 RSU NEO awards

0.4

0.7

0.6

0.6

2017 PSU awards (1)

$

5.4

$

9.4

$

27.1

$

10.7

$

11.4

$

5.0

(1)During the year ended December 31, 2017, the Company determined that achieving the three-year performance thresholds of the 2017 Performance Stock Units was improbable and reversed all previously recorded expense and ceased accruing any additional expense on these units. If the Company later determines that the performance thresholds become probable, then historical expense would be reinstated, and the Company would resume recognizing expense.

Awards Granted in 2019

The Company’s Board of Directors approved awards of stock, restricted stock units (“RSUs”), and performance stock units (“PSUs”) to certain of the Company’s employees and directors under the Plan. The fair value of the stock at the grant date of March 6, 2019 was $15.13 per share and was based on the closing price of Holdings’ stock.

The award agreements generally had the following features:

25

Stock Award: On March 6, 2019, five members of Holdings’ Board of Directors were granted awards of 25,703 fully vested shares of Class A common stock in the aggregate. On May 7, 2019 one member of Holdings’ Board of Directors was granted an award of 3,096 vested shares of Class A common stock.

The Company recognized approximately $0.4 million of expense in general and administrative: other expense during the six months ended June 30, 2019, in connection with these share grants.

Restricted Stock Unit Awards: On March 6, 2019, RSU awards of 730,167 units were granted to certain members of management and executive officers. The grant date fair value was approximately $11.0 million based on a stock price of $15.13 on March 6, 2019. Each RSU represents the right to receive one share of Class A common stock at a future date. The RSUs vest over 3 years with 1/3 vesting on each of January 2, 2020, 2021, and 2022. The RSUs will be settled within 30 days of vesting. A dividend equivalent equal to the amount paid in respect of one share of Class A common stock underlying the RSUs began to accrue with respect to the RSUs on the date of grant. Such accrued dividend equivalents are paid to the holder upon vesting of the RSUs.

Performance Stock Unit Award: On March 6, 2019, PSU awards of 730,167 were granted to certain members of management and executive officers, with three-year cumulative adjusted EBITDA, diluted earnings per share, and net profit performance target conditions and service conditions, covering a performance period beginning January 1, 2019 and ending on December 31, 2021. The PSUs will vest based on achieving 80% to 120% of the performance targets with the corresponding vested unit amount ranging from 30% to 200%. If the performance target is met at 100%, the PSU awards granted on March 6, 2019, will vest at 730,167 units in the aggregate. No PSUs will vest if Holdings does not achieve 80% of the three-year cumulative adjusted EBITDA, diluted earnings per share, and net profit performance target. Additionally, unvested PSU’s shall be ratably forfeited upon termination of service prior to December 31, 2021. If service terminates prior to January 2, 2020, all unvested PSU’s shall be forfeited, if service terminates prior to January 2, 2021, 2/3 of unvested PSU’s shall be forfeited and if service terminates prior to January 4, 2022, 1/3 of unvested PSU’s shall be forfeited. The vested PSUs will be settled within 30 days of vesting which will occur upon certification of performance results by the Compensation Committee of the Board of Directors. A dividend equivalent equal to the amount paid in respect of one share of Class A common stock underlying the PSUs began to accrue with respect to the PSUs on the date of grant. Such accrued dividend equivalents are paid to the holder upon vesting of the PSUs.

The following table represents the nonvested RSU and PSU activity for the six months ended June 30, 2019:

    

    

Weighted

Average

Shares of RSU

Grant Date

and PSU

Fair Value

Beginning balance at January 1, 2019

1,934,447

$

21.50

Granted

1,460,334

15.13

Vested

(303,201)

21.76

Forfeited

(11,776)

18.65

Cancelled (1)

(100,840)

21.46

Nonvested at June 30, 2019

2,978,964

$

17.62

(1)Represents vested RSUs surrendered in lieu of taxes and returned to the 2013 Equity Incentive Plan.

26

Condensed Consolidated Statements of Stockholders’ Equity

For the Six Months Ended June 30, 2019

Accumulated

Class A Voting

Class B Voting

Additional

Other

Accumulated

Total

Common Stock

Common Stock

Paid-in

Treasury Stock

Comprehensive

Earnings

Stockholders’

(In millions, except share and per share data)

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

Shares

    

Amount

    

Income (Loss)

    

(Deficit)

    

Equity

Balances December 31, 2018

55,401,325

$

0.5

51,769,784

$

0.5

$

1,998.4

3,732,625

$

(56.4)

$

5.5

$

(550.9)

$

1,397.6

Cumulative effect adjustments for the adoption of new accounting principles (ASU 842)

78.8

78.8

Net loss

(130.2)

(130.2)

Other comprehensive loss

(24.9)

(24.9)

Dividends declared:

Class A common stock, $0.20/share, net of forfeitures

(10.7)

(10.7)

Class B common stock, $0.20/share

(10.4)

(10.4)

Taxes paid for restricted unit withholdings

(1.1)

(1.1)

Reclassification from temporary equity

75,712

0.4

0.4

Stock-based compensation

328,904

4.0

4.0

Balances March 31, 2019

55,805,941

$

0.5

51,769,784

$

0.5

$

2,001.7

3,732,625

$

(56.4)

$

(19.4)

$

(623.4)

$

1,303.5

Cumulative effect adjustments for the adoption of new accounting principles (ASU 842)

(2.6)

(2.6)

Net earnings

49.4

49.4

Other comprehensive loss

(9.2)

(9.2)

Dividends declared:

Class A common stock, $0.20/share, net of forfeitures

(10.7)

(10.7)

Class B common stock, $0.20/share

(10.4)

(10.4)

Taxes paid for restricted unit withholdings

(0.3)

(0.3)

Stock-based compensation

3,096

5.4

5.4

Balances June 30, 2019

55,809,037

$

0.5

51,769,784

$

0.5

$

2,006.8

3,732,625

$

(56.4)

$

(28.6)

$

(597.7)

$

1,325.1

27

Condensed Consolidated Statements of Stockholders’ Equity

For the Six Months Ended June 30, 2018

Accumulated

Class A Voting

Class B Voting

Additional

Other

Accumulated

Total

Common Stock

Common Stock

Paid-in

Treasury Stock

Comprehensive

Earnings

Stockholders’

(In millions, except share and per share data)

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

Shares

    

Amount

    

Income (Loss)

    

(Deficit)

    

Equity

Balances December 31, 2017

55,010,160

$

0.5

75,826,927

$

0.8

$

2,241.6

3,232,625

$

(48.2)

$

125.6

$

(207.9)

$

2,112.4

Cumulative effect adjustments for the adoption of new accounting principles (ASU 606, ASU 2016-01 and ASU 2018-02)

4.4

(36.2)

(31.8)

Net earnings

17.7

17.7

Other comprehensive income

10.7

10.7

Dividends declared:

Class A common stock, $0.20/share

(10.8)

(10.8)

Class B common stock, $0.20/share

(15.2)

(15.2)

Reversed dividend accrual for nonvested PSU's

0.7

0.7

RSUs surrendered to pay for payroll taxes

(1.8)

(1.8)

Reclassification from temporary equity

27,195

0.3

0.3

Stock-based compensation

354,060

2.8

2.8

Balances March 31, 2018

55,391,415

$

0.5

75,826,927

$

0.8

$

2,242.9

3,232,625

$

(48.2)

$

140.7

$

(251.7)

$

2,085.0

Net earnings

22.2

22.2

Other comprehensive loss

(107.2)

(107.2)

Dividends declared:

Class A common stock, $0.20/share

(10.8)

(10.8)

Class B common stock, $0.20/share

(15.2)

(15.2)

Reclassification from temporary equity

9,910

0.1

0.1

Stock-based compensation

4.0

4.0

Class A common stock repurchases

500,000

(8.2)

(8.2)

Balances June 30, 2018

55,401,325

$

0.5

75,826,927

$

0.8

$

2,247.0

3,732,625

$

(56.4)

$

33.5

$

(255.5)

$

1,969.9

28

NOTE 8—INCOME TAXES

The Company’s worldwide effective income tax rate is based on expected income, statutory rates, valuation allowances against deferred tax assets and tax planning opportunities available in the various jurisdictions in which it operates. For interim financial reporting, the Company estimates the worldwide annual income tax rate based on projected taxable income for the full year and records a quarterly income tax provision or benefit in accordance with the anticipated annual rate, adjusted for discrete items, if any. The Company refines the estimates of the year’s taxable income as new information becomes available, including actual year-to-date financial results. This continual estimation process often results in a change to the expected worldwide effective income tax rate for the year. When this occurs, the Company adjusts the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the expected income tax rate. Significant judgment is required in determining the effective tax rate. The Company recognizes income tax-related interest expense and penalties as income tax expense and general and administrative expense, respectively.

At June 30, 2019 and December 31, 2018, the Company has net deferred tax liabilities of $20.6 million and $13.0 million, respectively. During the fourth quarter of 2017, the Company determined that it was appropriate to record a valuation allowance against U.S. deferred tax assets. In addition, several international jurisdictions carry valuation allowances against their deferred tax assets. As a result, the effective tax rate for the six months ended June 30, 2019 reflects the impact of these valuation allowances against U.S. and international deferred tax assets generated during the six month period. For the remainder of 2019, the Company anticipates income tax expense will relate to domestic state tax expense, changes in domestic indefinite-lived liabilities, and international tax expense incurred in certain profitable jurisdictions. The Company evaluates its deferred tax assets each period to determine if a valuation allowance is required based on whether it is “more likely than not” that some portion of the deferred tax assets would not be realized. The ultimate realization of these deferred tax assets is dependent upon the generation of sufficient taxable income during future periods on a federal, state and foreign jurisdiction basis. The Company conducts its evaluation by considering all available positive and negative evidence, including historical operating results, forecasts of future profitability, the duration of statutory carryforward periods, and the outlooks for the U.S. motion picture and broader economy, among others.

The projected worldwide effective tax rate based on annual projected earnings for the year ending December 31, 2019 is (4.5)%. The actual effective rate for the six months ended June 30, 2019 was (16.0)%. The Company’s consolidated tax rate for the six months ended June 30, 2019 differs from the U.S. statutory tax rate primarily due to the valuation allowances in U.S. and foreign jurisdictions, foreign tax rate differences, federal and state tax credits partially offset by state income taxes, permanent differences related to interest, compensation, and other discrete items.

Tax contingencies and other income tax liabilities were $25.6 million and $22.0 million as of June 30, 2019 and December 31, 2018, respectively, and are included in other long-term liabilities. The increase relates primarily to state income taxes and state income tax credits. The Company also continues to be subject to examination by the IRS and the fiscal year ended March 29, 2012 (tax year 2011) is currently under extended statute. The Company’s operations in certain jurisdictions outside of the U.S. remain subject to examination for tax years 2012 to 2018, some of which are currently under audit by local tax authorities. The resolutions of these audits are not expected to be material to the Company’s condensed consolidated financial statements. The Company believes its allowances for income tax contingencies are adequate. Based on the information currently available, the Company does not anticipate a material (or significant) increase or decrease to its tax contingencies within the next 12 months.

While the Tax Reform Act provides for a territorial tax system, beginning in 2018, it includes the global intangible low-taxed income (“GILTI”) provisions. The GILTI provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. For 2019, the Company does not anticipate a GILTI inclusion.

29

NOTE 9—FAIR VALUE MEASUREMENTS

Fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the entity transacts business. The inputs used to develop these fair value measurements are established in a hierarchy, which ranks the quality and reliability of the information used to determine the fair values. The fair value classification is based on levels of inputs. Assets and liabilities that are carried at fair value are classified and disclosed in one of the following categories:

Level 1:

Quoted market prices in active markets for identical assets or liabilities.

Level 2:

Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3:

Unobservable inputs that are not corroborated by market data.

Recurring Fair Value Measurements. The following table summarizes the fair value hierarchy of the Company’s financial assets and liabilities carried at fair value on a recurring basis as of June 30, 2019:

Fair Value Measurements at June 30, 2019 Using

Significant

    

Total Carrying

    

Quoted prices in

    

Significant other

    

unobservable

Value at

active market

observable inputs

inputs

(In millions)

June 30, 2019

(Level 1)

(Level 2)

(Level 3)

Other long-term assets:

Money market mutual funds

$

0.5

$

0.5

$

$

Derivative asset

47.7

47.7

Investments measured at net asset value (1)

11.4

 

 

 

Equity securities, available-for-sale:

Investment in NCM

1.3

1.3

Total assets at fair value

$

60.9

$

1.8

$

$

47.7

Corporate Borrowings:

Derivative liability

$

3.4

$

$

$

3.4

Total liabilities at fair value

$

3.4

$

$

$

3.4

(1)The investments relate to non-qualified deferred compensation arrangements on behalf of certain members of management. The Company has an equivalent liability for this related-party transaction recorded in other long-term liabilities for the deferred compensation obligation.

Valuation Techniques. The Company’s money market mutual funds are invested in funds that seek to preserve principal, are highly liquid, and therefore are recorded on the balance sheet at the principal amounts deposited, which equals fair value. See Note 10Accumulated Other Comprehensive Income for the unrealized gain on the equity securities recorded in accumulated other comprehensive income.

On September 14, 2018, the Company issued Convertible Notes due 2024 with a conversion feature that gave rise to an embedded derivative instrument and a stock purchase and cancellation agreement that gave rise to a derivative asset (See Note 6Corporate Borrowings). The derivative features have been valued using a Monte Carlo simulation approach. The Monte Carlo simulation approach consists of simulated common stock prices from the valuation date to the maturity of the Convertible Notes and to September 14, 2020 for the contingent call option for forfeiture shares. Increases or decreases in the Company’s share price, the volatility of the share price, the passage of time, risk-free interest rate, discount yield, and dividend yield will all impact the value of the derivative instruments. The Company re-values the derivative instruments at the end of each reporting period and any changes are recorded in other expense (income) in the condensed consolidated statements of operations.

30

Other Fair Value Measurement Disclosures. The Company is required to disclose the fair value of financial instruments that are not recognized at fair value in the statement of financial position for which it is practicable to estimate that value:

    

Fair Value Measurements at June 30, 2019 Using

    

    

Significant other

    

Significant

Total Carrying

Quoted prices in

observable

unobservable

Value at

active market

inputs

inputs

(In millions)

June 30, 2019

(Level 1)

(Level 2)

(Level 3)

Current maturities of corporate borrowings

$

21.4

$

$

20.2

$

1.4

Corporate borrowings

 

4,713.1

 

 

4,090.3

507.0

Valuation Technique. Quoted market prices and observable market based inputs were used to estimate fair value for Level 2 inputs. The Level 3 fair value measurement represents the transaction price of the corporate borrowings under market conditions. On September 14, 2018, the Company issued $600.0 million of Convertible Notes due 2024. These notes were issued by private placement, as such there is no observable market for these Convertible Notes. The Company valued these notes at principal value less a discount reflecting a market yield to maturity. See Note 6Corporate Borrowings for further information.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate fair value because of the short maturity of these instruments.

NOTE 10—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table presents the change in accumulated other comprehensive income (loss) by component:

Unrealized Net

Unrealized Net

 

Pension and

Gain from

Gain from Equity

 

Foreign

Other

Marketable

Method Investees’

 

(In millions)

    

Currency

    

Benefits (1)

    

Securities

    

Cash Flow Hedge

    

Total

 

Balance, December 31, 2018

$

7.2

$

(1.8)

$

$

0.1

$

5.5

Other comprehensive income (loss) before reclassifications

 

(34.7)

 

0.1

 

 

(0.1)

 

(34.7)

Amounts reclassified from accumulated other comprehensive income

 

0.6

 

 

 

 

0.6

Balance, June 30, 2019

$

(26.9)

$

(1.7)

$

$

$

(28.6)

The tax effects allocated to each component of other comprehensive income (loss) during the three months ended June 30, 2019 and June 30, 2018 are as follows:

Three Months Ended

June 30, 2019

June 30, 2018

   

   

Tax

   

   

   

Tax

    

Pre-Tax

(Expense)

Net-of-Tax

Pre-Tax

(Expense)

Net-of-Tax

(In millions)

Amount

Benefit

Amount

Amount

Benefit

Amount

Unrealized foreign currency translation adjustment (1)

$

(9.3)

$

$

(9.3)

$

(107.4)

$

(0.2)

$

(107.6)

Realized loss on foreign currency transactions

0.1

0.1

1.0

1.0

Pension and other benefit adjustments:

Net gain (loss) arising during the period

 

0.1

 

 

0.1

 

(0.5)

 

0.1

 

(0.4)

Equity method investees' cash flow hedge:

Unrealized net holding loss arising during the period

 

(0.1)

 

 

(0.1)

 

 

 

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

(0.2)

(0.2)

Other comprehensive loss

$

(9.2)

$

$

(9.2)

$

(107.1)

$

(0.1)

$

(107.2)

(1)Deferred tax impacts of foreign currency translation for the Odeon and Nordic international operations have not been recorded due to the Company’s intent to remain permanently invested.

31

The tax effects allocated to each component of other comprehensive income (loss) during the six months ended June 30, 2019 and June 30, 2018 are as follows:

Six Months Ended

June 30, 2019

June 30, 2018

   

   

Tax

   

   

   

Tax

   

Pre-Tax

(Expense)

Net-of-Tax

Pre-Tax

(Expense)

Net-of-Tax

(In millions)

Amount

Benefit

Amount

Amount

Benefit

Amount

Unrealized foreign currency translation adjustment (1)

$

(34.7)

$

$

(34.7)

$

(96.0)

$

0.1

$

(95.9)

Realized loss on foreign currency transactions

0.6

0.6

1.0

1.0

Pension and other benefit adjustments:

Net gain (loss) arising during the period

0.1

0.1

(1.9)

0.4

(1.5)

Equity method investees' cash flow hedge:

Unrealized net holding gain (loss) arising during the period

 

(0.1)

 

 

(0.1)

 

0.2

 

 

0.2

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

(0.3)

(0.3)

Other comprehensive loss

$

(34.1)

$

$

(34.1)

$

(97.0)

$

0.5

$

(96.5)

(1)Deferred tax impacts of foreign currency translation for the Odeon and Nordic international operations have not been recorded due to the Company’s intent to remain permanently invested.

NOTE 11—OPERATING SEGMENTS

The Company reports information about operating segments in accordance with ASC 280-10, Segment Reporting, which requires financial information to be reported based on the way management organizes segments within a company for making operating decisions and evaluating performance. The Company has identified two reportable segments and reporting units for its theatrical exhibition operations, U.S. markets and International markets. The International markets reportable segment has operations in or partial interest in theatres in the United Kingdom, Germany, Spain, Italy, Ireland, Portugal, Sweden, Finland, Estonia, Latvia, Lithuania, Norway, and Denmark. Each segment’s revenue is derived from admissions, food and beverage sales and other ancillary revenues, primarily screen advertising, AMC Stubs® membership fees and other loyalty programs, ticket sales, gift card income and exchange ticket income. The measure of segment profit and loss the Company uses to evaluate performance and allocate its resources is Adjusted EBITDA, as defined in the reconciliation table below. The Company does not report asset information by segment because that information is not used to evaluate the performance of or allocate resources between segments.

Below is a breakdown of select financial information by reportable operating segment:

Three Months Ended

Six Months Ended

Revenues (In millions)

    

June 30, 2019

June 30, 2018

June 30, 2019

    

June 30, 2018

U.S. markets

$

1,161.2

$

1,129.3

$

2,028.4

    

$

2,111.4

International markets

344.9

313.2

678.1

    

714.7

Total revenues

$

1,506.1

$

1,442.5

$

2,706.5

    

$

2,826.1

Three Months Ended

Six Months Ended

Adjusted EBITDA (1) (In millions)

    

June 30, 2019

    

June 30, 2018

June 30, 2019

    

June 30, 2018

U.S. markets (2)

$

202.1

$

222.2

$

279.5

$

430.5

International markets

35.5

22.6

66.3

92.2

Total Adjusted EBITDA

$

237.6

$

244.8

$

345.8

$

522.7

(1)The Company presents Adjusted EBITDA as a supplemental measure of its performance. The Company defines Adjusted EBITDA as net earnings (loss) plus (i) income tax provision (benefit), (ii) interest expense and (iii) depreciation and amortization, as further adjusted to eliminate the impact of certain items that the Company

32

does not consider indicative of its ongoing operating performance and to include attributable EBITDA from equity investments in theatre operations in international markets and any cash distributions of earnings from its other equity method investees. The measure of segment profit and loss the Company uses to evaluate performance and allocate its resources is Adjusted EBITDA, which is consistent with how Adjusted EBITDA is defined in its debt indentures.

(2)Distributions from NCM are reported entirely within the U.S. markets segment.

Three Months Ended

Six Months Ended

Capital Expenditures (In millions)

    

June 30, 2019

    

June 30, 2018

June 30, 2019

    

June 30, 2018

U.S. markets

$

84.1

$

101.0

$

159.6

$

172.0

International markets

31.0

32.8

70.3

69.1

Total capital expenditures

$

115.1

$

133.8

$

229.9

$

241.1

Financial Information About Geographic Area:

Three Months Ended

Six Months Ended

Revenues (In millions)

June 30, 2019

June 30, 2018

June 30, 2019

    

June 30, 2018

United States

$

1,161.2

$

1,129.3

$

2,028.4

$

2,111.4

United Kingdom

134.1

125.8

236.2

256.3

Spain

49.4

42.2

90.8

91.8

Sweden

36.1

33.3

81.8

93.9

Italy

45.2

33.7

98.4

94.6

Germany

29.0

24.5

60.6

57.3

Finland

22.4

22.1

48.1

50.1

Ireland

9.3

8.8

17.3

19.3

Other foreign countries

19.4

22.8

44.9

51.4

Total

$

1,506.1

$

1,442.5

$

2,706.5

$

2,826.1

As of

As of

Long-term assets, net (In millions)

June 30, 2019

December 31, 2018

United States

$

9,052.7

$

5,826.5

International

3,872.2

2,888.0

Total long-term assets (1)

$

12,924.9

$

8,714.5

(1)Long-term assets are comprised of property, intangible assets, goodwill, deferred income tax assets and other long-term assets, and for 2019, right-of-use assets.

33

The following table sets forth a reconciliation of net earnings (loss) to Adjusted EBITDA:

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

Plus:

Income tax provision (benefit)

 

5.4

 

(2.6)

 

11.1

 

2.1

Interest expense

 

86.4

 

82.4

 

170.0

 

164.9

Depreciation and amortization

 

112.0

 

137.7

 

225.0

 

268.2

Certain operating expenses (1)

 

2.3

 

5.7

 

4.8

 

9.4

Equity in earnings of non-consolidated entities (2)

 

(10.2)

 

(13.0)

 

(16.7)

 

(4.0)

Cash distributions from non-consolidated entities (3)

 

1.8

 

3.5

 

12.3

 

27.8

Attributable EBITDA (4)

2.0

(0.4)

2.9

1.6

Investment income

 

(2.1)

 

(1.5)

 

(18.2)

 

(6.7)

Other expense (income) (5)

 

(23.8)

 

2.5

 

6.1

 

3.7

Non-cash rent - purchase accounting (6)

5.8

13.4

General and administrative — unallocated:

Merger, acquisition and transaction costs (7)

 

3.2

 

4.3

 

6.5

 

9.0

Stock-based compensation expense (8)

 

5.4

 

4.0

 

9.4

 

6.8

Adjusted EBITDA

$

237.6

$

244.8

$

345.8

$

522.7

(1)Amounts represent preopening expense related to temporarily closed screens under renovation, theatre and other closure expense for the permanent closure of screens including the related accretion of interest, non-cash deferred digital equipment rent expense, and disposition of assets and other non-operating gains or losses included in operating expenses. The Company has excluded these items as they are non-cash in nature, include components of interest cost for the time value of money or are non-operating in nature.

(2)During the three months ended June 30, 2019, the Company recorded $9.0 million in earnings from DCIP. During the six months ended June 30, 2019, the Company recorded $14.6 million in earnings from DCIP. During the six months ended June 30, 2018, equity in earnings of non-consolidated entities includes a lower of carrying value impairment loss on the held-for-sale portion of NCM of $16.0 million. The impairment charges reflect recording its held-for-sale units and other-than-temporary impaired shares at the publicly quoted per share price on March 31, 2018 of $5.19. Equity in earnings of non-consolidated entities also includes the surrender (disposition) of a portion of its investment in NCM of $1.1 million during the six months ended June 30, 2018.

(3)Includes U.S. non-theatre distributions from equity method investments and International non-theatre distributions from equity method investments to the extent received. The Company believes including cash distributions is an appropriate reflection of the contribution of these investments to its operations.

(4)Attributable EBITDA includes the EBITDA from equity investments in theatre operators in certain international markets. See below for a reconciliation of the Company’s equity loss of non-consolidated entities to attributable EBITDA. Because these equity investments are in theatre operators in regions where the Company holds a significant market share, the Company believes attributable EBITDA is more indicative of the performance of these equity investments and management uses this measure to monitor and evaluate these equity investments. The Company also provides services to these theatre operators including information technology systems, certain on-screen advertising services and its gift card and package ticket program.

34

Three Months Ended

Six Months Ended

(In millions)

June 30, 2019

    

June 30, 2018

    

June 30, 2019

    

June 30, 2018

Equity in earnings of non-consolidated entities

$

(10.2)

$

(13.0)

$

(16.7)

$

(4.0)

Less:

Equity in earnings of non-consolidated entities excluding International theatre JV's

(9.8)

(13.9)

(15.8)

(3.6)

Equity in earnings (loss) of International theatre JV's

0.4

(0.9)

0.9

0.4

Income tax provision

0.1

0.1

Investment income

(0.3)

(0.5)

Interest expense

0.1

0.1

Depreciation and amortization

1.7

0.5

2.3

1.2

Attributable EBITDA

$

2.0

$

(0.4)

$

2.9

$

1.6

(5)Other income for the three months ended June 30, 2019 includes income of $33.9 million due to the decrease in fair value of our derivative liability for the Convertible Notes due 2024, income of $7.1 million as a result of an increase in fair value of its derivative asset, and expense of $16.6 million of fees related to modifications of term loans. Other expense for the six months ended June 30, 2019 includes income of $20.6 million due to the decrease in fair value of our derivative liability for the Convertible Notes due 2024, an expense of $8.0 million as a result of a decrease in fair value of its derivative asset, an expense of $16.6 million of fees related to modifications of term loans, and $1.0 million loss on GBP forward contract.

(6)Reflects amortization of certain intangible assets reclassified from depreciation and amortization to rent expense, due to the adoption of ASC 842.

(7)Merger, acquisition and transition costs are excluded as they are non-operating in nature.

(8)Stock-based compensation expense is non-cash expense included in general and administrative: other.

NOTE 12—COMMITMENTS AND CONTINGENCIES

The Company, in the normal course of business, is a party to various ordinary course claims from vendors (including food and beverage suppliers and film distributors), landlords, competitors, and other legal proceedings. If management believes that a loss arising from these actions is probable and can reasonably be estimated, the Company records the amount of the loss, or the minimum estimated liability when the loss is estimated using a range and no point is more probable than another. As additional information becomes available, any potential liability related to these actions is assessed and the estimates are revised, if necessary. Management believes that the ultimate outcome of such matters discussed below, individually and in the aggregate, will not have a material adverse effect on the Company’s financial position or overall trends in results of operations. However, litigation and claims are subject to inherent uncertainties and unfavorable outcomes can occur. An unfavorable outcome might include monetary damages. If an unfavorable outcome were to occur, there exists the possibility of a material adverse impact on the results of operations in the period in which the outcome occurs or in future periods.

On January 12, 2018 and January 19, 2018, two putative federal securities class actions, captioned Hawaii Structural Ironworkers Pension Trust Fund v. AMC Entertainment Holdings, Inc., et al., Case No. 1:18-cv-00299-AJN (the “Hawaii Action”), and Nichols v. AMC Entertainment Holdings, Inc., et al., Case No. 1:18-cv-00510-AJN (the “Nichols Action,” and together with the Hawaii Action, the “Actions”), respectively, were filed against the Company in the U.S. District Court for the Southern District of New York.  The Actions, which name certain of the Company’s officers and directors and, in the case of the Hawaii Action, the underwriters of the Company’s February 8, 2017 secondary public offering, as defendants, asserted claims under some or all of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 with respect to alleged material misstatements and omissions in the registration statement for the secondary public offering and in certain other public disclosures. On May 30, 2018, the court consolidated the Actions and appointed the International Union of Operating Engineers Pension Fund of Eastern Pennsylvania and Delaware as lead plaintiff. On August 13, 2018, lead plaintiff and additional named plaintiff Hawaii Structural Ironworkers Pension Trust Fund (“Plaintiffs”) filed an Amended Class Action Complaint. On November 21, 2018, Plaintiffs filed a Second Amended Class Action Complaint.

35

On January 22, 2019, the defendants moved to dismiss the Second Amended Class Action Complaint.

On May 21, 2018, a stockholder derivative complaint, captioned Gantulga v. Aron, et al., Case No. 2:18-cv-02262-JAR-TJJ (the “Gantulga Action”), was filed against certain of the Company’s officers and directors in the U.S. District Court for the District of Kansas. The Gantulga Action, which was filed on behalf of the Company, asserts claims under Section 14(a) of the Securities Exchange Act of 1934 and for breaches of fiduciary duty and unjust enrichment based on allegations substantially similar to the Actions. On August 27, 2018, defendants and the Company as nominal defendant filed a motion to dismiss or, in the alternative, to transfer the action to the U.S. District Court for the Southern District of New York. On September 17, 2018, plaintiff filed an amended complaint. On October 12, 2018, the parties filed a joint motion to transfer the action to the U.S. District Court for the Southern District of New York, which the court granted on October 15, 2018. When the action was transferred to the Southern District of New York, it was re-captioned Gantulga v. Aron, et al., Case No. 1:18-cv-10007-AJN. The parties filed a joint stipulation to stay the action, which the court granted on December 17, 2018.

On April 22, 2019, a putative stockholder class and derivative complaint, captioned Lao v. Dalian Wanda Group Co., Ltd., et al., C.A. No. 2019-0303-JRS (the “Lao Action”), was filed against certain of the Company’s directors, Dalian Wanda Group Co., Ltd. (“Wanda”), two of Wanda’s affiliates, Silver Lake Group, L.L.C. (“Silver Lake”), and one of Silver Lake’s affiliates in the Delaware Court of Chancery. The Lao Action asserts claims directly, on behalf of a putative class of Company stockholders, and derivatively, on behalf of the Company, for breaches of fiduciary duty and aiding and abetting breaches of fiduciary duty with respect to transactions that the Company entered into with affiliates of Wanda and Silver Lake on September 14, 2018, and the special cash dividend of $1.55 per share of common stock that was payable on September 28, 2018 to the Company’s stockholders of record as of September 25, 2018. On July 18, 2019, the Company’s Board of Directors formed a Special Litigation Committee to investigate and evaluate the claims and allegations asserted in the Lao Action and make a determination as to how the Company should proceed with respect to the Lao Action.

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. Due to the variety of remedies available, the Company believes that if the current tenant defaulted on the leases it would not have a material effect on the Company’s financial condition, results of operations or cash flows.

36

NOTE 13—EARNINGS (LOSS) PER SHARE

Basic net earnings (loss) per share is computed by dividing net earnings (loss) by the weighted-average number of common shares outstanding. Diluted earnings per share includes the effects of unvested RSU’s with a service condition only and unvested contingently issuable RSUs that have service and performance conditions, if dilutive, as well as potential dilutive shares from the conversion feature of the Convertible Notes due 2024, if dilutive.

The following table sets forth the computation of basic and diluted earnings (loss) per common share:

Three Months Ended

Six Months Ended

(In millions)

    

June 30, 2019

    

June 30, 2018

    

June 30, 2019

    

June 30, 2018

Numerator:

Net earnings (loss) for basic earnings (loss) per share

$

49.4

$

22.2

$

(80.8)

$

39.9

Calculation of Net earnings for diluted earnings (loss) per share:

Marked-to-market gain on derivative liability

(33.9)

Interest expense for Convertible Notes due 2024

8.1

Net earnings (loss) for diluted earnings (loss) per share

$

23.6

$

22.2

$

(80.8)

$

39.9

Denominator (shares in thousands):

Weighted average shares for basic earnings (loss) per common share

 

103,845

 

128,039

 

103,814

 

128,042

Common equivalent shares for RSUs and PSUs

 

21

 

66

 

 

Common equivalent shares if converted: convertible notes 2024

31,662

Weighted average shares for diluted earnings (loss) per common share

 

135,528

 

128,105

 

103,814

 

128,042

Basic earnings (loss) per common share

$

0.48

$

0.17

$

(0.78)

$

0.31

Diluted earnings (loss) per common share

$

0.17

$

0.17

$

(0.78)

$

0.31

Vested RSUs and PSU’s have dividend rights identical to the Company’s Class A and Class B common stock and are treated as outstanding shares for purposes of computing basic and diluted earnings per share. Certain unvested RSUs and unvested PSUs are subject to performance conditions and are included in diluted earnings per share, if dilutive, based on the number of shares, if any, that would be issuable under the terms of the Company’s 2013 Equity Incentive Plan if the end of the reporting period were the end of the contingency period. During the six months ended June 30, 2019, unvested PSU’s of 502,858 at the minimum performance target were not included in the computation of diluted earnings (loss) per share because they would not be issuable if the end of the reporting period were the end of the contingency period.

During the six months ended June 30, 2018, unvested PSU’s of 411,657 at the minimum performance target were not included in the computation of diluted loss per share since the shares would not be issuable under the terms of the Plan, if the end of the reporting period were the end of the contingency period and they would also be anti-dilutive. During the six months ended June 30, 2018, unvested RSU’s of 902,004 were not included in the computation of diluted loss per share because they would be anti-dilutive.

The Company uses the if-converted method for calculating any potential dilutive effect of the Convertible Notes due 2024 that were issued on September 14, 2018. The Company has not adjusted net loss for the six months ended June 30, 2019 to eliminate the interest expense and the gain for the derivative liability related to the Convertible Notes due 2024 of $16.0 million and $20.6 million, respectively in the computation of diluted loss per share because the effects would be anti-dilutive. The Company has not included in diluted weighted average shares approximately 31.7 million shares issuable upon conversion for the six months ended June 30, 2019, as the effects would be anti-dilutive. Based on the current conversion price of $18.95 per share the Convertible Notes due 2024 are convertible into 31,662,269 Class A common shares.

37

NOTE 14—CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X Rule 3-10, Financial statements of guarantors and issuers of guaranteed securities registered or being registered. Each of the subsidiary guarantors are 100% owned by Holdings. The subsidiary guarantees of the Company’s Sterling Notes due 2024, the Convertible Notes due 2024, the Notes due 2025, the Notes due 2026, and the Notes due 2027 are full and unconditional and joint and several and subject to customary release provisions. The Company and its subsidiary guarantors’ investments in its consolidated subsidiaries are presented under the equity method of accounting.

The condensed consolidating information for the guarantors/non-guarantors has been retrospectively revised based on the structure that exists as of June 30, 2019 and reflecting changes as a result of the Sixth Amendment.

Condensed Consolidating Statement of Operations

Three Months Ended June 30, 2019:

Subsidiary

Subsidiary

Consolidating

Consolidated

(In millions)

Holdings

Guarantors

Non-Guarantors

Adjustments

Holdings

Revenues

    

    

    

    

    

Admissions

$

$

680.7

$

214.8

$

$

895.5

Food and beverage

 

 

401.1

 

91.4

 

 

492.5

Other theatre

 

 

79.4

 

38.7

 

 

118.1

Total revenues

 

 

1,161.2

 

344.9

 

 

1,506.1

Operating costs and expenses

Film exhibition costs

 

 

390.2

 

92.3

 

 

482.5

Food and beverage costs

 

 

56.1

 

20.3

 

 

76.4

Operating expense, excluding depreciation and amortization

 

 

320.9

 

116.5

 

 

437.4

Rent

 

 

179.6

 

66.3

 

 

245.9

General and administrative:

Merger, acquisition and transaction costs

 

 

2.4

 

0.8

 

 

3.2

Other, excluding depreciation and amortization

 

 

24.9

 

18.3

 

 

43.2

Depreciation and amortization

 

 

84.2

 

27.8

 

 

112.0

Operating costs and expenses

 

 

1,058.3

 

342.3

 

 

1,400.6

Operating income

 

 

102.9

 

2.6

 

 

105.5

Other expense (income):

Equity in net loss of subsidiaries

 

9.1

 

18.2

 

 

(27.3)

 

Other expense (income)

(40.9)

17.7

(0.2)

(23.4)

Interest expense:

Corporate borrowings

 

73.6

 

74.4

 

0.7

 

(74.5)

 

74.2

Capital and financing lease obligations

 

 

0.6

 

1.5

 

 

2.1

Non-cash NCM exhibitor service agreement

10.1

10.1

Intercompany interest expense

21.4

(21.4)

Equity in earnings of non-consolidated entities

 

 

(9.9)

 

(0.3)

 

 

(10.2)

Investment income

 

(91.2)

 

(4.9)

 

(1.9)

 

95.9

 

(2.1)

Total other expense (income)

 

(49.4)

 

106.2

 

21.2

 

(27.3)

 

50.7

Earnings (loss) before income taxes

 

49.4

 

(3.3)

 

(18.6)

 

27.3

 

54.8

Income tax provision (benefit)

 

 

5.8

 

(0.4)

 

 

5.4

Net earnings (loss)

$

49.4

$

(9.1)

$

(18.2)

$

27.3

$

49.4

38

Condensed Consolidating Statement of Operations

Three Months Ended June 30, 2018:

Subsidiary

Subsidiary

Consolidating

Consolidated

(In millions)

Holdings

Guarantors

Non-Guarantors

Adjustments

Holdings

Revenues

    

    

    

    

    

    

    

    

    

    

Admissions

$

$

694.3

$

202.0

$

$

896.3

Food and beverage

 

 

369.2

 

76.6

 

 

445.8

Other theatre

 

 

65.9

 

34.5

 

 

100.4

Total revenues

 

 

1,129.4

 

313.1

 

 

1,442.5

Operating costs and expenses

Film exhibition costs

 

 

391.4

 

80.0

 

 

471.4

Food and beverage costs

 

 

54.3

 

17.9

 

 

72.2

Operating expense, excluding depreciation and amortization

 

 

300.5

 

124.0

 

 

424.5

Rent

 

 

145.4

 

54.3

 

 

199.7

General and administrative:

Merger, acquisition and transaction costs

 

 

2.2

 

2.1

 

 

4.3

Other, excluding depreciation and amortization

 

 

26.6

 

16.4

 

 

43.0

Depreciation and amortization

 

 

97.3

 

40.4

 

 

137.7

Operating costs and expenses

 

 

1,017.7

 

335.1

 

 

1,352.8

Operating income (loss)

 

 

111.7

 

(22.0)

 

 

89.7

Other expense (income):

Equity in net (earnings) loss of subsidiaries

 

(26.5)

 

25.5

 

 

1.0

 

Other expense

1.0

0.7

0.5

2.2

Interest expense:

Corporate borrowings

 

61.4

 

63.0

 

0.9

 

(63.1)

 

62.2

Capital and financing lease obligations

 

 

4.4

 

5.4

 

 

9.8

Non-cash NCM exhibitor service agreement

10.4

10.4

Equity in (earnings) loss of non-consolidated entities

 

 

(13.9)

 

0.9

 

 

(13.0)

Investment income

 

(58.1)

 

(6.3)

 

(0.2)

 

63.1

 

(1.5)

Total other expense (income)

 

(22.2)