Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
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 ofincorporation or organization)
26-0303916(I.R.S. EmployerIdentification No.)
One AMC Way11500 Ash Street, Leawood, KS(Address of principal executive offices)
66211(Zip Code)
Registrant’s telephone number, including area code: (913) 213-2000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☒
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standard provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
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
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Title of each class of common stock
Number of sharesoutstanding as of May 4, 2022
516,820,595
INDEX
PageNumber
PART I—FINANCIAL INFORMATION
Item 1.
Financial Statements (Unaudited)
3
Condensed Consolidated Statements of Operations
Condensed Consolidated Statements of Comprehensive Loss
4
Condensed Consolidated Balance Sheets
5
Condensed Consolidated Statements of Cash Flows
6
Notes to Condensed Consolidated Financial Statements
8
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
30
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
49
Item 4.
Controls and Procedures
51
PART II—OTHER INFORMATION
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
53
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
54
Signatures
55
2
Item 1. Financial Statements. (Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
(In millions, except share and per share amounts)
March 31, 2022
March 31, 2021
(unaudited)
Revenues
Admissions
$
443.8
69.5
Food and beverage
252.5
50.1
Other theatre
89.4
28.7
Total revenues
785.7
148.3
Operating costs and expenses
Film exhibition costs
189.8
22.0
Food and beverage costs
42.6
9.7
Operating expense, excluding depreciation and amortization below
344.8
179.7
Rent
223.2
192.1
General and administrative:
Merger, acquisition and other costs
0.4
6.7
Other, excluding depreciation and amortization below
53.1
51.8
Depreciation and amortization
98.7
114.1
952.6
576.1
Operating loss
(166.9)
(427.8)
Other expense (income):
Other expense (income)
136.3
(17.4)
Interest expense:
Corporate borrowings
82.0
151.5
Finance lease obligations
1.2
1.4
Non-cash NCM exhibitor services agreement
9.2
9.9
Equity in loss of non-consolidated entities
5.1
2.8
Investment income
(63.4)
(2.0)
Total other expense, net
170.4
146.2
Net loss before income taxes
(337.3)
(574.0)
Income tax provision (benefit)
0.1
(6.8)
Net loss
(337.4)
(567.2)
Less: Net loss attributable to noncontrolling interests
—
(0.3)
Net loss attributable to AMC Entertainment Holdings, Inc.
(566.9)
Net loss per share attributable to AMC Entertainment Holdings, Inc.'s common stockholders:
Basic
(0.65)
(1.42)
Diluted
Average shares outstanding:
Basic (in thousands)
515,910
400,111
Diluted (in thousands)
See Notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In millions)
Other comprehensive income (loss):
Unrealized foreign currency translation adjustments
(6.0)
(54.7)
Pension adjustments:
Net gain arising during the period
0.2
3.5
Other comprehensive loss
(5.8)
(51.2)
Total comprehensive loss
(343.2)
(618.4)
Comprehensive loss attributable to noncontrolling interests
(0.5)
Comprehensive loss attributable to AMC Entertainment Holdings, Inc.
(617.9)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except share data)
December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents
1,164.9
1,592.5
Restricted cash
23.7
27.8
Receivables, net
105.8
168.5
Other current assets
110.1
81.5
Total current assets
1,404.5
1,870.3
Property, net
1,881.5
1,962.5
Operating lease right-of-use assets, net
4,144.2
4,155.9
Intangible assets, net
151.8
153.4
Goodwill
2,415.4
2,429.8
Deferred tax asset, net
0.6
Other long-term assets
347.4
249.0
Total assets
10,345.4
10,821.5
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable
295.4
377.1
Accrued expenses and other liabilities
365.3
367.5
Deferred revenues and income
379.8
408.6
Current maturities of corporate borrowings
20.0
Current maturities of finance lease liabilities
8.2
9.5
Current maturities of operating lease liabilities
597.1
605.2
Total current liabilities
1,665.8
1,787.9
5,501.8
5,408.0
Finance lease liabilities
60.6
63.2
Operating lease liabilities
4,587.7
4,645.2
Exhibitor services agreement
520.7
510.4
Deferred tax liability, net
31.1
31.3
Other long-term liabilities
156.0
165.0
Total liabilities
12,523.7
12,611.0
Commitments and contingencies
Stockholders’ deficit:
AMC Entertainment Holdings, Inc.'s stockholders' deficit:
Class A common stock ($.01 par value, 524,173,073 shares authorized; 516,820,595 shares issued and outstanding as of March 31, 2022; 513,979,100 shares issued and outstanding as of December 31, 2021)
5.2
Additional paid-in capital
4,811.8
4,857.5
Accumulated other comprehensive loss
(33.9)
(28.1)
Accumulated deficit
(6,961.4)
(6,624.0)
Total stockholders' deficit
(2,178.3)
(1,789.5)
Total liabilities and stockholders’ deficit
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Adjustments to reconcile net loss to net cash used in operating activities:
Deferred income taxes
(0.1)
(6.2)
Loss on extinguishment of debt
135.0
Unrealized gain on investments in Hycroft
(63.9)
Amortization of net discount (premium) on corporate borrowings to interest expense
(15.5)
42.3
Amortization of deferred financing costs to interest expense
12.1
PIK interest expense
52.7
Non-cash portion of stock-based compensation
6.5
5.4
Gain on disposition of assets
(0.4)
Equity in loss from non-consolidated entities, net of distributions
5.8
Landlord contributions
3.7
Other non-cash rent benefit
(7.1)
(7.5)
Deferred rent
(48.7)
(21.8)
Net periodic benefit income
(0.2)
Change in assets and liabilities:
Receivables
63.6
(2.7)
Other assets
(30.6)
(13.0)
(80.4)
(11.9)
(32.8)
96.4
Other, net
Net cash used in operating activities
(295.0)
(312.9)
Cash flows from investing activities:
Capital expenditures
(34.8)
Proceeds from disposition of long-term assets
7.2
Investments in non-consolidated entities, net
(27.9)
(9.3)
Net cash used in investing activities
(54.9)
(16.0)
Cash flows from financing activities:
Proceeds from issuance of First Lien Notes due 2029
950.0
Proceeds from issuance of Odeon Term Loan due 2023
534.3
Proceeds from First Lien Toggle Notes due 2026
100.0
Principal payments under First Lien Notes due 2025
(500.0)
Principal payments under First Lien Notes due 2026
(300.0)
Principal payments under First Lien Toggle Notes due 2026
(73.5)
Premium paid to extinguish First Lien Notes due 2025
(34.5)
Premium paid to extinguish First Lien Notes due 2026
(25.6)
Premium paid to extinguish First Lien Toggle Notes due 2026
(14.6)
Repayments under revolving credit facilities
(335.0)
Scheduled principal payments under Term Loan due 2026
(5.0)
Net proceeds from Class A common stock issuance
581.6
Payments related to sale of noncontrolling interest
Principal payments under finance lease obligations
(2.5)
(1.9)
Cash used to pay for deferred financing costs
(17.7)
(19.0)
Cash used to pay dividends
(0.7)
Taxes paid for restricted unit withholdings
(52.2)
Net cash provided by (used in) financing activities
(76.3)
854.7
Effect of exchange rate changes on cash and cash equivalents and restricted cash
(5.5)
(5.1)
Net increase (decrease) in cash and cash equivalents and restricted cash
(431.7)
Cash and cash equivalents and restricted cash at beginning of period
1,620.3
321.4
Cash and cash equivalents and restricted cash at end of period
1,188.6
842.1
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (including amounts capitalized of $0 million and $0.2 million, respectively)
62.5
26.2
Income taxes paid (received), net
1.5
(9.0)
Schedule of non-cash activities:
Investment in NCM
15.1
Construction payables at period end
27.7
10.0
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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.
Temporarily suspended or limited operations. Total consolidated revenues increased $637.4 million for the three months ended March 31, 2022, compared to the three months ended March 31, 2021. The increase in total consolidated revenues was primarily due to the COVID-19 pandemic impact on the prior year which resulted in the temporary suspension of operations at the Company’s theatres in U.S. markets and International markets. As of March 31, 2021, the Company operated at 585 domestic theatres with limited seating capacities, representing approximately 99% of its domestic theatres. As of March 31, 2021, the Company operated at 97 international theatres, with limited seating capacities, representing approximately 27% of its international theatres. During the three months ended March 31, 2022, the Company operated substantially 100% of its U.S. and International theatres.
Liquidity. As of March 31, 2022, the Company has cash and cash equivalents of approximately $1.2 billion. In response to the COVID-19 pandemic, the Company adjusted certain elements of its business strategy and took significant steps to preserve cash. The Company is continuing to take measures to further strengthen its financial position and enhance its operations, by minimizing non-essential costs, including reductions to its variable costs and elements of its fixed cost structure, introducing new initiatives, and optimizing its theatrical footprint.
Additionally, the Company enhanced future liquidity through debt refinancing at lower interest rates. See Note 6—Corporate Borrowings and Finance Lease Obligations for further information.
The Company’s net cash used in operating activities improved by $79.1 million during the three months ended June 30, 2021 compared to the three months ended March 31, 2021, $119.9 million during the three months ended September 30, 2021 compared to the three months ended June 30, 2021, and $160.4 million during the three months ended December 31, 2021 compared to the three months ended September 30, 2021. The Company’s net cash provided by (used in) operating activities deteriorated by $341.5 million during the three months ended March 31, 2022 compared to the three months ended December 31, 2021 from $46.5 million to $(295.0) million. The decline in net cash provided by operating activities from the three months ended December 31, 2021 to the three months ended March 31, 2022 was primarily attributable to a decrease in attendance and increase in net loss and increases in seasonal working capital uses as the Company paid for the strong late fourth quarter 2021 results in early first quarter of 2022. The Company has also continued to repay rent amounts that were deferred during the COVID-19 pandemic, which increases its cash outflows from operating activities. See Note 2—Leases for a summary of the estimated future repayment terms for the remaining $271.7 million of rentals that were deferred during the COVID-19 pandemic.
The Company’s net cash used in investing activities of $54.9 million included $34.8 million of capital expenditures and $27.9 million of investments in non-consolidated entities, partially offset by proceeds from the disposition of long-term assets of $7.2 million during the three months ended March 31, 2022.
The Company’s net cash used in financing activities of $76.3 million included principal and premium payments of $955.7 million, taxes paid for restricted unit withholdings of $52.2 million, and cash used to pay for deferred financing costs of $17.7 million, partially offset by proceeds from the Company’s debt issuance of $950.0 million, during the three months ended March 31, 2022.
The Company believes its existing cash and cash equivalents, together with cash generated from operations, will be sufficient to fund its operations, satisfy its obligations, including cash outflows for increased rent and planned capital expenditures, and comply with minimum liquidity and financial covenant requirements under its debt covenants related to borrowings pursuant to the Senior Secured Revolving Credit Facility and Odeon Term Loan Facility for at
least the next 12 months. In order to achieve net positive operating cash flows and long-term profitability, the Company believes it will need to increase attendance levels significantly compared to 2021 and achieve levels in line with pre COVID-19 attendance. The Company believes the global re-opening of its theatres, the anticipated volume of titles available for theatrical release, and the anticipated broad appeal of many of those titles will support increased attendance levels. The Company believes that the sequential increases in attendance experienced each quarter of 2021 are positive signs of continued demand for the moviegoing experience. The Company’s business is seasonal, with higher attendance and revenues generally occurring during the summer months and holiday seasons. However, there remain significant risks that may negatively impact attendance, including a resurgence of COVID-19 related restrictions, potential movie-goer reluctance to attend theatres due to concerns about the COVID-19 variant strains, movie studios release schedules and direct to streaming or other changing movie studio practices.
The Company entered the Ninth Amendment to the Credit Agreement, dated as of March 8, 2021, pursuant to which the requisite revolving lenders party thereto agreed to extend the suspension period for the financial covenant (the secured leverage ratio) applicable to the Senior Secured Revolving Credit Facility from March 31, 2021 to March 31, 2022, which was further extended from March 31, 2022 to March 31, 2023 by the Eleventh Amendment, dated as of December 20, 2021, as described, and on the terms and conditions specified, therein. The Company is currently subject to minimum liquidity requirements of approximately $143 million, of which $100 million is required under the conditions for the Extended Covenant Suspension Period, as amended, under the Senior Secured Revolving Credit Facility, and £32.5 million (approximately $43 million) of which is required under the Odeon Term Loan Facility. Following the expiration of the Extended Covenant Suspension Period ending March 31, 2023, the Company will be subject to the financial covenant under the Senior Secured Revolving Credit Facility as of the last day of each quarter on which the aggregate principal amount of revolving loans and letters of credit (excluding letters of credit that are cash collateralized) in excess of $25 million outstanding under the Senior Secured Revolving Credit Facility exceeds 35% of the principal amount of commitments under the Senior Secured Revolving Credit facility then in effect, beginning with the quarter ending June 30, 2023. The Company currently expects it will be able to comply with this financial covenant; however, the Company does not anticipate the need to borrow under the Senior Secured Revolving Credit Facility during the next twelve months.
The Company received rent concessions provided by the lessors that aided in mitigating the economic effects of COVID-19 during the pandemic during the years 2021 and 2020. These concessions primarily consisted of rent abatements and the deferral of rent payments. As a result, deferred lease amounts were approximately $271.7 million as of March 31, 2022. The Company’s cash expenditures for rent increased significantly during the three months ended March 31, 2022, compared to the three months ended March 31, 2021. See Note 2—Leases for a summary of the estimated future repayment terms for the deferred lease amounts due to COVID-19.
Use of estimates. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Principles of consolidation. The accompanying unaudited condensed consolidated financial statements include the accounts of AMC, as discussed above, and should be read in conjunction with the Company’s Annual Report on Form 10–K for the year ended December 31, 2021. The accompanying condensed consolidated balance sheet as of December 31, 2021, 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 presentation of the Company’s financial position and results of operations. All significant intercompany balances and transactions have been eliminated in consolidation. Due to the seasonal nature of the Company’s business and the recovery of the industry from the global COVID-19 pandemic, results for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022. The Company manages its business under two reportable segments for its theatrical exhibition operations, U.S. markets and International markets.
9
Cash and equivalents. At March 31, 2022, cash and cash equivalents for the U.S. markets and International markets were $963.8 million and $201.1 million respectively, and at December 31, 2021, cash and cash equivalents were $1,311.4 million and $281.1 million, respectively.
Restricted cash. Restricted cash is cash held in the Company’s bank accounts in International markets as a guarantee for certain landlords.
Accumulated other comprehensive income (loss). The following table presents the change in accumulated other comprehensive income (loss) by component:
Foreign
Currency
Pension Benefits
Total
Balance December 31, 2021
(9.1)
Other comprehensive income (loss)
Balance March 31, 2022
(25.0)
(8.9)
Accumulated depreciation and amortization. Accumulated depreciation was $2,642.9 million and $2,583.4 million at March 31, 2022 and December 31, 2021, respectively, related to property. Accumulated amortization of intangible assets was $41.9 million and $41.2 million at March 31, 2022 and December 31, 2021, respectively.
Other expense (income). The following table sets forth the components of other expense (income):
Decreases related to contingent lease guarantees
Governmental assistance due to COVID-19 - International markets
(2.3)
(8.2)
Governmental assistance due to COVID-19 - U.S. markets
(1.1)
(4.2)
Foreign currency transaction (gains) losses
4.8
(3.8)
Non-operating components of net periodic benefit income
Financing fees related to modification of debt agreements
1.0
Total other expense (income)
Accounting Pronouncements Recently Adopted
Government Assistance. In November 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-10, Government Assistance (Topic 832) Disclosures by Business Entities about Government Assistance (“ASU 2021-10”). The amendments in ASU 2021-10 require annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy, including (1) information about the nature of the transactions and the related accounting policy used to account for the transactions, (2) the line items on the balance sheet and income statement that are affected by the transactions and the amounts applicable to each financial statement line item, and (3) significant terms and conditions of the transactions, including commitments and contingencies. The Company is applying the amendments in ASU 2021-10 prospectively as of January 1, 2022 and the annual government assistance disclosure requirements are effective for the Company during the year ending December 31, 2022.
NOTE 2—LEASES
The Company leases theatres and equipment under operating and finance leases. The Company typically does not believe that exercise of the renewal options is reasonably certain at the lease commencement and, therefore, considers the initial base term as the lease term. Lease terms vary but generally the leases provide for fixed and escalating rentals, contingent escalating rentals based on the Consumer Price Index and other indexes not to exceed certain specified amounts and variable rentals based on a percentage of revenues. The Company often receives contributions from landlords for renovations at existing locations. The Company records the amounts received from landlords as an adjustment to the right-of-use asset and amortizes the balance as a reduction to rent expense over the base term of the lease agreement. Equipment leases primarily consist of food and beverage equipment.
The Company received rent concessions provided by the lessors that aided in mitigating the economic effects of
10
COVID-19 during the pandemic. These concessions primarily consisted of rent abatements and the deferral of rent payments. In instances where there were no substantive changes to the lease terms, i.e., modifications that resulted in total payments of the modified lease being substantially the same or less than the total payments of the existing lease, the Company elected the relief as provided by the FASB staff related to the accounting for certain lease concessions. The Company elected not to account for these concessions as a lease modification, and therefore the Company has remeasured the related lease liability and right-of-use asset but did not reassess the lease classification or change the discount rate to the current rate in effect upon the remeasurement. The deferred payment amounts have been recorded in the Company’s lease liabilities to reflect the change in the timing of payments. The deferred payment amounts included in current maturities of operating lease liabilities and long-term operating lease liabilities are reflected in the condensed consolidated statements of cash flows as part of the change in accrued expenses and other liabilities. Those leases that did not meet the criteria for treatment under the FASB relief were evaluated as lease modifications. The deferred payment amounts included in accounts payable for contractual rent amounts due and not paid are reflected in accounts payable on the condensed consolidated balance sheets and in the condensed consolidated statements of cash flows as part of the change in accounts payable. In addition, the Company included deferred lease payments in operating lease right-of-use assets as a result of lease remeasurements.
A summary of deferred payment amounts related to rent obligations for which payments were deferred to future periods are provided below:
As of
December 31,
Decrease
March 31,
2021
in deferred amounts
2022
Fixed operating lease deferred amounts (1)
299.3
(40.6)
258.7
Finance lease deferred amounts
2.4
(0.8)
1.6
Variable lease deferred amounts
13.4
11.4
Total deferred lease amounts
315.1
(43.4)
271.7
The following table reflects the lease costs for the periods presented:
Consolidated Statements of Operations
Operating lease cost
Theatre properties
202.5
175.5
Operating expense
0.8
Equipment
2.3
Office and other
General and administrative: other
Finance lease cost
Amortization of finance lease assets
0.7
1.3
Interest expense on lease liabilities
Variable lease cost
20.7
16.6
12.6
Total lease cost
243.1
199.5
11
Cash flow and supplemental information is presented below:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used in finance leases
(1.0)
Operating cash flows used in operating leases
(266.4)
(136.7)
Financing cash flows used in finance leases
Landlord contributions:
Operating cashflows provided by operating leases
Supplemental disclosure of noncash leasing activities:
Right-of-use assets obtained in exchange for new operating lease liabilities (1)
111.8
23.5
The following table represents the weighted-average remaining lease term and discount rate as of March 31, 2022:
As of March 31, 2022
Weighted Average
Remaining
Discount
Lease Term and Discount Rate
Lease Term (years)
Rate
Operating leases
9.7%
Finance leases
13.8
6.5%
Minimum annual payments, including deferred lease payments less contractual rent amounts due and not paid that were recorded in accounts payable, that are recorded as operating and finance lease liabilities and the net present value thereof as of March 31, 2022 are as follows:
Operating Lease
Financing Lease
Payments (2)
Nine months ending December 31, 2022 (1)
775.9
9.8
2023 (1)
955.7
9.6
2024
833.2
8.6
2025
784.9
7.9
2026
719.9
7.7
2027
662.1
Thereafter
3,277.6
54.6
Total lease payments
8,009.3
105.9
Less imputed interest
(2,824.5)
(37.1)
Total operating and finance lease liabilities, respectively
5,184.8
68.8
Accounts Payable
Lease Payments
Three months ended June 30, 2022
29.2
Three months ended September 30, 2022
Three months ended December 31, 2022
Three months ended March 31, 2023
5.7
Total deferred lease amounts recorded in AP
36.5
12
Payments
36.1
32.5
31.7
2023
83.6
0.5
15.8
4.2
3.4
20.9
233.9
As of March 31, 2022, the Company had signed additional operating lease agreements for 5 theatres that have not yet commenced of approximately $99.5 million, which are expected to commence between years 2022 and 2024 and carry lease terms ranging from 5 to 20 years. The timing of lease commencement is dependent on the landlord providing the Company with control and access to the related facility.
NOTE 3—REVENUE RECOGNITION
Disaggregation of revenue. Revenue is disaggregated in the following tables by major revenue types and by timing of revenue recognition:
Major revenue types
Other theatre:
Screen advertising
28.9
16.9
Other
60.5
11.8
Timing of revenue recognition
Products and services transferred at a point in time
708.1
126.8
Products and services transferred over time(1)
77.6
21.5
The following tables provide the balances of receivables and deferred revenue income:
Current assets
Receivables related to contracts with customers
33.7
85.4
Miscellaneous receivables
72.1
83.1
13
Current liabilities
Deferred revenue related to contracts with customers
376.7
405.1
Miscellaneous deferred income
3.1
Deferred revenue and income
The significant changes in contract liabilities with customers included in deferred revenues and income are as follows:
Deferred Revenues
Related to Contracts
with Customers
Cash received in advance(1)
54.9
Customer loyalty rewards accumulated, net of expirations:
Admission revenues (2)
3.0
Food and beverage (2)
2.6
Other theatre (2)
Reclassification to revenue as the result of performance obligations satisfied:
Admission revenues (3)
(54.0)
Food and beverage (3)
(12.0)
Other theatre (4)
(21.1)
Foreign currency translation adjustment
The significant changes to contract liabilities included in the exhibitor services agreement in the condensed consolidated balance sheets, are as follows:
Exhibitor Services
Agreement (1)
Common Unit Adjustment–additions of common units
15.0
Reclassification of portion of the beginning balance to other theatre revenue, as the result of performance obligations satisfied
(4.7)
Gift cards and exchange tickets. The total amount of non-redeemed gift cards and exchange tickets included in deferred revenues and income in the condensed consolidated balance sheet as of March 31, 2022 was $295.3 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.
Loyalty programs. As of March 31, 2022, the amount of deferred revenues allocated to the loyalty programs
14
included in deferred revenues and income in the condensed consolidated balance sheet was $64.4 million. The earned points will be recognized as revenue as the points are redeemed, which is estimated to occur over the next 24 months. The AMC Stubs® annual membership fee is recognized ratably over the one-year membership period.
The Company applies the practical expedient in ASC 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less.
NOTE 4—GOODWILL
The following table summarizes the changes in goodwill by reporting unit for the three months ended March 31, 2022:
Domestic Theatres
International Theatres
1,796.5
633.3
Currency translation adjustment
(14.4)
618.9
NOTE 5—INVESTMENTS
Investments in non-consolidated affiliates and certain other investments accounted for under the equity method generally include all entities in which the Company or its subsidiaries have significant influence, but not more than 50% voting control, and are recorded in the condensed consolidated balance sheets in other long-term assets. Investments in non-consolidated affiliates as of March 31, 2022 include interests in Digital Cinema Implementation Partners, LLC (“DCIP”) of 29.0%, Digital Cinema Distribution Coalition, LLC (“DCDC”) of 14.6%, AC JV, LLC (“AC JV”), owner of Fathom Events, of 32.0%, SV Holdco LLC (“SV Holdco”), owner of Screenvision, of 18.4%, Digital Cinema Media Ltd. (“DCM”) of 50.0%, and Saudi Cinema Company LLC (“SCC”) of 10.0%. The Company also has partnership interests in three U.S. motion picture theatres (“Theatre Partnerships”) and approximately 50.0% interests in 57 theatres in Europe. Indebtedness held by equity method investees is non-recourse to the Company. During the three months ended March 31, 2022 and March 31, 2021, the Company recorded equity in loss of non-consolidated entities of $5.1 million and $2.8 million, respectively.
Related party transactions with equity method investees. At March 31, 2022 and December 31, 2021, the Company recorded net receivable amounts due from equity method investees of $4.1 million and $2.6 million, respectively, primarily related to on-screen advertising revenue, projector warranty expenditures and other transactions. The Company recorded related party transactions with equity method investees in other revenues, film exhibition costs, and operating expenses of $5.5 million, $1.4 million, and $0 million, respectively, during the three months ended March 31, 2022, and $0.6 million, $0.3 million, and $0.4 million, respectively, during the three months ended March 31, 2021.
Investment in Hycroft
On March 14, 2022, the Company purchased 23.4 million units of Hycroft Mining Holding Corporation (NASDAQ: HYMC) (“Hycroft”), for $27.9 million, with each unit consisting of one common share of Hycroft and one common share purchase warrant. The units were priced at $1.193 per unit. Each warrant is exercisable for one common share of Hycroft at a price of $1.068 per share over a 5-year term through March 2027. Hycroft filed a resale registration statement to register the common shares and warrant shares for sale under the Securities Act on April 14, 2022. The Company accounts for the common shares of Hycroft under the equity method and has elected the fair value option in accordance with ASC 825-10. The Company accounts for the warrants as derivatives in accordance with ASC 815. Accordingly, the fair value of the investments in Hycroft are remeasured at each subsequent reporting period and unrealized gains and losses are reported in investment income. The Company believes the fair value option to be the most appropriate election for this equity method investment as the Company is not entering the mining business. During the three months ended March 31, 2022, the Company recorded unrealized gains related to the investment in Hycroft of $63.9 million in investment income. Hycroft has outstanding warrants with other investors that could dilute the Company’s share of earnings. See Note 9—Fair Value Measurements for fair value information and Note 13—Supplemental Balance Sheet Information for the asset value for investments in Hycroft measured under the fair value option as well as the total asset value for other equity method investments.
15
NCM Transaction
Pursuant to the Company’s Common Unit Adjustment Agreement, from time-to-time common units of NCM held by the Founding Members will be adjusted up or down through a formula (“Common Unit Adjustment” or “CUA”), primarily based on increases or decreases in the number of theatre screens operated and theatre attendance generated by each Founding Member. The CUA is computed annually, except that an earlier CUA will occur for a Founding Member if its acquisition or disposition of theatres, in a single transaction or cumulatively since the most recent CUA, will cause a change of 2% or more in the total annual attendance of all of the Founding Members.
In March 2022, the NCM CUA resulted in a positive adjustment of 5,954,646 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 $15.0 million, based upon a price per share of National CineMedia, Inc. (“NCM, Inc.”) of $2.52 on March 30, 2022. See Note 9—Fair Value Measurements for information regarding the fair value measurement on March 31, 2022.
NOTE 6—CORPORATE BORROWINGS AND FINANCE LEASE OBLIGATIONS
A summary of the carrying value of corporate borrowings and finance lease obligations is as follows:
First Lien Secured Debt:
Senior Secured Credit Facility-Term Loan due 2026 (3.352% as of March 31, 2022)
1,940.0
1,945.0
10.75% in Year 1, 11.25% thereafter Cash/PIK Odeon Term Loan Facility due 2023 (£147.6 million and €312.2 million par value as of March 31, 2022)
542.3
552.6
7.5% First Lien Notes due 2029
10.5% First Lien Notes due 2025
500.0
10.5% First Lien Notes due 2026
300.0
15%/17% Cash/PIK Toggle First Lien Secured Notes due 2026
73.5
Second Lien Secured Debt:
10%/12% Cash/PIK/Toggle Second Lien Subordinated Notes due 2026
1,508.0
Subordinated Debt:
6.375% Senior Subordinated Notes due 2024 (£4.0 million par value as of March 31, 2022)
5.75% Senior Subordinated Notes due 2025
98.3
5.875% Senior Subordinated Notes due 2026
55.6
6.125% Senior Subordinated Notes due 2027
130.7
5,230.1
5,169.1
72.7
Deferred financing costs
(38.5)
(39.1)
Net premium (1)
330.2
298.0
5,590.6
5,500.7
Less:
Current maturities corporate borrowings
(20.0)
Current maturities finance lease obligations
(9.5)
5,562.4
5,471.2
16
346.0
364.6
(16.8)
(24.5)
(7.2)
Senior Secured Credit Facility-Term Loan due 2026
(6.1)
10.75% in Year 1, 11.25% thereafter Cash/PIK Odeon Term Loan Facility due 2023
(10.1)
(12.1)
6.375% Senior Subordinated Notes due 2024
The following table provides the principal payments required and maturities of corporate borrowing as of March 31, 2022:
Principal
Amount of
Corporate
Borrowings
Nine months ended December 31, 2022
562.3
25.2
118.3
3,428.6
First Lien Notes due 2029
On February 14, 2022, the Company issued $950.0 million aggregate principal amount of its 7.5% First Lien Senior Secured Notes due 2029 (“First Lien Notes due 2029”), pursuant to an indenture, dated as of February 14, 2022, among the Company, the guarantors named therein and U.S. Bank Trust Company, National Association, as trustee and collateral agent. The Company used the net proceeds from the sale of the notes, and cash on hand, to fund the full redemption of the then outstanding $500 million aggregate principal amount of the Company’s 10.5% First Lien Notes due 2025 (“First Lien Notes due 2025”), the then outstanding $300 million aggregate principal amount of the Company’s 10.5% First Lien Notes due 2026 (“First Lien Notes due 2026”), and the then outstanding $73.5 million aggregate principal amount of the Company’s 15%/17% Cash/PIK Toggle First Lien Secured Notes due 2026 (“First Lien Toggle Notes due 2026”) and to pay related accrued interest, fees, costs, premiums and expenses. The Company recorded a loss on debt extinguishment related to this transaction of $135.0 million in other expense, during the three months ended March 31, 2022. The deferred charges will be amortized to interest expense over the term of the First Lien Notes due 2029 using the effective interest method.
The First Lien Notes due 2029 bear cash interest at a rate of 7.5% per annum payable semi-annually in arrears on February 15 and August 15, beginning on August 15, 2022. The First Lien Notes due 2029 have not been registered under the Securities Act of 1933, as amended, and will mature on February 15, 2029. The Company may redeem some or all of the First Lien Notes due 2029 at any time on or after February 15, 2025, at the redemption prices equal to (i) 103.750% for the twelve-month period beginning on February 15, 2025; (ii) 101.875% for the twelve-month period beginning on February 15, 2026, and (iii) 100.0% at any time thereafter, plus accrued and unpaid interest. In addition, the Company may redeem up to 35% of the aggregate principal amount of the First Lien Notes due 2029 using net proceeds from certain equity offerings completed prior to February 15, 2025 at a redemption price equal to 107.5% of their aggregate principal amount and accrued and unpaid interest to, but not including the date of redemption. The Company may redeem some or all of the First Lien Notes due 2029 at any time prior to February 15, 2025 at a redemption price equal to 100% of their aggregate principal amount and accrued and unpaid interest to, but not including, the date of redemption, plus an applicable make-whole premium. Upon a Change of Control (as defined in the
17
indenture governing the First Lien Notes due 2029), the Company must offer to purchase the First Lien Notes due 2029 at a purchase price equal to 101% of the principal amounts, plus accrued and unpaid interest.
The First Lien Notes due 2029 are general senior secured obligations of the Company and are fully and unconditionally guaranteed on a joint and several senior secured basis by all of the Company’s existing and future subsidiaries that guarantee the Company’s other indebtedness, including the Company’s Senior Secured Credit Facilities under the credit agreement dated as of April 30, 2013 (as amended through the Eleventh Amendment thereto dated December 20, 2021). The First Lien Notes due 2029 are secured, on a pari passu basis with the Senior Secured Credit Facilities, on a first-priority basis by substantially all of the tangible and intangible assets owned by the Company and guarantors that secure obligations under the Senior Secured Credit Facilities including pledges of capital stock of certain of the Company’s and the guarantor’s wholly-owned material subsidiaries (but limited to 65% of the voting stock of any foreign subsidiary), subject to certain thresholds, exceptions and permitted liens.
The indentures governing the First Lien Notes due 2029 contain covenants that restrict the ability of the Company to, among other things: (i) incur additional indebtedness, including additional senior indebtedness; (ii) pay dividends on or make other distributions in respect of its capital stock; (iii) purchase or redeem capital stock or prepay subordinated debt or other junior securities (iv) create liens ranking pari passu in right of payment with or subordinated in right of payment to First Lien Notes due 2029; (v) enter into certain transactions with its affiliates; and (vi) merge or consolidate with other companies or transfer all or substantially all of their respective assets. These covenants are subject to a number of important limitations and exceptions. The indentures governing the First Lien Notes due 2029 also provides for events of default, which, if any occur, would permit or require the principal, interest and any other monetary obligations on all the then outstanding notes to be due and payable immediately.
Financial Covenants
The Company currently estimates that its existing cash and cash equivalents will be sufficient to comply with minimum liquidity and financial covenant requirements under its debt covenants related to borrowings pursuant to the Senior Secured Revolving Credit Facility and Odeon Term Loan Facility, currently and through the next twelve months. The Company entered the Ninth Amendment to the Credit Agreement, dated as of March 8, 2021, pursuant to which the requisite revolving lenders party thereto agreed to extend the suspension period for the financial covenant (the secured leverage ratio) applicable to the Senior Secured Revolving Credit Facility from March 31, 2021 to March 31, 2022, which was further extended from March 31, 2022 to March 31, 2023 by the Eleventh Amendment, dated as of December 20, 2021, as described, and on the terms and conditions specified, therein. The Company is currently subject to minimum liquidity requirements of approximately $143 million, of which $100 million is required under the conditions for the Extended Covenant Suspension Period, as amended, under the Senior Secured Revolving Credit Facility, and £32.5 million (approximately $43 million) of which is required under the Odeon Term Loan Facility. Following the expiration of the Extended Covenant Suspension Period ending March 31, 2023, the Company will be subject to the financial covenant under the Senior Secured Revolving Credit Facility as of the last day of each quarter on which the aggregate principal amount of revolving loans and letters of credit (excluding letters of credit that are cash collateralized) in excess of $25 million outstanding under the Senior Secured Revolving Credit Facility exceeds 35% of the principal amount of commitments under the Senior Secured Revolving Credit Facility then in effect, beginning with the quarter ending June 30, 2023. The Company currently expects it will be able to comply with this financial covenant; however, the Company does not anticipate the need to borrow under the Senior Secured Revolving Credit Facility during the next twelve months.
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NOTE 7—STOCKHOLDERS’ EQUITY
Stock-Based Compensation
The following table presents the stock-based compensation expense recorded within general and administrative: other:
Board of director stock award expense
0.9
Restricted stock unit expense
2.2
Performance stock unit expense
2.9
Special performance stock unit expense
Total stock-based compensation expense
As of March 31, 2022, the estimated remaining unrecognized compensation cost related to stock-based compensation arrangements was approximately $52.5 million, which reflects assumptions related to attainment of performance targets based on the scales as described below. The weighted average period over which this remaining compensation expense is expected to be recognized is approximately 1.1 years.
Awards Granted in 2022
During the three months ended March 31, 2022, AMC’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 2013 Equity Incentive Plan. The grant date fair value of these awards during the three months ended March 31, 2022 was based on the closing price of AMC’s Class A common stock (“Common Stock” or “Common Shares”) on February 16, 2022 of $19.67 per share and on March 7, 2022 of $15.21 per share. Each RSU and PSU held by a participant as of a dividend record date is entitled to a dividend equivalent equal to the amount paid with respect to one share of Common Stock underlying the unit. Any such accrued dividend equivalents are paid to the holder upon vesting of the units. Each unit represents the right to receive one share of Common Stock at a future date.
The 2022 award agreements generally had the following features:
The Compensation Committee establishes the annual performance targets at the beginning of each year. Therefore, the grant date (and fair value measurement date) for each Tranche Year is the date at the beginning of each year when a mutual understanding of the key terms and conditions are reached per ASC 718, Compensation – Stock compensation. During the three months ended March 31, 2022, the 2022 PSU award grant date fair value for the 2022 Tranche Year award of 229,316 units was approximately $4.5
19
million and the 2021 PSU award grant date fair value for the 2022 Tranche Year award of 878,540 units was approximately $17.3 million, measured using performance targets at 100%. The 2020 PSU award for the 2022 Tranche Year was previously granted in year 2020, and was subsequently modified on October 30, 2020 where the grant date fair value was not determined until the three months ended March 31, 2022 when the performance targets were established. As a result, the 2020 PSU award grant date fair value for the 2022 Tranche Year award of 429,683 units was approximately $8.5 million, measured using performance targets at 100%.
The following table represents the nonvested RSU and PSU activity for the three months ended March 31, 2022:
Weighted
Average
Shares of RSU
Grant Date
and PSU
Fair Value
Nonvested at January 1, 2022 (1)
7,841,733
7.92
Granted
1,796,125
19.60
Vested
(2,799,845)
7.17
Forfeited
(195,720)
11.33
Cancelled (2)
(2,358,278)
7.16
Nonvested at March 31, 2022 (3)
4,284,015
13.57
Tranche Years 2023 and 2024 awarded under the 2022 PSU award and Tranche Year 2023 awarded under the 2021 PSU award with grant date fair values to be determined in years 2023 and 2024, respectively
1,296,860
Total Nonvested at March 31, 2022
5,580,875
20
Condensed Consolidated Statements of Stockholders’ Deficit
For the Three Months Ended March 31, 2022
Accumulated
Class A Voting
Additional
Common Stock
Paid-in
Comprehensive
Stockholders’
(In millions, except share and per share data)
Shares
Amount
Capital
Loss
Deficit
Equity (Deficit)
Balances December 31, 2021
513,979,100
Stock-based compensation (1)
2,841,495
6.6
Balances March 31, 2022
21
For the Three Months Ended March 31, 2021
Class B Voting
Total AMC
Treasury Stock
Noncontrolling
Income (Loss)
Interests
Balances December 31, 2020
172,563,249
1.8
51,769,784
2,465.6
3,732,625
(56.4)
38.7
(5,335.3)
(2,885.1)
26.9
(2,858.2)
(51.0)
Baltics noncontrolling capital contribution
(4.0)
Class A common stock, accrued dividend equivalent adjustment
Class A common stock issuance
187,066,293
579.8
Wanda conversion of Class B shares to Class A shares
46,103,784
(46,103,784)
Convertible Notes due 2026 stock conversion
44,422,860
606.1
606.5
Wanda forfeit and cancellation of Class B shares
(5,666,000)
Stock-based compensation
124,054
Balances March 31, 2021
450,280,240
4.5
3,657.1
(12.3)
(5,902.3)
(2,309.4)
22.4
(2,287.0)
22
NOTE 8—INCOME TAXES
The Company’s worldwide effective income tax rate is based on actual income (loss), statutory rates, valuation allowances against deferred tax assets and tax planning opportunities available in the various jurisdictions in which it operates. The Company is using a discrete income tax calculation for the three months ended March 31, 2022 due to the lingering effects of the COVID-19 pandemic on the industry. Historically, for interim financial reporting, the Company estimated the worldwide annual income tax rate based on projected taxable income (loss) for the full year and recorded a quarterly income tax provision or benefit in accordance with the anticipated annual rate, adjusted for discrete items, if any. The Company will return to the historic approach of computing quarterly tax expense based on an annual effective rate in the future interim period when more reliable estimates of annual income become available. The Company recognizes income tax-related interest expense and penalties as income tax expense and general and administrative expense, respectively.
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.
A valuation allowance is recorded against the Company’s U.S. deferred tax assets and most of the Company’s international deferred tax assets as the Company has determined the realization of these assets does not meet the more likely than not criteria.
The effective tax rate for the three months ended March 31, 2022 reflects the impact of these valuation allowances against U.S. and international deferred tax assets generated during the three-month period. The actual effective rate for the three months ended March 31, 2022 was 0%. The Company’s consolidated tax rate for the three months ended March 31, 2022 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, permanent differences and other discrete items. At March 31, 2022 and December 31, 2021, the Company has recorded net deferred tax liabilities of $30.5 million and $30.7 million, respectively.
Utilization of the Company’s net operating loss carryforwards, disallowed business interest carryforwards and other tax attributes became subject to the Section 382 ownership change limitation due to changes in the Company’s stock ownership on January 27, 2021. The Company does not believe, however, that tax attributes generated prior to this event are significantly impacted by Section 382.
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.
23
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 March 31, 2022:
Fair Value Measurements at March 31, 2022 Using
Significant
Total Carrying
Quoted prices in
Significant other
unobservable
Value at
active market
observable inputs
inputs
(Level 1)
(Level 2)
(Level 3)
Other long-term assets:
Money market mutual funds
2.0
Investments measured at net asset value (1)
Investment in Hycroft Mining Holding Corporation warrants
38.0
Marketable equity securities:
Investment in Hycroft Mining Holding Corporation
53.8
Total assets at fair value
118.7
70.9
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. The equity method investment in Hycroft was measured at fair value using Hycroft’s stock price at the date of measurement. The investment in NCM was measured at fair value using National CineMedia, Inc.’s underlying stock price at the date of measurement.
To estimate the fair value of the Company’s investment in Hycroft warrants, the Company valued the warrants using the Black Scholes pricing model. Such judgments and estimates included estimates of volatility of 75.0% and discount rate of 2.4%. The discount rate is based on the treasury yield that matches the term as of the measurement date. Other inputs included the term of 5 years, exercise price of $1.068 and Hycroft’s stock price at the date of measurement. There is considerable management judgment with respect to the inputs used in determining fair value, and, according, actual results could vary significantly from such estimates, which fall under Level 3 within the fair value measurement hierarchy. See Note 5—Investments for further information regarding the investments in Hycroft.
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:
observable
17.9
4,176.8
570.1
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 estimated market conditions. The Company valued these notes at principal value less an estimated discount reflecting a market yield to maturity. See Note 6—Corporate Borrowings and Finance Lease Obligations 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.
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NOTE 10—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, Norway, Denmark, and Saudi Arabia. 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:
Revenues (In millions)
U.S. markets
563.1
137.2
International markets
222.6
11.1
Adjusted EBITDA (In millions)
(200.4)
(18.3)
(94.3)
Total Adjusted EBITDA (1)
(61.7)
(294.7)
Capital Expenditures (In millions)
21.1
13.7
5.3
Total capital expenditures
34.8
11.9
Long-term assets, net (In millions)
6,508.6
6,434.5
2,432.3
2,516.7
Total long-term assets (1)
8,940.9
8,951.2
25
The following table sets forth a reconciliation of net loss to Adjusted EBITDA:
Plus:
Interest expense
92.4
162.8
Certain operating expense (1)
Cash distributions from non-consolidated entities (2)
0.3
Attributable EBITDA (3)
Investment income (4)
Other expense (income) (5)
139.8
(4.8)
Other non-cash rent benefit (6)
General and administrative — unallocated:
Merger, acquisition and other costs (7)
Stock-based compensation expense (8)
Adjusted EBITDA
Equity in loss of non-consolidated entities excluding International theatre joint ventures
Equity in loss of International theatre joint ventures
(1.6)
Income tax benefit
Impairment of long-lived assets
Other expense
Attributable EBITDA
26
NOTE 11—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, assert claims under 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 (the “Exchange Act”) 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. On January 22, 2019, defendants moved to dismiss the Second Amended Class Action Complaint. On September 23, 2019, the court granted the motion to dismiss in part and denied it in part. On March 2, 2020, plaintiffs moved to certify the purported class. On March 30, 2021, the court granted the motion to certify the class. On September 2, 2021, the parties reached an agreement in principle to resolve the Actions for $18.0 million. The Company agreed to the settlement and the payment of the settlement amount to eliminate the distraction, burden, expense, and uncertainty of further litigation. The Company and the other defendants continue to expressly deny any liability or wrongdoing with respect to the matters alleged in the Actions. On November 1, 2021, the parties to the Actions signed a stipulation of settlement, which memorialized the terms of the agreement in principle, and which the plaintiffs filed with the court. Also on November 1, 2021, plaintiffs filed a motion to preliminarily approve the settlement. On November 8, 2021, the court preliminarily approved the settlement, approved the form of notice to be disseminated to class members, and scheduled a final fairness hearing on the settlement for February 10, 2022. On February 14, 2022, the court issued a final judgment approving the settlement and dismissing the action.
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 Exchange Act and for breaches of fiduciary duty and unjust enrichment based on allegations substantially similar to the Actions. 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. The stay was lifted as of February 9, 2022.
On October 2, 2019, a stockholder derivative complaint, captioned Kenna v. Aron, et al., Case No. 1:19-cv-
27
09148-AJN (the “Kenna Action”), was filed in the U.S. District Court for the Southern District of New York. The parties filed a joint stipulation to stay the action, which the court granted on October 17, 2019. On April 20, 2020, the plaintiff filed an amended complaint. The Kenna Action asserts claims under Sections 10(b), 14(a), and 21D of the Exchange Act and for breaches of fiduciary duty and unjust enrichment based on allegations substantially similar to the Actions and the Gantulga Action. The stay was lifted as of February 9, 2022.
On March 20, 2020, a stockholder derivative complaint, captioned Manuel v. Aron, et al., Case No. 1:20-cv-02456-AJN (the “Manuel Action”), was filed in the U.S. District Court for the Southern District of New York. The Manuel Action asserts claims under Sections 10(b), 21D, and 29(b) of the Exchange Act and for breaches of fiduciary duty based on allegations substantially similar to the Actions, the Gantulga Action, and the Kenna Action. The parties filed a joint stipulation to stay the action, which the court granted on May 18, 2020.
On April 7, 2020, a stockholder derivative complaint, captioned Dinkevich v. Aron, et al., Case No. 1:20-cv-02870-AJN (the “Dinkevich Action”), was filed in the U.S. District Court for the Southern District of New York. The Dinkevich Action asserts the same claims as the Manuel Action based on allegations substantially similar to the Actions, the Gantulga Action, the Kenna Action, and the Manuel Action. The parties filed a joint stipulation to stay the action, which was granted on June 25, 2020. On January 11, 2022, the court lifted the stay.
On September 23, 2021, a stockholder derivative complaint, captioned Lyon v. Aron, et al., Case No. 1:21-cv-07940-AJN (the “Lyon Action”), was filed in the U.S. District Court for the Southern District of New York against certain of the Company’s current and former officers and directors. The Lyon Action asserts claims for contribution and indemnification under the Exchange Act and for breaches of fiduciary duty, waste of corporate assets, and unjust enrichment/constructive trust based on allegations substantially similar to the Actions, the Gantulga Action, the Kenna Action, the Manuel Action, and the Dinkevich Action. On January 14, 2022, defendants moved to dismiss the complaint.
On December 31, 2019, the Company received a stockholder litigation demand, requesting that the Board investigate the allegations in the Actions and pursue claims on the Company’s behalf based on those allegations. On May 5, 2020, the Board determined not to pursue the claims sought in the demand at this time.
On July 15, 2020, the Company received a second stockholder litigation demand requesting substantially the same action as the stockholder demand it received on December 31, 2019. On September 23, 2020, the Board determined not to pursue the claims sought in the demand at this time.
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, Wanda, two of Wanda’s affiliates, 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. On January 8, 2021, the Special Litigation Committee filed a report with the court recommending that the court dismiss all of the claims asserted in the Lao Action, and moved to dismiss all of the claims in the Lao Action.
NOTE 12—LOSS PER SHARE
Basic loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding. Diluted loss per share includes the effects of unvested RSUs with a service condition only and unvested contingently issuable RSUs and PSUs that have service and performance conditions, if dilutive.
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The following table sets forth the computation of basic and diluted loss per common share:
Numerator:
Net loss for basic loss per share attributable to AMC Entertainment Holdings, Inc.
Net loss for diluted loss per share attributable to AMC Entertainment Holdings, Inc.
Denominator (shares in thousands):
Weighted average shares for basic loss per common share
Weighted average shares for diluted loss per common share
Basic loss per common share
Diluted loss per common share
Vested RSUs, PSUs, and special performance stock units (“SPSUs”) have dividend rights identical to the Company’s Common Stock and are treated as outstanding shares for purposes of computing basic and diluted earnings per share. For the three months ended March 31, 2022 and March 31, 2021, unvested RSUs of 2,807,026 and 3,812,964, respectively, were not included in the computation of diluted loss per share because they would be anti-dilutive.
Unvested PSUs and SPSUs are subject to performance and market conditions, respectively, 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. Unvested PSUs of 1,476,989 and 2,161,337 at 100% performance targets for the three months ended March 31, 2022 and March 31, 2021, respectively, and unvested SPSUs of 1,156,656 at the minimum market condition for the three months ended March 31, 2021, were not included in the computation of diluted loss per share because they would not be issuable if the end of the reporting period were the end of the contingency period or they would be anti-dilutive.
NOTE 13—SUPPLEMENTAL BALANCE SHEET INFORMATION
Other current assets and other long-term assets consist of the following:
Other current assets:
Income taxes receivable
1.9
Prepaids (1)
35.4
Merchandise inventory
33.3
12.9
Investments in real estate
8.0
Deferred financing costs revolving credit facility
7.3
5.5
Investments in equity method investees
79.1
85.6
Computer software
84.8
83.7
Investment in common stock
Pension asset
20.5
Investment in Hycroft common stock (2)
Investment in Hycroft warrants (2)
40.8
32.0
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
In addition to historical information, this Quarterly Report on Form 10–Q contains “forward-looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as “may,” “will,” “forecast,” “estimate,” “project,” “intend,” “plan,” “expect,” “should,” “believe” and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These forward-looking statements are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions and speak only as of the date on which it is made. Examples of forward-looking statements include statements we make regarding the impact of COVID-19, future attendance levels and our liquidity. These forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors, including those discussed in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the following:
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This list of factors that may affect future performance and the accuracy of forward-looking statements is illustrative but not exhaustive. In addition, new risks and uncertainties may arise from time to time. Accordingly, all forward-looking statements should be evaluated with an understanding of their inherent uncertainty and we caution accordingly against relying on forward-looking statements.
Readers are urged to consider these factors carefully in evaluating the forward-looking statements. For further information about these and other risks and uncertainties as well as strategic initiatives, see Item 1A. “Risk Factors” of this Form 10-Q, Item 1. “Business” in our Annual Report on Form 10–K for the year ended December 31, 2021, and our other public filings.
All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements included herein are made only as of the date of this Quarterly Report on Form 10–Q, and we do not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Temporarily Suspended or Limited Operations
Total consolidated revenues increased $637.4 million for the three months ended March 31, 2022, compared to the three months ended March 31, 2021. The increase in total consolidated revenues was primarily due to the COVID-19 pandemic impact on the prior year which resulted in the temporary suspension of operations at our theatres in U.S. markets and International markets. As of March 31, 2021, the Company operated at 585 domestic theatres with limited seating capacities, representing approximately 99% of its domestic theatres. As of March 31, 2021, the Company operated at 97 international theatres, with limited seating capacities, representing approximately 27% of its international theatres. During the three months ended March 31, 2022, the Company operated essentially 100% of its U.S. and International theatres.
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Overview
AMC is the world’s largest theatrical exhibition company and an industry leader in innovation and operational excellence. We operate theatres in 12 countries, including the U.S., Europe and Saudi Arabia.
Our theatrical exhibition revenues are generated primarily from box office admissions and theatre food and beverage sales. The balance of our revenues is generated from ancillary sources, including on-screen advertising, fees earned from our AMC Stubs® customer loyalty program, rental of theatre auditoriums, income from gift card and exchange ticket sales, and online ticketing fees. As of March 31, 2022, we owned, operated or had interests in 938 theatres and 10,493 screens.
Box Office Admissions and Film Content
Box office admissions are our largest source of revenue. We predominantly license theatrical films from distributors owned by major film production companies and from independent distributors on a film-by-film and theatre-by-theatre basis. Film exhibition costs are based on a share of admissions revenues and are accrued based on estimates of the final settlement pursuant to our film licenses. These licenses typically state that rental fees are based on the box office performance of each film, though in certain circumstances and less frequently, our rental fees are based on a mutually agreed settlement rate that is fixed. In some European territories, film rental fees are established on a weekly basis and some licenses use a per capita agreement instead of a revenue share, paying a flat amount per ticket.
The North American and International industry box offices have been significantly impacted by the COVID-19 pandemic. As a result, film distributors have postponed new film theatrical releases and/or shortened the period of theatrical exclusivity (“the window”). Theatrical releases may continue to be postponed and windows shortened while the box office and film production industry suffers from COVID-19 impacts. As a result of the reduction in theatrical film releases in 2021, we licensed and exhibited a larger number of previously released films that had lower film rental terms during the three months ended March 31, 2021. We have made adjustments to theatre operating hours to align screen availability and associated theatre operating costs with attendance levels for each theatre.
As we continue our recovery from the impacts of the COVID-19 pandemic on our business, our aggregate attendance levels remain significantly behind pre-pandemic levels. However, for the first time since 2019, substantially all of our worldwide theatres were open for the entirety of the third and fourth quarters of 2021 and also the first quarter of 2022.
Our revenues attributable to individual distributors may vary significantly from year to year depending upon the commercial success of each distributor’s films in any given year. Our results of operations may vary significantly from quarter to quarter and from year to year based on the timing and popularity of film releases.
Movie Screens
The following table provides detail with respect to digital delivery, 3D enabled projection, large screen formats, such as IMAX® and our proprietary Dolby Cinema™, other Premium Large Format (“PLF”) screens, enhanced food and beverage offerings and our premium seating as deployed throughout our circuit:
U.S. Markets
International Markets
Number of Screens
Format
IMAX®
185
37
Dolby CinemaTM
154
153
Other Premium Large Format ("PLF")
56
77
74
Dine-in theatres
729
735
Premium seating
3,395
3,339
579
531
Guest Amenities
As part of our long-term strategy, we seek to continually upgrade the quality of our theatre circuit through substantial renovations featuring our seating concepts, acquisitions, new builds (including expansions), expansion of food and beverage offerings (including Dine-in Theatres), and by disposing of older screens through closures and sales.
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Our capital allocation strategy will be driven by the cash generation of our business and will be contingent on a required return threshold. We believe we are an industry leader in the development and operation of theatres. Typically, our theatres have 12 or more screens and offer amenities to enhance the movie-going experience, such as stadium seating providing unobstructed viewing, digital sound and premium seat design.
Recliner seating is the key feature of theatre renovations. We believe that maximizing comfort and convenience for our customers will be increasingly necessary to maintain and improve our relevance. These renovations, in conjunction with capital contributions from our landlords, involve stripping theatres to their basic structure in order to replace finishes throughout, upgrading the sight and sound experience, installing modernized points of sale and, most importantly, replacing traditional theatre seats with plush, electric recliners that allow customers to deploy a leg rest and fully recline at the push of a button. As of December 31, 2019, prior to the COVID-19 pandemic, the quality improvement in the customer experience could drive a 33% increase in attendance, on average, at these locations in their first year post-renovation. These increases will only continue post-COVID-19 pandemic if attendance returns to normalized pre-COVID-19 levels. Upon reopening a remodeled theatre, we typically increase the ticket price to reflect the enhanced consumer experience.
As of March 31, 2022, in our U.S. markets, we featured recliner seating in approximately 351 U.S. theatres, including Dine-in Theatres, totaling approximately 3,395 screens and representing 44.0% of total U.S. screens. In our International markets, as of March 31, 2022, we had recliner seating in approximately 90 International theatres, totaling approximately 579 screens and representing 20.8% of total International screens.
Open-source internet ticketing makes our AMC seats (approximately 1.1 million as of March 31, 2022) in all our U.S. theatres and auditoriums for all our showtimes as available as possible, on as many websites as possible. Our tickets are currently on sale either directly or through mobile apps, at our own website and mobile apps and other third-party ticketing vendors.
Food and beverage sales are our second largest source of revenue after box office admissions. We offer enhanced food and beverage products that include meals, healthy snacks, premium liquor, beer and wine options, and other gourmet products. Our long-term growth strategy calls for investment across a spectrum of enhanced food and beverage formats, ranging from simple, less capital-intensive food and beverage menu improvements to the expansion of our Dine-in Theatre brand. As a result of the COVID-19 pandemic, we have streamlined our concession menus to focus on our best-selling products and expanded cashless transactions technology through the deployment of mobile ordering, all in an effort to reduce the number of touch-points between guests and employees. We have also upgraded our Coca Cola Freestyle beverage software to allow guests to dispense drinks without the need to utilize the machine’s touch screen using the Coca-Cola Freestyle app.
We currently operate 51 Dine-In Theatres in the U.S. and three Dine-In Theatres in Europe that deliver chef-inspired menus with seat-side or delivery service to luxury recliners with tables. Our recent Dine-In Theatre concepts are designed to capitalize on the latest food service trend, the fast and casual eating experience.
Our MacGuffins Bar and Lounges (“MacGuffins”) give us an opportunity to engage our legal age customers. As of March 31, 2022, we offer alcohol in approximately 350 AMC theatres in the U.S. markets and 241 theatres in our International markets and continue to explore expansion globally.
Loyalty Programs and Other Marketing
In our U.S. markets, we begin the process of engagement with AMC Stubs®, our customer loyalty program, which allows members to earn rewards, receive discounts and participate in exclusive members-only offerings and services. It features a paid tier called AMC Stubs Premiere™ for a flat annual membership fee and a non-paid tier called AMC Stubs Insider™. Both programs reward loyal guests for their patronage of AMC theatres. Rewards earned are redeemable on future purchases at AMC locations.
The portion of the admissions and food and beverage revenues attributed to the rewards is deferred as a reduction of admissions and food and beverage revenues and is allocated between admissions and food and beverage revenues based on expected member redemptions. Upon redemption, deferred rewards are recorded as revenues along with associated cost of goods. We estimate point breakage in assigning value to the points at the time of sale based on historical trends. The program’s annual membership fee is allocated to the material rights for discounted or free products and services and is initially deferred, net of estimated refunds, and recorded as the rights are redeemed based on estimated utilization, over the one-year membership period in admissions, food and beverage, and other revenues. A
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portion of the revenues related to a material right are deferred as a virtual rewards performance obligation using the relative standalone selling price method and are recorded as the rights are redeemed or expire.
AMC Stubs® A-List is our monthly subscription-based tier of our AMC Stubs® loyalty program. This program offers guests admission to movies at AMC up to three times per week including multiple movies per day and repeat visits to already seen movies from $19.95 to $23.95 per month depending upon geographic market. AMC Stubs® A-List also includes premium offerings including IMAX®, Dolby Cinema™ at AMC, RealD, Prime and other proprietary PLF brands. AMC Stubs® A-List members can book tickets online in advance and select specific seats at AMC Theatres with reserved seating. Upon the temporary suspension of theatre operations due to the COVID-19 pandemic, all monthly A-List subscription charges were put on hold. As we reopened theatres, A-List members had the option to reactivate their subscription, which restarted the monthly charge for the program.
As of March 31, 2022, we had more than 25,700,000 member households enrolled in AMC Stubs® A-List, AMC Stubs Premiere™ and AMC Stubs Insider™ programs, combined. Our AMC Stubs® members represented approximately 41% of AMC U.S. markets attendance during the three months ended March 31, 2022. Our large database of identified movie-goers also provides us with additional insight into our customers’ movie preferences. This enables us to have a larger, more personalized and targeted marketing effort.
In our International markets, we currently have loyalty programs in the major territories in which we operate. The movie-goers can earn points for spending money at the theatre, and those points can be redeemed for tickets and concession items at a later date. We currently have more than 13,100,000 members in our various International loyalty programs.
Our marketing efforts are not limited to our loyalty program as we continue to improve our customer connections through our website and mobile apps and expand our online and movie offerings. We upgraded our mobile applications across the U.S. circuit with the ability to order food and beverage offerings via our mobile applications while ordering tickets ahead of scheduled showtimes. Our mobile applications also include AMC Theatres On Demand, a service for members of the AMC Stubs® loyalty program that allows them to rent or buy movies.
In response to the COVID-19 pandemic, AMC’s robust online and mobile platforms in our U.S. markets offer customers the safety and convenience of enhanced social distancing by allowing them to purchase tickets and concession items online, avoid the ticket line, and limit other high-touch interactions with AMC employees and other guests. Online and mobile platforms are also available in our International markets.
Critical Accounting Estimate
Hycroft common stock and warrants fair value measurement. On March 14, 2022, we purchased 23.4 million units of Hycroft, with each unit consisting of one common share of Hycroft and one common share purchase warrant. The units were priced at $1.193 per unit. We elected the fair value option in accordance with ASC 825-10, and therefore, the fair value of the investment in common stock of Hycroft is remeasured at each subsequent reporting period and unrealized gains and losses are reported in investment income. During the three months ended March 31, 2022, we recorded appreciation in estimated fair value of our investment in warrants to purchase common shares of Hycroft of $35.1 million in investment income following ASC 815, which fall under Level 3 within the fair value measurement hierarchy and appreciation in estimated fair value of our investment in common shares of Hycroft of $28.8 million in investment income, which fall under Level 1 within the fair value measurement hierarchy.
Critical estimates. There is considerable management judgment with respect to volatility used in determining fair value of the warrants that is used by management in performing the fair value measurement. Such judgments and estimates include selecting a group of comparable companies in the mining industry.
Assumptions and judgment. Our valuation methodology for the fair value measurements requires management to make judgments and assumptions based on comparable companies to include in the historical volatility input.
Impact if actual results differ from assumptions. Although we believe that our estimates and judgments are reasonable, actual results may differ from these estimates, which fall under Level 3 within the fair value measurement hierarchy.
For a discussion of our critical accounting policies and the means by which we develop estimates therefore, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 Annual
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Report on Form 10-K. Other than as discussed above, there have been no material changes from critical accounting estimates described in our Form 10-K.
Significant Events
Investment in Hycroft. On March 14, 2022, we purchased 23.4 million units of Hycroft Mining Holding Corporation (NASDAQ: HYMC) (“Hycroft”) for $27.9 million, with each unit consisting of one common share of Hycroft and one common share purchase warrant. The units were priced at $1.193 per unit. Each warrant is exercisable for one common share of Hycroft at a price of $1.068 per share over a 5-year term through March 2027. We account for the common shares of Hycroft under the equity method and we have elected the fair value option in accordance with ASC 825-10. We account for the warrants as derivatives in accordance with ASC 815. Accordingly, the fair value of the investments in Hycroft are remeasured at each subsequent reporting period and unrealized gains and losses are reported in investment income. During the three months ended March 31, 2022, the Company recorded unrealized gains related to the investment in Hycroft of $63.9 million in investment income. See Note 9—Fair Value Measurements in the Notes to the Condensed Consolidated Financial Statements in Item 1 of Part I in this Form 10-Q for further information.
Debt refinancing. We enhanced liquidity through debt refinancing at lower interest rates. On February 14, 2022, we issued $950.0 million aggregate principal amount of our 7.5% First Lien Senior Secured Notes due 2029 (“First Lien Notes due 2029”), pursuant to an indenture, dated as of February 14, 2022, among us, the guarantors named therein and U.S. Bank Trust Company, National Association, as trustee and collateral agent. We used the net proceeds from the sale of the notes, and cash on hand, to fund the full redemption of the then outstanding $500 million aggregate principal amount of our 10.5% First Lien Notes due 2025 (“First Lien Notes due 2025”), the then outstanding $300 million aggregate principal amount of our 10.5% First Lien Notes due 2026 (“First Lien Notes due 2026”), and the then outstanding $73.5 million aggregate principal amount of our 15%/17% Cash/PIK Toggle First Lien Secured Notes due 2026 (“First Lien Toggle Notes due 2026”) and to pay related accrued interest, fees, costs, premiums and expenses. We recorded a loss on debt extinguishment related to this transaction of $135.0 million in other expense, during the three months ended March 31, 2022.
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Operating Results
The following table sets forth our consolidated revenues, operating costs and expenses:
% Change
*
%
Operating Costs and Expenses
91.9
16.2
(94.0)
2.5
(13.5)
65.4
(61.0)
(45.9)
(14.3)
Non-cash NCM exhibitor service agreement
82.1
(41.2)
(40.5)
(100.0)
* Percentage change in excess of 100%
Operating Data:
Screen additions
Screen acquisitions
Screen dispositions
118
63
Construction openings (closures), net
Average screens (1)
10,099
6,724
Number of screens operated
10,493
8,329
Number of theatres operated
938
682
Total number of circuit screens
10,518
Total number of circuit theatres
945
Screens per theatre
11.2
Attendance (in thousands) (1)
39,075
6,797
Segment Operating Results
The following table sets forth our revenues, operating costs and expenses by reportable segment:
Consolidated
310.8
64.9
133.0
4.6
194.0
47.6
58.5
58.3
24.7
4.0
138.7
20.2
51.1
8.5
13.9
241.0
142.0
103.8
37.7
166.3
136.5
56.9
General and administrative expense:
35.2
36.0
75.6
86.4
23.1
685.7
433.3
266.9
142.8
(122.6)
(296.1)
(44.3)
(131.7)
133.7
(3.5)
(13.9)
143.0
18.8
1.1
Total other expense (income), net
143.1
148.5
27.3
(265.7)
(444.6)
(71.6)
(129.4)
(4.5)
(265.8)
(440.1)
(127.1)
Less: net loss attributable to noncontrolling interests
(126.8)
Segment Operating Data:
1
88
40
7,622
6,390
2,477
334
7,709
7,609
2,784
720
587
585
351
97
7,682
2,836
590
355
13.1
13.0
25,792
6,239
13,283
558
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We present Adjusted EBITDA as a supplemental measure of our performance. We define 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 we do not consider indicative of our ongoing operating performance and to include attributable EBITDA from equity investments in theatre operations in International markets and any cash distributions of earnings from other equity method investees. These further adjustments are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.
During the three months ended March 31, 2022, Adjusted EBITDA in the U.S. markets was $(43.4) million compared to $(200.4) million during the three months ended March 31, 2021. The year-over-year improvement was primarily due to the decreased net loss driven by an increase in attendance primarily due to the COVID-19 pandemic impact on the prior year which resulted in the temporary suspension of operations at our theatres, deterred customers from attending our theatres when we resumed operations, and prompted film distributors to delay or alternatively distribute films and lifting of seat restrictions, decreases in general and administrative expenses excluding stock-based compensation, and increased cash distributions from AC JV, partially offset by increases in operating costs due to the increase in attendance, increases in rent expense and decreases in government assistance. During the three months ended March 31, 2022, Adjusted EBITDA in the International markets was $(18.3) million compared to $(94.3) million during the three months ended March 31, 2021. The year-over-year improvement was primarily due to the decreased net loss driven by an increase in attendance primarily due to the COVID-19 pandemic impact on the prior year and lifting of seat restrictions, and decreases in general and administrative expenses excluding stock-based compensation, partially offset by increases in operating costs due to the increase in attendance, increases in rent expense, and decreases in government assistance. During the three months ended March 31, 2022, Adjusted EBITDA in the U.S. markets and International markets was $(61.7) million compared to $(294.7) million during the three months ended March 31, 2021, driven by the aforementioned factors impacting Adjusted EBITDA.
The following tables set forth our Adjusted EBITDA by reportable operating segment and our reconciliation of Adjusted EBITDA:
Total Adjusted EBITDA
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Adjusted EBITDA is a non-GAAP financial measure commonly used in our industry and should not be construed as an alternative to net earnings (loss) as an indicator of operating performance (as determined in accordance with U.S. GAAP). Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies. We have included Adjusted EBITDA because we believe it provides management and investors with additional information to measure our performance and estimate our value.
Adjusted EBITDA has important limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. For example, Adjusted EBITDA:
Segment Information
Our historical results of operations for the three months ended March 31, 2022 and March 31, 2021 reflect the results of operations for our two theatrical exhibition reportable segments, U.S. markets and International markets.
Results of Operations— For the Three Months Ended March 31, 2022 Compared to the Three Months Ended March 31, 2021
Condensed Consolidated Results of Operations
Revenues. Total revenues increased $637.4 million, during the three months ended March 31, 2022, compared to the three months ended March 31, 2021. Admissions revenues increased $374.3 million, during the three months ended March 31, 2022, compared to the three months ended March 31, 2021, primarily due to an increase in attendance from 6.8 million patrons to 39.1 million patrons and a 11.1% increase in average ticket price. The increase in attendance was primarily due to the COVID-19 pandemic impact on the prior year which resulted in the temporary suspension of operations at our theatres in U.S. markets and International markets, deterred customers from attending our theatres when we resumed operations, and prompted film distributors to delay or alternatively distribute films. The increase in average ticket price was primarily due to strategic pricing initiatives put in place over the prior year, increases in IMAX and Premium content and lower frequency on our A-List subscription program, partially offset by a decrease in foreign currency translation rates.
Food and beverage revenues increased $202.4 million, during the three months ended March 31, 2022, compared to the three months ended March 31, 2021, primarily due to the increase in attendance, partially offset by the decrease in food and beverage per patron. Food and beverage per patron decreased 12.3% from $7.37 to $6.46 due primarily to an increase in revenues in International markets as a percentage of consolidated revenues from 5% during the three months ended March 31, 2021 to 23.2% during the three months ended March 31, 2022. Food and beverage per patron in International markets is much lower in our International markets than in our U.S. markets and this change in the mix of revenues resulted in a decline in consolidated food and beverage per patron along with a decrease in foreign currency translation rates. The higher number of private theatre rentals in the prior year resulted in larger party sizes and larger individual orders.
Total other theatre revenues increased $60.7 million, during the three months ended March 31, 2022, compared to the three months ended March 31, 2021, primarily due to increases in ticket fees, income from gift cards and package tickets and screen advertising due to the increase in attendance, partially offset by the decrease in foreign currency translation rates.
Operating costs and expenses. Operating costs and expenses increased $376.5 million, during the three months ended March 31, 2022, compared to the three months ended March 31, 2021. Film exhibition costs increased $167.8 million, during the three months ended March 31, 2022, compared to the three months ended March 31, 2021, primarily due to the increase in attendance. As a percentage of admissions revenues, film exhibition costs were 42.8% for the three months ended March 31, 2022, compared to 31.7% for the three months ended March 31, 2021. The increase in film exhibition cost percentage is primarily due to the concentration of box office revenues in higher grossing films in the current year and higher amounts of library content in the prior year, which typically results in higher film exhibition costs. Additionally, lower film exhibition costs were paid on films with shorter exclusive theatrical windows in the prior year.
Food and beverage costs increased $32.9 million, during the three months ended March 31, 2022, compared to the three months ended March 31, 2021. The increase in food and beverage costs was primarily due to the increase in food and beverage revenues. As a percentage of food and beverage revenues, food and beverage costs were 16.9% for the three months ended March 31, 2022 and 19.4% for the three months ended March 31, 2021. Food and beverage
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costs included $1.3 million of charges for obsolete inventory during the three months ended March 31, 2021, due to the suspension of theatre operations.
As a percentage of revenues, operating expense was 43.9% for the three months ended March 31, 2022, and was not meaningful for the three months ended March 31, 2021 due to the very low levels of attendance in the prior year. Rent expense increased 16.2%, or $31.1 million, during the three months ended March 31, 2022, compared to the three months ended March 31, 2021, due primarily to cash rent abatements from landlords in the prior year and the opening of new theatres, partially offset by theatre closures and the decrease in foreign currency translation rates. See Note 2—Leases in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for further information on the impact of COVID-19 on leases and rent obligations of approximately $271.7 million that have been deferred to future years as of March 31, 2022.
Merger, acquisition, and other costs. Merger, acquisition, and other costs were $0.4 million during the three months ended March 31, 2022, compared to $6.7 million during the three months ended March 31, 2021, primarily due to higher legal and professional costs in the prior year.
Other. Other general and administrative expense increased 2.5%, or $1.3 million, during the three months ended March 31, 2022, compared to the three months ended March 31, 2021. See Note 7—Stockholders’ Equity in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for additional information about stock-based compensation expense.
Depreciation and amortization. Depreciation and amortization decreased 13.5%, or $15.4 million, during the three months ended March 31, 2022, compared to the three months ended March 31, 2021, primarily due to lower depreciation expense on theatres impaired during years ended December 31, 2020 and December 31, 2021 and the decrease in foreign currency translation rates.
Other expense (income). Other expense of $136.3 million during the three months ended March 31, 2022 was primarily due to a loss on extinguishment of debt of $135.0 million related to the full redemption of the $500 million aggregate principal amount of the First Lien Notes due 2025, the $300 million aggregate principal amount of the First Lien Notes due 2026, and the $73.5 million aggregate principal amount of the First Lien Toggle Notes due 2026. Other income of $17.4 million during the three months ended March 31, 2021 was primarily due to $12.4 million in government assistance related to COVID-19, foreign currency transaction gains of $3.8 million, and estimated credit income of $2.0 million related to decreases in contingent lease guarantees, partially offset by $1.0 million of financing fees related to the write-off of unamortized deferred charges on the Odeon revolver. See Note 1—Basis of Presentation in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for additional information about the components of other expense (income).
Interest expense. Interest expense decreased $70.4 million to $92.4 million for the three months ended March 31, 2022 compared to $162.8 million during the three months ended March 31, 2021 primarily due to:
partially offset by:
Equity in loss of non-consolidated entities. Equity in loss of non-consolidated entities was $5.1 million for the three months ended March 31, 2022, compared to $2.8 million for the three months ended March 31, 2021. The increase in equity in loss of $2.3 million was primarily due to increases in equity in losses from Saudi Cinema Company, LLC of $4.2 million.
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Investment income. Investment income was $63.4 million for the three months ended March 31, 2022, compared to investment income of $2.0 million for the three months ended March 31, 2021. Investment income in the current year includes $28.8 million of appreciation in estimated fair value of our investment in common shares of Hycroft Mining Holding Corporation and $35.1 million of appreciation in estimated fair value of our investment in warrants to purchase common shares of Hycroft Mining Holding Corporation.
Income tax provision (benefit). The income tax provision (benefit) was $0.1 million and $(6.8) million for the three months ended March 31, 2022 and March 31, 2021, respectively. See Note 8—Income Taxes in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for further information.
Net loss. Net loss was $337.4 million and $567.2 million during the three months ended March 31, 2022 and March 31, 2021, respectively. Net loss during the three months ended March 31, 2022 compared to net loss for the three months ended March 31, 2021 was positively impacted by the increase in attendance as a result of an increase in new film releases in connection with the reopening of theatres in the current year that had been temporarily closed due to the COVID-19 pandemic and lifting of seating restrictions, decreases in general and administrative expenses, decreases in depreciation and amortization expense, decreases in interest expense, increases in investment income and decreases in foreign currency translation rates, partially offset by increases in rent expense, increases in other expense, and a decrease in income tax benefit.
Theatrical Exhibition–U.S. Markets
Revenues. Total revenues increased $425.9 million, during the three months ended March 31, 2022, compared to the three months ended March 31, 2021. Admissions revenues increased $245.9 million, during the three months ended March 31, 2022, compared to the three months ended March 31, 2021, primarily due to an increase in attendance from 6.2 million patrons to 25.8 million patrons and a 15.8% increase in average ticket price. The increase in attendance was primarily due to the COVID-19 pandemic impact on the prior year which resulted in the temporary suspension of operations at our theatres in U.S. markets, deterred customers from attending our theatres when we resumed operations, and prompted film distributors to delay or alternatively distribute films. The increase in average ticket price was primarily due to strategic pricing initiatives put in place over the prior year, increases in IMAX and Premium content and lower frequency on our A-List subscription program.
Food and beverage revenues increased $146.4 million, during the three months ended March 31, 2022, compared to the three months ended March 31, 2021, primarily due to the increase in attendance and partially offset by the decrease in food and beverage per patron. Food and beverage per patron decreased 1.4% from $7.63 to $7.52 due primarily to decreases in units sold per transaction due to the decline in private theatre rentals from the prior year, partially offset by the percentage of patrons making purchases, a shift toward larger sizes and higher priced items, and reduced loyalty program penetration. The higher number of private theatre rentals in the prior year resulted in larger party sizes and larger individual orders.
Total other theatre revenues increased $33.6 million, during the three months ended March 31, 2022, compared to the three months ended March 31, 2021, primarily due to increases in ticket fees, income from gift cards and package tickets and screen advertising due to the increase in attendance.
Operating costs and expenses. Operating costs and expenses increased $252.4 million, during the three months ended March 31, 2022, compared to the three months ended March 31, 2021. Film exhibition costs increased $118.5 million, during the three months ended March 31, 2022, compared to the three months ended March 31, 2021, primarily due to the increase in attendance. As a percentage of admissions revenues, film exhibition costs were 44.6% for the three months ended March 31, 2022 and 31.1% for the three months ended March 31, 2021. The increase in film exhibition cost percentage is primarily due to the concentration of box office revenues in higher grossing films in the current year and higher amounts of library content in the prior year, which typically results in higher film exhibition costs. Additionally, lower film exhibition costs were paid on films with shorter exclusive theatrical windows in the prior year.
Food and beverage costs increased $20.2 million, during the three months ended March 31, 2022, compared to the three months ended March 31, 2021. The increase in food and beverage costs was primarily due to the increase in food and beverage revenues. As a percentage of food and beverage revenues, food and beverage costs were 14.8% for the three months ended March 31, 2022, compared to 17.9% for the three months ended March 31, 2021. Food and beverage costs included $0.5 million of charges for obsolete inventory during the three months ended March 31, 2021, due to the suspension of theatre operations.
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As a percentage of revenues, operating expense was 42.8% for the three months ended March 31, 2022 and was not meaningful for the three months ended March 31, 2021 due to the very low levels of attendance in the prior year. Rent expense increased 21.8%, or $29.8 million, during the three months ended March 31, 2022, compared to the three months ended March 31, 2021, due primarily to cash rent abatements from landlords in the prior year and the opening of new theatres, partially offset by theatre closures. See Note 2—Leases in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for further information on the impact of COVID-19 on leases and rent obligations of approximately $221.5 million that have been deferred to future years as of March 31, 2022.
Merger, acquisition, and other costs. Merger, acquisition, and other costs were $0.2 million during the three months ended March 31, 2022, compared to $3.7 million during the three months ended March 31, 2021, primarily due to higher legal and professional costs in the prior year.
Other. Other general and administrative expense decreased 2.2%, or $0.8 million, during the three months ended March 31, 2022, compared to the three months ended March 31, 2021. See Note 7—Stockholders’ Equity in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for additional information about stock-based compensation expense.
Depreciation and amortization. Depreciation and amortization decreased 12.5%, or $10.8 million, during the three months ended March 31, 2022, compared to the three months ended March 31, 2021, primarily due to lower depreciation expense on theatres impaired during years ended December 31, 2020 and December 31, 2021.
Other expense (income). Other expense of $133.7 million during the three months ended March 31, 2022 was primarily due to a loss on extinguishment of debt of $135.0 million related to the full redemption of the $500 million aggregate principal amount of the First Lien Notes due 2025, the $300 million aggregate principal amount of the First Lien Notes due 2026, and the $73.5 million aggregate principal amount of the First Lien Toggle Notes due 2026. Other income of $3.5 million during the three months ended March 31, 2021 was primarily due to $4.2 million in government assistance related to COVID-19 and foreign currency transaction loss of $0.9 million. See Note 1—Basis of Presentation in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for additional information about the components of other expense (income).
Interest expense. Interest expense decreased $80.6 million to $72.5 million for the three months ended March 31, 2022 compared to $153.1 million during the three months ended March 31, 2021, primarily due to:
Equity in loss of non-consolidated entities. Equity in loss of non-consolidated entities was $0.3 million for the three months ended March 31, 2022, compared to $0.9 million for the three months ended March 31, 2021.
Income tax provision (benefit). The income tax provision (benefit) was $0.1 million and $(4.5) million for the three months ended March 31, 2022 and March 31, 2021, respectively. See Note 8—Income Taxes in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for further information.
Net loss. Net loss was $265.8 million and $440.1 million during the three months ended March 31, 2022 and March 31, 2021, respectively. Net loss during the three months ended March 31, 2022 compared to net loss for the three
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months ended March 31, 2021 was positively impacted by the increase in attendance as a result of an increase in new film releases in connection with the reopening of theatres in the current year that had been temporarily closed due to the COVID-19 pandemic and lifting of seating restrictions, decreases in general and administrative expenses, decreases in depreciation and amortization expense, decreases in interest expense and increases in investment income, partially offset by increases in rent expense, increases in other expense, and a decrease in income tax benefit.
Theatrical Exhibition - International Markets
Revenues. Total revenues increased $211.5 million, during the three months ended March 31, 2022, compared to the three months ended March 31, 2021. Admissions revenues increased $128.4 million, during the three months ended March 31, 2022, compared to the three months ended March 31, 2021, primarily due to an increase in attendance from 0.6 million patrons to 13.3 million patrons and a 21.5% increase in average ticket price. The increase in attendance was primarily due to the COVID-19 pandemic impact on the prior year which resulted in the temporary suspension of operations at our theatres in International markets, deterred customers from attending our theatres when we resumed operations, and prompted film distributors to delay or alternatively distribute films. The increase in average ticket price was primarily due to strategic pricing initiatives put in place over the prior year, partially offset by a decrease in foreign currency translation rates.
Food and beverage revenues increased $56.0 million, during the three months ended March 31, 2022, compared to the three months ended March 31, 2021, primarily due to the increase in attendance, partially offset by the decrease in food and beverage per patron. Food and beverage per patron decreased 1.8% from $4.48 to $4.40 due primarily to decreases in foreign currency translation rates.
Total other theatre revenues increased $27.1 million, during the three months ended March 31, 2022, compared to the three months ended March 31, 2021, primarily due to increases in ticket fees, income from gift cards and package tickets and screen advertising due to the increase in attendance, partially offset by the decrease in foreign currency translation rates.
Operating costs and expenses. Operating costs and expenses increased $124.1 million, during the three months ended March 31, 2022, compared to the three months ended March 31, 2021. Film exhibition costs increased $49.3 million, during the three months ended March 31, 2022, compared to the three months ended March 31, 2021, primarily due to the increase in attendance. As a percentage of admissions revenues, film exhibition costs were 38.4% for the three months ended March 31, 2022, compared to 39.1% for the three months ended March 31, 2021.
Food and beverage costs increased $12.7 million, during the three months ended March 31, 2022, compared to the three months ended March 31, 2021. The increase in food and beverage costs was primarily due to the increase in food and beverage revenues. As a percentage of food and beverage revenues, food and beverage costs were 23.8% for the three months ended March 31, 2022, compared to 48.0% for the three months ended March 31, 2021. Food and beverage costs included $0.8 million of charges for obsolete inventory during the three months ended March 31, 2021, due to the temporary suspension of theatre operations.
As a percentage of revenues, operating expense was 46.6% for the three months ended March 31, 2022, and was not meaningful for the three months ended March 31, 2021 due to the very low levels of attendance in the prior year. Rent expense increased 2.3%, or $1.3 million, during the three months ended March 31, 2022, compared to the three months ended March 31, 2021, due primarily to cash rent abatements from landlords in the prior year and the opening of new theatres, partially offset by theatre closures and the decrease in foreign currency translation rates. See Note 2—Leases in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for further information on the impact of COVID-19 on leases and rent obligations of approximately $50.2 million that have been deferred to future years as of March 31, 2022.
Merger, acquisition, and other costs. Merger, acquisition, and other costs were $0.2 million during the three months ended March 31, 2022, compared to $3.0 million during the three months ended March 31, 2021, primarily due to legal and professional costs related to strategic contingency planning in the prior year.
Other. Other general and administrative expense increased 13.3%, or $2.1 million, during the three months ended March 31, 2022, compared to the three months ended March 31, 2021. See Note 7—Stockholders’ Equity in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for additional information about stock-based compensation expense.
Depreciation and amortization. Depreciation and amortization decreased 16.6%, or $4.6 million, during the
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three months ended March 31, 2022, compared to the three months ended March 31, 2021, primarily due to lower depreciation expense on theatres impaired during years ended December 31, 2020 and December 31, 2021 and the decrease in foreign currency translation rates.
Other expense (income). Other expense of $2.6 million during the three months ended March 31, 2022 was primarily due to $4.8 million of foreign currency transaction losses, partially offset by $2.3 million in government assistance. Other income of $13.9 million during the three months ended March 31, 2021 was primarily due to $8.2 million in government assistance related to COVID-19, foreign currency transaction gains of $4.7 million, and estimated credit income of $2.0 million related to decreases in contingent lease guarantees, partially offset by $1.0 million of financing fees related to the write-off of unamortized deferred charges on the Odeon revolver. See Note 1—Basis of Presentation in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for additional information about the components of other expense (income).
Interest expense. Interest expense increased $10.2 million to $19.9 million for the three months ended March 31, 2022 compared to $9.7 million during the three months ended March 31, 2021, primarily due to:
Equity in loss of non-consolidated entities. Equity in loss of non-consolidated entities was $4.8 million for the three months ended March 31, 2022, compared to $1.9 million for the three months ended March 31, 2021. The increase in equity in loss of $2.9 million was primarily due to increases in equity in losses from Saudi Cinema Company, LLC of $4.2 million.
Income tax provision (benefit). The income tax provision (benefit) was $0.0 million and $(2.3) million for the three months ended March 31, 2022 and March 31, 2021, respectively. See Note 8—Income Taxes in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for further information.
Net loss. Net loss was $71.6 million and $127.1 million during the three months ended March 31, 2022 and March 31, 2021, respectively. Net loss during the three months ended March 31, 2022 compared to net loss for the three months ended March 31, 2021 was positively impacted by the increase in attendance as a result of an increase in new film releases in connection with the reopening of theatres in the current year that had been temporarily closed due to the COVID-19 pandemic and lifting of seating restrictions, decreases in general and administrative expenses, decreases in depreciation and amortization expense and decreases in foreign currency translation rates, partially offset by increases in rent expense, increases in other expense, increases in interest expense and a decrease in income tax benefit.
LIQUIDITY AND CAPITAL RESOURCES
Our consolidated revenues are primarily collected in cash, principally through box office admissions and food and beverage sales. Prior to the impact of COVID-19 on our business, we had an operating “float” which partially financed our operations and which generally permitted us to maintain a smaller amount of working capital capacity. This float existed because admissions revenues are received in cash, while exhibition costs (primarily film rentals) are ordinarily paid to distributors from 20 to 45 days following receipt of box office admissions revenues. As attendance and revenues increase, we are starting to see this float resume. Film distributors generally release the films which they anticipate will be the most successful during the summer and year-end holiday seasons. Consequently, we typically generate higher revenues during such periods.
We had working capital surplus (deficit) (excluding restricted cash) as of March 31, 2022 and December 31, 2021 of $(285.0) million and $54.6 million, respectively. As of March 31, 2022 and December 31, 2021, working capital included operating lease liabilities of $597.1 million and $605.2 million, respectively, and deferred revenues of $379.8 million and $408.6 million, respectively. As of March 31, 2022, we had $211.1 million unused borrowing capacity, net of letters of credit, under our $225.0 million Senior Secured Revolving Credit Facility. As of December 31, 2021, we had $209.1 million unused borrowing capacity, net of letters of credit, under our $225.0 million Senior Secured Revolving Credit Facility. See Note 6—Corporate Borrowings and Finance Lease Obligations in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for a further discussion of our Financial Covenants.
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As of March 31, 2022, we had cash and cash equivalents of approximately $1.2 billion. In response to the COVID-19 pandemic, we adjusted certain elements of our business strategy and took significant steps to preserve cash. We are continuing to take measures to further strengthen our financial position and enhance our operations, by minimizing non-essential costs, including reductions to our variable costs and elements of our fixed cost structure, introducing new initiatives, and optimizing our theatrical footprint.
Additionally, we enhanced future liquidity through debt refinancing at lower interest rates. See Note 6—Corporate Borrowings and Finance Lease Obligations in the Notes to the Condensed Consolidated Financial Statements under Item 1 of Part I of this Form 10-Q for further information.
Our net cash used in operating activities improved by $79.1 million during the three months ended June 30, 2021 compared to the three months ended March 31, 2021, $119.9 million during the three months ended September 30, 2021 compared to the three months ended June 30, 2021, and $160.4 million during the three months ended December 31, 2021 compared to the three months ended September 30, 2021. Our net cash provided by (used in) operating activities deteriorated by $341.5 million during the three months ended March 31, 2022 compared to the three months ended December 31, 2021 from $46.5 million to $(295.0) million. The decline in net cash provided by operating activities from the three months ended December 31, 2021 to the three months ended March 31, 2022 was primarily attributable to a decrease in attendance and increase in net loss and increases in seasonal working capital uses as we paid for the strong late fourth quarter 2021 results in early first quarter of 2022. We will also continue to repay rent amounts that were deferred during the COVID-19 pandemic, which will increase our cash outflows from operating activities. See Note 2—Leases in the Notes to the Condensed Consolidated Financial Statements in Item 1 of Part I in this Form 10-Q for a summary of the estimated future repayment terms for the remaining $271.7 million of rentals that were deferred during the COVID-19 pandemic.
Our net cash used in investing activities of $54.9 million included $34.8 million of capital expenditures and $27.9 million of investments in non-consolidated entities, partially offset by proceeds from the disposition of long-term assets of $7.2 million during the three months ended March 31, 2022.
Our net cash used in financing activities of $76.3 million included principal and premium payments of $955.7 million, taxes paid for restricted unit withholdings of $52.2 million, and cash used to pay for deferred financing costs of $17.7 million, partially offset by proceeds from our debt issuance of $950.0 million, during the three months ended March 31, 2022.
We believe our existing cash and cash equivalents, together with cash generated from operations, will be sufficient to fund our operations, satisfy our obligations, including cash outflows for increased rent and planned capital expenditures, and comply with minimum liquidity and financial covenant requirements under our debt covenants related to borrowings pursuant to the Senior Secured Revolving Credit Facility and Odeon Term Loan Facility for at least the next 12 months. In order to achieve net positive operating cash flows and long-term profitability, we believe we will need to increase attendance levels significantly compared to 2021 and achieve levels in line with pre COVID-19 attendance. We believe the global re-opening of our theatres, the anticipated volume of titles available for theatrical release, and the anticipated broad appeal of many of those titles will support increased attendance levels. We believe that the sequential increases in attendance experienced each quarter of 2021 are positive signs of continued demand for the moviegoing experience. Our business is seasonal, with higher attendance and revenues generally occurring during the summer months and holiday seasons. However, there remain significant risks that may negatively impact attendance, including a resurgence of COVID-19 related restrictions, potential movie-goer reluctance to attend theatres due to concerns about the COVID-19 variant strains, movie studios release schedules and direct to streaming or other changing movie studio practices.
We entered the Ninth Amendment to the Credit Agreement, dated as of March 8, 2021, pursuant to which the requisite revolving lenders party thereto agreed to extend the suspension period for the financial covenant (the secured leverage ratio) applicable to the Senior Secured Revolving Credit Facility from March 31, 2021 to March 31, 2022, which was further extended from March 31, 2022 to March 31, 2023 by the Eleventh Amendment, dated as of December 20, 2021, as described, and on the terms and conditions specified, therein. We are currently subject to minimum liquidity requirements of approximately $143 million, of which $100 million is required under the conditions for the Extended Covenant Suspension Period, as amended, under the Senior Secured Revolving Credit Facility, and £32.5 million (approximately $43 million) of which is required under the Odeon Term Loan Facility. Following the expiration of the Extended Covenant Suspension Period ending March 31, 2023, we will be subject to the financial covenant under the Senior Secured Revolving Credit Facility as of the last day of each quarter on which the aggregate principal amount of revolving loans and letters of credit (excluding letters of credit that are cash collateralized) in excess of $25 million outstanding under the Senior Secured Revolving Credit Facility exceeds 35% of the principal
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amount of commitments under the Senior Secured Revolving Credit facility then in effect, beginning with the quarter ending June 30, 2023. We currently expect we will be able to comply with this financial covenant; however, we do not anticipate the need to borrow under the Senior Secured Revolving Credit Facility during the next twelve months.
We received rent concessions provided by the lessors that aided in mitigating the economic effects of COVID-19 during the pandemic during the years 2021 and 2020. These concessions primarily consisted of rent abatements and the deferral of rent payments. As a result, deferred lease amounts were approximately $271.7 million as of March 31, 2022. Our cash expenditures for rent increased significantly during the three months ended March 31, 2022, compared to the three months ended March 31, 2021. See Note 2—Leases in the Notes to the Condensed Consolidated Financial Statements in Item 1 of Part I in this Form 10-Q for a summary of the estimated future repayment terms for the deferred lease amounts due to COVID-19, and also a summary of the estimated future repayment terms for the minimum operating lease and finance lease amounts.
It is very difficult to estimate our liquidity requirements, future cash burn rates and future attendance levels. Depending on our assumptions regarding the timing and ability to achieve significantly increased levels of operating revenue, the estimates of amounts of required liquidity vary significantly. In order to achieve net positive operating cash flows and long-term profitability, we believe we will need to increase attendance levels significantly compared to 2021 and achieve levels in line with pre COVID-19 attendance. While our current cash burn rates have improved, these levels are not sustainable. Further, we cannot accurately predict what future changes may occur to the supply or release date of movie titles available for theatrical exhibition once moviegoers are prepared to return in large numbers. Nor can we know with certainty the impact on consumer movie-going behavior of studios who may choose to release movies to theatrical exhibition and their streaming platforms on the same date, or the potential attendance impact of other studio decisions to accelerate in home availability of their theatrical movies. Studio negotiations regarding evolving theatrical release models and film licensing terms are ongoing. There can be no assurance that the attendance levels and other assumptions used to estimate our liquidity requirements and future cash burn rates will be correct, and our ability to be predictive is uncertain due to the unknown magnitude and duration of the COVID-19 pandemic. Further, there can be no assurances that we will be successful in generating the additional liquidity necessary to meet our obligations beyond twelve months from the issuance of these financial statements on terms acceptable to us or at all. If we are unable to maintain or renegotiate our minimum liquidity covenant requirements, it could have a significant adverse effect on our business, financial condition and operating results.
Cash Flows from Operating Activities
Cash flows used in operating activities, as reflected in the condensed consolidated statements of cash flows, were $295.0 million and $312.9 million during the three months ended March 31, 2022 and March 31, 2021, respectively. The decrease in cash flows used in operating activities was primarily due to the increase in attendance and decrease in net loss, partially offset by increased working capital used during the three months ended March 31, 2022 compared to the three months ended March 31, 2021 and an increase in cash paid for interest. We will also continue to repay rent amounts that were deferred during the COVID-19 pandemic, which will increase cash outflows from operating activities. See Note 2—Leases in the Notes to the Condensed Consolidated Financial Statements in Item 1 of Part I in this Form 10-Q for a summary of the estimated future repayment terms for the remaining $271.7 million of rentals that were deferred during the COVID-19 pandemic.
Cash Flows from Investing Activities
Cash flows used in investing activities, as reflected in the condensed consolidated statements of cash flows, were $54.9 million and $16.0 million during the three months ended March 31, 2022 and March 31, 2021, respectively. Cash outflows from investing activities include capital expenditures of $34.8 million and $11.9 million during the three months ended March 31, 2022 and March 31, 2021, respectively. During the three months ended March 31, 2022, cash flows used in investing activities included investment in Hycroft common stock for $25.0 million, investment in Hycroft warrants for $2.9 million, and proceeds from the disposition of long-term assets of $7.2 million related to one property and other assets.
During the three months ended March 31, 2021, cash flows used in investing activities included proceeds from the disposition of assets of $5.2 million, primarily related to the sale of our remaining interest in one of the Baltic’s theatres located in Estonia of $3.8 million and proceeds received from the disposition of one property of $1.4 million. During the three months ended March 31, 2021, we made an additional investment of $9.3 million in Saudi Cinema Company LLC.
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We fund the costs of constructing, maintaining and remodeling our theatres through existing cash balances, cash generated from operations, landlord contributions, or borrowed funds, as necessary. We generally lease our theatres pursuant to long-term non-cancelable operating leases, which may require the developer, who owns the property, to reimburse us for the construction costs. We estimate that our capital expenditures, net of landlord contributions, will be approximately $150 million and $200 million for year ended December 31, 2022 to maintain and enhance operations.
Cash Flows from Financing Activities
Cash flows provided by (used in) financing activities, as reflected in the condensed consolidated statements of cash flows, were $(76.3) million and $854.7 million during the three months ended March 31, 2022 and March 31, 2021, respectively. Cash flows from financing activities during the three months ended March 31, 2022 was primarily due to principal and premium payments under the First Lien Notes due 2025 of $534.5 million, principal and premium payments under the First Lien Notes due 2026 of $325.6 million, principal and premium payments under the First Lien Toggle Notes due 2026 of $88.1 million, taxes paid for restricted unit withholdings of $52.2 million, and cash used to pay for deferred financing costs of $17.7 million, partially offset by the issuance of the First Lien Notes due 2029 of $950.0 million. See Note 6—Corporate Borrowings and Finance Lease Obligations in the Notes to the Condensed Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q for further information, including a summary of principal payments required and maturities of corporate borrowings as of March 31, 2022.
Cash flows from financing activities during the three months ended March 31, 2021 was primarily due to the borrowings under the Odeon Term Loan Facility of $534.3 million, the issuance of First Lien Toggle Notes due 2026 of $100.0 million, and net proceeds from the sale of Common Stock of $581.6 million, partially offset by the repayments under the revolving credit facilities of $335.0 million, payment for deferred financing costs of $19.0 million, and principal payments under the Term Loan due 2026 of $5.0 million.
First Lien Notes due 2029. On February 14, 2022, we issued $950.0 million aggregate principal amount of our 7.5% First Lien Senior Secured Notes due 2029 (“First Lien Notes due 2029”), pursuant to an indenture, dated as of February 14, 2022, among the Company, the guarantors named therein and U.S. Bank Trust Company, National Association, as trustee and collateral agent. We used the net proceeds from the sale of the notes, and cash on hand, to fund the full redemption of the then outstanding $500 million aggregate principal amount of our 10.5% First Lien Notes due 2025, the then outstanding $300 million aggregate principal amount of our 10.5% First Lien Notes due 2026, and the then outstanding $73.5 million aggregate principal amount of our 15%/17% Cash/PIK Toggle First Lien Secured Notes due 2026 and to pay related accrued interest, fees, costs, premiums and expenses. We recorded a loss on debt extinguishment related to this transaction of $135.0 million in other expense, during the three months ended March 31, 2022. The First Lien Notes due 2029 bear cash interest at a rate of 7.5% per annum payable semi-annually in arrears on February 15 and August 15, beginning on August 15, 2022. The First Lien Notes due 2029 will mature on February 15, 2029. The First Lien Notes due 2029 are general senior secured obligations of the Company and are secured on a pari passu basis with the Senior Secured Credit Facilities.
See Note 6—Corporate Borrowings and Finance Lease Obligations in the Notes to the Condensed Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q for further information regarding the above.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
In the ordinary course of business, our financial results are exposed to fluctuations in interest rates and foreign currency exchange rates. In accordance with applicable guidance, we presented a sensitivity analysis showing the potential impact to net income of changes in interest rates and foreign currency exchange rates. For the three months ended March 31, 2022 and March 31, 2021, our analysis utilized a hypothetical 100 basis-point increase or decrease to the average interest rate on our variable rate debt instruments to illustrate the potential impact to interest expense of changes in interest rates and a hypothetical 100 basis-point increase or decrease to market interest rates on our fixed rate debt instruments to illustrate the potential impact to fair value of changes in interest rates.
Similarly, for the same period, our analysis used a uniform and hypothetical 10% strengthening of the U.S. dollar versus the average exchange rates of applicable currencies to depict the potential impact to net income of changes in foreign exchange rates. These market risk instruments and the potential impacts to the condensed consolidated statements of operations are presented below.
Market risk on variable-rate financial instruments. At March 31, 2022 and March 31, 2021, we maintained Senior Secured Credit Facilities comprised of a $225.0 million revolving credit facility and $2,000.0 million of Term Loan due 2026. The Credit Agreement (which governs the Senior Secured Credit Facilities) provides for borrowings at a rate per annum equal to, at our option, either (1) a base rate determined by reference to the highest of (a) 0.50% per annum plus the Federal Funds Effective Rate, and (b) the prime rate announced by the Administrative Agent or (2) LIBOR plus (x) in the case of the Senior Secured Term Loans, 2.0% for base rate loans or 3.0% for LIBOR loans or (y) in the case of the Senior Secured Revolving Credit Facility, an applicable margin based on the Secured Leverage Ratio (defined in the Credit Agreement). The rate in effect for the outstanding Senior Secured Term Loan due 2026 was 3.352% per annum at March 31, 2022 and 3.195% per annum at March 31, 2021.
Increases in market interest rates would cause interest expense to increase and earnings before income taxes to decrease. The change in interest expense and earnings before income taxes would be dependent upon the weighted average outstanding borrowings during the reporting period following an increase in market interest rates. At March 31, 2022, we had no variable-rate borrowings outstanding under our revolving credit facilities and had an aggregate principal balance of $1,940.0 million outstanding under the Term Loan due 2026. A 100-basis point change in market interest rates would have increased or decreased interest expense on the Senior Secured Credit Facilities by $4.9 million during the three months ended March 31, 2022.
At March 31, 2021, we had no variable-rate borrowings outstanding under our revolving credit facilities and had an aggregate principal balance of $1,960.0 million outstanding under the Term Loan due 2026. A 100-basis point change in market interest rates would have increased or decreased interest expense on our Senior Secured Term Loan due 2026 by $4.9 million during the three months ended March 31, 2021.
Market risk on fixed-rate financial instruments. Included in long-term corporate borrowings at March 31, 2022 were principal amounts of $950.0 million of our First Lien Notes due 2029, $1,508.0 million of our Second Lien Notes due 2026, $542.3 million (£147.6 million and €312.2 million) of our Odeon Term Loan due 2023, $98.3 million of our Notes due 2025, $55.6 million of our Notes due 2026, $130.7 million of our Notes due 2027, and £4.0 million ($5.2 million) of our Sterling Notes due 2024. A 100-basis point change in market interest rates would have caused an increase or (decrease) in the fair value of our fixed rate financial instruments of approximately $109.5 million and $(104.1) million, respectively, as of March 31, 2022.
Included in long-term corporate borrowings at March 31, 2021 were principal amounts of $500.0 million of our First Lien Notes due 2025, $1,423.6 million of our Second Lien Notes due 2026, $538.8 million (£140.0 million and €296.0 million) of our Odeon Term Loan due 2023, $300.0 million of our First Lien Notes due 2026, $100.0 million First Lien Toggle Notes due 2026, $98.3 million of our Notes due 2025, $55.6 million of our Notes due 2026, $130.7 million of our Notes due 2027, and £4.0 million ($5.5 million) of our Sterling Notes due 2024. A 100-basis point change in market interest rates would have caused an increase or (decrease) in the fair value of our fixed rate financial instruments of approximately $99.3 million and $(94.9) million, respectively, as of March 31, 2021.
Foreign currency exchange rate risk. We are also exposed to market risk arising from changes in foreign currency exchange rates as a result of our ownership of Odeon and Nordic. Odeon’s revenues and operating expenses are transacted in British Pounds and Euros, and Nordic’s revenues and operating expenses are transacted primarily in Swedish Krona and Euros. U.S. GAAP requires that our subsidiaries use the currency of the primary economic environment in which they operate as their functional currency. If Odeon and Nordic operate in a highly inflationary economy, U.S. GAAP requires that the U.S. dollar be used as the functional currency for Odeon and Nordic. Currency fluctuations in the countries in which we operate result in us reporting exchange gains (losses) or foreign currency translation adjustments. Based upon our currencies from operations in the International markets as of March 31, 2022, holding everything else constant, a hypothetical 10% strengthening of the U.S. dollar versus the average exchange rates of applicable currencies to depict the potential impact to net income (loss) of changes in foreign exchange rates would increase the aggregate net loss of our International theatres for the three months ended March 31, 2022 by approximately $7.1 million. Based upon our ownership in Odeon and Nordic as of March 31, 2021, holding everything else constant, a hypothetical 10% strengthening of the U.S. dollar versus the average exchange rates of applicable currencies to depict the potential impact to net income (loss) of changes in foreign exchange rates would decrease the aggregate net loss of our International theatres for the three months ended March 31, 2021 by approximately $12.6 million.
Our foreign currency translation rates decreased by approximately 5.4% for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.
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Item 4. Controls and Procedures.
(a)
Evaluation of disclosure controls and procedures.
The Company maintains a set of disclosure controls and procedures designed to ensure that material information required to be disclosed in its filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that material information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s Chief Executive Officer and Chief Financial Officer have evaluated these disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10–Q and have determined that such disclosure controls and procedures were effective.
(b)
Changes in internal control.
There has been no change in our internal control over financial reporting during our most recent calendar quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 1. Legal Proceedings
Reference is made to Note 11—Commitments and Contingencies of the Notes to the Company’s Condensed Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q for information on certain litigation to which we are a party.
Item 1A. Risk Factors
Reference is made to Part I Item 1A. Risk Factors in our Annual Report on Form 10–K for the year ended December 31, 2021, which sets forth information relating to important risks and uncertainties that could materially adversely affect our business, financial condition or operating results. Except as set forth below, there have been no material changes to the risk factors contained in our Quarterly Report on Form 10-Q for the three months ended March 31, 2022.
Supply chain disruptions, labor shortages, increased cost and inflation may negatively impact our operations and operating results.
We rely on a limited number of suppliers for certain products, supplies and services, including a single U.S. vendor for the warehousing and distribution of most of the products and supplies for our U.S. food and beverage operations. Items such as consumable oils used in food preparation and containers/packaging for food and beverage service have been impacted by price and availability in both the U.S. markets and International markets. Shortages, delays, or interruptions in the availability of food and beverage items and other supplies to our theatres may be caused by commodity availability; public health crises or pandemics, including resulting lockdowns in areas where goods are manufactured; social or economic unrest, terrorism, hostilities, cyber-attacks or war, including the conflict between Russia and Ukraine and the potential impact of financial and economic sanctions on the regional and global economy; labor issues or other operational disruptions; the inability of our suppliers to manage adverse business conditions, obtain credit or remain solvent; adverse weather conditions; natural disasters; governmental regulation; recalls; or other conditions beyond our control. Such shortages, delays or interruptions could adversely affect the availability, quality, and cost of the items we buy and the operations of our business. Supply chain risk could increase our costs and limit the availability of products that are critical to our operations. If we raise prices in response to increased costs or shortages, it may negatively impact our sales. If we temporarily remove popular food and beverage options without comparable alternatives, we may experience a reduction in sales during the time affected by the shortage or thereafter if our guests change their purchasing habits.
During the recovery from the impacts of the COVID-19 pandemic, we have, with regard to certain items, experienced difficulties in maintaining a consistent supply, seen delays in production and deliveries, been required to identify alternative suppliers, and suspended sales regionally or entirely. We expect these issues to continue for the foreseeable future and plan to minimize the impact by focusing on the supply of those items with the greatest impact on our sales and operations.
One of the impacts of COVID-19 has been extended labor shortages, resulting in our demand for staff outweighing the available supply. The success of our business depends on our ability to recruit and retain staff members for our theatres. Without proper staffing, wait times to buy tickets and concessions are extended, operating hours may be reduced, and, in some cases, theatres cannot open at all. As patrons begin to return to our theatres in greater numbers, these conditions may result in a poor guest experience, perhaps causing them to not return in the future. These labor shortages have also required us to raise wages to be competitive in the small available workforce. Increased labor costs cut into profits already extremely affected by COVID-19.
In addition, we are dependent upon natural gas and electricity to operate our theatres. The cost of natural gas and electricity may fluctuate widely due to economic and political conditions, government policy and regulations, war, or other unforeseen circumstances. Substantial future increases in prices for, or shortages of, natural gas and electricity could have a negative effect on our profitability. There can be no assurance that we can cover these potential cost increases through future pricing actions.
Inflation may adversely affect us by increasing our food and beverage costs, utilities, and labor. In an inflationary environment, such as the current economic environment, depending on the market conditions in each region or country, we may be unable to raise the prices of our movie tickets or food and beverage products enough to keep up with the rate of inflation, which would reduce our profitability, and continued inflationary pressures could impact our business, financial condition, and results of operations.
Our business is subject to international economic, political and other risks that could negatively affect our business, results of operations and financial condition.
As a result of our international operations, 28.3% of our revenues were derived from countries outside the United States for the three months ended March 31, 2022. The success of our international operations is subject to risks that are beyond our control. Accordingly, our business is subject to risks associated with doing business internationally, including:
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If we are unable to manage the complexity of our global operations successfully, it could have a material adverse effect on our business, financial condition and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits.
EXHIBIT INDEX
EXHIBITNUMBER
DESCRIPTION
4.1
Indenture, dated as of February 14, 2022, among AMC Entertainment Holdings, Inc., the guarantors named therein and U.S. Bank Trust Company, National Association, as trustee and collateral agent (including the form of the 7.500% First Lien Notes due 2029) (incorporated by reference from Exhibit 4.1 to AMC’s Current Report on Form 8-K (File No. 1-33892) filed on February 14, 2022).
+*10.1
Employment Agreement, dated as of December 20, 2016, by and between Daniel E. Ellis and AMC Entertainment Holdings, Inc.
+*10.2
Employment Agreement, dated as of March 7, 2022, by and between Eliot Hamlisch and AMC Entertainment Holdings, Inc.
*31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Acts of 2002.
*31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Acts of 2002.
*32.1
Section 906 Certifications of Adam M. Aron (Chief Executive Officer) and Sean D. Goodman (Chief Financial Officer) furnished in accordance with Securities Act Release 33-8212.
**101.INS
Inline XBRL Instance Document
**101.SCH
Inline XBRL Taxonomy Extension Schema Document
**101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
**101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
**101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
**101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
**104
Cover Page Interactive Data File (formatted as inline XBRL and contained as Exhibit 101)
* Filed herewith.
** Submitted electronically with this Report.
+
Management contract, compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 9, 2022
/s/ Adam M. Aron
Adam M. Aron
Chairman of the Board, Chief Executive Officer and President
/s/ Sean D. Goodman
Sean D. Goodman
Executive Vice President, International Operations, Chief Financial Officer and Treasurer