AMC Entertainment Holdings, Inc. — 2015 Form 10-K
Business context and reporting period. This is an annual report for the fiscal year ended December 31, 2015, not a standalone fourth-quarter filing. AMC operates movie theatres, primarily in the United States, and reported one theatrical exhibition segment. At year-end it operated or held interests in 387 theatres and 5,426 screens. Wanda owned 77.85% of common shares and 91.34% of voting power.
Financial performance
Amounts below are in millions of dollars except per-share and operating data. Percentages are approximate.
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Revenue | $2,946.9 | $2,695.4 | +9.3% |
| Operating income | $237.1 | $175.1 | +35.4% |
| Net earnings | $103.9 | $64.1 | +62.1% |
| Diluted EPS | $1.06 | $0.66 | Up |
| Cash from operations | $467.6 | $297.3 | +$170.3 |
| Capital expenditures | $333.4 | $270.7 | +$62.7 |
| Adjusted EBITDA (non-GAAP) | $536.5 | $463.9 | +15.6% |
| Free cash flow (non-GAAP) | $121.2 | $70.4 | +$50.8 |
- Admissions revenue rose 7.2%, reflecting attendance growth of 5.2% and average ticket-price growth of 1.9%. Food and beverage revenue increased 14.1%, including an 8.5% increase per patron. Attendance was 196.9 million, versus 187.2 million in 2014.
- Operating margin was approximately 8.0%, up from 6.5%; net margin was approximately 3.5%, up from 2.4%. Film exhibition costs were 54.0% of admissions revenue, versus 52.9%; food and beverage costs were 14.1% of food and beverage revenue, versus 14.0%.
- 2015 fourth-quarter revenue was $783.9 million, operating income $75.3 million, and net earnings $41.6 million. The corresponding 2014 quarter had revenue of $712.2 million, operating income of $60.6 million, and net earnings of $29.8 million.
Balance sheet, debt and liquidity
- Cash and equivalents were $211.3 million at year-end, compared with $218.2 million a year earlier. Total assets were $5.11 billion; stockholders’ equity was $1.54 billion.
- Debt and lease obligations totaled approximately $2.04 billion at carrying value, including $1.93 billion of corporate borrowings and $101.9 million of capital and financing leases. Face-value debt and lease obligations were approximately $2.04 billion. Undiscounted operating lease commitments were $3.88 billion.
- AMC reported a $297.8 million working-capital deficit, compared with $234.6 million in 2014. It had $62.1 million available under its revolving credit facility and stated that cash, operating cash flow and operating float were expected to fund operations and planned capital expenditures for at least 12 months. The company reported compliance with debt covenants at year-end.
- Operating cash flow increased substantially, while investing activities used $509.4 million, including $333.4 million of capital expenditures and $172.9 million for Starplex. Financing activities provided $35.3 million, including debt issuance and borrowings; AMC paid $78.6 million in dividends.
Material changes and notable items
- AMC acquired Starplex Cinemas in December for $172.9 million net of cash acquired; the acquired circuit comprised 33 theatres and 346 screens. The acquisition contributed little to reported 2015 results because it closed late in the year. Two theatres with 22 screens were divested in January 2016 as required by the Justice Department.
- AMC refinanced its 9.75% notes due 2020 with $600 million of 5.75% notes due 2025 and cash, and amended its secured credit facility. The amendment added $125 million of term loans, extended term-loan maturity to December 2022 and extended the revolver to December 2020. Debt transactions produced a $9.3 million extinguishment loss and a $1.4 million modification loss.
- Operating income benefited from increased attendance and patron spending, lower interest expense, improved equity earnings from investees, and an $18.1 million net periodic benefit credit related to termination of the postretirement medical plan. Net earnings also reflected higher taxes, debt-extinguishment costs and depreciation. The 2014 comparison included a $8.5 million gain on debt extinguishment.
- In March 2016, after year-end, AMC agreed to acquire Carmike for approximately $757 million in cash, subject to shareholder and regulatory approvals. Financing commitments included up to $560 million of secured term loans and a $300 million subordinated bridge loan; completion and favorable financing were not assured.
Outlook, risks and contingencies
- No company revenue or earnings guidance is provided. AMC estimated 2016 gross capital expenditures of $390–$410 million, before expected landlord contributions of $120–$140 million. Plans included additional recliner renovations and 30–35 Dolby Cinema at AMC Prime conversions.
- Management’s strategy centers on customer experience upgrades—recliners, premium formats, food and beverage concepts, online ticketing, reserved seating and loyalty. AMC reported an average 75% attendance increase at recliner-renovated locations; this is management’s stated experience, not a forecast for every conversion.
- Key business risks include dependence on film supply and performance, seasonal and volatile attendance, competition from other entertainment and home viewing, shorter theatrical release windows, substantial debt and lease commitments, variable-rate exposure, and capital needs. A 100-basis-point rate change was estimated to affect annual interest expense by approximately $8.0 million.
- AMC and certain state attorneys general received civil investigative demands concerning potentially anticompetitive conduct, including film clearances and joint ventures. The company said it was cooperating and could not predict the investigations’ scope or outcome. Ordinary-course litigation and claims were also disclosed; management did not expect them, individually or collectively, to materially affect financial position or overall operating trends, while noting adverse outcomes remain possible.
- Dividend payments are discretionary and restricted by law and debt covenants. AMC declared four quarterly dividends of $0.20 per share in 2015 and declared another $0.20 dividend for March 2016. Wanda’s control and AMC’s dual-class shares are material governance considerations. KPMG issued unqualified opinions on the financial statements and internal controls; the Starplex business was excluded from the year-end internal-control assessment due to acquisition timing.
Investor verification priorities
- Reconcile the reported $467.6 million operating cash flow and $121.2 million non-GAAP free cash flow with capital spending, landlord contributions, working-capital movements and acquisition costs.
- Review debt maturities, interest-rate terms, covenants, available revolver capacity and the full operating-lease burden alongside reported debt.
- Assess whether attendance and per-patron spending gains can persist, and whether planned renovation and premium-format investments earn adequate returns after reduced seating capacity and capital costs.
- Verify Starplex integration, synergies and the impact of the pending Carmike transaction, including financing, regulatory conditions and resulting leverage.
- Monitor the antitrust investigations, dividend capacity and restrictions, Wanda’s voting control, and the sensitivity of tax assets and loss carryforwards to future taxable income and ownership limitations.