AMC Entertainment Holdings, Inc. — Q2 2014 Form 10-Q
Reporting period: Three and six months ended June 30, 2014. Unaudited consolidated results; dollar figures below are in millions unless noted. AMC operated or had interests in 342 theatres and 4,968 screens at quarter-end. Wanda owned approximately 77.9% of outstanding common stock and 91.3% of combined voting power.
Financial performance
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | $726.6 | $762.7 | $1,349.3 | $1,340.5 |
| Operating income | $68.4 | $77.8 | $85.9 | $97.4 |
| Operating margin | 9.4% | 10.2% | 6.4% | 7.3% |
| Net earnings | $31.4 | $61.6 | $26.9 | $51.3 |
| Diluted EPS | $0.32 | $0.81 | $0.28 | $0.68 |
| Adjusted EBITDA | $131.8 | $134.7 | $233.8 | $216.9 |
Q2 revenue declined 4.7%; admissions fell 7.1%, while food and beverage revenue fell 3.6% and other theatre revenue rose 30.2%. For the first half, revenue increased 0.7%, with admissions down 1.2%, food and beverage up 1.5%, and other theatre revenue up 24.5%. Management attributed admissions weakness principally to lower attendance: down 7.7% in Q2 and 2.1% in the first half. Average ticket price rose 0.6% in Q2 and 1.0% year to date. Food and beverage revenue per patron increased 4.5% in Q2 and 3.8% for the half.
Net earnings fell 49.0% in Q2 and 47.6% for the first half. The reported results were affected by higher tax expense, lower equity-method investment earnings, and weaker attendance; lower interest expense and gains from debt extinguishment provided offsets. First-half adjusted EBITDA increased 7.8%, despite lower operating income. Other theatre revenue included recognition of packaged-ticket income beginning in March 2014, following an 18-month post-merger deferral period.
Cash flow, debt and liquidity
- First-half operating cash flow was $106.2, versus $133.5 in 2013. Investing cash outflow was $114.7, including $115.2 of capital expenditures; operating cash flow less capital expenditures was approximately negative $9.0.
- Cash and equivalents were $235.3 at June 30, down from $546.5 at year-end 2013. Financing cash outflow was $302.7, principally reflecting the 2019 note repurchases and $19.5 of dividends, partly offset by issuance of new notes.
- Corporate borrowings were $1,806.7 including current maturities; capital and financing lease obligations were $112.8. Total borrowings and lease obligations were $1,912.2, compared with $2,195.0 at December 31, 2013.
- Working capital was negative $108.2, compared with positive $185.5 at year-end. AMC reported $136.8 of available revolving-credit capacity, net of letters of credit, and said it expected cash, operating cash flow and available resources to cover operations and planned investment for at least 12 months. It reported compliance with applicable debt covenants.
Material changes, outlook and risks
- AMC issued $375.0 of 5.875% senior subordinated notes due 2022 and repurchased or redeemed all $600.0 principal amount of 8.75% notes due 2019. The refinancing generated a first-half net gain on extinguishment of approximately $8.5.
- Capital expenditure guidance for 2014 was $240–$260 gross, before expected landlord contributions of $40–$60. Management said excess cash could be directed to strategic investment, acquisitions, debt repayment or dividends; no earnings guidance was provided.
- The board declared a $0.20 per-share dividend payable in September 2014. AMC had paid $0.20 per share during the first half.
- Risks highlighted include film availability and performance, seasonality, competition and alternative entertainment, substantial indebtedness and financing access, debt restrictions, theatre renovation costs and execution, investment exposure to NCM and Open Road, litigation, and technology or information-security issues. The filing reported no material change from the risk factors in the 2013 Form 10-K.
- AMC cited a 74% average attendance increase at renovated recliner locations, but that figure is management-reported and should be assessed against the broader circuit’s attendance results. Closure expense rose to $6.9 for the half, primarily due to a theatre closure in Canada; closure reserves totaled $59.2.
Important facts for investors to verify
- Whether attendance and admissions stabilize, and whether pricing and per-patron spending can offset film-slate variability.
- How recurring earnings compare with reported results after considering the debt-extinguishment gain, tax-rate change, packaged-ticket recognition and equity-method earnings.
- Whether planned capital spending, landlord contributions and operating cash generation support liquidity, dividends and debt service.
- Debt maturities, interest-rate exposure and covenant or dividend restrictions; the term loan carried a 3.50% rate at quarter-end, and a 100-basis-point rate change would affect first-half interest expense by approximately $3.9.
- Performance and carrying value of equity-method investments, particularly Open Road (where AMC had suspended equity-method accounting after reaching its $10.0 capital commitment) and NCM.